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National Health Investors Inc
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Greetings, and welcome to the Fourth Quarter 2020 Conference Call. [Operator Instructions].
This conference is being recorded on Tuesday, February 23, 2021 and now I would now like to turn the conference over to Dana Hambly. Please go ahead.
Thank you, and welcome, everyone to National Health Investors conference call to review the company's results for the fourth quarter of 2020. On the call with me today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Executive Vice President and Chief Financial Officer; and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis were released yesterday after market close, in a press release that's been covered by the financial media.
As a reminder, any statements in this conference call, which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the quarter ended December 31, 2020.
Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures. Reconciliations of which are provided in 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 those reconciliations provided in the earnings release together with all other information provided in that release.
I'll now turn the call over to Eric Mendelsohn.
Hello, and thanks for joining us today. We hope that everyone is staying healthy and hopeful that 2021 will be better for our industry than 2020.
Despite the unprecedented challenges created by the COVID-19 pandemic NHI performed well in 2020. We increased AFFO per share by 3.7%, increased the dividend per share by 5% and maintained our fiscal discipline with leverage below 5 times net debt to EBITDA and an AFFO payout ratio below 85%. We are also pleased to note that we deployed $226.9 million in real estate and note investments during 2020 and our pipeline for 2021 looks promising. We are also able to access the capital markets to bolster our balance sheet using our ATM and more recently to the issuance of our first public bond offering in January at a very favorable rate.
As we discussed last quarter, the impact of the pandemic has been uneven across our portfolio as the entrance fee and skilled nursing communities which generate more than 50% of our cash revenue have been more resilient than our free-standing, assisted-living, memory-care and independent-living tenants.
Government assistance through the CARES Act has been effective in bridging the gap to a more stable operating environment. We are hopeful that more assistance is on the way from the provider relief fund as well as the $1.9 trillion American rescue plan. As most in the senior housing and skilled nursing industries continue to struggle with declining occupancy and increased staffing, testing and PPE costs.
Despite the hardship our monthly collections remain strong throughout 2020 and thus far into 2021 which is a testament to the tireless efforts of our operators in their mission to keep our seniors safe.
But the pandemic has obviously placed a considerable burden on our tenants which clouds visibility in the weeks and months ahead and will make 2021 a more challenging year. Fortunately, the rollout of the vaccine to over 94% of our communities is having a positive impact with the number of active resident cases down by approximately 65% since peaking in mid-December.
However, this is not yet translated into occupancy gains so the road to recovery looks too uncertain for us to forecast with a high degree of confidence. Therefore, we're not providing guidance at this time. That may change if clarity improves.
As we have previously discussed we've been working diligently with Bickford and prospective lenders on the sale of nine properties which would improve their cash flow by approximately $3 million annually. We're still moving forward with the closing currently targeted in March.
However, the rapidly changing underwriting process for these buildings makes valuation for the lenders more difficult. So we're working along multiple paths with our Bickford partners to create a long-term solution that makes them a stronger company while improving our coverage metrics. We are not disclosing specifics as the discussions are ongoing but we hope our track record of transparency tells you that we will share in more details as soon as possible.
As the pandemic unfolded we expected that there would be more deferrals heading into 2021. We said last quarter that we believe the challenges presented by the pandemic are temporary and that we would be hesitant to make long-term decisions in the heat of a crisis. That is still very much the case. So we're willing on a tenant by tenant basis to address their individual needs. Fortunately, with the early success of the vaccine clinics we see some light at the end of the tunnel and expect to see occupancy gains this year which puts us in a better position to make decisions that have a more lasting impact on the company.
While 2021 will be a difficult year NHI is well-positioned to weather the storm with multiple levers at our disposal to preserve our conservative capital structure and set the company up for longer term growth. While this pandemic has had a disproportionately negative impact on operators caring for the senior population we do not believe the damage is permanent and remains steadfast in our positive outlook for the great growth opportunities in healthcare real estate.
With that I will turn the call over to John.
Thank you Eric and hello everyone. Our triple net leases have served us well through 2020 as a pandemic [raged]. Our year-end 2020 results are a testament to our triple net strategy and we continue to believe this strategy will serve us well throughout 2021. However, as we near the end of February, many of our operators continue to experience operating stresses due to the continued occupancy declines and increased pandemic expenses.
The vaccine rollout is very encouraging but we still see a great deal of uncertainty with respect to eventual senior housing occupancy and operator NOI recovery. The result of this lingering uncertainty means we will not be providing you with our normal annual guidance today. We're engaged in discussions with a number of our operators who may need additional rent referrals in 2021 and we cannot meaningfully assess the timing or amount of further defaults in light of many factors including operator resources and additional federal relief.
Our strategy for 2021 will be to continue to work with our customers to stabilize their operations and then assess their abilities to recover from the pandemic's effect. We continue to believe that our current and any future rent referrals would be temporary and not indicative of permanent changes in our operators’ performance for our leases with them. We expect to have more clarity this year and when we do we will endeavor to provide guidance to you then.
I will now turn to our results for 2020. Beginning with our net income for diluted common share for the year ended December 31, 2020 we achieved $4.14 per diluted common share in net income attributable common stockholders compared to $3.67 for the same period in 2019 which is reflective of $21.3 million in gains for real estate dispositions partially offset by $6.9 million in deferrals and $3.9 million in loss in early debt retirement associated with the payoff of our HUD loans during the fourth quarter.
For the quarter ended December 31, 2020 we achieved $0.83 per share in earnings which sequentially is down from $0.95 in the third quarter in comparison $0.95 for the same period in 2019. Earnings were negatively impacted by $4.3 million in tenant deferrals and a loss recorded for the early retirement of the HUD debt.
For our three FFO performance metrics for diluted common share for the year ended December 31, 2020 compared to the prior year NAREIT FFO increased $0.02 to $5.51 from $5.49 in the prior year. Normalized FFO increased 1.8% to $5.60 an adjusted FFO increased 2.7% year-over-year to $5.29 from $5.10.
Reconciliations for our pro forma performance metrics can be found in our earnings release and 10-K filed yesterday afternoon at sec.gov. Cash NOI is the metric we use to measure our performance. A reconciliation of NHI’s cash NOI can be found on page 19 of our Q4, 2020 SEC filed supplemental. For the quarter ended December 31, cash NOI decreased $73 million to $73.8 million, a decline of 2% and 1.4% compared to 2020's third quarter and the prior year's fourth quarter respectively. The decline reflects approximately $4.3 million in rent deferrals incurred in the fourth quarter. For the year cash NOI increased 4.2% to $302.8 million.
Turning to the balance sheet. Our debt capital metrics for the quarter ended December 31 were net debt to annualized EBITDA 4.9 times. Weighted average debt maturity at 2 years but 4.6 years on a pro forma basis adjusted for the recent bond issuance and our fixed charge coverage ratio at 6.4 times.
We ended the quarter with 1.5 billion in total debt of which 94% was unsecured. For the quarter ended December 31, our weighted average cost of debt was 2.91% however on a pro forma basis adjusted for the recent bond issuance it was 3.25%.
On January 26, NHI entered the public bond market with an inaugural issue of $400 million and 3% senior notes due in 2031. The bonds were sold at an initial yield of 3.094% the proceeds were used to pay off a $100 million term loan due this year and to reduce the revolver balance. At January 31, we had 520 million in availability under our $550 million revolver and $37.2 million in unrestricted cash.
In addition, during the fourth quarter we sold 456,835 shares NHI stock through our ATM program and an average price of $66.47 per share raising approximately $30 million in net proceeds. For the year we sold 535,990 shares and an average price of $66.30 per share raising approximately $35 million in net proceeds which leaves approximately $465 million under our existing shelf.
In mid-December, we declared our fourth quarter dividend of $1.10 in a quarter which was paid on January 29. 2021. I'm pleased to report to you that we were able to pay our dividends for the year with AFFO and FAD payout ratios to 82.3% and 81.2% respectively.
So in conclusion, as Kevin will talk about in more detail in a moment 2021 will require us to balance the number of competing financial factors from additional rent deferrals to new investments, to continuing to fulfill our existing commitments to our customers and from capital recycling due to dispositions and mortgage repayments. Our decisions moving forward will be focused on maintaining our financial policies for both leverage and dividends as the COVID-19 crisis begins to resolve itself in 2021 and we're able to begin the return back to normal.
With that I will now turn a call over to Kevin Pascoe to discuss our portfolio. Kevin?
Thank you John. Starting with an update on COVID which is based on results from our February 9 bi-weekly survey we are very encouraged by the rapid rollout of the vaccine to our operators that began in late December. As Eric mentioned over 94% of our communities including 100% of our SNFs have completed at least the first round and we expect that nearly 100% of our communities will have completed both rounds by the end of the first quarter.
Participation for residents is at approximately 80% and the staff participation rate is at 46%. Both rates increased from the prior survey and we're working with our operators on initiatives to drive higher participation particularly for staff. Active resident cases have declined by 70% in our senior housing portfolio and by 64% in our SNF portfolio since peaking in mid to late December. The active cases represent less than 1% of our unit capacity which is the lowest level since early October.
The early positive results from the vaccine rollout have not yet translated into occupancy gains but in addition to move-in restrictions we think this is more reflective of seasonality as the winter months typically are the worst from an occupancy standpoint. We are hopeful that as the vaccine is more widely distributed to the general population that visitation rights will improve and we will see occupancy pick up in the summer and fall months.
Turning to collections. We received 93.9% of contractual cash due in the fourth quarter. Quarter-to-date we have collected approximately 97% which reflects the previously disclosed deferrals of 750,000 for Bickford and 450,000 for another tenant. At this time we have not reached agreements with any operators on future concessions but the length and severity of this pandemic is clearly pressuring many tenant operating margins. Therefore, absent a quick upturn in occupancy or significant government support our internal forecast incorporates some additional rent deferrals.
Turning to the performance of our different asset classes and larger operators. Our needs driven senior housing operators which account for 32% of our annualized cash revenue generally experienced stable occupancy trends through much of the third quarter but we’re not able to sustain that momentum into the fourth as COVID cases started spiking again in early November and peaked in late December.
Phase two of the provider relief fund provided some needed short-term financial relief and several of our operators are still waiting for phase three distributions which are smaller but further help shorten the gap to a more normal operating environment.
Bickford, our largest assisted living operator representing 15% of annualized cash revenue experienced a 280 basis point sequential decline in fourth quarter average occupancy which compared to an 80 basis point decline in the prior quarter comparison.
Bickford's December occupancy was the lowest month of the fourth quarter at 76.7% and further declined by 110 basis points in January to 75.6%. Despite the continued drop in occupancy we have been encouraged with the recent increase in leads and new sales. New sale conversion rates have dipped below historical levels but still suggests that the near-term outlook for occupancy is improving as we head into a seasonally stronger period for new resident move ends.
As Eric noted we are working along multiple paths with Bickford that have the dual goal of putting them in better financial shape and to improve our coverage metrics. Operationally, we are very pleased with how Bickford initially responded to the crisis and to their diligence throughout to keep the residents and employees safe.
Our entrance fee communities which account for nearly a quarter of our annualized cash revenue have been more resilient driven by factors we have discussed in the past including a longer average length of stay and a generally younger healthier resident population. But like our needs driven tenants the fourth quarter occupancy trend declined more so than what we saw in the third quarter. Timber Ridge has been an exception as occupancy has been consistently in the mid 90% range.
Senior living communities which represents 15% of our cash revenue had fourth quarter average occupancy of 77.3% which was down 170 basis points from the third quarter. We are encouraged by SLC's January occupancy, however, which increased 110 basis point sequentially to 77.3%.
January entrance fee sales were below expectations but February sales have been strong as our expected March sales. Our rental independent living communities which account for 13% of our annualized cash revenue have experienced a more pronounced occupancy decline than our needs driven in CCRC assets.
Holiday retirement which represents 11% of annualized cash revenue had average occupancy of 77.2% in the fourth quarter which was down 240 basis points sequentially. This followed sequential declines of 390 basis points in the third quarter and 380 basis points in the second. January occupancy declined another 150 basis points from December to 75.3%.
As part of our lease restructuring with Holiday in 2018 you'll recall that we required a meaningful equity infusion into the Holiday tenant which they've been using for working capital needs and we have a $10.6 million security deposit that provides some cushion until Holiday starts to recover.
On a more positive note we are happy to report that Holiday despite being predominantly independent living is scheduled to complete at least the first vaccine clinic in each of the NHI owned communities by the end of the month. The skilled nursing portfolio which represents 27% of annualized cash revenue is anchored by two strong tenants in NHC and the insight group who contribute 13% and 8% of annualized cash revenue respectively.
EBITDARM coverage for the trailing 12 months ended September 30 was 2.94 times which improved from 2.89 times reported in the prior quarter. This coverage is inclusive of funds received from the CARES Act for those that accepted the funds. The government support for the skilled industry has been tremendous and we wouldn’t be surprised if there is not more forthcoming given SNFs vital role in the healthcare continuum.
Turning to our business development activities. We announced $226.9 million of investments in 2020. During the fourth quarter we originated a development loan for $22.2 million at a rate of 8.5%. The proceeds are for the construction of the courtyard of Sussex a 110 unit senior housing community in Sussex, Wisconsin which will be operated by 41 management, a growing partnership of ours that now includes eight properties.
NHI has an option to purchase Sussex upon stabilization. Since the pandemic began there really has not been a shortage of deals to evaluate though the quality has not generally met our standards which is why we've been fairly quiet in deploying capital in recent quarters.
Further, the uncertainty caused by the pandemic made us understandably more cautious. We continue to be cautious but with our balance sheet in good shape capital recycling events in the near future and signs that the pandemic's impact will start to dissipate in the coming quarters we expect to have an active year of investments. The pipeline includes triple net opportunities and shorter term higher yielding products like Mezzanine debt and development financing. Currently, we have approximately 200 million of board approved investments subject to further due diligence and underwriting.
With that I will hand the call back over to Eric.
Thank you Kevin. We're proud of the results that NHI was able to achieve in 2020 despite all the COVID disruption and while we believe that the industry will begin to recover in 2021, the next several months will be difficult for our operators as they continue to deal with the pandemic’s aftermath as they start to rebuild. That said the vaccine is clearly having a beneficial impact and indicates that we are much closer to finding the bottom than we were just weeks ago. We look forward to updating everybody on the progress.
Operator we will now open the line for questions.
Thank you. [Operator Instructions] We do have a question from the line of Jordan Sadler with KeyBanc Capital Markets. Please go ahead. Your line is open.
Thanks and good morning. I want to pick up Kevin, I think you touched on typical seasonality and sort of some optimism. Can you maybe discuss the seasonality you've typically seen in your portfolio in terms of move-ins and move-outs sort of maybe give us some guideposts?
Sure. Just as we see in the winter months especially as you get around the holidays we just see lead traffic and then also move outs tick up. This year has been no different as we think about some of our operators like Bickford, we're looking at their move out rates through the course of the year. We see a few more, we're looking at a regular basis we're seeing a few more on average each week. There is not any specific underlying issue to point to as we've talked about the vaccine clinics have gone very well. The amount of COVID related incidents have gone down.
So the move outs that we see we don't believe are related specifically to COVID though there has been some in the past but it's the time of year where there is still we've not seen a ton of it but there is still some flu that comes around. There is still other issues that crop up in seniors in winter months that are brought on about the change of seasons or having cold weather and you're seeing again just influenza or the things like that that would, you'd see people expire from.
So that is kind of seasonally something that we do see. This year has been no different. As you mentioned though just on the flip side now that the vaccine is out we are starting to see some more lead traffic. It's not back to historical levels but the amount of sales that we're seeing has improved. Those need to convert to move-ins as we've also seen a ton of nasty weather and other incidents going on around the country. So that's probably going to keep people from being able to move in but it is something we're still watching very closely and think those are going to translate into those sales are going to convert.
It just it seems like now there needs to be a little more education and hand-holding and this is a big decision for any family especially at a time like this. So they're going to continue the education process, do what they can from a tour process get people comfortable and get them to take possession of those units once they get those sales.
And just specifically as it relates to Holiday, I think in some of the commentary we've heard before that IL has been holding up reasonably well. We saw that previously December was they saw negligible move out it's relative I think but January kind of picked up and I wonder how we should be thinking about that? Was that a catch-up or a lag or sort of anything to sort of point to that drove that sort of bigger slippage for them in January?
I don't think the story there is any different. You have we see the seasonally higher move outs as it relates to all senior housing and then also people just are not moving in generally speaking again around the holidays. As we get into the spring though we see people start to move around a little more. They see where their loved one may need some additional care encourage them to go to a setting where they have more community-based setting like a Holiday community. So we would, we're looking forward or expect that there should be some increase in lead traffic and hopefully again that translates into move-in volumes. We've seen a little bit of that with them as well. Their lead volume has started to tick back up but again that needs to convert to sales and move-ins.
Great. Then lastly I think you said the board approved investments that are teed up. Did you say 240 million and if any color you can offer on mix that'd be it for me.
200 million is what is currently board approved and again those are still in various stages of diligence and underwriting but there are things that we at least had the confidence and wanted to go ahead and make sure they were approved as we continued our confirmatory due diligence and making sure we wanted to continue with the investment but at least we did have the enough conviction around them to at least take them to our board and show them that we want to make these investments.
Are those mostly seniors housing triple net investments?
It's a smattering of different types of investments. I think in this environment everybody's been challenged to find creative ways and new ways to invest. So you'll see some senior housing just kind of down the fairway from us. You'll see some as we continue to look at some of these investments some loans, some other just different opportunities for us to invest whether it's in any of the asset classes that we've talked about before; senior housing, skilled nursing, behavioral and then again leases, loans meds all of it's on the table for us and things that we think are value-added for the company.
Thank you.
Thanks Jordan.
Our next question is from the line of Daniel Bernstein with Capital One. Please go ahead.
Hi, good morning. Just following up on Jordan's question on the pipeline, are you looking at adding new tenants or are you being brought deals from your existing tenant pipeline?
It's really both and that's exactly what our business model has been is to cultivate new relationships and have them come back for repeat business which we think is a very high compliment. So from just a customer standpoint again I think you'll see both types. We continue to work with all of our existing operators but we want to continue to build new relationships and have them continue to come back for additional business as well.
Okay and then I just wanted to just understand a little bit better about what are the issues I guess delaying the Bickford transaction and kind of like what are you running into in terms of due diligence or what are the lenders? If you can talk about it, I mean what issues are you kind of running into with the lenders and in terms of getting that transaction done? Just curious.
Hey Dan this is Eric. I'll take that one. This has probably been the most challenging environment to get a secured loan done. The irony is throughout all of this the credit markets have seized up unfrozen John and his finance department were able to do a $400 million bond at a crazy low interest rate but the world of secured lending is a little different and lenders are definitely spooked by COVID impacts and not being able to do live in-person due diligence visits.
So everything just takes longer and I would also say that alone this size in the $50 million size is usually syndicated and some banks have dropped out during the term of the underwriting and that has meant that you had to replace that slug of capital with a new lender. So you're absolutely right. It is taking longer than expected and it's frustrating on our end.
Can you fill the role of providing lending or just filling in the gap there for what the banks are doing or what the syndicated side of the business? In other words instead of it being a $50 million loan, it's a $25 million loan and you're providing the other $25 million as kind of lender financing. Is that something that's on the table to get the deal done?
Mechanically, certainly we could do that. You run into some accounting issues when you end up loaning too much money on a sale then it turns out it's not really a sale. So we're trying to be mindful of that and make it a legitimate transaction.
Okay and then just one last question for me here. Have you had any feedback from your operators in terms of the type of resident that's moving into seniors housing? Are they older frailer? Are we seeing delays because and I'm trying to also this is where this is leading are we seeing delays because of work from home or some kind of hybrid work model and kind of how are you thinking about the future of demand for the industry?
Well, this is Kevin. I would tell you that anecdotally there has been some discussion around the delay of moving and I don't think that's a new discussion that we've been having. The pandemic clearly I think has delayed that discussion a little bit further mainly because we've talked a little bit about in my comments which is visitation rights, moving your loved one in somewhere where you're not sure when or if you're going to be able to see them is very difficult.
So with that in mind there is an element of people with higher needs or people that are, that need help right now they're the ones that are coming to find services.
Generally speaking that's what the trend you've been seeing in licensed buildings anyway but probably a little more pronounced right now just because of that visitation issue. Now we're hopeful that as the vaccine clinics continue to roll out and everybody is feeling a little more confident that will change consumer behavior and also we need regulators to acknowledge that these vaccination clinics have happened and therefore reduce or kind of roll back some of these restrictions on visitation and how operators can conduct their business and that should start to help from a move-in sales and move-in perspective.
Again with the clinics we've started to see a little bit of spurring activity there but it's not back to where it needs to be. We need kind of the rest of this equation to follow through. So there is that change in behavior and confidence.
All right. I appreciate all the color and taking the time this morning. Thanks.
Sure. Thank you.
We have a question from Rich Anderson with SMBC. Please go ahead. Your line is open.
Hey thanks. Good morning.
Hey Rich.
Good morning. So when you talk about rent deferrals what we're hearing in other property sectors perhaps is that they're being recognized in the quarter they were supposed to be paid because unless they're deemed to be uncollectible then it's bad debt. It doesn't sound like you're accounting for it that way or are you in some cases and not in other cases I'm just trying to understand how this rent deferral process might be modeled into the future if you're going to sort of then recognize rent that wasn't paid and then on top of that's being paid hopefully a few quarters from now if you'll kind of have a doubling up scenario? Is that the right way to think about it?
Yes. So this is John Rich. Let me just clarify. We're not recognizing any of the deferrals into our revenues at all. So they are in agreement to be paid back to us at a future date but only upon that date when they're paid back we will then recognize them into revenues including whatever yield we might also achieve on them at that time. So it could be highly accretive once things improve in those deferrals then our tenants are able to start paying back those deferrals.
Right. So you'll be superimposing previous deferrals with real-time rent and you kind of have a kind of a stack of growth out of that. Is that right?
That's right.
Did you have full latitude to account for it that way? Could you have said we're going to recognize this in the quarter it was supposed to be received if we have a good sense that it's going to be paid in the future or how did that go because that's the way other folks are handling it in other sectors of the real estate world?
Right. There was a special sort of accounting standard issued in the middle of the year what we sometimes commonly refer to as the FAQs, it's an odd name for them but it did give some leeway and if you had a high degree of certainty and when they were going to be collected then you could do that but no one likes to have accounts receivables that are two years old, one years old and I think you've got live by your financial policies when you do that.
So is there a written agreement about a payback or is it a handshake or how is that being handled?
Yes. They're all in writing. That's correct.
Okay. As far as you said going 10 by 10 and addressing needs clearly your part of that decision is relationship building because these are folks that are you're going to grow with hopefully in the future. Is your attention being paid to those that really look to be strong players going forward or are you even willing to come to the rescue for weaker operators that may not be a big part of the story a couple years from now?
Hey Rich. This is Eric, I think what you're getting at also includes strength of character and I would say right now we're trying to help all of our clients as best we can and help them get through this crisis but we're definitely taking notes on people's behavior and ability to live up to the spirit of the agreements.
Is that like a notepad or a large novel of notes? You don't have to answer that question. Last question from me I appreciate the reason, the rationale by not issuing guidance but maybe if I put it this way the fourth quarter could very well perhaps be the trough of all this, if we continue to have progress like Kevin and everybody there was talking about. Would it be a reasonable sort of if we were to have a low end of a guidance range to just take this fourth quarter annualized? I mean is that, would you consider that a reasonable way to think about modeling in a kind of a vacuum at the moment?
No, I can't let you do that. So this year has a lot going on as I may, as I this is John again, as I mentioned in my comments. Later this year we'll have some capital that we'll need to recycle. The principal numbers there the Acadia trust point transaction that was mentioned in arcade we've received a notice that they're going to execute on their purchase option there. So that'll occur most likely in the beginning of the third quarter.
We are getting good results coming from our Sagewood transaction and that would result in a mortgage loan repayment that might come in a little faster than we expected that's high yielding capital will have to recycle. The good news is we do have these investments in front of us that Kevin talked about and a little bit of the timing will occur when those happen versus when we can recycle some of this capital then finally yes deferrals. The timing of those deferrals and when they occur is still unknown. So as you can see occupancy's declined somewhat more in the first quarter. So I'm not sure you can completely come to the conclusion that the fourth quarter was the bottom but we're getting close.
Okay. Fair enough. Thanks folks.
Thanks Rich.
We have a question from John Kim with BMO Capital Markets. Please go ahead. Your line is open.
Thank you. Rich just took my last question. So I'll have to ask it in a different way but so in the fourth quarter you had 94% run collection and you're in discussions right now for additional deferrals. Are you implying that the potential for 2021 deferrals could be greater than $6.9 million that you granted last year?
Yes. Let me take that one here. This is John. We're just telling you that the it's just way too uncertain. It's just going to really depend on stabilization and how quickly occupancy can recover. So you can draw a scenario. One scenario could be it would be greater. Another scenario is it could be less. Particularly if the recovery results in a situation where we can start recovering the deferred rents because it's going to be the customers are induced to pay those deferred rents sooner rather than later. The yield kind of encourages them to do that. So it's, you could drive that either way. And then finally I just would like to point out we're still waiting to see what's going to be in the provider relief funds.
Right. Okay. It just sounded like some of those items you mentioned are upside to the fourth quarter as a run rate.
They could be but I'm talking about the entire year here and so in the near term you probably are going to see things that look a little more like higher stress situation but then it's a question of how quickly can things recover moving forward after that.
You now have four different tenant purchase options that are open. What are your expectations that of these getting exercised?
Well, this is Kevin, sorry John this is Kevin. As we mentioned we expect the Acadia option to be exercised. The rest of these are various levels of discussion I'll say with our operating partners to see if there's a way for us to find some other amenable solution. Those things could be, I mean the outcomes could be they sell it go away. It could be that we help them finance their purchase and we actually retain some of that income for a period of time. It could be like we did with one of our other operators a year before last where we or actually I guess it was the beginning of last year we were able to extend out that option or in the case of what we did with [indiscernible] is to buy out the option from the prior customer and lease it to somebody else.
So all those things are still top of mind for us. So we've given you certainty where we know one of them will be where we expect one to be paying off this year. The rest of them are still various levels of discussion. So it's hard to say with certainty which route it's going to go but I think you're going to see a mixed bag of all the things that I just mentioned whether that's us either selling it or if we do sell it we can still help them finance the purchase and retain some of that income or push out that option. So all things we're still working on.
John you might even say Kevin likes to kick the can down the road creatively.
That's a good one. I'll use it in the title. Eric you were named to the board this year which I have to admit was surprising. I thought you were already on but so now you're the only insider on the board NHC conversely has three board seats. Is this something that the company would reconsider at this point? I know you have a long-standing history with them but they are now your third largest tenant and you do have a large lease negotiation ahead of your their expiration in a few years. What is your view on this?
If I understand your question correctly you're asking we have two board members who, three board members who are affiliated with NHC and isn't that a conflict when a lease renewal would occur with NHC . Is that your question?
Yes. It is. thanks.
Okay. We have had discussions about that and certainly discussed it prior to the two new board members being appointed last year and typically you would isolate those board members with a conflict and they would not be a party to the negotiations or the discussions. So --
Which is the case now. This is John, John. Anytime we have a transaction or any kind of modification requires board approval. We have a set of independent directors with respect to NHC that act on these sort of issues. So that'll be the case moving forward and of course management is incentivized to look out for the very best interests of NHI.
Well, I mean outside of the conflict I mean is three board seats affiliated with an NHC is that the best board composition that the company could have at this point?
Well, I will say that the two new additions have deep experience in senior housing and skilled nursing and I can personally attest to them being helpful and informing in their comments based on their experience.
Got it okay. Thank you.
We have a question from the line of Connor Siversky with Berenberg. Please go ahead. Your line is open.
Hi everybody. Thanks for having me on the call today. On occupancy, looking at SLC in particular here it seems to be one of the rare instances where occupancies actually jumped up from December to January where the rest of the space has reported the opposite it seems. I'm just wondering what kind of dynamics might be at play here if you see that permeating through the rest of your tenant base and just any kind of color there is appreciated.
Sure. Hey Connor this is Kevin. What you've seen with SLC or what we we've seen with them is one the entry fee models held up pretty well as we talked about in our comments. We have a different profile of resident that is choosing a different lifestyle choice. These are much more independent individuals that are making a lifestyle choice and they can still essentially come and go as they please.
So they don't have the same kind of restrictions as some of the other communities might. So they're essentially buying another home and making a lifestyle choice here. Furthermore, we have seen in both the memory care and skilled nursing segments occupancy increased some there which has helped their overall occupancy. Those are smaller pieces to their campus but those may be going back to an earlier comment about some of the more needs driven. We've started to see a little bit of rebound in those needs driven as it relates to just SLC specifically.
I do think though that again kind of pointing to our overall comments talking about lead traffic and sales volumes, it's a good leading indicator. People are starting to move out around a little bit more. They are starting to make some of those purchasing decisions needs to translate into overall occupancy. SLC has done a really nice job there to be able to make those conversions happen. I believe our other operators are positioning themselves to be in a similar dynamic but it's got to roll through and we've not seen that on the rental side just yet but we again have started to see some of those leading indicators.
So just high level. Is it reasonable to assume that SLC or portfolios similar to SLC this could be a sustainable trend as we work through the next couple of months?
I would say this past year this has probably beaten those words out of my vocabulary. I don't, I mean I make light of it I think it is something that all of our operating partners are looking to for the balance of this year especially once we get past the spring and into the summer and fall months to be able to continue some occupancy improvement.
So I think as a group that's everybody's expectation. We're just being cautious on calling it a trend just yet because we still need that trend to form. Again at this point we just kind of have the leading indicators. Again SLC has done a remarkable job of starting to build occupancy first so to speak out of our operators that we're publishing information on and we think that will trickle through or flow through to the rest of the operating partners based on what we're seeing so far but again that the trend needs to still kind of formalize.
This is helpful.
I would just once again point out that the entire industry can't be painted with one brush and Kevin pointed out in his comments about how well our entrance fee community Timber Ridge transaction has performed this last year. It continues to be upwards of over 90% occupied and we're seeing good event good effects in the Sagewood development that we have a $180 million loan commitment on as well. So each product is affected by COVID differently.
Noted. That's helpful thanks for that. And then one more I know Eric had mentioned some of the complications on the underwriting process related to the Bickford assets and then just at a high level I'm wondering if these similar dynamics are permeating through transactions in the rest of the space, do you foresee any meaningful changes in pricing throughout the year or just would like to get a sense on how you think transactions will progress through the end of the year?
I think what everybody's looking for right now and sorry this is Kevin. What everybody is looking for right now is to make sure or to find bottom. That's what everybody wants to know that we're at a place where things are getting better from here and to kind of jump onto what Eric was saying earlier that's where any bank not specific to Bickford but any bank just wants to make sure that the loan that they're making has based on again some foundation and that there is a different trajectory from here on out.
Again I think we're starting to see that but we've already seen the banks tighten up in terms of their lending requirements. We've referred to it anecdotally or jokingly in our prior calls about retreads in terms of deals that keep coming back around. We're seeing a number of those right now just because they can't get financing or people or those valuations aren't quite holding up.
So I think you're right there may be some opportunity and that's something we continue to look for is there's some value buys out there some way for us to partner with our existing operators where they can get a reasonable value and create some value and we can find some ways to incentivize them or get additional cash flow into their enterprise above and beyond the lease. So those are things that we're looking for now. We continue to evaluate several opportunities along those lines. So something to stay tuned for. One thing I guess I will say though is we've been looking for elements of distress and while we've seen some of it, I wouldn't say that we've seen a ton of distressed buys not as much as I probably would have otherwise expected so far. So there is some floor, so to speak on pricing that we're seeing but it is difficult to get transactions done right now.
All right. I appreciate the comments. I'll leave it there. Thanks.
And we have a question from Omotayo Okusanya with Mizuho. Please go ahead.
Yes, good afternoon everyone. So Eric, you brought up the point about to get all the lenders trying to figure out whether when you're going to get the bottom so they can get comfortable with underwriting and I think even in your press release you did kind of talk cautiously about potentially seeing an inflection point this year. What's the data whether what are you looking at anecdotally to kind of give you that optimism or cautious optimism that we do see some type of inflection later on this year? And even post inflection what do you kind of see as the rate of take up kind of going forward based on the level of demand you're seeing today.
So this is Eric. The data that I'm looking at is two things Omotayo. One is the progress of the vaccine clinics in our portfolio and the industry in general. The optimism and acceptance of our providers seems to be improving as that vaccine is being administered. So that's the first thing. The second thing I'm looking at is what they call sales leads and that is someone who takes a tour or visits a building online, virtually, however and makes a commitment to move in whether or not that person moves in is a different metric that's called a move-in as you might expect but we are seeing a higher level of lead volume and that is encouraging.
Okay. And if that lead volume converts based on historical conversion rates, does that kind of give you a sense of we pick up occupancy pretty quickly. It's a kind of a slow and gradual grind back?
Yes. I knew you were going to go there and I would say if you asked me that question a year ago I would have a handy metric and I would be able to give you an industry percentage of number of leads, sales and move-ins but that has all gone out the window with COVID and frankly with the last two weeks of weather. We've seen this storm create havoc. So it's been kind of a double whammy but the leads are up and the sales are up and that is encouraging.
Got you. One more for me if you don't mind. Anything that you're hearing on the government end either from your lobbying groups or what have you about, do the senior housing get a piece of this $1.9 trillion, is it going to be more of you can you get a piece from what's left over from the CARES Act like is there any kind of real sense of what could happen next?
Sadly I don't have anything to report. Many of us are participating in industry lobbying calls and we spend a fair amount of money supporting that effort and a lot of us are on lobbying zoom calls to legislators and we don't have anything concrete yet. So that if you go back and look at John's comments earlier about why no guidance that's another part of the equation. Last year there was a provider relief fund and that helped with our operators being able to continue to stay open and offer services. So we don't know what that looks like this year.
Yes and to put a button on that Omotayo this is John again, we even have operators who are owed money under prior programs that are still waiting on funding to get paid.
Got you. All right. I appreciate the color. Thank you very much gentlemen.
Thank you. Omotayo.
And there are no further questions at this time.
Thanks everyone. We will look forward to seeing you at a virtual conference soon and a real conference in the future.
There concludes the call for today. We thank you for your participation ask you to please disconnect your lines.