Hello and welcome everyone. On today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Before management begin this 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 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, 2021. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note, this event is being recorded. I would now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you operator and welcome everybody to LTC's 2022 first quarter conference call. Joining me today are Pam Kessler, Co-President and Chief Financial Officer; and Clint Malin, Co-President and Chief Investment Officer. Our industry is seeing evidence of the recovery slowly coming together and we are hopeful about turning the corner on COVID. As a needs based industry, I believe the long-term picture for our industry remains positive based on solid demographics and fundamental needs for the care of our senior population. For the large majority of our industry, however, there was some distress felt in the first quarter as operators continued to deal with hurdles such as labor pressures and inflation. More recently announcement of potential trimmed – skilled nursing Medicare reimbursement levels added another layer of complexity for the skilled nursing industry. However occupancy is increasing in several markets and health agency utilization appears to be dropping. Several of our private pay operators have implemented rent hikes to offset higher labor and supply costs. None have reported pushback from residents or their families. I believe that we are steadily moving toward a pre-pandemic environment. LTC has operated successfully through decades of market and real estate cycles. And we have always supported our operators as we both surmounted industry challenges. This environment is no different. So far in 2022, we have successfully put capital to work for our shareholders and our opportunities are more robust than they recently have been. Clint will talk about our pipeline in more detail later, but to summarize we closed approximately $77 million in investments year-to-date and have identified several additional strategic investments that will advance our growth. I'd now like to share some stories from our operators with you. I've been spending time with them recently, both in-person and virtually, and it has…

Thanks, Wendy. Total revenue increased by $507,000 compared with the first quarter of 2021. Interest income from mortgage loans increased $1.7 million for the 2022 first quarter due to loan originations. Interest and other income increased $442,000 primarily related to mezzanine and working capital loan originations partially offset by payoffs. However, rental revenue decreased by $1.6 million primarily due to the former Senior Care portfolio transition, partially offset primarily by increases in revenue from properties transitioned from Senior Lifestyle and the prior year straight-line rent write-off. Interest expense, transaction costs and property tax expenses were all comparable year-over-year as was income from unconsolidated joint ventures. Our provision for credit losses increased $363,000 compared with last year's first quarter, primarily due to the mezzanine loan origination and additional funding under our mortgage loans and notes receivable. As a reminder upon origination, we report a loan loss reserve estimate equal to 1% of the loan balance. This reserve is amortized as the loan principle is paid down. G&A increased by 775,000 due to higher incentive compensation, higher non-cash compensation charges and increases in overall costs due to inflationary pressures. Net income available to common shareholders increased 633,000 year-over-year, mainly resulting from loan originations and the prior year's loss on sale of real estate, partially offset by the net decline in rental revenue previously discussed and higher G&A expense. Fully diluted NAREIT FFO per share for the 2022 first quarter with $0.60 compared with $0.62 in the 2021 first quarter. Excluding non-recurring items, FFO per share was $0.61 this quarter compared with $0.65 in last year's first quarter. The decrease in FFO excluding non-recurring items was due to the net rental revenue decline and higher G&A previously discussed partially offset by higher revenues from loan originations. During the first quarter, we funded a…

Thank you, Pam. I’ll start today with quick occupancy update on the former Senior Lifestyle portfolio, which includes 18 communities. Occupancy at March 31, 2022 was 83%, increasing from 81% at January 31, 2022 the last date from which we provided information. For the six communities under two separate two year market based rent leases, occupancy was 76% at March 31, 2022, up from 69% at January 31, 2022. For the 11 property portfolio that has been transitioned from Senior Care to HMG, occupancy for the month of March 2022 was 56% compared to 57% at January 31, 2022. Given leadership changes made by HMG in several of our buildings, staffing issues that permeated the industry in Q1 and the transition of the buildings to HMG in the middle of the Omicron surge were comfortable with how HMG is addressing these issues, as well as their focus on cost containment. Reflecting this optimism, as Pam mentioned, we have revised our 2022 HMG rent guidance up $1 million from what we previously anticipated. At the beginning of this month, we acquired four transitional care centers in Texas that are being operated by Ignite Medical Resorts, a current LTC operating partner. These buildings include a total of 339 beds, primarily in private rooms and our newer construction, which helps reduce the average age of our overall portfolio. The average age of these four buildings is just over four years. This fits well with our strategy of acquiring newer skilled nursing centers. Lease term on the Texas portfolio is 10 years with two five year renewal options. Beginning in the sixth lease year through the end of the seventh lease year Ignite has the option to purchase the portfolio. We expect to receive rent of approximately $1 million in each of the third…

Thank you, Pam and Clint. Our focus in 2022 is on a return to growth, and I believe we have taken and continue to take the steps necessary to position LTC as a capital partner of choice in today’s market. Before I turn the call over to your questions, the entire LTC team would like to send our deepest condolences to the family of Linda Goodman, who recently passed away after a brave battle with cancer. Linda, an investment advisor was a champion of our industry and of LTC specifically, but more than that, Linda was a dear friend. Operator, we’re now ready for the questions.

Thank you. [Operator Instructions] And our first question comes from Steven Valiquette from Barclays. Please go ahead. Your line is open.

Great. Thanks. Hello everyone. Thanks for taking the question. So, I guess, needless to say the CMS decision to put the claw back for PDPM into to the snip rates for 2023 is obviously a bummer for the industry. And I guess, over the past 10 years or so, there’s been very little change from the proposed rate at the final rule each year. I guess, my question is, do you think there’s any chance that you either trade groups like AHCA or others can lobby to either reduce the sides of the claw back? Or maybe just give it them to spread it out over a few years? Just want to get your updated thoughts around all this. Thanks.

I mean, there’s definitely an active approach by AHCA to reach out and have our first comment during this comment period. So, we don’t know what outcome would be, but there’s definitely a large effort in the industry to do that. If it could be pushed out over a number of years, I think that would be considered a positive. But there’s a large effort underway and we’ll see where it goes. But a lot of people are participating in this. We’ve talked to operating companies in this space and they’re very actively involved from encouraging employees to be able to write letters and not just canned letters, but letters providing specific detail and feedback regarding the impact of this proposal.

The net of all of the changes this year is a 0.4% reduction because there are market basket increases, but ASHA is really hoping that we can at least get the 4% reduction phased in over three years or so. They have good hope that we can do it. And from our operator calls, they’re very, very active in getting these letters out to CMS and all of their Congress people for each of the states. So there’s a possibility, but even with that reduction, as we’ve talked to our skilled nursing operators, they weren’t presenting hair on fire situations, unhappy about it with the increase in costs and that sort of thing. But they’re not panicked about it.

Okay. So the way it stands right now, it sounds like the primary rebuttal is to just have it phased in. So I guess it’s definitely helpful just to hear that. Okay. I appreciate the color. Thanks.

Thank you.

Thank you.

Perfect. Thank you so much for your question. Our next question comes from Juan Sanabria from BMO. Please go ahead.

Hi. This is Hilary on for Juan. So first question how is your watch list trending relative to last earnings? Especially after talk with tenants and with this updated outlook on government support levels? What confidence level you have that no new tenant issues would pop up or that deferrals and abatements are going to increase going forward?

Well, the encouraging item we see is, providing deferred and abated rent has really been to a small subset of operators. We spoke about Anthem in our prepared remarks. As we’ve seen COVID cases and served decrease going into Q2 on the private pay side with rate growth is encouraging. So right now, as we indicated in our prepared remarks, we’re optimistic going forward. And I think cautiously optimistic.

And our abated rents for one of our operators actually the assets are cash flow positive after a management fee. So it’s not like the operator is cash flow or cash constrained. It just is a change in attention from the operator. So we’re not concerned about having to give additional abated rent from that operator.

Okay. And following up on that, no additional transitions either.

No additional what?

Transitions.

Transitions.

Well, the only additional potential transition is Pam mentioned in her prepared remarks, one of the operators with the small subset that we provided deferred and debated rent, we’re working on a resolution to that. So, with that we are working on a framework with that operator to facilitate a transition. So that is something that as expected with having deferred or abated rent, there’s got to be a resolution to that. So that’s something that is the works. The encouraging points of that as Pam indicated the operators, not in our top 10 and our guidance doesn’t include any revenue from this portfolio. That as Wendy mentioned, the portfolio is cash flow positive. So we’re hopeful toward the end of the year this portfolio will be contributing to that.

Yes. And for clarification, Wendy was talking about deferred, not the updated.

Correct.

All right. Got you. That makes sense. Moving kind of to, I mean, a different topic with rates moving where they are, do you see that pricing for senior housing and skilled nursing is shifting too? Is there any sign that cap rates could move higher? And would that kind of push this – the strategy to maybe a traditional fee simple acquisition versus more of the loan stuff that you guys have been doing?

We would love to see that. We were actively evaluating to be able to get that point. I'd say right now, it's not there at this point. But obviously we're hopeful that that is a market environment that we'd be able to participate in, but in the interim…

We've been thinking that for a while, just thinking, hoping there's just – there's still a lot of money out there and that's what's keeping the – I think the prices artificially high. They're not trading based on current NOI. They're trading on a future. So that's a hope note and that's what we call it.

Got you.

Thanks. We will now move on to next question. The next question comes from Austin Wurschmidt from Key Capital Markets. Please go ahead.

Hi, good morning. This is Arthur Porto on for Austin. Just one for me. I am sort of trying to understand the – how big of a percentage of your investment pipeline is comprised of SNPs. And if the recent CMS ruling could potentially put deals on hold, or if you might shift the pipeline elsewhere as a result of the ruling?

Sure. We have only – right now we have one opportunity working on a SNP, which is a development project with Ignite, which is in our supplemental. We provided them a loan to acquire a piece of land in Missouri. And so that would be a development project. So right now that would be the one skilled asset that we're currently – in our investment opportunity that we're working on.

Okay. And future opportunities could that sort of change depending on what the SNP ruling, CMS ruling sort of…

As we've indicated on the skilled nursing side, we've really looked to invest in newer assets and we had the unique opportunity where Ignite – we feel very fortunate that Ignite brought us in on this transaction to be their capital partner of choice. In that type of opportunity in the skilled space, private rooms, newer assets, strong regional operator, Ignite has done a tremendous job executing on their traditional care model. So those are opportunities we get very much hope to participate in.

Great, thanks.

Thank you.

Perfect. Thank you for your question. Our next question comes from Tayo Okusanya at Credit Suisse. Please go ahead.

Yes. Good morning everyone. Hope you are all doing well on the West Coast. I wanted to drill in a little bit on the transition portfolios, Senior Lifestyle and Senior Care. About Senior Care it's sound like with HMG, you can correct me if I'm wrong, things are going well there. Are you actually expecting you may get a million more rents than you were initially anticipating? Is that – am I understanding that correctly?

Yes, that is correct.

Okay. So that's additional revenue over and beyond the cash out days you've got custom fourth quarter.

It's in excess of the guidance we provided last quarter.

Yes.

So it effectively increases our guidance from…

I'm sorry say that again.

Effectively increases our guidance from $5 million that we gave last quarter, now upping that to a total of $6 million for 2022.

Great. Okay. And then for the Senior Lifestyle, could you just talk a little bit about what's happening with those transition assets? It's started earlier on like that was into one of those assets where you terminated the lease for the new operator.

So we have a couple of different – so we have a total of 18 buildings in total with former Senior Life – Senior Lifestyle portfolio, six of the buildings are under market based quarterly rent resets. And the other properties have fixed increases based on the various annual renewals on those. So right now I gave information regarding occupancy growth that we're seeing in that portfolio. We're very encouraged to see that there has been an uptick in occupancy across the portfolio of those 18 properties.

And rent guidance remained unchanged this quarter. We're reaffirming what's the…

Fair enough. But your comment – from your commentary that there was one – one transitional asset where you had to – you ended up terminating the lease and selling the asset instead.

Sure. There was one property that we had transitioned from Senior Lifestyle to an operator in Colorado. So building in Castle Rock, Colorado was a freestanding Memory Care Community. And we transitioned that to a local operator and they invested equity dollars to support operations to try to make improvements. I think that property has been challenged from a reputational standpoint over the years. And unfortunately, this regional operator was not able to get the traction they were looking for and didn't have the depth of equity to be able to continue to fund operations. So at that juncture, it really was at a point where it was better to close the property and we're going to move forward with selling that asset. Pam mentioned our net book value is approximately $5 million. And we'll look to sell it for highest and best use for the…

And no revenue.

Yes. And right now we have no revenue in our model for that.

So that asset, like I said, that's why the revenue assumptions change going forward. Okay. Thank you very much.

All right. Thank you.

Thank you. [Operator Instructions] And our next question comes from Mike Carroll from RBC Capital Markets. Please go ahead.

Yes, thanks. I just wanted to drill into HMG a little bit. I know Clint, you kind of talked about this in your prepared remarks, the improved rent collection assumptions. I guess, what specifically, I guess, drove that rent increase. I mean, I'm assuming that they've been able to integrate that portfolio into their platform more seamlessly than we previously expected. Can you talk a little bit about that?

Sure. They have – when they took over the buildings, there's a high amount of agency usage. As you can imagine, there had been a lot of disruption in senior care operational days. So it's really just going in and finding the appropriate leadership in the buildings. There was a lot of agency usage in these buildings. So it's really coming from HMG's perspective and bringing their culture into these buildings and Wendy spoke to HMG's culture in her prepared remarks. And it takes time to be able to put that in place to transition and sell, last time based on where we were at, we guided to the $5 million is we've worked with HMG to understand the progress they've made as far as occupancy mix, cost containment. That's where we got to the point, we felt upping guidance by the $1 million for all of 2022 made sense at this point in time. And we'll continue to revisit that on a quarterly basis based on where HMG is at on a performance aspect.

And when are you assuming that HMG can start paying cash rent? I know they've been a little backlogged by some of the senior care type stuff. I mean, should we assume that's going to happen in 2Q? I mean, do you have that included in your guidance or is this really a second half I think?

We've included $1 million in the second quarter in guidance and then $2.5 million in each of the third and fourth quarters.

Okay, great. And then I guess, Clint, you also talked about you’re starting to think about establishing a more permanent rent at those facilities. I mean, how are those discussions going? I mean, should we learn more about this next quarter or kind of what's the thought process behind that?

Yes, I would say in fourth quarter, right now we did a one year cash flow lease with HMG through the transition. And so we will be working to extend that lease and working on more permanent rents with HMG. And so look for more guidance on that as we go through the year, but it'll probably be more towards the end of 2022?

Okay. And then related to the assisted living tenant that has the larger deferral. Are they expected to pay rent sometime in the second quarter? I guess, can you kind of talk a little bit about what's going on with that tenant, and I know in the supplement in your prepared remarks, you kind of implied that you expect to resolve that deferral with that tenant when you kind of restructure the release or that relationship, I mean, what does that mean? Are you trying to do something bigger there, or what's the thought process behind that, that tenant?

So I spoke to this previous in Q&A, and so we have a framework with this operator to work towards a transition. So that's what I spoke about earlier. I would not expect any rent from the existing operator but we are trying to facilitate a transition on or before July. And we're hopeful towards the end of the year, as I mentioned, this portfolio is cash flow positive. And we do not have any rent from this portfolio in our guidance, but we're hopeful towards the end of the year that it could evolve into contributing to revenue. And we get the transition – the other thing on that like we go through the transition and we work with the new operator to evaluate which buildings we want to keep long-term, and which buildings do we think make sense to recycle capital. So there will likely be some asset sales resulting from this portfolio, but as we've demonstrated in the past, we've been the advocate of recycling capital on assets. So there will likely be asset sales out of this portfolio, which would occur probably later in the year to the first quarter of 2023. But again, we don't have any guidance of revenue in our model for this portfolio.

Okay. And then with that – currently rent that's deferred, is there any opportunity to collect that as you kind of close this down? Or is that something that's just going to be written off?

We are working through the transition right now, but as Pam mentioned, we have not recorded that into revenue. And so I wouldn't – we haven't debated it. We're actually actively going through the resolution right now, but I wouldn't count on that.

And to clarify, there's no receivable on the balance sheet for that it was not recorded, this operator's been on a cash basis.

So it's a contractual obligation, but not a receivable on the balance sheet.

Okay. That makes sense. And then just last for me, the two transition memory care assets. I just want to make sure I understand this correctly. So they pay rent in the first quarter. And I think you put it that in the press release the amount you don't expect anything in the second quarter. And then the – I think the remaining 300,000 is going to be collect in the second half of the year. Is that correct?

Yes, that's correct.

Okay, great. Thank you.

Thanks.

Thank you, Michael, so much for your question. At this time, there are no further questions. And I would like to pass back over to Wendy for any final remarks.

Thank you all for joining us today. I wish you a very happy spring with little COVID impact, and we'll talk to you in the summer. Thank you very much.

Thank you everybody for joining today's conference call.