Healthpeak Properties, Inc.

Good day and welcome to the HealthPeak Properties Incorporated second quarter conference call. All participants will be in listen only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchstone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference call over to Ms. Barbara Rogers, Senior Director, Investor Relations. Ms. Rogers, the floor is yours, ma'am.

Thank you, and welcome to HealthPeak's second quarter financial results conference call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, Our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risks and risk factors is included in our press release and data in our filing with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call in an exhibit of the 8K we furnished with the SEC today. We have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. The exhibit is also available on our website at www.healthpeak.com. I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thank you, Barbette, and good morning, everyone. On the call with me today are Scott Brinker, our President and CIO, and Pete Scott, our CFO. Also on the line and available for the Q&A portion of the call are Tom Clerch, our Chief Development and Operating Officer, and Troy McHenry, our Chief Legal Officer and General Counsel. To summarize the second quarter, our results were generally in line with our expectations, and in some cases, better than expected. However, we are now five months into the pandemic, and there remains a great deal of uncertainty on its future penetration and duration. As such, last night we provided an update to our 2020 earnings framework, which you can find on pages 44 through 46 of our supplemental report. I'll start with our current state of play. 66% of total Q2 NOI was generated by our life science and medical office businesses. And inclusive of our small portfolio of well-covered hospitals, that total increases to 71%. All of these businesses have enjoyed strong leasing and steady rent collections. In life science, sector fundamentals are healthy as demand for drug innovation remains at the forefront. especially with respect to the global efforts to develop COVID vaccines and treatments. During the second quarter, the sector reported a record high in equity capital raised. Our year-to-date leasing is already ahead of our original full-year expectations, driven in part by the strong development pre-leasing we announced in our Boston and San Diego sub-markets. In medical office, our high-quality, primarily on-campus portfolio has continued to show consistent, favorable results. Bans and outpatient procedures have been lifted across all of our markets. Both new and renewal leasing came in above our expectations. Our lease retention ended the quarter in the low 80% range, and we had high single-digit mark-to-market rents. 11% of total Q2 NOI was generated by our CCRC portfolio, where attrition is much lower than SHOP due to the average 8- to 10-year length of stay, along with the nonrefundable entry fees in place. Our independent, assisted, and memory care CCRC occupancy and results were in line with their expectations. 9% of total Q2 NOI was generated by SHOP, which continues to experience a very tough operating environment due to COVID, combined with the inherent short length of stay. However, monthly occupancy declined more slowly and operating expenses rose less dramatically than the midpoints set forth in our previous outlook framework. And finally, 9% of total Q2 NOI was generated by senior housing triple net, which also faced a tough operating environment. but rent collections have remained stable. Moving on to our balance sheet and liquidity. Simply put, they both continue to be in great shape. And our dividend, yesterday we announced it remained at 37 cents per share, which is one penny above our Q2 AFFO. We will continue to monitor our dividend as COVID progresses. On the ESG front, we have a decade-plus history of commitment to corporate responsibility and sustainable business practices. In June, we published our ninth annual ESG report highlighting our 2019 environmental, social, and governance achievements. For the second consecutive year, we were one of only five REITs named to Corporate Responsibility Magazine's 100 Best Corporate Citizens list. We also have received Gresby's Green Star rating for eight consecutive years, as well as leadership awards from CDP, and S&P's Dow Jones Sustainability Index for seven consecutive years each. So, in summary, the majority of our portfolio is performing quite well. We've continued to take actions to improve our already strong balance sheet and have significant liquidity. Our team is working very productively from home, and we fully expect to come out the other side of this pandemic and even stronger company. With that, I'll turn it to Scott.

Okay, thank you, Tom. I'll speak to operating results across the three business segments and finish with a transaction update. In life science, which represented 35% of our same store pool, cash NOI grew 7.3% year-over-year above the high end of our outlook. The results were driven by new leasing activity, mark-to-market on renewals, contractual escalators, and rent collections. Tenant demand for space is strong across all three of our core markets. In 2Q, we had 278,000 square feet of lease commencements, driving occupancy up 260 basis points to 97%. Our lease executions in the quarter included 125,000 feet of renewals at a 15% cash mark to market and a 74,000-foot lease at the boardwalk. our flagship development campus in San Diego. Construction began in the first quarter and the project is already 39% pre-leased at rental rates above our underwriting. We had one early termination in the quarter for 36,000 feet, which we did proactively with a watch list tenant to expand with one of our existing high growth tenants. Another example of the importance of scale in a local market. Subsequent to quarter end, in July, we signed an additional 100,000 feet of leases, which included 20,000 feet of renewals at a 22% cash mark to market and 60,000 feet of new leasing at 75 Hayden in Boston. That development project is now 100% pre-leased and outperformed underwriting on rental rates by more than 10%. We expect to complete the interior build-outs in 3Q21. Hayden is arguably Boston's premier suburban life science campus given its scale, amenities, and prominent location near the intersection of Routes 2 and 128. New leasing in July also included the final 22,000 feet at our Scripps Water Ridge redevelopment in San Diego, where a genomics company urgently needed space to accommodate a COVID testing mandate received from the government. Our team was able to go from initial inquiry to a signed lease in just 14 days to win the business. The pipeline is solid as well, with 170,000 feet under letters of intent. The near-term supply-demand outlook in all three markets remains favorable. Sublease vacancy remains in the very low single digits and hasn't changed since COVID. and the new deliveries over the next two years are already more than 70% pre-leased in the aggregate. Rent collections continue to be strong, including more than 99% in July, while rent deferrals are de minimis, just two tenants aggregating about $1 million of rent that's been deferred. In both cases, a funding event got delayed due to COVID. Both tenants expect to close their funding this quarter and to repay the deferred rent at that time. We do have some lease roll that will impact same store occupancy in the second half of the year. For example, July declined 60 basis points from three known vacates. We've already signed offer letters on about half the vacated space at 28% cash mark to market, and we have good activity on the remainder. So this should be a short-term blip. On the development front, COVID resulted in a one to two month delay at most of our sites. Construction has now resumed in all of our markets and without any meaningful change in our underwritten returns. Additionally, we obtained final entitlements at our 101 Cambridge Park Drive development in West Cambridge. We were able to permit the project before 160,000 feet and could begin construction as soon as the fourth quarter. We were successful upsizing our entitlements to 130,000 feet at our highly prominent modular labs site on East Grand Avenue in South San Francisco. The site gives us additional capacity to build on our leading market share in this important sub-market. Funding continues to flow into the biotech sector, driving additional tenant demand for space. The second quarter was the highest on record for venture capital at over $6 billion, while the public markets remain open to both IPOs and secondaries. From April through July, there were 32 IPOs in the sector, raising over $6 billion. No surprise that biotechs based in our three core markets of Boston, San Francisco, and San Diego dominated the capital raising activity. And HealthPeak tenants accounted for five of the IPOs, netting over $1 billion. Our leasing success and rent collections combined with continued biotech capital raising success gives us confidence to increase our same-store cash NOI outlook by 100 basis points to 4% to 5%, with potential upside from there if collections remain strong. Turning to medical office, which represented 42% of our same-store pool, cash NOI grew 1.3% year-over-year, which is 60 basis points above our expectations for the quarter. That growth was driven by higher occupancy, rent escalators, and 9% cash mark-to-market on renewals, offset by COVID-related reductions in parking income and ad rents. We leased 1 million square feet in the quarter, including nearly 800,000 feet of renewals. Looking at July, occupancy was unchanged for the month We're 20 basis points ahead of our plan year-to-date. Tenant demand remains strong, but leasing activity in March and April did slow down for obvious reasons, so we'll likely see a temporary impact to lease commencements and occupancy in the third quarter. This was fully reflected in our outlook. Rent collections are stable and in line with our expectations at 99% for the second quarter and 98% for July. To date, we approved $6 million in total rent deferrals, which we expect will be paid back monthly by year end. We delivered the 52,000-foot on-campus MLB at Lee's Summit Medical Center in Missouri. Upon delivery, it was 51% leased by HCA, with active discussions on another 25%. Construction on our remaining seven HCA developments is progressing, with three expected to be completed in the second half of the year. Our active pipeline is 49% pre-leased to HCA, 8% under signed offer letters, and 27% in active discussions. We recently saw a third-party report showing that Peek was the country's largest medical office developer in the private sector in 2019. We view development as an attractive way to grow the portfolio, and the pipeline is strong. In senior housing, performance was better than our framework that we provided in May due to expense savings and CARES Act funding. Triple net same-store NOI grew 3.2% year-over-year due to rent escalators. We collected 97% of contractual rent in the second quarter, with the other 3% deferred with capital senior living. Rent coverage after management fee was 1.02 times on an as-reported basis which is based on the industry standard of trailing 12 months and one quarter in arrears. Rent coverage declined to 0.77 times for the three month period from April through June due to COVID. Shop same store NOI declined 39% year over year. We incurred significant expense to help keep residents and staff as safe as possible under these extraordinary circumstances. Occupancy declined 560 basis points due to move-in restrictions and the inability to do in-person tours. With operating margins in the high teens, there's a five to six times multiplier effect on NOI for each dollar of lost revenue or increase in COVID-related expenses. The trend in leads, tours, and occupancy improved as we moved from April to May to June. But these key indicators are still below historical levels and the sector has not yet returned to business as usual. Moving to CCRCs, $12.4 million of CARES Act funding only partially offset COVID expenses and significant declines in skilled nursing census driven by low Medicare discharges as hospitals canceled elective surgeries in the second quarter. Performance for independent assisted and memory care was in line with our framework. Turning to transactions, it was a quiet quarter by design as we were intensely focused on operations. In June, we did close on the previously announced sale of three MOBs in San Diego for $106 million where the hospital exercised its purchase option. In addition, after a slowdown from March through May, The senior housing transaction market has become active again. We're making progress on a number of non-core asset sales that would further rebalance our portfolio toward life science and medical office. And now to our CFO, Pete.

Thanks, Scott. I'll start today with a review of our second quarter results, provide an update on our balance sheet activity, and finish with a discussion on our 2020 earnings outlook. Starting with our results, we reported FFO is adjusted to 40 cents per share for the second quarter. We continue to generate solid growth from our life science and medical office segments, which grew cash same-store NOIs at a blended 4%. When combined with TripleNet and our small hospital portfolio, these four segments, representing roughly 90% of the same-store pool, grew 3.8%. But, as we expected, this growth was offset by performance from shop of minus 39% as we experienced a full quarter of COVID disruption, bringing total same-store cash NOI results to minus 2.2%. Our second quarter earnings were impacted by two important items related to COVID. First, we experienced approximately $20 million, or three and a half pennies per share, of elevated expenses in our SHOP and CCRC portfolios. Second, we received approximately $15 million, or 2.5 pennies per share, in CARES Act grants. These grants were based on pro-rata funding provided to all Medicare providers. As a reminder, we do not adjust our same-store NOI, FFO as adjusted, or AFFO for these items. Turning to our balance sheet, In June, we opportunistically took advantage of robust debt capital markets to further improve liquidity and strengthen our balance sheet. We issued $600 million of long 10-year bonds at 2.875% to redeem a total of $550 million of bonds with a weighted average maturity of about two and a half years and a blended interest rate of 3.7%. This transaction extended our weighted average maturity to over seven years and lowered our weighted average interest rate to 3.75%. Following these transactions, HealthPeak's next material debt maturity is over three years away in November 2023. We ended the quarter with nearly $2.9 billion of liquidity and reported a net debt to EBITDA of 5.4 times. our revolver remains completely undrawn with $2.5 billion of borrowing capacity. And our cash balance was approximately $350 million after factoring in the redemption of $300 million of bonds completed in early July. Suffice it to say, we remain in a rock-solid liquidity position and are well prepared to withstand the uncertainty from COVID. Moving on to our earnings outlooks. Similar to last quarter, on pages 44 to 46 of our supplemental, we have included an updated outlook and earnings framework, which details some important items to assist with your modeling. Starting with page 44, there are three items I would like to point out. First, for life sciences, we have increased our same-store outlook by 100 basis points to 4 to 5%. We have experienced better-than-expected leasing strong mark to markets, and lower bad debt. I would note that we're currently trending towards the high end of this range, but with so many unknowns, we feel it is prudent to maintain some cushion. Second, for medical office, we have reaffirmed our prior outlook, but important to note that we are also trending towards the high end of the range. Though perhaps some conservatism in our outlook, but with uncertainty around elective procedures, we've held our same-store outlook constant. Third, for sources and uses, we have increased our expected capital spend by $100 million as the COVID-related construction delays we experienced in the second quarter were shorter than expected. At this point, all of our major development projects have restarted. Our prior outlook assumed a four-month delay on all construction activity when the actual delays were generally one to two months. Moving to page 45, I will focus my commentary on what has changed in our August outlook relative to our May outlook. In MOBs, we see a half penny improvement due to stronger than expected leasing and lower bad debt. In life sciences, we see a one to two penny improvement driven by strong industry fundamentals and lower bad debt. For TI revenue recognition, we see a one and a half penny improvement as a result of construction delays being shorter than anticipated. As a reminder, this is an FFO impact only. Finally, turning to page 46, we have updated our framework for SHOP and CCRCs. For SHOP, our estimated monthly net attrition improves by 150 basis points, driven by improved move-ins and no change to move-outs. The net impact of this is that we expect occupancy to decline in the third quarter, but at a lower rate than the second quarter. For CCRCs, no change to our estimated monthly net attrition, with our improved 50 basis points increase in move-ins being offset by increased move-outs. For senior housing expenses, we expect incremental expenses to be zero to 5% higher, which is a significant improvement from the 5 to 15% in our previous framework. As a reminder, the earnings outlook and framework in the supplemental is based on our best available information as of the current date. As conditions change and we are in a position to provide updated information, we will make the appropriate disclosures. Before going to Q&A, I'd like to point out two additional items we included in the supplemental this quarter on page 29. First, we have included a footnote detailing the preliminary occupancy and EBITDA coverage for our TripleNet portfolio as of the 12 months ending June 30, 2020. In accordance with standard industry convention, this data has historically been disclosed on a trailing 12 months basis and one quarter in arrears. we have included a new column with the straight line rent receivable information by operator. In the current operating environment, we felt the additional disclosures would be helpful. And with that, operator, please open the line for any questions.

Hey, thank you, sir. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchstone phone. If you're using a speakerphone, Please pick up your answers before pressing the keys. To withdraw your question, please press star then 2. So that everyone may have a chance to participate, we ask that participants please limit yourself to one question and a single follow-up. If you have additional questions, please re-enter the question queue. At this time, we'll just pause momentarily to assemble our roster. The first question we have will come from Jordan Sadler of KeyBank. Please go ahead.

Thank you, and good afternoon, good morning out there.

My first question pertains to the seniors housing operating portfolio. Curious about the deceleration in July move-ins, if you could speak to what you're seeing there specifically. And then in that same context, just noticed in adjusting the ADC down 150 basis points sequentially, on a monthly basis, it seems like June and July performed better than what you're sort of guiding toward for, you know, in your outlook. So if you could speak to just both of those two trends. Hey, Jordan. Scott here. Happy to take that one. A couple of things to point out. One is that June was particularly strong. Of course, that's a relative term. in today's environment. But if we look at April and May, June was substantially better. Our move-ins in June were up more than 50% from May and April. Similarly, leads and tours were up pretty dramatically from April and May in the month of June. So I think that's part of it is that June was just a really strong month. It's one reason that the move-ins were down a bit Leads and tours were down low single digits versus June, so not a significant change. It was more than move-ins. Fortunately, move-outs continue to decline. So we've had three consecutive months now that move-outs have declined. That's obviously helpful. And the other thing I would point to is that we did have an increase in COVID activity, no surprise, in very late June into early July, particularly in Florida and Texas, California, where we do have a presence and the good news is that the activity has started to trend down in recent weeks. And similarly in our portfolio, we did have occupancy in the second half of July that was stronger by far than the first half of July. So I think the trends are actually better than what maybe shows up on that page. And important to note that we did improve our framework. pretty significantly to the upside from the prior framework in terms of net attrition. Tom, anything to add?

No, I think you got it, Scott. Okay.

And then perhaps as a follow-up, I'm curious about the dividend here. So it looks like I just did the per share math on AFFO in the quarter. I think you reported about 36 cents.

In 37-cent dividend, the trend here in senior housing seems to be, you know, pretty soft for the balance of the year, correct me if I'm wrong.

And while that's supported by, you know, 70% of the portfolio, that's been pretty stable to strong, you know, you're already starting from a standpoint here in the second quarter that we seem to be in line with the dividends. What is sort of, and Tom, I heard in your comment, you know, you did say that you would assess the dividend and continue to monitor those COVID discussions. Can you maybe just speak to your expectations surrounding the dividend or how you're thinking about it for the balance of the year?

Yeah, Jordan, I sure can. You started it correctly. The dividend was one cent higher than our AFFO, which I acknowledged. As I said last quarter, We're comfortable for dividend modestly exceeds our AFFO for some period of time, because it just isn't going to be that material on an NAV basis. But I will say that if the virus remains a protracted issue, of course, we will need to go back and revisit our dividend in order to protect our credit ratings and our liquidity. And so accordingly, we're going to continue to assess our dividend as the conditions unfold. But as of this quarter, as we met with our board and discussed it, we felt comfortable with our 37-cent dividend for this quarter.

Would you be comfortable sort of overpaying it a little bit rather than sort of moving it around like we've done today and have deteriorated by another 10% sequentially?

or are you kind of more cognizant?

And, you know, I'm just trying to think of how would you weigh sort of wanting to maintain the dividend versus, you know, trying to align it more so with the actual cash flow?

Well, I mean, the bottom line is, Jordan, it depends on how long we thought this could go. Our liquidity... and our credit rating we consider vital. In order to be a blue chip REIT in our sector, we think BBB plus BAA1 is very important. So if we felt this was going to go on for a long time, then at some point it'll put pressure on net debt to EBITDA and we have to take that into account. At the same time, if the virus resolves itself more quickly or if senior housing recovers more quickly, the other, I mean, 71% of our business, as you know, is doing fantastic. So it's really just senior housing and more specifically shop, which is 9% of our NOI. So if that does recover more quickly, then we would be in a position where we wouldn't be covering for, it would not be a long period of time and that's less concerning. But if this goes on a while, then we would have to consider what actions to take.

Thanks for the thoughtful response.

Thank you.

Next, we have Vikram Malhotra of Morgan Stanley.

Thanks for taking the questions and hope everyone is well and safe. Still a pretty tough environment. Just maybe on the triple net side, the Brookdale coverage, which is in arrears, trended towards one on an EBITDA basis. So I'm just wondering if you can give us some sense of any potential conversions, restructurings, or if you feel you're going to keep things intact for now, given kind of what near-term COVID trends are and the performance of broadly senior housing. Just give us some sense of the triple net business. And if you could just clarify on triple net, you gave information on straight line. I'm just wondering if you took any write-offs or reserves.

That sounds good, Vikram. This is Scott. I'll start, and then I think Pete and or Tom may have some commentary as well. Yeah, with Brookdale, we've worked hard over the past three years to bring that concentration down all the way from the mid-30s to about 6% today. And most of it is in that triple net portfolio. It's about 4% of our NOI today, around $40 million per year of rent. The most recent transaction closed in February, where we basically cut that portfolio in half. We think we kept the higher quality portfolio in terms of location and performance, at least historically. it is a master lease now with more than seven years left on the term and a corporate guarantee. So from a security standpoint, we're in a much better position today than we would have been historically, in addition to the size just being a lot smaller. You know, we think the right coverage in a normal operating environment is sufficient, especially given the security of that master lease and the corporate guarantee. But we've got a good history with Brookdale now of figuring out win-win transactions. If the... time or the situation required it, but we're comfortable with where that triple net lease is today and there's certainly no ongoing discussions to do anything differently. In-shop would not be on the list in any event as an alternative. Pete, do you want to cover the accounting question?

Yeah, sure. Hey, Vikram.

That's a good question.

Look, I'll just broadly cover write-offs generally. Given the strong rent collections in life science, MOBs, and hospitals, it seems that any future write-offs are unlikely to be material. You know, in the triple net senior housing side, as we said on page 29 of the supplemental, we have around $45 million of straight line rent balances. And that's really just Aegis at $6 million and Brookdale at $36 million. And to follow up with what Scott said, we've been very proactive the last couple of years to improve the quality of the assets and the coverage of this portfolio. And for Aegis, we're still well covered. And while it will continue to decline with COVID, these are good assets with a very strong tenant and reasonable rents that are supported the long term. For Brookdale, the coverage on those assets is a bit tighter than Aegis, but we believe the liquidity behind their corporate guarantee is is sufficient to get them past the worst of the pandemic. So that's our view on the triple net portfolio there. And, of course, we'll continue to monitor it closely as the pandemic unfolds.

Okay, thanks. And then just my follow-up, on the shop side, maybe correct me if I'm wrong, but I think you mentioned June was better than April and May, definitely. I'm just wondering your view on how July shaped up versus your expectations this given the move-in numbers seem down both for CCRCs and for SHOP, and census is down another 100-plus basis points. Can you give us a sense of how these have shaped up relative to your expectations? And related to that, given the case loads have increased in several states, what are you hearing from operators in terms of the need to have broad shutdowns as opposed to targeted kind of shutdowns in terms of move-ins?

Hey, Vikram, Scott, I'll take that as well. Yeah, a lot of this was also covered in the discussion with Jordan, but I think it's important to take a step back and think about the results in July in maybe a broader sense because we far exceeded in July in that attrition from the original framework that we provided in May, and we also exceeded the framework that we just provided today in the month of July. And the results in June were actually extremely strong. So when we look at July just in isolation, I didn't say April or May, you know, shop move-ins were up more than 50% in July versus April and May. And in CTRCs, the move-ins in June were more than 100% of the move-in activity in both April and May. So you had huge activity at quarter end in both portfolios that You know, had we reported a month ago, this page would have looked dramatically different. And I think it's just important to keep that in mind. You know, we've always said that it's tough to talk about the senior housing business on a quarter-to-quarter basis. You know, 90 days just isn't enough. And now we're talking about it on a 30-day basis. I mean, it just becomes very difficult. But, you know, we reported the numbers. They are what they are. But I think it does require some context because we still feel like the trends are clearly positive. which is why we changed our framework. And importantly, the COVID activity in those three markets that I talked about has started to come down, in some cases pretty dramatically. Like in Florida, you know, I saw that the case lows or positive tests yesterday were 50% as they were two weeks ago. So, you know, there are some very positive trends that, you know, just if you take a step back, I think it becomes more evident than just focusing on that one page in month-over-month data. And And just on the operators... Go ahead, Vikram, sorry.

Just my question, just on the operators and how they're thinking about move-ins in states where we've seen a pickup in COVID cases.

Yeah, so as of July 31, CCRCs were at 93%, except in move-ins and top were at 86%. That's actually slightly better. than where we were at the end of June. So from that standpoint, we're in better shape today than we were even a month ago.

Okay, great. So just to clarify, even though cases have picked up in, say, Texas and California and Florida, the operators, you know, just business is open and they're not needing to shut down either because they just understand how to deal with it or maybe the demographics are different, but you're not, you know, in recent, you haven't heard operators say, oh, we need to have company-wide bans again.

Yeah, that's correct. And I would just make sure it's the past tense, you know, had when you're talking about some COVID cases, because it really was early July. The current state is that they've really started to decline pretty dramatically in some cases. So, you know, the last half of July was actually much, much better for us than the first half of July for me.

Great. Thanks so much. Thanks, Vikram.

Next is Nick Joseph of Citi.

Thanks, Rocco. It's Michael Billerman here with Nick. Scott, I want to pick up on one of your prepared remarks where you talked about a number of non-core asset sales within senior housing that would further rebalance your portfolio towards life science and medical office, two of the stronger areas within the healthcare sector. I guess, how much are you planning to sell? And I guess strategically, is there a thought process of a larger type of transaction that would see you completely exit out of the senior housing business and be a focused life science and medical office building REITs? I don't know how the CCRCs will play into that or not, but can you sort of talk a little bit about how you're thinking about portfolio construction, different from where, you know, I'd say a year ago, you were probably in a third, a third, a third type structure.

Nick, I'm going to take this one. This is Tom, Nick, Nick and Michael. Let me describe it this way. We intend for the majority of our future growth to be in life science and medical office, which already accounts for the majority of our asset value, I think, as you know, and as We've pointed out our NOI attached cap rates so that you could easily compute that the majority of our asset values in those businesses. The development of life science and our relationship development with MOBs has become more and more an important part of our growth story. On the senior housing side, we do like that CCRC play. The eight to 10 year length of stay, the high barrier to entry, average campus size of 50 plus acres, which makes it virtually impossible to have much new supply ever come up against it. We do like that play, but it is our view that CHOP and TripleNet have become a more challenging place for public REITs. Yet, it is, I still feel strongly, as does our team, that this real estate is still going to remain vital long term. There will still be seniors that have memory care needs daily living needs and senior housing provides those services. Yet we have sold five billion dollars of senior housing over the last four years and we had disposition guidance of another half a billion in our original 2020 guidance and we have had some inquiries from from a number of PE players and depending on pricing you could see us lighten up a bit and But I will say it's too early to comment on that at this point. So I'll just leave it at that, Michael.

Right. So it could, when you think about the development and the acquisition side on MOBs and life science and evaluating potential buyers that would take a larger subset of your senior housing portfolio, that that strategic shift driven by what's happened in the pandemic could become a reality.

I think it becomes, as we go forward, where do we want our growth to be? And that is in the MOB and life science businesses. And we do like, again, the CCRCs, but it's hard to grow very quickly there because they rarely trade hands. On the shop and triple net side, that's not an area that we're going to focus as much growth as to what takes place if we lighten up a bit more. That's yet TBD.

And Nick has a follow-up, too.

Thanks. Yes, Scott, in your opening comments, you mentioned that the senior housing business is not back to business as usual. Do you actually expect it to go back to business as usual before there's either a vaccine or treatment, or until then, do you expect continued disruption?

Nick, it probably is. until there's a vaccine before we're truly back to business as usual. But we're getting back in steps or phases. As of today, just over half the portfolio is at least allowing some level of activities. Again, use of the gyms or the pools, group activities, it's just done on a much more limited basis with smaller groups. But at least the residents aren't quarantined in their rooms anymore for a good portion of their portfolio. Similarly, about half of the portfolio is now generally dining again, as opposed to just eating in the rooms. But again, it's being done with reservations and social distancing in smaller groups. Same with visitation, which is obviously a really important part here so that family and friends can come visit their grandparents or parents, as the case may be. And again, we're at about 50-60% of the portfolio is allowing some level of visitation. so that's a huge improvement from where we were two months ago on those important things but until we get back to 100 it's hard to say that it's business as usual and it does feel like a vaccine is going to be the ultimate step in getting the business there now that being said clearly the industry and our portfolio in particular has made enormous strides with just dramatically improved testing Over the past three months, that's made a big difference, as well as the fact that PPE is just a normal part of the business at this point. So there have been actions taken that have allowed the portfolio to get at least closer to a normal operating environment, but we're not there yet, and I don't think that's going to happen in the next 30 days. But the drug industry is making pretty dramatic progress, almost 30 different potential vaccines and human trials, so it does feel like there's optimism that the normal operating environment is, although not 30 days away, it's probably not a year away either. Tom, anything that you would add?

I think you covered almost everything I would have said. There would be two things I would add, Nick. One of the things that we've noted, and this goes back to what I said before, what is business as usual or back to usual? There is a waiting line at many communities as they reopened, as there were need-based seniors that just really could not effectively live at home anymore. And so that became a factor, and the concept of virtual marketing is something that allows effective video tours, virtual tours to take place. So that's not back to usual, but it's a whole lot better than just having communities closed off as they were for a period of time last quarter. Thank you. Thank you.

Next, we have Rich Anderson, SMBC.

Hey, good morning, everybody. Thanks for all the detail, as usual. So, I guess a question for whomever. When you think about the spread that has happened and, you know, perhaps you've had to sort of change your radar screen about, you know, where problems were existing, Florida, Texas, and California, as I mentioned, and hopefully you're right, Scott, that we are getting close to some recovery there as well. But in the absence of that, I think of life science, you've got a lot of clarity there, medical office clarity, you know, you think third quarter occupancy and shop will decline at a slower rate. I'm wondering if, in your mind, you know, on the topic of guidance, Could you have provided some more concrete guidance, if not, for the Florida, Texas, California situation? Were you almost ready to do that, except for that variable that entered into the equation? And I'll stop there and see if you can respond to that. Or is it just still too soon, even in that case?

Hey, Rich, it's Pete here. Maybe I'll just add to that. I mean, obviously, our outlook and framework is pretty detailed, and it's based basically on the best information we have as of today. You know, to your point, there still remains significant uncertainty around COVID, and that could result in delays in elective surgeries, construction, admission bans at senior housing communities, all of which could impact our results, and it's basically unknowable at this time. So, we made the decision to update our outlook and framework as opposed to reinstating formal guidance.

Okay. Then on the topic of elective surgeries, you know, that became the conversation piece for medical office in the, you know, late May, June when they started to get turned on again. Has that sort of reversed course on you? Have you seen that? Is it starting to turn off and is that a forward-thinking issue within medical office that has you a bit concerned that that could be a sort of a reversal to the negative?

Hey, Rich. This is Tom Klarich. You know, we did, with the rise in cases in June and July, we did see a little bit of limitation in the hotspot areas of Texas, Florida, and Arizona, but not all of our facilities restricted admissions, it was really based on what capacity they had in their hospitals. And most of our affiliated hospitals kind of had 20%, 15% capacity, so we did see some restrictions on inpatient. What did happen, though, is there were no restrictions on outpatient procedures. So many of our tenants actually saw benefit of procedures being shifted from the inpatient side to outpatient, you know, either in our physician's offices ambulatory surgery centers or hospital outpatient areas. So while there was some decline on the inpatient side, we saw a benefit on the outpatient side.

Okay, great. Two questions, I promised.

Thanks, Rich.

And next we will have John Kim of BMO Capital Markets.

Thanks. Good morning. Scott, on the asset sales of the non-core senior housing Can you discuss how pricing has changed either on a cap rate or a price per unit basis?

Yeah, it's hard to say because the non-course sales that are underway really aren't trading on a cap rate basis anyway. They're more trading on a replacement value or price per unit basis. So I think it's hard to say. From a practical standpoint, NOI is going to be a lot lower than it would have been, say, six months ago. for at least the next 12 months or so. So there's just a present value of money concept that would impact valuation. And then presumably some level of risk premium to get back to the original NOI. But it's time to really to comment on whether or not valuations or more stabilized products have changed meaningfully, because at least at this point, that's just really not what we're selling.

Okay. tom i guess just following up on the you know what seems to be a shift in strategy uh towards life science and mlbs um can you just maybe elaborate on what is or what will be the tipping point to make that change final um is it the potential impact it has on your credit rating because you said uh in your prepared remarks that that's something you really value or is it really just you see a slower road to recovery for shop than what was anticipated before the pandemic hit?

I would say there are two separate things, John. The credit rating involves the leverage of the company, the net debt, the EBITDA, and whether there would be deleveraging required if COVID went on for a long period. We've modeled that 18 different directions to make sure that we'll be ahead of it and not chasing it If that occurs, and it may not, we hope it doesn't, but if it does, we'll be ready for it. So that's one item is protecting our BBB plus BAA1 credit rating. And as to the portfolio reallocation, that just depends. It depends on the direction of where the virus goes, how much government stimulus, whether that becomes a part of health care, real estate that is more government reimbursed, whether that impacts how we think about it, how long that recovery is. If we conclude it's a long-term recovery, we may very well choose to play through that. That might be the answer. But if the pricing is strong, it's something that we could choose to lighten up a bit more. And that's just all TBD. So we don't have an answer on that yet. but something we're just at least aware of and paying attention to, and so we'll see where it goes.

Thank you. Thank you.

Next, we have Michael Carroll with RBC Capital Markets.

Yeah, thanks. Tom, I kind of wanted to touch on your last comment regarding seniors housing grants. I know that your seniors housing portfolio that has some more government reimbursements, already got some funds. I guess, do you expect those specific communities will get more funds? What are you hearing on a broader picture of will private pay senior housing facilities? Could they potentially get stimulus?

Hey, Michael, it's Scott. I'll take that one. The industry trade associations and some of the big operators are certainly lobbying to get funding for the private senior housing. I don't have any better information than anyone else as to what the government is ultimately going to do. From a fairness standpoint, it does seem appropriate given that the government has provided stimulus to a lot of different businesses that senior housing would be on the list given the profile of the communities and the residents and the fact that the industry is taking pretty dramatic actions on both the cost side as well as the revenue side. by shutting down admissions in many cases to protect residents, that it would be the beneficiary of federal stimulus. But as we sit here today, we can't say for sure that there will be any stimulus or how much or when, but they're certainly actively lobbying for that stimulus.

Okay. And then your assets that got government reimbursed, the CARES Act funds that you kind of reported in 2Q, there's nothing that was received in July or August to date, right? That's correct. The funding is from the second quarter. Okay, great. And then just real quick, can you mention, talk about the senior housing tenants, I think it was with HRA, that requested a deferral, I guess, earlier during the Potamac Boat You made that comment in your prepared remarks, but how are you thinking about that specific tenant? And do you have deferral discussions going on with them?

We do not have any active dialogue with them. Fortunately, that's one that we were proactive and got ahead of it more than a year ago. Historically, we had 15 buildings with HRA. Today, we're down to eight because we've proactively redone that lease in a pretty dramatic way to get rid of the lower-quality properties. as well as to combine all the properties into a single master lease with a 10-year term and improve our corporate guarantee. So we're in a much better position today than we would have been a year ago, dramatically so, fortunately. That being said, on the entire senior housing portfolio, we're watching it carefully. So no active dialogue right now about rent deferrals. No, Michael. Great. Thanks, Scott.

Next, we have Steven Valliquette of Barclays.

Thanks. Hello, Tom, Pete, and Scott. Thanks for taking the question. So, you know, the data points on slide 46 are definitely helpful around the occupancy and et cetera. And with the move-in projections on that slide 46, do you assume that the percent of properties accepting move-ins stay about the same? throughout the whole quarter. Right now it's 86% of properties within shop and 93% in CCRCs as far as accepting move-ins. Do those have to increase further to hit those move-in projections on slide 46?

Hi, Steve. Scott here. We do not need to have a higher percentage of communities open for move-in to hit those projections. In fact, we exceeded framework in the month of July, even though there are some questions about whether July was a weak month, we did finish the month for both CCRC and SHOP ahead of the framework. So we're not anticipating or expecting a big improvement in that percentage in order to meet this framework.

Okay. And maybe just as a quick reminder, as far as the various policies in place that trigger uh when a facility discontinues move-ins you know versus when they will once again accept move-ins again i don't know if it's you know different operator or operator or state by state but maybe just i'm sure there's some commonalities maybe just give us a little more of a flavor of uh you know how that is set up right right now today right well the ultimate decision um is the state

and or local health authority, and they could make the decision to have a property closed down to new admissions. But assuming that that does not occur, it would be up to the operator. And there is some consistency, although it's not 100%, but in general, it's based on the amount of COVID activity inside of the property, both the percentage of residents and or staff, but also the timing and whether it was three days ago or 14 days ago. And then secondarily, the activity in the local market for the population at large. Those are generally the three things that most impact whether or not a property is open to move-in, Steve.

I guess the final quick follow-up just on that last point, then, would be for the facilities that are not accepting move-ins yet for that remainder, how much of that is sort of, you know, forced by a state policy versus kind of more voluntarily not accepting move-ins? Is there... Does it gravitate heavily towards one side or the other as far as the remaining ones that are not accepting women?

Yeah, it's a very small percentage now that is being dictated by the state or local health systems. It's primarily the operator's decision based on their own safety policies.

Okay, that's perfect. Okay, all right. Appreciate the extra color. Thanks.

And next we have Daniel Bernstein of Capital One.

Good morning. Excuse me. Nobody's really touched on margins yet, so I wanted to go back to that. I mean, you had shop margins or shop NCCC expenses were only at 1.6% versus, I guess, the 5% to 15%. I wanted to understand what was behind that and has that continued or – into 3Q or been impacted by some of the increase in COVID that we've seen in Texas and Florida? Kind of how you're thinking about margins for the rest of the year.

Thanks. Hey, Dan. It's Scott. I mean, margins are more likely than not going to decline, although for the framework we just put out, it's going to be more driven by revenue and occupancy in particular than by expense. When we did the framework in May, We thought it would be a pretty even balance between expense and revenue that was causing NOI to decline. And as it's turned out, the expenses have not increased by as much as we thought. That's obviously good. We are spending a lot on supplies, PPE in particular. But testing, although we're doing it in a pretty dramatic way across the portfolio, has not been a big cost increase because in most cases the state is either paying for it directly or or insurance is paying for it. So we haven't seen a huge increase there, which is good. The other thing is we have had substantial savings on repair and maintenance, as well as marketing, although that will start to ramp back up now. But certainly the number of commissions that are being paid is lower than it had been, and the number of activities from a marketing standpoint has declined, just given that it's all being done virtually at this point. So we have had some good success on the expense front, but because we still expect occupancy to decline roughly 150 basis points per month, the midpoint of our framework, there is that multiplier effect that I mentioned on the earnings call. It's just a mathematical reality of where the portfolio is. And today in the same store, we're in the high teens. And for the portfolio at large, we're in the mid-teens. Um, so we do think that's going to continue to come down. Tom, is there anything you'd like to ask?

You know, Scott, I think you've completely covered that. And I think this goes without saying, but obviously with the outsized impact of COVID on shop, the natural place to want to talk is, is about the shop results. Uh, I just remind you guys, 71% of our portfolios, life science, MLBs and hospitals that are doing fantastically. CCRCs have a far, far superior outcome than SHOP does due to the length of stay. And I would note, due to the diversification in our portfolio mix, you should note that our first half same-store results across our entire portfolio were plus 1.4% year-to-date. So it just does highlight that. Don't forget to look at the overall makeup of our portfolio. But I think you all know that, but it probably bears your mind. Dan, I know you have other questions, and they can be shop-related, but I thought I would throw that in while it was top of mind.

No, actually, my other question is life science-related. Well, there you go. Again, just trying to switch it up versus what people are asking. Actually, I did want to ask about the mark-to-markets, you know, obviously seem very strong right now in life science. You know, looking out to 21, 22, and some of those expirations, how are you thinking about the mark-to-market for those at this point?

Yeah, the mark-to-market across the portfolio, Jan, is in the 10% range, but it does vary by year depending on the particular lease that matures. This year was expected to be a strong mark-to-market year. It has been to date. We're at 15% in the first quarter, 15% here in the second quarter. And we're off to a great start in July, as I mentioned in the prepared remarks. And we would expect that to continue. 2021, we do think, is another year of positive marks in market, although maybe not quite as strong as this year. But so much of that depends, of course, on whether or not certain leases are renewed and the strength of the market at that time. So I think a little bit too early to comment with a specific number, but we do think it's positive. And as you look out to 2022 and beyond, I think it's just too far in the future to comment. We'll just have to see where the market is.

Okay. Okay. I do have about an hour worth of shop questions, so maybe another time.

Thank you, Dan.

Take care.

Thanks. Next, we have Lucas Hartwich with Green Street Advisors.

Thanks. Hey, guys. I was hoping you could comment on monthly shop NOI decline since April. Is that something you could provide? Or at least a range? I'm just curious, you know, how did NOI decline fare in April, May, June, July? whatever you can provide on that front would be helpful.

Yeah, certainly NOI has declined sequentially because we've continued to lose occupancy from month over month. That part is clear. But in terms of the degree, the percentage change, the most dramatic month was April, obviously, when we lost almost 400 basis points of occupancy. And you compare that to June and July, where at least from an ADC standpoint, it was closer to 50 basis points. So the rate of decline has come down pretty dramatically, but we're still losing NOI, obviously, with occupancy falling.

Right. I'm guessing the April result was also driven by the higher than the other month in terms of the OPEX fund. Is that fair? Yes, but not dramatically. Okay. Great. And then the other question I have is just obviously some solid pre-release and progress at the boardwalk development in San Diego. Can you remind us what the expected stabilized yield is for that project, and has that changed at all?

Hey, Lucas. This is Tom Klarich. The yield on the boardwalk project – give me just one second – Sorry is. I have such small letters here. It's just taking me a second.

It looks it should be around 7%. Was our expectation.

That's roughly.

Yeah, it's it's just under 7%. It's 6.8%. Yeah.

Great thanks so much. Sure.

Yeah, the beauty of that one was there was a good amount of pre-leasing that ended up occurring. So that was a positive.

And next we have Teo Okasanya of Mizuho.

Yes, good morning, everyone. So my first question is the seed housing portfolio, the last few months, the rate of move-outs, declining, I guess the question I have is you would think if senior housing is just kind of a natural attrition that happens in that business because of the age of the resident and your recent numbers seem to kind of indicate, at least from an occupancy perspective, seem to kind of suggest that that rate of attrition that I would have expected given that they typically live there for 30 to 36 months that doesn't seem to be showing up in your numbers because your occupancy numbers are kind of dropping a little less and kind of like that, you know, two to 3% drop you would expect every quarter.

Hey, Tayo.

Yeah, hey, Tayo. I might ask you to rephrase the question. I wasn't exactly sure.

Sure. So I'm just trying to understand. you know, if not much is happening by way of move-ins and there's a natural attrition that happens in the portfolio for move-outs, given, again, the age of the residents, and typically they're from 30 to 36 months, you know, I would have been expecting kind of occupancy drops of about, you know, 300, about 2% to 3% a month, but your occupancy drops are kind of coming in much less than that. Is that just because you are seeing some move-in activity activity or all right you know yeah because your move out actually seemed to be getting better and i just don't quite understand that if you should kind of be losing three percent per month naturally yeah all right tom you want to comment i can just jump in quickly tyler we're going to get lumpiness in the actual results number if you were looking at the june and july results from

what we put out today and previously it's not going to go in a straight line but to put this in the most simple terms in SHOP when you've got a let's just say two-year average length of stay for a portfolio you're going to have about four percent move out attrition per month and that's going to be relatively consistent but it's going to bounce around from one month to the next just based on natural discrepancies between months. So we haven't changed our view on that for shop. So if that's your question, which I think it is, the actual activity that you're seeing is going to differ a bit from what we know will be a mathematical outcome over time. And then the big driver becomes how much, what are the move-ins that result as a result of the marketing, the virtual marketing that we're doing, and the waiting line that occurs for need-based seniors as they desire to move in, and the ability to move them in as those properties are open. That's the much bigger driver that will dictate the net attrition or ultimate stabilization of those properties. Scott, anything you would add to that?

Just to clarify Tayo's question about move-ins, they're certainly not zero. The original framework was 0% to 2% per month of movement activity. We just increased that to 1.5% to 3.5% per month. So that's below the historical average, which is closer to 4% per month, but it's certainly not zero. So there is positive movement activity.

Great. That's helpful. And then lastly, just a broader question. Again, Tom, your comments earlier on just about again, the longer this goes on and there's more uncertainty and, you know, you would have to kind of, you know, reassess dividend against that kind of backdrop. I mean, could you just kind of talk about, maybe a little early to talk about 2021, but if we do kind of end up in a world where, you know, in the fall, COVID's worse, God forbid, but if that's the world we're kind of living in, how does one really start to really think about the kind of discussion be a business that is kind of heavily impacted by COVID heading into 2021?

Well, first let's hope that this has a quicker resolution, but none of us can predict that, and that's why we put our framework out. Your question is a very fair one. What happens if this becomes a protracted problem? And as I stated earlier, our liquidity and our credit ratings, we consider to be quite important relative to a blue chip REIT. And so we would revisit our leverage and our dividend as necessary to maintain the strength of the right hand side of our balance sheet and our liquidity. I would expect that many, many high quality REITs would be that especially any of those that are in sectors that are being heavily impacted by COVID, which are plenty of us, are going to be doing the same calculus. So to me it's just responsible management to stay a step ahead of this and not get behind to a point where all at once we've got credit rating issues, we've got liquidity issues, we're not going to let that occur. So bottom line is all I'm doing is acknowledging is if this becomes a protracted issue, you can expect us to be doing lots of analysis, lots of execution with clear disclosure as to what we're up to and why. Bottom line.

Great. That's helpful.

Thank you. You bet. Thanks, Dale.

And next we have Joshua Dennerlein of Bank of America.

Hey, guys. Thanks for the question. I guess I just wanted to touch base on a comment I heard from Scott and prepared remarks about the life science. I think it related to the same story. I know why it sounded like you, you could see some upside from that four to 5% range. If rank collections remain strong curious on what you kind of budgeted in there for, I guess the back half of the year on, on rank collections and, Just trying to get a sense of maybe the upside that could be in there if rent collections remain high.

Yeah, hey, Josh. That was a comment in the prepared remarks, and that is the primary source of upside versus the 45% outlook. I'd hesitate to give a specific number, just given reality of discussions with different tenants. But I would say there's at least 100 basis points of potential upside there depending upon our success. We're at nearly 100% rent collections in the month of July. Pretty incredible. And only ended up deferring rent for two tenants, a million dollars in the aggregate. So really small numbers. And it's really a credit to the team who spent an enormous amount of time on this topic in March, April, May, and really into June. so that we ultimately only had the two tenants with deferrals, and there was a significant amount of analysis done to make sure that we were comfortable providing them that deferral. Ultimately, they're companies in growth mode, and they need to raise capital, and they're in the middle of capital raising, and we think they'll get home based on discussions we've had. And at that point, the rents would be paid back. So there's still a lot of – so five months left in the year. So it's really a comment on specific numbers, but there is – the potential upside to the 45%. Okay.

Yeah, no, that's great. Great color. I appreciate that, Scott. Maybe one more from me. I think it was kind of touched on with maybe some other questions, but I wanted to kind of maybe ask it a different way. I guess you mentioned, I guess, moving declined in June, July. A lot of that maybe was driven by Florida and Texas. All right. Are the less move-ins relative to kind of a month ago, is that driven more by folks maybe getting a little bit more nervous about putting their loved one in a senior housing? Or was it more like just senior housing communities maybe not being like open to new residents at that point because they got a case or two?

I think it's more just a reality of people moving around less when there are periods of outbreaks. I think all of us, me included, probably you included, take extra precautions when the local community is seeing a high number of cases and it just leads to less activity period. It's obviously a pretty dramatic move to put a senior into a senior living community. It's not one person that's making that move. There's an awful lot of activity attached to that decision. And if you can wait a week or two weeks, I think it's just much more likely that you would do that given the choice. I think it's more related to that. It wasn't that we had a huge percentage of our communities that all of a sudden in early July couldn't admit residents. That's not what drove it. I mentioned earlier we're actually a higher percentage today that are accepting movements than we did in late June. I think it's more just the amount of activity in the environment and, in particular, the people making the decisions, which is usually the adult children and not the seniors themselves.

Great. Thanks, Scott. Appreciate it, everyone.

And next, we have Sarah Tang of JP Morgan.

Hi, good morning. This is Sarah for Mike Muller. Just one question on my end. Could you talk about the occupancy cadence in the second half of July?

Sure. This is Scott speaking. In the CHOP portfolio, we ended July with the spot occupancy that's exactly in line with the average daily census for July. So, that suggests that the second half of July was actually a very strong move-in activity or move-out. So, although we did decline in the month of July, most of that occurred in the first half of the month, and then we recaptured all of it in the second half of the month. So, you know, that was a positive. And the CCRC portfolio was similar, although there was a 20 basis point gap between the Spot on Expensee and the average daily census for the month. So in both cases, the end of the month saw positive momentum, enough in CHOP to completely offset the first half of the month, but not quite in CCRC. But nonetheless, clearly the second half was stronger than the first half, Sarah.

Tom Klarich and Scott maybe mentioned the MOB and life science occupancy as well. Those are much bigger businesses and also driving our results dramatically. Tom, maybe on MOBs first.

Sure. On MOB, actually our leasing activity has been very strong for the year. We had great commencements in the second quarter at a million square feet versus 600,000 in the first quarter. So that's done very well. Our occupancy is about 70 basis points ahead of where we expected it to be. Now you will recall last quarter I said that new leasing, we saw some declines in prospects in the months of April and May. That has since improved, but there is a four to six month delay in getting occupancy from those tours and prospects. So we likely will see a slight decline in occupancy in the third quarter, but since new leasing's picked up, I think that'll reverse itself later in the year.

Scott? Yeah. And then in life science, in the second quarter, we were up about 250 basis points over the previous quarter. July, we were down 60 basis points from June 30th because of three known vacates. In some cases, we proactively terminate leases in order to grow existing clients. So that drives some of it. And importantly, we've already released 60% of the space that we lost in the month of July. So it's more of a timing issue in certain cases. The day that existing tenant stops paying rent, it impacts occupancy. But looking forward, we do have a replacement tenant, and in this case, a positive mark-to-market. So when you're looking forward, it's actually a very positive story, even though we lost a bit of occupancy short-term.

Operator, any other questions?

No, no, sir. We're showing no further questions at this time. If okay, we'll go ahead and conclude the question and answer session. Mr. Herzog, I'd like to hand the conference back over to you, sir, for any closing remarks.

Yes, thank you, Operator. And thank you, everybody, for joining our call today and your continued interest in HealthPeak. I hope you all stay safe and we'll talk to you soon. Thank you.

And we thank you, sir, also for your time and to the rest of the management team. Again, the conference call is now concluded. At this time, you may disconnect the lines. Thank you again, everyone. Take care and have a great day.