LTC Properties, Inc.

Hello and welcome everyone. At 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, please press star then two. Before management begins this presentation, please note 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 maternally. These risks and uncertainties are detailed in LTC properties filings, with the Securities and Exchange Commission from time to time, including the company's most recent 10K dated December 31st, 2021. LCC undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances after the date of this presentation. Please note this event is being recorded. I'd now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you, Operator, and welcome everybody to LTC's 2022 First Quarter Conference Call. Joining me today are Pam Kessler, Co-President and Chief Financial Officer, and Clint Malen, Co-President and Chief Investment Officer. Our industry is seeing evidence of the recovery slowly coming together, and we are hopeful about turning the corner on COVID. As a needs-based industry, I believe the long-term picture for our industry remains positive based on solid demographics and fundamental needs for the care of our senior population. For the large majority of our industry, however, there was some distress felt in the first quarter as operators continued to deal with hurdles such as labor pressures and inflation. More recently, Announcement of potential trimmed skilled nursing Medicare reimbursement levels added another layer of complexity for the skilled nursing industry. However, occupancy is increasing in several markets and temp agency utilization appears to be dropping. Several of our private pay operators have implemented rent hikes to offset higher labor and supply costs. None have reported pushback from residents or their families. I believe that we are steadily moving toward a pre-pandemic environment. LTC has operated successfully through decades of market and real estate cycles, and we have always supported our operators as we both surmounted industry challenges. This environment is no different. So far in 2022, we have successfully put capital to work for our shareholders, and our opportunities are more robust than they recently have been. Clint will talk about our pipeline in more detail later, but to summarize, we closed approximately $77 million in investments year to date and have identified several additional strategic investments that will advance our growth. I'd now like to share some stories from our operators with you. I've been spending time with them recently, both in person and virtually, and it has been very inspiring. I'll start with our partner, HMG Healthcare, who recently presented their Star of the Year Award to an employee at our Lone Star Rehabilitation and Wellness Center in Stephenville, Texas. Misty Griffin, who was chosen for the award among employees at 40 HMG centers, has been helping care for patients for more than two decades. What's especially noteworthy is that HMG recognized Misty's seniority as a former senior care employee. Misty was presented with a new car in recognition of her embodiment of HMG's values and mission of taking care of people. One of the reasons we are working with HMG is because of their great culture. Misty and this award exemplify that. I recently toured Corso, Atlanta with our operating partner Gallery Living. Billed as Atlanta's most luxurious senior living community, it definitely lives up to that description. It is truly spectacular. Our investment with Corso Atlanta demonstrates how mezzanine financing allows LTC to be part of a very large and impressive project, all while expanding our relationships with excellent regional operators and generating positive returns. Finally, we are honored to be mentioned in a recent book written by Cindy Bayer, CEO of Brookdale Senior Living, titled Heroes Work Here, an extraordinary story of courage, resilience, and hope from the front lines of COVID-19. The book provides a behind-the-scenes look at how Brookdale has navigated the COVID-19 pandemic. One of the things that makes this book so interesting to me is that LTC is featured as a flexible capital partner, something on which we pride ourselves. A few months into the pandemic, we worked collaboratively with Brookdale to consolidate four leases into one master lease. As Cindy said in the book, through collaboration, a focus on finding solutions that work for both parties and a renewed commitment to our partnership cornerstones, we were able to achieve a positive outcome that protected Brookdale's interests in the midst of substantial uncertainty. I'd now like to provide a brief update on Anthem. Last quarter, I described the strides they have made since we first reported on their challenges several years ago. Since our fourth quarter call, We have learned that Anthem experienced an occupancy decline and cost increases resulting from a surge of the Omicron variant in Q1 that may make it difficult for them to pay the full second quarter cash rent of $2.7 million. Anthem has experienced similar short-term occupancy declines resulting from surges of other variants and rebuilt census rapidly in each case. We believe occupancy will recover and with Anthem's expected receipt of additional stimulus funds, we still anticipate receiving total cash rent from Anthem in 2022 of approximately $10.8 million in line with prior guidance. However, we are lowering the rent we expect to receive from them in the second quarter to $2.1 million, but anticipate they will be able to make up the shortfall over the remainder of the year. We maintained our $0.19 per share monthly dividend during the quarter with a payout to shareholders of $22.5 million. Our Fed payout ratio decreased from the fourth quarter to 89% in the first quarter. Based on our recent investment activity and assumed rent payments from the former Senior Care and Senior Lifestyle portfolios, we expect our FAD payout ratio to continue to decline during 2022 and approach our target of 80% by the end of this year. Our guidance for the second quarter anticipates that FFO, excluding non-recurring items from both periods, will be comparable to first quarter levels. Before I turn the call over to Pam, I want to spend a moment discussing our enhanced ESG initiatives. Not only are we focused on these initiatives at the corporate level, having formed both a board and an internal working committee to address issues that are the focus of ESG and diversity, we are working with our operators to help them understand how they can achieve successes by addressing ESG issues in their operations. We are establishing a voluntary program aimed at helping our operating partners become good corporate stewards by adopting socially responsible and sustainable practices. The program begins with a free consultation with an expert third party to help operators better understand their options with respect to these initiatives and will focus not only on remediation efforts, but also on encouraging new methods for ensuring best practices with LTC providing attractive financing to facilitate changes. An added benefit is that oftentimes these initiatives help reduce costs in the long term, something in which I know all of our operators are interested. Now I'll hand the call over to Pam.

Thanks, Wendy. Total revenue increased by $507,000 compared with the first quarter of 2021. Interest income from mortgage loans increased $1.7 million for the 2022 first quarter due to loan origination. Interest and other income increased $442,000 primarily related to mezzanine and working capital loan originations, partially offset by payoffs. However, rental revenue decreased by $1.6 million, primarily due to the former senior care portfolio transition, partially offset primarily by increases in revenue from properties transitioned from senior lifestyle and the prior year straight-line rent write-off. Interest expense, transaction costs, and property tax expenses were all comparable year over year, as was income from unconsolidated joint ventures. Our provision for credit losses increased $363,000 compared with last year's first quarter, primarily due to the mezzanine loan origination and additional funding under our mortgage loans and notes receivable. As a reminder, 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. G&A increased by $775,000 due to higher incentive compensation, higher non-cash compensation charges, and increases in overall costs due to inflationary pressures. Net income available to common shareholders increased $633,000 year over year, mainly resulting from loan originations and a prior year's loss on sale of real estate, partially offset by the net decline in rental revenue previously discussed and higher G&A expense. Fully diluted NAREIT FFO per share for the 2022 first quarter was $0.60 compared with $0.62 in the 2021 first quarter. Excluding non-recurring items, FFO per share was $0.61 this quarter compared with $0.65 in last year's first quarter. The decrease in FFO excluding non-recurring items was due to the net rental revenue decline and higher G&A previously discussed, partially offset by higher revenues from loan originations. During the first quarter we funded a $25 million mezzanine loan secured by five communities, providing a range of senior living services in Oregon and Montana. The loan term is approximately five years with two 12 month extension options and bears interest at 8% with an expected IRR of 11%. We also funded 9.5 million of a previously committed 25 million secured working capital loan to HMG. the operator to whom we transitioned the 11 former senior care properties. HMG paid back approximately $800,000 in the first quarter, leaving a balance of $18.6 million at March 31, 2022. We expect HMG to pay down an additional $7 million in the second quarter, with further payoffs anticipated in the third quarter. During the first quarter, we consented to the closure of a 48-unit memory care community we own located in Castle Rock, Colorado. This community was transitioned from senior lifestyle to a new operator during the first quarter of 2021. The lease with the new operator, which was expected to generate rent of $150,000 in year two of the five-year lease, was terminated as of April 1, 2022. The net book value of this property is $5.3 million, and we intend to sell it. 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 leases, we anticipate receiving $30,000 in the second quarter, $370,000 in the third quarter, and $480,000 in the fourth quarter. These amounts are in line with our prior quarter's assumption. Our expectation is that we will set more permanent rents sometime in 2023. The transition of the former senior care portfolio to HMG is slightly ahead of projections, primarily due to cost containment benefits projected in the third and fourth quarters. Accordingly, we continue to anticipate receiving approximately a million in the second quarter, but are now expecting higher rent in the third and fourth quarter of 2.5 million in each of those periods. 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. As discussed in our last call we transition to memory care communities in Texas totaling 88 units to a current LTC operator in the first quarter. The new lease term is two years with cash rent starting in month five based on mutually agreed upon fair market rent. We recognize 282,000 of rent from these transition communities during the first quarter and anticipate recording approximately 370,000 of cash rent during the second half of 2022. which is unchanged from last quarter. During the first quarter, we entered into agreements to sell two assisted living communities and one skilled nursing center. Subsequent to the first quarter, we sold one assisted living community. First, as previously discussed, Field Senior Living has exercised the purchase option on two assisted living communities in California, totaling 232 units. Accordingly, we entered into an agreement to sell the properties for $43.7 million. The properties have a gross book value of $31.8 million and a net book value of $17 million. We expect to close the sale within the next week or so, and we anticipate recognizing a gain on sale of approximately $26 million in the second quarter. During 2021, we recognized cash rent of $2.5 million and gap rent of $2.8 million from these communities. This represents an implied yield of 5.7% on the sales price. Second, we entered into an agreement to sell a 121 bed skilled nursing center in California for 13.3 million. The property is under a lease that matures in July 2022, has a gross book value of 4.6 million and a net book value of 1.8 million. We anticipate recognizing a gain on sale of approximately 10.5 million in the second quarter of 2022. During 2021, we recognized cash rent of 833,000 and gap rent of 764,000 from this property. This represents an implied yield of 6.3% on the sales price. Finally, subsequent to the first quarter, we sold a 74-unit assisted living community in Virginia for 16.9 million. The property has a gross book value of 16.9 million and a net book value of 15.5 million. In connection with the sale, the current operator paid us a $1.2 million lease termination fee which equates to one year's worth of rent. We expect to recognize a gain on sale of approximately $1.3 million in the second quarter. This represents an implied yield of 7.1% on the sales price. Also subsequent to the end of the first quarter, we acquired four transitional care centers in Texas with a total of 339 beds and mostly private rooms for $51.5 million. Clint will provide additional details shortly. In summary, since the beginning of the year, we have invested $77 million to date. We have sold or are contracted to sell properties generating approximately $72 million in proceeds. Moving now to our debt activity. During the 2022 first quarter, we borrowed $47 million under our unsecured revolving line of credit. As of March 31, 2022, we had $157.9 million outstanding, with $242.1 million available for borrowing under the lines. Subsequent to March 31st, we borrowed an additional $52 million to fund the acquisition of the four transitional care centers in Texas and repaid $18 million using proceeds from the sale of the 74-unit assisted living community in Virginia. During the quarter, we paid $7 million in regular scheduled principal payments under our senior unsecured notes. As Wendy mentioned, during the quarter, we also paid $22.5 million in common dividends. Presently, We have 4.4 million of cash on hand, 208.1 million available on our line of credit, with 191.9 million outstanding and approximately 200 million available under our ATM, providing us with ample liquidity of over 400 million. We have no significant long-term debt maturities over the next five years. At the end of the 2022 first quarter, our credit metrics remain solid with a debt to annualized adjusted EBITDA for real estate of 6.1 times, an annualized adjusted fixed charge coverage ratio of 4.4 times, and a debt to enterprise value of 33%. Although our debt to annualized adjusted EBITDA for real estate metric remains higher than our long-term target of below five times, we expect this metric to trend lower during the year with increased rent from the properties previously leased to senior care and senior lifestyle, and as recent investments start producing current revenue, along with debt reductions from principal paydowns on our line of credit from asset sales and scheduled principal paydowns on our senior unsecured notes. I'll close out my comments today with rent deferrals and abatements. During the first quarter, we provided $1.3 million in rent deferrals and $720,000 in rent abatements. again to the same small subset of operators that have been receiving assistance from us. In April, we provided a total of 376,000 of deferred rent and 240,000 of abated rent. Further, we have agreed to provide rent abatements up to 240,000 for each of May and June of 2022. Additionally, we agreed to reduce expected rent from Anthem by 300,000 for each of May and June 2022. I'd like to provide some additional detail about the operator who represents the majority of deferred rent whose concentration is not in our top 10. During 2020, we consolidated our two master leases with this operator into one combined master lease and agreed to abate $650,000 of rent and allow the operator to deferred rent as needed through March 31, 2021. This combined master lease was amended during 2021 and 2022 to extend the rent deferral period through April 30, 2022. As such, the operator deferred rent of approximately $1.3 million for the first quarter of 2022 and $376,000 in April. As of April 2022, the deferred balance due from this operator is approximately $6.6 million. We have not recorded this as revenue, nor have we abated the rent. Our guidance does not include any revenue from this portfolio. We expect to address this deferred rent as we work with the operator toward a resolution for the portfolio. Now I'd like to turn the call over to Clint.

Thank you, Pam. I'll start today with a quick occupancy update on the former senior lifestyle portfolio, which includes 18 communities. Occupancy at March 31, 2022 was 83%, increasing from 81% at January 31, 2022, the last date for which we provided information. For the six communities under two separate two-year market-based rent leases, occupancy was 76% at March 31, 2022, up from 69% at January 31, 2022. For the 11 property portfolio that has been transitioned from senior care to HMG, occupancy for the month of March 2022 was 56%, compared to 57% at January 31, 2022. Given leadership changes made by HMG in several of our buildings, staffing issues that permeated the industry in Q1, and the transition of the buildings to HMG in the middle of the Omicron surge, we're comfortable with how HMG is addressing these issues, as well as their focus on cost containment. Reflecting this optimism, as Pam mentioned, we revised our 2022 HMG rent guidance up $1 million from what we previously anticipated. At the beginning of this month, we acquired four transitional care centers in Texas, that are being operated by Knight Medical Resorts, a current LTC operating partner. These buildings include a total of 339 beds, primarily in private rooms, and are newer construction, which helps reduce the average age of our overall portfolio. The average age of these four buildings is just over four years. This fits well with our strategy of acquiring newer skilled nursing centers. The lease term on the Texas portfolio is 10 years with two five-year renewal options. Beginning in the sixth lease year to the end of the seventh year ignite as the option to purchase the portfolio. We expect to receive rent of approximately 1 million each of the third and fourth quarters of 2022 and approximately 4.3 million during 2023. The red will increase each year by two to 4% starting on the third anniversary of the lease based on changes in the medicare market basket rate, this was a strategic acquisition with a strong regional operator. Before moving to our portfolio numbers, I'm pleased to announce that subsequent to the end of the first quarter, we amended Brookdale's master lease to extend the maturity by one year to December 31, 2023. The renewal options under the new amended master lease did not change except for the term of the first renewal option, which was reduced from three years to two years. Aside from the two-year option, the amended lease also includes a five-year renewal option and a 10-year renewal option. We also changed the notice period for the first renewal to November 1, 2022, through February 28, 2023. Additionally, we increased our $2 million capital commitment to $4 million and extended its maturity to February 28, 2023. We also included an incentive for qualified ESG projects. During the first quarter of 2022, we funded $215,000 under the new $4 million capital commitment with approximately 3.8 million remaining. Now for our portfolio numbers. With my usual disclaimer that we don't believe coverage is currently a good indicator of future performance at this time, given the pandemic and the challenging environment it created. For clarity, recently transitioned properties, including the former senior care and senior lifestyle portfolios, no longer qualify for our same store of metrics. So they are excluded from these numbers. Q4 trailing 12-month EBIDARM and EBIDAR coverage, as reported, using a 5% management fee, was 0.99 times and 0.78 times, respectively, for our assisted living portfolio. Excluding stimulus funds received by our operators, coverage was 0.88 times and 0.67 times, respectively. For our skilled nursing portfolio, as reported, EBIDARM and EBIDAR coverage was 1.92 times and 1.46 times respectively. Excluding stimulus funds, coverage was 1.57 times and 1.12 times respectively. Moving now to some recent occupancy trends, which are as of March 31, 2022, and are for our same store portfolio. Our partners have given this data to us on a voluntary and expedited basis, so the information we are providing includes approximately 63% of our total same store private pay units and approximately 89% of our same store skilled nursing beds. Private pay occupancy was 78% at March 31 and January 31, 2022, and 76% at September 30, 2021. For our skilled portfolio, average monthly occupancy was 73% in March of this year, 72% in January of this year, and 70% in September 2021. Finishing up with our pipeline, as Wendy said, the pace of pipeline opportunities is robust and hasn't really slowed down since late last summer. Our pipeline is currently valued at approximately $70 million, spans private pay and skilled nursing, is geographically diverse, and includes operating partners moved to LTC as well as existing partners. The opportunities are also varied in terms of financing the vehicle, including development joint ventures, and mezzanine and mortgage loans. We believe strongly in LTC's ability to attract and close new opportunities, driven by our ability to provide creative financing structures to bring new operator relationships into our portfolio while enhancing current relationships. There is an incredible amount of capital in the market right now, and LTC is successfully competing by offering an array of diversified products that are tailored to the needs of operators who otherwise might not think of a REIT for their financing needs. One such example was our $25 million mezzanine loan for the recapitalization of the five-property seniors housing portfolio we discussed earlier. This investment allowed the partnership owning the portfolio to buy out an equity fund. Another example is the $52 million acquisition we made in Texas, which broadens the footprint of an existing operating partner and deepens our relationship with Ignite. We never take a one-size-fits-all approach because one size does not fit all. We can offer specifically tailored financing structures based on an operator's needs, giving us a nimble competitive advantage. Now I'll turn the call back to Wendy for her closing remarks.

Thank you, Pam and Clint. Our focus in 2022 is on a return to growth, and I believe we have taken and continue to take the steps necessary to position LTC as a capital partner of choice in today's market. Before I turn the call over to your questions, the entire LTC team would like to send our deepest condolences to the family of Linda Gutmann, who recently passed away after a brave battle with cancer. Linda, an investment advisor, was a champion of our industry and of LTC specifically, but more than that, Linda was a dear friend. Operator, we're now ready for the questions.

Thank you. We'll now start the Q&A session. To ask a question, please press star, then 1 on your touch-tone phone. To draw your question, please press star, then 2. When preparing to ask a question, please ensure that your line is unmuted locally. And our first question comes from Steven Van Inquet from Barclays. Please go ahead. Your line is open.

Great. Thanks. Hello, everyone. Thanks for taking the question. So I guess needless to say, the CMS decision to put the claw back for PDPM into the SNF rate for 23 is obviously a bummer for the industry. I guess over the past 10 years or so, there's been very little change from the proposed rate to the final rule each year. I guess my question is, do you think there's any chance that the either trade groups like AHCA or others can lobby to either reduce the size of the clawback or maybe just give it to them to spread it out over a few years. Just want to get your updated thoughts around all this. Thanks.

I mean, there's definitely an active approach by AHCA to reach out and have operators provide comment during this comment period. You know, we don't know what the outcome will be, but there's definitely a large effort in the industry to do that. If it could be pushed out over a number of years, I think that would be considered a positive, but there's a large effort underway and we'll see where it goes. But a lot of people are participating in this. We've talked to operating companies in space and they're very actively involved from encouraging employees to be able to write letters and not just canned letters, but letters providing specific detail and feedback regarding the impact of this proposed rule.

The the net of all of the changes this year is a 0.4% reduction because there are back market basket increases, but I should is really hoping that we can at least get the. 4% reduction phased in over three years or so. They have good hope that we can do it. And from our operator calls, they're very, very active in getting these letters out to CMS and all of their Congress people for each of the states. So there's a possibility. But even with that reduction, as we've talked to our skilled nursing operators, they weren't presenting hair on fire situations, unhappy about it with the increase in costs and that sort of thing, but they're not panicked about it.

Okay. So the way it stands right now, it sounds like the primary rebuttal is to just have it phased in. So I guess it's definitely helpful just to hear that. So, okay. I appreciate the color. Thanks.

Thank you.

Thank you.

Perfect. Thank you so much for your question. Our next question comes from Juan Sanabria from DMO. Please go ahead.

Hi. This is Valeria. I'm for Juan. So first question, how is your watchlist trending relative to last earnings, especially after talks with tenants and with this updated outlook on government support levels? What confidence level do you have that no new tenant issues would pop up or that deferrals and abatements are going to increase going forward?

Well, the encouraging item we see is providing deferred and abated rent has really been to a small subset of operators. We spoke about Anthem in our prepared remarks. As we've seen, COVID cases and surge decrease going into Q2 on the private pay side with rate growth is encouraging. So right now, as we indicated in our prepared remarks, we're optimistic going forward. I think cautiously optimistic.

And our abated rent for one of our operators, actually the assets are cash flow positive after a management fee. So it's not like the operator is cash flow or cash constrained. It just is a change in attention from the operator. So we're not concerned about having to give additional abated rent from that operator.

Okay. And following up on that, you know, no additional transitions either?

No additional what?

Transitions. Transitions? Well, the only additional potential transition, as Pam mentioned in her prepared remarks, one of the operators of the small subset that we provided deferred and abated rent, we're working on a resolution Um, to that, so, you know, with that, you know, we, we're working on a framework with that operator to facilitate a transition. So that is something that, um, you know, as expected with having deferred or beta rent, there's gotta be a resolution to that. So that's something that is in, um, in the works, the, the encouraging points of that as Pam indicated, the operator is not in our top 10. Um, and our guidance doesn't include any, um, any revenue from this portfolio, but as Wendy mentioned, the portfolio is cashflow positive. Um, so we're hopeful toward the end of the year, this portfolio would be contributing to that.

Yeah. And for clarification, when you was talking about deferred, not be abated.

Correct.

Right.

All right. Gotcha. That makes sense. Um, moving kind of to a different topic, uh, with, um, race moving where they are, do you see that pricing for senior housing and skilled nursing? It's shifting too. Is there any sign that cap rates could move higher? And would that kind of push the strategy to maybe a traditional fee simple acquisition versus more of the loan stuff that you guys have been doing?

We would love to see that. We're actively evaluating to be able to get that point. I'd say right now it's, you know, it's not there at this point. But obviously we're hopeful that that is a market environment that we'd be able to participate in.

But in the interim... We've been thinking that for a while. Thinking, hoping. There's still a lot of money out there. And that's what's keeping the... I think the price is artificially high. They're not trading based on current NOI. They're trading on a future. So that's a hope note, and that's what we call it.

Mm-hmm. Gotcha.

Perfect. We will now move on to the next question. The next question comes from Austin Worshmuth from Key Capital Markets. Please go ahead.

Hey, good morning. This is Arthur Porto on for Austin. Just one for me. sort of trying to understand the, uh, how big of a percentage of your investment pipeline is comprised of snips. And if the, uh, the recent CMS ruling, uh, could potentially put deals on hold, or if you might shift the, uh, the pipeline elsewhere, um, you know, as a result of the ruling.

Sure. We only right now, we have one opportunity working on, on a sniff, which is a development project with ignite, which is in our supplemental. We provided them alone. to acquire a piece of land in Missouri. And so, that would be a development project. So, right now, that would be the one skilled asset that we're currently, our investment opportunity that we're working on.

Okay. And, you know, future opportunities, could that sort of change depending on what the SNF ruling, the CMS ruling sort of .

It depends. I mean, as we've indicated, on the skilled nursing side, we've really looked to invest in newer assets. And we had the unique opportunity where Ignite, we feel very fortunate that Ignite brought us in on this transaction to be their capital partner of choice. You know, in that type of opportunity in the skilled space, private rooms, newer assets, strong regional operator, you know, Ignite's done a tremendous job executing on their transitional care model. So those are opportunities we very much look to participate in. Great, thanks. Thank you.

Perfect. Thank you for your question. Our next question comes from . Please go ahead.

Yes. Good morning, everyone. Hope you're all doing well on the West Coast. Just to drill in a little bit on the transition portfolios, senior lifestyle and senior care. It sounds like with HMG, you can correct me if I'm wrong, things are going well there. Are you actually expecting you may get a million more in rent than you were initially anticipating? Am I understanding that correctly? That is correct. Okay. So that's additional revenue over and beyond the cash outlays you got in the first quarter.

It's in excess of the guidance we provided last quarter. Yeah.

So effectively increases from 5 million. I'm sorry, for that again?

Effectively increases our guidance from 5 million that we gave last quarter, now upping that to a total of 6 million for 2022. Great. Okay.

And then for senior lifestyle,

you just talk a little bit about what's happening with those transition assets it sounded earlier on like that was into one of those assets where you terminated the lease for the for the uh for the for the new operator so we have a couple of different thoughts we have a total of 18 buildings in total with um former senior life cut senior lifestyle portfolio six of the buildings are under market based quarterly rent resets um and the other properties have fixed increases based on the various annual renewals on those. So right now, I gave information regarding occupancy growth that we're seeing in that portfolio. We're very encouraged to see that there has been an uptick in occupancy across the portfolio of those 18 properties.

And rent guidance remained unchanged this quarter.

We're reaffirming what the numbers .

But it sounded from your commentary that there was one transitional asset where you ended up terminating the lease and selling the asset instead?

Sure. There was one property that we had transitioned from senior lifestyle to an operator in Colorado. It's a building in Castle Rock, Colorado. It was a freestanding memory care community. And we transitioned that to a local operator and they invested equity dollars to support operations to try to make improvements I think that property has just been challenged from a reputational standpoint over the years. And unfortunately, this regional operator was not able to get the traction they were looking for and didn't have the depth of equity to be able to continue to fund operations. So at that juncture, it really was at a point where it was better to close the property and we're going to move forward with selling that asset. Pam mentioned our net book value is approximately $5 million. And we'll look to sell it for highest and best use for the asset.

Okay, no revenue.

Yeah, and right now we have no revenue in our model for that. For that asset. That's why the revenue change going forward.

Okay. Thank you very much. Thank you. Thank you.

Thank you. And as a reminder, if you would like to ask a question, please press start 1 on your telephone keypad. And our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead.

Yeah, thanks. I just wanted to drill into HMG a little bit. I know, Clint, you kind of talked about this in your prepared remarks and the improved rank collection assumptions. I guess what specifically, I guess, drove that rent increase? I mean, I'm assuming that they've been able to integrate that portfolio into their platform more seamlessly than we previously expected. Can you talk a little bit about that?

Sure. When they took over the buildings, there was a high amount of agency usage. As you can imagine, there had been a lot of disruption in the senior care operational days. So it's really just going in and finding the appropriate leadership in the buildings. There was a lot of agency usage in these buildings. So it's really coming in from HMG's perspective and bringing their culture into these buildings. And Wendy spoke to HMG's culture in her prepared remarks. And it takes time to be able to put that in place to transition. And so last time, based on where we were at, we guided to the 5 million. And as we've worked with HMG to understand the progress they've made as far as occupancy, mix, You know, cost containment. That's where we got to the point we felt upping guidance, you know, by the million dollars for all of 22 made sense at this point in time. And we'll continue to revisit that on a quarterly basis based on where HMG is at on a performance aspect.

And when are you assuming that HMG can start paying cash rents? I know they've been a little backlogged by some of the senior care type stuff. I mean, should we assume that's going to happen in 2Q? I mean, do you have that included in your guidance, or is this really a second half type thing?

We've included $1 million in the second quarter in guidance, and then $2.5 million in each of the third and fourth quarters.

Okay, great. I guess Clint, you also talked about you're starting to think about establishing a more permanent rent at those facilities. I mean, how are those discussions going? I mean, should we learn more about this next quarter or kind of what's the thought process behind that?

Yeah, I would say in fourth quarter, right now we did a one year cash flow lease with HMG, you know, through the transition. And so we will be working to extend that lease and working on more permanent rents with HMG. And so look for more guidance on that as we go through the year, but it'll probably be more towards the end of 2022. Okay.

And then related to the assisted living tenant that has the larger deferrals, Are they expected to pay rent sometime in the second quarter? I guess, can you kind of talk a little bit about what's going on with that tenant? I know in the supplement in your prepared remarks, you kind of implied that you expect to resolve that deferral with that tenant when you kind of restructure their lease or that relationship. I mean, what does that mean? Are you trying to do something bigger there, or what's the thought process behind that tenant?

So I spoke to this previous in Q and a, and so we have a framework with the software to work towards a transition. So that's what I spoke about earlier. I would not expect any rent from the existing operator, but we are trying to facilitate a transition on or before July. And we're hopeful towards the end of the year, as I mentioned, this portfolio is cashflow positive, and we do not have any rent from this portfolio in our guidance. but we're hopeful towards the end of the year that it could evolve into contributing to revenue. We go through the transition and we work with the new operator to evaluate which buildings we want to keep long-term and which buildings do we think make sense to recycle capital. So there will likely be some asset sales Mike Noce, Mgmt. resulting from this portfolio, but you know as we've done this during the past, you know we've been an advocate of recycling capital on assets, so there there will likely be asset sales. Mike Noce, Mgmt. Out of this portfolio, which would occur in probably later in the year to the first quarter of 23 but, again, we don't have any guidance of revenue on in our model for for this portfolio.

Okay, and then with the currently rent that's deferred, is there any opportunity to collect that as you kind of close this down, or is that something that's just going to be written off?

You know, we are working through the transition right now, but as Pam mentioned, we have not recorded that into revenue, and so I wouldn't – we haven't debated it. We're actually actively going through the resolution right now, but I wouldn't count on that.

And to clarify, there's no receivable on the balance sheet for that. It's not recorded. This operator's been on a cash basis.

Yeah. So it's a contractual obligation, but not a receivable on the balance sheet. Okay. That makes sense.

And then just last for me, the two transition memory care assets, I just want to make sure I understand this correctly. So they paid rent in the first quarter, and I think you put it in the press release, the amount. You don't expect anything in the second quarter, and then the I think the remaining $300,000 is going to be collected in the second half of the year. Is that correct?

Yes, that's correct.

Okay, great. Thank you.

Thanks. Thank you, Michael, so much for your question. At this time, there are no other questions, and I would like to pass back over to Wendy for any final remarks.

Thank you all for joining us today. I wish you a very happy spring with little COVID impact, and we'll talk to you in the summer. Thank you very much.