Good morning, everyone. And welcome to today's LTC Properties, Inc 2022 Analyst and Investor Call. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Before management begins its presentation, please know that today's comment, 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 LTCs property filings with the Securities and Exchange Commission from time-to-time, including the Company's most recent 10-K dated December 31, 2021. LTC undertake 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. And I would now like turn the conference over to Wendy Simpson.

Thank you, Operator. Welcome everyone to LTC’s 2022 second 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 will start today by continuing to share my enthusiasm for LTC and its future. Too often, over the past several years, we have spent time discussing COVID, economic headwinds and the challenges facing our operators. And while the industry is not completely out of the woods and LTC still has a few specific issues to resolve in the short-term. I believe our company is on shore footing and is operating from a position of strength. Since the beginning of COVID and to-date, we have successfully transitioned several portfolios to strong regional operators with whom we can grow. Most recently, we took important steps to rectify ongoing rent, abatements, and deferrals by transitioning our marketing properties for sale that have made up the majority of our ongoing assistance. You will hear more about that later in the call. We have continued to make successful investments that generate positive returns for our investors, especially through creative and flexible structured finance vehicles have taken a number of steps to enhance the quality of our portfolio, including reducing its average age and have divested properties that no longer fit with our longer term goals. To-date this year, we have invested over 110 million in senior housing and care, slightly ahead of the entirety of last year, and have generated net proceeds from strategic sales of approximately $72 million, which is $19 million in excess of our gross book value of $53 million. We are continuing to identify additional strategic investments and have been busy touring sites and building relationships. I cannot thank the entire LTC team enough for their hard work in…

Thanks, Wendy. Total revenue grew by 4.9 million from the second quarter of 2021. The increase resulted from a $1.8 million increase in rental revenue, primarily due to a lease termination fee received in connection with the sale of the 74 unit Assisted Living community. Other contributing factors included rent received from the former Senior Care and Senior Lifestyle portfolios, rental income from completed development projects and annual rent escalations and higher property tax income. The increase in total revenue is partially offset by reduced rents, resulting from property sales as well as a temporary rent reduction to Anthem, which we discussed on our last call. Interest income from mortgage loans increased by 2.2 million, primarily due to mortgage loan origination, while interest and other income increased 907,000, principally related to a mezzanine loan origination and additional funding under working capital loans, partially offset by loan payoff. Interest expense increased 663,000 from last year's second quarter, mainly due to term loan originations, the issuance of 75 million of senior unsecured notes in the second quarter and higher interest rates, partially offset by a lower outstanding balance on our line of credit and scheduled principle pay downs on our senior unsecured notes. Transaction costs and income from unconsolidated joint ventures were comparable to the year-ago period. But property tax increased by 219,000, primarily due to our acquisition of four property portfolios in Texas during the second quarter. Our provision for credit losses increased 305,000 primarily due to mortgage loan originations, partially offset by principal pay downs. As a reminder, upon origination, we record a loan loss reserve estimate equal to 1% of the loan balance. This reserve is amortized as the loan principle of paid down. G&A increased by 374,000, mainly due to higher costs related to conference sponsorships and travel,…

Thank you, Pam. Addressing the set of operators that Pam just referenced on July 1, we successfully transferred a 12 property, 625 unit Private Pay portfolio across five states to an affiliate of ALG Senior, a current LTC operator. The former operator who is not in our top-10 in terms of concentration was one of the few for whom we had provided assistance in the form of rent, deferrals and abatements. In conjunction with this transaction, we provided the former operator a $500,000 lease termination fee, which will be recognized as a one-time charge in the third quarter, in exchange for cooperation and assistance and facilitating an orderly transition. We also have forgiven the former operators deferred rent balance of 7.1 million, which was not previously recorded since the lease is on a cash basis. The transition communities are pursuant to a new master lease with a two-year term with zero rent for the first four months. Thereafter, cash rent will be based on a mutually agreed upon fair market rent. We also provided the new operator with a $410,000 lease incentive payment, which will be amortized as a yield adjustment to rental income over the term of the lease. Working with the new we are currently determining whether we will retain all of the buildings or sell all or part of the portfolio, we will keep you updated. We also are in the process of resolving the other contributor to our deferral and abatements by marketing for sale, 180 unit Private Pay campus, offering the services ranging from independent living cottages to memory care. We are not receiving any rental income from this campus currently. So by selling it, we can redeploy the capital into income producing assets. For the third quarter, we have agreed to abate the operator's…

Thank you, Pam and Clint. Our focus for this year remains on strategic and sensible growth. Seniors Housing and Care is here to stay and I truly believe that the industry will, once again, flourish. LTC has taken the steps to make sure we are an integral player in the market. Positioning LTC as a partner of choice in today's market is not a difficult decision to make. We not only have the creativity to provide financing solutions to an extensive range of solid regional operators, but we have the balance sheet to back it up. Operator, we are now ready to take questions.

Thank you. Hello everyone we will now start today’s Q&A session. [Operator Instructions] Our next question is going to be from Michael Carroll from RBC. Your line is now open, Michael.

Yes, thanks. I wanted to touch on the other tenant that you guys have been highlighting for the past several - I guess several quarters. And it was recently transitioned to a new operator. What is the condition of those buildings and is occupancy and cash flow fairly weak? And is that the reason why you had to provide the lease incentive to the new operator?

No, Mike. This is Clint. This is a portfolio we have talked about over the last few quarters and we have mentioned previously that it was operationally cash flow positive. That lease incentive payment we made to the new operator. I mean, covered transitional things, cost for the transition, buying out some equipment vehicles, things of that nature, so more transitional in nature.

Okay. And then when you are saying that you are evaluating options for this portfolio, I mean, can you kind of go through some of the options that you are thinking about and possibly the timing of when those could be executed?

Sure. Well, I mean, as I mentioned in my prepared mark. We are going to look at sales as well as releasing to the new operator. So, it is something we are working on right now and I think we will move fairly quickly in that evaluation process.

Mike, several of those assets who are former ALC assets. So, there are the smaller assets that we have a very low book value on and they are in smaller marketplaces. The condition of the properties is good. I mean, everybody wants to put some capital into a property that they currently take. One of the things that was an advantage to us in moving so quickly and paying a $500,000 lease termination was that the prior operator allowed the current operator to operate under their lease, or under their license for a period of time. So, in order to expedite everything, we spent some dollars to make it happen, and it is likely that we will sell most of the ALC properties. There is not a great market. There is not a great national market for those types of properties. There is local markets for those type of properties. So, a few of those assets may stay with the current operator, but it is likely we will sell most of those old ALC assets.

Okay, great. Thanks for that.

And you are also long enough to know who ALC is. I'm sorry.

I do remember, yes. And then the six former SLC assets, what drove the change in the rent forecast there?

You know what we have seen occupancy growth. It has really been more on the cost side, Mike. It has been - through the first quarter surge with COVID, everybody has talked about agency staffing issues just general inflationary price pressures. That is been the main driver of what modified our guidance on those properties. So, occupancy has been there and as we see that they have been able to capture rate growth, it's really right sizing on the expense side.

And there were a lot of marketing dollars that went into those early on to get that occupancy growth. So hopefully, the marketing dollars will moderate.

Again, as Wendy mentioned in a script that we may look at evaluating whether either the performance improves or we look at selling some of those assets as well, so we have options to consider.

Okay, great. And then just last one for me, the new tenant issue that popped up that you provide $300,000 of deferred rent. I mean, should we think about that as more of a one-time type thing? I mean, is there concerns that that issue could persist as you go into the fourth quarter?

Yes, I think it is really a function of the ERC credits being funded by the IRS. So it is really a function - you have heard that timeframe has been four to six months, after application, it could change as well. So I think it is really a function of that timing.

Okay, great. thanks Clint.

Thank you.

Our next question comes from Connor Siversky from Berenberg. Your line is now open Connor.

Good morning out there. Thanks for having me on the call. A quick question on the dispositions completed during the quarter. And apologies if I missed this earlier, but could you provide a sense of what rent those facilities were providing prior to the disposition?

Well I rent numbers. I have the cap that we provided last time on last quarter's call. So the Skilled asset we sold had a 6.3 cap rate. One of the AL sales had at a 5.7 cap rate, and the AL where we had the termination fee paid to us was 7.1% cap rate. So we had some attractive cap rates on those sales.

Okay. Thanks for that. And then I know you mentioned this before, just the difference in occupancy recovery between ALS and sniffs. I'm wondering just from your point of view, is that still due to pressures in the labor markets inability to fill headcount within these facilities, or if it is just kind of the summer months and a slowdown in elective procedures that might put some downward pressure on the occupant recovery for sniffs in general?

I think summer months typically has been slower. So I think that is probably a contributing factor. The other thing to think about too is Skilled providers increased occupancy. They open wings of buildings is a higher staffing element to open a wing of a building to accommodate increased occupancy. And so with that higher staffing level, it is a function of the expense side of being able, how much they can admit to be able to offset that increased cost.

Okay, understood. And then last one, maybe for Pam, we have gone over this in the past, but just given the sharp spike we have seen in rates and the way the multiples held in quite nicely for LTC. And as you kind of look at this forward investment pipeline, how do you look at the debt equity mix on acquisitions going forward?

Yes, we are still at 70% equity, 30% debt and that has been the way we have consistently looked at it even when that was really cheap, relative. I mean, I think debt historically is still pretty cheap if you look at the past decade. But when it was really, really cheap, we still were very disciplined in looking at our weighted average cost of capital with that blend.

Okay. And then within that same context, I mean, do you see some of the private equity players now stepping back from these deals, maybe opening up some more opportunities for LTC to be involved in acquisitions or certain acquisitions that you may have been mispriced.

Yes, exactly. I think, the movement and rates has really helped us because the private equity players, they use a lot more debt and so that part of their capital stack has really increased their cost. And so I think the increase in rates perversely have been positive for LTC and rates in general. So we are feeling much more competitive now.

Got it. Well, maybe positive for LTC, but I don't know about all REITs. I appreciate the comments. Thank you.

Thank you. Our next question comes from Steven Valiquette from Barclays. Your line is now open.

Great. Thanks. Hello everybody. Thanks for taking the question. I guess just for Anthem Memory Care, you mentioned on page 12 and the supplement, do you expect their occupancy to recover, and also they are expecting to receive some additional stimulus funds to be used to pay the deferred rent. I guess, I'm just curious when you think of all the things that could be involved in improving their operations, what is the most important variable at the end of the day? Is it the occupancy that you cited? Is it more just the pricing power they might have? And also I'm curious how much pricing they can do mid-year versus Jan 1. And also how critical is the labor pressure subsiding? So just kind of bouncing rank order what is the biggest variable you think in your mind on their recovery? Thanks.

I think it is definitely - it is a combination of occupancy and staffing. And we talked to operators across the board and Skilled as well as Private Pay, is there has been a reduction in the temporary staffing costs. So that is a positive for the properties. And just growing occupancy after COVID, right now, they have reforecast their expectations for the remainder of the year. And they are on target for that, that by the end of the year we feel that their operations will be able to cover rent. So they have had dips in the past, as we have mentioned on previous calls, and they have been able to bounce back. So at this point we feel confident they will be able to do that. And these stimulus dollars through the ERC program or the Employer Retention Credit program, I mean is very helpful. And we think that once those funds are made available, they will be sufficient to for them to cover their deferred rent we've provided.

And to have a cushion.

And have a cushion.

Did you guys provide a number around that? We could probably figure out roughly what it is anyway. Did you actually give a number? I might just missed it in the commentary, but do you what is the rough amount they might get?

We haven't given a number for, but I would say that when you think of the ERC credit, I mean, I would think it sort of in the context of PPP funds, as far as the magnitude of dollars.

Our next question comes from Austin Wurschmidt from KeyBank Capital markets.

Okay, got it. Okay, alright. Thanks.

Thank you.

Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Your line is now open.

Hey good morning. This is Arthur Porto on for Austin today. Just a quick question on deferrals for the quarter. So with respect to the new deferrals in the third quarter specifically the 150,000 in August and September. Can you provide some more detailed size of the operator? Maybe how many properties they operate and also how occupancy is trended. I think that would be pretty helpful. And then also what gives you the confidence that they can repay rent in 2023? Thanks.

Sure. I mean, the confidence in our ability to collect rent on that is similar to Anthem in this ERC Credit. What has happened is, is as that program was expanded in 2021, a lot of operators assessed whether or not they qualified. Once they determined they qualified, they went through a lot of offers, have gone through a process of where they have actually created their audit trail in advance and applying, to make sure they fully understand the restrictions, that affected them and then they apply. So, that is what gives us confidence that the ERC funds will be beneficial, usually the timing of receipt of that. We do have some additional credit enhancements with this operator they are not in our Top-10, but it is a target operator that has a regional presence within the country for operate approximately 20 plus buildings.

Alright that is helpful. Thank you.

You are welcome.

Our next question comes from Tayo Okusanya from Credit Suisse. Your line is now open.

Yes, good morning everyone. So a couple of quick ones from me. Firstly one, could you give us an update from a regulatory perspective? Again, it is kind of post July, so most states have set their Medicaid rates curious what you kind of saw and also from a CMS Medicare perspective, kind of what you may be expecting down the line as it pertains to the final ruling?

So from a regulatory standpoint, there haven't been a tremendous amount of changes, but we have noticed some for instance in the state of Florida, there was a recent Medicaid rate increase, and part of that reduced the staffing requirements. So that was a positive regulatory change combined with the rate increase. It was very positive for the State of Florida. So we are hopeful that will be become noticed and could take place in other states. But nothing that we have seen largely from a regulatory standpoint or Wendy or Pam.

I mean, I know the skill nursing industry is hoping for a phase in of the cuts and that is always a possibility and that would be beneficial. But I haven't heard if that is gaining traction or if there is a preview into the final decision.

Gotcha. Okay. That is helpful. And then, Pam, I think there was a comment earlier on that from a guidance perspective. The expectation is that, 3Q FFO will be higher than 2Q. And I guess when I'm looking at the moving pieces, I'm struggling a little bit to kind of reconcile that because you have given - you have this 12 asset portfolio that is transitioning and assuming that reduces your rent in 3Q, because the new tenant doesn't have to pay rent for four months. And then you also have kind of higher interest rates. You have net sales in 2Q of 2022, which is diluted to earning. So, if we are just going to help us understand a little bit about how FFO per share 3Q should be higher than 2Q.

Sure. Well the transition portfolio, we weren't receiving rent on that over the past several quarters. So, the free rent that was given for the first four months affecting the entire third quarter that will be the same as the second quarter. No rent. So there is nothing that changed in the guidance there. Where the lift is coming from is HMG. That is the lease of the former senior care portfolio. They paid a million this quarter and that is increasing next quarter. And that guidance on page for your model is on page 13

So, for the transition portfolio, even though you give them a 600K abatement in June, you really weren't collecting any rent anyway.

In June - I'm sorry. Say again Tayo.

For the transition portfolio, I think you did give them an abatement of their rent of 600K or so?

Yes, but they were previously getting a deferral. So it is call it deferral, call it abatement, they are on a cash basis. There was no rent reported. Also in the third quarter, we will be getting a full quarters rent from our acquisition with Ignite the Texas Skilled Nursing portfolio that is not in the second quarter. So there is quite a bit that is happening in the back half of the year for us.

Got you, okay. And then just the next question again, all the news around again, rising COVID cases, BA5 kind of what are you hearing right now from your tenants about any potential impact from all that?

I'm sorry, the impact from what?

From BA5 and rising COVID cases.

I'm sorry. I hope, Tayo, I hope we would get through this entire call without talking about COVID.

I was sorry to spoil the track record.

You did. We haven't heard that it is affecting our operators as much as the prior variance. Obviously, staff being out sick that hurts, but it is not to the same magnitude as it happened in January, that variant seemed to hit all at once and like everybody seemed to be out with COVID and agency use was quite high in the first quarter. The good news is to the resident population in both Skilled and Assisted, not neither the variant that happened in the first quarter or the variant that is happening now, this summer seems to be causing much in terms of complications or a higher mortality rate like two years ago that the original variant was just awful and that was prior to the vaccines and, and the resident population is highly vaccinated and boosted. So I don't see COVID right now creating a ton of headwinds, it is really occupancy needs to continue to grind higher. And again…

It is that when you talk to our operators, it is really inflationary cost pressures as well as staffing. I mean, those are the real two things that are on the operator's minds. When you think of the variant - from a Skilled perspective because of the public health emergency, you could skill in place as well. So from the Skilled side, they can look at that as an opportunity in the interim to accommodate and be able to not have people go back into hospitals to keep those to keep capacity in the hospitals. So that is really staffing and just cost pressures generally are the main focuses.

Yes. And perversely a slowdown in the economy might help the labor problems for our - the labor challenges, the staffing challenges that our operators have. So things could possibly get better in the second half of the year from that standpoint, from just a labor supply standpoint endpoint.

Got you. Thank you.

Thank you.

Our next question comes from Daniel Bernstein from Capital One. Go ahead Daniel.

Hi good morning. I wasn't sure. I just wanted to go back to the 12 property tenant that you transitioned. The ALC assets you might sell there not withstanding. How should I think about what rent or cash you received in 4Q and then going into 2023? I assume at that point after the four months of free rent, you might receive something?

You know I think that is really a function Dan of the new offer getting in and working continue to increases in occupancy, evaluating expenses. So I think at this point it is hard to say, but for our next quarter, hopefully we can provide amore of an update on where we are at on that, but it is hard. We haven't given guidance for that yet.

Okay. Are the ALC assets cash flow positive? Sorry go ahead. Sorry.

I mean, the portfolio as a whole is cash flow, operationally cash flow positive.

Are the ALC assets cash flow positive?

We are just providing information about the portfolio as a whole so.

Okay. And then I went to a question on labor, I guess it could apply both the Seniors Housing and Skilled Nursing. I have been hearing from some operators that they had some increase in that hiring. So I was just wondering whether some of the commentary you had on agency labor use reflects the decrease in COVID or maybe more so the increase ability of operators to hire.

We have heard for some operators that they have made progress in hiring. So that is something we have heard from a number operators that is starting to trend up. So again, as Pam's comment, with the economy and maybe that is a benefit to our industry.

Okay. And then the last question I had was I think, Pam may be alluded to some commentary on the cost of debt to private buyers. Have you actually seen any kind of maybe evidence yet of that impact? Are you seeing any maybe assets being retrained assets that you bid on that loss that are coming back to you now that you are looking at again. Just some kind of firm indication that maybe some of the private buyers are backing out, whether that AL or sniff side, I don't know, but maybe talk about what we are seeing out there in detail?

I think it is too early in the process with the rates just recently rising, but so I think that is going to be something becomes more of indication next quarter is where I think we see assets come back around or if we have submitted a bid on a transaction that brokers come back to us, and indicate, well maybe this is a price that works. So we are hopeful that we see that, but we will have to wait and see how it plays out, but I think it is just too early right now to answer that question.

Okay. that is all I have. I appreciate the time. Thanks.

Thank you Dan.

Thank you Dan.

[Operator Instructions] Our next question comes from one Juan Sanabria from BMO Capital. Your line is now open.

Hi good morning. Thanks for the time. Maybe just a question for Pam on the earnings following up on Tayo's question. The two payments one to the prior operator of the 12 assets that are transitioned and the payment to the new operator are both of those going to be one-time in nature and backed out of NAREIT FFO for a normalized number?

So the 400,000 to the new operator is considered lease incentive. So it is amortized over the life of the lease. So not a one-time, the 500,000 paid to the former operator, yes that will be a one-time charge.

Okay. And then for the acquisition pipeline, I forget who mentioned it. I think 60 million or 70 million was talked about for a good assumption for the back half of the year. Can you just give us a little flavor of what kinds of assets are those traditional fee simple or more kind of structured finance transactions and what kind of yields we should expect on those?

Sure. Now this would be an acquisition. I can tell you, it is Skilled Nursing, and it is an off market transaction actually bringing in new operator into our portfolio. And similar with the portfolio we acquired with Ignite, would be newer Skilled Nursing. And I think this off market transactions speaks highly of the capabilities of our business development team to source these type of transactions.

And that would be kind of an eight or nine type yield?

We haven't given it, but you think similar to Ignite, which was in the 8% range.

Okay. And then just kind of a general question with regards to lessons learned from COVID. I mean, it seems like a lot of the issues have not been on the Skilled side, but on Assisted Living and maybe with smaller assets. Does that change kind of what the opportunity set is going forward or broadly any lessons learned about what kind of assets you do want to buy and maybe what now you think maybe is not such a great idea to sharing any color on how you think about, what you have learned as a result of COVID and stress testing? Thanks.

I think it reemphasize in having a balance in the portfolio between Skilled Nursing and Private Pay. One of the main drivers in the difference is the amount of stimulus funds made available to Skilled providers as opposed to Private Pay providers. So, having that balance, because you don't know what environment, what market you may be in. So definitely reiterate balance of within the portfolio.

Yes. I agree. I think, Skilled Nursing prior to the pandemic, some investors maybe were not as bullish on Skilled Nursing or as an asset class, it wasn't as favorable. But I think the pandemic showed that from the Federal Government standpoint and the states that, Skilled Nursing is recognized as a valuable part of the continuum of care for the elderly. And I think that is a positive thesis going forward. I mean, Skilled Nursing is always changing and evolving and certainly they proved during the pandemic that they can take the higher acuity patient and have very good outcomes. So I think just from a global standpoint, looking at Skilled Nursing, it is an integral part of our healthcare system and was supported by the government and I think we will continue to be. I do scratch my head at the cuts. I think that the timing of them is questionable. I don't understand why the Federal Government would essentially support this industry through the pandemic, and not wait until the recovery has been complete because the recovery is not complete for Skilled Nursing, before introducing these cuts. So, I am hopeful that the lobbying efforts on Capital Health will either delay or at least phase in the cuts, but that remains to be seen that is politics. And I don't get involved in that.

And just maybe as a follow-up there, I mean, particularly some of the smaller AL assets have been an issue, not just for yourself, but others, some of your peers and maybe just the volatility around what the break even occupancy is challenging. And obviously pretty high, particularly with higher labor costs. Are you still kind having an appetite for those smaller kind of secondary market, more middle market priced AL type assets or are those now maybe not as exciting as they used to be?

I mean, it is not so much secondary markets. I mean, our goal has been over many years now to focus on strong, regionally based operating providers. So, that is really who we are trying to target. We think operators who have that presence in a marketplace that know their markets that are not too diluted across different parts of the country. We still think that is an ideal operating partner for us. Some of the smaller companies ironically, if they have benefited from PPP funds, as well as the ERC credits have been targeted towards smaller operators where some of the larger operators haven't had - on the Private Pay side, haven't had the benefit of stimulus funds.

And sometimes the smaller markets, they don't have as much competition as the larger markets. I mean, larger markets, they have suffered greatly from oversupply. And so we really look at each individual asset and at market when we are acquiring and we don't really have any blanket statements like we like only major metropolitan areas or we only like suburbs or we only like secondary markets, it is really on an individual basis that we look at our acquisitions.

Got it and maybe just one last quick one for me, the Ignite purchase of this Texas Sniffs. Why give the, or maybe you can give a little background on the rationale behind giving purchase options have been between year six and seven.

Well, I mean, I think it is just a function of you looking at the opportunity and people have choices of capital providers and we try to provide some flexibility and Ignite has done a very good job of performing on assets we have had with them before the Texas acquisition. They performed very well on the Texas portfolio to date with occupancy ahead of our projections. And so I think for them, it is a way to capture value. And so we are willing to work with them on that. And hopefully, we can find other transactions between now and then that we can maybe there is a way to modify that where we - they buy a couple, we keep a couple of - there is just - there is different dynamics that come into play in building these relationships. This was an important aspect for Ignite. So, we were willing to accommodate it and partner with them on this transaction.

Got it. Thank you.

Absolutely. Thank you.

Thank you everyone. That concludes today's Q&A session. I will now refer you back to Wendy Simpson for closing remarks.

Again, thank you for joining us. We are very hopeful for the rest of the year, and we are very grateful to be where we are right now. Thanks for the attention you have given us. Bye-bye.

That does conclude today’s session. You may disconnect your lines.