Q1 2020 Earnings Call
Good day and welcome to the LP properties incorporated first quarter conference call.
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Please note this event is being recorded.
No it the general comps Robert to me as well that Rogers Senior Director Investor Relations Ms. Rogers before <unk>.
Thank you and welcome to help speak first quarter financial results Conference call. Today's conference call will contain certain forward looking statements. Although he believes the expectations reflected any forward looking statements are based on reasonable assumptions are forward looking statements are subject to risks uncertainties that may cause actual results to differ materially from expectation.
A discussion of risks and risk factors is included in our press release and detailed in our filings with the FCC. We did not undertake no duty to update any forward looking statements certain non-GAAP financial measures will be discussed on this call and then because a bit of the 8-K, we furnished with the FCC today, we have reconcile all non-GAAP financial measures to the most directly comparable GAAP measure.
Sure in accordance with Reggie requirements exhibit also available on our website at Www Dot helped <unk> dot com.
<unk> nice today is incredibly busy day for all of you we'd ask that you keep your questions to a maximum of to each I'll now turn the call over to our Chief Executive Officer, Tom Herzog.
Thank you bought back and good morning, everyone on the call with me today, or Scott Brinker, our president and CIO and Pete Scott Our CFO.
Also on the line and available for the Q and a portion of the coal or time coach our Chief development operating officer, and trying Mchenry, our chief legal officer in General Counsel.
As you're aware during March and April we provided three interim updates on the impact of the cobot 19 pandemic to our business.
And the outlook and additional information section of our supplement issued last night, we provided a framework to assist you in assessing or potential 2020 earnings.
With that let's discuss how we see our current state of play.
The impact to cope with my team will vary across all lines of business.
61% of our in Hawaii is concentrated in life science and medical office with an additional 5% in hospitals all sub sectors that we believe will be less severely impacted by called it 19.
The crossover life Science, and then we'll be businesses, we recorded strong first quarter leasing results and people then collections.
And life Science, we continue to see strong demand driven by the need for additional space for biotech research.
And that's up sector remains in good shape.
The vast majority of our life science tenants have strong liquidity and the need to land on time, but we did see a number of the quest <unk> leagues.
That's a life science construction, we're seeing on again and off again orders in San Francisco in Boston, which has resulted in floor completion of some of their development and tenant improvement projects.
Medical office, many of our tenants experience March and April Cashable reductions due to the temporary shutdown of elective procedures and surgeries, which are now beginning to reopen.
As previously announced we're offering a two month to full of rent for May and June tore Nonhospital and on health system Medical office tenants subject to certain conditions.
Importantly, we feel confident about the high quality nature and viability of our predominantly on campus special specialty physician tenants and over the last five years of experience on average annual bad debt expense of only 20 basis points.
Although all of our businesses senior housing, which represents 34% of brand why that's been the most impacted by corporate 19.
In assessing the potential impact the largest drivers are constricted leasing activity, resulting in the Clinton occupancy increased payroll expense and personal protective equipment and supply usage costs.
Our shop portfolio, which is 14.5% good in Hawaii has the highest impact from changes in operating fundamentals as result of corporate 19.
A blended average length of stay for shop is around two years, which resulted in average move outs of roughly 4% come on.
Leasing activity is currently limited the virtual tours. So curable, then some offset the lower voluntary move outs seniors choose to shelter in place.
Approximately 70% of our shops in the mix it was assisted living memory care and the remaining 30% and independent living.
Assisted living and memory care seniors often have vital candidates that come along they met at home some level of leasing continues subject to required screening and quarantines.
But independent living move ins have been minimal during the crisis as their primary lifestyle based.
Accordingly overall, we're estimating an editor Krishna, 2% to 4% per month in shop occupancy for the duration of the pandemic.
However, as we come up the other side of this crisis. We believe there will be pent up demand that will increase move ins beyond historical average historical levels.
Our triple net portfolio represents 7% of our NOI in consists primarily of four tenants they'll have corporate guarantees and eight to 10 year master leases.
Got it will provide more details in a bad.
And our CCRC portfolio dropped presents 12.5% of around why that's the younger senior population and supported by entry fees. That's an average length of stay of eight to 10 years.
This means significantly lower monthly attrition estimated at 50 to 100 basis points, Vermont, and therefore, a much slower decline in occupancy versus shop.
Moving to the balance sheet in short our balance sheet is very strong and we have available liquidity of $3 billion. Our net debt to EBITDA is low a weighted average debt maturities almost seven years and we have no near term maturities.
Next.
We maintained our second quarter Devona 37 cents per share. This represented a Q1 payout ratio of 91%, although we expect a payout ratio will temporarily exceed 100% during the period of the pandemic.
With consideration to the whole ppm.
It's 40 functionally and virtually connected.
We are leveraging upgraded systems infrastructure as well was virtual and remote working technologies.
Enabled us to remain productive in connected both internally and with our key external partners.
Additionally in March Pete's got shifted his focus to dedicate 100% at this time to its vital CFO responsibilities, which are now more important than ever before.
Accordingly, Scott Brinker in his role as President will continue to have oversight of our seasoned life science leadership team, but now more directly.
And finally, we are fully confident that'd be a central nature of our high quality portfolio and strong liquidity will all healthy to successfully navigated through this crisis, even if it is protracted.
Our fundamental thesis remains unchanged that is ownership of high quality real estate in a three private pay health care segment of life science and won't be in senior housing along with a conservative balance sheet.
Demand for life Science properties, and the three Epicenters of innovation remains compelling and the pandemic has further underscored its importance.
Demand for medical office buildings will continue as our predominantly on campus and heavily anchored portfolio, it's relatively immune to the recent surgeon telemedicine, which has been expanding rapidly.
And in senior housing the wave of aging baby Boomers will increase demand the need for this product over the long run.
With that I'll turn it to Scott.
Thank you Tom.
I'll start with our first quarter segment level results in life Science, which represented 32% of our same store pool.
Cash NOI grew 3.1% year over year.
Results were right in line with our expectations for the quarter driven by leasing success in rent bumps.
These were partially offset by known Vacates, nearly 70% of which have already been released and where the T.I.s are being built out.
We executed leases totaling 314000 feet in the first quarter above expectations.
That includes 75000 feet of renewals at a 15% cash mark to market as well as to the 2000 feet at 75, Hayden, which is now 72% pre leased a.
Additionally, we are already seeing strong activity at the boardwalk and the short phase three our most recent developments.
Turning to medical office, which represented 42% of our same store pool.
Cash NOI grew 2% year over year that was above expectations, driven by mark to market and rent escalators, partially offset quite difficult comp with 4.2% growth year ago period.
Moving to senior housing Triple net represented 11% of our same store pool, and analyze grew 2.6% year over year driven by rent escalators shop represented 9% of our same store pool, and I know why declined 3.2% year over year.
Excluding identifiable Colgate expenses that began to occur in March shops, same store would've been flat year over year and above our expectations.
D. CRC is also outperformed our budget in the quarter driven by strong January and February.
The operator transition from Brookdale to Lcs went extremely well.
You know you're most interested in the impact of coated so we'd like to provide April updates for each business starting with life science.
We executed 61000 feet of leases in April and currently have 370000 undersigned letters of intent.
The activity is largely driven by existing tenants looking to expand within our portfolio.
You underscores the importance of having critical mass in a local markets.
After a great start to the year, we think spec leasing may slow down for a bit so any near term impact should be recaptured in time, if anything we ultimately see that pandemic, increasing demand life science real estate.
Today, we have received 97% of April rents.
And the collection stats, we provide across the three business segments exclude any amounts received from security deposits.
Tenants, representing 5% of our bench requested release.
Because each situation is unique we're evaluating them on a case by case basis.
We have built some additional bad debt in your expectations for the full year. That's the primary reason for moving full year same store down 100 basis points to 3% to 4% growth.
Turning to construction the Bay area provided exemptions as of May for that allow us to restart our development and T.I. projects.
That's definitely good news, though it is unlikely that work will occur at a slower pace due to social distance even safety measures.
Work has continued in San Diego, all along but at a slower pace, while our construction and T.I. projects in Boston are on hold until at least 18 under the current order.
The practical impact is that rent commencement dates will be pushed out by two to three months.
As a modest impact on Twentytwenty earnings, but no impact beyond this year.
Yeah, FDA approvals in clinical trials have naturally slow down at this should be temporary.
More fundamentally we expect the pandemic to result in even stronger supported the industry's from the Guy.
Life Science funding sources have been pretty reasonably it today.
Were for biotech Ipos since April one.
The only IPO is across all industries during the pandemic. Additionally in April alone.
Hi Tech venture capital firms announced over $4 billion of new fundraising.
Roughly 30 healthy tenants are working on a diagnostic therapy or vaccine related to Togut my team.
And we're hopeful that some of the work currently underway in our buildings will help conquer the borrowers.
Turning to medical office.
Occupancy was up 10 basis points in April after signing 300 in 24000 square feet of leases.
We do expect to slow down in new leasing.
Through the duration of attending.
Although much of this will be offset by higher retention.
States, representing 80% of our square footage our restarting elective surgery late April early <unk>, which is a positive step toward normal operations for medical office.
As previously announced we're doing a renter slow program for certain physician tenants for May and June with the requirement that the deferred rent be repaid by yearend.
We've approved deferrals totaling $4.4 million something monthly rent.
Which may grow two to 5 million dollar range given pending approvals.
Construction on her seven ha development is progressing but at a slower pace rent commencement dates will be pushed out two to three months.
Again this is a timing issue with no long term impact.
So far we've received 95% of April rent in line with historical norms in terms of timing.
They have a small increase in bad debt this year due to coated but we think at 99 plus percent them Brent will be collected.
Shelter at home will also lead to a small decline in parking income and medical city address. These are the primary reasons for moving same store down to a range of 1% to 2% this year.
Moving to senior housing several weeks ago, we provided a framework for how we think about the potential impact of the virus.
Her many unknowns at the time, given a pandemic is unprecedented.
Weve updated our framework they four month of leasing data from April, which we provided in yesterdays release.
Occupancy in our shop portfolio was 82.2% on April 30.
That's down 300 basis points from March 31.
In comparison to the prior April move ins declined 73% well move outs increased 22%.
Moving to our CCRC portfolio occupancy was 82.4% on April 30.
Occupancy for independent assisted and memory care was down only 65 basis point street them up.
Skilled nursing occupancy was down 1600, 20 basis points, driven by low Medicare discharges from hospitals due to the prohibition on elective procedures.
That census should be recaptured which hospitals resumed normal operations.
Entry fee amortization exceeded cash receipts in the quarter and we expect the same to occur in the second quarter.
That dynamic will reverse in quarters when entry fee receipts are Sean which typically occurs in threeq and Fourq you.
Our triple net portfolio represents $97 million of annual rent.
We collected 100% contractual rents in the first quarter and 97% in April.
We're in active discussions with capital senior living.
<unk> point $9 million monthly rent, including the properties held for sale and with HRS $1.2 million, just lumpy rent both requested rent relief.
Nothing has been to greet you yet so we won't elaborate beyond saying that we don't expect any material impact to earnings. In addition, we still intend to sell the capital senior assets once the transaction market reopens.
As a reminder, we follow the industry convention, which is to use trailing 12 month rent coverage reported one quarter interviewers.
Due in part to timing of receiving results from our tenants as a result, there will be a lag before the impact of Kogan is reflected in reported rent coverage.
Turning to investments, we delivered the fourth and final phase of the code.
1 million square foot development is now complete and fully leased generating $67 million of annual NOI.
We also delivered the first building up the sure 130000 square feet fully leased.
In February we sold the Northcote and hospital for $82 million at a 10% cap rate with the price driven by the tenants purchase option.
In April a tenant exercised its option to acquire Threed medical office buildings in San Diego.
The sale price is $106 million, which is a 6% cap rate and we expect to close in June.
In May we added a new project to the development program with HCR.
$35 million building is located on the campus of the Woman's Hospital, Texas, The project will that necessary outpatient capacity to one of H. yeas core hospitals.
Looking forward, we see significant opportunity in the transaction market.
To get position to be opportunistic with $3 billion of liquidity, but it's a valuable asset she'll be disciplined about any new commitments that I'll turn it to Pete.
Thanks Scott.
I'll start today with a review of our first quarter results.
Provide some perspectives on our balance sheet.
And finish with a discussion on our 2020 earnings outlook.
Starting with our results.
We reported another strong quarter with FFO as adjusted a 45 cents per share.
And blended same store cash NOI growth 2%.
Two important items to note first in March.
We experienced approximately $3 million of elevated expenses and our shop and CCRC portfolios as a result of cobot 19.
I've, which $600000 was included in same store.
We have conservatively decided not add these expenses back.
Same store NOI.
FFO as adjusted or a itself out.
Second in our proactive review of leases at quarter end, we identified three leases, where we reserved a total of approximately $2 million of noncash straight line rent.
Turning to our balance sheet.
We're fortunate to come into that uncertain environment with a fortress balance sheet.
One of the guiding principles of this management team is to maintain a conservative balance sheet and not be forced to raise capital and bad market.
This disciplined approach and balls match funding, our investments and development and maintaining adequate liquidity to withstand sustained period of uncertainty.
In the equity market over the past year, we opportunistically raised over $1 billion at a blended price above $33 per share.
Vast majority of this equity was raised under forward contracts, which we drew down at quarter end.
And the bond market in 2019, we issued over $2 billion of unsecured bonds at a blended interest rate of 3.2% and repaid approximately $1.7 billion near term maturing bonds.
As a result, our next bond maturity at not until August 2022, and it's very manageable at $300 billion. After that our next bond maturity if not until November 2023.
Lastly in 2019, we upsized, our revolver to $2.5 billion and extended the maturity to 2024.
We typically keep our revolver usage under 25% and look at the facility primarily as an insurance policy in times of economic crisis.
How are we position today.
Total liquidity $3 billion, consisting of approximately $500 billion of cash.
Point $5 billion of availability on our revolver.
We reported a net debt to EBITDA of 4.8 time at quarter end and due to the timing of sources and uses we expect to end the year in the mid fives.
And we have a weighted average debt maturity.
<unk> 0.7 years.
Simply put we are in a rock solid liquidity position to withstand the uncertainty from cobot 19, and importantly, our remaining $580 million. It said on a highly accretive and substantially pre leased development pipeline is fully funded.
Moving onto our earnings outlook.
In March we went through our previously issued guide.
The extent of the earnings impact over 19 will depend heavily on the duration and penetration of the market disruption.
Additionally, a return to a more normal operating environment will vary by state and property type, which creates forecasting challenges.
Notwithstanding these challenges we have included some important items in our supplemental to assist with your modeling.
Well you refer to page 43, if he would like to follow along.
Divided the earning impact into four distinct categories.
The first category pertained to known items.
Total net dilution from these items it's for Patty.
Primarily driven from the acceleration of the equity forward.
Importantly.
The delusion from these items are largely timing on that.
The second category pertain to our medical office and life Science segment.
Total dilution from these segments ranges from approximately three to seven Patty depending on the duration of the Kogut 19 disruption and it's primarily driven by construction delayed on tenant improvement project, causing revenue recognition issues.
The T.I. revenue recognition impact timing, only and does not impact I fell.
The third category pertains to our shop and CCRC segment.
The virus, we cannot currently forecast when senior housing operations will normalize.
Therefore, we have provided estimated monthly assumption ranges for occupancy and expenses during the Kogut 19 disruption based on input received from over 20 senior housing operators.
We believe these building blocks will be helpful for stakeholders to do their modeling.
The fourth category pertain to ongoing future rent Collectability assessment.
As you know the new lease accounting standard requires us to assess the rent collection probability for every week.
We felt it was important to point out that it could have an earnings impact going forward.
Additionally, we've included a place holder for senior housing Triple that which we believe will result in less than a penny of dilution.
As a reminder.
Earnings outlook in the supplemental is based on our best available information as of the current date.
When we are in a position to provide additional information we will make the appropriate disclosures.
One other item of note before turning to keep an eye.
Starting this quarter on page 32, a supplemental we've included detail on our shop non same store portfolio to further assist with modeling.
We hope you find that enhanced disclosure useful.
With that operator, please open the line for any question.
Thank you Sir well now begin the question answer session. So asking questioning the press Star then one on their Touchtone phone.
Diffusing is speakerphone. Please pick the bad said before passing the keys towards our question employees has that you press Star then too.
Again as a courtesy so that everyone may have a chance to participate we ask that the participants limit their questions to one.
Unrelated follow up.
If you ever there's more questions.
Please re queue.
Again, not a star then one to ask your question at this time of we'll just pause momentarily to assemble roster.
And the first question would have will come from.
Thank you let go of Scotia Bank. Please go ahead.
Thanks, I guess in terms of the assumptions that you made on medical office in life Science and the change to the same store.
That does that simply a delay in and leasing meaning you have some expirations you don't refill, but you assume that you're probably going to get that space fill next year are you starting to build and some sort of.
You know permanent occupancy.
Occupancy loss in those segments over the next year.
[noise] spot for once you take that one [laughter], Yeah, Hey, Nick Scott Brinker here, and then you might ask Tom Klaritch to comment as well at least for life science. Most of the reduction is due to an assumption around bad debt, how that might be zero Ah, but we at least from what we know today, we think it's prudent.
At least built in some sort of a reserve there is a small expectation of a slowdown in spec leasing and that includes the fact that we'll just take longer to build out the space, even when we do sign leases, but most of the reduction is driven by bad debt and then Tom Klaritch I might ask you to comment on Inmobi.
Yeah really in the on the leasing side with the exception of development leasing which has pushed out because building construction is proposed pushed out a month or two our renewal leasing we anticipate is going to offset or any reduction in new leasing we're seeing that even through April or.
Executions in April were up and our retention in April was actually 82%, which is well well above the high end of what we normally expect to be so we think is not really the cause it's really.
Drop in parking income, which happens because of the decline in elective surgeries happening in our affiliated hospitals facing some parking income going down in weeks, except some you expect some timing differences at medical city Dallas, because the ban also but we'll get that back toward the end of year as demand picks back up again.
[music].
[noise]. Okay. That's helpful. And then on terms of senior housing when you're giving the estimated monthly covert impact to occupancy which is helpful. I guess or were wondering was you know at this point what percentage of the senior housing portfolio is that actually has yeah.
No move ins allowed because I know in many cases or this is up to the operator has to do with whether there is covert into facility you just give us a perspective on kind of how much of the portfolio right. Now is just closed from move ins.
Versus just not as many move ins because.
I think is down in and as we think about the timing of this I know, it's hard to predict but.
How about how many months this could last this heightened occupancy impact you know what is what is really going to drive the duration of that.
Yeah, Hey, Nick Scott Brinker here, so about 50% to 55%.
Of our senior housing properties today are not accepting move ins. So the entire portfolio has gone to all virtual tours sort or they're not allowing non essential visitors into the properties, but it's about 55% that are not even allowing move ins and as you'd expect that's highly geographically specific.
Where there's a lot of coated activity now in terms of the timing or reopening of course that depends in large part on.
The infection rates and we already have roughly 80% of our upper stage in our portfolio that is announced sort of a phase one reopening in either late April or early may so at least the first step towards business as usual has begun that will first impact your MLP is of course.
Because elective procedures will restart, but senior housing realistically is probably in the phase three but at least we have a positive initial step in about 80% of our states.
Okay. That's helpful. Just just last question is on a Brookdale I know you already have restructured that the lease there, but clearly there's you know there's issues playing out right now yeah, you didnt mention any assumption about brookdale, having to restructure that lease again, what or how should investors think about.
Oh your comfort level on the Brookdale These right now.
Thanks, and that gets up it's Tom we had looked at the financial statements of Brookdale there liquidity.
The real estate holdings that they have the recent 300 million of financing that they were able to secure and we're comfortable that for the foreseeable future that they're in good shape.
We have a master lease it was recently re done our coverage as a we're in the 1.0 range of course, that's pretty cobot civil slide a bit but we do have the corporate credit behind that so for the time band, we feel comfortable with our exposure to brookdale on the triple nets.
Okay. Thanks, everyone.
You bet. Thanks, Nick.
And next web Vikram Malhotra of Morgan Stanley.
Thanks for taking the question, maybe just first one on a on cash flow in expenses into specific area.
Can you talk about sort of the capex recurring capex spend in the senior housing or kind of how those estimates are like your trend down I'm, assuming I didn't see an update in the supplemental and the other item on Jenny I think the GE any sort of the same versus prior guidance I'm just wondering are their efficiencies.
Or reductions you can achieve this year in and that's a good deal with the cash to a shortfall.
A p. wanted to start with the personal I'll take the DNA.
Yeah, Hey, Vikram its Pete I think I've never current Capex just broadly speaking there was obviously a big drop off in the fourth quarter or excuse me this quarter relative to the fourth quarter.
I wouldn't focus too much on that the quarter by quarter Shake Yours, you know the fourth quarters always the highest quarter for US which is why you saw big drop off into the first quarter.
And you know recurring capex it down modestly.
And our latest outlook.
Part of that is just being able to access the senior housing facilities. It sounds quite challenging for certain of them as Scott mentioned to actually enter the premises. So we took it down a little bit factoring that in not only for senior housing, but also for the.
The portfolio, but I did want to touch on the drop off from the fourth quarter to the first quarter, which is quite important.
Tom do you want to talk about the GNS.
Yeah, I'll take the DNA the I've I've long said.
That our team is our most important asset.
And we run our company that way.
I've got to beliefs that that's a great team can take a difficult portfolio and make it into a great company.
And a lousy team can take your great portfolio and turn it into a lousy company. So we're going to protect our team throughout this.
At the same time, we didn't get a couple of questions last night from investors the sand, how you're thinking about DNA in general.
Which is very fair question.
Because obviously there are places that that there can be ginnie cuts it could be in travel and entertainment in a variety of other areas I do think we're going to have some savings.
Oh My view is that we have had our entire company working from home for glass seven weeks Didnt Miss a beat.
Everything as far as our accounting close our forecast earnings call everything went off without a hitch.
On time and I think these technologies many of them are here to stay and I think there's going to be great efficiencies that result from it. So I think there will be some DNA savings overtime.
But we did not seek to incorporate goes into our numbers spend in the later date, that's something we'll give a lot, but we do need to get the skilled team that we haven't place as we go forward.
I I guess I was referring more to like some select fear that should pick years, but just in broader refund like vornado.
They've they've decided to take cuts can executive comp and I'm sure. You you obviously want them at the end a great theme and in respect to all of you.
In the theme, but I think in this environment being so unique I would've thought that in health care line at least.
There are more near term DNA savings that can be achieved but happy to pick up cut off line <unk>. My second question. Just there is around thinking about in thinking about recovery whenever that is.
I I'm wondering if I'm, Scott you couldn't comment and your thoughts about more permanent impairment.
Or tossed around how I would add a mere performed in the very near term and the recovery is there a V shape likelihood and then maybe longer term.
I think it's hard to comment on the recovery with understand it without understanding the trajectory of.
The virus, but all things being equal in general assisted living memory care is more need based so I think thats why you saw the move in activity in our shop portfolio, which is mostly al memory care.
It was only down 73% versus CCRC is which is much more independent living and therefore lifestyle based decision was down closer to 90%.
The flip side of that of course is that the length of stay NRC share seasons about 10 years, So you're turning over your population at a far lower percentage then in al memory care, which has more to clear length of stay so net net.
In a downturn CCRC do better just because there's such a lower amount of attrition.
In the normal environment, I do think that the recovery, which would probably be the steepest in assisted living memory care just because it is a need based decision, but I think that sector would also fall for this so there's some offsetting factors there.
Okay fair enough. Thank you so much.
And Scott that that's just on senior housing I guess, what we've got the question. Once you just take a moment and movies and life science and just provide our thoughts on those two.
Sub sectors as well.
Yeah.
We reduced our expectations for same store in both at the office segments for 2020, but as you heard Tom can I described earlier was really timing related theres no fundamental change in the underlying supply and demand that those two businesses. So our outlook really hasn't changed for those two segments and you know if any.
Thing are on campus medical office portfolio.
Probably looks better than ever.
In terms at the had the heavy usage from hospitals and specialist physicians and then just the demand for life science, a if anything coming out of this pandemic. It feels like the need for innovation in health care, which obviously biotech is gonna be at the forefront of is gonna be more important than ever in more supported than ever by both the governor.
Then as was the capital markets.
I mean, we have.
Thank you Sir next we'll Jordan Sadler of Keybanc capital markets.
Thank you and good morning.
During the first I just want to say, but thanks for the so the more than one of the so thanks for the granularity and the transparency as always I think Oh, others colors helpful. As we try to think through what's taking place. So appreciate that.
First question really relates to.
The pent up demand to comment I think a in the prepared remarks, you know as it relates to seniors housing.
What does that stemmed from.
And what are you you know as you and I know, it's difficult to predict the recovery as you just said Scott, but as we look forward to.
The other side of the whatever this might be and I know you try to provide some guide posts here for for what.
Monthly occupancy impact could be in terms of attrition.
But as we look to to the other side whenever that might be.
What's sort of the pent up demand expectation, what's your thinking behind that other than the fact that these people have not moved in and I guess.
If you could sort of overlay that with.
How good you think the messaging is and ultimately you know the image of the seniors housing community going to look you know immediately once we get through this or how are they doing so far.
[music].
Yeah, the pent up demand.
As we sit here today, we have roughly 200 deposits from people that are waiting to move into our senior housing portfolio.
Spread over.
16000 units, that's a bit more than 100 basis points or.
You can see and of course, that's concentrated at the communities that are currently closed to move ins and you know that's activity that's generated during the month of April when there was pretty severe shelter in place across the country.
Where people really weren't moving around and I say absolutely needed to so you know that's a pretty strong lead base I'm really not even lead based deposits of customers waiting to get in so there will be some pent up demand it maybe offset that just because the.
Economy and in the business World isn't going to flip the lytswitch on right on on May 7th and all the sudden it's business as usual I think it will be a slow ramp up and that probably include senior housing in particular, just because that's the most vulnerable population 85, plus a lot of them with health conditions.
And they probably will reopen in a phased format and that will probably mean that occupancy doesn't bounce back quite as quickly as it decline in April but ultimately we don't have any.
And he any doubt about the underlying demand for their product and there's a million seniors roughly living in rental senior housing today and paid a fair amount of money per month to live there because there is a social need for the product. There is a lot of demand for it and notwithstanding the some of the negative headlines everything.
We here on the ground from our operating partners is that the residents and their families are extremely appreciative of the services being provided so I guess from the voice the consumer we still feel pretty good about the demand for the product.
You know I'm going to actually add on that's a bit of that Jordan.
Jordan I'm, just going out a few comments up.
I had okasan to have conversations with all the major.
Operators that we work with them and Scott was looking for a number of those but I think there were some key takeaways that I had from those conversations that was just late last week.
One other thing some of the things you need to think about is of course Ala memory care as a whole different category, where its need base than I am so different category.
I elements is based on lifestyle al and memory carriers need based and often times vital meet base.
You have the number of adult children that are home right now from work that are seeking to take care of their parents. What we have heard from numerous operators is it's much much harder than they had expected.
And sometimes they have a view that they're going to need to go back to work and they're not quite sure how to handle it. It's also come up that somebody's adult children worry about getting sick themselves and realize that there's no way that there.
Currents are able to then care for themselves, which that which has them.
Greatly under concern and oftentimes these vital needs are ones that the adult children find out that they just literally cannot handle at home. So there certainly is a backlog of oh of seniors in most categories that are waiting to go.
It into these communities subject to screening and quarantined now that doesn't mean that does not gonna be net attrition for sure, but an email memory care side of the business. Then we'll continue to be lease up based on everything that we've heard from multiple operators.
Okay. That's helpful and then Pete I just had a follow up for you you had a comment about leverage you know a recognized balance sheet in great shape today, but sort of.
Estimated.
What could happen by the end of the here I think you said mid to high mid fives.
EBITDA.
Are you baking in the headwinds from the decline in EBITDA that seem likely to sue.
On the shop portfolio. It seems housing portfolio overall or is that just.
Run rate offer one Q.
EBITDA.
Hey, Jordan.
Two things what you just mentioned, which is obviously baking in.
Decline or degradation.
Earnings as we head into the ended the year as well as.
We have a cash balance today.
Actually quite large and our first quarter at 785 million, we closed on the post in April.
And then also we will have our development funding as the year progressed as well. So it's a combination of all those factors within our sources and uses that gets us back up into the mid fives.
But it does incorporate.
With that whatever sort of degradation you might see tend to seems has got okay. Great. Thank you.
Helpful.
Next we have rich Anderson SMBC.
I'm, establishing a lot in unit Sir.
Hello.
Rich.
Hello Hello.
Hey, rich when area.
Okay. Thank you.
So so the stock is down 30%, which is good that's saying something relative to your peers and in my opinion. You know this is a time if there ever as one to fix anything that can be fixed.
Kitchen sinking is one thing that's been stand out with a a problem for many of the health care reached has been sent coverage on the triple net side. So why not take this opportunity when everything is stacked up against a lot of the reason a lot of people on your space and just you know.
Right size rents in the Triple net space and really put yourself in a position to not have to have that question ongoing in the aftermath of all this and and reset everything and you know kind of start fresh when this is all done.
Your Brookdale comment notwithstanding I'm, just curious if you'd given any thought to really getting a little bit more aggressive on I'm, particularly in the triple net side to the equation.
Rich this is Tom and.
Deezer, you're gonna have to tolerate the fact that I was a SCPA for many years before I wanted to treat world for a moment.
One of the things that you deal with as it is I think you know is that gap has come to a place where the old conservatism principle that was in place forever back when you and I were young guys is dead and gone.
The FCC took a position at some point as did the Fas be that being overly conservative it's just as much of an error as being overly aggressive.
So when you get into these kids and think situations. The FTC will target those companies and look at them to identify if they have gone in their view beyond the rules to take about.
To make themselves look good later, so it it's highly advisable I think for companies to be Super Smart about how they handle this and follow the rules carefully. So Fortunately, we've got Shawn Johnson who's as good above the C O as I've experienced in my career and I wasn't CA also I can make that statement.
Pretty strongly.
And Sean keeps us very much down the line of what what the Fas being the FCC, what they're thinking and other position that so we're going to stay pretty close to the rules on that one. Despite the fact that time they would sure be tempting, but we really can't to them.
Okay. I appreciate that color I didn't expect to answer yes, [laughter] and second question is you know again, maybe on a senior housing and specifically the 200 to 400 basis point monthly decline in occupancy that you mentioned in the release by the way disclosures awesome I really appreciate that whole team.
Table, so good job with that <unk> know the is there a seasonality aspect so.
I'm thinking about from this two sides first if this were all happening in them in the height of the winter I Wonder if your dodged, a little bit of a bullet or and alternatively as we get into warmer months does do do we trend towards the low end of that 200 to 400 basis rent or even lower than that.
And so that this is not really a ratable sort of perspective, but one that perhaps gets better as we go through into the warmer months severe curious if you can just sort of comment on that.
Yeah, that's possible.
Generally.
Move ins are strongest from say may until October November.
The only thing that's a little unusual about our portfolio is that we don't have a lot in the really cold areas like new England.
The Midwest, we have a lot in California, we have a lot in Florida, and Texas that.
Usually there's a bit of a slowdown at a certain point in a year in the cold weather stage and it's kind of the reverse in the southern states in some way so I'm not sure it will impact us is maybe.
As much as some others that maybe how it's more concentration in the cold weather stage, because as you point out you're going to Miss out on a lot of moving activity and lead generation in May and June presumably.
Well it just the move outside of that conversation, though to the move out slowdown putting aside the move in traffic.
Yeah, we think it's been a in a colder environment.
Yeah in general for the rental senior housing business at least the the move outs are about two thirds involuntary and one third voluntary and we did see the voluntary move outs decline and we think that will continue.
But at least for one operator in particular that they're in voluntary move outs were significantly above historical norms. So that really drove the April result for us in a major way and we were down as a portfolio of 300 basis points.
From April one until April thirtyth in the shop portfolio, but outside of one operator that would have done down 190 basis points. There was just one fairly large operator that was a real outlier because opposing involuntary move outs.
Gotcha, Thanks, Scott Thanks.
Rich rich I'm going to get something your question that I think as relevant I think it's an important question.
The fact is.
Seasonality.
The weather whether the thing comes in waves.
<unk> realistically none of US know the answers to these questions. We all wish we did.
But we have no crystal ball.
So the way we're working through this it's all been about having a staying power to stay healthy through this crisis and that's been about liquidity it spend about balance sheet. It's been about execution in our case I think our diversification of portfolio has been very helpful. So we're looking at it.
That way to ensure that we stay completely healthy through this crisis and then identify if there are opportunities on the other side here I know that deviates from your question a bit but we've taken a separate step as we've had conversations internally and with our board as to what this means for our company.
And we think we're pretty well positioned on that from.
Oh I appreciate that Tom didn't get thanks for giving me a bonus question there so [laughter] okay. Thanks.
And next live Nicholas Joseph of Citi.
Thanks, I appreciate all the disclosure in the assumptions framework and I recognize that.
There's a lot of near term uncertainty in somewhat of a black Swan event. We're still very early on that does this change your views on exposure to each business segment, the medium and longer term.
Next turn Doug again, I'll take that one it doesn't at this point we've had up.
For the last four years, which has since I've joined we've had a view that the three private pay segments of the health care.
Right industry.
Is where we wanted to hold our portfolio all taken advantage of the same baby Boomer demographic.
And all three operating on their own different cycles grading diversification, which then would give some consistency to the earnings cash flows and dividends to the company will also providing scale.
And a better cost to capital.
We're gonna have times, where one business or another bulkers at the moment that happens to be senior housing, although the long term demographics to look great. There's still going to be a need based business on the other side of this that irrefutable up lots of.
Seniors and that 85, plus category and so we still feel good about the business model out of as except for this has not changed your view.
On on the business models as we move forward.
Thanks for that just on the dividend you mentioned coverage pushing up there certainly above 100% of yeah.
Maybe over the next quarter too, but just given we don't know how long that.
[noise] the uncertainty David what are your thoughts on either suspending the quarterly pay out.
Are paying some percentage in stock or anything just probably on the dividend given the uncertainty of how long this will actually last.
Yeah, no that's up than we had extensive conversation as a management team and as a board.
And I'll give you how we looked at that philosophically.
And strategically for now we're still covering our dividend we could get into a place as as this extends on where for some temporary period of time, our dividend rises above our FFO.
But that should be for a temporary period up so for the time being we're comfortable with the level of dividend I think you have to take into account as to why our view is that we've got three classes of real estate that are all essential on the other side of the spend demick and are going to be in good shape on the other side.
We've got to balance sheet that has no maturities until August 20 to 2022, and it's a small one on the next one isn't until November 23.
And we got tons of liquidity, a 3 billion the effect of having a dividend that exceeds our FFO by some amount. If you took that number and translated that into the impact on or any b. It's tiny.
You might be talking 20 cents, a share or something that really is not going to move the needle. So we think it'd be premature for us to have concerns around that we can easily right through that with where companies set up now. If this thing goes on for a long long time of course will revisit that has a management team and then as a board but.
At the time being more completely comfortable with where we're out.
Thanks Todd.
Thanks, Nick.
And next we have Steven Valiquette of Barclays.
Oh, Thanks, Hello, a time NPD Scott Hope you all are saying safe.
Thank you have a couple of questions on your CCRC.
Yeah first your disclosure around the 16 percentage point drop in occupancy and skilled nursing portion of the seat here cities.
The a Medicare census drop.
John mentioned that you received about 10 million of federal or is that coming in April that the government is actually intending to specifically that Medicare occupancy drop.
I guess for <unk>, I'm curious, whether that 10 million inflow that come pretty close offsetting expected or reduction in this portion of the CCRC is for let's say at least a second quarter 2020, obviously, you're right now and then I wanted to follow us on the same topic.
That's going to take that.
Yeah.
The Medicare funding.
I think an important point is that that's not something that we applied for Oh, we just wanted to clarify that that that's a pro rata funding across all Medicare providers, including the huge hospital systems.
And all the ancillary providers, we are CCRC skilled nursing units are not typical freestanding skilled nursing virtually the entire pair population is either private pay.
Where the residents are entering into the independent living and then going through the continuum or its Medicare there's very little Medicaid.
But Medicare is a significant portion of the pair source. So it's the traditional sub acute modeled or high end properties, great local reputation. So they do generate significant activity for Medicare and as I think you know Steve the elective procedures soon virtually went to zero in April and that had a pretty.
Found impact on Medicare population.
For skilled nursing and that's what drove the 1600 basis points given that the length of stay there's usually less than 30 days.
For the same reason now that elective procedures in most states are restarting that should jump back pretty quickly for the same reason I'm. So we think this is a temporary impact up but but yes. The 10 million to funding that we received that was the government's attempt to try to make providers whole whether or not it does show in.
100% you know time will tell I think it's too early to comment.
Okay. The other quick follow up around that.
That 10 million to receiving or that was paid out of the first the $30 billion transition had already leave but right. Now there are some 175 billion of total stimulus is scheduled to be paid out.
I'm curious if you have an approximation of how much more federal stimulus.
Dollars or total stimulus peak may receive either in a 2020 overall.
Hi, no clarity at this point on any additional funding.
Okay final question on this you touched on it a little bit, but I guess I was curious and within that skilled nursing portion of the sees here sees how much is it your strategy to have a lot of Medicare post acute patients in that portion of the CCRC is universe is having more long term resident just curious how you're thinking.
About that strategically are you trying to increase your Medicare payer mix in incentive.
I don't know that I would characterize it is that our business plan is to increase Medicare the <unk>.
The independent living residents you paid the entry fee have first priority on the skilled nursing units.
But as a percentage of the total campus skilled nursing is often quite small so the vast majority of the residents are independent living in some are assisted and memory care.
So that the skill nursing units there isn't enough.
Activity from within the existing resident base to keep the unit completely full for the most part so the balance can be filled either with Medicaid, which tends to be at a pretty low margin business or for Medicare and these properties out good local reputations and I should as compliance that.
They the natural next best option is Medicare rather than Medicaid.
Okay, Great I appreciate the color. Thank you.
Hey, I'm, just going to jump in real quick for time check.
We have.
Started this call with the goal of having a one hour call. We knew we were going first we had a lot of information that I think we'll be educational lot of transparency.
So I'm not surprised there's a lot of interest in the queue in a we have another eight nine questions, we're going to take them.
So we'll continue forward, we'll go quickly on our answers on the questions. Please but we do want to get to everybody's questions. So I just I give you that warning so let's let's continue forward. Please.
Yes, Sir the next question comes from Michael Carroll RBC.
Yes. Thanks, I appreciate that comment Tom and then I understand how it's difficult to predict how long the pandemic period will typically lasts as particularly how it's impacting the seniors housing space, but what types of targets are you looking for where we can at least the occupancy declines moderated.
It really just improved testing capabilities or do you think really need to see greater development in medical treatments are for the virus.
Scott you want to start with that.
Well I think you named the too.
Michael I think you named the two most important.
Testing, which is still uneven but.
As of today, it's far more prevalent than it was a month ago and it continues to improve each day across our operating partners. So that will make a huge difference.
Improve therapies.
As a next step and then ultimately a vaccine. So all three of those things are going to dictate the pace of returning the business as usual.
So if you have improved testing capabilities do you think that operators are able to accept more move in so we won't see the 70% decline in new then maybe you'll be much more modest is that right way to think about it.
I'll jump in on that at that point, the testing has gotten better and more prevalent.
But the false negatives are still a problem.
The asymptomatic.
Patients that come in or people that come in still spread the disease. So the senior housing has to be very careful when should you have to recognize let's just talk reality for a minute.
When when the when the virus has brought into a community both residence and caretakers get sick.
Residents have mortality rates and the 25 plus percent range caretakers of the many many caretakers that have caught it we have had exactly zero yes.
So it's a it's a tough situation you have residents that bring it back from a hospital. They have frequent visits to the hospital and bring it back more care caretakers can bring it back from home and their asymptomatic and temperature checks don't necessarily figure it out more necessarily to the tests. So this is a pretty tough situation and.
As we open up America, and some of that likely it's going to occur if there's a further wave of that's it's just kind of set us back. So we don't know for sure. There's no crystal ball on this and it is very very hard to predict Mike.
We're we're hopeful <unk> eager to see it move forward in a positive way, but hopefully in a safe way when it's time. So we'll see how that plays out. So I just want to give you any false view that we have a crystal ball on this because I can tell you haven't talked many many operators and other experts people are scratching their heads trying to.
People say, well also recognizing that seniors need to be treated either at home or in these communities and it's it's a tough situation.
Okay great. Thank.
You bet.
And next Swift Tayo Okusanya, how much do though.
Ah, yes that good afternoon, everyone a major costs.
Hi, how are you hope everyone in the thick and healthy quick war on the acquisition outlook again understand what's going on with the with the guidance, but at the same time to you guys have a great balance sheet and I'm just kind of curious if what would you look out of something opportunistic what's the kind of come across the table on how would you kind of assess that.
You know before.
Coated tire we had built it significant.
Pipeline across the three segments with assets that fit right into our strategic plan as well as operating partners that.
We thought very highly us so those conversations have been put on hold Fortunately it goes wrong proprietary off market discussion, so a lot easier to pause and in a fully auction process.
And over time, we'd like to be able to revisit all those we'll see if that's possible, but those long term ours interesting today as they were two months ago, but we need to make sure that the cost of capital allows us to make a profitable investment obviously and then beyond that we have started to see pretty significant.
I'd say more opportunistic.
Acquisition.
Opportunities from more Ah you know operators that.
Don't have the strong balance sheet. So it pricing became so distressed that even at today's current cost of capital. It. It was a highly compelling investment as long as it said our strategic priorities.
That could be something that would be actionable, but.
Our first priority is on the existing portfolio and making sure that we emerged from this you know when it equally strong position that we entered so we're looking at a lot of things, but I wouldn't expect us to be super acted unless that pricing just got very distressed.
Gotcha, that's helpful on the drift around bad debt and then on credit loss provisioning again, you guys had an 8 million dollar.
Loss provision in the numbers this quarter there was some conversation around potential for for losses in the life Sciences portfolio that you may have to accrue for that as well I'm just kind of trying to understand kind of overall as you kind of think about.
With that particular issue about how much potential.
A provision for credit losses on these losses or rent losses.
It's kind of feasible to kind of think about.
For 2020.
Yep.
It's Pete here.
You know the 8 million you referenced that is the loan loss reserve.
And I'm sure you're aware of this but you know the new accounting guidance went into effect January 1st.
And it's called Cecil current expected.
Credit loss as a so this new guidance requires us to estimate potential future losses upfront rather than waiting until it it might actually hit the probable category. So for US. We took this 8 million dollar reserve this quarter I know other companies are taking reserves as well.
It's a noncash item and it only impacts may read Epo and does not impact.
FFO or adjusted.
That's out on your other question you ask around.
You know additional reserves we've certainly.
Put some additional reserves into our forecast states as we've talked about within life sciences as well as within am obese, we didnt have a place holder in there for future Collectability assessments.
We will look at every lease every quarter on a tenant by tenant base it.
I understand that the collectability of it's so hard to say.
What exactly that could be.
You know to the extent that.
There were to be some financial difficulties with tenants, we would look at each one of those leases we didn't take a 2 million dollar straight line rent receivable write off in the first quarter and we'll continue to look at that we bolstered our resources within me company to be able to look at each one of those because it's actually quite a.
You know a lot of work to do every single quarter, but that's the way we're thinking about diesel as well as you know looking at every lease going forward.
Pete I'm, just trying to add just one thing if I may.
Just just not everybody is probably is.
Turned into Cecil list is that's a tailwind.
The bottom line is that FASB pronouncement that came into place had to look at all of your future notes receivable, even if they're completely healthy and go back and doing assessment as to whether at some future date. They may run into collection problems and then we had we had to go to third.
Party data sources to say what was the type of.
Likelihood of some type of default that generally came in at about 5%.
And then you end up recording this charge on the front end up an otherwise very healthy loan and many are financing receivable and many situation.
And that's why the things a bit absurd and that's why it if the noncash item that data back for ethanol as adjusted so when you see that 8 million in there I personally consider a non event and a future date when it reverses will backing out of ethylene suggested that that at that they too. So it's just kind of noise.
In the financials in my view.
Thank you John Kim of BMO capital markets.
Thank you good morning, I'm not sure. If this is the same item you just discussed but the bad debt reserve in life Sciences, you expect the bigger impact.
In that segment results will be even though you haven't too.
I offered any deferral requests.
That's specific to a couple of Tenda discussions you're having.
Or just the lack of recovery in some of that kind of that ER segment versus inmobi.
Yeah, Hey, John it's not targeted to any specific tenants or discussions that we're having.
There's always a a group of tenants that were watching more carefully than others combined with what's happening from coated we thought it was appropriate to take a bit more of a reserves.
As I mentioned earlier that May end up being zero, but we thought it was more appropriate under the circumstances to building a bit of a bad debt reserve here that was higher than normal.
And John I'd add that's again its Herzog you know we collected 95% then we'll be in April and 97% of life Science.
But it won't be when you start talking about on campus.
And anchored physician practices, our historical bad debt on that stuff is down 20 basis points over the last five years.
So when we provided a rent deferral. It was just to help out short term and worked with H.C.A. on that program and talk quite good about it up so we don't expect much for fall out on that life Science, you know, we're going to have a few tenants like anybody would with us some retail tenants.
Some others that that that we might need to work web. So we have a little bit more bad debt built into that whether we needed or not is TBD, but that's why you see those numbers, let them with them on.
Yeah, Thanks for that.
Onsolis CCRC you broke out the income can you just remind us what percentage of revenue on CCRC as came from the amortization of nonrefundable entrance fees and also how you assess the that amortization.
And we assess it with senior housing fundamentals that are changing.
Yeah, you want to certain I can jump in.
Yeah, it's usually around 60% to 65% it'd be amortization and then the balance is.
You know the monthly and why we receive we actually did add some disclosure into our supplemental which shows what the amortization as this quarter as well as what to cash and rest received or you know the amortization is around 16 million and the cash received was around 13 and a half.
It will fluctuate on a quarter by quarter basis, but we think over a long term debt amortization in cash will approximate each other.
One thing I'd add is that and I'll just take you to page 34. So when you guys do want to look at it you'll see it on the table will be in rough amortization, you'll see the portfolio revenues and expenses and Anna Y and you'll get a feel for how that income flows.
The graph is obviously an important part of the margin. That's created then CCRC is and again, that's like an upfront payment that gets recorded as deferred revenues.
In a situation like this if it becomes more and more clear what that accounting, which is what's endorsing the accounting world makes sense.
Because there was a surface period, that's that's involved in that deferred revenue thats recorded on the front end so there's a proper matching.
And when you hold the tenant base like we are in the CCRC is through a period of a pandemic like this there is a service period that then is in place well go seniors age in place with an average eight to 10 year period of stay and having a deferred revenues like having a free rent upfront for a period.
Of years that effectively acts as a deferred revenue that's what an entry pre looks like in of course, you spread that over the period of the average length of stay I'd. There's just a repeat of what we said last quarter, but I think it probably merits a conversation because you will see a difference between the cash collections and the nonrefundable entry fees and that makes complete sense.
Based on what the economic model. That's in place is trying to capture and I think you count in very much gets as one right.
Okay, great. Thank you.
Thanks.
Hey, nice to have Todd Stender of Wells Fargo.
Thanks, just one for me just back to senior housing I'm, just with the theme obviously move outs continue to exceed move ins.
The stays coming down occupancy coming down but at some point, there's got to be some offset with labor in operating expenses. Just you just don't need the staffing levels like you do maybe right this minute.
Where are your budgeting, maybe that that tipping point, where do your expectations. It may be getting some relief on the expense side.
Yeah there are.
Some areas cod, where variable costs will be a benefit certainly activities and marketing dollars and transportation.
I'm going to be down during the course or the pandemic. Those are unfortunately relatively small dollars as a percentage of the total.
<unk> expense load.
In terms of labor there was a benefit that the unemployment rate significantly higher all the sudden than it was two months ago and a lot of those are service workers that might be looking for alternative employment, although right now they have access to pretty attractive government programs, but we have seen a pickup in applications to work inside of the community.
Which is obviously helpful that unfortunately for the timing is offset by the fact that in particular communities that have posted positive activity are paying premiums given the conditions and potential risk of the workplace. So.
Nothing that we think expenses are up.
During this pandemic relative to normal business environment, but there are some offsets.
And the duration why do you have any expectations of when occupancy bottom. It's a little early I get it but do you have anything budgeted in at this point.
No. That's really why we wanted to think about the impact as it framework rather than as guidance because it's just too hard to predict exactly when that environment is going to change.
Todd It's fair question bottom line, we didn't want to take a guess when there's so many uncertainties out there.
And then guessed wrong, and we thought better to put a framework together. So that you guys as investors and analysts kind of player in your own inputs into this framework and hopefully that assists you I'm coming up with ranges of outcomes for us.
Thank you Tom.
Thank you.
Hi, Thanks, with Dan Bernstein of capital one.
Hi.
Good morning, I'll try to avoid it you're counting question.
[laughter].
So really I won't go back to the expenses on seniors housing I mean, it it seems to me, even if occupancy bottoms and comes back off that some of these expenses.
At least from now or are somewhat permanent or semi permanent spares, especially like the P.
Maybe even some higher labor costs is that how you're thinking about the business. I mean is the no why potential of seniors housing.
Maybe permanently impacted by Copel.
I'm not sure Dan the.
The increase in PPD is certainly not permanent.
There are a number of community just today that.
To the entire staff is in full P.E., the entire workday and you're talking about three ships today that certainly is not permanent.
It's possible to significantly increase sanitation becomes business as usual, but that's relatively small dollars and keep in mind most of the impact.
It's from Labor and I don't know that we see a long term impact to the cost of labor from this have them make it certainly going to be elevated for a couple of months.
But I don't see that as of long term change in the operating margin of the segment.
Okay.
And then just also real quick.
What is the how are you thinking about expected impact on yield for developments on a longer term basis.
I know, there's some delays now but.
Ah, yes should we be expecting lower yields on say future developments for 21 22, when we're thinking about modeling.
Yes, Scott, they're going to be doing that.
<unk>.
I I can start I mean, there might be some very modest changes to construction budgets just given the projects are likely to be delayed by one two or three months, so perhaps some higher general conditions higher peony.
Construction site, but nothing material I'm, certainly nothing that's going to make a big impact on yields for our development pipeline as far as future projects I guess, it's harder to comment I'm certainly construction is slow down how does that work is are anxious to get back to work so that would be a positive for us.
Yes. It is cost came down a bit and keep in mind. Most of our development is in life science, and we think that demand fundamentals, they're gonna be not stronger than ever coming out of this so you know if.
What I just said she ends up not being the case, we could always choose not to do the development. We have a land bank we have additional opportunities.
In development, but we havent committed to anything beyond what's in the active pipeline. So we retain that flexibility.
Sounds good I'll hop off thank you.
Thanks.
[laughter] that sort of Lukas Hartwich of Green Street advisors.
Thanks, or do you guys have any sense of what's happened to asset values across your segments.
Scott, Yes, yes.
I think fair to say Lucas that there hasn't that a ton of recent activity.
Of course of.
April now some transactions, how close but for the most part those were.
Things that have been underway for several months, if not several quarters in which is way down the path.
As far as new acquisitions being struck.
It's been quite limited, but things are starting to come back to market.
Particularly in medical office in life Science, where I don't.
I think theres going to be any change in cap rates I think the fundamentals remain strong and demand for that investment type remains in senior housing I think there's a bigger question just because of the uncertainty around how far in Hawaii declines and then.
Also realistically what the right risk adjusted cap rate is for that segment I'm sorry, if there is uncertainty therapy in the senior housing business.
It's kinda helpful as well just to add to that based on conversations we've had.
That's after some period.
Is completed that allows activities and normalize again for some period of time that might not be much of a market and they're very well could be some distressed opportunities I think Scott what you're referencing is once that period of time has passed that's what we see cap rates falling out again is that fair.
Correct.
Great and then on shop is there any color you can provide on performance between properties with cobot cases, and without that's something you can offer.
[noise], Yeah, I can give you some context across the board a property were probably positive.
Residents would be shut down to new admissions, which obviously has a pretty dramatic impact they've missed that move ins are going to zero for a period of time. It's also likely that you're now paying staff up to one and half times ordinary wages. So the costs are going to be higher and then.
The peony becomes.
Not much more elevated as well because the virtually the entire staff is in full pp.
I mean, that's three shifts a day so on both the expense on the revenue side a code that positive property would would have no significant impact on an alliance we try to account for that with the range that we provided.
Some communities will do better than a range and then other properties would be worse. So I would think about the range we provided as.
Being applicable to the entire portfolio on average not to a specific property.
We will consider thing you had that made it difficult is during the past six weeks.
We had our operators appropriately stockpiling pp.
And with that of course large expenditures that that that might exceed the norm. So we're going to see this normalize out a bit over the next month or so now that that stockpile and those inventories had them built so we'll have more information on that as who before.
Great appreciate the color. Thanks.
Thanks.
And that's the way of Mike Miller of JP Morgan.
Yes, Hi, Scott I think you mentioned the senior housing we thought it would be in the phase three of the Reopenings.
And does that imply that there any mandates that have to be followed terms with limited moving activities or is it just a little bit more of the population of sensitive so they're going to.
Have choice, but to take a little bit longer time themselves.
Yeah in general.
The the business is driven by state and local.
Health departments, the CDC has come out with broad guidance for this segment.
But it's really the local and state health departments that that are impacting those types of decisions obviously in coordination with the operating partner. So it's an additional reason why it's hard for us to speculate on how quickly things reopened.
Got it okay that was that thank you.
Thank you.
We have two more questions in the queue.
Oh, Yes, and then that's one of the follow up in Jordan Sandler Keybanc capital markets.
Hi, sorry, I was.
Trying to get out of the Q, but Oh. This is addressed it was.
The life science customers that have requested deferrals. Its 525 of them can you maybe characterize these tenants that are these sort of tier three tier four type.
Hi tenants.
For biotech tenants.
Yeah, Jordan, it's a mix as you point out it's a pretty small percentage of our rent and to date. The answer has been no. But there are a few smaller biotechs that has requested relief.
But have not been granted.
There are some amenity tenants as well and essentially their business has been closed for the past month in house and those are very small dollars, but I think it's more likely than not that.
Those are important amenities to our campuses and they're not big moneymakers, there there to drive leasing activity that.
Given their business has been closed can be more likely to make some kind of the deferral.
Then we do have a small number of more office tenants, but keep in mind our business our buildings have been fully operational throughout.
That makes so you know where less inclined to give any rent release, but we wanted to.
Transparent about the fact that some had reached out.
I took the other thing I'd add as.
No go ahead sorry.
Go ahead.
The other thing I'd add is there's still plenty of demand for that space in the locations that were and then when we do have certain tenants that.
We received the direct information from and conclude that that's not a viable tenant going forward then we will take.
Actions on a case by case basis as it makes sense for business and the ability to release that space. Its something that we feel confident then so again on a case by case basis will be off last but not big dollars.
Okay and then we can you can you breakout on they ever beside the percent of deferrals granted relative to request.
As Tom indicated you're right there.
Sure I Jordan, it's Tom Klaritch.
Of our total.
Eligible tenants about 28% of them have requested the deferral and almost 90% of <unk>.
The recent they haven't been approved has been either they did not.
Paypal rent so they weren't current on rent or they did not apply for the cares loan, which we made is to requirements of the program.
Helpful. Thank you.
You could ever last question.
Yes, Sir and that will come from Joshua Dennerlein of Bank of America.
Hey, guys. Thanks for the question.
Josh in well.
I'd be curious just to get a little bit more color behind your assumptions going into the net attrition rates for the shop portfolio.
You gave some color.
Moving to you about but maybe like bigger picture like that.
What goes in there as far as like coal good spread across the country into counties that you're in and maybe the economic environment.
Yeah, I mean, we follow the.
The data as closely as anyone three weeks ago, most of the predictions where that activity had peaked in most states in mid to late April that date.
Seems to be getting pushed out at least a little bit in terms of when should we hit the peak and it varies by geography, obviously the weighted average.
Native peak activity in our portfolio was supposed to be April 14, so hopefully that proves to be correct.
We haven't started to see are huge decline in coated activity insider buildings, but it's also no longer increasing so that's obviously a positive it jumps around from day to day.
But it certainly no longer increasing at the rate that it had been if anything it does seem to leveled out it's not started to fall. So that's a positive.
But the the.
The ranges that we provided were intended to capture that.
Because we can't predict exactly how quickly the infection rate is going to decline and that's why we want to think about it as a range Josh plus the fact that we have or a portfolio that spread out across the country. It is concentrated on the east and west coast, but it's not heavily concentrated in any particular market.
Okay I appreciate that Scott.
Is it for me.
Okay. Thank you don't.
Operator, I believe those the last question.
Yes. So we'll go ahead and conclude the question that's impressive and Mr. Herzog I'd like to kind of comments about government team Sir.
Okay.
Thank you operator, and thank you for all of our investors and analysts that joined the call. Your interest in the company and your support of Health peak, especially during this extremely unusual time.
So sit stay safe and look forward to talking to all soon bye bye.
And we thank you Sir and also to the rest management team for your time.
The conference calls I'll conclude it I'd just tell me may disconnect. Your lines. Thank you again, everyone take care of a great day.
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