National Health Investors Inc (NHI) 2020 Q1 法說會逐字稿

Greetings, and welcome to the National Health Investors First Quarter 2020 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded today, Tuesday, May 12, 2020.

I would now like to turn the conference over to Dana Hambly. Please go ahead.

Thank you, and welcome, everyone, to the National Health Investors conference call to review the company's results for the first quarter of 2020. On the call with me today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; and John Spaid, Executive Vice President and Chief Financial Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were released yesterday after market close in a press release that's been covered by the financial media.

As we start, let me remind you that any statements in this conference call, which are not historical facts, are forward-looking statements. 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, 2020. Copies of these filings are available on the SEC's website at www.sec.gov or on NHI's website at www.nhireit.com.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been filed on Form 8-K with the SEC. Listeners are encouraged to review these reconciliations provided in the earnings release together with all other information provided in that release.

I'll now turn the call over to Eric Mendelsohn.

Thank you, Dana. Hello, everyone, and thanks for joining us today.

First and foremost, we are deeply grateful to all the frontline heroes that are tirelessly combating COVID-19 every day despite the great risk to themselves and their families. At NHI, we have long admired the senior housing and skilled nursing organizations and their staff that go to great lengths to keep our senior population safe and smiling. Never has this been truer than today. As a tribute, we've published some of our favorite caregiver and resident photos on the cover of our supplemental. I hope you'll take a look.

Reputations are made during a crisis, and I see operators making good decisions and taking action based on the principles they value: Selflessly caring for their residents, nurturing a company culture that appreciates employees and providing leadership and comfort to the employees and families of their residents. I believe that when history reflects back on our industry and its practices, during this time, there will be operators that are hailed as heroes.

That said, the challenges posed to our operators and our business by this pandemic are very real, and it is difficult to say with any degree of accuracy when we will return to a more normal operating environment. Our operators have done an admirable job in limiting the spread of COVID-19.

As of May 5, we had 192 active resident cases and 37 buildings. To put that in some perspective, NHI has over 20,000 residents being cared for in all of our properties, so less than 1%. As our operators have implemented their protocols and taken appropriate actions to prevent or limit the spread of the virus, the result has been a significant downturn in inquiries, tours and move-ins. This is having a negative impact on occupancy. Kevin will give details on that later.

On the cost side of the equation, it should not surprise anyone that our operators are spending more, particularly for labor and PPE supplies. This is obviously pressuring our operators' margins, and we are prepared to help them weather this storm where and when necessary.

In April, NHI received 99.7% of its contractual rent. And so far, in May, we have collected approximately 94%, which is in line with our expectations as we typically see a portion of collections through the 15th of the month, depending on underlying lease terms. As this pandemic unfolds, NHI is committed to transparency with the investment community. To that end, we have enhanced occupancy disclosure on Bickford, Holiday and Senior Living Communities, which Kevin will touch on in more detail.

We were the first to detail the incident of COVID-19 in our communities, and we will continue to provide weekly updates to our website as long as it is material. But given that the scope and spread of COVID-19 is so uncertain, NHI has limited visibility to the financial impact it could cause. And as a result, we are withdrawing our previously issued 2020 guidance.

Regarding the dividend, our Board is committed to our dividend policy, and we will consider the August dividend in mid-June.

With that, I'll turn the call over to John.

Thank you, Eric, and good morning, everyone.

Beginning with our net income per diluted common share for the quarter ending March 31, 2020, we achieved $1.37 per share in earnings inclusive of the gain on sale compared to $0.83 per share for the same period in 2019.

Turning to our 3 FFO performance metrics for the first quarter. NAREIT FFO increased 3.1% to $1.35, normalized FFO increased 3.8% to $1.36 and adjusted FFO, or AFFO, increased 5.7% to $1.29. Reconciliations for our pro forma metrics can be found in our earnings release and 10-Q filed yesterday afternoon at sec.gov.

Cash NOI is the metric we use to measure our performance. We define cash NOI as GAAP revenue excluding straight-line rent, excluding escrow funds received from tenants and excluding lease incentive and commitment fee amortizations. For the quarter ending March 31, cash NOI increased 9.2% to $76.3 million compared to $69.8 million in the prior year. Our increase in first quarter 2020 cash NOI was reflective of our organic NOI growth from lease escalators and the effects from our post Q1 2019 investments, including a recent Timber Ridge joint venture investment as well as the continued fulfillment of our commitments. A reconciliation of cash NOI can be found on Page 17 of our Q1 2020 SEC filed supplemental.

G&A expense for the 2020 first quarter increased 7.4% over the prior first quarter to $4.3 million. The increase in G&A was spread across several areas, including the expansion of our asset management team, other payroll expense increases and expenses associated with a higher use of outside consultants.

Turning to the balance sheet. We ended the quarter with $1.55 billion in total debt, of which a little over 90% was unsecured. At March 31, we had $142 million of capacity on our $550 million revolver. NHI also had $46 million in cash resulting in a net debt of $1.5 billion or $67.6 million higher than our net debt at December 31. This increase is largely due to the Timber Ridge acquisition, which closed at the end of January.

At quarter end, we also had approximately $24.2 million in restricted 1031 account, not included in our cash equivalents but recording in other assets, which originated from the sale of 8 Brookdale properties in January.

Our debt capital metrics for the quarter ending March 31 were net debt to annualized EBITDA of 4.7x, which is unchanged from the fourth quarter; weighted average debt maturity of 3.7 years; and our fixed charge coverage ratio at 5.8x compared to 5.7x in the fourth quarter of 2019. For the quarter ending March 31, our weighted average cost of debt was 3.3%.

Stock and bond markets over the last month are not where we'd like them to be. However, during the first quarter, we filed a new automatic shelf registration and refreshed our ATM program, giving us $500 million in new ATM capacity. Together with our investment-grade credit ratings, including a recently affirmed stable outlook from Fitch, our new shelf also includes an indenture, which positions us for an inaugural public debt offering when market conditions improve. While currently very expensive, we do consider the public equity and debt markets is open to us and another source of liquidity.

In closing, I want to welcome David Travis, our new Senior Vice President and Chief Accounting Officer, to the NHI team. David brings 23 years of accounting experience to NHI with his recent CIO roles at MedEquities Realty Trust and Healthcare Realty Trust and through his experiences as audit senior manager at Ernst & Young.

With that, I'll now turn the call over to Kevin Pascoe to discuss our portfolio. Kevin?

Thank you, John. We have been updating active resident cases in our communities on a weekly basis, but I wanted to add a little more context. As Eric mentioned, we had 37 buildings with 1 or more active resident cases, including 20 senior housing properties and 17 SNFs. Within the 20 senior housing properties, 14 were need-driven properties and 6 were discretionary properties. 37 properties span 13 unique operators in 18 different states. We had a total of 192 active resident cases, which included 97 cases in our SNFs, 40 cases in skilled nursing wings at our CCRCs and senior living campuses and 55 cases at our senior housing properties. We are in constant contact with our operating partners and are confident they are following their own infectious disease protocols and are acting in accordance with CDC guidelines, state health agency regulations and, in some case, more so.

Overall, we have been very pleased and grateful for the efforts of our operators to prevent or limit the spread of COVID-19 in their communities. The relatively low incidence is not surprising to us and is really a testament to our operators, whose mission is to keep our senior population safe.

Regarding the CARES Act, several of our operators -- of our senior housing operators have been approved for or have received funds from the Paycheck Protection Program as it turns out the triple-net lease structure is beneficial when applying for these loans. Our SNF operators are also benefiting from the CARES Act. Payments from the Provider Relief Fund, averaging approximately $150,000 per building, the 2% Medicare sequestration suspension and the 6.2% increase in the FMAP help improve near-term liquidity for the SNFs.

Turning to collections. April collections were 99.7%. And so far in May, we have collected approximately 94%, which is in line with our expectations as we typically see a portion of collections through the 15th of the month, depending on the underlying lease terms. At this point, nobody is past due.

We speak frequently with our operators and are working to creatively find solutions that benefit them in this unprecedented time and that makes sense for our shareholders. We do have credit enhancements in our leases with many of our senior housing operators, which total approximately $38.7 million in cash in addition to guarantees, and we have excellent credit from our SNF operators.

Turning to the performance of our different asset classes and larger operators. Our needs-driven senior housing operators were early to act to this pandemic and have limited the spread of the virus so far. As of our last weekly update, 14 assisted living and senior living campuses had active resident cases with most of the communities limited to less than 5 cases per community.

Bickford, which represents 17% of our annualized cash revenue, has seen a slight downtick in their move-out rates. But like much of the industry, their lead volume and tours are down more than 40%, which impacts the rate of new move-ins and occupancy. Bickford's average occupancy on a same-community basis was 87.3% in the first quarter and 86.6% for March. Occupancy further declined in April by 130 basis points to 85.3%.

Our entrance fee communities have fared somewhat better as the resident turnover is much lower and the residents tend to be younger and healthier relative to other property types. But they are not immune to the impact of COVID-19, and we have had 4 entrance fee communities with active resident cases as of our last weekly update. Though like assisted living, the number of cases per community is limited.

Senior Living Communities, which represents 16% of our revenue, had first quarter average occupancy of 80.4%, which ticked up slightly to 80.6% in March but dropped to 79% in April as multiple entrance fee sales have been delayed due to the pandemic. Our independent living communities experienced a similar decline in leads, tours and move-ins as our assisted living operators. The incidence of COVID-19 is relatively low in independent living so we had only 2 properties with active resident cases as of the last update. Holiday retirement, which represents 11% of our annualized cash revenue, had average occupancy of 87.3% in the first quarter and 86.7% in March. The April average occupancy declined by 170 basis points to 85%.

Bickford, SLC and Holiday represent approximately 56% of our senior housing units. On a combined basis, those 3 saw average occupancy decline by 150 basis points from March to April, which is a good proxy for the rest of the senior housing portfolio. The skilled nursing portfolio, which represents 26% of our annualized cash revenue, is anchored by 2 excellent credits in NHC and the Ensign Group.

As of our last weekly update, 17 of our 78 SNFs had active resident cases. We have seen more instances of outbreaks in some of our SNFS, which is expected given the higher acuity of the patient population and the more frequent contact caregivers have with the patients and residents. Given the short average length of stay for Medicare patients and the temporary stay on elective procedures, SNF occupancies have generally declined by more than what we are seeing in senior housing. However, there is more government financial support for the SNF industry.

NHC, which accounts for 12% of annualized cash revenue, has received funds from the Provider Relief Fund. The company also expects to gain liquidity through the Medicare accelerated payment program, the Medicare sequestration suspension, the payroll tax deferral and supplemental Medicaid payments. Overall, we feel very comfortable with the credit in our SNF portfolio.

The pace of deals have stalled, and everything indicates that this will continue for the next several months as true price discovery is near impossible to determine right now. Our focus for the more immediate future is to continue funding existing commitments and extreme asset management by creatively providing guidance and assistance to our operators, if needed.

For the longer term, we continue to have conversations with existing and new operators and expect that our pipeline will be ready to support significant external growth when some normalcy returns to the market. I do want to express my gratitude and admiration for all of our operators and the frontline heroes that accomplished truly amazing acts of courage [and their residents] and patients every day.

With that, I'll hand the call back over to Eric.

Thank you, Eric -- Kevin. Looking internally, you should know that NHI's management team and the Board have deep experience managing during times of crisis. I believe our balance sheet and liquidity, together with strong lender and market relationships, puts us on firm footing.

Operator, we'll now open the line for questions.

(Operator Instructions) And our first question comes from the line of Daniel Bernstein with Capital One.

I hope everybody is well. Sound well. And I want to go ahead and just understand a little bit more about the loan book disclosures you had in the 10-Q. Looked like a number of loans were under owner coverage. I believe those are mostly construction loans, but I wanted to kind of confirm that with you and just kind of get your view of what's going on there in the loan book.

Sure, Dan. It's Kevin. As we used loan in the past, it's been a product where we've stepped into commitments by providing some sort of loan to them with a purchase option. So you're correct in your estimation that most of those are going to be buildings where we've come in, in either a first mortgage or mezz position on a turnaround construction, something where there need to be a repositioning or build and open it, and you expect it to lease up over time.

That's why we call it loan to own.

Sorry. And then I'm wondering to see if you had any -- could provide any information, more of like kind of a spot occupancy or spot trends for May so far in seniors housing. I don't know if you want to -- if you could provide it broadly or maybe by maybe your top 3 operators there, but just trying to understand if you've seen any change in inquiries, leads, some -- kind of those leading indicators that maybe move-ins might pick up later this month or June? Or is it just too early to tell?

Yes. So this is Kevin again. We did not give spot occupancy to your point, but we did give you a flavor of what we're seeing on an average monthly basis to date. It's too soon to tell. We don't have additional information that would show that things are markedly improving. That said, move-ins are still happening at the communities. Inquiries are happening. Tours -- virtual tours are happening. So the doors are as open as they can be. So it's still in process, so to speak. But to say that we've had a bunch of good leading indicators is not yet available, but there are still move-ins happening.

Okay. And then one last question for me, and I guess this maybe a little bit more hypothetical. But you guys have operator experience. And especially with virtual tours, what do you think the ability has been or will be to close on those virtual tours versus, say, an in-person tour? I know the history right now might be -- history might not apply to the current situation, what's going forward. But can operators take those virtual tours and seal the deal, so to speak, and convert those into move-ins? Or is it going to take in-place tours to really push move-ins at this point?

Well, I would say they can and they have. Again, it's just been at a much lower rate. And generally, what you're seeing in the market right now is people that need services are the ones that's shopping. The discretionary shopper is probably still leaning towards staying at home. These are people that have had something happened in their life, where they need assistance with daily living. So that's where you're seeing most of the move-ins come. And then there, they found creative ways to do those virtual tours. We've actually had people shop, literally window shop from the outside of the building or virtual tour via Skype or FaceTime or something like that. So they're trying to be as creative as they can to show the building off and be able to give a feel for the amenities. But this is also knowing that once they're admitted, they're -- they won't have to go through a quarantine period and whatnot. So it is a difficult time, but they are finding ways to get the information to the prospective resident, resident families and converting those into move-ins.

Next question comes from the line of Connor Siversky, Berenberg.

It sounds like you guys are doing well. Good to hear that. The first one on acquisitions. Seeing that you guys were able to close on a couple of assets in early May, I mean can you talk a little more about that process, perhaps how this came to be in the current environment? And how your team adapted to any of the challenges in order to close on these investments?

Sure. This is Kevin. I would say that this was -- we've considered our closing as part of our commitments. It's ones where we've had these in the queue for a while. We made sure we go back and re-underwrite the investment and make sure that everything is still lined up with where we expect it to be from a performance standpoint but also wanted to follow through with the deal that we have made with the operators. At this time, we're reevaluating everything. As I mentioned in my prepared remarks, the pace of deals has slowed if not stopped at this point as everybody kind of sees what's left in the market. But to go back to, I guess, the original point is we're making sure we fulfilled our commitments as we articulated in the prepared remarks. We're going to continue to do that. But new investments are definitely looked through, and new wins at this point are even more critical than we normally would be.

And Connor, this is Eric. We did things like put a material adverse change amendment in the contract regarding COVID. And I can say, many of you have heard me say for years that there's deep value in the Midwest and tertiary markets. And now to that list of benefits, I will add that there is lower COVID exposure outside of urban areas and in tertiary markets. And while our portfolio is not immune, we have many buildings in many markets that are not affected at all, and this new acquisition was one of those.

Okay. Appreciate the color there. You actually touched on 2 of my other questions in the process. Just one more for me then. I mean how do you guys look at telehealth at the moment? I mean, have any of your operators been able to leverage this emerging technology? Or just kind of any color there would be appreciated.

I would say it's becoming more of a focus to be able to say they've leveraged it to its fullest extent. It's probably not the case just yet, but to be able to keep people safe in the community, not have them go to doctors' offices unless it's absolutely necessary, I mean that definitely is something that is on the operators' radars. But at this point, I guess, I couldn't say that it's been -- the prevalence is throughout the whole portfolio. But it is something that I know our operators are using it as a useful tool, particularly when you want to try and keep people safe in their communities.

Next question comes from the line of Tayo Okusanya with Mizuho.

Eric, I wanted to get your comment earlier on about the board reviewing the dividend in 2Q. I guess, yes, we have all this uncertainty around COVID, you guys pulling guidance as a result. But you're getting pretty good rent collection at this point. Your tenants seem to be doing somewhat better based on the 4Q rent coverage data. You have 83% FAD coverage. I guess I was just somewhat surprised to kind of allude to the dividend potentially coming under review in 2Q?

Sure. I would just say that we're a very conservative bunch, and we want as much optionality as we can. And especially with the PPP loans, a lot of our operators went from concerned to relieved. And then it turns out the treasury department is continuing to change the rules as they move along after the loans have been funded. So we're just taking our time and seeing how June looks. But I think everybody knows that our board and our management is very focused on producing that dividend, and a lot of people here feel strongly about it.

And Tayo, let me also add on that as a REIT, we're obligated to dividend out at least 90% or greater of our taxable income. But this year, right now, the trends continue to be sort of negative. So we're just going to take it one step at a time, month by month.

Got you. Okay. So I guess if things take a turn for the worst in June is where you could potentially expect a revision of the guidance, like of the dividend? If things are kind of how they are right now in April, May, does that make you feel more confident about maintaining the dividend? Like I'm just trying to understand a little bit how the decision process could go.

Well, it's all a function of how rent collections go at this point moving forward. And so it just -- you can see some coverage ratios are pretty low. And you can see that, that must mean that tenants are -- have some stress from cash flow. We just have no idea whether we're at the bottom yet, and we have no idea how long this is going to last. And so we just don't know, and that includes June.

Fair enough. The second question around the bond issuance. Again, it does sound to us that the spreads have gotten tighter in the bond market, granted this would be your first issuance, so there's probably a first issuance discount. But could you talk a little bit about if you could issue a 10-year today, at kind of what price would that be? And kind of what you're looking for before you ultimately decide to issue debt? So I want to say that.

Yes. Well, the public markets right now are very disrupted. You can see that in our equity price, frankly. The BBB- category, investment-grade category, is -- looks a lot more like junk than it does investment-grade right now in terms of pricing. The appetite for that product is not real great, so the spreads are well in the 500 to 600 basis points over treasury category. So we're not excited about entering the market with those kinds of spreads. And frankly, our liquidity is sound enough so that we don't have to. We can take our time. The bank markets are effectively closed. So really, our only source right now of any meaningful source is secured debt, which is less than optimal for us, but it's there.

Okay. Got you. And then just one more for me. It doesn't sound at this point, too, that you're getting any -- it doesn't sound like you've given any rent deferrals at this point. Could you talk about if you're actually getting rent deferral request? And if could just to quantify that if you are?

Sure. It's Kevin. We have not done any rent deferrals to date. We have had plenty of discussions with our operators about what levers are available to them, depending on how long this goes on. So I think that's really the key is we have a little more information every day. To date, we have seen, as we talked about, occupancy decline. So it's something we do have to have discussions around. So that's kind of an ongoing process. It's something that we're just going to have to continue to monitor. So the good news is we haven't had to do that for April or May. We'll see what June brings. And frankly, a lot of that is -- we'll see how the company -- the country starts to open up. And can we start to see some more leads, move-ins, tours? Can they rebuild the funnel? And how does that impact their business? So we're just -- it's a little too soon to tell on where all of that goes just yet.

And Tayo, this is Eric again. Let me make my pitch here for triple net versus RIDEA. You know we're a big fans of triple net leases. And with those leases, many times, we have substantial deposits and we have guarantees. Some of them, actual personal guarantees of principles. So there's quite a few levers we can pull before rent needs to be affected. And I would just say that we're happy that we have those extra options at this point.

Our next question comes from the line of Rich Anderson, SMBC.

First question is -- so most your portfolio is in the senior housing side, but do you now through -- going through all this feel there's some incremental value in skilled nursing, in particular, regulation behind skilled nursing that maybe will stand the test of time beyond this? In other words, skilled nursing starts to become more interesting in the aftermath in relative terms.

Rich, this is Eric. I absolutely agree. I mean I've been talking up skilled nursing for years when nobody wanted it, nobody liked it. People thought it was a bag of steaming real estate on your doorstep, but we liked it. So come to find that skilled nursing holds up really well. Ensign had a great earnings report and earnings call. NHC is doing well. There's lots of government programs to assist them. And then as soon as hospitals admit elective surgeries, that will trickle down into skilled nursing. So we're excited about the future for skilled nursing. You may know we had to delay our Ignite skilled nursing opening in Milwaukee, but that should open in the next -- it's open now. Okay. Kevin told me. So we're on the hunt for skilled nursing, and I'm a little worried that the rest of the world will be in on the secret.

Okay. Kevin, you -- I think it was you or maybe it was Eric that said the triple net somehow is a better environment for the government stimulus to play a role. Can you explain why?

What we're going to get there is that the operators own their business. They're able to apply for the loans because they're in the ownership seat versus the REIT owning the operations. So that -- I mean that was really what we're pointing to is that they're still the one that are managing, not only managing but operating the business and have ownership of that.

Okay. That makes sense. And then you went through the occupancy data, and I appreciate the incremental disclosure in the Q. But you just said SNFs occupancy was lower, offset by the ability to tap into more stimulus programs than senior housing. Can you offer up what -- I don't think I could find the occupancy on the skilled nursing, but maybe I just couldn't catch it in time. Can you give us some parameters around occupancy declines in skilled nursing?

Well, we haven't, mainly because our 2 largest customers are public, and we haven't typically given their data. They -- and in most cases, we would refer you to what they've seen. Broadly, I would say it's been 400 to 500 basis points. I think that's consistent with what the other our peers have announced. I don't think we're in any different boat there. But we have given specifics in difference to our customers.

Okay. And then -- and then lastly to Eric, I mean you guys have -- now you're going -- you're batting cleanup, I guess. You've heard everybody's perspectives on this, and you've had perhaps a little bit more time to have it marinate. Is there any sort of final word now that we're ending earnings season with you guys about the business? You mentioned skilled nursing is something that you've had your eye on and worried about the secret getting out. But is there any kind of broad theme that you're sort of focused on beyond that, that you can share? Or did we pretty much cover it?

Thank, Rich -- thank you, Rich. I'd love to take the opportunity to say this. I listen to a lot of earnings reports and calls. And not just health care REITS, I'm listening to retail, casinos, hotels, experiential property REITS. And I'm just amazed at how the equity markets are reacting to our sector, a sector that is still hiring people because our buildings need extra staffing; a sector that still has customers that are paying rent; and a sector that still has customers moving in. We are not hotels, we are not casinos, we are not amusement parks. Our buildings are open for business and paying rent. Granted, we're a little jittery about what that rent looks like and when we'll get it, I'll give you that. But really, the way the markets have reacted just seems very curious to me. And that's my observation.

Our next question comes from the line of Todd Stender with Wells Fargo.

I hope you guys are well. So occupancy numbers, just the numbers I was going through, Kevin, that you gave. Bickford, Holiday, sounds like they're both in that 85% range. Probably, I'll say they'll tick lower. Under normal circumstances, what would be a breakeven occupancy where a tenant now maybe can't cover the rent? Okay, maybe a normal number. And then how about now? With elevated operating expenses, would that breakeven level tick higher? Maybe just give some context about the numbers maybe that you're looking at from an occupancy standpoint.

I guess I would say on occupancy, it varies pretty significantly by operator in terms of what their specific breakeven level was. I think you could probably derive big firms, at least based on where our coverages have been and where their historical occupancies have been and where that intersect. That number probably has gone up a little bit now just because of the increase in expenses, meaning the occupancy would -- breakeven occupancy would be a slight bit higher now just because of PP&E, labor expenses, so on. So that's something that each one of our customers is looking at.

I think the good news there is as we've talked about already, we do have credit support on our leases. We do not -- we're not the sole provider. So there are other levers that our customers can pull within their organizations to be able to meet their obligations. But a lot of this just really depends on how long this goes on. So I don't really have a specific number to share in terms of breakeven because like I said, they're different by each customer. But based on kind of where you see coverages and what we've disclosed on occupancy, you could probably get a decent benchmark for that.

That's helpful. And then, Kevin, can you expand on that? When you think about what the backstop would be, whether it's a parent guarantee, are there other properties that could kick off cash flow to cover your rent? How -- what are some examples that you guys look at and whether they're escrow accounts? Maybe you could provide some examples as a backup plan should occupancy dip further and rent coverage comes into question? How can I still cover that rent?

Sure. So I mean there's a number of different levers that are available to them. One would be, you touched on that parent guarantee. They own -- generally speaking, our operators own more real estate outside of the investment that we have with them. So yes, they may be facing pressures elsewhere. But in aggregate, cash flowing enterprise where they have some ability to aggregate or approval their cash flow deposits that we have on hand. I mentioned that in my comments, and Eric touched on it as well. In some cases, we do have personal guarantees, which is just, frankly, a motivator. We use that a lot of times for alignment more so than really saying we're going -- we want to go after anybody individually, but it does keep them focused on being able to meet the rental obligations. And then the other thing that we touched on as well as, just some of these relief funds that are available. PPP has helped a lot of our operators. It's something that is shifting, as Eric mentioned. But that has been a program that a few of our operators have applied for and at least received -- if not received funds, have gotten approved, so. And there is an approved use of at least 20%, 25% of those funds can be used for rent. So there's different things that are available to them, and frankly, we're looking at every option. Our operators are looking at every option that they have as well, and we're all just putting our heads together to see how we get through this.

And then, John, just on the balance sheet and liquidity. You still have some room on your revolver to tap and maybe just sit on cash over the near term. How do you feel about that prospect? And then I think you indicated that the bank market is closed. Were you referring to the term loan market? And maybe just speak about some of the short-term liquidity that you could tap.

Right. Right. So yes, the bank term loan market, we view as predominantly closed unless you want to change your maturity schedule. We do not. We seem to have fairly ample ability to tap a 1-year term loan, but I don't want to take on that kind of maturity risk because we really don't have any maturities until 2022. So we do have commitments we want to fulfill. We're not really excited about our stock price here. So we'll continue to meet those commitments, which we'll see at quarter end was just under $69 million of commitments down significantly from the fourth quarter. We don't expect to fulfill all those commitments this year. We do have some leftover proceeds from the Bickford disposition -- I'm sorry, excuse me, the Brookdale disposition. Thank you. We have some leftover proceeds from the Brookdale disposition that we announced in the first quarter. That's not in our cash equivalents. So we've not -- we don't have a designated use for that. And the only other maturity we have is the April 2021 convertible bond that we could try to exercise some of that in equity to help us right size our leverage. So we're pretty focused on our leverage ratio.

And how about the remaining piece of your line? Are you at that point where you think you need to sit in a little more cash right now? Or you're not at that point?

Well, we're being extra careful, that's for sure. We're being extremely careful.

Next question comes from the line of Jordan Sadler, KeyBanc Capital Markets.

I hope everybody is doing well. My question, I just want to circle back on the occupancy. I appreciate the statistics you've given us. I think Dan might have asked the question about spot occupancy, but I was kind of curious if on -- if you had a sense of what the weekly pace of occupancy loss has been like in the last, let's say, 2, 3 weeks. And if there's been an inflection, in other words, if it started to stabilize across your senior attachment portfolio in particular?

Yes. What I would tell you is, as I mentioned several times, we're in contact with our operators a lot. So we have a decent sense of what's going on with their business. The other thing I would say, though, is since we're not RIDEA or shop, we have what I think is good data, but it's also imperfect. So what we're trying to give you is data that we know is tight. It's gone through the closing process, under leases. We get -- they go through their closing process, and we get the information at the end of the month. So we're trying not to rush into giving data that has not been completely scrubbed. To what, I guess broadly, though, what I can say from what we've seen across the spectrum of senior housing operators is they're losing probably 200 to 300 basis points a month. Our guys have really been no different than that. As you can see, they've lost on average 150 basis points over -- across the 3 Bickford, SLC in Holiday on a monthly basis. So if you just assume a midpoint, you're going to fall in that 200 to 300 basis point range.

Yes, Jordan, the biggest surprise to me is that move-outs have slowed down. People are hunkered down. And the extra sensitivity to viral health, I'll call it, has produced a result where people are not getting sick and people are remaining healthy, and they're not moving out as quickly. And then, of course, the front door is tighter. It's harder to do a tour. It's harder to market you're building, and so move-ins have slowed down. I wish that the move-outs had slowed down enough to make the move-ins impactful, but it's still a slow burn.

Okay. So it sounds like the 200 to 300 is kind of in line. And I guess, along the lines of Rich's comment, you guys are kind of batting cleanup. So we're all just trying to get the most real-time sense of what's going on. So that's why I'm asking about, have you seen any change or sort of let up in that sort of pace of slippage? Or is it pretty much the same? I know in your markets in particular, but also across the country, we're starting to see some openings. And I know some folks early on in earnings season earlier had talked about sort of some pent-up demand or reservations or deposits on hand. And I know you don't have a RIDEA portfolio, but I'm just curious if you -- is it too early to see any inflection just yet in terms of that pace of loss, do you think?

Jordan, it's Kevin again. I guess I would characterize it as a trickle still. I mean there's been little glimmers here and there of inquiries or just a little bit more volume, but it's still really too soon to tell. It's not been meaningful enough to call it a trend just yet.

Okay. And then in terms of the -- within your Q, and I appreciate the -- having that alongside earnings, obviously. I know we're at the end date for filing, but you guys usually get it out quick anyway. But there was a comment within the Q related to what's going on and the increased costs and the reduced revenues having an impact on these providers, obviously. And as a result, you could be forced or could end up making some lease concessions to some of your operators. Can you discuss the nature of any of these discussions that may be ongoing? Sort of what you're thinking in terms of what a structure might look like for a deferral or rent concession?

Jordan, keeping in mind that our operators are listening to this call and that we want to be mindful of the equity of giving some operators assistance and others not, I would just say that we have had discussions with most of our operators since this started, and there have been a lot of twists and turns in the stories and PPP among them. So I would just say that as a triple net REIT, we have a lot of tools at our disposal, probably more tools than some of our other peers. And if someone needs help and if someone's doing the right thing and a good communicator and coming to us with full transparency, then we're going to be willing to help. And frankly, that's why we wanted to consider our June dividend. We haven't had any kind of needle-moving event yet. But in this type of environment, one has to be extra vigilant. And so we are. I hope that addresses your question.

Yes. It does. It's helpful. The last one was actually one quick one for you on the loan reserve. Anything specific that drove that $1.7 million reserve in the quarter? Or was that just sort of an overall measure of conservatism?

That was primarily driven by -- this is John. That was primarily driven by the changing economic conditions. And so that loan reserve is evaluated every quarter. It doesn't represent something that is regularly recurring. It's just a reserve that's evaluated depending upon conditions. And conditions can be, did you book any new loans? Did you have any kind of economic changes? Did your loss history change? And so all of those conditions drive how that loan reserve can change. So it can be very irregular. It can frankly be an income -- an addition to income. So it's a very, very large loan were to be paid off that we had reserves with, we would reserve that. We would reverse that, and that would be an income item. So it's -- there's a lot of noise, unfortunately, with that reserve.

Yes. I get it. I was just curious if there was like one item going on that sort of was the cause, which I didn't see referenced. Okay. So you confirmed that. And then lastly on Sagewood. Any -- and really any ongoing development or commitments? It's the one -- sort of bigger one that stands out there, which is why I sort of called it out. And my question really is, have you had discussions with the developer or any developers about suspending construction at this point? Or is it all systems go still for your remaining commitments there?

Specific to Sagewood, Arizona has been much less impacted by COVID outbreak. So they do what they need to, to practice social distancing on the job site. But to date, everything has been moving ahead. To be determined if that will move back, any move in dates or anything on the project, but they're still moving forward.

We've not stopped any of our -- fulfilling any of our commitments, if that helps also.

Yes it does. I was just -- maybe incoming the other way was my sort of question, if anybody -- any developers were concerned and want to sort of hold off or pause on development. But I think you pretty much answered it on Sagewood.

Next question comes from the line of John Kim, BMO Capital Markets.

Just following up on Jordan's question on this. Concessions that may be granted, can you just provide some color on whether or not this is deferrals, which is the industry standard at this point? Or is something more permanent than that?

John, this is Eric. Too soon to tell, and we're taking it on a case-by-case basis. I know I'm aware of other deferral programs. We have some clients that also do business with other REITS. So where -- we get to get a peek into what other REITs are doing in terms of assistance based on that. And we're open to a whole menu of ideas to help people, and a deferral would be one of them.

You listed this discussion in your 10-Q under material uncertainties, but you didn't mention it in your press release or wasn't in your prepared remarks. So I'm just wondering, can this be something material? Or is this really just more standard legal language that you're putting in as a risk factor in your disclosure?

Well, I would consider the COVID crisis is very material, and it's having significant impacts on the entire industry. And as Kevin mentioned, it's too soon to tell that it's over. And I know that we're all trying to open up our economy, but there's a lot of crosscurrents on that decision. And we'll see if that truly works out. So until we get a vaccine in place, I think this is going to -- we're just still in a very risky environment.

Yes. So John, this is Eric. We're -- oftentimes in situations like this, we're being bombarded with extra language by our auditors and attorneys. And I know that can be alarming to read and not what you want to see, but that's just the world we live in as a public company.

Okay. You provide your weekly updates to your portfolio on the COVID-19 impact that it's had, and the timeliness of it is very much appreciated. Can you comment to us what's the best way to interpret this data? Particularly the yellow portion of the buckets, given that's 82% of your portfolio, and it's not really clear to be -- at least like how -- what the impact is of that portion of your portfolio?

Yes. I can add a little bit more color there. Yellow really just signifies that there's testing going on within the building or it's in a high infection rate zone. One thing I will say is, early on, when we were looking at high infection rates, it was 100 in the county. I think we've gone well past that in a lot of counties at this point. So that's why you're seeing that number being so high. Underlying that, only about 10% in any given week has been because there's active testing going on in the building. So outside of it being in a -- what was earlier classified as a high infection zone, they would have otherwise been green. So we've -- I would say that we've had -- our operators have done a very good job of limiting the spread or keeping it out of their buildings. And that's what you see in kind of those -- a lot of those green and yellow buckets. When they graduate up to the orange or red, I mean, that's when there's the potential for a larger problem. But even then, on average, the spread has been a handful of cases at any given building. So again, I feel like they've done a good job of keeping it contained as best they can.

So the orange and red with the confirmed cases, we can assume that move-ins are basically on hold. But with the yellow portion, is that the case as well? If within that bucket, there are some that are self-quarantine within those communities.

That depends largely by state, by operator and by product type. So that's really hard to answer. In a memory care community, it's really hard to redirect or close off a portion to the residents. So unless they are not somebody that is mobile, it's really hard to admit a memory care resident. It doesn't mean the front door is shut, but it's a very specific resident that they're able to accept at this time. If it's -- if it was a typical AL or independent community, I would tell you, yes, those -- they're open. The doors are, relatively speaking, open and they're accepting move-ins. But again, that varies by operator and by state. We've seen some operators, and I think this is the exception and not the rule, where they've just shut down all move-ins until they start to see some changes, more meaningful changes in the numbers. But it really is kind of a case-by-case, an operator-by-operator question.

Okay. And then following up on Tayo's question on the dividend. And Eric, you mentioned that the Board is committed to the policy. Can you just remind us what the dividend policy is of the company? And specifically, if you're willing to fund any shortfall in the near term with either cash or debt?

The dividend policy of the company is to raise the dividend every year by 5%. And other than that, how we fund it I would just say that we're a conservative group, and I don't see us funding a dividend using debt. That just doesn't feel right. But other than that, we would have to see where we were at any given time and make a decision based on the facts that we have at the moment.

Yes. John, this is John. So just recall that as it works out every year after year, after we pay our dividend and we receive all of our rents on time, pay all of our other fixed charges. We generally keep something over $40 million of cash, which is effectively equity that we can use to reinvest. So as of June, and now it looks like May is on track as well, that business hasn't changed. And so we're getting to the point here where we're just going to be super careful about what we're talking about in terms of the dividend. And I would say that use of equity isn't really exciting for us at all in terms of paying our dividend, principally because our stock price, converting that stock into what would been the cash equivalent would be highly dilutive. But -- so right now, use of cash to pay our dividend is absolutely our number one goal moving forward. And so that's just kind of where it's at. And I would just also point out that we're obligated to pay 90% of our taxable income to maintain our REIT status. So that's kind of how we're thinking about it.

And how much does your share price -- because you've commented on this a few times, John, but how much of the share price impact your decision on the dividend, if at all?

Well, it doesn't really impact our dividend decision at all except the fact that that source of liquidity is now cut off to us unless we want to do something highly dilutive. So fulfilling our commitments, it means we're going to use leverage. The receipt of our rents on time means that we get to keep some amount of that cash, which looks like equity, to help maintain our leverage. And then the question then becomes where are we heading from here? And how long will this last?

We have a follow-up from Daniel Bernstein, Capital One.

Sorry to extend this a little longer, but just want to get your thoughts on the attractiveness at this point of buying back any of your remaining converts?

So buying it back for cash and/or stock, I guess, it's an option. It isn't a real attractive option because we've made some inquiries. The price compared to what we did in December relative to where our stock price is, some of the premium feels a little bit high but it's still an option out there. We wouldn't want to do it for cash. Let's put it that way.

There are no further questions from the phone line.

All right, everyone. Thank you for your time and attention today. I wish I could say I'll see you at NIC or on a road show, but I can't. So stay healthy, and I hope to see you someday soon in person.

That concludes today's call. We thank you for your participation. You may now disconnect your lines.