Hello everyone and a warm welcome to the LTC Properties, Inc. Third Quarter 2021 Analyst and Investor Call. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. 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 31st, 2020. 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.

Thank you, operator. Welcome everyone to LTC's 2021, third quarter Conference call. Joining me today are Pam Kessler, Co-President and Chief Financial Officer, and Clint Malin, Co-President and Chief Investment Officer. I am so pleased to be able to open our comments by saying we have successfully eliminated several ongoing operator challenges, executed on $46 million in new investments and have an active and healthy pipeline. At the same time, the industry is recuperating from the incredible strength created by the pandemic. I have said before that our industry handle the unimaginable with grace and poise, and is proving that seniors housing is a safe and necessary component of our national network of health care in the U.S.. While there are still some challenges to overcome, I continue to believe that the industry strength and PR. will help us navigate the new normal. In LTC 's portfolio, occupancy gains are continuing, vaccination rates among patients and residents remain high and the potential of the vaccine mandates among staff holds the promise of continuing to reduce the impact of COVID in our buildings. It seems the recovery has begun and should continue into the new year. Before I get into our LTC specific discussion, I'd like to spend a moment discussing industry staffing. The problem is very real, but our operators are working constantly and creatively to find viable solutions. I have not spoken to an operator yet that has not had trouble finding and retaining qualified employees. Operators are turning away residents and patients due to the labor shortage and the resulting staffing challenges. We have heard from several operators that if not for the current labor constraints, they could increase occupancy. So they are increasing wages and providing sign-up and retention bonuses to help meet this demand. Additionally, in-person…

Thank you, Wendy. Total revenue decreased 701,000 compared with the third quarter of last year. Resulting principally from unpaid rent from senior care and senior lifestyle, Abated and deferred rent, and the sale of a property in Washington. The decrease was partially offset by the write-off of straight line rent receivable balances in the prior-year quarter. Rent received from releasing 18 properties and the Senior Lifestyle portfolio, completed development projects, an increase in property tax revenue, annual rent escalation, capital improvement funding, and higher payments from [Indiscernible]. Interest income was comparable year-over-year. year-over-year, interest expense decreased 751 thousand mostly due to scheduled principal pay downs on our senior unsecured notes and lower interest rates on our line of credit, partially offset by a higher outstanding balance on our line of credit. Transaction costs increased 4 million related mostly to our settlement with senior care and related fees During the 2021 third quarter, we recognized a gain on sale of real estate of 2.7 million related to the sale of a skilled nursing center in Washington. In last year's third quarter, we recorded a $900 thousand impairment charge related to a closed assisted living property in Florida which was sold in the first quarter of 2021 and received 373 thousand and insurance proceeds for damage related to a property sold in the first quarter of 2020. Net income available to common shareholders decreased by 1.2 million primarily due to the previously discussed revenue decline and settlement and related fees for senior care. The decrease was partially offset by a prior-year impairment charge and a current year gain on sale. NAREIT FFO per diluted share was $0.45 this quarter compared with $0.58 in last year's third quarter. Excluding non-recurring items, FFO per share with $0.55 this quarter compared with $0.71 in the…

Thank you, Pam. I'll start today by putting a bar on our Senior Lifestyle and Senior Care portfolios. As Wendy discussed, these portfolios have been fully transitioned, but for the licensure of one property currently operated by Senior Lifestyle in New Jersey By and large, the properties in this portfolio has generated occupancy gains under new management. In total, we have transitioned 18 of the Senior Lifestyle buildings, with the 19th expected shortly. For these 19 buildings, occupancy for the month of December 2020 was 71%, increasing to 75% for the month of September 2021. I'd like to provide some additional color on the 6 properties in the portfolio with market-based rents. At June 30, EBITDA are excluding stimulus on a trailing 12-month basis for these six properties with 870 thousand. On a trailing 3-month annualized basis, EBITDA excluding stimulus was 150 thousand. Occupancy for the month of December 2020 for these six buildings was 60%. Growing to 65% for the month of September 2021. With respect to the 11 properties Senior Care portfolio, in late August, we reached a settlement with Senior Care and Abri Health Services under which LTC made a one-time payment of $3.25 million in exchange for cooperation and assistance in facilitating an orderly transition of the portfolio. As of October 1, the entire 11 property portfolio was leased to an affiliate of HMG healthcare under a one-year master lease with rent based on cash flows. When HMG commenced operation of the portfolio, it agreed to assume Senior Care 's Medicare provider agreements and took on a known liability for stimulus funds received by Senior Care under the Medicare COVID-19 Accelerated and Advanced Payment Program. This assumed liability is capped at $3.7 million. HMG is responsible for the repayment of this liability, which it will fund…

Thanks you, Pam and Clint. What I'd most like you to take away from this call is that while the pandemic certainly caused strife in our industry, I believe we are firmly in the midst of a recovery. And while I cannot predict exactly when we'll return to pre -pandemic levels of operations, we are seeing continuing signs that give us hope. Occupancy is increasing, demand for need space care is growing, and we're once again making strategic investments. It has not been easy getting to this point, but I couldn't be more proud of our industry, operators, and employees for the grit they have shown since start of the pandemic. As our confidence continues to grow, we look forward to providing operators with the financing solutions they require, to serve the nation's most vulnerable population. We are well-positioned to take advantage of favorable industry demographics. And we'll focus on engaging with more and more regional operators to further strengthen our portfolio for the long term. We may be relatively small, but we are stable and secure. We built a Balance Sheet capable of seeing us through what has been a difficult period. And now with a recovery in process, we plan to use our resources to return to growth in 2022. Operator, we're ready to open the call to questions.

Thank you. [Operator Instructions] When preparing to ask your question, please ensure that your phone is unmuted likely. Our first question comes from Kwan Sanabria, from BMO Capital Markets. Kwan please go ahead.

Hi. Good morning. Thank you. I was just hoping you could give us a little bit more color insights about how you're thinking about the go-forward earnings run rate. You talked about I believe it was two or $0.03 of FFO growth in the third quarter. How -- can you break that down between the external investments and then any incremental pickup from senior care and senior lifestyle s, but maybe more importantly, how you think about how that number should trend into 2022 as we start to think about [Indiscernible] this pandemic period?

Sure. Hi, Kwan. The pickup is -- it comes from the external investments. Because the third quarter had the assumed leases in there, or the new leases. So it is external investments. And as Clint mentioned, we have a healthy pipeline that we're hoping to execute on over the next 12 months. So I think for us the messages, we're cautiously optimistic, we're turning to growth. So we don't -- when we give guidance, we don't put any additional investments in our assumptions. So the $0.02 to $0.03 doesn't include anything other than what we've already announced. So I guess -- if you're asking if that's a good run rate, absent anything else happening, I think so.

Okay. And then just on absent anything else happening, just curious on your comfort level. I don't know how you want to frame it. 1 to 10, 1 low, 10 high, that we're not going to have other hiccups. I mean, lately you kind of touched on labor at the outset. It seems like despite occupancy improvements with some of your peers tenants that labor maybe caused a bit of a strain and caused one specific tenant to go for incremental deferrals. But just curious on your thoughts about that -- about that level of confidence about the need for any other deferrals given the labor unknown and how that may impact occupancy at this point.

Well, where we sit right now, we're fairly confident. But, like we said, the rent support we've been giving to the small subset of operators has been constant for the past 3 quarters. And although there are labor pressures, some operators are able to pass through rent increases that are helping that. The government has

given more support as Wendy and Clint talked about. So where we sit right now, we are fairly confident that the world is ever changing and there are a lot of unknown things that can crop up. So I am sorry, but know like I am hedging my best. I just don't like -- my crystal ball is very opaque right now. Where we sit right now with all of the known fairly confident.

And then just the last one for me, just any sense of what the labor costs line is for your operators, I don't know if it's different for skill versus seniors housing. You see some of the headlines in the hourly increases that are being passed through across the economy are very high on a percent basis. But just curious. How the operators are thinking about their budgets for 2022 and what that labor growth or labor cost line could be on a percent basis. Any guideposts or -- that you could help us with would be much appreciated.

It's front and center for all of our operators on what's happening and does it go to the budgets for 2022?

Which is happening right now. They budget in the fourth quarter, yeah.

So as an example, in Texas, this grant that was passed to help with some of that, will be a benefit to the operators in Texas. In Michigan they had some similar support they provided on increasing the reimbursement component for skilled nursing. So, when we speak -- when we spoke to one of our operators, staffing is on the forefront. And we are looking at how they address it with agency, with bonuses, COVID has definitely the second item in line on issues that are being discussed. Well -- but there's business to do and there is a needs-based business and they are being creative trying to find ways to make this work. And as Pam mentioned on the private pay slides, that people are experimenting and working through rent escalations to offset some of those costs. And through the government stimulus on skill that's helping at this point in time, sales were up to wait and see what happens in 2022. But it is something everybody is hyper-focused on.

Thanks for the time.

Thank you.

Thanks, Kwan.

Thank you, Kwan. Our next question today comes from Jordan Sadler of KeyBanc Capital Markets. Your line is open. Please go ahead.

Thank you. And good morning. So just wanted to dig in a little bit deeper. Trying to understand the run rate or the trajectory, but more specifically on the HMG. Any insight you can offer in terms of what that cash flow contribution might be? I know they're paying rent based on cash flows. I assume you're assuming nothing in the fourth quarter, but maybe just if you could point to how that cash flow contribution -- cash flow base brand contribution might flow through next year would be helpful.

Sure. You're correct for the fourth-quarter there. There will be no rent included in that. So I will give you some numbers here Jordan, just for context. And again, this is the reason why we did a cash-flow lease because performance has declined. So I'll give you the numbers as of August for different run rate. Time frames and I'll give you comparable numbers back 2018 and 2019 on an EBITDAR basis. So for context, the trailing 12 EBITDAR for August, this year, was $10.4 million. On a trailing 3 annualized basis, it was $6.5 million. And on a T2, it's $3 million. And then we obviously transferred on August -- on October 1st. Historically, going back to 2018 and 2019, and at that point in time, Senior Care was in the process of their first bankruptcy. The T12 EBITDAR back in 2018 was $17.5 million and $17.3 million in 2019. And so what we've done is we positioned ourselves with the strong regional operator in Texas whose management team has numbers that are familiar with these assets. And we positioned ourselves in a cash flow lease during this first year to participate in improvement as it happens. So that's some context of what this has -- what was done recently and historically.

And what are the -- what is the -- just to give us an idea, what's the structure of this cash flow? Basically, what percent are you entitled to? How does it worked?

It is that they get their management fee and we participate in an all cash flow.

100% above the management fee. And what's the management fee?

5%. So a 5% fee was used in these EBITDAR numbers that I provided.

Okay. Interesting. There is actually going to be a pretty significant contribution come 1Q. Essentially, once the $3.7 million liability has to be repaid first?

Correct. As I mentioned -- correct. In my comment, I mentioned that. We paid back from cash flow.

And that's why we're not expecting any revenue for this year.

Okay. But 1Q, it should -- given the most recent trajectory you described, there'll be something.

It will be sometime in 2022. As to which quarter it falls into, that's a crystal ball looking forward. So I did provide -- T2 is obviously dropped off a lot, but we've structurally put the lease together where we can benefit from upside and cash flow. And the intent is then, as we mentioned in my comments, to put this into a long-term master lease once we filled. Both LTC and HMG can comfortably set what rent would be going forward.

The T2 was $3 million? Would you say?

Correct. That is correct.

Okay. And what was -- so as you described the transition from T3 to T2, was that a loss of senses, rising expenses, and was that attributable to -- is that like sort of Delta issues or is that transition issues?

I would say it's transition issues. Occupancy stayed relatively stable. That's when we were negotiating the settlement agreement. I imagine I took a lot of time and resources on the senior care side. So we have seen an uptick in agency usage in the [Indiscernible] on these buildings. So, we're hopeful that HMG, who is -- has been a Texas-based operator, can normalize and reduce the agency usage that's been on the expense side.

Did you give the occupancy for the portfolio?

I did not. [Indiscernible] do that as well just from a comparative standpoint. For December of 2020, it was 57%, and September of 2021 is 56%.

And what was it like going back to August 19 or? Was this a stabilized portfolio once upon a time, I assume?

2018 was 72% and the same for 2019.

Okay. Okay. That's really helpful. And then, I just have one more, it's -- I don't want to leave Pam out here. So, the leverage has ticked up. It's quite a bit as you've had some of these deferrals and abatements obviously, understandably. So it will come back around when you've also been investing at the same time. What are your thoughts on around leverage right now? And how you expect it to sort of progress throughout next year?

Yeah. Fair enough question. As we noted, leverage has kicked up and especially at the end of the quarter with the borrowing for the investments that we've made subsequent to quarter end. But as you noted, and we talked about as HMG begins to pay on their lease and Senior Lifestyle properties that are also on cash flow leases pay, leverage should come down. But we generally look to fund all new investments with a mixture of 70% equity and 30% debt. That's been historically what we've done, so that should not surprise you, and we have not changed our stance on that.

Okay. So, is there an appetite to do equity down here? I guess this would be sort of the follow-up?

Well, when we do investments, we -- if you're funding 70-30, that would imply, yes, that there would be some equity.

Okay. [Indiscernible] Okay. Thank you.

If you're looking for a [Indiscernible]. How would you fund all our -- I wouldn't be aggressive and fund all our new investments and whatever you assume for new investments next year with debt. And right now, were not looking out to sell anything, I mean, I think you're right and that the distinction over the past 2 years has been that we have funded at investments with proceeds from sales. And right now we don't have anything of size or substance, that we're looking to sell, I think equity assumptions are rational.

Thank you so much.

Thank you Jordan. Our next question is from Michael Carroll of RBC Capital Markets. Please go ahead, Michael.

Thanks. Wendy, in your earlier comments regarding some of the labor pressures, regarding operators turning away patients due to the lack of labor and taking care of those patients, is that comment related to skilled nursing facility only, or is that including senior's housing also?

It's both of them. It's not everybody as we did an analysis of the 11 properties that we transferred to HMG. And HMG and LTC had a conference call after they have looked at all of them. In some markets, they didn't have labor problems and other markets they have labor problems. So, I would say generally across the U.S., there are labor problems, but there are pockets where there aren't any. We've had some of our skilled nursing Operators for our assisted living Operators say they closed the floor, and are not opening up floor until they can get more labor, but it's everybody is having to having to deal with this and real salaries haven't gone up for many years. So I mean this is -- this is a catch-up that's causing us a whiplash, but it will it will flow through the system.

And wasn't more prevalent though with skilled nursing facilities, like if you talk to ten skilled nursing facility operators? I mean, how many of them said that they were turning away patients? And I'm assuming it'd be fewer on the seniors housing side?

Yes.

Okay. Great. And then t he -- I guess Pam, the quota coverage ratios in the supplements that includes the stimulus funds, or the coronavirus stimulus funds I think that you termed it. Now, are those funds amortized over a period of time in there calculations or is it counted when the cash is actually received from either the federal or state governments?

No, it's amortized. They pull it in over a period of time. So there's amounts sitting on Balance Sheet that haven't been closed through the income statement yet.

So then when does that get amortized? Is there a -- if they received the Cares Act funds in the beginning of the year, how long does that amortize throughout these coverage statistics?

It offsets their losses related to the corona virus losses. If there's a decrease in occupancy, it's hard to estimate how long it will be amortized through. Each property is an individual. So I would guess over the next six to 12 months. And every operator uses a different methodology bringing it in.

And this is the reason why in the comments -- coverage right now is very challenged to look at for these reasons.

That makes a lot of sense. And then the deferred rent repayments that's included in the straight-line rent forecast on page 20 of the supplement, I mean, how confident are you that those are going to get paid back on time? I mean, I guess maybe a more general question, the rent that you deferred, I believe that you expect to repaid over the next several years, I mean when do those repayments start and how confident are you that those repayments will occur as scheduled or as planned?

The repayments that are forecasted on page 20, we are fairly confident of there are other repayments that are not till 2023. But right now, everything we put in we're fairly confident about.

Okay. Great. Thank you very much.

Thank you, Michael. [Operator Instructions] We have a question from Daniel Bernstein of Capital One. Please go ahead Daniel.

Good morning. Just want to ask on kind of the broader risk and snips beyond labor. It seems like the 2% sequestration holiday, ends the end of this year. There's maybe the enhanced [Indiscernible] could end to if COVID emergency is not extended. There's a 5% call back for 2020 that probably gets delayed or phased-in, but they're too. So when you talk to operators, when you talk to OCA, do you get any sense of where those items stand and if those are additional risks that we should be thinking about for '22 within the SNF space?

Dan, that's always -- the risk in the skilled nursing industry is that unknown. I think during the course of the pandemic, to look at how the government is stepped in and provided support for the industry, obviously it is a risk. But you look at examples of Texas recently passing some additional support for buildings, which is a positive. So it is definitely a risk the people are looking at, but by and large, the staffing component is still the main item. That's on the forefront of operators. So that uncertainty regarding reimbursement has always been out there, and continues to be out there. But what's happened during the course of the pandemic and the government's focus on it. There's a belief that there will be continued support.

Okay. And then back to the labor component. Are you finding -- I know there's pockets of better labor or worse labor issues within the portfolio, but are you finding that maybe more rural areas are having more trouble staffing up facilities versus more suburban or urban areas.

It's an interesting mix as far as pulling Operators and finding it's a combination it really just depends on location and market and the uniqueness of very market it's really hard to pinpoint it down to. One operator may say they're having a challenge in their urban markets another operator say they have challenges in the rural markets. It's really across section Dan.

Okay. And then one more question for me is, I thought there were some purchase options in 22. That could be exercised and provide some funds, I guess, to reinvest as well. Instead of just using equity. Is there any sense any sense of what purchase options could be exercised in 22.

We have one purchase option that could potentially be exercised in 2022 on two assisted living communities in California. But we're engaged with that operator, I'm working through that right now. As you can imagine, with more senses as that, just broadly for assisted living, being able to exercise that purchased option and get the appropriate financing may not be the ideal environment to do that. So we are actively engaged with that operator in regard to any assistance we can provide or in maybe extending that out for a longer period of time. So it's something we're actively talking about. That really is the only purchase option of size in 2022.

Probably I should pull that asset sale from our models there. Still up on limbo, but it's looking less likely

Yeah. Push it out. I wouldn't have it in 2022.

Okay. That's good. That's all I had. Appreciate it. Thanks.

Thank you.

Thank you.

Thank you, Daniel. We have a further question from Jordan Sadler of KeyBank Capital Markets. Please proceed Jordan.

Hey, I just wanted to follow up on the working capital loan, the $25 million. What are the terms or what is the rate on that loan and how should we expect that to be drawn from a timing perspective? Where is it now and or will it be throughout next year?

Sure. So, Jordan, since we set up as a cash flow lease, I mean, the interest rate we provided is 4% on those funds. And it's a 1-year loan, that ties to the lease term and is being drawn down on a monthly basis. So no, there's just typical transition as far as provider agreements getting in place, the assumption of the Medicare provider rim. And so it's really just bridging that. So I mean we expect that by the time getting into 2022, the majority portion of that will be drawn down. But then it'll be taken out through a traditional ABL lender. We did the financing really just when we struck the deal on the settlement, we didn't want to introduce third-party that would slow down the transition. So it made sense for us to minimize execution risk and provide that HMG. HMG was actually engage with a third-party lender already on this, but the time frame was tight and it just made sense for us -- we had the Balance Sheet strength to do it and made sense for us to extend that working capital one, which is secured by the accounts receivable, and has -- a component of it has a personal guarantee of the principals at HMG attached to it. So it's a standard working capital loan.

Got it. And then the other question I have for you is just the thought process and the strategy behind the structured finance and investments right now.

[Indiscernible] that we've been talking about for a number of quarters now and it's really just reflective of us analyzing the market and seeing what opportunities exist. And as we see price points on existing assets where they're not stabilized, paying up for an asset, especially now as we invest in triple-net structure, we don't participate in that upside. So to buy something now and -- that's not cash flowing and then wait for the upside, it's a little more challenging to structure. So we've seen opportunities where if we could lower in the capital structure, there is actual cash flow. It just seems to be at lower risk and more opportunistic to selectively do that. And also we're at a point where, as Wendy mentioned, cash flow strategic investments given the transition from Senior Lifestyle seem fair, we think it makes a lot of sense to focus on that at this point in time. Obviously, as things normalize our intent would be to get back to blend of long term, triple-net leases plus various aspects of loan -- some loans and structured finance deals

We're in effect arbitraging our low cost of capital -- our low cost of borrowing. And so we're replacing some of the FAD that we're having to delay or HMG, and Senior Lifestyle assets as they return. So when they return, hopefully these investments that we've made will pay off and we'll use that cash to do more loan term, Investments, but [Indiscernible]

Rright, none of the ones you've made 46 or what have you or other, this most recent crop none of them are loan to own in particular?

No, that is correct.

And the context to my question, I know you guys have been focused here, and the rationale for previously, but I guess the context in my question during this call, with the comments about feeling better about the industry and the position than you have in any other point during the pandemic, which makes sense. That's the context. Not that I haven't been paying attention for the last few years. Okay. And I guess that's it. That's all I got for you guys. Thank you.

Thank you.

Thank you, Jordan. We have no further questions. So I would like to hand you back to Wendy Simpson for any closing remarks.

Thank you all for joining us on this call and we look forward to talking to you after our fourth quarter our year-end results. Have a great weekend.

This concludes today's call. Thank you all for joining. We hope you have a great rest of your day. You may now disconnect your line.