Q1 2022 Welltower Inc Earnings Call
Speaker 9: Anyway.
Speaker 10: Hello and welcome to the Q1 2022 well tower Inc. earnings conference call.
Speaker 10: At this time, all participants are in eillzen-oonly mode.
Speaker 10: After the speaker presentation, there will be a question-and-answer session.
Speaker 10: Cat who questioned during this session. You will need to press Star one on your telephone.
Speaker 10: If you require any further assistance, Please press Star zero.
Speaker 10: It is now my pleasure to introduce general counsel Matt mcqueen.
Speaker 11: Thank you and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although, while har beliefs, any forward-looking statements are based on reasonable assumptions, the company can give no assurance best projected results will be attained.
Speaker 12: 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 SEC.
Speaker 11: And with that I'll hand the call over to shopper's remarks. Thank you Matt, and good morning everyone. I'll describe our capital allocation priorities in the rapidly evolving investment environment and review high-level business trends before handling the call over to John , who will detail operational trends.
Speaker 13: A little over a year ago, our seniors housing operating business witnessed a powerfull inflection point, with occupancy gains and pricing power sustained through the remainder of the year, despite Delta and omnit-ron variance.
Speaker 14: This momentum continued into first quarter of this year and translated into the first period of year over year bottom line growth for our company since the beginning of pandemic. Our total portfolio revenue is up 33% year over year, driven by both th organic revenue growth as well as a significant volume of high conviction capital deployment. During the last 18 months, on a same store basis, our senior housing operating portfolio revenues up 11% year over year, driven by a 5% occupancy growth and 5% rate growth. Encouragingly, we saw sequential pricing growth was 4%, the fastest growth recorded in our history, despite only half of our operators pushing through in house rent increases on januone schedule. All of the translated into 18 point four percent same store and Y growth in Q1 and impressive number that have passed or expectations.
Speaker 13: We're all very encouraged by the speed at which three tras are moving up and we expect same-straw NOI growth will accelerate into the second half of the year, barring another COVID-19 spike.
Speaker 13: All of this setting up to be a powerful earnings recovery that we anticipated in 2023 and beyond. Before I turn into investment environment: how to make two things here that are very important for multiyear earn.ings: growes p number one.
Speaker 15: In 20- 18 when we converted our brandy one senior living these to idea and mention that two other portfolio we had in triple structure that we hope to convert. one of them was Legend senior living, after many years of discussion with Tim mechcanon Legend, legendary founder, and C? O and pleased to report that we have converted this relation D to idea. Recall that we had an 88% and 20% pro J? V between worldter and Legend and conversion 10 contributed a portion of pro co five brand new acsees and has agreed to a future help agreement to create a power ful 93%, 7% equity partnership going forward. Finally, after years pursuation, we have coninced him that we can grow the five using our data alic pl from So significantly that will still be better. This by warning a smaller portion of the part, a partner of our companyies since ninety's Legend has SP every single dollar of brand that was with to or to world tower, regardless of the harers on a given day. Though these deal is dilutive to our as a 4, two thousand and 20: two due to significant agency livery search. Today we expect cash sto relative to the previous rent will break even in beginning a two and 20: three and our shareholders will enjoy upset from their on. We hope. four extraordinary partnership over last. We had extraordinary partnership world last three decades and we hope that we will continue for many MO to come. This transition, along with acquisition and future to helpment partnership, exempliified our sold focus on enhancing long term value of the portfolio and is indicated of the potential earning subside in the portfolio that can be capture through a simple cap, ate or multiple valuation methodology. Number 2: historically, our show business focus on managing managers and assets. Now that we have significantly upgraded our operational capabilities, including through the hiring of John barker, our C E O, our focus in the show business will mirror the realisted and management services that we providide in our medical office business or what in aappartmentary does with the understanding that were limited in providing care services in a health qualified Healthcare property. This fundamental of shift in our approach has a profound impact on how we think about our role in the operating staff. This is particularly important as we think through the most important part of that operating platform, which is the technology staf. John will get into the details as part of its script, but we have delighted that he is in full scale. The helpment and implementation of a true operating platform at world tower. hn is working closely with some of our best operating partnerers to launch this calling right idea for for now, but honestly that doesn't T dre our new approach. Justice as to the scale and impact we take his plans will have on the customer experience and value creation overall. Needless to say, we expect this multi year initiated will have a tremendous impact on our earning protradictory and long term compounding machine that we are setting up at world tower. Let's talk about capital allocation.
Speaker 13: As you know, my team is extraordinary, focused on alcating capital to create bar share value for existing shareholders. The Keyword is existing. We favour our existing shareholders who have been our partners through takeken contten, especially through 10. we are fiercely protective of their interest on a bar share basis and own Act in a manner that does not create significant value for them. Because we're extremely transparent and genuinely dislike drama. I will mention to you that worldwer is the partdf reference in the hdhr marger proxy. A couple weeks ago, every week we call owners of assets and expressed our interest to buy them at a price. This was no different. I am genuinely disappointed that HR Board and management did not engage with us, but that is their prerogative.
Speaker 13: It is completely up to their shareholders and the Board which represents those shareholders to decide how to maximiz value. Because of the many rumour circulating and the reports and articles about this, I'll mention few things before moving on to much more important items. Number one.
Speaker 13: Where fair, win-win people. We offer to buy the company on public information at $31 75- $31, 75 cents per share, plus a breakup fee ofone hundred and $63 million from a marger which, as you have seen, the market boarded that significantly val desruptive for our analyst reports.
Speaker 16: We believe that our cash offer provided better value to H our shareholders than the HD marger and it was fully financed and were preferred to move within days. I read research note that they descriribe our unfair pricing relative to what might be fororted market capit. Please understand that we did not offer to buy an acid. We offfeer to buy a company that we are willing to pay for acidts and pay a breakup fee that buil upp company out for company's existing shareholders for potential dilution that will respect an alced community has been writing about. I hope this will stop mischaracterization of our offer and our intent.
Speaker 13: Number two.
Speaker 13: Walter always has and always will honor. The honor is agreement with herd party, including that with hda. In fact hda itself piloted our na with them by providing, by first disclosing into HR and then later to the public in the joint proxy.
Speaker 13: Further India with them does not contain a standstill that will apply us to making an offer for H? R as a standal on entity. As you would expect, we signed it with htaa in order to access information regarding HD and its property. Therefore, that standstill only applies to HD and its property. Our proposal was expressly conditioned on HR not completing the HD transaction.
Speaker 13: Number 3: we have never chased a deal and never will we buy everything at a price and sell everything at a price. Although I'm disappointed that HR did not engage with us as our offer, we thought our offer would result into a superior outcome for H shareholder. I have no intention of being hostile. I personally likeked TAs. I called him and express our interest. We didn't buy shares in the public market, nor did we act in anything but its friendly way. They did not engage under the circumstances. We have nothing to do here.
Speaker 13: Number four contrary to what some analysts might have written, this deal would not have been dilutive to our senior housing growth. You do'not know what proportion of equity debt or joint ventures we might have contemplated for the transaction, but even if you think we were to do this entirely on the balance sheet would be a rather simple exercise. Look at the noy bridge in our business of this. dividide that NOI by existing number of shares, calculate that additional shares required by the inire transaction to calculate dilution on a parture basis and then add back the corsion from the deal. You will see our existing shareholders would have covered ahead. We look at every single invsement through the lens of lengens or opportunity cost. Specifically, we have to satisfacactually answers three questions that buffet has dught. And then, what compared to what? At the expense of what? This is not different.
Speaker 13: And number five were not disappointed. Nor we are concerned about our growth of a senior housing business, while the contrary, in fact, we just reported 18.4 percenting strong iye Roth and expected to meaningfully exfluence in the second half of the yearnow that I have put all these reums to together, let's talk about the 30 or so owner who did engage with us to create win win partnership transactions.
Speaker 16: Year to date we have closed one point two billion doars acquisitition across 21 different off marketing or privacately negotiate transaction. This remark, this is a remarkable stat given the toid pace of activity last year. I find it difficult to talk about speacific deals. That appes like maicking your favorite children, but I still mentioned handful of transaction to give you a sense.
Speaker 16: We bought 700 unit cectora three lar large communities in Washington state with coercoer to expand our partnership with MAT to and days da kenaz is one of the best in the business and I'm glad that it is now bad full time as coer us to the CEO . We are also expanding our partnership approchase of another property in Brentwood located in the East space of Northern California. All properties were bought at significantly discount replacement cost. For example, the brand OD as content large unit and it was bought for three hundred and twenty K per unit. We believe the replacement cost in each way today is easily significantly north of 500 thousandaz unit.
Speaker 16: Additionally, we are significantly deepening our relationship with then and team at story point with the acquisition of 33 communities in Michigan Ohio tennescy, in their backyard, with a media advantage of 20. sixteenam were extremely pleased with the average price of 197 K unit with is meaningful discoun replacement cost with 63% of current average occupancy. The sizable deal will be dilutive to our 20 20, two as a foer share, but properties are anticipated to generate significant occupancy margin and cash flow growth in 20 point three and beyond under story point enhanced operating platform. This is another example of us choosing the right long term investment decision and cash flow growth over our gap earning separation- another thing you hear from us consistently.
Speaker 16: In another transaction we announced we expanding our partnership with cotney and a teap oakman with seven new acsets in extraordinary locations in California. Both TI team are at the absolute top of operating achelons and we cannot be happier to grow this partnership together.
Speaker 13: Separately within the medical office space we bought four billing property portfolio on the campus of one of the strongest hospitals in barming alobama, for a five point a five per capparate in an absolute net Le structure at a great basisgiven the absolute tech structure, we expect unlevered IR to be high single digit range. We also under contract to buy two large, beautiful mmop is, one in San Francisco areaia, another in Sacramento MSA, for a high 5% going in capparate at a great basis.
Speaker 17: Again we expect to change high single digits in IR in both cases.
Speaker 14: In terms of the financing market in last 30 days or so we have seen a massive shift with property level. leverageed down 15 points cost doubling and interest onlyid isdisappearing from the market both in seniors as well as an MOB. This is starting to have a tectonic impact on a pricing toupid. Bluntly I have not been. This excited about our acquisition prospects since Q4 of 2020. About six weeks ago and Investor whom I respect very much asked me if I'm optimistic about the next seven billion of acquisition. As I was about the last seven billion of acquisition that we did since pivoting to offense in four Q of 20. I instinctively answered what I actually believe that were driven by value not by volume which had this Investor took get as a now.
Speaker 14: Today that answer will be unequivalvocal: yes yes, we are excited about the figuratively next seven billion, as we are when we acted on the last seven billion to that effect. Our pipeline today is roughly one and a half billion off deals in process across 20 different off-market or private negotiated transactions.
Speaker 13: Several of these are potential, potentially operating unit transaction, which we expect to be very popular with the sellers. Please recall that we define our pipeline as transaction that are already under contract. In addition to this, we re negotiating- and a couple of blilland also acquisition across several other transaction. While we may not eventually succeed in convincing sellers to agree to our price, Please note that we don't need any given transaction. Price is the pricewe see cracks in the market and are focused on where the partth is going and not where the might have been. The value of a party that never retrayed and doesn't request death has rarely been higher.
Speaker 14: In most tru systems in nature, such a Coast line cloud turgo, and no matter how much is scale upward, scale down, you notice a remarkable self similarity property. You notice that in same operand, everywhere in nature. For example, a florid of a poly flow is same as a cloy power. This phenomenon is fractal geometry. This is the same idea that our drive time polygon proms are based on. If you have seen our data science presentation, increasingly interestingly, organization history is full of company to grow successfully, true small Board on acquisition in their advantageous niche, only to presentvince themselves. Or strategic acquisition that gets them in trouble. David factor, the founder of H p, brilliantly said: more businesses die of indication than staration. To discusard this phenomenon at world tower, we don't have strategic acquisition. In fact, self similarity of mother nature is highly visisible in our investment philosoph, no matter how small or big a specific investment is, whereafter the same, driven by the same factors in all cases where buying number 1, a reasonable basis relative to replace part and number 2, or we can add value by driving operational improvement. We are not spread investing deal junky where true total reittturn investor and are optimistested that two thousandy and twenty two will be one of the best years in the compperany history from an acquisition point. With that I'll hand that fall over to my partner John barker or ch operating officice John . Thank you, Jo. My colts today will touch upon the performance of our operating business in the quarter and provide some elements of our vision for singor he.
Speaker 18: Starting with our medical office portfolio. In the first quarter our outpatient medical business delivered 3% same-store NOI growth over the prior year's quarter, while occupancy declineed modestly to ninety-four point a half percent. We continue to see strong retention rates in the first quarter of 92%, likely driven by rising construction cost, construction delays and the related increases in new lease rents. Going forward we expect occupensity declined modestly as we continue to increase renewal rates in line with market increases.
Speaker 18: Now turning to our seior housing portfolio. The coiled spring, as shock as called, is starting its expansion. Revenue in our same-store portfolio grew at 11% in the first quarter compared to the prior year's quarter. That's over two x the growth rate experienced last quarter in the highest.
Speaker 18: Year-over-year increased since at least 2017. our first quarter performance was led by our U's portfolio, which reported year-over-year top line growth of 14%. Additionally, as we've described in recent calls, pricing power continues to strengthen, as reflected by strong renewal rate increases and market rate. In fact, rev four growth in the first quarter increased by the highest level in years at four point six percent year-over-year and four point three percent sequentially.
Speaker 19: While expenses grew at a rate of 10%. The more insightful expense metric is expense poor or its expense per occupied room, which only grew at a rate of 3% in the first quarter year-over-year. On a year-over-year basis, the lowest sincese at least two thousand and seventeen and.
Speaker 18: The combination of higher rental rates, increasing occupancy and improving margins led to an outstanding NOI growth rate of 18%.
Speaker 18: Our operators continue to report very strong demand, with traffic above 2019 levels, which bodes well for the peak sales season ahead and, if things play out as we expect, continueed top line strength and further improvement on the expense side should result in a meaningful acceleration in NOI growth in the back half of the year.
Speaker 18: Understandably, since taking over a COO at Welltower, I've received questions about my vision and areas of focus, both of which I want to provide some insights to. On this call, I will outline the opportunity I see and highlight some key elements of my plan which I believe Welltower is uniquely positioned to execute.
Speaker 18: As I evaluate sc, as I euate senior housing business, my perspective is a little different than the conventional wisdom that is developed as a healthcare read industry has evolved.
Speaker 18: The health care REIT industry, including well tower, started with triple net leases for senior housing, given the owners little to no seg operations and asset management. As the industry evolved with Ida, the historic reliance on the operators to run the business continued.
Speaker 18: The senior housing industry was found by strong, visionary leaders who saw that there was a much better way for society to provide quality lifestyles for its aging members, and they acted accordingly. Like so many industries which are started by small businesses, they are specialist in their core focus- in this case, providing quality living experience for our aging populations- and generalist in the many other important element related to running a modern operating business.
Speaker 20: But as you know, I come to this business with a different perspective and have broken down the business into a few components, with essentially the multifamily business that provides care with some hospitality, as shaan alluded to in his opening remarks, although reitss are limited in providing care services. We can perform multifamily type functions like revenue management, capital management procurement, providide it expertise, as well as leverage our data sci, science expertise.
Speaker 18: By doing so, we have the opportunity to fundamentally change the potential of this business by creating a full-scale operating platform and bring operational excellence to the senior housing business.
Speaker 21: Overall it've come to believe that wetower has a substantial opportunity to improve the customer and employee experience.
Speaker 18: And create shareholder value through leading the digital transformation of the business.
Speaker 18: More to come on timing, but I will say that we are actively working on the initiative, partnering with best-in-class operators, and we will deliver various components as they are ready.
Speaker 20: The addition of the world-class operating platform will continue to dramatically increase the size and depth of the Welltower mote, and it will greatly simplify the business for our top operators, enabling them to focus on their core strengths, increasing their effectiveness and efficiency, and driving increased total returns.
Speaker 18: We expect that all our stakeholders, including our operating partners and investors, will emerge as winners in this next phase of the senior housing business. I'll now turn the call over to Tim.
Speaker 22: Thank you, John . My comments stay will focus on our first quarter 2022 results: the performance of our triple net investment segments in the quarter.
Speaker 22: Our capital activity, a balance sheet we quarly update and finally, our outlook for the second quarter.
Speaker 22: While tawer reported fourth quarter net income conttributableles at common stockholders a 14 cents per duted share and normalized funds operation of eighty-twofour cents per lued share, which was above the midpoint of our 79- 84 cents per share guidance, despite our results only including approximately six thousand of hs funds versus the $6 million expectation we have previously forecasted as part of re guidance.
Speaker 22: This quarter represented our first with year-over-year normal lend fo growth since the start of the pandemic.
Speaker 22: And when excluding provider Le funds received in the respective periods, or 82 cents per share, represent 15% year-over-year growth versus the first quarter of 2021.
Speaker 19: We are also pleased to report that the total portfolio same-store in NOI. Growth turned positive in the quarter.
Speaker 22: With a 1% year-year growth, which compares favorably to guidance of 7%.
Speaker 22: Turning to our triplenet lease portfolios.
Speaker 22: As a reminder, our tripplenet lease portfolio coverage in occupancy stats are reported a quarter reyears.
Speaker 19: So these statistics reflect the trilling 12 months and a 12 31 2021.
Speaker 22: In our senior housing triple net portfolio. Same-store NOI increased 7% year-over-year and exceed our expectations, driven by improvements in rent collections on leases currently and cash recognition and the early impact of rental increases tied to CPI.
Speaker 22: Trailing 12 -month EBITDA coverage is.zero: 8, two x, with a sequential improvement mainly driven by the conversion of Legend senior living to redday in the quarter.
Speaker 19: As indicated last quarter, we expect coverages to continue to move higher through the rest of the year. As the positive inflection point, we started experiencing our show portfolio in the first quarter we reflected in our triple net coverages on a one -quarter lag.
Speaker 22: Next our long-term post-acute portfolio generated negative 2% year-over-year same-store I growth and trolling. 12 month ebitdcar coverage was one point three x.
Speaker 19: We completed 67 million of long-term post-cute sales in the quarter. Bring our to ales in last 12 months the 525 million and a pluny cappar in seven half percent, with an addition 202 million under contract for sale of quarter-end.
Speaker 22: As a result, our long-term post-cuute portfolio represented just 5% of total in place NOI year-end, versus 10% at the end of 2020, a 530 basis point decline driven largely by the exit vergenes relationship.
Speaker 19: And lastlie health systems, which is thecomprised of our ProMedica Senior care joint venture with ProMedica health system.
Speaker 19: Have same to rennoi growth of positive 3% year-over-year and trailing 12 -month EBITDA coversage was point zero two times.
Speaker 22: As a reminder, this leases back by the full corporate guarantee from promica health system.
Speaker 19: Turn to capital market activity.
Speaker 19: We continue to enhance our balance sheet strength and position the company to capitalize a robust and highly visible pipeline of capital deployment opportunities by utilizing ATM program to efficiently fund those near-term transactions.
Speaker 19: Since the start of the year, we've sold 21 million shares to be a forward sale agreement at initial weighted average price, approximately $89, 90 cents per share, for expected gross proceeds of one point nine billion.
Speaker 19: We currently have approximately 19.5 million shares remaining unsettled, which are expected to generate future proceeds at one point eight billion.
Speaker 19: Additionally, we are seeing significant interest from potential sellers to accept OP units of consideration providing further investment capacity.
Speaker 22: Taken together, our unsettled ATM proceeds, potential OP unit issuanes and 352 million of expected property disposition loan payoff proceeds provide ample capacity to fund our current investment pipeline.
Speaker 20: The third quarter, we issued our second green bond, comprised of a have a 55 million of 10 year unsecured debt maturing in 2032, with the coupon of 4%.
Speaker 22: Following similar disciplines of equity funding strategy. This is our fourth unsecured issuance in March of 2021 bring total debt issuance over the span of $2.3 billion, with an average rat of nine point five years in average coupon of 3%.
Speaker 22: At quarter end. When factoring in cash and restricted cash balances, our liquidly positioned exceed the four billion of borrowing capacity on our line of credit.
Speaker 22: And when combined with the previously mentioned two point one billion of unsettled ATM proceeds and expected disposition proceeds, we remained in a very strong liquidity position.
Speaker 19: Lastly, moving to our second quarter outlook.
Speaker 19: Last night. We provide an outlook for the second quarter of net income attributable to common stockholders, diluted share of twotwentthousand and 25 cents.
Speaker 22: Per share in normalized FFO perular share of 82 to 87 cents per share, or 84 and a half cents at the midpoint. This guidance takes into consideration approximately six million of hs funds expected to receive in the second quarter.
Speaker 19: skidance represents a two and a half cent increase in the midpoint.
Speaker 19: From our 82 cent per share. Number in one Q.
Speaker 19: This two and a half cents increase is composed of: a four cent sequential increase in our senior housing operating portfolio in i.ve, one penny incremental increase in hs funds.
Speaker 22: And is offset by two and a half cents of increased interest expense. Lower foreign exchange rates, particularly the British pound, and dilution from development deliveries.
Speaker 22: Underlying this FFO guidance is estimated second quarter total portfolio year-over-year samestore growth of 8% to 3%, driven by subsegment growth of outpatient medical- 2% to 3%. Long-term post--a: cute- 2% to 3% health system.
Speaker 19: Positive 3% and senior housing triple net seven to 8%.
Speaker 22: And finally senior heousing operating growth of 15% to 20% and.
Speaker 19: Driven by revenue growth of 11% and underlying this revenue growth is an expectation of approximately 500 basis points of year-over-year average occupancy increase and continued robust rate increases.
Speaker 23: We continue to be pleased by the momentum of the top line recovery in our senior housing operating portfolio, driven by a combination of rate and occupancy growth.
Speaker 19: Setting the stage for multiyear recovery to average occupancy in the portfolio at 76% a quarter-end.
Speaker 22: Nearly 1100 basis points below precoed levels and nearly 1500 basis points below peakoccupancy levels.
Speaker 19: We've described as recovering the paast, as a coiled spring with both secular and cyclical tailwinds behind it.
Speaker 19: When we started to see the spring release in the core portfolio, we have made the conscious decision to steadily allocate capital.
Speaker 19: To distress, underoperated and often initially dilutive properties, along with high-quality development projects.
Speaker 22: While this capital allocation has the effect of offsetting some of our core growth today, thatill is sustainably amplified in the years to come.
Speaker 22: In short, we're working hard to keep that spring coil, even as we start to realize the power of the earnings growth they can drive.
Speaker 22: And with that I'll hand the call back over to shaan.
Speaker 13: I want to sum it up, sum up the call, by saying I cannot be more pleased with the internal and external growth prospects of the com.
Speaker 14: We have taken a lot of shots, suffeer a lot of pains for the course of many years to finally get to the point where we believe were prime for long term compounding, the only way we know how to create significant shareller wealth over a long period of time. A great investment has three characteristics: outsidez returns, lower risk and long duration. While we're very successful in finding outsidez returns in off market opportunities that we continue to execute on where equally focused on lower risk and longevity. This is why we're obsessed with coring assets at a reasonable basis relative to replacement costs in order to reduce riskand in terms of longevity, Page 20 of our business update will described to you 30 or so when win contractual partnership that we have signed to a seam lits way by Trust, where we hope to deploy 30 plus billion dollars of capital over a next decade and beyond. We see enormous opportunity for growth within our circle of confidence, which we define as the area where we can allocate capital with how zards instead of gamlazards, using our predictive analytics platform. This confluence are outside. Internal and external growth has created a rare condition which is called leaping emergent and effect or, as mller discriisit, laapolis effect.
Speaker 16: You as our owners, can rest assured that will not make any poor capital allocation decisions that will geoopardize this rare living emergant conditions that we have achieved through many years of hard Ware, lck curage and a culture where everybody is all in with that operator. Please open the call up for quoan. Thank you.
Speaker 24: Certainly as a reminder. To ask a question, you will need to press Star one on your telephone.
Speaker 10: If your question has been answered or you W remove yourself in the queue, Please p the pound key.
Speaker 10: And we ask that you please limit yourself to one question and then you may reanswer the queue for any follow-ups.
Speaker 20: Our first question comes from the line of viicram maultra, when mauvo.
Speaker 25: Thanks so much putting the question. I'm going to try to just want a clarify. one but just for a chance, you ve talked about pricing power, rent growth accelerating. Can you maybe expand on that? What does that means for the second half and maybe sustainability into 23 on shop pricing power? And then just the clarification. Just you know you talked a lot about the M O B, the H? R bid. Just very simplistically, I mean you've talked, you've not, like M O B is historically, at least maybe a year or two years ago, like what changed, very simplistically ok, let me answer both of those course cent separately, not ck to it. So first, but the answer that O B question: we like all asset classes at a price. I've always said, even if you look back two quarters ago we said it makes no sense to that people. bu M O B is in the high 4% cap grain and after you know CapEx, in the low force which you see the rate, even market, how financing market was going to change right, I'm not, I'm just right that people, as surprices happened, now you are in a situation where your financing cost is higher than your you know cost of, you know your return on equity at that kind of pricing which is a real state is called death cross right, that is a harbinger of the obviously the what to come on that set pricing side. That doesn't make any sense to me. Why would you buy something at those prices with that growth rerelative inflation, nothing Hamed. Look at becausecome what we just bought. We bought one M O B at an absolute triple net Le, which obviously means to a not responsible CapEx, call it- at five and a halfwhich is an equivalenttriple that would be close to a six and we bought two others in California, that you know, high five right where we think that we can get to an unlevered high single liged. So that makes sense to us. So it is all aboutought pricing, not exposure, that determines, you know, your investment success.
Speaker 13: Second point, obviously the pricing power. We're obviously we talked about how we think in house pricing increase would be and that's obviously very necessary to offset all the costs that we have seen in the system. I'm particularly encouraged that what we see is the threeet trates are moving. Street trates have moved. I would say first quarter we have seen high single digits in April . We have seen some operators rate threeet trates well into double digits right So that along with, if you think, about half of our roughly speaking half of our residents on not Jan uone schedule right to receive on a schedule of anniversary rate. So if you put those two together we'll see sustained strong pricing power for the year which we're very, very excited about.
Speaker 9: Thank you, and our next question comes from the line of Steve ska with Evercore issi.
Speaker 26: Thanks good morning. shankk was hoping you could maybe just expound a little bit on the distress that you're seeing in the transaction market and I realize that you're not focused on initial cap rates. But I'm curious, when you look at your underwriting, have the unlevered IR r RS that you think you're going to achieve change at all and just trying to get a better flavor for the activity levels and you know just maybe how our return hurdles might be going up for you? Yeah So Steve, you know you, if you recall the initial phases off this pandemic, we have many transaction in call it low single, low double digit on unlevered r r with said, as the market started to come back, I sort of transled: no high single digit levered r right and given what happened in the marketplace in the last 30 days with financing, market totally blew up. When you know, as I said, you know leverages down, cost of leverage is significantly up and I will completely vanished if you think through that- that really put a levered model upside down right. So we are now starting to see- you know I've seen more deals, you know, dropping from contract in last 30 days and I've ever seen in my career. So you know we are starting to see that all the deals are bouncing back. We always have said that no price, a price. We give people a price underwriting deal or and unlevered basis, So for us it doesn't really change anything and we honor the price. And we're seeing, you know, all those things are coming back. So it is that I don't want to get too excited, but I'm starting to see the emergence off sort of those low double digit on Le, our deals starting to pop up it.
Speaker 9: Thank you.
Speaker 10: And our next question comes through the line of dere Johnston with deutche bank.
Speaker 20: Hi everybody good morning just on the agency expenses down 10%. Sequentially can we get a sense of month by month improvement especially since Jan and even fb likely had pretty high. ammoron cases seems that agency utilization could have improved each month that we've moved through first quarter. We're just hoping you can quantify the monthly utilization trend and you know where agency stands today. Versus expectations thanks.
Speaker 13: We don't want to get into month by month, but you- you're obviously the way you are thinking about this question- is a correct one we have seen steady improvement through the quarter and we have seen you significant improvement post that quarter right. So if results are in or coming in, we have seen that, which is frankly so- what sort of gives us confidence that we think where things are continuing in the second quarter as well as in the back half of the year? This is obviously I want to. I said this is- and I'm going to say this again, we're not in the business of predicting of it all. Better off if you have a massive COVID-19 spike again, but that's what we're seeing. A normalized market conditions. Things are improveving rapid. I don't know to me want anything to that nothing, think that's right. We gave, we gave color on our last call when we January resul to me spoke to kind of seeing a 10% decline from December January . We gave similar color and seeing a little better a trend for the full quarter. So I think that you really kind of consistent decreases relativethat.
Speaker 27: The counterpart, the fourth quarter.
Speaker 9: Thank you, and our next question comes from a line of Joshua dinnerland with Bank of America.
Speaker 28: Good good morning everyoneum, Josh.
Speaker 29: I wanted to ask about the expanded partnership with Oakmont. You know what's what's So attractive about the Oakmont partnership, and then maybe you could you also touch on the CCRC's that you acquired with them.
Speaker 30: Yes So what's most attractive about oakman is Oak is one of the best operators in the business, I mean. So we- I mean look at, we have mentioned is before there are one of the first ones to come back to sort of 90 plus personcent occupancy range. If we look at oakman's portfolio performance will be hard for us to believe for current performance that there was a pandemic, that that good operations. Now, going back to the point, what else is very attractive with this close? Obviously, I take up of quarters ago that we signed a long term partnership, development partnership- with them. So we're very excited about that. We think we're going to create significant value for oakman principles as well as well our shareholders, first to come, and C C C. So we did not bring oakman to the C C C is a C C r C that oakman developed and iran currently with a lot of. Obviously this is not just entry level C C C, there is also a lot of rental units in there. So we thought they do an extraordinary job of that. And you know, as we always said- just don't think about these things- that this monitor C C C is that idea at triple and doesn't change what fundamentally in the businesses is a large campuses. We think that we got at a basis and at a cash flow and C a potential growth of cash flow that we think we can make a lot of money. So that's what we see about the partnership we also about for traditional rental model.
Speaker 31: Together that we think obviously is going to create meaningful growth as well. A lot of these assets opened to 2021, So you are not going to see probably a very significant amount of earnings contribution in 2022, but you will see potentially significant amount in 2023 and beyond.
Speaker 11: Thank you, and our next question comes from the line of John palazski with Green Street.
Speaker 32: Thanks for taking the question, shark. Want to go back to your comments about no intention of going hostile on HR. Forget HR for a moment. I D just like to better understand philosophical views on hostile takeouts broader than HR. So, if the price is right, are you interested in going hostile or you have philosophically against it?
Speaker 16: I'm not going to comment philosophically what I think on hostile and not, frankly speaking, is an inappropriate for them to do that. I will guaran to you that we will not go hostile. That that's not how we do business. You know. We believe that, you know where, when win people and we like to deal with people who actually- you know it. Just think about it, just very simply. mirrorreciprocation is how the world works. You walk into a elevato.r, it smile at a personort. 95% of the time that's person mons back at you. That's called mirrored reciprocation. We like to deal with people who believeves in mirror reciprocation. Or we can do win win transactions with people. We have zero desire to go hostile on H r or anybody.
Speaker 9: Thank you, and our next question comes to the line of Rich Anderson with SMBC.
Speaker 33: Thanks good morning.
Speaker 34: So if I can just uh kind of use H? R as a.
Speaker 33: As A- you know a platform, but think more broadly about how you're thinking.
Speaker 35: About the investment horizon. If your offer prices a low five type implied cap rate on that stock, would you be?
Speaker 36: Would it mean, would it make sense for you to kind of deploy this distress model here? I don't think there's a whole lot of distress, but relatively sspeaking. Sell the very good stuff, keep.
Speaker 35: Older stuff and feedit to redevelopment platform and thereby may your? I r hurdle is: is that kind of the? The mindset for HR and generally speaking about how you're going to approach them, was like a contrary approach to investing, where you are dilutive to start but you know much more accretive to to end. And as it r specifically to H? R, are you now sittly sitting idally by to see? You know how, how it plays out? You no more activity there and finally, the 163 million break feet that's not paid to H r if, if something were to happen. Is that correct? So that's my one question.
Speaker 37: Okay you are three question. I'll see if I remember all of these. So first is I will say that we invest, and I think I said this before and I'm going to say this again: we invest.
Speaker 38: And if the two conditions that we have satisfied- one we think is that a reasonable basis relative replacement cost- be, we think we can add significant value on the operational side. These are the two these are the two things that needs to come together for us to invest capital in. No matter what the specific one is, my view of these hasn't changed. I'm not going to get into by the sale that do this just not. That's not, that's not appropriate for conversation. It just depends on what asset you are talking about, right? So we're not going to obviously get into that. What I will tell you what I have mentioned in my prepared remarks.
Speaker 16: At the price we know. For us, we do everything at a price. At the price that we offered, we thought H r shareholders will be much better off than going with the H taa merger. That was our opinion, right- and that the price was for the assets as well as releasing them from a potential transaction which all of you have described as a significantly dilutative deal and market voted as such right. So you got to think about astive plus liability, not just asse that as a fundamental mistake of characterization of what's happening here regardless. That's not, as I said, that H r shareholders and their Board, which is represented of the shareholders proged, not ours. So it is very inappropriate for us to keep talking about something but there is nothing to talk about, right? We much more focused. As I said, about 30- 40 other owners were very happy engaging with us to see how we can transact, how can we have win win transaction.
Speaker 16: And I don't have anything more to act that.
Speaker 9: Thank you. Our next question comes from the line of Richard Dale with morg instaneley.
Speaker 39: yesys, is that in kramer on for Rich and look congr's on a really strong quarter here and appreci about the commentary. I'll kind of keep this on aside from HR. And you kind of ask about April , April optimancy trends with in show, anything you can add about kind of sequential trends in April or second quarter to date? But it would be really helpful.
Speaker 13: We are encouraged by the April as well as the early may trends and we're also encouraged very much what the pricing is going. Remember, John's focus is on revenue maximization and frankly- and I M maximization- but we're very encouraged by both occupancy and rate trends. And I'm assuming you're asking Ina housing, So in ust housing portfolio.
Speaker 9: Thank you.
Speaker 10: And our next question comes from a line of Nicholas Joseph wood City.
Speaker 40: Hey this is Michael griffin on trick. I'm curious: what do you need to see before being comfortable issuing full year guidance?
Speaker 41: We need to be comfortable to see that covidt is not around us.
Speaker 9: Thank you, and our next question comes from the line of Michael Carroll with RBC capital markets.
Speaker 42: Yes thanks. I'm want stay on guess touch on the senior housing pricing power topic. I mean, how much higher can poor trend growth trend, particularly when the occupancy gets back into the high 80 or even the low nin percent range? I mean, I'm assuming there is only so high you can push rates on the existing residents But with this dynamic help push Street rates higher and then I could drive, or higher. I mean, how should we think about that? So you are asking 1, my favorite topic, and you are asking venture guas right, So this is a pure guas and the understand last about it. But you know, start from the position of, I don't know of any other sector where you can have pricing power in the high 70% kind of occupancy, mid to high 70% occupancy range right, So we're very encouraged what's happening. But today the pricing is driven by the necessity- and I describeve couple of cos go on any last call- on the necessity of keeping up with the quality of service. Cost of everything is going up, including abor and we do not believe cutting cortner services. So you know that's a sort of the what's happening right now. However, there is going to be at a point not so distance future in probably in the you know, high 80% occupancy range where you will be, you don't, you wouldn't have rooms to sell, and then you're going to have a different type of pricing increase. Right, So that these two obviouslyto provide a very, very good backdrop if you think through what the development delivery right, that you the next few years, a couple of years, are and obviously takes a lot of time to bring supply back, particularly as you think through what happened right, the last, you know sort of now on the costing for an development project, what the financing costs, and that's also now gone completely crazy. So you know you have cost going up every month percent and to have to two percent' going to give you a G M B for beyond. You know, these days, before you lost something in for more than a week, that kind of crazy cost environment we are. So, in putting it all together, you know, pricing our same for a very long period of time in this kind of demands of life in AR. Now going back to your Street rate conversation, others give one example and one example doesn' obviously is not represented on the whole portfolio. We have seen you April , some of our operators have raised know Street rates like 15%, while that in house rating faces. Why eight nine 10% right, So we're starting to see for, at least for a handful of operators. Street trhas has already know increases have going above in house rating increases- phenomena we haven't seen. I don't don't, you know, hold me to. Probably, I don't know, probably two thousand thirteen, 14 times.
Speaker 13: But so we're pretty excited about it. We think that we have a long runway of pricing increase here and frankly, as we fundamentally believe that our resident expect a lot from us, they're paying a lot and they expect a lot to deserve a lot, and for that it just costs more today.
Speaker 9: Thank you, and our next question comes from the line of Nick yullao with skotia bank.
Speaker 20: Hi good morning everyone. I wanted to go back to the senior housing operating segment and how we should think about sequential monthly occupancy gains. Want to see if we can get actually the specific number for April and then also as we think about moving into.
Speaker 43: May through September , third quarter. Right, I mean you did make the comment hearing and that you expect.
Speaker 20: Your -year-over-year same NOI growth to improve meaningfully in the back half of the year, which would presumably factor in higher sequential occupancy growth than what you're seeing in the second quarter. So just trying to understand about, like how we should think about the monthly pace occupancy gains that could happen, maybe in in relation to last year.
Speaker 44: yesso Nick, if you look at Page 12 of our business update, you will see some sense of how seasonally plays out. Right, we have laid that out. Obviously we expect better than seasonal trend, significantly better than signal trends.
Speaker 14: In the second quarter but where you see the ship really takes off in the third quarter. So, thinking about it, without getving into months to month, as I have already indicated, the selling season, the summer selling season, just started right. We see very encouraging signs already and we think we will continue to improve as we go forwardit also remember usually every year in the Q1 is sort of when you go into Q, from Q1 to Q2 kind of started a whole right because you lose the occupancy. This year we did not started a whole right. We build occupancy where the occupancy decline that will have a tremendous impact as you build a revenue line through the rest of the year to on to pro.
Speaker 45: Yeah I just add that from an average occupancy perspective kind of speaks on that same point chunk just made but because one Q is historically negative. But even in this case small game average occupancy which is.
Speaker 22: Kind of build off of the prior quarter in the current quarter recovery.
Speaker 22: We'll accelerate in the three Q and does So historically. So when we think about kind of sequential the drive, the part of it that's driven by occupancy will be the highest in the third quarter.
Speaker 9: Thank you, and our next question comes from the line of Austin worshmid, with Keybank capital markets.
Speaker 46: Great Thanks in good morning. So, taking a shop, and based on that move, industryet rates that you mentioned were up in the double-digit range. Are you considering pushing rate increases even higher on future renewals for the balance of the year? And then I'm curious if you have a sense how below market you're in place. Rents are today, relative the market, and does this sort of acceleration in fundamentals makekingyou more upbeat about future shop acquisitions and more willing to take on the initial dilution that you talked about in your prepared remarksthank there, but welcome to our call. I will try to remember everything you want first is: no, it doesn't excited. That's more on left.
Speaker 38: Investing is about price. It's not about exposure. I cannot say is million times enough, and I recall, for you guys to understand how we allocate capital. It is all about price. We all more senior housing than anyone. We bought more in a housing than anyone in last ic in months. So senior housing is going to do significingly better. There will be no other beneficiary beneficiary than us, right? So having said that you think about the point, I also want to make sure you hear me. I said for a specific operator, I don't want you to things. streetcres are going up 50% right, So every there. That's not what's happening, but we see broad momentum of increasing Street rate pretty much everywhere with every operator. ok, So let' just put that in the context. So, understanding hous, a housing works, to remember, you have an acuteity creep as people you know, age in place, our age in a community ok, So you will always have the portion is living versus the portion is coming in as a gap. There's a gap because of thataccurity creep, the frailty and thataccurity creep. What we are seeing, this rapidly rising Street rate, is closing that gap pretty meaningfully and you know we hope that will see at some point that gap is going to come together. But at the same point understand, as we start, get to the next year right, there's going to be significant in ourvating creases again. So you create another gap and you change that gap again. Right, that's how you revenue. So we're pretty optimistic, reallyaily speaking, your that tone of your portion is the right one we excites are very much this moving. You know, obviously rates that we are starting to see will see that will be sustained, all things being equal, through the year and will show up in a top line growth as well as the know I growth that Tim and John talked about.
Speaker 9: Thank you, and our next question comes from the line of Mike Mueller with JP Morgan.
Speaker 47: Yes just a quick expense question. Looks like your same-store show compensation has been running about 325 for the past two quarters. You remind us what portion of that would you say is abnormally high because of COVID-19 agency cost, where we could see that portion of a decline in the subsequent quarters?
Speaker 48: Yes So we picked out at a a little over seven years seven and a half percent of our compensation line with agency in the fourth quarter. That came down to high sixes and we continue to expect that to normalizless out the year. But just thinking about that- fromi think that's what you're asking- is just kind of what portion of that is.
Speaker 22: Agency and we expect that agency continue to inflate. But remember that gets back buill by fulltime hours, So it's not. There will be some offset of that from full time employees coming up. I'll just note that's something that we're certainly seeing progress on coming out of the first quarter and in April is that the focus our operators have put on hiring full-time employees and we all know that's the solution to agency. That's why we're seeing progress in the agency front because occupancy continuees to build. We're not seelessof a deandfor employees buildings. We're seeing ility to fill it andmore.
Speaker 22: With our own staff versus agency. In fact, April probably was the best month we have seen from a near iring perspective.
Speaker 49: That since we started tracking this from the beginning of co it.
Speaker 49: So you haven't seen the impact that we're talking about. you'will see that obviously in Q2 and a sequential of is. But again, I'm not going to comment on COVID-19. I have no way to predict what COVID-19 is happening- not happening going, But in a normalized market conditions you will see that will improvement, will significantly exer in the second half of the year.
Speaker 9: Thank you, and our next question comes from the line of 1: Sam abba with BMO capital markets.
Speaker 50: Good morningi, just hoping that we could touch a little bit on the triple that business. You mentioned the Legend transition and a little bit of dilution there. But just holistically speaking, how should we think about the potential for further transitions? I guess to shop at this point and how c-store NOI should track.
Speaker 51: Towards the historical 2% to 3%, given you're still kind of below the target rent coverage and kind of what you expect that timing be: to get coverage factor a more sustainable level and for those to kind of normalize same-re growth the coverage level.
Speaker 16: one thing about me that you probably have noticed over the years: we know each other then I'm extremely consistent.
Speaker 14: In 2018. I said the two portfolios that I hope that we had in the radio portfolio. In 2020 2, I'll tell you the same thing and maybe, if I couldn't commence that last 1, I'll keep saying the same thing for years to come. So you should not expect a lot to change unless we believe there is fundamentally economic reasons to change from radio to triplelet. Fundamentally, we believe it's the same business, different structures for different reason, different growth profile. So I've gone through this in the call before, So I don't want to waste your time, but that just. You should not expect a lot more except one that I hoped for for many many, many years. So let' just now take the second part of your question.
Speaker 13: So where you are today Tim talked about it probably three po calls in a ro now that we have a significant portion of a triple ent portfolio and cash collection right and you mentioned. When the growth comes back you will see the other side of it. We have taken it on a chin right by putting in cash colle and now we are on the other side. So obviously that line item for these operators are behaving like redeer right because that's what they are the cash collection. So on top of that we have a substantial number of leases that are marked to inflation and inflation is going up. So you have overall portfolios going up so that probably these two together probably 35 40% of electtri ll portfolio and that's why you are seeing you know obviously. That's why not only you are seeing continue to seeing significant sort of above average growth as long as we have a average inflation that you sort up in the system. Tim you add anything anything to the.
Speaker 19: Now I just add one on your kind of comment on coverages. So restructuring, So Sean mentioned we restructured a Legend lease in the quarter. We also restructured another triple at lease in the quarter and I would think about it from.
Speaker 19: The timing makes sense GI what we talked about in the past which is our operators were staying current with Mon and resetting rens from their're staying current andthere's no line of sight and recovery doesn't makekes sen sense ther party. And so I think what you've seen here is an ability to come in the table and Legend to get an agreement that make sense for both parties and we think is we'll do very well for well topower shareholders over time. But as you look at the well tower triplenet portfolio coming out of the first quarter where mid eight's coverage on a portfolio that 77 a 5% occupied. So I think.
Speaker 45: The important thing. The sustainability of that, I think, is quite high. Given our view on the reco- and we've said it all ong, it's all recovery dependent but we saw a strong recovery last year. We've seen rents continue to be paid and we think they're, given the occupancy there and the outlook in general in this base in recoveragees are currently at, we're a pretty strong spot as far as sustainability of these rents and coverage recovery over the coming quarters.
Speaker 9: Thank you, and our next question comes from the line of Stephen valacquette with barclay's.
Speaker 50: Thanks good morning everybody. So shaan, all your comments on the HR situation, where M obviously helpful to clear the air. I guess my question is if the HR HT merger does close and actually goes through.
Speaker 52: Is the existence of that merged entity. You change any of the strategic dynamics for Welltower in the MOB category. That is a positive or the negative that are worth calling out at this stage where that merger really is just expected to be immaterial to.
Speaker 52: Either MOB industry pricing going forward or just perhaps the materials to what well power is trying to accomplish in the MOB area, based on what you see now.
Speaker 53: Steve Ho comments on H r H D merger. I will say that it remains a fragmented industry, that one player size or, you know, lag thereof doesn't really make a difference. It it health system driven industry and it remains a very, very fragmented industry. So I have no comments other than the fact we don't see anything changing. But I will offer a comment that I already have offered and bore you with details. So what I have already said at well tower: we don't have a strategic acquisition. The only strategy that we have is to make money on a partial basis for existing shareholders. That is the only strategy we follow, and anything that doesn't fit to that model we don't do itso. Please understand, never count on us to do a strategic acquisition, because we'll never will.
Speaker 5: Thank you, and our next question comes from Steve southquo with Evercore isi.
Speaker 26: Thanks I just one up, have one follow up. You know Tim, when you kind of looked at the second quarter guidance, obviously NOI growth is kind of above FFO growth and I know you kind of highlighted a couple of issues that seem to be pulling that down: FX, GNA and development deliveries. I guess my question really is, as you move into the back half of the year and maybe in 23, do you see some of those headwinds dissipating, and should we start to see FFO growth materially accelerate in line with with NOI growth or some of those headwinds persist, you know, for a bit longer?
Speaker 45: Yeah thanks Steve, and I think this is. This will expand a bit on the comment in my opening remarks.
Speaker 19: Around just our continued steady allocation of capital to distressed situations, near term dilutive, evenven developments, the idea that we're seeing core earnings growth. That's really driving the portfolio now and we're making long term capital allocation decisions that are going to create sustainable growth over the over multi year period. And if I kind of take that in, think about it in perspective of this quarter. You taltalk about same store. No, I grow on a year over year basis. So you go back to the second quarter of 2021. on the call I spoke to a 77 cent per share number. You back out out of period government grants, So this compares a three and a half cent number- x H, H's with our two qu guide and I think the right way to think about bridging this is kind of three different buckets. So you've got the core portfolio, which is, to your comment on same storeage of my same store growth: 9% cash. Same store growth equates to about a levered 10% F F O growth number. Then you've got accretion from investments over in the last three quarters. I mean gottenan offset of three cent from a combination of higher ininterest expense, higher G N a and then lower exchange rates on a year over year basis.
Speaker 45: So if you dig in that investment accretion number a bit more, over the last three quarters we have invested about $4.8 billion in capital and we've delivered another 500 hundred million in developments. So we've got Five point three billion dollars of capital fully funded on the balance sheet as of three hundred and thirty-one and it's expected to yield the low fours in that two Q2 two guide.
Speaker 45: So keep in mind that these assets are significantly underearning where they're going to be long-term and near term because of operator transitions and lease up within our recent deliveries and, of course, agency has also been a factor there.
Speaker 45: As these investments stabilize. They represent about 10 cents per share of that theo per quarter or 40 cents annually. So just from last kind of three quarters of capital allocation. And last, I just note we've talked about NOI bridge in our investor presentation and this is under a third of that upside represented there. So it's kind of a snapshot within our year-over-year growth showing how the capital we're putting the work is just creating the sustained earnings growth over a number of years going forward.
Speaker 9: Thank you, and our next question comes from the line of Rich Anderson with SMBC.
Speaker 33: Thanks for the follow up. I had some technical difficulties. openland, not repeating a question, But in terms of the use of O p units, obviously you know your distressed model would imply older assets and hence attractiveness of units in a deal. How would you model out funding? One point, what would you say? The pipeline is one point five billion, pipeline plus another two billion that you know is under in the works. What percentage of that would be O p unit deals? And then you know how would you time, line? You know the remaining forward at T M equity, just so, and get our models in the rightor.
Speaker 54: I will. I hope I remember all the questions. First, we're not going to get into how many of these transaction will be an OP units or not. We might have given some indication of our previous press releases on some of the transaction, But beyond that we're not going to get into how many will be or will not be. We have a a general sense but we're not going to get into that. But let's just talk about something else that you are whichin. If you think about the pipeline of billion half dollars on the contract- right, think about what Tim said. But one point eight Bill dollars of capital that's raiseed in at T M but not settled, wewithhave few hundred million doars disposition and that's just the equity piece, right. You add x million that you think will come from the oopp side and then on a 65- 35 will see our investment. You know, sort of dry power for investment is actually three plus billion doars today, right? So that's sort of the question. Is there anything else? I did not enter.
Speaker 55: I can' remember three questions at the same time, But So I think I answered all your question. If not, just called me on mycel and we ll just walk you through. But we have ample capacity to invest capital that in the pipeline or could be in the shadow pipeline, pipeline quals to deals on the contract. Shadow pipeline is what we are negotiating and, as I said, off that two plus billion we might do zero.
Speaker 56: Because we transact at our price and the price is the price, And if we can convince someone to come to a price, we will't do that transaction.
Speaker 49: So very much of. We have the capital raised But I cannot guartee that we apply to any of these transactions.
Speaker 11: Thank you, and our next question comes from the line of John puloski with Green Street.
Speaker 57: Thanks for keeping the call going. Just one modeling and related item for may. Could you give me a sense to Tim? What percent of food and utility costs are ultimately passed through to the tenant on the SHOP portfolio?
Speaker 9: You about a pass through.
Speaker 19: I guess you mean from like a direct billing.
Speaker 58: Now I'll give a higher rents, higher rents and higher fee income.
Speaker 45: It's a all of it. We're up, we're ever an operating profit in that business. So you're making a profit and nolon basis you're certainly seeing part of the rationale for rent increase being to offset inflationary pressures in both those categoriesbut those aren't things. Food is something you're certainly in a lot of these different contracts or highlighting of being separate cost utility generally not, but that's all wrapped into how pricing for the product works. So I think when we talkking about kind of seeing inflationary press plus type rental increases, we're talking about the ability.
Speaker 22: To offset the pressureres we're seeing in food utility inflation.
Speaker 9: Thank you.
Speaker 10: Ladies and gentlemen, this concludes today's conference callthank you for participating, and you may now disconnect.