Before management begins its presentation, please note that today's comments, including the questions 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 Securities and Exchange Commission from time to time, including the company's most recent 10-K dated December 31, 2022. 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 pass the conference over to Wendy Simpson.

Thank you, operator, and welcome, everyone to LTC's First Quarter 2023 Conference Call. I am joined by Pam Kessler, Co-President and Chief Financial Officer; and Clint Malin, Co-President and Chief Investment Officer. So far in 2023, we have put nearly $180 million to work through new investments. We have already eclipsed last year's total, which before now, was our strongest investment year since 2015. Additionally, we have generated $32 million in proceeds for property sales year-to-date, generating net gains of $15 million and reducing the average age of our portfolio. Going forward, while there are several opportunities we are reviewing, we are cognizant of current market conditions and are prioritizing judicious capital allocation and disciplined portfolio management to identify the most appropriate opportunities. We will continue to diversify our operator base and recycle capital. Our strategy for dispositions remains unchanged, with focus on methodically divesting noncore assets and recycling capital at or around annual historical levels of $35 million to $40 million. This year, however, we may exceed that amount due to the anticipated sale of certain Brookdale portfolio properties toward the end of this year, which Clint will discuss later. Regarding industry reimbursement, we were happy to see the proposed CMS rule for fiscal 2024 which included a net market basket increase of 3.7% for SNFs beginning October 1, 2023. At the same time, given the substantial challenges the skilled sector has been navigating through for more than 3 years, it's likely not enough to result in a much faster recovery. On the private pay side, we are seeing rate increases implemented without significant declines in occupancy. As expected, our FAD payout ratio, excluding nonrecurring items, increased to 82% for the first quarter due to not having the benefit of the non-run rate items we discussed on last quarter's…

Thank you, Wendy. For the first quarter of 2023, total revenue increased by $8.7 million from last year's first quarter. The year-over-year improvement included a $1.4 million increase in rental revenue, primarily related to higher rent from transition portfolios, rent received from our 2022 acquisition of Four's properties in Texas, annual rent escalations and rent increases from completed development projects. The increase in total revenue was partially offset by lower rent from sold and transition properties. Interest income from financing receivables increased by $3.8 million from the 2022 first quarter, related to the acquisition of 11 assisted living and memory care communities in the 2023 first quarter and 3 skilled nursing centers in the 2022 third quarter. In accordance with GAAP, we recorded these transactions as financing receivables because we purchased the properties from an entity and then leased the properties back to the same entity under a master lease with a purchase option. Interest income from mortgage loans increased by $1.6 million, primarily due to mortgage loan originations in the 2023 first quarter and the 2022 second quarter. Interest and other income increased by $1.9 million from last year's first quarter, mainly due to the payoff of 2 mezzanine loans and the related exit IRR and prepayment fee we received during the 2023 first quarter as well as a mezzanine loan origination during the 2022 first quarter. Interest expense increased by $3.5 million from last year's first quarter, primarily due to a higher outstanding balance and higher interest rates on our revolving line of credit as well as the issuance of $75 million senior unsecured notes during the 2022 second quarter. The increase was partially offset by scheduled principal paydowns of our senior unsecured notes. Our provision for credit losses increased by $1.4 million, mainly due to larger loan…

Thanks, Pam. I'll start today with our first quarter investment activity. As discussed during last quarter's call, we entered into a joint venture with an affiliate of a current LTC operating partner. The transaction included the purchase of 11 assisted living and memory care communities in North Carolina, which are being operated under a 10-year master lease with 2 5-year renewal options. As Pam detailed, the purchased assets are presented as a financing receivable on our balance sheet because the JV acquired the communities through a sale-leaseback transaction subject to a lease that contains a purchase option. Also, as previously disclosed, we invested $51.1 million in Corso Atlanta by purchasing a participation in an existing mortgage loan. Corso Atlanta is a new luxury 203-unit gated independent living, assisted living and memory care community owned and operated by an affiliate of Galerie Living, an existing LTC partner. However, we used funds from LTC to pay off certain current banks as well as LTC's outstanding $7.5 million mezzanine loan, which was funded in 2019 for the communities construction. Next, I'll discuss Brookdale as I'm sure you're all interested in our plans for the 35 assisted living community portfolio. First, Brookdale is contractually obligated to pay rent on the portfolio through the end of the lease term on December 31, 2023. Second, broadly speaking, the rate growth and occupancy trends we're seeing in our Brookdale portfolio are similar to those they have publicly disclosed for their overall portfolio. Third, we are working to replace the income we're generating from Brookdale through a combination of re-leasing and redeploying sales proceeds over time while diversifying our operator relationships. Our current plan includes selling about 50% of the properties while re-leasing the other 50%. We have engaged third parties to help run the process, and they…

Thank you, Pam and Clint. Building on last year's success, we are pleased to have closed nearly $180 million in investment since the beginning of 2023. As Clint just said, amidst significant turbulence in the capital markets at this time, we are maintaining our focus on conservative financial management while continuing to identify strategic opportunities. No matter the environment, we will act as responsible stewards of the capital with which our shareholders have entrusted us. We remain flexible and mindful as we work to reinforce LTC's position as a REIT partner of choice for the seniors housing and care market. Operator, we are now ready to take audience's questions. Thank you.

[Operator Instructions]. Our first question is from Austin Wurschmidt with KeyBanc Capital Markets.

Can you guys just share a little bit more detail as to how you're planning to carve up the Brookdale portfolio and determining which assets to sell. And as of now, do you plan to package that as a portfolio sale or one-offs?

This is Clint. As I mentioned in the prepared remarks, we're looking at selling approximately 50% of the portfolio. And we have 2 different intermediaries that we're working with to run the processes for those. So we're really looking at it on a state-by-state basis given that the portfolio is comprised in 8 different states.

And does 50% of the properties or roughly 50% equate to a similar amount of the contractual cash rent? Or how does that sort of break up between what you're looking to sell and what you're looking to keep?

I would say that the portfolio and the 50% we're looking at keeping has much higher EBITDAR associated than the properties we're looking at selling.

Okay. Got it. And then, I guess, can you just give us a sense as you're in the negotiations with potentially backfilling the properties you're playing to keep? I mean what's the likelihood that you end up taking some type of initial haircut on the rent to get the assets a new operator stabilized and then maybe some type of catch-up plan. What's the current negotiation like in terms of the range of outcomes on the new leases?

We're going through that process right now. So it's still to be determined. We have definitely had a lot of interest even before we began a process of marketing the portfolio. So we're encouraged by that. We're also encouraged that, as I mentioned in my prepared remarks, what we're seeing in the properties that we own that Brookdale operates, we're seeing similarities to what they've announced publicly in regards to rate growth in occupancy. So as far as going into a transition with the rate growth that took effect on January 1, that's positive to this process.

That's helpful. And then just last one for me. I'm just curious, as this process is unfolding, from a people perspective, maybe particular that executive directors I mean what have the conversations been like? Have you seen any increased turnover or concerns within these assets that you intend to keep and re-lease?

We haven't seen any concerns at this point, but we're in close contact with Brookdale. Brookdale has been very cooperative in this process. So that will be a topic of discussion most likely with them as well as the operators that we select to transition the portfolios or the other ones to sell. So we'll provide updates on a quarterly basis in regard to Brookdale.

Our next question is from Steven Valiquette with Barclays.

This is [indiscernible] on for Steve Valiquette. I was just wondering if you could kindly go in to just add a little bit more color on your kind of upcoming debt maturities. I think 2025 is the next year, you have some, let's say, significant maturities coming due. But just wondering if you could add a little bit more color about how you plan to potentially service these and how you view your liquidity position, particularly in relation to, let's say, 2025?

Yes, sure. This is Pam. Yes, 2025 is when our line of credit comes due. We have 1 term loan, $150 million term loan that comes due and our line of credit. We feel very strong about our financial position right now. We have the asset sales that we've discussed. And we feel we have liquidity to execute on our investment plans and service our debt. I think you're probably looking everything lumped in and that's why you haven't broken out. We -- in our supplemental, you'll see we break out the line of credit. Most people, when they look at debt maturities, they carve out the line of credit. We don't have any significant long-term debt maturities that are coming due because we finance ourselves through the private placement market, and we match our maturities to our projected cash flow. So we don't have a big -- if you're talking about big refinancing risk, we don't feel we have one.

And on our credit, we have the option to renew, right?

Yes. We have a 1-year renewal option on our line of credit. That's pretty standard.

Okay. That's great color, Pam. I appreciate that. And just I was also just wondering that -- just holding on from the asset sales and transactions and acquisitions that you mentioned, I was just wondering what kind of cap rates are you guys looking at in the market when you're starting to go ahead with these transactions? Or what kind of cap rates are you targeting? Is it possible for you to add any color on that front as well?

Well, from a -- this is Clint. From a cap rate standpoint and looking at how we're pricing investments that we're looking at, we've definitely increased our pricing, probably about 75 basis points recently to go and to make an accretive transaction. So that's one current readjustment that we had to make on our pricing.

I think you're talking about sales.

I'm sorry, on sales. On the sales right now, I mean -- I'm sorry, the sales are more on the -- there's some value add, so really applying a cap rate to a value-add sale. I mean it's really hard to do that. It's probably more on a price per unit or price per bed metric.

Okay. And just quickly then last question here for me is heading into the -- let's say, looking at the end of the year here, how are you guys looking at your acquisition versus disposition strategy? I mean are you looking at going out there and potentially still making some acquisitions? Or are you looking at just maintaining the portfolio? Just the tiny bit of color on that would be appreciated.

Absolutely. As I mentioned in my prepared remarks, we have about $100 million in our pipeline right now, and we're being selective. And the investments that we're working on right now, all with existing operating partners that are off-market transactions. So that's really our focus on the investment front right now. If we completed this additional $100 million of investments that would put us up to almost just under $300 million for the year, which is a very strong volume. So we feel very good about what we've been able to accomplish this year and what we have in the pipeline right now. On the disposition front, it's really more what we talked about in the prepared remarks. It's -- we've sold some today. We probably do a little bit more to be the average of 30% to 40%, but that could change depending on the sale and timing of the Brookdale property. So that would definitely elevate above our annual average sales.

Our next question is from [indiscernible] from RBC Capital Markets.

Just a quick question on the Prestige deferment. Is there anything specific that required it? Was the operational issues or an unexpected charge?

Well, really, the driver on it just been slow recovery in the census and just inflationary pressures, the cost pressures that they've experienced. Michigan is going through a rebasing of their rates right now and the cost reports for 2022 are to be filed by the end of May, which is then to establish the 2023 rates starting in October as well as there's a retroactive settlement for prior years because the last settled cost reported in Michigan is 2019. And they've had just fixed increases of 2.5% on October 1, '21 and '22. But yet it is a cost-based reimbursement state.

Okay. Cool. And then do you think there are going to be more in the future? Is the 1.5 there or is that something that you'll probably look back in, in September?

As Pam mentioned, we're working closely with Prestige right now to try to understand how this is going to work going forward and evaluating information from them. They've been cooperative in the process, and we'll provide additional updates on our next quarterly call regarding Prestige.

Our next question is from Connor Siversky with Wells Fargo.

On rent coverage, some improvement in the assisted living portfolio year-over-year. Can you give us a sense on what the watch list looks like at the moment? Or what percentage of the assisted living tenant base is under 1x EBITDAR?

Well, we haven't given specific coverage by individual operator. But from today's call, we're working on a transition and we're speaking about Prestige. But also, we have seen a lot of rate growth on the private pay side. As I mentioned, regarding Brookdale. So that rate growth, as I mentioned in my prepared remarks, hasn't been factored into the trailing coverage. So going forward, you should see an improvement. And as Wendy mentioned, we haven't seen a significant decline in occupancy, which is also a positive. So hopefully, that will be reflective of improving coverage on the private pay side.

There are no additional questions waiting. So I'll pass the conference over to the management team for any additional remarks.

Thank you, and thank you all for joining us for the first quarter results, and we look forward to talking to you regarding our second quarter. Have a great day and weekend.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.