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National Health Investors Inc (NYSE:NHI)
Q4 2020 Earnings Call
Feb 23, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Fourth Quarter 2020 Conference Call. [Operator Instructions] This conference is being recorded Tuesday, February 23, 2021.

And now I’d like to turn the conference over to Dana Hambly. Please go ahead.

Dana HamblyDirector of Investor Relations

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 closed 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 in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI’s Form 10-K for the year 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.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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 were also able to access the capital markets to bolster our balance sheet using our ATM and, more recently, through 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 in skilled nursing communities, which generate more than 50% of our cash revenue have been more resilient than our freestanding 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 remained 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 has 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 are 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 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 remain steadfast in our positive outlook for the great growth opportunities in healthcare real estate.

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

John SpaidChief Financial Officer

Thank you, Eric, and hello everyone. Our triple-net leases have served us well through 2020 as the 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 deferrals in 2021 and we cannot meaningfully assess the timing or amount of the deferrals 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 our operations and then to foster abilities to recover from the pandemic’s effect. We continue to believe that our current and any future rent deferrals 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 you guidance — we’ll endeavor to provide guidance to you then.

I’ll now turn to our results for 2020. Beginning with our net income per diluted common share, for the year ended December 31, 2020, we achieved $4.14 per diluted common share in net income attributable to common stockholders, compared to $3.67 for the same period in 2019, which is reflective of $21.3 million in gains from — gains for real estate dispositions, partially offset by $6.9 million in deferrals and $3.9 million in loss on early debt retirement associated with the pay-off 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 and compares to $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 a HUD debt. For our three FFO performance metrics per 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 and adjusted FFO increased 2.7% year-over-year to $5.29 from $5.10. Reconciliations for our 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 $273.8 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 of 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, the NHI entered the public bond market with an inaugural issue of $400 million in 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 at an average price of $66.47 per share, raising approximately $30 million in net proceeds. For the year, we sold 535,990 shares at an average price of $66.30 per share, raising approximately $35 million in net proceeds, which leaves approximately $465 million under our existing shop. In mid-December, we declared our fourth quarter dividend of $1.1025, 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 a 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’ll now turn the call over to Kevin Pascoe to discuss our portfolio. Kevin?

Kevin PascoeChief Investment Officer

Thank you, John.

Starting with an update on COVID, which is based on results from our February 9 biweekly 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 — and 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 were not able to sustain that momentum into the fourth as COVID cases started spiking again in early November and peaked in late December. Phase 2 of the provider relief fund provided some needed short-term financial relief, and several of our operators are still waiting for Phase 3 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 in new sales. New sales conversion rates have dipped below historical levels but still suggest that the near-term outlook for occupancy is improving as we head into a seasonally stronger period for new resident move-ins. 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 trends 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 points sequentially to 77.3%. January entrance fee sales were below expectations, but February sales have been strong, as are 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 and 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 Inside 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’s support for the skilled industry has been tremendous. And we would be surprised if there’s not more forthcoming given SNF’s 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 of 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 of 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’ll hand the call back over to Eric.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Thank you, Kevin. We’re proud of the results that NHI was able to achieve in 2020 despite all the COVID disruptions. 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’ll now open the line for questions.

Questions and Answers:

Operator

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.

Jordan SadlerKeyBanc Capital Markets — Analyst

Thanks, and good morning. I wanted 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?

Kevin PascoeChief Investment Officer

Sure, just as we see in the winter months, especially as we get around the holidays, we do 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. When we’re looking at their move-out rates through the course of the year, we see a few more — we’re looking at on 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 has 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 with the change of seasons or having cold weather and you’re seeing again just influenza or 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 are seeing has improved. Those need to convert to move-ins as we’ve also seen there’s been 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 — seems like now there needs to be a little more education and handholding 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.

Jordan SadlerKeyBanc Capital Markets — Analyst

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. In December, it was — they saw negligible move-outs relative I think, but January kind of picked up. 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?

Kevin PascoeChief Investment Officer

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 or encourage them to go to a setting where they have more community-based setting like 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 mov-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.

Jordan SadlerKeyBanc Capital Markets — Analyst

And 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 would be it for me.

Kevin PascoeChief Investment Officer

$200 million is what is, generally, the 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 want 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.

Jordan SadlerKeyBanc Capital Markets — Analyst

Are those mostly seniors housing triple-net investments?

Kevin PascoeChief Investment Officer

It’s a smattering of different types of investments. I think in this environment, everybody has 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, mez, all of it’s on the table for us and things that we think are value-add for the company.

Jordan SadlerKeyBanc Capital Markets — Analyst

Thank you.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Thanks, Jordan.

Operator

Our next question is from the line of Daniel Bernstein with Capital One. Please go ahead.

Daniel BernsteinCapital One Securities — Analyst

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?

Kevin PascoeChief Investment Officer

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.

Daniel BernsteinCapital One Securities — Analyst

Okay. And then I just wanted to just understand a little bit better about what are the the issues, I guess, doing 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 in terms of getting that transaction done? Just curious.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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, we’re 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 a loan 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 it’s — you’re absolutely right. It is taking longer than expected, and it’s frustrating on our end.

Daniel BernsteinCapital One Securities — Analyst

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?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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.

Daniel BernsteinCapital One Securities — Analyst

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 — and I’m trying to also just 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?

Kevin PascoeChief Investment Officer

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 it’s — as 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 spur in 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.

Daniel BernsteinCapital One Securities — Analyst

All right. I appreciate all the color and taking the time this morning. Thanks.

Kevin PascoeChief Investment Officer

Sure. Thank you.

Operator

We have a question from Rich Anderson with SMBC. Please go ahead. Your line is open.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Hey, thanks. Good morning.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Hi Rich.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Good morning. So when you talk about rent deferrals, what I’m — 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?

John SpaidChief Financial Officer

Yeah. 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, will we 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.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Right. So you’ll be superimposing previous deferrals with real-time rent and you kind of have a kind of a stack [Phonetic] of [Phonetic] growth out of that. Is that right?

John SpaidChief Financial Officer

That’s right.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

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.

John SpaidChief Financial Officer

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 you knew 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 to live by your financial policies when you do that.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

That’s fair. So is there a written agreement about a payback, or is it a handshake, or how is that being handled?

John SpaidChief Financial Officer

Yeah, they’re all in writing. That’s correct.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Okay. As far as you said going tenant by tenant and addressing needs, clearly, your part of that decision is relationship building because these are folks that 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 of years from now?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Is that like a notepad or a large novel of notes? You don’t have to answer that question.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

A whiteboard.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Last question from me. I appreciate 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 of this, right? 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? Is that — would you consider that a reasonable way to think about modeling in a kind of a vacuum at the moment.

John SpaidChief Financial Officer

No, I can’t let you do that. So there — this year has a lot going on 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 our K, we’ve received notice that they’re going to execute on their purchase option there. So that will occur in — 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 we’ll have to recycle. The good new is we do have these investments in front of us that Kevin talked about and a little bit of a timing will occur when those happen versus when we could 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 has declined somewhat more in the first quarter. So I’m not sure you can completely come to a conclusion that the fourth quarter was the bottom, but we’re getting close.

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

Okay, fair enough. Thanks, folks.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Thanks, Rich.

Operator

We have a question from John Kim with BMO Capital Markets. Please go ahead, your line is open.

John KimBMO Capital Markets — Analyst

Thank you. Rich, just took my last questions so I’ll have to ask it in different way. But — so in the fourth quarter you had 94% rent 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?

John SpaidChief Financial Officer

Yeah, let me take that one here. This is John. We’re just telling you that 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.

John KimBMO Capital Markets — Analyst

Right, OK. It just sounded like some of those items you mentioned are upside to the fourth quarter as a run rate.

John SpaidChief Financial Officer

They could be. But I’m talking about the entire year here. Right? And so in the near term, you probably are going to see things that look a little more like higher stress situation, but — and then it’s a question of how quickly can things recover moving forward after that.

John KimBMO Capital Markets — Analyst

You now have four different tenant purchase options that are open. What are your expectations that — of these getting exercised?

Kevin PascoeChief Investment Officer

Well, as we — this is — sorry, John, this is Kevin. As we mentioned, we expect the Acadia options to be exercised. The rest of these are at various levels of discussion, I’ll say, with our operating partners to see if there is a way for us to find some other amendable 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 — actually, it was the beginning of last year, we were able to extend out that option. Or in the case of what we did with Ensign is to buy out the option from the prior customer and lease it to somebody else.

So all of 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 in still various levels of discussions. 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.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

John, you might even say Kevin likes to kick the can down the road creatively.

John KimBMO Capital Markets — Analyst

That’s a good one, or even entitled. 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 have 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 tenants and you do have a large lease negotiation ahead of your — ahead of their expiration in few years. What is your view on this?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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 within NHC? Is that your question?

John KimBMO Capital Markets — Analyst

Yes it is. Thanks.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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 the conflict, and they would not be a party to the negotiations or the discussions, so…

John SpaidChief Financial Officer

Which is the case now. This is John, John. Anytime we have a transaction or any kind of a modification, requires Board approval, we have a set of independent directors with respect to NHC that act on these sort of issues. So that will be the case moving forward. And, of course, management is incentivized to look out for the very best interests of NHI.

John KimBMO Capital Markets — Analyst

Well, I mean, outside of the conflict. I mean, is three Board seats affiliated within NHC, is that the best Board composition that the company could have at this point?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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.

John KimBMO Capital Markets — Analyst

Got it, OK. Thank you.

Operator

We have a question from the line of Connor Siversky with Berenberg. Please go ahead, your line is open.

Connor SiverskyBerenberg — Analyst

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 occupancy has 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.

Kevin PascoeChief Investment Officer

Sure. Hey, Connor, this is Kevin. What you’ve seen with SLC or what we’ve seen with them is more on the entry fee model has held up pretty well as we’ve talked about in our comments. We have a different profile of a 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’re not — 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 increase some there, which has helped their overall occupancy. Those are smaller pieces to their campus. But those, maybe 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 point to our overall comments talking about lead traffic and sales volumes. It’s a good leading indicator. People are starting to move around a little bit more. They are starting to make some of those purchasing decisions. It 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.

Connor SiverskyBerenberg — Analyst

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.

Kevin PascoeChief Investment Officer

I would say this past year has probably beaten those words of my vocabulary. I don’t — I mean 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 trend needs to still kind of formalize.

Connor SiverskyBerenberg — Analyst

That’s helpful.

John SpaidChief Financial Officer

This is John. I would just, once again, point out that the entire industry can’t be painted with one brush. And we — Kevin pointed out in his comments, about how well our entrance-fee community Timber Ridge transaction has performed this last year, continues to be upwards of over 90% occupied and we’re seeing good effects in the Sagewood development that we have $180 million loan commitment on as well. So each product is affected by COVID differently.

Connor SiverskyBerenberg — Analyst

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? Just would like to get a sense on how you think transactions will progress through the end of the year.

Kevin PascoeChief Investment Officer

I think what everybody is looking for right now — sorry, this is Kevin. What everybody is looking for right now is to make sure we’re 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 on to 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 is 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 the lending requirements. We’ve referred to it anecdotally or jokingly in our prior calls about retrends 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 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.

Connor SiverskyBerenberg — Analyst

All right, everyone. Appreciate the comments. I’ll leave it there. Thanks.

Operator

And we have a question from Omotayo Okusanya with Mizuho. Please go ahead.

Omotayo OkusanyaMizuho Securities USA — Analyst

Yes, good afternoon, everyone. So Eric…

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Hi.

Omotayo OkusanyaMizuho Securities USA — Analyst

Hi. You brought up the point about, again, all the lenders trying to figure out when you’re going to get to 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 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 a rate of take-up kind of going forward based on the level of demand you’re seeing today?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

This is Eric. The data that I’m looking at is two things, Tayo. 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 visit the 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.

Omotayo OkusanyaMizuho Securities USA — Analyst

Okay. And if that lead volume convert based on historical conversion rate, so does that kind of give you a sense of would pick up occupancy for you quickly? It’s kind of a slow and gradual line back?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Yeah, I knew you were going to go there. 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 the 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.

Omotayo OkusanyaMizuho Securities USA — Analyst

Got you. One more from 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 the senior housing get a piece of this $1.9 trillion? Is it going to be more of deciding to 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?

Eric MendelsohnPresident, Chief Executive Officer and Board Member

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 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.

John SpaidChief Financial Officer

Yeah. And to put a button on that, Tayo, this is John again. We even have operators who are owed money under prior programs that are still waiting on funding.

Omotayo OkusanyaMizuho Securities USA — Analyst

Got you. All right. I appreciate the color. Thank you very much, gentlemen.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Thank you, Tayo.

Operator

And there are no further questions at this time.

Eric MendelsohnPresident, Chief Executive Officer and Board Member

Thanks, everyone. We’ll look forward to seeing you at a virtual conference soon, and a real conference in the future.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Dana HamblyDirector of Investor Relations

Eric MendelsohnPresident, Chief Executive Officer and Board Member

John SpaidChief Financial Officer

Kevin PascoeChief Investment Officer

Jordan SadlerKeyBanc Capital Markets — Analyst

Daniel BernsteinCapital One Securities — Analyst

Rich AndersonSMBC Nikko Securities America, Inc. — Analyst

John KimBMO Capital Markets — Analyst

Connor SiverskyBerenberg — Analyst

Omotayo OkusanyaMizuho Securities USA — Analyst

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