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Executives

Wendy Simpson - President and CEO

Pam Kessler - EVP and CFO

Clint Malin - SVP and CIO

Analysts

James Milam - Sandler O’Neill

Michael Kale - RBC Capital Markets

Dan Bernstein - Stifel Nicolaus

Karin Ford - KeyBanc

Richard Anderson - BMO Capital Markets

LTC Properties (LTC) Q4 2012 Earnings Call February 22, 2013 1:00 PM ET

Operator

Good afternoon, and welcome to the LTC Properties Fourth Quarter 2012 Analyst and Investor Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions)

I’d like to remind everyone that today’s comments including the question-and-answer session will include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties Inc. filings with the Securities and Exchange Commission including the company’s 10-K dated December 31, 2011. Please note this event is being recorded.

I would now like to turn the conference over to Wendy Simpson. Please go ahead.

Wendy Simpson

Hello and thank you for joining us today. The presentations will begin today with Pam Kessler, our Executive Vice President and Chief Financial Officer, who will comment on our financial results and operator coverage specifics. Pam?

Pam Kessler

Thank you Wendy, and good morning. I’m going to talk about quarter-over-quarter performance and I’ll refer you to the 10-Q and press release supplement that was filed yesterday for year-over-year comparison.

Revenues during the quarter increased $723,000. This is due primarily to rental income increase at 936,000 due primarily to acquisitions and a onetime rent escalation from Americas of $255,000 which resulted from a faster than anticipated lease up of the Bakersfield and Baker Vial properties that were formally leased to Sunwest.

Mortgage interest income decreased $263,000 primarily due to the prepayment of the $16.2 million loan related to asset delivering properties that we discussed last quarter on the conference call. Interest and other income were comparable between the two quarters.

Interest expense in the fourth quarter was also comparable to the third quarter. General and administrative expenses increased $824,000 primarily due to bonuses that reflect an increased level of investment activity in 2012 as compared to prior years.

During 2012, LTC transaction volumes that properties acquired, loans originated and development commitments signed was $244 million as compared to $109 million in 2011.

Net income available to common shareholders increased $271,000 resulting from rental income from acquisitions partially offset by higher G&A expense. Normalized fully diluted FFO per share was $0.57 this quarter compared to $0.57 last quarter and normalized fully diluted FAD per share was $0.56 this quarter and $0.56 last quarter.

Turning to the balance sheet, we had a very active fourth quarter on the investment front which Clint will talk about in a moment. From a liquidities standpoint at December 31st, we had 115.5 million drawn and 124.5 million available under our line of credit. Additionally, we have a 100 million available under our shop agreement with Prudential. Subsequent to December 31st, we borrowed 2 million under our line of credit and therefore we currently have 117.5 million drawn and 122.5 million available under our line of credit. During the quarter our last limited partner redeemed a total of 20,000 shares in our limited partnership. We elected to satisfy this redemption to the 20,000 shares of common stock. At December 31st, we had no more outside limited partner.

The $7000 balance on the balance sheet represents the former and limited partner's accrued preferred return which we paid in January. Therefore, you will not see a line item for this next quarter. During the quarter we granted 26,300 shares of restricted stock at a grant price of $34.90 per share, subsequent to December 31st, we granted 20,000 shares of restricted stock at a grant price of $36.26 per share. During the fourth quarter we paid 15 million in preferred and common dividend.

Turning to operative statistics, in discussing operating statistics I'll skip the general caveat that these numbers come from our operators, are unaudited and have not been independently verified by us. Additionally, the occupancy and lease coverage information is for the trailing 12 months third quarter compared to the trailing 12 months second quarter 2012.

Occupancy in our same property out portfolio was flat at 78%, excluding properties leased to Assisted-Living concepts and Extendicare occupancy in our out portfolio was 87%. EBITDAR leased coverage after a 5% management fee was 1.4 times. Before management fee or EBITDARM coverage was 1.7 times. Occupancy in our same property SNF portfolio was 79%. EBITDAR coverage after an implied 5% management fee was 1.8 times, before management fee or EBITDARM coverage for SNF portfolio was 2.5 times. Occupancy in our same property range of care portfolio, which consists of properties that provide any combination of skilled nursing, assisted living, independent living and or memory care services was 87%. EBITDAR lease coverage after a 5% fee was 1.4 times. Before management fee or EBITDARM coverage was 1.9 times.

The underlying payor mix for the nine months ended September 30th, 2012 for our same property portfolio, which includes skilled nursing, assisted living, memory care, independent living and properties with a combination thereof was 60% private pay, 40% Medicare, and 26% Medicaid. Within our same property SNF portfolio, the underlying payor mix was 25% private pay, 25% Medicare and 50% Medicaid.

I’ll turn the call back to Wendy.

Wendy Simpson

Thank you, Pam. Clint Malin, our Executive Vice President and Chief Investment Officer will discuss our fantastic fourth quarter acquisitions and development and underwriting and make comment on our current deal flow of pipeline.

After a very active 2012 fourth quarter, we've internally discussed that had we had this call on January 2nd, our pipeline would have been zero because we closed so many deals at yearend. But after a slow start, we have seen a good build to the pipeline. Clint?

Clint Malin

Thank you, Wendy. Good morning everyone. 2012 was tremendous year for LTC and we ended it with the best quarter of investment activity in Memory.

As Pam mentioned for 2012, we made a total of $244 million current revenue generating investments and development commitments and this investment activity extended our operator base by adding five new relationships to our portfolio.

During the quarter and sale leaseback transactions, we acquired two assisted living facilities and three standalone memory care facilities for an aggregate purchase price $82 million master leasing the properties to an entity affiliated with Juniper Communities.

Additionally, LTC entered into an agreement to purchase a 72 unit assisted-living facility from Juniper for $12 million including the assumption with $6.8 million HUD loan which is scheduled to close in 2013 subject to HUD approval.

Also, during the quarter, we acquired three vacant parcels of land in Kansas, Texas and Kentucky and separate transactions for an aggregate purchase price of $3.8 million. Simultaneous with these purchases, we entered into lease agreements and development commitments with three separate and unrelated operating companies in an aggregate commitment amount including land cost, not to exceed $39.9 million to fund the construction of two combination assisted-living and memory care communities with the total of 158 units and 143 bed skilled nursing facility.

Additionally, in the quarter we originated $5.1 million, two year interest only bridge loan tune affiliate of Juniper secured by a 70 unit assisted living facility. We also originated a $10.6 million construction and mortgage loan, $2.6 million of which was funded upon origination. The loan is secured by 106 bed skilled nursing facility that is currently operating and a $5.6 million acre parcel of land upon which 106 bed replacement facilities will be constructed. The agreement gives us the right to purchase the replacement facility for $13.5 million during an 18 month period beginning on the first anniversary of the issuance certificate of occupancy.

The facility will be operative by fundamental who’s also an operator of four of our SNF properties and we’ll operate our new SNF replacement property in Ambarella. Upon exercise of the purchase option, the new facility will be added to a master lease with fundamental at least rate equivalent to the then current interest rate on the loan.

All of the investments I just mentioned were previously announced. In addition to these announced deals, we invested $8.3 million in development in capital improvement projects during the quarter at a weighted average yield of approximately 8.9%. Growth was existing portfolio relationships so the strategy that helps spread our 2012 investment activity and we look forward to more opportunities in 2013.

The transaction with Juniper was the combination of a great year investment activity for LTC, establishing a solid new relationship with a highly experienced and well regarded operating company in the seniors housing space. Additionally, this transaction adds to diversification of our operator base, geographic footprint, and enhances private pay metrics as well as adds newer physicals plans to our portfolio with an average age of approximately 12 years with one of the properties located in the top 31 MSA.

Our pipeline is active but given the rush of activity in the fourth quarter as Wendy mentioned as well as the typical wall on the first quarter closings the 2013 investments, our any investments adjustment routine will fall into latter quarters. And we are seeing deals ranging from AL to private pay standalone memory care to skilled nursing in addition to numerous development opportunities. At this point our pipeline stands in excess of $200 million.

Additionally, we are continually in contact with our customers regarding expansion, redevelopment and renovation opportunities within our portfolio which will help or soon further add to our investment pipeline. We will continue our disciplined underwriting approach, be selective in asset quality and the establishment of relationships with operating companies possessing strong operational track records.

We continue to successfully execute our investment strategy by growing our operator base, completing follow on deals with existing relationships, acquiring newer assets, growing our development platform, plus funding expansion and redevelopment and renovation opportunities within our portfolio while maintaining a balance between private pay and government reimburse revenues.

Now, I’ll turn the call back to Wendy for her comments.

Wendy Simpson

Thanks, Clint. I’m not sure how we could be more pleased with our 2012 year. We said at the beginning of the year that we were diligently pursuing opportunities to commit today for the development of assets that would be significant additions to LTC's portfolio. As you can see from our supplemental; we underwrote approximately $78.3 million to build and develop new properties.

Two of these projects; Ambarella, a replacement SNF and Littleton Colorado, a standalone memory care property are both on track to open in the first half of 2013 and have been on schedule and on budget. Amazingly even though they started late in the fourth quarter our projects in Wichita and swinger Wisconsin are well underway, despite construction sometimes being difficult in winter months.

In 2011, as we had more investment opportunities and deals in SNF assets, we purposely turned our attention to adding more private pay investments in order to maintain a balance in our asset portfolio. We began an initiative to identify new and entrepreneurial operators of memory care communities.

During 2012, we establish relationships with operators such as Anthem, Oxford, and Mustang Creek and have worked with them to develop assets for our portfolio and their operations platform. We look forward to doing additional development with these companies and building other new relationships in 2013 and the future.

While pursuing development opportunities we did not lose sight of the accretive benefit of our core sale leaseback transaction. In 2012, we closed down a $161 million of sale leaseback transactions. And I am pleased to report that the assets we have purchased in the past two years have been newer, competitively positioned and operated by dynamic companies who are strategically looking to grow on strong operating platforms.

In this summer, we added the Great Care Spring properties and at yearend we were so pleased to be able to add Juniper and their wonderful properties to our portfolio. Clint has already detailed the many benefits to LTC from this additions and I just want to reinforce our appreciation for the opportunities these two operators have given to LTC and our shareholders.

Plus I want to express my appreciation to all of our operators for their contributions to the strength of LTC. Our two master leases with assisted living concepts and extended care come up for renewal as of December 31, 2013; at which time the lessee is required to give us at least twelve advance notice.

There has been significant attention placed externally and internally on these 37 properties due to operational and corporate challenges being experienced by ALC. We continue our scheduled physical inspections of these properties and I have commented on past calls that ALC has been maintaining and investing in this physical assets. In preparation to discussions that are likely to take place later this year, I have personally begun to see all of the 37 properties. Today, I’ve been to one Idaho, one Ohio, and all eight of our investments in the state of Washington.

My goal is to get all of these properties this year either by specifically planned trips or side trips during other business travel, of that 10 properties I have already seen, every one of them is extremely well maintained. The available rooms were all rent ready and most with new carpet and new bathroom tiles.

Many of the properties had new roofs and none had any current roof problem. The kitchens were neat and clean. Many had new color tops and were needed new equipment. ALC has adapted a new standard decor package and most of the properties I visited had recently been repainted and received new wall art.

All of the storage areas’ maintenance offices were neat and clean and well organized. In the dining room even though occupancy has been low in these properties all of the tables were set with linen centered table decoration and all play settings.

I have them open every wall panel every hallway door and found that everything clean and neat in utility area. I walked the parameter of each property and did not notice any significant physical business issues.

The ALC operations’ people I met with were all courteous and encouraged by the operational changes that, that development had made ALC and continues to make at ALC. Also in preparation to discussions about the potential lease renewals, we are talking to companies to begin strategic analysis of these 37 assets and their market.

We want to be as prepared as possible to evaluate these assets as ongoing operational assets and their positioning or possible repositioning opportunities. All of this great investment activity has had to be paid for and we have used our line of credit and completed the private placement of notes during the summer to some of these investments.

At year end, we had debt-to-market cap of 21.4% not including our stock of debt. If you include the preferred stock as debt, we were at 24.2% debt-to-market cap. We continue to have a strong balance sheet with debt to normalized EBITDA of 3.7 times, a normalized interest coverage ratio of 8.4 times and a normalized fixed charge coverage ratio of 6.3 times.

We have debt capacity and availability to fund the growth in 2013 and maintain our discipline of having no more than 30% debt-to-market cap and a wall structure debt maturity schedule. However, we would look at equity to fund additional growth at the appropriate time and more importantly at the appropriate price.

And to forestall the question of what I think the appropriate price is I’m not prepared to give you a number today. A couple of weeks ago we announced the retirement of Andy Stokes our Senior Vice President of Marketing and Strategic Planning. Over this past six years Andy has made a major contribution to our market presence and growth. We will miss him at the office but continue to keep him personally and professionally as a friend. At this time using our base case, not assuming additional acquisitions or developments, not assuming changes in debt financing or equity issuance, but assuming the sale in the first quarter of about $11 million of older SNF asset, we are projecting normalized diluted FFO of approximately $2.46 to $2.48. However the first quarter of 2013 will have a onetime expense related to Andy’s retirement.

At this time I want to thank you for taking your time today to listen to our presentations and now we will take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from James Milam at Sandler O’Neill.

James Milam - Sandler O’Neill

Just quickly on Andy, what’s the G&A bump in the first quarter, and that is included in guidance, Wendy?

Wendy Simpson

No, what I gave you is normalized. And it’s going to be primarily related to the acceleration of the restricted stock.

James Milam - Sandler O’Neill

And are you prepared to give us the number, or should we wait?

Wendy Simpson

Yes, I am not prepared right now.

James Milam - Sandler O’Neill

Okay, no problem. And then bigger picture, with Andy leaving, obviously the portfolio has changed a little bit with the development program, and he was a big part of building the new relationships, I guess, I am curious how you are thinking about filling that position and is it different skill set now that maybe you would like to have, or and I guess how you are thinking about cultivating these existing relationships that you have now. Obviously I expect Clint would be a big part of that, but just wanted your comments there?

Wendy Simpson

Yes, we are still trying to decide how to replace Andy. It’s not a simple thing to do. Over the last year, Andy has developed another person on our staff, Mark Hemmingway, who has been going with him to a lot of the regional meetings and developing relationships that we already have somebody doing part of Andy’s job. We will be adding two quick staff to take some of the actual paper pushing out of Clint’s hands and add some developmental opportunity and let Clint spend a little bit more time in the field developing relationships.

James Milam - Sandler O’Neill

And then two quick ones on ALC. The first one, Wendy, did you notify them before you visited the assets that you have toured so far?

Wendy Simpson

Yes, we have to give them at least 24 hours' notice of coming out.

James Milam - Sandler O’Neill

And do you push up to the 24 hours or do you give them, I guess I'm just curious if they had weeks to prepare for your visit or if you're…

Wendy Simpson

No, they didn't have weeks. They had a couple of days.

James Milam - Sandler O’Neill

Okay perfect, and then on ALC, the coverage declined a little bit, I guess I'm curious if you have any insight into whether that's from them having all of the linens out on the table even if the assets aren't occupied for the operating expenses that they're running now to try to improve the occupancy and the operations of the assets, or if there is something else in the coverage that we should be aware of?

Wendy Simpson

No. From the people I talked to out in the field, they now have a full complement of staff at every property. So they are fully staffed. They had reduced staffing to, I just don't want to say a ridiculous level, but certainly a level that was not appropriate. They all have maintenance people for at least 30 hours a week where sometimes they had maintenance people for eight hours a month. So it's from a buildup of staffing and it costs to do these things before they get the rooms rented. So it definitely is you can tell that they're putting money back into the properties to have them prepared for the increase in occupancy which hasn't come yet. A lot of the administrators that I met were there for approximately one year so a lot of them are very new administrators.

Operator

Our next question comes from Michael Kale with RBC Capital Markets.

Michael Kale - RBC Capital Markets

Within your investment pipeline can you break out the SNF in senior housing opportunities you're seeing and then maybe also break out the acquisitions and development opportunities?

Clint Malin

Sure, I want to go through the specifics of dollar by dollar but there is a diversity in the pipeline consisting of all of those, there are a number of skilled nursing facilities that we are looking at, but there also are a number of assisted living and memory care communities that are out there that are potential sale lease back opportunities. We have been working with a number of companies on the development platform, so we are layering that as well, so I think it's a really well balanced pipeline that will continue to add the diversity and balance within our portfolio of private pay and government reimbursed revenues.

Michael Kale - RBC Capital Markets

Okay and then how big would you be, do you want to grow that development pipeline to get represent 5% of your enterprise value right, are you willing to double that or?

Wendy Simpson

Well we have said in the past that as we were doing about $100 million a year of accretive acquisitions, we would be comfortable at about $50 million a year development. So if you do more acquisitions you can naturally do a little more development but that’s about the balance.

Clint Malin

And also we try to manage that process too because as we have development projects that are coming online, we are looking at opportunities that we are bringing on and so there may be a little bit more or less at any given point, because we are managing the roll-off into properties that are coming online.

Michael Kale - RBC Capital Markets

Okay, you have about $50 million invested currently and then as you complete, you put on more is that what you are saying?

Clint Malin

Correct, yes. There could be some overlap in adding on, depending on the opportunities that present themselves.

Michael Kale - RBC Capital Markets

Okay and then my final question is that at what point would you talk about, I guess clearing your line and then how would you decide between doing that with equity or long-term debt?

Wendy Simpson

We would look at the time that we were looking to perm out the line, we would look at what the equity market looks like, what were opportunities on debt, unsecured, we could even do a little secured, we have like $2 million of secured debt on our balance sheet right now. We could do a little secured, it was really opportunistic and obviously with an eye to staggering the maturities if it was debt like we have done in the past.

Pam Kessler

If we were lot closer to the 30% which were, we were getting further away, if we were a lot closer to 30% and we saw a pipeline as robust as we currently see ours, equity would be a little bit more attractive to us. But I think we'll be terming out the debt and using our line for acquisitions.

Michael Kale - RBC Capital Markets

Okay then when could we expect for you to achieve that 30% target ratio of leverage?

Wendy Simpson

I don’t know, third or fourth quarter of this year may be.

Pam Kessler

May be a little later.

Wendy Simpson

Later?

Pam Kessler

Yes.

Wendy Simpson

Do you think we can go through all this year?

Pam Kessler

Yes.

Wendy Simpson

In 2014.

Pam Kessler

Yes.

Wendy Simpson

Because it's total market value. So absent any total collapse in the stock market or our stock price, yes I think you could probably go through the balance of this year.

Pam Kessler

And by the end of this year, we'll have a more definitive answer on ALC and we really believe that it’s still is a drag on our stock and as we get closer and closer and work more and more to make it a possible earnings pickup, then I think the equity would be more reasonable.

Operator

The next question comes from Dan Bernstein from Stifel.

Dan Bernstein - Stifel Nicolaus

The 246 to 248, did that include any capital market transactions?

Wendy Simpson

No.

Dan Bernstein - Stifel Nicolaus

And on the turmoil what do you think the kind of rates that you might get today, I mean let’s call it a 10 year unsecured, under the credential line, what kind of rate do you think you get today?

Wendy Simpson

If we were doing something similar to what we did last year the private placement it was a 12 year private maturity tenure average life, it would be subsided, that’s what we’ve being told today but the debt markets can be little a fickle and volatile. So, we also, Dan, when we have the opportunity with Juniper, they were already looking at possibly doing some agency financing. So, that is a possibility for us to do on those assets maybe and that would in the 4 to 4.5 range. But that would be …

Dan Bernstein - Stifel Nicolaus

Was that for 10 year?

Wendy Simpson

Yes, for 10 years, Fannie May and Freddie Mac…

Dan Bernstein - Stifel Nicolaus

I'll figure that. How is 30 year?

Wendy Simpson

So we have to balance effect that that secured debt. So, we’re looking at all those opportunities.

Dan Bernstein - Stifel Nicolaus

Okay. And last quarter on the transcript you, you previously kind of indicated that that price is your best mitigator of risk. On a couple other earnings calls we’ve heard that senior housing I guess cap rates may still be compressing somewhere especially for maybe some of the secondary markets that you compete in and look at. Are you seeing any pricing pressure, further pricing pressure on senior housing, cap rates and is there point where you start to get concerned that the price you’re paying no longer gives you that risk quotient that you want to see in the past?

Clint Malin

Dan this is Client, we have not seen I guess a lot of compression on the cap rate for the senior housing assets. I mean they definitely are competitive and there is definitely competition out there for those assets but we've been very disciplined in our underwriting and part of the reason that we've started and doing the development platform is looking at the pricing point getting into existing operational assets and having concern about that and looking at alternatives ways to mitigate that to balance out our private pay revenues and hence the reason for the development pipeline on the private pay side. But there are opportunities for (inaudible) senior housing assets that there are priced where it's possible for us to acquire them, have coverage, because we don’t want to get into a relationship where an operator is not able to make money because he is not able to have a profitable operations and that's just an inherent risk for our portfolio. And we don't want to put ourselves or an operator in that situation.

Dan Bernstein - Stifel Nicolaus

The price set at this point is, it's not causing you too much of a concern?

Clint Malin

You got to really dive in to find the right opportunity because there are some that are priced a little bit more but there are unique opportunities out there. But I think, coming online, there is a lot of talking in the industry about development and that may cause us some mitigation in the pricing for the existing operational assets.

Dan Bernstein - Stifel Nicolaus

And then I don’t know Pam if you can go back over the Americas dollar amount that you mentioned earlier, was that in the rent for the fourth quarter? Maybe you could have just explained I guess what that was. Is that a onetime bump in the rent or is that something we should model going forward as permanent?

Pam Kessler

No, with the one time, that's why I mentioned it so.

Wendy Simpson

But it's in the base?

Pam Kessler

It's in the base, right.

Dan Bernstein - Stifel Nicolaus

And they get the increases on that?

Pam Kessler

Exactly, so it's in this quarter. so if you are taking this quarter and modeling it forward that would be correct.

Dan Bernstein - Stifel Nicolaus

Okay, so take this quarter model for, there is nothing to pull out of the, okay, that’s all for me. Thank you.

Operator

Our next questions comes from Karin Ford at KeyBanc

Karin Ford - KeyBanc

Just wanted to ask on ALC I think in conversations past, you guys had thought that the 1.1 times coverage level you were going to see this quarter was probably going to be a trough level. Is that still your expectation and are you, as you are travelling around, are you getting a sense that they are starting to get some traction on the occupancy side and maybe starting to push cash flows up a little bit?

Wendy Simpson

A small amount of traction, the good thing is there hasn’t been a significant loss in occupancy and I think that it takes a while to turn around a reputation and they’re working very diligently on doing that. So I think they’re probably fully expensed now because they seemed to be fully staff of the one third of the property that I’ve seen. So, yes, I’m hoping as they hope that it will be turning around.

Karin Ford - KeyBanc

And there hasn’t been really any new news from them on sort of the strategic alternatives and some assets sales that they are looking at, have you had any conversations with management of ALC and do you have an update as to what the bigger picture is there?

Wendy Simpson

No, I haven’t had any discussions with them. I’ve been waiting for them to finish their quarter and file their quarters, so, I don’t like to push them to try to get insider type information, so I’m waiting for them to go public with what that they have to report and then have follow up with the discussion.

Karin Ford - KeyBanc

Great and the last question just on investments, you said the pipeline was over 200 million, I think that’s the biggest number I think I’ve ever heard you guys say in the time that I’ve covered you, just curious as to, why you think the opportunities are greater today than they have been, is that you’re casting your net a little bit wider, you’re doing a better job finding new operators and it seems like you guys have a much more focus on higher quality stuff, so how are you able push the pipeline up so high so today?

Clint Malin

I think it’s a casting a wider net. I think that the bifurcation of the REIT space into large cap REITs and small cap REITs has opened up doors for us, so I view that as a positive and then the development platform has added to that, so I think you take all three of those and that’s what's added to the increase.

Karin Ford - KeyBanc

And who would say your biggest competitors, is it other REITs, is it private guys?

Clint Malin

It’s a combination. We definitely see small cap REITs. We see NHI on certain transactions and (inaudible) as well. We don’t always run into them but on certain deals we do see them out there. There are number of private REITs that we have seen and then there is regional banks are starting to open up their lending and you’ll see some competition on that as well and some private equity money too, so it’s from a number of different sources.

Karin Ford - KeyBanc

So regional banks are doing construction loans or just mortgage loan?

Clint Malin

They’re doing construction loans but it’s on a limited basis and usually there is some types of cap on the exposure to a client. It’s hard for them to replicate that multiple times with their regional bank.

Operator

(Operator Instructions) Our next question comes from Richard Anderson with BMO Capital Markets

Richard Anderson - BMO Capital Markets

Wendy, when you did your tour, was there anything, you sort of said this, but I just want to ask it bluntly. Was there anything that endeared you more to ALC having seen the upkeep and all that sort of stuff that maybe this could all work out with them to a better degree in the future, or do you still kind of feel the same way that you did prior to these visits?

Wendy Simpson

Well I got to say that, I much admire the fact that they are paying as much attention to our properties as they must be paying attention to their properties because it would be, maybe, I don’t want to say understandable, but for them to say well these are not our properties and we are not going to put any money into them and we can argue with LTC about what that means. But if Dr. Roadman were continuing to run the company and he continued to make progress and the company righted itself, it would be less of a hassle for us to continue on with the ALC at an increased rent rate than it would be to make changes.

But it encourages me that if we have an opportunity to have new operators go out and look at these properties that there will be properties that people will be able to take and make money out of. For instance I looked at a property in Ohio because Clint and I went out to Kentucky from our Cold Spring property and this property in Ohio is getting $50 a day for a smaller studio, $60 for a regular studio and $80 I think for a one bedroom. And the Medicaid in the State of Ohio is $1,200 to $1,300 a month. So, a company that would be Medicaid friendly, and I am not saying that ALC should change their policy or whatever but, and I asked the administrator whether she could fill it up, she took Medicaid and she thought she could.

So these things, it’s different in every market, but it gives me comfort that I believe an operator either ALC as a revised operator, a reorganized operator, or a new operator will be able to make these properties viable again.

Richard Anderson - BMO Capital Markets

So my understanding is Medicaid is relatively small piece of the puzzle when it comes to Assisted Living, in the neighborhood of 5 or 10% is that about right?

Wendy Simpson

Well overall yes, but in certain markets and certain properties it could be higher.

Richard Anderson - BMO Capital Markets

Okay. So, but even still, would that really, I mean, say they decide to accept more of a Medicaid census, would that, really wouldn't close the gap much at all relative to the depressed occupancy level, would it? I'm curious how that that would be the game changer in terms of getting occupancy up to a more stabilized number.

Pam Kessler

It's not the game changer; it's just another portion of the strategy , if they're staffing up, what they had done was go more toward an IL type going down the acuity, spectrum while during recession all the other operators were taking higher acuity residents and providing more services and being able to increase occupancy. They were a little delayed I think in that strategy but now they've kind of seen the light, and they're staffing up levels, so that they can take the higher needs resident and provide the services and therefore I think they'll be able to increase occupancy that way because they can offer the services.

Wendy Simpson

But if they increase their occupancy by just 5% that would be a game changer from where they are.

Richard Anderson - BMO Capital Markets

Okay, fair enough, do you think, a potential reasonable outcome might be, say half goes back to ALC and half goes to market. Do you think that that's a possibility?

Wendy Simpson

That's a possibility. I am open to every possibility.

Richard Anderson - BMO Capital Markets

Okay and then just the last question. And I don't know if this was kind of again directly alluded to on the call but you have sequestration talks still looming. What is the tone of your tenants as it relates to that issue, or the transaction market kind of that was also discussed in the call, but directly on the issue sequestration is it holding people up a little bit is it making your operators nervous, is it holding up the transaction environment, anything along those lines, can you give some observations on what you see?

Clint Malin

Sure, in my conversations with operators, that's something baked into their analysis and I think sort of within expectation. And we have in our underwriting we're taking that into consideration, so I think that's fully accounted for and with our portfolio we have strong coverage and even if that does happen and it's not going to materially affect the coverage within our portfolio.

Richard Anderson – BMO Capital Markets

Is it almost like a having gone through an 11% average cut, is a 2% cut actually welcome in some ways?

Clint Malin

I mean that’s a win but it’s not more.

Richard Anderson - BMO Capital Markets

Yes, although the broader implication of sequestration might be the bad stuff, right?

Clint Malin

Correct.

Operator

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

Wendy Simpson

Thank you, again I want to thank you for the attention you have given to LTC and we look forward to our first quarter call while we might not have a lot of acquisitions to talk about I am sure we will be able to talk about activity that will have for the rest of the year. So thank you very much and have a good day.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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Source: LTC Properties CEO discusses Q4 2012 Results - Earnings Call Transcript
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