Q3 2020 National Health Investors Inc Earnings Call
[music].
Greetings and welcome to the National Health Investors third quarter 2020 earnings call. During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
If you have a question. Please press the one followed.
By the four on your telephone.
Even in the conference you need to reach an operator, Please press star zero.
As a reminder, this coal is going to occur Tuesday November 10 2020.
I would now like to turn the conference over to Mr. Dana Hambly. Please go ahead Sir.
Thank you welcome everyone to the National Health Investors Conference call to review the company's results for the third quarter of 2020.
The call with me today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, Executive Vice President and Chief Financial Officer, and David Travis Chief Accounting Officer, the results as well as notice of the accessibility of this conference call on a listen only basis over the Internet were released yesterday after mark.
To close in a press release, that's been covered by the financial media.
A reminder, any statements in this conference call, which are not historical facts.
Forward looking statements and H.I. cautions investors that any forward looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward looking statements represent an h. <unk> judgment as of the date of this conference call investors are urged to carefully review various disclosures made by <unk>.
Oh and 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 September Thirtyth 2020 copies of these filings are available on the Fccs website at <unk> Dot Gov.
And exercise website at <unk> Dot Com. In addition, certain terms used in this call are 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 those 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, and thanks for joining US today, we hope that everyone is staying healthy and positive on these most interesting up times.
I want to express express my deep gratitude and admiration to all our operating partners and their ROIC employees knowingly put themselves in harm's way every day as they work to care for countries. Most vulnerable population. Thank you.
Today, our operators have held up relatively well as occupancy declines generally slowed in the third quarter aided by a pickup and move ins and the leveling off of covered related expenses.
We collected nearly 97% of rent in the quarter and nearly 98% in October and the third quarter and for the year to date, we reported FFO per share growth of 1.5% and 4.5% respectively.
It should also be noted that we were tracking on the lower end of the range for the first nine months of 2020 in terms of our numbers, formerly known as guidance.
We think this is a testament to the stability of the Triple net lease strategy the needs driven nature of the properties, we invest in as well as the underlying strength of our operating partners.
Depending on the timing and effectiveness of the vaccine we expect the impact of the pandemic to be more uneven across our property types as winter approaches.
Thus far our interest fee communities and skilled nursing properties, which together generate over 50% of our revenue have been quite resilient. However.
However, our freestanding assisted living memory care and independent living operators are experiencing greater challenges as cobot cases are spiking in many parts of the country, which is slowing the pace of movements, while move outs are accelerating in what is typically a seasonally weak period.
We're very encouraged that the HHS has included assisted living operators as eligible participants in the provider relief fund, which will help with the financial hardships inflicted by the pandemic.
While we are hopeful that more federal assistance is on the way we cannot solely rely on us to resolve all the issues.
As disclosed in our press release, and our 10-Q, we've reached an agreement in principle with Bickford for assistance in these difficult times. This includes deferring up to $3 million of November rent.
They have additional deferrals of 750000 available for each of December and January all of which if exercised will accrue interest at an 8% rate with repayment expected over 12 months beginning June 2021.
We're also continuing to work with the prospective lenders and Bickford on a previously disclosed sale of nine properties, which we estimate will improve experts annual cash flow by approximately $3 million.
Bickford has applied for grants under phase two and three of the provider relief fund, which we expect that they will receive before year end, which will also improve their financial position.
These measures will improve bickford financially and create a long term solution, but we will continue to work with them closely over the coming months and take further measures if needed.
As the pandemic unfolded, we expected that there would be deferrals as we head into 2021.
We have other tools at our disposal as well, including the use of deposits and other reserves and some personal and corporate guarantees where.
We're willing on a tenant by tenant basis. So.
Helper operators bridge, the gap to a more stable operating environment within certain commercial norms.
That said we believe these challenges presented are temporary so we're hesitant to make longer term decisions that would have a more permanent impact on our future cash flow.
Well, we certainly did not anticipate the pandemic, our board and senior management have been disciplined and adhering to our conservative financial metrics, which puts us in a strong position to weather this storm and to take advantage of growth opportunities as they emerge.
Our big picture outlook has not changed we continue to see tremendous opportunities for growth in senior housing and skilled nursing real estate and we'll be opportunistic with our capital deployment to help drive shareholder value.
With that I will turn the call over to John John.
Thank you Eric.
Hello, everyone.
During the third quarter, we began to experience more direct financial impacts due to the pandemic.
As we position the company for the Pandemics future on notes, we continue to be proactive and not overreacting to the crisis.
Which we believe is resulting in solid and even surprisingly strong financial performance.
Well, we cannot remove all the uncertainty that we will continue to experience for the next few quarters.
We are confident that we have the strategy, operator quality and financial tools necessary to transition through this period.
Beginning with our net income per diluted common share for the quarter ending September Thirtyth 2020, we achieved 95 cents per share in earnings.
That compares to 97 cents per share for the same period in 2019.
For the nine months ending September we achieved $3.31 per share in earnings compared to $2.72 per share for the same period in 2019, which.
Which is reflective of the gains we recorded during 2020 for real estate dispositions.
For our three AFFO performance metrics per diluted common share for the third quarter compared to the prior year quarter.
Namely FFO and normalized FFO were both flat at $1.42.
And adjusted FFO increased 1.5% to $1.34 per share.
Reconciliations for our pro forma EPS performance metrics can be found in our earnings release, and 10-Q filed yesterday afternoon, and FCC back up.
Cash NOI as a metric we use to measure our performance.
Reconciliation to energize cash NOI can be found on page 18 of our Q3 2020 SEC filed supplemental.
For the quarter ended September Thirtyth cash NOI increased 1.2% to $75.3 million compared to $74.4 million in the prior year period.
However, reflecting Q3 rental for cash.
Cash NOI was down 2.8% sequentially from the second quarter.
While our triple that strategy continues to mitigate the cash NOI effects from Coke.
And more importantly, our operators continue to soundly execute on infectious control protocols.
As Eric just mentioned a.
A subset of our senior housing portfolio experienced more pronounced co that occupancy declines in the third quarter than what we saw over the summer.
As a result today, we're announcing additional rent deferrals for bickford.
Which together with other previously announced rent deferrals will impact cash NOI growth.
By up to approximately 5.5 million over the next two quarters.
Or approximately 3.5% of our trailing six month cash NOI before departure.
As we negotiate rent deferrals, we are seeking to accomplish two outcomes. The first outcome is to provide our operators the confidence that we are committed to their success and the care the residents.
The second outcome is to equitably structure, the deferrals on behalf the best interest of our stockholders.
We cannot predict.
The continuing impact depending on what happen our operators for next few quarters.
However between our operators exceptional capabilities additional federal support.
And our other cash sources that we can make available to our operators under our leases such as deposits on EPS grows we do continue to be confident that any additional occupancy loss or coverage declined will not necessarily trends they translate into additional dollar for dollar rent deferrals.
Turning to the balance sheet.
Capital metrics for the quarter, ending September Thirtyth, where our net debt to annualized EBITDA at 4.8 times weighted.
Weighted average debt maturity at 2.9 years.
And our fixed charge coverage ratio at 6.3 times we.
We ended the quarter 1.53 billion and total debt of which 91% was unsecured.
For the quarter ended September Thirtyth, our weighted average cost of debt was 2.96%.
At the beginning of the third quarter, we added liquidity to the balance sheet through a new $100 million.
One year with one year option to extend term.
Loan carries a variable interest at a rate of LIBOR, plus 185 basis points, but.
For the past 50 basis point LIBOR floor.
Turning to 31st we had 252 million in availability under our $550 million revolver and $38.2 million in unrestricted cash.
In addition, during the third quarter, we sold 79155 shares at any CCI stock through our ATM program at an average price of $65.35 per share raising approximately $4.8 million net proceeds.
We have approximately 495 million capacity remaining under our ATM program.
Which was filed together in February of this year.
I'm pleased to also announce the last Thursday, we received an investment grade BW athree rating from Moodys.
Hi, three investment grade ratings now position us to begin exploring public debt.
Begin a regular program for managing our maturities moving forward.
In mid September we declared our third quarterly quarter dividend of $1.10 in the quarter, which was just funded November six.
I'm pleased to report to you that we continue to pay our dividend with an AFFO payout ratio in the low 80% range without significant further cash flow burdens from routine capital expenditures.
The pandemic keeps continues to keep us mindful towards meeting, both our financial and dividend policies.
Our board is committed to our financial policies included in our commitment to maintain our leverage between four and five times net debt to EBITDA. So we're very pleased today, we've been able to balance our dividends, our leverage ratios and our commitments to our operators.
Our management team will continue to work hard to continue his track record moving forward towards the conclusion of this crisis.
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 Covance.
Active rather than cases peaked in late July at 483 cases across our portfolio and then trending down from 161 cases in early October.
On our last two updates cases have started to climb again and we're at 367 active resident cases across 81 communities.
The active cases represent about 1.5% of our unit capacity.
Nearly three quarters of the cases are in our steps some of which are actively admitting code patients.
On the senior housing side, our operators continue to limit the spread as active revenue cadence per community was at 2.4 last week, which matches the average since we started reporting.
The data in mid March.
We think this firmly demonstrates the value proposition of seniors housing, whose mission is to keep the senior population safe.
Turning to collection, we received 96.6% of our third quarter contractual rent and 97.8% of October rent.
We expect to provide a November update mid month, which will obviously be impacted by the big for deferral that Eric discussed.
In addition to the Big picture deferral.
We agreed to defer or being approximately 570000 of rents for the remainder of 2020.
With another tenant that was also granted that's had the option to defer approximately 450000 brands really related to the first quarter of 2021.
Any deferred rent payments will accrue interest from the date of the deferral until paid in full and our do no later than December 30, Onest 2022.
We do have credit enhancements in our leases with many of our senior housing operators, which total approximately $37.1 million in cash or letters of credit 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.
And these driven senior housing operators, which account for 32% of our annualized cash revenue were hit hard at the onset of the crisis, but did level off through the second and third quarters as move activity picked up enough to slow the pace of occupancy losses.
As Eric mentioned assisted living operators are now included as eligible providers beginning with phase two of the provider relief fund, which equates to approximately 2% of 2019 revenue, which most of our operators have or expect to receive.
Phase three applications were due by November November six so.
So we should know more about those distributions soon.
We are thankful to HHS for their inclusion of assisted living providers and all the efforts from our trade associations to secure this inclusion.
These funds are much needed and help shorten the gap to a more normal operating environment.
Bickford, our largest assisted living operator, representing 15% of annualized cash revenue experienced an 80 basis point sequential decline in third quarter average occupancy, which compared to a 270 basis point decline in the prior quarter comparison.
We talked last quarter about our cautious optimism on stabilizing trends, which largely proved out in the third quarter. However, more recently move ins have slowed as cobot cases throughout the Midwest spiked.
As described by Eric we have taken initial steps to help improve bickford financially and we'll continue to inform you on any future steps if and as they occur.
Our entrance fee communities, which account for nearly a quarter of our annualized cash revenue have proven to be resilient.
As the average length of stay at these properties ranges from six to 10 years and the residents are often younger and healthier than what is typical in our other discretionary senior housing models.
Senior living communities, which represents 16% of our cash revenue had third quarter average occupancy of 79%, which was down just 10 basis points from the second quarter.
September average occupancy was 78.9%.
Well I sell fees entrance fee sales are down year to date, we are encouraged by recent developments as entrance fee sales actually increase year over year in both September and October which is helping to bolster coverage.
EBITDARM coverage for SLC was unchanged sequentially at 1.06 times.
Our rental independent living communities, which accounted for 13% of our annualized cash revenue have experienced a more pronounced and sustained occupancy decline that our needs driven and CCRC assets.
Holiday retirement, which represents 11% of annualized cash revenue had average occupancy of 79.6% in the third quarter, which was down 390 basis points sequentially.
This followed a 380 basis point decline in the second quarter.
The occupancy continued to decline throughout the quarter and September's average occupancy was 70.5%.
A significant percentage of our holiday units are located on the west coast were limitations on visitation and residents' ability to travel outside the community are more limited, which we believe is having an outsize negative impact on occupancy.
EBITDARM coverage.
Slightly ticked down from 1.2 times to 1.18 times as of the second quarter.
We do have solid credit support behind this lease, but we continue to monitor the situation closely.
The skilled nursing portfolio, which represents 27% of annualized cash revenue is anchored by two strong tenant NHC and the inside group, who contribute 12% at 8% of annualized cash revenue respectively EPS.
Dark coverage for the trailing 12 months ended June Thirtyth was 2.89 times, which improved from 2.81 times reported in the prior quarter.
This coverage is inclusive of funds received from the cares Act, which seems to be working as designed as it is helping snip operator to bridge the gap to a more stable operating environment.
Turning to our business development activities, we have announced $204.7 million in year to date investments.
During third quarter, we exercise our purchase option to acquire the courtyard at Bellevue for 12.3 million. This.
This is a 43 unit assisted living and memory care community in Bellevue, Wisconsin.
Which was opened in March 2019, and was 100% occupied upon our acquisition.
The long term triple net lease on Bellevue replaces a $3.9 million second mortgage that we had secured in January of this year.
The property is operated by 41 management, which is a growing operating partner of ours that now includes a properties.
While there have been plenty of deals to evaluate throughout the year, we characterize the pipeline is more actionable today than in recent past quarters.
With our balance sheet in good shape, we are looking at deals that run the gamut, including triple net leases with existing and new operators as well as opportunities in short term higher yielding products like mezzanine debt and development financing.
We are encouraged by the depth of the current pipeline as we expect we will have plenty of capital to recycle in the next 12 months from sources, including the previously mentioned Bickford portfolio sale loan repayments purchase options and other select dispositions.
With that I'll hand, the call back over to Eric.
Thank you Kevin.
This year has presented unique challenges to say the least we have managed through the crisis with few lasting scars to this point, but know that we are not out of the woods yet.
That said, our strong balance sheet and liquidity and our diverse mix of operators and properties position us relatively well as we try to bridge to a more stable operating environment.
With that operator, we'll now turn the line over for questions.
Thank you Sir.
To queue up for a question. Please press the one followed by the four on your telephone keypad.
You will hear a suite on prom talking all sure request.
If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.
One moment please for the first question.
Once again to queue up for question. Please press the one followed by the four on your telephone.
And our first question comes from the line of Daniel Bernstein Capital. One. Please go ahead.
Hi, good.
Good afternoon.
Hi, good morning for you.
All right.
I guess.
The first question.
No.
Hi habits.
What other purchase options do you have near term that you can exercise and then maybe if you can go over on the flip side outside of Big Bird.
What loan repayments and purchase options your operators have that we can think about the next 12 months.
Dan This is Kevin you're asking what purchase options, we have on other building, yes, yes.
What can you exercise and then what can.
The other the the the operators exercise as well.
Yes, well I guess, what I would direct you to.
As you think about it and if not 100%, but generally speaking when we do a low we're going to be getting some sort of purchase option or at least right of first offer. So as we think about what's available to us from a purchase option standpoint is that the pool that first and we're really looking at is our developments.
And any kind of in the event, we did any kind of acquisition financing.
So we have a purchase right on.
Theres a big for development that we have a purchase option on there.
Yes.
I would tell you that the Sage would is a large investment that we have is that something that as it matures, we'll be looking at very closely.
So thats, what I would say that we should you should direct to if you're looking at what is in the pipeline so to speak its going to be anywhere where we have.
As or those construction loans.
Because we.
We put this in pole position so to speak to make an investment.
Yes, I think the rest of your question was.
Yeah I was just to say you know what in the next 12 months, what loan repayments and purchase options can the operators exercise.
Yes, so our loan repayments were looking at.
Got one up in the northeast that we would expect to likely pay off.
We've got.
Yes from a purchase option standpoint, if you look at our supplemental on page seven that schedules out where our purchase options are we have a couple hospitals.
What I would.
In all honesty is expected to probably exercise their option over the next.
Six to 12 months.
Yes at this point in time, I think everybody is still trying to figure out where things are headed before they exercise anything but that is something that is available to them. It's their option. So we have viewed.
Viewed it as those are likely to go but as we've talked about before and as we've demonstrated with some of our other partners. We're going to work very hard to try and push those out if not try and.
Rework those options we did that.
With legend that ultimately went to end side, we had another group with the two buildings in the northeast that we were able to push out those options. So we've we've worked very hard to keep those partnerships going and find creative ways to keep them in place. So just because it is their option doesn't mean it will be exercised.
But.
As we said as it is.
No risk so to speak that they do exercise it.
Okay.
Eric in your opening comments, you said that you thought the challenges were temporary <unk> does that apply the same for seniors housing and skilled nursing how do you.
Looking at the challenges differently between those two food groups say post the vaccine.
Well, it's interesting right now the difference between skilled nursing and senior housing as like a tale of two cities you've got.
Skilled nursing.
Being showered with government subsidies, if they want them.
And you also have.
A conscious effort to treat cobot patients at skilled nursing, which.
Seems counter intuitive based on.
What weve seen it.
Some other skilled nursing operators, but we know that enzyme is admitting cope.
Cobot patients and treating them.
And making money at that so.
Feel like skilled nursing is doing just fine.
Senior housing post vaccine I think the market spoke yesterday.
On on what that looks like and.
We're modeling.
In April may integration of vaccination and starting to return to normal.
So.
That's the way we look at it here.
Okay.
And then one last question for me.
Yeah.
It seems like operators many of the public operators for public reach or have been holding rates.
Same time same time, even with the vaccine were starting off at the low I guess, maybe mid upper Seventys occupancy.
It seems like there should be some rate pressure.
On the industry that persists, but.
Kind of your what's your thought when you underwrite assets in terms of.
Of how rate money.
Play out the next 12 or 24 months.
Sure Kevin again.
We've definitely seen people discounting in the marketplace and that's something we'll need to factor in as we continue to to look at new investments a feel like ours.
Our operating partners have had a pretty good pulse on their respective markets and have been able to.
Address some of those issues.
A lot of 'em, we try and we're not the operator, we cautioned them not to try and race to the bottom but at the same time very hard when you've got other people that are.
Making deals so to speak in the marketplace. So it's just something we're going to have to take on a market by market basis see how that market is performing where their rate structure is.
You know as I said, I think I feel like our operators have been pretty disciplined in how they approach it but at the same time you have to be able to compete so they are doing some selective.
Discounts or deals here and there to make sure that they can get the bins when they have them feel like our operating partners do a great job of converting people when they do get tours, but that the challenge by itself is to actually.
Whether it's state regulated where they are not allowing tours or what have you. I mean, there is a huge barriers in some areas to be able to get those move and so you got to have.
Things in your tool belt to be able to attract new residents.
So on a go forward basis again, I think it's really just more on a case by case basis see with that market's doing if we feel like there is a heavy amount of competition or a heavy amount of discounting.
It might be just something that we pause on and let it play out versus trying to make.
And investment where you just don't know where.
Rates are headed.
Okay.
I'll hop off I'm sure there's.
So the question is finally here.
Thank you Sam.
Our next question comes from the line of John Kim BMO Capital markets. Please go ahead.
Thank you good afternoon, just wanted to clarify on the big deferred rent deferral.
Thats stepped up this month, but then the adoption to different lower amounts over the next couple of months.
Is that dollar amount due to the potential for the asset sale to occur during that timeframe.
So in other words why did they not as much of a rent the pro.
In December January.
This is Kevin I would classify it as a timing issue.
A couple of times a year they'll have three payrolls.
It is not an insignificant number for bickford.
So I think Thats, what you are seeing pop up is really just a timing issue. We wanted to make sure. We gave them enough liquidity to try and get to into the first quarter, if not through it and be able to reassess where things are trying to get some more clarity with the vaccine and where occupancy is headed and it's just a matter of.
Buying some time, but also giving them liquidity to conduct business.
Okay. The same time, you're mentioning that in senior housing and it may not.
Be directly.
Referring to pay for it but senior housing movements has slowed due to committed but.
But you're also seeing move outs accelerate due to seasonal weakness.
So I'm just curious again why.
You think big Craig will improve the cash flows in the next couple of months if that's the case.
But also I guess my questions on the seasonal weakness in move outs I'm wondering if that is something you anticipate given the fluids and relatively weak in the southern hemisphere. This year.
Yes, I would tell you we're still watching the trends as it relates to move outs and where move ins are coming from.
We are anticipating as Eric said, some seasonal weakness in that we do generally see additional move outs this time of year.
So I think Thats just more of a planning mechanism and I think what I was saying before is we're not expecting cash flow necessarily to improve for bickford. It really was more of a timing issue for them.
To make sure that Theyve got line of sight again into though the first quarter.
Sale does play a role into how we're looking at a big effort and that will will be continue to watch that work through that very closely.
But again I think thats really just more it was more timing not expecting things to rebound in the next 60 to 90 days.
Okay, and then Eric you mentioned in your prepared remarks that you were looking to become competence.
Opportunistic and I'm wondering if you could just elaborate on what that means.
In the environment, where cap rates seem like the really low.
Are you willing to acquire an asset with a low initial yield with occupancy upside are you looking for immediately accretive deals only.
Well, John as you know, we're able to find ways to structure deals on distressed property that are both opportunistic and accretive I would point to some of the loans that we've done.
With investors, we'll we'll do a hiring.
The higher interest.
Larger up higher up the capital stack loan.
And with a purchase option once the building stabilize so we're starting to see a lot of.
Owners of de stabilized buildings, or even new buildings that havent opened throwing the towel and we're getting some really interesting.
Chatter from the brokers that we work with about the opportunities out there.
Okay sounds good thank you.
Thank you John.
Next question from Rich Anderson with SMBC. Please go ahead.
Hey, thanks good.
Good morning no.
No yes.
So.
I I'm not quite sure has the environment informed you at all about where you had to do where you balance your portfolio going forward between skilled nursing and senior housing.
Do you think the opportunity set it starts to get materially better in senior housing given all the demand.
Matter, we're hearing about on a go forward basis.
Well I would tell you that we we try to remain opportunistic as it relates to both asset classes Erics mentioned on numerous occasions, we love to be able to do more skilled nursing, particularly with high quality operators like in a C or inside group and Theres plenty.
We have others that are.
Operating partnerships that we'd like to be able to expand those relationships as well.
So I think that's something that's definitely of interest for US and then as Eric said long term, we still believe in senior housing we want to continue to invest there and think that theres going to be some opportunities as we work through this over the next.
Six to 12 months or so.
And then beyond that Theres more asset classes that we continue to evaluate we've talked about behavioral health, we've talked about a number of other things that are of interest to us and we're going to continue to pursue those opportunities as well. So I mean I have said for a while if we.
Continue like the diversification that we have right now is good if we continue to expand that pie. We're in good shape, but we also have some ability to make some moves.
Like I said with a maybe a more meaningful investment in skilled if we can find the right properties and operator we're.
Or some of these other specialty type hospitals that we've invested in the past.
Are you in our camp, where the government regulated nature of skilled nursing has more from a liability to an asset on a go forward basis, given everything that's happened.
Well I guess.
That's a bit of a slippery slope I think it's been a blessing for them. Most recently they've been very well supported and we're very thankful for that.
At the same time, they are very well very highly regulated don't see that going anywhere if any way those regulations probably increase from here.
So I think there are there are aspects of both and for right now, though it's been definitely a an.
An asset for them.
Yes, rich I would also say.
I would also say that what we're seeing what skilled nursing is the exact opposite of the stroke of the pen risk.
That everybody had always point sat with skilled nursing so.
I wouldnt be surprised after the dust settles in a year or so to see skilled nursing cap rates come down.
Yes.
It's our thesis.
Okay.
What is what explains the.
Uneven this as you described in the press release, where you're having more problems in independent living and assisted living and memory care is it primarily just where you happen to be geographically or is there something something more than that.
The easiest thing to point to is geography.
From as we mentioned on the independent side a lot of our.
Units from that with holiday have been on the West Coast, California, Oregon, Washington, which have been much more restrictive even though these are not licensed the ability for people to move around the visit ability do tours.
Has been compromised there and then as we've also talked about Theres been some additional.
Cobot cases, rising in the Midwest and the southeast and given our geography, that's been some issues in particular in select states we've.
We've seen.
The states like Illinois, and Michigan and be a little more restrictive on being able to do tours of being able to.
Move people in dependent on what the situation is if you have a cold and positive resident for employees. So there are some additional barriers there that continue to make it difficult for them to do business as usual.
I feel like our operators are definitely complying with that and making sure that they're taking care of that residents first and foremost as best they can but they've got to be able to get back to.
Generating a lead base and getting people to move in and that's something we're working on every day, but it is still very much a challenge.
Okay last for me any risk that the bickford deferrals could become abatements, if things sort of drag on or in not just bickford anywhere in your portfolio, where you get your view on that route.
Well so far what we've said is that we're.
Kind of unwilling so to speak to make long term decisions.
At a what we hope is a low point in.
Performance and.
Operations. So we feel that these referrals are the best Avenue.
As we talked about before when we have these and these discussions everything is on the table, we'll see where things go from here and if this does get protracted out we are.
Heartened to see that there is some positive vaccine news, which I think will help instill some confidence in the marketplace, which is what was been sorely lacking.
So.
Your question is not lost on US I think the fact the matter is it really is a matter of time and how we get back to some sort of a sort of normal.
Operating environment, and we've got to keep all our options open.
Sounds good thanks, very much everyone.
Thanks Rich.
Our next question comes from the line of the Garden Saddler with Keybanc capital markets. Please go ahead.
Hi, Good morning, guys. So I just want to start in on operating performance.
A recently that you guys discussed in the press release and on the call.
Can you speak to what you're seeing in occupancy trends trends in October maybe qualitatively ordinarily I think on the second quarter the first quarter.
Those were sort of.
One example in terms of transparency in terms of what's happened with occupancy.
In your in your senior housing portfolios. So.
Surprisingly.
Yes in the release last night.
Im surprised youre surprised Jordan, because we still intend to publish that and.
And we publish it mid month, so our earnings call as a little ahead of that not being a REIT Dia organization.
We're reliant on our tenants to supply us with up to date occupancy numbers and that takes a little while to co relate.
Orchestrate so stay tuned and we'll get that to you as soon as we can and in line with our our previous disclosures.
Okay.
I meant by that is I think you know your last two earnings reports were probably 10 days into the quarter.
Or into.
The.
Month following the ended the quarter.
So it seems like the timing would be similar and that's what sort of surprised me.
But Jordan if I can just weigh in sorry, if I can just weigh in real quick I think the difference as big as a matter of a couple of days were tried we want to make sure. We give you data that is consistent an apples to apples with the prior releases so.
We have a lot of information, we get information on a weekly basis, particularly from our larger operators, but that is not the same data in terms of closing the books and making sure. We have consistent average monthly occupancy, which is what we've been disclosing to you. So we want to make sure that we've been able to get that and put it through.
Our asset management systems and make sure that it is an apples to apples number that we're publishing instead of just.
Weekly or bi weekly data that might have some variability to it so as Eric said, you will see that when we do our mid month update but wanted to make sure we weren't.
Publishing something before it was ready for prime time and.
And Jordan No doubt you will see.
Big Picture, you will see Bickford occupancy down that's why we've been doing this.
Restructure if you will you will see a senior living communities flat and you will see a holiday down.
So that's kind of a preview.
I just don't know how much of.
Down.
We're going to report specifically.
Well, it's interesting I appreciate it obviously the.
Qualitative commentary.
Because.
From some of the peers in the space.
Among the reach at least they.
Given sort October numbers and the team to point towards stabilization, but I thought your sort of language.
You know sort of spoke to a little bit more of a weakening and thats why I was really interested.
And perhaps.
It's a mix of operators, perhaps it's a mix of timing and that your 10 days into November and some of these other folks.
We're speaking maybe a couple of weeks ago already so.
We have better insight.
That's what I was trying to glean and Jordan. This is John one of the things. We've noticed is a lot of people have been giving spot occupancy and spot occupancy is a very dangerous occupancy.
At the end of the quarter EPS.
The unit community people five people move then you can suddenly say my occupancy improved 6%, but on an average daily rate you could still be in the low eightys you could still be way below that.
Spot occupancy are something that we're trying to be very conscious about.
When we talk to our investors.
The one that I wanted to hone in on here in terms of your operators that that seems to have not really stabilized. We did just talk about holiday.
You know the occupancy there continues to slide it sounds like character Youre, saying that that continues to be.
Pressure point likely to October as well.
Are they current on rent.
And do you foresee any issues and when it.
Trying to think about what what would be happening in terms of coverage of their real time.
Oh, yes, yes, they're current on rent and recall that we do have a credit on that Weve got deposits and they've got working.
Working capital deposits, what we call a sinking fund on their balance sheet as a result of our restructure so.
Their occupancy decline is worrisome, but they seem to be managing through it.
Okay, and then just maybe lastly on the Bickford sales.
Any sort of.
Do you have any any better measure.
Who are the timing or cap rate yet Kevin.
Well, we still guided the.
The streets to what our was our gross book growth than we had that's what we put in there that's kind of our barometer on.
What we are aiming towards or hopefully better than I think a lot of this still is relying on finalizing negotiations finalizing terms of banks.
Things right now just with still with Covidien and having to get appraisals done and a lot of the other third party work has taken some time. So we would have liked to been able to.
Be done by now, but the fact the matter is there are still some more work to do.
As it's currently structured Bickford is incentivized to get this done before year end. So that's really the the bogey.
To try and get it done.
As far ahead of them as possible.
Okay, and so just use the.
The 8.7 million issue of annual rent coming from those assets.
It'd be great and.
Book value, we will get a rough proxy.
I don't think Thats, an unfair place to start okay.
Thanks, guys.
Next question comes from the line of Todd Stender Wells Fargo. Please go ahead.
Hi, Thanks, I guess just to go back to the independent living discussion with holiday and that occupancy slippage I would've thought it'd be more pronounced with the assisted living guys, but.
Maybe I'd and really thought that in independent living you get fewer move outs right. Now can you guys. Just maybe provide some color just on the on the move in move out dynamic at holiday specifically.
Sure.
They move outs have been their normal function of the business and I think you're spot on in that the length of stay for independent living living is greater generally speaking than it is for assisted living.
That said.
These are bigger buildings, you've got to build a bigger funnel have a bigger lead base to be able to replace those move outs and I.
I think the lead the lead traffic. This is a discretionary model people have the ability to just stay home if they want to.
So building that funnel from a move in perspective has been a challenge, particularly in places where there are.
Cobot outbreaks.
Greater metro areas or.
Restrictions in place by local governments or what have you on people being able to move around so that's a big part of what we've seen there lead traffic has been down one.
Out of anecdotal data point as this past month was I think the first time that there.
Lead volume.
Was in excess of where it was last year. That's for one month. So that is by no means a trend but at least it was an interesting anecdote to see some positive movement on a year over year basis.
That all still has to translate to sales and move in so.
Thats something that they are still working on it.
Every day, but.
There there have been some glimmers here and there with our operating partners and they have seen the holidays seen some of that where they had a reduction to move out some months, but or move outs and they've just not had the move in volume and really that's been the story is more of the move in volume than the move outs.
They've they average between two and a half in three years average length of stay with their residents.
And that hasn't really changed it's just been trying to replace the funnel and build it back up and Todd just to.
Bring home, what we said in our opening remarks, the entrance fee communities.
We are clearly not seeing anything.
In terms of what we're seeing on the rental side of that in the past living there their occupancy is holding up very very well, including our recent joint venture and timber ridge.
In the Seattle area.
Yes. They are yes of course, they have much longer length of stay.
Generally speaking a much different profile of resident there little bit younger probably a little bit healthier by comparison and the other thing that's really been interesting to watch is the housing market seems to be holding up really well, which has given people the equity to make a purchase decision on an entry fee which is a.
Just a very different decision than it is for.
And the rental independent model.
Very helpful guys I appreciate that and then guys I guess switching back to the fixed for sale of the nine properties.
It's got to be difficult for a buyer.
As any buyer, including yourselves on the other side of the table, but you guys as a seller.
Of framing out what the rent is going to be a stabilized rent and what the coverage is.
Can you also speak to our own nine stabilized assets, what kind of a rental stream with the buyer be looking at.
Well in this case the buyer is bickford, so they they're just looking to the underlying NOI and thats whats being underwritten for.
By the banks to be able to support loan on those and then NHL, we'll get the benefit of those proceeds ultimately what big for does with these assets.
It's going to be up to them, whether they tried to improve them, where they try to sell them that's going to be a decision for bickford.
The the fact the matter is the of the nine its a.
It's several different opportunities, there's probably there's probably two or three buildings. They can expand there's a couple of buildings that are stable just have the rent associated with them as grown beyond what the market can support because they're in a secondary or tertiary markets, where they have not kept up with rental increases.
But they are.
Well occupied pretty good performing buildings and then there's a couple that are turnarounds that theyre going to need to.
Figure out whether they are going to improve and keep or again sell.
If you can get a interested buyer so no decision going to be on them. It is kind of a smattering of different opportunities within the nine.
And there's no question that they have work to be done. These are all buildings that were going to be sub one zero.
On a coverage basis, so it's going to be accretive.
For both of Us too.
See them.
Yes, so the big bird put a lower cost to capital and stay in place and that's ultimately what's going to benefit them from a cash flow standpoint.
Okay. That's helpful and then because you've got some your forgiving some rent associated with the sale. So a true a cap rate of something we may be looking at may not be fair because you have to throw that into the into the math is that right.
Well, we consider that as part of the sale and.
Incineration for them getting it done on a certain timeline. So those are the things that we're trying to dot I's and cross Ts zone right now.
But yes, I mean, that's again there as part I guess essentially part of that purchase price is taking into effect that there was a deferral of rent over a period of time.
Great. Thanks, Kevin.
Thanks.
Our next question comes from the line of Haran hedge JMP Securities. Please go ahead.
Hey, guys, Steven the cares act money opening up.
Your senior housing operators does that materially help but.
Portfolio from future deferrals, I guess, the highlight there would be on bickford.
But I'd also be interested in the other tenants and then on the same topic.
I think the original Treasury Department guidance for.
Cares Act money it was that it had to be spent by the end of 2020. So I'm wondering if that got extended in conjunction with that opening up the senior housing operators and phase two.
Well. This is Kevin I don't think there are operating part is going to have any trouble spending the money on whatever timeline set forth. The fact, the matter is theres plenty of cost associated with Cove. It in the.
The rig.
Reduction of occupancy that's been out there.
These this 2% is by no means going to make that up I think we've talked about this.
With our investors before but if we wanted to try and quantify that 2%.
In equated to a rented space if you like half a month to a month's worth of rent. So it buys them. Some time, but it is it's a it's a bandaid it's not going to solve an issue. We do believe based on the information we have that theres. Some additional stimulus dollars coming we've got the phase $3 that all of our operating partners have applied for but.
We don't know what those are it's just a share of a pie.
So that will be additional support that will help push them push out the timeline and help them bridge a gap to as we talked about a more normal operating environment. So it all helps but its not going to be a solid four.
Our trade associations.
Looking into or requesting additional support and we're hopeful that that that comes through and think that is.
[music].
Would definitely be beneficial given the impact that a pandemic his head on these operations.
Okay, and then in terms of the Bickford Reid.
Recap then getting the deal done with the bank.
Is your confidence higher lower or unchanged today versus last quarter.
That they're going to get that done given everything that you've seen thus far.
I would tell you our confidence is unchanged, we're moving forward with it believing that it will get done.
Again, we still have some hurdles to get over but.
We do believe that this is a good.
Yes.
A good first step minimum on trying to get big for some more financial stability and.
[music].
Benefit for everybody involved so.
We still have confidence that it can get done but it is not without.
Some some hurdles that we have to clear.
Are the the deferrals that were announced for Bickford.
I know, there's essentially two traunches.
Does that does the first tranche take care of.
Then for the rest of the year, assuming that the deal doesn't close until the end of the year and then if we get into 2021, the optional deferrals would that be enough to sustain for a period of time.
Assuming the deal Doesnt get done or would there have to be additional deferrals on top of that.
Unless a vaccine got the market before people are kind of thinking about.
This is Eric we modeled all sorts of scenarios some of them just as you described there.
And.
The agreement that we reached with them as flexible enough to accommodate.
All of those outcomes.
Gotcha that helps and then last one looked like the revolver availability increased by about a 130 million quarter over quarter.
Didnt see where that liquidity was sourced from.
Kind of fill me in on that or.
Yes. So there is a lot of notes and our Q and even our press release about $100 million term loan.
Close at the very beginning third quarter a.
Thats the primary source.
The other source is just the various cash.
Cash flows that we get right I'd like to remind everybody that we generally keep about $40 million a cash every year after paying our dividend and all of our other fixed charges cellular we're continuing to do that.
This year, we've had some dispositions.
Yeah, if you look back at our note you'll see.
Some first quarter dispositions, but.
We just.
Had the ability to pay down the revolver in excess of that term loan in the second quarter adoption.
Yeah that makes sense.
Actually at the time guys. Thanks.
Our next question comes from the line of Mattel, how quick Tanya would consult please go ahead.
Hi, good.
Good morning, everyone.
Just wanted to drill down on kind of two questions about the x.
Obviously I I appreciate our technology.
In around timing.
As it pertains to bickford or some of the other senior housing operators.
But just kind of given some comments around.
Bracketing, Robert scenario vaccine getting us back to normal by kind of April may.
It's.
Sounds like was that kind of have you done this quarter's a wheel payments to go.
I guess just the.
The scenario.
Trying to understand the confidence you guys have that won't have to do more.
To quote unquote key word on on the seat.
[noise] [noise] tiles, Kevin I think Eric had addressed that to some degree already is were.
We're willing to work with our operators and you know.
As we've already demonstrated with bickford on what May come down the pipe for now what we've tried to put in place is something that gives us the flexibility and gives them cash flow or cash to be able to manage through the next few months and get us to a point, where we have additional clarity and.
Thats really what were trying to get at this point as each day, we have a little bit more.
And we will consider things as they come but for right now we've done what we can to be able to give them some financial flexibility and we'll have to take it kind of.
Kind of week to week from there so.
That's fine that's fair and then the opportunity you talked about on the acquisition front again.
It's around some developers will be struggling and things like that.
I'll just take that as an indication of you are willing to buy assets that may not need to stop all assets that they may not need that may not be an operator, yet thank you.
Kinda wouldn't look on the quote unquote nice uplift.
It depends so that's one of those it really.
Rezoning it depends unfortunately, that's going to end on our operating partner the market that it's in we've done that and select circumstances in the past.
Are we starting to see some of those opportunities yes, but.
We would look at that as kind of a development opportunity and if we have an operating partner that we can structure a deal with that is going to be accretive in HIV and they have some liquidity to get them through a lease up period, we would absolutely take a look at that.
Are we going to go around and buy a bunch of lease up buildings. No. I don't think we are but we are starting to see some more of those opportunities and.
For the right customer and like I said I feel like we've done this in the past on a selective basis, we would we would definitely take a look at that it just it's going to depend on all the things that we've looked at before is that accretive to our shareholders is at a high quality customers at high quality building and as their capital, whether we figure out a structure that financing that.
In or they are bringing to get them to a stabilization.
And Thats kind of the key right now is what is stabilization how long does it take to get there and I don't know that we have great clarity on that but I can just I can tell you is more we would be underwriting more longer periods than we would in the past so to find something that is going to pencil when you're looking at alone.
Our lease up they are going to be.
You know that there is not.
I would tell you that far few between but it is something we definitely are evaluating.
Okay.
That makes sense. Thank you.
Thank you Tyler.
And we have no further questions from the phone line Sir.
Thank you everyone. Thank you for joining us today, and we'll talk to you next quarter if not sooner.
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.
[music].
[music].
No.
[music].
Okay.
[music].
Okay.
[music].
Oh.
No.
[music].
No.
Okay.
[music].
Well.
[music].
No.
Okay.
[music].
Okay.
Okay.
Moving on.
Okay.
No.
[music].
No.
No.
[music].
Okay.
No.
[music].
Okay.
No.
[music].
Okay.
Okay.
Okay.
Okay.
[music].
Hello.
[music].
Okay.
[music].
Okay.
Well.
[music].
Okay.
Uh huh.
Okay.
No.
[music].
No.
Okay.
[music].
Mhm.
[music].
Mhm.
[music].
Okay.
[music].
Okay.
[music].