Earnings Call: Q2 2020

Aug 5, 2020

Good day, and welcome to the Health Creek Properties Incorporated Second Quarter Conference Call. By pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference call over to Ms. Margaret Rogers, Senior Director, Investor Relations. Ms. Rogers, the floor is yours, ma'am. Thank you, and welcome to Health Peak Second Quarter Financial Results Conference call. Today's conference call will contain certain forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, Our forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risks and risk factors is included in our press release, and data in our filing with the SEC. We do not undertake a duty to update any forward looking statements. Certain non GAAP financial measures will be discussed on this call in an exhibit of the 8 K refurnished with the SEC today. We have reconciled all non GAAP financial measures to the most directly comparable GAAP measure in accordance with reg g requirements. Please get it also available on our website at www.healthpeak.com. I will now turn the call over to our Chief Executive Officer, Tom Herzog. Thank you, Bob, and good morning, everyone. On the call with me today are Scott Brinker, our president and CIO, and Pete Scott, our CFO. Also on the line and available Q and A portion of the call are Tom Klutch, our Chief Development And Operating Officer, and Ferna Henry, our Chief Legal Officer and General Counsel. To summarize the second quarter, our results were generally in line with our expectations, and in some cases, better than expected. However, we are now 5 months into the pandemic and remains a great deal of uncertainty on its future penetration and duration. As such, last night, we provided an update to our 2020 earnings framework, which you can find on pages 44 through 46 of our supplemental report. I'll start with our current state of play. 60 6 percent of total Q2 NOI was generated by our life science and medical office businesses. And inclusive of our small portfolio, well covered hospitals, that total increases to 71%. All these businesses have enjoyed strong leasing and steady rent collections. In life science, sector fundamentals are healthy as demand for drug innovation remains at the forefront, especially with respect to the global efforts to develop COVID vaccines and treatments. And during the second quarter, the sector reported a record high in equity capital raise. Our year to date leasing is already ahead of our original full year expectations, driven in part by the strong development pre leasing we announced in our Boston and San Diego submarkets. The medical office are high quality, primarily on campus portfolio has continued to show consistent, favorable results. Bands and outpatient procedures have been lifted across all of our markets, Both new and renewal leasing came in above our expectations. Our lease retention ended the quarter in the low 80% range, and we had high single digit mark to market rents. 11% of total Q2 NOI was generated by our CCRC portfolio. Where attrition is much lower than shop due to the average 8 to 10 year length of stay, along with the nonrefundable entry fees in place. Our independent, assisted, and memory care, CCRC, occupancy, and results were in line with our expectations. 9% of total q 2 NOI was generated by SHOP, which continues to experience a very tough operating environment due to COVID, combined with the inherent short length of stay. However, monthly occupancy declined more slowly and operating expenses rose less dramatically than the midpoints set forth in our previous outlook framework. And finally, 9% of total Q2 NOI was generated by senior housing triple net, which also faced a tough operating environment. But rent collections have remained stable. Moving on to our balance sheet and liquidity. Simply put, they both continue to be in great shape. In our dividend, yesterday, we announced to remain at $0.37 per share, which is one penny above our Q2 AFFO. We will continue to monitor our dividend as COVID progresses. On the ESG front, we have a decade plus history of commitment to corporate responsibility and sustainable business practices. In June, we published our 9th annual ESG report highlighting our 2019 environmental, social, and governance achievements. For the 2nd consecutive year, we were one of only 5 REITs named a corporate responsibility magazine's 100 best corporate citizens class. We also have received Gresby's Green Star rating for 8 consecutive years as well as leadership awards from CDP and S And P's Dow Jones Sustainability Index for 7 consecutive years each. So in summary, the majority of our portfolio is performing quite well. We've continued to take actions to improve our already strong balance sheet and have significant liquidity. Our team is working very productively from home, and we fully expect to come out the other side of this pandemic and even stronger company. With that, I'll turn it to Scott. Okay. Thank you, Tom. I'll speak to operating results across the three business segments. And finish with a transaction update. In Life Science, which represented 35% of our same store pool, cash NOI grew 7.3 dollars year over year above the high end of our outlook. The results were driven by new leasing activity, mark to market on renewals, contractual escalators, and rent collections. Tenant demand for space is strong across all three of our core markets. In 2Q, we had 278,000 square feet of lease commencements, driving occupancy up 260 basis points to 97%. Our lease executions in the quarter included 125,000 feet of renewals at a 15% cash mark to market and a seventy four thousand foot lease at the boardwalk, our flagship development campus in San Diego. Construction began in the first quarter, and the project is already 39% pre leased at rental rates above our underwriting. We had one early termination in the quarter for 36,000 feet, which we did proactively with a watch list tenant. To expand with one of our existing high growth tenants. Another example of the importance of scale in the local market. Subsequent to quarter end, in July, we signed an additional 100,000 feet of leases, which included 20,000 feet of renewals, at a 22% cash mark to market and 60,000 feet of new leasing at 75 Hayden in Boston. That development project is now 100% pre leased and outperformed underwriting on rental rates by more than 10%. We expect to complete the interior build outs in 3Q, twenty twenty one. Katie is arguably Boston's premier Suburban life science campus, given its scale, amenities, and prominent location near the Intersection of Route 2128. New leasing in July also included the final 22,000 feet at our Scripps Water Ridge redevelopment in San Diego. Where a genomics company urgently needed space to accommodate a COVID testing mandate received from the government. Our team was able to go from initial inquiry to assigned lease in just 14 days to win the business. The pipeline is solid as well with 170,000 feet under letters of intent. The near term supplydemand outlook in all three markets remains favorable. Sublease vacancy remains in the very low single digits and hasn't changed since COVID. And the new deliveries over the next few years are already more than 70% pre leased in the aggregate. Rent collections continue to be strong, including more than 99% in July, while rent deferrals are de minimis. Just two tenants aggregating about $1,000,000 of rent that's been deferred. In both cases, a funding event got delayed due to COVID, All tenants expect to close their funding this quarter and repay the deferred rent at that time. We do have some lease roll that will impact same store occupancy in the second half of the year. For example, July declined 60 basis points from 3 known vacates. We've already signed offer letters on about half the vacated space. At 28% cash mark to market, and we have good activity on the remainder. So there should be a short term blip. On the development front, COVID resulted in a 1 to 2 month delay at most of our sites. Construction has now resumed in all of our markets, and without any meaningful change in our underwritten returns. Additionally, we obtained final entitlements at our 101 Cambridge Park Drive Development West Cambridge. We were able to permit the project for 160,000 feet and could begin construction as soon as the fourth quarter. We were successful upsizing our entitlements to 130,000 feet at our highly prominent Modular labs site on East Brand Avenue, in South San Francisco. Site gives us additional capacity to build on our leading market share in this important submarket. Funding continues to flow into the biotech sector, driving additional tenant demand for space. Second quarter was the highest on record for venture capital, over $6,000,000,000, while the public markets remain open to both IPOs and secondaries. From April through July, there were 32 IPOs in sector raising over $6,000,000,000. No surprise that biotechs based in our 3 core markets of Boston, San Francisco, and San Diego, dominated the capital raising activity and health peak tenants accounted for 5 of the IPOs netting over $1,000,000,000. Our leasing success in rent collections combined with continued biotech capital raising success gives us confidence to increase our same store cash NOI outlook by 100 basis points to 45%. With potential upside from there, if collections remain strong. Turning to medical office, which represented 42% of our same store pool. Cash NOI grew 1.3% year over year. Is 60 basis points above our expectations for the quarter. That growth was driven by higher occupancy, rent escalators and 9% cash mark to market on renewals, offset by COVID related reductions in parking income and ad rents. Released 1,000,000 square feet in the quarter, including nearly 800,000 feet of renewals. Looking at July, occupancy was unchanged for the month, with 20 basis points ahead of our plan year to date. Kenneth demand remained strong, but leasing activity in March April did slow down through obvious reasons. So we'll likely see a temporary impact to lease commencements and occupancy in the third quarter. This was fully reflected in our outlook. Rent collections are stable and in line with our expectations at 99% for the 2nd quarter and 98% for July. To date, we approved $6,000,000 in total rent deferrals, which we expect will be paid back monthly by year end. We delivered the 52,000 foot on campus MOB at Lease Summit Medical Center in Missouri, Upon delivery, it was 51% leased by HCA, with active discussions on another 25%. Construction on our remaining 7 HCA developments is progressing with 3 expected to be completed in the second half of the year. Our active pipeline is 49% preleased to HCA, 8% undersigned offer letters, and 27% in active discussions. We recently saw a third party report showing that peak was the country's largest medical office developer in the private sector in 2019. We view development as an attractive way to grow the portfolio, and the pipeline is strong. In senior housing, performance was better than our framework that we provided in May due to expense savings and CARES Act funding. Triple Net same store NOI grew 3.2% year over year due to rent escalators. We collected 97% of attractable rent in the 2nd quarter, with the other 3% deferred with capital senior living. Rent to coverage after management fee was 1.02x on an as reported basis, which is based on the industry standard of trailing 12 months and 1 quarter arrears. Rent coverage declined to 0.77 times for the 3 month period from April through June due to COVID. Shop same store NOI declined 39% year over year. We incurred significant expense to help keep residents and staff safe as possible under these extraordinary circumstances. Occupancy declined 560 basis points due to moving restrictions, and the inability to do in person tours. With operating margins in the high teens, there's a 5 to 6 times multiplier effect on NOI, for each dollar of lost revenue or increase improved as we moved from April to May to June, but these key indicators are still below historical levels, and the sector has not yet returned to business as usual. Moving to CCRCs, $12,400,000 or Cares Act funding only partially offset COVID expenses and significant declines in skilled nursing census driven by low Medicare discharges as hospitals canceled elective surgeries in the second quarter. Performance for independent assisted in memory care was in line with our framework. Turning to transactions. It was a quiet quarter by design as we were intensely focused on operations. In June, we did close on the previously announced sale of 3 MOBs in San Diego for $106,000,000 where the hospital exercised its purchase option. In addition, after a slowdown from March through May, The senior housing transaction market has become active again. We're making progress on a number of noncore asset sales. That would further rebalance our portfolio toward life science and medical office. And now to our CFO, Pete. Thanks, Scott. I'll start today with a review of our 2nd quarter results, provide an update on our balance sheet activity. And finish with a discussion on our 2020 earnings outlook. Starting with our results We reported FFO as adjusted of $0.40 per share for the second quarter. We continue to generate solid growth from our life science and medical office segment, which grew cash same store NOI at a blended 4%. When combined with triple net and our small hospital portfolio, these four segments, representing roughly 90% of the same store pool, grew 3.8%. But as we expected, this growth was offset by performance from shop of minus 39% as we experienced a full quarter of COVID disruption, bringing total same store cash NOI results to minus 2.2%. Our 2nd quarter earnings were impacted by 2 important items related to COVID. First, we experienced approximately $20,000,000 or 3.5 pennies per share of elevated expenses in our shop and CCRC portfolios. 2nd, we received approximately $15,000,000 or 2.5 pennies per share in Cares Act grants. These grants were based on pro rata funding provided to all Medicare providers. As a reminder, we do not adjust our same store NOI, FFO as adjusted, or AFFO for these items. Turning to our balance sheet. In June, we opportunistically took advantage of robust debt capital markets to further improve liquidity and strengthen our balance sheet. We issued $600,000,000 of long tenure bond at 2.875 percent to redeem a total of $550,000,000 of bonds with a weighted average maturity of about two and a half years and a blended interest rate of 3.7 percent. This transaction extended our weighted average maturity to over 7 years and lowered Following these transactions, HealthPeek's next material debt maturity is over 3 years away in November 2023. We ended the quarter with nearly $2,900,000,000 of liquidity and reported a net debt to EBITDA of 5.4 times. Our revolver remains completely undrawn with $2,500,000,000 of borrowing capacity. And our cash balance was approximately $350,000,000. After factoring in the redemption, of $300,000,000 of bonds completed in early July. Suffice it to say, we remained in a rock solid liquidity position and are well prepared to withstand similar to last quarter. On pages 44 to 46 of our supplemental, we have included an updated outlook and earnings framework, which details some important items to assist with your modeling. Starting with page 44, there are 3 items I would like to point out. 1st, for life sciences, we have increased our same store outlook by 100 basis points to 4 to 5%. We have experienced better than expected leasing, strong mark to markets, and lower bad debt. I would note that we're currently trending towards the high end of the range, but with so many unknowns, we feel it is prudent to maintain some cushion. 2nd, For medical office, we have reaffirmed our prior outlook, but important to note that we are also trending towards the high end of the range. So perhaps some conservatism in our outlook, but with uncertainty around elective procedures, we've held our same store outlook constant. 3rd, for sources and uses, we have increased our expected capital spend by $100,000,000 as the COVID related construction delays we experienced in the second quarter was shorter than expected. At this point, all of our major development projects have restarted. Our prior outlook assumed a 4 month delay on all construction activity when the actual delays were generally 1 to 2 months. Moving to page 45, I will focus my commentary on what has changed in our August outlook relative to our May outlook. In MOBs, we see a half penny improvement due to stronger than expected leasing and lower bad debt. In life sciences, we see a 1 to 2 penny improvement, driven by strong industry fundamentals and lower bad debt. For TI revenue recognition, we see a 1a half penny improvement as a result of construction delays being shorter than anticipated. As a reminder, this is an FFO impact only. Finally, turning to page 46, We have updated our framework for SHOP and TCRCs. For SHOP, our estimated monthly net attrition improved by 150 basis points, driven by improved move ins and no change to move out. The net impact of this is that we expect occupancy to decline in the third quarter, but at a lower rate than the 2nd quarter. For CCRCs, no change to our estimated monthly net attrition with our improved 50 basis points increase in move ins, being offset by increased move outs For senior housing expenses, we expect incremental expenses to be 0 to 5% higher, which is a significant improvement from the 5 to 15% in our previous framework. As a reminder, the earnings outlook and framework in the supplemental is based on our best available information as of the current date. As conditions change and we are in a position to provide updated information, we will make the appropriate disclosures. Before going to Q And A, I'd like to point out 2 additional items we included in the supplemental this quarter on page 29. First, we have included a footnote detailing the preliminary occupancy and EBITDAR coverage for our triple net portfolio. As of the 12 months ending June 30, 2020. In accordance with Standard Industry Convention, This data has historically been disclosed on a trailing 12 month basis and 1 quarter in arrears. 2nd, we have included a new column with the straight line rent receivable information by operator. In the current operating environment, we felt the additional disclosures would be helpful. And with that, operator, Please open the To withdraw your questions, please press star then 2. Please limit yourself to one question and a single follow-up. The first question we had will come from Jordan Sadler of KeyBanc. Please go ahead. Thank you. And good afternoon. Good morning out there. My first question came to, the senior housing operating portfolio. Curious about the deceleration in in July move ins that you could speak to what you're seeing there specifically. And then in that same context, just just noticed you know, in in adjusting the ADC down a 150 basis points sequentially, on a monthly basis, it seems like June July performed better than what you're sort of guiding towards for, you know, your in your outlook. So if you could speak to just both of those 2 trends. Hey, Jordan. It's Scott here. I'm happy to take that one. A couple of things to point out, one is that June was particularly strong. Of course, that's a relative term. In today's environment. But if we look at, April and May, June is substantially better. Our move ins in queuing were up more than 50% from May April. Similarly leads and tours were up pretty dramatically from April May, in the month of June. So I think that's part of it is that June was just a really strong month. It's one reason that the move ins were down a bit. Leads and tours were down low single digits. Versus peers are not a significant change. It was more of a move ins. Fortunately, move outs continue to decline. So we've had 3 consecutive months now. I think move outs has had decline. That's obviously helpful. And the other thing I would point to is that we did have an increase in COVID activity. No surprise, in very late June into early July, particularly in Florida, in Texas, in California where we do have a presence. You know, the good news is that the activity has started to trend down in recent weeks. And similarly in our portfolio, We did have occupancy in the second half of July that that was stronger by far than the first half of July. So I think the the trends are actually better than what maybe shows up on that page. And important to note that we did improve our framework, pretty significantly to the upside from from the prior framework in terms of net attrition. Tom, anything you got? No. I think you got it, Scott. Okay. And then perhaps as a follow-up, I'm curious about the dividend here. So it it looks like I just did the the per share math on AFFO in the quarter. I think you reported about $0.46. Is 37% dividend. The trend here in senior housing, senior housing seems to be, you know, pretty soft. For the balance of the year. Correct me if I'm wrong. And while that's supported by, you know, 70% of the portfolio, that's been pretty stable to strong. You know, you're already starting from a standpoint here in the second quarter, but, we we shouldn't be in line with the dividend. What is sort of and, Tom, I heard in your comment, you know, you did say that you would assess the dividend and continue to monitor its COVID deductible. And can you maybe just speak to your expectations surrounding your dividend or how you're thinking about it for the balance of the year? Yeah, George. I sure can. You started it correctly. The dividend was 1¢ higher than our AFFO, which I acknowledged. As I've said, as I said last quarter, we're comfortable for dividend modestly exceeds our AFFO for some period of time because it just isn't going to be that material on an NAV basis. But I will say that if the virus remains a protracted issue, of course, we will need to go back and revisit our dividend in order to protect our credit ratings and our liquidity. And, so accordingly, we're gonna continue to assess our our dividend as the condition unfold. But, as of this quarter, as we as we, met with our board and discussed that we felt comfortable with our a $0.37 dividend for, this quarter. Would you be comfortable sort of overpaying it a little bit rather than sort of moving it around like we've said today, it was deteriorated, you know, by another 10% sequentially. Or are you kind of more cognizant? And, you know, I'm just trying to think of how would you weigh sort of winds of maintaining dividend versus, you know, you know, trying to align it more so with the actual cash flow. Well, I mean, bottom line is it it, Jordan, it depends on how long we thought this could go. Our liquidity and our credit rating, we consider, vital, in order to be a blue chip read in our sector. We think BBB plus BDA BAA 1 is is, is very important. So if we felt this was going to go on for a long time, then at some point, it'll put pressure on that debt to EBITDA and we have to take that into account. At the same time, if the virus resolves itself more quickly or if senior housing recovers more quickly. The other, I mean, 71% of our business, as you know, is doing fantastic. So it's really just senior housing and more specifically shop, which is 9% of our NOI. So if that if that does recover, more quickly, then we would be in a position where we wouldn't be covering for it would not be a long period of time, and that's less concerning. But if this goes on a while, then we would have to consider what actions to take. Thanks for the thoughtful response. Thank you. Next to Vikram Malhotra of Morgan Stanley. Thanks for taking the questions, and hope everyone is well in safe. She looked pretty tough environment. Just maybe on the triple net side, you know, the Brookdale coverage, which is in arrears, turn it towards one on an EBITDAR basis. So I'm just wondering if you can give us some sense of, any potential conversions, restructurings, or if you feel it's going to keep things intact for now, given kind of what near term COVID trends are in performance of broadly senior housing. Just give us some sense of just the triple net business. And if you could just clarify on on triple net, the, you gave, you gave, information on, on straight line. I'm just wondering if you took any write offs or reserves. That sounds good, Victor. And this is Scott. I'll start and then I think Pete and the town may have some. Commentary as well. Yeah, with Brookdale, we've worked hard over the past 3 years to, bring that concentration down all the way from the mid thirties until about 6% today. And most of it is in that triple net portfolio. It's about 4% of our NOI today, around $40,000,000 per year of rent. The most recent transaction closed in February, where we basically cut that portfolio in half. We think we kept a higher quality portfolio in terms of location, and performance at least historically. It is a master lease now with more than 7 years left on return in the corporate guarantee. So from a security standpoint, we're in a much better position today. And it would have been historically, in addition to the size, just being a lot smaller. We think the right coverage in a normal operating environment is sufficient, especially given the security of that master lease and the corporate guarantee, but we've got a good history with Brookdale now. Figuring out women transactions, if if the time, or in a situation, required it, but we're comfortable with where that trip and what issues today, and there's certainly no ongoing discussions to do anything. Differently, in shop will not be, in this dynamic of that as an alternative. Did you want to cover the accounting question? Yes, sure. Hey, Vikram. It's a good question. Look, I'll just broadly cover write offs generally. Given the strong rent collections in, life science, MOBs, and hospitals, it seems that any future write offs are unlikely to be material. You know, in the triple net senior housing side, as we said on page 29 of the supplemental, we have around $45,000,000 of straight line rent balances. And that's really just aegis at $6,000,000 and and Brookdale at $36,000,000. And to follow-up with Scott said, we've been very proactive the last couple of years to improve the quality of the assets and the coverage of this portfolio. And for Aegis, we're still well covered. And while it will continue to line with COVID. These are good assets with a very strong tenant and reasonable rents that are supported the long term, for Brookdale, the coverage on those assets is a bit tighter than ages, but we believe the liquidity behind their corporate guarantee is sufficient to get them passed the worst of the pandemic. So that's our view on the triple net portfolio there. And of course, we'll continue to monitor it closely as the pandemic unfolds. Okay. Thanks. And then just my follow-up, on the on the shop side, maybe correct me if I'm wrong, but I think you mentioned, I mean, June is June is better than, you know, April may definitely. I'm just wondering your view on how July shift upwards of your expectation given, the move in levels move in numbers seen down both for CCRCs and for shop, and census is down another 100 plus basis points. Can you give us a sense of how these have shaped the relative to your expectations? And related to that, Given the case loads have increased in several states, what are you hearing from operators in terms of the need to have broad shutdowns as opposed targeted kind of shutdowns in terms of movements? Take that as well. Yeah. A lot of this was also covered in the discussion with Jordan, but I think it's important to take a step back. And think about the results in July, in a maybe a broader sense because we we far exceeded in July and pediatrician, from the original framework that we provided in May. And we also exceeded the framework that we just provided today in the month of July, And the results of June were actually extremely strong. So when we look at July, just doing isolation against Saint April or May, shop moving for up more than 50% in July versus April and May. And then CCRC is just the move ins in tears were more than a 100% of the move in activity in both April and May. So you had huge activity at quarter end in both portfolios that, you know, have you reported a month ago, this page would have looked dramatically different. And I thought it's just important to keep that in mind, and we've always said that it's tough to talk about the senior housing business on quarter to quarter basis, you know, 90 days. This isn't an awesome, and now we're talking about it on a 30 day basis. I mean, it just becomes very difficult. But, you know, we reported the numbers. They are what they are, but I think it does require some context because you still feel like the trends are trending positive. Which is why we changed our framework. And, importantly, the COVID activity in those three markets that I talked about has started to come down. In some cases, pretty dramatically. Like, before, you know, I saw that the case flows are a positive test yesterday, and we're 50% of it would be worth 2 weeks ago. So there's some very positive trends that, you know, just if you take a step back, I think it becomes more evident than just focusing on that one page and not of the month. Yeah. And and this time, the operator is in Go ahead. I'm sorry. Just my question is on the operators and how they're thinking about move ins in states where we've seen a pickup in COVID cases? Yes. So as of July 31, CCRCs were at 93%. Exception move ins in Hapford 86%. That's actually slightly better than where we were at the end of June. So from that standpoint, I'm in better shape today than we were even someone here. Okay. Great. So just to clarify, even though cases that picked up in, say, Texas and California and Florida. Are you the operators, you know, just business is open and they're not needing to shut down either because they just understand how to deal with it or maybe the demographics are different, but you're not recently, you haven't heard operators say, oh, we need to me to have company wide band again. Yeah. That's correct. And I would just make sure it's the past times, you know, had when you're talking about your COVID cases, you've been really lucky early July. The current state is that they've really started to decline pretty dramatically. In some cases. So, you know, the last half of July is actually much better for us than the 1st half of July. Great. Thanks so much. Thanks, Jacob. Next is Nick Joseph of Citi. Thanks, Rocco. It's Michael Bilerman here with Nick. Scott, I want to pick up on one of your prepared remarks where you talked about a number of non asset sales within senior housing that would further rebalance your portfolio towards like science and medical office. 2 of the stronger areas within the health care sector. So I guess how much are you planning to sell? And I guess strategically, is there a thought process of a larger type of transaction that would see you completely exit, out of the senior housing business and be a focused life science and medical office building rigs. I don't know how the CCRCs will play into that or not. But can you sort of talk a little bit about, how you're thinking about portfolio construction different from where, you know, to a year ago, you were probably in a 3rd to 3rd, 3rd type, structure. Nick, I'm gonna take this one. This is Tom Nick Nick and Michael. Let me describe it this way. We intend for the majority of our future growth to be in life science and medical office, which I already accounts for the majority of our asset value. I think, as you know, and as we've pointed out, our NOI attach cap rates to that, you could you could easily compute that the majority of our asset values in those businesses. The development of life science and our relationship development with MOBs has become more and more an important part of our growth story. On the senior housing side, we do like that CCRC play. The 8 to 10 year length of stay, the high barrier to entry the average, campus size of 50 plus acres, which makes it virtually impossible to have much new supply ever come up against it. We do like that play, but it is our view that CHOP and Triple Net have become more a more challenging place for public REITs. Yet it is I still feel strongly as does our team that this real estate is still gonna remain vital long term. There will still be seniors that have memory care needs or daily living needs and senior housing provides those services. Yet, we have sold $5,000,000,000 of senior housing over the last 4 years. And we had disposition guidance of another half a 1,000,000,000 in our original 2020 guidance. And We have had some inquiries from from a number of PE players. And depending on pricing, you could see us lighten up, a bit. But I will say it's too early to comment on that at this point. So I'll just leave it at that. And, Michael. Right. So it could, when you think about the development and the acquisition side on some of these in life science, in evaluating potential buyers that would take a larger subset of your senior housing portfolio, did that strategic shift, driven by what's happened in the pandemic could become a reality? I think it becomes, as we go forward Where do we want our growth to be? And that is in the MOB in life science businesses. And, we do like, again, the CCRCs, but it's hard to grow very quickly there because they rarely trade hands, on the shop and triple net side, that's not an area that we're going to focus as much growth, as to what takes place. If we lighten up a bit more, that's yet TBD. Let me give a follow-up too. Thanks. Yes, Scott, in your opening comments, you mentioned that the Senior Housing business is not that good business as usual. Do you actually expect it to go back to business as usual before there's either a vaccine or treatment or until then, do you expect continued disruption? It probably is until there's a vaccine before we're truly back to business as usual. But we're getting back in Snap Surfaces, as of today, just over half of the portfolio is at least allowing some landlords activities for them, use of the germs and the pools, group activities. It's just done. On a much more limited basis with smaller groups, but at least the residents aren't quarantined in their rooms anymore for a good portion of the portfolio. Secondly, about half of the portfolio is now generating, again, as opposed to seeing them in the rooms. But, again, it's being done with reservations and social distillate and smaller groups. Same with visitation, which is obviously a really important part here so that family and friends can come visit but now parents are parents of the case may be. And again, right about 50, 60% of the portfolio is allowing some level of visitation. So that's a huge improvement from where we were 2 months ago on those important things. But until we get back to 100%, it's hard to say that it's business as usual. And it does feel like, a vaccine is gonna be, the ultimate step in in getting the business there. Now that being said, clearly, the industry and our portfolio in particular has been enormous strides with just dramatically improving testing. Over the past 3 months, that's made a big difference, as well as the fact that PPE is just a normal part of business at this point. So there have been actions taken that have allowed the portfolio to get at least closer to a normal operating environment, but we're not there yet. And I don't think that's going to happen in the next 30 days. But The drug industry is making pretty dramatic progress, almost 30 different potential vaccines in even trial. So it does feel like there's optimism that the normal operative environment is, although not 30 days away, it's probably not a newer way either. Sean, anything that you would add? I think you covered almost everything I would have said. It would be two things I would add, Nick. One of the things that we've noted and that this goes back to what I said before, what is business as usual or back to usual There is a waiting line at many communities, as as they reopened, that there were meat based seniors, that just really could not effectively live at live at home anymore. And so, that that became a factor and the concept of virtual marketing is something that allows, effective video tours, virtual tours to take place. So that's not back to usual, but it's, it's a whole lot better than just having communities close off as they were for a period of time last quarter. Thank you. Thank you. Next we have Rich Anderson, SMBC. Hey. Good morning, everybody. Thanks for all the detail, usual. So I guess a question for whomever, when you think about the spread that has happened and perhaps you've had to sort of change your radar screen about where problems were existing Florida, Texas, and California, as I mentioned, and hopefully, you're right, Scott, that we are getting close to some recovery there as well. But in the absence of that, I think of life science, you got a lot of clarity there, medical office clarity, you know, you think third quarter seen shop will decline at a slower rate. I'm I'm wondering if, in your mind, you know, on the topic of guidance, where where could you have provided some some more concrete guidance, if not, so that the Florida techs California situation where you're almost ready to do that, except for the for that, that variable that entered into the equation. And and, I'll I'll stop there and see if you can, you know, respond to that, or it's just still too soon, even in that case. Hey, Rich, it's Pete here. Maybe I'll just add to that. I mean, obviously, our outlook and framework is pretty detailed. And if it's basically on the best information we have as of today, you know, to your point, there still remain significant uncertainty around COVID, and that could result in delays in elective surgeries, construction, and mission bands at at senior housing communities. All of which could impact our results, and it's basically unknowable at this time. So we made the decision to update our outlook and framework as opposed to reinstating formal guidance. Then then on the topic of elective surgeries, you know, that became the the conversation piece for medical office in the late May June when they started to get turned on again. Has that sort of reversed course on you? Have you seen that as it's starting to turn off? And is that a forward thinking issue within medical office, that'd be a good concern that that could be a sort of a reversal to the negative. Hey, Rich. This is Tom Klaritch. We did with the rising cases in June July, we did see a little bit of limitation in in the hotspot areas of Texas, Florida, and Arizona, but not all of our facilities restricted admissions. It was really based on what capacity they had in their in their hospitals. And most most of our affiliated hospitals kinda had 20%, fifteen percent capacity. So we did see some restrictions on inpatient. What did happen though is there were no restrictions on outpatient procedures. So many of our tenants actually saw a benefit of procedures being shifted from the inpatient side to to outpatient, you know, either in our physician's offices, ambulatory surgery centers or hospital outpatient areas. So, you know, while there was some decline on on the inpatient side, we saw a benefit on the outpatient side. Okay, great. Two questions I promise. Yes, thanks Rich. And next we will have John Kim of BMO Capital Markets. Thanks. Good morning. Scott, on the asset sales of the non core senior housing Can you discuss how pricing has changed either on a cap rate or a price per unit basis? Yeah. It's hard to say because the noncore sales that are underway really aren't trading on a cap rate basis anyway. They're more trading on a replacement value or pressure pumping unit basis. So I think it's hard to say, you know, from a practical standpoint NOI is going to be a lot lower, you know, would have been, say, 6 months ago, for at least the next 12 months or so. So there's just deposit value of money and concept, that would impact valuation. And then presumably, some level of I'm resuming to get back to the original, NOI, but just come too early to comment on whether or not valuations that more stabilized products have changed meaningfully because at least at this point, that's just really not what we're selling. Okay. And then, Tom, I guess just following up on the, you know, what seems to be a shift in strategy toward Black Science And MLBs. Can you just maybe elaborate on what is or what will be the tipping point to make that change final? Is it the potential impact it has on your credit rating? Cause you said, in your prepared remarks, that's something you really value. Or is it really just, you see a a slower road to recovery for stop than what was anticipated, before the pandemic hit? I would say there are 2 separate things. John, the credit rating, involves the leverage of the company, the net debt to EBITDA, and whether there would be deleveraging required, if COVID went on for a long period, We've modeled that 18 different directions to make sure that we'll be ahead of it and not chasing it. If it if that occurs, if it may not. We hope it doesn't, but if it does, we'll be ready for it. So that's one item that's protecting our BBB plus b, double b, double a, 1 credit rating. And as to the, the portfolio reallocation, that just depends. It depends on the direction of where the virus goes, how much government stimulus, whether that becomes a a part of, health care real estate that is is, more government reimbursed whether that impacts how we think about it, how long that recovery is, if that is a if we concluded a long term recovery, We may very well choose to play through that. That might be the answer. But if the pricing is strong, it's something that we could choose to lighten up a bit more. And that's just all TBD. So we don't we don't have an answer on that yet. But something we're just at least, aware of and paying attention to. And so we'll see what it goes. Next with Michael Carroll with RBC Capital Markets. Yes, thanks. Tom, I kind of wanted to touch on your last comment regarding, seniors housing grants. I know that, your seniors housing portfolio that has, some more government reimbursements already got some some funds. I guess, do you expect those specific communities will get more funds? Are you hearing a broader picture of will private pay senior housing facilities. Could they potentially get signals? Oh, hey, Michael. It's Scott. I'll I'll take that one. The industry trade associations and some of the big operators are certainly lobbying to get funding, for the private, senior housing. I don't have any better information than anyone else as to what the government is ultimately going to do. From a fairness standpoint, it does seem appropriate, given that the government has provided stimulus to a lot of different businesses, which the senior housing would be on the list. Given the profile within, communities and new residents and the fact that the industry is taking pretty dramatic actions on both the cost side as well as the revenue side by shutting down emissions in many cases, to protect residents, but it would be the beneficiary. Of terminal stimulus, but as we sit here today, we can't say for sure that, there will be any stimulus or how much or when but they're certainly actively lobbying for that stimulus. Okay. And then then your assets that got government reimbursed the CARES Act funds that you kind of reported in 2Q, there's nothing that was received in July or August to date, right? That's correct. The funding is from the 2nd quarter. Okay. Great. And then just real quick on, can you mention talk about the senior housing tenants, I think it was with HRA, that requested a deferral, I guess, earlier during the pandemic, both You made that comment in your prepared remarks, but how are you thinking about that specific tenant? And do you have deferral discussions going on within? We do not have any active dialogue with them. You know, fortunately, that's one that we were proactive and got ahead of it. More than a year ago. Historically, we have 15 buildings with HRA today, we're down to 8th. Because we proactively redone that lease in a pretty dramatic way to get rid of the lower quality properties as well as to combine all the properties in your single master lease with a 10 year term and improve our corporate guarantee. So we're in a much better position today than we would have been a year ago, dramatically. So fortunately. That being said, on the entire senior housing portfolio, we're washing it carefully. So no active dialogue right now about the deferrals, no Michael. Next week, Steven Valiquette of Barclays. Oh, thanks. A lot of the time you've gotten taking the question. So, you know, those data points, the data points on slide 46 are definitely helpful. On the occupancies, etcetera. And with the move in projections on that slide 46, do you assume that the percent of properties accepting move ins stay about the same, throughout the whole quarter. You know, right now, it's 86% of properties within shop and 93% DCRCs as far as accepting move ins. We could also have to increase further to hit those, those move ins, projections on slide 46. Hi, Steve. Scott here. We do not need to have a higher percentage of communities hoping to move in to hit those projections. It's actually exceeded this framework in the month of July, even though there were some questions about whether July is a week long, we did finish the month for both CCRC and SHOP ahead of the framework. So, we are not anticipating or expecting a big improvement in that percentage in order to meet this framework. Okay. And maybe just as a quick reminder, far as the the various policies in place that trigger, when a facility discontinues move ins, you know, versus when they will once again accept move ins again. I don't know if it's, you know, different operator or operator or state by state, but maybe just, I'm sure there's some commonalities. Maybe just give us a little more of a flavor of, you know, how that is set up right right now today. Right. Well, I mean, the ultimate decision, is is to say and with local health authorities making a decision to have a property close down to new emissions. But assuming that that does not occur, it would be up to the operator And there's some consistency, although it's not, 100%, but in general, it's based on, the amount of, hold it back to the inside of the property, or the percentage of residents and staff, but also the timing and whether it was, you know, 3 days ago or 14 days ago, and then secondarily the activity in the local market. For the population at large. Those are generally the 3 things that most impact, whether or not a property is open to the Lindsay. I guess the final quick follow-up just on that last point, that would be for the facilities that are not accepting move ins yet. For that remainder. How much of that is sort of, you know, forced by a state policy versus kinda more voluntarily not accepting move ins? Is there the gravitate heavily towards one side or the other as far as the remaining ones that are not extending within. Yeah. It it's a very small percentage. Now that is being dictated by the state or local health expenses. It's it's primarily the operator's decision based on your own safety policies. Okay. That's perfect. Okay. Alright. Appreciate the extra color. Thanks. Next we have Daniel Bernstein of Capital 1. Hi. Good morning. Excuse me. Nobody's really touched on margins yet, so I wanted to go back to that. I mean, you had what shop margins, or I guess shop NCC expenses were only at 1.6% versus I guess, the 5 to 15. Wanted to understand what was behind that and has that continued or, into 3Q or been impacted by some of the increase in COVID that we see in Texas and Florida. Kind of how you're thinking about margins for the rest of the year. Thanks. Hey, Dan. It's got a new margins are more likely to not go into decline. Although, for the framework we just put out, it's gonna be more driven by revenue, and occupancy, in particular, and by expense, when we get the framework in May, We thought it would be a pretty decent balance between expense and revenue that was causing NOI to decline. As it's turned out, the expenses have not increased by as much as we thought. That's obviously good. We are spending a lot on supplies, PPE, in particular, the testing, although we're doing it in a pretty dramatic way across the portfolio has not been a cost increase because in most cases, the staging and paying for it directly or insurance is paying for it. So we haven't seen a huge increase there, which is good. The other thing is we have had and substantial savings, on repair and maintenance, as well as marketing, whether that would start to ramp their up, now, but certainly the number of, commissions that are being paid is lower than it had been in the number of activities from marketing standpoint has declined. Just getting rid of this off, virtually, at this point. So we we we have had some, good success on the expense front, but because we do still expect occupancy to decline roughly 100 50 basis points per month is the midpoint of that framework. There is that multiplier effect that I mentioned on the earnings call. It's just been that medical reality for the portfolio list. And today, in the same store, we're in the high teens, and for the the portfolio, we're in the mid teens. So we do think that's going to continue to come down. Tom, is there anything you'd like to add? Scott, I think you've completely covered that And I I think the schools without saying, but, obviously, with the outsized impact of COVID on SHOP, the natural place to wanna talk is is about the shock results. I just remind you guys, 71% of our portfolios life science MOBs and hospitals that are doing fantastically. CCRCs have a far far superior outcome than than shop does due to the length of stay And I would note due to the diversification in our portfolio mix, you should note that our first half same store results across our entire portfolio were plus 1.4% year to date So it just it just does highlight that don't forget to look at the overall makeup of our portfolio, but I think you all know that, but it's it it probably bears your mind in Dan, I know you have other questions, and they can be shopper later, but I thought I would throw that in while I it was it was top of mind. No. That's No. Actually, my my my other question is life science related. Oh, there you go. Again, just trying to to switch it up versus what people are asking. Actually, well, we did want to ask about the the mark to markets, you know, are very obviously, we're seeing very strong right now on my side. So you know, looking out to to 21, 22, and some of those, the expirations, how are you thinking about the mark to market? For those at this point? Yeah. The mark to market across the portfolio, Janice, in the 10% range, but it does vary by year, depending on the particular lease that matures, this year was expected to be a strong mark to market year and it has been today We're at 15% in the first quarter, 15% here in the second quarter. We're off to a great start in July as I mentioned in the prepared. Remarks, and we would expect that to continue. 2021, maybe you think is another year of positive mark to market, although maybe not quite as strong as this year. But so much of that depends, of course, on whether or not certain leases are renewed. In the script at the market at that time. So I think a little bit too early to comment with a specific number, but we do think it's positive Now you look out to 2022 and beyond, I think it's just too far in the future to comment. We'll just have to see what our markets. Okay. Okay. Alright. I do have about an hour worth of shop questions so. Yeah. Maybe not. Next, we have Lucas Hardwoods with Green Street Advisors. Thanks. Hey, guys. I I was hoping you could comment on monthly shop NOI declines since April. Is that something you could provide? Or meet the range. Hey. Would you switch out in in in what steps to be in I'm just curious, did you guys, you know, how did NOI fair declined fair in in April, May, June, July? Whenever you can provide an effort would be helpful. Yeah. Certainly, NOI has declined sequentially because we've continued to lose occupancy. For month over month, and that part is clear. But in terms of the degree, the percentage change, the most dramatic month was April. Obviously, when we, we, we lost almost 400 basis points of occupancy and you compare that to June July where at least from an ADC standpoint, it was closer to 50 basis points in July. So the rate of decline is come down pretty dramatically, but we're still losing NOI, obviously, with occupancy falling. Right. I'm guessing that April result was also driven by the higher than than the other month in terms of the OpEx plan. Is that fair? Yes, but not dramatically. So Okay. Great. And then the other question I have is just obviously, developed pre leasing projects at the Boardwalk Development in San Diego. Can you remind us what the expected stabilized yield is for that project? And has that changed at all? Hey, Lucas, this is Tom Klaritch. The yield on the boardwalk prop project. Give me just one second. Sorry, is I have such small letters here. It's just taking me a second. It looks it should be around 7%. What's your expectation? Yes, it's, it's just under 7% at 6.8%. Yeah. The beauty of that one was was there was a good amount of preleasing that ended up occurring. So, that that was a positive. And next we have Tayo Okusanya of Maduho. Good. Good morning, everyone. So my first question is, the senior housing portfolio the last few months, the the rate of new routes, declining, I guess the the question I have is you would think it's in your house and it's just kind of a natural attrition that happens in that business because of the age of the residents and your recent number seemed to kind of indicate at least some of the from our occupancy perspective seem to kind of suggest that that sort of attrition that I would have expected, given that they typically live there from 30 to 36 months. That doesn't seem to be showing up in your numbers because your your your vacant your your occupancy numbers are kind of dropping a little less than kinda like that, you know, 2 to 3% drop you would expect every quarter. Hey, Tayo. Yeah. Hey, Tayo. I might ask you to rephrase the question. I wasn't Exactly. Sure. So so I'm just trying to understand, you know, if it's not much is happening by way of moving, And there's a natural attrition that happens in the portfolio from move outs given, again, the age of the residents. So it's typically there from 30 for 30 to 36 months, you know, I would have been expecting kind of occupancy drops of about, you know, 300 about 2 to 3% a month, but your occupancy drops are kind of coming in much less than that. Is that just because you are seeing some movement activity or Alright. You know, you yeah. Because your move outs actually seem to be getting better. And I I just don't quite understand that. If you should try to be using 3% per month naturally. Yeah. Tom, you wanna comment. I I can just jump in quickly, Tyler. We're gonna get lumpiness in the actual results number. If you were looking at the June July results from, what we put out today. And previously, it's not going to go in a straight line But to put this in the most simple terms in shop, when you've got a, let's just say, 2 year average length of stay, for our portfolio, you're going to have about 4% move out attrition per month, and that's going to be relatively consistent. It's but it's gonna bounce around from 1 month to the next just based on natural, discrepancies between months. So we haven't changed our view on that for shop. So if that's if that's your question, which I think it is, the actual activity that you're seeing is going to differ a bit from what we know will be a mathematical outcome over time, And then the big driver becomes how much what are the move ins that result as a result of the marketing, the virtual marketing that we're doing and the waiting line that occurs for need based seniors as they desire to move in and the ability to move them in as those properties are open. That's the much bigger driver that will dictate the net attrition or ultimate stabilization of those properties. Scott, anything you would add to that? Just to clarify Tayo's question about move ins, they're certainly not you, though. The original framework was 0.2% per month of moving activity, which has increased that to 1.5% to 3.5%. Per month. So that's below the historical average, which is closer to 4% per month, but it's certainly not 0. So there is positive moving activity. Done. Great. That's helpful. And then lastly, just a a broader question. Again, Tom, your comments earlier on just about, again, the longer this goes on and there's more uncertainty and then you you, you know, you would have to kind of reassessed dividend against that kind of backdrop. I mean, could you just kind of talk about maybe a little or just talk about 2021, but if you do kind of end up in a world where, you know, in the fall, it's worse, god forbid, but if the afterwards are kind of living in, how does one really start to really think about this, the kind of your business that is kind of heavily impacted, by COVID heading into 2021. Well, Kyle, let's first, let's hope that, that this has a fast a quicker resolution, but none of us can predict that. And that's why we put our framework out your question is very fair. 1, what happens if this becomes a protracted problem? And as I stated earlier, our our liquidity and our credit ratings, we considered to be quite important relative to a blue chip read. And so we would revisit, our leverage and our dividend as necessary to maintain the strength of of the right hand side of our of our balance sheet and our liquidity. I would expect that many, many high quality REITs would be that that, especially any of those that are in sectors that are being heavily impacted by COVID, which are plenty of us, are going to be doing the same calculus So to me, it's just responsible management, to stay a step ahead of this and not get behind to a point where all at once. We've got credit rating issues. We've got liquidity issues. We're not gonna let that occur. So bottom line is all I'm doing is acknowledging is if this becomes a protracted issue, you can expect us to be doing lots of analysis, lots of execution with clear disclosure as to what we're up to and why. Bottom line. Great. That's helpful. Thank you. You bet. Thanks, Dale. And next we have Joshua Denali of Bank of America. Hey guys, thanks for the question. I guess I just wanted to touch base on a comment I heard from Scott in his prepared remarks about the life science, I think it's related to the same store NOI. It sounded like you could see some upside from that 4% to 5% range if rent collections remain strong, curious on what you kind of budgeted in there for, I guess, the back half of the year on rent collections and just trying to get a sense of maybe the upside that could be in there, rent collections remain high. Yes. Hey, Josh. That was a comment in the prepared remarks, and that is the primary source of upside versus the 4 to 5 percent outlook. I I'd hesitate to give you a specific number. Just given, reality of, you know, discussions with different tenants. But I would say there's at least a 100 basis points of of potential upside there depending upon our success. You know, we're at nearly a 100% rent collections in the month of July, pretty, pretty incredible, and only ended up referring grants for 2 tenants, $1,000,000 of the aggregate. It's really small numbers, and it's really credit to the team who spent an enormous amount of time on this topic in March, April, May, moving into June so that we ultimately only have the 2 payments with deferrals. And there's a significant amount of analysis done to make sure that we were comfortable providing them that to fill, you know, ultimately they're companies in growth mode, and they need to raise capital and they're in the middle of capital raising where you just gotta get home based on discussions we've had. And if that's going to correct, would be paid back. So, there's still a lot of, so 5 months left in the year. So if you're going to comment on specific numbers, but there is the potential upside, to the 4% to 5%. Oh, okay. Yeah. No. That's great. Great color. I appreciate that, Scott. Maybe maybe one more for me. I think it was kind of touched on with maybe some other questions, but I wanted to kind of maybe ask it a different way. I guess, you mentioned this move in declined in June, July. A lot of that movement was driven by Florida and Texas. Are the less move ins relative to kind of a month ago, is that driven more by folks than you getting a little bit more nervous about putting their loved one in a senior housing, or was it more, like, just see your housing communities, maybe not being, like, open to new residents at that point, because I got a case or 2. I think it's more just a reality of people moving around less when they're approved in outbreaks. I think all of us, me included, probably you included, take extra precautions, when the local community is seeing a high number of excuses, and it just leads to less activity period. It's not obviously a a pretty You're not able to put a senior into, a CRM community. It's not one person that's making that move. There's an awful lot of, activity attached to that decision. And if you can wait a week for 2 weeks, I can just much more likely that you would do that given Detroit. So I think it's more related to that. It wasn't that we had a huge percentage of our communities that all of a sudden, nearly July could admit residents. You know, that that's not what drove as I mentioned earlier. We're actually the higher percentage of AA that are exactly within the beginning of the June. I think it's more just the amount of activity in the environment and the particular that people making decisions, which is usually the adoption room in our casino themselves. Next, we have Sarah Tang of JPMorgan. Hi. Good morning. This is Sarah on for Mike Mueller. Just one question on my end. Could you talk about the occupancy cadence, in the second half of July. Sure. This is Scott speaking in in the CHOP portfolio. We ended July with the spot occupancy that's exactly in line with the hepatic status access for July. So that suggests the the second half of July was actually a a really strong, move in activity of your move out. So Although we did decline in the month of July, most of that occurred in the first half of the month, and then we recaptured all of it in the second half of the month. So, you know, that was a positive. And the CCRC portfolio was similar, although there was a 20 basis point cap. Between the spot occupancy and the average daily census for the month. So, in both cases, the end of the month, saw a positive momentum. Enough in shops to completely offset the 1st half of the month, but not quite in CCRC. But nonetheless, clearly, the second half is more was stronger than the first half, sir. Tom Klaritch and and and, Scott, may maybe mention the MOB in life science occupancy as well. You know, those are much bigger businesses and and also driving our results dramatically. Tom, maybe on MOBs first. Sure. An MOB. We're actually our our leasing activity has been very strong for the year. We we had great commencements in the month of in the second quarter at a 1,000,000 square feet versus 600,000 in the first quarter. So that's done very well. Our occupancy is about seventy basis points ahead of where we expected it to be. Now you will recall last quarter, I said that new leasing, we saw some declines in prospects, in the months of April and May. That has since improved, but there is a 4 to 6 month delay in in getting occupancy from those, tours and prospects. So we likely will see a slight decline in occupancy in the third quarter, but, since new leasing's picked up, I think that'll reverse itself later in the year. Yes. And then in Life Science, in the 2nd quarter, we were up about 250 basis points over the previous quarter. July, we were down 60 basis points, from June 30th, because of 3 known vacates. In some cases, we proactively, terminate leases in order to grow existing clients. So that drives some of it. And importantly, we've we've already released, 60% of the space that we've lost in the month of July. So it's more of a timing issue in certain cases than the day that existing tenants stops you paying rent and impacts occupancy, looking forward, it we do have a replacement tenant and in this case, a positive mark to market. So, when you're looking forward, it's actually a very positive story, even though we lost a bit of occupancy short term. Operator, any other questions? No, no, sir. We're showing no further questions at this time. If okay, we'll go ahead and conclude the question and answer session. Mister Herzog, I'd like to hand the conference back over to you, sir, for any closing remarks. Yes. Thank you, operator. And thank you everybody for joining our call today and your continued interest in HealthPeek. I hope you all stay safe, and we'll talk to you soon. Thank you. Well, thank you, sir, also for your time and to the rest of the management team. Again, the conference call is now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care, and have a great day.