LTC Properties, Inc.

Good morning, everyone, and welcome to today's LTC Properties Inc 2022 Analyst and Investor Call. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 2. 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 LTC's property filings with the Securities and Exchange Commission from time to time, including the company's most recent 10K dated December 31st, 2021. LTC undertake 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 and I would now like to turn the conference over to Wendy Simpson.

Thank you, Operator. Welcome everyone to LTC's 2022 second quarter conference call. Joining me today are Pam Kessler, Co-President and Chief Financial Officer, and Clint Malen, Co-President and Chief Investment Officer. I'll start today by continuing to share my enthusiasm for LTC and its future. Too often over the past several years, we have spent time discussing COVID, economic headwinds, and the challenges facing our operators. And while the industry is not completely out of the woods and LTC still has a few specific issues to resolve in the short term, I believe our company is on sure footing and is operating from a position of strength. Since the beginning of COVID and to date, we have successfully transitioned several portfolios to strong regional operators with whom we can grow. Most recently, We took important steps to rectify ongoing rent abatements and deferrals by transitioning our marketing properties for sale that have made up the majority of our ongoing assistance you'll hear more about that later in the call. We have continued to make successful investments that generate positive returns for our investors, especially through creative and flexible structured finance vehicles. have taken a number of steps to enhance the quality of our portfolio, including reducing its average age, and have divested properties that no longer fit with our longer-term goals. To date this year, we have invested over $110 million in senior housing and care, slightly ahead of the entirety of last year, and have generated net proceeds from strategic sales of approximately $72 million which is $19 million in excess of our gross book value of $53 million. We are continuing to identify additional strategic investments and have been busy touring sites and building relationships. I cannot thank the entire LTC team enough for their hard work in helping us execute on our goals. And while there are still some heavy lifting needed by our operators to return to a pre-pandemic environment, including occupancy and rent increases, a more permanent solution to ongoing staffing issues, and an easing of the inflationary pressures being felt by us all, we are steadfastly moving in the right direction with a strong sense of hope for the future. Occupancy in our portfolio is gradually increasing. And we're hearing from some of our partners that temp agency utilization is dropping and rent increases have been implemented by several of our private pay operators. Multiple signs are pointing in the right direction, and I believe our industry and LTC specifically is successfully emerging from the worst of the COVID crisis. As I said before, needs-based care is a vital part of our economy. And that favorable demographics and the growing fundamental needs of our senior population speaks to the long term health of the seniors housing and care industry. I'm confident that much of the angst we've managed through is now in the rearview mirror and we can focus more clearly on growth. We maintained our 19 cent per share monthly dividend during the second quarter, with a total payout to shareholders of $22.6 million. Throughout the pandemic, many REITs elected to cut their dividends, but I'm proud to say that LTC's conservative financial approach has allowed us to continue paying a steady current return to our shareholders. Our FAD payout ratio moderately decreased to 88% for the second quarter, down from 89% from the first quarter. We continue to believe that our FAD payout ratio will approach our target of 80% in the fourth quarter of 2022. Our guidance for the third quarter anticipates that FFO will be slightly higher than this past quarter. This excludes non requiring items from both periods. I'll now turn the mic over to Pam.

Thanks, Wendy. Total revenue grew by 4.9 million from the second quarter of 2021. The increase resulted from a $1.8 million increase in rental revenue, primarily due to a lease termination fee received in connection with the sale of a 74-unit assisted living community. Other contributing factors included rent received from the former senior care and senior lifestyle portfolios, rental income from completed development projects and annual rent escalations, and higher property tax income. The increase in total revenue was partially offset by reduced rents resulting from property sales, as well as a temporary rent reduction to Anthem, which we discussed on our last call. Interest income from mortgage loans increased by $2.2 million, primarily due to mortgage loan origination, while interest and other income increased $907,000, principally related to mezzanine loan origination and additional funding under working capital loans, partially offset by loan payoffs. Interest expense increased $663,000 from last year's second quarter, mainly due to term loan originations, the issuance of $75 million of senior unsecured notes in the second quarter, and higher interest rates, partially offset by a lower outstanding balance on our line of credit and scheduled principal paydowns on our senior unsecured notes. Transaction costs and income from unconsolidated joint ventures were comparable to the year-ago period. The property tax increased by $219,000, primarily due to our acquisition of a four-property portfolio in Texas during the second quarter. Our provision for credit losses increased $305,000, primarily due to mortgage loan originations partially offset by principal pay downs. 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 $374,000 mainly due to higher costs related to conference sponsorships and travel, higher non-cash compensation charges, and increases in overall costs due to inflationary pressures. Net income available to common shareholders increased $35.9 million, mainly resulting from a higher gain on sale of real estate, loan originations, and the increase in rental revenue previously discussed. partially offset by the higher interest expense G&A and provision for credit losses also discussed. Fully diluted may read FFO per share or the 2022 second quarter with $0.64 versus $0.57 in the second quarter of 2021. Excluding non-recurring items, FFO per share was $0.62 this quarter compared with $0.57 in last year's second quarter. The increase in FFO excluding non-recurring items was related to higher revenues from loan originations and the net increase in rental revenue previously discussed, partially offset by higher interest expense, G&A, and provision for credit losses. During the second quarter, we recognized a gain on sale of real estate of $38.1 million related to the sale of four properties. Two of the properties were assisted living communities in California, which we sold for $43.7 million and reported a gain on sale of 25.9 million. Another property was an assisted living community in Virginia, which we sold for 16.9 million and recorded a gain on sale of 1.3 million. The final property was a skilled nursing center in California, which we sold for 13.3 million and recorded a gain on sale of 10.8 million. Of note, two of the assisted living communities were approximately 25 years old, and the skilled nursing center was more than 50 years old. We have been very successful at recycling capital into newer properties to further reduce the average age of our portfolio. Moving now to our second quarter investment activity. We purchased four newer skilled nursing centers located in Texas for $51.5 million. The centers, which we discussed in detail last quarter, are being operated by Ignite Medical Resorts. We continue to anticipate recording cash and gap rent of approximately $1 million in each of the third and fourth quarters of 2022 and $4.3 million in 2023. We also originated two senior mortgage loans for $35.9 million secured by four assisted living communities operated by an existing LTC partner as well as a land parcel in North Carolina. The assisted living communities have a combined total of 217 units with an average age of under four years. The land parcel is approximately 7.6 acres adjacent to one of the assisted living communities and is being held for the future development of a senior housing community. Regarding our former senior lifestyle and senior care portfolios, I'll provide some additional details on expected rents going forward. For the six buildings in the former senior lifestyle portfolio under two separate leases with quarterly market-based rent resets, We received 20,000 in the second quarter, approximately what we expected, but now anticipate receiving 160,000 in the remainder of the year, which is down from our prior projections due to slower than expected lease up and continued cost pressures. Our expectation for 2023 is that we will sell these assets or set a more permanent rent. Regarding the former senior care portfolio, we received rent of 1,000,000 in the second quarter as expected. As we discussed last quarter, we continue to anticipate receiving approximately 2.5 million in each of the third and fourth quarters of this year. We are continuing to work toward amending and extending our lease with HMG Healthcare, the operator to whom we transitioned the portfolio prior to its current maturity in September. We also received 5.3 million of principal pay down on the $25 million working capital loan with HMG. The loan has a current outstanding balance $13.3 million. During the second quarter, we sold $75 million aggregate principal amount of 3.66% senior unsecured notes. The notes have an average 10-year life, scheduled principal payments, and mature in May 2033. We also repaid a net of $101.9 million under our unsecured revolving line of credit at a weighted average rate of 1.9%, and we sold 909,800 shares of common stock for a total of 34.2 million in net proceeds under our ATM program. We used the proceeds from the sale to pay down our unsecured revolving line of credit, which we had used to fund investments and for general corporate purposes. Subsequent to the end of the second quarter, we paid 20.2 million in regular schedule principal payments under our senior unsecured notes at a weighted average rate of 4.9%. Borrowed a net of 20.5 million under our unsecured revolving line of credit at a weighted average rate of 2.7% and sold 125,200 shares of common stock for a total of 4.8 million in net proceeds under our ATM program. Presently, we have 6.4 million of cash on hand, 323.5 million available on our line of credit with 76.5 million outstanding, and 160.3 million available under our ATM. This provides us with total liquidity of just over $490 million. We have no significant long-term debt maturities over the next five years. At the end of the 2022 second quarter, our credit metrics remain solid, with a debt to annualized adjusted EBITDA for real estate of 5.7 times, an annualized adjusted fixed charge coverage ratio of 4.3 times, and a debt to enterprise value of 32.1%. Although our debt to annualize adjusted EBITDA for real estate metric remains higher than our long-term target of below five times, we believe we will achieve this metric by year-end as a result of increased rent from the properties previously leased to senior care and senior lifestyle, recent investments that we expect to start producing revenue, debt reductions from principal paydowns on our line of credit from asset sales, and scheduled principal paydowns on our senior unsecured notes. During the 2022 second quarter, we provided a net of $702,000 in rent deferrals, including $114,000 of repayments and $1.2 million in rent abatements, again, to the same small subset of operators that have been receiving assistance from us. This amount does not include Anthem, which Clint will discuss in a moment. Of note, as Wendy mentioned, we recently took steps to resolve the portfolio challenges related to the majority of the deferrals and abatements. Clint will also discuss these actions. Now I'll turn things over to Clint.