Ladies and gentlemen, thank you for standing by, welcome to the first quarter Sturm, Ruger earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference call is being recorded. If further assistance is required, please press star zero. I would now like to hand the conference call over to our speaker, Mr. Chris Killoy, Chief Executive Officer. Sir, you may begin.
Good morning, welcome to the Sturm, Ruger & Company first quarter 2020 conference call. Before we get started, I would like to ask Kevin Reid, our General Counsel, to read the caution on forward-looking statements. Kevin?
Sure, Chris. We want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings, including, but not limited to, the company's reports on Form 10-K for the year ended December 31st, 2019, and of course, on the Form 10-Q for the first quarter of 2019, which we filed last night. Copies of these documents may be obtained by contacting the company or the SEC, or on the company website at ruger.com/corporate, or the SEC website at sec.gov.
We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31, 2019, and Form 10-Q for the first quarter of 2019, both of which are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris?
Thank you, Kevin. Before we discuss our first quarter results, I want to provide an update on the impact that the coronavirus pandemic or COVID-19 has had on Ruger. As all of you know, the COVID-19 pandemic has created significant uncertainty and adversely impacted many industries throughout the global economy. It has also left a trail of heartbreak and sorrow across an anxious nation. We are humbled on a daily basis watching the heroic actions of our healthcare workers and first responders. Any adverse financial impact on our business was negligible in the first quarter of 2020. Nevertheless, we took many proactive steps to maintain the health and safety of our employees and mitigate its impact on our business.
These actions included providing all hourly employees with an additional two weeks of paid time off, encouraging employees to work remotely wherever possible, and implementing social distancing throughout each manufacturing facility, including in every manufacturing cell. Communicating with and assisting employees with potential health issues, restricting visitor access to avoid introducing new people to the factory environment, implementing additional cleaning, sanitizing, and other health and safety processes to maintain a clean and safe workplace, and manufacturing and donating personal protective equipment to hospitals, healthcare facilities, and police and fire departments in our local communities. The total cost of these actions are expected to approximate $2.5 million in 2020, of which approximately $400,000 was recognized during the first quarter of 2020.
The impact of COVID-19 on our business has increased in the past month, we have been fortunate and have been able to keep all of our facilities open with only limited restrictions on production. We could not have accomplished this feat without the determination and dedication of our 1,600 employees who have risen to the occasion, rallied around each other, and kept our factories productive under difficult circumstances. I could not be prouder of how well we responded to this crisis. We know the COVID-19 pandemic is not over. We are well positioned to manage through this crisis, we continue to monitor and adjust our mitigation efforts daily. Our financial strength, evidenced by our debt-free balance sheet and our cash and short-term investments, which now exceed $200 million, coupled with our unused $40 million credit facility, provide abundant financial security and flexibility.
Tom Dineen, our Chief Financial Officer, will give an overview of the first quarter financial results, and then I will discuss the current market and update you on our operations. We'll get to your questions. Tom?
Thanks, Chris. For the first quarter of 2020, net sales were $123.6 million, and diluted earnings were $0.87 per share. For the comparable prior year period, net sales were $114 million, and diluted earnings were $0.74 per share. Strong consumer demand, exciting new products, and reduced reliance on sales promotions all contributed to our improved earnings. The balance sheet. At March 28th, 2020, our cash and short-term investments totaled $187.6 million. Our current ratio was 4.2: 1, and we have no debt. As Chris just mentioned, due to our strong cash collections in April, our cash and short-term investments now exceed $200 million. At March 28th, 2020, stockholders' equity totaled $297.8 million, which equates to a book value of $17.03 per share. Cash provided by operations during the first quarter of 2020 was $31.1 million. Cash return to shareholders.
In the first quarter of 2020, the company returned $3 million to its shareholders through the payment of dividends. Our board of directors declared a $0.35 per share quarterly dividend for shareholders of record as of May 18th, 2020, payable on June 1st, 2020. As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter. That's the financial update for the first quarter. Chris?
Thanks, Tom. Let's talk about demand. Since the latter stages of the first quarter of 2020, there has been a significant increase in consumer demand. The estimated unit sell-through of Ruger products from the independent distributors to retailers increased 37% in the first quarter of 2020 compared to the prior year period. For the same period, the National Instant Criminal Background Check System background checks, as adjusted by the National Shooting Sports Foundation, commonly referred to as adjusted NICS, increased 42%. Anecdotal evidence suggests that this increased demand, especially during the last few weeks of the quarter, may likely be related to COVID-19, the impact of state-level restrictions, and heightened concerns for personal protection. New products. Sales of new products represented $23 million, or 20%, of our new firearm sales in the first quarter of 2020.
New product sales include only major new products that were introduced in the past two years, which include the Ruger-57 pistol, the LCP II pistol in .22 caliber, the Wrangler revolver, the PC Charger, and the AR-556 pistol. As a reminder, derivatives and product line extensions of mature product families are not included in our new product sales calculation, but they provide great value and opportunity to our immediate customers, the independent wholesale distributors, the retailers, and ultimately, the consumer. Notably, in the first quarter, we launched 22 new distributor exclusives and product line extensions. Production and inventory. We base our production and inventory and manage our inventory levels primarily through semi-monthly reviews of our sales, the estimated sales of our products from the independent distributors to retailers, and our inventory and that of our independent distributors.
We were unable to ramp up production quickly enough to meet the increased demand in March. As a result, the combined inventories of our warehouses and at our distributors decreased 113,000 units during the first quarter of 2020. Although we do not have comprehensive inventory data at the retail level, the retail information we do gather suggests that retailer inventory of Ruger, as well as most other firearms brands, has been depleted in the last month or two. Capital expenditures. Capital expenditures in the first quarter of the year were $4.1 million. Our engineering teams are actively engaged in exciting new products, and I remain optimistic that our new product development activity is going forward at its usual pace and look forward to providing updates throughout 2020. Accordingly, we expect our total capital expenditures to approximate $20 million in 2020. Cash and short-term investments.
Our cash and short-term investments balance was $188 million at the end of March and currently exceeds $200 million. Obviously, this is more than we need to support our normal operations. Our long-term capital allocation philosophy has not changed. Our strategy is predicated on remaining financially strong, fiscally disciplined, and focused on delivering long-term value to shareholders. We are looking for opportunities to generate strong returns with our capital, and we are prepared to move quickly if the right opportunity arises at the right price. Our short-term capital allocation philosophy has changed as we face the uncertainty of the COVID-19 pandemic. Our top priority remains protecting Ruger and our employees, and as such, we will maintain abundant financial security and flexibility as we navigate through this current crisis. Nevertheless, we will continue to be on the lookout for opportunities to employ our capital and create shareholder value.
Operator, may we have the first question?
At this time, if you would like to ask a question, please press star one on your telephone. To withdraw the question, please press the pound key. We will pause for a moment to compile the Q&A roster. The first question will come from the line of Mark Smith of Lake Street.
Hi, guys. Just kind of big picture here. It looks like the most similar historical precedent that we've got to the current environment is kind of that late 2012 through 2013 gun surge, if you will. Can you just walk us through a big picture how this time is similar or different from that, and if we should be looking at this in the same way?
Thank you, Mark. I think the biggest difference between this time period and that time period that we're referring to is likely the suddenness of this surge in demand. I think, in the previous time period you mentioned, it was following an election cycle. Obviously, a change in the political spectrum can be anticipated, and that can drive some changes. That was not as rapid and as sudden as we saw in the middle of March, and I think that was the biggest difference. The other obvious difference is with the COVID-19 pandemic in our communities, we have to be extraordinarily careful in how we take care of our employees, how we manage production, and how we ramp up production. It's quite a bit different than that time period in my mind.
Okay. That leads to my next question. What steps do you need to take to ramp production up to kind of this higher end, let's call it 500,000 units per quarter or more? How do you navigate that during the pandemic, to be able to kind of ramp that production back up?
Good question. We've got a very active hiring process in place right now. If people are interested in working at Ruger, they can go to our website, www.ruger.com, and we've got a lot of jobs posted. However, I will tell you, the process is a lot more involved. We actually have a 10-step process that our HR teams have put together that really seeks to make sure that the folks coming in to our environment are safe, and that particularly our existing workforce is safe as we introduce new folks, potentially into their workspace. We're fortunate to have several nurses that work for Ruger, and that's been a big factor in our ability to manage through this.
It's a lot more cumbersome, but we think that extra prudence, while it may delay ramping as quickly as we might like, we think it's the right way to go to make sure we're protecting our employees and protecting our existing production capacity.
Okay. I guess to look at it again, and maybe more directly, do you have confidence that you can get to that high level? If we look at it at half a million units per quarter, and produce, can you get to that level, or is there just impediments that keep you from getting back to that high level of production?
Well, you have to remember, when you look at some of those years in previous history where Ruger produced in excess of 2 million units in a year, a lot of those were very focused on individual product lines like the LCP, the 10/22, et cetera. Our mix today is much more balanced, to be perfectly honest. We have a lot more product lines, rifles, revolvers, and pistols that cover a lot more individual models. That's a challenge. It's also a challenge ramping up the supply line. As you know, we don't give forward-looking guidance. We're going to do our best to go after that demand where we see it, and it's a combination of both the people, the manufacturing capacity in terms of machines, as well as the supply chain.
All of those are involved in pursuing that, and we want to make sure what we're doing makes sense long-term. We've managed through quite a few of these ups and downs and kind of as a reminder, in the last 25, 26 years, you've heard me say it before, we've had about 16 year-over-year up years, but we've also had 10 or 11 year-over-year down years. We try to make sure we're ready to succeed in both those up and down years.
Okay. Then, sorry if I missed it during the commentary, but have you guys had any temporary shutdowns or any outbreaks or cases that have hurt production, either during the quarter, late in the quarter, or as we look quarter to date?
We've been very fortunate, and as some of you may have seen reported in the North Carolina press, we did have one case of COVID-19 with an active employee. We've only had, frankly, very minor disruptions. We have rigorous procedures in place to clean work areas, clean the entire factory to a high standard, to disinfect it. Even if we get a suspicion of somebody awaiting a test, we have a very disciplined process to go ahead and manage through that. To date, and through first quarter and through today, we've had, like I said, only minimal disruptions. All of our factories have remained open, employee health will remain our top priority as we go forward.
Okay. I think the last one from me, just looking at the ASP of your price on shipped units, it's a little lower than maybe I would've expected, given some of the pricing on the backlog and the orders received. Were you able to clean up maybe some aged inventory, which pushed that a little lower? Was there any other dynamic going on the ASP on shipped units?
Without getting into the finite details, I think the biggest change you probably saw in there was when you look at the mix of products. If you remember this time last year, the Wrangler line of single-action revolvers had just been introduced. We were in the beginning of ramping up production there. This year, the Wrangler line has kind of hit its full stride. The Wrangler is a lower-priced model. There's lots of Wranglers in that mix. We also have lots of LCPs to include the brand-new LCP chambered in .22 Long Rifle. All of that, while they're great guns and generate a lot of volume, in terms of average selling price, they're slightly lower than some of the models in the mix, particularly things like the Ruger-57 pistol.
Okay. That's helpful. Thank you, guys.
Thank you.
Valerie, I think Ryan Hamilton's right now with a question.
Good morning, everyone.
Morning.
Morning, Ryan.
Sorry about that. I don't know exactly what happened, but I'm happy to ask a couple questions here. You touched a little bit on the cadence of the quarter, how things picked up in March. Could you walk us through kind of what January and February looked like, and maybe March relative to last year? Can you just give us a little picture of the cadence of the quarter, if you don't mind?
Yeah. Thank you, Ryan. Yeah, actually, we were moving through the quarter at a pretty good pace, and we had a good January and a good February. Frankly, when things kind of accelerated in March, that was certainly a factor. We were, again, doing fairly well in January and February. Our new products were doing extremely well. Like I mentioned before, the Wrangler had hit its stride. The new products that we launched at the SHOT Show, particularly the Ruger-57 pistol and the Ruger LCP II in 22, were both off to fantastic starts. We also launched, near the end of the quarter, the PC Charger pistol. All of that contributed to the positive excitement from the good news standpoint. Obviously, the impact of COVID-19, as it spread across the country, and its impact is devastating in so many ways.
Again, that's only part of the story in this quarter.
Thank you. I'm looking back over the last couple of years. Looks like cash and short-term investments are at a higher level than I can recall. Could you kind of give us the makeup of the short-term investments? I know usually it's in cash for you guys. Could you kind of touch on where that's invested?
When we say short-term investments, it's T-bills.
T-bills?
We're very conservative in our approach. We keep those in a very liquid state. We like to be able to move quickly if we see an opportunity that makes sense for us. Obviously with that much cash, a few years ago, we started to put that into treasuries rather than pure cash accounts.
It's a good position to be in today, for sure. Oftentimes, when you see these spikes in demand in firearms, you also see kind of sometimes a bottleneck on the ammunition front. Could you talk a little bit about what you're seeing in that market as far as the accessibility of buying ammunition?
Well, I know anecdotally in talking to my friends in the business and talking to our primary customers at wholesale and retail level, certainly ammunition, like 9mm in particular, was very scarce. A lot of people were buying 9mm ammo, taking anything they could get. One of the things we were concerned about with the success of our Ruger-57 pistol, that uses the 5.7×28mm cartridge, the folks that manufacture that have done a fine job keeping up with that. So far, we don't see the ammunition having a negative impact on the sale of the new guns.
Sweet. That's good to hear. I know you kind of touched a little bit on headcount and any slowdowns in production. Can you just give us a picture what your shifts look like at your different plants, please?
Oh, you said shifts. Okay. Yeah. Sorry about that. I didn't hear you.
Shifts. Sorry, yeah.
The shifts are largely driven at our plants not just by total demand, but capacity of individual lines. Sometimes we have lines where we flex our capacity and work weekend shifts and staggered shifts so that we can increase production on a short-term basis without increasing the number of machines committed to that line. It varies on plant by plant. Obviously, first shift is strongest. Second shift goes on in all three plants. In some of the plants, we have a third shift. In some of those operations, it's not like we think of an old school auto manufacturer, where the same thing is done on second and third shift is done on first shift. We use that to flex up.
We have all three plants that have all three shifts, but it varies in terms of what is being done on those second and third shifts.
Perfect. Last one from me. Any commodity inflation to note?
We haven't seen any. Given our strong balance sheet, we've been able to look forward. We try to work with all of our vendors when this pandemic first hit. To make sure we took care of our vendors, make sure they remember Ruger always pays on time, make sure we can be first in line in terms of supply. By and large, our vendors have done very well. We haven't seen any commodity impacts on pricing. We've got a good supply of steel, we're okay there. We've been working with our suppliers as they manage through their own challenges of keeping their factories and their offices open as well. It's been a challenge, but our supply chain folks have done a great job keeping the pump primed and keeping us in production.
You touched on it, are you seeing any kind of potential bottlenecks from vendors and suppliers as far as them having to close down or, I know you said it's been a challenge, but are you seeing anything to note or anything that we should be overly concerned with?
No, it's actually been very minimal. We've had a couple folks that, while they dealt with individual illnesses in their plant and went through cleaning procedures and things like that, they did so in a pretty rapid manner and got back online in short order. We've been very pleased with our supply chain and our suppliers. They've done a great job, as well as the folks in our facilities.
Thank you very much. Kudos to you in there.
Again, ladies and gentlemen, if you would like to ask a question, to please press star one on your telephone at this time. Again, that is star one, and we will pause for a moment. At this time, there are no further questions in the queue.
I would like to again thank our 1,600 employees for their hard work and dedication during these difficult times. On behalf of all of us at Ruger, I also want to thank all of the first responders, nurses, doctors, and other emergency and medical personnel that are fighting this pandemic and helping our fellow Americans at the point of the attack. I also want to thank everyone performing other essential work, our truck drivers, grocery store workers, sanitation workers, postal carriers, military service members, and of course, factory workers like our dedicated Ruger employees. Thank you for attending our conference call and for your continued interest in Ruger. I encourage all of you to listen to our annual meeting of shareholders, which will take place next Wednesday, May 13th at 9:00 A.M. Eastern Time. The login information can be found at the end of our earnings release and at www.virtualshareholdermeeting.com/rgr2020.
Shareholders received their instructions to log into the virtual annual meeting when they received their proxy materials last month. Thank you again, and stay safe.
Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.
[Break]
There shouldn't be a large gap between what you see on the operating performance side and what ends up being taxable income for the year. You should think, without getting too much into kind of how those two things might be slightly different within any given period. You should view the dividend cut as just being more a view on the management team view of where short-term cash flow is going.
Your next question comes from the line of Vikram Malhotra of Morgan Stanley.
Thanks for taking the question. I guess there's a lot of uncertainty on the SHOP side, and it's tough to predict out more than the quarter. Can you maybe give us some color on how you're viewing the triple-net portfolio, how underlying performance is relative to the SHOP portfolio recently, and the potential need there for restructurings?
Yeah, Vikram. Tim here again. I noted in my prepared remarks. How we're kind of thinking about that is triple-net or RIDEA is the same business in a different financial structure, right? We've spent a lot of time talking about there being differences in ability to control CapEx, various reasons why, how our business has evolved as we've become an owner of RIDEA properties in larger part versus triple-net properties. The underlying businesses are largely the same, and the day-to-day business that goes on in those facilities is the same. We expect the performance of assets within the triple-net to be very similar to the RIDEA. Obviously different according to different types of facilities, different geographies, et cetera. Our expectation is that the triple-net fundamentals very much follow the fundamentals on the RIDEA side.
As we kind of think about that in terms of how that impacts financials, I think the most conservative way to think about it is that long-term rents in any triple-net are going to follow the economics of the buildings. There's a lot more complexity to forecasting that than there is RIDEA, where if we think about fundamentals and how they flow, we'll see that go one for one into our financials. I'll just say that we mentioned rent collections in senior housing triple-net to this point have been strong, and they've continued to be even into May. I think that we have not entered any deferral programs. We'll continue to update the market as we kind of think through that.
There will be, I think, some difference between kind of how those rent checks come in and underlying EBITDAR for some period of time, and it probably matters on the duration of weakness and the extent of it, to how, if any restructures occur, how and when they occur.
Vikram, I'll add two more points to that, just to give you some more color. First is our triple-net portfolio's geographic obviously very different from obviously our SHOP portfolio. If you think about the biggest impact of where COVID happened is primarily coast to coast. Right? A lot of other markets obviously are not similarly hit, but that will be one source of differentiation. The second source of differentiation, as you know, in the triple-net lease, very simplistically speaking, right, your cost is relatively known to the landlord, that you write a check and you collect every dollar of cash flow after that. If you're an operator, and you have collected every dollar of cash flow above that, you have intrinsically assumed that you have the risk both up and down. That is what the structure is.
Now, how we view some of these situations, depending obviously on duration of this pandemic, the effect of this pandemic, et cetera. How we'll act will depend on what we think of you, just say, Vikram, it is a triple-net lease between Welltower and you, what is our thought on you as an operator? If we think that you are a good operator in your market, and this is a pretty unfortunate event that happened for one time, then we'll act one way. If we think that you are not a good operator and have never been a good operator, or we don't see eye to eye on how the business should go forward, then it will be hard for us to tell you the upside is yours and downside is all our shareholders. That's not how I think.
It is going to be a much more nuanced answer that will be based on case by case.
Your next question comes from the line of Michael Bilerman with Citi.
I don't know if it was Tom or Shankh, but you mentioned you don't run your business for a 100-year century type event. I guess with the mindset of what has occurred, do you think about portfolio diversification in terms of the level of senior housing assets that you have, both within SHOP as well as net lease, as a percentage of the total, especially on the IL side, much less needs-based than your skilled or your higher acuity assets, and whether you'd want to pursue a more broadly diversified healthcare portfolio that's more equal weighted across the number of different healthcare verticals. How does going through this experience, even though it hasn't happened since the 1918 Spanish flu, does it change your perspective of how you want to have your diversification by healthcare type?
That's a good question, Michael. Let me start off. We still believe that because of the aging of the population and because of the needs of a population of seniors who are going to be living longer, we are still committed to models that bring those seniors together in settings that can better manage their needs, whether they are less acute or more acute. While we're sitting at a moment in time that is challenging that model, we don't think there's a better alternative longer term than putting seniors in environments where, and you hear me talk about this a lot, their social determinant needs can be met effectively and cost efficiently. At the same time, we're opportunistic, we're capital allocators, and we look across all sectors of healthcare.
I would say that prior to the last two-plus months, you saw us making progress with a number of our health system initiatives, which would have started to bring in more diversification into our portfolio. Remember that the nation's health systems are thinking very differently about where they will provide their services in the future, what different settings outside of the hospital. Many of them are aligned with us about settings where they can better deliver services to seniors. We're very much still committed to the senior business because we think it has the biggest impact on the future of healthcare. Shankh, do you want to add anything to that?
Yeah. Michael, a couple of more granular points. First, Welltower's portfolio is primarily a need-based portfolio. When I say our portfolio, our U.S. and U.K. portfolio is primarily a need-based portfolio. We have couple of operating partners who are primarily independent living provider in U.S., which we also think that in right markets with the right operator can be a very good business. Generally speaking, our U.S. and U.K. business are need-based business. Our independent living exposure that you're talking about is primarily a Canadian business, and we think that business is a very different business. We think that business is a housing alternative business, and that will continue to do well. If you ask me today that where is the biggest opportunity as we see, price aside, you know that first thing we think about is price, and we're a buyer of everything at a price.
Price aside, all things being equal, I think there is no other real estate asset class that I know of that has a better opportunity to create long-term value than senior housing. Price aside, if you told me that I have $1 to invest, where would I invest on all healthcare asset classes, given what the returns are going to be, we're total return investors, I fundamentally think that will be senior housing. If anything, our exposure, would like to take it up, not down. Now, again, that's a price aside comment.
Your next question comes from the line of Rich Anderson with SMBC.
Hey, good morning, and, thanks for.
The color and the commentary. Tough times, as we all know. My question is, perhaps more big picture. I wonder if you would at least be open to the possibility of a fundamental change in the back end of this, particularly to senior housing and to skilled nursing, where social distancing may be here to stay in some form, and how that might manifest itself in the business longer term. Shankh, your comments about no better asset class and perhaps that'll prove to be a very reasonable observation longer term. Will there be incremental frictional vacancy within the four walls of these asset classes? Are you giving that any thought, or is it just too soon to know if there will be some sort of fundamental change?
It's hard to imagine we go through all this and there's not going to be some fundamental change to how these businesses operate at the back end of all of this.
Yeah, that's a fair question, Rich. Look, it's hard for us to make predictions right now based on what we've been dealing with in the pandemic. Will I think that there will be fundamental changes in the service model and the asset positioning? Somewhat. I mean, we were headed there, particularly with technology companies. I think there's going to be more new technologies that will enter senior living buildings that will essentially create tremendous efficiencies and mitigate some of the risks that we're seeing today due to infection or viral outbreak in buildings. I think it's very early to say if social distancing is going to be the way of the future. If that's true, if we're going to live in a world where we have to stand six feet apart from each other, I think every business is going to be challenged.
I'm hopeful that's not the future. I'm hopeful that we will get through this period and come back to the types of models that have been evolving to manage what is still one of the biggest demographic issues we've seen, which is the aging of the population. I also believe a healthcare system, a healthcare delivery infrastructure that will have been compromised by this pandemic. We already know that many leaders of health systems are thinking very differently about the setting in which they meet their constituencies. Rich, it's very early to say. I'm hopeful we don't live in a world where we have to stand six feet apart from each other long term. Shankh, would you like to?
Yes, Tom. Rich, if you think about we're always data dependent, if we are always open to the possibilities, if that was your question, we always are. If things change, we will change. I can tell you, if you read the letters that we receive, our operators receive, and they share with us, sometimes we receive together, about what our customers are saying and what we think is the pent-up demand for this business is, we do not believe that's happening. If anything, I'm not sure you saw or you read about Governor Cuomo's presentation yesterday. Majority of the people, at least in New York, where this data is published, with COVID coming to hospitals are coming from homes. Only 4% of the people who are coming to New York hospitals are actually coming from assisted living. That tells you that our industry is doing something right.
If things change, we will change. We believe that our operators and all of our people in the frontline are doing an amazing work to keep our residents safe. There's obviously no guarantee. Pandemic is everywhere. That's why it's called pandemic, right? When it's all done, and as Tom said, when COVID is a distant memory, it might prove out to be the other way, too. We are always open to facts, and we're always open to new possibilities.
Your next question comes from the line of Todd Stender with Wells Fargo.
Hi. Thanks, guys. I hope everyone's well.
Thanks, Todd.
in Seattle. Thank you. In Seattle, Shankh, you're seeing improvement or stabilization, however you characterized it. Is it occupancy? Is it prospects of move-ins, expense control? Just trying to get a sense of how close or far away you are from seeing any signs of improvement in the New York, New Jersey area.
Todd, in Seattle fell off the cliff at the beginning of this when we started giving you obviously all these updates. Occupancy was going down 90 basis points, 100 basis points a week. Now we're seeing occupancies going down more like 30 basis points, 40 basis points a week. Something like that. It is still going down. Obviously the second derivative improved significantly. All I was pointing out, on the other hand, in New York, you have seen the infection curve has flattened, and it's coming down, but it's still pretty peak panic here. Obviously all the states are not open yet. When that happens, obviously you'll see the impact on occupancy. I was trying to drive you two distinction. It is a purely a function of not only the psyche of the consumer, but also how safe our operators feel.
I'll give you an example. One of our worst performing market today is L.A. Southern California has been, you have seen yourself, one of our best performing market. Why is L.A., which is not as you think, You don't think about L.A. today as the sort of the most impacted COVID impacted market. It is meaningfully impacted, but that's not sort of what you call the eye of the storm. The reason being, all of our operators have buildings, admissions ban everywhere in Southern California, in L.A. particularly. It is a function of when our operators feel safe enough to open the buildings for new residents. When that happens, you will see occupancy will come back. It is hard to say when that will happen. I will give you some more color for you to think about.
Four weeks ago, when we were seeing occupancies going down, let's call it 60 basis points, whatever we said in our business update, all our operators were coming down significantly, right? I mean, it's happening across the board. You see the first impact. Whoever moves out, moves out, and obviously buildings are shut down. We're seeing more nuanced approach and difference of performance. We're seeing some of our operators have flattened out, literally flat. We are seeing couple of our operators are starting to gain occupancy as they have started to open some of the communities, particularly as of May 1st. They're more nuanced location by location, uncorrelated performance that's based on demographics, psychographics, and supply of a given location is starting to happen, but it is too early to say when that will completely manifest and we get back to the norm.
Your next question comes from the line of Michael Carroll with RBC Capital Markets.
Yeah, thanks. Shankh, in your prepared remarks, you kind of commented that there might be some investment opportunities as the result of this. I mean, how should we expect that Welltower is going to pursue those types of deals? Do you want to wait until the market stabilizes a bit until you actually have some clarity of what's actually going on, or you'd be more opportunistic if you find some distressed opportunities?
Thank you for that question, Mike. Clarity often comes with a price, right? When you mean clarity, you probably mean that when we have clarity, we have a line on the goal post of what we know what will happen to the NOI. That is generally true for majority of the businesses. It doesn't have to be true for real estate. You know what it costs to build a building in a given location. If that's the case, you can bake in what is the price per door, price per foot of a specific opportunity, and then you can have enough margin of safety that you don't have to know what will be the NOI next three months. We have never bought buildings that way.
We have our view of what is the margin occupancy and obviously pricing of a building should be with one of our specific operators, and we will act accordingly. It has to be priced in so that we can take that near-term uncertainty to create long-term value.
Your next question comes from the line of Derek Johnston with Deutsche Bank.
Good morning, everyone. Thank you. Tom, you mentioned hospitals. The CARES Act has essentially provided a federal backstop to hospitals, and we feel, deemed them critical infrastructure. Does this change your view at all on the future of hospital investments within the overall health system? Secondly, do we still have too many?
I think there are still too many hospitals in the U.S., I think you're going to continue to see consolidation. I think that it's very interesting. If you look at the hospitals, Derek, you've got many of them.
Who are operating at 50% capacity because elective surgeries have fallen off the cliff, and they've not had as many COVID cases. It's a very challenging time for the health systems. Again, it's very hard to predict the future based on where we sit right now in the middle of this pandemic. I think ultimately, you're going to see broader outpatient strategies by health systems, a movement away from the hospital. At least that's what we're seeing from our conversations. Obviously our health systems are on the frontline of the COVID-19 pandemic, and the government has responded by supporting them through this. Because their beds are filled with people, many health systems in the hotspots are filled with people with COVID, and they do not have the elective surgeries. A lot of those are being pushed off.
It's created a very challenging environment for our health systems today. Again, Derek, I wouldn't make too many predictions based on the COVID-19. I think it's going to badly damage a lot of healthcare infrastructure, but I think to a large extent, it's going to have to be rethought and reimagined. Hard to make any predictions, but I would say that we still, from our conversations, we think health systems are looking to deliver their services basically outside of the four walls of the traditional acute care hospital.
Your next question comes from the line of Jordan Sadler with KeyBanc.
Thanks. Just wanted to touch on sort of green shoots, if I could. I know it's way too early, can you maybe just point to sort of the best story in the portfolio, and what you're seeing? I think you did highlight Seattle, but anywhere else that's sort of maybe driving what seems to be a little bit of optimism, at least in the occupancy forecast for May and June in the SHOP portfolio. Just tell us what's happening.
Yeah. Jordan, I know you know this, I know we have said this many times. I'm going to say it again. It is too early to comment how things are going to play out. If we knew exactly what is going to happen, we would not have done what we have done by reducing the dividend, right? I hope you acknowledge that. Having said that, I can tell you there are two types of stories. One I mentioned, we're seeing across the board, this is not just a Welltower comment. I think you have to acknowledge how hard people on the frontline are working to keep our residents safe, provide all the assistance of daily living. It is very hard.
We're seeing all these letters that are coming from our operators who are sharing with us all these letters where residents and their families are thanking our operating partners, how much that means to them, and how good they feel that they're taken care of when this pandemic goes on. That tells us the product, there's a true need for the product. As I told you, the moment one of our operators opened a handful of buildings on May first. The moment that building opened, occupancy went up on that day, 50 basis points. Right. I had a conversation a couple of days ago with one of our operators, one of our best operators in the New Jersey, New York market, and the CEO told me that if she opens the buildings today, the occupancy can go up by 300 basis points.
There is that much pent-up demand. I'm not trying to tell you that is true for every building. I'm not trying to tell you that will happen the moment all these communities open, occupancy is going to go up by 300 basis points. You ask for positive stories, I gave you positive stories of what we are hearing. It is too early to say how things will play out. If we knew exactly how it will play out, we would not be doing what we just did.
Your next question comes from the line of Nick Yulico of Scotiabank.
Thanks. I just had a question about some of the normalizing adjustments you guys have for FFO. You had a straight-line rent receivable write-off in conjunction with an amended lease. Trying to understand what that related to, and then the provision for loan losses that you booked. I think it was related to your non-real estate loans. Can you just talk about what's going on with the loan book and just remind us, those are corporate loans to operators. How should we think about what is actually cash income that you're receiving from your broader loan book this year? Thank you.
Yeah. Thanks, Nick. I'll take that.
Go ahead, Tim.
On the normalizing. Earlier this quarter, Capital Senior announced the agreement they came with.
A couple of other landlords on top of, I think, one they'd come to prior with a third landlord. We were one of those landlords. As part of that, we restructured our lease with them. Essentially, it runs through year-end, and then the properties will be transitioned. The write-off there is due to just a straight line from the remainder of that lease. That was Capital Senior restructure. The provision for loan loss was not a write-off of the actual loan, but we've impaired the loan under just a change in our view on collectibility. You're correct, it's a corporate loan. It's a working capital loan. Part of the loan book that we've continued to shrink meaningfully over time is the non-real estate-backed loans, partially for this reason. They're obviously a bit riskier than your real estate-backed loans.
On cash versus GAAP, we give in our supplement on the NAV page, we break out cash interest rates versus any PIK or non-cash interest we're receiving. That should give you a pretty good idea of the run rate from both a cash and a GAAP standpoint.
Your next question comes from the line of Lukas Hartwich of Green Street Advisors.
Thanks. For the SHOP development pipeline and the unstabilized but recently completed projects, I'm just curious how you're thinking about the change in the trajectory of lease up there.
Lukas, the lease up definitely, obviously will be slower than would otherwise be if COVID didn't happen. We do think they're very strong properties in very strong locations. I can walk through property by property and tell you how many deposits we have, et cetera. The matter of fact is, obviously, people need to get into the building for, obviously, that to become a revenue stream. In these uncertain times, that's obviously not happening. Post-COVID, they will get back, obviously, to the leasing velocity. There's no question that lease up, what we thought before COVID, will be slower. You can sort of move back everything, whatever number of months that you thought it will take. You'll just have to move the number of months you will think that COVID will exist, add it to that, and we'll probably get to the similar results.
Maybe there'll be some pent-up demand, but I think it's safe to assume that it's pushed out.
Your next question comes from the line of Tayo Okusanya of Mizuho.
Yes. Good morning, everyone.
Morning.
My question had to just do with capital allocation. Again, fully understand today the goal is to kind of preserve as much liquidity as possible. As things start to look a little bit better, whenever that is, can you just talk a little bit of how you would prioritize capital allocation decisions? Is it back to acquisitions? Is it the share buyback that maybe become more attractive at that point? Is it reestablish? Is it increasing the dividend? I'm just kind of curious when you kind of think about your great liquidity position when the time is right, how do you kind of think about deploying that?
Tayo, that's a really good question, one of the most important questions that we're focused on today. I laid out on my prepared remarks how we are thinking about getting on offense. Everything we buy is a matter of, obviously, price and embedded IRR into it. As we sit here today, there is nothing we see on the investment side that is more attractive than the stock. That might change tomorrow. We might see opportunities that are very different tomorrow, but as we sit here today. I know you are asking about, obviously, liquidity, so I'll give you a more comprehensive answer on how we're thinking about buyback, because that's probably is helpful for everybody to think through. As I mentioned in my script, we believe a stock is a fractional ownership in a business. It's not a ticker.
I described to you how we're thinking about allocating new capital and getting on offense. That applies to new opportunities as well as the opportunities we know the best. That is our own company. We think buyback should be, number one, price sensitive. It should be only done when we think we can do that below what the business is intrinsically worth, and which, as we discussed, should be pretty simple for a real estate company like us with a fairly good estimate of replacement cost on price per door and price per foot basis. Two, it should be need sensitive. Should be done keeping our balance sheet sound and after intelligent growth prospects are met. Number three, it should be to the advantage of continuing shareholders.
As you know that we did not buy back stock when it was fashionable to do so, and lots of S&P 500 companies are doing it at the top of the market cycle. In fact, we sold billions of dollars of stock to grow our company. We're not contemplating buying back stock to financially engineer our earnings so that we can get paid. Just the opposite. We just described to significant management compensation reduction today. At this current state of uncertain world, we believe that buyback is more intelligent form of capital return method than distributing all the cash from the business in form of dividend. As we said, we'll not leverage up the balance sheet at this point to take that liquidity and buy back stock.
Hence, we need to source other forms of liquidity from our own asset. If you do believe that this management team is capable of executing such transaction during this pandemic, then you should think that we'll buy back stock or deploy that capital for other acquisition opportunities. If you don't, and you think that the market is too uncertain and we can't get the liquidity from somewhere else, then you should not think that we'll deploy cash, buyback or not.
Your next question comes from the line of Steven Valiquette of Barclays.
Great. Thanks. Good morning, Tom and Tim and Shankh.
Good morning, Steven.
Hope everyone is staying safe.
Thank you, too.
Just regarding the triple-net portfolio updates on page 11 in the slide deck, that's definitely helpful. Just regarding the health systems in particular, regardless of what's happening operationally in the ManorCare assets, just curious if you're able to provide a little more color on the financial health of ProMedica overall, beyond 1Q20. When thinking about that low twos EBITDA coverage ratio that you showed, just any color you have from ProMedica, whether the federal stimulus payments that they're receiving in April and May are offsetting hopefully the majority of the operational softness that they might be seeing in their acute care hospital operations in the second quarter. Thanks.
I'll take that, Steve. It is extremely inappropriate for us to get into the details of ProMedica's financials, given that it's a company which obviously have a lot of bonds outstanding. I will tell you that ProMedica is in a fine shape. Your assessment is generally right in the direction that there will be, obviously, as you know, all the elective surgeries stopped. The post-acute side of the business and the senior housing side of the business got impacted. On the other hand, they have a very large insurance business, which obviously is performing in a completely different direction. Your general assessment that any operating weakness should be offset by what any system, whether ProMedica or not, should be receiving from the CARES Act directionally is right, it is not appropriate for us to get into more details than that.
Our coverage does not include obviously any of that, and it's primarily because it's a coverage, as Tim said. All our coverage reported are on a one-quarter lag, and this is the actual operating performance of what happened in the buildings as of December 31st.
Well, maybe the simpler question then maybe is just on the overall list of things that you might be worried about right now in the overall business. Where do ProMedica and ManorCare rank right now for low or high? I'm guessing it's low, but I just want to check the box on that. Thanks.
We're worried about everything, but on that line, it's very low.
Your next question comes from the line of John Kim of BMO.
Thanks. Good morning. I guess a similar question on any commentary you could have on financial health of your senior housing partners, whether it's SHOP or triple-net, whether it's the ability for them to receive any government assistance. If not, are you contemplating any financial support outside of a rent cut?
I'll take that. John, we think our obviously in RIDEA structure, our operating partners do not have That's not a financial liability. If you look at this I'm glad you asked this question. If you look at the balance sheet of the large operators this cycle versus the last, it's in a meaningfully better position. That's sort of one general observation. On the second, where there is a lease with an operator, which is obviously a form of leverage, I already had the discussion in response to another colleague of you who asked the question how we're thinking about triple-net. I'm not going to get into that, but generally speaking, other than that, right at this moment, we are not contemplating anything else.
Your final question comes from the line of Derek Johnston of Deutsche Bank.
Oh, hi, everyone. Thanks for letting me get another one in. It seems so far that Welltower has fared favorably in COVID-19 containment versus other senior housing peers, let's say, with less resources. How are you planning on marketing your core SHOP competencies really to capture outsized or maybe even pent-up demand once admission bans end and basically go on offense?
Derek, it's very much at the hands of the operators. We don't promote individual operators. That's their business. I do think as they have good data to SHOP, that will be very helpful. I think that the industry is gathering together, which is I think an important piece here to promote what good is happening throughout the senior living industry. A lot of the media attention has been focused on negativity, on some tragic situations that have occurred in largely under-capitalized nursing facilities. I think that there will. Shank said this. I think there will be good stories to tell about how they manage the needs of their population during this impossible situation. You can be sure that they will be aggressively marketing those stories to help people regain confidence in the sector.
I'll just add, Derek, you are asking an extremely good question. We do believe that coming out of this crisis, there will be stronger operators. Strong operators will get stronger. Strong operators with more access to technology or other types of health opportunities or outcomes will get stronger. There has been a lot of marginal players got into the business because of flipping real estate was very profitable in sort of call it the 2014, 2015, 2016 timeframe. I think that you will see the operators who have been here and time-tested with operating models, they will gain market share.
There are no further questions. I would like to hand it over to management for any closing remarks.
Thank you for participating in our call today, and we're always happy to take any additional questions directly. Please reach out to the team if you have other questions. Thank you.
Thank you for your participation. This concludes today's call. You may now disconnect.