Good day, and welcome to the LTC Properties, Inc. Second Quarter 2020 Analyst and Investor Call. All participants will be in a listen-only mode. Please note this event is being recorded. I’d now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to LTC’s 2020 second quarter conference call. Joining me today are Pam Kessler, Co-President and CFO; and Clint Malin, Co-President and Chief Investment Officer. I’m also thrilled that Lynne Katzmann, Founder and CEO of Juniper Communities is joining us as a special guest. We are including on our call an informative session with Lynne, designed to provide insights and an operator’s perspective on the challenges caused by the pandemic and the lessons learned while meeting these challenges. I would also like to acknowledge Pam and Clint, who were recently promoted to Co-Presidents in recognition of their many important contributions to LTC over the years. With me, they share a strong strategic vision of LTC’s future. Please join me in congratulating them on these well-deserved promotions. Before I begin to review our business, I want to thank our operating partners for all they have done for their patients, residents, and employees during the pandemic. They have aggressively dealt with unprecedented challenges over the last several months while also solving problems creatively and compassionately. Speaking of creativity, I would like to share this story from one of our memory care communities that recently made national news. After being separated for more than 100 days from her husband, Steve, who is suffering from early onset Alzheimer’s, Mary Daniel was focused on finding a way to reunite with him. Our operator, ALG Senior, headquartered in Hickory, North Carolina, thought outside of the box and offered Mary a part-time job as a dishwasher. Both Mary and the community are taking this job seriously. She received substantial training on assisted living care and has been tested weekly for COVID-19. Now, after each shift, Mary visits Steve in his room, where they watch TV and lay in bed together holding hands. She uses her paycheck to buy gift cards for the staff in recognition of the very hard work they are doing to care for her husband and others loved ones. There are similar stories from many of our operators around the country. In fact, I hope Lynne will share some of her own. We commend them for working tirelessly to provide care where it is needed the most and have confidence they will continue to meet this new normal with diligent strength and grace. Although most states were able to successfully flatten the curve earlier on in the pandemic, COVID-19 cases have spiked around the country, potentially overtaxing our healthcare system. In our industry specifically, uncertainties remain around PPE, sanitizing supplies, testing, and staffing. Demand for testing has increased, resulting in growing lag times between tests and results, while some testing results have been found to be unreliable. The recent decision by CMS to provide point-of-care COVID-19 test supplies to skilled nursing facilities should help, but to our knowledge, there is no similar program for private-pay communities. It is quite impressive to see how our industry has come together during this time. In addition to the work being done by operators, several industry organizations have launched initiatives, including intensive lobbying of Congress for additional relief funding, limited liability protection, and the prioritization of testing, PPE, and access to a vaccine when available. They have also engaged PR firms and launched media campaigns in an effort to enhance the perception of our industry and refute recent trends of negative press. LTC is honored to be an active participant in several of these programs. Moving more specifically to LTC’s second-quarter results. Most directly due to COVID costs and other COVID impacts, we have placed our Senior Lifestyle portfolio on a cash basis as of July 1, due to a shortfall in May and June rent payments. Senior Lifestyle’s total orderly rental obligation to LTC is approximately $4.6 million. For the quarter ended June 30, 2020, we received a total of approximately $1.8 million. In July, we received approximately $1.1 million, while recent rent payments have been trending up. At June 30, Senior Lifestyle owed us $2.8 million for the second quarter of 2020, which is reflected in our receivable balance as of that date and is covered by an undrawn letter of credit that we hold. In cooperation with Senior Lifestyle, we are evaluating our options for the portfolio, which may include seeking new operators for the 23 properties and/or pursuing sales of some of the 23. A split of the portfolio amongst several different regional operators, some of whom could be new to LTC properties, provides an opportunity to reduce portfolio concentration while building relationships with operators new to LTC with whom we can grow. We have proactively managed operator concentration in our portfolio. Our current Senior Lifestyle is one of only two operators where income and asset concentration exceeds 10%. Not surprisingly, the quarter has been quiet with respect to new investments. However, we are continuing to court potential operating partners and evaluate structured finance opportunities, which typically have shorter investment duration, and we believe offer better risk-adjusted returns in today’s market. While the market still remains uncertain with respect to 2020, the foundation we have built will serve us well when restrictions loosen, and we can again actively engage with potential acquisition candidates. Being well capitalized allows us to more quickly step into situations than some other financing sources. Although I believe that it is unlikely we will close any major transactions in 2020, I also believe that LTC will continue to play a strategic and important role in seniors housing and care financing over the long term. As we discussed last quarter, we are not giving 2020 FFO guidance due to COVID-related uncertainties. Now I’ll turn the call over to Pam.

Thank you, Wendy. As Wendy discussed, we have placed Senior Lifestyle on a cash basis as of July 1. Additionally, we wrote off our straight-line rent and lease incentive balances related to Senior Lifestyle as of June 30. Primarily due to this write-off, total revenues decreased $17.8 million from last year’s second quarter. Decreased rent from Preferred Care was also a contributing factor. These declines were partially offset by acquisitions and completed development projects, increased rent from 2019 lease transition, and a higher rent from Anthem. Interest income increased $469,000 in the 2020 second quarter due to the funding of additional loan proceeds and expansion and renovation project. Income from unconsolidated joint ventures decreased $128,000 in 2Q 2020 due to mezzanine loan payoff and reduced income from our preferred equity investment in a joint venture with an affiliate of Senior Lifestyle. During the fourth quarter of last year, we recognized a $5.5 million impairment charge related to our $25 million investment in the joint venture. In the second quarter of 2020, the four properties comprising the JV were sold as discussed on our last call. Accordingly, we received partial liquidation proceeds of $17.5 million and recognized a loss on liquidation of unconsolidated joint ventures of $620,000. We have a receivable balance of $1 million related to additional proceeds that we anticipate receiving throughout the second half of 2020. Interest expense decreased $164,000 due to lower outstanding balances and lower interest rates under our line of credit in 2Q 2020, partially offset by the sale of $100 million of senior unsecured notes in the fourth quarter of 2019. G&A expense was comparable year-over-year. Net income available to common shareholders decreased $18.6 million due primarily to the write-off of Senior Lifestyle, straight-line rent receivable, and lease incentive balances as well as the loss on the liquidation of our unconsolidated joint ventures. NAREIT FFO was $0.31 per diluted share for the second quarter of 2020 and $0.75 per diluted share for the same period last year. Excluding the non-recurring items already discussed in the current period, FFO per share was $0.76 this quarter compared with $0.75 in last year’s second quarter. During the 2020 second quarter, we received $17.5 million from the sale of the properties and the JV with an affiliate of Senior Lifestyle as previously discussed, and $2.1 million related to the partial pay down of an outstanding mezzanine loan. We funded $2 million of additional proceeds under an existing mortgage loan with an affiliate of Prestige Healthcare, which is secured by four skilled nursing centers with a total of 501 beds. The additional proceeds bear interest at 8.89%, increasing 2.25% annually thereafter. We also funded $7.4 million in development and capital improvement projects on properties we own, $200,000 under mortgage loans, and paid $22.4 million in common dividends. At June 30, we own one property under development with remaining commitments of $7.4 million. We also have remaining commitments under mortgage loans of $2.7 million related to expansions and renovations on four properties in Michigan. At June 30, we had $50.4 million in cash and cash equivalents. We currently have over $510 million available under our line of credit and $200 million under our ATM program, providing LTC with total liquidity of approximately $760 million. Our long-term debt-to-maturity profile remains well matched to our projected free cash flow, helping moderate future refinancing risk, and we have no significant long-term debt maturities over the next five years. At the end of 2020 second quarter, our credit metrics compared favorably to the healthcare REIT industry average with net debt to annualized adjusted EBITDA for real estate of 4.3 times and an annualized adjusted fixed charge coverage ratio of 4.9 times, and a debt-to-enterprise value of 32%. The effect of the economic fallout from COVID-19 on the real estate capital markets has resulted in our debt-to-enterprise leverage metric being higher than our long-term target of 30%. However, at 4.3 times, we are still comfortably below our net debt to annualized adjusted EBITDA for real estate target of below 5 times. I’d like to quickly discuss rent deferrals before turning the call over to Clint. For the second quarter, rent deferrals were less than $1 million or approximately 2% of second-quarter rent, with approximately $277,000 of this deferred rent having been repaid. Accordingly, at June 30, there were $653,000 in rent deferrals outstanding or about 1.5% of rent. In July, we received two deferral requests from operators and granted one in the amount of $80,000 for July and the other totaling $280,000 for August and October rent. Now I’ll turn the call over to Clint.

Thanks, Pam. I will cover several items today, starting with our Brookdale renewal. Our Brookdale leases, which cover 35 properties in eight states, are the only significant lease renewals through 2022. Given the uncertainties caused by COVID-19, we agreed to extend the maturity date by one year to December 31, 2021. In consideration for the one-year extension, Brookdale agreed to consolidate the four leases we have with them into a single master lease, whereby all properties must be renewed together. Brookdale now has three renewal periods consisting of one four-year renewal option, one five-year renewal option, and one 10-year renewal option. Brookdale’s notice period to exercise its first renewal option will open January 1, 2021, and close on April 30, 2021. The economic terms of rent remain the same as the consolidated rent terms under the previous four separate lease agreements. We have extended a $4 million capital commitment to Brookdale, which is available through December 31, 2021, at a 7% yield. Moving to our development projects; as I mentioned last quarter, construction was completed on our assisted living memory care real estate joint venture project with Fields Senior Living in Medford, Oregon. Fields has received its license to operate, is conducting tours, and plans to open in the fall. Our development project with Ignite remains on track to be completed in the fall. Next, I’ll discuss our portfolio numbers. Q1 trailing 12-month EBITDARM and EBITDAR coverage using a 5% management fee was 1.39 times and 1.17 times, respectively, for our assisted living portfolio, and 1.76 times and 1.31 times, respectively, for our skilled nursing portfolio. Excluding Senior Lifestyle from our assisted living portfolio, EBITDARM and EBITDAR coverages increased to 1.49 times and 1.26 times. I’d now like to provide some occupancy trends in our portfolio. This data is as of July 17. For our private pay portfolio, occupancy is as of that date specifically, and for our skilled portfolio, occupancy is the average for the month to date. And because our partners have provided July data to us on a voluntary and expedited basis before the month is closed, the information we are providing encompasses approximately 72% of our total private pay units and approximately 93% of our skilled nursing beds. For additional context, we’re also sharing comparative information about occupancy as of March 31, 2020, and June 30, 2020, for the same population used for the July data. Private pay occupancy at March 31 was 83% and 77% at June 30 and July 17. For skilled nursing, average monthly occupancy for the same dates respectively was 80%, 72%, and 71%. I’ll finish my remarks today with some brief comments on deal flow. While the market remains constrained and there are still complexities to be worked through, we are seeing some interesting opportunities, and our business development team is continuing to actively source new deals. By analyzing where we believe the market is headed, we are positioning LTC to be ready to strategically deploy capital as soon as practical and beneficial for us and for our shareholders. We believe our strong and flexible balance sheet is a competitive advantage. Right now, we see better opportunities and structured finance products, such as preferred equity investments, mezzanine loans, bridge loans, and unit tranche loans for their shorter duration and what we believe to be better risk-adjusted returns in today’s market. Over the longer term, we are continuing to build and enhance operator relationships so that when the time is right, we can return to more standard acquisition and development investments that meet our underwriting criteria and create or enhance growth-oriented partnerships with strong regional operating companies. At this time, however, we cannot accurately pinpoint when these types of transactions will resume. Now I’ll turn the call back to Wendy for her closing remarks.

Thank you, Pam and Clint. As I reflect back on the quarter, it was encouraging to see some signs of progress as our operators and the seniors housing and care industry aggressively address pandemic-related challenges. LTC is continuing to provide support as needed as our operators now have to deal with the repercussions of the recent spike in COVID cases. I continue to believe that more and more opportunities will be available to LTC and that we stand prepared to act on them when the time is right. Now it’s my pleasure to introduce Lynne Katzmann, Founder and CEO of Juniper Communities. Lynne started Juniper in 1988 and has grown the company to one of the premier regional senior living companies in the United States. Today, Juniper operates 21 communities in three states, Colorado, New Jersey, and Pennsylvania. Of these 21, Juniper leases two in Colorado and three in New Jersey from LTC. These include all care levels, from independent living to memory care to skilled rehabilitation centers. Juniper’s mission of nurturing the spirit of life is visible in their physical environments and experienced through their signature care programs. After Lynne’s presentation, we will open the lines for questions. Please take into consideration that Juniper is a private company, and while Lynne may provide some financial-related data in her prepared remarks, please refrain from asking financial questions regarding Juniper’s balance sheet or operations. Welcome, Lynne.

Are we live now?

Lynne, you’re live.

Yes. Lynne, please begin. Operator, we can’t hear Lynne.

I can’t either. One second.

Can you hear me now?

Yes. We can hear you, Lynne.

We can. Thank you, Lynne.

Okay. Thank you, Wendy, and thank you, Clint and Pam. I apologize. Today I’m going to be talking about COVID-19, the impact of COVID-19 from an operator’s perspective. And as Wendy said, Juniper’s property spans the continuum; however, today I’m going to be focusing primarily on the assisted living and memory care experience during COVID. To summarize my comments briefly, I want to let you know that I want to share with you an understanding of COVID-19 and its impact on senior housing through a chronology of events. I want to talk with you about Juniper’s COVID-19 journey, our strategy, as well as a three-phase approach to the pandemic. Lastly, I’d like to share with you some of the lessons I believe we’ve learned. First, I want to talk about the COVID-19 reality. The CDC issued its first public alert to the U.S. on January 8 of this year. The first death in the U.S. occurred at Evergreen Health Care Center in Kirkland, Washington, on February 29. On March 11, there were 1,100 confirmed cases in the U.S., and it was on that day that the WHO declared COVID-19 to be a global pandemic. On the next day, on March 12, the helping human services group placed their first order for N95 masks. At that time, they expected delivery around the end of April. By the end of March, there were 164,000 confirmed cases with over 3,100 deaths. Four months later, as you all know, we stand at 150,000 Americans dead, with just 1,200 being added yesterday. So the extent of this pandemic is huge, and the timeframe in which this has happened is incredibly short, which has made it that much more difficult for all of us, but especially operators who care for chronically ill older adults to take action. Juniper’s COVID-19 journey, as I said, has three phases. One, we call the crisis phase, which started in late-March and went through May; phase two is what we are calling our path forward or the beginning of recovery; and phase three, which we have not yet experienced, is what we’re dubbing the new normal. I want to now tell you a little bit about our 30,000-foot view of our strategy. Our goal has been to keep our residents and our associates healthy and safe. Our approach has been one which we consider proactive and has involved primarily testing and infection control policy. Part of our strategy has evolved because of our understanding of what successful countries have done in combating COVID. Looking at the infection prevention strategies that have led them to more success, among those are Germany and South Korea. Our crisis management strategy included four key points. The first was testing, contact tracing, and isolation, where we define the problem, identify our risk, and implement protective actions that relate to what we have identified. Our second piece of our crisis management process related to stepped-up infection control practices, which included everything from hand washing and social distancing to cleaning and disinfecting, and most importantly, the proper use and availability of Personal Protective Equipment or PPE. The third part of our strategy involved associate training and support, particularly to assure widespread adoption of appropriate practices. Last, but certainly not least, was a new system to ensure enhanced accountability and to document results. As I said before, our testing strategy was patterned after South Korea, which used a test early and universal strategy, regardless of someone’s symptoms. We initiated testing in late-March. We used a private lab, and our decision was to test all residents and associates, not just those with significant symptoms, which was substantially different than what was happening at the time. We started by testing in hotspots in two communities, both of which were LTC Properties; one in Colorado and one in New Jersey. Roughly 50% of the people tested were positive, but most notably, of these, 70% to 94% were asymptomatic, with 72% of residents to be specific and 94% of our associates. This is hugely important because it told us that this disease was transmitted without someone having symptoms, and that, despite what we were being told by the CDC, we needed to do more. Juniper used that information to put together what we considered our battle plan, which we believe has been fairly successful. I want to also note that the majority of our communities tested 100% negative. And in those communities, what we did is essentially sheltered everyone, including our staff in place. A fun example of this was something we call Camp Wellspring, which took place in memory care. As many of you may know, memory care residents are harder to isolate. They naturally like to come out of their rooms and oftentimes wander. Thus, isolating them individually in their suites is often more difficult. By creating a safe environment, by sheltering in place, and by creating small cohorts, we were able to keep people safe and healthy. More importantly, or equally importantly, I should say, is that we created a fun environment, one that had a tremendous positive impact on our residents and our team members, as well as their families. We created an RV camp in our parking lot, and each of the cohorts, which are like neighborhoods, were assigned dedicated staff. They were not allowed to go to other parts of the building, and similarly, they had to shelter outside of the building in their time off in a distinct location, and we created those. At the end of the day, many of our residents felt that they were on vacation and thought it was great fun. We’ve now dubbed it Camp Wellspring. So that’s a fun story about that. I will also just note, as I’m telling stories, that in the communities that sheltered in place, we now have three new babies of women who sheltered in place and gave birth shortly thereafter. I want to let you know that in terms of testing right now, we are doing viral testing weekly, but key to the strategy working is rapid, accurate, affordable, and regular testing. Testing affords us the data to keep people who are likely communicable and who can transmit the disease out of the community. That enables us to create a safer environment, which keeps everybody healthy, and we’ve been quite successful in doing that. As of the time we reported to LTC, we have no cases of COVID anywhere in our system among residents and staff. Moving along, I want to talk a little bit now about some of our other infection control practices and then briefly about staff issues. Infection control practices, including stopping nonessential visitors from coming in, screening at the door, and taking temperatures. Some of the other things we did included stratifying our residents in terms of risk, understanding their chronic conditions, and monitoring those who were more susceptible to the disease more often. As I mentioned before, we cohorted residents and staff, which was probably one of the more effective measures we took. PPE, we had an adequate supply, and we spent a lot of money on it. One of the more important things we learned is that we had to train people in the use of PPE. As we all know, wearing a mask is new to many of us; it was to our residents and teams, and training people in how to use them, how to put them on, how long to keep them on, and how not to touch them, along with compliance audits, is extremely important in proper infection prevention. In terms of disinfecting, we went green, which is something Juniper has done repeatedly over our 30 years. We used a nontoxic disinfectant, which was EPA and FDA approved, and utilized foggers to ensure that we disinfected the whole building. Another thing we did, which may not consider a direct infection control practice, but we considered an infection prevention practice, is communication. We communicated early, often, and I believe transparently. As of July 17, we had communicated with 1,980 different families of our residents and their powers of attorney as appropriate. Communication for us has been critical in getting the support of our teams, our residents, and our families. I want to talk briefly about staff issues. One of the things that impacted all of us as senior living providers is staffing. If someone’s sick, they obviously need to be out of the building. If someone’s exposed to someone who’s sick, they too need to leave. This meant that, in several cases, all of a sudden, within a very short period of time, the staffing needed was no longer available in the same numbers as before. If you add to that, senior staffing has become difficult, particularly in hotspots. The cost of that staffing has gone up as we’ve provided appreciation pay, otherwise known as hero pay, and some people call it hazard pay as well. In addition, personal protective equipment needs to be accessible, which we were able to do and utilized properly. Now, what’s the solution to these staffing issues? For us, it was to train all of our available associates to be universal workers, to extend pay when people were sick or exposed to protect them and their families, to provide appreciation pay, particularly in areas where we had COVID-positive residents, to provide additional incentives for people to shelter in place to essentially create a bubble around our communities. Lastly, we used our salespeople as recruiters and found this to be extremely effective in helping us fill empty positions while people were sick. I want to talk to you now about the second phase, which we call the pathway forward. For us, the goal of this phase is to restore profitability while keeping residents and associates healthy, safe, and engaged. Our approach has been to jumpstart move-ins and implement what we call the five pillars, which in notable Juniper fashion alliterate, so they are prevention, people, program, place, and packaging. Prevention has to do with our testing strategy and infection prevention, including cleaning, disinfecting, and again, cohorting. People relates to the schedules for our associates, their assignments, again, relating to cohorting and different pay programs. Programming in the pathway forward is about reopening dining, restoring activities, and perhaps most importantly, establishing safe visitation for families. In terms of place, we have been working on ensuring there were visible signs that we are beginning to return to normal while maintaining successful infection prevention and control strategies. Lastly, under packaging, which you might consider marketing and sales, we focused on the message and the delivery of that message. In terms of driving sales moving forward, I want to tell you a little bit about what we’ve done and the results to date. In terms of our efforts, we utilize a golden triangle approach, which includes the Executive Director, the Director of Wellness, and the Director of Sales and Marketing. Those three people come together to focus their effort on outreach and working together to close sales. We’ve resituated our sales office, changed our tour protocols, and moved our model suite to areas that can be easily accessed without going through other parts of the building. We’ve created new messaging, trained for that, and demonstrated competency among the appropriate people. We’ve added additional sales support for target communities that had significant reductions in census over the past period, and we put together tool kits for rapid movements and instituted new rewards. What have we achieved? Well, in terms of digital leads, which have become a major source of leads at this point in time, our July 2020 digital leads are up 33% over April 2020, and our July 2020 digital leads are up 48% over July 2019. So we are seeing substantial growth in leads. We have implemented some special campaigns, and they are working. We’ve started doing virtual tours; they’re catching on. Our communities can now do backstage tours as well as virtual tours. I’m proud to say that our July 2020 results will not only match pre-COVID levels; we are seeing net census gains, and we’re very happy about that. Some of our operator pandemic imperatives that I think you need to know about is that we continue to screen for social isolation issues among our residents. We have expanded telehealth for mental health care as well and continued to increase access to the internet and smart devices. Just so you know, we have conducted over 12,000 virtual visits with families since the start of the pandemic. We’ve added a variety of different ways for people to meet with their healthcare providers online and have conducted over 1,400 window visits. What are the lessons learned? In terms of leadership vision, the ability to use data to set a proactive course has been extremely important. I think a second lesson learned is that technology is extremely useful and critical in generating data and communicating appropriately in times of crisis. Some of the technology that has seen increased use is of course telehealth. We’ve utilized various ways to communicate with residents and families, and we’ve used technology to support activities, both social and fitness-related. Some of you may have seen the joint effort between LTC and Juniper to develop an industry-accessible virtual connections program, which provides a whole host of opportunities for people in our communities at varying levels of care and service need, as well as in the community, accessible via slvirtual.com. I thank LTC for that. I will say that in my mind, the new model of senior living as we move forward may not involve massive restructuring of what exists, but it does involve an emphasis on safety, dedicated staff, and increasing social engagement through a variety of ways of integrating what we do with the community at large. In terms of phase three, our new normal is a work in progress. We’re not there yet. It will involve a variety of different things, including the continued use of data and technology for communication, provider access, digital marketing, and resident engagement. We will continue to integrate health services with other providers outside of our communities. Our neighborhood designs are very important, particularly for cohorting and keeping people safe and giving families and prospective residents a visible understanding of how we manage during this type of pandemic. That will include gated entry, where we take temperatures and carefully screen those who enter the building, and of course, cleaning and disinfecting has changed and must be visible. All of those things will be part of our new normal. I think that concludes my comments, and I want to turn it back over to Wendy. Thank you.

Thank you. Lynne will be available during our Q&A session. So you can ask her questions about Juniper and about the industry in general. So we’ll now open it up to the Q&A.

We will now begin the question-and-answer session. Please note that today’s comments, including the question-and-answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties’ filings with the Securities and Exchange Commission from time to time, including the company’s most recent 10-K dated December 31, 2019. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Our first question will come from Daniel Bernstein with Capital One. Please go ahead.

All right, good morning.

Good morning, Dan.

Can you hear me? Okay, good. And just thanks, Lynne, for all the color commentary on the operations. I have a quick question for Lynne and maybe LTC as well. Just in terms of how are you thinking about the margins for the business? There’s been a lot of talk that maybe margins have been permanently impaired. I know you talked a lot about staffing challenges during this. But how should we think about the margins of the seniors housing business going forward? Can they come back or are they somewhat permanently impaired?

I do believe they can come back. I think that for them to fully be restored, it’s going to take time for two reasons. Number one, obviously, we’ve been impaired both. We have new costs related to PPE and things like testing and additional staffing costs. And on the revenue side, obviously, our occupancy in many places, not in all places, has been impacted. But I do believe that one of two things will help us restore normalcy, if you will, to margins. I think one of those, obviously, is the vaccine, which is effective and utilized widely. I think the other, frankly, is rapid testing. I know our experience with testing has created a sense of safety among our staff and among prospective residents. So while there’s a cost to that, I do believe that cost will eventually be offset by the government and that margins can return to normal. Albeit I do believe it will take some time.

Okay. I don’t know if Wendy or Clint or someone on the LTC side has some thoughts on that in terms of margins and it may be how you’re underwriting passage or is it just too soon to put a normal number on that?

Sure, Dan, thank you. I think we feel similarly to Lynne’s perspective. It’s going to take time to normalize. What we said on our last call is looking at acquisitions right now is probably a little more challenging because, in the interim, you’re not exactly sure what that margin is going to look like. While we are focusing right now more on structured finance products. We do think that over time, these are private-pay businesses, and there will be a normalization. There’s going to be this increased sense of security in the environment as far as protocols, staffing, infection control, and testing. I think that’s going to increase the value perception of the business.

And I would echo what Lynne said about safety. I think the operators that are able to demonstrate a safe environment for seniors will recover more quickly on the occupancy side.

Okay, okay. And then turning to Senior Lifestyle, I just want to kind of understand, obviously you were unwinding the JV that was already known, but I guess we’re taking a little bit of a surprise by the write down of the lease. And just want to understand what warning signs were there. I know Senior Lifestyle is a much larger operator than just your 23 properties. So I am just trying to understand how much of the non-payment is performance of the assets themselves versus broader struggles of Senior Lifestyle?

Dan, this is Clint. One thing we obviously were a little surprised as well. We looked back into April when this – the pandemic was just becoming in the midst of it. And we did offer some deferred rent as we disclosed to Senior Lifestyle on that. But all of a sudden we’ve disclosed how rent has – was paid in May, June and then trended up in July. At that timeframe, there was a – back in May, there was uncertainty regarding securing PPE, staffing costs with hero pay. So those were outsized expenses. And again, in that timeframe operators were trying to secure PPE not only for the next 30 days; they tried to get as much as they could, and the per-unit cost associated with that PPE was substantial. So when going back and looking at the financial statements during that timeframe, there was definitely a significant increase during the May and June timeframes for hero pay and PPE costs.

And Dan, Senior Lifestyle is a company that believed, and took counsel from their legal advice, that they could not apply for government support in that program. So all of their added costs got taken out of our rent most specifically. Our smaller operators, who were able to get the benefit of support from the PPP program, were able to absorb those costs with that support. Senior Lifestyle just unfortunately was in the position that they were unable to get that support. We do have an agreement with Senior Lifestyle, however, that should that support be forthcoming in the future, and indeed the industry is lobbying hard, as I said in my comments, any support money they receive would come to us to pay for back rent. We do have a security on our books for the rent that’s unpaid, and their rent is going up, as we indicated, they've paid $1.1 million for July. So they’re getting closer to their rent. They had one property that they had to close totally because they had a major flooding issue and do have insurance interruption policies. So, we hope to get that money back. Several things happened to Senior Lifestyle, that was a tsunami situation.

Okay, okay. And just one quick question; you have $9.9 million from Anthem that’s anticipated, but you have some language in the supplemental and 10-Q that’s suggestive that that number might not quite be there. So I just want to understand kind of what the expected ramp might be in the second half to pay the full $9.9 million in 2020, if that’s the case, maybe what they paid in 1Q and 2Q, just so I can understand how maybe I should think about modeling that ramp.

Yes, that was just standard cautionary language around Anthem.

Okay.

Because, as you know, we haven’t set stabilized rent for them yet. We were hopeful to do that at the end of this year. Setting that rent may be pushed back depending on how long the COVID situation lasts, but currently, we are projecting that they’ll continue to pay as we have disclosed in the supplemental.

And Dan, the approach we took in setting rent with Anthem, we didn’t want to get into a situation where they were falling backwards. So we set the rents based on their projections and allowing – we weren’t sweeping all of the cash flow. We allowed them some cushion on that as well as they were growing occupancy.

Okay, okay. I’m sure there are a lot of people behind me here, so I’ll hop off and others can ask some questions. Thanks.

Thanks, Dan.

Our next question will come from Connor Siversky with Berenberg. Please go ahead.

Hi, everybody. Thank you for having me and thank you Lynne for the comments earlier. That was very helpful. I’m curious about Anthem here as a memory care operator primarily. How has occupancy or admissions fared for this kind of care versus your assisted living portfolio?

Hi, Connor. It’s Clint. Early on in the pandemic, Anthem did some voluntary admission bans, just trying to get an understanding, as Lynne indicated earlier in her remarks, isolation among the memory care residents can be more challenging. So we did see, because of a self-imposed admission ban on certain communities, that occupancy did come down, but we’ve actually seen an uptick a little bit on that since they lifted the self-imposed admission ban. I would say Anthem falls within the range of what I provided in my prepared remarks as far as occupancy changes. They’re not outsized compared to others in the portfolio.

Okay. Thanks for that. And then back to Senior Lifestyle, in the supplemental, I think, you’re expecting about $900,000 per month in rents going forward. So I’m wondering if you have to restructure the lease, would you find this to be a meaningful target? And then in the event that you have to dispose of those properties, I know you mentioned that price discovery is a bit of a challenge right now, but, I mean, how would you address that situation? What would be your strategy to dispose of them?

We’re looking at all options right now regarding the Senior Lifestyle portfolio, between looking at retenanting buildings, selling some. It’s really going to be a process that falls out as far as what the best option is for us, which may entail some buildings remaining with Senior Lifestyle possibly. We’re in that process of identifying potential parties to come in and take over operations on certain buildings. We’re going to consider it as a collective strategy to see what provides the most benefit for LTC shareholders. Part of that solution could be looking at shorter duration leases on some buildings to where we provide maybe more of a rent assistance during a limited time where a new operator can come in and implement changes. We can assess that at that point in time to look at what rent would be on a stabilized basis. This is something we did on two thrive buildings previously when we transitioned. We did a two-year lease to give the operator runway to take a look at it. So that may be a component of how we look to address retenanting some of the buildings with Senior Lifestyle.

Okay. And then in a broad sense, looking at rent coverage within, without the contribution from Senior Lifestyle, I know you removed them in one of the footnotes in the supplemental. Could you provide any color on how this metric could look with one full quarter of impact from COVID-19?

Right now, we have just the one quarter, so we’ve not – that timeframe is evidenced by Senior Lifestyle’s costs and the uncertainty with PPE and hero pay implemented at that time. It’s a little bit hard, I think, to use that as a trending mechanism going forward. I think looking at that one quarter of coverage is going to be a challenging metric to look at.

Yes. And I think for the next couple of quarters, coverage is going to be the challenge and reporting is going to be to create or not create, but have it on the same basis across operators. Some who got government assistance and some who didn’t, and the different ways that operators might flow it through, some might show it all at once in revenues, while others might bring it in – matching increased expenses and decreased occupancy. I’m not sure if the next quarter of coverage is going to be as meaningful a metric as it has been in the past.

Okay, fair enough. And then last one from me, wrapping this all together, it seems like you guys are sitting pretty comfortably on that payout ratio. I mean, how does your calculus change for the dividend payout in the current environment? Or what would it take to make you reconsider the current monthly payout?

We’ve targeted this at 80% of FAD, and that’s a conservative metric. In today’s environment, we feel very comfortable having that conservatism. Even assuming the decreased in Senior Lifestyle rent of $7.4 million, if you annualize it, we still have a $20 million cushion to our current annualized dividend payout ratio. So, we’re comfortable with that. We don’t feel a need to make any adjustments.

Okay. Thank you very much.

Thank you.

Thank you, Connor. We have time for one more question.

Our last question will come from Omotayo Okusanya with Mizuho. Please go ahead.

Hi, good morning, everyone. I just...

Good morning, Omotayo.

Good morning, everyone. Follow-up with Senior Lifestyle, do you guys treat this as more ranked deferrals going forward? Like what kind of prompted the decision to write off the accounts receivable cash when I think there’s so much flexibility in the world right now about how we’re dealing with it? Why wasn’t just kind of further deferral?

It really was a discussion with the operator and what we want to do with that portfolio. To answer your question of why we didn’t just grant deferrals in May and June versus delinquent rent, that’s your question, right, Omotayo?

Yes, that’s part of the question, but what’s so unique about Senior Lifestyle that kind of decision was made that we’re moving to cash rent, but moving to drive the process of selling the assets versus a bunch of operators right now are struggling because of the COVID backlog. I think right now, if people are kind of working with all of them, deferring rent, et cetera, this kind of feels like there’s more permanence to this decision around Senior Lifestyle, if I can use that word?

I think one factor for consideration is that Wendy made a comment in her prepared remarks about operator concentration and trying to manage that; outside of Senior Lifestyle and Prestige, we’ve been able to accomplish that. Being proactive for the company and trying to utilize operator concentration has a risk component. We see reducing that concentration long-term will be better for the company as we try to keep it below 10%.

Okay. Is there any chance that Senior Lifestyle could feel better three months, six months from now, and could come off cash basis and you could book your contractual rent again?

For them, they would be on cash basis for an extended period of time until we had confidence in the collectibility of future straight-line rents and future escalations. To the extent they were paying their contractual rent in cash, that would be reflected in the financial statements. If their occupancy reflects stabilized contractual rent number, then yes, we would reflect that. But we wouldn’t be recording future escalations. I think that’s your question, like starting the straight line again?

You are right.

That would take an extended period of time and collectibility surety. The collectibility threshold is much higher now Omotayo. As we know, it’s a much higher bar to get that certainty. So I wouldn’t expect that you would see that for – I mean I would estimate at least a year or so you would need some good payment history.

Got you.

You have that surety. So I think that funding, access, and protection is what we need. There you go. Well, thank you all for attending and listening to us. I look forward to talking to you after the third quarter. Stay well and stay safe. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.