Healthpeak Properties' (PEAK) CEO Tom Herzog on Q1 2020 Results - Earnings Call Transcript

Healthpeak Properties, Inc. (NYSE:PEAK) Q1 2020 Earnings Conference Call May 6, 2020 12:00 PM ET

Company Participants

Barbat Rodgers – Senior Director Investor Relations

Tom Herzog – Chief Executive Officer

Scott Brinker – President and Chief Information Officer

Pete Scott – Chief Financial Officer

Tom Klaritch – Chief Development and Operating Officer

Conference Call Participants

Nick Yulico – Scotiabank

Vikram Malhotra – Morgan Stanley

Jordan Sadler – KeyBanc Capital Markets

Rich Anderson – SMBC

Nicholas Joseph – Citi

Steven Valiquette – Barclays

Michael Carroll – RBC

Tayo Okusanya – Mizuho

John Kim – BMO Capital Markets

Todd Stender – Wells Fargo

Dan Bernstein – Capital One

Lukas Hartwich – Green Street Advisors

Mike Mueller – JPMorgan

Jordan Sadler – Keybanc Capital Markets

Joshua Dennerlein – Bank of America

Operator

Good day, and welcome to Healthpeak Properties Incorporated First Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ms. Barbat Rodgers, Senior Director Investor Relations. Ms. Rodgers, the floor is yours ma’am.

Barbat Rodgers

Thank you and welcome to Healthpeak's first quarter financial results conference call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations.

A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In an exhibit of the 8-K we furnished with the SEC today, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance to the Reg G requirements. The exhibit is also available on our website at www.healthpeak.com.

We recognize today is an incredibly busy day for all of you. We'd ask that you keep your questions to a maximum of two each. I will now turn the call over to Chief Executive Officer, Tom Herzog.

Tom Herzog

Thank you, Barbat, and good morning, everyone. On the call with me today Scott Brinker, our President and CIO; and Pete Scott, our CFO. Also on the line and available for the Q&A portion of the call are Tom Klaritch, our Chief Development and Operating Officer; and Troy McHenry, our Chief Legal Officer and General Counsel.

As you are aware, during March and April, we provided three interim updates on the impact of the COVID-19 pandemic to our business. In the outlook and additional information section of our supplement issued last night, we provided a framework to assist you in assessing our potential 2020 earnings. With that, let's discuss how we see our current state of play.

The impact of COVID-19 will vary across our lines of business. 61% of our NOI is concentrated in life science and medical office, with an additional 5% in hospitals. All subsectors that we believe will be less severely impacted by COVID-19. Across our life science and MOB businesses, we recorded strong first quarter leasing results and April rent collections. In life science, we continue to see strong demand driven by the need for additional space for biotech research. And that subsector remains in good shape.

The vast majority of our life science tenants have strong liquidity and have paid their rent on time. But we did see a number of requests for rent relief. As for life science construction, we are seeing on again and off again orders in San Francisco and Boston, which has resulted in slower completion of some of our development and tenant improvement projects. In medical office, many of our tenants experienced, in March and April, cash flow reductions due to the temporary shutdown of elective procedures and surgeries, which are now beginning to reopen.

As previously announced we are offering a 2-month deferral of rent from May and June to our nonhospital and nonhealth system medical office tenants, subject to certain conditions. Importantly, we feel confident about the high-quality nature and viability of our predominantly on-campus, specialty physician tenants and over the last five years have experienced, on average, annual bad debt expense of only 20 basis points. Of all of our businesses, senior housing, which represents 34% of our NOI, has been the most impacted by COVID-19.

In assessing the potential impact, the largest drivers are constricted leasing activity, resulting in decline in occupancy and increased payroll expense and personal protective equipment and supply usage costs. Our SHOP portfolio, which is 14.5% of NOI, has the highest impact from changes in operating fundamentals as a result of COVID-19. Our blended average length of stay for SHOP is around 2 years, which results in average move-outs of roughly 4% per month. Leasing activity is currently limited to virtual tours to fewer move-ins with some offset from lower voluntary move-outs as seniors choose to shelter in place.

Approximately 70% of our SHOP senior mix is assisted living and memory care, and the remaining 30% in independent living. As assisted living and memory care seniors often have vital care needs that can no longer be met at home, some level of leasing continues, subject to required screening and quarantines, but independent living move-ins have been minimal during the crisis as their primarily lifestyle base. Accordingly, overall, we are estimating a net attrition of 2% to 4% per month in SHOP occupancy for the duration of the pandemic. However, as we come out the other side of this crisis, we believe there will be pent-up demand that will increase move-ins beyond the historical – average historical levels.

Our triple-net portfolio represents 7% of our NOI and consists primarily of four tenants that'll have corporate guarantees in eight to ten year master leases. Scott will provide more details in a bit. In our CCRC portfolio, which represents 12.5% of our NOI as a younger senior population and is supported by entry fees with an average length of stay of eight to ten years. This means significantly lower monthly attrition, estimated at 50 to 100 basis points per month, and therefore, a much slower decline in occupancy versus SHOP.

Moving to the balance sheet. In short, our balance sheet is very strong, and we have available liquidity of $3 billion. Our net debt-to-EBITDA is low, our weighted average debt maturity is almost seven years, and we have no near-term maturities. Next, we maintained our second quarter dividend at $0.37 per share. This represented a Q1 payout ratio of 91%. Although we expect our payout ratio will temporarily exceed 100% during the period of the pandemic. With consideration to the Healthpeak team that is fully functioning and virtually connected, we are leveraging upgraded systems, infrastructure as well as virtual and remote working technologies. This has enabled us to remain productive and connected, both internally and with our key external partners.

Additionally, in March, Pete Scott shifted his focus to dedicate 100% of his time to his vital CFO responsibilities, which are now more important than ever. Accordingly, Scott Brinker, in his role as President, will continue to have oversight of our seasoned life science leadership team, but now more directly. And finally, we are fully confident that the essential nature of our high-quality portfolio and strong liquidity will allow Healthpeak to successfully navigate through this crisis, even if it is protracted.

Our fundamental thesis remains unchanged. That is ownership of high-quality real estate in the three private pay health care segments of life science, MOB and senior housing, along with a conservative balance sheet. Demand for life science properties and the three epicenters of innovation remains compelling, and the pandemic has further underscored its importance. Demand for our medical office buildings would continue as our predominantly on-campus and heavily anchored portfolio was relatively immune to the recent surge in telemedicine, which has been expanding rapidly. And in senior housing, the wave of aging baby boomers will increase demand and need for this product over the long run.

With that, I'll turn it to Scott.

Scott Brinker

Thank you, Tom. I will start with our first quarter segment level results. In life science, which represented 32% of our same-store pool, cash NOI grew 3.1% year-over-year. The results were right in line with our expectations for the quarter driven by leasing success and rent bumps. These were partially offset by known vacates, nearly 70% of which have already been released and where the TIs are being built out.

We executed leases totaling 314,000 feet in the first quarter, above expectations. That includes 75,000 feet of renewals at a 15% cash mark-to-market as well as 32,000 feet at 75 Hayden, which is now 72% pre-leased. Additionally, we are already seeing strong activity at The Boardwalk and The Shore Phase III, our most recent developments. Turning into medical office, which represented 42% of our same-store pool, cash NOI grew 2% year-over-year. That was above expectations driven by mark-to-market and rent escalators, partially offset by a difficult comp with 4.2% growth in a year ago period.

Moving to senior housing, triple net represented 11% of our same-store pool and NOI grew 2.6% year-over-year driven by rent escalators. SHOP represented 9% of our same-store pool and NOI declined 3.2% year-over-year. Excluding identifiable COVID expenses that began to occur in March, SHOP same-store would have been flat year-over-year and above our expectations. CCRCs also outperformed our budget in the quarter, driven by a strong January and February. The operator transition from Brookdale to LCS went extremely well.

We know you're most interested in the impact of COVID, so we'd like to provide April updates for each business segment, starting with life science. We executed 61,000 feet of leases in April and currently have 370,000 under signed letters of intent. The activity is largely driven by existing tenants looking to expand within our portfolio, which underscores the importance of having critical mass in the local market.

After a great start to the year, we think spec leasing may slow down for a bit, so any near-term impact should be recaptured in time. If anything, we ultimately see the pandemic increase in the demand of life science real estate. To date we have received 97% of April rent and the collection stats we provide across the three business segments exclude any amounts received from security deposits. Tenants representing 5% of our rents requested relief. Because each situation is unique, we're evaluating them on a case by case basis. We have built some additional bad debt in our expectations for the full year and that's the primary reason for moving full year same store down 100 points to 3% to 4% growth.

Turning to construction, The Bay Area provided exemptions as of May 4 that allows to restart our development and TI projects. That's definitely good news though it is likely that work will occur at a slower pace due to social distancing and safety measures. Work has continued in San Diego all along, but at a slower pace. While our construction and TI projects in Boston are on hold until at least May 18 under the current order. The practical impact is that rent commencement dates will be pushed out by two to three months. This has a modest impact on 2020 earnings, but no impact beyond this year.

FDA approvals and clinical trials have naturally slowed down, but this should be temporary. More fundamentally, we expect the pandemic to result in even stronger support of the industry from the government. Life science funding sources have been pretty resilient to date. There were four biotech IPOs since April 1, the only IPOs across all industries during the pandemic. Additionally, in April alone, biotech venture capital firms announced over $4 billion of new fundraising. Roughly 30 healthy tenants are working on a diagnostic therapy or vaccine related to COVID-19 and we're hopeful that some of the work currently underway in our buildings will help conquer the virus.

Turning to medical office, occupancy was up 10 basis points in April after signing 324,000 square feet of leasing. We do expect a slowdown in new leasing through the duration of the pandemic although much of this will be offset by higher retention. States representing 80% of our square footage are restarting elective surgery in late April or early May, which is a positive step for normal operations for medical office. As previously announced, we're doing a rent deferral program for certain physician tenants from May and June with the requirement that the deferred rent be repaid by year-end. We've approved deferrals totaling $4.4 million of monthly rent, which may grow to the $5 million range given pending approvals.

Construction on our seven HCA developments is progressing, but at a slower pace. Rent commencement dates will be pushed out two to three months. Again, this is a timing issue with no long-term impact. So far we've received 95% of April rent in line with historical norms in terms of timing. We may have a small increase in bad debt this year due to COVID, but we think that 99 plus percent of rent will be collected. Shelter at home will also lead to a small decline in parking income and medical city ad rents. These are the primary reasons for moving same-store down to a range of 1% to 2% this year.

Moving to senior housing. Several weeks ago, we provided a framework for how we think about the potential impact of the virus. There are many unknowns at the time given the pandemic is unprecedented. We've updated our framework as a full month of leasing data from April, which we provided in yesterday's release. Occupancy in our SHOP portfolio was 82.2% on April 30, that's down 300 basis points from March 31. In comparison to the prior April, move-ins declined 73% while move-outs increased 22%.

Moving to our CCRC portfolio, occupancy was 82.4% on April 30. Occupancy for independent assisted and memory care was down only 65 basis points during the month. Skilled nursing occupancy is down 1,620 basis points driven by low Medicare discharges from hospitals due to the prohibition on elective procedures. That census should be recaptured once hospital has resumed normal operations. Entry fee amortization exceeded cash receipts in the quarter and we expect the same to occur in the second quarter.

That dynamic will reverse in quarters when entry fee receipts are strong, which typically occurs in 3Q and 4Q. Our triple-net portfolio represents $97 million of annual rent. We collected 100% of contractual rent in the first quarter and 97% in April. We're in active discussions with Capital Senior Living with $0.9 million of monthly rent including the properties held for sale and with HRA $1.2 million of monthly rent, with both requested rent relief. Nothing has been agreed to yet. So we won’t elaborate beyond saying that we don't expect any material impact to earnings. In addition, we still intend to sell the capital senior assets once the transaction market reopens.

As a reminder, we follow the industry convention, which is to use trailing 12 month rent coverage reported one quarter in arrears, due in part to timing of receiving results from our tenants. As a result, there will be a lag before the impact of COVID is reflected in reported rental coverage.

Turning to investments, we delivered the fourth and final phase of The Cove. The 1 million square foot development is now complete and fully leased, generating $67 million of annual NOI. We also delivered the first building at The Shore, 130,000 square feet fully leased. In February, we sold the North Fulton hospital for $82 million at a 10% cap rate with the price driven by the tenant’s purchase option. In April, a tenant exercised its option to acquire three medical office buildings in San Diego. The sale price is $106 million, which is a 6% cap rate and we expect to close in June.

In May, we added a new project to the development program with HCA. The $35 million building is located on the campus of the Woman's Hospital of Texas. The project will add necessary outpatient capacity to one of the HCA’s core hospitals. Looking forward, we see significant opportunity in the transaction market. We're in a good position to be opportunistic with $3 billion of liquidity, but it's a valuable asset, so we'll be disciplined about any new commitments.

With that, I'll turn it to Pete.

Pete Scott

Thanks, Scott. I'll start today with a review of our first quarter results, provide some perspectives on our balance sheet and finish with a discussion on our 2020 earnings outlook. Starting with our results, we reported another strong quarter with FFO as adjusted of $0.45 per share and blended same-store cash NOI growth, 2%. Two important items to note. First, in March, we experienced approximately $3 million of elevated expenses in our SHOP and CCRC portfolios as a result of COVID-19, of which $600,000 was included in same-store.

We have conservatively decided to not add these expenses back to same-store NOI, FFO as adjusted or AFFO. Second, in our proactive review of leases at quarter end, we identified three leases where we reserved a total of approximately $2 million of non-cash straight-line rents.

Turning to our balance sheet. We're fortunate to come into this uncertain environment with a fortress balance sheet. One of the guiding principles of this management team is to maintain a conservative balance sheet and not be forced to raise capital in bad market. This disciplined approach involves match funding our investments and development and maintaining adequate liquidity to withstand sustained periods of uncertainty. In the equity market over the past year, we opportunistically raised over $1 billion at a blended price above $33 per share.

The vast majority of this equity was raised under forward contracts, which we drew down at quarter end. In the bond market, in 2019, we issued over $2 billion of unsecured bonds at a blended interest rate of 3.2% and we paid approximately $1.7 billion of near-term maturing bonds. As a result, our next bond maturity is not until August 2022 and is very manageable at $300 million. After this, our next bond maturity is not until November 2023. Lastly, in 2019, we up-sized our revolver to $2.5 billion and extended the maturity to 2024. We typically keep our revolver usage under 25% and look at the facility primarily as an insurance policy in times of economic crisis.

So how are we positioned today? We have total liquidity of $3 billion consisting of approximately $500 million of cash and $2.5 billion of availability on our revolver. We reported a net debt to EBITDA of 4.8 times at quarter end. And due to the timing of sources and uses, we expect to end the year in the mid-5s, and we have a weighted average debt maturity of 6.7 years. Simply put, we are in a rock solid liquidity position to withstand the uncertainty from COVID-19, and importantly our remaining $580 million of spend on a highly accretive and substantially pre-leased development pipeline is fully funded.

Moving on to our earnings outlook. In March, we withdrew our previously issued guidance. The extent of the earnings impact from COVID-19 will depend heavily on the duration and penetration of the market disruption. Additionally, a return to a more normal operating environment will vary by state and property types, which creates forecasting challenges. Notwithstanding these challenges, we have included some important items in our supplemental to assist with your modeling. Please refer to Page 43 if you would like to follow along.

We have divided the earnings impacts into four distinct categories. The first category pertains to known items. Total net dilution from these items is $0.04, primarily driven from the acceleration of the equity forwards. Importantly, the dilution from these items are largely timing only. The second category pertains to our medical office and life science segments. Total dilution from these segments ranges from approximately $0.03 to $0.07 depending on the duration of the COVID-19 disruption and it's primarily driven by construction delays on tenant improvement projects causing revenue recognition issues.

The TI revenue recognition impact is timing only and does not impact AFFO. The third category pertains to our SHOP and CCRC segment. Due to the virus we cannot currently forecast when senior housing operations will normalize. Therefore, we have provided estimated monthly assumption ranges for occupancy and expenses during the COVID-19 disruption based on input received from over 20 senior housing operators. We believe these building blocks will be helpful for stakeholders to do their modeling.

The fourth category pertains to ongoing future rent collectability assessment. As you know, the new lease accounting standard requires us to assess the rent collection probability for every lease. We felt it was important to point out that it could have an earnings impact going forward. Additionally, we've included a placeholder for senior housing triple net which we believe will result in less than $0.01 of dilution. As a reminder, the earnings outlook in the supplemental is based on our best available information as of the current date. When we are in a position to provide additional information, we will make the appropriate disclosures. One other item of note before turning to Q&A, starting this quarter on Page 32 of the supplemental, we've included detail on our SHOP non-same store portfolio to further assist with modeling. We hope you find this enhanced disclosure useful.

With that operator, please open the line for any questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first question we have will come from Nick Yulico of Scotiabank. Please go ahead.

Nick Yulico

Thanks. I guess in terms of the assumptions that you made on medical office and life science and the change to the same-store, is that simply a delay in leasing, meaning you have some expirations, you don't refill them, but you assume that you're probably going to get that space fill next year? Or are you starting to build in some sort of permanent occupancy loss in those segments over the next year?

Tom Herzog

Scott, I'm afraid I want you to take that one.

Scott Brinker

Yes, hi, Nick. Scott Brinker here, and I might ask Tom Klaritch to comment as well. At least for life science, most of the reduction is due to an assumption around bad debt. Now that might be zero. But we, at least, from what we know today, we think it's prudent to at least build in some sort of a reserve. There is a small expectation of a slowdown in spec leasing and that includes the fact that it will just take longer to build out the space even when we do sign leases, but most of the reduction is driven by bad debt. And then Tom Klaritch, I might ask you to comment on MOB.

Tom Klaritch

Yes. Really in the – on the leasing side with the exception of development vehicle, which has pushed out because the building construction is pushed out a month or two, our renewal leasing, we anticipate is going to offset our any reduction in new leasing. We're seeing that even through April. Our executions in April were up and our retention in April was actually 82%, which is well above the high-end of what we normally expect to be. So leasing is not really the cause. It's really a drop in parking income, which happens because of the decline in elective surgeries happening in our affiliated hospitals, but we're seeing some parking income going down. And we expect some timing differences at Medical City Dallas because of the ban also, but we'll get that back toward the end of the year as demand picks back up again.

Nick Yulico

Okay. That's helpful. And then in terms of senior housing, when you're giving the estimated monthly COVID impact occupancy, which is helpful. I guess what we're wondering was – at this point what, what percentage of the senior housing portfolio is that actually has no move-ins allowed because I know in many cases, this is up to the operator who has to deal with whether there is COVID in a facility.

Can you just give us a perspective on kind of how much of the portfolio right now is just closed for move-ins versus just not as many move-ins because traffic is down. And as we think about the timing of this, I know it's hard to predict, but how – about how many months this could last, this heightened occupancy impact? What is really going to drive the duration of that?

Scott Brinker

Yes. Hi, Nick. Scott Brinker here. So about 50% to 55% of our senior housing properties today are not accepting move-ins. So the entire portfolio has gone to all virtual tours. So they're not allowing non-essential visitors into the properties, but it's about 55% that are not even allowing move-ins. And as you'd expect, that's highly geographically specific where there's a lot of COVID activity.

Now in terms of the timing of reopening, of course, that depends in large part on the infection rates and we already have roughly 80% of our – of the states in our portfolio that has announced sort of a Phase I reopening in either late April or early May. So at least the first step towards business as usual has begun. That will first impact our MOBs of course, because electric procedures will restart, but senior housing realistically is probably in the Phase III, but at least we have a positive initial step in about 80% of our states.

Nick Yulico

Okay, that's helpful. Just last question is on Brookdale. I know you already have restructured the lease there, but clearly there's – the issues playing out right now. You didn't mention any assumption about Brookdale having to restructure that lease again. What – how should investors think about your comfort level on the Brookdale lease right now? Thanks.

Tom Herzog

Hi, Nick. It’s Tom. We had looked at the financial statements of Brookdale. Their liquidity, the real estate holdings that they have, the recent $300 million of financing that they were able to secure and we're comfortable that for the foreseeable future that they're in good shape. We have a master lease that was recently redone. Our coverages were in the 1.0 range. Of course, that's pre-COVID, so will slide a bit. But we do have the corporate credit behind that. So for the time being, we feel comfortable with our exposure to Brookdale on the triple nets.

Nick Yulico

Okay, thanks everyone.

Tom Herzog

You bet. Thanks Nick.

Operator

And next, we have Vikram Malhotra of Morgan Stanley.

Vikram Malhotra

Thanks for taking the question. Maybe just first one on cash flow and expenses in two specific areas. Can you talk about sort of the CapEx – recurring CapEx spend in the senior housing, kind of how those estimates are likely to trend down? I'm assuming I didn't see an update in the supplemental. And the other item on G&A, I think the G&A is sort of the same versus prior guidance. So I'm just wondering, are there efficiencies or reductions you can achieve this year in that to just deal with the cash flow shortfall?

Tom Herzog

Pete, why don't you start with the first and I'll take the G&A?

Pete Scott

Yes. Hey, Vikram, it's Pete. I think on the recurring CapEx, just broadly speaking, there was obviously a big drop off in the fourth quarter – excuse me, this quarter relative to the fourth quarter. I wouldn't focus too much on the quarter-by-quarter figures, the fourth quarter is always the highest quarter for us, which is why you saw a big drop-off in the first quarter.

And recurring CapEx is down modestly in our latest outlook. Part of that is just being able to access the senior housing facilities. It's quite challenging for certain of them, as Scott mentioned, to actually enter the premises. So we took it down a little bit, factoring that in, not only for senior housing but also for the portfolio. But I did want to touch on the drop-off from the fourth quarter to the first quarter, which is quite important. Tom, do you want to talk about the G&A?

Tom Herzog

Yes. I'll take the G&A. I've long said that our team is our most important asset, and we've run our company that way. And I've got a belief that a great team can take a difficult portfolio and make it into a great company and a lousy team can take a great portfolio and turn it into a lousy company. So we're going to protect our team throughout this.

At the same time, we did get a couple of questions last night from investors as saying, how are you thinking about G&A in general, which is a very fair question. Because obviously, there are places that there can be G&A cuts, it could be in travel and entertainment and a variety of other areas. I do think we're going to have some savings. My view is that we have had our entire company working from home for the last seven weeks, didn't miss a beat.

Everything as far as our accounting close, our forecast earnings call, everything went off without a hitch, on time. And I think these technologies, many of them are here to stay, and I think there's going to be great efficiencies that result from it. So I think there will be some G&A savings over time, but we did not seek to incorporate those into our numbers. But at a later date, that's something we'll give a luck. But we do need the skill team that we have in place as we go forward.

Vikram Malhotra

I guess I was referring more to like some select peers, I shouldn't say peers, but just in broader replan like Vornado. They have decided to take cuts on executive comp. And I'm sure you obviously want to maintain a great team and respect to all of you in the team. But I think in this environment being so unique, I would have thought that in healthcare land, at least, there are more near-term G&A savings that can be achieved. But happy to take that offline.

My second question, just, is around thinking about a recovery whenever that is. I'm wondering if, Scott, you can comment in your thoughts about more permanent impairment? Or thoughts around how IL-AL may perform in the very near-term in the recovery? Is there a V-shape likelihood? And then maybe longer term?

Scott Brinker

Yes, I think it's hard to comment on the recovery with – without understanding the trajectory of the virus. But all things being equal in general, assisted living memory care is more need based. So I think that's why you saw the move-in activity in our SHOP portfolio, which is mostly AL memory care, was only down 73% versus CCRCs, which is much more independent living and therefore, lifestyle based decision was down closer to 90%.

The flip side of that, of course, is that the length of stay in our CCRCs is about 10 years. So you hurt here turning over your population at a far lower percentage than in AL memory care, which has more of a clear length of stay. So net-net, in a downturn, CCRCs do better just because there's such a lower amount of attrition in a normal environment.

I do think that the recovery would probably be the steepest in assisted living memory care just because it is a need-based decision. But I think that sector would also fall the furthest. So there's some offsetting factors there.

Vikram Malhotra

Fair enough. Thank you so much.

Tom Herzog

And Scott, that's just on senior housing. I guess while we got the question, why don't you just take a moment on MOBs and life science and just provide our thoughts on those two subsectors as well.

Scott Brinker

Yes. We reduced our expectations for same store in both of the office segments for 2020. But as you heard Tom K and I described earlier, it was really timing related. There's no fundamental change in the underlying supply and demand of those two businesses. So our outlook really hasn't changed for those two segments. And if anything, our on-campus medical office portfolio probably looks better than ever in terms of the heavy usage from hospitals and specialist physicians.

And then just the demand for life science, if anything, coming out of this pandemic, it feels like the need for innovation in health care, which obviously, biotech is going to be at the forefront of, it's going to be more important than ever and more supported than ever by both the government as well as the capital markets.

Operator

Thank you, sir. Next we have Jordan Sadler of KeyBanc Capital Markets.

Jordan Sadler

Thank you and good morning.

Tom Herzog

Hi Jordan.

Jordan Sadler

I want to say thanks for the – yes, good morning. I want to say thanks for the granularity and the transparency as always I think a lot of those colors helpful as we trying to think through what's taking place. So appreciate that. First question really relates to the pent-up demand comment. I think in the prepared remarks, as it relates to seniors housing, what does that stem from?

And what are you – as you – and I know it's difficult to predict the recovery, as you just said, Scott, but as we look forward to the other side of whatever this might be, and I know you tried to provide some guideposts here for what monthly occupancy impact could be in terms of attrition. But as we look to the other side, whenever that might be, what's sort of the pent-up demand expectation?

What's your thinking behind that other than the fact that these people have not moved in? And I guess if you could sort of overlay that with how good do you think the messaging is? And ultimately, the image of the seniors housing community going to look immediately once we get through this? Or how are they doing so far? Thanks.

Scott Brinker

Yes. On the pent-up demand, as we sit here today, we have roughly 200 deposits from people that are waiting to move into our senior housing portfolio, spread over 16,000 units, that's a bit more than 100 basis points of occupancy. And of course, that's concentrated at the communities that are currently closed to move-ins. And that's activity that's generated during the month of April when there was pretty severe shelter in place across the country, where people really weren't moving around unless they absolutely needed to.

So that's a pretty strong lead base, really not even lead-base deposits of customers waiting to get in. So there will be some pent-up demand. It may be offset a bit just because the economy in the business world isn't going to flip the light switch on, right on May 7, and all of a sudden, it's business as usual.

I think it will be a slow ramp up. And that probably includes senior housing, in particular, just because that's the most vulnerable population. 85 plus, a lot of them with health conditions, and they probably will reopen in a phased format. And that will probably mean that occupancy doesn't bounce back quite as quickly as it declined in April. But ultimately, we don't have any doubt about the underlying demand for the product.

There's 1 million seniors roughly living in rental senior housing today. And paying a fair amount of money per month to live there because there is a social need for the product. There is a lot of demand for it and notwithstanding some of the negative headlines. Everything we hear on the ground from our operating partners is that the residents and their families are extremely appreciative of the services being provided. So I guess from the voice of the consumer, we still feel pretty good about the demand for the product.

Tom Herzog

I'm going to actually add on just a bit to that, Jordan. Jordan, I'm just going to add a few comments. I had occasion to have conversations with all the major operators that we work with, and Scott was with me for a number of those. But I think there were some key takeaways that I had from those conversations. That was just late last week. One of the – some of the things you need to think about is, of course, AL and memory care is a whole different category where it's need based than IL. It's a different category. IL is based on lifestyle, AL and memory care is need based and oftentimes vital need based.

We have a number of adult children that are home right now from work that are taking to take care of the parents, what we have heard from numerous operators is it's much, much harder than they had expected. And sometimes, they have a view that they're going to need to go back to work, and they're not quite sure how to handle it. It's also come up that some of these adult children worry about getting sick themselves and realize that there's no way that their parents are able to then care for themselves, which has them greatly under concern. And oftentimes, these vital needs are ones that the adult children finds out that they just literally cannot handle at home.

So there certainly is a backlog of seniors in those categories that are waiting to get into these communities, subject to screening and quarantine. Now that doesn't mean that there's not going to be net attrition, for sure but in the AL memory care side of the business, there will continue to be lease-up based on everything that we have heard from multiple operators.

Jordan Sadler

Okay, that’s helpful. And then Pete, I just had a follow-up for you. You had a comment about leverage. I recognize the balance sheet is in great shape today, but you sort of estimated what could happen by the end of the year, I think you said mid to five – mid 5s net debt-to-EBITDA. Are you baking in the headwinds from the decline in EBITDA that seem likely then to – from the SHOP portfolio, it seems housing portfolio overall? Or is that just run rate off of 1Q EBITDA?

Pete Scott

Hey Jordan, two things. What you just mentioned, which is obviously baking decline or degradation in earnings as we head into the end of the year as well as we have a cash balance, today, it's actually quite large in our first quarter at $785 million. We closed on the post in April. And then also, we will have our development funding as the year progresses as well. So it's a combination of all those factors within our sources and uses that gets us back up into the mid-5s.

Jordan Sadler

So it does incorporate whatever sort of degradation you might see in the seniors housing?

Pete Scott

Yes.

Jordan Sadler

Okay, okay. Thank you.

Operator

Next, we have Rich Anderson of SMBC. Mr. Anderson, your line might be muted, sir.

Rich Anderson

Hello.

Tom Herzog

Hey, Rich.

Rich Anderson

Okay, thank you. So the stock is down 30%, which is good, and that's saying something relative to your peers. And in my opinion, this is a time, if there ever is one, to fix anything that can be fixed. Kitchen sinking it. One thing that's been stand out with a problem for many of the health care REITs has thin coverage on the triple-net side.

So why not take this opportunity when everything is stacked up against a lot of the REITs and a lot of people in your space and just rightsize rents in the triple-net space and really put yourself in a position to not have to have that question ongoing in the aftermath of all this and reset everything and kind of start fresh when this is all done. Your Brookdale comment notwithstanding, I'm just curious if you've given any thought to really getting a little bit more aggressive on – particularly on the triple-net side of the equation?

Tom Herzog

Rich, this is Tom. And you're going to have to tolerate the fact that I was a CPA for many years before I went into the REIT world for a moment. One of the things that you deal with, as I think you now know, is that gap has come to a place where the old conservatism principle that was in place forever, back when you and I were young guys, is dead and gone. The SEC took a position at some point as did the FASB that being overly conservative is just as much of an error as being overly aggressive.

So when you get into these kitchen sink situations, the SEC will target those companies and look at them to identify if they have gone, in their view, beyond the rules to take a bath to make themselves look good later. So it's highly advisable, I think, for companies to be super smart about how they handle this and follow the rules carefully. So fortunately, we've got Shawn Johnston, who's as good about the CAO, as I've experienced in my career.

And I was a CAO, so I can make that statement pretty strongly. And Shawn keeps us very much down the line of what the FASB and the SEC, what they're thinking and how they're positioning it. So we're going to stay pretty close to the rules on that one, despite the fact that at times, it would sure be tempting, but we really can't do that.

Rich Anderson

Okay, I appreciate that color. I didn't expect that answer, to be honest. And second question is, again, maybe on senior housing and specifically, the 200 to 400 basis point monthly decline in occupancy that you mentioned in the release. By the way, disclosure is awesome. I really appreciate that whole table. So good job with that. Now the – is there a seasonality aspect. So – I'm thinking about it from these two sides.

First, if this were all happening in the height of the winter, I wonder if you dodged a little bit of a bullet, or and alternatively, as we get into warmer months, do we trend towards the low end of that 200 to 400 basis range or even lower than that? And so that this is not really a ratable sort of perspective, but one that perhaps gets better as we go through into the warmer months of the year. Curious if you can just sort of comment on that?

Scott Brinker

Yes, that's possible. Generally, move-ins are strongest from, say, May until October, November. The only thing that's a little unusual about our portfolio is that we don't have a lot in the really cold areas like New England or the Midwest. We have a lot in California. We have a lot in Florida and Texas that usually, there's a bit of a slowdown at a certain point in the year in the cold weather states.

And it's kind of the reverse in the other states in some ways. So I'm not sure it will impact us as maybe as much as some others that maybe have more concentration in the cold weather states. Because as you point out, you're going to miss out on a lot of move-in activity in lead generation in May and June, presumably.

Rich Anderson

Just for the move-out side of that conversation, though, does the move-out slowdown, putting aside the move-in traffic, you think in a colder environment?

Scott Brinker

Yes. In general, for the rental senior housing business, at least, the move-outs are about two-thirds involuntary and one-third voluntary. And we did see the voluntary move-outs decline, and we think that will continue. But at least for one operator, in particular, their involuntary move-outs were significantly above historical norms. So that really drove the April result for us in a major way. We were down as a portfolio of 300 basis points from April 1 until April 30 in the SHOP portfolio, but outside of one operator, that would have been down 190 basis points. There was just one fairly large operator that was a real outlier because of those involuntary move-outs.

Rich Anderson

Got you. Thanks Scott. Thanks team. Good luck.

Tom Herzog

Rich, I'm going to add something to your question that I think is relevant. I think it's an important question. The fact is seasonality, the weather, whether the thing comes in waves. Realistically, none of us know the answers to these questions. We all wish we did. But we have no crystal ball. So the way we're working through this, it's all been about having the staying power to stay healthy through this crisis.

And that's been about liquidity, it's been about balance sheet, it's been about execution. In our case, I think our diversification portfolio has been very helpful. So we're looking at it that way to ensure that we stay completely healthy through this crisis and then identify if there are opportunities on the other side. I know that deviates from your question a bit, but we've taken a separate step as we've had conversations internally and with our Board as to what this means for our company. And we think we're pretty well positioned on that front.

Rich Anderson

Appreciate that, Tom. Thanks for giving me a bonus question there.

Tom Herzog

Okay, thanks.

Operator

And next, we have Nicholas Joseph of Citi.

Nicholas Joseph

Thanks. I appreciate all the disclosure and the assumptions framework. And I recognize that there's a lot of near-term uncertainty, and this is somewhat of a black swan event. We're still very early in it. Does this change your views on exposure to each business segment in the medium and longer term?

Tom Herzog

Nick, it's Herzog again. I'll take that one. It doesn't, at this point. We've had – for the last four years, which is since I've joined, we've had a view that the three private pay segments of the health care REIT industry is where we wanted to hold our portfolio, all taking advantage of the same baby boomer demographic and all three operating on their own different cycles, creating diversification which then would give some consistency to the earnings, cash flows and dividends of the company.

We're also providing scale and a better cost of capital. We're going to have times where one business or another falters. At the moment that happens to be senior housing, although the long-term demographics still look great. There's still going to be a need based business on the other side of this, that is irrefutable of lots of seniors in that 85-plus category. And so we still feel good about the business model as it's set forth. This has not changed our view on the business model as we move forward.

Nicholas Joseph

Thanks. And then just on the dividend, you mentioned coverage pushing up near slightly above 100% of AFFO, maybe over the next quarter or two. But just given we don't know how long this is going to last with the uncertainty. What are your thoughts on, either suspending the quarterly payout or paying some percentage in stock? Or anything just broadly on the dividend, given the uncertainty of how long this will actually last?

Tom Herzog

Yes, Nick, that's something we had extensive conversation as a management team and as a Board, and I'll give you how we looked at that philosophically and strategically. For now, we're still covering our dividend. We could get into a place as this extends on were for some temporary period of time, our dividend rises above our AFFO. But that should be for a temporary period. So for the time being, we're comfortable with the level of dividend. And I think you have to take into account as to why.

Our view is that we've got three classes of real estate that are all essential on the other side of this pandemic and they're going to be in good shape on the other side. We've got a balance sheet that has no maturities until August of 2022, and it's a small one and the next one isn't until November 23, and we got tons of liquidity at $3 billion. The effect of having a dividend that exceeds our AFFO by some amount. If you took that number and translated it into the impact on our NAV, it's tiny.

You might be talking $0.20 a share or something that really is not going to move the needle. So we think it'd be premature for us to have concerns around that. We can easily ride through that with the way our company is set up now if this thing goes on for a long, long time, of course, we'll revisit that as a management team and then as a Board. But for the time being, we're completely comfortable with where we're at.

Nicholas Joseph

Thanks Tom.

Tom Herzog

Thanks Nick.

Operator

And next, we have Steven Valiquette of Barclays.

Steven Valiquette

Thanks. Hello, Tom and Pete and Scott. I hope you all are staying safe. I just have a couple of questions on your CCRCs. First, your disclosure around the 16 percentage point drop in occupancy in the skilled nursing portion of the CCRCs. It's obviousyl related to the Medicare census drop but you also mentioned that you received about $10 million of federal CARES Act following in April that the government is actually intending to specifically offset that to cater occupancy drop.

So I guess the first question is, I'm curious whether that $10 million inflow, will that come pretty close to offsetting the expected total reduction in the significant portion of the CCRCs for, let's say, at least the second quarter of 2020, at least a year now? And then I got one or two follow-ups on the same topic.

Tom Herzog

Scott, you want to take that?

Scott Brinker

Yes. The Medicare funding, I think an important point is that, that's not something that we applied for. We just want to clarify that. That's a pro rata funding across all Medicare providers, including the huge hospital systems and all the ancillary providers. We – our CCRC skilled nursing units are not typical freestanding skilled nursing. Virtually the entire payer population is either private pay, where the residents are entering into the independent living and then going through the continuum or it's Medicare.

There's very little Medicaid, but Medicare is a significant portion of the payer source. So it's the traditional sub-acute model, their high-end properties, great local reputation. So they do generate significant activity for Medicare. And as I think you know, Steve, the electric procedures virtually went to zero in April.

And that had a pretty profound impact on Medicare population for skilled nursing, and that's what drove the 1,600 basis points, given that the length of stay there is usually less than 30 days. And the same reason, now that electric procedures in most states are restarting, that should jump back pretty quickly for the same reason. So we think this is a temporary impact but yes, the $10 million of funding that we received, that was the government's attempt to try to make providers whole. Whether or not it does so in 100%, time will tell. I think it's too early to comment.

Steven Valiquette

Okay. The quick follow-up around that, that $10 million you're receiving – that was paid out of the first $30 billion tranche of federal relief, but right now, there's some $175 million of total stimulus is scheduled to be paid out. So I'm curious if you have any approximation of how much more federal stimulus dollars or total stimulus that Healthpeak may receive in 2020 overall?

Scott Brinker

I have no clarity at this point on any additional fundings.

Steven Valiquette

Okay. Final question on this. You touched on it a little bit, but I guess I was curious, within that skilled nursing portion of the CCRCs, how much is it your strategy to have a lot of Medicare post-acute patients in that portion of the CCRCs versus having more long-term residents. Just curious how you're thinking about that strategically. Are you trying to increase your Medicare payer mix and census?

Scott Brinker

I don't know that I would characterize it as that our business plan is to increase Medicare. The independent living residents who paid the entry fee have first priority on the skilled nursing units. But as a percentage of the total campus, skilled nursing is often quite small. So the vast majority of the residents are independent living. And some are assisted and memory care.

So the skilled nursing unit, there isn't enough activity from within the existing resident base to keep the unit completely full for the most part. So the balance can be filled either with Medicaid, which tends to be a pretty low-margin business or for Medicare. And these properties have good local reputations, nice physical plants that the natural next best option is Medicare rather than Medicaid.

Steven Valiquette

Okay, great. I appreciate the color. Thank you.

Tom Herzog

I'm just going to jump in real quick for a time check. We have started this call with the goal of having a one-hour call. We knew we were going first. We had a lot of information that I think will be education, a lot of transparency. So I'm not surprised. There's a lot of interest in the Q&A we have another eight, nine questions. We're going to take them. So we'll continue forward. We'll go quickly on our answers and the questions, please. But we do want to get through everybody's questions. So I just – I give you that warning. So let's continue forward, please.

Operator

Yes, sir. The next question comes from Michael Carroll, RBC.

Michael Carroll

Yes, thanks. I appreciate that comment, Tom. And then I understand how it – difficult it is to predict how long the pandemic period will typically last, particularly how it's impacting the seniors housing space. But what type of targets are you looking for where we can at least see the occupancy declines moderate? Is it really just improved testing capabilities? Or do you think we really need to see greater development in medical treatments for the virus?

Tom Herzog

Scott, you want to start with that?

Scott Brinker

I think you name two – Mike, I think you named the two most important testing, which is still uneven. But as of today, it's far more prevalent than it was a month ago, and it continues to improve each day across our operating partners. So that will make a huge difference. Improved therapies as a next step and then ultimately a vaccine. So all three of those things are going to dictate the pace of returning to business as usual.

Michael Carroll

So if you have improved testing capabilities, do you think that operators are able to accept more move-ins. So we won't see the 78% decline in move-ins, maybe it'll be much more modest. Is that the right way to think about it? Thomas M. Herzog

Tom Herzog

I'll jump in on that. At this point, the testing has gotten better and more prevalent, but the false negatives are still a problem, the asymptomatic patients that come in or people that come in still spread the disease. So the senior housing has to be very careful, which we have to recognize, let's just talk reality for a minute. When the virus is brought into a community, both residents and caretakers get sick. Residents have mortality rates in the 28% plus range. Caretakers of the many, many caretakers that have caught it, we have had exactly zero deaths. So it's a tough situation. You have residents that bring it back from the hospital. They have frequent visits to the hospital and they bring it back. Where caretakers can bring it back from home and they're asymptomatic and temperature checks don't necessarily figure it out nor necessarily do the tests.

So this is a pretty tough situation and as we open up America and some of that likely is going to occur, if there's a further wave of this, it's just going to set us back. So we don’t know for sure. There's no crystal ball on this. And it is very, very hard to predict, Mike. We're hopeful. We're eager to see it move forward in a positive way, but hopefully, in a safe way when it's time. So we'll see how that plays out. So I just don't want to give you any false view that we have a crystal ball on this because I can tell you, have been talking to many, many operators and other experts. People are scratching their heads trying to keep people safe while also recognizing that seniors need to be treated either at home or in these communities, and it's just a tough situation.

Michael Carroll

Okay, great. Thanks, Tom.

Tom Herzog

You bet.

Operator

And next we have Tayo Okusanya of Mizuho.

Tayo Okusanya

Yes. Good afternoon, everyone.

Tom Herzog

Hey, Tayo.

Tayo Okusanya

Hi, how are you. I hope everyone are safe, and hello, Pete. Quick one on the acquisition outlook. Again, understand what's going on with the guidance. But at the same time, too, you guys have a great balance sheet, and I'm just kind of curious if – what would you look at if something opportunistic was to kind of come across your table? And how would you kind of assess that?

Tom Herzog

Before COVID, Tayo , we had built a significant pipeline across the three segments with assets that fit right into our strategic plan as well as operating partners that we thought very highly of. So those conversations have been put on hold. Fortunately, those were all proprietary off-market discussions. So a lot easier to pause than in a fully auctioned process. And over time, we'd like to be able to revisit all of those. We'll see if that's possible. But those long-term are as interesting today as they were two months ago. But we need to make sure that the cost of capital allows us to make a profitable investment, obviously.

And then beyond that, we have started to see pretty significant, I'd say, more opportunistic – acquisition opportunities from more operators that don't have the strong balance sheet. So if pricing became so distressed that even at today's current cost of capital, it was a highly compelling investment as long as it fit our strategic priorities. That could be something that would be actionable. But our first priority is on the existing portfolio. And making sure that we emerge from this in an equally strong position that we entered. So we're looking at a lot of things, but I wouldn't expect us to be super active unless the pricing just got very distressed.

Tayo Okusanya

Got you. That’s helpful. And then just around bad debt and credit loss provisioning, again, you guys had an $8 million loss provision in the numbers this quarter. There was some conversation around potential for losses in the life sciences portfolio that you may have to accrue for that as well. I'm just kind of trying to understand kind of overall as we kind of think about that particular issue, but how much potential provisioning for credit losses or lease losses or rent losses it's kind of feasible to kind of think about for 2020?

Pete Scott

Yes. It’s Pete here. The $8 million you referenced, that is the loan loss reserve and I'm sure you're aware of this, but the new accounting guidance went into effect January 1st, and it’s called CECL, current expected credit losses, so this new guidance requires us to estimate potential future losses upfront rather than waiting until it might actually hit the probable category. So for us, took this $8 million reserve this quarter. I know other companies are taking reserves as well. It's a non-cash item, and it only impacts NAREIT FFO and does not impact FFO or adjusted FFO.

On your other question, can you ask around additional reserves. We've certainly put some additional reserves into our forecasting as we talked about within life sciences, as well as within MOBs. We did have a placeholder in there for future collectibility assessments. We will look at every lease, every quarter on a tenant-by-tenant basis to understand the collectibility of it. So hard to say what exactly that could be. To the extent that there were to be some financial difficulties with tenants, we would look at each one of those leases. We did take a $2 million straight-line rent receivable write-off in the first quarter, and we'll continue to look at that, and we bolstered our resources within the company to be able to look at each one of those because it's actually quite a lot of work to do every single quarter. But that's the way we're thinking about CECL as well as looking at every lease going forward.

Tom Herzog

Hey, Pete, I'm just going to add just one thing, if I may. Just – not everybody's probably as tuned into CECL as Tayo is. The bottom line is that FASB pronouncement that came into place, had you look at all of your future notes receivable, even if they're completely healthy and go back and do an assessment as to whether at some future date they may run into collection problems. And then we had to go to third-party data sources to say what was the type of likelihood of some type of default that generally came in at about 5% and then they end up recording this charge on the front end of an otherwise very healthy loan and many – or financing receivable in many situations. And that's why the things a bit absurd, and that's why it's a non-cash item that's added back for FFO as adjusted.

So when you see that $8 million in there, I personally consider it a nonevent and at a future date, when it reverses, we'll back it out of FFO as adjusted at that date, too. So it's just kind of noise in the financials in my view.

Tayo Okusanya

Thank you.

Operator

And next we have John Kim of BMO Capital Markets.

John Kim

Thank you, good morning. I'm not sure if this is the same item you just discussed. But the bad debt reserve in life sciences, do you expect a bigger impact in that segment versus MOBs, even though you haven't offered any deferral request? Is that specific to a couple of tenant discussions you're having? Or just a lack of recovery in some of the tenants in that segment versus MOBs?

Scott Brinker

Yes. Hey, John. It's not targeted to any specific tenants or discussions that we're having. There's always a group of tenants that we're watching more carefully than others. Combined with what's happening from COVID, we thought it was appropriate to take a bit more of the reserve. As I mentioned earlier, that may end up being zero, but we thought it was more appropriate under the circumstances to build in a bit of a bad debt reserve here. That was higher than normal.

Tom Herzog

And John, I'd add – again, it's Herzog. We collected 95% of MOB in April and 97% of life science. But MOB, when you start talking about on-campus and anchored physician practices, our historical bad debt on that stuff has been 20 basis points over the last five years. So when we provided a rent deferral, it was just to help out short term. We worked with HCA on that program, and felt quite good about it. So we don't expect much for fallout on that. Life science, we're going to have a few tenants like anybody would with some retail tenants and some others that that we might need to work with. So we have a little bit more bad debt built into that. Whether we need it or not is TBD, but that's why you see those numbers looking the way they look.

John Kim

Okay. Thanks for that. On CCRC, you broke out the income. Can you just remind us what percentage of revenue on CCRCs came from the amortization of nonrefundable entrance fees? And also how you assess that amortization and reassess it with the senior housing fundamentals that are changing?

Tom Herzog

Yes. Pete, do you want to start, and I can jump in?

Pete Scott

Yes. It's usually around 60% to 65% is the amortization, and then the balance is the monthly NOI that we received. We actually did add some disclosure into our supplemental, which shows what the amortization is this quarter as well as what the cash NREFs received are. The amortization is around $16 million, and the cash received was around $13.5 million. That will fluctuate on a quarter-by-quarter basis, but we think over a long-term, that amortization and cash will approximate each other.

Tom Herzog

One thing I'd add is that – and I'll just take you to Page 34, so when you guys do want to look at it, you'll see it in the table, the NREF amortization you'll see the portfolio revenues and expenses and NOI, and you'll get a feel for how that income flows. The NREF is obviously an important part of the margin that's created in CCRCs and again, that's like an upfront payment that gets recorded as deferred revenues. In a situation like this, it becomes more and more clear what that accounting, which is what's endorsed in the accounting world makes sense. Because there's a service period that's involved in that deferred revenue that's recorded on the front end so that there's a proper matching.

And when we hold the tenant base like we are in the CCRCs through a period of a pandemic like this, there is a service period that then is in place, while those seniors age in place with an average eight to 10 year period of stay and having deferred revenue is like having a free rent upfront for a period of years that effectively acts as a deferred revenue. That's what an entry fee looks like. And of course, it's spread out over the period of the average length of stay. It's just a repeat of what we said last quarter, but I think it probably merits a conversation because you will see a difference between the cash collections and the nonrefundable entry fees, and that makes complete sense based on what the economic model that's in place is trying to capture. And I think the accounting very much gets this one right.

John Kim

Okay, great. Thank you.

Tom Herzog

Thanks.

Operator

Next we have Todd Stender of Wells Fargo.

Todd Stender

Hi, thanks. Just one for me. Just back to senior housing. Just with the theme, obviously, move-outs continue to exceed move-ins. Length of stays coming down, occupancy coming down. But at some point, there's got to be some offset with labor and operating expenses. You just don't need the staffing levels like you do maybe right this minute. Where are you budgeting maybe that tipping point? And what are your expectations of maybe getting some relief on the expense side?

Scott Brinker

Yes. There are some areas, Todd, where variable costs will be a benefit. Certainly, activities in marketing dollars and transportation are going to be down during the course of the pandemic. Those are unfortunately, relatively small dollars as a percentage of the total expense load. In terms of labor, there is a benefit that the unemployment rate is significantly higher, all of a sudden than it was two months ago, and a lot of those are service workers that might be looking for alternative employment.

Although right now, they have access to pretty attractive government programs, but we have seen a pickup in applications to work inside of the communities, which is obviously helpful that unfortunately, for the time being, is offset by the fact that, in particular, communities that have COVID-positive activity are paying premiums given the conditions and potential risk of the workplace. So net-net, we think expenses are up during this pandemic relative to a normal business environment, but there are some offsets.

Todd Stender

And the duration wise, do you have any expectations of when occupancies bottom? It's a little early, I get it. But do you have anything budgeted in at this point?

Scott Brinker

No. That's really why we wanted to think about the impact as a framework rather than as guidance because it's just too hard to predict exactly when that environment is going to change.

Tom Herzog

Got it. A fair question. Bottom line, we didn't want to take a guess when there are so many uncertainties out there and then guess wrong. And we thought better to put a framework together so that you guys, as investors and analysts can apply your own inputs into this framework. And hopefully, that assists you in coming up with ranges of outcomes for us.

Todd Stender

Thank you, Tom.

Tom Herzog

Thank you.

Operator

And next we have Dan Bernstein of Capital One.

Dan Bernstein

Hi, good morning. I’ll try to avoid an accounting question. So really, I want to just go back to the expenses on senior housing. I mean it seems to me even if occupancy bottoms and comes back up that some of these expenses, at least from now, are somewhat permanent or semi permanent, especially like the PPE, maybe even some higher labor costs. Is that how you're thinking about the business? I mean is the NOI potential of senior housing, maybe permanently impacted by COVID?

Tom Herzog

I'm not sure, Dan. The increase in PPE is certainly not permanent. I mean there are a number of communities today that virtually the entire staff is in full PPE, the entire workday, and you're talking about three shifts a day. That certainly is not permanent. It's possible to significantly increase sanitation becomes business as usual. But that's relatively small dollars. And keep in mind, most of the impact is from labor. And I don't know that we see a long-term impact to the cost of labor from this pandemic. It's certainly going to be elevated for a couple of months. But I don't see that as a long-term change in the operating margin of the segment.

Dan Bernstein

Okay. And then just also real quick, what is the – how are you thinking about the expected impact on yield for developments on a longer-term basis? I mean I know there are some delays now, but should we be expecting lower yields on, say, future developments for 2021, 2022 when we're thinking about modeling?

Tom Herzog

Yes. Tom or Scott?

Scott Brinker

I can start. I mean, there might be some very modest changes to construction budgets just given that projects are likely to be delayed by one, two or three months. so perhaps some higher general conditions, higher PP&E at the construction side, but nothing material. Certainly, nothing that's going to make a big impact on yields for our development pipeline. As far as future projects, I guess, it's harder to comment. Certainly, construction has slowed down. And hard if the workers are anxious to get back to work. So that would be a positive for us if cost came down a bit. Tom – and keep in mind, most of our development is in life science, and we think the demand fundamentals there are going to be stronger than ever coming out of this.

So if what I just said ends up not being the case, we can always choose not to do the development. We have a land bank, we have additional opportunities in development, but we haven't committed to anything beyond what's in the active pipeline. So we retain that flexibility.

Dan Bernstein

Okay. Sounds good. I’ll hop off. Thank you.

Tom Herzog

Thanks.

Operator

Next, we have Lukas Hartwich of Green Street Advisors.

Lukas Hartwich

Thanks. Do you guys have any sense of what's happened to asset values across your segments?

Tom Herzog

Scott?

Scott Brinker

Yes. It's I think fair to say, Lukas, that there hasn't been a ton of recent activity over the course of April. Now some transactions have closed, but for the most part, those were things that have been underway for several months, if not several quarters, and they were just way down the path. As far as new acquisitions being struck, it's been quite limited. But things are starting to come back to market, particularly in medical office and life science, where I don't think there's going to be any change in cap rates. I think the fundamentals remain strong and demand for that investment type remains. In senior housing, I think there's a bigger question just because of the uncertainty around how far NOI declines. And then also realistically what the right risk-adjusted cap rate is for that segment. So I think if there is uncertainty, it would be in the senior housing business.

Tom Herzog

And Scott, just to add to that based on conversations we've had, that after some period is completed that allows activity to normalize again. For some period of time, there might not be much of a market, and there very well could be some distressed opportunities. And I think, Scott, what you're referencing is, once that period of time has passed, that's where we see cap rates falling out again. Is that fair?

Scott Brinker

Right. Correct.

Lukas Hartwich

Great. And then on SHOP, is there any color you can provide on performance between properties with COVID cases and without? Is that something you can offer?

Scott Brinker

Yes. I can give you some context across the board, a property with COVID-positive residents would be shut down to new admissions, which obviously has a pretty dramatic impact that move-ins are going to zero for a period of time. It's also likely that you're now paying staff up to 1.5 times ordinary wages. So your costs are going to be higher. And then PP&E becomes that much more elevated as well because the – virtually the entire staff has in full PPE, and that's three shifts a day. So on both the expense and the revenue side, a COVID-positive property would have significant impact on NOI. And we try to account for that with the range that we provided. Some communities will do better than our range, and then other properties will be worse. So I would think about the range we provided as being applicable to the entire portfolio on average, not to a specific property.

Tom Herzog

Lukas, the other thing we had that made it difficult is during the past six weeks, we had our operators appropriately stockpiling PPE and with that, of course, large expenditures that might exceed the norm. So we're going to see this normalize out a bit over the next month or so. Now that, that stockpile and those inventories have been built. So we'll have more information on that as we go forward.

Lukas Hartwich

Great. I appreciate the color. Thanks.

Tom Herzog

Thanks.

Operator

And next we have Mike Mueller of JPMorgan.

Mike Mueller

Yes, hi. Scott, I think you mentioned the senior housing, you thought would be in the Phase III of the reopenings. And does that imply that there are any mandates that have to be followed in terms of limited move-in activities? Or is it just a little bit more of the population is sensitive, so they're going to have choice, but take a little bit longer time themselves?

Scott Brinker

Yes. In general, the business is driven by state and local health departments. The CDC has come out with broad guidance for this segment, but it's really the local and state health departments that are impacting those types of decisions, obviously, in coordination with the operating partners. So that's an additional reason why it's hard for us to speculate on how quickly things reopen.

Mike Mueller

Got it. Okay, that was it. Thank you.

Tom Herzog

Thank you. We have two more questions in the queue.

Operator

Yes, sir. And the next one is a follow-up from Jordan Sadler, Keybanc Capital Markets.

Jordan Sadler

Sorry, I was kind of trying to get out of the queue. But I don't know if this was addressed. It was – the life science customers that have requested deferrals, it's 25 of them. Can you maybe characterize these tenants? Are these sort of Tier 3, Tier 4 type tenants? Or biotech tenants?

Scott Brinker

Yes, Jordan, it's a mix. As you point out, it's a pretty small percentage of our ramp. And to date, the answer has been no. But there are a few smaller biotechs that has requested the release, but have not yet been granted. There are some amenity tenants as well. And essentially, their business has been closed for the past 1.5 months. And those are very small dollars, but I think it's more likely than not that those are important amenities to our campuses. And they're not big money makers. They're there to drive leasing activity that given their business has been closed, we'd be more likely to make some kind of a deferral.

And then we do have a small number of more office tenants. But keep in mind, our business – our buildings have been fully operational throughout pandemic. So we're less inclined to give any rent release, but we wanted to be transparent about the fact that some had reached out.

Tom Herzog

I'd say the other thing I'd add is no, go ahead.

Jordan Sadler

Sorry. No, go ahead.

Tom Herzog

The other thing I'd add is there's still plenty of demand for that space in the locations that we're in. And when we do have certain tenants that we receive the direct information from and conclude that, that's not a viable tenant going forward, then we'll take actions on a case-by-case basis as it makes sense for our business. And the ability to re-lease that space is something that we feel confident in. So again, on a case-by-case basis, we'll do off those, but not big dollars.

Jordan Sadler

Okay. And then could you break out, on the MOB side, the percent of deferrals granted relative to request?

Tom Herzog

Tom K, do you want to take that?

Tom Klaritch

Sure. Hi, Jordan, it's Tom Klaritch. Of our total eligible tenants, about 28% of them have requested the deferral and almost 90% of them have been approved. The reason they haven't been approved has been either they did not pay April rent, so they weren't current on rent or they did not apply for the cares loan, which we made as two requirements of the program.

Jordan Sadler

Helpful. Thank you.

Tom Herzog

I think we have the last question?

Operator

Yes, sir. And that will come from Joshua Dennerlein of Bank of America.

Joshua Dennerlein

Hey, guys. Thanks for the question. Hope you are all doing well.

Tom Herzog

Hey, Josh.

Joshua Dennerlein

I’d be curious just to get a little bit more color behind your assumptions going into the net attrition rates for the SHOP portfolio. You gave some color for move-ins, move-outs. But maybe like bigger picture, like what goes in there as far as like COVID spreading across the country in the counties that you're in and maybe the economic environment?

Scott Brinker

Yes. I mean we follow the data as closely as anyone. Two weeks ago, most of the predictions were that activity had peaked in most states in mid to late April. That date seems to be getting pushed out, at least a little bit, in terms of when have we hit the peak, and it varies by geography. Obviously, the weighted average native peak activity in our portfolio was supposed to be April 14. So hopefully, that proves to be correct. We haven't started to see a huge decline in COVID activity inside our buildings, but it's also no longer increasing. So that's obviously a positive. It jumps around from day-to-day. But it's certainly no longer increasing at the rate that it had been. If anything, it does seem to have leveled out, if not started to fall.

So that's a positive. But the ranges that we've provided were intended to capture that. Because we can't predict exactly how quickly the infection rate is going to decline, and that's why we wanted to think about it as a range, Josh, plus the fact that we have a portfolio that's spread out across the country. It is concentrated on the East and West Coast, but it's not heavily concentrated in any particular market.

Joshua Dennerlein

Okay. I appreciate that, Scott. That’s it for me.

Tom Herzog

Okay, thank you. Operator, I believe that was the last question?

Operator

Yes, sir. We will go ahead and conclude the question-and-answer session. And Mr. Herzog, I'd like to hand the conference back over to you, sir.

Tom Herzog

Okay. Thank you, operator, and thank you for all of our investors and analysts that joined the call and your interest in the company and your support of Healthpeak, especially during this extremely unusual time. So stay safe and look forward to talking to you all soon. Bye-bye.

Operator

And we thank you, sir, and also to the rest of the management team for your time. And the conference call is now concluded. At this time, you may disconnect your lines. Thank you, again, everyone. Take care. Have a great day.