Good day, and welcome to the LTC Properties, Inc. 2nd Quarter 2020 Analyst and Investor Call. All participants will be in listen only mode. 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 over to Wendy Simpson. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to LTC's 20 22nd quarter conference call. Joining me today are Pam Kessler, Co President and CFO and Clint Malin, Co President and Chief Investment Officer. I'm also thrilled that Lynn Katzmann, Founder and CEO of Juniper Communities is joining us as a special guest. We are including on our call an informative session with Lynn designed to provide insights and an operator's perspective on the challenges caused by the pandemic and the lessons learned while meeting these challenges.
I would also like to acknowledge Pam and Clint, who recently were promoted to Co Presidents in recognition of the many important contributions they have made to LTC over the years. With me, they share a strong strategic vision of LTC's future. Please join me in congratulating them for these well deserved promotions. Before I begin to review our business, I want to thank our operating partners for all they have done for their patients, residents and employees during the pandemic. They have aggressively dealt with unprecedented challenge over the last several months, while also solving problems creatively and compassionately.
Speaking of creativity,
I would like to share this story from one of our memory care communities that recently made national news. After being separated for more than 100 days from her husband, Steve, who is suffering from early onset Alzheimer's, Mary Daniel was focused on finding a way to reunite with him. Our operator, ALG Senior, headquartered in Hickory, North Carolina, bought outside of the box and offered Mary a part time job as a dishwasher. Both Mary and the community are taking this job seriously. She received substantial training on assisted living care and has been tested weekly for COVID-nineteen.
Now after each shift, Mary visits Steve in his room where they watch TV and lay in bed together holding hands. She uses her paycheck to buy gift cards for the staff in recognition of the very hard work they are doing to care for her husband and others' loved ones. There are similar stories from many of our operators around the country. In fact, I hope Lynn will share some of her own. We commend them for working tirelessly to provide care where it is needed the most and have confidence they will continue to meet this new normal with diligence, strength and grace.
Although most states were able to successfully flatten the curve earlier on in the pandemic, COVID-nineteen cases have spiked around the country, potentially overtaxing our healthcare system. In our industry specifically, uncertainties remain around PPE, sanitizing supplies, testing and staffing. Demand for testing has increased resulting in growing lag times between test and results, while some testing results have been found to be unreliable. The recent decision by CMS to provide point of care COVID-nineteen test supplies to skilled nursing facilities should help, but to our knowledge, there is no similar program for private pay communities. It is quite impressive to see how our industry has come together during this time.
In addition to the work being done by operators, several industry organizations have launched initiatives, including intensive lobbying of Congress for additional relief funding, limited liability protection and the prioritization of testing, PPE and access to a vaccine when available. They have also engaged PR firms and launched media campaigns in an effort to enhance the perception of our industry and refute recent trends of negative press. LTC is honored to be an active participant in several of these programs. Moving more specifically to LTC's 2nd quarter results. Most directly due to COVID costs and other COVID impacts, we have placed our senior lifestyle portfolio on a cash basis as of July 1 due to a shortfall in May June rent payments.
Senior Lifestyle's total quarterly rental obligation to LTC is approximately $4,600,000 For the quarter ended June 30, 2020, we received a total of approximately $1,800,000 In July, we received approximately $1,100,000 While recent rent payments have been trending up, At June 30, Senior Lifestyle owed us $2,800,000 for the Q2 of 2020, which is reflected in our receivable balance as of that date and is covered by an undrawn letter of credit that we hold. In cooperation with Senior Lifestyle, we are evaluating our options for the portfolio, which may include seeking new operators for the 23 properties and or pursuing sales of some of the 23. A split of the portfolio among several different regional operators, some of whom could be new to LTC Properties, provides an opportunity to reduce portfolio concentration, while building relationships with operators new to LTC with whom we can grow. We have proactively managed operator concentration in our portfolio. Our current senior lifestyle is one of only 2 operators where income and asset concentration exceeds 10%.
Not surprisingly, the quarter has been quiet with respect to new investments. However, we are continuing to court potential operating partners and evaluate structured finance opportunities, which typically has shorter investment duration and we believe offer better risk adjusted returns in today's market. While the market still remains uncertain with respect to 2020, the foundation we have built will serve us well when restrictions loosen and we can again actively engage with potential acquisition candidates. Being well capitalized allows us to more quickly step into situations than some other financing sources. Although I believe that it is unlikely we will close any major transactions in 2020, I also believe that LTC will continue to play a strategic and important role in seniors housing and care financing over the long term.
As we discussed last quarter, we are not giving 2020 FFO guidance due to COVID related uncertainties. Now, I'll turn the call over to Pam.
Thank you, Wendy. As Wendy discussed, we have placed Senior Lifestyle on a cash basis as of July 1. Additionally, we wrote off our straight line rent and lease incentive balances related to senior lifestyle as of June 30. Primarily due to this write off, total revenues decreased 17,800,000 dollars from last year's Q2. Decreased rent from preferred care was also a contributing factor.
These declines were partially offset by acquisitions and completed development projects, increased rent from 2019 lease transitions and higher rent from Anthem. Interest income increased $469,000 in the 20 22nd quarter due to the funding of additional loan proceeds and expansion and renovation projects. Income from unconsolidated joint ventures decreased $128,000 in 2Q 2020 due to mezzanine loan payoffs and reduced income from our preferred equity investment in a joint venture with an affiliate of Senior Lifestyle. During the Q4 of last year, we recognized a $5,500,000 impairment charge related to our $25,000,000 investment in the joint venture. In the Q2 of 2020, the 4 properties comprising the JV were sold as discussed on our last call.
Accordingly, we received partial liquidation proceeds of $17,500,000 and recognized a loss on liquidation of unconsolidated joint ventures of $620,000 We have a receivable balance of $1,000,000 related to additional proceeds that we anticipate receiving throughout the second half of twenty twenty. Interest expense decreased $164,000 due to lower outstanding balances and lower interest rates under our line of credit in 2Q 2020, partially offset by the sale of $100,000,000 of senior unsecured notes in the 4th quarter of 2019. G and A expense was comparable year over year. Net income available to common shareholders decreased $18,600,000 due primarily to the write off of Senior Lifestyle, straight line rent receivable and lease incentive balances as well as the loss on the liquidation of our unconsolidated JV. NAREIT FFO was $0.31 per diluted share for the Q2 of 2020 and $0.75 per diluted share for the same period last year.
Excluding the non recurring items already discussed in the current period, FFO per share was 0 point 7 $6 this quarter compared with 0 point 7 $5 in last year's Q2. During the 20 22nd quarter, we received $17,500,000 from the sale of the properties in the JV with an affiliate of Senior Lifestyle as previously discussed and $2,100,000 related to the partial pay down of an outstanding mezzanine loan. We funded $2,000,000 of additional proceeds under an existing mortgage loan with an affiliate of Prestige Healthcare, which secured by 4 skilled nursing centers with a total of 501 beds. The additional proceeds bear interest at 8 0.89%, increasing 2.25% annually thereafter. We also funded $7,400,000 in development and capital improvement projects on properties we own, dollars 200,000 under mortgage loans and paid $22,400,000 in common dividends.
At June 30, we own 1 property under development with remaining commitments of $7,400,000 We also have remaining commitments under mortgage loans of $2,700,000 related to expansions and renovations on 4 properties in Michigan. At June 30, we had $50,400,000 in cash and cash equivalents. We currently have over $510,000,000 available under our line of credit and $200,000,000 under our ATM program, providing LCC with total liquidity of approximately 760,000,000 dollars Our long term debt to maturity profile remains well matched to our projected free cash flow, helping moderate future refinancing risk, and we have no significant long term debt maturities over the next 5 years. At the end of the 20 22nd quarter, our credit metrics compared favorably to the healthcare REIT industry average with net debt to annualized adjusted EBITDA for real estate of 4.3x and annualized adjusted fixed charge coverage ratio of 4.9x and a debt to enterprise value of 32%. The effect of the economic fallout from COVID-nineteen on the real estate capital markets has resulted in our debt to enterprise leverage metric being higher than our long term target of 30%.
However, at 4.3x, we are still comfortably below our net debt to annualized adjusted EBITDA for real estate target of below 5x. I'd like to quickly discuss rent deferrals before turning the call over to Clint. For the Q2, rent deferrals were less than $1,000,000 or approximately 2% of 2nd quarter rent. Approximately $277,000 of this deferred rent has been repaid. Accordingly, at June 30, there were $653,000 in rent deferrals outstanding or about 1.5% of rent.
In July, we received 2 deferral requests from operators and granted 1 in the amount of $80,000 for July and the other totaling $280,000 for August October rent. Now I'll turn the call over to Clint.
Thanks, Pam. I will cover several items today, starting with our Brookdale renewal. Our Brookdale leases, which cover 35 properties in 8 states, are the only significant lease renewals through 2022. Given the uncertainties caused by COVID-nineteen, we agreed to extend the maturity date by 1 year to December 31, 2021. In consideration for the 1 year extension, Brookdale agreed to consolidate the 4 leases we have with them into a single master lease whereby all properties must be renewed together.
Brookdale now has 3 renewal periods consisting of 1 4 year renewal option, 1 5 year renewal option and 1 10 year renewal option. Brookdale's notice period to exercise its first renewal option will open January 1, 2021 and close on April 30, 2021. Economic terms of rent remain the same as the consolidated rent terms under the previous 4 separate lease agreements. We have extended a $4,000,000 capital commitment to Brookdale, which is available through December 31, 2021 at a 7% yield. Moving to our development projects.
As I mentioned last quarter, construction was completed on our assisted living memory care real estate joint venture project with Field Senior Living in Medford, Oregon. Field has received its license to operate, is conducting tours and plans to open in the fall. Our development project with Ignite remains on track to be completed in the fall. Next, I'll discuss our portfolio numbers. Q1 trailing 12 month EBITDARM and EBITDAR coverage using a 5% management fee was 1.39 times and 1.17x respectively for our assisted living portfolio and 1.76x and 1.31 times respectively for our skilled nursing portfolio.
Excluding senior lifestyle from our assisted living portfolio, EBITDARM and EBITDAR coverages increased to 1.49x and 1.26x. I'd now like to provide some occupancy trends in our portfolio. This data is as of July 17. For our private pay portfolio, occupancy is as of that date specifically. And for our skilled portfolio, occupancy is the average for the month to date.
And because our partners have provided July data to us on a voluntary and expedited basis before the month is closed, the information we are providing encompasses approximately 72% of our total private pay units and approximately 93 percent of our skilled nursing beds. For additional context, we are also sharing comparative information about occupancy as of March 31, 2020 June 30, 2020, for the same population used for the July data. Private pay occupancy at March 31 was 83% and 77% at June 30 July 17. For skilled nursing, average monthly occupancy for the same dates respectively was 80%, 72% 71%. I'll finish my remarks today with some brief comments on deal flow.
While the market remains constrained and there are still complexities to be worked through, we are seeing some interesting opportunities and our business development team is continuing to actively source new deals. By analyzing where we believe the market is headed, we are positioning LTC to be ready to strategically deploy capital as soon as practical and beneficial for us and for our shareholders. We believe that our strong and flexible balance sheet is a competitive advantage. Right now, we see better opportunities in structured finance products, such as preferred equity investments, mezzanine loans, bridge loans and unitranche loans for their shorter duration and what we believe to be better risk adjusted returns in today's market. Over the longer term, we are continuing to build and enhance operator relationships so that when the time is right, we can return to more standard acquisition and development investments that meet our underwriting criteria and create or enhance growth oriented partnerships with strong regional operating companies.
At this time, however, we cannot accurately pinpoint when these type of transactions will resume. Now I'll turn the call back to Wendy for her closing remarks.
Thank you, Pam and Clint. As I reflect back on the quarter, it was encouraging to see some signs of progress as our operators and the seniors housing and care industry aggressively address pandemic related challenges. LTC is continuing to provide support as needed as our operators now have to deal with the repercussions of the recent spike in COVID cases. I continue to believe that more and more opportunities will be available to LTC and that we stand prepared to act on them when the time is right. Now it's my pleasure to introduce Lynn Katzmann, Founder and CEO of Juniper Communities.
Lynn started Juniper in 1988 and has grown the company to one of the premier regional senior living companies in the United States. Today, Juniper operates 21 communities in 3 states, Colorado, New Jersey and Pennsylvania. Of these 21, Juniper leases 2 in Colorado and 3 in New Jersey from LTC. These include all care levels from independent living to memory care to skilled rehabilitation centers. Juniper's mission of nurturing the spirit of life is visible in their physical environments and experienced through their signature care programs.
After Lynn's presentation, we will open the lines for questions. Please take into consideration that Juniper is a private company. And while Lynn may provide some financial related data in her prepared remarks, please refrain from asking financial questions regarding Juniper's balance sheet or operations. Welcome, Lynn. Are we live now?
Lynn, you're live.
Yes. Lynn, please begin. Operator, we can't hear Lynn.
I can't hear one second.
Can you hear me now?
Yes, we can hear you Lynn.
Okay. Thank you, Wendy, and thank you, Quintin Pan. I apologize. Today, I'm going to be talking about COVID-nineteen, the impact of COVID-nineteen from an operator's perspective. And as Wendy said, Juniper's property span the continuum.
However, today I'm going to be focusing primarily on the AL and memory care experience during COVID. To summarize my comments briefly, I want to let you know that I want to share with you an understanding of COVID-nineteen and its impact on senior housing through a chronology of events. I want to talk with you about Juniper's COVID-nineteen journey, our strategy as well as a 3 phase approach to the pandemic. And lastly, I'd like to share with you some of the lessons I believe we've learned. First, I want to talk about the COVID-nineteen reality.
The CDC issued its first public alert to the U. S. On January 8 this year. The first death in the U. S.
Occurred at Evergreen Healthcare Center in Kirkland, Washington on February 29. On March 11, there were 1100 confirmed cases in the U. S. And it was on that day that the WHO declared COVID-nineteen to be a global pandemic. On the next day, on March 12, the Health and Human Services Group placed their first order for N95 masks at the time they expected delivery around the end of April.
By the end of March, there were 164,000 confirmed cases with over 3,100 deaths. 4 months later, as you all know, we stand at 150,000 Americans dead with just 1200 with an additional 1200 being added yesterday. So the extent of this pandemic is huge and the timeframe in which this has happened is incredibly short, which has made it that much more difficult for all of us, but especially operators who care for chronically ill older adults to take action. Juniper's COVID-nineteen journey, as I said, has 3 phases. 1, we call the crisis phase, which started in March, late March and went through May.
Phase 2 is what we are calling our path forward or the beginning of recovery. And Phase 3, which we have not yet experienced is what we're dubbing the new normal. I want to now tell you a little bit about our 30,000 foot view of our strategy. Our goal has been to keep our residents and our associates healthy and safe. And our approach has been one which we consider to be proactive and has involved primarily a testing and infection control policy.
Part of our strategy has evolved because of our understanding of what successful countries have done, other successful countries have done in combating COVID and looking at the infection prevention strategies, which have lent them more success. Among those are Germany and South Korea. Our crisis management strategy included 4 key points. The first was testing, contact tracing and isolation, where we defined the problem, identified our risk and implemented protective actions that related to what we had identified. Our second piece of our crisis management process related to stepped up infection control practices, which included everything from hand washing and social distancing to cleaning and disinfecting, and most importantly, the proper use and availability of personal protective equipment or PPE.
The third part of our strategy involved associate training and support, particularly to assure widespread adoption of appropriate practices. And last but certainly not least was a new system to ensure enhanced accountability and to document results. As I said before, our testing strategy was patterned after South Korea, which used a test early and universal strategy regardless of someone's symptoms. We used we initiated testing in late March. We used a private lab and our decision was to test all residents and associates, not just those with significant symptoms, substantially different than what was happening at the time.
We started by testing in hotspots in 2 communities, both of which were LTC properties, 1 in Colorado and 1 in New Jersey. Roughly 50% of the people tested were positive. But most notably, of these, 70% to 94% were asymptomatic, 72% of residents to be specific and 94% of our associates. This is hugely important because it told us that this disease was transmitted without someone having symptoms. And that despite what we were being told by the CDC, we needed to do more.
Juniper used that information to put together what we considered our battle plan, which we believe has been fairly successful. I want to also note that the majority of our communities tested 100% negative. And in those communities, what we did is essentially sheltered everyone, including our staff in place. A fun example of this was something we call Camp Wellspring, which took place in memory care. And as many of you may know, memory care residents are harder to isolate.
They naturally like to come out of their rooms and oftentimes wander. And so isolating them individually in their suites is often more difficult. By creating a safe environment, by sheltering in place, by creating small cohorts, we were able to keep people safe and healthy. More importantly or equally importantly, I should say, is that we created a fun environment, one which had tremendous positive impact on our residents and our team members as well as their families. We created an RV camp in our parking lot and each of the cohorts cohorts are like neighborhoods and so we assigned staff to each of those neighborhoods.
They were not allowed to go to other parts of the building. So similarly, they had to shelter outside of the building in their time off in a distinct location and we created those.
At the
end of the day, many of our residents felt that they were on vacation. They thought it was great fun. And we've now dubbed it Camp Wellspring. So that's a fun story about that. I will also just note as I'm telling stories that in the communities that sheltered in place, we now have 3 new babies of women who sheltered in place and gave birth shortly thereafter.
I want to let you know that in terms of testing right now, we are doing viral testing weekly, but the key to the strategy working is rapid, accurate, affordable and regular testing. Testing affords us the data to keep people who are likely communicable and who can transmit the disease out of the community. That enables us to create a safer environment, which keeps everybody healthy. And we've been quite successful in doing that. As of the time we reported to LTC, we have no cases of COVID anywhere in our system among residents and staff.
Moving along, I want to talk a little bit now about some of our other infection control practices and then briefly about staff issues. Infection control practices including stopping non essential visitors from coming in, screening at the door, taking temperatures of all people. But some of the other things we did included stratifying our residents in terms of risk, understanding their chronic conditions and monitoring those who are more susceptible to the disease more often. As I mentioned before, we cohorted residents and staff, which was probably one of the more effective measures we took. PPE, we had an adequate supply.
We spent a lot of money on it. One of the more important things we learned is that we had to train people in the use of PPE. And as we all know, wearing a mask is new to many of us. It was to our residents and to our teams and training people in how to use them, how to put them on, how long to keep them on, how not touch them, and then doing compliance audits are all extremely important in proper infection prevention. In terms of disinfecting, we went green, which is something that Juniper has done repeatedly over our 30 years.
We used a nontoxic disinfectant, which was EPA and FDA approved and utilized foggers to make sure that we disinfected the whole building. The other thing we did that I think was really important, which you may not consider a direct infection control practice, but we considered an infection prevention practice is communication. We communicated early, often and I believe transparently. As of July 17, we had communicated 1980 different times with all of our residents' families and their powers of attorney as appropriate. So communication for us has been critical in getting the support of our teams, of our residents and our families.
I want to talk briefly about staff issues. One of the things that really impacts all of us as senior living providers is staffing. If someone's sick, obviously, they need to be out of the building. If someone's exposed to someone who's sick, they too need to leave. And as such, it meant that in several cases, all of a sudden, within a very short period of time, the staffing you needed was or your regular staff were no longer available in the same numbers they were before.
If you add to that fear, staffing has become difficult, particularly in hotspots. The cost of that staffing has gone up as we've provided appreciation pay, otherwise known as hero pay and some people call it hazard pay as well. In addition, personal protective equipment needs to be accessible, which we were able to do and use properly. Now what's the solution to these staffing issues? Well, for us, it was to train all of our available associates to be universal workers, to extend pay when people were sick or exposed to protect them and their families to provide appreciation pay, particularly in areas where we had COVID positive residents, to provide additional incentives for people to shelter in place to essentially create a bubble around our communities.
And lastly, we used our salespeople as recruiters and found this to be extremely effective in helping us fill empty positions while people were sick. I want to talk to you now about the 2nd phase, which we call the pathway forward. For us, the goal of this phase is to restore profitability while keeping residents and associates healthy, safe and engaged. Our approach has been to jump start move ins and implement what we call the 5 pillars, which in notable Juniper fashion alliterate, so they are prevention, people, program, place and packaging. Prevention has to do with our testing strategy and infection prevention, including cleaning, disinfecting, and again, cohorting people, has to do with the schedules for our associates, their assignments, again relating to cohorting and different pay programs.
Programming in the pathway forward is about reopening dining, restoring activities and perhaps most importantly, establishing safe visitation for families. In terms of place, we have been working on making sure there are visible signs that we are beginning to return to normal while maintaining successful infection prevention and control strategies. And lastly, under packaging, which you might consider marketing and sales, we focused on message and the delivery of that message. In terms of driving sales moving forward, I want to tell you a little bit about what we've done and the results to date. In terms of our efforts, we utilize a golden triangle approach, which includes the Executive Director, the Director of Wellness and the Director of Sales and Marketing.
Those three people come together to focus their effort on outreach and in working together to close sales. We've resituated our sales offices. We've changed our tour protocols and moved our model suites to areas which they can be easily accessed without going through other parts of the building. We've created new messaging. We've trained for that and then we've also demonstrated competency among the appropriate people.
We've added additional sales support for targeted communities who had significant reductions in census over the period. We put together toolkits for rapid move ins and we've instituted new rewards. What have we achieved? Well, in terms our July 2020 digital leads are up 30 3% over April of 2020 and our July 2020 digital leads are up 48% over July 2019. So we are seeing substantial growth in leads.
We have put in place some special campaigns and they are working. We've started doing virtual tours. They're catching on. Our communities are now able to do back stage tours as well as virtual tours. And I'm proud to say that our July 2020 results, while not where they were pre COVID, we are seeing net census gains, and we're very happy about that.
Some of our operator pandemic imperatives that I think you need to know about is that we continue to screen for social isolation issues among our residents. We have expanded telehealth or mental healthcare as well, and we've continued to increase access to the Internet and smart devices. And just so you know, we have done over 12,000 virtual visits with families since the start of the pandemic. We've added a variety of different ways for people to meet with their health care providers online and have done over 1400 window visits. What are the lessons learned?
Well, in terms of leadership, vision and the ability to use data to set a proactive course has been extremely important. I think a second lesson learned is that technology is extremely useful and really critical in generating the data and communicating appropriately in times of crisis. Some of the technology that has been increased in its use is, of course, telehealth. We've used a variety of ways to communicate with residents and families. And we've used technology to support activities, both social and fitness related.
Some of you may have seen the joint effort between LTC and Juniper to develop an industry accessible virtual connections program, which is provides a whole host of opportunities for people in our communities at varying levels of care and service need as well as in the community. That's accessible via slvirtual.com, and I thank LTC for that. I will say that there will, in my mind, be a new model looking at buildings in terms of small neighborhoods and increasing social engagement through a variety of ways of integrating what we do with the community at large. In terms of Phase 3, our new normal, it's a work in progress. We're not there yet.
It will involve a variety of different things, including continued use of data, of technology that is for data communication, provider access, digital marketing and resident engagement. We will continue to integrate health services with other providers outside of our communities. Our neighborhood designs are very important, particularly for cohorting and keeping people safe and giving families and prospective residents an understanding, a visible understanding of how we manage during this type of pandemic. There will be gated entry, where we take temperatures and we screen very tightly over who enters the building. And of course, cleaning and disinfecting has changed and needs to be visible.
So all of those things will be part of our new normal. And I think that concludes my comments and I want to turn it back over to Wendy. Thank you.
Thank you, Lynn. And Lynn will be available during our Q and A session. So, you can ask her questions about Juniper and about the industry in general. So, we'll now open it up to the Q and A.
We will now begin the question and answer session. Please note that today's comments, including the question and answer session, may include forward looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties' filings with the Securities and Exchange Commission from time to time, including the company's most recent 10 ks dated December 31, 2019. LTC undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances after the date of this presentation. Our first question will come from Daniel Bernstein with Capital One.
Please go ahead.
Hi. Good morning.
Good morning, Dan.
Can you hear me? Okay. And just thanks, Lynn, for all the color commentary on the operations. I have a quick question for Lynn and maybe LTC as well. Just in terms of how are you thinking about the margins for the business?
There's been a lot of talk that maybe margins have been permanently impaired. I know you talked a lot about when staffing challenges during this, but how should we think about the margins of the seniors housing business going forward? Can they come back or are they somewhat permanently impaired?
I do believe they can come back. I think that for them to fully be restored, it's going to take time for two reasons. Number 1, obviously, we've been impaired both we have new costs related to PPE and things like testing and additional staffing costs. And on the revenue side, obviously, our occupancy, in many places, not in all places, has been impacted. But I do believe that one of 2 things will help us restore normalcy, if you will, to margins.
And I think one of those obviously is a vaccine, which is effective and utilized widely. I think the other, frankly, is rapid testing. And I know our experience with testing has created a sense of safety among our staff and also among prospective residents. So while there's a cost to that, I do believe that cost will eventually be offset by the government and that margins can return to normal, albeit I do believe it will take some time.
Okay. I don't know if Wendy or Clint or someone on the LTC side have some thoughts on that in terms of margins and maybe how you're underwriting assets or is it just too soon to put a normal number on and underwrite?
Sure, Dan. Thank you. I think we think similar to Lynn's perspective, it's going to take time to normalize. And what we said on our last call is looking at acquisitions right now, it's probably a little more challenging because in the interim, you're not exactly sure what that margin is going to look like, while we focus looking right now more on structured finance products. But we do think over time, and these are private pay businesses, there will be normalization of that and there's going to be this increased sense of security in the environment as far as protocol staffing, infection control, testing.
I think that's going to increase the value perception of the business.
Yes. And I would echo what Lynn said about safety. I think the operators that are able to demonstrate a safe environment for seniors will recover quickly more quickly on the occupancy side.
Okay. In terms of Senior Lifestyle, I just want to kind of understand, obviously, you were unwinding the JV that was already known, but I guess we're taking a little bit by surprise by the write down of the lease. And just want to understand what warning signs were there. I know Senior Lifestyle is a much larger operator than just your 23 properties. So just trying to understand how much of the non payment is performance of the assets themselves versus broader struggles of senior lifestyle?
Dan, this is Clint. One thing we obviously were a little surprised as well. We look back in to April when this the pandemic was just becoming in the midst of it. And we did offer some deferred rent as we've disclosed to Senior Lifestyle on that, but also as we disclosed how rent has was paid in May, June and then trended up in July. That timeframe, there was a back in May, there was uncertainty regarding securing PPE staffing costs with HeroPay.
So those were outsized expenses. And again, in that timeframe, operators were trying to secure PPE not only for the next 30 days, they can try and get as much as they could and the per unit cost associated with that PPE was substantial. So when going back and looking at the financial statements during that timeframe, there is definitely a significant increase during the May June timeframes for hero pay and PPE cost.
And Dan, Senior Lifestyle is a company that they believed and taking their counsels from their legal advice is that they could not apply for government support in that program. So all of their added costs got taken out of our rent most specifically. So our smaller operators who were able to get the benefit of support from the PPP program, were able to absorb those costs with that support. Senior Lifestyle just unfortunately was in the position that they were unable to get that support. We do have an agreement with Senior Lifestyle, however, that should that support be forthcoming in the future and indeed the industry is lobbying hard.
As I said in my comments, they get would come to us to pay for back rent. We do have security on our books for the rent that's unpaid and their rent is going up as we indicated they paid 1,100,000 for July. So they're getting closer to their rent. They had one property that they had to close totally because they had a major
Flooding issue.
Flooding issue. And they do have insurance interruption policies. So we hope that we'll get that money back. So there were a lot of things that happened to Senior Lifestyle just as a tsunami type of situation.
Okay. And just one quick question. You have 9,900,000 dollars from Anthem that's anticipated, but you have some language in the sub and 10Q that's kind of suggested that that number might not quite be there. So I just want to understand kind of what the expected ramp might be in the second half to pay the full 9.9 in 2020, if that's the case, maybe what they paid in 1Q and 2Q, just so I can understand if that how to maybe I should think about modeling that ramp?
Yes, that was just standard cautionary language around Anthem because as you know, we haven't set stabilized rent for them yet. And we were prior to COVID, we were hopeful to do that, at the end of this year. Setting that rent may be pushed back depending on how long the COVID situation lasts. But currently, we are projecting that they'll continue to pay, as we have disclosed in the supplemental.
And Dan, the approach we took in setting rents with Anthem, we didn't want to get into a situation where they were falling backwards. So we set the rents based on their projections and allowing we weren't sweeping all of the cash flow. So we allowed them some cushion on that as well as there was as they were growing occupancy.
Okay. Okay. I'm sure there are a lot of people behind me here. So I'll hop off and let others ask some questions. Thanks.
Our next question will come from Connor Seversky with Berenberg. Please go ahead.
Hey, everybody. Thank you for having me and thank you, Lynn, for the comments earlier. That was very helpful. Curious about Anthem here as a memory care operator primarily. How is occupancy or admissions fared for this kind of care versus your assisted living portfolio?
Hi, Connor, it's Clint. Early on in the pandemic, Anthem did some voluntary admissions bands, just trying to get understanding, as Lynn indicated earlier in her remarks, isolation among memory care residents can be more challenging. So we did see because of a self imposed mission ban on certain communities that occupancy did come down, but we've actually seen an uptick, a little bit on that since they did the self imposed admission ban. And I would say Anthem falls within the range of what I provided in my prepared remarks as far as occupancy changes. They're not outsized compared to others in the portfolio.
Okay. And then back to Senior Lifestyle. In the supplemental, I think you're expecting about $900,000 per month in rents going forward. I'm wondering in the event that you have to restructure the lease, do you find this to be a meaningful target? And then in the event that you have to dispose of those properties, I know you mentioned that price discovery is a bit of a challenge right now, but I mean, how would you address that situation?
What would be your strategy to dispose of them?
I mean, we're looking at all options right now regarding the senior lifestyle portfolio between looking at re tenanting buildings, selling some. So it's really going to be a process that falls out as far as what's the best option for us, which may entail some buildings remaining with senior lifestyle possibly. So we're in that process of identifying potential parties to come in and take over operations on certain buildings. We're going to look at it as a collective strategy to see what provides the most benefit for LTC and shareholders. Part of that solution could be looking at shorter duration leases on some buildings to where we provide maybe more of a rent assistance during a limited time where a new operator can come in and implement changes.
And then we can assess that at that point in time to look at what rent would be on a stabilized basis. This is something we did on 2 Thrive buildings previously when we transitioned. We did a 2 year lease to give the operator runway to look at it. So that may be a component of how we look to address re tenanting some of the buildings with senior lifestyle.
Okay. And then in a broad sense, looking at rent coverage with and without the contribution from Senior Lifestyle, I know you removed them in one of the footnotes in the supplemental. Could you provide any color of how this metric could look with 1 full quarter of impact from COVID-nineteen?
Right now, we have just the 1 quarter. So we've not that timeframe is evidenced by Senior Lifestyle's costs and the uncertainty with PPE and the HeroPay implant at that time. It's a little bit hard, I think, to use that as a trending mechanism going forward. So I think looking at that 1 quarter of coverage, I think, is a challenging metric to look at.
Yes. And I think for the next couple of quarters, coverage is going to be the challenge in reporting is going to be to create or not create, but have it on the same basis across operators and some who got government assistance and some who didn't and the different ways that operators might flow it through, some might show it all at once in revenues, others might bring it in matching increased expenses and decreased occupancy. So I'm not sure if the next quarter coverage is going to be as meaningful a metric as perhaps it has been in the past.
Okay, fair enough. And then last one for me, wrapping this all together. It seems like you guys are sitting pretty comfortable on that payout ratio. I mean, how does your calculus change for the dividend payout in the current environment? Or what would it take to make you reconsider the current monthly payout?
So we've kind of targeted this 80% of FAD and that's a conservative metric. And I think in today's environment, we're feeling very comfortable, having that conservatism. Even 7.4 7.4 if you annualize it, we still have a $20,000,000 cushion to our current annualized dividend payout ratio. So we're comfortable with that. We don't feel the need to make any adjustments.
Okay. That's all
I need.
Thank you very much.
Thank you, Connor. We have time for one more question.
Our last question will come from Tayo Okusanya with Mizuho. Please go ahead.
Hi, yes. Good morning, everyone. Just a follow-up on your Good morning, Tayo. Good morning, Tayo. Good morning, everyone.
Follow-up on Senior Lifestyle. Is there any reason you guys just didn't treat this as for more rent deferrals going forward? Like what kind of prompted the decision to kind of write off the AR and move to cash when I think there's so much flexibility in the world right now about how we're dealing with this? Why wasn't you just kind of treated like further deferrals?
It really was discussion with the operator and what we want to do with that portfolio moving forward. Your question is why we didn't just grant deferrals in May June versus delinquent rent. That's your question, right, Tayo?
Yes. Yes, yes. That's part of the question. But again, but what's so unique about Senior Lifestyle that kind of this decision was made that we're moving to cash rent, we're going to drive the process of selling the assets versus a bunch of operators right now are struggling because of the COVID back off. But I think right now, people are kind of working with all of them, deferring rents, doing things like that.
It kind of feels like there's more of a permanence to this decision around senior lifestyle, if I can use that word?
Well, I think one factor for consideration is that Wendy made a comment in her prepared remarks about operator concentration and trying to manage that, which outside of Senior Lifestyle and Prestige, we've been able to accomplish that. So being proactive for the company and trying to utilize operator concentration as a risk component, we see being able to bring that concentration down as a positive for the company. We have not ruled out having senior lifestyle stay in some of the buildings that remains an option, but we think reducing operator concentration long term will be better for the company. So we don't have we're trying to keep concentration if we can below 10%.
Okay. Is there any chance that being a lifestyle, things have to feel better 3 months, 6 months from now that come off cash basis and you're kind of approaching your contractual rent again?
For them, well, beyond cash basis for an extended period of time until we had confidence in the collectability of future straight line rents of the future escalations. So but to the extent they were paying their contractual rent in cash, that's what you would see reflected in the financial statement. So yes, if they if their occupancy reflects stabilized contractual rent number, then yes, we could we would reflect that. But we wouldn't be recording the future escalations. I think that's your question, like starting the straight line again.
That would take an extended period of time and collectibility
surety. The collectibility threshold
is much higher now, Tayo. I mean, as we know, it's a much higher bar, to get that certainty. So I wouldn't expect that you would see that for I mean, I would at least a year or so, you would
need some good payment history to have that shared.
Got you. Great. Then the last one is for Lynn and Wendy as leaders in the industry. What is if you had a chance right now to actually speak to the federal government and say, we need these two things to ensure that the senior housing industry makes it through the pandemic. Was it the 2 or 3 really key things or messages you would love to kind of get across to the government of really A, B and C to really kind of help us get through this?
This is Lynn. I can take a first stab at that. I think there are several things that I would put at the top of my list. First is funding, funding for a number of things, but in my mind, one of the top priorities needs to be funding for rapid testing and access to that testing. The second thing I would say is that we need to be prioritized for the vaccination when it is available.
And 3rd, I would point to liability protection. I think that that's going to be a huge issue for the industry moving forward. And the fact that this disease transpired in the way that it did before anyone was really aware of how it was transmitted and how it could be controlled, was certainly beyond many people's ability to control and that includes us.
Yes, I would agree with Lynn on what is needed. Definitely, early and accurate and short returns on the testing. And as Lynn said, we need more support from the government relative to the cost of that testing. And I believe also the industry and not just the industry, but the world needs some protection against the litigation because we can survive this. We can get back to profitability and plaintiff's lawyers can take us down for instances that nobody could have expected and nobody could have protected against.
And I think the litigation proposals are not to eliminate people who have absolutely done the wrong thing. It's much more to protect people that just didn't have the ability to predict this type of pandemic. And that's my my political statement for the
Appreciate it, Wendy.
Funding access and protection. That's what we need. Funding access and protection.
There you go. Well, thank you all for attending and listening to us. And I look forward to talking to you after the Q3 and stay well and stay safe. Thank you.