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.