LTC Properties, Inc.

Hello and welcome to today's LTC Properties Incorporated fourth quarter 2021 analyst and investors call. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your touchtone phone. To withdraw your question press star then two. Before management begins its presentation please know that today's comments, including the question and answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC properties filing with the Securities and Exchange Commission from time to time, including the company's most recent 10K dated December 31st, 2021, LTC undertakes no obligation to reserve or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note the event is being recorded. I would now like to turn the conference over to Wendy Simpson.

Thank you, Operator. I'd like to welcome everyone to LTC's 2021 fourth quarter conference call. Joining me today are Pam Kessler, Co-President and Chief Financial Officer, and Clint Malen, Co-President and Chief Investment Officer. The seniors housing and care market continues to deal with the impact of COVID-19 pandemic, but shows signs of sustainable recovery. Therefore, I continue to believe that a great future for our industry remains intact. As I speak to you today, I remain cautiously optimistic I am excited by the opportunities we are seeing to put our capital to work, with several investments completed in the fourth quarter and others planned for 2022. I also am grateful that the Omicron variant seems to have had a less significant impact on society, with cases and hospitalizations now trending down from the highs we saw late last year and earlier this year. It is my hope that this downward trend will allow our operators to continue the recovery process. We are incredibly proud of how the seniors housing and care community came together to find effective ways to care for our nation's most vulnerable population during the pandemic. Although we are not completely out of the woods, I steadfastly believe that as an industry we will persevere and come out of this stronger than we were before. We will successfully adapt to whatever becomes the new normal and with a growing elderly population with ongoing needs for safe, engaging and compassionate care, the long-term outlook is positive. In the shorter term, operators continue to manage through staffing shortages with many identifying ways to address the challenge. Since we spent a good deal of time on this issue last quarter, I won't belabor the point. but did want to recognize that census could remain somewhat constrained until the staffing problems are mitigated. Until that time, federal and state assistance is still needed and would be of some help. At a recent industry conference in Miami, Mark Parkinson, President and CEO of ACCA and NCAL, spoke to the audience about the road ahead for long-term care providers. Among other messages, he stressed the need for continued federal and state support until census recovers and the need for structural Medicaid changes to create stability and accommodate changes in the labor force. In 2020, when the pandemic began, the federal government took several steps to assist our industry. Among others, the sequester was eliminated, Medicare payments changed, The three-day stay rule was waived, additional Medicaid support was made available to states, and billions of dollars were deployed as part of the provider relief fund. In 2021, the focus shifted to state-run assistance, totaling approximately $10 billion. Currently, at the federal level, there is about $8 billion remaining to be deployed to providers who have not yet received their phase four payments with a target completion for total distribution by the end of March. At the state level, virtually every state save one has allocated some amount of money to providers from each state's stimulus funds and from the extra Medicaid reimbursement provided by the federal government among others. The hope is that in 2022, will see an additional $10 billion in aid. In many states, the extra money is tied to the federal public health emergency, with states like California, North Carolina, and Texas, among others, providing substantial daily Medicaid add-ons for as long as the public health emergency remains in effect. It is currently extended to the middle of April because, by rule, it can only be extended for three months at a time. Mark believes that through substantial lobbying efforts, the public health emergency could remain intact until census fully recovers with some optimism that it will be extended in April for at least another three months. Speaking to LTC specifically, we closed on $103.3 million in investments in Q4. including future funding commitments that are embedded in the closed transactions total. For all of 2021, we invested $109.4 million and disposed of assets for net proceeds of $44 million, which resulted in a gain on sale of $7 million. We continue to have an active and healthy pipeline moving into 2022. The value of which is just north of $110 million, including a $25 million transaction we expect to close by the end of the month. With occupancy increasing, private rates going up, and pent-up demand for needs-based care, we don't expect to see a big change in rent deferrals and abatements in the first quarter. but do continue to anticipate providing some amount of relief until occupancy gains become more permanent. Our former senior lifestyle portfolio transaction is virtually complete. We still await licensure for one building in New Jersey. The delay has been purely administrative in nature at the state level, and we have no reason to believe that the transfer will not happen in due course. Since the transition of the former SLC properties, the new operators of the buildings have adapted to the current market and are seeing some occupancy increases. I'd like to quickly address Anthem as we continue to receive questions about the health of our portfolio with them. They have made considerable progress since we first reported their challenges in 2017. We are proud of the strides they have made. In 2020 Anthem paid us annual rent of $9.9 million, increasing to $10.8 million in 2021. Our expectation is that they will continue to pay annual rent of $10.8 million in 2022. We anticipate setting more permanent rents in the next 12 to 24 months, depending on performance and as occupancy returns to pre-pandemic levels. I would also note that Anthem is now expanding their footprint, which we see as a positive sign. At the end of last month, Anthem agreed to manage nine memory care communities across several states, including four states new to them. As I discussed earlier, our pipeline remains robust as we've continued to work toward enhancing relationships with existing operators and building relationships with new operators who have the resources and desire to grow. During the quarter, we closed on three mortgage loans. Pam will provide more details later in the call. We continue to strongly believe that these types of investments, which are shorter in duration, represent cash flow strategic deals with what we believe to be reduced risk profiles. Additionally, The shorter durations of these investments can act as an inflation rate hedge, which is important in today's market. With our solid balance sheet, we have ample liquidity to quickly act on opportunities, and we are doing just that. We maintained our 19 cent per share monthly dividend during the quarter, with a payout to shareholders of $22.4 million. Our FAD payout ratio decreased from the third quarter to 93% in the fourth quarter and was 94% for the year. Based on our fourth quarter investment activity and assumed rent payments from the former senior care and senior lifestyle portfolios, we anticipate that our FAD payout ratio will continue to decline during 2022 and approach our target of 80% by the end of 2022 or the beginning of 2023. Our guidance for the first quarter anticipates FFO to increase approximately one cent to two cents per share, excluding non-recurring items from both quarters results. This guidance does not include the recovery of any deferred rent or additional investments other than the upcoming $25 million investment I already discussed. Now I'll hand the call over to Pam.

Thanks, Wendy. Total revenue decreased $6.8 million compared with last year's fourth quarter, primarily resulting from lower rental income related to the transition of the former senior care portfolio, lower rental income related to the releasing of the former senior lifestyle portfolio, and abated and deferred rent. This was partially offset by annual rent escalations and capital improvement fundings. Interest income from mortgage loans increased 1.1 million resulting from loan originations. Interest and other income was comparable to the same quarter last year as were interest expense and transaction costs. Income from unconsolidated joint ventures increased 231,000 for the fourth quarter of 2021 due to the funding of a mezzanine loan. G&A increased by 556,000 related to greater incentive compensation in 2021 than in 2020 and higher non-cash compensation charges. Property tax expense increased $299,000 for the 2021 fourth quarter, resulting from the timing of certain operators' property tax escrow receipts and the payment of related taxes. Our provisions for credit losses increased $964,000 year over year due to mortgage loan and working capital originations during the 2021 fourth quarter. Upon origination, we record a loan loss reserve estimate equal to 1% of the loan balance. This reserve is amortized as the loan principal is paid down. Net income available to common shareholders decreased $4.7 million, primarily due to the revenue declines I mentioned earlier, partially offset by an impairment charge of $3 million recorded in the prior year's fourth quarter related to a memory care property in Colorado previously leased to Senior Lifestyle. Fully diluted NAREIT FFO per share was 56 cents in the 2021 fourth quarter, compared with 78 cents last year. Excluding non-recurring items, FFO per share was 59 cents versus 78 cents in the 2020 fourth quarter. The decrease, excluding non-recurring items, was due to lower rent related to the transition of the former senior care and senior lifestyle portfolios, abated and deferred rent, and higher G&A, partially offset by higher revenues resulting from mortgage loan originations and mezzanine loan funding. As Wendy mentioned, during the 2021 fourth quarter, we originated three loans totaling $103.3 million. The first was a $59.2 million mortgage loan secured by 13 assisted living communities, 12 in North Carolina and one in South Carolina, with an aggregate of 523 units, operated by an existing LTC partner. This loan provides for an initial investment of $52.5 million and an additional commitment of $6.7 million for capital improvement and working capital at the communities securing the loan. The loan bears interest at 7.25% with an IRR of 8% and matures in four years. The second loan was a $27 million mortgage loan secured by a 189-bed skilled nursing center in Louisiana with a regional operator new to LTC. The loan term is for three years with one 12-month extension option and bears interest at 7.5%. The last loan was a $16.7 million mortgage loan secured by a 68-unit assisted living and memory care community in Florida with a regional operator new to LTC. This loan includes an additional commitment of $4.2 million to be funded at a later date, subject to satisfaction of various conditions for the construction of a memory care addition to the property. The loan has a yield of 7.75% and a term of approximately four years. In total, the three investments are expected to generate approximately $7 million in interest income in 2022. During the quarter, we also funded $9.9 million of a previously committed $25 million secured working capital loan for HMG, the operator to whom we transitioned the 11 former senior care properties. Subsequent to the end of the quarter, we funded an additional $5.8 million. The loan has a current balance of $15.7 million with remaining availability of up to 9.3 million and a yield of 4% maturing on September 30, 2022. Clint will discuss our investment activity in greater detail shortly. Regarding our former senior lifestyle and senior care portfolios, I'd like to provide some additional details on expected rents going forward. For the remaining six buildings in the former senior lifestyle portfolio under two separate two-year market-based rent leases, we anticipate receiving $145,000 in each of the first and second quarters, $340,000 in the third quarter, and $450,000 in the fourth quarter. Our expectation is that we will set more permanent rents sometime in 2023. For the former senior care portfolio, we do not expect to receive any rent in the first quarter, but anticipate receiving approximately $1 million in the second quarter and $2 million in each of the third and fourth quarters this year from the 11 transition properties. As we move through the remainder of the year, we will be working toward amending and extending our HMG lease, which would include more permanent rents. Moving to our debt activity, during the 2021 fourth quarter, we amended our unsecured credit agreement to extend its maturity to November 19, 2025, and reduced the aggregate commitment from $600 million to $500 million. The one-year extension option and the ability to increase the aggregate loan commitment up to a total of $1 billion remains unchanged. The $500 million aggregate commitment is comprised of a $400 million revolving credit facility and two $50 million term loans. The first term loan matures in 2025 and the second matures in 2026. In connection with the term loans, we entered into interest rate swap agreements to effectively fix the interest rate on the two term loans at 2.56% and 2.69% per annum for their respective terms. We borrowed 76.5 million in the 2021 fourth quarter under our unsecured revolving line of credit. As of December 31st, 2021, we had 110.9 million outstanding with 289.1 million available for borrowing. Subsequent to December 31st, 2021, we borrowed an additional 22 million under our line. During the quarter, we paid 15 million in scheduled principal pay downs on our senior unsecured notes and repaid an additional $7 million in scheduled principal paydowns subsequent to the end of the year. As Wendy mentioned, during the quarter, we paid $22.4 million in common dividends. Presently, we have $5.2 million of cash on hand, $267.1 million available on our line of credit with $132.9 million outstanding, and $200 million available under our ATM, providing us with ample liquidity of approximately $435 million. We have no significant long-term debt maturities over the next five years. At the end of the 2021 fourth quarter, our credit metrics remain solid with a debt to annualized adjusted EBITDA for real estate of six times, an annualized adjusted fixed charge coverage ratio of 4.3 times, and a debt to enterprise value of 34.9%. Although our debt to annualized adjusted EBITDA for real estate metric is higher this quarter, than our long-term target of below five times. We anticipate this metric will trend lower during 2022, with increased rent from the properties previously leased to senior care and senior lifestyle, scheduled principal paydowns on our senior unsecured notes, and paydowns on our line of credit from potential asset sales Clint will discuss shortly. I'll close out my comments with rent deferrals and abatements. During the fourth quarter, we provided $1.3 million in rent deferrals, and $720,000 in rent abatements to the same small subset of operators that have been receiving assistance from us. In January and February, we provided a total of $867,000 in deferrals and $480,000 in abatements. We have agreed to provide rent deferrals of up to $452,000 and abatements of up to $240,000 for March 2022. Now I'll turn the call over to Clint. Thank you, Pam.