Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Welltower Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, to Mr. Matt McQueen, General Counsel. Thank you. Please go ahead, sir.
Thank you, and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. With that, I'll hand the call over to Tom for his remarks. Tom?
Thanks, Matt. First and foremost, I hope that all of you and your families are safe and healthy during these difficult times. When we last spoke with you in early May, Welltower was in the midst of the most challenging period in the company's history. Many of our senior housing and post-acute care operators had implemented admissions bans to prevent or control the spread of COVID within their communities. Critical personal protective equipment and testing kits were difficult to procure, and labor challenges left many of our operators short-staffed. I am pleased to report that significant progress has been made on all of these fronts, and that most of our properties have reopened with appropriate staffing levels and requisite PPE and testing kits. This was accomplished through careful planning and precautionary measures taken by our operators.
In fact, in just a few months, 95% of our senior housing operating communities are now accepting new residents. This is significant because our communities are a critical component to the care continuum. It is imperative that seniors have access to residential settings in which professional care is offered to meet their everyday needs, including safety, nutrition, hygiene, and medication management. It is important to remember that this is a needs-driven asset class. Welltower's traditional assisted living portfolio is skewed towards higher acuity settings, which are built for seniors who have exhausted the ability to be cared for in a conventional home setting. We continue to owe a debt of gratitude to the frontline workers in all of our properties who braved extraordinary obstacles to put the care of their residents above all else. While I'm encouraged by our progress, by no means are we signaling the all clear.
We are acutely aware of the heightened level of risk which continues to exist, particularly as the number of COVID cases in the U.S. continues to rise. As Shankh and Tim will describe in greater detail, the toll from COVID on our business has been, and will continue to be, pronounced. However, the decisions we have made since the beginning of the pandemic and the steps we have taken over the past five years to strengthen our enterprise have put us in a position to weather this storm. These decisions, while often difficult, are rooted in data and always executed with the long-term interests of our shareholders in mind. This management team has earned a reputation for taking on both opportunities and issues in a proactive manner, and COVID-19 has not changed that.
One of the strongest examples of this approach relates to our recent efforts to further strengthen our balance sheet. As financial conditions began to deteriorate at the outset of the pandemic, our team did not panic. Instead, through a thoughtful and deliberate process, we obtained a $1 billion term loan, providing us with ample flexibility in the event of a prolonged market downturn. As conditions improved in subsequent months, our team waited for an opportune time at which to return to the public market, and in June, we issued $600 million of unsecured debt at just 2.75%, the lowest coupon on 10-year notes in Welltower's history. These actions are a reflection of Tim McHugh and his team's responsible stewardship of our balance sheet and the confidence from investors and our banking partners in the Welltower platform.
Another major achievement was the disposition of two large portfolios of Seniors Housing and Outpatient Medical assets with a combined total value of $1.3 billion. These sales were executed during a time in which few real estate assets traded, and when the ability for senior housing to withstand the impact of COVID was called into question. Most notably, our billion-dollar transaction with Kayne Anderson provided significant and immediate liquidity to Welltower in a period of under 45 days and was executed at valuation levels which were only modestly below pre-COVID pricing. Again, we were not backed into a corner to complete these deals. The valuation we achieved demonstrated the appreciation for the long-term growth prospects for healthcare real estate by astute investors, and the strong liquidity which exists for our asset class. I applaud our investment teams for their perseverance in completing these deals under the most extenuating of circumstances.
As the year progresses, you should expect to see more of this. Following the completion of our capital markets activity and portfolio dispositions, our near-term liquidity stands at $4.3 billion. The company is extremely well-positioned to address all near-term capital obligations and has ample capacity to execute on accretive opportunities as they arise. Our team will continue to explore all avenues through which to create value for our shareholders. Regardless of how strong our liquidity position is today, our underwriting discipline will not be compromised. Many questions remain unanswered as to the duration and ultimate impact of COVID-19. However, what we can say with great certainty is that the long-term drivers of our business remain firmly intact. The population is growing older. The need for value-based healthcare is as important as ever. Addressing social determinants of health will only grow in relevance.
While it's often difficult to see past the next week or next quarter, rest assured that Welltower's long-term value proposition has not changed. There will be challenging times ahead, but we are confident that the company is positioned to navigate through these choppy waters and emerge as the continued leader in delivering the real estate that will enable more efficient and cost-effective healthcare and wellness. With that, I'll turn the mic to Tim.
Thank you, Tom. My comments today will focus on our second quarter 2020 results, the impact of COVID-19 in our business observed this quarter, our capital activity in the quarter, finally, a balance sheet and liquidity update. In the second quarter, Welltower reported normalized FFO of $0.86 per diluted share. These results include a total of $37 million or approximately $0.09 per share of property-level costs in our Seniors Housing Operating Portfolio associated with COVID-19 pandemic. As we indicated last quarter, Welltower has elected to not normalize these COVID-related expenses for both normalized FFO and same-store results. Now turning to our individual portfolio components. First, our triple net portfolios. As a reminder, our triple net lease portfolio coverage and occupancy stats are reported a quarter in arrears. These statistics reflect the trailing 12 months ending 3/31/2020, and therefore only reflect a partial impact from COVID-19.
In the quarter, we collected 98% of cash rents due on these portfolios. As of last night's release, we've collected 97% of cash rents due in July, which is in line with previous months' collections at this time. First, our senior housing triple net portfolio delivered 1.4% positive year-over-year same-store growth. A difficult comp, combined with an increased bad debt accrual, drove growth below original expectations. Occupancy was down 50 basis points sequentially, and EBITDAR coverage increased 0.01x on a sequential basis in this portfolio. Our senior housing triple net operators have experienced similar headwinds as our RIDEA operators during the second quarter, and we expect these coverages and occupancy stats to reflect that going forward. Our long-term post-acute portfolio generated positive 2.1% year-over-year same-store growth, and EBITDAR coverage declined 0.04x sequentially.
Lastly, health systems, which is comprised of our HCR ManorCare joint venture with ProMedica. At NOI growth of positive 1.375% year-over-year, and EBITDAR coverage declined one basis point sequentially to 2.13x . Turning to medical office. Our Outpatient Medical portfolio delivered positive 1.8% same-store growth. As a significant year-over-year decrease in parking revenue caused by national shelter in place orders during the quarter, along with an increase in bad debt accrual was slightly offset by better-than-expected tenant retention. New leasing velocity remains uneven as a result of COVID. In the second quarter ran behind pre-COVID budgets by 104,000 sq ft. The gap began to narrow June into July, with new leasing exceeding budget by 44,000 sq ft in July. During the quarter, we collected approximately 87% of cash rents while approving 12% of rents for two months deferral plans.
With the slower than expected reopening of certain regions in our portfolio caused more deferrals in the May-June period than we had anticipated when we reported our first quarter numbers, we are encouraged by the momentum of the rebound in tenant openings that accelerated in the back half of June and July, driving cash rent collections to 95% in July. We've also had strong deferred rent collection in June and July as our two-month deferral plans began repayment, and we collected 96% of what was due over this period. We're extremely proud of the Welltower Outpatient Medical employees, both on-site and working from home, who have kept our platform running smoothly during these extraordinary times. Before reviewing this quarter's Seniors Housing Operating Portfolio results, I want to briefly summarize the outlook we provided back in May, when uncertainty was at its peak.
At that time, our expectations were that occupancy would be down between 500 basis points and 600 basis points from April 1st through June 30th. RevPAR would be flat on a year-over-year basis, and that expenses would increase by 5% sequentially, driven primarily by labor costs. Before turning to how things actually turned down in the quarter, I'd like to first point out that our same-store pool is now representative of 91% of our total senior housing operating NOI, and this will continue to increase in the year-end. In the quarter, occupancy declined in our same-store portfolio by 490 basis points from April 1st to June 30th. Our same-store expenses declined 10 basis points sequentially, and our same-store RevPAR declined 20 basis points year-over-year. The net result of this was second quarter same-store NOI declining 24.5% from the previous year, and 23.3% from the previous quarter.
These results were a function of widespread admission spans that were in place through most of the quarter that limited move-ins, as well as extraordinary COVID-related expenses totaling $34.2 million in the same-store portfolio, resulting in significant margin compression in the quarter. As a reminder, we're not normalizing any of these COVID-related costs for same-store. Looking forward to the third quarter and starting with the July data we've already observed, we experienced a 70 basis point decline in occupancy in July from start to finish. We expect to finish the third quarter approximately 125 basis points to 175 basis points lower than we ended the second quarter. We expect overall SHOP expenses to remain relatively flat sequentially, as continued reductions in COVID-related spend will be offset by increased costs related to reopening of communities, seasonal utility costs, and any increase in insurance costs. Now in the capital market activities.
In June, we issued a $600 million unsecured bond with a 10.5 year tenor at 2.75%, and as Tom mentioned, the lowest 10-year coupon in the company's history. We were able to tender for $425 million of our two outstanding 2023 bonds, increasing the weighted average years of maturity to 9.2 years for unsecured bond borrowings and further de-risking maturities through 2023. Following these tender activities, which closed in July, we have approximately $1.3 billion in cash and cash equivalents and the full capacity of our undrawn $3 billion unsecured revolving credit facility, totaling $4.3 billion of near-term liquidity as of July 31st. Moving to investment activity. In the second quarter, we invested $124 million, almost entirely in our development pipeline. On the disposition front, we completed $949 million of pro-rata dispositions at a 5.7% cap rate.
Post quarter end, we closed in the second tranche of the MOB portfolio sale we announced at Nareit for proceeds of $173 million at a 5.4% Yield. We expect the third and final tranche to close in the third quarter for $89 million of additional proceeds at a five three yield. Shankh will speak to later on, we feel very good about liquidity for all property types in our high-quality portfolio and view our private cost of capital at significantly better price than our public cost at this current time. As a result of these successful dispositions in the quarter, we ended the quarter 6.36x net debt to adjusted EBITDA, a 43 basis point increase from last quarter, despite an approximately 13.5% decline in sequential EBITDA. COVID has substantially increased variance in our near-term EBITDA.
Consequently, we have done everything in our control to counter that and maintain a strong cash flow-based leverage profile despite our currently depressed property level cash flows. We've also been acutely focused on managing what is in our control to maximize retention of cash through this pandemic. This has been focused on three main areas: G&A, CapEx, and the dividend. On G&A, we expect to finish the year between $125 million and $130 million of corporate G&A, implying a run rate of a little over $30 million a quarter for the remainder of the year and representing a $10 million plus decrease from what we'd initially guided to for the year. For CapEx, we reduced CapEx spend by $12 million or 18% sequentially.
With our growing liquidity profile and our buildings opening back up, we expect spending increase over the next two quarters, but still expect to finish the year approximately 16% below where 2019 levels were. As we announced last quarter, our dividend reduction, which has created approximately $110 million of quarterly cash flow savings. The result of these actions, along with many others, was that we were able to retain a significant cash flow before investment activity, despite the substantial negative impact of COVID-19 had on our second quarter results. While these decisions, particularly the dividend decision, were difficult, we felt strongly that they give us greater control as we navigate through the pandemic. Retaining cash flow is, by design, difficult within the REIT construct.
When analyzing near-term impact of COVID-19 on our cash flows, it was not just an analysis of when we might return to break-even levels of cash flow. It was a question of how long that deficit would last and the time it would take for retained cash flow to reach a level that allows for the accumulations of that deficit to be repaid, i.e., today's dividends would need to be paid with tomorrow's cash flows. As the duration of the deficit period increases, it's a compounding impact on the deficit repayment needed to return the balance sheet to pre-COVID levels. Ultimately, this has a dual impact of not only amplifying business strains caused by the pandemic, but also destabilizing the balance sheet.
Disposing of assets or selling equity offsets this increased leverage only increases the payout deficit by either eliminating the cash flow from disposed assets or adding dividend-paying shares to our share count. Our asset sales this quarter demonstrated why reducing the dividend to a level below current cash flows was made by our management team, as we were able to make a decision to sell assets based solely upon the value received and the stabilizing effects these retained proceeds have had on our balance sheet. We believe these decisions have removed dependence on a quick recovery, allowing us to decrease downside risks and to continue to make capital allocation decisions with a long-term focus. With that, I'll hand the call over to Shankh.
Thank you, Tim, and good morning, everyone. I will now provide additional color on the operating performance that Tim discussed and discuss our capital allocation strategy in this challenging yet rapidly evolving time. As we reflect back on the frenzied pace of activity over the last few months, our focus has been and will continue to be the safety of our residents and staff in our communities. Frontline heroes at these communities have done a tremendous job of improving the safety and quality of our lives of the residents from the earliest days of this crisis. For example, in our SHOP portfolio, reported resident COVID cases over a trailing two-week period peaked at 510 cases in the first week of May, and since then are down to 98 cases, representing a 80% decline from the peak.
This is despite the fact that our operators tested nearly 100,000 residents and employees so far. While COVID cases have spiked across the nation, the prevalence of cases across our portfolio has remained relatively flat so far. COVID-related deaths, which peaked during the last week of April, are down 92% since then and have so far remained relatively stable in July, despite a spike in nationwide cases. This remarkable improvement, though far from being completed, has allowed our operating partners to cautiously open doors to new prospects. In the last week of April, 42% of our communities had official admissions bans. That number today is 5%, including 3% partial bans. Move-ins were down sequentially from pre-COVID February peak to April, when you had the first full amount of COVID, by almost 77%. Since then, move-ins are up 174% from April low till July.
Move-outs have peaked in March and sequentially down 37% in July relative to March. However, we still have more move-outs than move-ins. As a result of this, occupancy loss in our SHOP business has narrowed from down 60 basis points during the last week of April and first week of May to down 10 basis points each of last three weeks. Though this improvement is encouraging, we are cautious about the overall environment as spikes in COVID cases in our markets are real, and they can impact our communities at any time. We have been seeing a steady increase of leads, inquiries, and deposits due to the need-driven nature of our business. The total number of leads in the system, which declined 55% from February to April trough, since bounced back 60% in June from that trough. It is approaching pre-COVID February numbers in July.
Move-ins are trailing as those leading activities due to the hesitation in the psychology of the consumers as they juggle between the difficulty of taking care of the elderly loved ones and the fear related to national headlines of rising COVID cases. We have been positively surprised by our operating partners' ability to scale expenses to a rapidly decline in occupancy so far. We saw rates held up slightly better than what we thought in assisted living and memory care segment, which is up 1.7%. The occupancy was hit much more pronounced here, down 6.2% year-over-year. While occupancy of our IL segment held up relatively better, down 2% year-over-year, rate growth declined 10 basis points year-over-year.
Additionally, the entrance of a lower price point seniors apartment portfolio to same store pool in Q2 impacted the overall mix, reducing total reported same store report growth by 40 basis points for the quarter. Clearly, given how COVID has spread, the larger coastal markets have been impacted significantly during the quarter, more than other markets. Finally, we're starting to see some differentiation in operator performance that can be explained by operator value add, not just location, product type, or acuity. As I mentioned last quarter, correlation pattern completely broke down in March and April, and we are happy to see it improving through June and July. On capital allocation front, we discussed in last quarter's earnings call two distinct mental model, short-term defense and long-term offense.
We're glad to inform you that during the quarter, we have largely completed our efforts on the defensive side and have now shifted our focus on the offense. We're extraordinarily proud of our execution during the second quarter in both public and private markets. It is important to remember and understand these two are one interconnected set of decisions and not distinct actions. For example, our exceptional execution with Dave and his team at Kayne Anderson in record time with our senior housing and MOB portfolio disposition, along with our execution to secure a term loan with our banking partners, both took place during the dark days of March. This gave us confidence to be patient in accessing public bond markets rather than issuing bonds when credit spreads were at their peaks.
If we were to issue bonds during those days, we would be looking at coupon close to 5%, not 2.75% that we issued later in the quarter. That would have come at a cost to shareholders of $130 million over the life of the bond. We believe our execution in private markets speaks to the significant demand of stabilized assets, both in senior housing and medical office asset classes. We're in the middle of other transactions that are premature to discuss at this point, but needless to say, we feel very strongly about the demand of our assets. More to come as we progress through the year.
Notably, this robust interest and pricing are nowhere to be found in assets that are not in the middle of the fairway, such as those deals with broken capital structure, suboptimal operators, development and lease-up assets, or generational handover of companies and assets, to name a few. Fundamentals determine cash flow, and asset price is a multiple of that same cash flow. These variables are usually inversely correlated with opportunities to invest at the highest moment of uncertainty. In other words, when fundamentals are great, asset pricing is high, expected returns are low. When fundamentals are bad, asset pricing is low, expected returns are high. We're seeing that playing out in many parts of senior housing sector today. We're starting to see signs of distress across the spectrum of the issues I mentioned.
These situations not only require capital, but they also require operators who are otherwise overwhelmed with the demand of their time given what's happening within their communities. That's where we come in with our toolkit. At Welltower, we think our value proposition in three interrelated groups: capabilities, culture, and capital. We lead with our capability, we execute with our culture of partnership, and we get the ball across the finish line through our ability to write resolute checks with unmatched speed and structural creativity. When we introduced our RIDEA through a business model to achieve greater alignment with our operators, many of you asked if Welltower will be able to retain its culture of partnership. To which we responded, the proof will be in the pudding. We are seeing the proof today.
We are working with our operating partners very closely in identifying assets in their backyards through our data analytics platform and tailor-made to their model based on size, acuity, vintage, demographics, and psychographic criteria. This algorithmic approach narrows the opportunity set to a manageable number, which is filtered to succeed for our operating partners to dive in and help us underwrite. Our operators and deal teams then connect with their fellow operators and owners to run through our thoughts on pricing, our ability to close, and execute on operator transfer agreement on an expedited basis. We are either getting a quick yes and jumping on the execution, or we're getting a quick no and moving on to the next opportunity.
For example, one of our partners in Midwest, StoryPoint, we have identified 137 distinct communities in seven states that fit their criteria, and we're going through the list of opportunities with the StoryPoint team one asset at a time. These states have more than 2,800 senior living properties that are humanly impossible to hone in on any practical basis. The job of the algorithm is to bring our partners and our deal teams to focus on the highest probability last-mile effort. We remain fundamental value investors who are focused on bottom-up underwriting, basis relative to replacement cost, and structural protection. In another example, we have or in process of executing on three premium opportunities with our partner Brandywine in extraordinary locations such as Princeton, New Jersey, and Summit, New Jersey.
In another example, we're proud to execute on an extraordinary opportunity in Fisher Hill submarket of Brookline on an existing land and structure that used to be a college. The township and the people of Brookline have given us incredible support and zoning approval, even during COVID-19, to create an iconic 160-unit senior living project. We're underwriting several more transactions with Balfour in their home markets of Colorado, as well as their new home in Boston. I can cite many other examples with other operators, but I will retain those for future calls. I hope you walk away from this call understanding that we have never been more excited about the opportunity to invest capital in the senior housing space because of the pricing that we are seeing.
We're buying communities in our core California and New Jersey markets for less than $200,000 a unit, while replacement costs in these locations are in excess of half a million dollars a unit. Targeting development or development-plus return without the majority of the development risk outside lease-up. We believe in this business long-term. We also understand the near term is going to be uncertain and challenging. Please note that uniqueness of this very challenge is what's creating a once-in-a-generation opportunity right before the multi-decade upturn in the demand cycle. At the same time, the supply is coming to a screeching halt. Many of you who follow NIC data have seen starts are down to Q1 of 2009 levels, and we are likely to see this trend continue. Construction activity across all real estate asset classes is down significantly, which is creating softness in soft and hard costs.
Land prices are starting to show cracks as well. In this environment, we're standing by our operating partners shoulder to shoulder when forced capital is fleeing the space. That is attracting more and more operators and development partners to Welltower, highlighting the proof in the relationship building. I am optimistic we'll be able to create significant value for our long-term shareholders in next 18 to 24 months by allocating smart capital, leveraging our operating platform. With that, over to you, Tom.
Thanks, Shankh. Before we begin the Q&A session, I wanted to call your attention to a press release from last week announcing the appointment of Diana Reid to our board of directors. Diana is an accomplished and highly respected executive with 38 years of experience across the financial services and commercial real estate industries. She most recently served as Executive Vice President of The PNC Financial Services Group and Executive of the bank's commercial real estate business. She's also held leadership positions in many prominent organizations, including the Mortgage Bankers Association, CRE Finance Council, the Urban Land Institute, and Real Estate Roundtable. All of Welltower stakeholders will benefit from Diana's extensive experience and insights. We are extremely fortunate to have someone of her caliber join our board. I'm also pleased by the fact that with Diana's appointment, 88% of our independent directors are women and minorities.
As I've said in the past, the diversity of our employee base, our leadership team, and our board continue to be a priority at Welltower. This is not only a key component of good governance, but it is a proven driver of higher returns to shareholders. With that, I will turn the mic back to [Gilem] to open up the line for your questions.
Thank you, sir. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Due to the essence of time, we ask that you please limit yourselves to one question and re-queue for your follow-up question. I show our first question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.
Thanks. Good morning. I guess both Tom and Shankh, you guys spent a fair amount of time talking about the investment opportunities. Tom, it sounded like you alluded to some other potential sales coming down the pipe. I guess, how do we sort of think about or weigh the sale of assets that may be stabilized? Shankh, it sounds like you're looking at buying some broken assets. Just sort of the dilution short-term versus kind of the long-term gain and the high growth and maybe the high IRR potential. Is there sort of an amount of short-term dilution you're willing to take to get long-term growth out of these transactions?
Steve, that's a very good question. If you think through our, at least sort of the mental model that we have, we're fundamentally looking to sell, at this point, assets that we think achieve pre-COVID pricing or pre-COVID IRR if we have sold those days. Our need for liquidity that we had obviously, or what we wanted to achieve in March is all now achieved at this point. We're looking for releasing capital from assets that we think is a testament of their long-term value. With that, we're looking to buy assets or deploy capital, whether that's assets or any other available opportunities such as our stock, unless we think there's a substantially higher IRR that can be achieved. That's how we're thinking about it. We are long-term value investors, and we're not focused on quarter-to-quarter dilution.
As you might have pointedly noted that the sale that we executed in the quarter had $0.02 of dilution in the quarter, but we still think that achieved extraordinary pricing as well as value for the shareholders.
Steve, I'd add that we're not sellers under duress. There are many quality sources of capital institutional investors that see the long-term value of this space and are very interested if there's an opportunity to buy high-quality assets from us or partner in a joint venture structure with us. There are very active dialogues going on, and that's why I mentioned you should expect more of this as the year progresses. I never want to say that definitively, we're pretty optimistic at this point.
Thank you. I show our next question comes from the line of Nicholas Joseph from Citi. Please go ahead.
Thanks. It's Michael Bilerman here with Nick. Maybe you can spend a little bit of time talking about the senior housing operating environment and whether you're seeing any differences in between operators of their pricing strategies, whether some are using concessions versus some are holding rate. Just how different operators, just like different healthcare REITs are approaching the market in different ways, I assume your operators are as well. If you can go through that would be helpful. Thank you.
Yeah. We are obviously, as I mentioned in my prepared remarks, that we are seeing different strategies, but sort of more I would just describe that as a tweaking of pricing strategies than a wholesale change in pricing. We believe that we provide an exceptional value to customers, and for which we need to attract a certain level of staffing for which you need pricing. We're not interested in compromising on that pricing. We'd rather compromise on occupancy. If you look at, as I mentioned, our assisted living and memory care portfolio, RevPAR was up 1.7%, even during this quarter. Now, if you think about as you lose occupancy and you're not building occupancy, you lose community fees. That obviously impacts that number a pretty meaningful way. However, we're not seeing any decrease of like-to-like pricing in our communities.
Just the reported number, Michael, was impacted by bringing the lower pricing or lower price points seniors apartment into the pool. If you exclude that, we would have reported a RevPAR increase of 20 basis points relative to flat of what Tim described last call.
I would just add to that, Michael, that from Shankh's point, at this point, who you're seeing move in, as you've seen move-ins pick up, are really going to be your most needs-based residents. The value proposition from high-quality care and then reputation, which is where our operators sit within these markets, has probably never been higher. There could be a point when things actually start to pick up, and you see the incremental demand come back, where pricing comes into that equation, just given how suboptimal occupancy is across most markets. At this point, pricing isn't what's driving incremental occupancy. It's not driving the marginal customer in. It's truly, really a needs-based client that's coming in.
Thank you.
Thanks.
Our next question comes from Rich Anderson from SMBC. Please go ahead.
Hey, thanks. Good morning.
Morning.
Obviously you've got a commitment long-term to senior housing. I wonder, and Shankh, I understand you're not a seller, unless you can get obviously reasonable price pre-COVID value and IRRs and all the rest. How would you characterize the future from an asset allocation perspective for Welltower in light of skilled nursing and, or I should say, post-acute assets and medical office? If you had your way and you got the pricing that you wanted, could senior housing almost be the entire story here five or 10 years from now? Is it more just growth in senior housing and you'll continue to maintain some exposure to those other asset classes?
Rich, as we have mentioned in pretty much every call, our asset allocation strategy, or really a capital allocation strategy, is driven by price. In the scenario that which you described, that every asset class that we play in remains perfectly overpriced for the rest of 10 years, and senior housing remains perfectly underpriced for the next 10 years, then yes, the description that you gave, that is possible. That is rarely how things happen, obviously, right? In moments of opportunity when you see in capital markets where capital comes in and out of a sector for various reasons, you see these moments of opportunity, and that's what we believe we're seeing. Near-term capital allocation, obviously you're going to see a significant increase in senior housing. We love all of our asset classes. We love all of our children.
There's no question that we remain interested in playing all different asset classes. Our incremental capital allocation strategy is a function of price, not a function of our love for one asset versus other. Right now today, we have never seen a better opportunity to invest in senior housing as an asset class.
Thank you.
Thank you.
Our next question comes from Jonathan Hughes from Raymond James. Please go ahead.
Hey, good morning. My question is on the rate outlook, and you did touch on it a bit in Michael's question earlier, but I was hoping you'd share some thoughts on the trajectory or reception of rate increases in a world where amenities have been taken away from residents. Of course, they've been taken away for their safety, but the social interaction aspect is what attracts a lot of residents to these properties, and that might not be back to normal for some time. How does this removal of this socioeconomic factor impact the rates your operators are able to achieve today for both new residents and existing resident rate increases? Thanks.
Jonathan, that is a great question, which is why you are seeing the lower acuity models, where the need of providing healthcare and social determinants of health is lower. You are seeing rates not as pronounced, rate increases, as we have described to you, that we saw a slight decrease of rates. On the other hand, where the social aspect of the business is very important, social aspect of the living is very important. More important is taking care of other health issues, obviously that's where you're seeing increase of rates. It's an interplay between all aspects of the services that we provide, where you have more need-driven residents, they will have less impact on rates in this kind of environment. Where you have more lifestyle-driven residents, you will see more impact of rates, just because of what you just described.
Jonathan, it's what I said earlier. Our portfolio is skewed towards the higher acuity. These are truly people that are moving in in this environment have really exhausted other options. The social part of the senior housing model is not as important to them. They need to make sure that these seniors are getting their daily care.
That cannot be done by many families today in the world we're living in. It becomes impossible, particularly if someone has dementia. That is the profile generally of who's moving in today. They're not as concerned about these social aspects of the senior living model. As things start to come back to normal, that once again will become a more important attribute to the consumer. Today it's really all about safety and care.
Thank you. Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead.
Yeah, thanks. Shankh or Tom, can you talk a little bit about how the second COVID wave or maybe the continuation of the first COVID wave has impacted your operators? I guess particularly in California, had they been forced to re-shut down or delay reopening some of those facilities or what's the thought process behind that?
Thank you, Mike. That's a really good question. I am extremely encouraged and positively surprised by the example you just brought it up in your question. I was going to use that. California is probably the only place where you can see there's a true second wave, right? There's a lot of other states where you're seeing sort of the first big wave. I'm happy to tell you, this is why I was so encouraged by the performance the last three weeks. We haven't seen a significant admissions ban or lack of performance in California in the last three weeks. That really surprised me. We reported, as you can see in our presentation, sort of 10 basis points of occupancy decrease in the last three weeks.
Those are obviously rounded numbers, Michael, but if you just followed the real numbers, they were down 14 basis points, down 10 basis points, and last week it was down seven basis points. Given California, Southern California is our largest market. Given California's obviously impact to those numbers, you would've seen a much worse and a worsening impact, not an incrementally better numbers going forward.
Mike, what I wanted to add to that, I'm not going to name the operator, there's one operator in particular who was very quick to shut the door during the first wave in California. What I would tell you is, in the second wave, they are taking new residents. They needed to adjust to this COVID environment, and they did that by effectively shutting down. Now when COVID comes back, they are in a position to safely admit new residents. They have the right protocols and procedures in place that are enabling them to, again, meet the demand for this quality of care in a residential setting in markets where the headlines are pretty scary. I think that's a good indicator, and it helps us explain some of the stats that you see in our deck.
Why the number of cases are not spiking in our portfolio like they had back in April and May when the operators were blindsided. Not just our operators, we all were blindsided by COVID. Again, this could change Mike, but California's an interesting data point for us.
Thank you. Our next question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.
Thanks. Good morning. I wanted to follow up on the investment cadence, within the context of what's going on with cash flows and leverage. Are you guys better to buy or to sell right now? In other words, will sales and purchases be more balanced here going forward and offset one another in terms of volume?
No. Well, I cannot sit here and tell you that I know or have any idea. I will only tell you that's dependent on one thing, that's price and expected return out of those buy and sell. If we find an opportunity to deploy capital, that at an extraordinary basis and return, we'll buy more. If we think that we're better off selling because the market is providing us great value for our assets, that sort of sees through these uncertain times, we'll sell. On a practical basis, there's going to be a combination of both. Obviously as you think through how assets and how debt gets repriced, eventually the stress to debt service coverage, how that stress is obviously equity. It takes time, we're very encouraged by what we're seeing already seeing today.
I cannot tell you sitting here on any given quarter, how those sell versus buy volumes, whether they will sort of cancel each other, one will be higher than each other. I can't tell you that. It's just purely price dependent.
Thank you. Our next question comes from the line of Vikram Malhotra from Morgan Stanley. Please go ahead.
Thanks for taking the question. Maybe both for Tom and Shankh. You've obviously talked a lot about exciting acquisition opportunities across the spectrum, more so seniors housing. I'm just wondering, seniors housing specific, can you talk about those opportunities in context of geographies, meaning the U.K. and Canada as well, product type IL/AL, and then maybe even something that you've talked about in the past, the affordable product. What are you looking at in terms of potentially getting a little bit more aggressive on in terms of building the portfolio out from here?
Vikram, we're looking at opportunities across the board, all three countries. Obviously, just given the population and the number of product, we're seeing more opportunities in U.S. Distress or rather more favorable pricing so far we see across the board, not necessarily one product type versus other, but probably more in high acuity and AL memory care. Probably there is more distress because you saw the occupancy fall the most in that. That's pretty much I can tell you we're seeing, as I mentioned, we're seeing across coast, East Coast, West Coast. We have seen some extraordinary pricing in both coasts. We're seeing a lot of opportunities in Midwest. We're seeing opportunities in Texas. We are in it. Our deal team, which is our legal team, our investment teams, and all the teams that support them, have never been busier.
What we execute on will be a function of, as I said, price, and needs to be reflective of the environment that we find ourselves today.
Thank you. Our next question comes from Tayo Okusanya from Mizuho. Please go ahead.
Yes. Good morning, everyone.
Morning.
I just wanted to focus a little bit on the comments around the improvement in the rate of decline as it pertains to occupancy in senior housing. Again, clear that most of your facilities are open. It sounds like virtual tours and things are happening. Could you just talk a little bit more about why that slowdown especially is occurring and the ability of the directors of these buildings to still kind of get movement traffic despite COVID or whatever have you?
I think we touched on this, Tayo, a little bit, but as you can think about our portfolio, primarily our U.S. and U.K. portfolio, it's high acuity, it's a need-driven portfolio, right? Again, you can only push off this demand so much. We're seeing, as I mentioned, that just if you think about leading indicators, just take leads. I mentioned those in my prepared remarks. You saw a rapid decline of leads, say, last month of pre-COVID in February, and significant decline, 55% decline sort of to the trough of April. By June, it was up 60%, and in month of July, it approached the pre-COVID numbers of February. If you kind of peel back the onion, then you will see the majority of the people are more need-driven than just lifestyle-driven.
It's just due to the fact that they can only push off the need that much into the future. That's why we think we're seeing it. The other thing I will tell you, we have given you the absolute number, not just the percentages number of what is going on in a community from the perspective of COVID. I hope you think given how large our portfolio is, how many units available versus the number of people in the COVID, which we mentioned 98 cases, that is a remarkable testament to the quality of care that's provided by our operators in those places, and that reputation does matter. You cannot say the same thing about the industry as a whole, but our operating partners have that reputation. They're delivering on that reputation, and that's what attracting new residents.
One of the things I was going to add to that, Tayo, is the decision has changed. Today, it's number one, is there COVID in the building? Can you take my mother or father? Are you able to take them in? How are you going to protect them? Can you meet their needs? That is the decision chain today because so many people have exhausted their ability to care for that relative and have been, in many cases, in many markets, they've had no options but just to take care of them at home or in their home. If you think about it, a lot of these residents or incoming residents, their lifestyle is being shut into a room in a house, or they're living by themselves in an apartment with some limited, either family care or home health care.
In a sense, the lifestyle component doesn't change too much for that individual, except there's much more security and consistency around their care program than can be achieved in a conventional home unless you're extremely wealthy.
Thank you. Our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.
Thanks. Good morning. Your operator diversification is a positive for your company and your performance. When you look at some of your larger tenants and the sequential decline, looking at a Sunrise or a Revera, they're pretty significant underperformers within your portfolio. I'm not sure if you can comment on these operators specifically, or if not, overall, the ability for some of your private pay senior housing operators and their ability to handle this kind of performance in the absence of government assistance.
Before Shankh gives you an answer just to the operators, just point out, you know this, but an in-place NOI, we annualize the quarter, and so sequential changes are just more pronounced. You're taking the entire sequential change, and you're multiplying it by four to get to that in-place NOI number.
Regardless, John, you make a point. There's no question that some of our higher acuity operators have definitely underperformed. If you add higher acuity with coastal locations, that is definitely in some operators, we have seen some significant performance decline. That is why you have a diversified portfolio, right? Without getting into very specific names, but if you follow through the coastal markets, and then you add acuity, where we saw the most decline, it is not difficult to find out who would have performed relatively better or worse. As Tim pointed out, that you should not take one quarter when NOI declines a staggering 25%, if you multiply by that four, you're going to get very different results.
Thank you. Our next question comes from the line of Nick Yulico from Scotiabank. Please go ahead.
Thanks. I just wanted to turn back to the move-in issue. Move-ins have improved, but they're still down 45% in July versus last year. I guess I'm wondering, do you have any data on why customers are delaying move-ins, and particularly if you have any feel for the timeframe of that delay, or are people telling you they just want to wait three months, they're going to wait a year, they're going to wait until there's a vaccine? I guess, I know you talked about leads, but it would be helpful to understand instead if you had any sort of backlog of deposits you can point to. Thanks.
First is, let me answer your second part of your question. Deposit activity is extraordinarily strong. I pointed out, that move-ins activity, which has been obviously improved pretty meaningfully, is not matching the deposit activity as people are spreading out their moving dates. That's what I think you're asking about, and I pointed out in my prepared remarks. I think the other part of your question was, is move-in down from last year? Absolutely, it is. If you think about what we are trying to get to, at least what most analysts and investors are asking us, they're trying to get to a point, understand the run rate earnings power of the company. Sequential gives you that. Year-over-year is a function of what happened yesterday.
Sequential gives you what is going to happen tomorrow. I think that's what sort of, we are personally, we're eager to figure out the exact same answer anyway. What is our run rate EBITDA? Is move-in down from last year? There's no question. Of course, you see we have lost 500 basis points occupancy in one quarter. You are not at the same level of activity, and it is going to take some time to come back to the same level of activity.
Nick, I want to add something to that. What you see is people are, as Shankh mentioned, the deposit activity is good. The move-ins are delayed. What's delaying that move-in, I think was your question. In some cases, if I can't visit right now on a regular basis, I can't visit mom or dad on a regular basis, I'm going to wait till there's some safe visitation model before I move them in. They've secured a place, but they're delaying until perhaps there's some, again, we've seen visitation allowed in many states, and again, under very strict protocols. In some cases, in some states, it's the testing. It's that, I don't want my mom to be tested, to be poked and prodded twice a week. I'm going to wait till that settles down. It's elements like that. These are people that need to come in.
They've secured a place with a deposit, but they're waiting till the conditions might meet their needs a bit better if the situation isn't desperate. Like, today, I need to move my dad today. I cannot take care of him anymore in the situation he's in. It's individual, it's specific to the family and the individual, but it's things like that that are causing that delay.
Nick, that's why we're not giving you our best guess scenario or our best guess that occupancy will be up next quarter, right? Given the amount of activity and demand that we see in the system, you would think that just from that, we would be indicating that occupancy will be up. We're not, because we want to see that hesitation sort of get, at least for next three months, we want to see how that plays out before we tell you that we feel that the consumers are coming back in hordes. We're not saying that. We want to see how that plays out.
Thank you. Our next question comes from Joshua Dennerlein from Bank of America. Please go ahead.
Yeah, thanks for the question, and good morning, everyone. Curious on operator expenses going forward. There obviously was a lot of extra COVID costs. What should we kind of look for in Q3 and maybe the ability for labor to flex as occupancy has come down in marketing budgets? That'd be really helpful. Thanks.
Yeah. I think the way I would think about that is just within the quarter, looking at kind of COVID costs, the biggest piece of it, you think about COVID costs and roughly call 20% of that is kind of PPE and cleaning. That is likely going to be around until vaccine or the pandemic has come down a lot. In saying that, I'd say the cost of PPE is still likely inflated. The cost of acquiring has come down quite a bit from the certainly March, April area, but it's still in many areas, probably 2x to 3x where it should be when supply chains can completely kind of normalize.
Just speaking to kind of current pricing, if PPE cleaning make up about 20% of that, there's a piece of it then that is kind of dietary, and that dietary piece is from delivering meals to rooms instead of running the common or communal dining areas. That will start to come down as you see some normalization of internal activities. Lastly, it's the labor piece, and the labor piece makes up the large majority of the cost here. The labor piece, actually, it's probably fair to think about in the deck we put out last night, we've got a trailing two-week COVID cases, and you see they peak on May 8th. That's actually probably a very good indicator of when our labor costs that were tied to COVID peaked. April and May both had pretty high COVID-related labor costs.
It came down considerably into June. That'll burn off, obviously dependent on the pandemic and the prevalence of COVID-19 in our facilities. As that's come down, that labor piece is almost burned off entirely at this point. Going forward, I think it's right to think about just that kind of PPE and cleaning costs being the dominant force, and then labor will be dependent on the actual prevalence of the virus.
Thank you. Our next question comes from the line of Steve Valiquette from Barclays. Please go ahead.
Great. Thanks. Good morning, Tom and Shankh and Tim.
Morning.
Good morning.
A couple questions here. One, you touched on this a little bit already, but just that comment on slide 17 that the recent rise in COVID cases may result in near-term increase in admission bans. It sounds like your operators are now generally want to be on the offensive on move-ins. I guess if there are potential new admission bans, it sounds like they would be more mandated by state government as opposed to voluntary bans. Just want to make sure that we're thinking about that the right way. Then maybe the bigger question overall, Shankh, you kind of touched on this for Q3, but the way it stands right now, is it your expectation that in calendar 2020, that Welltower will cross the threshold and SHOP where the move-ins will exceed move-outs and occupancy will start to increase at some point this year?
Is that still up in the air right now the way it stands? Just wanted to get clarity around the calendar 2020 thoughts around that. Thanks.
Thanks, Steve. This is Tim here. I'll start with your question on move-in bans. Shankh can answer the second question. I think I'd just kind of recategorize your comment on our operators being on the offensive. I think our operators are being very smart about the way that they're admitting residents. I think you're correct in what we'll call is kind of outright admissions bans. Tom kind of made this point about California with one of our operators that has kind of voluntarily moved to admissions bans in the first wave. The second wave, they're admitting residents, but certainly the admission protocol is extremely heightened, and that gets a little bit to Tom's point on even some of the heightening of that protocol being part of the reason why you're not seeing people choose to move in.
I think part of what we've seen so far is as you've seen the cases spike nationally again, you've seen cases within our facilities move up but stay very controlled and start to come back down the last two weeks. I think that's actually, it's symbolic of the admissions protocols working very well. Do I think, the actual admissions bans, you're correct, that will be driven more so by probably state and local municipalities, and then obviously the building itself when there is an actual case of COVID. The operators themselves, I think, are just being very cautious about admitting. That's playing a role here, but the actual bans will be more driven by governing bodies.
Steve, to your second question, are we here to sit down and predict when move-in and move-outs will cross over? Well, absolutely not. You tell us how you think COVID will play out, and we'll tell you how that will translate into our numbers. We're only telling you what we have seen until yesterday. We're not going to sit here and predict what might happen tomorrow, given the uncertainty of this environment. We're encouraged by what we have seen. We're also obviously telling you that we're very cautious, that things can change anytime. We'll obviously not going to sit here and predict when those two will cross over. We are very encouraged that it came very close last week.
Yeah. The one thing we do know, Steve, is that the operators know what they're dealing with today. In March, April, May, they were, again, trying to figure out what was happening and were unprepared, as we all were. I think that the positive today is that they do have the right policies, procedures in place to manage a very difficult situation, but things can change on a dime. Again, reiterating why we're not looking, trying to predict what's going to happen through the rest of the year.
Thank you. Our next question comes from Lukas Hartwich from Green Street Advisors. Please go ahead.
Thanks. There's a lot of focus on the potential for government support for senior housing here in the U.S. I was hoping you could provide some color on that discussion in Canada and the U.K.
Well, in the U.K., it's a very different story, Lukas. There is much government support for the senior housing industry in the U.K. Unlike in the U.S., it did not become a target of hysteria around COVID. What's interesting in the U.K., the frontline workers in the senior care business are considered heroes, like the people who work in hospitals. In the United States, that's not the case, and that's a shame because the healthcare workers in the senior living and post-acute care spaces have been subject to the same conditions as healthcare workers in hospitals. They faced a lot of the same challenges. Like our healthcare workers in hospitals, they're doing the best they can to meet the needs of their population. I'm hoping that will change in the U.S.
In the U.K., it's different, and there's certainly more government support for the senior living industry in the U.K. In Canada, remember, our business is really more of an independent living business. The higher acuity models in Canada are government provided. To date, I can't comment on government support in Canada coming into the independent living model, into the independent living sector. I really couldn't comment on that. Obviously, both countries have very different healthcare system than the United States.
Thank you. Our next question comes from the line of Daniel Bernstein from Capital One. Please go ahead.
Hi. Good morning. Quick question. When we look back at 2009, average entrance age went up, acuity went up, margins went down, length of stay went down. When you're looking at the opportunities that sound generational, how are you thinking about the underwriting of the long-term fundamentals of the business? I know that may be very difficult, but, are you concerned about maybe the long-term upside of the NOI, the business is a little bit lower going forward than it has been in the past? Thanks.
Dan, I am not only concerned, I'm paranoid about everything that changes investment returns. That's why, in this uncertain environment, the price needs to reflect that uncertainty, right? I do think the industry is coming to a point where you can underwrite different scenarios and then price that in. At the end of the day, we deploy capital to make money for our shareholders. There's no guaranteed return. If we wanted guaranteed return, we would be buying government bonds. We do think that today, as opposed to 90 days ago, the sector is reaching a point where you can underwrite and you can price in uncertainties of the various things that you mentioned.
We'll see how it plays out, but we do believe that at the end of the day, if the revenue characteristic, the cash flow characteristic, not just revenue, the cash flow characteristic of an asset comes down, what we'll do is that will depress returns, and obviously that means that will depress future developments. If there's no returns, developers will not chase the assets, and ultimately demand and supply will balance. That is true for any capital-intensive business. It will not be any different here as well. You're raising some very good points, and we are not only concerned, we're also paranoid about those things. We're trying to do the best we can from top-down sort of data analytics approach to bottom-up value investing approach. I sort of described on my prepared remark how we're bringing those together.
Thank you. Our next question comes from Sarah Tan from JPMorgan. Please go ahead.
Hi, this is Sarah on for Mike Mueller. Just one question on my end. How much of your triple net revenues are at risk of a rent reset? Could you comment on that?
Sarah, can you say that how much of the triple net rent? I couldn't hear the last part of your question.
Oh, what portion of your triple net revenues are at risk for a rent reset?
Oh, I think, Sarah, I think you said how much of our rents are risk of a rent reset?
Yeah, that's right. For the triple net revenues.
Yeah. As I said in my prepared remarks, the triple net business and the RIDEA business are senior housing in two different structures. The headwinds that have been felt by our RIDEA business are certainly being felt on the triple net side. There's some differences given different products mix and locations. What I said last quarter, and we'll repeat again, is that the economics long term have to support the rents. I think that's something we've talked about a lot on calls in the last two years, and we've restructured a lot of these rents and got ahead of some of this, is that operators see the long-term opportunity as an asset class and want to remain in these buildings and in control of these buildings.
The thought of there being kind of a rent reset based just on current economics, I think is somewhat misplaced. You look at rent collection, and it remains very strong in this space as well. I think in general, we're not here to say that the economics underlying these properties have been challenged. There will be certainly conversations around how the economics and the rent align, and we're prepared to have those. At this time, I think the best we can do is continue to see where rents go and collections stay high, and we'll continue to observe that and report to the market.
Sarah, as you think through, we're not obviously going to speculate, but as Tim talked about, that's how we think about it. As you think through our numbers and try to get to your best guesses, remember our reported numbers still include a very large tenant that we have already restructured and announced to The Street, which is Capital Senior. That's still in those numbers. They will be out in the next two quarters, but that has already happened.
Thank you. Our last question comes from the line of Tayo Okusanya. Please go ahead from Mizuho Capital.
Yes, just a quick follow-up on the health systems platform. Could you just help us understand at this point, I know there's a lot going on in skilled nursing and government funding, but could you just help us understand specifically what you'd expect to kind of happen next from a government funding perspective? We're just kind of hearing also from the states about Medicaid funding, just given all their budgets are pretty stretched right now because of the whole COVID issue.
Tayo, we're reading the same things that you're reading. This is inappropriate for us to speculate on what additional government funding might be or might not be coming to the space. We'll just leave that for future discussions. We're encouraged by the support that post-acute industry has seen so far.
What about on the state level? Just given a lot of them are setting their budgets right now, are you kind of hearing anything of any state factors set next steps, just so we have a good sense of what the Medicaid funding could look like?
Thank you for trying, Tayo. We'll remain the same answer that it is an inappropriate venue for us to speculate on future state government action as well.
Thank you. I show no further questions in the queue at this time. This concludes our Q&A session.
Ladies and gentlemen.
Thank you.
-this concludes today's conference call. Thank you for participating. You may all disconnect.