Earnings Call Transcript
NATIONAL HEALTH INVESTORS INC (NHI)
Earnings Call Transcript - NHI Q1 2020
Operator, Operator
Greetings, and welcome to the National Health Investors First Quarter 2020 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. 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.
Dana Hambly, Investor Relations
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.
Eric Mendelsohn, CEO
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.
John Spaid, CFO
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 three 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 accounts not included in our cash equivalents but recorded in other assets which originated from the sale of eight Brookdale properties in January. Our debt capital metrics for the quarter ending March 31 were net debt to annualized EBITDA of 4.7 times, which is unchanged from the fourth quarter; weighted average debt maturity of 3.7 years; and our fixed charge coverage ratio at 5.8 times compared to 5.7 times 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 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.
Kevin Pascoe, CIO
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 one 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 cases 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 five 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 four 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 have 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, and we had only two 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 three 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 two 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 for their residents and patients every day. With that, I'll hand the call back over to Eric.
Eric Mendelsohn, CEO
Thank you, 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, Operator
Thank you very much. And our first question comes from the line of Daniel Bernstein with Capital One. Please go ahead.
Daniel Bernstein, Analyst
Good morning.
Eric Mendelsohn, CEO
Good morning.
Daniel Bernstein, Analyst
I hope everybody is well. Sounding 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.
Kevin Pascoe, CIO
Sure, Dan. It's Kevin. As we've 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 needs to be a repositioning or a build and open it and you expect it to lease up over time.
Eric Mendelsohn, CEO
That's why we call it, loan to own.
Daniel Bernstein, Analyst
I'm wondering if you could provide any information about spot occupancy or trends for May so far in senior housing. It would be helpful if you could share this broadly or perhaps by your top three operators. I'm trying to understand if there have been any changes in inquiries or leads, which might indicate that move-ins could increase later this month or in June, or if it's still too early to tell.
Kevin Pascoe, CIO
Yes, this is Kevin again. We haven't provided specific occupancy rates, but we've shared some average monthly trends so far this year. It's still early to say if there are significant improvements. However, we are seeing ongoing move-ins, inquiries, and virtual tours, indicating that our communities remain open and active. It's still a work in progress. While we don't have strong indicators that suggest a surge in move-ins is imminent, there are still people moving in.
Daniel Bernstein, Analyst
Okay. I have one last question. Considering your experience with operators, especially with virtual tours, how effective do you believe they have been or will be in closing deals compared to in-person tours? I understand that past experiences might not reflect the current situation, but can operators successfully convert virtual tours into move-ins, or will in-person tours be essential for driving move-ins at this stage?
Kevin Pascoe, CIO
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 are shopping. The discretionary shopper is probably still leaning towards staying at home. These are people that have had something happen 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, they've 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 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.
Daniel Bernstein, Analyst
I’m sure a lot of people in the queue. I’ll just hop off and ask the question later, if I have anything else. Thanks.
Kevin Pascoe, CIO
Thanks, Dan.
Operator, Operator
Next question comes from the line of Connor Siversky, Berenberg. Please go ahead.
Connor Siversky, Analyst
Hi, everybody. Thank you very much for having me. 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?
Kevin Pascoe, CIO
Sure. This is Kevin. I would say that we view our closing as part of our commitments. These have been in the pipeline for some time. We ensured that we revisited the investment and confirmed that everything is still aligned with our performance expectations, while also following through with the agreements made with the operators. Currently, we are reassessing everything. As I mentioned in my prepared remarks, the pace of deals has slowed, if not completely halted, as everyone assesses what remains in the market. But to return to my original point, we are making sure to fulfill our commitments as stated in the prepared remarks, and we will continue to do so. However, new investments are now under closer scrutiny, and securing new opportunities is even more critical than usual.
Eric Mendelsohn, CEO
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.
Connor Siversky, Analyst
Okay. Thanks. Appreciate the color there. You actually touched on two 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 any color there would be appreciated.
Kevin Pascoe, CIO
It is increasingly important to ensure that it is utilized to its maximum potential. While we are not there yet, the goal is to keep people safe in the community and reduce the need for visits to doctor's offices unless absolutely necessary. This is definitely on the minds of our operators. However, I can't say that this is widespread across our entire portfolio at this time. Nonetheless, our operators are finding it to be a valuable tool, especially when aiming to maintain community safety.
Connor Siversky, Analyst
All right. I’ll leave the floor there. Thanks for the color, guys.
Operator, Operator
Our next question comes from the line of Tayo Okusanya with Mizuho. Please go ahead.
Tayo Okusanya, Analyst
Hi. Good afternoon, everyone. 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 allude to the dividend potentially coming under review in 2Q?
Eric Mendelsohn, CEO
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.
John Spaid, CFO
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 negative. So we're just going to take it one step at a time month-by-month.
Tayo Okusanya, Analyst
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.
John Spaid, CFO
Well, it all depends on how rent collections perform moving forward. Some coverage ratios are quite low, indicating that tenants may be experiencing cash flow issues. We're uncertain whether we've hit the lowest point and how long the current situation will continue. This uncertainty also extends to June.
Tayo Okusanya, Analyst
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.
John Spaid, CFO
Yeah. Well the public markets right now are very disrupted. You can see that in our equity price frankly. The BBB- category, investment-grade category 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.
Tayo Okusanya, Analyst
Okay. I just have one more question. It seems that you haven't provided any rent deferrals so far. Can you discuss whether you are receiving any requests for rent deferrals? If you are, could you quantify that?
Kevin Pascoe, CIO
Sure. It's Kevin. We have not provided any rent deferrals so far. We have had numerous discussions with our operators about the options available to them, depending on how long this situation lasts. The key is that we are gaining more information every day. So far, we have observed a decline in occupancy, which is a topic we need to discuss. The good news is that we haven't had to implement any changes for April or May. We'll see what June reveals. A lot of this will depend on how the country begins to reopen and whether we start seeing more leads, move-ins, and tours. Can they regenerate the funnel? How will that affect their business? It's still a bit too early to determine how all of this will unfold.
Tayo Okusanya, Analyst
Okay.
Eric Mendelsohn, CEO
And Tayo, this is Eric again. Let me make my pitch here for triple net versus RIDEA. You know we're 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 principals. So, there are 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.
Tayo Okusanya, Analyst
Got you. Thank you.
Operator, Operator
Our next question comes from the line of Rich Anderson with SMBC. Please go ahead.
Rich Anderson, Analyst
Thanks. Good afternoon, all.
Eric Mendelsohn, CEO
Hi, Rich.
Rich Anderson, Analyst
The first question is about whether, considering most of your portfolio is in senior housing, you believe there is some additional value in skilled nursing, especially regarding regulations that might endure over time. In other words, does skilled nursing appear more appealing in relative terms after everything that has happened?
Eric Mendelsohn, CEO
Yeah. Rich, this is Eric. I completely agree. I've been advocating for skilled nursing for years, even when it wasn't popular. Many viewed it as problematic real estate, but we saw potential. It turns out skilled nursing performs quite well. Ensign reported strong earnings, and NHC is doing well too. There are numerous government programs that support them. Moreover, as hospitals begin to resume elective surgeries, it will positively impact skilled nursing. We're optimistic about its future. You may know we had to postpone the opening of our Ignite skilled nursing facility in Milwaukee, but it's actually open now. We’re actively looking for opportunities in skilled nursing, and I'm slightly concerned that others will soon realize its value.
Rich Anderson, Analyst
Okay, Kevin, I believe it was you or possibly Eric who mentioned that the triple net situation somehow creates a more favorable environment for government stimulus to have an impact. Could you clarify why that is?
Kevin Pascoe, CIO
What we're highlighting is that the operators have ownership of their business. They can apply for loans because they are in control, rather than the REIT managing the operations. Essentially, they are not just managing but also operating the business and have ownership.
Rich Anderson, Analyst
Okay. That makes sense. You covered the occupancy data, and I appreciate the additional disclosure in the quarterly report. However, you mentioned that skilled nursing facilities had lower occupancy, which was balanced by a greater ability to access stimulus programs compared to senior housing. Could you clarify the occupancy figures for skilled nursing facilities? I wasn't able to find that information. Can you provide some insight into the occupancy declines in skilled nursing?
Kevin Pascoe, CIO
We haven't provided specific data mainly because our two largest customers are publicly traded, and we usually don't disclose their information. In general, I would say the impact has been between 400 to 500 basis points, which aligns with what our peers have reported. We're not in a different situation than others. However, we have shared specific details regarding our customers.
Rich Anderson, Analyst
Okay. Lastly, to Eric, you’ve heard everyone’s perspectives and had some time to think about it. As we close out this earnings season, do you have any final thoughts about the business? You mentioned you’re keeping an eye on skilled nursing and are concerned about the information becoming public. Is there a broader theme you're focused on that you can share, or have we covered everything?
Eric Mendelsohn, CEO
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.
Rich Anderson, Analyst
All right. Appreciate it. Thanks very much everyone.
Eric Mendelsohn, CEO
Thanks, Rich.
Operator, Operator
Our next question comes from the line of Todd Stender with Wells Fargo.
Todd Stender, Analyst
Hi, thanks. I hope you guys are well.
Eric Mendelsohn, CEO
Hey, Todd.
Todd Stender, Analyst
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?
Kevin Pascoe, CIO
Occupancy varies significantly depending on the operator and their specific breakeven levels. You could estimate these for larger firms based on our coverage and their historical occupancy data. This breakeven number has likely increased slightly due to rising expenses, which means the breakeven occupancy is now a bit higher because of PPE and labor costs. Each of our customers is examining this situation. The positive aspect is that we provide credit support on our leases, meaning we are not the only provider, allowing customers various options to fulfill their obligations. However, much of this depends on the duration of the current conditions. I can't provide a specific breakeven number as it varies by customer, but you could get a reasonable benchmark based on our coverage and disclosed occupancy information.
Todd Stender, Analyst
That's helpful. Kevin, could you elaborate on that? What would the backstop be, such as a parent guarantee, and are there other properties that might generate cash flow to cover your rent? What are some examples you consider, including escrow accounts? Could you provide some examples as a backup plan in case occupancy declines and rent coverage becomes an issue? How can I ensure I can still cover that rent?
Kevin Pascoe, CIO
Sure. There are several options available to them. One is the parent guarantee you mentioned. Typically, our operators possess more real estate than the investments we have with them. They may be experiencing financial pressures elsewhere, but overall, their cash-flowing enterprises allow them to manage or approve the cash flow deposits we hold. I noted this earlier, and Eric referenced it as well. In certain situations, we do have personal guarantees, which serve as a motivator. We often use them for alignment rather than pursuing anyone individually, but they help keep our operators focused on fulfilling their rental commitments. Additionally, we discussed the relief funds that are available. The PPP has been beneficial for many of our operators. As Eric mentioned, this program is evolving, but some of our operators have applied for it, and whether they have received funds or are simply awaiting approval, it's noteworthy that at least 20% to 25% of those funds can be allocated for rent. There are various resources they can utilize, and we are exploring every possibility. Our operators are also investigating all their options, and we are collectively brainstorming on how we can navigate through this situation.
Todd Stender, Analyst
Thanks. 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.
John Spaid, CFO
The bank term loan market is largely unavailable unless we alter our maturity schedule, which we prefer not to do. We have a decent capacity to access a one-year term loan, but I want to avoid that maturity risk since our next maturities are not until 2022. We have commitments to meet, and we are not particularly pleased with our current stock price. We will continue to address those commitments, which at the end of the quarter amounted to just under $69 million, a significant decrease from the fourth quarter. We do not anticipate meeting all those commitments this year. We do have leftover proceeds from the Brookdale disposition we announced in the first quarter, though those funds are not counted in our cash equivalents, and we haven't defined a specific use for them yet. The only other maturity we need to consider is the April 2021 convertible bond, which we could potentially manage by converting some equity to help align our leverage. We are concentrating on maintaining a manageable leverage ratio.
Todd Stender, Analyst
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?
John Spaid, CFO
Well, we're being extra careful that's for sure. We're being extremely careful.
Todd Stender, Analyst
Thank you.
John Spaid, CFO
Thanks, Todd.
Operator, Operator
Next question comes from the line of Jordan Sadler, KeyBanc Capital Markets. Please go ahead.
Jordan Sadler, Analyst
Thanks. I hope everyone is doing well. I want to follow up on occupancy. I appreciate the statistics you've shared. I think Dan might have asked about spot occupancy, but I am curious about the weekly pace of occupancy loss over the past two to three weeks. Has there been any indication that it is starting to stabilize across your senior attachment portfolio in particular?
Kevin Pascoe, CIO
Sure. What I can tell you is that we maintain regular communication with our operators, which gives us a good understanding of their business situation. However, given that we are neither RIDEA nor a shop, our data, while valuable, is not flawless. We aim to provide you with reliable information that has gone through the closing process for leases, which we receive at the end of each month. We want to avoid presenting data that hasn’t been thoroughly verified. Generally speaking, across the range of senior housing operators, occupancy is declining by about 200 to 300 basis points each month. Our operators are experiencing similar trends, with an average loss of 150 basis points across the three Bickford SLC and Holiday on a monthly basis. Assuming a midpoint, you can expect to see a decline in that 200 to 300 basis point range.
Eric Mendelsohn, CEO
Yeah, 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 your 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.
Jordan Sadler, Analyst
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?
Kevin Pascoe, CIO
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.
Jordan Sadler, Analyst
Okay. In your earnings report, I appreciate having the information available alongside the earnings. I know the filing deadline is approaching, but you typically release it quickly. There was a comment in the report regarding the increased costs and reduced revenues affecting the providers. This situation might lead to you offering some lease concessions to your operators. Can you share any details about ongoing discussions in this area? What are your thoughts on what a structure might look like for a deferral or rent concession?
Eric Mendelsohn, CEO
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.
Jordan Sadler, Analyst
Yeah. 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?
John Spaid, CFO
That was primarily driven by the changing economic conditions. The loan reserve is evaluated every quarter and doesn't represent something that occurs regularly. It's just a reserve assessed based on various factors such as whether new loans were booked, any economic changes, or changes in loss history. These conditions influence how that loan reserve may change, making it very irregular. If a significantly large loan were to be paid off that we had reserved for, we would reverse that and it would count as an income item. Therefore, there is a lot of variability associated with that reserve.
Jordan Sadler, Analyst
Yes, I understand. I was just wondering if there was a specific issue that might be the cause, which I didn't see mentioned. You've confirmed that. Lastly, regarding Sagewood, is there any ongoing development or commitments? It’s the most significant one that stands out, which is why I inquired. My question is whether you've talked with the developer or any developers about potentially suspending construction at this point, or if everything is still set to proceed with your remaining commitments there?
Kevin Pascoe, CIO
Specific to Sagewood Arizona has been much less impacted by COVID outbreak. So they do what they need 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.
Eric Mendelsohn, CEO
We have not halted any of our commitments.
Jordan Sadler, Analyst
Yes, it does. I was curious if any developers were concerned and considering pausing development. However, I think you have pretty much addressed that regarding Sagewood. Thank you.
Eric Mendelsohn, CEO
Thank you.
Operator, Operator
Next question comes from the line of John Kim, BMO Capital Markets. Please go ahead.
John Kim, Analyst
Thanks. Good morning. 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?
Eric Mendelsohn, CEO
Hey, John, this is Eric. It's too early to determine, and we're evaluating each situation individually. I'm aware of other deferral programs, and we have some clients who also work with other REITs. This allows us to gain insights into what those REITs are doing in terms of assistance. We are open to a variety of ideas to support people, and deferrals would be one option.
John Kim, Analyst
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?
John Spaid, CFO
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.
Eric Mendelsohn, CEO
Yes. So John, this is Eric. Oftentimes in situations like this, we are overwhelmed with additional language from our auditors and attorneys. I understand that can be concerning to read and not what you want to see, but that is simply the reality we face as a public company.
John Kim, Analyst
Thank you for providing your weekly updates on the impact of COVID-19 on your portfolio; the timeliness is greatly appreciated. Could you clarify the best way to interpret this data, especially the yellow section, which constitutes 82% of your portfolio? The impact of that portion isn't very clear to me.
Kevin Pascoe, CIO
Yes, I can provide more details. Yellow indicates that testing is being conducted in the building or that it is located in a high infection area. Initially, when we were monitoring high infection rates, the number was 100 in the county, but many counties have exceeded that now, which is why the figure appears so high. However, only about 10% in any given week is due to active testing within the building. Without the classification as a high infection zone, those areas would likely be marked green. Our operators have done an excellent job minimizing the spread or preventing it from entering their facilities, which is reflected in the many green and yellow categories. When the situation escalates to orange or red, it signals a potential larger issue, but even then, the average spread has been limited to a few cases per building. Overall, I believe they have managed to keep it as contained as possible.
John Kim, Analyst
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.
Kevin Pascoe, CIO
That varies significantly by state, operator, and product type, making it a challenging question to answer. In a memory care community, it's quite difficult to restrict areas for residents. Unless a resident is immobile, admitting someone into memory care is complicated. This doesn't mean they are completely closed off, but they can only accept a very specific type of resident at the moment. For typical assisted living or independent communities, I would say they are generally open and accepting new move-ins, though this also depends on the operator and the state. Some operators have temporarily halted all move-ins, which I believe is more of an exception than the norm, until there are more substantial improvements in the numbers. Ultimately, it's a situation that needs to be evaluated on a case-by-case basis, depending on the operator.
John Kim, Analyst
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?
Eric Mendelsohn, CEO
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.
John Spaid, CFO
Yes, this is John. As is customary, every year after we pay our dividend and receive all our rents on time, and cover our fixed expenses, we typically retain over $40 million in cash, which essentially serves as equity for reinvestment. As of June, and it appears May is on track too, that situation remains unchanged. We are now at a point where we need to be very cautious about discussions regarding the dividend. I would say the use of equity is not particularly appealing for us when it comes to paying our dividend mainly because converting stock to cash would be significantly dilutive. Therefore, using cash to pay our dividend is our top priority moving forward. Additionally, I should mention that we are required to distribute 90% of our taxable income to maintain our REIT status, which shapes our current thinking.
John Kim, Analyst
How much does your share price influence your decision on the dividend, if at all?
John Spaid, CFO
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?
John Kim, Analyst
Great. Thank you very much.
John Spaid, CFO
Thanks, John.
Operator, Operator
We have a follow-up from Daniel Bernstein, Capital One. Please go ahead.
Daniel Bernstein, Analyst
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?
John Spaid, CFO
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.
Daniel Bernstein, Analyst
Okay. That’s all I had. Thanks.
John Spaid, CFO
Thanks, Dan.
Operator, Operator
There are no further questions from the phone line.
Eric Mendelsohn, CEO
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.
Operator, Operator
That concludes today's call. We thank you for your participation. You may now disconnect your lines.