Prompt:
Human: With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Karen Camiolo, Treasurer and Principal Financial Officer; and Justin Loweth, President of Seneca Resources.
We may refer to these materials during today's call.
While National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially.
National Fuel had an excellent second quarter with operating results of $1.34 per share, up 38% year-over-year.
During the quarter, we saw the benefits of the ongoing expansion of our FERC-regulated interstate pipeline systems including significant incremental revenues from our Empire North project, which went into service last September.
In addition, last summer's Tioga County acquisition continues to exceed our expectations with gathering throughput and Appalachian production up over 45%.
Increased [Technical Issues] to $4.05 per share, at the midpoint an increase of 35% in the prior year.
Across all our operations, we continue to successfully execute on our near-term growth plans.
Our FM100 expansion and modernization project received its notice to proceed from FERC in late February and construction commenced in early March.
We finished the critical path tree clearing on schedule and construction is under way on both compressor stations.
We expect to begin construction on the pipeline portion of the project later this month.
Based on our progress to date, we're confident the project will be finished on time for a late calendar '21 in-service date.
Once complete, this project will generate about $50 million of annual revenue for us.
And along with Transco's companion Leidy South project will provide Seneca with another valuable long-term outlet for its Appalachian production.
With limited additional Appalachian takeaway capacity slated to come online in the near term, we believe that Seneca's firm transportation portfolio which accesses diverse and liquid markets will provide significant value in the years ahead.
To maximize the value of this new capacity, Seneca is operating two drilling rigs in Pennsylvania with first production from its recent rig addition in our Eastern Development Area scheduled to come online just ahead of the Leidy South in-service date.
This timing will allow Seneca to capture the premium winter pricing typically seen in the Transco Zone 6 market.
This next leg of growth underpinned by the FM100 project positions us differently from our Appalachian peers.
This project will enhance scale and profitability across our upstream gathering and regulated pipeline businesses and is a great example of the value of our integrated business model.
Switching gears, the Utility also had a good quarter though warmer than normal weather did have an impact on earnings.
Bad debt expense, which continued to trend a little higher, was also a factor.
Karen will have more to say on that later on the call.
Now this is an impressive achievement that's a testament to the hard work of our dedicated workforce.
Across the nation policy makers are seemingly in a race to transition the nation's energy supply toward intermittent renewable resources.
However, the events that transpired during February's super storm Yuri in Texas and the Midwest clearly underscore the need for an all-of-the above energy strategy.
And this is particularly the case in National Fuel's operating footprint where the low temperatures that crippled Texas for just a few days are really pretty much the norm for the three coldest months of winter.
It becomes readily apparent that there is a long-term need for reliable, weather-hardened infrastructure to serve the energy needs of our region and I firmly believe that natural gas with its resilient and safely operated pipeline delivery infrastructure, will remain an important part of the nation's energy solution.
In March, we published our Utility's Pathways to a Low-Carbon Future report, which demonstrates pretty convincingly that natural gas and associated infrastructure can in fact have a role in a low-carbon world.
The report, which was developed using the findings of a study performed by Guidehouse, an independent consulting firm, evaluated scenarios for meeting New York state's aggressive decarbonization targets focusing on the interplay of energy efficiency, electrification, hybrid heating solutions and low carbon fuels to leverage existing utility infrastructure and provide cost-efficient solutions.
This study validates that by focusing policy on an all-of-the-above carbon reduction approach, we can achieve significant decarbonization that meets emissions goals while preserving access to low cost, reliable and resilient energy for consumers.
Also in March, our Utility announced greenhouse gas emissions reduction targets for its delivery system of 75% by 2030 and 90% by 2050, both from 1990 levels.
The targets rely on our commitment to the continued modernization of our utility infrastructure which today has led to a reduction in EPA Subpart W emissions of well over 60%.
Importantly, our regulators have been supportive of these ongoing modernization efforts, particularly in New York where our system modernization tracker has allowed us to recover these investments in our system on a timely basis.
While we started with the Utility, National Fuel is in the process of developing a plan to reduce its overall carbon footprint across the rest of our operations.
This plan will include establishing credible emissions reductions targets for our midstream and upstream businesses as well as enhancing our sustainability disclosures to include additional climate-focused information in line with the TCFD framework.
In conclusion, National Fuel is in great shape.
Our FM100 project is under construction and on schedule, which positions our pipeline, upstream, and gathering businesses for significant near-term growth.
At the same time, our Utility business continues to modernize its infrastructure, which will drive meaningful emissions reductions and provide an opportunity for ongoing rate base growth.
Looking to fiscal '22 and beyond, our capital spending requirements will be substantially reduced, particularly in our FERC-regulated pipeline business, which will lead to significant free cash flow and increased financial flexibility.
Add to that, half a century of dividend growth and a solid investment grade balance sheet and I think you'll find it tough to match National Fuel's long-term value proposition.
I'd like to start by expressing my excitement to step into the President role at Seneca.
Seneca couldn't be in a better place with a best-in-class group of employees, decades of economic development inventory, an attractive portfolio of takeaway capacity and the benefits of integration with National Fuel's other subsidiaries providing a firm foundation.
Further we are aligning Seneca's organization around sustainability and environmental leadership and are working toward targets for reducing the environmental impact of our operations.
In summary, the outlook for Seneca is bright.
Moving on to the second quarter.
Seneca produced a Company record 85.2 Bcfe, driven by increased Tioga County volumes from the acquisition completed last summer as well as growth in solid production results from our ongoing Appalachian development program.
During the quarter we brought online [13] new wells in Pennsylvania, all of which were in our Western Development Area.
Our operations team did a great job turning these recent wells online a few weeks ahead of schedule allowing us to accelerate production during the winter months capturing premium winter pricing.
This increased our second-quarter production.
However, over the balance of the year and as planned, we expect modestly declining volumes with only one new pad scheduled to come online in late fiscal '21.
During the quarter we also drilled 14 new wells, 10 in the WDA, four in the EDA.
As we approach the online date for Leidy South and the winter heating season, we expect to accelerate our completion operations and we plan to delay turning in line most of these new wells until early fiscal 2022, coinciding with the expected in-service date of our new capacity.
With respect to capital, we are forecasting the second half of the year to be heavier due to the increased completion activity that I just mentioned.
However, our capital guidance range is unchanged.
We also continue to see the benefits of our increased scale with cash operating expenses dropping to $1.09 per Mcfe, a 14% decrease from the prior year.
Of note, we have realized a significant decrease in per unit G&A expense, dropping roughly 25% over the past year, driven by our acquisition and ongoing development in Appalachia.
As to service costs, we have experienced limited cost inflation over the past few months, mostly in tubulars, and at this point we do not anticipate meaningful increases into 2022 based on conversations with our contractors and suppliers.
In addition, we continue to make strides in improving our operational efficiencies, particularly in Tioga County, where our operations team has cut Utica drilling time by 25% compared to our last Tract 007 Pad.
Given our significant inventory of highly economic development locations in Tioga County and long-term development plans, we expect to realize the benefits of these efficiencies for years to come.
On the marketing front, although pricing has been relatively volatile, Seneca is very well hedged for the balance of the fiscal year with 88% of our East Division gas production locked in physically and financially.
We also have firm sales providing basis protection.
So all in, about 95% of our forecasted gas production is already sold.
That leaves a relatively small amount of production, less than 10 Bcf, exposed to in-basin spot pricing.
I also want to point out a recent project our sister company NFG Midstream completed tying together the Covington Gathering System with the recently acquired Tioga Gathering System.
This has significantly increased Seneca's flexibility to move more gas to premium Dominion and Empire markets versus the weaker TGP 300 Zone 4 market.
It's another great example of the significant value we can capture as an integrated business.
As we look a bit further out, we have maintained our disciplined approach to hedging and already have 188 Bcf of fixed price firm sales, NYMEX swaps and costless collars in place for fiscal 2022.
This provides Seneca with downside protection, that leaves the potential to generate significant additional free cash flow should prices move up.
Overall, we remain constructive on long-term natural gas prices with LNG exports near all time highs, Mexico exports near all time highs, and storage levels below both last year and five-year inventories.
We expect these factors, together with continued capital discipline by producers, to lead to further strengthening of the natural gas script in 2023 and beyond.
As Dave mentioned, FM100 and Leidy South both remain on track for a late calendar 2021 in-service date.
And once complete, we will provide a valuable, long-term outlet for Seneca's production from each of its core development areas.
This additional capacity sets us up for further production growth throughout fiscal 2022.
Thereafter, absent the ability to enter into additional long-term firm sales or firm capacity that would result in strong realized prices, Seneca expects to shift into a maintenance to low-growth production mode.
Our focus will continue to be on generating significant free cash flow, especially when combined with the cash flows of the Company's wholly owned gathering assets.
Moving to the regulatory front.
While there has been some recent pronouncements in California related to oil production and extraction, I think it's important to note that Seneca's California operations do not utilize fracking.
And thus while we are closely monitoring the regulatory and legislative landscape, we do not expect any significant impact to our operations based on these recent developments.
As has long been the case, California can be a challenging regulatory place to conduct business.
However, we have been able to successfully navigate a changing regulatory environment while generating strong returns on our oil-producing assets and anticipate that to remain the case.
We expect our annual capital levels in California will be in the $10 million to $20 million range over the next few years absent further increases in the longer-term oil strip.
Additionally Seneca continues to look for opportunities to invest in solar facilities in California to power our production operations and to reduce our carbon footprint.
At present, we have solar facilities already online at our North Midway Sunset field and at our Bakersfield office.
And we are constructing another facility in South Midway Sunset which will provide about 30% of our field electricity use.
And with our Appalachian natural gas operations centered on what most would consider to be the lowest emitting shale basin in the US, we are well positioned to be an upstream leader in ESG.
National Fuel's second quarter GAAP earnings were $1.23 per share.
When you back out items impacting comparability, principally related to the premium paid for the early redemption of our $500 million December '21 maturity, our operating results were $1.34 per share, a significant increase over last year.
David and Justin already hit on the high-level drivers.
So I'll focus on a few other details from the quarter and discuss our outlook for the remainder of the year.
First, as I alluded to, we were active in the capital markets a few months ago.
In February, we issued $500 million of 2.95% 10-year notes, the proceeds from which were used to fund the early redemption of our $500 million, 4.9% coupon December '21 maturity.
That transaction was very well received by the market with our order book reaching more than eight times oversubscribed.
That level of demand allowed us to achieve our lowest ever coupon for 10-year notes.
Treasuries have moved materially higher since then.
So overall, this looks like a great transaction for us.
With our next maturity not until early 2023, we have a nice window where we don't need to be active in the capital markets.
Combining this with our $1 billion in short-term committed credit facilities and our expectation on meaningful future cash flow generation, we're in a great spot from a liquidity position.
While this debt issuance will translate into $2.5 million of interest savings per quarter going forward, the fiscal 2021 impact is somewhat muted by the overlapping period during the second quarter where both the redeemed notes and the new issue were on our balance sheet.
Before turning to our outlook for the remainder of the year, just a brief update on customer payment trends in the Utility.
As we stated from the beginning of the pandemic more than a year-ago, we expected the biggest headwind on customer payment trends to occur as we got through the winter heating season.
Over the past few months, we have seen a modest increase from historic levels of customer non-payment.
As a result, we have continued to accrue incremental bad debt expense and intend to do so for the remainder of the year.
At this point, we believe that additional reserve will be adequate to handle potential collection challenges we may face in the coming quarters.
As it relates to the rest of the year, based on our strong second quarter results, we've increased our earnings guidance to a range of $3.85 to $4.05 per share, up $0.15 at the midpoint.
Given we are now more than halfway through the year, we continue to refine our guidance assumptions.
At our regulated companies, consistent with our earlier guidance, we anticipate O&M expense to be up approximately 4% in both our Utility and Pipeline and Storage segments.
In the Utility, as I mentioned earlier, we are projecting a more conservative expense assumption as it relates to our bad debt reserve that is being largely offset by ongoing expense savings as we remain focused on keeping our cost structure low.
In the Pipeline and Storage business, the bulk of the year-over-year increase is back-loaded in the second half of the fiscal year.
For our non-regulated businesses, we now expect Seneca's full year LOE to range between $0.82 and $0.84 per Mcfe, a $0.01 lower at the midpoint of our revised guidance range.
While our LOE-rate was lower than this for the first half of the year, as we look to the balance of the fiscal year, we expect to see slightly higher LOE due to the increased levels of maintenance over the spring and summer months.
On the gathering side of our business costs were in line with prior expectations and we still anticipate O&M to be in line with our earlier $0.09 per Mcf guidance.
Lastly, on the expense side of the equation, similar to a couple of our other assumptions, we'd expect Seneca's per unit DD&A to increase in the second half of the year relative to the first two quarters.
We had some positive revisions to our reserve bookings in the quarter that had the effect of reducing DD&A expense.
As we look to the back half of the year and beyond, we would expect that DD&A trends closer to the low $0.60 per Mcfe area.
With respect to consolidated capital spending, All of our segment ranges remain the same and we are still projecting between $720 million and $830 million for the fiscal year.
There hasn't been any other material changes from a cash flow perspective.
And as a result we expect to live within cash flows this year when you consider the proceeds of our timber sale and our expected dividend payments.
We are well hedged for the remainder of the year.
So, any changes in commodity prices should have a muted impact on earnings and cash flows.
In closing, we had a solid first half of the year and are optimistic about the direction we're heading.
 Assistant:

Chosen response:
compname posts q2 earnings per share of $1.23.
q2 gaap earnings per share $1.23.
qtrly adjusted operating results of $123.2 million, or $1.34 per share.
increasing its fiscal 2021 earnings guidance to a range of $3.85 to $4.05 per share.


Prompt:
Human: Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the quarter ended March 31, 2020.
sec.gov or on NHI's website at www.
First and foremost, we are deeply grateful to all the front-line heroes that are tirelessly combating COVID-19 every day, despite the great risk to themselves and their families.
At NHI, we have long admired the senior housing and skilled nursing organizations and their staff that go to great lengths to keep our senior population safe and smiling.
Never has this been truer than today.
As a tribute, we have published some of our favorite caregiver and resident photos on the cover of our supplemental.
I hope you'll take a look.
Reputations are made during a crisis and I see operators making good decisions and taking action based on the principles they value, selflessly caring for their residents, nurturing a company culture that appreciates employees, and providing leadership and comfort to the employees and families of their residents.
I believe that when history reflects back on our industry and its practices during this time, there will be operators that are hailed as heroes.
That said, the challenges posed to our operators and our business by this pandemic are very real and it is difficult to say with any degree of accuracy, when we will return to a more normal operating environment.
Our operators have done an admirable job in limiting the spread of COVID-19.
As of May 5th, we had 192 active resident cases in 37 buildings.
To put that in some perspective, NHI has over 20,000 residents being cared for in all of our properties; so, less than 1%.
As our operators have implemented their protocols and taken appropriate actions to prevent or limit the spread of the virus, the result has been a significant downturn in inquiries, tours and move-ins.
This is having a negative impact on occupancy.
Kevin will give details on that later.
On the cost side of the equation, it should not surprise anyone that our operators are spending more, particularly for labor and PPE suppliers.
This is obviously pressuring our operators' margins and we are prepared to help them weather this storm, where and when necessary.
In April, NHI received 99.7% of its contractual rent, and so far in May, we have collected approximately 94%, which is in line with our expectations as we typically see a portion of collections through the 15th of the month depending on underlying lease terms.
As this pandemic unfolds, NHI is committed to transparency with the investment community.
To that end, we have enhanced occupancy disclosure on Bickford, Holiday and Senior Living Communities, which Kevin will touch on in more detail.
We were the first to detail the incident of COVID-19 in our communities and we will continue to provide weekly updates to our website as long as it is material.
But given that the scope and spread of COVID-19 is so uncertain, NHI has limited visibility to the financial impact it could cause.
And as a result, we are withdrawing our previously issued 2020 guidance.
Regarding the dividend, our Board is committed to our dividend policy and we will consider the August dividend in mid-June.
Beginning with our net income per diluted common share for the quarter ending March 31, 2020 we achieved $1.37 per share in earnings, inclusive of the gain on sale, compared to $0.83 per share for the same period in 2019.
Turning to our three FFO performance metrics for the first quarter, NAREIT FFO increased 3.1% to $1.35, normalized FFO increased 3.8% to $1.36 and adjusted FFO or AFFO increased 5.7% to $1.29.
Cash NOI is the metric we use to measure our performance.
We define cash NOI as GAAP revenue excluding straight-line rent, excluding escrow funds received from tenants, and excluding lease incentive and commitment fee amortizations.
For the quarter ending March 31, cash NOI increased 9.2% to $76.3 million compared to $69.8 million in the prior year.
Our increase in first quarter 2020 cash NOI was reflective of our organic NOI growth from lease escalators and the effects from our post-Q1 2019 investments including the recent Timber Ridge joint venture investment, as well as the continued fulfillment of our commitments.
A reconciliation of cash NOI can be found on Page 17 of our Q1 2020 SEC filed supplement.
G&A expense for the 2020 first quarter increased 7.4% over the prior first quarter to $4.3 million.
The increase in G&A was spread across several areas, including the expansion of our asset management team, other payroll expense increases and expenses associated with a higher use of outside consultants.
Turning to the balance sheet, we ended the quarter with $1.55 billion in total debt, of which a little over 90% was unsecured.
At March 31, we had $142 million of capacity on our $550 million revolver.
NHI also had $46 million in cash, resulting in a net debt of $1.5 billion or $67.6 million [Phonetic] higher than our net debt at December 31.
This increase was largely due to the Timber Ridge acquisition, which closed at the end of January.
At quarter end, we also had approximately $24.2 million in restricted 1031 account, not included in our cash equivalents, but recorded in other assets, which originated from the sale of eight Brookdale properties in January.
Our debt capital metrics for the quarter ending March 31, were net debt to annualized EBITDA of 4.7 times, which is unchanged from the fourth quarter, weighted average debt maturity of 3.7 years and our fixed charge coverage ratio at 5.8 times compared to 5.7 times in the fourth quarter of 2019.
For the quarter ending March 31, our weighted average cost of debt was 3.3%.
Stock combined markets over the last month are not where we'd like them to be.
However, during the first quarter, we filed a new automatic shelf registration and refreshed our ATM program, giving us $500 million in new ATM capacity.
Together, our investment-grade credit ratings, including a recently affirmed stable outlook from Fitch, our new shelf also includes an indenture, which positions us during [Phonetic] a novel public debt offering when market conditions improve.
While currently very expensive, we do consider the public equity and debt markets is open to us and another source of liquidity.
David brings 23 years of accounting experience to NHI with his recent CAO roles at MedEquities Realty Trust and Healthcare Reality Trust and through his experiences as Audit Senior Manager at Ernst & Young.
We have been updating active resident cases in our communities on a weekly basis, but I wanted to add a little more context.
As Eric mentioned, we had 37 buildings with one or more active resident cases, including 20 senior housing properties and 17 SNFs.
Within the 20 senior housing properties, 14 were need-driven properties and six were discretionary properties.
37 properties span 13 unique operators in 18 different states.
We had a total of 192 active resident cases, which included 97 cases in our SNFs, 40 cases in the skilled nursing wings at our CCRCs and senior living campuses, and 55 cases at our senior housing properties.
We are in constant contact with our operating partners and are confident they are following their own infectious disease protocols and are acting in accordance with CDC guidelines, state health agency regulation and in some case, more so.
Overall, we have been very pleased and grateful for the efforts of our operators to prevent or limit the spread of COVID-19 in their communities.
The relatively low incidence is not surprising to us and is really a testament to our operators, whose mission is to keep our senior population safe.
Regarding the CARES Act, several of our operators -- of our senior housing operators have been approved for have received funds from the Paycheck Protection Program.
As it turns out, the triple net lease structure is beneficial when applying for these loans.
Our SNF operators are also benefiting from the CARES Act.
Payments from the Provider Relief Fund averaging approximately $150,000 per building, the 2% Medicare sequestration suspension and the 6.2% increase in the FMAP help improve near-term liquidity for the SNFs.
Turning to collections, April collections were 99.7%, and so far in May, we have collected approximately 94%, which is in line with our expectations as we typically see a portion of collections through the 15th of the month depending on the underlying lease terms.
At this point, nobody is past due.
We speak frequently with our operators and are working to creatively find solutions that benefit them at this unprecedented time and that makes sense for our shareholders.
We do have credit enhancements in our leases with many of our senior housing operators, which total approximately $38.7 million in cash in addition to guarantees and we have excellent credit from our SNF operators.
Turning to the performance of our different asset classes and larger operators, our needs-driven senior housing operators were early to act to this pandemic and have limited the spread of the virus so far.
As of our last weekly update, 14 assisted living and senior living campuses had active resident cases with most of the communities limited to less than five cases per community.
Bickford, which represents 17% of our annualized cash revenue, has seen a slight downtick in their move-out rates, but like much of the industry, their lead volume and tours were down more than 40%, which impacts the rate of new move-ins and occupancy.
Bickford's average occupancy on a same community basis was 87.3% in the first quarter and 86.6% for March.
Occupancy further declined in April by 130 basis points to 85.3%.
Our entrance fee communities have fared somewhat better as the resident turnover is much lower and the residents tend to be younger and healthier relative to other property types.
But they are not immune to the impact of COVID-19 and we have had four entrance fee communities with active resident cases as of our last weekly update, though like assisted living, the number of cases per community is limited.
Senior living communities, which represents 16% of our revenue had first quarter average occupancy of 80.4%, which ticked up slightly to 80.6% in March, but dropped to 79% in April as multiple entrance fee sales have been delayed due to the pandemic.
Our independent living communities have experienced a similar decline in leads, tours and move-ins as our assisted living operators.
The incidence of COVID-19 is relatively low in independent living and we had only two properties with active resident cases as of the last update.
Holiday Retirement, which represents 11% of our annualized cash revenue, had an average occupancy of 87.3% in the first quarter and 86.7% in March.
The April average occupancy declined by 170 basis points to 85%.
Bickford, SLC and Holiday represent approximately 56% of our senior housing units.
On a combined basis, those three saw average occupancy decline by 150 basis points from March to April, which is a good proxy for the rest of the senior housing portfolio.
The skilled nursing portfolio, which represents 26% of our annualized cash revenue is anchored by two excellent credits in NHC and The Ensign Group.
As of our last weekly update, 17 of our 78 SNFs had active resident cases.
We have seen more instances of outbreaks in some of our SNFs, which is expected given the higher acuity patient population and the more frequent contact caregivers have with the patients and residents.
Given the short average length of stay for Medicare patients and the temporary stay on elective procedures, SNF occupancies have generally declined by more than what we are seeing in senior housing.
However, there is more government financial support for the SNF industry.
NHC, which accounts for 12% of annualized cash revenue, has received funds from the Provider Relief Fund.
The company also expects to gain liquidity through the Medicare Accelerated Payment Program, the Medicare sequestration suspension, the payroll tax deferral and supplemental Medicaid payments.
Overall, we feel very comfortable with the credit in our SNF portfolio.
The pace of deals have stalled and everything indicates that this will continue for the next several months as true price discovery is near impossible to determine right now.
Our focus for the more immediate future is to continue funding existing commitments and extreme asset management by creatively providing guidance and assistance to our operators, if needed.
For the longer term, we continue to have conversations with existing and new operators and expect that our pipeline will be ready to support significant external growth when some normalcy returns to the market.
I do want to express my gratitude and admiration for all of our operators and the front-line heroes that accomplished truly amazing acts of courage and their residents and patients every day.
With that, I'll hand the call back over to Eric.
Looking internally, you should know that NHI's management team and Board have deep experience managing during times of crisis.
I believe our balance sheet and liquidity, together with strong lender and market relationships, puts us on firm footing.
 Assistant:

Chosen response:
compname posts q1 earnings per share of $1.37.
compname says q1 2020 gaap net income attributable to common stockholders of $1.37 per diluted common share - sec filing.
qtrly affo of $1.29 per diluted common share.
withdrawing its full year 2020 guidance.


Prompt:
Human: Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the quarter ended September 30, 2020.
We hope that everyone is staying healthy and positive in these most interesting of times.
I want to express my deep gratitude and admiration to all our operating partners and their heroic employees that knowingly put themselves in harm's way every day as they work to care for our country's most vulnerable population.
To date, our operators have held up relatively well, as occupancy declines generally slowed in the third quarter aided by a pickup in move-ins and the leveling-off of COVID-related expenses.
We collected nearly 97% of rents in the quarter and nearly 98% in October.
In the third quarter and for the year to date, we reported AFFO per share growth of 1.5% and 4.5% respectively.
It should also be noted that we were tracking on the lower end of the range for the first nine months of 2020 in terms of our numbers, formerly known as guidance.
We think this is a testament to the stability of the triple-net lease strategy, the needs-driven nature of the properties we invest in, as well as the underlying strength of our operating partners.
Depending on the timing and effectiveness of the vaccine, we expect the impact of the pandemic to be more uneven across our property types, as winter approaches.
Thus far, our entrance fee communities and skilled nursing properties, which together generate over 50% of our revenue, have been quite resilient.
However, our freestanding assisted living memory care and independent living operators are experiencing greater challenges, as COVID cases are spiking in many parts of the country, which is slowing the pace of move-ins while move-outs are accelerating in what is typically a seasonally weak period.
We are very encouraged that the HHS has included assisted living operators as eligible participants in the Provider Relief Fund, which will help with the financial hardships inflicted by the pandemic.
While we are hopeful that more federal assistance is on the way, we cannot solely rely on this to resolve all the issues.
This includes deferring up to $3 million of November rent.
They have additional deferrals of $750,000 available for each of December and January, all of which if exercised will accrue interest at an 8% rate with repayment expected over 12 months beginning in June 2021.
We are also continuing to work with prospective lenders and Bickford on the previously disclosed sale of nine properties, which we estimate will improve Bickford's annual cash flow by approximately $3 million.
Bickford has applied for grants under Phase 2 and 3 of the Provider Relief Fund, which we expect that they will receive before year-end, which will also improve their financial position.
These measures will improve Bickford financially and create a long-term solution, but we will continue to work with them closely over the coming months and take further measures if needed.
As the pandemic unfolded, we expected that there would be deferrals as we head into 2021.
We have other tools at our disposal as well, including the use of deposits and other reserves and some personal and corporate guarantees.
We are willing on a tenant-by-tenant basis to help our operators bridge the gap to a more stable operating environment within certain commercial norms.
That said, we believe these challenges presented are temporary.
So, we're hesitant to make longer-term decisions that would have a more permanent impact on our future cash flow.
While we certainly did not anticipate the pandemic, our Board and senior management have been disciplined in adhering to our conservative financial metrics, which puts us in a strong position to weather this storm and to take advantage of growth opportunities as they emerge.
Our big picture outlook has not changed.
We continue to see tremendous opportunities for growth in senior housing and skilled nursing real estate and will be opportunistic with our capital deployment to help drive shareholder value.
During the third quarter, we began to experience more direct financial impacts due to the pandemic.
As we position the Company for the pandemic's future unknowns, we continue to be proactive and not over-reactive to the crisis, which we believe is resulting in solid and even surprisingly strong financial performance.
While we cannot remove all the uncertainty that we will continue to experience for the next few quarters, we are confident that we have the strategy, operator quality and financial tools necessary to transition through this period.
Beginning with our net income per diluted common share.
For the quarter ending September 30, 2020, we achieved $0.95 per share in earnings.
That compares to $0.97 per share for the same period in 2019.
For the nine months ending September, we achieved $3.31 per share in earnings compared to $2.72 per share for the same period in 2019, which is reflective of the gains we recorded during 2020 for real estate dispositions.
For our three FFO performance metrics per diluted common share for the third quarter compared to the prior year quarter, NAREIT FFO and normalized FFO were both flat at $1.42 and adjusted FFO increased 1.5% to $1.34 per share.
Cash NOI is the metric we use to measure our performance.
A reconciliation to NHI's cash NOI can be found on Page 18 of our Q3 2020 SEC filed supplemental.
For the quarter ending September 30, cash NOI increased 1.2% to $75.3 million compared to $74.4 million in the prior year period.
However, reflecting Q3 rent deferrals, cash NOI was down 2.8% sequentially from the second quarter.
While our triple-net strategy continues to mitigate the cash NOI effects from COVID, and more importantly, our operators continue to soundly execute on our infectious control protocols, as Eric just mentioned, a subset of our senior housing portfolio experienced more pronounced COVID occupancy declines in the third quarter than what we saw over the summer.
As a result, today, we're announcing additional rent deferrals for Bickford, which together with other previously announced rent deferrals, will impact cash NOI growth by up to approximately $5.5 million over the next two quarters or approximately 3.5% of our trailing six-month cash NOI before deferrals.
As we negotiate rent deferrals, we are seeking to accomplish two outcomes.
The first outcome is to provide our operators the confidence that we are committed to their success and the care of their residents.
And the second outcome is to equitably structure the deferrals on behalf of the best interest of our stockholders.
We cannot predict the continuing impact the pandemic will have on our operators for the next few quarters.
However, between our operators' exceptional capabilities, additional federal support and our other cash sources that we can make available to our operators under our leases such as deposits and escrows, we do continue to be confident that any additional occupancy loss or coverage decline will not necessarily translate into additional dollar-for-dollar rent deferrals.
Turning to the balance sheet.
Our debt capital metrics for the quarter ending September 30 were our net debt to annualized EBITDA at 4.8 times, weighted average debt maturity at 2.9 years and our fixed charge coverage ratio at 6.3 times.
We ended the quarter with $1.53 billion in total debt, of which 91% was unsecured.
For the quarter ended September 30, the weighted average cost of debt was 2.96%.
At the beginning of the third quarter, we added liquidity to the balance sheet through a new $100 million one-year -- with one-year option to extend term loan.
Loan carries a variable interest at a rate of LIBOR plus 185 basis points with a 50 basis point LIBOR floor.
At October 31, we had $252 million in availability under our $550 million revolver and $38.2 million in unrestricted cash.
In addition, during the third quarter, we sold 79,155 shares in NHI's stock through our ATM program at an average price of $65.35 per share, raising approximately $4.8 million in net proceeds.
We have approximately $495 million capacity remaining under our ATM program, which was filed together with our shelf in February of this year.
I'm pleased to also announce that last Thursday, we received an investment-grade Baa3 rating from Moody's.
Our three [Phonetic] investment-grade ratings now position us to begin exploring public debt and begin a regular program for managing our maturities moving forward.
In mid-September, we declared our third quarterly -- quarter dividend of $1.1025, which was just funded November 6.
I'm pleased to report to you that we continue to pay our dividend with an AFFO payout ratio in the low-80% range without significant further cash flow burdens from routine capital expenditures.
The pandemic continues to keep us mindful toward meeting both our financial and dividend policies.
Our Board is committed to our financial policies, including our commitment to maintain our leverage between 4 times and 5 times net debt to EBITDA.
So, we're very pleased to date, we've been able to balance our dividends, our leverage ratios and our commitments to our operators.
Our management team will continue to work hard to continue this track record moving forward toward the conclusion of this crisis.
Starting with an update on the COVID.
Active resident cases peaked in late July at 483 cases across our portfolio and then trended down to 161 cases in early October.
In our last two updates, cases have started to climb again, and we're at 367 active resident cases across 81 communities.
The active cases represent about 1.5% of our unit capacity.
Nearly 75% of the cases are in our SNFs, some of which are actively admitting COVID patients.
On the senior housing side, our operators continue to limit the spread as active resident cases per community was at 2.4 last week, which matches the average since we started reporting the data in mid-March.
We think this firmly demonstrates the value proposition of seniors housing whose mission it is to keep the senior population safe.
We received 96.6% of our third quarter contractual rent and 97.8% of October rent.
We expect to provide a November update mid-month, which will obviously be impacted by the Bickford deferral that Eric discussed.
In addition to the Bickford deferral, we agreed to defer or abate approximately $570,000 of rents for the remainder of 2020, with another tenant that will also grant that tenant the option to defer approximately $450,000 of rents related to the first quarter of 2021.
Any deferred rent payments will accrue interest from the date of the deferral until paid in full and are due no later than December 31, 2022.
We do have credit enhancements in our leases with many of our senior housing operators, which totaled approximately $37.1 million in cash or letters of credit in addition to guarantees, and we have excellent credit from our SNF operators.
Turning to the performance of our different asset classes and larger operators.
Our needs-driven senior housing operators, which account for 32% of our annualized cash revenue, were hit hard at the onset of the crisis, but did level-off through the second and third quarters as move-in activity picked up enough to slow the pace of occupancy losses.
As Eric mentioned, assisted living operators are now included as eligible providers beginning with Phase 2 of the Provider Relief Fund, which equates to approximately 2% of 2019 revenue, which most of our operators have or expect to receive.
Phase 3 applications were due by November 6.
So, we should know more about those distributions soon.
These funds are much needed and help shorten the gap to a more normal operating environment.
Bickford, our largest assisted living operator representing 15% of annualized cash revenue, experienced an 80 basis point sequential decline in third quarter average occupancy, which compared to 270 basis point decline in the prior quarter comparison.
We talked last quarter about our cautious optimism on stabilizing trends, which largely proved out in the third quarter.
However, more recently move-ins have slowed as COVID cases throughout the Midwest spiked.
As described by Eric, we have taken initial steps to help improve Bickford financially, and we'll continue to inform you on any future steps if and as they occur.
Our entrance fee communities, which account for nearly 25% of our annualized cash revenue, have proven to be resilient as the average length of stay at these properties ranges from six years to 10 years and the residents are often younger and healthier than what is typical in our other discretionary senior housing models.
Senior living communities, which represent 16% of our cash revenue, had third quarter average occupancy of 79%, which was down just 10 basis points from the second quarter.
September average occupancy was 78.9%.
While SLC's entrance fee sales are down year-to-date, we are encouraged by recent developments as entrance fee sales actually increased year-over-year in both September and October, which is helping to bolster coverage.
EBITDARM coverage for SLC was unchanged sequentially at 1.06 times.
Our rental independent living communities, which account for 13% of our annualized cash revenue, have experienced a more pronounced and sustained occupancy decline than our needs-driven and CCRC assets.
Holiday Retirement, which represents 11% of annualized cash revenue, had average occupancy of 79.6% in the third quarter, which was down 390 basis points sequentially.
This followed a 380 basis point decline in the second quarter.
The occupancy continued to decline throughout the quarter and September's average occupancy was 78.5%.
A significant percentage of our Holiday units are located on the West Coast where limitations on visitation and residents' ability to travel outside the community are more limited, which we believe is having an outsized negative impact on occupancy.
EBITDARM coverage slightly ticked down from 1.2 times to 1.18 times as of the second quarter.
We do have solid credit support behind this lease, but we continue to monitor the situation closely.
The skilled nursing portfolio, which represents 27% of annualized cash revenue, is anchored by two strong tenants in NHC and the Ensign Group who contributed 12% and 8% of annualized cash revenue respectively.
EBITDARM coverage for the trailing 12 months ended June 30 was 2.89 times, which improved from 2.81 times reported in the prior quarter.
This coverage is inclusive of funds received from the CARES Act, which seems to be working as designed as it is helping SNF operators bridge the gap to a more stable operating environment.
Turning to our business development activities.
We have announced $204.7 million in year-to-date investments.
During the third quarter, we exercised our purchase option to acquire The Courtyard at Bellevue for $12.3 million.
This is a 43-unit assisted living and memory care community in Bellevue, Wisconsin, which was opened in March 2019 and was 100% occupied upon our acquisition.
The long-term triple-net lease on Bellevue replaces a $3.9 million second mortgage that we had secured in January of this year.
The property is operated by 41 Management, which is a growing operating partner of ours that now includes eight properties.
While there have been plenty of deals to evaluate throughout the year, we characterize the pipeline as more actionable today than in recent past quarters.
With our balance sheet in good shape, we are looking at deals that run the gamut, including triple-net leases with existing and new operators, as well as opportunities in short-term higher yielding products like mezzanine debt and development financing.
We are encouraged by the depth of the current pipeline, as we expect we will have plenty of capital to recycle in the next 12 months from sources, including the previously mentioned Bickford portfolio sale, loan repayments, purchase options and other select dispositions.
With that, I'll hand the call back over to Eric.
This year has presented unique challenges to say the least.
We have managed through the crisis with few lasting scars to this point, but know that we were not out of the woods yet.
That said, our strong balance sheet and liquidity and our diverse mix of operators and properties position us relatively well as we try to bridge to a more stable operating environment.
 Assistant:

Chosen response:
compname posts qtrly normalized affo per diluted common share $1.34.
national health investors inc - qtrly normalized affo per diluted common share was $1.34.
national health investors inc - qtrly normalized ffo per diluted common share was $1.42.
national health investors inc - qtrly nareit ffo per diluted common share was $1.42.


Prompt:
Human: Slides for today's call are available on nisource.com.
Information concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings.
Strong execution of NiSource's significant renewable energy investments continues to be the highlight of our foundation for future growth and we continue to expect that our core infrastructure programs and renewable generation investments will drive industry leading compound annual growth of 7% to 9% in diluted net operating earnings per share through 2024, growth driven by our commitments to safety, reliability, customer affordability and sustainability.
As we begin to refine our outlook for longer-term growth, the preferred path from NIPSCO's 2021 Integrated Resource Plan identifies additional investment opportunities, while advancing the retirement of remaining coal-fired generation between 2026 and 2028 and it supports our plan to reduce greenhouse gas emissions 90% by 2030.
Let's turn now to Slide 3 and take a closer look at our key takeaways.
We are updating our guidance for 2021 to target the top end of the range of a $1.32 to a $1.36 per share in non-GAAP diluted net operating earnings or NOEPS.
We are also initiating guidance for 2022 of a $1.42 to a $1.48 and that is consistent with our 5% to 7% near term growth commitment.
Our long-term diluted NOEPS guidance of 7% to 9% through 2024 is now based on the expected top end of our 2021 guidance range and we reaffirm 5% to 7% growth in 2023.
As I mentioned a moment ago, the preferred plan from NIPSCO's 2021 IRP, advances our plans to retire remaining coal-fired generation between 2026 and 2028 as we shift to lower cost, clean and reliable generation.
Investments of up to $750 million will be required to replace retiring coal-fired generation.
The NIPSCO portion of this investment will be better understood following further evaluation of the proposals we solicited associated with the IRP.
Our regulatory execution progresses with a proposed order approving a settlement in Pennsylvania, a settlement filed in Kentucky and a proposed order in Maryland.
In addition, we filed a gas rate case in Indiana in September.
We achieved non-GAAP diluted NOEPS of $0.11 in the third quarter of 2021 versus $0.09 in 2020.
Now let's look at some NiSource utilities highlights for the third quarter, starting with our gas operations on Slide 9.
Columbia Gas of Ohio rate case continues to progress.
Net of the trackers being rolled into base rates, the filing requests an annual revenue increase of approximately $221 million.
Pending its decision next year from the Public Utilities Commission of Ohio, new rates would be effective in mid 2022.
NIPSCO filed a gas rate case on September 29th requesting a revenue increase of $115 million annually.
The case is focused on infrastructure modernization and providing safe, reliable service, while remaining in compliance with state and federal safety requirements.
In Pennsylvania, an Administrative Law Judge issued a proposed order recommending that the Pennsylvania Public Utility Commission approved the settlement in our rate case.
The settlement would increased revenue by $58.5 million with new rates effective December 29th of this year.
The adjusted rates will help to continue investments in infrastructure upgrades, system reliability and maintenance enhancements.
We expect the Commission's final order by mid-December.
In Kentucky, we have filed a proposed settlement of our rate case.
The settlement includes an overall increase in revenues of $18.6 million to support continued investments in safety and replacing aging infrastructure.
Columbia Gas of Maryland received a proposed order from an administrative law judge on Friday, recommending an increase of approximately $2.56 million in revenues as compared to our request of approximately $4.8 million.
We expect a final order from the Maryland Public Service Commission in December.
Before we move on, I'd like to note the Columbia Gas of Ohio, our largest LDC, is ranked number 1 in the Midwest region in J.D. Power's 2021 Gas Utility Business Customer Satisfaction Study.
Also congratulations to our customer experience team for the successful launch of the Columbia Gas and NIPSCO mobile apps.
They are an important step forward in building our connected digital customer experience.
Let's now turn to our electric operations on Slide 10.
NIPSCO's electric TDSIC plan is pending before the Indiana Utility Regulatory Commission or IURC.
This is a five-year $1.6 billion proposal that would replace the previous plan, which NIPSCO filed in April to terminate.
The pending plan includes newly identified projects aimed at enhancing service and reliability for customers as well as some previously identified projects.
The selection of the preferred path from NIPSCO's 2021 IRP is a significant milestone in our transition from coal-fired generation toward cleaner and reliable forms of generation, all of which are expected to save NIPSCO customers' approximately $4 billion over the long term.
The preferred path from the 2021 IRP refines the timeline to retire coal-fired generation at the Michigan City Generating Station to between 2026 and 2028.
It also calls for retirement of two vintage gas peaking units 16A and 16B, which are both located at the Schahfer Generating Station site.
The most viable replacement option calls for our portfolio of resources, including incremental solar, stand-alone battery storage and natural gas peaking resources.
We estimate that investments of up to $750 million will be required to support the retirements of these units.
We expect to be able to quantify the NIPSCO portion of this investment opportunity in the first half of next year after further evaluating bids and the request for proposals and completing due diligence on projects, which align with the preferred path.
Meanwhile, we continue to execute on the plan for retirement of remaining coal-fired generation at Schahfer.
Units 14 and 15 retired as of October 1st and units 17 and 18 are on track to retire by 2023.
We are making steady progress on the renewables project build out, informed by the preferred path from NIPSCO's 2018 IRP.
Our partners on these projects are some of the strongest developers in the renewable energy space and we remain in close contact regarding the progress of these projects.
We continue to expect to invest approximately $2 billion in renewable generation by 2023 to replace the retiring capacity at Schahfer.
As part of the execution of this plan, construction continues on the Indiana Crossroads I wind project, which is on track to become operational in the fourth quarter of this year.
Construction has also started on a pair of solar projects Dunns Bridge Solar I is being constructed by a subsidiary of NextEra Energy Resources under a build transfer agreement.
EDP Renewables North America is building the Indiana Crossroads Solar project, which will be operated as a joint venture.
Both are expected to enter service next year.
The IURC provided regulatory approval of the Indiana Crossroads II wind project on September 1st and with that action, all 14 renewables projects needed to replace the retiring capacity of Schahfer Generating Station, have now received approval.
In addition to the slate of renewables projects we have announced, NiSource plans to evaluate hydrogen in emerging storage technologies.
It's important for us to gain a risk informed understanding of the options and technologies that may emerge as pathways toward further decarbonization.
Before getting into the specific results, I'd just like to highlight the solid execution and progress that now has us guiding to the top end of our 2021 guidance range of a $1.32 to a $1.36.
This new 2021 expectation also serves as the starting point for both our near-term and long-term commitment.
We have also initiated 2022 guidance of a $1.42 to a $1.48, which at its midpoint represents a growth rate of over 6.6% from the 2021 top end.
Turning to our third quarter 2021 results on Slide 4.
We had non-GAAP net operating earnings of about $47 million or $0.11 per diluted share compared to non-GAAP net operating earnings of about $36 million or $0.09 per diluted share in the third quarter of 2020.
The 2021 results reflect our ongoing execution of infrastructure investments, offset somewhat by the sale of Columbia Gas of Massachusetts, which closed in October of 2020.
Looking more closely at our segment three-month non-GAAP results on Slide 5, gas distribution operating earnings were about $18 million for the quarter, representing an increase of approximately $8 million versus last year.
Operating revenues, net of the cost of energy and tracked expenses were down nearly $18 million due to the sale of CMA.
Operating expenses also net of the cost of energy and tracked expenses were lower by about $26 million, mostly due to the CMA sale, offset slightly by higher employee-related costs and outside services spending.
In our Electric segment, three-month non-GAAP operating earnings were about $130 million, which was nearly $3 million lower than the third quarter of 2020.
Net of the cost of energy and tracked expenses, operating revenues decreased slightly by about $2 million due to slightly lower residential usage, offset by increased TDSIC revenues.
Operating expenses net of the cost of energy and tracked expenses were nearly flat compared to 2020.
Now turning to Slide 6, I'd like to briefly touch on our debt and credit profile.
Our debt level as of June 30 was about $9.6 billion of which about $9.2 billion was long-term debt.
The weighted average maturity on our long-term debt was approximately 14 years and the weighted average interest rate was approximately 3.7%.
At the end of the third quarter, we maintained net available liquidity of about $1.7 billion, consisting of cash and available capacity under our credit facility and other accounts receivable securitization programs.
As we know, last quarter, all three major rating agencies have reaffirmed our investment grade credit ratings with stable outlooks in 2021.
Taken together, this represents a solid financial foundation to continue the support for our long-term safety and infrastructure investments.
As you can see on Slide 7, we've narrowed our 2021 capital investment estimate to approximately $2 billion and reiterated our 2022 capital forecast of $2.4 billion to $2.7 billion.
Taking a quick look at Slide 8, which highlights our financing plan.
There are no changes to our plan since April's equity unit issuance.
I would highlight that this balanced financing plan continues to be consistent with all of our earnings growth and credit commitments.
as I mentioned earlier, we have updated our 2021 earnings guidance, issued guidance for 2022 and reaffirmed our long-term growth commitments.
I would also remind everyone that we're planning to provide an extension to our growth plan at an Investor Day during the first half of next year.
So please stay tuned.
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Chosen response:
q3 non-gaap operating earnings per share $0.11.
now expects to achieve top end of its 2021 non-gaap diluted net operating earnings guidance of $1.32 to $1.36 per share.
company also expects to make capital investments of approximately $2 billion in 2021, and $2.4 to $2.7 billion in 2022.
non-gaap diluted net operating earnings per share expected to grow by 7 to 9 percent through 2024 on a compound annual growth rate basis.
on track to complete installation of automated shut off valves for all low pressure gas systems by year end 2021.


Prompt:
Human: Additionally, the content of the conference call may contain time-sensitive information that is accurate only as of the date hereof.
We do not undertake and specifically disclaim any obligation to update or revise this information.
As a reminder, Annaly routinely posts important information for investors on the company's website at www.
Please note, today's event is being recorded.
Today, I'd like to highlight a number of current corporate initiatives, provide an update on the market and discuss portfolio activity across our core businesses during the quarter, and finally, provide our outlook for the balance of the year, and then I'll hand it off to Serena to discuss the financials.
Of note, while last quarter, each of our credit leaders providing an in-depth look at their respective markets and portfolios to be efficient.
I'll provide those updates today.
But as Purvi noted, each of our business heads are here as well to join in Q&A.
Now, to begin with, I wanted to touch on a few strategic and corporate actions we've taken as of late.
At quarter end, we closed our previously announced internalization transaction, which marks a significant step in the series of measures and only is implemented as an industry leader from a governance standpoint.
As an internally managed REIT, we look forward to demonstrating increased transparency and alignment with our shareholders, who will benefit from our ability to be more nimble in the way we do business in order to generate long-term value.
We also announced two leadership changes, Steve Campbell was appointed as chief operating officer, and Glenn Botek will retire from his role as senior advisor at the end of August, while remaining a director on our board.
As COO, Steve will expand on the work he has been doing as head of business operations and work closely with the executive team to help oversee Annaly's overall operations and risk management functions.
Additionally, during the second quarter, we utilized our share buyback program and have now repurchased 175 million in common stock year to date.
This underscores our belief that the stock is undervalued relative to our book value and affirms our support of the value of our stock through the various capital allocation tools we have on hand.
These initiatives are a testament to our focus on driving shareholder value ensuring that the firm as a whole, our structure, as well as our portfolio is positioned to continue outperforming as our second-quarter results demonstrate.
Following one of the most challenging and unforeseen operating environments and Annaly's history, we were pleased with our performance during the second quarter.
We delivered an economic return of nearly 15% and achieved core earnings well in excess of our rightsized dividend.
Our measured approach to weathering the crisis served us well, and we feel very good about our positioning as the recovery progresses, as I'll get into in more detail.
So the economic slowdown brought on by the pandemic has obviously created considerable uncertainty, and this is a different kind of recession than that which we have experienced in the past, given the unprecedented speed and magnitude of the downturn.
Social distancing and mandated shutdowns to damage certain sectors of the economy and the corresponding impact on the labor market has been substantial.
demonstrates the fragile nature of the recovery.
Nevertheless, financial conditions have improved considerably.
The market dysfunction that occurred amid the initial COVID outbreak in the U.S. has dissipated, and we have seen significant improvement in liquidity and asset pricing.
This is in large part due to the ongoing decisive actions taken by the Federal Reserve, which have been successful in restoring markets and easing credit strains.
Liquidity tools have sufficiently supported funding markets.
The credit facilities have opened channels to credit for businesses, households and local governments, the temporary adjustments to regulations have somewhat encouraged bank lending, and most impactful to Annaly's portfolio, the asset purchases have supported the smooth functioning of treasury and agency markets.
Now, turning specifically to the agency market.
The Fed's purchased an upwards of 850 billion MBS in just over four months has dramatically altered the supply and demand picture for the sector.
After a pace of purchases at the height of the volatility that reached nearly 50 billion per day to help stabilize the sector, the Fed has transitioned to a steady run rate of 40 billion per month, net of portfolio runoff, which on a gross basis, equates to roughly 40% current agency issuance.
Fed is largely taking delivery of the most negatively convexed MBS, which has resulted in a shift to the TBA deliverable across production coupons to more newly originated pools and as a result, nominal carry on production coupon TBAs has improved dramatically, thereby adding to returns for TBA holders.
Given this dynamic, we increased our TBA position in the quarter and gravitated further down in coupon.
The lower coupon holdings are predominantly in TBAs and higher coupons are concentrated in specified pools in light of the meaningful elevation and prepayment speeds in this environment.
While our portfolio speeds did experience an increase on the quarter, prepays on our overall portfolio were notably lower than the GSE universe, which paid roughly eight CPR faster despite the higher average coupon of our portfolio relative to universe.
And with respect to our hedges, we added to our swap portfolio, primarily in the front end, the short-term swaps with pay rates close to 0%, provide an attractive hedge to our financing.
This reduced our pay rate, as well as shortened the maturity of our swap portfolio.
We further reduced the LIBOR footprint of our hedge portfolio with our swap book now 80% in OIS and we reinitiated our treasury future short position that was unwound in the first quarter.
We also continue to take advantage of the attractive low levels of volatility to answer the tail risk of a sharp rise in rates in the long end of the yield curve, and as such, we replaced much of our legacy swaption position with additional out of the money payer swaptions.
Shifting to residential credit, the sector saw significantly more activity as market dynamics began to improve following the crisis.
The housing market remains strong given long-term positive fundamentals, which we believe will help the ultimate recovery.
We're experiencing a meaningful imbalance between supply and demand as the cyclically low number of housing units meets continued strong household formations.
An anecdotal evidence suggests that pandemic disruptions have had limited impact on the home buying and refinancing processes.
Non-agency securities across legacy, CRT, Jumbo 2.0 and non-QM have seen substantial recovery.
Improvement signals that the market currently believes that the majority of forbearance cases, which have stabilized over the past couple of months, will ultimately be resolved.
However, non-agency lending has been somewhat slow to redevelop as credit standards have tightened relative to pre-pandemic underwriting and mortgage originators tend to be focused more on agency originations in light of fewer frictions in a wide primary secondary spread.
Our residential portfolio was roughly unchanged quarter over quarter at 2.6 billion as modest purchases and mark-to-market increases largely offset sales and portfolio runoff.
Securitization market started to show signs of life in mid-May, and we issued nearly 500 million of expanded prime securities earlier this month, subsequent to quarter end.
Aggregate issuance under our OBX shelf has now reached 4.5 billion across 11 transactions since 2018.
As I mentioned last quarter, we expect to see more growth in this segment as markets continue to normalize, and we are encouraged by the steady pace of securitization activity to support our asset generation strategy.
In the commercial sector, we are slowly beginning to see activity pick up, but volumes do remain somewhat muted.
June, however, did bring about an increase in new refinancing requests with some new acquisition activity at post-COVID purchase prices.
And simultaneously, we have seen a significant number of warehouse providers begin to close new loans, although pricing levels have been reset higher.
Cross sectors within commercial, the operating fundamentals remain challenged in hospitality as the average national occupancy rate hovers around 40%.
And in retail, the prolonged shutdown and increasing number of retailer bankruptcies is continuing to weigh on that sector.
On a more positive note, multifamily remains strong throughout the quarter as the latest data indicates over 90% of renters made a full or partial rent payment as of June.
And in the office sector, although new leasing has slowed significantly, office REITs have reported strong rent collections above 90% throughout the back end of the second quarter.
With respect to our CRE portfolio, specifically, total assets at quarter end of 2.5 billion represented a slight decrease, while economic interest remained essentially flat.
The decline in portfolio size was driven by approximately 53 million in loan payoffs, as well as securities sales.
On the financing side, our weighted average cost of borrowing decreased by roughly 60 basis points to 2.7%, driven largely by a reduction in LIBOR given Fed cuts.
Overall, we feel good about the conservative positioning of the portfolio across sectors and the strength of our relationships with best-in-class sponsors and operating partners to mitigate any further disruption.
Shifting to middle market lending, activity has also picked up as of late as spreads have tightened and sponsors have refinanced transactions that have exhibited improving underlying leverage profiles.
New deal activity is primarily relegated to more broadly syndicated loans.
However, for context, first lien executions on larger transactions have tightened 75 to 100 basis points over the past quarter.
While traditional middle market has shown less movement in pricing.
Unit tranches and second lien loans within middle market are experiencing more notable price discovery than its larger market brethren, and we expect these gaps to remain as traditional middle market participants grapple with their portfolios.
Consistent with our communication last quarter, we continue to speak actively with sponsors, borrowers and agents to closely monitor performance.
Despite the challenging environment, we are pleased with how the portfolio has performed during the period, ending the quarter essentially unchanged at 2.2 billion in assets.
As we gain further clarity around the long-term implications of COVID, we are reassured by the stable and defensive nature of our portfolio and remain confident in its ability to withstand prolonged bounce and market volatility.
We believe our focused industry-specific positioning within nondiscretionary defensive and mission-critical names will generate the outperformance versus peers that will further differentiate our brand in the sector.
In fact, some of our industry concentrations have materially benefited from the current environment.
For example, government mandates at all levels have created an even greater dependency on technology while also driving demand and behavior in ways that is made once boring annuity businesses into growth sectors.
Portfolio construct has been protected against broader sectors that have witnessed demand destruction and we maintain meaningful exposure where pockets of spend remain resilient.
Now, additional note with respect to our direct lending portfolios, we have taken what we believe to be a very conservative approach regarding reserves and CECL adjustments, which Serena will discuss in further detail.
And finally, shifting to our outlook.
As we think about our capital allocation out of the horizon, we've been focused on preserving flexibility, given uncertainty in the greater economy related to the COVID shutdown.
We maintain the view that the agency sector represents the most attractive investment opportunity currently, while also providing strong liquidity.
We have entered a more normalized environment with Fed action serving as a key driver.
MBS spreads have retraced much of the widening experienced in March.
We do remain positive on the sector, given ample funding availability at low rates, subdued rate volatility and a complete reversal of an inferior technical backdrop that characterized the sector at the outset of this year.
While our allocation agency may increase modestly, we do continue to evaluate opportunities to deploy capital across our three credit businesses.
And we are beginning to develop a better lens into how each credit sector is evolving, and we expect to shift to a more offensive posture in the coming months as we gain more clarity on the economic and real estate landscape.
We were certainly careful to take prudent steps during the early phase of the market recovery to ensure we are well positioned to capitalize on the opportunities that are sure to arise.
And as part of our preparation, we have chosen to be conservative with our leverage, as well as our dividend.
Our goal has been to maintain optimal liquidity thresholds and to manage the portfolio within conservative risk parameters to produce the highest level of quality earnings in this smart environment.
Consequently, we reduced leverage during the quarter from 6.8 to 6.4 times and made the prudent decision to set our quarterly dividend at $0.22.
The dividend represents a 10.5% yield on our book value, which is in line with our historical average, while being competitive relative to our peers and various fixed income benchmarks.
As I mentioned, we outearned the dividend by $0.05 this quarter, and absent another market dislocation or other unforeseen developments, we expect Q3 core earnings to also exceed the dividend.
Overall, we maintain a more constructive view of the operating environment and our ability to deliver compelling returns as each of our businesses, respective sectors begins to emerge from the initial volatility and disruption caused by the pandemic.
And now with that, I'll hand it over to Serena to discuss the financials.
As David mentioned earlier, the stabilizing actions of the Fed, coupled with our active portfolio management, resulted in improved fair value of our agency assets and significant improvement in financial performance.
Our book value per share was $8.39 for Q2, a 12% increase from Q1, and we generated core earnings per share, excluding PAA, of $0.27, a 30% increase from the prior quarter.
Book value increased on GAAP net income of 856 million or $0.58 per share, which includes $0.05 related to CECL and specific reserves, and higher other comprehensive income of 721 million or $0.51 per share on improved valuations on agency MBS, resulting from lower market rates.
GAAP net income improved this quarter as a result of higher GAAP net interest income of 399 million, primarily due to lower interest expense from reduced repo rates and balances, and we also experienced lower losses on our swap portfolio of $92 million.
Last quarter, I noted that most of our assets and liabilities are at fair value.
And that our book value decline was not a function of fourth asset sales, but rather unrealized mark-to-market losses with potential full recruitment.
This point was evidenced this quarter with the improvement in fair value measures and resulting improved book value.
While financial conditions have stabilized, there is still significant uncertainty around the long-term economic picture.
This makes analysis regarding CECL reserves particularly challenging.
As a result, we ran numerous scenarios in excess of 20 to determine the appropriate amount of CECL reserves for the quarter and ultimately booked reserves that were considerably more conservative than our base case scenario.
In comparison, our base case scenario resulted in a modest release of reserves, which we felt inappropriate given the continued economic uncertainty centered around the evolving pandemic.
We recorded reserves associated with our credit businesses of 68.8 million on funded commitments during the second quarter, consisting of 22 million of additional reserves during the quarter, primarily resulting from the impact of COVID-19 on our borrowers.
And more general reserves related to forecasts for a deterioration in economic conditions and market values of 46.8 million.
Total reserves now comprise 5.32% of our ACREG and MML loan portfolios as of June 30, 2020.
As a reminder, the impairment model introduced by the new CECL standard is based on expected losses rather than incurred losses, which was the previous measurement for reserve historically.
Under the standard, an entity recognizes its estimate of lifetime expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses.
And while changes in economic scenarios and asset performance in the future will impact CECL reserves in subsequent quarters.
Current reserve levels should not be considered as a pervasive credit issue within the portfolio or an indication of what reserves may be recorded in the future.
We have previously discussed our methodology and our thorough and thoughtful approach to CECL reserves.
As always, we spent time analyzing the results of the reserve calculations and ensuring our expectations align with the quality of the portfolio and the performance of the borrowers.
We continue to think it critical in the current environment to consider the adverse economic scenarios available in this process and to err on the side of conservatism, given the significant uncertainty in the economic and market value scenarios.
We remain comfortable with our existing credit portfolios and the associated CECL reserves, and we'll continue to monitor specific asset performance and economic projections as we determine future reserves.
The largest factor quarter over quarter to core earnings ex PAA, were lower interest expense of 186 million versus 503 million in the prior quarter.
Due to lower average repo rates and balances, as well as higher TBA dollar roll over income of 96 million versus 44 million in the prior quarter.
Due to higher average balances, partially offset by higher expense from the net interest component of interest rate swaps of 65 million versus 14 million in the prior quarter on higher average notional balances.
As David touched on, our economic leverage declined to 6.4 times from 6.8 times quarter over quarter, which was mainly due to a decrease in repo balances of 5.4 billion and an increase in our equity base of 1.1 billion.
That was partially offset by an increase in TBA contracts of 5.8 billion and an increase in net payables for investments purchased of 1.5 billion.
Our treasury function is the best in the business, and their expertise and exemplary market timing was a key component that helped us weather the market dislocation last quarter and our ability to deliver strong core earnings this quarter -- additionally, as noted above, core did benefit from a reduction in financing costs with lower average repo rates down to 79 basis points from 1.77%, combined with lower average repo balances, down to 68.5 billion from $96.8 billion.
And we achieved these results while opportunistically extending our repo book term, increasing our weighted average days to maturity by 50% from 48 to 74 days.
Signaling from the Fed on continued low rates, combined with considerable injection of additional reserves in the financial system through repo operations and asset purchases have led to very stable funding conditions with repo markets experiencing no signs of stress through the quarter, even on pivotal month end and quarter end reporting dates.
And access to repo financing remains ample.
With the improved stability in the financial market, we have been an improvement in lenders appetite to finance credit assets, particularly in the residential space.
In anticipation of the expiration of our FHLB membership in February of 2021, we are executing an alternate financing strategy involving committed funding facilities for our residential credit business.
And as David mentioned, we maintain a strong presence in residential securitization market.
Consistent with that strategy, since the beginning of the second quarter, we added 1.125 billion of capacity across two new credit facilities for our residential credit group for permanent nonrecourse financing.
The portfolio generated 188 basis points of NIM, up from Q1 of 118 basis points, driven primarily by the decrease in cost of funds that I mentioned a moment ago.
Annualized core return on average equity, excluding PAA, was 12.82% for the quarter in comparison to 9.27% for Q1.
Our efficiency metrics changed modestly relative to Q1 being 2.01% of equity for the second quarter in comparison to 1.98%.
Also, as David mentioned, our internalization transaction closed at the end of the quarter, and we anticipate generating cost savings over the long-term as we embark on being an internally managed company.
Annaly ended the quarter with excellent liquidity profile with 7.9 billion of unencumbered assets, an increase of 1 billion from prior quarter, including cash and unencumbered agency MBS of 5.3 billion.
And finally, the company has performed exceptionally well given the challenges faced from remote work and market uncertainty.
We continue to be impressed by the resiliency of our workforce and the exemplary service that our IT infrastructure team has provided to every one of us during this time of remote work.
Everyone at Annaly contributes to our success, and we are proud of the results that we have reported for the second quarter and expect to continue providing best-in-class results for our shareholders.
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Chosen response:
q2 gaap earnings per share $0.58.
core earnings (excluding paa) of $0.27 per average common share for the quarter.