Prompt:
Human: And Lori Lipcaman, our executive vice president and chief financial officer.
As usual, we'll start today's call with the CFO, who will review Vishay's fourth quarter and year 2019 financial results.
Dr. Gerald Paul will then give an overview of our business and discuss operational performance, as well as segment results in more detail.
We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide.
I will focus on some highlights and key metrics.
Vishay reported revenues for Q4 of 610 million.
EPS was $0.10 for the quarter.
Adjusted earnings per share was $0.13 for the quarter.
During the quarter, we recorded restructuring charges of $17 million related to the cost reduction program we announced in July.
Also during the quarter, we repurchased 3.95 million principal amount of our convertible debentures, and we recognized a U.S. GAAP loss on extinguishment.
I will elaborate on these transactions in a few moments.
Revenues in the quarter were 610 million, down by 3% from previous quarter, and down by 21.4%, compared to prior year.
Gross margin was 22.2%.
Operating margin was 4%.
Adjusted operating margin was 6.7%.
Adjusted earnings per share was $0.13.
EBITDA was 60 million or 9.9%.
Adjusted EBITDA was 78 million or 12.8%.
Revenues in the year were 2.688 billion, down by 12.1%, compared to prior year.
Gross margin was 25.2%.
Operating margin was 9.8%.
Adjusted operating margin was 10.7%.
Adjusted earnings per share was $1.26.
EBITDA was 416 million or 15.6%.
Adjusted EBITDA was 442 million or 16.6%.
Reconciling versus prior quarter, adjusted operating income quarter four, 2019, compared to adjusted operating income for prior quarter based on 19 million lower sales are 17 million, excluding exchange rate impacts, adjusted operating income decreased by 17 million to 41 million in Q4 2019 from 58 million in Q3 2019.
The main elements were: average selling prices had a negative impact of 5 million, representing a 0.8% ASP decrease.
Volume decreased with a negative impact of 6 million equivalent to a 1.8% decrease in volume, including a negative mix shift.
Fixed cost increased with a negative impact of 4 million as expected due to individually immaterial items.
Versus prior year, adjusted operating income quarter four 2019, compared to adjusted operating income in quarter four 2018, based on 166 million lower sales or 160 million lower excluding exchange rate impacts.
Adjusted operating income decreased by 79 million to 41 million in Q4 2019 from 120 million in Q4 2018.
The main elements were: average selling prices had a negative impact of 19 million, representing a 3% ASP decline.
Volume decreased with the negative impact of 64 million representing an 18.6% decrease.
For the full-year, adjusted operating income for the year 2019, compared to adjusted operating income for the year 2018 based on 366 million lower sales or 318 million lower excluding exchange rate impacts, adjusted operating income decreased by 199 million to 287 million in 2019 from 485 million in 2018.
The main elements were: average selling prices had a negative impact of 29 million, representing a 1.1% ASP decrease, which includes U.S. tariffs passed through to customers.
Volume decreased with a negative impact of 124 million, representing a 9.7% decrease.
tariffs and higher metal prices.
Wage and other variable cost inflation were compensated by cost reduction.
Inventory effects had a negative impact of 30 million.
Selling, general and administrative expenses for the quarter were 95 million, sequentially higher by 2 million due to individually immaterial items and slightly lower than expected, primarily due to general belt-tightening measures.
For the year, selling, general and administrative expenses were $385 million versus 403 million in 2018.
2.1% lower, excluding exchange rate impacts, primarily due to incentive compensation expenses and general belt-tightening measures.
For Q1 2020, our expectations are approximately 102 million of SG&A expenses and approximately $400 million for the full year at constant exchange rates.
But as you know, we did repatriate approximately 189 million net of taxes during the earlier periods of 2019 and 724 million net of taxes during 2018.
Substantially, all of these amounts have been utilized to pay down the revolver to settle certain intercompany debt to finance capital expansion projects and to pay for the tax reform transition tax.
tax reform, they are subject to foreign withholding and other taxes and some state income taxes.
There's approximately $100 million of additional earnings available for repatriation with taxes accrued.
We are still evaluating the timing of such repatriation.
We had total liquidity of 1.6 billion at quarter end.
Cash and short-term investments comprised 803 million and no amounts were outstanding on our revolving credit facility.
During the quarter, we were able to repurchase 3.95 million principal amount of our outstanding convertible debt instruments.
This is part of the programs we have undertaken over the past two years to retire the convertible debentures, which have certain tax attributes, which were no longer efficient after U.S. tax reform.
Of the principal 575 (sic) 575 million amount of the convertible debentures that was outstanding at the beginning of 2018, only 17 million or 3% remain outstanding at the end of 2019.
We continue to be authorized by our board of directors to repurchase additional convertible debt instruments in open market repurchases or through privately negotiated transactions, subject to market and business conditions, legal requirements and other factors.
Our debt at year end is comprised of the convertible note due 2025 and the remaining convertible debentures due in 2040 and 2041.
The principal amount or face value of the converts totaled 617 million, 600 million related to the notes issued in 2018 and 17 million related to the remaining debentures.
The clean value of 499 million is net of unamortized discounts and debt issuance costs.
As I said, there are no amounts outstanding on a revolving credit facility at the end of quarter four.
No principal payments are due until 2025, and the revolving credit facility expires in June 2024.
I'd like to give you an overview of the cost reduction program.
As announced in July, we are implementing global cost reduction programs intended to lower costs by approximately $15 million annually when fully implemented and to provide management rejuvenation.
Our strategy has been to seek volunteers to accept a voluntary separation early retirement offer, which has been generally successful.
During Q4, we recorded restructuring expenses of 17 million, bringing the total expense for the program to 24 million, in line with expectations.
The expense was recognized when individuals accepted the offer.
Due to applicable transition period, we will not fully achieve the cost savings until the end of December 2020.
The full-year effective tax rate on a GAAP basis was 27%.
Our GAAP tax rate includes adjustments to remeasure deferred taxes related to the repatriation program, such as foreign currency effects and to consider certain corporate reorganizational activities that impact repatriation.
These adjustments were a benefit of 11.6 million for Q4 and 9.6 million for the full-year 2019.
Our full-year GAAP tax rate also includes adjustments to uncertain tax provisions recorded in Q4, approximately 3.8 million.
The unusual tax benefit related to settlement of some of the convertible debentures and the tax expense on a tax basis, foreign exchange gain, resulting from the payment of an intercompany loan previously deemed permanent in Q2.
Because of the unusual tax items, the U.S. GAAP effective tax rate for Q4 is negative, a tax benefit on pre-tax income.
Our normalized tax rate excludes these unusual tax items, as well as the tax effects of the restructuring and early debt extinguishment.
A normalized tax rate for the full year was approximately 27% versus the 26% at year to date Q3.
Mathematically, this yields a normalized tax rate of 36% for Q4, impacted by the cumulative catch-up and low pre-tax earnings in Q4.
We expect our normalized effective tax rate for 2020 to be approximately 26% to 27%.
We continue to evaluate the provisions of the U.S. tax law, particularly aspects of the GILTI and BEAT taxes.
Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions, a shift in income could result in significantly different results.
Total shares outstanding at year-end were 144 million.
The expected share count for earnings per share purposes for the first-quarter 2020 is approximately 145 million.
In our annual report on Form 10-K, we will change our U.S. GAAP segment reporting to separately disclose inductors and resistors.
These two segments were previously combined.
Prior period data presented in the annual report will be recast to reflect this new alignment.
Paul's comments on the quarter and year 2019 in a few moments will also separately discuss inductors and resistors.
Cash from operations for the quarter was 84 million.
Capital expenditures for the quarter were 56 million.
Free cash for the quarter was 28 million.
For the year, cash from operations was 296 million.
Capital expenditures were 157 million.
Split approximately for expansion, 96 million.
For cost reduction, 16 million.
For maintenance of business, 45 million.
Free cash generation for the year was 140 million.
The year includes 53 million cash taxes paid related to cash repatriation, 38 million and U.S. tax reform, 15 million.
Vishay has consistently generated an excess of 100 million cash flows from operation in each of the past now 25 years and greater than 200 million for the last now 18 years.
Backlog at the end of the quarter was -- at the end of quarter four was 911 million or 4.5 months of sales, still high, compared to our historical average of approximately three months.
Inventories decreased quarter over quarter by 17 million, excluding exchange rate impacts.
Days of inventory outstanding were 84 days.
Days of sales outstanding for the quarter were 49 days.
Days of payables outstanding for the quarter were 30 days, resulting in a cash conversion cycle of 103 days.
2019 for Vishay is -- for the business with electronic components in general, has been a year of correction.
Volumes dropped sharply vis a vis a strong year 2017, and in particular, 2018 as a consequence of the required reduction of inflated inventory levels in the supply chain.
Furthermore, quite drastically reduced manufacturing volumes set a strong negative impact on our profitability.
Additionally, there were temporary inefficiencies coming from the adaptation of manufacturing capacities downward quickly and massively.
Vishay in 2019 achieved a gross margin of 25% of sales versus 29% in 2018.
A GAAP operating margin of 10% of sales versus 16% of sales in 2018 and adjusted operating margin of 11% of sales versus 16% in prior year.
GAAP earnings per share of $1.13 versus $2.24 last year and adjusted earnings per share of $1.26 versus $2.12 in 2018.
The generation of free cash also in 2019 remained on a quite excellent level.
We, in 2019, generated free cash of 140 million which includes taxes paid for cash repatriation of 38 million.
Quarter four clearly has been disappointing.
The impact of an unfavorable product mix and of various negative singularities in variable costs led to a lower than normal contributive margin.
Furthermore, other income was lower than anticipated due to exchange rates, and our normalized tax rate for 2019 was higher than expected, impacting also third quarter.
Vishay in the fourth quarter achieved a gross margin of 22% of sales.
GAAP operating margin of 4% of sales, adjusted operating margin of 7% of sales, GAAP earnings per share of $0.10 and adjusted earnings per share of $0.13.
Let me talk about the economic environment.
The economic conditions for our industry in the course of 2019 deteriorated very substantially, driven by the normalization of lead times and the subsequent major inventory reduction in the supply chain.
This, for the most part, concerned distribution but also OEMs reduced inventories.
The worldwide slowdown in automotive and ongoing political turbulences developed into an additional burden in the course of last year.
Backlogs substantially inflated in the course of 2017 and 2018 continue to normalize with book to bill ratios much below one.
Recently, we do see a recovery of orders.
Selling prices for commodity products have restarted to decline.
Considering the strong slowdown of order cancellations in the fourth quarter, another substantial reduction of inventories in the supply chain during the quarter and increasing orders also from distribution.
We believe that the fourth-quarter represented the low point of this phase of correction.
Let me talk about the regions.
After a strong year, the American market softened in the fourth quarter.
Sales to OEMs, as well as POS of distribution were concerned, automotive and commercial aviation are weakening, whereas military spending remains robust and industrial markets remained stable overall.
Inventories being burned off by our distributors.
The European business continues to be burdened by too high inventories in the supply chain, as well as by a weakening of the automotive, in particular, of the diesel market.
Despite continued destocking in Asia, we see signs of improvement in automotive and the stabilization of industrial and EMS segments.
Asia, in fact, is expected to return to more normal business levels.
First, setting aside any impacts of the evolving Corona crisis, of course.
Talking about distribution, POS of global distribution ended the year 2019 weaker than expected.
It declined by 7% versus prior quarter and was 13% below prior year.
POS for the full-year 2019 was down versus 2018 by 10%.
POS in the fourth quarter was weak versus Q3 in all geographic regions, down in Europe by 6% and in Asia by 5% and down in the Americas by 11%.
Nevertheless, distribution inventories during the fourth quarter came down again in a noticeable way by 37 million.
We expect this trend to continue, maybe, to a lesser extent also in the first quarter.
There was no further decline of inventory turns in distribution in the first quarter, trends remained at 2.4% as compared to 2.9% in prior year.
The Americas showed 1.4 turns after 1.5 turns in the third quarter and 1.9% in prior year.
Asia, Asian distribution showed 3.3 turns after also 3.3 turns in Q3 and 3.7 turns in prior year.
Europe had 2.9 turns after also 2.9 turns in Q3 and 3.3 turns in prior year.
Orders from distribution in the fourth quarter picked up in all regions substantially, which naturally gives some confidence.
Let me comment on industry segments.
There is continued weakness in vehicle production worldwide, in particular in Europe, and there's political resistance to the diesel technologies.
Nevertheless, we expect improvements in the first quarter in automotive carried by traditional cars.
The industrial segment continues to show growth, but high inventories in the supply chain remain to be a problem for one or for two quarters.
Basically, positive developments exist in industrial automation, power transmission, robotics, oil and gas and in smart metering.
In consumer, white goods set a strong quarter driven by air conditioning devices and also 2020 is expected to be positive.
Gaming should be strong due to the launch of the new Sony PlayStation in the course of this year.
There is ongoing strength of the military and medical sectors, computing is expected to see a better year in 2020 driven by growth in service.
5G continues to be a major opportunity for strong growth starting in 2020.
Let me talk about Vishay's business development.
Quarter four sales, excluding exchange rate impacts, came in slightly above the midpoint of our guidance.
We achieved sales of 610 million versus $628 million in prior quarter and versus 776 million in prior year.
Excluding exchange rate effects, sales in Q4 were down by 17 million or 3% versus prior quarter and down versus prior year by 160 million or by 21%.
Sales in the year 2019 were 2.668 billion versus 3.035 billion in 2018, a decrease of 11%, excluding exchange rate effects.
Book to bill in the fourth quarter recovered to 0.94 from 0.72 in the third quarter, mainly driven by distribution.
Some detail, 0.94 for distribution after 0.55 in the third quarter, 0.95 for OEMs after 0.90, 0.95 book to bill for the actives after 0.6 in Q3, 0.94 for the passives after 0.83 in Q3.
1.03 book to bill for the Americas after 0.76 in the third quarter, 0.96 for Asia after 0.64, 0.88 in Europe after 0.78.
Backlog in the fourth quarter was stable at 4.5 months, which relates to actives and passives.
Cancellations were substantially reduced in Q4, and they now have a quite normal level.
The price decline is back to historical rates.
We had minus 0.8% versus prior quarter and minus 3% versus prior year.
Actives semiconductors with a higher share of commodities set also stronger price decline, as to be expected, minus 1.2% versus prior quarter, and minus 5.9% versus prior year.
The passives with a higher share of specialty products at minus 0.3% price decline versus prior quarter and minus 0.2% price decline versus prior year.
Some comments on operations.
In the year 2019, we were not completely able to offset the normal negative impact on the contributive margin by cost reduction by innovation.
In particular, temporary plant inefficiencies due to capacity adaptations burdened the variable costs.
SG&A costs in Q4 came in at 94 million, slightly below expectations when excluding x-rate effects SG&A costs for the year 2019 were 385 million, 19 million of 2% below prior year at constant exchange rates, mainly due to lower incentive compensation.
Manufacturing fixed costs in the fourth quarter came in at $126 million, slightly above, maybe, 1 million above our expectations.
Manufacturing fixed costs for the year 2019 were 509 million, 10 million or 2% above prior year at constant exchange rates impacted naturally by higher depreciation.
Total employment at the end of 2019 was 22,400, 7% down from prior year, which than we were 24,115 all this, of course, the consequence of a broad capacity reduction.
Excluding exchange rate impacts inventories in the quarter were reduced by 17 million, raw materials by 4 million and WIP and finished goods by 13 million.
Inventory and in the fourth quarter slightly improved to 4.3% from 4.1% in prior quarter.
In the year 2019, inventories decreased by 45 million, raw materials by 29 million and WIP and finished goods by 16 million.
Inventory turns for the entire year 2019, we had a good level of 4.3%, slightly down from 4.5% in 2018, excluding, again, exchange rates.
Capital spending in the year 2019 was 157 million versus 230 million in prior year, close to our expectations.
We spent 96 million for expansion, 16 million for cost reduction and 45 million for maintenance of business.
For the current year, we expect capex of approximately 140 million, quite in accordance with the requirements of our markets.
We, in 2019, generated cash from operations of 296 million, including $38 billion cash taxes for cash repatriation, compared to 259 million cash from operations in 2018, including 157 million cash taxes for cash repatriation.
Generated last year in 2019, free cash of 140 million, including 38 million of cash taxes for cash repatriation, compared to a free cash generation of 84 million in 2018, including 157 million cash taxes for cash repatriation.
I think we can say, and I'm proud to say that every time, that Vishay are also in -- economically softer.
Years has lifted up again to its reputation as an excellent and reliable producer of free cash.
Now, I come to the product lines, and as Lori indicated, we are going to report separately resistance and inductors from now on.
And I'll start with resistors.
Vishay traditional and, since many years, steadily growing business continues to be highly profitable, despite having been impacted negatively in 2019 by lower volume due to inventory corrections in the supply chain.
With resistors, we enjoy a very strong position in the auto industrial, mil and medical market segments, and we do offer virtually all resistor technologies.
Sales in Q4 were 146 million, down by 6 million or by 4% versus prior quarter, and down by 37 billion or by 20% versus prior year, excluding exchange rate impacts.
Sales in 2019 of 648 million were down by 44 million or by 6% versus prior year, again, excluding exchange rate impacts.
The book to bill ratio in quarter four was 0.95 after 0.82 in prior quarter.
Backlog increased slightly from 4.7 to -- from 4.5, excuse me, to 4.7 months.
Gross margin in the quarter came in at 24% of sales after 27% in prior quarter, low volume and efficiencies due to capacity adaptations for burdening the results temporarily.
Gross margin for the year 2019 was at a fairly good level of 28% of sales, down from 33% of sales in 2018, which, on the other hand, was a record year, supported by an inventory build in the supply chain.
Inventory turns in the fourth quarter were at 4.1 billion.
Inventory turns for the full year were at a satisfactory level of 4.1% also.
After price increases in 2018, the development of ASPs returned to normal trends we have seen for resistors, minus 1% versus prior quarter and also minus 1% versus prior year.
With the inventory correction being over in a very foreseeable future, we expect the business to return to traditional profitability levels.
The business with inductors consists of power inductors and magnetics.
Our fast-growing business with inductors represents one of the greatest success stories of Vishay.
Exploiting the growing need for inductors in general, Vishay developed some years ago, a platform of robust and efficient power inductors and leads the market technically.
With magnetics, we are very well positioned in specialty businesses, demonstrating steady growth since years.
Sales of inductors in quarter four were 77 million, up by 3 million or 4% versus prior quarter and flat versus prior year, excluding exchange rate impacts.
Year-over-year sales of 299 million was virtually flat versus prior year.
Despite all economic headwinds in 2019, again, I comment without exchange rate impacts.
Book to bill in Q4 was 1.05 after 0.95 in prior quarter.
Backlog for inductors was at 4.7 months, same as in the third quarter.
The gross margin in the quarter was at quite excellent 34% of sales, up from prior quarter, which were at 32% of sales.
Gross margin for the year 2019 was set, again, quite excellent 32% of sales, virtually on the same level as prior year.
Inventory turns in the quarter were at 4.8 as compared to 4.6 for the whole year.
There is only modest price pressure in inductors, minus 0.3% versus prior quarter and minus 1.8% versus prior year.
We continuously and will do so also in the future, expand our manufacturing capacities, in particular, for power inductors.
Our business with capacitors is based on a broad range of technologies with a strong position in American and European market niches.
We enjoy increasing opportunities in the fields of power transmission and of ECAs, namely in Asia, China, in particular.
Sales in the fourth quarter were 95 million, 4% below prior quarter and 27% below prior year, excluding exchange rate effects.
Year-over-year capacitor sales decreased from 466 million in 2018 to 423 million in 2019 or by 7%, again, excluding exchange rate impacts.
Book to bill ratio in the fourth quarter for capacitors was 0.84 after 0.76 in previous quarter.
Backlogs remained for capacitors at a high level of 4.1 months.
The gross margin in the quarter decreased to 18% of sales after 22% in prior quarter, lower volume and an unfavorable product mix burdened the results temporarily.
The gross margin for the year 2019 was a 22% of sales, down from 23% in 2018.
Inventory turns in the quarter increased to 3.7% as compared to 3.5% for the whole year.
For capacitors, we had price increases 0.7% versus prior quarter and plus 2.5% versus prior year.
I come to our Opto line.
Vishay's business with products with Opto products consists of infrared emitters, receivers, sensors and couplers, as well as of LEDs for automotive applications.
Sales in the quarter were 51 million, 1% above prior quarter, but 21% below prior year, which again excludes exchange rate impacts.
Year-over-year sales with Opto products went down from 290 million to 223 million, down by 22% year over year without exchange rate impacts.
Opto was heavily burdened by inventory reductions in the supply chain.
Book to bill in the fourth quarter was 1.11 after 0.86% in prior quarter, indicating we believe, a turnaround of the business.
Backlog is at a very high level of 4.7 months after 4.4 months in the third quarter.
Gross margin for Opto in the quarter was at 20% of sales after 22% in the third quarter.
Gross margin for the year 2019 came in at 24% of sales as compared to 35%, again a record percent in prior year.
As I said, a real record for this product line.
The very high inventory turns of 6.4 in fourth quarter as compared to 5.4 in the whole year.
In Opto, we have relatively stable prices vis a vis prior quarter, the price increases of 2.3% vis à vis prior year, there was a price reduction of 1.7%.
We remain to be confident for this line growing steadily and also profitably, mainly in the segment of sensors.
Diodes for Vishay represents a broad commodity business where we are the largest supplier worldwide.
Vishay offers virtually all technologies, as well as the most complete product portfolio.
The business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years.
After two record years, the volume in diodes in 2019, suffered the most of all divisions from the inventory reduction in the supply chain.
Sales in the quarter were 123 million on the level of prior quarter but 30% below prior year, which excludes exchange rate effects.
Year-over-year sales, diode, decreased from 713 million to 557 million, a decline of 21% without exchange rate impacts.
The book to bill ratio of 0.88 in the quarter was a definite improvement of the 0.57, which we have seen in quarter three, the worst appears to be behind us.
The backlog reduced slightly to a still high level of 4.7 months from 4.9 months in prior quarter.
The gross margin in the quarter came in at 16% of sales as compared to 17% in the third quarter.
The gross margin in the year 2019 was at 20% of sales, down from 28% in prior year.
A quite enormous drop of volume in combination, some manufacturing inefficiencies and a strong ASP decline, especially in the fourth quarter were the reason.
Inventory turns remained at a very satisfactory level of 4.4% on the level of the whole year.
The ASP decline for diodes has accelerated in the fourth quarter, and we have seen minus 1.4% versus prior quarter and minus 7.3% versus prior year.
We are confident that this important business for Vishay will come back to historical volumes and also profitability's, whenever the inventories in the supply chain will have reach normal levels, and this will be in the foreseeable future.
Coming finally to MOSFETs.
Vishay continues to be one of the market leaders in MOSFET transistors.
MOSFETs over the last years developed a strong and growing position in automotive, which is expected to provide a successful future for this product line.
Also MOSFETs currently see some impact of the destocking activities worldwide, but in a milder form than other commodity products.
Sales in the quarter were 116 million, 8% below prior quarter and 16% below prior year without exchange rate impacts.
Year-over-year sales with MOSFETs decreased from 548 million to 509 million by 6% without exchange rates.
Book to bill ratio in quarter four was 0.94 after 0.54 in Q3.
Apparently, the business is on the way back to normal.
Backlogs continue to be on a high level at 4.2 months as compared to 4.0 months in the third quarter.
Gross margin in the quarter was at 24% of sales, no change from prior quarter.
The gross margin in the year 2019 came in at 25% of sales, a slight reduction from 27% in 2018 due to lower volume.
Inventory turns in the quarter were 3.7% as compared to 4.1% for the entire year.
Price decline for MOSFETs had accelerated, minus 2.5% versus prior quarter and minus 6.1% versus prior year.
We are confident to be -- we continue to be confident for the future of this line of MOSFETS, in particular driven by automotive applications, and we continue to expand internal and foundry capacities.
After a record year 2018, our business in 2019 has entered a phase of massive correction, which principally was not a complete surprise, given the cyclical nature of electronics.
Now, there are clear signs that the downtrend of orders and sales is behind us, and we believe that Q4 has been the low point for our business.
The inventory distribution is still relatively high and will moderate, therefore, the expected recovery for another quarter or two.
Whereas the automotive market segment globally still will need some time to get back to historical strength, we see other fields that are encouraging.
For the mid- and long term, there is no reason to doubt the growth potential of electronics.
Vishay is a very well-established broad line supplier will benefit from all moves toward electrification going forward.
Our increased machine capacities will enable us to participate in the next upturn to the full extent.
We are implementing our announced restructuring and rejuvenation program and expect an annual reduction of personnel fixed costs by 15 million, when it will be fully implemented by the first quarter of the year 2021.
For the first quarter, we guide to a sales range of 605 to 645 million at a gross margin of 24% of sales at the midpoint.
The guidance excludes potential impacts from the rapidly evolving coronavirus crisis.
We now open the call up to questions.
Regina, please take the first question.
 Assistant:

Chosen response:
compname reports q4 earnings per share of $0.10.
q4 earnings per share $0.10.
q4 adjusted earnings per share $0.13.
sees q1 2020 revenue $605 million to $645 million.
vishay intertechnology - for q1 2020 co expects further inventory reduction in supply chain and guide for revenues in range of $605 to $645 million.
q1 guidance excludes impact from rapidly evolving coronavirus crisis.


Prompt:
Human: These materials are available on the Ventas website at ir.
Let me start by saying that we believe the macro environment and the Ventas outlook have turned an important corner and that the worst of the pandemic is behind us.
You have no idea how good it feels to say those words, even though we recognize that significant uncertainty remains.
The whole Ventas team is actively engaged in taking steps to win the recovery for our stakeholders.
These steps include making smart portfolio and capital allocation decisions, capturing the embedded upside in our high-quality senior housing portfolio, focusing on operational excellence and initiatives, investing in value-creating development and acquisition opportunities across our demographically driven asset classes, attracting diverse, attractive capital, and maintaining financial strength and flexibility.
I also think it's important to reiterate our gratitude and optimism.
The widespread administration and efficacy of COVID-19 vaccines have dramatically benefited the health and wellbeing of our senior residents and their caregivers, and also laid the foundation for sustained economic recovery.
Let me first address senior housing trends and results.
With respect to health and safety, I'm thrilled to report that our confirmed new resident cases in SHOP have fallen to literally a single person per day out of a resident population of 40,000.
And all our communities are now open to new move-ins and most have reintroduced expanded visitation and communal activities.
As a result, the natural, resilient and demographically based demand for senior living has revised, and we've reached the cyclical pandemic occupancy bottom in our SHOP portfolio in mid-March.
Since then, led by our U.S. SHOP community, which posted 280 basis points of growth, we grew SHOP spot occupancy 190 basis points through April 30th to nearly 78%.
Our Canadian SHOP portfolio, which has maintained occupancy of over 91%, tempered the full SHOP occupancy growth because Canadian clinical conditions and regulatory measures are currently lagging those in the U.S.
We do expect those to catch up over time.
Notably, for the whole portfolio, March and April were the first two consecutive months when SHOP move-ins exceeded both, pre-pandemic move-in levels and move-outs since the start of the pandemic.
In fact, move-ins during April at 1,880 totaled more move-ins in a single month than we've experienced at any time since June 2019.
While many of these positive trends began in the first quarter and therefore did not fully benefit first quarter results, we are also pleased with those results.
Our first quarter normalized FFO per share and SHOP performance came in ahead of our expectations.
And our SHOP occupancy gains were at or above those reported by other market participants to date.
The resilient and robust demand we are seeing for senior housing once again validates the need-based nature of our communities and the crucial role care providers play in facilitating longer, healthier lives for this portion of the nation's population, which is set to grow by over 2 million individuals over just the next few years.
Supply trends in senior housing are also highly favorable.
This combination of growing demographic demand and constrained supply creates a favorable backdrop for senior housing recovery, which represents an incredibly significant value-creation opportunity for our shareholders.
The high quality of our senior housing portfolio, as Justin will describe, makes us well-positioned to recapture NOI and realize this upside.
Turning to our capital allocation approach, we are confident of our ability to recycle about $1 billion through property dispositions in the second half of this year, and those are expected to enhance our enterprise.
On the investment side, our attractive life science, research and innovation business continues to provide us with value-creating opportunities to invest capital.
The Ventas portfolio, which now exceeds 9 million square feet, is located in three of the top five cluster markets and is affiliated with over 15 of the nation's top research universities.
We are also investing in our active and just delivered ground-up developments in life science, research and innovation, which totaled nearly $1 billion in project costs.
And I'm pleased to report that we also have another $1 billion in potential projects affiliated with major universities, right behind the four developments currently under way.
We look forward to sharing more information on our exciting development pipeline with you, later this year.
We recently expanded our life sciences business through our investment in a Class A portfolio of life science assets anchored by Johns Hopkins Medical, which we purchased at an attractive valuation of $600 per square foot.
Located in the fourth largest life science cluster in the U.S., Hopkins is a global leader in research and medicine and the number one recipient of government research funding.
This acquisition leverages our unique expertise at the intersection of universities, life sciences and academic medicine.
In addition, we continue to invest capital in senior housing with our partner, Le Groupe Maurice in Quebec.
LGM maintains a first-class brand, product and financial model for success.
Our two most recently completed high-end communities with LGM opened in the fourth quarter and have already achieved 87% occupancy.
We have three additional developments under way with LGM, representing nearly $300 million in aggregate project costs.
Looking at the broader investment market, deal volume is again trending toward normalized levels.
In a typical year, our deal team reviews over $30 billion in investment opportunities.
Our pipeline of potential investments across our asset classes is active and growing, and we are on our front foot from an external growth standpoint.
We have access to significant liquidity and a wide array of capital sources to fund deals.
Our investment philosophy continues to be focused on growing reliable cash flow and favorable risk-adjusted return, taking into account factors such as market position and trajectory of the asset and business, cost per square footer unit, downside protection and ultimate potential for cash flow growth and asset appreciation.
In closing, we believe we've turned an important corner.
And key metrics in our business are showing meaningful improvement.
The positive investment thesis for all of our demographically driven asset classes and for Ventas is pointing firmly positive.
As a team at Ventas, we're really happy about the strength and stability we've shown and the recent upswing in economic, clinical and operating environment.
We have an abiding commitment to win the recovery for all our stakeholders, and we are confident we're taking the right steps to do so.
I am very excited that senior housing recovery is under way.
As we've mentioned before, the lifestyle offering in our communities will be a leading indicator of performance.
Now that vaccines have been executed, activities are picking up again, communal dining is coming back and all of our communities are open to visitation from relatives, the underlying demand for our services should continue to strengthen.
As we have visited communities recently, the enthusiasm expressed by residents, their relatives and employees is compelling as communities are literally coming back to life again.
As Debbie noted, we are pleased with the improvement in leading indicators in occupancy as our move-in and move-out performance in March and April resulted in 266 and 363 net move-ins, respectively.
We expect occupancy improvements benefiting from a return to 2019 move-in levels, while at the same time, move-outs to be lower than 2019 levels due to lower current occupancy levels.
If we use the move-out rate as a percentage of the resident population from 2019 and apply that percentage to the current lower resident occupancy, the outcome is lower move-outs than pre-pandemic levels.
That, in combination with a 2019 move-in run rate, results in projected net positive occupancy gains.
I refer to this as the "turn the lights on" scenario, where we simply get the structural benefit from this netting effect.
Having said that, March and April, both performed well above this baseline, as we started to see a resurgence of high-converting lead sources, which include respites and personal referrals.
As these lead sources and professional referrals continue to recover, we could see move-in rates grow.
Moving on to macro drivers.
We remain optimistic on our long-term supply and demand outlook.
Construction starts continued to decelerate in the first quarter to the lowest level since the first quarter of 2011, and were down 77% from the peak in the fourth quarter of 2017.
Fewer starts should translate into materially lower deliveries in 2022 and 2023.
In addition, we expect strong demographic tailwinds to provide support for occupancy growth.
The 80-plus population is expected to grow 17% over the next five years, more than double the rate witnessed during the five-year recovery following the financial crisis.
I'll comment on our SHOP portfolio.
When I joined Ventas just over a year ago, one of my first priorities was to assess the overall quality of our portfolio.
Now that we are traveling again and visiting communities, I'm pleased to verify we benefit from a well-invested, highly diversified portfolio of market-leading senior housing communities with service offerings that range from an active adult, independent living, social assisted living, and assisted living and memory care.
We are well located in high-barrier markets that have substantial income and wealth demographics to support our offering.
Our three primary operators, Le Groupe Maurice, Sunrise and Atria, are each uniquely positioned to be competitive within their respective markets.
Collectively, they account for 90% of our SHOP NOI on a stabilized basis.
With these attributes of a high-quality portfolio in mind, moving forward, we are actively reviewing opportunities to optimize our portfolio through pruning, strategic capex investment, transitioning communities, new developments and pursuing new acquisitions to maintain our strong market position in senior housing.
Moving on to triple-net senior housing.
Given the proactive measures taken last year where we addressed a substantial portion of our portfolio and additionally paired with government subsidies and other tenant resources, our tenants continue to pay, as expected, in the first quarter and through April.
Ventas received all of its expected triple-net senior housing cash rent.
Our trailing 12 cash flow coverage for senior housing, which is reported one quarter in arrears, is 1.3 times and stable versus the prior quarter.
I'll summarize by expressing our enthusiasm around our strong leading indicators, high-quality portfolio of communities and operators.
I have a high confidence in our ability to compete in what should be a very exciting period of recovery for the senior housing sector.
With that, I'll hand the call to Pete.
I'll cover the office and healthcare triple-net segments.
Together, these segments represent over 50% of Ventas' NOI.
They continue to produce solid and reliable results.
First, I'll cover office.
The core office portfolio, ex parking, performed well.
Core office grew 1.7% year-on-year and 1.1% sequentially.
Those results were tempered by lower parking activity, which I'm pleased to say is materially increasing.
All-in, the office portfolio delivered $123 million of same-store cash NOI in the first quarter.
This represents an 80 basis-point reported sequential growth.
In terms of rent collections, our strong record continued during the quarter and into April.
This outstanding record is enabled by the mission-critical nature of our portfolio and our high-quality creditworthy tenancy.
In our medical office portfolio, 88% of our NOI comes from investment-grade rated tenants and HCA.
In our life sciences portfolio, 76% of our revenues come directly from investment-grade rated organizations and publicly traded companies.
All of our MOB properties are in elective surgery restriction-free locations and clinical activity and building utilization is rebounding.
A clinical rebound provides confidence to healthcare executives in making business decisions.
We're certainly seeing that on the real estate side.
As an example, we are finishing negotiations on a 10-year 160,000 square foot renewal with a 16,000 square foot expansion with a leading health system in the southeast.
We relocated and extended several hospital offices on a Midwestern campus to accommodate the addition of a 50,000 square foot healthcare-focused technical college.
The leases will commence in July, a win for the health system, the college and Ventas.
Medical office had record level retention of 91% for the first quarter and 86% for the trailing 12 months.
Driven by this retention, total office leasing was nearly 1 million square feet for the quarter.
This includes 160,000 square feet of new leasing.
The result is that MOB occupancy stayed essentially flat, down only 10 basis points for the quarter, both sequentially and year-on-year.
Previous actions to bolster leasing are clearly showing results.
In 2019, we hired a head of leasing.
In 2020, we hired a digital marketing lead.
In 2020, we redeployed 30% of our third-party brokers.
And in 2020, we increased the number of third-party brokers by 70% to impact the local coverage.
Our digital marketing program focused on local market awareness and virtual touring of vacant suites is fully in place and making a difference.
Average length of term for new leases was 7.3 years, 5 months higher than the 2019 average.
Renewal term length also exceeded 2019 averages.
Average escalators for new leasing was 2.7%, higher than our average in-place escalator of 2.4%.
All of this represents growing healthcare community confidence in the recovery.
I'd also like to highlight our pre-leasing construction initiative.
This is where we take a vacant suite where it is difficult to visualize this future potential and either demolish the in-place improvements to Core and Shell or complete a hospital standard physician suite in advance of leasing.
We've invested over $2 million in a pilot across 20 suites.
The results have been fantastic.
These projects have driven 20 basis points of occupancy and created a nearly 20% return on investment.
Because of these results, we intend to expand this program later this year.
We remain enthusiastic about the office business and particularly investment opportunities in the R&I space.
We continue to make progress on our recently announced $2 billion pipeline of development opportunities with Wexford.
We've publicly announced four projects in that pipeline, Arizona State University in Phoenix, which opened in the fourth quarter and is soon to be over 70% leased.
Drexel University College of Nursing in Philadelphia is 100% leased.
The project, in partnership with the University of Pittsburgh for immunotherapy is 70% preleased.
And our new development in the thriving City submarket of Philadelphia between Penn and Drexel is showing strong pre-leasing activity.
Since the acquisition of our South San Francisco life science trophy asset, we have renewed several tenants and have driven occupancy to 100%.
In some cases, the mark-to-market has exceeded 30%.
At our newest life sciences acquisition on the Johns Hopkins Campus in Baltimore, we are in lease negotiations to take the buildings from 96% to 100% occupancy.
Demand far exceeds our current capacity.
Now, let's turn to healthcare triple net.
During the first quarter, our healthcare triple-net assets showed continued strength and reliability with 100% rent collections in April and May.
Trailing 12-month EBITDARM cash flow coverage through 12/31 improved sequentially for all of our healthcare triple-net asset classes.
Acute care hospitals' trailing 12-month coverage was a strong 3.5 times in the fourth quarter, a 20 basis-point sequential improvement.
Ardent has performed extremely well in this dynamic market.
IRF and LTAC coverage improved 10 basis points to 1.7 times in the first quarter, buoyed by strong business results and government funding.
Census levels were high at year-end and continued into the first quarter.
During this period, Kindred has been able to demonstrate their expertise in treating complex respiratory disorders to their health system partners.
Regarding our loan portfolio, it is fully current.
They are our heroes.
We are relieved that now, protected by the vaccine, they can do their jobs with peace of mind and in safety.
In my remarks today, I'll cover our first quarter results, our expectations for the second quarter of 2021 and our recent liquidity, balance sheet and capital activities.
Let's start with our results in the first quarter.
Ventas reported first quarter net income of minus $0.15 per share, driven by noncash charges in the quarter as we transferred assets to held for sale.
Normalized funds from operations in the first quarter was $0.72 per share, a $0.01 beat versus the high end of our prior guidance range of $0.66 to $0.71.
As previously communicated and included in our Q1 guidance range, we received $0.04 in HHS Grants in SHOP in Q1.
Adjusted for these grants, Q1 FFO per share was $0.68.
As expected, office and triple-net contributed stable sequential NOI performance in the first quarter.
Q1 outperformance was driven by better occupancy and lower-than-expected operating expenses in SHOP.
As a result, same-store SHOP NOI declined sequentially by 8% in the second quarter versus the first.
Turning to our Q2 guidance.
Second quarter net income is estimated to range from flat to $0.07 per fully diluted share.
Our guidance range for normalized FFO for Q2 is $0.67 to $0.71 per share.
The Q2 FFO midpoint of $0.69 is $0.01 higher sequentially than the first quarter results due to an improving SHOP trajectory, after adjusting for HHS Grants in both periods.
Key second quarter assumptions underlying our guidance are as follows.
Q2 spot occupancy from March 31st to June 30th is forecast to increase between 150 to 250 basis points, with the midpoint assuming the occupancy improvement in March and April, continues through May and June.
Sequential SHOP revenue is expected to grow modestly as a result of occupancy gains.
While operating expenses, excluding HHS grants, are forecast to be flat with lower COVID costs, offsetting higher costs due to increased occupancy, higher community activity levels and an additional day in the second quarter.
Finally, we've not included the receipts of HHS Grants in SHOP in our Q2 guidance.
In our Office and Triple-net segments, we expect stable NOI in Q2 relative to Q1.
And finally, we continue to assume $1 billion in proceeds from property dispositions in the back half of 2021.
I'd like to underscore that we're still in a highly uncertain environment.
Though trends in SHOP are positive, the pandemic's impact on our business remain very difficult to predict.
We continue to enjoy robust liquidity with $2.7 billion as of May 5th.
Notably, in the first quarter, we renewed our revolver at better pricing and improved our near-term maturity profile by fully repaying $400 million of senior notes due 2023.
In terms of capital structure, we maintained total debt to gross asset value at 37% in the first quarter.
Q1 net debt-to-EBITDA was 7.1 times, as EBITDA continued to feel the impacts of COVID in the quarter.
We expect net debt-to-EBITDA will reach its peak in the first half of '21 and then begin to improve in the second half as senior housing rebounds and we reduce debt with asset sales.
On behalf of all my colleagues, Ventas is committed to continuing to take the actions to win the post-pandemic recovery, which finally is appearing in our sights.
Before we start with Q&A, we're limiting each caller to two questions to be respectful to everyone on the line.
 Assistant:

Chosen response:
compname reports sees q2 adjusted ffo per share $0.69 excluding items.
sees q2 adjusted ffo per share $0.69 excluding items.
qtrly normalized ffo per share $0.72.
qtrly nareit ffo per share $0.67.
sees q2 normalized ffo per share $0.67 - $0.71.
sees q2 nareit ffo per share $0.67 - $0.70.


Prompt:
Human: These materials are available on the Ventas website at www.
I will now turn over the call to Debra A. Cafaro, Chairman and CEO.
The Ventas team is dispersed but unified in spirit as we join you for today's call.
I'd like to provide an overview of our consistent strategy, discuss our third quarter results, highlight how we are driving our research and innovation business forward, describe our competitive advantage and managing institutional third-party capital and touch on the positive senior housing operating trends that continue into October.
Our enterprise continues to benefit significantly from our steady commitment over decades and various cycles to asset class operator and geographical diversification.
We aim to generate reliable growing cash flows from a high-quality diverse portfolio of assets on a strong balance sheet.
We've seen that staying disciplined about diversification has protected the downside and also provided myriad opportunities for our stakeholders.
The current environment is certainly proving out the merits of this strategy.
First, our diversified portfolio is enabling the company to remain strong and stable, despite the disruption occasioned by the COVID-19 pandemic, which has affected our different asset classes and geographies in non-correlated way.
Our medical office, research and innovation business and our healthcare triple-net lease business now represents over half of our enterprise.
During the quarter, these asset classes have continued to perform well and led our third quarter performance, enabling us to deliver $0.75 of normalized FFO per share.
Second, our diversified asset base with five verticals has given us the ability to continue successfully allocating capital over time and through cycles.
For example, following this spinoff of our skilled nursing business, we invested in high quality health systems with [Indecipherable], which is currently performing very well as hospitals have asserted essentiality to the healthcare delivery systems in the U.S. Also, just as we did when we allocated capital to the medical office building business a decade earlier, in 2016, we entered the research and innovation business, and we have found significant opportunities to drive that business forward since then, through both ground up development and asset acquisitions.
The addition of life sciences to our enterprise has provided uplift to our results, our investment activity and our enterprise value.
Two recent examples of the benefit of our diversified strategy include our investment in a $1 billion Class A Trophy Life Science Portfolio located in the Premier South San Francisco Life Science Cluster at a forward cap rate of 5% on cash NOI.
The tenant base is a nice mix of public companies and a diverse group of early to mid-stage life science company.
The South San Francisco market consistently ranks as one of the elite life science clusters.
Spurred by record capital flows into the life science sector, this market has less than 2% lab vacancy, unparalleled access to a large concentration of life science firms and an extensive venture capital network going after the world class talent pool.
We also recently recommenced construction on a 400,000 square foot state-of-the-art Life Sciences project known as One UCity in this thriving research sub market of Philadelphia, bookended by 10 and Drexel.
This project is designed to be LEED certified and total estimated project costs are over $280 million.
Similarly, we've invested on a geographically diversified basis with over 30% of our shop portfolio now in Canada.
Last year, we acquired the high-quality Le Groupe Maurice portfolio in Quebec.
Building on the strong performance LGM has delivered and its history of successfully developing and leasing up senior communities for vibrant older adults.
We are also investing nearly $420 million in ground up development of new consumer focused senior living communities, which are well under way.
We do see areas where we can recycle capital too.
We have recently sold or placed under contract certain portfolios of senior living assets that are not long-term holds for us.
We want to continue making senior housing a key part of our diversified portfolio because of the operational asset class upside post-pandemic, the demographically driven demand that is in front of us and the continued improvement on the supply side.
There remains a strong bid from private capital for senior living, which supports our conclusion.
On the other side of the ledger, through our growing third-party institutional Capital Management Platform, we also continue to diversify our capital sources, augment our investment capacity, expand our footprint, leverage our team and industry expertise and improve our financial flexibility and liquidity, all of which are positive for our public shareholders.
Having additional partners and tools to use at appropriate times and for customized situations, provides a significant competitive advantage for Ventas and as an incremental source of earnings.
We already have over $3 billion in assets under management in our institutional third-party capital management platform.
These forms include our successful open-end funds, launched in March of this year, that has already grown to nearly $2 billion and 2 million square feet in assets under management.
Following the South San Francisco Life Sciences portfolio closing, when we raised over 600 million of discretionary new equity, our fund exceeds $1 billion in equity capital, and continues to have additional committed capital to accommodate new investments.
We've also today announced a new joint venture with GIC, one of the most respected global real estate investors.
This joint venture covers four research and innovation development projects currently in progress with approximately 930 million in estimated project costs.
Our joint venture with GIC may be expanded to over $2 billion with other pre-identified future R&I development projects currently in our pipeline if they go forward.
While maintaining a majority interest in all these projects and receiving market-based compensation, our GIC joint venture enables us to align with a strategic partner, improve our liquidity and financial profile and accelerate our research and innovation development pipeline, including the recent construction commencement of the One UCity project in Philadelphia.
The success of our open-end fund and the GIC partnership demonstrates a tremendous market opportunity within life science, medical office and senior housing real estate Also they are a testament to Ventas's excellent team and investment track record.
Turning to the year-end now, I'd like to provide some key observations about our U.S. senior housing operating portfolio.
Importantly, in the third quarter, our operators continued to build on the improving trend that began in the second quarter.
Our communities demonstrated sustained increases in leads and movements, which continued through October.
While we are sober and clear eyed about the recent increase in COVID-19 cases nationally, to a record level of nearly 120,000 confirmed cases today, we believe in the strength of the senior living business as we look toward the post-pandemic environment.
We are also appreciative that HHS has recognized the crucial role senior living plays in protecting vulnerable older Americans.
HHS has allocated CARES Act funding to the assisted living community to partially mitigate the losses directly suffered because of the COVID-19 pandemic.
Finally, we are encouraged by the progress being made by scientists and doctors on vaccines and treatments for COVID-19.
Older Americans, including our residents, will be prioritized for vaccine distribution slated just behind first responders and frontline healthcare providers.
Most of our operators have already registered with pharmacy distribution sources to administer the COVID-19 vaccine as soon as it becomes available.
An effective, widely distributed vaccine will further improve conditions for a senior housing recovery.
We are glad that we have significant embedded exposure to that upside in our diversified portfolio.
Today, we published our corporate sustainability report that showcases our long-standing commitment to and leadership in ESG.
Among other things, this report discloses our new environmental goals are consistent and growing investments in sustainability improvements in our portfolio, and our principles and practice, which is a series of case studies showing our actions on health and safety and COVID-19 describing our emergency preparedness, and demonstrating our customized framework to achieve greater gender and racial equality and social justice.
In closing, let me reiterate that the long-term demographically driven thesis for healthcare real estate and for Ventas remains in place.
I'm incredibly proud of our Ventas team.
Our consistency and cohesion are great assets for all our stakeholders.
All of us at Ventas have an abiding commitment to stay strong and stable and win the recovery.
I'll start by mentioning the encouraging trends we continue to see in our shop portfolio.
We are pleased to have had our first net positive move in month since the start of the pandemic in October and a majority of our portfolios delivering move ins at levels that are equal to or more than typical levels across the U.S. and Canada.
The underlying demand for need driven senior housing in the U.S. and independent living services in Canada persists.
While we are encouraged about these positive trends, we're mindful that the pandemic causes ongoing uncertainty and choppy waters in the senior housing business.
I will also add that in spite of the near-term pressure on the sector, we remain committed to the senior housing business and excited about the supportive underlying supply demand fundamentals that should persist for years to come.
Now I will review our third quarter senior housing results in the shop and triple-net portfolio and follow that up with some comments on our latest trends and outlook.
First up, the shop, for the quarter, shop results were in line with the company's expectations.
Our 395 assets sequential same-store pool comprising over 90% of our shop NOI, posted cash NOI of 109 million which is effectively flat versus the second quarter.
Average occupancy was 130 basis points lower sequentially with improving trends inter quarter while RevPOR declined 30 basis points and grew 50 basis points in our U.S. and Canadian operating portfolios respectively.
Leading indicators such as leads and movements also saw a consistent and positive trend intra quarter, both in absolute numbers and relative to prior year, highlighting the resilient demand for senior housing.
In September leads and move-ins were 85% and 94%, respectively, as compared to the prior year.
Third quarter revenue declined 3.6% which was offset entirely by 4.5%, lower operating expenses sequentially, primarily driven by lower COVID related expenses.
As a reminder, all COVID-19 impacts including elevated testing, labor, cleaning and supplies costs have been reflected in property operating results.
As with last quarter, I'll highlight our Canadian portfolio, which represents 33% of our shop portfolio and demonstrates the benefits of our diversification and a well-orchestrated public health response.
The 72 communities within our sequential Q3 same-store pool, including our LGM investment was 93.2% occupied, which compares to an average of 93.7% for the second quarter, outperform in the U.S. on an absolute and relative basis.
Same-store cash NOI on a sequential basis grew in Canada by over 10%.
Moving on to our triple-net senior housing portfolio, in the third quarter and through October Ventas received all of its expected triple-net senior housing cash rent.
Our underlying triple-net senior housing portfolio performance continues to be impacted by COVID-19, which we have been collaboratively addressing with our tenant partners.
As a result of our proactive steps to improve coverage through mutually beneficial arrangements with Capital Senior, Holiday, Brookdale and other smaller tenants, our trailing 12 months cash flow coverage for senior housing is 1.4x.
We also expect triple-net senior housing tenants will receive CARES Act funding, which will be a positive development.
Now I'll address recent trends.
As described earlier, demand characteristics supporting senior housing remain solid and leads and move-ins continue to improve since the low point in April and month-over-month in the third quarter.
These trends persisted into October as we experienced net positive move-ins helped in part by selective move in incentives.
Our operators successful execution of screening, protecting and testing protocols has been supporting a living environment that's more open and more robust than earlier in the pandemic.
Currently, 96% of our communities are accepting move-ins.
Moving on to our clinical results.
As a result of the diligent efforts of our operators executing, testing and preventative protocols new resident COVID-19 cases more than 75% better than the peak seen in April, in spite of broader market trends of increased new infection rates among the U.S. general public.
In regards to the Q4 outlook for shop, due to the uncertain environment, it is too hard to predict.
However, we would expect occupancy to soften and we would expect expenses to be relatively flat at the current elevated levels as the health and safety of the residents and frontline caregivers is the biggest priority.
In summary, we are encouraged by the continued improvement and leading indicators through the third quarter and October and we remain committed to the senior housing business moving forward.
We are proud of our operators' efforts in the third quarter to successfully execute COVID-19 related protocols while focusing on the health and safety of frontline caregivers and residents.
With that, I'll hand the call to Pete.
I'll cover the office segment third quarter results and trends.
Our office segment which now represents over 30% of Ventas' NOI continues to produce strong results and show its value proposition and financial strength and missed the pandemic.
MOBs and research and innovation centers, the two lines of business within our office portfolio play a key role in the delivery of crucial healthcare services and research for life saving vaccines and therapeutics.
The Office portfolio continued to provide steady growth delivering 126 million of same-store cash NOI in the third quarter.
This represents a 40 basis points of sequential growth.
You will note that the same-store cash NOI declined 2.2% year-on-year for the third quarter.
However, we lapped a large $4.7 million termination fee in the third quarter of 2019.
normalizing for this fee.
The same-store cash NOI grew 1.5% from the prior year normalizing for the paid parking shortfall and increased cleaning costs due to COVID, same-store cash NOI grew by 2.8%.
In terms of rent receipts, office tenants paid an industry leading 99% of contractual rents in the third quarter in line with the second quarter.
This is without D docs for deferrals, which were de minimis.
Substantially all granted second quarter deferrals that came due have been repaid and new granted, deferrals were negligible.
As of November 6, our tenants have paid more than 99% of October contractual rents.
Receiving 99% of total rent without D docs is a direct reflection of the quality of our tenants and the quality of our buildings.
The solid result underscores the durability and quality of our tenant base.
Remember 88% of MOB NOI is from investment grade tenants or HCA and 97% of our MOB NOI comes from tenants affiliated with major health systems, including some of the nation's most prestigious, not-fort-profit health systems.
Most tenants have received significant amount of federal support through a variety of programs designed to assist healthcare providers in small businesses.
As an example, we estimate that our top 10 Health System tenants have collectively received nearly 5 billion in CARES Act relief and 10 billion in Medicare advanced payments.
For our R&I portfolio 76% of our revenues are received from investment grade organizations and publicly listed companies a very solid foundation.
Third quarter 2020 office occupancy for the same-store portfolio was 91.1%, a sequential decline of 40 basis points due to several small tenants not reopening post COVID.
This was partially offset by the lease up of research and innovation assets associated with the University of Pennsylvania in Philadelphia and Washington University in St. Louis.
Lab space continues to be in high demand and the R&I portfolio is now 97% leased an outstanding result.
Medical office had a record level retention at 90% for the third quarter of 2020 and for the trailing 12 months.
Driven by this retention total office leasing was 1.2 million square feet for the quarter and 2.7 million square feet year to-date.
This is 400,000 square feet higher than our third quarter of 2019 leasing and 300,000 square feet higher than the third quarter 2019 year-to-date leasing.
We also saw a positive space utilization trends that mirrored admissions in surgery volumes reported by the health systems.
These trends have continued through October.
As an example, paid parking is more than doubled from the depths of COVID but as recovered to 65% to 70% of pre-COVID levels, climbing but still below historical levels.
As Debbie mentioned, we are pleased to have added three R&A buildings in South San Francisco.
Since going under contract, we have signed a large renewal and are experiencing a high level of leasing activity.
This gives us confidence that our occupancy will soon build from the current state which is already 96% leased.
During the third quarter, we received the results of our annual tenant satisfaction survey.
I am pleased to report that this year's results were significantly higher than in prior years.
In fact, when compared to other MOB portfolios by an independent third-party, our tenant satisfaction is in the top quartile.
One of our highest rated scores was how our team supported our tenants during the pandemic.
These essential field personnel who serve our tenants on-site during the pandemic, have done a terrific job.
We are grateful for their effort and commitment.
And we continue to focus on the health and safety of these personnel and our tenants.
In sum, our tenant satisfaction, leasing, NOI and cash receipts were positive during the third quarter, a clear build from the second quarter and we look forward to continuing the normalization of healthcare in research operations as we entered 2021.
With that, I'll pass the baton to Bob.
I'll touch on our healthcare triple-net lease portfolio before I close with some enterprise level commentary.
During the third quarter, our healthcare triple-net assets showed continued strength and resilience as evidenced by receiving 100% of third quarter, October and November from our total healthcare tenants.
Further trailing 12 months EBITDARM cash flow coverage for the second quarter of '20, related to the available information improved sequentially for all of our healthcare triple-net asset classes despite COVID-19.
Both acute and post-acute providers have had early access to significant government funding to create liquidity and to mitigate losses related to the pandemic.
Acute care hospitals trailing 12-month coverage was a strong 3.1x in the second quarter.
Nationally hospital inpatient admissions and surgeries continue to rebound in Q3 and third quarter admissions approached over 90% of prior year levels.
Arden continues to perform extremely well despite the challenging market conditions and is benefiting from over 90% of its hospitals residing in jurisdictions that are open for elective procedures.
Herbs and health tax coverage improved 20 basis points to 1.5x in Q2 on the heels of government funding and significantly improved census.
Health tax have increasingly proved their importance in the care continuum, with or without COVID.
And finally, within our loan portfolio, our Colony, Holiday and Brookdale loans are all fully current.
Turning to our third quarter financial performance, and let me start with Q3 GAAP net income, which includes $0.06 in non-cash charges as a result of COVID impacts.
Most notably the write-off of straight-line rents across five tenants, with Genesis being the largest.
These tenants are now on a cash basis and represent approximately 50 million of annual cash rent, notwithstanding the write-offs, all these tenants are current, and we will endeavor to collect all our contractual rents going forward.
These non-cash charges are excluded from third quarter normalized FFO.
We provided additional information in our supplemental on page 34.
In terms of normalized FFO per share, we delivered $0.75 in Q3 2020 versus $0.77 in the second quarter.
Shop and office NOI were stable sequentially, with the $0.02 reduction in FFO in the third quarter, as compared to the second described by the Brookdale rent reset in the third quarter.
In the third quarter, we saw the results of the decisive actions taken earlier in the year to ensure a strong and stable Ventas.
These included reducing our corporate cost structure by 25%, resulting in 30 million in annualized SG&A savings in Q3.
We are also active in managing our balance sheet and liquidity, including paying down substantially all borrowings under our revolving credit facility, successfully tendering for 236 million of near-term bonds and issuing under our ATM to help fund the South San Francisco investments.
Net-net, we feel good about our financial flexibility.
Our liquidity is strong at 3.2 billion between available revolver capacity and cash on hand as of November 5.
We have limited near-term debt maturities, access to diversified capital sources, strong fixed charge coverage and debt to gross asset value just 37%.
To close, we're pleased with our performance in the quarter and the continuing improving trends in senior housing.
The entire Ventas team is sharply focused on taking the actions that will enable us to win the recovery when the pandemic is finally behind us.
Before we start with Q&A, we're limiting each caller to one question with one follow-up to be respectful to everyone on the line.
Also given the fact that we continue to be remote, I'd ask Debbie to do her Roethlsberger impression and quarterback our QA.
 Assistant:

Chosen response: ventas inc - qtrly ffo $0.75.


Prompt:
Human: Joining me on the call today are Dale Gibbons and Tim Bruckner, our Chief Financial Officer and Chief Credit Officer.
I will first provide an overview of our quarterly results and how we are managing the business in this current economic environment, and then Dale will walk you through the Bank's financial performance.
I would like to focus on three trends that were present this quarter and will continue throughout the year: PPNR strength, credit provisioning expense and balance sheet growth.
Combined, these trends will support earnings and capital growth and dividend distribution throughout 2020 and 2021.
Starting with our second quarter results, Western Alliance generated net income of $93.3 million and earnings per share of $0.93, which was up 12% over the previous quarter.
Tangible book value per share of $27.84 was an increase of 4.2% over the previous quarter and 12.9% year-over-year.
Driving these results was record operating pre-provision net revenue of $194.7 million, up 27.7% year-over-year and 19.1% quarter-over-quarter, with strong operating PPNR ROA growth of 18 basis points to 2.56%, which benefited from a recognition of $13.9 million in Payment Protection Program net fees.
These results demonstrate that the long-term earnings power of Western Alliance's core business remained strong amid the current economic and market volatility and will support significant ongoing capital accumulation, provide financial flexibility to fund balance sheet growth and accommodate changes to the allowance for credit losses or revisions to the economic outlook.
In the quarter, we recorded provision for credit losses of $92 million versus $51.2 million in Q1, which was primarily attributable to changes in macroeconomic forecast assumptions and net charge-offs of $5.5 million.
Dale will go into more detail in a bit on the specific drivers of our provisions, but our total loan ACL to funded loan ratio now stands at 1.39% or $347 million.
Continuing our strong balance sheet momentum from 2019, loans increased $1.9 billion this quarter to $25 billion and deposits grew $2.7 billion to $27.5 billion.
Without the inclusion of PPP, loans grew a more modest $117 million and deposits demonstrated strong growth of approximately $1.6 billion.
The lower adjusted loan growth reflects muted demand, for which we held back our marketing activities and directed our focus to low-loss, high-quality loan segments, in addition to assisting our clients with their PPP applications.
We are encouraged by our pipeline and our opportunity to continue to grow in low-risk asset classes.
Throughout the crisis, we have continued to attract new high-quality relationships to our bank at pricing and terms that would not have been available to us in other circumstances.
Furthermore, this quarter's positive operating leverage supported our expanding PPNR, as our strong efficiency ratio improved sharply to 36.3% compared to prior year.
Becoming more efficient during this economic uncertainty provides the incremental flexibility to maintain PPNR.
Looking ahead, we will continue to invest in new product offerings and infrastructure to maintain operational efficiency, but Q2 levels are temporary and will eventually rise back to a sustainable level in the low-40s.
However, our branch-light business model and our National Business Lines strategy continue to give us a competitive advantage.
Finally, supported by our healthy PPNR generation, Western Alliance remains well capitalized with a CET1 ratio of 10.2%, which puts us in a position of strength, uniquely prepared to address what's ahead in this uncertain environment.
Now, let's take a moment to provide an update on Western Alliance's response to the COVID pandemic.
We continue to follow CDC protocol and state-by-state return to work guidance, as our organization returns to the office.
As I initially described on our Q1 earnings call, WAL's unique credit risk management strategy is focused on establishing individual borrower level strategies and direct customer dialog to develop long-term financial plans.
Our approach to payment deferral requests is to look for resourceful ways to partner with our clients, along with assessing their willingness and capacity to support their business interests.
We asked our clients to work hand in hand with us, whereby our clients contribute liquidity, capital or equity as an integral component to modify payment plans.
Our approach collectively uses the resources of the borrower [Phonetic], government and bank's balance sheet to develop solutions that extend beyond the six-month window provided for in the CARES Act.
Since April 1, WAL has funded $1.9 billion in PPP loans, which provided expedient liquidity to over 4,700 clients and benefited more than 150,000 employees.
At quarter end, $2.9 billion or 11.5% of loans had been modified with the bulk of these loans receiving principal and interest deferrals.
Excluding the Hotel Franchise Finance segment, in which we executed a unique sector deferral strategy, the Bankwide deferral rate is approximately 5%.
The vast majority of our borrowers elect to utilize their own resources or PPP funds to bridge their business through the COVID crisis.
I will provide an update on the portfolios most impacted by COVID later on, but I did want to highlight, in our Hotel Franchise Finance portfolio, our sophisticated hotel sponsors continue to see value in and support their properties with 92% of deferrals achieved by posting additional liquidity as a component of future payment deferrals.
Our differentiated deferral strategy provides our customers the runway to resolve their liquidity issues and allow the appropriate time to recover.
Unlike the cookie-cutter big bank approach, we established the expectation that the burden of responsibility of solving the long-term cash flow problems remains with our client base.
In our Gaming book, all borrowers continued to make interest payments as 90-day principle-only deferrals were approved for 37% of the portfolio.
Today, 95% of our clients are open for business and are experiencing a strong rebound of demand.
These facts and the daily conversations with our people and clients help me feel confident that our credit mitigation strategy and early approach to proactively managing our risk segments is bearing fruit and puts Western Alliance in a strong position to come out on the other side of the pandemic in better shape than our peers.
Dale will now take you through our financial performance.
Over the last three months, Western Alliance generated net income of $93.3 million or $0.93 per share.
As mentioned, net income was impacted by elevated provision expense for credit losses, driven by the adoption of CECL in Q1 and changes in the economic outlook during the quarter.
Net interest income increased $29.4 million, primarily as a result of loan growth and lower rates on liabilities, as interest expense was cut in half.
Operating non-interest income fell $5.2 million to $11.1 million from the prior quarter as lower levels of financial activity generated lower -- fewer fees.
We also benefited from several non-operating items during the period, including a recovery of approximately 40% or $4.4 million of the mark-to-market loss on preferred stock holdings we recognized in Q1.
Additionally, bank owned life insurance was restructured, resulting in an increase of $5.6 million as we surrendered and reinvested lower-yielding policies.
In addition to this gain, this should moderately increase BOLI revenue prospectively.
Finally, non-interest expense declined $5.7 million, primarily from an increase in deferred compensation expense of $3.3 million related to PPP loan originations, plus a 52% decrease in deposit costs and a 64% decline in business development and travel expenses.
Strong ongoing balance sheet momentum, coupled with diligent expense management, drove operating pre-provision net revenue of $194.7 million, which was up 27.7% year-over-year.
We believe this is the most relevant metric to evaluate the ongoing earnings power of the Bank.
Our strong PPNR covered an 80% increase in provision costs from Q1 to $92 million, while driving earnings per share up 12% to $0.93 on a linked quarter basis.
Turning now to our interest drivers, investment yields increased 4 basis points from the prior quarter to 3.02%.
However, the overall quarterly portfolio yield decreased by 32 basis points from the prior year due to the lower rate environment.
Loan yields decreased 45 basis points, following declines across most loan types, mainly driven by the 83 basis point reduction in one-month LIBOR during the quarter.
Yield reductions were partly offset by an average yield on our PPP loans of 5.02%.
Prospectively, we expect loan yields to trend toward the end-of-quarter spot rate shown of 4.66%.
Interest-bearing deposit costs fell by 50 basis points in Q2 to 40 basis points, as this quarter received the full benefit of our proactive steps taken to reduce deposit rates immediately after the FOMC cut rates twice in March.
The spot rate of total deposits at quarter end was 20 basis points.
Total funding costs declined by 34 basis points when all of the Company's funding sources are considered, including non-interest-bearing deposits and borrowings.
The spot rate on total funding costs of 31 basis points is higher than the quarterly average due to the issuance of subordinated debt mid-quarter at 5.25%.
We expect funding costs to have stabilized at these levels as no further Fed actions are anticipated.
Demonstrating the flexibility of our business model, despite a transition to a substantially lower rate environment during the quarter, net interest income rose 10.9% or $29 million during Q1 [Phonetic] to $298.4 million, up 17% year-over-year.
Our origination of PPP loans, coupled with strong balance sheet growth and immediate steps taken to reduce the cost of interest bearing deposits, counteracted the decline in prime and LIBOR.
PPP lending supported our net interest margin during Q2 as SBA fees were recognized, resulting in a loan yield of 5.02% in this sector.
We estimate most of PPP loans will be forgiven within eight months from origination.
Of the $43 million in triple PPP loan fees we received from the SBA net of origination costs, one-third or $13.9 million was recognized in the second quarter.
Net interest margin contracted 3 basis points to 4.19% during the quarter, as our earning asset yield fell 34 basis points, but was offset by an equal improvement in funding costs.
Our outsized deposit growth and mounting cash reserves will continue to place downward pressure on the NIM until the excess liquidity can be deployed, which we expect will take two to three quarters.
With regards with our asset sensitivity, our rate risk profile has declined notably over the last year, and we are now asymmetrically positioned to benefit from any future rate increases as 70% of our loan portfolio is behaving as a fixed rate since floors on variable-rate loans have largely been triggered.
Our estimated net change of net interest income in a 100 basis point parallel shock higher is 4.2% over the next year, and we now project zero net interest income at risk if rates move lower.
Turning now to operating efficiency, on a linked quarter basis, our efficiency ratio improved 550 basis points to 36.3%, which continues to demonstrate our industry-leading operating leverage.
As mentioned earlier, the non-interest expense improvement is related to an increase in deferred compensation expense of $3.3 million unrelated PPP loan originations, plus a 52% reduction in deposit costs and a 64% decrease in development and travel costs.
Normalizing for PPP net loan fees and interest, the efficiency ratio for Q2 would have been 38.4%.
Additionally, our branch-light model has given us the flexibility to identify two locations that we are transitioning from full service offices to loan production facilities.
Our core underlying earning power remained strong as pre-provision net revenue ROA increased 18 basis points from the prior quarter to 2.56% and return on assets was flat at 1.22%.
While we expect the 2.56% is a high watermark as elevated liquidity will hold down the margin, we believe we will continue to maintain industry-leading performance.
This provides a significant flexibility to fund ongoing balance sheet growth, capital management actions or any credit demand.
Our balance sheet momentum continued during the quarter as loans increased $1.9 billion to $25 billion, and deposit growth of $2.7 billion brought our deposit balances to $27.5 billion at quarter end.
The loan to deposit ratio fell to 90.9% from 93.3% in Q1, as our strong liquidity position continues to provide us with balance sheet capacity to meet all funding needs.
Our cash position increased to $1.5 billion as deposit growth continues to outpace credit expansion.
While this impairs the margin near term, we believe it provides us with inventory for good credit growth as demand resumes.
Of note, during the quarter, we issued $225 million of bank level subordinated debt to ensure ample capacity to support our growth trajectory by bolstering our total capital ratio.
Finally, tangible book value per share increased $1.11 over the prior quarter to $27.84, an increase of $3.19 or 13% over the prior year.
The vast majority of the $1.9 billion in loan growth was driven by increases in C&I loans of $1.6 billion, residential loans of $154 million and construction loans of $138 million.
Residential and consumer loans now comprise 9.8% of our loan portfolio, while our construction loan concentration continues to trend downward and is now at 8.8% of total loans.
Excluding PPP loans, loan growth was $117 million, which was affected by line paydowns from draws during Q1 and offset by growth in residential and construction.
Highlighting our continued focus on growth in low-risk assets, tech and innovation loans were flat in total, while within the category, capital call and subscription lines grew $35 million, mortgage warehouse loans grew $325 million and residential mortgages grew $165 million.
Corporate finance loans decreased $233 million compared to the increase we saw in Q1 as borrowers repaid their line draws, reducing utilization rates down from 38% to 17%.
And all loan growth was fully funded by deposit growth.
We continue to believe our ability to profitably grow deposits is both a key differentiator and a core value driver to our firm's long-term value creation.
Notably, year-to-date deposit growth of $6.1 billion is higher than the annual deposit growth of the Company in any previous calendar year.
Deposits grew $2.7 billion or 10.9% in the second quarter, driven by increases in non-interest-bearing DDAs of $2.3 billion, which now comprise over 44% of our deposit base.
PPP loan related deposits grew $1.1 billion, and savings and money market accounts were up $845 million.
HOAs contributed to total deposit growth by adding $136 million, and Tech & Innovation increased $262 million as capital raising activity during the quarter was active.
Excluding PPP-related deposits, growth would have been $1.6 billion or 6.5%.
Regarding asset quality, special mention loans increased $292 million and non-performing loans rose $53 million during the quarter.
One-half of the increase in SM loans are from the hotel portfolio.
Generally consistent with our previously discussed Tech & Innovation rating guidelines, these loans were downgraded as we do not have clear line of sight to more than six months of remaining operating liquidity.
These borrowers are current, however, as they made loan prepayments that were -- we required for us to consent to a deferral modification.
Our other borrowers in this segment are also paying as agreed or provide cash -- or provided cash payments when the -- that when coupled with the payment deferral, have no additional debt service requirement until sometime in 2021.
Second, we've aggregated an event planning and leisure sub-segment, in which the business models are essentially dependent on social distancing relief, and in some cases, the resumption of group events.
Of the $150 million total exposure to this sector, $60 million has been moved to special mention and $40 million to non-performing.
While the portion to FM has over a year of current liquidity, it was downgraded as the revenue models have been sharply impaired.
The loan moved to non-performing has had -- now has limited remaining liquidity.
The remainder of the migration to special mention is fairly granular from our client spreads throughout our metropolitan markets where liquidity has been tightened.
These loans are generally collateralized by an array of assets that include real property.
Frequently, a loan may be downgraded to SM because of liquidity concerns, even though collateral average may be considerable.
For this reason, migration to special mention has a low correlation to ultimate credit losses as over the past five years, less than 1% has moved through to charge-off.
Our allowance for credit losses rose $86 million during the quarter as the change in mix of the balance sheet released $4.2 million of reserves and changes to the outlook accounted for $96.2 million, including covering $5.5 million of net charge-offs.
Revisions to the CECL macroeconomic outlook assumptions, which have declined since March 31 but have generally stabilized since April, accounted for the entire net reserve build.
The earning [Phonetic] allowance related to loan losses was $347 million excluding held-to-maturity securities, or 1.39% of funded loans, an increase of 25 basis points.
The current reserve build reflects our best estimate of the future economic environment as of quarter end, including the impact of government stimulus programs and credit migration actions.
We have migrated to a consensus economic outlook of Blue Chip Economic Forecasts as it tracks largely management's view of a recession and recovery.
Net credit losses of $5.5 million were recognized during the quarter, which were mainly attributable to small business and C&I borrowers.
In all, total loan ACL to funded loans increased 25 basis points to 1.39% in Q2 as provision expense for loan losses of $87.3 million significantly outpaced net loan charge-offs.
Relative to most other banking companies, our lower consumer exposure continues to result in lower total loan losses.
I would now like to briefly update you on the current status of a few exposures to the industries generally considered to be the most impacted by the COVID-19 pandemic.
During the last two weeks of the quarter, Tim Bruckner, the credit administration team and I conducted the most extensive quarterly portfolio review process in the Bank's history.
The review covered 95% of WAL's outstanding loan balances, excluding purchased residential mortgages.
Our $2 billion Hotel Franchise Finance business, focused on select service hotels, represents approximately 8.2% of the loan portfolio.
The financial flexibility of these borrowers is maximized by working with financially strong institutional operating partners with deep industry experience, expertise and conservative underwriting structures focused on loan to cost.
Occupancy rates are tracking national averages, currently around 46%, which have tripled compared to the lows in April of around 15% and are now only a few percentage points short of fully covering estimated operating expenses.
At approximately 55% occupancy, select service hotels are also estimated to cover amortizing debt service.
As a testament to the operating models of the select service hotels, revenue per available room has fallen 55%, but they have been able to shrink their cost structure by over 40%.
And as a result, the typical hotel is operating at breakeven.
Nearly 85% of our hotel portfolios either pay as originally agreed or on proactive payment deferral plans that bridge into 2021.
We feel positive about the trajectory of the portfolio and that our proactive deferral strategy will produce relatively stronger credit performance, given the active support of our sponsors have demonstrated through the material upfront payments made to receive deferral plans.
To augment the strategy, we nearly doubled the reserve of the portfolio this quarter and increased the ACL to loans ratio by 93 basis points to 1.95%.
The investor dependent portion of our Technology & Innovation segment is primarily focused on lending to established growth companies with successful products and strong investor support, which provides greater operating and financial flexibility in this environment.
Overall, a significant sponsor support and an active fund raising environment continue for these growth firms.
81% of loans have greater than six months' remaining month liquidity, up from 77% in Q1.
Additionally, we have had over 50 clients successfully raise over $1.4 billion in new capital since March 1.
Our $509 million Gaming book is focused on off-strip, middle market gaming-linked companies whose revenue is driven by local demand factors.
37% of the portfolio is on 90-day principle-only payment deferral as they continue to cover interest payments.
Additionally, these clients benefited from $28.4 million of PPP loans.
Inclusive of our recent closure mandates in Nevada to limit certain business activities, businesses representing 95% of the portfolio are open for operations.
Upon reopening, all casinos borrowers are performing at or above their COVID operating plan, and no loans were downgraded to criticized or classified at quarter end.
Lastly, our commercial real estate portfolio continues to perform as 99% of our industrial leases are current.
90% of our office rents are paid on par with the national average.
The sub-segment of CRE that's showing signs of stress for the industry is retail.
WAL's CRE retail exposure of $676 million is focused on local personnel service-based retail strip centers with limited merchandise retail exposure.
Similar to HFF, we are utilizing deferrals to support a path to recovery for these borrowers, while requiring demonstrated sponsor support with high level of additional payment reserves.
Of note, 67% of WAL's [Phonetic] investor CRE retail tenants paid May's rent payments compared to 50% nationally.
We continue to generate significant capital and maintain strong regulatory capital ratios with tangible common equity to total assets of 8.9% and a common tier 1 ratio of 10.2%, an increase of 20 basis points during the quarter.
Excluding PPP loans, TCE to tangible assets is flat from Q1 at 9.4%.
Inclusive of our quarterly cash dividend payment of 25% per share, our tangible book value per share rose $1.11 in the quarter to $27.84, an increase of 12.9% in the past year.
We continue to grow our tangible book value per share at a rate significantly faster than our peers as it has increased three times that of our peers over the last 5.5 years.
In conclusion, we expect loan growth to be fairly flat in Q3 as PPP pay-offs and forgivenesses are largely offset by the organic growth in low risk asset classes.
Depending on the timing of the realized PPP forgiveness, organic loan growth should offset PPP run-off, resulting in net loan growth being relatively stable.
We anticipate another strong quarter of deposit growth in Q3, primarily by executing on our deposit initiatives and achieving our market share gains in mortgage warehouse.
The anticipated deposit growth and resulting liquidity will primarily be deployed into residential mortgage assets to improve returns on cash over the next several quarters.
However, as PPP loans roll off and liquidity continues to rise, pressure on NIM will also continue until it can be fully deployed into productive assets.
While we are pleased with our deposit growth, the pace is exceeding loan growth.
And as Dale mentioned, it will take several quarters to redeploy this liquidity into low risk loans or assets providing yields greater than the Fed's current offering.
Operating PPNR is expected to decline modestly as PPP income begins to abate, loan balances growth -- grow begin -- growth begins to reignite and the deployment of excess liquidity continues and deferred loan origination costs return to normal levels.
Our long-term asset quality and loan loss reserves are informed by the economic consensus forecast, which is [Phonetic] consistent going forward, should preclude material increases in reserve levels from this point.
The pace, timing and size of future net charge-offs are uncertain to us as we have not seen a material increase in delinquencies or substandard [Phonetic] migration.
Finally, our strong capital base and access to ample liquidity will allow us to both take advantage of any market dislocations to grow in low-risk areas and to address any credit demands in the future.
 Assistant:

Chosen response:
compname reports q2 earnings per share $0.93.
q2 earnings per share $0.93.
company does not anticipate any need for additional liquidity.
net interest income was $298.4 million in q2 2020, an increase of $29.4 million from $269.0 million in q1 2020.
co's net interest margin in q2 2020 was 4.19%, a decrease from 4.22% in q1 2020.