National Health Investors Inc (NHI) Q1 2021 Earnings Call Transcript

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National Health Investors Inc (NHI 1.79%)
Q1 2021 Earnings Call
May 11, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the National Health Investors First Quarter 2021 Conference Call. [Operator Instructions] This conference is being recorded, Tuesday, May 11, 2021.

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

Dana Hambly -- Director, Investor Relations

Thank you. And welcome everyone to the National Health Investors conference call to review the company's results for the first quarter of 2021. On the call 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 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 March 31, 2021. 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 Mendelsohn -- President, Chief Executive Officer and Board Member

Hello and thanks for joining us today. We hope that everyone is staying healthy. We are grateful for all the efforts of our operating partners and their teams as they have been battling on the front lines of this pandemic for well over a year with multiple ups and downs along the way. With the successful rollout of the vaccine clinics across our communities, we are now starting to see some light at the end of the tunnel with leads, sales and move-ins picking up.

That said, we expect that the path to a more normal operating environment will be uneven and is likely to be a multi-year process, which will make 2021 a difficult year for NHI as we help our tenants bridge the gap to full occupancy and margin recovery. Fortunately, our prudent balance sheet situation puts us in a position to address and resolve many of our most pressing issues this year and to emerge as a stronger company with a long runway for growth.

Turning to our results. The first quarter was ahead of our internal expectations, driven by lower levels of deferrals. We've seen throughout the year the entrance fee and skilled nursing segments, which represent more than 50% of cash revenue, are performing well, while the free-standing assisted living, memory care and independent living segments have experienced more significant occupancy and margin declines.

Despite the challenges, our monthly collections remained strong through the first quarter as we collected over 94% of cash due. However, as COVID cases started spiking again in late 2020 and earlier this year, it became clear that our tenants would need more assistance. As previously announced, we've reached an agreement for a $5 million second quarter deferral with Bickford. In addition, we've reached agreements with four other operators for concessions totaling $2.3 million in the second quarter to-date.

We are also in discussions with Holiday that could result in rent concessions starting in the second quarter. We announced last night that we completed the sale of six Bickford properties for $52.9 million, which includes a $13 million second mortgage provided by NHI. This transaction is projected to improve Bickford's annual cash flow by approximately $1.8 million. We continue to be very proactive with Bickford and are pleased that our occupancy trends have improved in the last several weeks, resulting in a 180-basis-point increase in April versus March, but we know they're not out of the woods yet.

On a more positive note, we're very excited about our recently announced $50 million mezzanine loan with Montecito Medical to invest primarily in medical office buildings. We don't view this as a change in strategy for NHI but rather as a chance to deploy capital at favorable risk-adjusted returns with one of the premier owners and operators of MOBs in the country. It also fulfills a goal of doing more business in Nashville.

We've said in the past that we were unwilling to make decisions that have a long-lasting impact on our business in the midst of the worst crisis that our industry has ever experienced. Now that the impact of the pandemic is beginning to wane, we're starting to make some of those decisions, which we expect to result in a portfolio of stronger assets, less operator revenue concentration and healthier EBITDARM coverage ratios. This can be accomplished by restructuring leases, selling underperformers and changing out operators who were not the right fit.

We believe we can achieve these outcomes while maintaining our investment grade rating as we have multiple levers at our disposal, including full capacity on our revolver, access to both debt and equity capital markets, dispositions in capital recycling as well as possible changes to our approach to our dividend.

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

John Spaid -- Chief Financial Officer

Thank you, Eric. And hello, everyone. Let me first turn to our results and then I'll talk more about our dividend and balance sheet.

Beginning with our net income per diluted common share, for the first quarter ended March 31, 2021, we achieved $0.78 compared to $1.37 at the same period in 2020. The decline in net income between Q1 2021 and Q1 2020 is largely due to three factors; first, in the first quarter last year, we had a $21 million gain on the sale of real estate assets; second, this year's first quarter includes $4.2 million in rent deferrals; and third, this year we experienced a $3.6 million increase in our non-cash stock-based compensation expense. The increase was primarily the result of a significant increase in NHI's stock volatility measurement used in the calculation of this expense caused by the pandemic.

For our FFO metrics per diluted common share for the quarter ended March 31, 2021 compared to the prior year, NAREIT FFO decreased $0.12 to $1.23 from $1.35 and normalized FFO decreased $0.12 or 9% to $1.24. As you'll notice in our first quarter's earnings release, we are no longer reporting AFFO per share. AFFO per share had included the impact of non-cash stock compensation, which represents the majority of the adjustments between AFFO and FAD. Our methodology for computing FAD is unchanged from prior periods.

As described in our recent proxy, our Board's Compensation Committee has moved from AFFO to FAD as a metric used to determine the executive compensation under the Cash Performance Incentive Plan. We consider FAD to be both a measure of operational performance and liquidity. But because it is more closely aligned with liquidity, we are not providing you with per share FAD information in keeping with SEC requirements.

For the quarter ended March 31, 2021, our normalized FAD was essentially flat year-over-year at $59.6 million and up $550,000 sequentially from the fourth quarter. Given the significant impacts, many of our operators that have experienced over the prior four quarters were very pleased with our FAD results, which is a testament to the strength of our triple-net strategy. Reconciliations for our pro forma performance metrics can be found in our earnings release and 10-Q filed yesterday afternoon at sec.gov.

In mid-March, we declared our first quarter dividend of $1.1025, which was paid on May 7, 2021. That represents normalized FFO and FAD first quarter total dollar payout ratios of 89.7% and 84.9% respectively. Unless there are unusual tax items such as the taxable income resulting from the Holiday restructure in 2019, historically our dividends have exceeded our taxable income by 20% or more percent each year. As further described in our 10-Q filed last night, we've announced approximately $7.3 million in concessions for the second quarter and we are in additional rent deferral discussions with Holiday Retirement and other tenants. Kevin will talk more about our tenants later in this call.

Our full year 2021 results will also include historically larger amounts of proceeds attributable to dispositions and mortgage repayments, which we will seek to recycle and which are generally higher yielding investments. As we assess the pandemic's recovery line, 2021 dispositions may grow further. Because of these factors, our expectation is that our payout ratios will further rise in the second quarter. And keeping with our prior pandemic practice, we'll look to declare our second quarter dividend in mid-June.

Eric mentioned at the beginning of the call that we're seeing some positive signs around occupancy. He also mentioned that we are beginning to identify adjustments to our portfolio, which will strengthen our operators and stabilize NHI's future results. It's still early days in assessing the strength of the pandemic's recovery. And as of today, we cannot point to the sort of robust pent-up demand we normally might see in senior housing after an infectious outbreak. So we believe determining the extent of the recovery is still a few months away. Our dividend and any adjustments to our dividend in the coming quarters will depend upon our determination of what the slope of the recovery line will look like.

Turning to the balance sheet. Our debt capital metrics for the quarter ended March 31 were; net debt to annualized EBITDA at 5 times, our fixed charge coverage ratio at 5.7 times and weighted average debt maturity at approximately five years, which compares to approximately two years of December 2020 and reflects our inaugural 10-year public bond of $400 million in January 2021. We ended the quarter with $1.5 billion in total debt, of which 94% was unsecured. For the quarter ended March 31, our weighted average cost of debt was 3.24%. On April 1, we retired our $60 million convertible bond. And at the end of April, we exercised our one-year extension option on our $550 million revolving credit facility, which pushed that maturity to August 2022. So we have no further maturities in 2021.

In April 30, we had a zero balance on our $550 million revolver and approximately $37.4 million unrestricted cash and we retired $25 million of our $250 million term loan due August 2022. In addition, during the first quarter, we raised approximately $48 million in net proceeds through our ATM program at an average price of $73.62, which leaves approximately $417 million under the program.

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

Kevin Pascoe -- Chief Investment Officer

Thank you, John. Starting with an update on COVID, which is based on results for our May 4 monthly survey, active resident cases have declined by 93% in our senior housing portfolio and by 97% in SNF portfolio since peaking in mid to late December. Active cases increased to 33% in our latest survey from 16% last month, but still represent only 0.1% of total capacity. Anecdotally, the majority of residents testing positive who have been fully vaccinated are asymptomatic or have experienced only mild symptoms.

Turning to the performance of our different asset classes and larger operators, our need-driven senior housing operators, which account for 32% of our annualized cash revenue, generally experienced the extension of declining occupancy trends that started in the fourth quarter and continued through February before leveling off in March.

Bickford, our largest assisted living operator representing 15% of the annualized cash revenue, experienced a 410-basis-point sequential decline in first quarter average occupancy, which followed a 280-basis-point decline in the fourth quarter comparison. We're happy to report that average April occupancy increased 180 basis points from March to 76.3%.

As Eric mentioned, we're also happy to report that we completed the sale of six properties to Bickford for $52.9 million, which includes a $13 million second mortgage provided by NHI. This will save Bickford approximately $1.8 million in annual cash flow and improves our pro forma EBITDARM coverage with Bickford from 0.97 times to 1.02 times as of the fourth quarter. We are continuing to work proactively with Bickford with all options on the table, including further dispositions of underperforming assets and we'll update you as those decisions are finalized.

Our entrance fee communities, which account for nearly a quarter of our annualized cash revenue, have been more resilient driven by factors that we have discussed in the past, including a longer average length of stay and a generally younger healthier resident population. We believe this led to an earlier occupancy recovery relative to other senior housing asset classes as average first quarter occupancy was generally flat to up slightly compared to the fourth quarter.

Senior Living Communities, which represent 16% of our cash revenue, had first quarter average occupancy of 77.9%, which was up 60 basis points from the fourth quarter. SLC's entrance fee sales have been encouraging too as first quarter and April sales both exceeded the prior year periods. In fact, year-to-date net sales exceeded sales for the same period in 2019.

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 74.1% in the first quarter, which was down 310 basis points sequentially. This followed a sequential decline of 240 basis points in the fourth quarter. Holiday was very proactive in administering vaccine clinics throughout its portfolio even though they were not prioritized due to their IL status. This appears to be stabilizing Holiday's occupancy, which has been essentially flat for the last three months and net move-ins were positive in both March and April, which were the first positive months since January of 2020.

Given Holiday's occupancy trends, it should not be surprising that we are in negotiations on rent concessions that could impact second quarter and beyond. Holiday has used its $5 million credit enhancement that was part of the 2018 lease restructuring, which also included a $10.8 million security deposit. This deposit has not been touched at this point, but could be used as part of any agreement we may reach.

The skilled nursing portfolio, which represents 27% of annualized cash revenue, is anchored by two strong tenants in NHC and The Ensign Group, who contributed 13% and 8% of annualized cash revenue respectively. EBITDARM coverage for the trailing 12 months ended December 30 was 2.9 times. This coverage is inclusive of funds received from the CARES Act for those that accepted the funds. The government support for the skilled nursing industry has been tremendous and we expect that there will be more support from the remaining $24.5 billion in the provider relief fund as well as individual state support following significant funds received under the American Rescue Plan.

Turning to our business development activities. We announced that we entered into a $50 million mezzanine loan agreement with Montecito Medical, which earns current pay interest of 9.5% with an additional 2.5% paid on future capital events such as asset sales or recapitalizations. This is an opportunistic investment with a well established group located here in Middle Tennessee that gives us some portfolio diversification with a high risk adjusted return. We are actively working with Montecito to identify assets for the fund and expect that we will be able to deploy funds as early as this month.

As Eric noted, we do not view this as a change in strategy for NHI as we have an active pipeline of over $130 million Board-approved deals focused on senior housing, skilled nursing and specialty hospitals.

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

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Thank you, Kevin. The industry is starting to show green shoots and we expect some recovery in 2021, but the next several months will be difficult. 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 we look forward to updating everybody on the progress.

With that, operator, we'll now open the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Jordan Sadler with KeyBanc Capital Markets. Please go ahead. Your line is open.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thanks, guys. First question, I wanted to touch base on the comments on the call, the comments on the release regarding the ability to sort of transform the portfolio to lease restructurings and shedding underperforming assets. Just kind of curious if you guys could size this need or objective for us somehow. Because I know obviously a lot's going on and many operators are struggling and you guys have done a good job so far that collect rents with the exception of maybe a handful -- small handful of tenants. But it now seems like maybe the need to do something has grown a little bit. So, I don't know -- am I sensing that correctly? Number one. And number two, can you maybe scale how big the opportunity may need to be?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Hey, Jordan; this is Eric. You're absolutely right. In my opinion, this is the year to get things like that done. I feel like the market is in a forgiving mood for companies that are taking their medicine and are right-sizing portfolios to come out the other end with healthier metrics on lease coverage and stable NOI. In terms of what that looks like, I mean, we just sold $52 million of Bickford product, it could easily be overall portfoliowide another $250 million to $400 million over the next eight months.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. And this would be mostly be seniors housing?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Well, yes and no. Keep in mind, we have some purchase options occurring in the normal course. We have specialty hospital. So that's in there as well. And that's detailed on our supplemental. So...

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Does that include the -- are you including the -- you have the loan repayment potentially coming up from -- say, what is it may be -- is adding there as well or is that -- would that be incremental?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

That would be incremental. I was not including that in my figure.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. But you have the Acadia Hospital in there?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Right.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. Got it. And then, maybe one other on Holiday, if I may. They're paying, I think, from the Q, $10 million plus or minus of rent per quarter. How big would a rent concession need to be or mean to sort of pre-empt any negotiations here. But are you comfortable that the security deposit might cover you here?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

It would cover us for a period of time. We're not excited about the idea of using the security deposit. And these discussions are ongoing. So that's all I'm going to say on that.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. I'll hop back in the queue. Thank you.

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Thanks, Jordan.

Operator

Our next question is from Todd Stender with Wells Fargo. Please go ahead. Your line is open.

Todd Stender -- Wells Fargo Securities -- Analyst

Hi. Thanks. Sticking with the rent concession discussion, typically you just hear this across the real estate world if their rents required to be paid back within 12 months. But we're talking about limited visibility on the trajectory and return of senior housing. What are some fair terms for you guys to get your rent payback? Is it a couple of years? Is that a fair ballpark?

Kevin Pascoe -- Chief Investment Officer

Hey, Todd. It's Kevin. Yes, I would tell you that's a fair ballpark with any of these concessions that we've made, it's essentially a loan bearing interest to them. So they're incentivized to pay it back faster as they have cash flow come back. There are some minimum payment terms that we generally attach to it where we would expect to start seeing payments made around the end of the year, if not sooner. That's said, it is going to take some time for them to pay back that amount. So, we generally look at it somewhere between 12 and 24 months. But understanding that it's -- we don't expect that all to come back most likely in the next 12.

John Spaid -- Chief Financial Officer

Hey, Todd; this is John Spaid. The other thing we're thinking about is, as we're sort of moving some of the portfolio around to dispositions is if we can improve cash flows that our operators are achieving from the remaining portfolio, then we could potentially accelerate the repayment of those deferrals. So that's another reason why we're kind of looking at sort of the broader equation.

Todd Stender -- Wells Fargo Securities -- Analyst

That's a good point, John. So, this leads me to my next question about the Bickford sale. Is Bickford going to continue to operate those properties that we just sold?

Kevin Pascoe -- Chief Investment Officer

It's Kevin again. Yeah, they will continue to operate these six. As we talked about in the prepared remarks, we'll continue to evaluate the portfolio. There are some that we think may be included in more of an outright sale. Those discussions and that evaluations ongoing, but it will be a mixed bag. And I think we've talked about on prior calls where this is going to be a bit of a surgical effort where we look at which ones make sense for them to stay in the portfolio, which ones make sense potentially for them to move on from and still foster some of the other pieces of the relationship that have made some sense, which is the development aspect, which has been very successful for them.

Todd Stender -- Wells Fargo Securities -- Analyst

All right. That's a good point. Thank you. And then, Eric, at the tail end of your prepared remarks, you touched on the disposition. I think you mentioned the dividend. What were you referring to in that sense?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Fair question. Obviously, Todd, if we're doing dispositions to the point that were affecting NHI's NOI, we keep a careful eye on our payout ratio. We don't like to go above 85%. So, in the event that these dispositions change our NOI to the point that we're above 85% or some other metric that the Board decides, then we would have to look at our dividend payout.

Todd Stender -- Wells Fargo Securities -- Analyst

Understood. Thank you.

Operator

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

John Kim -- BMO Capital Markets -- Analyst

Thank you. Eric, you mentioned, it seems like the market would be in a forgiving mood if you took your medicine today. So does that imply that you're inclined to rip the band it off sooner rather than later as far as not just asset sales and transfers but also potentially rent cut for some of your big operators.

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

I'm not a big fan of rent cuts. Usually when where there is a rent reduction, there is some sort of value exchange. I would point to our restructure with Holiday. And we would probably look more like what we're doing with Bickford, where we change the capital structure of the tenant and the capital costs of the tenant either by dispositions or some sort of joint venture or developments. Stay tuned.

John Kim -- BMO Capital Markets -- Analyst

I'm just wondering under that plan, it could be a multi-year impact to earnings -- if you're looking to trade off one for the other or potentially get, for instance, like a rent deferral that may be hard for the tenant to pay back. I'm just trying to marry that with your comment that this is the time -- this is the year where you can do this and not get punished too much by the market.

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Sure. That's fair. We're going to try and do as much this year as possible. I think that, as John was saying earlier and Kevin as well, that the payback of the deferrals will depend on the conditions and the cash flows of our tenants. And if we can put our tenants into a position to have healthier cash flows, well, then those deferrals will get paid back faster.

John Kim -- BMO Capital Markets -- Analyst

Okay. I know this hasn't happened yet. But if you do take the security deposits from Holiday as a form of rents or form of their rent, are you going to include that in rental income or how are you going to treat that -- the payment?

John Spaid -- Chief Financial Officer

Yeah. This is John, John. How are you this morning?

John Kim -- BMO Capital Markets -- Analyst

How are you?

John Spaid -- Chief Financial Officer

Good. Yeah. So that's how it works, right. So we have this bucket of money. And if we so chose if that's the best decision and we could apply it toward rent [Indecipherable], but you got to remember that we have a private equity company and there's other side of the equation here. And while we try to restructure this transaction, so that in the long run it would work. We have the sort of commercial enterprise that we got to also be thoughtful about as well. And once we use that deposit, it's gone. So if we wanted to transition these properties, that's another place where we might rather use the deposit.

John Kim -- BMO Capital Markets -- Analyst

Okay. Final question. One of your directors, Robert Webb, received 39% of the votes against his nomination. Can you provide any color on the background of this and maybe discuss how you think the Board is going to change going forward?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

This is Eric. Yes, we received a lot of calls. Mr. Webb is on the Nomination Committee. And because of his status as a member of the Nomination Committee, he is a target for investors hoping to promote diversity and other ESG issues on the Board, and we were told in no uncertain terms that until some of those ESG issues are addressed that these investors would be voting against members of the nominating committee. So we're in discussions with the Board about that and have nothing to report at this time, but we're very aware and very attuned to our investor base's concerns.

John Kim -- BMO Capital Markets -- Analyst

Great. Thank you.

Operator

Our next question is from Omotayo Okusanya from Mizuho. Please go ahead. Your line is open.

Omotayo Okusanya -- Mizuho -- Analyst

Hi, yes, good morning or good afternoon, everyone. The Montecito transaction, I just wanted to understand the rationale behind it. Again, you're lending to them at 9.5%. And they're buying MOB assets at 5.5% cap, let's even say 6% cap. So I'm trying to understand their business model? And why you would lend to an entity where it looks like they're acquiring at a negative spread?

Kevin Pascoe -- Chief Investment Officer

Tayo it's Kevin. So in this case we're essentially functioning as a mezzanine lender for them. So we're just part of the capital stack where they would go out and secure a traditional first mortgage financing on the asset. We would come in, play a role in the capital and they would bring some equity behind us. So that blended cost of equity or blended cost of capital, I should say, there is still a spread investment. They've been adept at finding and purchasing property and meeting those spread requirements, which is why we made the investment and ultimately turning around and being able to package those up and sell the investments and be able to make some profit for themselves. So we are a player, look here where we're an investor in an income stream, which is, though, the 9.5% that you mentioned. And then we have essentially, a little bit of upside on the recapitalization or the sale of those assets where we would participate essentially by getting that additional 2.5% at that point in time. So we think that those spreads from our traditional lending model are adequate for us and an attractive rate where we can get some additional income in -- essentially in a space where we've not been able to participate as you've already mentioned a lot of the MOB assets go at, 5%, sub-6% anyway. So that's a challenge given our cost of capital. If we can play a role in the capital stack, add an element of diversification and make a nice spread in the interim, we feel like that's a good investment for us.

John Spaid -- Chief Financial Officer

Tayo, this is John Spaid.

Omotayo Okusanya -- Mizuho -- Analyst

Hey, John.

John Spaid -- Chief Financial Officer

Hey. How are you? So let me add on to that. So you're comparing the total capital stack return to our mezzanine. So the way we're thinking about it too is there is $20 million of investment, equity investment going into this portfolio. In addition, there's additional equity potentially coming in this portfolio through co-investors and they might be the physician groups that are in the facilities. So where we sit in the capital stack, you're right, the total capital stack is in that range that you mentioned, which would include the financing underneath. But we're thinking about where we sit in relation to all the other equity that's being contributed to this fund as well. We sit ahead of it. So keep that in mind.

Omotayo Okusanya -- Mizuho -- Analyst

Got you. Okay. Then my follow-up if you could indulge me. The $7.3 million of rent concessions you discussed in the Q -- for 2Q, how exactly does that work? I mean is that just an FAD impact, or are these all related to tenants where you've moved to a cash basis and it's more of an FFO impact? I'm just trying to understand which bottom line numbers is going to impact?

John Spaid -- Chief Financial Officer

So let me take -- based on your question, the opportunity to sort of explain, how we're treating the accounting of the deferrals to begin with. There are two methods that you can choose. And I think we're choosing the more conservative method, which is the variable interest method, which means that we're not recognizing into our revenues the deferrals. So they're not sitting on our balance sheet as a receivable. So they are adjusting our GAAP revenues. So as a result of that they flow through FFO and it flows through FAD at the same time. They're not cash basis because we're still recognizing straight-line revenues, which is permissible under GAAP given the pandemic and some of the relief GAAP gave us this last year. So they're still not treated as cash basis. But the revenues do adjust, they adjust all the way through the income statement through FFO and FAD.

Omotayo Okusanya -- Mizuho -- Analyst

That's helpful. Thank you.

Operator

Our next question is from Daniel Bernstein with Capital One. Please go ahead. Your line is open.

Daniel Bernstein -- Capital One -- Analyst

Good morning. Wanted to go back on the comment, the $130 million pipeline, and just to understand those kind of like -- those letters -- that letter of intent or those actual deals that you expect to close, and maybe a little bit more on the nature of that?

Kevin Pascoe -- Chief Investment Officer

Sure. Hey, Dan. It's Kevin. What I would tell you is if we -- generally speaking, we've presented to the Board it's because we have a deal under LOI that we feel, as a management team, confident about that we want to seek approval and we've probably done some level of due diligence, but it is not completed or final. So these are ones that we feel pretty good about and want to make sure that given our cadence of Board meetings we have approvals to move forward before we're spending a lot of time and money associated with getting the diligence done. And then from there we're working on final diligence making sure that we are satisfied with all of the findings that we have on each of the deals and then have the final -- as we proceed to kind of that final closing. In terms of makeup, it's something -- I think the underlying makeup still similar to what you've seen from us. Maybe a little bit weighted away from senior housing right now, but that's more a function of the market than anything else, but it's senior housing, still evaluating some skilled, behavioral health, specialty hospital. There is an element of some of the senior loan financings that we've done in the past where we can get a purchase option on property. And a lot of times when we're doing a loan that's what we're trying to do to go back to some comments we were just previously making, Montecito is not one where we're actually likely looking to acquire medical office assets at this time, but you never know. So I think it is good to have our toe in that pool, so to speak. So we've got good mix in the portfolio or in the pipeline and still evaluating opportunities and feel like we have a good view of the market. It's frankly a little bit choppy right now because people are still evaluating what they're going to do as it relates to senior housing. It's a bit of a world of have and have-nots right now. But that's again, how we're looking at the current pipeline and what we have that we're working on diligence items on.

Daniel Bernstein -- Capital One -- Analyst

Okay. And in terms of restructuring leases and some of the items you discussed earlier in terms of maybe the options -- strategic options to right-size the portfolio. I know historically you guys have not been in favor of RIDEA structures or operating structures to capture upside in that way. But given you look at the long-term supply demand dynamics of senior living housing, maybe even skilled nursing, does that change your mind in any way in terms of maybe converting some of these triple-net structures to an operating structure and capturing some of the upside? Or is it just hopefully we'll recapture the deferrals rather than the upside of the operations?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

This is Eric, Dan. Can't we do both?

Daniel Bernstein -- Capital One -- Analyst

I hope.

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

No, I get your point. Your point is well taken. And fundamentally, we prefer triple-net leases. We have dabbled in RIDEA in the past as you know and we have two small RIDEA science experiments with LCS, Life Care Services and Discovery. So we're not opposed to some sort of RIDEA hybrid and we would certainly think about that as part of our restructuring discussions.

Daniel Bernstein -- Capital One -- Analyst

Okay.

John Spaid -- Chief Financial Officer

Yeah. I would just...

Daniel Bernstein -- Capital One -- Analyst

And then one last one question -- go ahead. Sorry.

John Spaid -- Chief Financial Officer

I would just add -- what I need to see is, I need to be convinced that RIDEA motivates the operator properly. I'm not sure that's what's happening in the RIDEA world right now. Now the upside is there. But how are you going to get from point A to point B? And how is the RIDEA structure motivating the operator to get there. I'm not sure, it's the right alignment.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then one last quick question. I just wanted to make sure Holiday is current on its rent at this point?

Kevin Pascoe -- Chief Investment Officer

As of today, yes. But again, we're still working on active discussions with them. So stay tuned there, Dan.

Daniel Bernstein -- Capital One -- Analyst

Okay. That's all I had. Thanks.

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Thank you, Dan.

Operator

And we have a question from the line of Rich Anderson with SMBC. Please go ahead. Your line is open.

Rich Anderson -- SMBC -- Analyst

Thanks, and I wish you happy holidays. So, John, when you talked about the variable interest sort of approach that you take to deferrals. Does straight-line rent also get recalculated by taking the cash rents out that you defer, or does the straight-line rent get calculated still on the same full amount of rent?

John Spaid -- Chief Financial Officer

Yeah. Good question, Rich. Thanks for asking that. So at this time the relief under GAAP is we didn't modify straight-line revenues. So straight-line revenues think of it as once set, it starts out and it's positive. Then in the midpoint of the lease term it flips and then it amortizes itself away. So we've not adjusted that. But at some point in the future when the pandemic is clearly over, we expect now GAAP to come back and revisit that 842 [Phonetic], which is the GAAP requirement will come back into play and we'll have to then revisit whether the entire lease has to be modified. So -- but at this point no that's not happening. The GAAP -- the straight-line revenues have remained unchanged.

Rich Anderson -- SMBC -- Analyst

Okay. I don't know if it was -- who mentioned it maybe it was Eric, but -- or maybe it wasn't mentioned, I kind of thought I heard it. But on the mezz investment, is there a pipeline of that in front of you that you think you could capture -- could -- this could become somewhat of a recurring business even though you said at this point it's not a change in strategy -- specifically talking about MOBs?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Yes. Yeah. But to be fair Montecito is a co-investor in the fund it's their equity in the fund. So they would initiate a process to sell whatever buildings are in our fund. And given our cost of capital and the cap rates that MOBs go for, we would think twice about buying MOBs.

Rich Anderson -- SMBC -- Analyst

Okay. On the topic of deferrals, I don't -- is the word deferral and concession can that be used interchangeably for you? It sounds like it can, but maybe I'm wrong about that. Is there something definitionally different about the word concession?

John Spaid -- Chief Financial Officer

Well, we have some abatements. So our deferrals earn interest. And the recent concessions, putting everything in the bucket of concessions have been all deferrals. So when we first started we had this $2.1 million related to the Bickford sale that was abated and we didn't receive any income on -- interest income on or yield on. But that's, kind of, our the way we're using the definitional words on it.

Rich Anderson -- SMBC -- Analyst

So it's just there are some small amounts of abatements that you just are gone. Anything else that has an interest rate attached to it, we could think of as a deferral, concessions being the general term?

Dana Hambly -- Director, Investor Relations

Right. That's right. That's right. Exactly.

Rich Anderson -- SMBC -- Analyst

Okay. Thank you, Dana for that. And then last question. Do you think that there's anything geographical at work here in terms of some of the struggles that you're still having with some of your operators, or has it come down to the asset type? Because it does feel like this is hanging around a little bit longer. We've heard more in the way of optimisms from some of your peers not everyone, but some of them. I'm just curious if it's secondary markets or rural areas that is really the epicenter of some of your most difficult challenges?

Kevin Pascoe -- Chief Investment Officer

Hey, Rich, it's Kevin. I guess, I would tell you, it's a little bit of both. It's geography and it's asset type. We've definitely seen the more need-driven components come back sooner. People have been quarantine now for over a year and they're now that they're able to access the vaccine they have a little more confidence. This is what we've been talking about in prior conference calls of helping that consumer confidence and being able to make a purchasing decision. So we've seen that need-driven component definitely rebound a little bit faster. As we talked about in the prepared remarks, with specific to Holiday, we actually have seen small positive months for the last two months now which is a good sign, but it's been slower to come back than what we've seen with Bickford, for example. And then, within that, there are still some geographies where they had just started to discuss or loosen up some of their touring and restrictions just by way of example, we had some communities in Oregon that went back to full lockdown, a week ago, two weeks ago. So there are pockets across the nation, where dependent on local authorities it makes it very hard for them to do business and get move-ins and tours and do their traditional jobs. So unfortunately, it's a little bit of both. By and large, our communities are open for business and able to tour prospective residents, and have family visitors, which is -- was the big things that we needed. But unfortunately, it still does persist in some areas.

Rich Anderson -- SMBC -- Analyst

Right. And so are you using this experience as -- is it informing you, as Eric said, don't -- use this year wisely and come out a little bit stronger, it's probably going to target some of those geographies that have been caught up in this most of all. Is that a fair statement?

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

It may. It's definitely going to be part of the equation. We're going to look at the portfolio and work with our customers to understand where the major pain points are, and where we think there's a good trade and long-term value for the portfolio. So I think that will be part of the equation.

Rich Anderson -- SMBC -- Analyst

Yeah. Okay. That's all I got. Thank you.

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

Thank you.

John Spaid -- Chief Financial Officer

Thanks, Rich.

Operator

And there are no further questions at this time.

Dana Hambly -- Director, Investor Relations

Thanks everyone, for participating today. We hope to see you either virtually or in person, at a conference soon.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Dana Hambly -- Director, Investor Relations

Eric Mendelsohn -- President, Chief Executive Officer and Board Member

John Spaid -- Chief Financial Officer

Kevin Pascoe -- Chief Investment Officer

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Todd Stender -- Wells Fargo Securities -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Omotayo Okusanya -- Mizuho -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Rich Anderson -- SMBC -- Analyst

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