Good day and welcome to the LTC Properties Incorporated Fourth Quarter 2011 Analyst Conference Call. [Operator Instructions] Before proceeding, please note that this presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words such as believes, expect, may, will, should, seeks, approximately, intends, plans, estimates or anticipates or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plan of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, included, but not limited to, the status of the economy, the status of capital markets, including prevailing interest rates and our access to capital, the income and returns available from investments in healthcare related real estate, the ability of our borrowers and lessees to meet their obligations to us, our reliance on a few major operators, competition faced by our borrowers and lessees within the healthcare industry, regulation of the healthcare industry by federal, state and local governments, compliance with and changes to regulations and payment policies within the healthcare industry, debt that we may incur and changes in financing terms, our ability to continue to qualify as a real estate investment trust, the relative liquidity of our real estate investments, potential limitations on our remedies when mortgage loans default, and risks and liabilities in connection with properties owned through limited liability companies and partnerships. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and in our publicly available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events or otherwise. Please also note, this event is being recorded. I would like to turn the conference over to Wendy Simpson, CEO and President. Please go ahead.

Thank you. Hello and thank you for joining us today. I have with me today Pam Kessler, our Executive Vice President and CFO, who will be commenting on our 2011 fourth quarter earnings and year earnings; Clint Malin, Senior Vice President and Chief Investment Officer; and Andy Stokes, Senior Vice President of Marketing and Strategic Planning. After Pam's presentation, Clint will comment on our deal pipeline as we see it so far this year and Andy will comment on how we are approaching our networking and marketing efforts for 2012. Pam?

Thank you, Wendy. I'm going to discuss fourth quarter 2011 compared to third quarter 2011. I'll refer you to the 10-K that was filed yesterday for a discussion of year-over-year comparison. Revenues increased approximately $868,000 due to acquisitions. Interest expense increased approximately $200,000 due to the sale of $50 million of senior unsecured notes to Prudential in July and higher outstanding balance on our line of credit, which was partially offset by lower interest expense related to the earn-out liability accretion resulting from the payment of the first earn-out in the third quarter of 2011. Acquisition costs increased $108,000 due to the 3 acquisitions in the fourth quarter. Operating and other expenses increased approximately $200,000 due to costs associated with our Analyst Day, marketing, and 2 new employees. Expense from discontinued operations relates to an independent living property in Texas. GAAP requires that we reclassify income and expense related to properties sold or held-for-sale to the line item discontinued operations. Net income available to common shareholders increased $184,000, primarily due to acquisitions, partially offset by higher interest expense, acquisition costs, and operating and other expenses. Normalized fully diluted FFO per share was $0.55 this quarter compared to $0.54 last quarter. Normalized fully diluted FAD per share was $0.54 this quarter compared to $0.52 last quarter. Turning to the balance sheet, during the quarter we purchased a 196-bed skilled nursing property in Texas for $15.5 million and a vacant parcel of land in Amarillo, Texas for $844,000. We have committed to fund the construction of a 120-bed skilled nursing property in an amount not to exceed $8.3 million. This new property will replace a 90-bed skilled nursing property in our existing portfolio. We believe construction will take 12 to 18 months and upon completion, the lessee intends to relocate residents from…

Thank you, Pam. Clint will now talk about our deal flow and our pipeline?

Yes. Thank you, Wendy. Last week, we executed 2 counter-signed letters of intent. The first letter of intent was for an $18.6 million acquisition of a skilled nursing facility built in the early 2000s, which is being operated by an existing customer. Property will be added to our master lease. The purchase of the sale agreement is being negotiated and the transaction is expected to close on or about March 31 with an initial cash yield of 9% and a GAAP yield of 10.8%. This opportunity demonstrates our continued focus on follow-on investments with new relationships added to our portfolio over the past couple of years. The second letter of intent is for a $9 million commitment to fund the acquisition of land and construction of a freestanding private pay memory care property. We expect to enter into binding agreements by the end of March. If due diligence proves successful, we anticipate closing the land acquisition around April 30 with construction to commence relatively soon thereafter. We have been steadily building our pipeline since the slowdown in deal flow following CMS' announcement last year of the decrease in Medicare rates. Including the deals mentioned above, our active pipeline is at approximately $150 million. At the present time, approximately 1/3 of our pipeline consists of potential development opportunities, primarily for investments and freestanding private pay memory care properties. The remainder of our pipeline is mainly existing operational ALFs in a couple of nursing homes. Volume of SNF transactions has been relatively low, but we believe the market for SNFs is still in a holding pattern as companies continue to assess the impact of the recent Medicare rate reduction, as well as implementation of potential cost saving efforts. At this point, we are anticipating the acquisition of SNF assets to be back-loaded…

Thanks, Clint. Our efforts for 2012 are going to be, in some sense, a continuation. We had a very interesting Board meeting at the end of last year. One of our directors reminded us to not forget what got us to this good place and we're not going to forget that. I want to talk -- give a couple examples of how we implement our networking and market expansion. I want to talk about how we look at deploying our marketing resources. Memory care is, as you've heard, are really high priority. The occupancies in this field are high. Very little supply has been added in the last 5 years and the demographic bulge is going to cause demand for Alzheimer's specifically, to really accelerate much more so than it has been in the last 10 or 15 years, and that growth has been very good. We think now is a good time to build Alzheimer's facilities and assisted living, especially Alzheimer's. So who we think we can do this? How do we go out and find them? We -- sticking to our -- the things that got us here, we needed to find relationship between a tenant and a developer. We don't want to go with people who are, maybe they are good operators, but they never built buildings before. They can be smaller companies but they're still going to be multi-facility. And we want the same things we all should think about; we want somebody who's committed; we want them to have character; we want them to be successful, so far. The locations that we target marketing on is -- or the target markets are governed by really fairly familiar phrases. We've all heard of population characteristics and economic base, favorable labor environment, for instance right-to-work states are…

Thank you, Andy. I've got to say that 2011 was a very active and successful year for LTC. On the financial front, we redeemed all of the balance of our 8% preferred ALFs, put close to 4 million new common shares into the market; we arranged a new $210 million, 4-year unsecured line of credit, which has an accordion feature of another $40 million. We added a new major bank to our existing strong bank partners and we arranged an additional $100 million shelf with Prudential. We closed over $100 million in acquisitions with GAAP yields in excess of 10% and we committed to spend over $8 million in 2012 for a replacement SNF facility that Clint mentioned earlier. Our year-end debt-to-market cap was 14%; including the preferred shares as outstanding debt, it was 17.4%. We currently have debt borrowing capacity of $250 million without exercising the accordion feature of our bank line. We have approximately $64.6 million available under our ATM. And as evidenced that we are disciplined in using this equity funding vehicle, when we hit a closing high of $32.72 on February 6 of this year, we did not tap this liquidity, because we still believe we can better finance the company at this time with favorably priced debt. Our fixed charge coverage ratio including preferred dividends at the end of 2011 was 6.3x and our interest covering ratio was 11.7x. While we are not pursuing a rating from any major rating agencies because of our size, we are careful to keep our balance sheet comfortably within investment grade ratios so that as we achieve the size that would support an investment grade rating, we will have the balance sheet to support such a rating. We have $60 million outstanding under our line of credit. And when…

[Operator Instructions] Our first question is James Milam, Sandler O'Neill.

My first question is just on the $40 million of CapEx and renovation that Clint outlined. Does that include that $9 million -- or the $8 million for the replacement project? And then Clint, if I understood you right, were you suggesting that some of these are SNF buildings that are adding AL wings or did I misunderstand what you were saying a lot of those projects include?

Actually on -- first, the $8 million for the replacement project is not part of that $40 million. That's -- $40 million is on top of that. And there was more -- just we've seen a lot of the investments we've made on capital projects have been on skilled nursing facilities, but we've seen assisted living operators approach us about adding on to assisted living. So, it's not adding AL to SNF, it's just that some of our AL properties, operators have approached us about expanding the existing assisted living facilities or adding other projects such as maybe memory care.

Okay. And then when you look at these projects, are these - I guess what do you expect in terms of actually getting these capital investments made and trying to earn some revenue for you guys?

We've been in discussions with -- I mean, parties. I think that the skilled side pulled back a little bit with the reduction in Medicare rates and going through the cost mitigation side. So now that they've been working through that, I think as we get toward -- into the first and second quarter, I think we'll see people now focusing on that and being able to implement this. I think, as I indicated, it will be towards the latter part of 2012 when we see these projects start to commence the construction process or renovation process and then you'll probably see the increased rent occurring in 2013, most likely, depending on the size of the project, but we have a number of projects that are fairly sizeable that are in the $2 million to $4 million range, and some a little bit higher than that.

Okay, great, that's helpful. And then on the memory care construction project, you have a letter of intent, would that be kind of a similar structure as the replacement property that you're building now and can you just give us the yield on that?

Sure. We would -- it would be a similar process where we would be capitalizing interest from the construction process. The yield we'd be looking at -- on memory care, we are looking around the 9% range, give or take. It depends upon the credit enhancements that we get out of the transaction. It depends on who the operating company is. So there's different factors that go into that, but give or take, the 9% range. On the one we are looking at on this will be 9.25%.

Okay and then just kind of continuing on that, what are you guys seeing, broadly speaking? It sounds like you're looking more at assisted living than you have over the last year or 2. Just broadly, can you talk about cap rates and if you're seeing compression or if you are able to underwrite some of these investments more accretively, given your cost of capital, et cetera? Just how you guys are kind of looking at pricing and accretion and ability to make investments now?

Actually, Andy, do you want to take that?

Yes. This -- the inherent risk in SNFs is always a little higher, we think, than assisted living. It's more government-dependent. It has a higher operating leverage, so the earnings are more volatile. So we always underwrite those to a little higher coverage ratio. I think now there are more skilled nursing facilities on the market and prices have not adjusted downward quite yet. We've always been quite conservative. So if you look back at our acquisitions, we got a lot of them done with new buildings or almost new buildings at or below $120,000 add and those were in major metropolitan markets. So on that side, I would say our underwriting is probably around 9, plus or minus, and on the -- I think for an existing ALF, which we are very -- still very interested in, it's probably going to be around 8, plus or minus. And those properties are very popular, they go fast. So we have to -- we are continuing to be nimble.

Okay. So you are not seeing a tremendous -- it's not like there's an increased amount of assisted property that you guys are seeing that may fit your criteria; just cap rates haven't really come into a level you are comfortable with, generally speaking, right?

No. I would -- we are still slugging it. It’s still are slugging match.

Okay. And then last one, but can you guys just remind us what you are expecting for EBITDARM coverage is for the skilled nursing facilities after the Medicare cuts, and if what you've seen in the 5 months so far still -- you still feel good about that projection?

We were targeting about 1.9x and we are still pretty comfortable with that. And James, I want to go back to one other item you had -- one of the other comments you talked about, the $40 million pipeline we have with existing opportunity -- or within our portfolio. There's a couple of projects that we are looking at to possibly adding memory care and those maybe a little bit larger. I'd said on the $2 million to $4 million range, but we are looking at a couple that could be in the $6 million to $7 million range per location, which would be the addition of another service on to the -- same site as the assisted living property. So I just want to let you know we are looking at more significant investments on our existing portfolio.

The next question is from Mark Lutenski, BMO Capital Markets.

Just want to follow up on the memory care initiative. How large do you expect that to get over time as a part of your portfolio?

Well, it's hard to say. Our goal is to make it big enough that it requires its own line item on the balance sheet. So we have a governing mechanism within our line of credit that we can have only x percentage of our total assets under construction. And then I think that limit is like $120 million right now. I mean, that will change. But I expect that any time this year we might have anywhere between 4 and 8 projects in construction. So, if we did that and did it comfortably this year, relative to our access to resources to do this type of thing, I would expect that we would look to be adding maybe $25 million to $30 million a year in memory care. Maybe the -- next year, we'd go a little faster and we'd do a little more if it looks like a successful project, but I think that's about the pace we'd be looking at.

And so, would that be starting in 2012?

Yes, starting in 2012.

And so, is that contemplated in guidance?

No, it's not.

Okay. And then a housekeeping question for you. On the mortgage loan receivable portfolio, you guys have -- there's a couple of maturities in 2012 and 2013. I was wondering what conversations you've had with those borrowers and what indication they've given you for what they’d like to do.

Mark, it's Pam. For the 2012 maturities, it's $2.7 million and we anticipate that that will get paid off; and that is approximately $388,000 of revenue annually that would be going away. In 2013, there's one portfolio that's -- assisted living properties that are secured by the mortgage loan and the principal that's due on maturity is about $15 million. We are going to be in discussions with them this year about possibly refinancing that. So I don't have anything to announce right now, in that we are in preliminary talks, but that is portfolio that we've targeted for perhaps refinancing rather than having them pay off at maturity.

The next question is Daniel Bernstein, Stifel, Nicolaus.

Back to the construction side, the de novo projects, are you building a de novo team or you're adding personnel, and how should we think about your G&A for 2012?

We are not adding any more personnel. We are accessing professionals on the outside, firms that might have new construction management. It's taken us a while, but we've identified a law firm that has some experience in this type of thing, also healthcare building and that sort of thing. So we believe we have a law firm that is multi-state friendly, so can help us through those sorts of things. We've always had an engineer that we've worked with on our properties and our - renovation of those properties. So right now, I think we are going to be using outside resources. If it gets to be a program where we can see a significant future development opportunity, we might look to add a couple of people, but I think right now we are going to try to access outside organizations.

Okay. And how are you actually building this pipeline? Are you approaching different operators that you want to build a new relationship with and say, "This is a project we could do for you," or some of these operators are actually approaching you and go, "We have a project, we have some land. We need some funding and we can't get it at this time from the banks?"

Yes. Let me have both Clint and Andy talk about how we found some of the people that we are currently working with, just anecdotally. We have actually approached almost every operator that we work with and said, "We are interested in doing this." The SNF people understand academically and I don't want to tar them with the whole -- everybody with the same brush, but basically, what we are looking for is the high-end memory care standalone facility. When you talk to a predominantly SNF operator, they always are thinking of how to add the SNF services in addition to what we are talking to them about. So I think we are going to have a little bit more challenge of thinking of a project that way as opposed to a pure memory care, high-reimbursement type of environment. We've talked to some of our ALF operators and they take care of this disease within their 4 walls and some of them are thinking about building outside of those 4 walls too. So we have approached them. And then the new people, Andy and Clint, tell how we've found some of these new people.

All right. The general approach is -- the general marketing approach is to find the names of people we want to meet. We find that -- we do that from resources that are in the public domain, referrals from friends, state associations and various trade organizations and the memory care aspect of the trade associations has become very active in the last 12 months. We are taking a bit of a leading role in that, I'd like to think. We are -- so for instance, American Healthcare Association has a new SNF organization. But they have a new sub-organization that is specifically on assisted living and has a major focus on memory care. So, we are sponsoring some things on that and taking a real, I'd like to, as I said, I'd like to think it's a leadership position. These are fairly new. So being active in those areas, we get names of good companies and we go after them. I'd say that that's been the most successful -- I don't think that's any different than marketing that most of the people on this call do.

And also, it's been -- as we are having conversations and talking to people, whether it be conferences, telephone calls, is getting the word out there. This is something we are very much interested in and we've had phone calls also from people who talked to that person and said, "Oh, you're interested in doing this?" So, it's really getting the word out there that we want to do this. And part of the interest that I've seen in talking to the operators that we are in discussions with is they find it as an interesting alternative to a typical debt equity structure because when they do that, they've got to look at a recap event 5 years down the road, which means they buy the property at an elevated price or what they've helped to contribute into it or the equity owner they monetize the investment for the highest price possible and that operator then loses control of that asset. We really align long-term interest in that regard where we give the operator the ability to have a long-term lease for 20 to 30 years and likewise, we have an investment, a new investment in the portfolio for the long term. So it's a good alignment of interest.

Are the new operators requesting purchase options on these new [indiscernible] properties?

Yes, everybody. Everybody asks for a purchase option. If there's a lease renewal, "Can I have that with the purchase option"? "No, you can have French fries, but you can't have a purchase option."

So, French fries, yes; purchase options, no.

Okay. And then how would you characterize in terms of the split of new operators versus existing operators? I assume if these are existing operators, they're going to be placed in master leases. But if they are new operators, it's not a master leasing; you require some additional credit enhancements. I mean, would that be the right characterization?

I think so.

Yes. I'd say we are probably 80% new operators and 20% existing operators right now. And there are basically 3 types of companies that we are talking to or type of deals. One is a relatively new company that has a few employees that are coming together. They are forming their company, they may have one property that's currently under construction and they don't have a lot of overhead yet but they've got all of the financial people and they've got operational people and some development-type of people. So if we're going to do a deal like that, we are going to be sure that the site is within an area that we already have strong operators. So, should anything happen, we could ask maybe a Brookdale to look at the property and take over the property. If we are doing a development with somebody that is already in the field and has some real operational substance, we might take an investment in an area that we don't have a concentration of operators in. So we are looking at it; there are these companies that we've been talking to are in various forms of maturity and development. And we are underwriting and structuring each deal to take into consideration those factors, which also takes us a little longer. Each one of those deals has a little nuance of accounting issues and so then we have to go back to our accountants and say, "We don't want to have a variable entity here, so how do we do it?" So this year is going to be, though we started I think in the last half of last year and we've made a lot of progress, in the first quarter of this year we've made a lot more progress, and I hope that each transaction will go a little quicker. But that's kind of where we are in the companies that we are talking to and so far the companies that we've seen.

Okay. One more question and I don't want to ruin the joy, but I'll switch to Medicaid. Do you see any -- it's a little early obviously in the budget process in the states, but do you see any budget proposals at the state level that are giving you some concern in any of your major states where you have SNFs?

We continue to see budget pressures; this is Andy, in all of the public reimbursement areas. I don't think that there's any significant change over the last 6 months probably. But that's not just Medicaid, it's Medicare and it's going to be constrained. That's why we have all of these underwritten very conservative ratios and we have great coverage in our SNFs and we just want to grow more private pay.

There isn't any state that -- any operator that we've talked to that we are aware of that has any significant issues on the budget table. The only state I'm aware of is Illinois. We don't have any -- I don't think we have any assets at all, SNF or ALF in Illinois. So we are not aware of any significant state changes.

The next question is Todd Stender, Wells Fargo Securities.

In Kindred's release they indicated that the Medicare cuts have been deeper than they originally estimated. Can you comment on how their comments compare to what your operators are saying or maybe this is a Kindred-specific issue?

It might be a Kindred-specific issue, because our operators are not indicating that they -- it's deeper than they thought. Now, Kindred could include their LTAC impact, which, our operators don't have LTAC. And Kindred might have had a more acute base of residents than our operators have. So our operators are not indicating that it's a deeper cut than they thought and from the conversations Clint had with operators based on their yearend results, they've been able to mitigate about 50% of the impact.

Okay. So that's essentially unchanged. I think it was about 50%. So, essentially their cost mitigation efforts are on track.

Correct.

Okay. And along those same lines, any comment on we -- or the industry could potentially see the Ventas' SNF portfolio go-to-market? Does that do anything to pricing and any comments about that?

I don't have any comments on that. I think we've let Ventas know if they are going to sell, come and look at us or give us a chance to look at the packages or package. But we’ve heard just through the grapevine that there might be several large packages of skilled properties on the market. So we are just going to have to see.

In bite-size pieces where LTC might be interested?

Yes.

Okay. And can I get an update on Assisted Living Concepts? Any thoughts or updates on that company?

I don't have any updates. Has their coverage ticked up 10 basis points that usually ticks up?

Their occupancy was relatively flat and so was coverage. So, really no change from the prior quarter.

The next question is from Karin Ford, KeyBanc Capital Markets.

You've hit $100 million of acquisitions in 2010 and then again in 2011. And I recognize that it's hard to predict where things are going to go through the course of the year, but just based on your pipeline today, the fact that its activity seems to have picked up back again, plus your new memory care initiatives, do you expect that there is a chance that LTC could do another $100 million of investments in 2012?

Yes, I do expect that we could do that.

Okay. And then the other question is just a follow-up to that last question on the SNF portfolio. Would LTC potentially be a buyer in a large portfolio type of transaction or do you think you'd only look at sort of either one-offs or couple of portfolio -- couple of property deals?

Well, it would be a hard decision, Karin. I mean, if the deal were very, very good, we might do a large portfolio deal. But we are so comfortable with our balance sheet being sort of half-and-half and we are making an effort to buy into more of the private pay that if we did a big SNF portfolio, it would just - it would change the sort of nature of our company. But it would be something if it was the right thing or a good deal to do. I think we would have a long Board meeting about it.

Helpful. And then just a final question. You mentioned that you probably want to term out some of your line exposure this year. What type of timing do you expect on that? How much line exposure are you comfortable before you want to do that and would you -- would the likely refinancing of that be the Prudential debt?

We've been talking to several people about doing some term debt, which seems to be attractively priced right at the moment. The problem with the term debt is that the term basically is 5 to 7 years, where Prudential we can go out further. So, in terms of when we might do it, I think we are, as a management group, are comfortable having between $150 million to $200 million of real liquidity, meaning we could draw very quickly. So that as we send out LOIs, we know that if we get very successful, we actually do have the liquid assets. So when our line gets to be over $100 million, I think you'll see us doing something like that; some sort of terming out.

Yes, that's helpful. And then just what's the type of rates you get quoted on, on term debt?

Similar to our line, and as low as 140 over LIBOR was one of the discussions we had. Our line is currently 150 over LIBOR. So the term rate was even more attractive than our revolver.

And if you swap that out to fixed, would that be roughly in the 3s?

Yes.

[Operator Instructions] Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Wendy Simpson for any closing remarks.

I want to thank everybody on the call again for taking your time and your interest in LTC. We'll be talking to you relatively shortly after our first quarter. We will do a separate press release when we have the signed documents for the $18 million acquisition that we talked about today. And hopefully, we'll have some more press releases in the near future. Thank you so much. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.