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spk00: Greetings and welcome to the National Health Investors Second Quarter 2021 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. And if at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Tuesday, August 10, 2021. It is now my pleasure to turn the conference over to Dana Hambly. Please go ahead.
spk11: Thank you, Jennifer, and welcome to the National Health Investors Conference call to review the company's results for the second quarter of 2021. On the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spade, Executive Vice President and Chief Financial Officer, and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis were released after the market closed yesterday in a press release that's been covered by the financial media. As a reminder, any statements in this conference call which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the quarter ended June 30, 2021. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireet.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 8K 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 Mendelson.
spk06: Thank you, Dana. Hello, and thanks for joining us today. It's been a busy 2021, and the breakneck pace won't be slowing anytime soon. We announced last night that we have a non-binding letter of intent to sell nine holiday properties to an institutional buyer for $129.8 million, and we are in negotiations on the remaining 17 properties, which could result in a lease restructuring, retenanting, RIDEA structure, or further asset sales. We also continue to work on optimizing the Bickford relationship, which could also result in a range of outcomes that would improve Bickford's cash flow, reduce our rent concentration, and improve our EBITDARM coverage. We have said that we are motivated by this crisis to transform into a stronger company, and we are making steady progress on that front. We have completed or announced nearly $220 million in dispositions year-to-date and we have concrete plans for additional sales that will get us to the higher end of our $250 to $400 million range. We expect that this will be substantially complete by the end of this year. As a result, we'll have plenty of capital to redeploy as we start to build back our NOI. Considering that lease coverage for many of the senior housing asset sales we are contemplating is significantly below one times, We are seeing a nice arbitrage opportunity in selling assets with an effective yield in the low single digits and replacing them with investments at yields in the mid to high single digits. We expect to have near full capacity available on our revolver and limited need to issue equity, which should return NHI to its more historic NOI growth profile. We also believe that we can participate in the recovery of the senior housing industry through the repayment of rent deferrals, which also enhances this growth story. Turning to our results, our collection rate was approximately 87% for the second quarter, compared to 94% in the first quarter. The second quarter was negatively impacted by higher deferrals, which increased to $9.9 million compared to 4.2 million in the first quarter. The general theme continues to be that the entrance fee, skilled nursing, and hospital segments representing close to 60% of our annualized cash revenue net of deferrals are performing well while the freestanding assisted living, memory care, and independent living segments have experienced more significant occupancy and margin pressure driven primarily by industry-wide staffing shortages that is pushing hourly rates and agency costs to unprecedented levels. We made the hard decision to reduce our quarterly dividend by 18%, but we believe this is proving to be the right decision as our operators continue to recover. We expect that we will continue to provide some level of support as occupancy and margins continue their rebound By right-sizing the dividend, we have sufficient capacity to assist our partners through the recovery while maintaining our balance sheet strength. As we rebuild NOI, we expect a return to dividend growth. Despite the near-term industry challenges, we remain encouraged by the steady occupancy growth experienced across the senior housing portfolio since the March lows. SLC is near pre-pandemic levels and we're very pleased with the progress that Bickford is making as they have improved occupancy by 500 basis points since March. The recent surge in COVID cases obviously has the potential to become a headwind, but we have not experienced any meaningful disruption so far. The resident vaccination rates are high and appear to be effective. We will continue to provide a high level of transparency as our transition progresses. There are still many moving parts, so we're reluctant to provide guidance at this time. Our visibility is improving, though, and we remain optimistic on the longer-term fundamentals that drive our growth for years to come. I'll now turn the call over to John.
spk08: Thank you, Eric, and hello, everyone. Beginning with our net income for diluted common share, for the second quarter ended June 30th, 2021, we achieved 85 cents compared to 99 cents for the same period in 2020. The decline in that income between Q2 2021 and Q2 2020 is due largely to $9.9 million in second quarter 2021 deferrals, partially offset by 6.5 million in gains on real estate sales. For our FFO metrics for diluted common share for the quarter ended June 30th, 2021, compared to the prior year, NAERI normalized FFO decreased 30 cents to $1.16 from $1.46. For the quarter ended June 30th, 2021, our normalized FAD declined by 8.1 million year over year and by 6.7 million sequentially to $52.8 million. The year over year and sequential declines were driven primarily by higher deferrals of 9.9 million and $5.7 million, respectively. Reconciliations for our pro forma performance metrics can be found in our earnings release in 10Q filed yesterday afternoon at sdc.gov. As Eric mentioned, we are well on our way to making all the necessary decisions to reduce the uncertainty in our earnings and return to growth. The announcements made thus far means we will be delivering our balance sheet from this point forward, which will position the company so we can redeploy capital without the need for additional equity to maintain our leverage policies. We're not providing guidance today because we're not yet finished with our restructuring, which may include additional dispositions and rent adjustments. But we are closing in on the final stages, which we certainly expect to accomplish before year end. It is our sincere desire to reduce our earnings uncertainty and to return to providing guidance as soon as possible. In mid-June, we declared our second quarter dividend at 90 cents per share, which was paid on August 6th, 2021, and represents normalized FFO and FAD second quarter total dollar payout ratios of 77.6% and 78.1% respectively. As announced last night, our board declared a third quarter dividend and 90 cents per share payable on November 5th, 2021. The timing of the dividend announcement in conjunction with our quarterly earnings release is consistent with NHI's prior practice prior to the pandemic and is indicative of improved visibility. Turning to the balance sheet, our debt capital metrics for the quarter ended June 30th were net debt to annualized EBITDA 5.1 times, fixed charge coverage ratio at 5.5 times, and weighted average debt maturity at approximately 4.5 years. We ended the quarter with approximately 1.4 billion in total debt, of which 93% was unsecured. For the quarter ended June 30th, our weighted average cost of debt was 3.28%. On July 31st, we had 25 million outstanding under our $550 revolver, and subsequent to the end of the second quarter, we further reduced borrowings under our 2017 term loan from 225 million to $175 million. Our 2017 $800 million revolver and term loan credit facility is approaching maturity. and we intend to re-syndicate our facility in early 2022. We have more to report on this in our third quarter filings. We did not issue any equity through our ATM during the second quarter, so we continue to have approximately $417 million available under the program. With that, I'll now turn the call over to Kevin Pascoe to discuss our portfolio. Kevin.
spk10: Thank you, John. Starting with an update on COVID, we announced in early July that our operators reported only four active resident cases across the entire portfolio. As cases have been climbing throughout the country, we have been checking with our operators regularly. Fortunately, they have only reported a modest increase in the number of new cases, and we have not experienced any significant outbreaks in the portfolio. We are monitoring this closely and could resume our regular monthly surveys if needed. turning to the performance of our different asset classes and larger operators. Our needs-driven senior housing operators, which account for approximately 25% of our annualized cash revenue net of deferrals, generally experienced occupancy gains throughout the quarter, which continued into July. Bigford, our largest assisted living operator, representing 9% of annualized cash revenue net of deferrals, increased approximately by 240 basis points from the first quarter to the second. The momentum has continued into the third quarter as average July occupancy increased 140 basis points sequentially to 79.6%. We're also encouraged that Bigford's REV4s remain steady as they have not had to employ extensive discounting, which is an outlier in the industry. Still, Labor expenses are a major hurdle to restoring NOI margins, so we expect that Bickford will continue to need assistance with EBITDARM coverage below one times. We continue to work diligently to optimize our relationship with Bickford and have multiple levers, including further asset sales and lease restructuring. We expect to have more to announce in the coming quarter. Our entrance fee communities, which account for 26% of our annualized cash revenue net of deferrals, continues to outperform other senior housing asset classes. EBITDARM coverage for the 12 and 12 months ended March 31st and excluding SLC was a healthy 1.65 times. Senior Living Communities, which represents 18% of our cash revenue, had second quarter average occupancy of 78.5%, which was up 80 basis points from the first quarter and further improved to 79.9% in July. This is just 60 basis points below SLC's pre-pandemic occupancy in March 2020. EBITDARM coverage through the first quarter and excluding grant funds was 1.13 times, which was up from 1.06 times in the prior year period and flat sequentially. Our rental independent living communities, which account for 13% of our annualized cash revenue net of deferrals, have experienced a larger occupancy decline than are needs-driven and CCRC assets. Holiday retirement, which represents 11% of annualized cash revenue, had average occupancy of 73.8% in the second quarter, which was down 30 basis points sequentially, though it has been trending positively in the last four months and was 74.9% in July, which is an increase of 140 basis points from the March low. As announced last night, we have a non-binding letter of intent to sell nine holiday properties for $129.8 million, which generated approximately $11.6 million in annual revenue, with a trailing 12-month EBITDA coverage through March 31st of approximately 0.8 times. Through this pending disposition of holiday properties, we believe we have a stronger portfolio of assets. But as Eric mentioned, we are still considering multiple options for the remaining 17 communities with a variety of outcomes possible, including further asset sales, retenanting, redeastructure, or lease restructuring. The skilled nursing portfolio, which represents 30% of annualized cash revenue net of deferrals, is anchored by two strong tenants in NHC and the Ensign Group, who contributed 14% and 9% of annualized cash revenue, respectively. SNF EPIDARM coverage for the trailing 12-month ended March 31st was 2.86 times. Government support for the industry has been critical, and we received positive news recently on a 1.2% Medicare rate update, as well as a delay in the 5% cut related to PDPM. However, occupancy remains well below pre-pandemic levels, which is exasperated by severe labor shortages, so we are hopeful that more support from the Provider Relief Fund is forthcoming. Turning to our business development activities, we are pleased that we have been able to announce over 120 million of investments in 2021 at a weighted average yield of nearly 9%. We have added two new partners in Montecito Medical and Vision Health, and we have expanded our relationship with Navion. That said, seller expectations remain high so we continue to be patient in the near term until we find investments that make the most sense for our shareholders. With that, I'll hand the call back over to Eric.
spk06: Thank you, Kevin. We have accomplished much this year, but we know we have so much more to do. We look forward to updating you on our progress as we position NHI to emerge as a stronger company headed into 2022. We remain optimistic that industry fundamentals will recover soon, and we are well positioned to thrive given our healthy balance sheet, our strong reputation as an exceptional capital provider, and our long history of accretive growth. With that, operator will now open the line for questions.
spk01: Thank you. If you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. And our first question comes from the line of Jordan Sadler with KeyBank Capital Markets. Please go ahead.
spk05: Hey, guys. Thank you. Wanted to jump right into it, Eric. I appreciate the way you jumped right into it today with your prepared remarks. But on holiday and these sales, I know this was something you were considering. How did the recent transaction announcement and the sale of holiday to Atria inform your decision to sell the assets or to, you know, monetize your transition, the remaining 17?
spk06: Hey, Jordan, good question. Obviously, with the Atria and Welltower transaction announcement coming in the middle of our portfolio review, that definitely had an impact on our decision making. And we had already negotiated a subset of buildings that we could sell with Holiday in our previous lease restructure from two and a half years ago. So these buildings, we've had our eye on selling these buildings for a while. And as I said at the beginning of the year, this crisis prompted us to take drastic measures that otherwise may not have been taken. So that's that's the Genesis of this transaction.
spk05: Okay. Um, and the, and the expectation just, I mean, any sort of color you could offer around sort of the nine that are being sold here versus the remaining 17?
spk06: Uh, sure. You know, we came up with that list in conjunction with holiday, um, you know, and, and, As you examine each building, each market, and each regional team, we just felt that those buildings would be better off in other hands, whether because they need extraordinary capital expenditure, whether they need a different operator, whether they need whether the market and our opinion was not to our liking, you know, those are typically the reasons one would identify a building for sale.
spk05: Okay. And then just moving over to, I know the Sagewood loan or a portion of it was repaid during the quarter. Is there any... any expectation of an incremental repayment or was anything else repaid from that? I think that was an entrance fee loan post-quarter end or through the end of this year.
spk08: Hey, Jordan. This is John. Yes, there'll be a little bit more. That particular note that'll be repaid totaled $60 million. It wasn't 100% funded, so there'll be some maybe additional fundings under that note followed by some repayments. And then we have another note where there'll be some additional fundings yet to come. As they close in on the completion of the project, there's a little bit of a lag between final fundings where they're trying to fund the retainage and things like that. But for the most part, they're through most of the repayments.
spk05: All right, thanks, John. While I have you, just on coverages, do the coverages reflect the impact of the rent deferrals in the quarter? Like, is the rent in the EBITDARM coverage calc reduced by the deferrals?
spk08: No. Is that what you're asking? You're asking whether or not our coverage ratios are the rents actually paid as opposed to the rents that are scheduled? They're using the scheduled rents, yeah.
spk05: Scheduled rents, okay.
spk08: That's correct.
spk05: Thank you, sir.
spk08: You're welcome.
spk01: Thank you. Our next question comes from the line of Juan Santabria with BML. Please go ahead.
spk07: Hi. Good morning. Eric, I think you said in your prepared remarks that you probably are, and correct me if I misheard, that you're running towards the higher end of the disposition guidance for the year, the $250 million to $400 million. If I heard correctly, so does that assume that you would sell the remaining holiday assets or not necessarily there's other pools of assets that could be sold to get you to that level?
spk06: Hey, Juan, two-part question. So the first part, are we running towards the higher end of our disposition estimate? Yes, that looks like that's the case. And The remaining holiday buildings, in my prepared remarks, I mentioned a variety of options. They could be sold, they could be re-tenanted, they could be remaining with ATRIA, or they could be turned into RIDEA, which is not a term that we usually bandy about here. So everything's on the table. And obviously, the Well Tower Atria transaction adds a couple more complexities to that decision. And, you know, we're digging into that currently.
spk07: Okay. And then when you talk about various options for holiday sales, we're kind of doing, et cetera, idea included. Does the same go for Bickford, or that's just a holiday thing? And could you give us any sense of the pros and cons in your mind between those various options?
spk06: Sure. You're absolutely right, Juan. We're performing the same analysis with Bickford. Probably less skewed towards RIDEA. And I'll tell you that our thoughts on RIDEA are heavily impacted by accounting and staffing and asset management needs. It's a very different conversation to convert an independent living portfolio, which really only has one line of business and no levels of care than it is to have a RIDEA that includes assisted living or memory care, which has multiple lines of business and multiple levels of care. So that's a factor in thinking through our willingness to do RIDEA. And Bickford, of course, is assisted living and memory care and many other buildings. And then In thinking about Bickford, Bickford, unlike Holiday, does not have institutional or private equity partners. For the most part, we are their majority capital partner. So the number of tools in the toolbox is different. And as we think about their portfolio, we consider selling buildings back to them, we consider selling buildings to third parties with them staying on as manager, and we consider selling to third parties with them not staying on as manager in the universe of options, as well as restructuring the lease. I mentioned that in the prepared remarks, not our favorite thing to do here. and typically when we restructure a lease, we want something in return. We're taking a commercial approach to lease restructurings. I would point to the holiday lease restructuring where we got roughly $60 million of cash in buildings in return for lowering the rent, and the consideration was roughly equal to the present value of the rent reduction.
spk07: Okay, and then just one last one for me. You mentioned the Provider Relief Fund, and that seemed to be more, I guess, important for skilled nursing. If for whatever reason incremental funds don't flow from the CARES Act or the Provider Relief Fund, does that change the downside risk either for seniors housing or skilled nursing? Or I guess, asked another way, are you assuming any sort of incremental government
spk10: assistance or not necessarily as you look at what you're trying to accomplish it sounds like by your end hey juan it's kevin um well i guess we didn't mention it specifically as it relates to skilled nursing mainly because we've not seen occupancies rebound they've been very well supported and of course we have two very strong tenants there with ensign and nhc so we feel comfortable with the exposure but we do feel like the industry will need some help as it relates to assisted living and memory care. As we've gone through our analysis, we're assuming no further help. We are still hopeful that it will come, but at the end of the day, I think we need to make decisions absent that. We saw some lagging payments get made in the first quarter as related to the last tranche of the Provider Relief Funds, and we haven't seen anything else get concretely announced. So anything there would be incremental and helpful, but again, not something that we're planning on, which is why we're going down these paths of optimizing the portfolio through sales or potential restructures or doing things where we're finally at a place where we're seeing a little bit of recovery can start to look at some longer-term decisions that get our operators back to stabilization.
spk07: Thank you very much, guys. Good luck.
spk06: Thanks, Juan.
spk01: Thank you. Our next question comes from the line of Rich Anderson with SMBC. Please go ahead.
spk03: Hey, thanks, everybody. So you mentioned that the Holiday Well Tower transaction influenced your decision with Holiday. I guess I'm not sure why Well Tower buying that portfolio influences you. I certainly can see why Atria buying Holiday would influence this situation. So can you just triangulate that for me and explain what you're suggesting there? And also, if you are talking about re-tenanting some of the Holiday assets, doesn't Atria have to sign off on that? So doesn't that make that proposition somewhat more difficult to accomplish?
spk06: Hey, Rich. This is Eric. Good question. The Atria purchase of Holiday, the manager, is the primary complication. Okay. But think about this. Imagine an org chart, and imagine that previously the org chart was NHI, the landlord, Fortress, what we call in our business the operator, And then below that, the operator hires the manager, Holiday. So now on that org chart, Holiday becomes Holiday slash Atria, but guess who the operator is? Welltower.
spk03: Oh, I see.
spk06: Okay. So technically, and I'm using air quotes here, technically Welltower is our tenant. I understand. Okay. So that complicates things. And then, as you might imagine, we had to give consent for Holiday to be bought by Atria as part of our lease restructuring two and a half years ago. We got some additional approval rights because Holiday was perennially being marketed. I can say that now. And we have the ability to cancel the management fee as it stands with 30 days notice. Okay.
spk03: Okay, good. So when you look back at history at some of the transitions that you've done, do you have a history of those things working out? I know when people talk about, oh, yeah, we're transitioning an operator, and some might just assume that that's the magic trick. you know, the silver bullet or whatever, and things just suddenly get better. But I can't imagine that transitioning is always, you know, an effective answer to fixing operations. Is that a fair kind of observation of the history, in your opinion?
spk06: Absolutely fair, Rich. You know, and I would describe it as a mixed bag. with maybe a 50% success rate. You can take a look at our transition properties. I'm not happy with how they've been performing. Of course, we have the pandemic to deal with, so the performance metrics make it a little fuzzy, but I can tell you that in my prior life at the Operator Emeritus, transitioning portfolios was the riskiest type of activity. And oftentimes, when the portfolio was being transitioned by a REIT, the outgoing operator would not be happy and would not cooperate with the transition, and that would complicate things exponentially. And they, of course, had no reason not to take their best employees, their best marketing people with them. So oftentimes you'd be left with a building that was short on staff and short on quality employees. So yeah, it's difficult and not our favorite thing to do. Okay.
spk03: But you feel like in your case, you feel you've kind of checked off some of those boxes of risk and obviously wouldn't be proceeding if you felt like it was going to fail, I guess.
spk06: Yes, that's correct. And I want to remind everyone out there in conference call land that we do have remaining an $8.8 million deposit with Holiday that can be put towards things like new signage, new marketing collateral and capital expenditures that might be needed. So, you know, there is oftentimes on a transition that is a very helpful lubricant.
spk03: Yeah, okay. And then my last question is, when I think about the skill space, you know, you happen to be have two pretty high-quality situations there. And you said the business is performing better relative to others. Obviously getting its share of stimulus is helping. But do you have a different view about skilled nursing specifically as maybe a larger component to your story on a go-forward basis because of what you've experienced here? And I asked that with the sort of the commentary that these are for profit operators that are depending upon, you know, sources of reimbursement that have a, you know, balance the budget mandate. So it seems like there's a little bit of a disconnect between what the operators want to do and those that finance them. So I wonder if you have given that any thought, you know, broadly speaking about skilled nursing becoming larger or perhaps smaller on a go-forward basis.
spk06: Good question, Rich. I think you've heard us say for years that we would like to increase our exposure to skilled nursing. The problem now is the market has paid a lot of attention to the government support that just happened and Instead of assessing stroke of the pen risk, as it's called, where a regulation changes and skilled nursing suffers, they've seen the opposite. They've seen subsidies that have helped socialize the risk that skilled nursing encountered during the pandemic. And as a result, the value of skilled nursing properties has increased and made our mission harder in terms of finding properties that fit our underwriting.
spk03: Interesting. Okay. Thanks very much.
spk01: Thank you. Our next question comes from the line of Connor Seversky with Barenburg Capital Markets. Please go ahead.
spk02: Hey, everybody. Good morning over there. Really just one question for me in three parts. First, on the dispositions for the end of the year, you had mentioned that the pricing was in yields low to mid single digits. I'm wondering if you can apply some kind of NOI number to that just for modeling purposes. Second, once we exit 2021, is capital recycling with some of these senior housing operators is that something you would look to continue to do you maybe even to fortify the balance sheet or kind of fund these further acquisitions into maybe new segments and then three uh following up to what richard just asked we had spoke a little bit about skilled nursing back at nary but if the pricing there doesn't shake out i mean where do you look to redeploy capital then does it go back into operating senior housing or do you make another push into something like medical office buildings just any kind of
spk06: color there is appreciated I'll take your questions in reverse order so skilled nursing yes harder to find and you know if if we can figure out a way to do more business with with ensign or NHC or someone like them trilogy comes to mind we'd be willing to adjust our lease rates and pay a lower cap rate because of the better credit or better operating metrics. But otherwise, you're absolutely right. The market seems to be shifting and making it harder to do a deal that makes sense. Your second question about capital recycling, and new seniors housing. You know, think about this. If the buildings we're selling are not covering their lease payment, and based on the sale amount, the cash flow from that building is only producing a two or three percent return, then by selling the building and investing it in a five, six, seven, eight yielding new investment, it's immediately accretive. And by the way, with little or no leverage, because we've had these sales, we have a lot of cash on hand.
spk08: But little or no new equity.
spk06: Yeah, so it reminds me a little bit of what this company looked like in 2008 and 2009, where we had a lot of cash on our balance sheet and no debt. Obviously, we have some debt now, but the debt we have is incredibly at a low rate. Long-term. Yeah. So that gives us a lot of opportunity. You mentioned other segments. You noticed we did a a mezzanine debt loan with Montecito. They're a medical office building aggregator. We found a way to play in that field with a higher-yielding product that made sense for both of us, so we're happy about that. But when the capital is recycled, if our cost of capital is, say, 2% or 3% because of no leverage, That gives us a world of opportunity, doesn't it? And then finally, your first question, NOI. I'm not sure how to think about that, how the dispositions... Well, I think you stated it.
spk08: This is John Connor. I think you stated it exactly right. These low-yielding NOIs can be more quickly turned into higher-yielding, and It isn't lost on us that there's a lot of headwind on senior housing. We're still committed to senior housing, but there's both still supply issues as well as labor issues confronting the occupancy growth. One question becomes, are there better quality NOIs out there that we can more immediately transfer into? I think the answer that we've concluded is yes, and that's where we're heading.
spk02: Okay, that's all very helpful. I think that 2% to 3% number from Eric was what I was looking for. I'll leave it there. Thanks all.
spk01: Thank you. Once again, as a reminder, if you would like to register for a question, please press 1-4. Our next question comes from the line of Daniel Bernstein with Capital One. Please go ahead.
spk09: Hi. Just going back to the comments in the, I guess, the opening statements about RIDEA and, you know, having to add additional asset management. It almost sounds like you're a little bit hamstrung by the size of the company. And so, you know, once you complete all these restructurings, you know, how do you think about the strategic size of the company going forward? You need to be larger so that you have more options and more arrows in the quiver going forward. Just want to get your thoughts on that. Thanks.
spk06: Interesting question, Dan. The short answer is yes, we would need to add a couple of accountants and a couple of asset managers. That's not insurmountable. So I don't see that as an impediment. I know that doing a RIDEA with other lines of business just adds a level of complexity complexity and a seasonality that our investor base is not used to seeing. So there would be some adjustment there as well.
spk09: Okay. You know, but then I go back to, you know, how do you, think about capturing the upside in senior counseling. I know there's, you know, obviously some near-term headwinds with labor, and actually it's a separate question I have on whether you think that's near-term headwinds or long-term, and many of your peers have kind of suggested maybe it's transitory, but, you know, so maybe that's a separate question, but, you know, what is, you know, when it comes to capturing the upside of seniors housing in this cycle? I mean, how are you thinking about structuring the leases? And when you restructure Holiday, when you restructure Bickford, how are we going to recapture that and maybe the timing of it? Is it years down the road? Just trying to get a better sense of that.
spk06: Sure. Good question, Dan. We can capture the upside in two ways. The structure we have in place now with the deferrals allows us to increase collections as occupancy and margins improve. And as things get back to normal, anything above the existing lease rate would be fair game for the deferrals. So that is one way to capture the upside. Another way would be some sort of lease reset where If we decide that it's going to be 12 or 18 months before a property reaches stabilization, we reset the lease at a coverage ratio that makes sense, including a capital expenditure and management fee, and then a period of time afterwards you would reset the lease higher, presumably, as things improve so you could capture that upside. And I couldn't help noticing that LTC is doing just that on a number of their underwater leases.
spk04: Okay.
spk09: I guess I can rephrase the question. How are you thinking about the timing of recapturing those deferrals? Is it a 22 event? I guess maybe this is maybe a broader question on how you're thinking about the pace of recovery within seniors.
spk10: Sure. Hey, Dan, this is Kevin. I think as we're thinking about it, the deferral payments largely start first part of next year. All those continue to be under review as we watch this recovery happen. So we think that it's going to be over the course of the next, call it, 18 to 24 months that will be participating in the deferrals being paid back. All that, of course, depends on how fast cash flow comes back. We're watching where operators are able to do their leases currently for new incoming residents and also the pressures that they're seeing on agency overtime. So those are things that we're monitoring closely that have been a little bit of a headwind as they've recovered occupancy. So again, still something we're watching, but we are still seeing that recovery happening. You see it in our occupancy numbers. But by and large, we expect to start seeing some of that beginning part of next year and should occur over the, you know, throughout 2022 and likely into 2023. All right. I'll hop off. Thanks for the call, guys.
spk01: Thank you. Once again, if you would like to register for a question today, please press 1-4. And there are no further questions at this time.
spk06: Thank you, everyone, for your interest in attending, and we'll look forward to catching up with you at one of the conferences or NAIT readings.
spk01: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
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