Good morning and welcome to the LTC Properties First Quarter 2018 Results Conference Call. [Operator Instructions] 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 Properties’ filings with the Securities and Exchange Commission from time-to-time, including the company’s most recent 10-K dated December 31, 2017. 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, CEO. Please go ahead.

Thank you, operator and hello everybody. Welcome to LTC’s 2018 first quarter investor call. Joining me today are Pam Kessler, our CFO and Clint Malin, our Chief Investment Officer. I will begin with brief introductory comments, including the sale of our Sunrise portfolio and update on Anthem and a slight upward revision of our 2018 guidance. Pam will follow me with a discussion of our financial results and Clint will provide commentary on our portfolio pipeline and operator partner performance. I will come back with a quick wrap up before we begin questions and answers. Earlier this month, we announced the successful closing for the sale of our Sunrise portfolio. As you know, the master lease related to the portfolio expired on April 30 and we had been seeking to re-lease or sell the collection of 6 senior living centers in Ohio and Pennsylvania. The properties generated good cash flow and are located in strong markets. As a result of a rigorous process to identify a new lessee or buyer, we determined it more prudent to sell the portfolio for $67.5 million and reinvest that capital into newer, more modernized assets. Pam will provide additional detail shortly. Although we did not make any significant investments during this quarter, we funded a new loan with Prestige Healthcare and identified some new potential opportunities. Clint will provide additional color later in the call. Next, I will provide a brief update on Anthem. As a reminder, we anticipate 2018 rent from them to be $5.2 million. Two Anthem properties in the Chicago area that we have previously discussed as having occupancy challenges have improved. Tinley Park occupancy was 56% at April 30, up from 47% at the end of January. And Burr Ridge, the occupancy has grown to 71% from 67% on January…

Thank you, Wendy. NAREIT FFO was $0.75 which was $0.03 lower than in last year’s first quarter. The decrease was the result of a reduction in rental income related to properties we sold last year, Anthem’s previously disclosed default and higher interest expense resulting from an increase in net borrowings. This was partially offset by higher income from acquisitions completed development and capital improvement projects and mezzanine loans accounted for as unconsolidated joint ventures. Revenue was down about $800,000 from last year’s first quarter, primarily due to reduced rental and interest income. Higher income from unconsolidated joint ventures which represents income from mezzanine loans was a partial offset. G&A expense was generally in line with last year and as typical seasonally slightly higher in the first quarter due to the timing of certain expenditures. G&A is expected to be approximately $4.6 million to $4.7 million per quarter for the remainder of 2018. As Wendy mentioned, we funded our loan with Prestige Healthcare for $7.4 million and committed an additional $1.7 million for the renovation of 112 bed skilled nursing center in Michigan. During the quarter we also funded $11.3 million under existing commitments for development and capital improvement projects. At March 31, we owned three properties under development and two under renovation with remaining commitments totaling $40.5 million. We also have $17.2 million in remaining commitments under mortgage loans for expansions and renovations on seven properties located in Michigan. Related to Sunrise, as Wendy discussed subsequent to the end of the quarter, we sold the portfolio for $67.5 million and received net proceeds of approximately $65 million. We expect to record a gain on sale of roughly $48 million in the second quarter. The immediate use the proceeds was to paydown our line of credit. However, given the nearly $58…

Thanks Pam. Our active pipeline is valued at approximately $50 million. We are currently engaged with two potential off market transactions comprised of four properties with two private pay operators, both of whom would be new to our portfolio. Transaction I have discussed before in Oregon comprises the acquisition of an independent living community and the development of an assisted living and memory care community on an adjacent land parcel to create integrated campus. The second potential transaction is for the purchase of two private pay memory care communities in Texas which were built in 2014 and 2015 respectively. The communities include a total of 84 units comprised of both private and companion suite accommodations. We are selectively looking at standalone memory care in certain markets, where we can work with a well-capitalized operating partner and where there is a solid potential for relationship growth. Additionally, we are continuing to cultivate several off-market opportunities both with existing operator partners and with companies that can expand operator diversification within our portfolio. As I mentioned last quarter, off-market opportunities take a bit longer to complete, so they are not included in our active pipeline. We are exercising patience, but we continue to identify new opportunities. We feel good about LTC’s position and ability to attract new investment opportunities which help us grow well into the future. On the heels of the sale of the Sunrise portfolio, we recently began the process of either selling or re-leasing two properties in California. These properties are assisted living communities operated under a master lease that is expiring at the end of November. The operator has notified us they will not renew the lease, but the communities do generate positive net operating income. While both re-leasing and selling the properties are viable alternatives and the properties…

Thank you, Pam and Clint. As you have all likely heard by now, there has been an industry-wide drop in senior housing occupancy with average rates falling to a 6-year low according to NIC, including a 90 basis point decline from last year’s levels. In fact, the most recent NIC report did not provide much good news for our sector. However, we all know that the long-term demographic trends remain strong. I believe LTC has managed well through this challenging seniors housing environment. We have remained highly disciplined, innovative and well-funded being careful not to make investments that are not real value add to LTC. We could grow for growth sake, but that’s not LTC’s style. We are measured strategic and conservative in everything we do and that framework has served us well. We plan to continue along the same path of meeting the needs of our operating partners through financing flexibility and creativity while maintaining a steadfast focus on sound investing. If it takes us a bit longer to complete deals in this environment, we are okay with that knowing that when we enter into a transaction it will be one that benefits not only our partners, but the shareholders of LTC. As I say on every quarterly call because I feel it is important to reiterate, we have built a portfolio to generate FFO through 2018 and beyond. We are well capitalized and we successfully have demonstrated our ability to provide creative ways to add value for our partners and our shareholders. And we will continue to focus on the needs of our partners while continuing to drive long-term value through a culture of trust, transparency and shared success. Thank you for joining us today. We will now take your questions.

Thank you. [Operator Instructions] And our first question will come from Jordan Sadler of KeyBanc Capital Markets.

Thank you and good morning. I want to do just touch based on the gain on the Sunrise assets, I think Pam in your commentary you said you initially you paid them the line, and then you will use ultimately the proceeds to fund some of the remaining capital commitments, but just from a tax perspective can you may be elucidate the point how that capital gain will fit within your overall distributions requirements for the year, will there be any 1031 activity or is this going to be absorbed through that increase or special or what?

Yes. Hi, Jordan. We are not anticipating any special dividend. We have room in our dividend to support more sales without necessitating a special dividend, so no, we are contemplating that in any of our sales transactions this year.

Okay. And no 1031s obviously?

No.

Okay. And I guess I don’t know if it’s too technical, but I thought this gain is well over $1 a share and your current dividend is certainly two in a quarter or there about, with this put upward pressure on you guys to increase that normalized dividend this year or there is enough room because you are relative to your operating cash flow?

Yes. There is room, if there is not – this sale doesn’t alter our dividend policy for the year as you know we target 80% payout ratio. So we are comfortably within that for this year.

Okay. And then separately Clint, you spoke to the $50 million active pipeline, the cap rates that you would be targeting on the memory care facilities in Texas and then in Oregon?

We are looking in the 7 to 7.5 range.

Okay. And the last one Clint for you is just on the expiration in November, what is the rent and the coverage on those facilities today?

The rent of these facilities you want cash rents or do you want GAAP rents on those two buildings?

I guess.

So right now on the cash rents for these two buildings it is on the trailing 12 about 3.2 million.

3.2, I assume the GAAP is lower.

Correct. And the coverage on this is right around 1 times.

Is that cash coverage?

Correct.

Okay. Thank you, guys.

Thank you.

Thank you, Jordan.

Our next question will come from Chad Vanacore of Stifel.

Hi good morning.

Good morning.

So, really quickly I missed the FFO guidance, is it up a $0.01 so that’s $2.96 to $2.98?

Correct.

Okay. And then Clint you gave some helpful numbers on the Thrive occupancy gains, can you give us some color on how all the margin and expense management on those properties are performing post-transfer?

The margin side, they have some compression in the margins as far as we mentioned before on the last quarter’s call about on the available communities that there was higher residence that Thrive had to manage down on that and there has been some utilization of agency labor usage in a couple of the properties. So, we have been engaged with Thrive in working with them and they are working to make sure they are managing that down. So, the transition of buildings does take a little bit of time to go ahead and accomplish. We have seen that in other circumstances and I think we have been working and they are managing through, they are aware of it. I think we are making progress on that.

Okay, great. That’s it for me. Thanks.

Thank you.

And next we have a question from Michael Carroll of RBC Capital Markets.

Yes, thanks. Clint, can you provide a little bit more detail on the three tenants that you mentioned that weighed down coverage results, where are the coverage ratios at right now and are they implementing other types of policies to help improve their operating performance or they are just waiting hoping for Medicaid and Medicare rates to increase?

Sure, good question. We haven’t given coverage by specific operator, but in the case of one operator in particular, which we have talked about on previous calls is they did see a decline in Medicare and Skilled Census which they have taking note of and indicated they probably can do a little better in managing through increasing that Census and quarter over quarter for that one operator, we have seen an increase in skilled mix, not back to where it was probably 12 months ago, but sequentially quarter over quarter they made progress on that. We do have one operator in the portfolio that has definitely made a push for gravitating away from rehab and more towards complex care, pulmonary cardiac event programs and they have invested a lot of time and capital and resources into that we put in policies and procedures hiring up, buying equipment. So they have made that investment and now they are very pleased with the proposed rule of the PDPM model that would shift reimbursement more towards complex care. So they are excited that. Obviously, those reimbursement rates will not take effect until 2019, so that’s off into the future, but I think they are making positive steps to gravitate towards that. So, it’s one example what we are seeing with one of the operators.

And how big are these tenants right now as all of the weakness I am shown through the coverage ratio, should we expect the coverage decline again next quarter?

We know given the – I mean, the tick down obviously, the larger operators that contribute to the tick down on that. So, these are operating companies that are large organizations and have scale and we might see a tick down possibly in coverage, because we have got strong quarters back in 2017 falling off in a couple of cases where maybe a weaker third quarter, but sequentially we have seen growth. So, growing coverage again may take a little bit more phase-in just as we have strong quarters that are in the legacy part of that trailing 12 if they fall off and you have more challenging courses still remain, it takes a while for coverage to regain.

Okay. And then I guess Clint or Pam, maybe you could talk about how many coverage ratios or how many leases do you have right now with our coverage ratios are considered fairly tight in the average EBITDA ratio just above 1.3, I mean, is those sort of coverage ratios above 1.2, I guess what’s the distribution?

I would say the distribution is we don’t have any large outliers of material rent within our portfolio, so it would fall within that band.

Okay. Thank you.

You are welcome. Thank you.

Your next question comes from Daniel Bernstein of Capital One.

Hi, I wanted to continue on a question on the SNF coverages and those properties you talked about you that we are struggling, are there corporate guaranties there given so large entities and if you could talk a little bit about security on those leases?

In one case we do have the corporate guarantee. In other case we have the parent company as the lessees, so it’s a combination of that and different operators. We have a strong security deposit. One, we have got corporate NT as the lessee on one and then we have a strong letter of credit as well as the corporate guarantee on another.

Okay. And those tenants are current on the rent?

Yes.

Okay. And then going back to Sunrise, I just want to understand the – obviously, your peers saw the value in the assets and re-leased them and as such want to understand the thought process and went through on that sale versus lease for the Sunrise assets, so a little bit more?

So when we run a reverse process engaging bankers to assist in the process, we had options to look at both leasing and sales and I think for us given the pricing is attractive for us to look at for the buyer. They had a strong relationship with a company that was growing in that marketplace. And I think we have worked well for them to lay this into an existing operator relationship.

Is it also part of a the strategy to reduce the age of the portfolio, I know you talked about some additional assets that could be sold later this year that are all 20 years old, so what’s the strategy to I guess improve the age of the portfolio going forward?

It’s absolutely a consideration. I mean, Dan, we have talked about number of our last calls about continuing to want to invest and reduce the average age and invest in new and modernized assets. And you can see that by lease up page on our supplemental we have that’s been the strategy of ours. And so when we have a situation of looking at re-leasing or selling assets and it comes down to if we can get an attractive price where we think we can reinvest that capital to bring in new and modernized assets. We think that strategy makes sense for us and that’s the same thing we are going to look at on the two buildings that the lease expires at the end of this year, we will look at pricing and look at lease options. And we will see what is the best option for us that’s definitely a consideration as assets age we want to look at how do we continue to reduce the average age in the portfolio, we think that’s a good long-term strategy for us.

How significant was the age of the portfolio in your lease coverages in seniors housing improving versus I think many other REITs have hit some deterioration given the oversupply in the industry and just want to understand the performance of your seniors housing versus maybe the industry?

As far as the average age I don’t – maybe we have the average age. Right now, we executed on the sale of some of the ALC assets couple of years ago. We did a follow-up sale in 4 assets and we sold the Sunrise asset. So, that alone is 25 properties that were probably all in the late 90 to early 2000 vintage. So, the selling of those assets and then investing in new development on a lot of these private assets, I mean, definitely has changed our average age in our private pay portfolio. We can get the number to you on the average age, so we can then follow-up.

Yes. I think it’s around 20 years if I am recalling it. It’s in one of our prior presentations, but it really is, I don’t think that average age is that indicative, because we have got a lot of newer assets that are less than 5 years old and then we have portfolios that are more legacy and that are 20 years old. So the mean there is not that meaningful I don’t think.

Okay. We have a portfolio of Brookdale assets which have very strong coverage and those were late-‘90s, early 2000 vintage properties. But again those properties have very strong coverage.

Okay. I will leave the floor. Thank you for all the color.

Thank you.

[Operator Instructions] Our next question will come from Karin Ford of MUFG Securities.

Hi, good morning. I am wondering to see if I could get your latest thoughts on where the Anthem lease should ultimately shake out as they continue to make progress on the leasing. Do you think the end of the year is sort of the right time to see the forbearance and any thoughts on where that the permanent rent will ultimately be set?

I won’t predict the permanent rent. I think we gave quarter by quarter rent last time and I don’t have it in front of me, but I would assume that it would be no less than the fourth quarter run-rate for 2019. We have got to see how well Glenview is doing, which seems to be doing extremely well and we will see about Oaklawn. They are on a month by month, quarter by quarter review, so right now they are showing some increases in occupancy. The industry has had some problems with the last flu season and some not admit periods, because of illnesses within properties. We will have to see how that has impacted Anthem and monitor it constantly going forward. And so like we have in the past when we had to explain ALC, we will keep explaining Anthem and Thrive as they lease up and we certainly will give you as much color into them as we possibly can, but to predict where they are going to be by the end of the year, I don’t want to go over anymore than what we have given for the fourth quarter cash rent right at this moment.

Okay, fair enough. Question for Clint on the investment pipeline, it sounds like it’s heavily weighted towards senior housing as opposed to skilled. Are you guys looking at skilled within the larger portfolio or is the goal really to focus on senior housing on the new buys and in new development?

We have always been a supporter of the skilled nursing side. It just happens that opportunities that we have looked at have a nearly good fit for us on the skilled side. I mean, we would continue to look at it for the right opportunities and the right operating partner and obviously we are looking to expand with existing operators in our portfolio. So, it just happened that opportunities haven’t come across in the skilled side, yes that have fallen into our active pipeline.

Thanks. And then just last one for me, sorry if I missed this, but did you guys give an update as to where your property stand within the preferred care bankruptcy?

We did not give an update on that, Karin, but right now, they are progressing in the bankruptcy. Right now, they have June 11 is the date to assume or reject leases. We understand that preferred care has extension – 90-day extension for that, we still mindset in preferred care. So, we indicated they would want to assume our leases. I think part of that’s the extension of the assumption rejection date relates to the transition of the buildings in New Mexico and Kentucky. I read on Omega’s transcript they are working on transitioning 16 buildings that was referenced on their earnings call that they are transitioning to operators within their portfolio, which should occur in the fourth quarter I believe what was mentioned on Omega’s call. So, I think that’s the gating item to being able to conclude that bankruptcies exiting the New Mexico and the Kentucky property leases they have.

And they are still fully current on rent correct?

That is correct.

Thank you.

Thank you.

Thank you, Karin.

And this concludes our question-and-answer session. I would like to turn the conference back over to Wendy Simpson for any closing remarks.

Again, thank you all for spending your time and listening to our presentation. We look forward to talking to you again early fall. Thank you. Have a great day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.