Q3 2019 Earnings Call

Good morning, ladies and gentlemen, and welcome to the third quarter 2019, Welltower earnings Conference call.

My life My name is Shelby and I'll be your operator today.

At this time all participants are they listen only mode. We will be facilitating a question and answer session towards the end of this conference.

If it anytime during the call you require assistance. Please press star followed by zero and an operator, we'll be happy to assist you [laughter] as a reminder, this conference is being recorded for replay purposes.

Now I would like to turn the call over to Matt Mclean General Counsel. Please go ahead Sir.

Thank you shelter and good morning, as a reminder, certain statements made during this call may be deemed forward looking statements and than many other private Securities Litigation Reform Act, although Welltower believes any forward looking statements are based on reasonable assumptions. The company can give no assurance is projected results will give right.

Factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the company's filings with the FCC and with that I'll hand, the call over to Tom for his remarks before [laughter]. Thanks, Matt.

Back at our Investor Day in December of 2018, I laid out of growth plan for 2019.

I'm pleased to say that we have met or exceeded this growth plan year to date and today. We again report strong results, which are enabling us to raise the midpoint of our 2019 FFO guidance.

The optimism that I articulated last December had less to do with Nic data and more to do with a deliberate and often painful complete restructuring of all aspects of a comfortably company, formerly known as health care REIT.

We made considered and sometimes tough decisions regarding Genesis Brookdale Healthlease and other legacy investments that can best be characterized as last generation real estate.

Bad capital structures, misaligned operating agreements misguided private equity investments or frankly.

Simply paying too much for real estate.

It was sometimes painful for our shareholders, but this management team took actions that were in our shareholders' best long term interest.

While we will never stop optimizing our investment portfolio.

The dispositions as well as the acquisitions made in the last three years have significantly de risked the enterprise.

That is why today, our senior housing assets have positive growth our long term care assets have strong lease coverage and our industry, leading MLB portfolio continues to perform and grow through acquisition and development.

Welltower has unique strategy that fundamentally views, our health and wellness care delivery real estate as a platform.

Like all successful platforms. This platform is able to deliver another level of value far beyond the value.

Of the real estate.

This enables synergistic collaborations like care more anthem, which we recently announced attracts new senior housing operators. This year alone like LCB Balfour frontier Atria and Clover.

And as enabled our medical office portfolio to grow by approximately $2 billion. This year.

And.

The year is not over.

As we continue to grow we have strengthens our balance sheet. So we can so we can continue to drive shareholder value in a measured way.

Tim Mchugh, we'll now take you through a closer look at our third quarter financial performance, but first I need to mention that this is Tim first official earnings call as Chief Financial Officer.

I've had the pleasure working side by side with Tim over the last four years and could not be happier to see him ascend to this leadership role at Welltower.

Our role we've been grooming him for since we stole him away from reef.

Over to you Tim.

Tom.

My comments today will focus on our third quarter results, our balance sheet and updates to our full year 2019 guidance.

Welltower reported normalized FFO of $1.05 per share results were primarily driven by strong fundamental performance in our core portfolio continued accretive capital deployment.

Slightly offset by $2 billion of property dispositions outlined last quarter as part of our guidance adjustment and 62 million of loan pay offs, yielding 9.4%.

Now let me provide you some details around or major segments.

Starting with senior housing Triple net we'd rather consistent quarter was positive 3.4% year over year same store growth.

Driven by several development leases with fair market value step ups.

EBITDARM and EBITDAR coverages were flat in down one times respectively.

Turning to medical office same store growth of positive, 1.4% me quarter was below long term run rate on above our short term expectations.

We are encouraged by recent leasing velocity as Backfilling of vacancies result in the 40 basis points sequential increase in occupancy.

Importantly, we expect same store growth returned to trend next quarter as cash rent commences in our newly leased space.

Yes for health systems, which is comprised of our HCR manorcare joint venture with Promedica.

This portfolio enters the same store pool in the fourth quarter.

We reported its share Manorcare is trailing 12 month rent coverage of 2.15 times in the footnote on page one of our supplement this quarter.

Presentation is consistent with pro money because latest public presentation of the metric and is trailing 12 month coverage from 630 29 team.

Coverage includes revenue and expenses under HCR, Manorcare core business lines, including home health hospice.

This is consistent with how HCR lease coverage has been presented by other public landlords in the past and more importantly tied to how condom from ACA itself reports coverage well towers lease to its public stakeholders.

Well reported coverage does not do will not reflect any profitability beyond the cash flow of HCR manorcare itself. The guarantee in our lease is Perry pursue with the senior most planes on its parent company and our joint venture partner Promedica.

Turning to long term post acute.

Same store growth was positive 2.5% in the quarter in both EBITDARM and EBITDAR coverages declined 2.01 times.

Respectively.

Lastly, our senior housing operating segment continued to perform above our expectations. The same store growth of positive 2.8% me quarter.

As Tom alluded to these results are a reflection of our continued focus on improving the quality of our portfolio for both the real estate and operator perspective.

As I noted last quarter, our active approach the portfolio management May result in sequential changes to our same store pool.

Threeq you we had eight assets when it'll change in our senior housing operating same store pool.

There were 15 assets removed medical 11, Silverado properties in California that were transitioned to triple net lease structure and for Rivera properties in Canada that were moved to held for sale and subsequently sold in early October .

These 15 assets had not been removed from the pool same store growth would have been positive 70 basis points higher than what we reported.

Additionally, we added 77 properties the pool this quarter, consisting of five acquisition properties, one redevelopment one transition property, which all reach their fiscal quarter of operations for our same store policy.

At quarter end, we the total 75 senior housing operating assets classified as transition properties.

These assets began transitioning the fourth quarter of last year will start to reenter the same store pool in the first quarter 2020.

46 of the 75 will re enter the pool by the second quarter of next year in virtually all 75 will be in the pool, but the start of the fourth quarter next year.

Well roll down in rent to EBITDAR has created short term dilution over the past five quarters. We continue to expect these properties contribute meaningfully to cash flow growth in coming years.

Turning to the balance sheet, we remain disciplined in our capital raising efforts take advantage of historically low yields the investment grade debt market.

In August we came back end markets. The second time, this year raising $1.22 billion of debt with over eight years of duration and weighted average yield of just 2.87%.

Proceeds from this issuance were used to refinance or 2021 and 2022 maturities.

As a result of this activity, we extended the average maturity and our entire debt stack by one full year.

Additionally, we continue to access equity markets during the quarter be our drip and ATM programs.

We believe that our disciplined approach through these mechanisms provides us with maximum efficiency and flexibility and match funding both our development in our highly visible no investment pipeline.

As such in the quarter and through early October we issued approximately 4.5 million shares at a weighted average price of $88.54 per share Wrestlemania proceeds of $395 million.

As of today's call through our forward ATM program. We have sold 6.1 million shares of common stock that have yet to settle representing $528 million of estimated proceeds.

This methodical approach to capital raising along with our asset recycling activity has allowed us to concurrently improve our leverage metrics will further strengthen the quality of our portfolio.

The closing the benchmark senior living portfolio. This quarter, we ended the quarter. The 5.79 times net debt to EBITDA, which represent roughly half term reductions in the end of Q2.

We continue to be encouraged with a strong bid for our assets throughout our entire portfolio.

We continue to view the disposition of noncore assets as the efficient and effective way to capitalize the growing opportunities that we see.

Reinforce that we're more than adequately capitalized or capital raising efforts and asset recycling activities finance all near term investment in development opportunities.

Lastly, I Wonder just last night's update to the full year 2019 guidance.

As indicated in our press release, we're tightening our full year AFFO guidance to a range of $4 14 to $4.18 per share from our prior range of for 10 to $420 were 20 per share.

With that change the midpoint of our guidance has been lifted to $4 in 16 cents per share, which reflects better than expected portfolio performance, particularly from our senior housing operating segment.

Further details regarding our guidance are contained in last night's press release.

With that I'll now hand, the call over to our Chief investment Officer shock Mitra.

Thank you Tim and good morning, everyone I will now review our quarterly operating results and provide additional details on performance trends and recent investment activity.

We're delighted to inform you that every segment of our business has exceeded our met our expectations this quarter.

We came into this you're expecting a slow and steady recovery to take hold you know senior housing operating our shop segment. However, I have to admit to for three quarters in a rule our shop results have exceeded our own expectations.

Relative to our initial expectations of 0.5% to 2% NOI growth in Shaw foot pointing 19, we have year to date delivered a solid 3% on why growth driven by strong pricing power.

Q3 was no exception driven.

By significantly better than expected U.S. results.

Overall same store NOI was up 2.8% in Q3, driven by 3% revenue growth and partially offset by 3.1% expense growth.

Though we experienced a slight decrease in occupancy year over year, primarily driven by a Canadian portfolio when increased by overall sequential occupancy growth.

We continue to achieve very strong pricing power differentiating our extremely well located and diverse portfolio.

While labor cost inflation continues to be challenging with 4.8% year to what are your growth were encouraged by 4.4% compensation for our occupied room or comp or growth in us.

Particularly noteworthy was 30 basis points of sequential comp or growth, which is the best we have seen in the last five years.

Though we have not and will not provide monthly results in anticipation of course since I wanted to point out that we did not experience sequential declining interline, our occupancy on an intra quarter basis.

Occupancy continued to build through September following normal seasonal patterns, our UK business continues to perform as expected.

All those same store portfolio growth moderated as we discussed last call. Our overall UK shop in NOI growth was close to double digit.

Ken Canadian shop portfolio is still trying to find a bottom.

This quarter, we have seen we have been impacted particularly by new deliveries in Qubec were cautiously optimistic about a Canadian portfolio in 2020 Franco's growth standpoint.

Our us portfolio shine through.

All the rhetoric on supply and labor cost inflation with 4.3% NOI growth in the quarter.

We continue to see significant outperformance of assisted living relative to independent living and that gap widened to a multiyear high.

Tall.

Markets had a particularly strong quarter, primarily driven by solid pricing power, Washington, DC, Seattle, Chicago, San Diego, all experienced double digit done why growth this quarter several off our operating partners contributed to this industry, leading growth and I wanted to tank them on bill.

For our shareholders.

As we have said repeatedly we own the best assets in the best markets. However, the hallmark of our portfolio ease our 25 best operating.

Partners.

The strong structural alignment between us and our partners is especially important when the industry fundamentals are not necessarily lifting all boats to paraphrase Warren Buffett in these types of low tide, you get to know more about other people's swimsuits.

To continue the team operating partners, we're delighted to inform you that we have initiated a ride year relationship with new England based highly they put it operator.

LCB senior living we bought one asset together and transition to form a brookdale properties to LCB.

We have strong growth plans for this relationship as such we have negotiated fully negotiated a variety of 3.2 account management contract and align development contract with LCB.

This is our 50, new idea relationship this year and where we're very excited to welcome Mike Stroller and his team 12 to our family.

In this quarter, we expanded our relationship with its RG by adding one asset in the San Francisco Bay area for approval to investment up $35 million at evaluation of $360000 by unit, which is a significant discount to the replacement cost in that market. While we have seen this kind of fire you want.

The pricing in Florida, and Texas recently by other market participants were excited to achieve such remarkable pricing in the San Francisco Bay area.

We're also delighted to inform you that we continue to grow without existing operating partners, such as frontier and Oakland.

Subsequent to the quarter end, we've closed on two additional shop assets with frontier for $39 million or $197000 by unit, which is also a significant discount to replacement cost.

As a result overbuilding in last few years, we're starting to see more capital deployment opportunities in the memory care segment.

We're also incredibly excited to grow with Oakmont in California, We signed a definitive agreement to by six newly built Clos the properties with approximately 297 million.

The initial cap rate is in the low 5% range on the content in July as one of these assets just opened in the third quarter of this year, we expect that yield will grow into the high 5% range as these assets stabilized over the next 18 months Oakmont will take 10% of the proceeds in op units are welltower stock.

Okay at approximately 91 minute $91 per share.

We will continue to grow with Oakmont in California markets.

Turning to our post acute business with significantly de risked our enterprise this quarter by divesting and majority of biotech exposure as part of this process, we sold our vibra portfolio, what 265 million.

We're delighted to inform you that we have effectively manage through the life carry our process and re tenanted. The billing. We two operators. We have lost approximately 2 million of annual rent as a part of the restructuring process, but we have improved coverage and credit that back this assets.

The income loss and high cap rate fill a dilutive in near term we have strengthened the quality of overall portfolio by minimizing the exposure to this property type.

These experience as these experience highlights the detailed discussion we provided on triple net leases in few quarters ago. The key to value preservation is to have their rights basis or price per unit credit support and alternative settle offered us while keeping the overall exposure to a manageable level.

Both times, we have given rent concession in case of Genesis previously and less can now we did not have many are all of these boxes shift.

However, we believe that today when a different position in both senior housing triple net and skilled nursing space offset the many disrupting that we have done in tons at three last three guys that Tom mentioned.

We now have manageable exposure low basis, and our credit and the ability to return to our operating platform to protect our shareholders. This point cannot be overemphasized.

Turning to our health system business were pleased with that investment we made last year with our partner Promedica health.

Since that time, the regulatory environment has turned more favorable and asset pricing has soared.

We believe the outlook.

For total return or forward IR has materially improved in the last 18 months since we announced that transaction.

We have received multiple unsolicited offers for many assets in the last six months in that portfolio.

The we have not we have no kind of the desire to sell these assets in size, we're considering two specific deals one.

With one transaction for a handful of assets.

In which the buyer has gone hard on their deposit.

These offers to present evaluation in excess of $150000 by bed versus our combined basis of roughly $57000 by bed. The sheer magnitude of this price increase hopefully gives to essentially what we think the total return looks like today versus when we made that invests.

Segment.

We owned real estate at a very low basis with cash flow that has created support and Tom.

Speaking of cash flow when we said the rents for this portfolio at 143 million versus pre arc rent of 474 million. We did this precisely because we did not want to guess when the cash flow will turn it on.

Though I will refrain from commenting on other People's opinion on our partner credit I wanted to put things in perspective.

Promedica has a net debt of approximately $800 million with a revenue of $6.8 billion with billions of dollars of unencumbered assets on their balance sheet.

One might argue that systems, 20% ownership in our JV, along with a reasonable market multiple to the home health hospice business that system would be able to pay off all of their outstanding debt.

In the past we have talked about 75 million of so affinity is when we the transaction was announced we believe roughly 46 million will be achieved this year.

We are pleased with how the integration has gone so far and continue to anticipate the system will achieve significant synergies well above our target.

We continue to believe this rental stream, which is roughly two times covered at HCR level will improve as we look forward in the near to medium term.

We also remind you that we have significant structural protection beyond Hcl level coverage. However, instead of rehashing, what we've said before im delighted to inform you that our collective business case has only gotten better.

HCR Manorcare leadership is engaged with several not for profit health systems to partner with to solve that needs in this critical but not easy to execute part of the health care continuum. We look forward. We're discussing many of these with you next year.

For our outpatient medical business same store NOI growth of 1.4% was ahead of our budget.

Though in quarter growth remains muted for reasons. We described previously the leasing velocity has been risk based on this leasing velocity. We believe the segment is prime for growth in 2020.

We remain very active in the capital deployment side in the segment in this quarter, we closed nine philosophy assets 493 million and expanded our relationship with no Vontae summit Medical group billets gotten white and Trihealth.

Summit and no bond to prime examples of how we have replicated our relationship business model into medical office sector post quarter end with signed a definitive agreement to acquire 18 outpatient assets for $258 million.

Which will expand our relationship with several systems, such a common spirit University of Texas Health, Henry Ford and New PMC.

These portfolio is approximately 90% leased has remaining weighted average lease term of eight years. The portfolio is wage by owned by private owner, which has directly negotiated the transaction with us instead of going to the market due to our reputation and certainty of close.

These once again shows the power of our platform and how we can create significant value in a competitive industry through executing on completely off market transactions. We have a handful of other capital deployment opportunities in a similar off market fashion that we have been negotiating over last.

Nine to 12 months.

In Q3 with funded approximately $141 million of developments and then expected accretive yield of 8.1% while were encouraged by a robust cost and access to capital William and disciplined and we'll deploy capital only if we do and do so on a long term total.

Return basis to illustrate this point year to date, we have close 2.95 billion of acquisition at a blended wanting a yield of 5.5%.

As described in our last earnings call. We expect many of these newly build assets to stabilize in next 12 to 24 months and consequently, that's higher than a half we grow above 6%. In addition, we announced today an additional 905 hundred 94 million of post quarter.

Position in a similar mid to high 5% cap rate trains and as Tom said the year is not over yet.

At the same time with sold 2.675 billion of assets this year.

And then cap rate of 6.2%, which includes 558 million of high Cafe, Postacute transactions, which implies we have sold 2.1 billion of senior housing assets at a cap rate of 5.35%, including benchmark disposition described last call which resulted into.

A $520 million game.

The operating environment and the market for all of our assets remained incredibly vibrant and weeping thoughtful capital allocation can create significant alpha for our shareholders. We're focused on building new relationships with a best in class senior housing operators.

And health systems, while realizing growth opportunities with these partners one at the asset at a time with that back to Tom.

Thanks, Sean.

Before we open up the line for questions I wanted to say that when I stepped into this role in 2014.

The company was known as the seniors housing relationship right.

Admittedly It took me a bit of time to realize that many of those relationships. We're very one sided based on paying the most for an operator is real estate.

With few rights.

And they were clearly not in favor of Welltower and its shareholders.

That is not who we are today.

Well towers platform people.

Real estate and healthcare knowledge.

Great operating partners.

Data and technology.

Access to capital in other capabilities provide us with a competitive advantage to drive growth from our current asset base as well as create new investment opportunities.

We are optimistic about our future.

Now Shelby please open up the line for questions.

Ladies and gentlemen, if he would like to ask your question. Please press Star then the number one on your telephone keypad to withdraw a question press the pound key please limit your questions to one question and they related follow up so that all callers may ask their questions you may rate reenter the queue by pressing star one again.

Your first question comes from Vikram Malhotra of Morgan Stanley .

Thanks for taking the question guys and congrats on the strong results.

Just first question around Promedica you mentioned the cover coverages for 2.15 is not nestle comparable with with the one eight that you originally outlined in the transaction as even you can give the comparable number could you could you give a sense of what the.

Original cash flow that you were underwritten or the decline in cash flow, which I think was about 10% I was that cash flow trending today.

Become thank you for your cushion.

As we said that our desire we want to respect our partners desire to keep.

One metric that is consistent across both platforms.

Happy to give you that cash flow that weve underwritten, we usually don't talk about our underwriting models on the call, but for once I will give you that and hopefully this will stop this constant conversation and Promedica, which hopefully you guys understand we believed that a significant assets more than its liabilities is debt and.

How we think about the credit, but anyway going back to your specific question in 2018.

If you look at the normalized EBITDA from the continued operation, which is effectively is what we bought on what we own. The total EBITDA was 316.156 im giving numbers up to three decimal point 316.156 million.

So far this promedica has achieved 230.1 million of EBITDA and we believe we expect that will achieve at least 300 million and also EBITDA you can calculate the difference you can calculate the decline on computer on completion, but thats, how much are going to say about our underwriting model hopefully that answers cushion.

Yes, thats helpful and just spend as a related as a follow up not necessary related but on senior housing.

Pretty strong results in the U.S. again for the second quarter and you outlined the pricing far just to give us a sense of kind of how wide spread. The performance was you have a lot of different operating partners. What was the range of rep for growth across your operators and you can even give a sense of the range of NOI growth that will just be helpful to get a broader industry.

And.

Yes, a vigorous it so im not going to get into a too much details our operator by operator itself, it's not quarter to quarter nine to their business, but if you look at the pricing range majority of the operators were a couple of operators in the 1% range, but majority of the offer decide between two and a half and foreign half percent range with couple of large operators.

I have clocked, 5.5% rate growth in use which is remarkable.

Okay. Thank you and Q.

Your next question comes from Steve Sakwa of Evercore.

Thanks, Good morning, Tim I was just wondering if you could provide a little bit more detail on the 75 assets that are in transition within senior housing I know in the Investor Day, you sort of outlined at a 29 million dollar kind of maybe upside from the assets and transition, but I think that pool has changed since December so can you just.

Help us frame out sort of the size of that drag this year and just maybe how we can think about that improving moving forward.

Thanks, Steve So you're correct at Investor Day, we outline the transition bucket, mainly at that point just being brookdale. So.

Addition to that we transitioned a number of assets from Silverado to frontier in second quarter of this year.

That that number from 29 has incrementally grow with that we.

We'll update that yearend as we give 2020 guidance.

Looking across the portfolio, but it's fair to say that year to date.

They've had a negative impact on AFFO.

But as I said in my comments prior to.

Getting of the call we remain very confident.

Thank you with some of the early results from frontier that these assets will be very accretive to our 2020 cash Colombia.

Okay, and as I guess, a follow up maybe Sean Kerr Tom can you, maybe just talk about sort of the information flow that you get from your operators on a kind of daily weekly monthly basis, and maybe how thats changed overtime.

So Steve as you know that we have a significant.

Focused on data and data flow and then analytics on top of the data flow Thats sort of what the core of this organization is along with our focus on health care knowledge.

You know on how that sort of impacts.

Physical real estate and the setting around it. So we have a tremendous obviously focus we have real time information on how things are flowing I mean on so is that when when I said real time, I mean, where the weekly view of.

Occupancy and NOI expenses, how good of that's flowing and we're in a constant dialogue with our operators and how we.

How we act on it with our asset managers with our investment people with the Nellix people. It is a very collaborative process between us and our operators and we continue to refine and improve on that process every day, Steve the thing I would add to that is.

Really fundamental to the way we run this business is to have boots on the ground in the significant market. So we have a very strong team based on the West coast. We have a strong team in New York, We have a strong team into lead out we have strong team in Toronto, we have a strong team.

In London.

By having boots on the ground, we are not only just looking at spreadsheets, but we are in the buildings. We are at the operators offices, we are all over.

This portfolio because we're trying to as much as we can.

Anticipate opportunities or anticipate problems and try and work with the operator to mitigate those issues or expand upon on the opportunities and that's just.

A unique aspect of how we run this business I don't think you can sit in an office.

On one side of the country and have any idea about what's going on.

In a portfolio that's in the West coast.

And it's the same thing with our with our medical office business. Keith We have 14 offices in 14 offices around the use and we lever those offices I think you're going to start to see even more leverage between the folks that are located in those 14 offices, even interacting with our.

Our folks who are on the senior housing side.

So again I can't stress enough that it's you're going to be in a business like this and take the risk.

To get the opportunities that are there in the senior housing space you have to have boots on the ground you have to have a physical presence.

That's good color. Thanks. Thanks.

Next question comes from Jonathan Hughes of Raymond James.

Hey, good morning, first off congrats Tim on the new role and John on his other opportunity.

Just going to shop, when do you expect a negative supply ambac impact in Quebec to bottom and stop weighing on occupancy.

Jonathan Im not going going to get into this call and fits very specific about.

What's happening in Qubec, and what that's going to sort of be will be behind us as I said that we're cautiously optimistic that Canadian portfolio will return to growth next year.

We'll see how that plays out there's a lot of new competition not of new buildings in Qubec. Some of our buildings that have performed for 15 years and consistently.

And through that whole time, and looks great have great product to sell but has been impacted just.

The the market needs to get absorbed and when it does like any other markets a great market over a period of time it will come back but.

Our all as the portfolio, which we manage and we have a fantastic team.

In Canada and with the remarkably strong leadership there we think that we will expect the portfolio will return to growth hopefully next year.

Okay.

Helpful. And then just one more for me it a bit higher level.

Hello discussions with perspective shop operators gone since rollout of RIDEA 3.0, I know you signed up five new operators. This year, but have some perspective, operator said, they don't want to be subject to potentially losing their properties like one of your west coast operators. This past summer Im just any color you can share there would be great.

So Jonathan if you think about it.

As you can see that we have plenty of strong operating partners to do business with.

Many of them are probably all of them at attracted to our plot from because of our strong capabilities. Both on our data side as well as on health care capabilities and if you look at who these people are and you will see the leased up our.

Capital partners that worked with the have absolutely no issues with getting money into that buildings thats not the issue they have come to us for specific capabilities that we have that you will not finding any other place.

Having said that you know if and operated doesn't want to take the bet on themselves.

And doesnt have the confidence to do so from an operating capability perspective, then I guess thats a very good tool to figure out and the very Frontend you should not do business with we have plenty of people to do business with and at the end of the date that tool will help us and is helping us.

From an adverse selection perspective, if you well the next generation of senior housing operators, those who see the model changing in the future want to be with Welltower that is who we see are requesting meetings.

I think that if you're just interested in monetizing your real estate.

You're not where we don't want you and you don't want to us because we're going to be all over you were going to make your life miserable. So.

Those who see that there is a.

Another aeration in this business that the senior housing business of the past it and in some cases. The current is not the senior housing business of the future.

The people that are that are aligned with us about where where we're headed where the future is going to be for this asset class want to work with Welltower.

That's great thanks for that.

Thank you hear next question comes from Nick Yulico Scotiabank.

Thanks first question on senior housing operating segment I realize it's not the same pool. This year as it was a year ago for the total portfolio, but you had occupancy down 90 basis points in the total portfolio same store.

This better down 40 basis points can you just explain what is driving some of that difference.

What you are seeing on total portfolio is that transition that's it's Nick and that's sort of Tom Tim talked about how we think those transition assets will play out.

And.

Going through that particulars phase so there's not much to add other than the fact that when you change and operator as you know and I know everybody in this business knows that you have a significant disruption at the building level, we only change.

We only keep assets out of the pool, when there's a change of operator, not when there's a change of structure such as.

Triple net assets become right.

So thats what youre seeing.

Hi, Kevin I'll, just add that.

The benchmark portfolio that we sold during the quarters in all prior quarters in that one day.

Above 90% occupied portfolios that that brought up prior quarters occupancy relative to current.

And obviously as you know that is a very significant portfolio. So that will drag your overall occupancy to up significantly.

Okay. Thanks, and then.

You talked chunky talked about the 150000 per bed.

Offer for some of the Promedica assets was that for the assisted living assets no that was for skilled nursing assets.

Okay, Great and then just one last question you know you do have from reading the Master lease you have this investment grade covering it.

And your lease with Promedica.

Essentially it's that.

Promedica cannot be rated Westin investment grade by two ratings agencies. You now have one that has gotten closer to non investment grade not yet there.

I guess I'm, just wondering use remind us why you have that provision in the lease and if there is a scenario where you got those downgrades.

Over the next year or so.

How would that work in.

And.

Forcing the provisions of the lease.

So Nick let me, let me answer that.

First of all we really cannot comment about the opinion of the rating agencies.

But credit rating agencies are there to assess credit risk so with respect to our joint venture.

Up.

The first point as we owned real estate.

At a low basis with good lease coverage and you've heard us say that throughout the call. This morning up the JV provides us with rights that enhance our credit risk and you've heard us talk about that and behind that stands a large nonprofit health system that has.

$6.8 billion in revenue.

Who is the leading health system in northwest, Ohio, They have 800 million in net debt.

And they've got 1.5 billion in cash on the balance sheet.

So we feel.

Good about the position that we're in and I think we've given a lot of.

Metrics that support why we feel good.

About this investment.

I'll just add Nick if you think about it thats our option.

It's not an automatic trigger.

And also our partner has a cure right right. So this is not I don't want you to think this is like algorithmic trade that they get to a level for whatever reason and then it's an automatic sort of action on our side. So thats not how the real watermark. So it's an option that we tipped to protect our shareholders.

However, as we as we told you that we think we know how thats, great risk and we feel comfortable that where assets are and as I said I cannot overemphasize, we feel that total return our IR are off that investment as it stands today is significantly higher.

Then when we under that so hopefully that sort of gifts and answer but from ACA does have pure rights, but but one other thing I just want to add Nick essentially we have the right to bring them to the table as Sean said, it's not it's not a gunpoint that at fair ahead. This there is a structure around this investment.

That brings us to the table to work together to solve whatever bumps in the road may occur over a very long period investment.

Historically Reed said in positions, where the operator can show them, the hand, and where you have no ability to sit down at a table and work out a rational solution. I mean, we have no idea what the world is going to look like in 10 years or 15 years or in 20 years, but if you have.

Construct that aligns both the operator with the capital provider.

And allows you to sit down and make rational business decisions I think that puts us in such an advantageous position. So again, we feel very good about this investment.

Alright, Thanks, Tom.

Thank you.

Your next question comes from Jordan Sadler at Keybanc capital markets.

Good morning.

So I just wanted to.

A follow up on the overall same store portfolio guidance.

And basically just compare where youre year to date now I know you don't give segment level updates, but you are raising the guidance for the full year and so my question is in the context of that.

Your same store shop.

Or show.

Seems seems over forms for the year I think you said chunk was 3% on a year to date basis.

And I'm looking at your Triple net performance.

Over the course of the year as senior housing Triple net portfolio, 4% and one Q3 0.73 0.4 very good performance.

Also markedly above 300 to now get 70% of your same store portfolio coming in at 3% or better.

Year to date.

How do we get to the two and a half.

Jarden, we're not going to give you a quarter to quarter guidance. This is not a 90 day business as we have said several times.

All I will tell you you can come to mathematically any amount of in any number of conclusion you onto but as we said we feel very good about the year.

We thought we have a pretty good handle on the business tons out.

Business is better than what we talk both in our medical office business as well as our senior housing operating business right.

And we think next is going to be a good here, but it is I'm just not going to get into right. Now on this call. What next year looks like if I didn't know no I don't even I don't even mean about next year I'm really just where I guess with them commenting on chunk I once you Miss My point.

Tim said that the Moby business is going to accelerate from Threeq to Fourq you were talking about fourth quarter, Yes, yes, I'm just talking about fourth quarter EPS guidance updated for the year is basically inferring.

For Q same store is going to be.

Very low.

And as I've said, John you can infer what do you want being far we're not going to get into quantitatively quarter to quarter.

Numbers, but we'll tell you we want you to think about this business beyond 90 days this seasonality of revenue and the seasonality of expenses right and those Seasonalities don't come together. So as you think about that just think about the business. It Tim will explain to the numbers, but just think about the business.

You will get to the right answer when we if you look at any 90 days, good or bad get to the wrong conclusion Tim.

Just wanted to add Jordan that we part of there'll be an addition of our health system bucket to the same store pool in the fourth quarter as well if remember that lease was 1.375% for the first year, so that that causes a bit of mix change.

In the pool billion for Q.

Okay.

And then just a follow up the strength that you guys saw in the Brandywine portfolio.

Sequentially and year over year to your point chunk I.

I know this was.

Portfolio, you called out I think a few quarters ago struggling with sort of.

Some some occupancy issues post flu and then some dumb operating or personnel issues can you maybe just speak to the significant upswing that its sequentially and year over year just.

Anecdotally.

So John if you remember the first front right, which is.

We've talked about the flu in the new arc area, particularly long island in Northern New Jersey, Brandywine has a very stable leadership and it does we have never mentioned that is a personal issue.

Brandywine had a capital structure.

You know sort of reorganization that was needed and we pod that much but Alan relationship was in radio Threeo management contract with significant.

Significant skin in the game from Brandywine random one is one of the best senior housing operators that outfitted has beautiful relisted as we said that it is the best Relisted, we have from an NOI per door perspective.

And Brandywine leadership is really committed to perform and that's what you're seeing in the marketplace. Today any now numbers. So I don't have much to add I don't want you to think that our numbers were just driven by brandywine several of our operators.

Six to be specific has driven massive outperformance brandywine is obviously one of them and went extremely delighted how much focus.

The brand new and his leadership has team has put to drive performance and weeping that is significant additional upside to that portfolio is one of our best realistic we own within one of our best operated in the business.

Lastly, could you maybe just comment on sort of with the acquisition or investment pipeline looks like for you guys. Obviously, you've had a pretty busy year, so far but it seems like you've got your sites anthem. Some other stuff just interested in sort of what the flavor looks like that's coming down the pipe.

Jordan, we're seeing.

Really opportunities both in the senior housing space as well as in the medical office space. So I would just say stay tuned.

Thank you. Thank you.

Your next question comes from John Kim of BMO capital markets.

Thank you.

Thank you mentioned on in regard to March sales of the Vibra affect portfolio.

Can you discuss what the cap rate went on sale and also how much eltek and align will have remaining.

So I want you to think about the 10% range double digit cap rate.

And Tim how much is our eltek remaining well up roughly 18 million.

Run rate.

I'll tag or some non.

Post acute rent.

Going forward, which is which includes elteks and arthritis. Okay. Thank you is their intention to solve the remaining.

Soon.

Okay, it's hard to say, where John as you know that we are seller of every asset at a price we feel that now that portfolio, operator, and the credit has stabilized.

We've taken pain as I mentioned that we have given obviously $2 million of rent concession.

Technical your rent concession, but lower rent in the new construct was the whole construct we.

We feel pretty decent about it but.

Every asset that we own is.

Or sell at a price so we'll see how that plays out.

Okay. Similar question on your total shop portfolio approximately 70% of your revenues in the same store performance due to transition assets held for sale.

Is this figure roughly a good run rate going forward or do you see it potentially right. Okay same store pool and captures more photoshop.

Yes, John Tim We gave some color in the call, but we expect the transition portfolio, which is 75 assets for virtually all of it to be in.

The same store pool that fourth quarter of next year, and actually 40, 60 to 75 assets to be in the pool, but the second quarter. So you should see when we give you Steve ask question earlier, just around updating our outlook that we gave at our Investor day last year around the Brookdale transitions and correctly pointed out that pool has grown from when we get that initial color.

Okay, and you should expect and we gave our guidance next quarter, we'll give color around how those 75 assets will impact the pool as they enter throughout the year, we expect.

To be back to where we've been historically, which is 90% plus of our.

Same store pool to captured in that.

That's helpful. Thank you.

Your next question comes from Nick Joseph The city.

Hey, it's Michael Bilerman with Nick can maybe sticking with same store I think most people know that you have a different definitions in your FCC 10-Q's in case you do in the supplemental.

I wanted to know whether you are going to give any thoughts to providing a road map.

During the supplemental or in the 10-Q about the differentials in terms of getting from point, a the point B and I recognize that your supplemental pro rata ownership constant currency, which reflects more of your economics.

There's a difference between how long the assets or in your cool.

Longer in the Q and quicker in the south and so I'm wondering if you're able to provide that reconciliation for investors. So they can understand the impacts of each of the differences between your SBC cues NK and your supplemental.

Yes, so thank you Michael I think the way.

Nick has been doing great work on this and I've been talking and quarter to quarter, you're correct to point out given our with our international ownership and the fact that virtually every one of our senior housing relationships has a joint venture company.

Component to it there is a is a big difference between that fully consolidated number and the pro rata number and our intent to supplement is to give the absolute.

Best reflection of.

The economic impact or performance of these assets to welltower at our share.

Two notes just on kind of how thats evolving one is we are adding the disclosure you'll see in our Q when we file it.

Both our year to date and five quarter pools. So we'll have a pool in Q.

Closer reflect.

From just it from an asset perspective.

Our supplement.

Cool.

And that's largely in response to feedback we've gotten from yourself and others. Just on time these closer and my comments earlier on the transition that should also help kind of tie these pools together over the next year they should come together, but absolutely we'll continue to work.

Disclose that information to get Thats, an equity quarterly basis and.

If need be we absolutely can kind of walk that from one of the other again, we think that gap closes and a lot of its temporary over last years, we've done pretty active on the asset management front.

Great and then.

At the beginning of the call you talked about how you dramatically changed your senior housing portfolio and gotten allow out of Genesis and Brookdale Unhealthily soon that cap structure misguided operating agreements or misguided private equity and I think you also mentioned just repaid where do you.

Or at least healthcare read it take too much for real estate.

You came into the CMC in April for early 2014.

You had been on the board for 10 years prior to that.

So I sort of what kind of get inside your head about those tenures being on the board and I guess getting information improving a lot of those deals as a board member how much information you'll get your dividend.

To then come in and sort of restructure everything.

For the factor.

Good question, a board sitting out a board you're only as good as the information that is either.

Publicly disclosed or provided to you by the management team.

And.

There is the role of director Michael is not to run the company. It is it is there to protect the shareholder and your principal responsibility as corporate governance and to make sure that the right systems are in place at the company.

To protect the shareholder.

It's very different when you cross the line.

To be part of management and you see things very differently.

And I don't think you'd get a very different answer from anyone who transitioned from a board seat to an operating role and and I as I said earlier it took some time to figure that out.

And at the same time I had a different view of what this business. This company should be and I did not see us as a asset aggregator and that was the strategy beforehand. When I asked the management team what business or when they said we do deals.

And when you do deals.

Some of your deals are going to be good and I don't want to say that some of the deals weren't good but many of them we're not good.

And again the information you get as a director is different than the information you see in some time, sometimes not in all cases, I'm not saying that about every company, but I will tell you I saw a different things once I was inside the company you have a very different look and accompany structured as a health care REIT for.

Example, should not be making private equity investments that is not our business.

And I guess when you are paying when you are seeing yourself as doing deals and your strategy is to show up at auctions and when the deal you can wind up paying too much.

And you don't have the opportunity to insert the kind of rights that we know are important to a sustainable business model. So.

Yes, the view from the board room is in this case was very different from the view once I was sitting in the seat.

I guess since the change with your board today in terms of the information, you're providing them or more so the questions that they're asking view because I would assume something the board and for 10 years before you were CEO you could a question all of these things and asked for more information.

To be able to understand what the company we're feeling.

Again, it's always only as good as the information you are provided beyond the publicly available information.

And.

It does my board ask difficult questions do they put.

Hi hurdles to achieve yes, they do because I work at their pleasure. They can hire me they have the right to hire me and they have the right to fire me.

So.

The board has turned over quite significantly here, we have a board who lose skillsets represent the many verticals that are important from a corporate governance standpoint to sit on the board of a company like well tower.

So there are people that represent the healthcare industry. There are people that represents a real estate industry. There are people that represent the insurance industry.

These are all verticals that allow them to provide a level of oversight in guidance from a board table, but they are not here to run the company.

Directors do not run the business nor should that.

Okay helpful color. Thanks, guys.

Your next question comes from Rich Anderson is SMBC.

Hey, Thanks, Good morning learning Hey, So Tom I. Appreciate you are not in a position to or have any interest in commenting on other people's opinions, but with regard to the Moody's recent downgrade the the language is quite.

Lets called interesting.

And I have a comment and my comment is theres, some complexities associated with the structure with Promedica.

Namely the JV and how Thats all situated to the economics of the transaction.

Is there an interpretation issue potentially when you juxtapose Moody's to the other two rating agencies that that is impacting this this viewpoint or is that something you'd also want to comment on its hard for me to comment on that rich, but I'd say that we may.

Not agree with interpretations.

On some of the intricacies of the joint venture structure.

So it's again, it's difficult to be in a position. They also rate our company so difficult to be an to really start.

Critiquing too much here I'd prefer not to do that Sean do you want to add anything to that I'll. Just add you can have different opinions on what things are right on how you calculate them. So I'll give an example, if I were to calculate cash margin if it plays I.

I would do plays like for medical this in my opinion not necessarily that is the right opinion.

Just a different opinion I would only do 80% of the rent not 100% other rent because from a pickup is only 80% the rent.

And for cash margin I will do cash rent not the gap rent, which you know can be significantly different given the 15 year lease.

The 2.75% escalator right. So that will be a massive difference I want to cash margin will look like if we just make those two different is that a difference of opinion difference of interpretation I leave that to your opinion, but from our perspective as we said we feel very good about investment we think there.

Return prospects have gotten better the regulatory prospects have gotten better.

And to put things in perspective. This is an organization, which is an extremely important organization for this part of the country at $6.8 billion to revenue and 800 million. Thus the net debt I hope that put things in perspective.

Okay, Great and then the.

Second unrelated follow up.

Well you talked about the asset sales that you've done in the past and I know that you guys are.

Meetings that we've had together aligning yourself.

With your operators more increasingly at the NOI level, so that they're also incentivized to control costs.

To what degree would you be willing to part ways with real estate that you love.

But otherwise the operator as it has an unwillingness to to kind of go go this way and to sort of view have have.

Stake in the game terms of the cost side of the equation have you sold assets simply because not because you didn't like the real estate, but because you didn't like the with the unwillingness of the operator to to kind of go your way away all right. So let me answer that.

Because we've sold portfolios associated with operator relationships.

You should assume there has been real estate inside those portfolios that we would have otherwise love to hold onto but that was not an option. So in those portfolio sales, but I will answer the other question that.

If we had an operator with real estate that we loved who was not willing to.

Align with us around to construct the as we've described.

And only saw us as someone who.

Who could pay the most for their real estate.

It's very likely we would part ways, we would not be we would not be afraid to part ways because generally in markets around the country that very attractive markets, we have more than one operator.

And so.

People might have thought we were exiting new England, when we exited benchmark.

But actually what we did is we aligned ourselves with a premium operator, who is in the right markets in new England, and we're hoping that we're going to have growing business with LCB, we see them as the premium operator in the market.

And who who's also a much more Boston centric so.

That's an example, sometimes we are really it's not it's not a black and white decision sure and sometimes we are giving up good real estate and we're not afraid to give up good real estate, obviously at a price too.

If we can sell theres up hot market for high quality senior housing assets today, if they're not strategic for us, we pretty likely can redeploy that capital with a more strategic operator in a more strategic construct I'll just add one thing rich to pretty comprehensive answer Tom give you I don't want to dipping that this is.

Some sort of it.

This construct I've only favorable to welltower, the redirect that we say that alignment thousand times. It helps our operators to mix significantly more money than they otherwise do from other capital partner. There's no. One in this business at least to my knowledge, who pays more to that operators then welltower.

Well all the we're trying to do is very simply we we you know we rice together, we fall together, our operators, who perform have a significant opportunity to economical again significantly more than what a standard operating agreement would be and does that helps them to get better people and that obvious.

The produce better results. So it's a circle a reference if you will but it's a virtuous cycle and not everybody will agree to that but I don't want you to take some sort of.

This connotation that they hear this course and it feels like we just sort of have something that's all the favorable to welltower shareholders and it's sort of something against our operating partners that cannot be farther from the truth.

Alignment is not a one sided relationship whether thats to the operator or to the capital partner. It is very simply that you rise together and you fall together and many of our operators.

Our confidence in the Italy to run this business over long term are more than happy to do that and they can get paid significantly more they are getting paid significantly more and the leadership of this organization a hiring the best people to deploy that capital attract the best talent into the organization I hopefully that gives you a sense of how.

We do it we cut it so many ways we have talked to you. So that this close to the economic flows through the fee bottom of these communities not just the leadership of these operating partners, but also people who are providing the service as who our customer assessing on a daily basis.

Yep, Okay, I got I wasn't implying that it was a one way street, but I appreciate the color. Thanks. Thanks, Thanks rich.

Your next question comes from Lukas Hartwich of Green Street advisor.

Thanks, Good morning.

Can you guys provide some specifics about how your shop operators are outperforming their competitive set.

I mean.

Im not sure what exactly that means you can.

In can probably you probably have your own view of what the market is doing on whether thats rates, our NOI revenue are.

Then you compare results to that I'm not exactly sure I understand I guess I'm trying to gauge how much of supply and easier supply comp versus other factors at play.

You know Lucas one of the things.

I think we got in front of a while ago was labor cost.

This is something we have been talking with our operators about for now.

Years.

And I, often think senior housing results.

Our Austin to associated with Nic data.

And and the supply issues.

I actually think not enough attention is is focused on the operating expense side.

And I would say it again I can speak to our competitive set I can speak to our operators I think.

We are on top of operating expenses, including.

Labour costs, what's happened in senior housing.

Is.

Many operators have taken higher and higher acuity residents in which they are not really staffed to manage that has led to often shorter length of stays and higher expenses, because the operators need to hire more people sometimes contract.

Act labors to manage that census, and Thats something we are very on top of so.

Again can't speak for.

Folks that are not in the welltower portfolio other than the elements that we've spoken to like location and operator quality I think the expense side is something we've just been focused on a long time and I think that answer some of that I'll just add Lucas.

If you you have been at the Investor Day.

We have shared with you what serve sensor data analytics presentation.

So if you off you know our adjusted competition unit and year to open shock looks like which is a cumulative impact of supply over the years and obviously, we got this less impact is higher than last year, but also the results. You are seeing is the result of hard work.

Of our operators and our people who are working with the offer is where partners.

And the alignment is important because we come together on the table not that the operated against capital our capital against operated by this to partner to solve problems as Tom alluded to that when we discuss promedica. It's no different in our business in senior housing business in medical office business and that's why probably you are seeing but there's just no doubt.

Yeah.

We feel like we have the best assets in the best market and the best operating portfolio platform.

That helps you to create more value than some of the individual assets word.

Great that's really helpful.

And I know, it's really small but can you talk about the four six cap rate on the shop acquisitions are those on stabilized surge is really high quality can any color.

Then on stabilized both both of the senior housing operating.

So that we bought particularly talked about whether its a.

LCB I did say this energy the on stabilized properties in the turnaround situation.

So it is it is very difficult to talk about cap rates. When you don't have a lot of cash flow to cap, which is why we specifically talked about and we think is the best way to look at it for Unstabilized properties to look from that perspective of price. The unit as I said, you can sort of convince yourself what it.

Cap rate is whether it's stabilized non stabilized future today next year, what do you can't is pricing unit and Thats the way to look at and we believe in all of those cases, we have bought these assets and a significant discount to replacement costs.

Great. Thank you.

Your next question comes from Michael Carroll of RBC capital.

Yes, Thanks, Sean Thanks for your comments earlier about the senior housing operating environment can you probably had some color on what the overall competitive that our operators being more competitive on price from beer market in an effort to gain share or is that something that you're not seeing within your portfolio of course.

Michael Thank you for your question if we if we want to see that Mike than we would not be talking a lot closer to 100% pricing increase right. So we're not seeing that there is that a different different markets. Yes, we've talked about how our us major markets headed remarkably strong quarter.

That would translate obviously some of the smaller market hasn't done so well and Thats. What you want to portfolio for you can go back and look at four quarters. The five quarters ago I talked about the difference between the large mark in the small markets were surprisingly not wide enough different different times and different portfolio different parts of the portfolio walk, but as you know our portfolio.

It is very much.

Weighted towards this large high very high barriers to entry market and the performing very well we have strong pricing power I don't want you to think that we are here, we have a favorite sort of phase statistic.

Week.

And today that is pricing tomorrow thats occupancy the day after that is labor costs, we're trying to optimize all those three variables pricing occupancy and labor cost and as Tom alluded to sometimes it's easy to understand the dynamic between pricing and occupancy, but not so much between those two versus the labor.

<unk> costs, and we're trying to optimize the three and hopefully we agree that so far we have been successful.

Yes, and then I think you made in your prepared remarks comment that you had really strong growth than what deep the Seattle Chicago, San Diego due to strong pricing power can you talk a little bit or add some color on that where's that pricing power confirms that on your ability to push rate on your existing residents is it.

Pushing.

Our gaining better spreads on new residents the gets worse the pricing power coming from.

In those specific markets I, specifically talked about.

I'll close with double digit growth that comes from existing residents new resident and obviously.

Controlling expenses as far as you can still in specifically those markets you had all the levers playing out but generally speaking.

To get to an average close to three and 100% pricing you got to do bolt.

You've got to put street pricing as well as existing.

Residents as well.

And just generally Michael just to remind you Michael the reason you don't see almost just look.

Comparable half of our portfolio is in January 1st and half of our portfolios in sort of when you have.

The sort of that anniversary thats, when we send pricing and this is a constant conversation are offered as a very focused on it.

And they're getting results.

Okay, great. Thank you. Thank you.

Your next question comes from Chad Vanacore at Stifel.

Hi, Good morning, this is powerful Chad.

So my first question is a follow up on senior.

Thanks.

So Sean can you mentioned to shop occupancy actually expanded intra quarter.

What is the magnitude of the pickup you see at quarter end.

We also this quarter you broke three quarters streak year on year ultimately game. So understanding one data point is not a trend.

Do you see a return to year on year growth for the same store pushing for Q.

Now patterns.

All right.

Because it's it's a really good numbers have talked about but set sets a precedent I don't want to talk about monthly performance. It is very difficult for us to even talk about 90 day performance I think I'd say that on a like a broken record I do want to start the precedence of talking about a monthly number, but I think and tell you.

We have seen the normal seasonality play out and we have built occupancy through.

Through the month of September having said that just remember we're not trying to bill occupancy we're trying to drive bottom line results, which is a function of pricing occupancy and labor cost primarily.

In Threeq third quarter up 1.4% are there any seasonally trend you're seeing we still increasing expenses this quarter.

Can you hear us.

Yes, we can can can you repeat the question again I think there's something happened to the phone system can you repeat the question I am sure.

Your MLP same store NOI grew 1.4% this quarter kind of accelerating from the prior quarters.

And you can see though is the sequential change taking expenses.

What happened is if you have to look at the occupancy to get that answers, we had a lot of leasing and what happened is.

You any free rent burn off situations period, and as Tim mentioned, specifically if you go back to the is part of the script, we'll see that we expect as that cash rents that's coming in will start.

Return to the normalized growth in that business. So there's nothing specific other than obviously you have the when you have a lot of leasing and you have you have to give the time to the tenants to build out the space, that's sort of flowing through the numbers, but not the cash and so that's sort of what you're seeing and you can see that in the sequential occupancy growth.

Thats helpful. Just lastly quickly.

Could you remind us again, the size and timing of the two potential promedica deals to just talk about.

No I Wouldnt as we said real estate.

Transactions take a long time, right I sort of indicated to where we are.

And as things play out obviously has said that one of those transactions.

The deposits are hard at this point.

There will play out Unfortunately real estate transactions painfully slow because it takes a lot to do it we have a lot of extraordinary professionals, who are doing it and we'll tell you will give you the updated when they close.

But we are excited about it just know that every asset we have is on sale at a price.

We are interested in that particular price.

At this specific time.

Great. That's it for me. Thank you. Thank you.

Your next question comes from Joshua Dennerlein of Bank of America.

Hey, Good morning, guys, just curious to learn more about your care more health partnership how did that come about.

What are your goals with partnership and is this something you can expand across your portfolio.

Good question.

It comes back to a view that there is a another level of value that can be delivered in the types of settings that are built to manage the needs of frail to demented seniors. So let's start there.

Me personally and other members of the team have spent a lot of time.

Meeting with players across the health care continuum, including payers. So this has been an evolutionary process too.

Work with one particular payer that has a clinical enterprise associated with it who agreed that.

Our settings could enable them to deliver services.

To our population that would be mutually beneficial both to welltower as well as as the payer.

So this has been a process.

We are already expanding this model across our portfolio and I'll ask Mark Shaver.

Who.

Joined US now almost two years ago from Johns Hopkins, whose.

He and his team had been on the ground working not only with care more but also with our senior housing operators here Mark Thanks, Tom So.

As we announced publicly about two months ago, we integrated care more and anthems ice knit plan into our La Orange County, seniors housing communities with Belmont village.

NSR GE and that continues to go well and as Tom has mentioned many times, we continue to want to make our sites of care more consequential and linked to care delivery, so that pilots up and running two two months in a lot of good progress.

Starting at 2020 were expanding to two other major metro markets in the southwest and adding and growing our operator pool for in this specific partnership.

This is one of several strategies, we have to work with Payors and providers sponsored plans, which are the health system enabled health plan, so more to come here, but very good progress earlier and at the end of the day from our perspective, it makes the real estate more valuable.

Awesome. Thanks, Thats it for me thanks.

Your next question comes from Steven Valiquette of Barclays.

Great. Thanks, Good morning, everyone. So it was originally going to ask a high level question around the 2020, but I think based I want to shocks answers earlier in the go hold off on time.

Maybe just a shift gears here a little bit I don't think anybody touched on this really in detail yet, but what are your major peers last we talked about some major differences in performance in assisted living versus independent living properties.

Pure last week suggests that they're seeing pressure in a well from new supply, but that theyre Io portfolio, we're still doing okay.

Last quarter, you guys mentioned Welltower was experienced in the opposite with significant outperformance in a versus I know it's really during the question is first just to confirm that now that you guys saw that same trend in threeq that occurred in Twoq I'm, assuming so but more importantly, just any additional color you can provide on your better performance in A.O. versus Io. Thanks.

Thank you Steve.

We are I mentioned that in my prepared remarks.

We are seeing significant outperformance of ill.

And maybe because segment relative to aisle and that gap has reached a multiyear high this quarter again. This is not a quarter to quarter business I don't want to take some portion of the sad to see from one quarter and think about the others in a different quarter, but thats a consistent trend we have seen I believe I mentioned that for a lot.

Four quarters, so and we saw that out that gap continued in favor of our assisted living portfolio.

Okay, all right great. Thanks.

Your next question comes from Michael Mueller of JP Morgan.

Yes, Hi looks like you have about 600 million of shop development underway can you talk about which you.

Sort of timeframe you underwrite the properties to stabilize in has that changed over the past couple of years.

Steve Mike just hasn't changed.

From an underwriting or from the yield perspective timing hasn't changed much we have a lot of assets in that pool, and we believe that you will see majority of them will get delivered between 20 2022 into one and Tim has walked you through what that cash flow impact is on the Investor day. So you can look at the slide.

And look at the impact I can tell you. The other aspect of the development platform is about 750000 square feet.

Medical office.

That's eight assets and all but one will get delivered between now and into next year as obviously all of those assets a lease. So you will get also from a run rate perspective, 2022nd half of 2020 I'm going into 2201, you would get.

Good growth that as well. So you will have the deliveries of senior housing assets. When they get delivered obviously you are going through the lease up that's dilutive to the nature just the how the business works because they've got lease up risk losses on the other had medical office leased and they'll get delivered and you kind of figure out how those interact with each other.

Cash on it.

And 2020 is obviously, a 20 year with about 800 million a deliveries if we're thinking out over the next three years, the five years or so I mean, what are you thinking about excuse me what are you thinking about for an average annual pace of development investment.

That might we've been averaging kind of 300 million.

Deliveries over the past four or five years.

The enterprises ground, we we have a little bit more capacity on the balance on the balance sheet side to support.

Development as a complement to our normal acquisition activity. So I think what you're seeing now is that probably move towards more 500 million.

Annual delivery pace next year, you're correct to point out, it's a little more front weighted but.

You should expect that normalized one platform.

Okay, great that was it thank you.

Your next question comes from Daniel Bernstein of capital one.

Hey, good morning.

I know you had a very good performance this quarter in your particular portfolio, but from from an industry perspective.

Well I just want to think about if you're seeing any additional pressures from rate or occupancy out there.

Secure if you look at the merchant builders are two or three years into a lease up there.

Probably not able to refinance dark ended that wife, one on the construction loan or you're seeing any additional energy industry pressures from those merchant builders and maybe are those are the opportunities that you're seeing on the acquisition side as well.

Thanks, Dan we are we can only speak for our portfolio, it's hard to speak about the industry. In general we are always extremely focused on on our portfolio and kind of that's the answer you would expect from us given what well how far on knowledge sort of.

Goes and we're not seeing significant pressure from any one of these industry participants that you mentioned in general I would say that some of the R&D or over development that we have seen I mentioned couple of quarters ago that we're seeing emerging so opportunities in Texas that sort of one of the first.

Please note that had the overbilling I mentioned this quarter you are starting to see that in the memory care segment. So obviously you are picking up that point, but remember we're very focused on something very simple is this an asset that is well built has great bones can we get a great operated to run it to create long term.

Future value and is that at the right basis, right, where much we're not focused on what the initial company. It looks like we're focused on what the right bases on long term returns looks like we're starting to see opportunities.

But it's too early to talk about how big when that can transpire so stay tuned.

Okay Thats all I had thank you. Thank you. Thank you.

Your next question comes from tie you aka Sanya of Mizuho.

Hi, good luck.

Thank you very much guys. It's good to be back at Tim Congratulations on the new rule very well earned.

Thanks.

Yes, just a couple of questions from me I want to go back to Promedica for a quick second.

We're now just maybe four weeks post implementation of Pdps and Im just wondering.

If they are giving you guys any feedback around how thats going again for the again some longer term thoughtful around pdps I'm sorry, given your comments that you guys are definitely feeling better about your investment case, partly due to some other regulatory changes.

Couple of I'll tell you first is we're feeling better over the investment case, because the terminal value of what we pod the investment and support purely from a price per bed perspective has gone significantly higher and I talked about the case about valuation or exit multiple right. So that you think about even if I.

Everything else is same I give detailed view on where the cash flow might or might not look like relative to underwriting vikram, but just if you think about the sheer magnitude of change on valuation will tenure massive increase in our having said that on ppm, you're correct that we are obviously very close with our partners we talk.

In a very regular basis.

So I do have a view on how the team talk thinking about it.

But it's too early to comment just said that they feel pretty optimistic that it will add to that cash flow as we move forward. Just overall this remember what I said that we had $316.156 million EBITDA for 2018.

I mean, so far we have achieved 230.1, you know in skilled nursing business seasonality for quite a strong quarter on top of that you have the rate increase this year and you have ppm, which is obviously instead of a variable we think that will land on the positive side, but we'll talk about that more next quarter's call hope.

I believe that how helpful.

That's helpful.

Then under some upside I think any good very good commentary around the U.S. and as well as Canada I'm just trying to understand the UK in particular, the big change in the shop same store NOI between Twoq and Threeq you.

Specifically what was going on there whether it's just a very tough comp versus Three Q1 8.

Yes. So if you look back last couple of quarters.

Earnings call I have talked about that in detailed so I don't want to repeat that.

But I do think that our UK portfolio is doing well. So it is obviously same story is what same store is we can change what the definition it and just because the rest of the pointed out our same store portfolio is doing better we can put it in same store right, but if you look at the overall UK shop portfolio, it's actually up close to double digit.

But that pool that we have is up 1.8% or so that we reported I mean it is what it is that just the numbers you're going to take the goods and the beds got some yes, we feel optimistic about the business. Okay. Great. One more if you'll indulge me just taking a look like a triple net portfolio you give a nice stratification of all the.

A rent coverage and I'm just looking across all the names where you have less than one times coverage and I think Q1 that total some was about 4.7% according to the sub.

The Threeq you that number 6.1% just curious if that's just one or two tenants that are doing incrementally worse on the triple net side or what's kind of driven that increase on how do we kind of think about factor in regards to managing those leases.

Very good question, how you think about managing the leases.

Go back four quarters ago, I had a long conversation on the on this earnings call about how we think about that I added significantly more color commentary. This quarter on my prepared remarks that you need to have the right basis right structure more importantly, the right follow on opportunities we feel a lot of these assets.

Have significant opportunity off cash flow upside with existing operator are with the different operator, we do not anticipate any significant changes as we sit right here, but if there's an opportunity to maximize asset value than cash flow. We will do that you have seen as doing that.

Last three years will not go back from there. However, as we stand sits right today right here, we do not see a significant change we'll see how things change. Just so you know we have added were very large group of professionals, who do this dean and day out and every one of our assets has.

An alternative offer there and then alternative to an alternative operator.

We and Thats, how we set it up we're not waiting for someday, we'll get some call and then we'll act to it that the game plan. The business plan is built around all of their assets, including the assets you mentioned and if there needs to be we'll execute and hopefully that you believe that we have executed so far well.

Great. That's helpful. Thank you.

Thank you.

Your next question comes from Jordan Sadler of Keybanc capital markets.

Just a follow up I think you guys talked about last quarter, the 3 million square feet.

Of Inmobi under negotiation it looks like you close.

Is there.

Can you sort of speak to that.

Jordan, we closed our we announced post quarter activity of.

Just exactly a million square feet, so far of that three.

And as Tom said the year is not over yet so stay tuned.

Okay.

So that's still in the in the under negotiation essentially.

Most yes, they are and that pipeline has expanded we have a lot to talk about that.

In next few months.

Okay more in a movie.

And then non existent. This is just your question why they will be so we've talked about inmobi.

We're not as Tom said in answer to of course, and we feel great about both our senior housing business as well as our medical office business and there are opportunities to grow.

With our existing relationship whether that's on they will be side or with our senior housing said, we're optimistic on both of our businesses not necessarily just have a more inmobi known and im not trying to pin you down. It just sounds like you said yet you closed on a million of the 3 million sounded like you still have.

A couple million left.

In the pipeline or more and more right right. Okay.

And then on Promedica.

Is there.

Something helpful on a property level metric basis that you can.

Offer up to us.

The tour to give us a little bit of a better indication.

On the on the four wall EBITDAR coverage or just property operating level metrics I mean, you're now giving.

Occupancy, but we really I think we only have a few quarters of it from you.

But is there anything else you can offer up.

We will only offer you what our partner is willing to offer to the marketplace Needless to say that I understand you're cautious because majority of the investments that you've seen in the triple net side with operators that have no credit or we've seen significantly what credit as I pointed out that our view that.

Our partner has significant credit and I hope you understand that lease it sits at the top of the capital structure and not on a sort of the SPE vehicle. So I do understand nicolson, but we want to be respectful to our operating partner and their desire to obviously have consistent numbers than messages.

There. However, we give you enough hopefully on the cash flow side, which tells you how it's sort of how things are going relative to what we talk.

What's the denominator in the 2.15 visit your 144 of rent or is it the 100%.

It's all around the senior obligation in the.

Yes, it's.

The 144.

Yes.

Okay.

Thank you guys.

Thank you.

Your final question comes from Nick Joseph from Citi.

Thanks, just for the Pramac asset sales that have gone hard how many better in that portfolio.

I'm not going to get into that Nick your investors and analysts are not only people who listen to this calls.

I only want to talk about.

Transaction, when they're ready to talk about given all the noise around Promedica I wanted to mention this to give you a sense of how we're thinking about the total return of the portfolio is but we're not going to you.

Talk about it transaction between two parties was supposed to be at this stage in the conversation is supposed to be private so.

I will let it flow.

I'd love to declare my partner.

Okay and that was that it's 150 a bad.

That's what the market is today, if you look at what we have sold identities assets that about significantly higher than what we bought our Monica assets. If you look at what markets are trading overall, we are seeing.

Somewhere between 120 and 180 per bed is what we're seeing the marketplace. We're looking at that.

Sounds good asset, but that wasn't action, we're seeing overall, that's where the business has gone.

Okay. Thank you thanks Nick.

There are no other questions. Thank you.

Thank you for dialing in to the Welltower earnings Conference call. We appreciate your participation and ask that you disconnect.

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Okay.