Q1 2021 National Health Investors Inc Earnings Call
Yeah.
Greetings and welcome to the National Health investors first quarter, 2021 and conference call during.
The presentation, all participants will be in a listen only mode. Afterwards, we'll conduct the question and answer session.
At that time, if you have a question of please press the one followed by the for and your telephone.
If at any time during the conference you need to reach and operator, Please press star zero.
This conference is being recorded Tuesday may 11th 2021, and now I'd like to turn the conference over to Dana Hambly. Please go ahead.
Thank you and welcome everyone to the National Health Investors Conference call to review of the company's results for the first quarter of 2021.
On the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, Executive Vice President and Chief financing, Chief Financial Officer, and David <unk>, Chief Accounting Officer, the results as well as notice of the accessibility of this conference call and I'll listen only basis were released after the market closed yesterday and the press release.
And that's been covered by the financial media as a reminder, any statements and this conference call, which are not historical facts are forward looking statements NHI cautions investors that any forward looking statements may involve risks or uncertainties and are not guarantees of future performance.
All forward looking statements represent nhi's judgment as of the date of this conference call investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in the Nhi's form 10-Q for the quarter ended March 31.
2021.
Copies of these filings are available on the SEC's website at SEC Gov or on the Nhi's website at NHI re dot Com. In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which are provided in the nhi's earnings release and related tables and schedules, which have been filed on form eight.
K with the SEC.
<unk> are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release on the.
And I'll turn the call over to Eric Mendelsohn.
Hello, and thanks for joining us today, we hope that everyone is staying healthy.
We are grateful for all the efforts of our operating partners and their teams as they have been battling on the front lines of this pandemic for well over a year with multiple ups and downs along the way.
With the successful rollout of the vaccine clinics across our communities. We are now starting to see some light at the end of the tunnel with leads and sales and move ins picking up.
That said, we expect that the path to a more normal operating environment environment will be uneven and is likely to be a multiyear process, which will make 2021 of difficult year for NHI as we help our tenants bridge the gap to full occupancy and margin recovery.
Fortunately, our prudent balance sheet situation puts us and are positioned to address and resolved many of our most pressing issues this year and to emerge as a stronger company with a long runway for growth.
Turning to our results the.
The first quarter was ahead of our internal expectations driven by lower levels of deferrals of <unk>.
We've seen throughout the year, the entrance fee and skilled nursing segments, which represent more than 50% of cash revenue are performing well, while the free standing assisted living memory care and independent living segments have experienced more significant occupancy and margin declines.
Despite the challenges our monthly collections remained strong through the first quarter as we collected over 94% of cash too.
However, as COVID-19 cases started spiking again in late 2020 and earlier this year it became clear that our tenants would need more assistance.
As previously announced we reached an agreement for a 5 million dollar second quarter deferral with Bickford and.
In addition, we've reached agreements with for other operators for concessions totaling $2 3 million and the second quarter to date.
We are also and discussions with holiday that could result, and rent concessions starting in the second quarter.
And we announced last night that we completed the sale of six Bickford properties for $52 $9 million, which includes the 13 million second mortgage provided by NHI.
And this transaction is projected to improve bickford <unk> annual cash flow by approximately $1 8 million.
We continue to be very proactive with bickford and are pleased that their occupancy trends have improved and the last several weeks, resulting in a 180 basis point increase and April versus March.
But we know they are not out of the woods yet.
On a more positive note, we're very excited about our recently announced $50 million mezzanine loan with Montecito medical to invest primarily in medical office buildings. We don't view this as a change in strategy for NHI, but rather as a chance to deploy capital at favorable risk adjusted return.
Turns with one of the premier owners and operators of Mlps and the country.
And also fulfills the goal of doing more business and Nashville.
We have said in the past that we were unwilling to make decisions that have a long lasting impact on our business and the midst of the worst crisis that our industry has ever experienced.
Now that the impact of the pandemic is beginning to wane, we're starting to make some of those decisions, which we expect to result, and a portfolio of stronger assets less operator revenue concentration and healthier EBIT arm coverage ratios.
This can be accomplished by restructuring leases selling underperformers and changing out operators, who were not the right fit.
We believe we can achieve these outcomes, while maintaining our investment grade rating as we have multiple levers at our disposal, including full capacity on our revolver and access to both debt and equity capital markets dispositions and capital recycling as well as possible change.
As to our approach to our dividend.
With that I'll turn the call over to John.
Thank you Eric and.
Hello, everyone.
Let me first turn to our results and then I'll talk more about our dividend and balance sheet.
Beginning with our net income per diluted common share for the first quarter ended March 31, 2021, we achieved 78 <unk>.
Compared to a $1 37 to the same period and 2020.
The decline in net income between Q1, and 2021 and Q1 and 2020 is largely due to three factors.
First for the first quarter last year, we had we had of $21 million gain and the sale of real estate assets.
This year's first quarter includes $4 $2 million and rent deferrals and third this year, we experienced a $3 6 million increase and our non cash stock stock based compensation expense.
The increase was primarily the result of a significant increase and NHI stock volatility measurement used and the calculation of this expense caused by the pandemic.
For our <unk> metrics per diluted common share for the quarter ended March 31, 2021 compared to the prior year NAREIT <unk> decreased 12, two of $1 23 from a dollar of 35 and.
Normalized <unk> decreased 12, 9% to of $1 24.
As Youll notice and our first quarter's earnings release, we are no longer reporting <unk> per share.
<unk> per share had included the impact of noncash stock compensation, which represents the majority of the adjustment between <unk> and the FHA.
Our methodology for computing.
Is unchanged from prior periods.
As described in our recent proxy our board's compensation Committee has moved from <unk> to <unk> is a metric used to determine the executive compensation under the cash performance incentive plan.
We consider the boat to.
To be both the measure of operational performance and liquidity.
And there is more closely aligned with the liquidity, we are not providing you with per share GAAP information and keeping with the SEC requirements.
For the quarter ended March 31, 2021, our normalized <unk> was essentially flat year over year at $59 $6 million and up $550000 sequentially from the fourth quarter.
Given the significant impacts many of our operators have experienced over the prior four quarters, we're very pleased with our results.
Which is a testament to the strength of our triple net strategy.
Reconciliations for our pro forma performance metrics can be found in our earnings release, and 10-Q filed yesterday afternoon at SEC Gov.
In mid March we declared our first quarter dividend of $1 10 in the quarter, which was paid on May seven 2021, and represents normalized <unk> and D.
First quarter total dollar payout ratios of 89, 7% and 84, 9% respectively.
And last or unusual tax items, such as the taxable income, resulting from the holiday restructure in 2019 historically.
Our dividends of exceeded our taxable income by 20 or more percent each year.
As further described in our 10-Q filed last night.
We have announced approximately $7 3 million and concessions for the second quarter, and we are and additional rent deferral discussions for holiday retirement and the other tenants.
Kevin will talk more about our tenants later in this call.
Our full year 2021 results will also include historically larger amounts of proceeds attributable to dispositions of mortgage repayments.
Which will seek to recycle and which are generally higher yielding investments.
As we assess the pandemic recovery line 2021 dispositions may grow further.
Because of these factors our expectation is that our payout ratios for further rise and the second quarter.
And keeping with our prior pandemic practice, we will look to declare a second quarter dividend and mid June.
Eric mentioned at the beginning of the call that we are seeing some positive signs around the occupancy.
He also mentioned that we are beginning to identify adjustments to our portfolio, which will strengthen our operators and stabilized and HIV future results.
It's still early days and assessing the strength of the pandemic recovery and as of today, we cannot point to the sort of robust pent up demand, we normally might see and senior housing after and infectious outbreak.
So we believe determining the extent of the recovery is still a few months away.
Our dividend and any adjustments for our dividend in the coming quarters will depend upon our determination of what the slope of the recovery line will look like.
Turning to the balance sheet.
Our debt capital metrics for the quarter ended March 31 for net debt to annualized EBITDA of five times, our fixed charge coverage ratio of five seven times and weighted average debt maturity at approximately five years, which compares to approximately two years of December 2020, and reflects our inaugural 10 year public bond of $400 million and <unk>.
January 2021.
We ended the quarter with $1 5 billion and total debt of which 94% was unsecured.
For the quarter ended March 31 of our weighted average cost of debt was $3 two 4%.
On April one we retired $60 million convert we retired arps $60 million convertible bond and at the end of April we exercised our one year extension option on our $550 million revolving credit facility.
Which pushed that maturity to August 2022, So we have no further maturities in 2021.
And at April 30.
We had a zero balance on our Wi Fi entered $50 million revolver and.
Approximately $37 4 million unrestricted cash and we retired $25 million of our $250 million term loan due August 2022.
In addition, during the first quarter, we raised approximately $48 million and net proceeds from our ATM program and an average price of $73 62.
Which leaves approximately $417 million under the program.
With that I'll now turn the call over to Kevin Pascoe, who will discuss our portfolio Kevin.
Thank you John.
Starting with an update on COVID-19, which is based on results for our May 4th monthly survey.
Active resident cases have declined by 93% and our senior housing portfolio and by 97% and our sniff portfolio since peaking and mid to late December.
Active cases increased to 33 and our latest survey from 16 last month, but still represent only 1% of total capacity.
Anecdotally the majority of residents testing positive who had been fully vaccinated are asymptomatic or have experienced only mild symptoms.
Turning to the performance of our different asset classes and larger operators.
Our need driven senior housing operators, which account for 32% of our annualized cash revenue generally experienced for the extension of declining occupancy trends that started in the fourth quarter and continued through February before leveling off in March.
Big for our largest assisted living operator, representing 15% of annualized cash revenue experienced a 410 basis points sequential decline and first quarter average occupancy, which followed a 280 basis point decline and the fourth quarter comparison.
We're happy to report.
The average April occupancy increased 180 basis points from March to 76, 3%.
As Eric mentioned, we're also happy to report that we completed the sale of six properties too big for for $52 9 million, which includes the $13 million second mortgage provided by NHI.
This will save big for the approximately $1 8 million and annual cash flow and improves our pro forma EBIT arm coverage with Bickford from <unk> 97 times to one of two times as of the fourth quarter.
We are continuing to work proactively with bickford with all options on the table, including further dispositions of underperforming assets and we'll update you as those decisions are finalized.
Our entrance fee communities, which account for nearly a quarter of our annualized cash revenue.
It had been more resilient and driven by factors that we've discussed in the past, including a longer average length of stay and are generally younger and healthier resident population.
We believe this led to an earlier occupancy recovery relative to other senior housing asset classes as average first quarter occupancy was generally flat to up slightly compared to the fourth quarter.
Senior living communities, which represents 16% of our cash revenue had first quarter average occupancy of 77, 9%, which was up 60 basis points from the fourth quarter.
Slc's entrance fee sales had been encouraging too as first quarter and April sales both exceeded the prior year periods and in fact year to date net sales exceeded sales for the same period of 2019.
Our rental independent living communities, which accounts for 13% of our annualized cash revenue has experienced a more pronounced occupancy decline than our needs driven and <unk> assets.
Holiday retirement, which represents 11% of annualized cash revenue had average occupancy of 74, 1%.
And the first quarter, which was down 310 basis points sequentially.
This followed a sequential decline of 240 basis points and the fourth quarter.
Holiday was very proactive and administering vaccine clinics throughout the portfolio, even though they were not prioritize due to their IL status.
This appears to be stabilizing holidays occupancy, which has been essentially flat for the last three months and net move ins were positive in both March and April which was the first positive month since January of 2020.
Okay.
Given the holidays occupancy trends it should not be surprising that we are in negotiations on rent concessions that could impact second quarter and beyond.
Holiday has used its $5 million credit enhancement that was part of the 2018 lease restructuring, which also included a $10 8 million security deposits.
This deposit has not been touched at this point, but could be used as part of any agreement we may reach.
The skilled nursing portfolio, which represents 27% of annualized cash revenue is anchored by two strong tenants and and HC and the inside of group, who contributed 13% and 8% of annualized cash revenue respectively.
EBITDAR coverage for the trailing 12 months ended December 30 was two nine times.
And this coverage is inclusive of funds received from the cares act for the that accepted the funds.
The government support for the skilled nursing industry has been tremendous and we expect that there will be more support from the remaining $24 5 billion and the provider relief funds as well as individual state support following significant funds received under the American rescue plan.
Turning to our business development activities, we announced that we entered entered into a $50 million of mezzanine loan agreement with modest Hito medical which earns current pay interest of nine 5% with an additional two 5% paid on future capital events, such as asset sales of recapitalization.
This is an opportunist.
Opportunistic investment.
With a well established group located here in Middle Tennessee.
Gives us some portfolio of diversification with a high risk adjusted return.
We are actively working with montecito to identify assets for the funds and expect that we will be able to deploy funds as early as of this model.
As Eric noted, we do not view this as the change in strategy for NHI as we have been and act and active pipeline of over $130 million and board approved deals focused on senior housing skilled nursing and specialty hospitals.
With that I'll hand, the call back over to Eric.
Thank you Kevin.
The industry is starting to show Green shoots and we expect some recovery in 2021, but the next several months will be difficult.
NHI is well positioned to weather the storm with multiple levers at our disposal to preserve our conservative capital structure and set the company up for longer term growth.
While this pandemic has had a disproportionately negative impact on operators carrying for the senior population. We do not believe the damage is permanent and we look forward to updating everybody on the progress.
With that operator, we will now open the line for questions.
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The brief alone for the first question.
Our first question is from Jordan Saddler with Keybanc capital markets. Please go ahead. Your line is open.
And.
Thanks, guys.
The first question I wanted to touch base on that.
The comments on the call of the comments and the release regarding the ability to sort of transform the portfolio.
Two lease restructurings and shedding underperforming assets.
Kind of curious if you guys could size this need or.
And for Us somehow.
I know obviously of lots going on and many operators are struggling and.
You guys have done a good job so far to collect rents with the exception of maybe.
A handful of small handful of tenants, but it now seems like maybe the need to do something.
Grown a little bit.
And I don't know it may sensing that correctly number one and number two can you maybe scale, how big the the opportunity might need to be.
Hey, Jordan this is Eric you're absolutely right.
And my opinion.
Is the year to get things like that done.
I feel like the market is in of forgiving mood for companies that are taking their medicine and right sizing portfolios.
To come out the other and with healthier metrics on lease coverage and stable NOI.
And in terms of what.
What that looks like I mean, we just sold $52 million of Bickford product it could easily be.
Overall portfolio wide another.
The 252 400 million.
Over the next eight months.
Okay.
And this would mostly be seniors housing.
Well, yes, and no keep in mind, we have some.
Some purchase options are occurring and the normal course, we have okay.
Special specialty hospital, so that's in there as well.
And that's detailed on our supplemental so does that does that include the.
Are you, including the <unk> of the loan repayment potentially.
Coming up.
The other one stage, where it is it may be.
And as adding and there as well.
Would that be incremental.
And that would be incremental I was not including that and my figure.
Okay.
But you have of the Acadia hospitals and there.
Right.
Okay got it and then.
Maybe one other on holiday if I may.
Theyre paying I think from the Q10 million plus or minus of rent per quarter.
How big.
Wood of rent concession need to be I mean to sort of preempt any negotiations here, but but.
Are you comfortable that the security deposits might cover you here.
It would cover us for a period of time, we're not excited about the idea of using the security deposit.
And these discussions are ongoing.
So.
So that's about all I'm going to say on that.
Okay I'll hop back in the queue. Thank you.
Thanks Jordan.
Our next question is from Todd Stender with Wells Fargo. Please go ahead. Your line is open.
Hi, Thanks.
Sticking with the rent concession discussion.
Typically you just hear this across the real estate world of there.
Rents required to be paid back within 12 months, but we're talking about limited visibility and on the trajectory and return of senior housing.
What are some fair terms of for you guys to get your rent payback is it a is it a couple of years is that a fair ballpark.
Hey, Todd it's Kevin Yes, I would tell you that's a fair ballpark with any of these concessions that we've made it's essentially alone bearing interest to them. So they're incentivized to pay it back faster as they have cash flow come back there.
And there are some minimum payment terms that we generally attached to it where.
And we would expect to start seeing payments made around the end of the year if not sooner.
That said it is going to take some time for them to payback that amount and so we generally look at it somewhere between 12 and 24 months.
But understanding that we don't expect it all to come back most likely and the next 12.
Hey, Todd this is John Spaid.
The other thing we're thinking about is as well.
And sort of.
Moving moving some of the portfolio around through dispositions.
If we can improve cash flows.
And that our operators are.
Achieving from the remaining portfolio and we can access and we could potentially accelerate the repayment of the deferrals.
So thats another reason why we're.
We're kind of looking at sort.
And sort of broader.
And the broader equation.
That's a good point John So this leads me to my next question about the Bickford sale.
Bickford going to continue to operate those properties that were just sold.
It's Kevin again, yes, they will continue to operate the six as we've talked about and the prepared remarks, we will continue to evaluate the portfolio. There are some that we think may be included and more of an outright sale.
And those discussions and that evaluation is ongoing.
But it'll be a mixed bag and I think we've talked about and on prior calls where that's going to be of.
The bit of a surgical effort, where we look at which ones makes sense for them to stay and the portfolio, which ones makes sense potentially for them to move on from.
And still foster some of the other pieces of the relationship that it made some sense, which is the development aspect, which has been very successful for them.
Alright Thats good point, Thank you and then Eric at the tail end of your prepared remarks.
You touched on the disposition.
I think you mentioned the dividend.
What were you referring to and in that sense.
Fair question, obviously, Todd if were doing dispositions to the point that were affecting Nhi's NOI.
We keep a careful eye on our payout ratio.
We don't like to go above 85% so.
And the event that these dispositions.
Change our NOI to the point that were above the 85% or for some other metric.
And that the board decides then we would have to look at our dividend payout.
Yeah.
Understood. Thank you.
We have a question from John Kim with BMO capital markets. Please go ahead of your line is open.
And you.
Eric you mentioned.
It seems like the market would be forgiving mood. If you took your medicine.
Today, and so does that imply that you are and kind of to rip the band aid off sooner rather than later as far as not just asset sales and.
And transfers, but also potentially.
Rent cut for some of your big.
Operators.
I'm not a big fan of rent cuts are usually one where theres a rent reduction there is some sort of value exchange.
And I would point to our restructure with holiday.
And it.
It would probably look more like what we're doing with Bickford, where we changed the <unk>.
Capital structure of the tenant and the capital costs of the tenant.
Either by dispositions or.
Some sort of joint venture or development.
Stay tuned.
I'm just wondering if under that plan.
It could be of multiyear impact to earnings.
And if you're.
If you are looking to trade off of one for the other ore.
Potentially get.
For instance, like of rent deferral of that may be hard for the tenant to pay back.
I'm just trying to marry that with your comment that this is the time. This is the year, where you could do this and not get punished too much of a and the market.
Sure that's fair and we're going to try and do as much this year as possible.
I think that as John was saying earlier and Kevin as well.
The payback of the deferrals will depend on the conditions and the cash flows of our tenants and if we can put our tenants into a position to have healthier cash flows well then those deferrals will get paid back.
The faster.
Okay I know this hasn't happened yet, but if you do take the security deposits from holiday.
As a form of rent.
And from their rent or are you going to include that and rental income and how you're going to treat that.
And the payment.
Yes. This is John John how are you of this morning.
Good yeah. So that's how it works right. So we have we have this bucket of money.
And if we if we so chose.
And if that's the best decision and.
Should apply it towards rent and Stu.
But you've got to remember that we have a private equity company out of the other side of the equation here.
And while we tried to restructure of this transaction.
So that in the long run it would work.
The sort of commercial enterprise.
And that we've got to also be thoughtful about as well and once we use the deposit it's gone. So if we wanted to transition these properties.
That's another place, where we might rather use of deposits.
Okay final question.
One of your directors Robert <unk>.
The 39% of the votes against the nomination.
Can you provide any color on the background of this and maybe discuss how you think the board is going to change.
Going forward.
This is Eric Yes, we received a lot of calls Mr. Webb is on the nomination committee and because of its status as a member of the nomination Committee.
He is at target for investors, hoping to promote diversity.
And other ESG.
The issues on the board.
And we were told in no uncertain terms that until some of those ESG issues are addressed that these investors would be voting against members of the nominating Committee.
So we're in discussions with the board about that and.
And I have nothing to report at this at this time, but we are.
And we're very aware and very attuned to our investor bases and concerns.
And.
Great. Thank you.
Our next question is from Tayo Okusanya from Mizuho. Please go ahead. Your line is open.
Hi, yes, good morning, or good afternoon, everyone.
And the months the CTO of transaction.
Wanted to understand the rationale behind it and you're lending to them at nine 5% and they are buying and we will be assets at five five GAAP, let's even say fixed cap so I'm trying to understand.
The of business model, and why you would lend to and entity, where it looks like the acquiring a negative spread.
Hey, Tayo, it's Kevin.
So in this case, we're essentially functioning as a mezzanine lender for them. So we are just part of the capital stack, where they would go out and secure traditional first mortgage financing on the asset we would come in play.
Roll and the capital and they would bring some equity behind us so that blended cost of equity for a blended cost of capital I should say.
There is still a spread and on the investment.
<unk> been adept at.
Finding and purchasing property and meeting those spread requirements, which is why we made the investment and then ultimately turning around and being able to package those up and sell the investments and be able to make some profit for themselves. So we are of player here, where we're and investor and an income stream.
Is the the nine 5% that you mentioned and then we have essentially a little bit of upside on the recapitalization for.
The the sale of those assets, where we would participate essentially by getting that additional two 5% at that point in time, So we think that those spreads.
From our traditional lending model are adequate for us and an attractive rate, where we can get some additional income and.
And essentially in a space, where we've not been able to participate as <unk> already mentioned a lot of the.
And we will be assets go of it.
Five.
Sub 6% anyway.
So that's the challenge given our cost of capital if we can play a role and the capital stack and add an element of diversification and make a nice spread and the interim we feel like that's a good investment for us.
Hey, Tayo.
Tayo this is John Spaid.
Hey.
How are you. So let me add on to that so you are comparing the total capital stack return to our mezzanine.
So the way we're thinking about it too is the.
There is.
The $20 million of investment equity investment going into this portfolio and.
In addition, and there is additional equity potentially coming in his portfolio through co investors and they might be the physician.
Physician groups that are and the facilities.
So.
Where we sit and the capital stack you are right. The total capital stack is in that range that you mentioned, which would include the financing underneath but we're thinking about.
Where we set in relation to two all of the other equity that's being contributed to this funds as well we set ahead of it so keep that in mind Scott.
Gotcha, Okay, and my follow up if I, if you could indulge me the $7 3 million of rent concessions you discussed and the Q2 Q.
How exactly does that work I mean is that just on the impact or are these all related to tenants, where you've moved to a cash basis and it's more of a and <unk> impact I'm, just trying to understand which bottomline numbers, it's going to impact.
So let me take it based on your and your question and the opportunity to sort of explain how we're treating the accounting deferrals to begin with.
Two methods that you can choose and I think we're choosing the more conservative method, which is the variable interest method, which means that we're not recognizing.
And so our revenues the deferrals, so they're not sitting on our balance sheet as the receivable. So they are adjusting our GAAP revenues.
So as a result of that they flow through <unk> and the flows through at.
At the same time they.
And theyre not cash basis, because we are still recognizing straight line revenues, which is permissible under GAAP, given the pandemic and some of the.
The relief GAAP gave us and this last year.
So they are still not treated as cash basis, but the revenues do adjust the edge.
Just all the way through the income statement.
Through <unk> and <unk>.
That's helpful. Thank you.
Our next question is from Daniel Bernstein with capital. One. Please go ahead. Your line is open.
Hi, good morning.
And wanted to go back on the comment the $130 million pipeline and just understand.
Those kind of like.
Those letters of intent of those actually deals that you expect to close and.
And maybe a little bit more and the nature of that.
Sure Hey, Dan It's Kevin what I would tell you that generally speaking we have presented to the board.
We have.
We have of deal under LOI that we feel is the management team confident about that we want to seek approval and we've probably done some level of due diligence, but it is not completed and we're final.
So these are the ones that we feel pretty good amount and want to make sure that given our cadence of board meetings, we have approvals to move forward before we're spending a lot of time and money associated with getting the diligence done.
And then from there we're working on final diligence, making sure that the.
And are satisfied with all of the findings that we have on the each of the deals and then have the final.
And as we proceed to kind of the final closing and.
In terms of makeup.
Some of that.
I think the the underlying makeup still similar to what you've seen from us.
And maybe a little bit weighted away from senior housing right now, but that's more of a function of the market than anything else, but it's senior housing.
And still evaluating some some skilled behavioral health specialty hospital. There is an element of some of the senior loan financings that we've done in the past where.
We can.
And get a purchase option on property and the all.
A lot of times, when we're doing a loan thats what were trying to do too.
To go back to some comments, we were just previously and making Montecito is not one where we're actually likely looking to acquire medical office assets. At this time, but you never know so I think it is good to have our toe in the pool so to speak.
We've got a good mix and the portfolio or and the pipeline and.
Still evaluating opportunities and feel like we have a good view of the market.
Frankly, a little bit.
Choppy right now because people are still evaluating what theyre going to do as it relates to senior housing, it's a bit of of world of have and have nots right now.
But.
Again, how we are looking at the current pipeline and and what we have that we're working on and diligence items all of them.
Okay and.
In terms of restructuring leases and some.
And of the items you discussed earlier.
Maybe the options strategic options.
Right size of the portfolio.
And historically.
You guys have not been in favor of RIDEA structures are operating structures.
Capture upside.
That way, but.
Given you look at the long term supply demand dynamics of senior housing and maybe even skilled nursing.
Does that change your mind and any way in terms of.
And maybe converting some of these triple net structure is two and operating structure.
And capturing some of the upside.
Or is it just.
Hopefully, we'll recapture the deferrals rather than rather and the upside of the operations.
This is Erik and count we do both.
Our flow.
No.
Net your point your point is well taken.
And.
Fundamentally.
And we preferred triple net leases, we have dabbled and RIDEA and the past as you know and we have.
And two small RIDEA science experiments with Lcs Lifecare services and.
Discovery.
So we're not opposed to some sort of RIDEA hybrid and we would certainly think about that as part of our restructuring discussions.
Okay.
And Oh go ahead, sorry, I would just add.
What I need to see and as I need to be convinced the RIDEA.
Motivates the operator properly.
Im not sure Thats whats happening in the idea of World right now now the upside is there but.
And how are you going to get from point, a to point B and how is the idea of structure.
Motivating the operator to get there and I'm not sure it it's the.
The right alignment.
Okay.
And then one last quick question I, just wanted to make sure the holidays turned on it's right.
At this point.
As of today, yes, the gap.
And we're still working on active discussions.
With them.
So stay tuned there but.
Okay.
Great.
All I had.
Thanks.
Thank you Dan.
And we are of a question from the one for rich Anderson with <unk>. Please go ahead. Your line is open.
Thanks, and I wish you happy holidays.
So John when you talk about the variable interest sort of.
The.
<unk> approach that you take to deferrals.
Straight line rent also get recalculate it by taking the cash rents out that you differ or does the straight line rent get calculated still and the same full amount of rent.
Yes. Good question rich thanks for asking that so at this time the relief under GAAP as we didn't modify straight line revenue sort of straight line revenue is think of it as once that it starts out and it.
It's positive then and the midpoint of the lease term it flips and then and amortize itself away.
So we've not adjusted that but at some point and the future.
And when the pandemic is clearly over we expect now GAAP to come back in.
And revisit that debt.
842, which is the the.
Yes.
The GAAP.
Requirement will come back into play and we'll have to then revisit whether the entire at least has to be modified so but at this point no. That's not happening is the GAAP. The straight line revenues have have remained unchanged okay.
And all of us.
And who mentioned and maybe Eric but.
Maybe it wasn't mentioned and I kind of thought I heard it but on the.
And the Mezz and investment is there a pipeline of that and front of you that you think you can capture just COVID-19.
It comes somewhat of a recurring business, even though you said it for at this point, it's not a change of strategy.
Yes, specifically talking about Mlps.
Yes, yes.
But to be fair Montecito.
As a co investor and the fund it's their equity and the fund so they would initiate a process to to sell of whatever buildings are in are our fund and.
Given our cost of capital and the cap rates that Mlps go for.
And we would think twice about about buying <unk>.
Okay.
On the.
On the topic of deferrals.
I don't know.
And our deferral and concession and can that be used interchangeably for you.
Sounds like it can but maybe I'm wrong about that is there something definition of different about the word concessions.
Well, we have we have some abatements.
So the are deferrals are deferrals earn interest.
And the.
And the recent the recent concessions putting everything in the bucket of concessions.
And all deferrals, so when we first started.
We had $2 1 million related to the Bickford sale that was abated, we didn't receive any.
Income on interest income on our yield on.
But that's kind of as kind of our the way we are using the definitional works on it.
So there are some small amounts of the abatements that you just you just sort of gone.
And I also have an interest.
<unk> attached to it and we could think of is the deferral concessions being Brian and I will term.
That's right that's right exactly thank you Dana for that and then.
Last question.
Do you think that there is anything geographical at work here in terms of some of the struggles that you are still having some of your operators.
Or does it come down to the asset type because it does feel like this is hanging around a little bit longer we've heard more and the way of optimism from some of your peers not everyone, but for some of them I'm. Just curious if if it's secondary markets or rural areas that is really the epicenter of some of your most difficult.
<unk>.
Hey, rich, it's Kevin and I guess I would tell you, it's a little bit of both the geography and it's.
Asset type, we've definitely seen the more need driven components come back sooner.
People have been core and team now for over a year and they are now.
And now that they're able to access the vaccine the have little more confidence. This is what we've been talking about and prior conference calls.
Helping that consumer confidence and being able to make up of <unk>.
Purchasing decision. So we've seen that need driven component definitely rebound a little bit faster as we talked about of the prepared remarks with the.
Specific to holiday, we actually have seen.
Small positive months for the last two months now which is a good sign but it has been slower to come back then and what we've seen with Bickford by example.
And then within that there is still some geographies, where they had just started to discuss or loosen up some of their touring and.
And restrictions.
Just by way of example.
We had some communities and before and then went back to.
Full lockdown.
<unk> ago, two weeks ago. So.
There are pockets across the nation, we're dependent on local authorities.
And it makes it very hard for them to do business and get move ins and the tours and do their traditional jobs so and.
And Fortunately, it's a little bit of both by and large our communities are open for business enable to tour.
Prospective residents and have family visit family visitors, which is was the big things that we needed.
But unfortunately, it's still does persist and some areas right and so are you using this experiences and.
And informing you as Eric said.
Use of this year wisely and come out all the stronger and its probably going to target. Some of those geographies that had been caught up and this most of all of that and is that fair statement.
It may its definitely and be part of the equation, we're going to look at the portfolio and work with our customers to understand where the major pain points are and where we think there is a good trade.
And long term value for the portfolio. So I think that will be part of the equation.
Yeah, Okay. That's all I got it thank you.
Thanks Rich.
And there are no further questions at this time.
Thanks, everyone for participating today, we hope to see you either.
Virtually or in person at a at a conference soon.
Yes.
That does conclude the call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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