LTC Properties, Inc.

Good morning and welcome to the LTC Properties, Inc. Quarterly Earnings Call. At this time, all participants are in a listen-only mode and we will open the floor for your questions and comments after the presentation. If you wish to enter the queue to ask a question, you can press star 1 at any time. Should you wish to remove yourself from the queue, you may press star 2. Before management begins its 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 materially. 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 10-K, dated December 31, 2022. LTC 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 would now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you, Operator, and welcome everyone to LTC's 2023 Second Quarter Conference Call. I am joined today by Pam Kessler, Co-President and Chief Financial Officer and Clint Malan, co-president and chief investment officer. The first half of 2023 was driven by substantial investment activity, generating growth this year and in the future. To date this year, we have put more than a quarter billion dollars to work through new investments to produce a creative current and future income. We used our line to fund these investments and plan to pay down the line, primarily using future expected asset sales. A significant number of these assets have been non-revenue producing, mostly from being in lease up when COVID changed the world. With our second quarter and subsequent investment activity that Clint will detail later, we have completed the majority of the $100 million pipeline we spoke about last quarter, bringing total investments so far this year to $258 million. Right now, the senior management team at LTC knows that our primary mission for the rest of 2023 is to focus. And that focus is on completing our identified asset sales, working with operators who still need some guidance around their focus, and establishing permanent rents for properties that are not currently revenue producing to LTC. I believe issues around two of our operators could be an overhang on our stock price, and I want to address our progress at the beginning of this call, and Pam and Clint will give you more specifics during their remarks. As to Brookdale, we are confident that between sales of certain properties and new leases on certain properties, we will not experience a decrease in 2024 FFO from the non-renewal of the Brookdale lease. Anticipated sales proceeds of $35 to $40 million will reduce our outstanding line of credit, which was used to pre-fund accretive investments already made this year. As to Prestige, Michigan has a very complex cost-based Medicaid system that due to COVID did not rebase rates for two years, which results in reimbursement true-ups for prior periods. This can cause operators to have cash flow shortfalls until the true-up is paid, which is expected in the fourth quarters of 2023 and 2024. Clint may now be able to qualify as an expert witness regarding Michigan Medicaid rules and calculations. Working with Prestige, we have formulated a path whereby LTC will collect 100% of our interest due from Prestige in 2023. which may include a draw on their letter of credit until the true-ups are funded. Pam will discuss more pertaining to prestige later. Since the first of the year, we have generated $37.8 million in asset sales proceeds, resulting in a $15.7 million net gain, and we expect to receive sales proceeds in the range of $50 to $55 million throughout the remainder of 2023 which includes the expected sales of a portion of our Brookdale portfolio. Additionally, we received $11.8 million in payoffs from our mezzanine loans, generating $1.6 million of exit IRR income at a weighted average rate of 12%. Before talking about some second quarter LTC specifics, I'd like to briefly comment on what we're seeing across the private pay and skilled landscapes. On the private pay side, we're seeing improved coverage as a result of growth in occupancy and rates. On the skilled side, Medicare rates are proposed to be a 3.7% increase. The new rates will be beneficial as operators continue to deal with some occupancy challenges. Anecdotally, we're also seeing reduced agency usage, which should help bring down operator costs. Moving back to our results, our FAD payout ratio for the second quarter was 84%, with our long-term historical goal remaining at 80%, and our monthly dividend payout remained at 19 cents per share. For the third quarter, we anticipate that FFO, excluding non-recurring items, will be in the range of 63 cents to 64 cents per share, primarily reflecting our transition of an eight property portfolio to a current LTC operator, which Pam will discuss shortly. As our industry continues to recover from a period of protracted uncertainty, LTC is focused on shoring up its position by optimizing our portfolio to generate cash now and in the future, and by reducing our leverage to put us in a position to refocus on additional growth in 2024. Before turning the call over to Pam, I'd like to welcome LTC's newly elected board member, David Gruber, former managing director and head of equity capital markets for KeyBank. where he spent more than two decades. We have known David for 20 years and look forward to utilizing his expertise and perspective as we continue to implement our strategy for continued sustained growth. Now, I'll hand the mic over to Pam.

Thank you, Wendy. For the second quarter of 2023, total revenue increased by $5.2 million compared with the second quarter of 2022. The improvement was driven primarily by $3.8 million of higher interest income from acquisitions accounted for as financing receivables and $1.8 million of higher interest income related to mortgage loan originations in the current and prior years. Rental revenue and income from unconsolidated joint ventures were in line with the prior year period. The increase in total revenue was partially offset by a $346,000 reduction in interest and other income related to the payoff of two mezzanine loans during the first quarter of 2023. Interest expense increased by $3.8 million from last year's second quarter, primarily related to higher interest rates and a higher outstanding balance on our revolving line of credit, as well as the issuance of $75 million of senior unsecured notes during the 2022 second quarter. During the second quarter of 2023, We recorded a $12.1 million impairment loss related to two assisted living communities for which we are currently negotiating a sale. One of these properties is non-revenue producing, and the other produces minimal rent. Net income available to common shareholders decreased by $48 million, primarily due to a decrease in gain on sale of real estate, the impairment loss I just mentioned, and higher interest expense, partially offset by higher interest income from new investments. Fully diluted net read FFO per share was 66 cents for the 2023 second quarter, up from 64 cents for the 2022 second quarter. Excluding non-recurring items, FFO per share was 66 cents for the 2023 second quarter, compared with 62 cents for the 2022 second quarter. The increase in FFO, excluding non-recurring items, was due to higher interest income from new investments, partially offset by higher interest expense, as already mentioned. Next, I'll discuss our recent and expected divestitures. Clint will detail our investment activity. During the second quarter of 2023, and as previously announced, we sold a 70-unit assisted living community in Florida for $4.9 million. During the quarter, we also sold a 39-unit assisted living community in New Jersey for $2 million. Additionally, we entered into an agreement to sell two assisted living communities in Pennsylvania with a combined 160 units for $11.5 million. We expect to complete this sale during the 2023 third quarter and anticipate recognizing a gain on sale of approximately $5.2 million. All of these assets were non-revenue producing to LTC. We repaid $4 million in regular scheduled principal payments under our senior unsecured notes and also paid $23.6 million in common dividends for the 2023 second quarter. We borrowed $56.3 million under our unsecured revolving line of credit during the 2023 second quarter, which was primarily used for our second quarter investments. Subsequent to the end of the second quarter, we borrowed $34 million under our line to fund a $17 million investment and repay $17.2 million in scheduled principal pay downs on our senior unsecured notes. Currently, we have $7 million of cash on hand, approximately $40 million available on our line of credit with roughly $360 million outstanding and about $129 million available under our ATM. This gives us total liquidity of approximately $176 million. Additionally, as Wendy mentioned, we anticipate receiving sales proceeds later this year in the range of $50 to $55 million from assets we are actively marketing. These proceeds will be used to pay down our line of credit. At the end of the 2023 second quarter, our debt to annualized adjusted EBITDA for real estate was 6.1 times, and our annualized adjusted fixed charge coverage ratio was 3.5 times. Regarding the operator for whom we have been providing abatements, $645,000 was abated in the second quarter of 2023, and an additional $215,000 was abated in July. We continue to anticipate receiving $300,000 in rent from this operator in 2023. We are still evaluating options for the two properties that provide independent living, assisted living, and memory care services. Additionally, as discussed on last quarter's call, we agreed to defer a total of $1.5 million or $300,000 per month for May through September in interest payments due on a mortgage secured by 15 skilled nursing centers located in Michigan and operated by Prestige Healthcare. Accordingly, we deferred $600,000 in interest payments in the second quarter and $300,000 in July. Wendy spoke about reimbursement structure challenges in Michigan earlier. As it relates specifically to Prestige, we expect Prestige will get an approximate 10% Medicaid reimbursement rate increase effective October 1, as well as retroactive rate settlement payments related to prior years which we anticipate Prestige will receive in the fourth quarters of 2023 and 2024. We are continuing to work with Prestige to assess the impact of these rate increases and settlement payments on the portfolio in light of the continued occupancy challenges. Regarding the remaining operator for whom we have been providing assistance, as previously announced, During the second quarter, we transitioned this portfolio of eight assisted living communities with a combined total of 500 units in Ohio, Michigan, and Illinois to an existing LTC operator. As part of the transition, we received repayment of $1.3 million of deferred rent, which represents $934,000 of April and May 2023 deferred rent and $316,000 of deferred rent from the prior year, which was previously not recorded. Cash rent under the new two-year lease is based on mutually agreed upon fair market rent beginning in month four of the lease, which is September of this year. Since the transition, occupancy has improved. Therefore, when we can establish stabilized cash rent, these assets will again be accretive to LTC. Now I'll turn the call over to Quint.