Good day and welcome to the LTC Properties' Third Quarter 2020 Conference Call. After today's presentation will be an opportunity to ask questions. [Operator Instructions]. Before management begin this presentation, please know that today's comments including the question-and-answer session may include forward looking statements, subject to risk and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties filings for the Securities and Exchange Commission's from the time to time, including the company's most recent 10-K, dated December 31, 2019. LTC is undertaking no obligation to revise or update these forward looking statements to reflect the events and circumstances after the date of the presentation. Please note this event is being recorded. I would now like to turn the conference over to Wendy Simpson.

Thank you, operator. And good morning, everyone. Welcome to LTC's 2020 third quarter conference call. Joining me today are Pam Kessler, our Co-President and Chief Financial Officer; and Clint Malin, Co-President and Chief Investment Officer. I'm excited that we also have Mark Parkinson from the American Health Care Association with us to discuss how our industry is responding to the COVID-19 crisis, specifically as it relates to the CARES Act and government support in the seniors housing and skilled nursing space. Before I begin my business review, I want to again thank our operating partners for all of their efforts to keep their patients, residents and employees safe during the pandemic. It bears repeating that we could not be more in awe of their responses to the extraordinary challenges they have faced over the last many months. And we know they will valiantly face several months to come as some areas experience resurgence of cases as we enter the winter and flu season. I would also like to quickly update you on the story we told you last quarter about Mary Daniel, the wife of an Alzheimer's patient at one of our communities. Mary took a part-time dishwashing job so that she could spend time with her husband amidst visitation restriction. Because the governor of Florida recently eased COVID related restrictions for senior housings and care visitation, Mary completed her professional dishwashing career and can now visit her husband at will adhering to all proper safety protocols of course. The community RoseCastle at Deerwood, which is operated for us by ALG Senior has maintained close ties with Mary. She continues to be active in the media speaking positively about RoseCastle, as well as advocating for families across the nation who are trying to find ways to see and visit their…

Thank you, Wendy. Total Revenue decreased $8.9 million compared with last year's third quarter, primarily resulting from the $5.5 million write-off that Wendy discussed, a result of transitioning two leases to cash basis accounting as of September 30, 2020. Genesis disclosed in its most recent 10-Q, that there was substantial doubt about its ability to continue as a going concern. LTC continues to collect all contractual rent due from Genesis. However, the level of certainty regarding the collectability of future rent from Genesis through lease maturity does not meet the threshold required to maintain it on an accrual basis. The other operator did not pay its full contractual rent for the third quarter of 2020 due to COVID-19 and we wrote-off their straight-line rent balance. During the quarter, we provided this operator with rent support in the form of deferrals and abatements totaling 756,000. As with Genesis, the level of certainty regarding the collectability of this operator's future rent through lease maturity does not meet the threshold required to maintain it on an accrual basis. Decreased rent from Preferred Care resulting from the sale of that portfolio earlier this year, lower rent from Senior Lifestyle, deferred and abated rent, and a reduction in property tax revenue also contributed to the decline in total revenue. Offsetting these reductions were contractual rent increases, increases related to acquisitions and completed development projects, and higher rent payments from Anthem. Interest income from mortgage loans increased $244,000 due to the funding of expansion and renovation projects. Interest in other income decreased $535,000 due to the partial pay down of an outstanding mezzanine loan as well as a reduction in miscellaneous income. Income from unconsolidated joint ventures decreased $704,000 in the third quarter due to the repayment of a mezzanine loan accounted for as a joint…

Thanks, Pam. I'd like to start today with our two recent investment commitments totaling nearly $20 million. First, as Pam mentioned, we invested $6.3 million in preferred equity in an entity that we developed and owned 95 unit assisted-living and memory care community in Arlington, Washington, a suburb of Seattle. Magnolia Place at Smokey Point is being developed by Fields Senior Living in conjunction with RJ Development, both of whom we have successfully worked with in the past. Fields will operate the community, which is currently scheduled for completion by the first quarter of 2022. When complete, LTC will have five investments with Fields, two in California, two in Oregon and one in Washington. LTC's investment represents approximately 15.5% of the total $40.8 million estimated project cost. The second transaction is $13 million preferred equity commitment Pam discussed. Located in Vancouver, Washington University Village of Salmon Creek is an independent living and assisted-living community with a total of 267-units being developed by Koelsch Communities, the current operating partner. Koelsch is also working with RJ Development. Koelsch will operate the community, which is currently scheduled for completion by the end of 2022. At completion, LTC will have three investments with Koelsch, two in Texas and one in Washington. LTC's initial investment represents approximately 11.6% of the total $112.3 million estimated project cost. In the current environment, we have focused our efforts on deploying capital in structured finance projects, and these preferred equity deals with Fields and Koelsch demonstrate our ability to successfully transact in this market. We are continuing to identify additional investment opportunities, including mezzanine loans, bridge loans, and unit tranche loans. In this environment, we like their shorter duration and what we believe to be better risk-adjusted returns. Moving now to our developed projects. Our joint venture project with…

Thank you, Pam and Clint. Despite the write-offs we have experienced so far in 2020, we continue to see signs of progress within our portfolio and throughout the industry as a whole. Our operators have learned a lot during the last several months, and I believe they understand the steps required to safely expand visitation and accept new admissions while still focusing on the care of their residents, patients, families and staff. Again, we owe all senior care operators, our sincere thanks for all of the hard work they have done and will continue to do. I also want to express my gratitude to the LTC team which has seamlessly transitioned to a virtual workplace that allows our employees and their families to remain safe without missing a beat relative to their duties and responsibilities to LTC. The population is aging and their need for care is growing. This is a constant that will not change for years to come. As we look forward to the time when there is greater sense of normalcy, I am confident in LTC's ability to build our portfolio and our diversification of investments and, more importantly, generate new opportunities to further secure our long-term path as a REIT done differently. With that, I'm honored to welcome Mark Parkinson to today's call. Mark is currently CEO and President of the American Health Care Association, the nation's largest association of long-term and post-acute care providers. AHCA has long advocated for quality care and services for the frail and elderly Americans and has played a large part in lobbying the government for the much needed COVID-19 aid. Earlier in his esteemed career, Mark was the governor of the State of Kansas. After Marl's presentation, we will open the lines for questions. Welcome, Mark.

Thanks, Wendy. And I appreciate the opportunity to make some comments about the sector in general. By way of background, I'm the President and CEO of the American Health Care Association and the National Center for Assisted-Living, which is the largest long-term care trade association in the country. We represent 10,500 skilled nursing facilities, almost 70% of them across the country and another 4000 assisted-living buildings. And in addition to my political background, my professional background is that my wife and I built, developed, owned and then operated both skilled nursing facilities and assisted-living facilities in the Midwest. I'm happy to make some comments about the whole COVID situation, the DC response and where I see this headed in the future. At the outset, it was very clear, eight months ago, that the COVID crisis presented both the most significant clinical challenge and the most significant business challenge that the sector had ever faced. On the clinical side, we have never faced a virus or a disease process that killed 15% to 20% of our residents who become affected, that infected literally hundreds or thousands of people, many of them living in long-term care facilities, it is a clinical challenge that we have never faced before. And on the business side, we knew that we had our hands full as soon as that Kirkland incident occurred and we saw what happened there, both on the census side and on the regulatory side, and then as cases started spreading across the country, we knew that from a business perspective this was going to be an enormous challenge. There were many unanswered questions back in March. Would the sector collapse, would residents flee the buildings, would the employees flee to buildings? And what we now know eight months later is that the…

I would like to turn the call back over to Wendy.

Thank you, Jordan. And thank you, Mark. That was a lot of wonderful and understandable information. Jordan will now start taking calls from people on the call.

We will now begin the question and answer session. [Operator Instructions]. Our first question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

Hi, thanks for the time. Just wondering on the political discussion the three-day stay waiver where it's been tremendously beneficial, what's the probability, Mark, in your viewpoint that that it gets permanently waived or do you think that's unlikely?

Great question because you're absolutely correct. As you dive into the financials of these providers, it's been a really important thing in keeping revenue and for some companies at 2019 levels, even though census has dropped 10% or so. I feel confident that we're going to be able to continue to extend it along with the public health emergency for at least the next couple of quarters. So it's currently set to expire on January 22. I'm confident that whether it's President Trump or President Biden, that will then be extended another 90 days, and I think probably another 90 days beyond that. So that gets us, past the first half of 2021 and hopefully past the worst of the pandemic. There is a growing appetite among providers to put at the absolute top of our lobbying list for 2021 a permanent elimination of the three-day stay. So that is absolutely on the list, that it's too early at this point to give any sort of probability that will be connected to whether or not we can succeed with that. It's going to be really interesting to go into the numbers as we're able to look at the last quarter or two, to see what the financial impact and cost is to the government and that will certainly be making a case for it. It's too early to know that whether or not we're going to be able to get in changed or not. I think that it probably increases the likelihood of getting the rule changed that observation days don't count for purposes of three-day stay. I think we're probably improved our chance to get rid of that rule, but too early yet to handicap a complete elimination.

Great. And then for the LTC team, this new kind of trouble tenant that had abatements and deferrals, was there any permanent abatement? In other words, has the rent changed going forward of what was previously stuck or is the expectation that once things normalize it -- that there will be a revert back to the previous rent structure and you could just give a little bit more color there.

Juan, its Clint. We did not change, as Wendy mentioned in her comments, we did not change the rent going forward. What we addressed was rent through August as far as the abatement into September, and then the deferred rent that we provided for going forward. So no change to the contractual rent.

Our next question comes from Jordan Sadler with KeyBanc. Please go ahead.

Thanks. And good morning and thank you, Mark, for all your time. A couple quick ones for you, hopefully. Coming back to this, the three-day waiver, are there any metrics around the number of beds that have been converted or that you've seen converted to skilled, and so how much providers are taking advantage of this and how pervasive it generally is? It seems like a potential area of risk in a sense on the other side. So I'm just curious, your thoughts there. And then the -- just coming back to the census issue, the 1,000 or so basis points, the 10% of loss of census, where is it your sense that the patients are going, essentially that residents are going mostly that they'd have to be sort of pulled back from?

Sure. So first on the three day stay, we don't have any visibility on the total number of skilled beds pre-pandemic versus post-pandemic. My guess would be that it would be roughly the same, that the three-day stay waiver is neutralizing the decline that would have occurred without it. And so we're seeing less folks come in from the hospitals for a variety of reasons because -- and I'll talk about in just a second because it ties in to your census question. But that's being made up for by people that are being skilled in place. And net-net, I don't think that there will be an addition. That will how it will be a provider by provider issue, there are clearly some providers that are very aggressively skilling people. And then there are other providers that that either aren't aware that they have the ability to do that, or made the decision not to. And so the overall, impact for them is much less, but I think net-net, we're going to see that it's a neutralizing factor to the decline in the normal post-acute census. All of that though, speculation and anecdotal, just based upon me talking with providers, we don't have any data yet. In terms of census, I think that the hope is that census will turn on several different things. First, it will hopefully turn once we get a vaccine. And so once folks feel a little more comfortable with having loved ones in facilities, because of a vaccine it will turn at that point. Second there appears to be relationship, and I think this is probably particularly true in the AL space between visitation and census. People don't want to move into a facility, if they don't think they can have any visitors at all.…

Thank you for that. And then maybe just one quick one for folks at LTC. Just on SLC, any guideposts you guys can offer in terms of the net impact of transitions that you might see as we look forward to the front half of 2021?

Sure. Jordan, when you say net-net impact referring to timing of transfers?

Okay, so your original face rent was, let's say, $20 million with SLC and right now, I think you're booking, you're assuming $900,000 a month but you actually received $1.3 million in October, I'm trying to understand, like essentially, any kind of range. Is it somewhere between the $10 million and the $20 million that you ultimately expect to receive on a run rate basis upon transmission of these properties in 1Q '21 or is it narrower or wider? How do we think about it?

I think at this point, Jordan, we're actively engaged in the process of re-leasing and looking at selling some of the buildings. So I think because as we have more visibility as we're making more progress, as we mentioned on our prepared remarks of having majority of the transitions completed by first quarter. Hopefully on our next call, we will have more visibility on what that looks like. We're actively in negotiation process. So it will be hard to give you the details right now, but I think in a quarter, we will be able to give you more clarity on that. But one thing I can tell you is that what will likely happen is there will be phase-in of rents over time, over a period of probably two to three-year periods as rents are stepped up over time.

And how much did you record from them in the quarter?

3.3?

Yes.

$3.3 million.

$3.3 million, okay. Thank you guys.

You're welcome.

Next question comes from Michael Carroll of RBC Capital Markets. Please go ahead.

Michael, you might be muted.

Next question comes from Daniel Bernstein with Capital One. Please go ahead.

Hi, good morning. I appreciate all the comments from Mark. Two questions, one for LTC and one for Mark. LTC question, a number of REITs and operators had been noting higher move-outs in senior housing in the last few weeks or month or so. Have you see that in your portfolio, kind of what were your thoughts on that phenomenon at this point, and maybe the causes for that and how systemic it is versus short-term?

Sure, Dan. Being on the triplet side, we're always getting information in our ears from operators, and going into our call, we're getting updates from operators on census, which I provided. We have not had any operators express more concern recently over move-out. So that -- it just seems like the deceleration of the occupancy declines, that's decelerating, but haven't had significant concerns have been communicated to us about them.

Okay.

I think at this point, it's too premature to speculate on the decrease in October, because that is a point in time and you could have move-ins that come in towards the end of the month, and it would be back up to 77% like it was at September 30. So I would be reluctant to read anything into that, at this point.

And then, Mark, we haven't heard much about bundled payments lately, that was somewhat of a hindrance to the SNF industry, prior to President Trump's administration. If we have a changeover in administration, how concerned is the industry about bundled payments and some of those other items that have kind of been put on the backburner by the Trump administration? It seems like that would might be an issue going forward.

Sure. Well, both the Obama administration and the Trump administration had a choice to make as it relates to post-acute payments, which is to whether to go towards a full blown bundled type payment or whether to work with the per diem type payment. And the decision was really made, even though there was a lot of talk about bundling, the decision was really made by both administrations, but obviously, clearly by the Trump administration, to head away from bundling and finalize PDPM. And so PDPM which we talked a lot about coming into the year, and we haven't talked about it at all, because of the COVID crisis, the PDPM has worked pretty darn well. I think people that have had a chance to look at it on the policy side, think, hey, this was pretty smart. And so I think it's unlikely that there will be a radical departure until PDPM is allowed to fully mature and work its way for good probably three to five years. At the same time the health policy people in a Biden administration are basically going to be the same health policy people that were there in an Obama administration. And they all to a person very much like the idea of value-based purchasing, bundled payments, et cetera. So I think they're going to spend first year, assuming Biden wins, just kind of both fighting the COVID crisis and trying to get through COVID. And, then I think you'll see, we get re-attention to things like bundled payments, et cetera. But it's going to take a while, and we don't view it as a threat at this point. We all tend to think that in a bundled world, sophisticated operators can actually do quite well in a bundled world. So there's not near the fear but then maybe they're right in the sector five or so years ago.

I appreciate that. I hadn't quite thought about in that way. So that's all I have. I'll hop off. Thank you.

[Operator Instructions]. Our next question comes from Omotayo Okusanya with Mizuho. Please go ahead. Omotayo, you might be muted.

Mark, thanks again for the insightful comments. Two quick ones for you. If the assisted-living industry does end up being successful in getting decent government aid, is there any risk that it gets increasingly regulated? And what form of regulation could that potentially take?

It's a very good question and it's a question that I think the boards of all of the assisted-living associations ask themselves prior to making the decision to lobby for the funds. And ultimately, the decision was made that the need for the funds outweighed any risk of potential additional regulation. But I think you're 100% right, we've opened up the door to a discussion about it by accepting the funds. Now I still think that even with a complete democratic sweep, which would bring in a bunch of folks that are more interested in regulation than the republicans, I still think that in that scenario a full blown regulation of assisted-living that looked anywhere near like what skilled nursing is regulated under is unlikely. I don't think that that will occur. I think at the margins, there will be some discussions about whether, for example, states should have some minimum level of regulation, whether there should be perhaps some regulations relating specifically to infection control, like all buildings having to have some sort of stockpile of PPE or all buildings having to have some sort of infection control program. I think you're absolutely correct in your question, it increases the discussion and it increases the probability. But I don't think that there will be the kind of regulatory scheme that nursing homes have suffered under for so long.

That's helpful. And then you also brought up a point of some risk that even post the vaccine that census, whether it's, senior housing goes to nothing, need not necessarily go up. What kind of scenario would create that? And how do you kind of think about the risk of that actually happening?

Well, I think, that first of all, I don't want to overstate the risk. I don't think that's going to happen. I think that census will recover slowly and a couple of years from now we'll be back to where we were pre-pandemic, maybe even a little better because of a contraction in new development. But this specific situation that would create a problem would be if discharged patterns from hospitals were permanently changed. So if hospitals decided, hey, we're able to send people home and get them post-acute in a home setting as opposed to a skilled nursing setting, that would be a significant problem. It just depends, you know, dependent upon the numbers and how big of a phenomenon that was, that would be the problem. So that's probably the -- the single biggest risk that we face at this point is just the change in discharge patterns. The whole notion of whether people will feel comfortable in buildings, that's important. But it's also important to remember that people come into our buildings because they have to, they're quite old, they have significant challenges and they just can't make the discretionary decision not to come into our building. So I'm not really worried about that as much as I am about folks just decided that they're going to try to do rehab at home.

Our next question comes from Michael Carroll of RBC Capital Markets. Please go ahead.

Yes. Thanks. I want to talk a little bit about Senior Lifestyle, make sure I understand this correctly. So the tenant is bit behind on about $3.8 million of rent, but you have only $2.6 million receivable and then you have about $1.3 million of delinquent rent. What's the difference between the receivable and the delinquent rent balance?

So you recall that last quarter we put them on a non-accrual basis, so the amount reflected on the balance sheet is from the second quarter, but they were delinquent $1.3 million of rent this quarter, but it's not on the balance sheet because we stopped accruing it, but it is owed to us.

Okay. And then what is how has the EBITDA trended on that portfolio and that was about, I think, it was -- you gave us the June analyze, but what has it trended since, I guess, through September, has it gotten better or worse?

It's been trending up.

Okay. Is it in line with how much rent you're collecting? Is that what they're basically paying you or is -- are they, kind of, taking money from their pockets to, kind of, pay for that? Some of that better run trends since it's [indiscernible]?

No. It's commensurate with what they're paying us.

But, Mike, it doesn't include any -- it doesn't include yet any government funds they've received.

Right.

Or will receive.

Yeah.

So that's not reflected in numbers.

Okay. And then to talk a little bit about what happens if you do decide to transition Senior Lifestyle out, are they -- do they still qualify for, I guess, the funds from the HHS or if you do transmission -- transition them out, you kind of run the risk of losing those?

I guess, Mike, it's always a potential, you could run the risk, or right now, Phase 2 has already being approved and being allocated actively right now. So, as I mentioned, transitions wouldn't occur until Q1. And even right now, I think, on Phase 3, as that's actively being upstanding with the November 6 deadline to submit the applications. And maybe, Mark, you could speak to this, but it sounds like the -- it's likely that would be allocated and funded in 2020, we wouldn't risk that. So -- and I know, Mark, if you have any thoughts on the timing of that, and whether any transition of operators, that you're aware of, from Phase 3 would affect whether or not operators would get money or not?

Well, the Phase 3 quota closes next Friday. It closes on November 6. And at that point, they're going to do an accounting of how much money has been applied for, and make some decisions about trying to get the money out with the goal of trying to get it out by the end of the year. But we can't commit to that because that's their goal and there have been times when they haven't been able to achieve their timelines. But the goal is to get that money out by the end of this year.

Okay. Great. And then, Mark, is there a risk if there's transitions of an asset that you would lose potential additional funds? Because I know that they've been doing or basing a lot of those funds on prior revenues levels, I'm assuming that has to be the same operator to be able to achieve that?

I think there's an administrative risk and the administrative risk is that people that have had a change of ownership have really been challenged in getting funds in some cases, not because philosophically HHS doesn't think that the new owner should get the money, but just because it's hard to explain to HSS what a [indiscernible] is and who the new owner is, and where the checks ought to be getting sent, et cetera. So I think it could slow down the receipt of the funds, but I don't think that fundamentally HHS would take the position that the new owner shouldn't get the funds.

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

Thank you, Jordan. And again, thank you so much, Mark. You've provided so much insight to our analysts and our investors, and certainly to LTC too. And thank you everybody who's been on the call. We look forward to talking to you about year-end results. Stay safe, and have a good Thanksgiving. Bye-bye.

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