Invesque Inc.

Thank you, Jody. Good morning everyone and thanks for joining the call.

With me today are Scott White, our Chairman and CEO and Adlai Chester, our CIO. The first quarter 2020 earnings release, financial statements and MD&A are available on our website and a replay of this call will be available from 12:45 p.m.

Eastern time today until 11:59 p.m. Eastern time on May 21.

Before we get started, please be reminded that today's call may include forward-looking statements regarding our future operations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today.

We have identified such factors in our news release and other public filings. As we discuss our performance, please bear in mind that all amounts are in U.S.

dollars. With that, I will hand it over to Scott.

Good morning everybody. Thank you all for joining our first quarter 2020.

I hope each of you and your family and friends are staying healthy in these truly unique times. We had a very strong first quarter as the impact of our acquisitions and aggressive portfolio management efforts in 2019 began to flow through our results.

As I noted on our last call portfolio management has been and will continue to be a key area of focus in 2020. Our portfolio management plans are a continuation of our strategy of building a world-class portfolio with the right operator in place for each of our communities.

As part of this portfolio management initiative, we also are focused on opportunistically divesting non-core assets to provide us financial flexibility and strengthen the quality of our portfolio. As you saw in our press release, I'm excited to announce that we have successfully closed on a series of transactions underlying our communities previously operated by Royal Senior Living.

Last week we completed the transition of four communities in South Carolina from Royal to Phoenix Senior Living one of our preferred operating partners in the southeast. We also sold the last two assets that were part of our relationship with Royal as a result of these transactions we have no remaining communities in our portfolio operated by Royal.

Like the Greenfield transition we announced last year expanding our relationship with Phoenix in South Carolina assures, so we have the right operator in place to maximize performance and value. Adlai will touch on the specifics of the transaction later in the call.

This was another important step in active portfolio management. Given the rapid changes in the market environment and elevated uncertainty around COVID-19, I'll focus my comments on providing a detailed look into what we're seeing within our portfolio from an operational and financial perspective.

I will also touch on the proactive measures we have taken to prepare, should the need arise, to support our operators and assure we have ample liquidity to meet our obligations. The global COVID-19 pandemic has created a very challenging operating environment for the industry including our operating partners.

We are in close contact with all of our operating partners understand the current and prospective impact of COVID-19 to our properties. As of May 8, we're very fortunate to report that only 40 of our 108 senior sales and skilled nursing properties have been directly impacted by COVID-19 based on positive test results for either residents or staff members.

The degree to which COVID-19 is impacted each facility ranges widely including five communities which have only seen employees test positive for COVID-19. As of May 8, we have 560 total residents across our portfolio of approximately 11,000 beds who have tested positive for COVID-19 and are being treated in quarantine.

Well, one case is too many we're pleased with the ability of our operators to contain the spread of this highly contagious Corona virus. As you're aware we acquired an operating company last year, only one of the 34 communities operated by that operator Commonwealth Senior Living has observed a resident testing positive for COVID-19.

With that said there are currently no active cases we are aware ofamong Commonwealth of residents. Commonwealth is our captive seniors housing management and operating company and represents almost 25% of our forward NOI.

Our ownership of Commonwealth provides us unique insight into the policies and procedures that sophisticated operators are putting into place. Commonwealth has mandated quarantine periods for all new move-ins any residents returning from an overnight stay out of the community.

The quarantine period lasts until the resident can obtain a negative COVID-19 test results or up to 14 days. Commonwealth can perform in-house testing at the majority of its communities and they're continuously testing residents returning from the hospital or skilled nursing, new move-ins and residents and associates as appropriate who have symptoms.

Access to in-house testing has helped minimize the quarantine period that is required. In early March, Commonwealth created a COVID-19 taskforce that has been working diligently and monitoring CDC and local health department guidelines to design policies and procedures for all team members to follow in the event of positive cases in the communities.

This taskforce continues to work to secure sufficient PPE for all the Commonwealth operated communities. Commonwealth's procurement efforts today have allowed for a sufficient stockpile PPE that will be delivered directly to any communities that have positive COVID-19 cases.

Commonwealth has invested approximately $600,000 to-date of COVID-19 related expenditures which includes stockpiling PPE, sanitizing and employee recognition initiatives. Ownership of the Commonwealth platform also allows us to analyze real time financial and census impacts that COVID-19 is having on our business.

In the first quarter occupancy dropped by a 110 basis points to approximately 79% on our 30 asset portfolio management Commonwealth. Most of this decline occurred at the end of February and throughout March when the COVID-19 pandemic began to spread across the United States.

As of May 8, occupancy has dropped another 180 basis points since the end of the first quarter to approximately 77%. Commonwealth continues to follow CDC and state recommended protocols by limiting all visits to only essential healthcare providers.

This has led to a material slow down and move-ins and site tours. As of today about 30 states have initiated some level of reopening and many others are planning for it.

In all reopening scenarios, senior living communities are in the last plan phase. We continue to have active discussions with the Commonwealth team on what a phase reopening they look like but we anticipate at least several more weeks of restrictions given the high-risk nature of the age group we serve.

Well, this will continue to impact occupancy levels and elevate expense in the near term, it's important to Commonwealth follow all the procedures protocols and restrictions that have allowed their communities to remain virtually COVID free up until today. We're very proud of the efforts of the Commonwealth community to protect the health and safety of all of our caregivers and residents.

It is truly astonishing to have only one confirmed case among almost 2200 residents. Combining this real-time data from Commonwealth with data from our other operators we acted swiftly and decisively to strengthen our liquidity position.

Well, we have not seen any meaningful impacts to our cash flow we believe it is imprudent to preserve as much cash as we can given the uncertainty in the market. As Scott Higgs will touch on later in the call, the proactive measures we took to preserve cash includes suspending the dividend from April 1 until further notice to all common shareholders reducing our corporate workforce by over 25% curtailing executive and firm-wide compensation and deferring non-essential CapEx.

These are all difficult decisions we do not take lightly but ones that we believe are the best long-term interests of our shareholders. I am confident and we have the appropriate liquidity and balance sheet strength to navigate the current uncertainty.

There's no doubt the macroeconomic backdrop will create a difficult environment for us in the near term while sentiment toward seniors housing, skilled nursing is expected to remain challenging in the short term our management team has an eye towards the long term effects the current environment may have on the industry. There will be potential positives and negatives for the industry when we look back at COVID years from now.

On the positive side, we're closely monitoring the impact of current and future governmental assistance through the industry. The impact of pent-up demand from the lead elective surgeries, the potential for psychological shift as it relates to social isolation among seniors who had chosen to stay at home and the potential for increased asset values for newer buildings with private rooms like those in our portfolio.

On the negative side, we are closely monitoring the duration and depth of declining occupancy levels and the continued impact of elevated costs around PPE and labor. With all that said, this time has allowed us to step back and reassess where we're going and to further streamline our operations.

I truly believe Invesque will come out as stronger as we made some very hard decisions to strengthen our financial position. Before I turn the call over I want to take a moment to thank all of the staff, caregivers, medical professionals and other service providers and not only our communities but all around the world.

Well, we operate in the competitive business we share one common goal with all our colleagues and competitors in these times assuring the staff and residents in the facilities are in a safe, loving and healthy environment. This would not be possible without all those who are risking their own safety to protect the most fragile and those in need.

Again we thank you all. With that I'll pass it to Scott Higgs.

Thank you Scott. For the quarter ending March 31 FFO was $0.25 per share and AFFO was $0.21 per share.

As Scott noted earlier in the call we announced a series of initiatives in April to strengthen our liquidity position and preserve cash in this truly unprecedented time. Well, we've not yet seen dramatic impacts to our cash flow, our property is to provide care for the aging demographic which is the highest risk age group.

This is a challenging environment for our operators and we expect COVID-19 to elevate expenses and have negative effects and occupancy in the near term. To stay ahead of the curve and maintain flexibility we announced the suspension of the dividend to all common shareholders as of April 1 until further notice.

The suspension of the dividend to common shareholders results in approximately $41 million of gross cash preserved on an annual basis. To further enhance our liquidity position, we have taken immediate cost reduction measures including the suspension of executive team cash bonuses, personnel cutbacks and other G&A reductions.

While the company is complying with shelter-in-place orders this has had the natural effect of reducing utilization of office space, travel and other corporate level expenses. All of these cost-cutting measures are anticipated to result in approximately $2.5 million to $3 million of cost savings in 2020.

We have also curtailed and deferred non-essential capital expenditures which will result in an initial $2.5 million to $3 million in cash save. Finally in April we drew down the remaining availability on our line of credit to maximize our liquidity position.

We continue to analyze additional liquidity measures including the possible sale of non-core assets. With the refinancing of the loan underlying the ex-Royal portfolio we have dealt with the majority of our 2020 current obligations.

The remaining current obligations contain company controlled extension options at no cost. Assuming we exercise our extension options we have roughly 1% of our total debt maturing over the next 12 months and approximately 9% of our total debt rolling over the next 24 months.

We continue to be out in front of and in constant communication with our lenders. With our enhanced liquidity position due to the proactive measures we took during the first five months of the year we are confident that we are in a strong financial position to weather this difficult environment.

Given the uncertainty in the marketplace, I want to spend a few moments on our April rental revenue collections. As indicated in our press release, we collected approximately 88% of our rental revenue for the month of April across our portfolio.

Breaking this down a bit further our collections in our consolidated SHOP portfolio was approximately 99%. Collections in our MOB portfolio was approximately 96% and collection in our triple-net portfolio was approximately 74%.

As of today, our May rental revenue collections remain in line with April. In terms of rent deferrals we have granted only one operator on our portfolio rent deferral of 25% for the month of May.

We're also in active discussions with one of our operating partners to find a mutually beneficial solution that works for both sides. With that I will pass it over to Adlai to discuss our portfolio performance and investment activity.

Thanks Scott. As of December 31, the performance of our stabilized portfolio remained consistent with previous quarters in terms of coverage ratios and occupancies.

As Scott mentioned earlier in the call, we are excited to announce that we have successfully closed on a series of transactions underlining our community's previously operated by Royal Senior Living. Last week we completed the transition of four senior housing communities in South Carolina that were previously part of the Invesque Royal JV to Phoenix; one of our preferred operating partners in the southeast.

These four communities were combined with the two other communities that Phoenix already operated in our portfolio into a 90/10 joint venture between Invesque and Phoenix. Phoenix is co-investment validates the current valuation of the properties and aligns the interest of Phoenix and Invesque in the operations of the portfolio.

Phoenix now operates 45 communities throughout the southeast and is one of the largest providers in South Carolina with 13 communities under management. We are confident that Phoenix will drive performance by implementing their operational expertise and creating synergies with the other communities they currently operate in South Carolina.

As part of the transition we successfully refinance the debt on the portfolio at favorable terms. As Scott Higgs noted earlier this refinancing was important as it addressed one of our largest maturities in 2020.

I am particularly proud of our team's execution on this front given that visitors were not allowed to the communities and we had to find new ways to conduct due diligence with our partners at Phoenix and Synovus Bank. In addition to the transition and refinance mentioned above, Royal acquired Invesque 65% ownership interest in the Eatonton Georgia community and now fully owns and operates that asset.

The final asset in the portfolio we had with Royal Hudson Manor was sold to a third party earlier this week. Proceeds from the sale of the properties and minority interests will initially be used to enhance our liquidity position and then possibly to delever by paying down the balance on our credit facility.

Speeding a relationship with Phoenix further showcases our approach to streamlining of our portfolio with our stable and preferred operating partners. As we did last year with Commonwealth and heritage we continue to look for ways to continue to streamline the overall portfolio and enhanced operations.

We will continue to work with these preferred operating partners to manage communities where they can capitalize on efficiencies and economies to scale. There will be much more to do in the coming months from a portfolio management perspective.

Key areas of focus for the rest of the year will be on our medical office portfolio, our senior housing operating investments and evaluating opportunities to repurpose portions of buildings for different services such as converting units to memory care. We will continue to focus on enhancing the value of our current portfolio through these portfolio management initiatives.

Regarding future transaction activity, acquisition and development opportunities have substantially slowed in the market. We are not surprised by this.

As Scott highlighted in his commentary at start of this call, there is tremendous uncertainty about the impact of COVID-19 on the industries in which we invest. Many of the largest deal makers have decided that it is best to monitor the changing environment and evaluate those impacts on the market in the future rather than try to structure around this uncertainty.

We intend to take a similar approach. Any transactions that we may pursue of the near-term will be limited to relationships with existing operators and we will focus on strengthening those relationships with stable communities.

I would like to thank everyone for joining this call and we will now open the line for your questions.

Thanks and good morning guys. Scott, in your in your remarks, you said that you expect Invesque to come out stronger following this on the steps you're taking.

Can you clarify a little bit more about what you mean in regards to, can you [indiscernible] NOI or cash flow as far as on the recovery you expect cash flow be even stronger or you are talking about just as an organization you mean operationally?

Well, thanks for the question. This is Adlai.

What Scott was referencing is that, I think a couple of things. The first one is that we cut G&A substantially so from that standpoint we would expect that to improve the overall earnings.

We also believe that our operators are putting in places that – once again it’s not necessarily going to be in the short term but over the long term it's going to enhance their ability, also adjusted G&A where appropriate and are coming up with different ways to market to the ultimate residents of those communities. So we do believe it'll be strong from that standpoint and then the last point I think and you referenced, the organization as a whole in the way we've gone about business during this time and the connection we've made with the operators is enhancing those relationships.

So I do think in the short term, I think it would be naive for us to think that we are going to see and improve in NOI coming right out of this but we do believe over the long term that is absolutely possible.

Okay. Great.

Maybe taking a little bit into NOI and the occupancy you gave some numbers for the quarter. Is it possible to let us know what are your current occupancy levels?

It's in the different asset classes and maybe what are your expectations for that over the next few quarters?

Yes. Sorry about that.

I was un-mute before but so in terms of expectations over the next few quarters I think it's really just difficult to determine more in terms of how long this is going to continue and it's probably uncertain that we're navigating around part of what we talk about in terms of building a cash cushion because we're just not sure is it possible that this turns around over the next 2, 3, 4 months? Yes, it's possible at which point in time and we'd expect to pick up later in the year as it relates to occupancy, particularly as you look at some parts of the portfolio, for example let's talk about seniors housing.

So seniors housing requires generally a tour of the facility or multiple tours of the facility. In the current environment no one is touring and as such it's very difficult to maintain occupancy.

Once some of those restrictions are lifted and it's anybody's guess as to when exactly those restrictions will be lifted that's when you start to rebuild your lost occupancy so to speak as it relates to senior housing. If you pivot and talk specifically about skilled nursing, we bifurcate that into two areas when you think about it.

You have your longer-term residence that we haven't seen much of a decline in occupancy associated with it. It's the short stay those that are coming in off of elective surgeries that we've really seen a decline in occupancy with what's going on the current environment substantially all elective surgeries have been canceled.

With that said over the last couple of weeks regionally some of those restrictions have been lifted and people are slowly returning. Now even though the restrictions are lifted there's a psychological impact of how many people are running for elective surgeries in the current COVID crisis.

With all that said, elective surgeries tend not to go away. They tend to become pent-up demand if you needed a knee replacement prior to COVID-19, highly likely you're still going to need it afterwards.

So we actually fundamentally believe that later in the year although it's very difficult to pick a quarter or a month, yes we're going to see a reasonable increase maybe well above where we were before they started in occupancies to make up for the lost, the demand associated with elective surgeries.

Okay. Great.

Thank you very much.

Thanks so much.

Good morning. Thank you very much.

Just curious on the provision for losses and the loan receivable was up in the quarter for both the wholly owned and the JV portfolio. Can you give any color on that?

It's kind of curious is that what drove that and was any of that related to COVID?

Troy it's Scott Higgs. Yes, basically how I would categorize that is it's just as we go through our risk assessment on collectability and valuation of those loans.

It's an evaluation of the forward-looking environment and certainly the environment at the end of the Q1 was different than it was in Q4. So I think it's an assessment of the risk associated there and then certainly COVID played into how we evaluate the risk on the go forward in terms of the collectability and valuation there.

So just given the uncertainty we could probably spent another write down for Q2, would that be a fair comment? A - Scott Higgs I'm not sure necessarily.

I mean, I think facts and circumstances will dictate but it's certainly possible but I wouldn't say that it's a certainty.

And then just the write down was lower in the JV portfolio which surprised me because it was smaller than the wholly-owned. So with specific to the JV was there anything there that, what was specifically to JV that made you want to I think [indiscernible] now?

It really relates to just the operations underlying the properties for which there are these operations for those facilities to which those loans relate to and the risk associated with them. So it's really not JV versus wholly-owned specific its property and counterparty specific.

And you mentioned in your comments one rent deferral with one tenant and talking to another tenant. Was the negotiation with the second tenant was that out of rent deferral or was that change in the rent level or like an operator loan?

What was the negotiation kind of broadly speaking focused on?

So that is an ongoing discussion or one that I probably don't want to comment on yet until we come to a resolution and a conclusion. I think it's probably the best way to address that right now.

Yes, that's fair and then on the cost savings, on the CapEx and on the cut you made is that, is it fair to look at that being even over the next three quarters or is it, when did those measures come into the Q2?

Yes, Troy. It's Scott Higgs.

I think evenly over the next three quarters of the year is a fair way to model that in.

And then just in the SHOP portfolio, how much flexibility if occupancy were to -- even some scenarios that you talked about, if we would just see occupancy come down, how much flexibility is there to lower operating cost at the portfolio? Just kind of curious what – how would operating leverage looks like in a declining occupancy environment?

Yes, Troy. It's challenging to be very honest especially in the current environment because well sometimes you have some leavers you can pull to reduce costs and everyone is focused on that.

You also have to remember that there are enhanced costs associated with the PPE and labor costs. So I think in the short term, it's very hard to define short term.

It's sort of the same way as Mark's question and I'm not trying to avoid it, I just, I don't have a crystal ball but in the short term whether it's one, three, six, nine months it's going to be challenging to reduce expenses at the operators. We're obviously working with them and we're trying to preserve cash flow.

One things we talked about is curtailing, non-essential CapEx is a way to preserve cash flow but in terms of day-to-day operating expenses, I actually would expect the opposite.

And then in your comments on portfolio management, you talked about converting some of your capacity to more memory care. Is that expensive to convert or is it more just or just yes, how expensive is it to convert a bed to a memory care but is there any, is there a big expense there?

Adlai do you want to take that one?

Yes. Sure.

So actually converting the room to a memory care room is very low cost. Where you get some additional cost is where you're taking wings because with memory care once again you have to restrict movement throughout the building within specific areas but overall I would not say it's a material cost to make that change.

I think the cost actually comes in is to not allowing residents to be admitted into that area during the period of renovations. But once again we see a huge reason to do this in some of our communities especially before COVID but even through COVID on the backside of it this is something we'll definitely be looking to do.

Thank you. I'll turn it back.

Thanks Troy.

Hi, good morning.

Good morning.

Good morning.

Just wondering if you can speak to, given that you operate in a bunch of different states and most of us are up here in Canada, we don't have a ton of time to monitor local news in a lot of the states but they're going to be, do you see foresee any big differences in terms of how some of the states in which you operate are going to reopen? Can you just talk to sort of like, are there any major differences amongst the different in terms of the public health approach in the jurisdiction that you operate?

Absolutely. Tal, it’s great question.

I actually think that's going to be a very significant macro across the country right now. You can see it playing out in terms of where the hot beds are, it’s funny because over the year we talked about one of the things that we are focused on diversification in one of those metrics the geographic diversification and I often get questions, yes how do we understand that guys.

Geographic diversification, in real estate, are there really nuances and differences in geographies and I always say to people you just don't know for a particular reason is hit with high unemployment or something that might impact facilities. Never did I imagine that something like this would actually have a geographic impact on facilities and there are certain regions in New York and New Jersey in particular where gratefully we don't own any -- or we don't have any facilities, certainly not in the New York City area.

I think there's going to be a considerable delay in returning to “normal” and I think areas of the country that are more [indiscernible] have had lower impacts will have reopening plans at a much faster pace and you're starting to see that already. Right now on a daily basis there is, I hate to use the word political fighting but there's a little bit of political nuance and fighting in terms of how rapidly some states are opening and by opening there is a phased approach too, in terms of a lot of people are or a lot of governors are talking about in phase one when we observed the following metrics we will do A, B and C and phase two when we observe the following metrics we will A, B and C and those phases aren't consistent across regions, but the other thing that we really need to be careful about and think about and I think that the various regions and governors are thinking about this is sort of what about that twin peak type effect, all of a sudden you open up and you allow a phased return to normalcy and then there's a spike so to speak what happens then.

I think you are going to see major regional differences now.

Okay. And in the medical office portfolio, one of those starting to emerge here's like how much or how far like office visitation for doctors have been down during the period of this crisis.

What's your sense of like, the capacity to pay rent in the medical office portfolio and how that might evolve going forward?

Yes. So far we've been very fortunate as we said we've collected 96% of our medical office portfolio.

We've also part of the reason when we built this strategy in this risk mitigation associated with diversification was medical office buildings, or at least the way we own and operate them, there are hundreds of underlying tenants. So will you see pockets of certain types of doctors that are experiencing reduction in visits, reduction in income and not inability to pay right?

Yes, that is possible but I don't think that will be across the board. There's no doubt particularly in the states where we don't own many medical office buildings.

As you'll recall, we only have a handful in the U.S. and both of them are in Canada, but in the U.S.

there has been a sizable uptick in telemedicine and televisits. There is a question about how long term that'll be, what will it be in on the back end for better or worse what the implications are, even in skilled nursing and seniors housing, will telemedicine replace the doctor's visit for standard types of evaluations and care.

I think it's too early to know. What I would say in particular about our MOB portfolio, again going back to the same, I talked about before in terms of geographic diversification.

I've talked over and over and over again maybe [indiscernible] over the years about, how important diversification is, again here MOB we have hundreds of different doctors in multiple Canadian provinces, a couple of different U.S. states.

My guess is there won't be a macro reduction across the entire portfolio. But I do think we could experience pockets of doctors that are transforming their business to fewer office visits.

I'll tell you the one place that I think we may see a small [indiscernible] we are talking very small especially in light of our portfolio. It seems like parking revenue, when you have a telemedicine visit, it is possible for doctor still works out of their office, still generates revenue and still covers the rent.

But as you may recall part of our portfolio, we're talking very, very small, does generate some parking revenue associated with office visits. So I think there could be a short hit there.

Okay and then just to be clear like so, are you're anticipating having to do some other operator transitions over the course of 2020?

I think it's hard to say. We don't have anything particular plan right now especially as we're in May and we're dealing with the current COVID crisis but it's something that we've been focused on for the last year and a half or two years and you think about our strategy and what we've done historically, it was start with a base, build it quickly so that you have a diversified portfolio.

Then reflect on as you've built it, you’ve built it in part through portfolio acquisitions. By definition we do a portfolio acquisition not every facility and/or operator in that portfolio is the right long-term say.

We made one significant change towards the end of last year. We made another significant change that we just announced yesterday.

I feel good about where we are but we continue to monitor all of our operators and figure out who is right for us long term. Portfolio management has been and will continue to be a major area focus for us over 2020 but most immediately it's really working with our operating partners to make sure that everybody is strong, safe and that we get to “the other side”

Okay. And I guess with this transition deal with Royal most of that was probably like negotiated and set prior to the virus emerging?

Is it even bet like, is it possible to do operator transitions in this environment like for the balance of the year, like that's something you can feasibly do?

Sure. You're right.

A lot of this was done ahead of time, however as I add my reference going down the stretch things like building visits and due diligence and things that require physical presence were challenging but we were creative. I think it makes it more challenging but it is still very doable.

Okay and then just lastly any covenants that we should be keeping our eye on right now?

Yes. Certainly.

So through Q1 we were in really good shape and we're just going to continue to monitor as we progress through but as of right now no [risk].

And are there any specific like that, so you can talk some of them or anything like that you need to be keeping on an eye on?

No, I mean I think from the primary perspective as we disclose in the MD&A the ones that we monitor most closely are the leverage point and fixed charge cover and so those are the ones that we monitor probably at the consolidated level the most closely.

Okay. Perfect.

Thanks gentleman.

Okay. Thanks Tal.