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New Senior Investment Group Inc (SNR)
Q1Â 2020 Earnings Call
May 9, 2020, 9:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the New Senior Investment Group First Quarter 2020 Conference Call. [Operator Instructions] Please note, today's event is being recorded.
I would now like to turn the conference over to Jane Ryu. Please proceed.
Jane Ryu -- Vice President
Good morning, and welcome to New Senior's earnings call for the first quarter of 2020. With me today are Susan Givens, our CEO; Bhairav Patel, EVP of Finance and Accounting; and Lori Marino, General Counsel.
Before I turn the call over to Susan, I'd like to highlight that this morning's press release, company presentation, our quarterly supplement and the reconciliations of non-GAAP financial measures can be found on our website at newseniorinv.com.
Before we begin, please note that our discussion will exclusively focus on non-GAAP measures unless otherwise indicated.
During this call, we will make forward-looking statements as defined in the Private Securities Litigations Reform Act of 1995. No forward-looking statements can be guaranteed, and actual results may differ materially from those projected. Forward-looking statements made on this call should be evaluated together with the risks and uncertainties that affect our business, particularly those disclosed in the risk factors and other disclosures in our most recent annual and quarterly reports filed with the SEC, including the Form 10-Q that we will be filing later today. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
And now I'd like to turn the call over to our CEO, Susan Givens.
Susan Givens -- Chief Executive Officer and President
Great. Thanks, Jane. Good morning and thank you for joining New Senior's earnings call for the first quarter of 2020. The world has obviously changed pretty significantly in just 2 months since our last earnings call on February 27. While this is our first quarter earnings call, we know people are focused on understanding what's happened since we began to see the impact of the COVID-19 pandemic and how we're thinking about things as we move through these extremely challenging times.
Let me start by saying that, as we all know, this crisis has severely impacted the entire world with at-risk populations, including the seniors that our communities serve, being disproportionately impacted. Our operators have taken several critical steps to protect the health and safety of the residents and employees within our communities. While necessary, we noted these important measures have had and will continue to have an impact on our financial results. It's difficult to predict how long the pandemic will impact our communities and when a recovery will start or what form it will take.
As a result, today, we announced that our Board of Directors made the difficult but prudent decision to decrease our dividend for the first quarter of 2020 by 50% to $0.065 per share. This was not an easy decision, but in uncertain times, we believe that we need to do everything we can to preserve capital and put the company in a solid position.
In 2019, we accomplished a number of significant achievements to transform the company. We sold our underperforming assisted living portfolio, we repaid over $360 million of debt and we completed nearly $400 million of new financing, resulting in lower debt costs and extended debt maturities. As a result of these and other initiatives, we have significantly improved the quality of our overall portfolio and the financial profile of the company prior to the onset of the COVID-19 pandemic. While these are certainly very difficult times, we believe we are well prepared to weather the storm.
Before I go into more detail about the impact of COVID-19 on our business, let me remind you that the full year 2020 guidance that we provided in February did not factor in any disruption to the company's business from the COVID pandemic. As such, today, we are withdrawing our previously provided full year 2020 guidance.
It remains too early to estimate the complete effect of COVID-19 on the company's future results. Our focus throughout all of this has been to control the things that we can control and to be as transparent as we possibly can be, recognizing that we are trying to incorporate new data every day, and the situation remains very fluid. Since the onset of the COVID-19 pandemic, we have shared periodic updates with our stakeholders in order to provide as much information as we can. Going forward, we intend to continue to provide those updates.
Along those lines, in addition to issuing our first quarter press release and supplement, this morning, we posted a presentation on our website. The presentation covers three key areas, which I'll reference throughout my comments.
First, it provides a brief overview of our company and the composition of our portfolio as well as some observations on the larger demographic trends within senior housing. I won't spend a lot of time on this in my comments, but I encourage you to review as I think it provides some good perspective on where we sit within the senior housing industry and how compelling the long-term fundamentals remain. Second, it provides some information on how our operators have responded to the pandemic, including what we've seen within our communities and how our operators are preparing to move forward. And third, it provides some initial observations on the financial impact that COVID-19 has had on our financial results and some expectations for moving forward.
As a quick reminder, today, our portfolio is comprised of 102 independent living properties and one CCRC property, which are managed by four different operators. We have close to 11,000 residents across our communities, and our communities are staffed with approximately 3,300 associates.
For us, 2019 was a transformational year, and 2020 was off to a strong start. However, in early March, as it became clear that COVID-19 was quickly spreading in the U.S., our operators began to take steps to modify and enhance their existing infectious disease protocols. Things evolved rapidly, and by mid-March, all of our operators had implemented significant measures, including restricting access to nonessential visitors, securing additional PPE and supplies, closing all communal dining services, canceling all group activities, implementing quarantines for all residents and performing daily temperature checks for all residents and staff.
As an owner of independent living properties, it's important to remind everyone that our operators do not provide healthcare services within our communities. And as a result, the healthcare needs of the residents within our communities tend to be slightly lower.
In addition, the average age of our residents is typically slightly younger than in assisted living. In general, the residents in our communities are accustomed to having more independence and frequently come and go from the communities. That dynamic create a unique set of challenges for our operators and the measures taken back then, while they now seem common and obvious after the implementation of all the shelter-in-place and stay-at-home orders across the country, in early and mid-March, they represented a significant shift in the daily life of the residents in our communities.
Our operators took difficult, but we believe necessary, steps to protect the residents and the staff in our communities. And the restrictions that they implemented are still in place across our portfolio. We know that these necessary actions have already and will continue to result in both lower move-ins and increased expenses.
At this point, all of our communities have remained fully operational since the start of the COVID-19 pandemic. To date, our operators have reported a total of 141 cases, including 101 residents and 40 associates across 16 properties.
The incident rates have not been uniform across our portfolio. Of the 101 resident cases, more than half, 58, are concentrated at our large CCRC located in downtown Philadelphia, an area that has been significantly impacted by the pandemic. That building has approximately 350 residents and 330 associates, so it's a large community and has a lot of staff moving throughout the building, given the levels of care.
On the other hand, Holiday, our largest operating partner, who manages 98 of our 103 communities, has reported 33 positive resident cases to date, representing 0.3% of total residents. Since Holiday is an independent living operator, they don't provide healthcare services, which generally results in lower staff count by building and fewer people coming and going through their building.
We don't take any of these numbers lightly, and we do expect that the numbers will go up as the virus spreads and more testing becomes available. That said, our operators are working to implement plans to safely lift certain restrictions at our communities in a phased approach.
I think it's important to note that due to the high and the at-risk nature of the residents that our communities serve, we expect that many of the protocols in place will continue for some time even as federal, state and local stay-at-home, shelter-in-place and social distancing orders are relaxed over time.
Our operators face a host of challenges as they begin to lift restrictions, including allowing physical tours and increasing the volume of new move-ins, implementing a measured approach to allowing nonessential visitors back into the communities, allowing residents to enjoy communal dining again and allowing resident activities to resume. We know that many of these services are an essential part of the physical and mental well-being of the residents in our communities, and we are focused on working with our operators to ensure that the safety of our residents and associates remains a top priority. Along those lines, we're actively working with our operators to roll out strategies around testing, including testing for new residents, existing residents and employees.
Now turning to the COVID-19 -- turning to how the COVID-19 pandemic has impacted our financial results. First, I'll discuss occupancy, and then I'll touch on expenses. On the occupancy side, due to, in large part, the restrictions on tours and move-ins at our communities in the second half of March, total portfolio occupancy declined 130 basis points from 88.7% on February 29 to 87.4% on March 31.
April was the first full month to be impacted by the pandemic. Ending occupancy declined another 120 basis points from 87.4% on March 31 to 86.2% on April 30. mportantly, we do have a number of individuals that are scheduled to move into our communities and have pushed out their move-in days, and we also have new residents that are planning to move in. So while there's no doubt this pandemic is having a significant impact on portfolio occupancy, there continues to be demand for the product.
Also, while we have certainly seen leaves and move-in volumes trend lower than historical averages, we've also seen voluntary move-outs come down. As an example, in April, move-outs were down 9% versus January and February averages, which has helped mitigate some of the occupancy declines from fewer move-ins.
All that being said, as we move forward, we expect to experience additional occupancy decline due to the continuation of the various measures taken to stem the spread of the virus within our communities.
On the expense side, operating expenses have increased since the onset of the pandemic as a result of enhanced safety protocols, which includes the costs for acquisition of personal protective equipment, additional supplies, enhanced cleaning and the need for additional labor. In April, the first full month to be impacted, operating expenses were up approximately 5% versus what we had originally budgeted for the month.
We expect these increased expenses to be partially offset by reduced variable expenses, primarily across marketing and maintenance as a result of lower move-ins and reduced occupancy levels.
It's important to note that while we have seen labor expenses increase, since our IL operators do not provide healthcare services, we have not seen as significant an increase in labor costs as compared to assisted living operators.
As we move forward, we expect that operating expenses will remain elevated as our operators continue to implement protective measures within the communities. Importantly, the additional expenses could vary by community and could be impacted as our operators partner to safely lift restrictions.
While it's too early to estimate the complete impact of the COVID pandemic on our financial results, we do want to provide as much perspective as we can. If you look at April alone, the first full month to be impacted by the pandemic, we are currently estimating that NOI for the month will be down approximately 8% to 10% versus April 2019.
For illustrative purposes, we have also provided some estimates as to what the monthly impact could be while we're managing through the pandemic. If we assume monthly occupancy is down an additional 100 to 150 basis points each month, consistent with April, that would result in total occupancy decline of 300 to 400 basis points for the second quarter compared to ending occupancy on March 31. And if operating expenses are up 5% to 10% versus budget each month, which is slightly higher than operating expenses were up in April, that could result in NOI being down 10% to 15% in the second quarter of 2020 versus the second quarter of 2019. While these aren't perfect estimates, we wanted to provide some sense of what we're seeing and how things could play out in the second quarter.
The ultimate impact of the COVID-19 pandemic will depend on a variety of factors, and it's too soon to say with certainty what will happen. But as we move forward and have better information, we will work to continue to keep you updated.
Before I turn it over to Bhairav, I want to quickly thank our operating partners and the staff at our communities. I have been overwhelmed by the commitment and the leadership that our operators have shown during this difficult time. This is truly an extraordinary time to be serving seniors, and we can't thank them enough for the exceptional care and service they have provided for the residents in our communities.
I also want to thank our team at New Senior. We're a relatively small team. We're also a tight-knit group that happens to be headquartered in New York City. Like many others around the world, this pandemic has hit us personally.
And despite all the stress and uncertainty, they have worked tirelessly over the last couple of months. I want to thank them for their hard work, their dedication and their flexibility as we have worked to navigate our way through this.
And lastly, I want to thank our investors. We know this has been hard on everyone, and we want to thank you for sticking with us. We continue to believe that the long-term value of senior housing and independent living, in particular, remains intact. We also believe in the strength and foundation of our company. The necessary measures that we've taken to battle COVID-19 will no doubt have a near-term impact on our financial results, but we also believe they will highlight the importance of senior housing and will strengthen our position as we move forward.
With that, let me turn it over to Bhairav to discuss the financial results in more detail.
Bhairav Patel -- Executive Vice President of Finance and Accounting
Thanks, Susan, and thanks, everyone, for joining us on the call this morning. I will provide an overview of our financial results for the first quarter, followed by a brief discussion of our recent actions we have taken in light of the disruption caused by the COVID-19 pandemic. As of the end of the first quarter, our portfolio was comprised of 103 private pay senior housing properties across 36 states. During the quarter, we completed the sale of 28 AL/MC properties for gross proceeds of $385 million, realizing a gain of $20 million.
These assets are separately identified as discontinued operations on the face of our financial statements for the period presented. As a result of the sale, our same-store pool now includes our entire portfolio of 103 properties, which includes 102 managed IL properties and a single NNN leased property.
Same-store cash NOI for our total portfolio of 103 assets for the first quarter of 2020 was up 0.1% compared to the first quarter of 2019. Our cash NOI for the quarter includes approximately $500,000 of incremental COVID-related expenses incurred toward the end of the quarter. Excluding those expenses, our cash NOI was up 1.5% year-over-year, which was generally in line with our expectations for the quarter. Average occupancy for our managed IL properties increased 87.1%, a 10 basis point increase versus the first quarter of 2019. Occupancy growth was accompanied by an increase of 0.9% in RevPOR resulting in top line growth.
Expense growth generally trended in line with expectations for the quarter until the second half of March when we started incurring incremental expenses I mentioned earlier with respect to supplies of personal protective equipment and other items required to implement enhanced protocols designed to contain the spread of COVID in our properties.
Now, I'll discuss our financial results, balance sheet and highlight certain actions we took to strengthen our liquidity position. The AFFO for the first quarter was $14.1 million or $0.17 per diluted share. NOI for the first quarter was $35.5 million. Both NOI and AFFO include approximately $500,000 of additional expenses we incurred in connection with COVID-related protocol instituted in March.
Interest expense for the first quarter was $17.2 million or about 4% lower compared to the prior quarter. This was driven by a lower average debt balance as a result of debt repayments and a slight decrease in LIBOR. Also, please note that the interest expense excludes interest related to $260 million of debt directly attributable to the sold assets as those amounts were included in discontinued operations in the financial statements.
Turning to the balance sheet. We ended the quarter with gross assets of $2.3 billion and cash and cash equivalents of $135 million. We had $1.6 billion in total debt outstanding at the end of the first quarter with weighted average coupon of 4% and weighted average maturity of 6 years.
Our maturity profile improved significantly as a result of refinancing we completed in conjunction with the sale of the AL/MC portfolio, and we now have no significant maturities until 2024. Given the sharp decline in LIBOR since the end of the quarter, our weighted average coupon is approximately 3.4% at the current spot rate of approximately 20 basis points.
This is important because approximately 50% of our total debt outstanding is subject to LIBOR fluctuations. For reference, every 10 basis point change in LIBOR impacts annual interest expense by approximately $800,000 or just under $0.01 per share. In addition, over 90% of our total debt outstanding is secured agency debt, not subject to financial covenants, allowing us to navigate through potential near-term disruptions in operating performance as a result of COVID-19.
Now, let me outline a few measures we have taken recently to strengthen our balance sheet and liquidity. First, out of an abundance of caution, we drew down on our revolving credit facility to the tune of $100 million in March to safeguard ourselves against consequences of turmoil and volatility that existed in the markets during the early days of the pandemic. We expect to repay the drawn amount in the near term as we gain more visibility into the operating impact and the level of uncertainty subsides.
Second, given the current environment and restrictions in access, we have temporarily suspended all nonessential capital expenditure projects and will reevaluate as the restrictions are lifted. Our current expectation is that our total spend for the year will likely be at least 25% to 30% below the initial projected spend of approximately $20 million.
Lastly, in an environment laden with uncertainties, our Board has prudently decided to reduce the dividend payout for the current quarter by 50% to $0.065 a share. While we have taken several measures to put ourselves in the best possible position to weather the current crisis, it is too early to be able to accurately project the impact of COVID-19 on our financial results.
Accordingly, we have made the decision to review our previously issued full year guidance as it did not contemplate the impact of the COVID-19 pandemic on our business. Instead, as Susan described earlier, we have tried to frame the range of potential outcomes based on trends we have observed since the pandemic began in mid-March. As we have done since the initial stages of the pandemic, we expect to keep you informed as we process new information and refine our assessment of the potential impact on our business.
With that, I will turn it over to the operator to open the line for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question today will come from Daniel Bernstein with Capital One. Please proceed with your question
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
Thank you. I hope you don't mind if I ask a few extra questions. So I just wanted to -- hope everybody is well at the company and wish all your residents and operators well also.
Susan Givens -- Chief Executive Officer and President
Thanks, Dan. You too.
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
Yes. Thank you. So, I just want to understand the expense side of the equation. Are you assuming that variable costs completely offset the increase in COVID costs? Or is there some differential between those 2? In other words, if COVID costs are up 5% and you decreased variable, there's some kind of net like 1% or 2%. I just want to make sure I'm clear on that.
Susan Givens -- Chief Executive Officer and President
Yes. No, you got it exactly. So we do think that variable expenses will offset some of the increased COVID expenses, but we don't expect them to completely offset. If you look at April, which -- that's not 12 months of data, it's one month of data, but it's pretty much all we have at this point. There, we saw that our variable expenses and the decline there did almost entirely offset the COVID expenses. But we don't think that, that is necessarily going to continue to persist as we move through it. So our assumption is that we will have an offset on the variable side, but it won't completely offset the increase as we kind of are still in the hunker-down mode.
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
Okay. And the assumption is that there'll be some increase in cost that continue beyond restrictions -- local restrictions. That just the infection control, all of that will just stay in place until, I guess, maybe the pandemic ends.
Susan Givens -- Chief Executive Officer and President
Yes, that's a really tricky thing. I think all of us are having a hard time forecasting that, right? I think that what we have done is we've assumed that there will be some level of expense even after the restrictions have lifted, if you will, at certain properties.
And I know you're hearing this from everyone, but I think as it plays out -- and we had hoped to be able to give kind of full revised guidance and to really be able to kind of nail something down. But as we're seeing kind of play out across the board, different states, different counties, different jurisdictions are going to have a different approach. And so we think that we may have certain assets where restrictions are lifted sooner than others, and the restriction lifting may vary by assets themselves.
So as an example, we may have some return to a form of communal dining, so call it 10 residents at a time, and in 1 community; whereas in another community, we may say, actually, we want to continue to keep the communal dining room close. And so those expenses will vary depending on what is happening in a specific property. But for our purposes and for the purposes of thinking about how we can kind of best model this, we are assuming that there will be some expenses that continue, not to the level that we're seeing kind of right now in the full restricted access time period, but some expenses even as properties come out of kind of the full restriction zone.
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
Okay. Okay. And then on the occupancy, did you see any -- were the weekly trends in April consistent week to week? Or did you see any moderation or acceleration as April progressed? And where I'm going with this, I'm trying to understand -- I get May probably will look the same as April. But is there an opportunity maybe for some stabilization in occupancy in June based on maybe the levels of inquiries, the levels of virtual tours? Just trying to see if there's a trend where we might bottom in May and maybe come back up.
Susan Givens -- Chief Executive Officer and President
Yes. It's been pretty consistent from our experience. So we've seen kind of the weekly trends have not fluctuated too dramatically. I mean, if you look at kind of the first -- you look at February and March, as we stated, occupancy there was down 130 basis points. And in March to April, it was down 120 basis points. So those two months, pretty consistent.
I will comment, though, what we are seeing is that leads are growing. And so that's an encouraging trend that while we haven't seen that necessarily tick into the weekly occupancy numbers, we do see that lead volume is starting to increase after it went pretty quiet and turned pretty significantly negative there for a while.
An observation that I -- we wanted to be a little bit careful about showing here, but we have had tour volume go up significantly as a result of increased usage of kind of virtual tours. We're not really, at this stage, kind of confident in what that means. As you can imagine with virtual tours, right, a lot of people just click on things and look.
So, if you just look at those raw numbers, our virtual tours have gone up over 30%, but that's not something we want to necessarily point to and kind of drive any decisions on occupancy. So a couple of comments there. But point is that we've seen pretty consistent weekly occupancy decline. However, very recently, we've started to see lead volume go up, which we don't want to make any sort of assessment at this point. But obviously, in light of everything going on, that's a favorable thing to be seeing.
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
And I guess one last question. I guess, I just want to kind of confirm that you're fully paying your GSE debt, mortgage payments, or you haven't asked for any forbearances there.
Susan Givens -- Chief Executive Officer and President
We have not. No. So we're fully paying, intend to fully pay and do not intend to ask for any forbearance there.
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
Okay, I'll pass. I'm sure there are others who want to ask questions. Thanks.
Susan Givens -- Chief Executive Officer and President
Thanks, Dan.
Operator
Our next question will come from Vikram Malhotra of Morgan Stanley.
Vikram Malhotra -- Morgan Stanley -- Analyst
Thanks. Susan, I know you were sort of trying to come up with a more narrowed guidance range, and then there's a lot of variance and things turn. But maybe if you can give us some color on how you sort of see the occupancy trends playing out the next few months? And then maybe what are signs -- what are you watching for in terms of any inflection or divergence in some of the properties and markets that you referenced?
Susan Givens -- Chief Executive Officer and President
Sure. So in terms of kind of the guidance, if you will, we tried our best to sort of take a look at kind of what we've seen in April. And I think that information is coming in daily, and it's changing pretty quickly and evolving, as we all know. But as we sort of laid out a range, if you will, for kind of what we could see for Q2, our expectation is that May and June look pretty similar to April. And I think that as we sit here today, that's kind of a decent enough assumption.
I think as we start to see more active restrictions being lifted and kind of things opening up, we can refine that. But I think that we tried to sort of frame -- if we see the same sort of activity in May and June that we saw in April, like we think that the numbers and the range we gave is pretty kind of accurate.
We aren't at this point seeing kind of major divergence in terms of markets. I think as an observation, Holiday, in particular, happens to really be in kind of secondary and tertiary markets. We have seen the case counts are -- have been kind of lower in our properties.
I'm careful and want to be careful not to glean too much from that. I think that there are lots of questions a lot of people have. Is that because the virus hasn't gotten to some of these markets yet? Is it because the testing isn't quite what it is. So we can't really draw too many conclusions. But I think the point is we can look at the cases in the absence of like great data, like that is data, and that's what we will kind of look at. And as I mentioned, we do -- the one asset that we have, that's a very large, complex CCRC in a very large market, we have seen a disproportionate number of cases in that property versus the rest of our portfolio.
So many others in the senior housing space have more diversified portfolios of CCRCs and assisted living, so they would have better perspectives on that. I can only comment on that one asset versus our independent living assets. But I think when you look at our independent living portfolio, there are assets here and there where we've seen some different things playing out, but there's no pattern to sort of glean from that.
Vikram Malhotra -- Morgan Stanley -- Analyst
That's fair enough. Maybe just on -- from sort of a further expense reduction, can you talk a little bit more about specifically what sort of capex are you deferring? What's sort of needed? What are you deferring out? And especially what savings can you achieve from a G&A perspective?
Susan Givens -- Chief Executive Officer and President
Sure. Absolutely. So on the capex side, right now, for the most part, unless it's essential maintenance capex, very little capex is going into the properties right now, given the fact that the facilities are kind of restricting all nonessential people. So what we first looked at in terms of our overall capex plan, we had in place some plans to do some upgrades across the portfolio in 2020.
So, we have put those plans for those assets on hold. And we'll revisit, and we'll kind of continue to evaluate as we move through the year. But if you look at kind of the high-level numbers, we were projecting about kind of $20 million to $22 million-ish of capex for this year.
And I think that depending on how things play out, that number could be down anywhere between kind of $10 million to $15 million, depending on sort of what we decide to do. It could even be lower if we decide to kind of push out projects. But first and foremost, the capex that we focused on are kind of the nonessential upgrades that we had just been sort of planning as a part of kind of the ongoing business.
So that's on that side. And if you put it in kind of a per unit kind of number, we had been projecting about $1,700 per unit, including kind of regular maintenance and then upgrades. We're now looking at somewhere closer to $1,000. And we'll refine that as we go through.
On the G&A side in our numbers, we're assuming that G&A comes down. That is a number that we're very focused on. I think right now, we are looking at about a 10% to 15% kind of reduction. So that's something that will kind of evolve as we go through the year, but we're obviously focused on it. And we know that that's an area that everyone needs to be taking a look at, and we're doing the same thing.
Vikram Malhotra -- Morgan Stanley -- Analyst
Great. And then just maybe last one in terms of the dividend. Just sort of two questions on that. What sort of were you baking in or metrics were you looking at to decide sort of 50% is the right level? And how did you think about just suspending the dividend versus like cutting it by 50%, the decision between the 2?
Susan Givens -- Chief Executive Officer and President
Yes. Look, the dividend is obviously a focal point always. In terms of how we looked at it and came up with it for the quarter, as we mentioned, there -- we don't have perfect visibility in terms of kind of what the final impact on our cash flows will be.
So, I think if you had to sort of bifurcate it, we assume that there will be an impact to our cash flows. So part of the dividend cut is incorporating kind of the reduction in our cash flows. And then the other part of the dividend cut is preservation of capital kind of in a time of uncertainty. And so the approach we took was that we wanted to give ourselves some room and to kind of have some flexibility. And that as we move forward and have more information, the dividend will be something that the Board will continue to evaluate and address. But really, a portion of it is to account for kind of the decline in cash flows, and a portion of it is just to preserve capital in kind of uncertain times. So that's -- that was your first question. What's your second question? Vikram?
Vikram Malhotra -- Morgan Stanley -- Analyst
Sorry, I put it on mute. It was just really between how you thought about the magnitude of the dividend cut; and then secondarily, versus dividend cut versus dividend suspension?
Susan Givens -- Chief Executive Officer and President
Ah, the suspension, sorry about that. And then on the suspension side, I mean, we looked at it. We were aware of the fact that people out there have done that. I think from my standpoint and the Board's standpoint, we are still generating positive free cash flow, and we think that we have an obligation to our shareholders to pay a dividend if we can and to have that dividend be prudent. And so that was the rationale behind it.
And so, we looked at what we thought were a number of potential scenarios, knowing that we can't model perfectly right now. And we felt like that level kind of addressed the kind of two points I just talked about in terms of cash flow and preservation of capital. And we also recognize that we did have a strong first quarter and wanted to make sure that we were addressing kind of the dividend in light of that.
Operator
Our next question will come from Michael Gorman of BTIG. Please proceed with your question.
Michael Gorman -- BTIG, LLC -- Analyst
Yes. Thanks. Good morning. Susan, just wanted to go back to the comments on the capex side, and obviously, deferring capex here. I imagine there will be a catch-up on the other side. But maybe it's too early, but have you had any discussions with the operators about any maybe long-term capex investments that are going to need to be made to bring the properties into kind of this new world of whether it's changing the layouts or changing the common dining space? Is there any kind of incremental capital expenditures that would aid reopening these properties going forward beyond just the typical maintenance or even beyond the upgrades that you had previously contemplated before the pandemic hit?
Susan Givens -- Chief Executive Officer and President
Yes. Look, Mike, it's a great question. Look, I think that it's too soon to have complete kind of reconfiguration, capex conversations, given everything that's going on. I do think that as we talk to certain of our operators, including Holiday, which is far and away our largest, the complexity of the Holiday building, meaning the lack of complexity really, is an advantage as we start thinking about some things that we might want to look at over a longer period of time.
So, what I mean by that is Holiday is only independent living, so you don't have different levels of care. You don't have kind of different parts of the building that cater to independent living versus assisted living, so you don't need multiple dining facilities. So it's a pretty basic building. And we don't think that you need to do kind of a massive reconfiguration to make sure that the residents are safe and are actually adhering to kind of distancing and to kind of protection. So I don't think there's any kind of massive reconfiguring that needs to be done.
I think as I mentioned in my comments, sort of the biggest challenge, if you will, that I think that Holiday and IL have here is that the resident base very much want to be independent, and they want to come and go from the building. It's not an environment where people are kind of in a nursing home, if you will. And so I think ensuring that the right -- sort of people are coming in and out of the building. Those are things that they've had to focus on.
So, making sure that certain doors can't be opened, and everyone is going through the main entrance to get temperature checks. Some of those things are things we've spent more time talking about versus kind of the reconfiguring on the capex side. And obviously, there's not a lot of deferred capex here to begin with. So I think it's too soon to talk about whether we would reconfigure buildings. But I think Holiday, and we, feel pretty good about kind of the format that's in place now.
Michael Gorman -- BTIG, LLC -- Analyst
Okay. Great. And then also, maybe it's still a little too soon. But I guess, as you've seen some of the changes in the properties over late March and April, have you had any situations or conversations with residents where there's been reductions in rates or any changes to rates or suspension of rate increases for in-place tenants just as a result of the situation or as a result of the reduction in services? Or is it mostly just an impact on the occupancy and expense side?
Susan Givens -- Chief Executive Officer and President
Yes. So, so far, we have not, meaning April rent collections were completely in line with what they normally are. May, we're still getting that information. That will come in the next day or so. But so far, it's exactly in line with kind of what it typically is. So that's something we're watching. I think that it's wise to be focusing on that. I think that we all are. But so far, we haven't seen that. And we have seen the impact has been more on the occupancy side.
And look, it's anecdotal, and I think that I never love pointing to kind of these kinds of things. But I think what we've heard out of the communities is that there's overwhelming gratitude and support for how the operators have handled this pandemic. And everyone that lives within the communities knows and is aware that they are in the vulnerable cohort. They are overwhelmingly appreciative of the measures that people have taken to protect their health and safety. And no one wants to be told they have to be quarantined in their room and take all their meals in their room. But we have been -- and I have been overwhelmingly kind of pleased with the reaction and the response that we've seen from residents in the communities.
And so, I think that we don't know. We're watching it, but I -- that tells us that having a lot of people kind of showing up and asking for massive reductions in rent, it's harder in these types of environments where people see that there are people taking care of them and are looking out for them and are -- have their best interest in mind versus maybe what you see on the multifamily side. And I'm not trying to draw comparisons. But we haven't seen that yet, but it's something we're kind of carefully watching.
Michael Gorman -- BTIG, LLC -- Analyst
Okay, great. And then maybe last one for me. Just trying to triangulate the -- obviously, the increase in traffic to the virtual tours is great, but right, you don't know the conversion rates and the move-ins being down. Do you have a sense or as you're talking to the operators, how much of this is going to result in pent-up demand that, once these facilities start to relax, will result in higher-than-average move-ins? Or is this a situation where you'll get back to normalized move-ins, and it's just going to be a normal building process versus just a flood of tenants that have been waiting and deferring and looking to move in at a later date?
Susan Givens -- Chief Executive Officer and President
Yes. Look, I think that's the question we would love to know. We know that there is some pent-up demand. We know that we have had people that have wanted to move in and wants to move in. I think that what we have been focused with our operators, we have said, let's get this right and take as good care of the residents as we can, and we think that will then sell the product and that will lead to more people viewing this environment as a good place to live. And the fact that our operators, truly Holiday, provides three meals.
There's some oversight, there are activities. We are hearing -- again, it's anecdotal, but a lot of people are calling and saying, I want my parents to be in an environment where I, at least, know they're getting fed. They don't have to go to the grocery store. They don't have to go out and go to Walmart. I want people be kind of looked after.
So, we hope that translates into kind of demand beyond the normal demand, but I think it's hard to say. And what we do know is that we still have people that want to move into the properties. We still have people wanting to tour and to kind of move family members in. And the inquiries that we've been receiving in the last couple of weeks have actually been much higher than what we've seen historically.
So, does that translate into move-ins? Don't know. But I think that it tells us that there is a real view that the value that this product offers is important and that people look at it and want to be able to move their loved ones into these properties.
Operator
This concludes our question-and-answer session. I would now like to turn the conference back over to Susan Givens for any closing remarks.
Susan Givens -- Chief Executive Officer and President
Thank you. Thank you, everyone, for joining us today. And very importantly, everyone, be safe. And we will update you as we move forward. Thanks.
Operator
[Operator Closing Remarks]
Duration: 46 minutes
Call participants:
Jane Ryu -- Vice President
Susan Givens -- Chief Executive Officer and President
Bhairav Patel -- Executive Vice President of Finance and Accounting
Daniel Bernstein -- Capital One Securities, Inc. -- Analyst
Vikram Malhotra -- Morgan Stanley -- Analyst
Michael Gorman -- BTIG, LLC -- Analyst
