Invesque Inc.

Thank you, Jason, and good morning, everyone. Thanks for joining the call.

With me today are Scott White, our Chairman and CEO; and Adlai Chester, our CIO. Scott will be going to start with an industry update on COVID-19 and progress of vaccinations within our portfolio as well as an update on our new framework with Symphony.

I will then cover our first quarter financial results, and Adlai will provide details of some of our strategic transaction activity and portfolio management initiatives before opening the line for Q&A. The first quarter 2021 earnings release, financial statement and MD&A are available on our website, and a replay of this call will be available from 12:45 p.m.

Eastern Time today until 11:59 p.m. Eastern Time on May 20.

Before we get started, please be reminded that today's call may include forward-looking statements regarding our future operations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today.

We have identified such factors in our news release and other public filings. As we discuss our performance, please bear in mind that all amounts are in U.S.

dollars. With that, I'll hand it over to Scott.

Good morning, everybody. Thank you all for joining our first quarter 2021 earnings call.

As we discussed on our call in March, the last year was an extremely challenging year for our industry and for our company. Our operators navigated one of the most challenging operating times we have ever seen.

And I'm happy to say that we're starting to see some positive momentum within the portfolio over the last 45 days. I'd like to quickly acknowledge once again the frontline healthcare workers and all of our operating partners who have played a critical role in our communities and continue to serve the residents and families that call our communities help.

We would not have weathered the storm of last year without you all. The Invesque team has been hard at work over the last couple of months, executing on a mix of strategic initiatives as part of our ongoing portfolio management efforts.

As previously disclosed in late 2020, we executed a non-binding MOU with a new framework for our relationship with Symphony. I am thrilled to announce that we've successfully closed on the first phase of a series of transactions underlying some of our facilities previously operated by Symphony.

On April 30, we transitioned 4 skilled nursing facilities previously leased to Symphony to Cascade Capital Group. We also sold one property in Chesterton, Indiana to symphony for $20 million, netting Invesque approximately $5.5 million in cash proceeds.

The Chesterton property was operated under standalone lease between Invesque and Symphony, which was absolved upon closing of the sale. But our work is not done yet.

As part of the final phases of the new framework with Symphony, we have executed a purchase and sale agreement to sell up to 4 additional facilities currently operated by Symphony back to Symphony in the coming months. We are also finalizing an amended and restated 15-year master lease for the remaining properties with Symphony and restructuring the outstanding loan agreements.

This was a very important step in our portfolio management initiative and will reduce our exposure to Symphony by over 50% when all is said and done, from approximately 25% of NOI to approximately 11% of pro forma NOI. Symphony has been a key strategic partner to Invesque since our IPO almost 5 years ago and we believe this new framework will set both Invesque and Symphony up for long-term success.

I'm also excited to welcome the Cascade team to the Invesque family. They are a world-class group of professionals who are well-respected in the industry and we expect to grow with them in the future.

Adlai will touch on the specifics of these transactions and a couple of other important transactions that we have in the works later in the call. Turning to COVID-19 and its continued impact on our properties.

We are happy to report that the positivity rates within our portfolio have declined dramatically over the last 45 days as our community successfully deployed the COVID-19 vaccine during and subsequent to the first quarter. Almost all of our facilities in the United States have now cycled through multiple phases of the vaccine.

As of May 7, there are only 5 positive COVID cases within our portfolio of almost 11,000 beds. The current rate of incidents in our portfolio is a fraction of the peak activity observed in mid-May 2020 and has remained at this consistently low level since the last week of March 2021.

This is truly remarkable, given that at the peak, we had more than 700 cases in our portfolio. While the first quarter presented many challenges for our operators and the general fundamentals within the industry, I'm happy to report that many of our partners have seen a significant increase in inquiries, tours and move-ins over the last 2 months.

We and our strategic operating partners are cautiously optimistic that this trend will continue. Many families that were cautious about moving their loved ones into senior living communities during the pandemic are moving forward with those plans now that visitation restrictions have been lifted and most residents within the communities are fully vaccinated.

Our subsidiary management company, Commonwealth Senior Living, saw the highest number of long-term move-ins in their 20-year history in the month of March. This trend has continued as Commonwealth has seen an increase in census every week through April.

In fact, ending occupancy in April was up 80 basis points from March and 130 basis points from the February trough. We believe this is indicative of a strong market demand for the healthcare real estate asset class and the positive long-term viability of the communities that we own.

Before I turn the call over to Scott, I want to take a moment to highlight Invesque being named as one of the Best Places to Work in Indiana by the Indiana Chamber of Commerce and the Best Companies Group for the second consecutive year. Our company culture and the team we have built continues to be something I'm extremely proud of, and I'm very much looking forward to celebrating with the team in person soon.

I'm equally excited to announce that our subsidiary management company, Commonwealth Senior Living, was certified as a Great Place to Work by the Great Place to Work Institute for the third year in a row. Earl and his team have built a world-class culture that aligns with the values of Invesque.

And given the challenging environment of last year, this is a recognition that truly deserves praise and accolade. Thank you to our front-line workers.

Once again, you're true heroes. With that, I'll pass it to Scott.

Thank you, Scott. For the quarter ending March 31, FFO was $0.09 per share and AFFO was $0.10 per share.

I want to take a quick moment to comment on our results. Given some of the moving pieces through the end of 2020 and the first quarter of 2021, we expect the first quarter to be the trough and further expect earnings to ramp up through the balance of 2021 and normalize in 2022 back to near 2020 levels.

Relative to Q4 of 2020, the reduction in AFFO per share is primarily attributable to a reduction in NOI with our Commonwealth platform assets of approximately $0.04 per share and reduction in Symphony related AFFO of approximately $0.03 per share. As Scott mentioned, the Commonwealth efforts have already begun to rebound in the second quarter and we are confident in the team.

Further, we believe that we have created a structure with Symphony and Cascade to help set each of the 3 parties up for success going forward. Again, we expect that for fiscal 2022, results were returned to full 2020 levels while deleveraging the balance sheet significantly.

Our finance team was busy again in the first quarter, executing on 2 transactions to address near-term maturities and take advantage of the favorable interest rate environment. We refinanced the $17.3 million mortgage underlying the Commonwealth Senior Living at Charlottesville property at a fixed interest rate of 2.

96% and extended the approximately $8.5 million mortgage underlying one of our Autumnwood properties at a fixed interest rate of 2.17%. The Charlottesville refinance resulted in approximately $300,000 in annual cash and finance costs.

Upon closing both loans, we have less than 7% of our total debt maturing over the next 12 months and approximately 11% of our total debt rolling over the next 24 months. With that, I'll pass it over to Adlai to discuss our portfolio performance and transaction activity.

Thanks, Scott. As expected, we saw a decline in the performance of our stabilized portfolio as of December 31 due to the continued impacts of COVID-19.

On a trailing 12-month basis, our portfolio-wide EBITDAR and EBITDARM coverage ratios were 1.1x and 1.3x respectively. Our operating partners saw a decline in occupancy in the fourth quarter and early part of 2021 as many states were seeing significant increases in COVID-19 positivity rates.

As of December 31, our trailing 12-month occupancy for the stabilized triple net assets and stabilized shop was 77% and 83% respectively, while our medical office portfolio stabilized occupancy declined to 85%. As a point of reference, the trailing 12-month occupancy for the stabilized triple net assets and stabilized shop assets as of December 31, 2019, was 86% and 87% respectively.

Comparing 2020 to 2019, occupancy declined 890 basis points for a stabilized triple net asset portfolio and 400 basis points for a stabilized shop portfolio. As Scott touched on earlier in the call, we are cautiously optimistic that this decelerating trend from an occupancy standpoint is stabilizing and beginning to reverse given what we have witnessed in our Commonwealth portfolio and recent data we have seen from our peers.

As a reminder, our ownership structure of Commonwealth gives us a very unique lens into real-time move-ins and trends, and the record move-ins we saw during March and April give us confidence that the industry as a whole may have hit bottom from an occupancy standpoint. Turning to the Symphony transactions that we shared in our press release and that Scott touched on earlier in the call, Invesque and Symphony executed a non-binding MOU in the fourth quarter of last year.

At the time of the MOU's execution, Symphony represented almost 25% of Invesque's NOI and has been a long-standing goal to diversify this exposure. The Symphony relationship is one that has been an important piece of Invesque's evolution as a portion of the portfolio was the seed portfolio that we acquired when Invesque was formed over 5 years ago.

To diversify our exposure as a company and set up both Invesque and Symphony for long-term success, we are happy to have executed on the first tranche of our new framework with Symphony. The sale of the Chesterton asset to Symphony for $20 million and an attractive pricing on a per-bed basis netted us over $5.5 million of cash proceeds, which we immediately utilized to pay down our line of credit with KeyBank.

KeyBank is a critical lender to Invesque and they have worked very closely with us to provide us flexibility as we work through the series of complex transactions with Symphony. We are grateful to have KeyBank and the full syndicate as preferred lending partners.

Simultaneous with the sale of Chesterton, we transitioned operations of 4 skilled nursing facilities to Cascade Capital Group. Cascade is a privately held healthcare real estate investment and management company focused on skilled nursing, rehabilitation and post-acute care services throughout the Midwest, with a significant presence in the Chicago area.

The Cascade management team has a longstanding history of successfully managing skilled nursing facilities and we are pleased to add them to our roster of operating partners. The new lease with Cascade for these 4 properties features a 10-year absolute triple net lease with 2 5-year extension options.

Rent for the portfolio will increase from $3.4 million in the initial year to $5.5 million in year 3 and then by 2% thereafter. We received multiple offers to lease these properties and the structure with cascade was the most attractive of the offers received.

The lease also features an option for Cascade to purchase the facilities at a predetermined price in the 5th year. We are looking forward to a long and proven relationship with Cascade.

As Scott noted earlier, we are diligently working on the final phase of the Symphony MOU. We expect to sell up to 4 additional facilities back to Symphony in the coming months and execute an amended and restated master lease for the remaining properties that Symphony will continue to lease from Invesque.

Additionally, Symphony has paid May rent in accordance with this updated master lease in conjunction with the terms of the MOU. We also expect to resolve and restructure the outstanding loan agreements between Invesque and Symphony as part of this final phase of the transaction.

We currently anticipate closing on all these final phases over the coming months and will provide additional color at that time, including the financial impact to Invesque's earnings and pro forma leverage. Moving past Symphony, I am pleased to share that we are working on the sale of our ownership interest in 4 assets to Inspirit Senior Living at attractive pricing above our original basis.

We have executed a purchase agreement to sell these 4 communities currently operated by Inspirit to them for approximately $35.5 million. This disposition is expected to close during the second quarter and is anticipated to net $15 million of net cash to Invesque, which we will use to further delever our balance sheet.

This transaction is a win-win for both Inspirit and Invesque as Inspirit has been actively growing their wholly-owned community portfolio and the pricing provides favorable economics and excess liquidity for Invesque. As many of our peers have mentioned on their calls over the last few weeks, we are seeing an increase in transaction activity in the market as things begin to rebound from COVID-19.

As has been our strategy, we will continue to be diligent about managing our portfolio and we are hopeful that we can expand some of our existing operator relationships. We also continue to watch transaction activity very carefully and we'll continue to divest assets that we view as non-core or where we can achieve favorable pricing as the acquisition market continues to fall over the coming months.

With that, I would like to thank everyone for joining the call, and operator, please open the lines for questions.

Congratulations on executing the first phase of the MOU. I'm just wondering with the Cascade transaction, have you guys gone through all the opportunities you have with them?

I guess, in other words, do you expect to have any other opportunities with these guys? Or are you -- have you gone through the whole portfolio?

Or did you discuss with them only in the context of the first batch properties?

That's a great question, Jenny. So one of the things that I think Adlai mentioned in his remarks is we do expect the opportunity to potentially grow with Cascade strategically.

Since we started the company, we've always said that we want to have a finite number of operators that we can have long-term growth opportunities with. And Cascade is certainly one of those.

I would expect over time that we can grow that relationship.

Okay. And then with regards to the bad debt expense that was taken this quarter specific to Symphony, that $1.4 million, does that capture everything involved with the MOU or again with respect to the first phase?

So should we expect any more coming out of that going forward? And I guess I have the same question with regards to the adjustments on the credit as well.

Higgs, do you want to take that one?

Yes, sure. So, Jenny, I think as Adlai mentioned, first of all, we're going to come out and give some more kind of intelligence about the transaction once it closes.

But in terms of the bad debt, I think from a most -- it more aligns with the MOU. So to get down to where that run rate is going to be.

So I think that that's a fair way to think about it. And same on the credit was the loan -- sorry, same on the credit with the loan, that is similar so it lineup.

What happened in Q1 aligned with where the transaction is going with respect to those loans and where we're going to end up there.

Sorry, just to be clear, are you saying that it captures just the first phase of the MOU or the entirety of the MOU?

It captures the activity in Q1 relative to the full MOU.

Okay. So that would have been pre-closing.

So I would expect there to be some more moving parts for Q2.

Correct.

Okay. Great.

And then maybe could you -- you know what, I will turn it back for now.