Q4 2019 Earnings Call

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The speakers presentation, there will be a question and answer session.

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I'd now like to have the conference over to your speaker today, Mr. Mcqueen Senior Vice President General Counsel. Please go ahead Sir.

Thank you ladies and good morning.

Certain statements made during this call may be deemed forward looking statements in the meeting of the private Securities Litigation Reform Act, Although Welltower believes any forward looking statements are based on reasonable assumptions the company can give no assurance.

Projected results.

Factors that could cause results to differ materially from that was 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 first remarks.

Thanks, Matt and good morning.

I'm pleased to announce our Q4 and annual results to you today as I reflect the strategic path to growth that we outlined at our Investor day in December 2018.

Simply put in 2019, we did what we told you we would do.

As a clear more to leader and dominant provider of real estate capital to the health and wellness care delivery sector. Welltower has redefined this asset class in terms of quality.

Operating models.

The logically advanced building design.

Data insight.

Deal structure and transparency.

This is placed us on a sustainable growth.

That is generated $4 in 16 cents, an AFFO per share in 2019.

3.2% increase over 2018 and fuels the optimistic outlook for Twentytwenty, We report to you today.

The $5 billion, we deployed into new investments between January 1st 2019, and today was not generated by playing the old game overpaying for real estate auctions or being the passive take out for old School senior housing operators more focused on their personal development.

Profit than running and operating business.

For Welltower that games over.

We are the partner of choice for a next generation of residential senior care operators, who enter into a wind structures that reward strong performance, yeah don't leave reach shareholders holding the bag when things don't go according to plan and.

In business as an life.

Things don't always go according to plan.

We have also become the partner of choice for Health systems I'm sure you saw Jefferson helps recent announcement of a broad partnership with Welltower.

Jefferson one of the nations largest urban academic health systems has elected to work with Welltower to advance its strategy of health care with no address.

This partnership will help recapitalize jefferson's existing ambulatory assets.

Build and capitalize their next generation of ambulatory assets.

Connect Jefferson else delivery capabilities into our existing greater Philadelphia senior population of over 20000 lives.

And together conceive new models of housing and wellness care that can drive better outcomes for an aging and at risk urban population.

We're honored to be working with Dr., Steve Glasgow his team and the board of Jefferson.

They are truly redefining the future of health care delivery.

Our platform approach is demonstrating that there is value that can be captured in our real estate beyond collecting rent checks.

Our Caremore anthem collaboration is a great example of this and illustrates that third parties can bring clinical care models into assisted living communities and with modern Medicare advantage products reduce out of pocket cost for our residents enhanced resident experience.

Improve outcomes and increased occupancy and length of stay.

What was a California pilot last year is now being rolled out into other markets stay tuned for other innovative models like this one.

For an example of how Welltower is driving the next generation of residential care design I'd point, you to our building on East 56 Street in Lexington Avenue opening in late spring.

When this building opens it will be the most technologically advanced residential care facility in the world for seniors suffering with conditions, a frailty to memory care.

Not only is this purpose built buildings designed to meet the needs of this population.

But it will incorporate state of the art Phillips technology that will enable more effective and efficient care as well as enhance the experience for our residents and their families.

Well tower conceived this project and has driven the development process from day one.

This will be followed by our next Manhattan project on Broadway at 85th Street, New Urban models, we will deliver in Hudson yards, and San Francisco as part of our related atria joint venture and in Boston with Belfer.

These are just a few examples of how we have positioned well tower to redefined and reimagine. The built environment that can deliver better health outcomes and lower costs, particularly in view of the aging of the population.

We have largely moved beyond the issues that would have slowed our growth and that enables the optimism you hear from me this morning.

It is our job to deliver a path of sustainable growth and our 2020 outlook a $4 in 20 cents to $4 in 30 cents it FFO per share illustrates that.

And I will remind you. This does not include any new net acquisitions or investments that have not been announced.

Now shock Metro will give you a closer look at our Q4 operating performance as well as discussed new investments shock.

Thank you Tom and good morning, everyone.

I'll now review, our quarterly and annual operating results provide additional defense on performance trends and recent investment activity and new offer that relationships.

A year ago, when we set our guidance for 2019, we told you that we felt cautiously optimistic about our senior housing operating portfolio, our shop and set the same store guidance, 2.5% to 2%. We're delighted to inform you that we've achieved 2.7% growth for the.

Yeah.

Mainly driven by stronger pricing power and better than expected labor cost inflation.

We want to remind you that our show portfolio consists of 600 communities spread across 25 portfolios of different operating partners focused on different price points acuity level geographies and operating models, we quantitatively managed to our shop portfolio.

To drive low cross correlation, which creates real diversification benefits, we have added and new disclosure on slide 39 of our corporate presentation that gives you a snapshot snapshot of our ability to do this if you compared to randomly chosen operator.

From that disclosure.

And compared to a long time and why growth rate bought occupied room, you will get a median correlation I'll point to three.

These remarkably rule statistical correlation in a business where casual observers believe all operated us in the same generic business cause senior housing is debunked, we provide further context using 2019 performance.

I had three operating partners that experienced mid single digit to double digit and why decline and we had four operating partners that experienced double digit then why growth with all other opportunists wedding between these demonstrates our unique business model and portfolio.

That is able to absorb downside volatility of certain operating partners with the contribution of others.

Are there specific highlights of 2019 include significant outperformance on assisted living over independent living an outperformance of large for us markets.

Bob smaller markets.

We have built a highly differentiated and on correlated portfolio of assets by using a barbell approach our portfolio construction focusing on high end senior housing and more affordable communities with limited services, while exiting the product in the middle.

2019 saw addition of several new operators to the West our family area Balfour Clover frontier and LCB.

We are delighted to mention to you that we're off to a great start in 2020 and have already welcomed three new offered us to our family we have been working with to come to Tom's for last six months.

Let me give you some details here.

We're delighted to partner with Michael Glenn Andrew Peters, Ross Dignan, along with Mike Stevens to offer a lower acuity differentiated lifestyle based highly amenitized and stunning housing solution to scene is under the mono brand.

We also partnered with our own Paul a premier, leaving do offer a highly differentiated and relatively affordable products targeting.

And tremendously on the stock market in large for us MSS in both cases, our exclusive relationship span multiple years and will provide a multibillion dollar investment opportunity and next decade.

Reflecting on the fourth quarter, specifically I will mention that we are positively surprised by few trends first with respect to the seasonality within senior housing business occupancy typically peaks in late fall and trends down through the winter months. However, we did not see that seasonal drop off.

This year and occupancy has been pretty much flat sequentially through the year and into this year.

Second I'm cautiously optimistic about what we have seen on the labor inflation side, while couple of quarters does not make a trend sequentially compensation are occupied room was flat in Q4 and is the best we have seen in last five years.

These taken together with consistent pricing power.

Gives us confidence to provide guidance of 1% to 2.5% and trough relative to 2.5% to 2%. This time last year.

We have a long year ahead, and we need to execute diligently, but we remain relatively optimistic today.

As compared to the this time last year.

We believe demand is increasing in assisted living business and impact of daily with is improving on the margin.

A couple of other notable items from Q4 would be significant increase in insurance cost that I discussed during Q2 call as well as 2.4 million dollar increase in incentive management fee in Q4 due to significant outperformance one of our offer new partners Sina right. Yes, we are on track.

That was previously not contemplated.

In terms of our Twentytwenty guidance, we assume if 4 million dollar increase relative to the incentive management fees.

I would like to now shift to our health system portfolio.

On our last quarter call. We told you that we're expecting 300 million Delta EBITDAR.

In our HCR Manorcare promedica portfolio for the.

For 2019, I'm delighted to inform you that HCR has achieved $307 million to EBITDA. In 2019. This resulted in a full 2019 EBITDA coverage of 2.13 times more importantly for the first time in seven years, all three business.

Lines of HCR Manorcare had year over year increase any but not in Q4, while the Q mix shift in skill nursing continues to be a headwind for the business. We're seeing length of stay flattening occupancy is starting to build cost him in Sunda checked synergies I guess.

We realized and.

Arden Court and home health and hospice business is fine with all cylinders. In addition, HCR is an active negotiation with several health system to help meet them that post acute need I am optimistic I'll be able to share with you. Some of the success stories in 2020 Promedica.

Which is an absolute pioneer in the social determinant of health side will drive significant value from the HCM platform for us to come.

And then we'll be side, we have significantly upgraded both our operating platform and asset portfolio in the last few quarters as we have a court or announced roughly $4 billion of high quality and will be.

Under Keith Enron's leadership.

We now on the largest commercial platform of medical office Relisted in the us.

We have used an air pocket in the capital markets to scale of this business in the last few quarters. However, it appears that some of the pricing frenzy of 2017 is resurfacing.

If our reading of tea leaves is correct, we will be largely absent from the acquisition of ammo business here.

And instead focus on privately negotiated deal with the owner of such as our health system partners.

Overall on the transaction side, we had the most active here in the company's history with $4.8 billion, though high quality investments and $2.9 billion. So dispositions. We have discussed this transaction with you in detail and they are listed on our own through these.

I'd like to not few general observation that drive our capital allocation strategy and market trends.

One we invest capital to make money on Fox share basis for existing shareholders as opposed to solving for any exposure.

Our teasing than latest and greatest asset class two that contrary, we buy assets when the out of favor at the right price in the REIT structure.

Our investment in a skilled assets at $57000 to bed, just 18 months ago and the disposition. This quarter of three order noncore assets at 150 to $56000 to bed reflect our philosophy and our focus laser focused execution.

The same goes for absence and will be as market in 2017 on a rapid growth in 18 and 19.

Two we invest capital when we can match that timing cost and duration of capital we do not speculate what our cost of capital will be in future years, and fun transaction on a granular on kind of end client bases.

Three we think in real estate basis, an unlevered IR macro significantly more than Kathryn.

Fourth we invest granularly with our operating partner in this model. It is critical to work with will align partners focused on methodical and smart growth. We have grown with all five 2019 class of operators since our first deal earlier in the year for example, I hope you noticed our.

Lastly, on our buildup in the Hudson yards with our partner related and Andrea The second major development. This is the second major developments, we announced last six months. After 2001 van Thats project in San Francisco five we engage in marketed transactions only when we believe that we have a sick.

Terrific and age due to our data analytics platform on our relationship with health system our peers.

If we see an incredible demand.

You asked senior housing product amongst the most highly sophisticated institutional investors today, we cannot be happier with our benchmark transaction 2019, we started this year with another significant senior housing transaction that we reported last night with our earnings release at a very attractive price to our investors.

Our guidance of $1.7 billion Twentytwenty disposition includes this transaction, though we have a 1.1 billion dollar up announced acquisition building to our guidance that Tim will discuss in detail Needless to say that we feel very optimistic that we'll have it.

Very strong year of net investment with that I'll pass it over to Tim Mchugh CFO Tim.

Thank you Sean.

My comments today will focus on our fourth quarter and full year 2019 results our balance sheet, our initial guidance for full year 2020.

Walter will return to growth in 2019 reporting normalized FFO of $1.05 per share for the quarter in $4. A 16 cents per share for full year, 2019, representing positive, 4% and positive 3.2% year over year growth respectively.

Results for the year to be categorized by three main themes the consistency of our internal growth engine volume of accretive capital deployment activity as we invested 4.8 billion across high quality senior housing outpatient medical opportunities.

The discipline of our capital recycling efforts as we had $2.7 billion, a property dispositions, including 560 million of high yielding eltek in post acute assets and at 192 million of loan payoffs.

Reducing our loan investment portfolio to smaller sized since 2015.

The result of all this for the year much Welltower turn earnings growth will also significantly improving the quality of our asset base.

Now let me provide some details on our portfolio's performance.

First our seniors housing triple net portfolio post another consistent quarter with positive 2.9% year over year same store growth.

It's concert sequential occupancy was flat in the quarter and EBITDAR coverage declined by 0.01 times.

Next our long term post acute portfolio generated positive 4.3% year over year same store growth driven in part by an easier for Q 18 comp, which included partial recognition from a tenant there is now current on rent.

We also benefited from fair market value step ups in a well covered conflict healthcare lease acquired the acquisition of Q CP.

EBITDAR coverage declined by 8.03 times driven impart by the addition of four development assets the trailing 12 month pool.

As a reminder report our coverage a quarter in arrears.

So this September thirtyth trailing 12 month coverage does not reflect any impact menu PDP on Medicare reimbursement system, which is implemented at the start of October.

Turning to medical office.

Outpatient medical portfolio had another solid quarter, delivering 2.3% same store growth, bringing the full year average the positive 2.1%.

Continue to make meaningful progress and our same store occupancy as well end the year, 94% 60 basis points I had a fourth quarter 2018.

Next to health systems, which comprises of our HCR Manorcare joint venture with Promedica.

This portfolio enter the same store pool for the first time this quarter with 1.375% year over year growth and EBITDAR and EBITDARM coverage is of 206 and 277 times respectively.

Lastly, our senior housing operating portfolio continued to perform above our expectations with total same store growth positive, 1.5% in the quarter, bringing full year average total senior housing operating growth to 2.7%.

As with prior practice I will now provide detailed and pull changes in our senior housing operating portfolio.

In the fourth quarter with nine assets once will change your senior housing operating seems to reform.

There was an 11 asset west coast portfolio removed and moved to held for sale offset by two assets entering the pool.

At year end 2019, we had total 77 senior housing operating assets classified as transition properties.

Increase of two properties at the end of three Q.

Driven by three assets the transition from Triple net to RIDEA.

In one form of Brookdale assets, the transition to a triple net lease.

The remaining 74, former Brookdale silverado transition assets.

Anyone events you test we've transitioned all reenter the same store pool by were during the fourth quarter 2020.

Our guidance assumes a slightly positive impact on results from transition properties in 2020.

And we will provide more color on this as we progressed through the year.

Turning to capital market activity in the quarter.

We continue to take advantage of very strong bond market issuing debt across two geographies in December.

First we issued our inaugural Green bond raising 500 million of seven year debt at 2.7%.

Welltower SG team led by Kirby Brenzel, but a lot of time and effort in preparing for the reporting requirements that come with Green bond financing and it paid off with tremendous support received from yesterday investors.

Welltower is committed to staying at the forefront of yesterday initiatives I mean look forward to growing as part of our capital stack going forward.

Secondly, we returned the Canadian that market for the first time since our inaugural offering in 2015.

Refinancing our 2021 Canadian dollar maturity to the issuance of $300 million of seven year debt at 2.95%.

In terming out our last remaining unsecured 2021 maturity, we removed all major unsecured maturities through 2022.

Meaningfully de risking our balance sheet for the next three years and increasing the weighted average maturity of unsecured debt stack to 8.8 years.

Additionally, we continue to access the equity markets during the quarter VR chip an ATM programs.

In the quarter, we issued approximately 4.3 million shares and the weighted average price of $85 in 19 cents per share.

Estimated proceeds of $364 million.

As of todays call through our forward ATM program. We have raised we've sold 6.8 million shares of common stock the yet to settle.

Representing 583 million of estimated proceeds.

Turning to leverage.

We ended the quarter and 6.37 times net debt to adjusted EBITDA.

Temporarily above our long term target range.

This is due to the timing of capital recycling and more specifically to the fact that $1 billion. Our previously announced acquisitions closed in mid December.

When adjusted for a full quarter of acquisition cash flow and for the updated investment and disposition guidance along with raise but not settled forward equity leverage the expected returns the mid to high fives by the middle of this year.

Lastly, before walking through our 2020 initial outlook I.

I want to address three items pertaining to our total portfolio same store policy.

An outline of which can be found on the investor section of our website.

First.

We used duration based qualifiers as frequently as possible and policies in order to eliminate as much subjectivity from our disclosure decisions as possible.

For development properties under the same store pool, following five full quarters of being service.

Well in plays an important role in our senior housing investment strategy.

Our development pipeline represents a small fraction of our total senior housing portfolio.

We've determined it's useful to provide more insight its contribution to our same store growth by providing a stabilized senior housing operating growth metric as a complement to our total portfolio senior housing growth metric.

Stabilizes defined is nine quarters after being placed into service.

Given the broad range of product, we develop from senior apartments to assisted living we believe that using a duration based metric is representative of the entire pools stabilization pattern is more straightforward for investors and attempting to create rules for each bucket.

Second.

Normalizes.

We normalize our same store results for changes in currency ownership as well as for unusual nonrecurring items, such as property tax refunds insurance reimbursements.

We believe this to be beneficial to investors' understanding our run rate business.

We've disclosed all normalization normalization amounts in the back where supplement since 2016.

First off disclosure 2019 average full year shopping NOI growth would have been 50 basis points higher.

Without normally normalizing out unusual and non recurring items that benefited us in 2019.

Lastly.

In 2020, we will continue our efforts to further align.

The reporting of our same store in our quarterly filings.

With our same store in our supplemental presentation with an intent to reach full alignment.

Now onto our 2020 outlook.

And indicated in our press release, we are initiating full year 2020, AFFO guidance to a range of $4.20 to $4 in 30 cents.

The total portfolio same store growth underlying growth of one half to 2.5% money.

At the segment level. This analyze comprised of outpatient medical growth a positive.

2.25% to 2.75%.

Long term post acute growth a positive 2% to 2.5%.

Health systems growth a positive 1.95%.

And senior housing Triple net growth positive 2.25% to 2.75%.

And total portfolio senior housing operating growth of 1% to 2.5%.

At the midpoint of total portfolio senior housing operating growth stabilized same store NOI growth is estimated one positive 1.25%.

I think I've investment activity, our initial AFFO guidance assumes your net sellers for the full year with initial disposition guidance for the year of $1.7 billion it well powershare.

With an average yield of 5.1%.

This includes a little over 1 billion of previously announced dispositions, including 740 million rare Invesco Moby joint venture.

And $675 million under contract dispositions announced last night in the earnings release.

On acquisitions as always our initial guidance only includes acquisitions flows were announced which totaled 1.1 billion as of today's call.

Made of 320 million.

That has already closed and approximately 820 20 million remaining MLB transactions that will close in the first half.

Lastly on developments, we are approaching inflection point with our development pipeline as it pertains to spend relative to deliveries.

Relatively light year in the build refund for the first three quarters of the year before delivering 210 million of our 302 million of full year deliveries in the fourth quarter.

In 2020, we will deliver another 714 million of deliveries against 468 million of spend.

So as its development portfolio starts to run out a little bit will feel a bit of near term dilution.

Secondly from the show part of our development pipeline.

As you will have 400 million of deliveries from the fourth quarter of 19 through year end 2020.

Creating two cents per share of drag on FFO for 2024 stabilizing over the next two years at positive 6% to 8% of FFO contribution per share.

The mountain pipeline upside beyond 2020, along with upside from transitions and the continued recovery in senior housing.

What makes us optimistic well beyond 2020, as our portfolio position exceptionally well to benefit the demographic trends across all of our geographies.

With that I'll turn the call back over to Tom.

Thanks, Tim.

So you've heard us repeat the word optimism throughout our prepared remarks this morning.

Just a sincere.

The green shoots from our core portfolio. We saw in late 18 that grew 2019 are fueling this optimism.

Our singular strategy to align with major health systems has been validated and we're mining many interesting investment opportunities that will enable accretive growth and drive shareholder value.

We look forward to talking more about this with you throughout the year.

Now Liz please open up the lines for questions.

Ladies and gentlemen, as a reminder, if you'd like to ask a question at this time. Please press Star then one on your telephone keypad.

To withdraw your question press the pound key.

Our first question comes from the line of Steve Sakwa with Evercore ISI. Your line is now open.

Thanks, Good morning, I guess, Sean first on just the acquisition environment and kind of the pipeline could you sort of give us a sense for how big the pipeline is today versus say six to 12 months ago and what areas is it sort of most robust.

Thank you Steve Good morning, the pipeline is as big as we have felt this time really.

Throughout the year, but particularly relative to last 212 month pipeline is significantly bigger.

I told you in my prepared remarks that the pipeline is focused on two areas. One is on the senior housing side. The other is our.

Deals that a source through our relationship with health systems were.

Mostly you will see that this year other than the transaction that we have made our we have shaking hands 12 months ago, a six months ago, plus will be mostly out of the inmobi market. This year.

So senior housing and.

And health system transactions directly with assistance.

And is there anything without getting specific can you share anything just about pricing trends or cap rates kind of as you look to deploy capital versus maybe where you spent capital in 2019 or things better getting tighter.

So.

On the senior housing side, if you look at sort of the top and really pretty assets really good markets very good operators cap rates at extremely tight and they have gotten really tighter than let's say 12, 18 months, particularly last six months.

The.

Transaction, we announced yesterday sort of shows you that on the other hand, which seeing the emergence of distress.

In memory care and in markets, where you saw the first.

Burst of supply in 15 16 17.

Anything in the middle is sort of it depends right. If you look at our pipeline and look at a history, we'll see that we grow with our operating partners with our development are off market acquisition, one or two assets at a time and that market remains extremely favorable so we have a lot of.

Hi, there very small portfolios or a lot of one off assets to asset three assets that in the pipeline that add up to a big volume, but that's why we get out pricing.

And thats it becomes very accretive so we're very very optimistic.

Okay very optimistic about the deal pipeline this year.

Okay, and then just one follow up for Tim I. Appreciate all the commentary I couldn't quite get all the numbers I might've missed an exact spread I think you said that.

The developments do help boost same store a little bit.

And that you're almost putting a second number out there can you. So can you just quantify what same store I guess is being boosted by in 2020 just from the developments.

Yes, so Steve the numbers that I gave were one to one or two and half percent range for our our total show portfolios of 1.75% midpoint.

And at that midpoint assumes a stable portfolio grows at 1.25%.

Got it okay. Thanks very much.

Our next question comes from Jonathan Hughes with Raymond James Your line is now open.

Hey, good morning.

Thanks for walking through your same store definition policy and providing the slide deck on the site.

I was hoping you could give us maybe this rep for rep for occupancy an expense growth components embedded in your shop NOI growth guidance.

Jonathan I'll take that so you know as we've talked to you about this before the the three big variables, which moves where we land on the same store NOI growth, obviously, that's occupancy thats pricing and obviously labor right. I mean, there are the three major components.

Without getting into too much on how those things will obviously.

Change each other or influence each other though I want you to sort of pink about is what we have seen in last call. It four to six quarters, you will see flattish to slightly down occupancy and you will see three plus percent growth in the rates and we will see what we get on the labor side as I said too.

But that doesn't make a trend we're not assuming that trend will continue but if we do get some help on the labor side, what we've seen in fourth quarter. If that continues obviously that would be upside.

Okay. So we can kind of extrapolate need to past couple of quarters and roll that forward and that's that gets year.

Embedded guidance any difference in the non core portfolio.

No we have the non core portfolio.

You know obviously, there's a significant difference of performance I'll give you. An example, just in fourth quarter again don't take one quarter and run with it but just if you look at U.S. in fourth quarter large for us markets were up 300%, 3.4% to be specific and then alive and other smaller Mako.

It's went down to an odd percent, there's a significant difference outperformance between large for us markets versus smaller markets.

We're seeing that so I don't know exactly what that will get too, but my I suspect that you will see big difference between the two as we roll through 2020.

Got it Thats, great and then just one more for me.

Tom you talked about your partnerships with health care providers and capabilities in the prepared remarks, but was hoping.

You can talk about how your new partners, specifically, the senior housing partners ascribe value to gaining access to your data analytics platform in the world. The washing capital I think a lot of these operators can go out and admittedly fine cheaper sources, but clearly they come to you to gain something others don't provide some just trying to figure out how us as outside analysts and investors.

Ascribe value as part of your business because it is so unique.

Well.

Thanks, Jonathan I'd say that it's helping our.

Senior housing operators understand where to focus because we can provide them such granular in information.

About their target populations, it really helps them become much more efficient and effective senior housing operators.

And we're now taking this.

Expertise and bringing it to health systems Health systems are now working with us to figure out how they can build market share in certain markets that are important to them and this this is a tool that they've really not had in their arsenal before so we see it's too.

Truly a differentiator.

I'd also say that our senior housing operators are also seeing the other capabilities, we bring I talked about the care more anthem.

Collaboration.

That is a win win for everyone involved including the resident their families. The operator and from a senior housing operator standpoint, we see expanding the.

The operating model of a senior housing facility by.

Collaborating with third parties like a care more.

And drive occupancy and increase length of stay and may offer opportunities to to enhance revenue. So we think that we're always focused on on alignment that you here. That's a word others and optimism you hear from US a lot which is alignment.

And.

It's not just talk it's real it's happening.

And that's what's driving.

Senior the senior housing industry, the people that see the future and know that the future. The senior housing industry is not what exists today for the most part and they want to work with Welltower.

Okay, Yeah, I mean from us in the outside it just trying to understand how maybe we price it into the metrics that we see in terms of the yield on new partnerships. So yes, that's right. Jonathan It's early days I think you'll start to see it's going to help you I think.

Over time, we'll point you to where we're expanding the service model in senior housing through these types of collaborations and there should you should be able to see better performance. So.

That will get its early days, but as I said earlier, we're starting to roll these programs out into multiple markets across the country I think thats when it will be more tangible Jonathan just you know these things are hard to model, but I would just one way to think about it could be that if you look just in last 18 months Weve talk.

Q about.

Eight new operators right I mean.

To your point, the coming to work with us because so far this capabilities not of our cost of capital right, where the significance cheap sources of capital the wireless on west with capital.

These are these capabilities. So you can one was to think about it.

You can think like how many of those operating partners that we may or may not be able to get over a period of time, and then think about our ongoing investment with them as I mentioned in 2019.

Yeah, we're sort of announced our batch of 2019 partners and so far today as of today, we have invested more with every one of them. So that sort of what gives you a sense of before trying to get a sense of what the you know platform is one thats Tom talked about the platform is what more than.

Just the asset and you know obviously, that's the way you can get to the platform so that might be a one way to think about that.

Yes.

Thanks, very much for the color guys appreciate it sounds good.

Our next question comes from Nick Joseph with Citi. Your line is now open.

Thanks, maybe just sticking with partnerships Paul should we expect 2020 from the Jefferson one.

Well, we're hopeful in 2020, you will see kind of the first stage of.

Hey, joint venture around some of their ambulatory assets. That's that is something that we're currently.

Working with them on they've identified.

Some of the assets that will go into that joint venture. So I would expect you will see that this year.

And then the next piece of it is bringing jefferson's.

Services into our.

Senior housing and post acute portfolio in the greater Philadelphia region, we have a concentration there we have 20000 lives.

Particularly 20000 lives of people that are mostly paying out of pocket to live in high end senior housing is a very important population to Jefferson and that's that's one of the keys here I think you're going to start to see more health system.

Presence in this in our senior housing portfolio.

It's happened already but I think with respect to Jefferson it'll start to be.

It will start to be driven at scale, because there's such a large system and we have a large portfolio. So I'd expect you'll see that in 2020 some of the other.

Aspects of our relationship are little bit more longer term focused I talked about.

You've heard us talk about our clover.

Housing model.

Concepts like that.

That might include Jefferson clinical from a firm up particularly from a primary care standpoint.

Being co located in those types of communities is something that we are very actively looking on because again.

Jefferson talks about healthcare with no address that is allowing them to push out.

Their products and services outside the hospital campus and that's very much a focus of what we're doing together.

Thanks, that's helpful that Sean just on MLB.

Cap rate compression that you've seen there can you put some numbers around that and then who are those incremental buyers that are driving cap rates down.

I mean im not going to given numbers you have seen some very aggressive trades in recent times.

Again, if you look at our what we are closing I've talked about in real estate transaction, you should take everything with the six to nine month delay so think of other announcements we made.

During may read a new should we should bid that back six nine months ago right. So to.

Cap rates are tied they're coming down a lot of public reads institutional owners private equity I don't want to specifically name someone.

But the whole point is we as we said several times.

We think our bogey.

We have to head on an unlevered, our job is 7% or are.

Pretty close to that and weeping that asset class if that asset club gets priced somewhere in the five closed in a low fives or five that makes absolutely no sense why investors. So if the pricing gets that will stay away the pricing remains sort of mid five will be active.

Thanks.

Our next question comes from Rich Anderson with SMBC. Your line is now open.

Good morning, So a good one talk about.

Your peers and you and the same store.

You know discussion Tim that you went through.

I'm just reading the tea leaves and it seems like maybe you were involved in a kind of co-operative process to get on an equal playing field I.

I don't know me maybe were involved.

Can you just described if in fact, you weren't what were the holdup that didnt.

Sort of get you to a point, where you would win in exact agreement with your peers, namely Ventas and peak and.

Is there a chance that we'll get there.

Some point in the future. So that we do have this sort of more agreeable sort of environment. Among the three view on that topic specifically.

Good morning, Rich, it's Tom let me jump in on that first and then we'll see if Tim has any additional comments.

I'd say that well towers, how to same store policy for years and that policy and our adherence to that policies review quarterly by our audit Committee.

By the way this policy applies across all asset types at Welltower beyond senior housing Triple net MLB and the others.

So yes, you referred to the chatter about same store senior housing policy.

Which I suspect has much to do with.

Significantly stronger performance of our assets versus the others you mentioned.

Look I hope our earnings results that we report today that we reported.

Throughout the year and the fact that we proactively dealt with our problem children over the last three years speaks to the quality differential.

And so you saw that we posted the policy that we've had in place for a number of years.

You can take a close look at that you can talk to Tim about that we're a very different business. We are a very development focused business. The type of senior housing assets that we'd like to buy don't exist. So we have to build them and where are the ones who are driving that process. So.

I don't think we're talking apples to oranges here necessarily in terms of senior housing portfolios.

And I hope that.

We are putting this matter to rest because it's not a productive discussion.

Yes, and I would add to that.

The intent.

The conversation I think the alignment around it is that.

We intend to bring more information to investors transparency comparability in the rest of it I think youre seeing some positive outcomes from that.

From our.

Our.

The presentation presentation or the outline of our historical policies that we put out last night I think there you'll see there's a lot of familiar millionaire days between policies and.

And is that continue to provide investors with the information they need, particularly as it pertains to kind of.

Differentiating quality between between portfolios.

Okay. So like total portfolio versus just the shop portfolio.

As part of it is.

Part of our thought it toward our total portfolio is the focus right and having.

Well, we posted last night was our total portfolio approach and that's I think that the idea that you.

By Welltower because of our.

The exposure, we have across all of our asset types and what that does to the consistency of our cash flow and so just said morals approach and yet a better view of how that entire businesses operating.

Okay.

Tom early in the conversation you said.

Sometimes things don't work out that's life in business and generally.

Can you give an example, where something didn't quite work out the way you'd hope, but that you had dialed in protection mechanisms at the point of the negotiation to protect the downside and protect your investors do you have one or two in mind, where that in fact has happened.

Yes, but I wouldn't be able to tell you specifically about that but yes. That's one of the reasons why.

Our performance is better, but I'm not going to call out specific operators.

On this call but.

I will tell you that we give our operators and incentive to outperform.

And that when you when you work with the right people is hopefully.

That's driving the performance versus the downside protection, we don't we don't go into any arrangement.

Hoping that we're going to be able to.

Pull the downside protection lever we.

This is inappropriate conversations called people out on a public call, but often start to offline, but think about.

We have changed the business on whether idea trio structurally is it's very much laid out for that downside protection. It's also significantly provides upside participation. If you think about how we have moved away from ill give you. Another example, which is obviously, it's very easy to think about senior housing, but just think about what we are.

Don on the loan books, right, which essentially were cut in half we don't make opco loans anymore. We don't make this kind of.

So lending money to operators are lending money adult pull levers why is that.

It's been causing the downside protection will be that if you.

Lender in a specific asset or box you should be able to take on what that box if things don't go right.

Right, we're not allowed to own and awful right completely so the fundamental.

Idea behind this kind of loans a flawed. So we don't do that anymore. So thats why you see that our loan book has come down but anyway I hope that those two examples are sort of gives you some ideas to win what life to think about will help reduce speak with you offline, yes, I didnt mean that put on the spot there, but I thought.

The good examples promedica, which added downgrade and all that but yet here you are producing or they're producing over two times coverage versus the 1.8, starting point. So I think that would be one example, no no fault to them.

Just just with the function of you guys setting that up well so just wanted to credit transaction.

That were protected by the by the credit at the parent level and it's a very good example, up you know this this organization, which is not for profit health system, but has an extraordinary business mine.

You are seeing you just in what happened in the insurance business last year and they have taken really tough calls and exited business you don't really see that and then autumn not for profits right. They said they made that promise to their bondholders and they did it they executed if you go back and look at the presentation that presented at the Jpmorgan healthcare.

Our friends that lays it all out.

So very very good example, that's where our interests are aligned that you will see that will continue to grow with them.

Coming from a guy who didnt like it very much at the outset. So.

So good free.

Thanks, Ryan. Thanks appreciate very much thank you.

Our next question comes from the line up Derrick Johnson with Deutsche Bank. Your line is now open.

Good morning, everybody.

The 740 million shop portfolio that is subsequent to quarters and slated for sale can you give us some more details, including what percentage of these assets were already converted to the everyday as three dinos structure or had they not been and then also what percentage of your going forward shop.

Operators have been converted to the new structure. Thank you very much very good question, it's and transaction in process, So I'm not going to get into too much of what the transaction is I will tell you that this is not if portfolio in radio trio and the second thing I will tell you about this isn't the buyer of this portfolio.

He is an extraordinary smart and very well known institutional investors, we have a tremendous amount of respect for them and we do a lot of a business with them in different places that weve. So we think not only that this is a great transaction for US. We think this is going to be a fantastic transaction for their investors about 80 busters.

Sent off our offered us today.

Our have offered us today in that already had three or.

Operating Derrick dairy, but I'll add to that is.

Perhaps when you see high quality portfolios being sold by Welltower that may be an indication that that operator was not interested in it right. The 3.0 structure perhaps.

As a generic comment as a general comment.

So that's something you should consider as to.

Why we might.

Choose to sell some portfolios that look to be and are very very strong portfolios of real estate.

Okay very helpful. Just switching gears quickly to health systems I notice to same store NOI assumption of 2% growth I mean, I think this is the first time, you're including this in guidance.

So I guess, while the health system Buildout is in the early days in the growth rates, maybe initially lower and possibly ramp over time. The question is what do you feel will be the long term growth rate of the health systems.

So.

So that is obviously that bucket is if you think about it the for medical bucket as you know the first year. This color there was 1.35%, 375% and going forward is to seven five I believe we closed the transaction on July 26, So you have a mix up a 1375.

Yeah.

275.

But when you get the full year, you will get to 275.

Okay.

Is once we started five part of the two centsfive going forward to subside.

Got it.

Our next question comes from Vikram Malhotra with Morgan Stanley. Your line is now open.

Thanks for taking the question chunky referred to sort of the senior housing barbell approach.

And obviously and other asset classes, you can think of multifamily as a b C and and other asset classes. Some different break ups, but just curious if you described that part of the barbell that you've just started building can you talk about how competitive that market is pricing what type of structure as you may be employing similar to sort of the right at three.

With that you've done for the existing portfolio, it's kind of walk us through how to think about that market from in terms of differences in terms of pricing structure, yes, I'll be sort of describe to you at high level basis, what it meant by barbell approach. If you think of on just purely from a pricing perspective.

On the high end you can pass.

The labor inflation, that's been happening and across the market.

But if you think about generally speaking across all markets wages have been going up whether thats sort of and move on minimum wage somewhere close to 15 or whatever that metric is part of given market or just general.

Sort of a lift in wage because of low unemployment that is happening across the board in certain markets in high end markets. You can pass that to your consumers on your consumer understand best deck is right that you are not just.

Backing up ramp because we want to Jackup, Randy I understand there's so many people who serve them and wages are going up meaningfully in other markets, where I'm talking about is the lower end sort of we called lower rent market, where you don't have a lot of people. It's a lower service model. So higher margin you don't you are not impacted by sort of.

The people.

And inflation thats, but so we think somewhat in the middle the problem is still facing the labor to move towards that.

13, 14, $15, yet you don't have the price to justify that that's sort of a dichotomy today is the first time, we're seeing.

Respective up market labor growth has been pretty much towards it much higher number than they have been so so you've got to concentrate on the market, where you can do past that pricing or you have to be in markets, where you were not providing that one to one hands on health care I knew I sort of a lot.

Service model. So that's sort of were focused on let's just.

Addressing or next question sort of where are you asking for what are we doing on the low our service model side remember these are apartment acid effectively CNS apartment.

As a result, we can own apartments I have complete control, we don't have to get into a ride. The three iOS type structure, where there is a what were allowed to on as part of the Opco and not that does not apply for those kind of assets you have a much higher level of controller.

Great.

And then Tim could you just clarify the you mentioned the 50 basis point Delta between the same store portfolio growth and then applying that sort of stabilized.

Layer onto it can you just clarify may have missed this site dial in late when you say stabilized what do you sort of excluding because the development properties I think you laid out they come in post five quarters.

Correct. So the development properties come into the pool post quarter. So we've got a duration base rule in that and.

They don't stay of what we said is we don't stabilize from for this metrics purposes until they are in for nine quarters.

And.

In my prepared remarks, I went through some of the reasons for that so the non stabilized portion or the.

Of the.

Same store portfolio is made up those assets I mentioned, the pool, but haven't hit that stabilization 0.9 quarter, Okay, and what does it stabilized number for 2019.

The stabilized number two in 2019 is 150 basis points lower than our two seven.

Okay great.

And then Tom just one last one you've talked a lot about.

The partnerships with the health systems kind of how Jeff what Jeff What Youve Jefferson Me, Dave I'm, just sort of curious as to how long that sort of partnership.

What we're sort of the push backs and do you see this as being what type to systems do you think would be more open to the sort of partnership.

Okay.

Very good question Vic.

These partnerships take a long time because.

You have a myriad of of people internally that you need to deal with.

And and establish credibility with.

And there's also boards involved and I think one of the.

Things that made Jefferson and successful is that we had established relationships and credibility amongst the management team as well as with the board of Jefferson.

But these are not.

Quick.

You know.

They put an RFP out near responding to these these are very nuanced.

Relationships.

That that take time and so there are a number of them simmering on the stove right now that.

Look like Jefferson I mean, the fact is the truly the high double a plus health systems for the most part will believe that they're better served by raising.

Raising debt in the capital markets.

We try to remind them that debt has to be paid back.

We have a were offering them a long term solution.

Help them grow not that they won't take advantage of low interest rates in the debt market, but we're just another or in the water of capital.

So.

I would tell you that.

There are some.

Relationships, we have been developing that someday look like the Jefferson partnership in some might look a bit different.

So I would just say stay tuned but were actively.

This is an area that we've been very actively engaged in for many years I was just had one thing victim. If you think about health systems will still believes.

That healthcare should be delivered primarily within the confines for was of the hospital.

And.

So bill probably will have a different tax versus a lot of health systems belief that help healthcare needs to be out in the community.

In where people live and sort of behaving more off a comprehensive approach to health and wellness and you will see more of them will.

It's beyond cost to capital.

If it's just cost to capital.

Some health systems.

Have a very low cost to capital. This is this is broader than that and I think that is.

An element of why anyone does business with Welltower, there's a there's a broader value proposition that we that we present its not just about cost to capital and that's why we're growing the way we're growing through off market transactions, because if someone's going to put out an RFP and wants to get the lowest priced capital.

Well, sometimes baby that might be us, but thats not how we're thinking about growing our business.

Great. Thank you.

Our next question comes from Jordan Sadler with Keybanc capital markets. Your line is now open.

Thanks, Good morning.

Moving to the shop portfolio for a second can you.

Talk about the new lease spreads versus renewal increase that are baked renewal increases that are baked into the guide.

For 2020.

We'll just tell you done that we think that we're going to good overall pricing above our expectation is on pricing trends will remains very strong the spread between new lease renewal differs from operating partners to operating partner building to billing. So it will be an impossible talks to get into that but generally speaking.

You know people, usually don't live our exceptional communities, which provide exceptional care just for a small increase of price that youve justified by what is happening in the labor market.

So I mean I know there's I, obviously, there is a pretty broad disparity probably also in terms of the same store NOI performance across the portfolio, but I'm just kind of thinking.

Blended across the portfolio.

Any granularity you could offer in terms of what what sort of happening on a mark to market based upon releasing.

So so let me tell you about the disparity I talked about the disparity of operator, so on an annualized perspective, right mid single digit negative to double digit positive.

Not just im not thinking the endpoint just give you a pretty big granular different there, let's talk about pricing. We had one operator, who has seen pricing in the mid five range bunch of offer does have seen pricing in that sort of the four to five range and a lot of people have seen that sort of two to three.

On a half percent rain that sort of gives you the broad spectrum I've seen one that has the sort of the lowest up one one an odd percent, but that's sort of gives through the range.

The second quarter, New laws is done in mark to market remember what happens on the overall cost basis, you come in at an assessment level over a period of time that assessment goes up right. So from a cash revenue perspective, and eventually to say.

Care levels of one to five I'm, making this up to make a point yeah I get it came in at a tool, but you know you leave that for foreign the hub that also has a different.

Pricing on care on a mark to market basis, because the next person coming into the two two and a half right so but from it so what we're seeing and we've seen this is no secret to anyone we try to keep the.

Level same silly the higher acuity people leave like UTI residents come in so mark to market.

On the care side is always negative on the real estate side remember this to price right. The rent side, we're seeing rental increases across the board pretty much that's sort of mirrors, what I told the market rent I'm talking about where what I've talked about on the pricing side. So that gives you a sense of what happens Sean.

I'm sure you've done this who work with your data team would you share what.

The seasoning impact if you will.

Is on same store NOI growth.

From just basically.

Folks aging in place across the portfolio.

I will acuity of care rising Yep, I will take that up.

With my team and talk to you offline.

Okay, and then one other just.

Ppm.

Tim Obviously, you pointed out nothing in the quarter.

Any early comments in terms of what you're seeing across the health system portfolio and door with Genesis just basically in your conversations with these tenants and then.

In Flash partners and then.

Yep expectations coming from CMS regarding recommendations for reimbursement come April Yep. So first is I think it's too early to comment on what the impact of PD pm.

So we move for us sort of that something it will take time for.

Everybody to understand under that have different impact on different platforms.

Very different impacts so thats sort of I'm not going to engage into that and pretend I know exactly what's going on I will tell you that this is exactly why we don't want to do and that's why we structure that Tim Medicare lease in the way that we did we do not pretend that when an expert in CMS.

Rate increases and then we'll be since we just not second categorically given that I've told you that we're obviously not an expert will stay away from what might or might not becoming I was just remind you that generally speaking as I said across the board, we're seeing stabilization of that business.

That business has been pretty much on the attack for years and years, citing our regular does understand that there isn't a lot of bankruptcy filings in that sector over last two years I think regulators understand that that is a very much of it needed sector and our health system partners will tell you that that is very much of it needed sector I think whatever happens.

I have zero insight and whatever happens, we'll be reasonable and will have an impact positive or negative.

Currently on different platforms.

All right I'll yield the floor. Thanks, guys.

Thank you.

Our next question comes from Joshua Dennerlein with Bank of America Merrill Lynch. Your line is now open.

Hey, good morning, everyone warning got curious how involved are you guys in the site selection of the new related a treated development in the Hudson yards.

This specific one or in general I guess, just with that partnership like is it your data team kind of leading leading the charge on like Hey. These are good good sites.

These are what you should consider just just curious on that front, so that generally though it works that you have.

An extraordinary related team of professionals that led by Brian show.

Related who leads this particular vertical brining trucks with my team and works with the idea that team directly.

It's a two way process that extraordinarily good developer, we'll look at whether this find the site or we find the size. We look at then what we do is we run that through our analytics process see demographically cycle graphically what it looks like why this is different and this is it two way process. So but you are correct that every site awesome.

Both sides, we look at.

We do it through our that goes through our analytics process and we then debate.

Give you. An example for example in DC, we have so far past on several pieces of parcels because we couldn't get to what we're actually trying to build so there's a lot of sausage, making goes on and obviously our bid analytics team is very much part of that in the frontend from the very beginning.

Great. Thank you.

Thanks, Josh.

Our next question comes from Daniel Bernstein with capital One your line is now open.

Good morning.

So the comment you made about owning operating your.

The lower end businesses senior apartments, maybe independent living.

There's a lot of competition in the apartment space Gray star other private equities Carlisle.

How do you think about the rich.

Of that sector, given the competition versus the opportunities and and maybe how do you think about.

Creating a building your own welltower brand within that segment.

Uh huh.

So Dan.

85% of seniors have incomes of less than $50000 year.

And.

Surprisingly, there's very little products.

For.

The that population a lot of the independent living you've been referring to.

Bob sells at a premium to other multifamily in the market.

And that is not what we're doing at Welltower.

There may be markets, where we will bring a premium independent living product because the demand is there for that type of a product, but when we talked about some of the markets in this country.

That we are that we currently own assets in.

Bob.

These are addressing a tremendous unmet need and.

The opportunity for people to live in safe housing.

That is designed to accommodate along arc of aging with rents of 900 to $1200 a month.

That is there's a tremendous opportunity there and what we're doing is when we can connect that housing concept with.

A payer because these are people that are on Medicare advantage plans and when you can you can work together with the Medicare advantage plan.

You can really help them reduce risk and hopefully.

Create better environments for this population to live and this is a population that's never going to be able to afford to live in senior housing and at least the seniors housing that we own. This isn't this is a new asset class.

And your point about will Welltower.

Brand this sector stay tuned for that you'll hear more about that this year, Dan if you uptime come over to.

You are at some point and sit down with our leader who runs that business I should mention and understand how we are.

Walking and thinking through the exact same province, we talked about but we're not focused on the high high end up that business. So if you think about you talked about gravestone. Another as I don't pretend to be an expert in Greece does business, but my understanding is that they're focused on the high end of that product many high price point.

You know $3000 to announce thousand dollars something like that.

If I understand correctly, we're focused on the lower end of that product thousand dollars 12 under those $1500. So it's a different product.

Okay. That's that's actually really helpful to understand that and I will take you up on your offer to come up to New York.

One other quick question.

Movies have shown some improving occupancy.

ER to get that occupancy or are you, giving away any extra hi.

Anything that might cause a little bit of drag on that fady FFO or is that simply.

Yes, the movies locations next to a hospital and there is demand there and that's driving the occupancy just trying to understand that a little bit better.

Dan This is Keith coli I want to say, we're are actually our capital expenditures are below our historic.

Experiences, so we're really not giving away.

Any additional capex or improvements to get tenants into the spaces, we're really just very focused.

Our team.

Is is really in the market canvassing the market and it's really just driving activity through focused on the business I would say is what's really.

Resulted in our increase in our occupancy.

Then one thing I will tell you that you're sort of course and implies.

That and billing being right next to the hospital is what get them leased I.

I saw you Ledger Vista, you probably have hard me, saying that in the panel.

We do not believe that on campus Mpsvs are where the industry is and what the industry is going we have sort of know horse in this raise we our portfolio is roughly half on campus and hopefully.

No roughly half off campus, we do believe the consumerism in healthcare is real and healthcare is moving to web.

So it is.

Asset by asset system by system relationship by relationship, but I want to make sure that you understand our view right or wrong, that's our view.

We do not believe that on campus and will be that sort of this asset class.

That we need to strike, but we just don't we just don't think Thats the model of healthcare, where the future is going to be.

There was certainly the view at least as well I think so.

We appreciate the color and I'll hop off thank you. Thanks Stan.

Our next question comes from Michael Carroll with RBC capital markets. Your line is now open.

Yes, thanks, Tom or Sean.

Some color on that low acuity senior housing product that you guys been talking about throughout the call.

Type of investments should we expect out of there does this product exists today or do you need to really build most of it.

We we have invested.

Significantly in lost.

Call. It 12 months, we've invested close to half a billion dollars some of the products do exist.

And our team is actually just closed transaction.

Of three three assets in.

Vegas recently actually.

Last couple of weeks.

Products do exist, but not in terms of the acquisition volume that we would expect from us because just what we're trying to address.

You will see acquisition you will see development.

But I'm not willing to give you a number that would suggest that we have at target, which we don't which is the most important point of the call I read so much about.

Two year cycle, we're targeting idea. We we did we actually you saw that when the price was right. We saw a lot to RIDEA portfolio. These days I see people say, we're targeting to buy it won't be we don't.

We have been absent from that market I already indicated to you will be absent from the market probably this year. There is no target portfolio in our head that we're trying to get too. It is all and IOD driven model.

So I just wanted to understand that it's very important point, we're not trying to solve foreign exposure with trying to invest capital wait investors not deal processor.

Yeah that makes sense, how many operators do you have right now there are focused on this I know Clover is I think you mentioned mark.

I guess, how many operators do you have that are focused on this type of product we have been to relationships that were in discussions you mentioned, obviously clover by the others.

Too early to comment on how many people that we'll be doing business with you will see more of this conversation that the rules, but I can assure you that when conversation as I offer to Dan.

Come over to new Oxted done with us she will be able to give you much broader and more acute sort of accurate view of what's going on in the business, Mike I would say late at our Investor Day. Later this year. This will be an area of focus that will present, so you'll get a deeper dive.

On this business line later this year.

Okay, great. Thanks.

Our next question comes from the line of Omotayo Okusanya with Mizuho. Your line is now open.

Good morning, everyone Morningstar.

Hi, So your initial guidance it was lost acquisitions and dispositions activity has you guys.

Set up as a net seller at least discussing here I think again dependent given your cost of capital that somewhat surprising to a lot of people without the themes on seeing the amazing prices you're getting on some of these sales also makes perfect sense.

So the question I happily.

12 months I'm, not do you guys kind of to see yourselves.

Got it looked at the.

Through the Midland.

On a backwards, but then do you still see yourselves or the net seller for the year or do you kind of thing keeping your positive commentary on the acquisition front.

To kind of see yourselves or the net buyer by by the end up 20 to 20.

Hi, I was just gave 2020 guidance this morning on 2021.

No.

Limits what are your 20 backwards is what I mean, yes.

[laughter] I think they you know this from how we give guidance the we're not going to speculate on acquisitions and big reason for that is because acquisitions or cost capital to London, and so John spoke to the optimism we have on that side of business, but we're not going to certainly not going to put things in their numbers.

Where they've been funded so part of the reason you're correct in saying were met sellers. We we certainly we control the sales.

And be controlled by process stuff under contract, but there's a reason we don't kind of putting these speculative in there or not so you've got an idea of what's driving our numbers and.

I think you're likely correct that would be surprising given the current backdrop that we would be net sellers, but that's what's currently driving our outlook is that that net seller.

This is this kind capital markets stays where it is I will be very very surprised.

If we're not significant net buyer by the end of the yet again, but these capital markets different than it is opportunity dependent as we've done dependent.

Okay. That's helpful. Then promedica again, great pricing, the fact that amazing pricing.

Any thoughts around maybe monetizing more of the portfolio going forward.

Trembley extremely happy with their relationship that was an opportunistic sale.

The more leg that comes up web.

Promedica and we come to the same conclusion that we should take advantage of that we'll do that but in generally speaking, we're very happy that relationship and we will continue the relationship, but obviously, it's not get unnoticed and that's sort of what's the point that even rich was trying to point to remember we on this real estate, we're just not done.

On the owner of the existed we on this relative with Promedica way person on the 20% or that as happy with this pricing as we are and they're very sophisticated businesspeople. So then.

They're thinking about the same thing that you and I are so we'll see where we get too.

Good. Thank you thanks.

Our next question comes from Steven Valiquette with Barclays. Your line is now open.

Okay, great. Thanks, Good morning, everyone. Thanks for taking the question.

Just to come back to your comment on the the flat trend for compensation per occupied room in senior housing, which is obviously encouraging kind of sounds like you were hopeful that the improving trend would stay but you didnt have perfect visibility on it I guess I just wanted to drill in a little bit deeper on what you think are the primary drivers of that improvement whether it's just serendipitous.

Or is it related to some specific programs, where you're getting some early traction or maybe it's just too early to declare victory on sustaining those trends just any extra color would help. Thanks. Thank you very much I wanted to understand my comment I said sequential.

Trend on.

On the labor cost was flat it is a sequential comment not year over year common.

No I will I do not want to dipping that labor cost is being flat my whole point was on a sequential basis and perhaps just perhaps.

Second derivative of that growth is somewhat flattening. So it is still a big numbers that going big time, maybe that rate of growth. What we have seen in last 345 years, hopefully that is not going to be as bad with Theyve seen is a combination and that is yes.

Paul I, specifically said that we did not put that guidance. If we do get that it will be an upside to a numbers, but we did not obviously model that because it could just be something send a bit us as you said.

There's a lot going on if you go back about four quarters ago, I talked about different to clauses that we're experimenting with and rolling out in different operating platforms. I think that specifically mentioned the use of one such that has helped one our largest offered us sunrise to reduce that turnover.

You know, 30%. So we are not sitting on our hands and trying to get to somehow.

Trying to outperform the market, we're trying to add alpha through technology.

And so that's why I will let Tom Steve you saw that Phillips put out a press release, a few months ago about of the collaboration with Welltower at 56 Street.

This building will have technology that no one in the senior housing housing industry has ever seen.

We're hoping that this technology, which will help monitored the needs of that population and anticipate.

Their needs.

Will over time be able to have allow us to have more efficient labor models around how we manage.

This population when I took this job add quite came off the board to be the CEO here I remember the management team, saying Wow. This is such a great operator, they have to ft ease to every resident and I remember thinking and that's a good thing.

Thats not a good thing that is not sustainable and so we're looking for how do we improve resident experience and care and do it at a lower cost of labor and the only answer we can think of this technology.

And the fact is we're going to have a great.

One example to look at which I know, it's just a few blocks from where you work steam so.

We'll have a chance.

The later part of the spring early summer to have you see what's happening there, but we're excited about that that's that's part of what we think we need to do as a company.

This this is we're advancing this is not happening in the industry, it's happening because welltower.

Is using its technicals and relationships to challenge the historic operating model and what was essentially hospitality business, which has really become part of the health care continuum that has been something we've done that's not happening in the industry. So stay tuned for more of that.

Okay.

I mean, I forgot the sequential part by the way me on page three in something when you can see you kind of the raw dollar numbers my compensation flat sequentially and enough about three and a half percentyear over year, which is a little bit better than the fortify that gets talked about also just final thing on the subject I was going to suggest a little bit tongue in cheek that perhaps you grabbing all of the therapist sort of being laid off in the skilled nurse.

Missing sector because of PDP M, maybe redeploying them and the lower wages into assisted living but obviously not that simple, but you could that at least be a general factor in supply demand dynamics around skilled labor overall or do you think thats not really a factor.

So just I'm not an export.

In that area.

They.

Wave from making any comments.

I'm happy to connect with you commit to with our operating partners and the CEO of those operating partners, but by no means you know I wanted to pretend that I'm an expert in that area close we'll stay away, but just just to answer that what I. What I have seen is as seen the senior housing concept.

Moves more in the direction of being part of the health care continuum. It attracts a different caliber of labor force and you see that when you see there are few health systems in this country that actually have their names on.

Senior housing properties and also they also on skilled nursing properties and.

They will tell you that there is an extra level of credibility because these properties are associated with a highly respected.

So it does attract.

A better labor force and often times they have to pay them less because people see a broader value proposition is being associate.

I think as as we at Welltower start to move our portfolio more in that direction towards towards the health system. The types of collaboration that you understand we have with payers just legitimizes.

This business from the old age homes that exist all over the country. It are still being built and still being invested in buy rates, that's not what we do.

We're in a much higher value part of the chain here and we're driving that so again I always say this but stay tuned I mean, we're so excited about where this is at it.

Okay I appreciate extra color. Thanks.

Our next question comes from Nick Joseph with Citi. Your line is now open.

Hey, it's Michael Bilerman here with Nick.

So a couple of.

Hopefully just quick follow up in terms of Tim in your opening comments, you talked with the balance sheet being a little bit more highly here today, given the timing of the deals in the fourth quarter and then you have the forward and then the disposition effective guidance, there, which by the summer if you take them a forward would get you do the mid to high fives.

How should we think about it sounds like there's a lot of optimism here on the investment pipeline that you're not going to end up with the 600 million dollar net disposer, how should we think about.

Funding of that net investment.

Yes, Thanks, Micron lift point for I think thats the.

My prior comment on kind of where despite or acquisition guidance its relative to where it may end up.

Is.

My intention in saying that is threatening towards this question, which is if we are under up being a larger net acquirer.

We're going to being another acquirer, we will fund that all in real time so.

On the capital recycling side, particularly as you kind of report that leverage metric four times a year you can have a bit in choppiness in it.

But there is just a bit more.

Of the Choppiness in general when you're talking about selling buying assets. If if we are not selling any more assets you can count on us being.

Capitalizing any further investment in lockstep so.

You should assume that kind of leverage my language around leverage holes.

Our list of where we end up on the.

Net disposition or acquisition side for the year.

Is there I guess based on the acquisition pipeline you know today would you what should we expect you would do a big forward equity offering.

So that you can take down those proceeds essence deals closed or you're more apt today to sort of look at your portfolio and say you know what let's push more into.

The sales market today, because obviously selling assets and raising equity given where your stock trades have very different accretion implications. So I just didn't know which way you were leaning, yes, and I think that.

The way that we think about that is that the sale of assets is being driven by the value that we are seeing in the market for them and so it's been opportunistic and.

If we don't if we don't think there's kind of value.

There for assets, we continue to sell likely your point on accretion is dead on that we have not been selling assets because it's been more accretive to fund through disposition of assets, we've been selling assets, because it's creating much more sustainable and high quality, earning stream from long term so.

The decision to sell as Ben has not been driven by where the capital markets kind of our at in fact, it's been counter to that and that was part of my opening remarks is try to get that point that we are theres drag from how from how we then continuing to capital recycling, but we think thats the right move in.

This is the cycle is we're not calling the cycle, but it certainly is closer to the end and beginning and.

We're very aware of that so that plays into the way that we capitalize in lock step and certainly plays in the way that when we see bids for our assets, we're not trying to real time value that relative to where our stock trades right.

One thing to that and I think you know tired of hearing it from me.

Accretion is a portion of near term accretion is of course enough cap rate on one not a cap rate borrow a cap rate seller right, where total return by totally done seller. So.

Still assets on a total return bases that makes sense to sell that will not make sense to sell if you just look at.

Capra driven near term accretion.

Tim just going back to the same store policy and thank you for the presentation.

Hi, remind me between the 10-Q 10-K and the supplemental.

I know currency plays into it pro rata in terms of.

The Q in the K doing 100% and zero percent of the unconsolidated.

How does this stabilization on development methodology or guideline differ between the same store that you put.

In the queue versions supplemental is there are different than methodology, yes, no difference there will be no difference and methodology there in a two points you made FX.

And pro rata are explained.

80, plus percent of that Delta and then.

Yes.

We talk about.

When I talk about aligning our policy in resi see docs more with the kind of how.

We look out in the supplement and part of that is that we things like transitions.

These impacts same store.

Yeah.

We don't those those policies differ between those two docks at this point. So that's the idea is that will align those more as year goes on.

Right.

But the but historically the stabilization methodology thats five quarter or that you were four quarter and enroll them the fifth.

That application was identical between the number in the soft and the number in the 10-Q and 10-K Theres no difference in Guideliner methodology or rules that you are using specifically on that item.

Correct. We've always that's that that's the I mean that that the commentary up around we're just supposed to.

Yes. The reason why we were approached it from no duration based test is because we think it's the simplest and the lease objective way and I think what what's commodities conversation.

We continue we think we provide.

Ample disclosure to see how that impacts our results and we're committed to continuing to do that but those that five quarters in his.

As in both of those pools.

And then how much finished review just on this topic and it sounded like from your answer to Rich's question that you guys have had a policy for loss number of years you.

Thats checked by the audit Committee.

You've had discussions with the other two the other two clearly.

Came out consistent on Tuesday night.

It it seems as though there are different citizens.

Or else you guys would have all come out at the same time.

I'm reading from your comments, if I read the tea leaves that I guess, they weren't willing to come to you versions you not willing to go to them in terms of agreeing to disclosure.

That's fair.

I just any I wouldn't say that I don't think that one I think that we want to avoid kind of getting into how.

That conversation played out.

I think that as I said in my comment earlier I think that the positive parts of this is for investors and analysts.

Hey, good alignment and getting more information out there that certainly is our first and foremost.

Goal here, but I think what was stress there was that we want to our approach to this is on a total portfolio basis. So yes. It is metrics matter all of our metrics matter to investors is the way to value the entire portfolio and I don't think there's anything to read into of who would come one way versus the other it's just an up.

Approach different approaches and then at Michael.

As I said earlier.

We believe with respect to senior housing, we're very different business and those other companies and so we are policy is what we believe.

Is the best representation of how our AR.

Assets are performing.

What I would say is that our policy also has some downside risk to it for us as well because something moves into a same store pool, a new development moves into a same store pool.

Does it mean that any year the occupancy might drop 10%. So it's not just an upside.

Trying to play I mean this is.

We have thought very long and hard and Ed with other taking advice from others, who we respect to build the same store policy that we think gives the best indication to our shareholders about how the assets are performing so we stand by that.

And given that the scale and the dominance that we have we think we're in the best positioned to dictate what a policy should be.

Right and that 150 basis point into 275 down to the 125 the impact of the stabilization from the development.

That that's for 2019.

Tim are you, saying that the the effective 125 that you would report for a stable portfolio is that it's close to be mimicking what peak.

And then tops are now reporting as their same store definition or do we believe there is still differences even on that measure.

Yes, some of the going to be clear to say that were not.

We're certainly not trying to mimic anyone else's disclosure, we're trying to provide disclosure.

To investors that allow them.

To compare and do what they need to do but that.

Your question on kind of the mimicking side is our intention is to get more disclosure around it. So you can.

Make adjustments are kind of.

Unit numbers, how you want to across different companies, but most importantly, this is for our investors in the way, we think investors should view our numbers so I.

I'm not going to commenting on how that compares to others policies. One one thing I would say, Michael if you're just to build 150 basis points common but the other difference.

CHF one point that steam laid out is the normalize this right. So you.

Trying to get too.

Specific type of disclosure I would not just if one I would take boat. So the net difference would be 100 950.

And obviously team laid out the impact that could be for next year.

Right that was just trying to be by going to producing that's what you call stable whether that was supposed to get closer to a comparable number I understand the normalizing being a headwind this year I'm just trying to put all the pieces together.

Good to see whether theres commonality or not I mean, thats, where I say that the intensive it is to provide more.

Enhancement of disclosure to give you more information I think thats what.

We're hearing we've heard from new investors et cetera, and that's what we'll continue to provide.

Okay I appreciate guys, taking the time thanks bye.

Our next question comes from Chad Vanacore with Stifel. Your line is now open.

All right since called running long I, just keeping to one question.

Just thinking about your Manorcare seems like it hit your expectations and.

Since you will be absent from MLP market, we see an expansion of the snake portfolio. This year, maybe add some details about how you're viewing to market. It for sniffs in terms of risk and returns.

Yes. Thank you very much manorcare portfolio did not hit our expectation exceeded our expectations significantly.

If you go back and looked at last call transcript, we've talked about 300 million those EBITDA.

As you look at what in my prepared remarks, they said they achieved through and 7 million those EBITDA. So thats sort of point number one point number two is where buyer of any asset clause skilled nursing include at a price. We think that today's skilled nursing market pricing is show hot those should be a seller note about it.

Our next question comes from the line Michael Miller with Jpmorgan. Your line is open.

Hi, just a quick one seems per policy aside what has been the average time to stabilize your senior housing developments and as you look at these urban projects that are going into the pipeline do you think though stabilized faster or to similar pace.

We underwrite three us to stabilization depends on obviously product to product is different market to market is different usually we have seen sort of between call. It 18 months.

To 36 months of civilization.

It does matter broad different product at a different plays I will tell you. An example of product that would have taken a long time to stabilize but as stabilize in 18 months we have it.

To that so with our partner Belmont village.

In Westwood that opened weeks after Lehman brothers collapsed.

We thought Thats, obviously that product will probably take three to four years have stabilized is stabilizing eight months. So it really depends what the product.

For the offering is what the demand of the market is but.

Three year stabilization is on average what we underwrite.

Got it okay. Thank you.

Our next question comes from Lukas Hartwich with Green Street Advisors. Your line is now open.

Thanks, just one left for me the year over year growth from the Belmont village portfolio has been pretty volatile.

Can you provide a little color there.

It's actually nonvolatile, what do you see on the sub is an annualized number.

So if you look at any given quarter, you're looking at year over year, you have to divide that by four.

And it is actually not volatility is one of our book to consistently outperform our of.

All assets, we own right I guess I I am doing that uncontrolled fourq he'll 18 versus 14 19, that's what I'm says you can't do that because that's an annualized number what do you see on the south is multiplied by four is what you get.

You understand what I'm, saying that is.

I guess my question is if the methodology is consistent throughout the years wouldn't that trends the comparable.

No it wouldn't be I can tell you exactly.

I don't want to get into these discussions.

Of different offered us, but I can tell you that Belmont actually had a very very good year.

And then why was up for the year again, it's not a quarter to quarter business. It was up in the mid single digits.

Okay, maybe I'll follow up thank you. Thank you.

Our next question comes from the line of Nick Yulico with Scotiabank. Your line is now open.

Okay. Thanks.

Avoid some of the philosophical discussion on same store, but instead I just had a question about for the guidance on 2020 senior housing operating what percentage of the senior housing operating businesses actually captured by that same store number.

You had on an ROI or or number of assets in the fourth quarter was 80% of your and your senior housing I know I was in same store, 67% other properties what is it for 2020.

So it'll it'll grow throughout the year.

By the end of the year, we'll be back at.

More than 90% of the pool is going to be in.

Rubber assets will be in the pool. So one of the reason is you know the dip below that kind of historical number.

And then the transition piece and importantly, that's not what those assets were in senior housing operating they were in triple net so it's been added we've added assets that show pool, but you'll see as the year progresses that number will grow and you'll be back above kind of 90% in the delta at that point.

We will be primarily just acquisition.

Activity site reality will buy anything it probably is well above 90%, but just thinking about kind of where it for sat historically.

We back at or above kind of historical trend by the fourth quarter.

Thank you.

Thank you.

I'm showing no further questions in queue at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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