Q1 2020 Earnings Call
Greetings and welcome to the National Health Investors first quarter 2020 earnings call. During the presentation. All participants will be in listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press the one followed by the foreign your telephone.
Should you require operator assistance at any time. Please press star Zero as a reminder, this conference is being recorded today Tuesday May 12 2020.
I would now like to turn the conference over to Dana Hambly. Please go ahead.
Thank you and welcome everyone to the National Health Investors Conference call to review the company's results for the first quarter of 2020 on the call with me today, or Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, and John Spaid, Executive Vice President and Chief Financial Officer, the results as well as notice of the accessible.
30 of this conference call on to listen only basis over the Internet were released yesterday after market close in a press release Thats been covered by the financial media as we start let me remind you that any statements in this conference call, which are not historical facts are forward looking statements and ITI cautions investors that any forward.
Looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward looking statements represent NHS judgment as of the data at this conference call investors are urged to carefully review various disclosures made by in Asia and its periodic reports filed with the Securities and Exchange Commission.
Including the risk factors and other information disclosed in NHS form 10-Q for the quarter ended March 30, Onest 2020 copies of these filings are available on the Fccs website at Www FCC Dot Gov. We're on NHS website at Www Dot an x. I read that calm in addition.
Certain terms used in this call our non-GAAP financial measures reconciliations of wins are provided by NHS.
In energize earnings release unrelated tables, and schedules, which had been filed on form 8-K with the SEC listeners are encouraged to review. These reconciliations provided in the earnings release together with all other information provided in that release I'll now turn the call over to Eric Mendelsohn.
Thank you Dana Hello, everyone and thanks for joining us today.
First and foremost we are deeply grateful to all the frontline heroes that are tirelessly combating cobot 19 everyday despite the great risks to themselves and their families and HR, we have long admired the senior housing and skilled nursing organizations and their staff that go.
Great lengths to keep our senior population safe and smiling.
Never has this been truer than today as a tribute we've published some of our favorite caregiver and resident photos on the cover of our supplemental I Hope you will take a look.
Reputations are made during a crisis and I see operator is making good decisions and taking action based on the principles they value.
Selflessly caring for their residents nurturing our company culture that appreciates employees, and providing leadership and comfort to the employees and families of their residents.
I believe that one history reflects back on our industry in its practices. During this time there will be operators that are hailed as heroes.
That said the challenges posed to our operators and our business by this pandemic are very real and it is difficult to say with any degree of accuracy. When we will return to a more normal operating environment.
Our operators have done an admirable job and limiting the spread of cone with 19.
As of May fit.
We had 192 active resident cases, and 37 buildings to put that in some perspective and HR has over 20000 residents being cared for and all of our properties.
So less than 1%.
As our operators have implemented there protocols and taken appropriate actions to prevent or limit the spread of the virus.
The result has been a significant downturn and inquiries tours and move ins.
This is having a negative impact on occupancy.
Kevin will give details on that later on the cost side of the equation. It should not surprise anyone that our operators are spending more particularly for labor and PE supplies.
This is obviously pressuring our operators margins and we are prepared to help them, whether this storm where and when necessary.
In April and HIV received 99.7% of its contractual rent and so far in May we have collected approximately 94%, which is inline with our expectations as we typically see a portion of collections through the 15th as a month depending on under.
Align lease terms.
As this pandemic unfolds and HIV is committed to transparency with the investment community to that and we have enhanced occupancy disclosure on bickford holiday and senior living communities, which Kevin will touch on in more detail.
We were the first to detail the incident of Cobot 19 in our communities and we will continue to provide weekly updates to our website as long as it is material.
But given that the scope and spread of cobot 19 is so uncertain and HR has limited visibility to the financial impact to could cause and as a result, we're withdrawing our previously issued 22000 guidance.
Regarding the dividend our board is committed to our dividend policy and we will consider the August dividends in mid June.
With that I'll turn the call over to John.
Thank you, Eric and good morning, everyone.
Beginning with our net income per diluted common share for the quarter ending March 31st 2020, we achieved $1.37 per share environments inclusive of the gain on sale compared 83 cents per share for the same period in 2019.
Normalized FFO increased 3.8% to $1.36 and adjusted FFO or AFFO increased 5.7% to $1.29.
Reconciliations for our pro forma metrics can be found in our earnings release, and 10-Q filed yesterday afternoon, and FCC back up.
Cash NOI as a metric we used to measure our performance, we define cash NOI as GAAP revenue, excluding straight line rent, excluding escrow funds received from tenants and excluding lease incentive and commitment the amortization.
For the quarter, ending March 30, Onest cash NOI increased 9.2% to $76.3 million compared to 69.8 million in the prior year.
Our increase in first quarter 2020, cash NOI was reflective of our organic growth from lease escalators and the effects from our post Q1, 2019 investments, including a recent timber ridge joint venture investment.
As well continue fulfillment of our commitments.
A reconciliation of cash and all I can be found on page 17, Q on 2020 FCC file supplement.
DNA expense for the 2021st quarter increased 7.4% over the prior first quarter to $4.3 million.
The increase in DNA was spread across several areas, including expansion of our asset management team.
Other payroll expense increases in expenses associated with a higher use of outside consultants.
Turning to the balance sheet.
We ended the quarter with $1.55 billion in total debt, which a little over 90% with unsecured.
At March 31st we had $142 million the capacity in our $550 million robot.
In each I also had $46 million in cash, resulting a net debt of $1.5 billion or $67.6 million higher than our net debt at December 31st.
This increase is largely due to the timber ridge acquisition, which closed at the end of January.
At quarter end, we also had approximately $24.2 million and restricted tenthirty worn account not included in our cash equivalents recorded in other assets, which originated from the sale of any brookdale properties in January.
Our debt capital metrics for the quarter ending March 30, Onest for net debt to annualized EBITDA 12.7 times, which is unchanged from fourth quarter.
Weighted average debt maturity of 3.7 years, and our fixed charge coverage ratio at 5.8 times compared to 5.7 times in the fourth quarter 2019.
For the quarter ending March 30, Onest, our weighted average cost of debt was 3.3%.
Stock and bond markets over the last summer month are not where we'd like them to be however, during the first quarter, we filed a new automatic shelf registration and refreshed our ATM program, given as $500 million new ATM capacity.
Together with our investment grade credit ratings, including a recently affirmed stable outlook from Fitch.
A new shelf also includes an indenture, which in prison, which positions us for in a novel public debt offering when market conditions improve.
While currently very expensive, we do consider the public equity and debt markets is open to us.
And another source of liquidity.
In closing I want to welcome David Travis, our new senior Vice President and Chief Accounting officer to the any check team.
David brings 23 years of accounting experienced any CCI, where this recent CA overall segment equities Realty Trust and healthcare Realty Trust and threw US experiences. This audit senior manager at Ernst and young.
With that I'll now turn the call over to Kevin Pascoe to discuss our portfolio Kevin.
Thank you John.
We have been updating active resident cases in our communities on a weekly basis, but I wanted to add a little more context.
As Eric mentioned, we had 37 buildings with one or more active resident cases, including 20 senior housing properties and 17 sniffs.
Within the 20 senior housing properties, 14 would need driven properties and six where discretionary properties.
37 properties spent 13 unique operators in 18 different states.
We had a totaled 192 active resident cases, which included 97 cases in our sniffs.
40 cases in skilled nursing wings that our CCRC fees and senior living campuses and 55 cases, our senior housing properties.
We are in constant contact with our operating partners and are confident they're following their own infectious disease protocols and are acting in accordance with CDC guidelines State Health agency regulations and in some case more so.
Okay.
Overall, we have been very pleased in grateful for the efforts of our operators to rep or limit the spread of cobot 19 in their communities.
The relatively low incidence is not surprising to us.
And is really a testament to our operators, whose mission is to keep our senior population safe.
Regarding the care that several of our operators.
Of our senior housing operators have been approved for have received phones from the paycheck protection program as it turns out to triple net lease structure, it's beneficial when applying for these loans.
Yes.
Our SNF operators are also benefiting from the cares act payments from the provider relief fund.
Averaging approximately 150000 per building, the 2% Medicare sequestration suspension and the 6.2% increase in the estimate help improve near term liquidity for the snips.
Turning to collections.
April collections were 99.7% and so far in May we have collected approximately 94% which is in line with our expectations as we typically see a portion of collections through the 15th of the month, depending on the underlying lease terms.
At this point nobody is past due.
We speak frequently with our operators and are working to creatively find solutions that benefit them at this unprecedented time and that makes sense for our shareholders.
We do have credit enhancements in our leases with many of our senior housing operators, which total approximately 38.7 million in cash in addition to guarantees and we have excellent credit from our SNF operators.
Turning to the performance of our different asset classes and larger operators.
Our needs driven senior housing operators were early to act to this pandemic and have limited the spread of the virus so far.
As of our last weekly update 14 assisted living and senior living campuses.
Had active resident cases with most of the community is limited to less than five cases per community.
Bickford, which represent 17% of our annualized cash revenue has seen a slight downtick in their move out rates, but like much of the industry their lead volume and tours are down more than 40%, which impacts the rate of new move ins and occupancy.
Big for its average occupancy on a same community basis was 87.3% in the first quarter in 86.6% for March.
Occupancy further declined in April 130 basis points to 85.3%.
Our entrance fee communities have fared somewhat better as the resident turnover as much lower and the resident tend to be younger unhealthier relative to other property types, but they are not immune to the impact of Kobin 19, and we've had for entrance fee communities with active resident cases as of our last week, we update though like us.
Delivering the number of cases per community is limited.
Senior living communities, which represents 16% of our revenue had first quarter average occupancy of 80.4%, which ticked up slightly to 80.6% in March but dropped to 79% in April as multiple entrance fee sales have been delayed due to the pandemic.
Our independent living communities have experienced a similar decline of leads tours and move ends as our assisted living operators.
The incidence of Cobot 19 is relatively low and independent living and we had only two properties with active resident cases as of the last update.
Holiday retirement, which represents 11% of our annualized cash revenue had average occupancy of 87.3% in the first quarter and 86.7% in March.
The April average occupancy declined by 170 basis points to 85%.
Big Bird SLC in holiday represent approximately 56% of our senior housing units on a combined basis. Those three saw average occupancy declined by 150 basis points from March to April which is a good proxy for the rest of the senior housing portfolio.
The skilled nursing portfolio, which represents 26% of our annualized cash revenue is anchored by two excellent credits and in HCV and the Insein group.
As of our last weekly updates 17 of our 78 Smith said active resident cases.
We have seen more instances of outbreak and some of our sniffs, which is expected given the higher acuity patient population and the more frequent contact caregivers have with the patient some residents.
Given the short average length of stay for Medicare patients in the temporary stay on elective procedures sniff occupancy is have generally declined by more than what we are seeing seeing in senior housing. However, there was more government financial support for the sniff industry.
In a C, which accounts for 12% of annualized cash revenue has received funds from the provider really fun.
The company also expects to gain liquidity through that Medicare accelerated payment program.
The Medicare sequestration suspension, the payroll tax deferral and supplemental Medicaid payments overall, we feel very comfortable with the credit in our Sip portfolio.
Okay.
The pace of deals have stalled and everything indicate that this will continue for the next several months as true price discovery is near impossible to determine right now.
Our focus for the more immediate future is to continue funding existing commitments in extreme asset management by creatively, providing guidance and assistance to our operators if needed.
For the longer term, we continue to have conversations with existing and new operators and expect that our pipeline will be ready to support significant external growth when some normalcy returns to the market.
I do want to express my gratitude and admiration for all other operators in the frontline heroes accomplished truly amazing acts of courage and their residents of patients everyday.
With that I'll hand, the call back over to Eric.
Thank you Eric Hi, Kevin.
Looking internally you should know that any charges management team and board have deep experience managing during times of crisis.
I believe our balance sheet and liquidity together with strong lender and market relationships puts us on firm footing.
Operator, we'll now open the lines for questions.
Thank you very much if you would like to registry question. Please press star one followed by the floor on your telephone you will hear Athree turn prom technology request.
If your question has been answered and you would like to withdraw your registration. Please press who won three.
One moment please for the first question.
Once again to Cubepro question. Please press star one followed by the four on your telephone.
And our first question comes from the line Daniel Bernstein with capital one. Please go ahead.
Hey, good morning.
Good morning.
I hope everybody as well.
Sounds well.
And I want to go ahead, and just understand a little bit more about the the loan book disclosures you had in the 10-Q.
It's like a number of wounds were under 100 coverage I believe those are mostly construction loans, but I wanted to kind of confirm that with you.
And just kind of get your view, what's going on there in loan book.
Sure to add Kevin.
As we as we used loan in the past spend of products, where we've stepped into commitments by providing some sort of loan to them with the purchase option. So you're correct in your estimation that most of those are going to be.
Buildings, where we've come in and either a first mortgage or mezz position on a turnaround construction, something where there needs to be a repositioning or build an openness and you expected to lease up overtime.
Okay Thats why we call it that's why we call it loaned to own.
Sorry.
And then I'm wondering see if you had any could provide any information more of like kind of kind of spot occupancy your spot trends for may so far in seniors housing under if you want it if you could provide a broadly or maybe by maybe your top three operators there, but just trying to understand if you've seen any change in inquiries lead some kind of.
Those leading indicators.
You know that maybe move ins might pick up.
Later, this month or June or is it just too early to tell.
Yes, Kevin again, we did not give spot occupancy to your point, but we did give you a flavor of overseeing on an average monthly basis.
To date, it's too soon to tell we don't have additional information that would show that things are markedly improving that said you know move ins are still happening at the communities inquiries are happening toward virtual tours are happening.
So the the doors or is open as it can be so it's still.
In process so to speak.
To see that we've had a bunch of good leading indicators is not yet available, but there are still that movement.
Okay.
And then one last question for me I guess, just maybe a little bit more hypothetical but you hit you guys have operator experience, especially.
With virtual tours, what do you think you build he has been.
There will be to close.
On those virtual tours versus seeing in person tore I know I know the history right now might be.
We might not apply to the current situation whats going forward, but yes.
Yes, Ken operators take those virtual tours and.
Sealed the deal so to speak and convert those into move ins or is it going to take up in place tours to really.
Push movements at this point.
Well I would say they can have again, it's just been at much lower rates and generally what you're seeing in the market right. Now is people that need services are the ones that shopping the discretionary shopper is probably still leaning towards staying at home. Yeah. These are people that have had something happened in their life.
Were they need assistance with daily living so thats, where you're seeing most of the move ins calm and then there they found creative ways to do those virtual tours, you've actually that people shop.
Literally window shop from the outside of the building or virtual toribio.
Skype or face time or something like that so theyre trying to be as creative as they can to show the building off and be able to give a fuel for the amenities, but there's also knowing the once they're admitted there.
Our team period and whatnot. So it is a difficult time, what they are finding ways to.
To get the information to be perspective resident resid families and converting those into.
[noise] I'm sure there's other people in the queue I'll just hop often.
Next question later, if I have anything else. Thanks.
Thanks, Dan.
Next question comes from the line Afrikaner Swirsky bearing Burke. Please go ahead.
Hi, everybody. Thank you very much for how to meet sounds like you guys are doing well good year that.
The first one on acquisitions seeing that you guys are able to close on a couple assets in early may and can you talk a little more about that process. You know, perhaps how this came to be in the current environment and how your team adapted to any of the challenges in order to close these investments.
Sure Kevin you know I would say that this was a we've considered our closing as part of our commitments as ones, where we've had these in the queue for a while we made sure we go back and re underwrite G.
The investment and make sure that everything's still lined up with where we expected to be from a performance standpoint.
But also wanted to follow through with.
The deal that we have made with with the operators.
At this time were reevaluating everything as I mentioned in my prepared remarks, the pace of deals is slowed if not you know stop at this point as everybody kind of sees what's what's left in the market but.
Go back to I guess the original point is.
We're making sure we fulfilled our commitments as we articulated in the prepared remarks, we're going to continue to do that.
But new investments are definitely look through a new wins at this point in or even more critical than we normally would be.
And Connor this is Eric we did things like put a material adverse change amendment in the contract regarding Cove it and.
I can say.
Many of you have heard me say for years that theres deep value in the Midwest and tertiary markets and now.
To that list of benefits I will add that there is lower cove exposure outside of urban areas and in tertiary markets and.
While our portfolio is not immune.
We have many buildings in many markets that are not affected at all and this this new acquisition was one of those.
Okay. Thanks, I appreciate the color there actually touched on to my other questions in the process some.
Just one more for me then I mean, how do you guys look at look at Tele health at the moment I mean have any of your operators been able to leverage this emerging technology or just kind of any color there would be appreciated.
I would say is becoming more of a focus to be able to say that leverage that to its fullest extent is probably not the case just yet but.
To be able to keep people safe in the community not have them go to doctors offices, if unless it's absolutely necessary I mean, that's definitely something that is on the operators radars.
At this point I guess I couldn't say that it's been.
Prevalences is throughout the whole portfolio, but it is something that I know our operators are using it is.
A useful tool, particularly when you want to try and keep people save in their communities.
All right I'll leave the floor there thanks for the color guys.
Good.
Next question comes from the line of Tayo Okusanya with me. So please go ahead.
Hi, good or good afternoon, everyone.
Alright.
Quick comment earlier on about you know the board reviewing the dividend in Q2.
I guess you though.
Yes, we have all just uncertainty around who did you guys putting guidance as a result, but you know you're getting pretty good connection at this point.
What kind of seems to be doing somewhat better based on the fourth Q rent coverage. Today that you have you can you just an essay de coverage I guess I was a somewhat.
Surprise to kind of new to the dividend potentially coming under review.
Into Q.
Sure.
I would just say that we're a very conservative bunch and we want as much optionality as we can and especially with the PPP loans a lot of our operators went from.
Concerned to relieved and then turns out the Treasury Department is continuing to change the rules as they.
Move along after the loans have been funded so.
We're just taking our time and seeing how June looks but.
Yeah, I think everybody knows that our board and our management is very focused on producing that dividend and a lot of people here feel strongly about it I'm tired. Let me. Let me also add on that you know as a rate we're obligated to.
Dividend out at least 90% or greater if our taxable income, but this year right now the trends continue to be started negative. So we're just going to take at one step at a time month by month.
Gotcha.
So I've got that.
The thing that concern for the worse in June is when you could potentially expect.
Revision of the guidance like if they all of the dividends things are kind of how the all right Night April may.
The those on it you feel more confident about maintaining the dividend, but I'm just trying to understand a little bit how did this is a process could go.
Well, it's all a function of.
How rents collections go at this point moving forward.
And so it just you can see some coverage ratios are pretty low and you can see that must mean that.
Tenants are you know have some stress from cash flow.
We just have no idea, whether we're at the bottom yet and we have no idea how long this is going to last and so we just we just don't know.
And that includes Jim.
Fair enough.
The second question around the you know bond issuance.
Again, it does sound. So that you know the spreads have gotten tighter than the bond market granted this would be a first is showing so thats, probably a quest assurant discount, but could you talk a little bit about if it could issue it tended to be at kind of what price was that the and kind of what you're looking for before you ultimately decide to it.
She debt.
Well I said that.
Yeah, well the public markets right now are very disrupted you can see that our equity price frankly, a you know that that the triple B minus category investment grade category.
Is it looks a lot more like junk than it does investment grade right now in terms of pricing you know the appetite for that product is not real great. So the spreads are wall in the five hundreds to 600 basis point over Treasury category.
So we're not excited about entering the market and with those kinds of spreads and frankly in our liquidity is sound enough. So that we don't have to we can.
We can we can take our time.
The bank markets are effectively closed.
So really our only source right now of any meaningful source is secured debt, which is which is less less than optimal for us, but it's there.
<unk>.
So.
<unk>.
Okay and then it would just one last for me it doesn't sound like this point do that you're getting.
And they move on that Youve, given any rent deferrals at this point could you talk about if you're actually getting went to follow request.
And just to quantify that if you want.
Sure. It's Kevin we have not done any rent deferrals today, you know weve had plenty of discussions with our operators about what levers are available to them depending on how long. This goes on so I think thats really the key is we have a little more information.
And every day.
Today, we have seen as we've talked about occupancy decline. So it's something we do have to have discussions around.
So thats kind of an ongoing process yet it's something that we're just going to have to continue to monitor so the good news as we haven't had to do that for for April or May well see what June brings in frankly, a lot of that is well see how the companies the company the country starts to open up.
And can we start to see some more we move ins tours no can they rebuild the funnel and how to the impact of business. So we're just.
A little too soon to to tell on where all that goes just yet.
Okay, and a tire that.
Tyler This is Eric again, let me make my pitch here for Triple net versus RIDEA you now, we're a big fans of triple net leases and with those leases many times we have.
Substantial deposits and we have guarantees some of them actual personal guarantees of principles.
So you know there's quite a few levers we can pole before ran needs to be affected.
And.
No I would just say that were.
I'm happy that we have those extra options at this point.
Gotcha. Thank you our yield the floor.
Our next question comes from the line afraid Anderson.
Let me see please go ahead.
Thanks, Good afternoon, all [noise].
Imminent first question is.
So most of your portfolio is in the senior housing side, but do you now through going through all this.
Feel there's some incremental value in skilled nursing and particular regulation behind skilled nursing that maybe we'll stand the test of time beyond this in other words seats skilled nursing starts to become more interesting.
In the aftermath and in relative terms.
Yeah Rich this is Eric I, absolutely agree I mean, I've I've been talking up skilled nursing.
For years, when nobody wanted it nobody like that people thought it was a bag of steaming real estate on your doorstep, but but we'd like to [laughter].
So [laughter] you know come to find that that skilled nursing holds up really well a you know and sign had a great earnings report and earnings call.
And H.C. is doing well, there's lots of government programs to assist them and then as soon as hospitals admits resin you know elective surgeries that will trickle down into skilled nursing. So you know we're excited about the.
Future for skilled nursing you may know, we had to delay our ignite skilled nursing opening in Milwaukee, but that should open and the next.
It's open now Okay. Kevin told me. So you know we're we're on the hunt for skilled nursing and I'm, a little worried that the rest of the world will be in on the secret.
Okay.
Kevin you.
It was you maybe with Eric that said the triple net somehow.
Is it is a better environment for government stimulus to play a role can you explain why.
Oh order again that there is that the operators on their business, they're able to apply for the loans because they're in the ownership seat.
Versus the re owning the operations. So that means that was really what we're pointing to is that there's still a the one that are managing not only managing operating the business and have ownership of that.
Okay that makes sense.
And then you you went through the occupancy data and I appreciate the <unk> the increase incremental disclosure in the Q.
But you just said sniffs because it was was lower offset by you know the ability to tap into more stimulus programs. Then senior housing can you offer up what I don't think I could find the occupancy and skilled nursing, but maybe I just couldn't couldn't catch it in time can you give us some parameters around occupancy declines in skilled nursing.
Oh, well, we havent, mainly because of our two largest customers are public and.
We haven't typically given their data.
They.
And in most cases, we would refer you to what they've seen.
Broadly.
I would say it's been.
Four or 500 basis points, I think thats consistent with what the other your peers have announced of I don't think we're in any different vote there.
But.
Given specifics and difference to our customers.
Okay.
And then.
And then lastly to to Eric I mean, you guys have now you're going to your batting cleanup I guess, you've heard you heard everybody's perspectives on this and you've had perhaps a little bit more time to have it marinate is there any sort of final word a you know now that we're ending earning season with.
You guys about the business you mentioned skilled nursing as you know something that you've had your eye on in worried about the secret getting out but is there any kind of broad.
Theme that that you're sort of focused on beyond that that you can share or do we pretty much covered.
Hi, Thank Rick rich. Thank you rich I'd love to take the opportunity to say this.
You know I listen to a lot of earnings reports and calls and not just healthcare Reits I'm listening to retail casinos hotels.
Experience actual property reads and I'm, just amazed at how the equity markets are reacting to our sector.
A sector that is still hiring people because our buildings need extra staffing.
Sector that still has customers that are paying rent.
And sector that still has customers moving in.
We are not hotels, we are not casinos you know we're not amusement parks you know our buildings are open for business and paying rents are granted we're a little jittery about what that rent looks like and one we'll get it I'll give you that.
It really to the way the markets have reacted just seems very.
Curious to me.
And actually my observation.
All right appreciate it thanks very much everyone.
Thanks Rich.
Our next question comes from the line of Todd Stender with Wells Fargo. Please go ahead.
Hi, Thanks, I Hope you guys are well.
Hey, Todd.
So occupancy numbers. The just the numbers I was going through a Kevin that you gave a bickford holiday sounds like there both in that 85% range probably.
So they'll take lower.
Under normal circumstances, what would be a breakeven occupancy.
10, it now maybe can cover the RIN, Okay, maybe a normal number and then how about now.
Elevated operating expenses would that breakeven level tick higher maybe just give some context about the numbers maybe looking at.
She standpoint.
Yeah, I guess I would say on occupancy it varies pretty significantly by operator in terms of there.
Specific breakeven.
You could probably.
Derive big firms at least based on where our coverages as Ben and where their historical occupancy to have been and where that intersect.
Oh.
That that number probably have gone up a little bit now just because the increase in expenses, meaning the occupancy would breakeven occupancy be slight bit higher announced because of.
[noise] PPD labor expenses. So on so that's something that each one of our customers is looking at I think the good news there.
But a lot of this just really depends on how long this goes on so.
Don't really have a specific number to share in terms of breakeven good like I said they are different by each customer.
But based on kind of receive.
Coverages and what we've disclosed an occupancy probably.
Getting decent benchmark for them.
That's helpful. Kevin can expand on that.
What the backstop would be whether it's a parent guarantee are there other properties that could kick off cash flow to cover your rent.
What are some examples that you guys look at it.
Okay.
Some examples as as a backup plan.
Good occupancy further and rent coverage comes into question how can they still covered.
Sure. So theres a number of different levers that are available to one would be.
You touched on it parent guarantee they own generally speaking our operators own more real estate outside of the investments that we have with them. So yes, they may be facing pressures elsewhere, but in aggregate cash flowing enterprise, where they have some ability to.
Aggregate or pool their cash flow.
That we have on hand mentioned that in my comments and air touched on it.
As well you know in some cases, we do have personal guarantees which is just frankly, a motivator we used a lot of times for alignment more so than really saying, we're going we want to go after anybody individually, but it does keep them focused on being able to meet the rental obligations.
And then the other thing, but we touched on as well just some of these really funds that are available you know PPP has helped a lot of our operators. It's something that is shifting as Eric mentioned, but there has been a program to a few of our operators of applying for and at least received there's not received funds have gotten.
Approved so and there is an approved use of at least 20, 25% of those funds can be used for men. So there's there's different things that are available Doom and frankly, we're looking at every option or operators are looking at every option that they have.
As well and we're all splitter heads together to see how we get through this.
Thanks, and then John just on the balance sheet and liquidity you still have some room on your revolver to tap and maybe just sit on cash.
Near term, how do you feel about that prospect and then I think indicated that the bank market is closed referring to the term loan market and maybe just speak about some of the short term liquidity that you could tap.
Right right. So yeah. The bank term loan market. We view is predominantly close unless you want to change in maturity schedule. We do not you know we seem to have a fairly ample ability a tap a one year term loan, but I don't want to take on that kind of maturity risk because we really don't have any maturities until 2020.
Two.
So we do have commitments, we want to fulfill.
You know, we're not really excited about our stock price here. So you know we will will continue to meet those commitments, which.
Let's see at.
At quarter end was.
Just under $69 million of commitments down you know significantly from the fourth quarter, we don't expect to fulfill all those commitments this year.
We do have some leftover proceeds from the Bickford.
Disposition.
I'm, sorry, excuse me the Pope Francis and thank you.
We have some leftover proceeds from the Brookdale disposition that we announced in the first quarter.
That's not in our cash equivalents. So we've not we don't have it doesn't need to use for that.
And the only other maturity we have is the.
April 2021 convertible bond that we could.
You don't try to exercise some of that an equity to help us rightsize, our leverage are pretty focused on our leverage ratio.
And how about the remaining piece of your line are you at that point, where you think you need to send a little more cash right now.
Well, we're being extra careful that's for sure.
We're being extremely careful.
Thank you.
Thanks Scott.
Next question comes from that line have Jordan Sandler Keybanc capital markets. Please go ahead.
Oh, Thanks, I hope everybody is doing well.
My question I, just wanted to circle back on on the occupancy I. Appreciate the statistics you given I think Dan might have asked a question about spot occupancy, but I was kind of curious.
Yes.
On if you had a sense of what the weekly pace of occupancy lost has been like.
In the last you know, let's say two three weeks and if there's been an inflection in other words it started to stabilize.
Sure across here in order to 10 portfolio in particular.
Yeah, what I would say is you as I mentioned several times. Your we were in contact with our operators a lot. So we have a decent sense of what's going on with their business. The other thing I would say, though is since we're not RIDEA over shop, we have what I think is good data, but it's also.
Imperfect so what we're trying to give you a data that we we know as tight as gone through the closing process you wonder leases, we get they go through their closing process and we get the information at the end of a month.
So we're trying not to rush into giving data there's not been completely scrub you know to what I guess broadly, though what I can say from what we've seen of across the spectrum of senior housing operators is they're losing probably two to 300 basis points a month.
Our guys have really been no different than that as you can see they've lost on average 150 basis points over the across the three Bickford SLC.
In holiday.
On a monthly basis. So if you just if you just assume a midpoint you're going to fall in that two to 300 basis point range.
Yeah, Jordan the biggest surprise to me.
Is that.
Our.
Move outs have slowed down people are hunker down and the extra sensitivity to viral health I'll call. It has produced a result, where people are not.
Getting sick and people are remaining healthy and they're not moving out as quickly.
And then of course, the front door is tighter it's harder to do a tour, it's harder to market you're building.
And so move ins have slowed down.
I wish I wish that the move outs had slowed down enough to make the move ins impactful, but its still a slow burn.
Okay.
So it sounds like the two to 300, it's kind of in line and I guess, you know along the lines of Rich's comment you guys are kinda batting cleanup. So yeah. We're all just trying to get the most real time sense of what's going on so that's why I'm asking about you know have you seen any change or short I will let up.
In that sort of pay some slippage or is it pretty much. The same I know I know you know in year Mark in your markets in particular, but but also across the country. We're starting to see some openings and I know some folks early on in earnings season earlier had talked about you know tourism.
Jordan, Kevin again, I guess I would characterize it as a truck will still I mean, there's been.
Little glimmers here and there have.
Inquiries or just little bit more volume, but it's still really too too soon to tell if nothing meaningful enough to call. It a trend just yet.
Okay and then.
In terms of the you know it within your too and I appreciate the Oh, having that alongside earnings obviously I know we're at the end date piling, but you guys usually get it quick any like.
But there was a comment.
Within the Q related to you know, what's going on and the increased costs and to reduce revenues having impact on these provide is obviously and as a result.
You know.
Good yeah, the of course or it could end up making some lease concessions you know.
Some of your operators can you discuss the nature of many of these discussions that maybe ongoing sort of what what you're thinking.
In terms of what what west structure might look like.
For a deferral or rent concession.
Ah Jordan keeping in mind that keeping in mind that our operators are listening to this call.
And that.
We want to be mindful of the equity of giving some operators assistance and others not.
I would just say that.
We have had discussions with most of our operators sense. This started and there have been a lot of twists and turns in the stories.
And PPP among them.
So.
No I would I would just say that you know as a triple not repeat we have a lot of tools at our disposal, probably more tools than some of our other peers or and if if someone needs help and if someone's.
Doing the right thing and a good communicator and coming to us with full transparency, then we're going to be willing to help and the you know frankly, that's why we wanted to consider our June dividend we.
You know, we haven't had any kind of needle moving event, yet but in this type of environment, one has to be extra vigilant.
And so we are.
Hope that addresses your question.
Yeah that does its helpful.
The last one was a actually it when one quick one for you on the loan reserve any anything specific that drove that 1.7 million dollar reserve in the quarter, what was that just sort of an overall conserved that measure of conservatism.
That was primarily driven by this is John this is primarily driven by the changing economic conditions.
And and so that that long reserve is evaluated every quarter. It doesn't represent something that is regularly recurring. It's just you know a reserve that's evaluated depending upon conditions and conditions can be.
Did you did you book any new loans.
Did you have any kind of economic changes did your does your loss history change.
And so all those conditions and you know drive how that long long reserve can change. So it can be very a regular it can you can frankly be an income you know.
In addition to income so if a a very very large loan were to be paid off that we had reserves with we were we would reserve that we would reverse that and that would be an income item.
So it's it's Scott.
There's a lot of noise and unfortunately with that reserve.
Yeah, I I get I, just I was just curious if there was like one item going on that sort of with the cause gap, which had been t. reference. Okay. So you can find and then lastly on stage would HM.
And really any ongoing development commitments, it's the one sort of bigger one that stands out there, which is why I sort of called it out.
And my question you really is you know have you had discussions with the developer or any developers about spending construction at this point or is it all systems go still for a year remaining commitments there.
Specific to Sage would Arizona has been much less impacted by coated outbreak. So they do what they need to to practice social distancing on the job site, but to date everything's been moving ahead.
To be determined if they don't move back any move in dates or anything on the project, but they're still.
So moving forward.
But we've not it's not stop any of our fulfilling any of our commitments if that helps also.
Yeah.
I was just maybe in coming the other way with my.
Quick question, if anybody any developers were concerned they want that sort of hold off or pause on development, but.
Thank you it pretty much answered it on stage what.
Thank you.
Thanks Jordan.
Next question comes on line of John Kim BMO capital markets. Please go ahead.
Thanks, Good morning.
Following up into one question on this.
Concessions to that May be granted can you just provide some color on whether or not this is deferrals, which is the interest industry standard at that point or something more permanent than that.
Hey, John This is Eric Uh Huh.
Too soon to tell and we're taking it on a case by case basis.
I know I'm aware of a other deferral programs you know we have some clients that also do business with other reads. So.
Where we get to.
Get a peek into what other Reits are doing a in terms of assistance based on that.
And.
You know were open.
To a whole menu of ideas.
To help people and a deferral would be one of them.
You listen this discussion in your 10-Q longer material uncertainty.
But you Didnt mentioned in your press release of living in your prepared remarks I'm just wondering.
You know can this be something material or is this religious.
More standard legal language that you're putting in its as it gets factor in your disclosure.
Well I would consider the cobot crisis is very material and its having you know significant impacts on the entire industry.
And and as Kevin mentioned, it's too soon to tell it it's over and I know that we're all trying to open up our economy, but there's a lot of.
You know.
There's a lot of cross currents on on that decision and we'll see we'll see if that that truly.
I'll works out well you know so.
Until we get a vaccine in place you know I think this is kind of which is still on a very risky environment.
Yeah. So John this is Eric we're.
Oftentimes in situations like this we're.
Being bombarded with extra language by our auditors and attorneys and you know I know that can be alarming to read and and ER.
Not what you want to see but that's just a world we live and as a public company.
Okay you provide your your weekly updates to your portfolio on the call. The 19 impact that a pad in the timing it but it is very much appreciated.
Can you comment to us what's the best way to interpret this data and particularly the yellow portion of the of the buckets given that 82% of your portfolio and it's not really clear to be at least how oh.
Oh, you know what the impact in.
Oh that portion of your portfolio.
Oh, I can add a little bit more color there yellow really just signifies that there's testing going on within the building or it's in a high infection rate zone. One thing I will say is early on.
When we were looking at high infection rates. It was 100 in the county, I think we've gone well past that in a lot of counties. At this point. So that's why you see that number being so high underlying that only about 10% in any given week has been because there's active testing going on in the building so outside.
Out of it being in a you know what was earlier classified as high infection zone.
They would've otherwise been green. So you know there weve I would say that we've handled our operators have done a very good job.
Of limiting the spread or keeping an out of their buildings and that's what you see in kind of those a lot of those green and yellow buckets.
When they graduate up to the Orange or read I mean, that's that's when there's the potential for a larger problem, but even then on average the spread has been a handful of cases at any given buildings.
I feel like they've done a good job of keeping it contained as best they can.
So the orange in Red with the confirmed cases, so we can assume that may move ins are basically on hold.
But the yellow portion is that the cases wireless if some you know within that bucket.
There are some that are self quarantine within the within those communities.
It that depends largely by state by operator and by product type. So that's really hard to answer.
In a memory care community, it's really hard to redirect or close off a portion to the residents. So he'll unless they are not somebody that is mobile it's really hard to admit a memory care resident doesn't mean, the front door shot, but it's a very specific resident that they're able to accept at this time.
You know if it's if it was a typical ale or independent community I would tell you. Yes. Those there opened the doors are relatively speaking open and.
No, they're accepting move ins, but again that varies by operator by state we've seen some operators and I think this is the exception enough rule, where they've just shut down.
All move ins until.
They start to season changes more meaningful changes in the numbers, but it really is kind of like the case by case, an operator by operator.
Question.
Okay, and then I'm, probably not been times question on the dividend and Eric you mentioned that the board is committed to the policy can you just remind us what the dividend policy is of the company and specifically if you're willing to fund any shortfall in the near term where.
Either cash or debt.
I have a dividend policy of the company is to raise the dividend every year by 5%.
And other than that.
You know how we funded.
I would just say that were a conservative group.
And.
No I don't see us funding a dividend using debt that just.
Doesn't feel right.
But other than that you know we would.
I have to see where we were at any given time and make a decision based on the facts that we have at the moment.
Yeah, John Yeah. This is John so just recall that.
<unk> as it works out every year after year after we pay our dividend we receive all of our rents on time pay all of our other fixed charges. We generally keep you know something over $40 million of cash.
You know that which is effectively equity that we can use to reinvest.
So as of June and now it looks like me is on track as while that that business hasn't changed and so you know we're getting to the point here, where you know.
We're just going to be Super careful about you know what we're well we're talking about in terms of the dividend.
And I would say that used to equity isn't really exciting for us at all in terms of paying our dividend principally because our stock price converting that stock into what would bend the cash equivalent would be highly dilutive.
You know that but you know so right now use of cash to pay our dividend is absolutely our number one goal moving forward.
So that's just kind of where it's at no I would just also point out that we're obligated to pay 90% of our taxable income.
You know the maintain our reach status.
So that's that's that's kind of how we're thinking about it.
And how much does your share price because you've commented on that if you time, John but how much of the share price.
Impact your decision on the dividend or you know if at all.
Well it doesn't really impact our dividend decision at all.
You know, except the fact that you know that source of liquidity is now cut off to us unless you want to do something highly dilutive.
So so fulfilling our commitments. It means were guy you know use leverage.
The receipt of our you know rents on time means that you know we get to keep some amount of that cash which looks like equity to help maintain our leverage.
And then a question then becomes where we heading from here.
And how long will this last.
Great.
Thank you very much.
Thanks, John.
We have you follow up from Daniel Bernstein capital antigen Uh Huh.
Hi, sorry to extend this a little longer but just wanted to get your thoughts on.
The attractiveness at this point of buying back any of your remaining converts.
So.
Buying it back for cash and our stock I guess, if it's an option it it isn't a real attractive option because you know made some inquiries the price compared to what we did in December you know relative to where our stock price as you know the Pam what feels a little bit hi.
But it's still an option out there I I am I wouldn't one did for cash let's put it that way.
Okay.
That's all I had thanks.
Thanks, Dan.
There are no further questions on the phone line.
All right everyone.
Thank you for your time and attention today I wish I could say I'll see you with NEC or on a roadshow, but I can't so stay healthy and I hope to see you someday soon in person.
<unk>.
That concludes today's call. We thank you for your participation.
You may now disconnect your lines.
[music].