National Health Investors Inc (NHI) 2021 Q1 法說會逐字稿

Greetings, and welcome to the National Health Investors First Quarter 2021 Conference Call. (Operator Instructions) This conference is being recorded Tuesday, May 11, 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 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 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 were released after the market closed yesterday in a press release that's been covered by the financial media.

As a reminder, any statements in 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 NHI's Form 10-Q for the quarter ended March 31, 2021. The copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in an earnings release and related tables and schedules, which have been filed on Form 8-K with the SEC. 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.

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 lead, sales and move-ins picking up.

That said, we expect that the path to a more normal operating environment will be uneven and is likely to be a multiyear process, which will make 2021 a 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 in a position to address and resolve 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 first quarter was ahead of our internal expectations, driven by lower levels of deferrals. As we've seen throughout the year, the entrance fee in skilled nursing segments, which represent more than 50% of cash revenue, are performing well, while the freestanding 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 due. However, as COVID 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 second quarter deferral with Bickford. In addition, we've reached agreements with 4 other operators for concessions totaling $2.3 million in the second quarter to date. We are also in discussions with Holiday that could result in rent concessions starting in the second quarter.

We announced last night that we completed the sale of 6 Bickford properties for $52.9 million, which includes a $13 million second mortgage provided by NHI. This transaction is projected to improve Bickford's 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 in the last several weeks, resulting in a 180 basis point increase in April versus March. But we know they're 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 returns with one of the premier owners and operators of MOBs in the country. It also fulfills the goal of doing more business in Nashville.

We have said in the past that we were unwilling to make decisions that have a long-lasting impact on our business in 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 in a portfolio of stronger assets, less operator revenue concentration and healthier EBITDARM coverage ratios This can be accomplished by: restructuring leases, selling underperformers and changing out operators who are 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, access to both debt and equity capital markets, dispositions and capital recycling as well as possible changes 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 $0.78 compared to $1.37 for the same period in 2020. The decline in net income between Q1 2021 and Q1 2020 is largely due to 3 factors: first, in the first quarter last year, we had a $21 million gain on the sale of real estate assets; second, this year's first quarter includes $4.2 million in rent deferrals; and third, this year, we experienced a $3.6 million increase in our noncash stock-based compensation expense. The increase was primarily a result of a significant increase in NHI's stock volatility measurement used in the calculation of this expense caused by the pandemic.

For our FFO metrics per diluted common share for the quarter ended March 31, 2021, compared to the prior year, NAREIT FFO decreased $0.12 to $1.23 from $1.35, and normalized FFO decreased $0.12 or 9% to $1.24. As you'll notice in our first quarter's earnings release, we are no longer reporting AFFO per share. AFFO per share had included the impact of noncash stock compensation, which represents the majority of the adjustment between AFFO and FAD. Our methodology for computing FAD is unchanged from prior periods.

As described in our recent proxy, our Board's compensation committee has moved from AFFO to FAD as a metric used to determine executive compensation under the cash performance incentive plan. We consider FAD to be both a measure of operational performance and liquidity. But because it is more closely aligned with liquidity, we are not providing you with per share FAD information in keeping with SEC requirements.

For the quarter ended March 31, 2021, our normalized FAD was essentially flat year-over-year at $59.6 million and up $550,000 sequentially from the fourth quarter. Given the significant impacts many of our operators have experienced over the prior 4 quarters, were very pleased with our FAD 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 $1.1025 which was paid on May 7, 2021, and represents normalized FFO and FAD first quarter total dollar payout ratios at 89.7% and 84.9%, respectively. Unless there are unusual tax items such as the taxable income resulting from the Holiday restructuring in 2019, historically, our dividends have exceeded our taxable income by 20% or more precent each year.

As further described in our 10-Q filed last night, we have announced approximately $7.3 million in concessions for the second quarter, and we are in additional rent deferral discussions with Holiday Retirement and 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 and mortgage repayments, which we'll seek to recycle and which are generally higher-yielding investments. As we assess the pandemic's recovery line, 2021 dispositions may grow further. Because of these factors, our expectation is that our payout ratios will further rise in the second quarter. In keeping with our prior pandemic practice, we'll look to declare our second quarter dividend in mid-June.

Eric mentioned at the beginning of the call, that we're seeing some positive things around occupancy. He also mentioned that we are beginning to identify adjustments to our portfolio, which will strengthen our operators and stabilize NHI's future results. It's still early days in assessing the strength of the pandemic's recovery. And as of today, we cannot point to the sort of robust pent-up demand we normally might see in senior housing after an infectious outbreak. So we believe determining the extent of the recovery is still a few months away. Our dividend and any adjustments to 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 were: net debt-to-annualized EBITDA at 5x; our fixed charge coverage ratio at 5.7x; and weighted average debt maturity at approximately 5 years, which compares to approximately 2 years of December 2020 and reflects our inaugural 10-year public bond of $400 million in January 2021. We ended the quarter with $1.5 billion in total debt, of which 94% was unsecured.

For the quarter ended March 31, our weighted average cost of debt was 3.24%. On April 1, we retired $60 million -- we retired our $60 million convertible bond. And at the end of April, we exercised our 1-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.

At April 30, we had a 0 balance on our $550 million revolver, 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 in net proceeds for our ATM program at 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'll discuss our portfolio. Kevin?

Thank you, John. Starting with an update on COVID, which is based on results for our May 4 monthly survey. Active resident cases have declined by 93% in our senior housing portfolio and by 97% in our SNF portfolio since peaking in mid- to late December. Active cases increased to 33 in our latest survey from 16 last month, but still represent only 0.1% of total capacity. Anecdotally, the majority of residents testing positive who have been fully vaccinated are asymptomatic or have experienced only mild symptoms.

Turning to the performance of our different asset classes and larger operators, our needs driven senior housing operators, which account for 32% of our annualized cash revenue, generally experienced the extension of declining occupancy trends that started in the fourth quarter and continued through February before leveling off in March. Bickford, our largest assisted living operator representing 15% of annualized cash revenue experienced a 410 basis point sequential decline in first quarter average occupancy, which followed a 280 basis point decline in the fourth quarter comparison. We're happy to report that average April occupancy increased 180 basis points from March to 76.3%.

As Eric mentioned, we're also happy to report that we completed a sale of 6 Properties to Bickford for $52.9 million, which includes a $13 million second mortgage provided by NHI. This will save Bickford approximately $1.8 million in annual cash flow and improves our pro forma EBITDARM coverage with Bickford from 0.97x to 1.02x 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 1/4 of our annualized cash revenue have been more resilient driven by factors that we have discussed in the past, including a longer average length of stay and a generally younger, 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 have been encouraging, too, as first quarter and April sales both exceeded the prior year periods. In fact, year-to-date net sales exceeded sales for the same period in 2019.

Our rental independent living communities, which account for 13% of our annualized cash revenue, have experienced a more pronounced occupancy decline than our needs driven and CCRC assets. Holiday Retirement, which represents 11% of annualized cash revenue, had average occupancy of 74.1% in the first quarter, which was down 310 basis points sequentially. This followed a sequential decline of 240 basis points in the fourth quarter.

Holiday was very proactive in administering vaccine clinics throughout its portfolio, even though they were not prioritized due to their IL status. This appears to be stabilizing Holiday's occupancy, which has been essentially flat for the last 3 months and net move-ins were positive in both March and April, which was the first positive month since January of 2020.

Given Holiday's 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 deposit. 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 2 strong tenants in NHC and the Ensign Group who contribute 13% and 8% of annualized cash revenue, respectively. EBITDARM coverage for the trailing 12 months ended December 30, was 2.9x. This coverage is inclusive of funds received from the CARES Act for those 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 in the provider relief fund 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 into a $50 million mezzanine loan agreement with Montecito Medical, which earns currently a interest of 9.5% with an additional 2.5% paid on future capital events, such as asset sales or recapitalizations. This is an opportunistic investment with a well-established group located here in Middle Tennessee that gives us some portfolio diversification with a high risk-adjusted return. We are actively working with Montecito to identify asset of fund and expect that we will be able to deploy funds as early as this month.

As Eric noted, we do not view this as a change in strategy for NHI as we have been -- an 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 caring 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'll now open the line for questions.

(Operator Instructions) Our first question is from Jordan Sadler with KeyBanc Capital Markets.

First question, I wanted to touch base on the comments on the call, the comments in the release regarding the ability to sort of transform the portfolio through lease restructurings and shedding underperforming assets. Just kind of curious if you guys could size this need or objective for us somehow? Because I know, obviously, a lot has gone 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 -- a small handful of tenants, but it now seems like maybe the need to do something has grown a little bit. So I don't know, am I sensing that correctly? Number one. And number two, can you maybe scale how big the opportunity might need to be?

Jordan, this is Eric. You're absolutely right. In my opinion, this is the year to get things like that done. I feel like the market is in a forgiving mood for companies that are taking their medicine and are rightsizing portfolios to come out the other end with healthier metrics on lease coverage and stable NOI. In terms of what that looks like, I mean, we just sold $52 million of Bickford product, it could easily be overall portfolio wide, another $250 million to $400 million over the next 8 months.

Okay. And this would mostly be seniors housing?

Well, yes and no. Keep in mind, we have some purchase options occurring in the normal course. We have a specialty hospital. So that's in there as well. And that's detailed on our supplemental. So...

Does that include the -- are you including the -- you have the loan repayment potentially coming up from -- on, I don't know, Sagewood is it maybe, is adding there as well? Or is that -- would that be incremental?

That would be incremental. I was not including that in my figure.

Okay. But you have the Acadia Hospital in there?

Right.

Okay. Got it. And then maybe one other on Holiday, if I may. They're paying, I think, from the Q $10 million, plus or minus, of rent per quarter. How big would a rent concession need to be -- I don't mean to sort of preempt any negotiations here. But are you comfortable that the security deposit 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 that's about all I'm going to say on that.

Our next question is from Todd Stender with Wells Fargo.

Sticking with the rent concession discussion, typically, you just hear this across the real estate world -- if the rents required to be paid back within 12 months, but we're talking about limited visibility on the trajectory and return of senior housing. What are some fair terms for you guys to get your rent paid back? Is it a couple of years? Is that a fair ballpark?

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 are some minimum payment terms that we generally attach to it, where 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 pay back that amount. So we generally look at it somewhere between 12 and 24 months, but understanding that it's -- we don't expect it all to come back most likely in the next 12.

Todd, this is John Spaid. The other thing we're thinking about is as we're sort of moving some of the portfolio around through dispositions is if we can improve cash flows that our operators are achieving from the remaining portfolio, then we can -- we could potentially accelerate the repayment of those deferrals. So that's another reason why we're kind of looking at sort of the broader equation.

That's a good point, John. So this leads me to my next question about the Bickford sale. Is Bickford going to continue to operate those properties that were just sold?

It's Kevin again. Yes, they will continue to operate these 6. As we talked about in the prepared remarks, we'll continue to evaluate the portfolio. There are some that we think may be included in more of an outright sale that those discussions and that evaluation is ongoing. But it will be a mixed bag. And I think we've talked about it on prior calls where it's going to be a bit of a surgical effort where we look at which ones make sense for them to stay in 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 have made some sense, which is the development aspect, which has been very successful for them.

All right. That's a good point. 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 in that sense?

Fair question. Obviously, Todd, if we're doing dispositions to the point that we're affecting NHI's NOI, we keep a careful eye on our payout ratio. We don't like to go above 85%. So in the event that these dispositions change our NOI to the point that we're above 85% or some other metric that the Board decides, then we would have to look at our dividend payout.

We have a question from John Kim with BMO Capital Markets.

Eric, you mentioned, it seems like the market would be in a forgiving mood, if you took your medicine today. So does that imply that you're inclined to rip the bandaid off sooner rather than later as far as not just asset sales and transfers, but also potentially a rent cut for some of your big operators?

I'm not a big fan of rent cuts. Usually, when we're -- there's a rent reduction, there's some sort of value exchange. I would point to our restructure with Holiday. And would probably look more like what we're doing with Bickford, where we changed the capital structure of the tenant and the capital costs of the tenant, either by dispositions or some sort of joint venture or developments. Stay tuned.

I'm just wondering if under that plan, it could be a multiyear impact to earnings if you're looking to trade-off one for the other? Or potentially get, for instance, like a rent deferral 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 can do this and not get punished too much by the market?

Sure. That's fair. 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 faster.

Okay. I know this hasn't happened yet. But if you do take the security deposit from Holiday as a form of rent -- or as form of their rent, are you going to include that in rental income? Or are you going to treat that payment?

Yes. This is John. John, yes, so that's how it works, right? So we have this bucket of money. And if we so chose, if that's the best decision, and we could apply it towards rent that's due. But you got to remember that we have a private equity company on the other side of the equation here. And while we tried to restructure this transaction, so that in the long run, it would work. We have this sort of commercial enterprise that we got to also be thoughtful about as well. And once we use that deposit, it's gone. So if we wanted to transition these properties, that's another place where we might rather use the deposit.

Okay. Final question. One of your directors, Robert Webb, received 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 his status as a member of the Nomination committee, he is a target for investors hoping to promote diversity and other ESG 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 have nothing to report at this time, but we're very aware and very attuned to our investor base's concerns.

Our next question is from Omotayo Okusanya from Mizuho.

The Montecito transaction, I just wanted to understand the rationale behind it. Again, you're lending to them at 9.5%. And they're buying MOB assets at 5.5% cap, let's even say, 6% cap. So I'm trying to understand their business model? And why you would lend to an entity where it looks like they're acquiring at a negative spread?

Tayo, it's Kevin. So in this case, we're essentially functioning as a mezzanine lender for them. So we're just part of the capital stack where they would go out and secure a traditional first mortgage financing on the asset. We would come in, play a role in the capital, and they would bring some equity behind us. So that blended cost of equity or blended cost of capital, I should say, there is still a spread on the investment. They've been adept at finding and purchasing property and meeting those spread requirements, which is why we made the investment and 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 a player here where we're an investor in an income stream, which is the 9.5% that you mentioned. And then we have essentially a little bit of upside on the recapitalization or the sale of those assets where we would participate essentially by getting that additional 2.5% at that point in time. So we think that those spreads, from our traditional lending model, are adequate for us at an attractive rate where we can get some additional income in -- essentially in a space where we've not been able to participate. As you've already mentioned, a lot of the MOB assets go at 5%, sub-6% anyway. So that's a challenge given our cost of capital. If we can play a role in the capital stack, add an element of diversification and make a nice spread in the interim, we feel like that's a good investment for us.

Tayo, this is John Spaid. So let me add on to that. So you're comparing the total capital stack return to our mezzanine. So the way we're thinking about it, too, is there is $20 million of investment -- equity investment going into this portfolio. In addition, there's additional equity potentially coming into this portfolio through coinvestors, and they might be the physician groups that are in the facilities. So where we sit in the capital stack, you're 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 sit in relation to all the other equity that's being contributed to this fund as well. We sit ahead of it. So keep that in mind.

Got you. Okay. Then my follow-up, if you could indulge me. The $7.3 million of rent concessions you discussed in the Q -- for 2Q how exactly does that work? I mean is that just an FAD impact? Or are these all related to tenants where you've moved to a cash basis and it's more of an FFO impact? I'm just trying to understand which bottom line numbers this is going to impact?

So let me take -- based on your question, the opportunity to sort of explain how we're treating the accounting deferrals to begin with. There are 2 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 into our revenues, the deferrals. So they're not sitting on our balance sheet as a receivable. So they are adjusting our GAAP revenues. So as a result of that, they flow through FFO and it flows through FAD at the same time. They're not cash basis because we're still recognizing straight-line revenues, which is permissible under GAAP, given the pandemic and some of the relief that gave us this last year. So they're still not treated as cash basis. But the revenues do adjust, they adjust all the way through the income statement through FFO and FAD.

Our next question is from Daniel Bernstein with Capital One.

Wanted to go back on the comment, the $130 million pipeline. And just to understand those kind of like -- those letters -- that letter of intent are those actual deals that you expect to close? And maybe a little bit more on the nature of that?

Sure. Dan, it's Kevin. What I would tell you is if we -- generally speaking, we've presented to the Board, it's because we have a deal under LOI that we feel, as a 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 or final. So these are ones that we feel pretty good about 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 we are satisfied with all of the findings that we have on each of the deals and then have the final -- as we proceed to kind of that final closing. In terms of makeup, it's something -- I think the underlying make up still similar to what you've seen from us. Maybe a little bit weighted away from senior housing right now, but that's more a function of the market than anything else, but it's senior housing still evaluating 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 get a purchase option on property. And a lot of times when we're doing a loan, that's what we're trying to do to go back to some comments we were just previously 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 that pool, so to speak.

So we've got good mix in the portfolio or in the pipeline and still evaluating opportunities and feel like we have a good view of the market. It's, frankly, a little bit choppy right now because people are still evaluating what they're going to do as it relates to senior housing. It's a bit of a world of have and have-nots right now. But that's again, how we're looking at the current pipeline and what we have that we're working on diligence items on them.

Okay. And in terms of restructuring leases and some of the items you discussed earlier in terms of maybe the options, strategic options to rightsize the portfolio. I know historically, you guys have not been in favor of RIDEA structures or operating structures to capture upside in that way. But given when you look at the long-term supply demand dynamics of senior living housing, maybe even skilled nursing, does that change your mind in any way in terms of maybe converting some of these triple-net structures to an operating structure and capturing some of the upside? Or is it just hopefully, we'll recapture the deferrals rather than the upside of the operations?

This is Eric. Dan, can't we do both? No, I get your point. Your point is well taken and fundamentally, we prefer triple-net leases. We have dabbled in RIDEA in the past, as you know, and we have 2 small RIDEA science experiments with LCS, Life Care 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.

Yes. I would just add, Dan -- I would just add what I need to see is I need to be convinced that RIDEA motivates the operator properly. I'm not sure that's what's happening in the RIDEA world right now. Now the upside is there. But how are you going to get from point A to point B and how is the RIDEA structure motivating the operator to get there? I'm not sure it's the right alignment.

Okay. And then one last quick question. I just wanted to make sure Holiday is current on its rent at this point?

As of today, yes. And I think we're still working on active discussions with them. So stay tuned there. But...

And we have a question from the line of Rich Anderson with SMBC.

I wish you happy holidays. So John, when you talked about the variable interest sort of approach that you take to deferrals, does straight-line rent also get recalculated by taking the cash rents out that you defer? Or does the straight-line rent get calculated still on the same full amount of rent?

Yes. Good question, Rich. Thanks for asking that. So at this time, the relief under GAAP is we didn't modify straight-line revenues. So straight-line revenues, think of it as once set, it starts out, and it's positive. Then in the midpoint of the lease term, it flips and then it amortizes itself away. So we've not adjusted that. But at some point in the future, when the pandemic is clearly over, we expect now GAAP to come back and revisit that 842 which is the GAAP requirement, will come back into play, and we'll have to then revisit whether the entire lease has to be modified. So but at this point, no, that's not happening. It's -- the straight-line revenues have remained unchanged.

Okay. I don't know if it was -- who mentioned it, maybe it was Eric, but -- or maybe it wasn't mentioned, I kind of thought I heard it. But on the mezz investment, is there a pipeline of that in front of you that you think you could capture? Could this become somewhat of a recurring business even though you said at this point, it's not a change in strategy, specifically talking about MOBs?

Yes. Yes. But to be fair, Montecito is a coinvestor in the fund, it's their equity in the fund. So they would initiate a process to sell whatever buildings are in our fund. And given our cost of capital and the cap rates that MOBs go for, we would think twice about buying MOBs.

Okay. On the topic of deferrals, I don't -- is the word deferral and concession, can that be used interchangeably for you? It sounds like it can, but maybe I'm wrong about that. Is there something definitionally different about the word concession?

Well, we have some abatements. So our deferrals earn interest. And the recent concessions, putting everything in the bucket of concessions, have been all deferrals. So when we first started, we had this $2.1 million related to the Bickford sale that was abated, and we didn't receive any income on -- interest income on or yield on. But that's kind of our the way we're using the definitional words on it.

So there are some small amounts of abatements that you just -- are gone. Anything else that has an interest rate attached to it, we could think of as a deferral, concessions being the general term?

Right. That's right. That's right. Exactly.

And then last question. Do you think that there's anything geographical at work here in terms of some of the struggles that you're still having with some of your operators? Or has it come down to the asset type? Because it does feel like this is hanging around a little bit longer. We've heard more in the way of optimism from some of your peers, not everyone, but some of them. I'm just curious if it's secondary markets or rural areas that is really the epicenter of some of your most difficult challenges?

Rich, it's Kevin. I guess I would tell you, it's a little bit of both. Its geography and its asset type. We've definitely seen the more need driven components come back sooner. People have been quarantined now for over a year, and they're -- now that they're able to access the vaccine, they have a little more confidence. This is what we've been talking about in prior conference calls of helping that consumer confidence in being able to make a purchasing decision.

So we've seen that need driven component definitely rebound a little bit faster. As we talked about in the prepared remarks, with -- and specific to Holiday, we actually have seen small positive months for the last 2 months now, which is a good sign, but it's been slower to come back than what we've seen with Bickford, by example.

And then within that, there are still some geographies where they had just started to discuss or loosen up some of their touring and restrictions, just by way of example, we had some communities in Oregon that went back to full lockdown a week ago, 2 weeks ago. So there are pockets across the nation where dependent on local authorities, it makes it very hard for them to do business and get move-ins and tours and do their traditional jobs.

So unfortunately, it's a little bit of both. By and large, our communities are open for business and able to tour prospective residents and have family visitors, which is -- was the big things that we needed. But unfortunately, it still does persist in some areas.

Right. And so are you using this experience, is it informing you as Eric said, don't -- use this year wisely and come out a little bit stronger, it's probably going to target some of those geographies that have been caught up in this most of all. Is that a fair statement?

In may, it's definitely going to 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's a good trade and long-term value for the portfolio. So I think that will be part of the equation.

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 conference soon.

That does conclude the call for today. We thank you for your participation and ask that you please disconnect your lines.