Q2 2020 National Health Investors Inc Earnings Call
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As a reminder, at this conference is being recorded Tuesday August 11th 2020, I would now like 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 second 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. We're also joined today by Donna comps than who's the founder and CEO senior living communities.
The results as well as of the notice the accessibility of this conference call and I'll listen only basis over the Internet were released yesterday after market close in a press release, a think covered by the financial media.
As a reminder, any statements in this conference call, which are not historical facts are forward looking statements and H.I. cautions investors that any forward looking statements may involve risks or uncertainties that are not guarantees of future performance.
All forward looking statements represent an H.I. judgment as of the data. This conference call investors are urged to carefully review various disclosures made by NHL and its periodic reports filed with the Securities and Exchange Commission.
Including the risk factors and other information disclosed in any ties form 10-Q for the quarter ended June Thirtyth Twentytwenty.
Copies of these filings are available on the Fccs website at Www Dot FCC does go we're energized website at www Dot and H. I read Dot com.
In addition, certain turn to using this call or non-GAAP financial measures reconciliations of which are provided in NHL earnings release and related tables and schedules, which have been filed on form 8-K with the FCC.
Listeners are encouraged to review these reconciliations provided in the earnings release together with all other information provided in that really.
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 want to express our gratitude and admiration and all of our operating partners and their front line heroes that go to great lengths to keep our senior population safe and what is in arguably the worst crisis. This industry has ever experienced.
Well too often overlooked and unfairly criticized in the media.
The work they do is inspirational to all of us at any try and we cannot thank them enough.
I sat on our last conference call that reputations are made during the crisis and that one history reflects back on this time there will be operators that are held as heroes now that we are another three months into this pandemic I still feel the same way.
Our operating partners weathered the initial onslaught of a pandemic, which introduced significant obstacles, including difficulties in sourcing P. P E and addressing erratic staffing and regulatory issues not to mention the negative media coverage.
Well certainly not back to normal our operators have adapted and generally experienced better stabilization as move ins have gradually rebounded to slow the rate of occupancy decline experienced in the earliest months of this crisis.
But the challenges posed by cobot, particularly to our senior residents are very real and it is difficult to say with any degree of accuracy. One we will return to a more normal operating environment.
In recent weeks our operators have experienced an increase in active resident cases, which broadly reflects what we've seen in the country has cobot spreads.
As of August 4th we had 450 active resident cases, and 85 of our buildings. This was down from the prior week, but still the second highest weekly number since we started reporting this data in mid March.
It should be pointed out that in some cases, our skilled operators are accepting cobot positive patients for treatment from hospitals in the normal course of business.
Our operators have done an admirable job of limiting the spread of cold, but if it does get into the community more extensive testing is leading to earlier detection, particularly of asymptomatic residents, which we believe translates to better clinical outcomes and fewer deaths.
Today, we were pleased to have Donald Thompson, what senior living communities join us as a special guests today to provide an operators perspective on the impact of the pandemic and his longer term outlook for SLC and seniors housing in general.
Our second quarter and year to date <unk> FFO growth have been above our initial projections, reflecting the strength of the triple net leased strategy.
John will cover the results in more detail.
Our second quarter contractual rent collections were nearly 100%.
July was strong as well at 97% and months today August collections are as expected.
We expect to provide a business update for August as we haven't done for June and July.
Notwithstanding the results so far our visibility is obviously clouded by co, but and the impacted as having owner operators margins subsequent to the quarter. Ryan we reached a rent deferral agreement with Bickford and are negotiating another agreement with the suffered operator, Kevin will provide.
More details in his comments.
Our priorities for the balance of the year, our simple and straightforward.
Continue active dialogue with our operators and support them one in where we can with the goal of improving coverage maintain a low levered balance sheet to provide financial flexibility and continue to provide transparency to the investment community as the pandemic unfolds with that I'll turn the call.
Over to John John.
Thank you, Eric and good day everyone.
We had a very solid second quarter.
And if it were not for the ongoing cobot uncertainty and today.
We would have been reporting to you that our six month performance was tracking at the high end of our suspended 2020 guidance.
Beginning with our net income per diluted common share for the quarter ending June 30, 2020, we achieved 99 cents per share in earnings.
That compares to 92 cents per share for the same period in 2019.
For a three AFFO performance metrics per diluted common share for the second quarter compared to the prior year quarter married FFO increased 7.4% to $1.46.
Normalized AFFO also increased 7.4% to $1.46 and adjusted FFO increased 7.1% to $1.35.
Conciliations for our pro forma pro forma performance metrics can be found in our earnings release, and 10-Q filed yesterday afternoon FCC docket.
Cash NOI as a metric we used to measure our performance reconciliations of any size cash NOI I can be found on page 17 of our Q2 2020 FCC file supplemental.
For the quarter ending June Thirtyth cash NOI increased 8.5% and 1.5% to 77.4 million compared to 71.4 million in the prior year.
And 76.3 million in the prior quarter respectively.
Our increase in the second quarter 2020, cash NOI was reflective of our organic in why growth from lease escalators any effects from our post Q2, 2019 investments, including the timber ridge joint venture investment in the first quarter 2020, as well for continued fulfillment of our commitments.
Well, our triple net strategy muted the cash NOI effects from Cowen for the second quarter.
And our operators continue to soundly execute on their infectious control protocol protocols as Kevin will discuss in more detail in a moment. We are evaluating the case by case basis covert related rent deferrals that will impact cash NOI in the coming quarters.
Some cases, we're pursuing a strategy are temporarily releasing deposits and escrows back to our tenants as a means to support our operators cash flows and Louis deferrals.
In addition to date, all or rent deferral discussions with our tests have included equitable compensation for any proposed differ.
Turning to the balance sheet, our debt capital metrics for the quarter ending June Thirtyth, where our net debt to annualized EBITDA at 4.8 times weighted average debt maturity at 3.4 years, and our fixed charge coverage ratio at six times compared to 5.6 times in the first quarter 2020.
We ended the quarter with 1.55 billion and total debt, which 91% was on secured for the quarter ended June Thirtyth, our weighted average cost of debt was 2.9%, which is our average cost that after the June thirtyth exploration of 210 million a fixed rate swaps.
Given where the 30 day LIBOR is currently we expect us to have a positive impact to our interest expense in the third quarter.
In July 9th we announced that we added liquidity your balance sheet through 100 million dollar term loan variable rate of LIBOR plus 1.85%.
But a 50 basis point for the wide.
We are grateful to all our banking relationships for the strong shows support for any try with commitments totaled more than two times.
Demonstrates a credit quality Henry schein, even during turbulent economic conditions.
At July 31st we had 237 million availability under our $550 million revolver and $83.9 million, an unrestricted cash and cash equivalents.
Additionally, recall that during the first quarter, we filed a new automatic shelf registration.
Refreshed, our ATM program, giving us an additional 500 million capacity.
We continue to actively monitor both the equity and debt capital markets equity capital markets a stabilized in recent weeks, but still look less than ideal to us given our recent stock price history and are currently Navy.
Having said that and despite the cobot uncertainty I'd like to reiterate our commitment to our low leverage and four times to five times net debt to EBITDA financial policy.
As we review our leverage outlook moving forward, we are continually mindful and each site and he tries financial policies and potential future cobot impacts to our leverage metrics as well as the leverage impacts due to future disposition proceeds from purchase options and scheduled customer loan repayments.
Debt capital markets during and after the second quarter continue to show improvement.
We're fortunate that we do not have any significant maturities until 2022, and I would quantity as improved due to the recent term loan. However, we continue to look for an optimal entry point for a larger long term debt issuance and are targeting later this year early next year for just such an issuance.
With that I'll now turn the call over to Kevin Pascoe to discuss our portfolio Kevin.
Thank you John.
Starting with an update on cobot. The pandemic continues to pressure our operators margins, though occupancy as shown more signs of leveling off in June and July and while cobot related expenses have also come down significantly in that timeframe.
As of August 4th we had 85 buildings with one or more active resident cases, including 43 senior housing properties and 42 steps.
The 85 properties span 16 operators and 22 different states.
We had a total of 450 active resident cases, which included 360 cases that are sniffs and 90 cases that are senior housing properties.
The active resident cases decline from the prior weeks tally of 483 cases, but still represented the second highest total since we first started reporting this weekly data six months ago.
[noise] digging deeper into our senior living communities, we find that the average cases per building was 2.1 and excluding stiff cases at our senior living campuses and CCRC eases the ratio falls to 1.8.
The ratio has fallen for four straight weeks as well below the highs of nearly five cases per building we experienced in may.
Through more testing and enhance protocols for isolation treatment and cleaning our operators have become even better at their mission to keep our senior population safe.
And even with the increase in resident cases, it's still represents less than 2% of our resident capacity.
Turning to collections, we received nearly 100% second quarter contractual rent, 97% of July rent and August is in line with expectations.
While we did not grants any rent concessions in the second quarter due to the pandemic. We reached an agreement with big bird to defer 2.1 million for the third quarter.
All of which will be escrowed within a jive.
The deferral can be forgiven contingent on the sale of nine Bickford properties to bickford by the end of this year.
Separately, we are in deferral discussions with another operator for an amount less than the big for deferral.
You can find more details.
On page 32 of the 10-Q.
Turning to the performance of our different asset classes and larger operators.
Our needs driven senior housing operators were hit hard at the onset of the crisis that seem to be leveling off as them move in activity well below normal has picked up enough to slow the pace of occupancy losses.
Thanks for move ins have recovered from April and May lows and increased sales activity as a good harbinger that this trend will continue.
Big for to average occupancy on a same community basis was 84.2% in the second quarter down 300 basis points sequentially.
June and July same store average occupancy is were each at 83.5%.
Big for it had monthly occupancy declines of over 100 basis points in April and May So we're cautiously optimistic by the slowing trends.
Our entrance fee communities continue to fair slightly better as the resident turnover as much lower and the residents tend to be younger unhealthier relative to other property types.
Still they are not immune and we had eight entrance fee communities with an active resident case as of our last week, we update.
Though like assisted living the number of cases per community is limited.
Senior living communities, which represents 15% of our revenue at second quarter average occupancy of 79.1%, which was down 120 basis points from the first quarter.
After experiencing 150 basis point markedly occupancy loss in April occupancy has flattened out around 79% uneven ticked up to 79.2% in July.
Donald will provide more details in a few minutes.
Our rental independent living communities have experienced a more pronounced and sustain occupancy decline than our needs driven and CCRC assets, which we attribute to the discretionary nature of the free standing Io properties.
Holiday retirement, which represents 11% of our annualized cash revenue.
The average occupancy of 83.5% in the second quarter, which was down 380 basis points from the first quarter.
The occupancy continued to decline in June and July with average occupancy at 82.3% and 80.7% respectively.
While the occupancy declines have been more severe where regular contact with holiday on our impressed with their response to the crisis as their infection rate is below <unk>, 0.5% in an HIV buildings.
Bickford SLC and holiday represent approximately 58% of our senior housing leased units.
On a combined basis those three saw average occupancy declined by 60 basis points sequentially in both June and July which is an improvement compared to April may.
Which experienced month to month declines of 150 basis points at 110 basis points respectively.
This is a good proxy for the rest of our senior housing portfolio.
The skilled nursing portfolio, which represents 26% of our annualized cash revenue is anchored by two excellent credits in an H.C. and the insight group.
As of our last weekly update 42 of our 78 Sniffs had active resident cases outbreaks and sniffs are more difficult to contain given the more frequent patient interaction and higher acuity levels.
In several of our SNF operators are actively accepting kobin patients.
The average active resident cases per sniff and our most recent update was 8.6.
Occupancy has started to rebound as elective procedures start back up in the stuff industry has received much needed government support through this pandemic. So overall, we feel very comfortable with the credit in this portfolio.
As I mentioned on our first quarter call the pace of deal activity declined dramatically at the beginning of the pandemic.
And while we are seeing some recovery in the pipeline, it's still not at levels, suggesting an active market.
With our balance sheet in good shape, we are evaluating some smaller deals primarily with existing operators in favoring shorter term higher yielding products like mezz and development financing.
We also looking at a select number of deals with higher acuity operations.
We're always looking for any distressed properties that could provide strong long term risk adjusted returns.
And we'll pursue any of those opportunities that meet our underwriting criteria, but we are not yet seeing many proposals that fit into this category.
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 sense of normalcy returns of the market.
Hi has completed over 192 million in investments year to date, including 33.5 million in the second quarter.
We acquired two properties in Indiana for 14.25 million, which are leased to autumn trace which is a new relationship for NHL.
We also started funding a $14.2 million alone to bickford for the construction of a 64 unit assisted living and memory care building in Chesapeake Virginia.
We also completed a lease amendment, which pushed a purchase option open date from 2020 to 2027 from 2021.
With that I'll hand, the call back over to Eric.
Thank you Kevin.
Now I'm pleased to introduce Donald Thompson, who is the founder and CEO of senior living communities senior living communities as one of the country's premier operators of CCR seized with 15 properties in six states Donald is one of our industry pioneers having built.
First community and 1980 and his first CCRC and 1982.
In lieu of direct questions by analysts after Donald's comments, we will have Dana hambly conduction a question and answer session based on previously submitted analyst questions.
Welcome Donnel, please tell us about yourself and your organization.
Thanks, Eric.
Thank you, Kevin John and Dana for allow me its opportunity our companies based in Charlotte North Carolina, and we have three brands plus our management Company Maxwell Group is our management company senior living communities is our life plant community brand and like planned communities are CCRC CCRC stands for community.
Continuing care retirement communities.
Basically those communities have houses apartments for independent living but they also have on the same property assisted living memory care skilled nursing and rehab. So they've got multiple levels of care as people's needs change and alive plan community. They can move from independent housing into assisted memory care skilled if they need that.
We have another brand called live long Wellcare, which is our home health entity, we have that entity primarily to allow people to continue to live longer independently and their own home.
And a third brand we have is called Wellbore, which was our integrated health care campuses with just assisted living memory care rehab and skilled nursing.
From actual group our management company. This is our 30 threerd year business, we just started.
Here in Charlotte So in the 15 communities in six states 11 of those 15 are financed and owned by up in HR.
We have communities in Indiana, Connecticut, North Carolina, Florida, Georgia, and South Carolina.
We total 2900 residents in those communities with 3200 units and 2700 team members.
Counting all folks on our payroll.
Like everyone else in seniors gear covered 19 has been the at the forefront of our efforts.
For the last five months.
And our front line has truly been Super heroes.
I think thats true for the entire industry affect our entire industry my opinion, whether they're my competitors, who I like or dislike has stepped up and is doing a great job that story is not getting enough attention in the media.
As our friends at Bickford senior living said.
We've been preparing for this spread over 30 years and by this they mean.
Viral respiratory infection outbreaks, we all deal with the flu every year. The difference now is that Theres no herd immunity to cobot.
And it has a unique and not good effect on internal immunity systems.
But generally speaking people in our industry have been prepared for this and while you may hear a few stories of people adult do a good job I'm here today, 99.5% of the people I know, we're doing a great to fantastic job.
We see this is a short term issue. We think it's 12 18 months at most we try to take a longer term perspective on this just like any other issue.
We've now had cobot 19 infections and 14 of our 15 communities primarily team members.
The team member infection spiked in June and July.
As it stands at this moment, we currently have eight on average eight tenths of one person infected that live with this in our communities and 1.5 infected team members per community. Obviously those are averages the numbers are higher or lower spending on each community.
Most of our resident infections that turned out poorly means death.
We're back in April and very early May in fact, we've only had one death of a resident sets early may very early may very sad.
I think a lot of that's because our entire health system is now.
Ready to provide treatments that are definitive and helpful for people with this illness.
So to repeat that to give you a because I think it's a big perspective that I like to get across we've had 11 resident deaths out of 2900 residents in the last five months.
And it sounds a little harsh, but I want to be clear about it and those last five months statistically we would've had about 140 told us. So we've had 11 residents die from cobot out of 140.
That statistically would have passed away in the same timeframe.
So in our experience the evidence for cobot related mortality is that it's about 8% of the normal death rates for that population.
That's our experience.
There's a good bit of costs to coven.
To deal with it our cost is running as of the end of or end of July $44 per month per resident $44 per month per resident.
Keep in mind.
That concludes our independent living residents. So the average cost for our care services residents care services skilled nursing sister living memory care Ria would be much higher proportionately independent living will be less.
That cost increases pretty dramatically increases to 150 to $200 per month per resident if theres, an active infection in the community.
Not because of pp that some of it not because of other things, but almost completely due to increased labor cost whether hero pay our overtime or agency.
During kind of it our occupancy has decreased 130 basis points since January onest. Our occupancy. However has increased in may and June and actually increased in the portfolio with in a try in July. So we've had three great not great months, but they've been positive increases.
As an occupancy.
April of course was terrific.
Our occupancy changes by type of resident because in our communities. We deal for types. The residents independent living assisted living memory care in skilled nursing since January onest, our occupancy changes are independent living us down 50 basis points assisted living is dead. Even we have the same number of resins July 30, Onest as we started the year.
Our memory care is up 900 basis points and then our.
Skilled nursing the dark spot on what we do is down 630 basis points.
On merely due to the lack of elective surgeries and people choosing to move to skilled to rehab after elective surgery.
In fact, if it were not for our drop from skilled nursing, our occupancy will be up overall year to date.
People have ask us about personal protective equipment, we never ran out we never ran short and we're not having any issues at least in the last two months.
A finding and acquiring replacement equipment as we use what we have on hand gallons are probably the biggest issue right now for us.
We have two substantial concerns related to code.
Concern number one.
When and how will we get adult children.
To be able to visit their loved ones there mobster dads their grandparents.
And our communities. We think this is the number one issue affecting revenue resident move ins and occupancy in the entire industry.
And then concern to its the.
Overwhelming negative media coverage the tells folks that skilled nursing in particular and by extension all senior housing is that their hotbeds of covered us I do not believe this is true I believe they failed to put the overall statistics out there as I said, we have 2900 residents 11 people passed away.
Separately.
140 would have passed away anyway in the same same timeframe.
So statistically I feel like at the the answer is not being.
Phrase correctly by the media I.
I know multiple older folks who are trying to stay in their own homes, there isolated their lonely through eating poorly pretty badly they're not getting the care they need.
And yet they could live in a senior housing community one of ours or even are complaining about competitors and they be living a more enjoyable full or better at say for life and that's what I'm, hoping the story is that we can start to get out as an industry.
Happy take your questions Dan.
Thanks for the overview Donald very helpful. You called as a short term issue I'm going to pin you down a little bit, though and ask you exactly when do you see this some sense of normalcy return into the business and what's your timeline based on.
My my idea of normalcy is roughly four months from one a vaccine is generally available I believe they're going to be available in December.
I believe that means April will be some sort of normalcy, although I think it will be a new normal I think there will be increased infection control procedures realistically going forward probably forever more.
So, but I do think the new normal is April right now.
Okay, we'll hold you to that.
Just kidding.
The two issues that you called out as they being the two biggest issues.
You know how do you combat those obstacles what do you do and what's your experience then or is it just something you have to deal with.
Well I think that it should we have to deal with this everybody has to deal with this theres I wish I could tell you the answer.
I mean, helping people visit their loved ones. They really is no great solution until there's a vaccine generally available and you have people walking in your toward the going to be showing the vaccine card like we all do with yellow fever, if we're working in Africa our job.
Just a vaccination record like you would have to show if you were to go to or show up in the Bahamas today.
And I think thats, the only solution to when we can solve people visiting their loved ones and that's a huge issue to marketing and then on the media I think a lot of the media attention has already started to go away, but I think the real effectively going away is probably going to be December January or at least a month or two into vaccinations being.
Widely available.
As I think that story, so out there people weren't going to overcome it for a few more months.
Right Okay.
Okay and in light of that has the sales and marketing function changed for you as a as this crisis has unfolded.
Right off the bat, we started on tremendously more home visits where are our lifestyle advisors. Our salespeople went to see people in their own homes, where we could dropping off things like food and things.
We have and did a grocery delivery from our food purveyors for two months and several communities.
For residents of didn't live with us to help them be able to get groceries, because there's a good two months and they are certainly six weeks where people didn't go to the grocery store. So very creative follow ups and then lastly, we've tried to focus people on why they are their parents, depending on who the prospect is what live a better life living in one of.
Our communities.
And just it's a tough slog.
No getting around it's going to be a tough slog for several months now.
Right right and then what are you seeing in your leading indicators that would make you either optimistic or pessimistic about the next several months.
Well.
Our independent living person to person a voice to voice traffic is down 18% year over year.
That makes me less than thrilled on the other and our assisted living memory care person to person voice to voice traffic up 20% year over year, so they're they're slightly divergent on that our web traffic overall is up 18%. So far this year. So looking at it Holistically, we believe that.
It hasn't totally changed.
A lot of the issue in our industry is that assisted memory care skilled for very much needs based our independent living on the other hand is discretionary you could choose to live in your same single family home generally speaking versus moving to our apartment or our single family cottage and one of our communities so little bit tale of 2%.
Cities, so to speak between care services independent living.
Right.
And then on the conversion rate for for leads and tours, how has that changed since the pandemic began.
Assuming it has what do you where do you attribute that mostly too.
I think the big changes spend that people when they do show up to talk to you.
Our very serious about moving in.
They're not showing up to kick the tires so to speak.
And the couple of statistics are in 2019, our leads to move in was 10.2%.
And since March one.
Actually this in the last two months even better.
It's only been 5%. However, our leads are up almost 100% in the last two and a half months.
Our tours to move ins that some people come actually to the community and then tour it and then move in.
Was 23.5% last year in 2019 full year.
Spent 26.2% since March Onest I don't have the numbers just for the last two months, but my guess is it's also been up.
So.
Good news is things are calling in the right direction, we need to keep it that way.
And I hope, it's not just demand from six eight weeks of no one leaving their homes.
Thats good context.
On the EBITDARM coverage.
SLC with NHS, it's been it's been slipping in for several months.
We just published it was 1.06 in the first quarter.
Obviously that lagging data.
How did you how did you what are your expectations for coverage headed into the year and really how has your thinking to evolve now that were five months into this.
Well I would tell you that on February 28, I was sitting around thinking this is going to be a great year.
Singing the pop music onto the effect.
Because things looked really good we're going really well actually we're really happy with what was going on and then of course March 15th the world fell off the shift fell off the edge of the world So to speak and for the next six weeks several weeks.
I was still feeling pretty Blue April Thirtyth, maybe a may 15th by May Twentyth we.
We started seeing real changes that were positive we were just concerned it was rebound from no one showing up but we've had two and a half actually three straight months when you count what's going on here in August actually good good.
Good good things happening.
In almost every direction so what we're going to report second quarter coverage.
I think it'll be very much in line with our first quarter, possibly increasing.
And I think we should be able to hold that continue it during the rest of the year. That's a forward looking statement as no validity other my belief.
Thanks for the clarification.
As the approach the flu season is that going to be different this year.
Than in years past.
I would like to tell you that it's going to be somewhat different I'm not sure. It is.
Always pretty pretty jammed up on doing the right things for infection control, we have benefited us in this past flu season, it's fitting in spring of 2020.
Last year I believe we had to the appear for three and then one of the up for that so flu season is something we've always taken seriously.
The only concerned we haven't and one thing we are doing as we believe there's going be a flu vaccine shortage. This year. So instead of taking our flu shots in late October we're actually looking to get our flu vaccines in hand of NPL pools arms by the end of September and that's probably the biggest change we're making the other.
Changes that have occurred because of co, but I think people are more attuned to handwashing social distancing using mask.
Infection control isolating people, whether their team member walking in filling deal or a resident who might be showing signs of potentially coated or anything that looks like go with the fluent coated look almost identical.
In terms of how they can get a little bit yet I appreciate that switching gears, a little bit to talk about the CCRC model. If you need it touches all the asset classes within senior living at skilled nursing.
You touched on this in your prepared remarks.
I wanted to revisit and ask how that the different asset classes performed.
Throughout the pandemic and how the CCRC model has really held up during the crisis.
Well again to tail to cities are CCRC, so somewhat a little different than other people CCRC isn't that RCC, rcs or 60% independent on average and 40% healthcare.
Many people CCR, Cesar, 85% independent, 15% healthcare, even less from so it's a real advantage to us to be able new people into care services from outside the community. We not only just sell feed ourselves around pipeline. Our independent residents to are moving in our care services in the CCRC.
But we also have care services available to outsiders in fact.
We're pretty proud of the fact that.
About 80% of people move in with US independently never move to our healthcare.
It's something we really really focused on keeping people living independently longer in their own home.
Thats been a real.
Benefit to us and times were independent living has not performed so well and just like now. It's also a benefit to us to have independent living because independent living its way stickier people live longer.
Much more longer buying decision Tom course, because it is discretionary.
So our occupancy doesn't go down of staffed with independent living during a.
Pandemic like this.
As safe we were just all care services. So CCRC is unique model actually has just got diversification it's.
It's just that are in bad times, and then of course in good times you could argue it underperformed slightly.
For the same reason like any other diversification.
Now that the entrance fee sales held up.
Interest fee sales have been okay, we'd like to see them get better.
And while we're seeing more tiers to move ins the keys to get more people tour, which has been tough.
People are still we find a lot of prospects are still saying same thing we're going to wait till cobot is over before making a decision and we're hearing that over and over March through May were hit the hardest people wouldn't really wouldn't and could not leave their homes in many cases.
And if we look at our contracts that we had enhance because people like contracts and move and typically two to three months later, 13% of our contracts that March 15th cancel 22% still have not move down although they claim they are going to we believe they will actually and the other 65% of already moved.
So.
Pandemic has not affected it dramatically bad but it also has not helped it as I said earlier, our occupancy across our entire system is even assisted way up in memory care down dramatically in skilled thats whats dragging this downward and then independent were only down 50 basis points.
We're hoping we see independent change in fact, we believe it will by the fourth quarter.
All right just a couple more questions in the interest of time Donald.
How's the as the pandemic impacted your workforce.
I think the.
Interestingly, our turnover is down 11% year over year wages are about the same here in 2020, that's a real positive given the incredible pressure everybody has in a while margin.
Because of expenses of cobot.
And our average number job openings has dropped from about 102 around 75, so the pandemic actually is probably.
Business purposes, better for your workforce from a business perspective, obviously not a good thing for the people without doing the work.
Right.
Last question Big picture will the business be stronger or weaker about the same when the crisis has abated.
Well my favorite saying is whatever does not kill you makes you stronger this isn't any different there isn't a sole this industry or any part of the industry whether its reads.
Providers operators.
Brokers everyone's going to be stronger because of this we're all being stress tested and all I'm, saying as people come through really with shining colors.
Thank you Don ill. Thank you for your insights and your wisdom and with that we're going to turn the call over to analysts questions.
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Three.
Good on the phone from the questions comments may have it is the one for on your telephone keypad. One moment. Please our first question.
And we'll get our first question on the line from Daniel Bernstein from capital one.
Go ahead with your question.
Hi, good morning.
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And.
Thanks for having Donald on.
Cover was fantastic.
So I don't want you to contradict sure I'm not trying to get you to contradict Donald but.
When you look at acquisition opportunities in your underwriting.
Perhaps distressed operators in the real estate side.
How are you thinking about the.
Long term outlook for the business, particularly how you're thinking about occupancy margin.
We look back nine entering change moved out length of stay moved out.
Can you change business. So how are you thinking about the underwriting of potential assets.
Going forward. Thanks.
Hey, Dan Kevin.
As we looked at acquisition opportunities I mean, we're really trying to figure out.
What you're hitting on is what is the the go forward expense margin occupancy is there a new normal.
I would tell you we have not really set new parameters, yet, although I would tell you. It's one of those.
It's funny I would say when you see it it's going to be more than what we were looking at before if we're thinking about coverage.
It's going to be we're going I want to have some additional padding and the expenses.
Right now, it's really hard to underwrite and operator transition that doesn't mean, you can't but I mean, the fact that matter is at least for the past few months, you've narrowed been able to do as much diligence as you otherwise would in terms of getting into the building and being able to make sure you have or anything.
Mapped out what we what we're trying to so.
Make sure we have a handle on as what is the demand going forward for those respective markets as Donald had kind of alluded to.
Starting see some flashes hearing there of pent up demand, but it's too soon to call.
So I think all that the say as we're still being very cautious.
We're as you heard my remarks, we wouldnt considered an active market just yet but at this point, we're being pretty conservative, making sure that we have adequate cushion on coverage and making sure that the operating partners have a pretty good handle on.
Expenses, you were able now to at least look into what they've.
Spent through the pandemic, we've seen those numbers start to drift down in terms of what their monthly spend is but it's it's still elevated.
We are able to kind of incorporate that as we're looking at new investment opportunities.
Okay.
And then on Bickford.
Obviously, the this any potential sale of assets hasn't occurred yet that's hard to comment on but.
You know when you think I'm trying to think about it is is it a band aid or long term slows solution and really.
You know maybe you can give us some more color on the assets that might be sold and how are you thinking maybe we covered your corporate coverage.
Can improve post any asset sales if they occur.
So Kevin again, what I would say is what we're working on with Bickford is.
Things that will help towards a longer term solution.
We've talked about our conference calls before that would be could potentially be selling some of these assets and thats exactly what we're exploring here I would characterize these as ones that are.
Maybe one of two types either underperformers that are a drag on our current relationship with bickford or ones that have just frankly tapped out in their current markets where.
It's a it's a it's a market where the rents are the pricing power.
Is.
Not keeping up with Elise escalator or something like that so coverages kind of started to erode a little bit overtime still good building still good margins. Good operation just it needs a different capital structure on those buildings.
And there's some opportunity for them to improve operations all the way around but we feel like putting those the subset of buildings in a different capital structure.
Getting real estate on bickford balance sheet, making them be less dependent on NHL bye.
Good move for them for the long term and frankly.
The savings that they will see from putting new capital in place will be long term benefit.
Yep.
By having fixed.
Debt fixed.
Bank debt on it versus.
Escalating lease.
Okay.
I'll hop back up in the into the queue I appreciate the color guys.
Thank you thanks.
Thank you very much. Okay next question on the line from Connor.
This guy from Berenberg go right ahead with your question.
Hi, everybody. Thanks for having me in a appreciate the comments before by Donald that was very helpful color.
Just another question on Bickford saw that construction loan initiated I think was June thirtyth Im just wondering how your calculus behind the project changes at all with the deferral.
I would appreciate some color there on the thought process.
Sure Kevin again.
Our process here is how do we optimize the relationship with Bickford Theyve done a tremendous job developed picking sites.
Developing filling buildings and we want to support that portion of the relationship.
We have a program so to speak with them.
We'll see how that evolves over time, but currently we get a.
We get a 9% yield on our investment with a purchase option on the building. So we feel like Thats, a very attractive investment to be able to get new real estate. Once it stabilizes. So if we can optimize relationship by selling some of the older buildings and replacing it with newer stock were.
We're able to.
Keep the relationship going support the things that they really do well and make sure that we're helping them get to have a better overall capital structure.
Okay. Thanks for that and then one one more for me on the autumn treats acquisition can you speak on the markets are the relevant submarkets there in Indiana, how do they look during the pandemic are there any positive signs really to occupancy or performance in general.
Sure I would classify these is.
So at least secondary they're smaller markets, there's two ways about it.
They held up very well they didn't have any instances that was something we are watching very closely didnt have any cove and get into the building.
There really weren't that many instances and the county, so we were watching not only the county, but also.
The actual operations so far they have held up.
Well and performed in line with our underwriting. So we're pleased to have that relationship that was one that we had started down the path on before the pandemic started.
And I think our.
Reputation of the market is very important that we built our commitments and like I said weve looked at.
How they were performing leading up to the closing and how frankly haven't done sense.
Performed very well and we want to make sure that we fulfill the commitments, we made and we're glad to have them onboard.
Okay I'll leave it there thanks for the color appreciate it.
Thank you very much.
Next question on the line from John Kim with BMO capital markets go right ahead.
Thanks, Good morning, and thanks, Kevin bundled speak.
Can I just add on big for sale.
Can you just walk us through why you would could give their rent and digits.
I'll get back at book value.
Sure.
Is there, possibly the good selling it above book value.
Well I mean, the the price is something that is being documented currently.
Our and our expectation is that it will be north of book value and.
Frankly, the red for given as a part of the purchase price. So it's a deferral.
And that's an incentive for them to get this done and Theyre out working hard to.
To get the financing in place right now and get those commitments in order we feel good about progress that they've made to date, there's still work to do but.
They're they're doing what they're supposed to be doing right now to make sure that this gets buttoned up. So we just want to make sure that are appropriately incentivized to get this done but I feel like once all of sudden down and we can we have all the i's dotted and t's crossed I mean, it will be a good outcome for both of those.
And is 11% cap rate is that a good indication of where you think.
Assets, it's similar to quality and geography with trade today.
Well I mean, I guess I would point you to that cap rate as you mentioned that is is a rental rate on.
The initial book value the final numbers will be.
Different than that.
What you're seeing there is a function of a lease that started years ago and escalated overtime and as I mentioned these buildings.
Have kept up so this is making sure that we.
Yes helped the relationship a little bit by getting rid of some of the laggards and making sure that as we've mentioned with some of the development.
Yes focus on the things that big for has done well and move on some of these other buildings that are holding the portfolio back.
Okay, Yeah, the lease rate versus cap rate cap rate will be lower because of the coverage.
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Is there an indication where where that cap rate would be.
Yes, we havent disclosed.
Yet we're.
Like I said, you'll be able to see some more information once we get everything buttoned up though I can negotiate against ourselves.
Yes.
Okay, and then finally on the other potential deferral.
Is it safe to assume that.
One of the other couple of operators Gregg said.
Around one two or lower.
And how are you going to.
Hi, Tom for revenue on that differ on different after 2021.
Well I guess I'd say, this and I'll hand, it over to John but just from a deferral perspective as we've mentioned the pandemic has hit senior housing and pretty hard.
And that.
If it was one of our top five major customers, we'd be doing some additional disclosure. This is not one of those major tenants at somebody that we're trying to help and that.
We're talking about a portion smaller portion of the rent that will be deferred for a period of time and there would be some sort of interest paid on that deferral. So.
As I think as John mentioned in his comments and equitable trade for the deferral of rent is what we're seeking here and feel pretty good that that's where the arrangement will fill in and also because.
Yes for competitive reasons, we're not outing.
Any of the operators, we talk to them, we want to make sure that they have the ability to operate their business. What we're simply trying to provide a little bit of flexibility through what is a very.
Tough situation.
So John this is John.
We will record cash received on the deferrals timing received the cash.
Okay, so to be not in order to be in in fact, its 2020 earnings.
Yes.
And then maybe you're going to catch accounting not on that particular.
In the differ on the deferral correct okay.
Okay.
Thank you very much.
Thank you.
Our next question on the line from Jordan Sadler with Keybanc already have a question.
Thanks.
Good afternoon, just wanted to.
A follow up on that last question on the.
The an identified tenant.
Can you just give us a sense. This is a senior housing tenders I would imagine and.
This one of your top tenants.
Hey, Jordan This is Eric as Kevin was saying, it's not a top five.
Tenants.
And.
I feel like we are going above and beyond on our disclosures as a result of co bid were publishing monthly occupancy publishing business updates. So we will.
Published the results of this deferral once its documented.
And it's the timing is tricky because we're in the discussions right now so we're telling you as much as we can as soon as we can.
Okay, and I think spec I think Kevin Kevin pointed out that the amount of the deferral would be less than bickford. So we want to do to have a order of magnitude.
By telling you that.
And now and Thats very helpful actually but.
And then they paid just to clarify they paid rent.
In the second quarter info.
And they pay July rent.
Yes, yes, we're so it's in the numbers that we've published so far what we're talking about is how we finish out the year.
Okay.
And.
The other the other question in your commentary might have been you John.
As you were sort of discussing.
Central.
Relief for deferrals for tenants I think you you said you take into consideration security deposits and so.
I'm just trying to understand there.
All right. These two tenants between VIX trading this single and identified tenant the extensive sort of the release discussions that are ongoing or is it a little bit broader but you've been able to come to.
Other types of.
Solutions because of security deposits that are available.
Well, let me make a plug here for triple net leases because triple net leases do have things like deposits and credit and guarantees corporate and personal in some instances. So I feel like we have a lot more tools on our tool box.
To discuss solutions when you have a triple net lease and.
I also want to point out that when we use the word deferral that means that there is an expectation that flows through accounting that those revenues will be received in the future, whereas in a shop portfolio. When you don't get the revenue you're out of walk.
It's gone forever.
So to your question Jordan, we have been having lots of discussions with people.
We are as you know, we're pulling them every week to get the status of the.
The cobot situation and we publish that.
So.
Some of those discussions revolve around their financials and their ability to pay ranch.
So far.
We've done very well on our operators are doing very well and the.
PPP loan programs have helped with that no doubt about it.
So we'll be is forthcoming as we can as fast as we can.
But they are tricky.
And and.
It is a competitive environment out there and we want to be sensitive to that.
That makes sense and then lastly, just.
Hi, I guess.
You mentioned in disguise, keeping your powder dry and staying in your.
Target leverage range.
What what sort of the.
Acquisition appetite or investment appetite beyond.
A couple two three no investments you made in the quarter.
Some of which seemed a little bit.
Pre committed or defensive.
Right well as Kevin was saying, we're more focused on the needs of our existing clients.
The acquisition market right now is pretty funky.
There are deals out there circulating.
Some of them I think our trial balloons to see.
If it's safe to transact yet.
Because the numbers and the.
The broker presentations are still kind of tone deaf.
And I would say that acquisitions that were interested in doing are going to be a unique they're going to be opportunistic and the pricing is going to be different than than what weve normally been seeing we want a bargain.
Okay that makes sense one last one big trend is there anything about the geography, where it had been digitally bickford.
Sales or assets those nine.
You can share.
Well I guess, what I would say as they are all little bit different the to be I guess to not directly answer. Your question now that I'm trying not to answer it. It's just like some are very competitive markets that have.
Frankly been over built some our secondary markets, where I mentioned just.
The their pricing power has been outpaced.
Some are just they need a little bit of TLC and just feel like there they are better suited for a different capital structure. So there's not one state it's not one specific geography, it's a bit of.
I guess maybe too.
To say a little bit of just housecleaning, so to speak for our portfolio, making sure that we can improve coverage with them over time, but still give them a fighting chance to improve these buildings or if they choose to sell them on their own.
That's the going to be their prerogative, but at the end of the day.
At a minimum getting them back to a better cheaper capital structure for these this subset of buildings is going to be additive for their organization and really for the.
Our relationship and the credit their own.
Okay. Thank you.
Thank you very much store.
And once again as a reminder to register any questions or comments may have for today. It is still one floor on your telephone keypad ask a question.
I will get our next question on the line from Taiyo Okusanya from mutual go right ahead.
Mr of course I know your line is open for your question.
Anthony.
Yeah, Hey tile.
Yes that good afternoon, everyone.
Donald Thanks, a lot comment I would like to follow up in regards to the idea of government health as it pertains to senior housing how much of it at this point.
Donald and as well as Eric would definitely.
Your comments on if we do end up seeing something and what could that look like.
Well I'm going to let Kevin take that and tie O'donald was pre recorded so he's.
I know he is listening out there, but he is not able to answer so we'll have to channel him.
Okay. So.
This is.
Kevin.
So we've seen so far is.
Fortunately, we've seen a couple.
Cares Act infusions from the HHS that helped skilled providers, where we have skilled units on our senior living campuses, they've been a bit beneficiary of those.
Largely our portfolio is private pay when looking at senior housing there is a small subset that do get Medicaid funds those providers Didnt get.
A 2% or applied for 2% payment as it relates to the revenue on those buildings that they got so but that they again as you mentioned a small dollar we've seen through our industry.
Associations Theyre petitioning next.
Stimulus that senior housing be included.
The range is pretty wide in terms of what is out there. So I can't say with specificity what is going to get included in the bill, but it does seem like there will be some distribution for senior housing.
But.
And this is just conjecture based on what we've heard from others about.
Not at official statement, but it's going to follow what are likely to follow what.
I was made on the Medicaid side, which was 2% of revenue.
We'll see where that shakes out I think everybody hopes that it does get included in the next fill in that will be helpful to the operators to be able to continue to stem the tide and the as we talked about with Donald the key is getting lead traffic backup we've started to see some flashes of that here in there, but it's not normal levels.
So something that helps them continue to bridge the gap.
Is definitely going to be additive for the senior housing operators, but we don't we don't have.
Great clarity on what that is if it gets included but the what the associations are telling us is that it's.
It's likely but.
Clearly no promises.
Okay.
Just overall I mean, and then that you guys talk about your.
Advocate that sound like.
Yes, we had a little statistics than you've seen cobot spiking in many of the state you guys have a meaningful presence and.
I guess against that backdrop, as we kind of thinking about the back half of the year. How do you guys think about.
A united is kind of everything exactly.
Yes.
Let's go to move from New York, Boston to some of your markets, but now that unfortunately, there how do you guys kind of think about again additional kind of tenant credit risk you make could you have to be more deferrals or well I just kind of think about those type of thing.
Well I'll start and I'll, let Eric add on.
I mean as you mentioned the number of cases gone up one thing that I would point out though is that testing is much more prevalent now than it has been so we've actually seen a number of times where.
Theres been a pretty large subset of asymptomatic.
Both residents and employees in a building.
Where.
By and large peep only a small amount and got sick. So testing has been helpful precautions as Donald laid out the things that they're doing we're seeing all of our senior operators fall some low protocol.
But we're a lot of that is been as you mentioned, it's come into some more of the markets that we tend to invest in but then also testing is much more prevalent now so thats also big piece of it as we talked to our operator for the balance of year and kind of what I feel like Donald was was talking to is.
Holding serve for the balance of the year, how do you do that how do you get your lead traffic up again, we're starting to see flashes of that but still not a trend.
Can we get too.
Two went through year end holding serve on occupancy and able to grow.
Looking at.
First second quarter of next year, So thats really been the key is trying to make sure you have precautions therapies and vaccines become available and more prevalent.
And people have more confidence then that's really the key and that's what everybody is really focused on.
Right now.
I mean, that's.
But.
May not have a lot of specifics in it but I feel like the reason that is spiking is a lot of it does have to deal with testing at the moment, which is a good thing people know words that they know had a core and team they know how to take the precautions.
And we'll see where this next week goes but.
The trends within the trends the overall cases of course, it expanded but the number of cases per buildings down.
Again, the trends within the trends are.
Incur get are getting positives.
In death rate is going down.
Gotcha and okay. That's it.
I'll get back into the key questions. Thank you.
Thanks style.
Thank you very much trimas Mendelson there are no further questions at this time I'll turn it back to your for any closing remarks.
Thank you for participating everyone. Thank you Don all the were a big hit and you're probably going to have to do an encore.
Presentation at some point I would normally say, we'll see every one at a conference, but I think I'll more than likely we'll see what as zoom call in the near future.
Signing off.
Thank you very much I. Thank everyone that does conclude the conference call for today. We thank you for your participation ASP disconnect your lines.
Good day, everyone. Thanks.
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