Q4 2024 Welltower Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the World Tower fourth quarter 2024 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time press star followed by the number one on your telephone keypad. If you want to withdraw your question Press Star followed by the number one.
Speaker Change: I will now hand, todays call over to Matt Mcqueen, Chief Legal Officer, and General Counsel. Please go ahead Sir.
Speaker Change: Thank you and good morning, as a reminder, certain statements made during this call maybe deemed forward looking statements in the meaning of the private Securities Litigation Reform Act, Although <unk> believes any forward looking statements are based on reasonable assumptions. The company can give no assurances that is protected.
Speaker Change: 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 and with that I'll hand, the call over to Sean for his remarks. Thank you, Matt and good morning, everyone I'll review business trends and our capital allocation priorities and the team will follow the usual cadence.
Speaker Change: We ended 2024 on a high note delivering strong Q4 results.
Speaker Change: The company continues to fire on all cylinders, whether that'd be business fundamentals capital allocation.
Speaker Change: Further strengthening of our balance sheet, our progress on the operating platform build out. The result was another quarter of solid bottom line growth with normalized <unk> per share increasing 18% year over year.
Speaker Change: Once again, driven by our senior housing operating portfolio.
Speaker Change: Just as important however is that we carried significant momentum into 2025 and expect another Europe exceptional growth, which I'll get into shortly.
Speaker Change: So provide a brief update on the pillars of growth that I outlined 12 months ago that give us even greater confidence in our growth outlook for next few years, which we feel is positively spring loaded.
Speaker Change: In our senior housing operating business, we continue to see strengthening tailwind the fourth quarter delivered impressive results with nearly 24% same store NOI growth.
Speaker Change: This marks our ninth consecutive quarter of net operating income growth exceeding 20%, notably we experienced exceptionally strong sequential occupancy growth in Q4 defined typical seasonal trends.
Speaker Change: The shop portfolio achieved average same store occupancy growth of 120 basis points sequentially and 310 basis points year over year. This robust performance, particularly during a period when moving activity usually moderates.
Speaker Change: Hands out as perhaps the most significant highlight in fact, Hyundai and 20 basis points of growth in Q4, nearly matched the level of sequential growth we witnessed in third quarter, which is typically the strongest period of leasing during the year I would also note that on this.
Speaker Change: Spot basis, we gained 240 basis points of occupancy in the second half alone this momentum or assisted through fourth quarter event. During the holiday season. In fact, we observed a pick up occupancy growth during the week of Christmas typically our slowest moving.
Speaker Change: After a year something I've never seen in this business. We also witness this momentum carried into January.
Speaker Change: Baird.
Baird: We almost invariably experience a sequential decline in occupancy due to seasonality the favorable end market environment.
Baird: Along with our team superior execution has put us in an incredible favorable position to start the year. This is reflected in our optimism for occupancy growth acceleration in 25, or 24, which was already one of the strongest years in our company's history.
Baird: At the same time, the trends related to Revpar, our unit revenue or export or you need to expense continues to move in our favor.
Baird: We remain focused on the spread between the two metrics with during the quarter reached 460 basis points, our highest level in our record of history.
Baird: The outcome is another 320 basis points of operating margin expansion in our seniors housing operating portfolio going forward, we expect sustained improvement in margins given high operating leverage inherent in the business and the benefit of the build out of the operating platform will John will get into pardon Matt momentarily.
Speaker Change: Putting this altogether, we expect 2025 to be another year of exceptional net operating income growth shifting to capital deployment, we capped off a tremendous year of investment activity with the closing of $2.2 billion of transactions in fourth quarter at attractive economics, Nikhil will provide more details.
Speaker Change: But as we described in the last quarter the opportunity set for capital deployment continues to expand given the widespread capital market related challenges in the sector to be clear the fundamentals our senior housing business are extraordinarily healthy but for many owners. They continue to go overwhelmed by the Imp.
Speaker Change: Facto high rates persistent challenges in addressing upcoming debt maturities and other capital structure issues I would also point out that not only.
Speaker Change: Well this acquisition be solidly accretive to our growth in coming years, but also come with too often overlooked strategic benefit first is the greater retail Densification, which we described to you in the past and reflects our intention to go deep in our markets not go abroad.
Speaker Change: Second is the accumulation of data received from these properties, which was further enhanced the network effect, we have already created within our data science platform, resulting in a wider and deeper mode for was tower.
Speaker Change: Additional building added to a local cluster enhances the customer and employee experience, resulting in strong overall effectiveness and efficiency, hence the strong network effect.
Speaker Change: These bolt on acquisitions in combination with our organic growth drove 23% revenue growth, 26% EBITDA growth of nearly 20% if a full class share growth for the full year of 2024, and we achieved this result, while meaningfully deleveraging our balance sheet.
Speaker Change: While we're extremely proud of our recent results. We believe we're just beginning our journey to deliver long term compounding of Berkshire growth for our existing shareholders to illustrate this let's revisit the five growth pillars that I introduced a year ago. These pillars remain firmly impact in <unk>.
Speaker Change: Act bolstering our confidence in a multiyear growth outlook. Moreover, we have since added a sixth pillar, which I'll also discuss shortly this expanded framework further strengthens our growth strategy and potential for long term value creation first the demand supply.
Speaker Change: Drop our senior living business from a fundamental perspective, we're at the very beginning of an extended period of outsized demographic demand driven growth in the sector. In fact 2026 should be an inflection point in the end market demand the tailwind, which have propelled our business that is.
Speaker Change: The growth of 80, plus population age cohort will only accelerate in the back half of this decade.
Speaker Change: And I will remind you that seniors housing products that we're focused on are almost entirely private pay.
Speaker Change: It's driven in nature, the fundamentals of our business is largely immune from geopolitical crosscurrents regulatory or policy changes and poised to weather any economic headwinds better than most other sectors and industries. While the end market demand will continue to rise even at a faster.
Speaker Change: Clip in coming years.
New supply remains muted.
Speaker Change: The outlook for supply has gotten even worse in recent months months as tariffs immigration policy and higher rates was further dampened development economics, which remains nonexistent the demand supply outlook alone should drive outsized growth for many years to come.
Speaker Change: <unk> capital allocation.
Speaker Change: Even after a company record of $7 billion of capital deployed in 2020, and putting 20 plus billion dollars of capital to work over the past four years, our investment teams have never been busier. The opportunity set is robust actionable and visible and we believe 2025 will be.
Speaker Change: Another year.
Speaker Change: Above average capital deployment for <unk> to that end, we started the year with a bang and already have $2 billion of investments under contract for our balance sheet. This is the strongest start of the we ever had.
Speaker Change: Our phones are ringing off the hook as it is thinking into the real estate world that the fed does not control. The long end of the car and hence is not coming to rescue broken capital structures. We continue to find attractive economics in our circle of confidence, while we can bet with how's odds rather than gambling.
<unk> as we seek advantageous divergences in our specific niche amplified by our operating platform and our network off our best in class operating partners.
Speaker Change: Number three capital light transactions.
Speaker Change: Over the past few years, we have transition hundreds of assets to our strongest operating partners. While these transitions can be challenging.
Speaker Change: Occasionally near term dilutive they have proven to be tremendously successful with new operators generating significantly more cash flow from the previous operator.
For example.
Speaker Change: Sample the Canadian portfolio, which we transitioned from there to cause yeah at the end of 2023 witnessed approximately 800 basis points of occupancy growth since we announced the transition in 'twenty 'twenty. Four we are also transition 68 properties from triple net to RIDEA structures.
Speaker Change: Allowing our shareholders to directly participate in the underlying cash flow growth of the community.
Speaker Change: Since I spoke with you last quarter, we agreed to convert an additional 16 high quality senior housing communities from Triple net to idea, we'll continue to mind for opportunities for further capital light transactions.
Speaker Change: Number four digital transformation driving unprecedented structural change John and his team continue to make extraordinary progress on the build out of the first true end to end operating platform in the senior housing sector and as we discussed on the last call or at first to digitally transform.
Speaker Change: The business is beginning to bear fruit as we went live with our tech platform and the first set of properties in third quarter and subsequently rolled it out to additional communities in Q4, and then in Q1 of this year implementation of Tech stack is just one example of countless opportunities to improve.
Virtually every element of senior housing business to enhance resident and employee experience number five our unlevered balance sheet 12 months ago. I mentioned that we will continue to experience further organic deleveraging of our balance sheet, given our expectation for outsized.
Speaker Change: Astro growth higher than expected cash flow growth and tactical funding of our capital deployment activity has driven a five day reduction of our net debt to adjusted EBITDA to just three and a half times. Thus we have created even greater debt capacity to tap into the fund X dollar growth.
Speaker Change: Further amplifying our out year growth prospects.
Speaker Change: Due to these massive debt capacity, coupled with $9 billion of liquidity and our reputation for being a clean shot in an industry, where re trading counterparties as the norm. We continue to get first call from market participants when they need liquidity, we can run our deal business in an old fashion.
Speaker Change: Ben Franklin way, because our exceptional balance sheet strength.
Speaker Change: A couple of weeks ago, we added a sixth pillar and that's the launch of our private funds management business, while we cannot provide any more detail until the conclusion of this process. We believe this new pillar will result in significant revenue opportunities for Walthour shareholders. The funds business also represents our first foray.
Speaker Change: It into creating a capital light monetization of our data science platform to conclude I am pleased with our execution in 2024, we have an exciting and frankly very busy year in front of us in every aspect of our business rarely within an industry do cyclical secular.
Speaker Change: And structural growth drivers come together to deliver a positive net vector leaping imagined effect that is unfolding at walthour, our business is bustling with positive energy.
Speaker Change: In January the vitality of new ideas to create our share value.
Speaker Change: For our existing investors, while the outlook for commercial real estate of minutes foggy in some cases gloomy with ongoing delays due to a higher interest rate environment. It is a clear and bright warning at one hour and with that I'll hand, the call over to John John.
John: Thank you and good morning, everyone 2024 was another fantastic year for well tower and based on our recent results and outlook. There appears to be no abatement in the momentum we're experiencing for the fourth quarter. We posted total portfolio same store NOI growth of 12, 8% driven by our senior housing operating portfolio growth of $23 nine.
Speaker Change: 10%.
I'll first comment on the outpatient medical business, which remains stable in the quarter with year over year same store NOI growth of 2%.
Speaker Change: At some level the business is boring and yet another level is increasingly safe is incredibly stable backed by top credit tenants with long term leases delivering consistent returns occupancy during the period was consistent at an industry, leading 94, 3% and tenant retention remains strong at 93, 6%.
Speaker Change: As for 2025, we expect another year of stable same store NOI growth of 2% to 3%.
Speaker Change: During.
Speaker Change: Turning to the senior housing operating portfolio, our streak of unprecedented growth continues having now posted nine consecutive quarters in which the same store NOI growth has exceeded 20%, we're particularly pleased with the better than expected occupancy ramp during the quarter, which equated to 310 basis points of year over year growth.
Speaker Change: I would also note that the 120 <unk>.
Speaker Change: <unk> points of sequential occupancy growth with shark mentioned was one of the strongest we have witnessed in any quarter outside the post COVID-19 recovery.
Speaker Change: For this strength to be witnessed during a seasonally slow period of the year is a testament to not only to the tailwind has driven driving the business, but especially to our proactive and dedicated asset management initiatives, which I'll detail shortly.
Speaker Change: Revenue growth was strong across property types, but we witnessed particular strength at the two ends of the acuity spectrum between our assisted living and one of the portfolios.
Speaker Change: In terms of pricing power as I noted last quarter rate growth remains healthy and we expect another year of favorable growth in 2025.
Speaker Change: On the micro level rate growth is purely impacted by occupancy level by unit type at each community amongst other factors therefore as the assets in the portfolio lease up their market rate. We will continue to rise to reflect the value proposition provided it's important to realize that the senior housing business is very different than the multifamily business.
Speaker Change: When it comes to funding the payments the payments are generally funded mostly by assets for a relatively short period of time residents are staying at our communities on average about two years compared to the multifamily industry, where rental rates are limited by earned income.
Speaker Change: I would also note that the exponential rise in the value of home equity and fixed income securities and other assets over the past 50 years has provided many seniors in our markets the ability to comfortably afford the cost of senior living which is much more efficient that homecare.
Speaker Change: Not to mention.
Speaker Change: Other benefits of senior living including safer, social and active lifestyles and peace of mind for families moving.
Speaker Change: Moving to expenses, we remain encouraged by the trends, which we are observing across all line items, but particularly with particularly with respect to labor. This is best reflected by comscore or compensation per occupied room, which increased just one 2% year over year, representing one of the lowest levels of growth in our recorded history.
Speaker Change: Yeah.
Speaker Change: This is largely a function of the significant operating leverage inherent in the business whereby most communities are now either fully staffed we're approaching those levels.
Speaker Change: And as occupancy continues to grow the need to add additional staff has moderated leading to higher flow through or incremental margins. The benefit of the building occupancy continues to be reflected in our operating margins, which expanded 320 basis points year over year, the second highest level achieved in our history.
Speaker Change: While we have witnessed a substantial recovery in margins over the past few years, we believe that the runway for further margin expansion remains long not only will we still.
Speaker Change: Not only.
Speaker Change: Are we still well below pre COVID-19 levels of profitability, but given our expectation for revpar growth to continue to outpace export we expected margin expansion trends to persist well into the future.
Speaker Change: Additionally, the operating platform initiatives, which are well underway to optimize our business should serve to further boost our margins. While also improving the resident and employee experience. This is no different than what has been experienced over the last two to three decades and many other property types across the commercial real estate universe.
Speaker Change: Onto our operating platform, we made great strides in 2024 building a capital team with internal expertise capable of directly executing and we're working hand in hand, with our operators and vendors. The result has been fantastic for example in one case, our elevator experts stepped in and corrected the scope of work related to nine building.
Speaker Change: Recognizing a reduction of 49% and the cost of the work.
Speaker Change: It's critical as an owner of real estate to have internal expertise and not be forced to rely on vendors to effectively run the capital decisions on the properties, often making short term decisions.
Speaker Change: The team has been strategically taking advantage of the vacant units available as our occupancy continues to rapidly increase to renovate the units in advance of the increasing demand in the coming years.
Speaker Change: Additionally, they have been executing numerous exterior renovations at our communities and modernizing the amenities, where appropriate including creating wonderful employee breakthroughs delighting our critical team members.
The positive impact on our site employees cannot be understated in one case on a property visit the employees hosted a small surprise party for me, including a special song and dance. They had created an appreciation of wells tower's work.
Speaker Change: After having put $20 billion of capital to work over the last four years and converting over 100 triple net leases to RIDEA. The capital team has rapidly executing capital plans for the acquired and transition buildings, which is a combination of value add as well as planned capital or value add investment program like all investments it will salaries based.
Speaker Change: On an unlevered IRR hurdle.
Speaker Change: As I've mentioned previously we expect elevated capital spend for a period.
Speaker Change: For a period of ultimately.
Speaker Change: Period of time, ultimately lower into the ongoing capital run rate, which should be consistent with other residential properties such as the multifamily Reits.
Speaker Change: On the technical front, we are in rollout phase with our main site level platform and <unk>.
Speaker Change: The team is hard at work with many other related workflows that will continue to improve the customer and employee experience and improve the margins of our business.
Speaker Change: I'll reiterate what Chuck mentioned.
Speaker Change: 25 should be another year of exceptional growth and there is seemingly no end in sight fundamentals of the senior housing sector remains terrific and our efforts to transform this business through the operating platform are having a profound impact on our residents employees and operators with the true bottom line impact soon to follow as always.
A huge thank you goes out to the welfare of our team, including our operators for their tireless efforts to transform this business.
Finally, I want to recognize the amazing efforts by our operators site employees and well salary employees responding to the recent disasters, including the southern California wildfires were they evacuated transported and relocated residents and provided furnished units to many seniors who lost their homes.
Speaker Change: Thank you.
Nikhil: With that I'll turn the call over to Nikhil.
Nikhil: Thanks, John.
Nikhil: I'll start with a quick refresher on the market conditions, which continued to drive significant investment activity for US and then provide an overview of our 2020 for transaction activity as well as color on our 2025 activity.
Nikhil: The U S commercial real estate debt market continues to face significant headwinds with substantial maturities in 2025 and in subsequent years.
Nikhil: Total outstanding CRE debt stands at approximately five nine trillion dollars.
Nikhil: With one trillion of loans coming due in 2025.
Nikhil: This compares to majorities of $700 million in 2023, and $950 million in 2024 with upcoming maturities exceeding one trillion in each year through 2028.
Nikhil: Banks hold just over 50% of the CRE debt.
Nikhil: With regional banks, holding a disproportionate share of roughly two thirds of these loans.
Nikhil: These regional banks, which are some of the largest lenders to the seniors housing sector continued to face significant challenges due to persistently high long term interest rates hampering refinancing efforts.
Nikhil: This is illustrated by the fact that regional banks with less than $100 billion in assets experienced three times as many loan modifications in the second half of 2024 compared to the first half.
Nikhil: Higher long term rates further compound issues for these lenders due to larger unrealized securities losses on their balance sheets. The struggle is evident in the stock performance of regional banks in 2020 for the K B W. Regional banking index underperformed the broader U S Bank index by 29.
Nikhil: Percent and the S&P 500 by 12%.
Nikhil: Looking at other major lenders Gse's pulled the next highest share at 17% of total CRE debt.
Nikhil: I have previously mentioned that over one third of the seniors housing loans on Fannie Maes books are criticized and their original origination volume is at historic lows.
Nikhil: In addition potential policy changes further complicate the situation with the GSE is going forward.
Nikhil: The <unk> market, which accounts for the next highest concentration of CRE debt continues to be similarly, fickle as evidenced by our consistent monthly increase in the percentage of loans subject to special servicing throughout 2024.
Nikhil: Putting all this together the banks and other lenders have grown increasingly reluctant to extend loans and remain extremely selective in the limited instances in which they do.
Nikhil: Against this backdrop, we find ourselves in an extra extraordinary market environment, where many industry participants are compelled to divest assets, allowing us to acquire high quality properties at attractive valuations.
Nikhil: Our competitive advantage stems from a powerful combination of three factors first our industry, leading data science platform efficiently identifies the most compelling opportunities from large datasets, enabling rapid market response.
Nikhil: Our team's expertise and swift and effective underwriting and due diligence and third the scalability of our operating partners efforts bolstered by John's robust operating platform.
Nikhil: This synergy creates an enviable flywheel effect for Bell tower positioning us to capitalize on market dislocations.
Nikhil: While we don't have a crystal ball due to the factors that I have mentioned, we anticipate these favorable conditions will persist for the foreseeable future, providing a sustained pipeline of attractive investment opportunities.
Nikhil: Moving onto our transaction activity.
Nikhil: 2020 for March well towers, most active year as we completed $7 billion of gross investment activity comprising approximately of $900 million of development spend and just over $6 billion of acquisitions and loan funding.
Nikhil: Our acquisition activity spanned 54 different transactions with the median transaction size of $48 million.
Nikhil: Through these transactions, we acquired more than 12000 units across 119 properties.
Nikhil: With an average basis of $265000 per unit.
Nikhil: For these properties and an average age of eight years, we acquired these assets at a substantial discount to replacement cost.
Nikhil: In the fourth quarter, our acquisition and loan funding activity totaled $2 2 billion across 21 different transactions.
Nikhil: After a relatively muted international investment activity in 2022, and 23, roughly one third of our acquisition activity. In 2004 was represented by our international business, including our expanded partnership with care U K completed in the fourth quarter, which represented roughly half of our investment activity for the quarter.
Nikhil: Our relationship with carrier U K dates back to late 2021, when we transitioned 26, former Sunrise congressional communities to care U K <unk>.
Nikhil: Since then occupancy has improved by more than 10% under a ku case management and monthly NOI has doubled.
Nikhil: Under Andrew in Matts leadership.
Nikhil: The care U K team has achieved this success by delighting their customers and providing exceptional service as demonstrated by a good or outstanding CQC ratings for each of the original 26 homes.
Nikhil: Following our recent transition transaction in which the care of U K management team acquired the management platform from Bridgepoint, our partnership with J U K now spans 72 communities across the U K.
Nikhil: Moving onto 2025.
Nikhil: The beginning of this year has been unprecedented in terms of acquisition activity, we have not seen such activity in my nearly decade long career at willpower.
Nikhil: In less than 45 days, we have already closed on or have under contract an incremental $2 billion of acquisitions expected to be acquired on our balance sheet across 27 different transactions. The medically. These transactions continue our activity from last year predominantly focused on our seniors and while its housing businesses.
One third of this activity is across our international business in the U K and Canada and approximately 85% of these 2 billion in transactions were negotiated on an off market basis.
Nikhil: This robust activity underscores our position as the preferred counterparty for those seeking certainty and rapid execution in the current challenging capital markets environment.
Nikhil: Our ability to close such a significant volume of transactions and in a short timeframe demonstrates our strong market position and efficient deal making capabilities.
Nikhil: Our transaction model is simple acquired communities in our targeted micro markets.
Nikhil: Continue to build on our regional density with our aligned operating partners in those markets and treat our counterparties with fairness and respect.
Nikhil: It's no surprise that as soon as we complete a transaction the conversation with the counterparty often quickly moves on to engaging on a subsequent tranche. This is evidenced by the fact that more than two thirds of our 2 billion in investment activity. So far in 2025 is with Counterparties with whom we have previously done business since the start of the.
Nikhil: The pandemic.
Nikhil: This fair and win win approach gives our platform immense duration and positions us for continued success in the years to come.
Nikhil: I will now pass the call over to Tim to cover our operating results and guidance for 2025.
Tim: Thank you Mikael.
Tim: Our comments today will focus on our fourth quarter and full year 2024 results.
Tim: Performance of our Triple net investment segments, our capital activity.
Tim: Sheet liquidity update and finally, the introduction of our full year 2025 outlook.
Tim: <unk> reported fourth quarter net income attributable to common stockholders of <unk> 19 per diluted share and normalized funds from operations of $1 13 per diluted share representing 17, 7% year over year growth.
Tim: We also reported year over year total portfolio same store NOI growth of 12, 8%.
Tim: Now turning to the performance of our Triple net properties in the quarter.
Tim: And as a reminder, our triple net lease portfolio coverage stats reported a quarter in arrears. So these statistics reflect the trailing 12 months and a 932024.
Tim: And our senior housing operating senior housing Triple net portfolio same store NOI increased five 1% year over year and trailing 12 month EBITDAR coverage was 112 times, marking a new post COVID-19 high and coverage.
Tim: Cupboard and this portfolio continues to strengthen now well exceeding pre pandemic levels as fundamentals aligned with those of our operating portfolio.
Tim: And we expect to persist into 2025.
Tim: During the quarter, we finalized agreements to transition <unk> operated properties from Triple net to <unk>.
Tim: Active in the first quarter.
Tim: Bringing the total triple net to RIDEA transitions in 2024% to 68 properties.
Tim: Consistent with our strategy over the past two years. These conversions are expected to be highly accretive over time as well tower assumes an equity position in these assets continue to benefit from recovering fundamentals and the industry's long term secular growth.
Tim: For this operator, specifically the transition also unifies, our entire relationship underwrite and structure, ensuring complete alignment across our relationship.
Tim: Next same store NOI in our long term post acute portfolio grew two 6% year over year and trailing 12 month EBITDAR coverage was 158 times.
Tim: Moving on to capital activity, we continue to your equity finance, our investment activity in the quarter raising $2 2 billion gross proceeds.
Tim: This allowed us to fund $2 2 billion of investment activity and ended the quarter with $3 $7 billion of cash restricted cash and the balance sheet.
Tim: Staying with the balance sheet.
Tim: <unk> ended the quarter with a net debt to adjusted EBITDA ratio of 349 times.
Tim: A one five turn decrease from the end of 2023.
Tim: We intend to use cash on hand to fund both the additional $2 billion of net investment activity announced in last night's release.
Tim: And the $1 25 billion unsecured debt maturing in June.
Tim: As a result, driven by accretive investment activity and continued cash flow growth from our in place portfolio, we expect to finish the year with net debt to adjusted EBITDA at approximately three five times.
Tim: Reflecting on 2024, the combination of organic cash flow recovery and disciplined financing of our external growth led to a historic strengthening of our balance sheet.
Tim: The improving fundamentals of our business over the past two years have enabled us to deliver sector leading per share cash flow growth to our shareholders will also harnessing the power of the early part of the cyclical recovery to build balance sheet capacity.
Tim: Looking ahead as a powerful demographic trends in the next two decades begin to unfold.
Tim: We remain as confident as ever in our ability to capitalize on long term high ROI investments in people technology, and both digital and physical infrastructure, regardless of the capital market backdrop.
Tim: Lastly, as I turn to our initial 2025 guidance, which was introduced last night I want to remind you that we have not included any investment activity and our outlook beyond the $2 billion has been closed or publicly announced to date.
Tim: Last night, we introduced our full year 2025 outlook for net income attributable to common stockholders of $1 60 to $1 76 per share.
Tim: And normalized <unk> of $4 79 to $4 95 per diluted share were $4 87 at the midpoint.
Tim: Our normalized <unk> guidance represents a 55% increase the mid point.
Tim: From our 2024 full year results. This increase is composed of a 42% increase from higher year over year senior housing operating NOI three.
Tim: <unk> increased from higher NOI in our outpatient medical and Triple net lease portfolios.
Tim: A 20, <unk> increase the investment and financing activity.
Tim: And the 65% of growth is netted against Tencent have offsets made up <unk> <unk> from increased G&A and other expenses and <unk> some FX headwinds.
Tim: Underlying this guidance is an estimate of total portfolio year over year same store NOI growth of 9% quarter percent to 13% driven by sub segment growth of outpatient medical 2% to 3% long term post acute 2% to 3%.
Tim: Housing Triple net 3% to 4% and finally senior housing operating growth of 15% 21%.
Tim: This is driven by the following midpoint of their respective ranges.
Tim: Revenue growth of eight 5% made up of Revpar growth of four 8% and year over year occupancy growth of 325 basis points.
Tim: And expense growth of 5%.
Sean: And with that I'll hand, the call back over to Sean.
Speaker Change: Before we go to Q&A I want to touch on three topics that appears to be unrelated on the surface number one capex and capital team at John mentioned on the last couple of calls he has built a $100. So Boston capital team at Walthour, creating internal capital and value added expertise as part of our build out of our operating platform.
Speaker Change: This has helped us to become a real operating business focused on total lifecycle cost of a long duration not ideal shop that write checks. We put a few pictures of the team's work towards the end of our business update I want to draw your attention to those because I wanted to see philosophically what are we trying to achieve for.
Speaker Change: An example look at our efforts to build what I call Costco break rooms.
Speaker Change: At level employees at our communities work really hard and we're trying to give them a really inviting and radio of anything experience when they take their break in 2024. We've finished more than 80 of these break rooms, while some of you might legitimately see this as the expenditure we see this as an important step to hire and retain.
Speaker Change: Talent.
Speaker Change: I was recently reading a book on Walt Disney called remembering Walt that talks about how Walt wanted to build a 120 feet tunnel of our railroad on a long S curve as he like mystery and loved delighting customers with Joy and wonder.
Speaker Change: The format on the job suggested to him that it was way cheaper to build its straight while said is cheaper not to build at all the only way you make lots of money for your shareholders over a long period of time is having a killer customer value proposition.
Speaker Change: In our business our resident first line of interaction leading to that value proposition a site level employees, we cannot delight our customers without delighting the site level employees. If you don't believe me. Please study the break rooms at Costco and Jim Senegal, as Philadelphia take care of your employees and they will take care of your business.
Speaker Change: You will understand why that company has such a long term compounding machines.
Speaker Change: Number two <unk>.
Speaker Change: The quasi platform when we talk about technology at Walthour, we mean, two completely different things that sometimes gets conflated.
Speaker Change: One is our data science platform and the other is our operational tech platform.
Speaker Change: Our data science efforts go back almost a decade that started with machine learning focused on structured data.
Speaker Change: And then deep learning towards the end of last decade, focusing on unstructured data and finally powered by AI in last few years, while will perhaps never when their price, we're coming up with a new frontier model. Our goal is to harness the power of this incredible technology advances in human history to make the right capital.
Speaker Change: Allocation decisions in other words, we're trying to disrupt how capital gets invested in was largest asset class called real estate on the other hand, our operational technology efforts, which goes back to Jon Bock Hurts arrival.
Speaker Change: Digitize and professionalize the business is set to disrupt how senior living operates as an industry. When we are successful in the ladder. It will make the former machine our data science platform, even more powerful as it will feed every minute customer interaction data into our algorithms not just transactional data and vice versa.
Speaker Change: Creating a positive feedback loop.
Speaker Change: While the individual goal of both of these platforms is to set that is to challenge the status quo of two completely different industries. The philosophical underpinning is the same and that stems from the second law of thermodynamics. The second law dynamic holds the greatest thermodynamic efficient.
Speaker Change: <unk> achieved by walking with the hottest passable source and the coldest possible think in other words. It is not about how fancy the underlying math, our tech is but the competitive niche where we're applying this where the contrast is the greatest.
Speaker Change: To put it simply we found two easier games, where the competitive dynamic is still focused on either labor data financial engineering in case of real estate investing where fundamental assumptions that work in a low or declining interest rate environment.
Speaker Change: Our fly by site not by instrument in case of senior living operations and finally number three people.
Speaker Change: I want to congratulate John Burkart, Nikhil, Tim Matt John I'll impetus, Eddie and Patrick for the expanded role and promotions that we announced on January 2nd.
Speaker Change: It is perhaps the single most important release from this company in years, while I am not going to detail. How the rules are expanding which is described in the release I would like to say I've never written something that I'm more proud of.
Speaker Change: I will not remember a bunch of deal offer a side road during the Christmas break.
Speaker Change: Even forget how freakishly good it felt thing the occupancy growth during Christmas week, but I will never forget the pride I felt when I wrote that released during the holiday break.
Speaker Change: Many of these extraordinary leaders join me as associates and analyst and today. They run. These farm others have joined me later and pursue pursue this audacious dream to disrupt an industry ought to.
Speaker Change: All of these individuals have been instrumental in creating what is known as today as well tower buying laying one airtight break at a time with an outside our mindset. These exceptional leaders share too rare qualities that set them apart.
Speaker Change: Delayed gratification gene or an instinctive bias towards sacrificing immediate rewards for substantially larger future gains and to fiduciary gene and in their desire to prioritize their owners interest above their own.
Speaker Change: Their leadership has been instrumental in fostering an exceptional culture at our farm. The savvy leaders show up every day to win with quality starts at a seamless way Bob deserve Trust shared sacrifices unity Papa mirror address its location.
Speaker Change: These seemingly mundane qualities in the right combination create a lollapalooza effect of a culture, where everybody is fully committed they've all in and they stay all in you might be able to copy our deals, but you cannot copy our culture.
Speaker Change: So what do these seemingly disparate three items that I mentioned above such as Philadelphia behind Capex technology and people, having common two things first duration or otherwise known as longevity and second power law, otherwise known as exponential network effect. These two.
Speaker Change: <unk> and network effect are the most foundational architectural principle of nature and so they are the foundational backbone of our pursuit of dogged incremental continuous progress Apache share growth for our existing investors for decades to come with that I'll open the call up for questions.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Thank you at this time, if you'd like to ask a question press star one on your telephone keypad.
Speaker Change: I ask that you limit yourself to one question you may re enter the queue for any follow ups.
Vikram Malhotra: Your first question is from the line of Vikram Malhotra with Mizuho.
Vikram Malhotra: Morning, guys.
Vikram Malhotra: That's one of the strongest so I just had a two parter just clarifying just one on fundamentals can you kind of give us a sense of the pricing power across occupancy bands within the Sho portfolio.
Vikram Malhotra: And then in related to the comments on the pipeline do you mind sort of giving us a sense of the 2 billion in acquisitions and the pipeline. It sounds like what what are you. What are you whats the occupancy of what you're acquiring and that pipeline. Thanks.
Vikram Malhotra: Phil you want to start with the second yeah, I'll start with the second one vikram. So you know as I said in the prepared remarks, it's really a continuation of what we've been buying so it's similar metrics.
Vikram Malhotra: The 2 billion, we talked about it's low eighty's occupancy.
Vikram Malhotra: Generally the newer vintage assets.
Vikram Malhotra: We're kind of on a second question assays that are 90 plus percent occupied.
Vikram Malhotra: The revpar growth has been well into the fixes on the other end where the assets are below 70% occupied they're roughly flat. So everything goes sort of in between to give you a sense of gradients I will say maybe in the 85 to 95 was closer to six and as I said below 70 towards closer to flat, which would you would expect a different spectrum of occupancy now.
Vikram Malhotra: I'll just add that as of yearend.
Vikram Malhotra: Over a quarter of the portfolio is still sub 80% occupied.
Jonathan Hughes: Your next question is from the line of Jonathan Hughes with Raymond James.
Jonathan Hughes: Hi, good morning, Thanks for the prepared remarks and commentary.
Jonathan Hughes: The organic growth outlook, we know of that remains strong, but I wanted to tie that into external growth in recent years as we move through this development cycle and see increasingly fewer deliveries, which is obviously a good thing for existing properties does that make buying properties with lease up more challenging as there are fewer of them, which in turn would impact your growth this year.
Added to the same store pool, so much of the outperformance in recent years has come from acquiring those newer vintage lease up properties and if we see less and less deliveries does it become more challenging to sustained growth.
Yeah, I think Jonathan if you look at the activity that would suggest the answer is no because candidly, it's a complex operating business and without the right toolkit you don't get the same outcomes from from every provider that's running the buildings. So we've had a long term track record of success of finding under operating buildings.
Jonathan Hughes: And you know the under operational element.
A as occupancy because that's obvious today, but there are so many more layers right. So it's not just occupancy at the end of the day, what we care about is NOI and every single line item has room for optimization that we bring versus somebody else operating those buildings brings so we see a long runway to keep doing more of this and then I would just also add don't forget the massive delivery cycle over.
Jonathan Hughes: Supply cycle, who have gone through post Dfc sort of last decade right. So there are plenty of people who need help on the liquidity side and we'll see what the market gives us.
Speaker Change: As a reminder, we ask that you only ask one question you may re enter the queue for any follow ups.
Our next question is from the line of Joshua Dave Lennon.
Speaker Change: Bank of America.
Speaker Change: Yeah, Hey, everyone call, what you want but I'm really focused on culture as a long term driver of outcomes and to me a big picture of their culture is retaining talent I guess, Chuck how do you think about retaining talent and is there a retention problem that well today.
Speaker Change: Okay. So.
Speaker Change: Let me, let me answer both of those questions separately. So first is.
Speaker Change: You think about this is that as I said mentioned many times.
Speaker Change: Turning talent.
Speaker Change: Is my number one priority is.
Speaker Change: It's hard to find really good people, who do not seeing of what we do is work, but take that as their life's work and there is a tremendous difference between the two this is a hard business. It's a hand to hand combat on a 24 seven for all of US right. So it is all of these results.
Speaker Change: You guys are seeing today is been a function of this entire team walking together.
Speaker Change: And build a trust and as I said, it's a seamless waiver deserve trust right.
Speaker Change: And definitely there's a lot of shared sacrifice with the unity of purpose that I talked about our north star and everybody has bought in at all in the stay all in that's a really hard thing to pull off. So obviously, if you think about it and that shows up on are clearly on track record being.
Speaker Change: Being a public company our track record is public so anybody can see what my team is capable of and so obviously, if you think about the demographics of the industry, whether it's private or public you will see in that microcosm is huge retirement wave is unfolding as we speak. So obviously there is a.
Speaker Change: And this amount of demand.
Speaker Change: For people, who are really good at the job right and not everybody is very good at the job that is a fundamental tectonic shift is happening in the real estate business with last 40 years have been all about declining interest rates that gave me is over so if you think about that in that context. There is just tremendous demand for our people. So let's just think about this is Daryl <unk>.
Speaker Change: <unk> of retention at wells are the answer is a resounding no.
Speaker Change: But that does not mean that we should not be acting in my capacity I should not be acting before theres a problem. There's an interesting interview, we can go and see.
<unk>, who was founded Singapore was the leader with US once asked by a reporter about a famous small cohort was you talked about a single spot can create a prairie fire.
Speaker Change: And Lee Kuan Yew said that only happens if the prey. The grass was actually dry all we're trying to do at Walter or what I'm trying to do every day is to keep that grass wet.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Your next question is from the line of Michael <unk> with Citi.
Nick Joseph: Thanks, Nick Joseph here with Michael.
Speaker Change: Just on the private funds management business, I know, you're targeting different stabilized versus non stabilized assets. So I was hoping you could discuss kind of what the targeted IRR or both and then just the size of opportunity you see in terms of the stabilized assets versus those that still have more of a growth opportunity.
Speaker Change: Nick as we have mentioned in my prepared remarks that we have nothing more to add to that private capital business at this point.
Speaker Change: More than what we have said in the press release. So we will give you more updates when that find their processes over now from the perspective of.
Speaker Change: You know you do think about it we are fundamental buyers in the world a balance sheet perspective.
Speaker Change: On stabilized assets Thats, what we have always done where growth in masters, we're not yield investors and we believe that now bringing these private capital business significantly expand our Tam that's all I can say at this point in time.
Speaker Change: Yeah.
Speaker Change: Your next question is from the line of Nick Lucio with Scotiabank.
Nick Lucio: Thanks, Good morning, So in terms of the senior housing operating segment I was hoping you could just break out how big the same store bucket of assets will be this year versus the total pool and then for the non same store, where I think theres often lower occupancy how do you expect those assets to perform on NOI growth.
Speaker Change: Better.
Speaker Change: Is there a better potential there versus the same store guidance you gave.
Speaker Change: So why don't I start with the last part Tim will give you. The first part given that our overall portfolio occupancy is give or take call. It 85, and our same store is what 87 plus that would suggest to you. The non same store is very well occupied right and so as the occupancy goes up.
Speaker Change: You would expect that they are the flow through incremental margin that falls to the bottom line, obviously starts to pick up right so growth should be better.
Speaker Change: But you know obviously, you will see but when those properties stabilize we will get more pricing power, so you're going to move handover and growth from occupancy growth from right Tim.
Speaker Change: By the fourth quarter, we expect over 90% of the portfolio current portfolio available.
Speaker Change: Your next question is from the line of Austin <unk> with Keybanc.
Speaker Change: Great and good morning, everybody shrunk you mentioned in response to an earlier question that at 90% plus occupancy revpar growth as well into the sixes and I think with the occupancy gains expected. This year over 300 basis points, you should kind of be ending the year approaching that 90% level on top of the inflection in demographic.
Speaker Change: Next year and then the further rollout in the Tech platform I mean should we take all that detail to point to a reacceleration in revpar growth in 2026.
Speaker Change: So Austin just remember we're also buying Tim Nikhil, just said that we're buying <unk>.
$2 billion of assets in the first six weeks at 80% or so occupancy rates our reported metrics gets all sort of jumbled up because of this but your idea of your question is the correct. One I'll remind you of the comment I made I think last call maybe the one before but in last couple of calls which is post 2000.
Speaker Change: 26 summer leasing season, we should start to see.
Speaker Change: A better rip or environment than we have seen sort of call. It prior to that we shall see what the market will give us its hard to predict.
Speaker Change: When things go as we are fundamental believers, it's not about predicting it's about positioning.
Speaker Change: And we're in the business of duration.
Speaker Change: If that takes one more year will still be here trying to push things forward.
Speaker Change: Your next question is from the line of John <unk> with Wells Fargo.
John Walthour: Thank you good morning.
Speaker Change: I'm trying to understand the outsize occupancy gains that you experienced this quarter and then the guide that you're giving.
Speaker Change: Or you think it's more to do with the acceleration of retirement age individuals or do you think part of this occupancy gain is due to maybe a psychological effect, where there's less and less opportunity now as you lease up to move into the.
Speaker Change: All of these that you'd like to be at and therefore, youre seeing sort of people being willing to move it a little bit earlier, and therefore, maybe making the pace of occupancy gains that youre seeing sustainable into the future until you reach stabilization.
Speaker Change: John why don't I offer you a hard choice, which is our execution.
Speaker Change: You guys have the data from.
Speaker Change: Industry data that you guys see other companies in the sector.
Speaker Change: It was reported I think some of the data but regardless.
Speaker Change: Just look at that and we realize this is a lot of that what you say is right, but it is that does not describe the operational sort of hum.
Speaker Change: Alpha that we have seen in the quarter, but we shall see what happens going forward.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Your next question is from the line of Ronald Camden with Morgan Stanley.
Ronald Camden: Hey, just a quick one maybe touch on expenses a little bit in terms of an update on the labor market in any concern about sort of labor shortages and then what youre seeing.
Ronald Camden: Ron we always have concerns in a business, where 60% of our capital stack I mean down expense taxes labor, we always have concerns.
Speaker Change: As John mentioned, we are trying to see stabilization.
Speaker Change: In that sort of the growth we have seen before we have tremendous amount of.
Speaker Change: Operational initiative capital initiative, just in our communities to today to significantly bring down.
Speaker Change: Turnover, we mentioned some of that in the slides on our business update that you can see that we are seeing tangible impact.
Speaker Change: But as I've said, there is not an easy business. This is why you get out get outcomes in the tails.
Speaker Change: Sort of industry beta, but we're super focused on it we shall see what the market gives us.
Speaker Change: Your next question is from the line of Rich Anderson with Wedbush.
Rich Anderson: Hey, Thanks, good morning.
Speaker Change: Maybe a less exciting topic, but outside of senior housing what do you feel like medical office in.
Rich Anderson: And post acute.
Rich Anderson: The play in the company today and by that I mean, obviously, there's a lot of excitement around the growth profiles senior housing going forward, but is it.
Rich Anderson: Is it a.
Rich Anderson: On offs.
Rich Anderson: Sort of investments.
Rich Anderson: Representing over 20% of the portfolio is it a is it a.
Rich Anderson: View to the future to sort of be in the business longer term, because who knows where things will go 15 years from now just curious your view on this stuff outside of the senior housing and what role it plays for investors today and in the future. Thanks.
Rich Anderson: We're long time investors and our.
Rich Anderson: OEM as well as our post acute <unk> been pleased that the extraordinary important role as we think about portfolio construction.
Rich Anderson: And different you know you guys get excited about different parts of different asset class and their cycles around them. We are thinking about how we create long term sustainable earnings and cash flow growth on a partial basis over decades, and we are extraordinarily excited about those businesses, we allocate capital in different parts, depending on where.
Rich Anderson: We think that we can make.
Rich Anderson: The best risk adjusted return on a long duration basis.
Rich Anderson: And you know.
Rich Anderson: When the opportunities arise, we allocate capital, but at this point as I've said that we're that player a great player in the skilled nursing business.
Rich Anderson: And obviously on the OEM side as I've mentioned before that I want to see where long term inflation lands before I farm up my mind on how to allocate further allocate capital in a significant way or not that's why we are and we're watching.
Rich Anderson: These things very carefully but there is no caution both of those strategies play a very important long term role in our portfolio construction.
Speaker Change: Your next question is from the line of Juan Sanabria with BMO capital markets.
Juan Sanabria: Hi, good morning.
John Walthour: John I believe you mentioned.
John Walthour: The elevated capex for a period of time, and then kind of normalizing back below where you were pre corporate level. So I was hoping.
John Walthour: Maybe you could provide a little bit more details or.
John Walthour: Each marketing, how you think long term capex.
John Walthour: And once we get past this hump of kind of.
John Walthour: Deferred or whatever type of spend that you want to execute on.
John Walthour: Okay.
John Walthour: Yes, as far as for long term.
John Walthour: Run rate.
John Walthour: Capital to date, our previously was done less efficiently I've talked about that many times people made short term decisions. For example, you might replace a roof will not do the skylights in the gutters and then you come back and do both of those and you've got cost for mobilization cost for tearing up the roof again to replace those and so what we've done when we've stepped in with the team in <unk>.
John Walthour: And the internal expertise is to create the proper scopes and planning for capital.
John Walthour: To execute that that in the end that lowers the run rate.
John Walthour: The capital and as I mentioned people are looking for reference points.
John Walthour: One reference point out there that's been out there for years as for example, multifamily residential what their run rate is on Capex.
John Walthour: There is no reason why our run rate for ongoing capital would not be similar to that our units are slightly smaller with less kitchen, a little bit more on the amenity side for sure but balance it puts it into a zone for context on the value add side as I said those are pure investments, we could turn it on and off at any point in time, and Nicole and I are.
John Walthour: Connected as far as what those investment hurdles are unlevered IRR.
John Walthour: <unk>.
Speaker Change: Your next question is from the line of Michael Carroll of RBC capital markets.
Michael Carroll: Yeah. Thanks, Jon I wanted to circle back on your comments regarding the tech platform rollout.
Michael Carroll: Can you give us an idea of the timing of this I mean, what percentage of the portfolio has this capability today and should we think about the majority of your operators, having this capability by the end of the year or is it a longer more thought out process on that.
Michael Carroll: That's a good question, yes, we're rolling it out over the next couple of years, there's a lot of work that goes into doing that and doing it very well to make a seamless experience for our site associates. So very focused on that and I am glad you asked because I've talked a lot of time talking about the benefits of the platform as it relates to digitization and the improved.
Michael Carroll: Customer and employee experience I havent much spoke about the aspects of providing real time actionable data insightful data to the site employees. So I'll give you just a little story on that when I was working my way through COVID-19.
Michael Carroll: <unk> 19 eighties I worked at a company called price club, which is a predecessor of Costco for those of you who remember every morning about three a M. The store manager to come to me with a computer printout, which showed all of the sales for every item on my aisle as well as the idle until IL in total so I could see if I've placed tied in the middle is.
Michael Carroll: I placed tighter as an end cap what the impact was on sales and then adjust my IL accordingly to maximize my total sales for my aisle very competitive process there at Costco.
Speaker Change: And today, what we were able to do we are at the very cusp of providing our employees with real time actionable data, enabling them to positively impact the business. So super Super excited we're going as fast as possible, but we have to do it right and so it does take a little bit of time, Mike just remember nikhil, he's not making this process.
Michael Carroll: Particularly easy by adding 10 to 12000 units a year as well so it's a running target.
Speaker Change: Your next question is from the line of Jim Cameron with Evercore.
Jim Cameron: Thank you good morning, I was intrigued by new keels comments regarding sounds like an apparent uptick in European investing activity have you ever provided sort of a sense of scale.
Speaker Change: <unk> Central Willpower, and Europe does that extend beyond the U K.
Jim Cameron: I don't think Youll hardwood correct.
Speaker Change: We are focused on.
Speaker Change: In.
Speaker Change: I guess you know you can see in a European context as UK, we I've said, many many times we have no desire to go outside our circle of competence, which is U S. U K, Canada and his comments is entirely focused on the U K.
Speaker Change: Yes.
Speaker Change: Your next question is from Mike Mueller with JP Morgan.
Mike Mueller: Yes, Hi, you have about $2 billion of developments in process can you talk about how long to stabilize the properties upon completion is that trending faster or.
Speaker Change: Slower than a few years ago.
Mike Mueller: Pre COVID-19 and Mike So yes.
Thinking about that development pipeline that has predominantly been focused in two areas.
Mike Mueller: Active adult within our residential portfolio and then O M O M.
Mike Mueller: As you know is pretty much 100% leased for anything that we're developing active adult has a shorter lease up timeframe and seniors. So it's shorter than that is kind of more like a.
12 to 18 month type timeframe.
Mike Mueller: Yeah.
Michael Emlen: Your next question is from the line of Emlen, Michael with Green Street.
Mike Mueller: Okay.
Yes.
Mike Mueller: 2025 expected expense growth for the U S senior housing portfolio compared to the U K and Canada, and then having increased employment taxes increase minimum wage in U K have any net impact there.
Mike Mueller: Yeah.
Mike Mueller: Yes, so opex growth in the U K is greater than the U S and it's led to year to your question on the impact of.
Mike Mueller: The combined impact of the two is right way to look at it right because you get the kind of headline.
Mike Mueller: Cost of living adjustment and then you've got the insurance impact. So two of those are heightened and that is causing a higher opex growth there.
Mike Mueller: But we're also seeing great top line growth in the U K. So it's offsetting some of that flow through but we're still seeing positive growth.
Mike Mueller: Yeah.
Speaker Change: Our final question will come from the line of Jonathan Hughes with Raymond James.
Jonathan Hughes: Thanks for taking a follow up can you talk in more detail about the outlook for seniors housing development. The fundamentals are as good as they've ever been there's a lot of visibility for demand in the next decade.
Speaker Change: Developers or private equity rushed in to get projects started to capture that inevitable upside is it lack of operators financing I guess what changes.
Jonathan Hughes: Yeah. So.
Jonathan Hughes: Jonathan I'm going to make my comments on on average there's always exception to average so.
Jonathan Hughes: Just think about us and our average I fundamentally believe that people do something on economic activity called element. If there is development profit.
Jonathan Hughes: So you sort of have to think about so let's just begin to that I'm going to so first I think there is a fundamental misunderstanding of what development profit is.
Jonathan Hughes: I hear Ya I've seen some very interesting performance of developments that say you know just take an example, there is an example, I can make a 8% yield five years from now.
Jonathan Hughes: And isn't that 200 basis points above the prevailing cap rate of six <unk>.
Speaker Change: That is fundamentally people, who say that have a fundamental misunderstanding of the most basic idea of finance call time value of money.
Speaker Change: We make decision on development decision based on untrained ideal not Trinity Entre into deal is and what's today's cost and what's today's market rents right. You can always buy your six and trend that and get rent growth for five years and when we get to eight so that is sort of the fundamental so number one problem number two problem, which I just.
Speaker Change: Have you as sort of the underpants gnomes reasoning, if you have seen that FEMA South Park.
Speaker Change: Episode and it goes like this do you have a proposition one which is there is a lot of demand coming that's step number one step number three years, we should be able to make profit from that by developing more the step number two in the middle is missing.
Speaker Change: And that missing middle is what we talk about what happened to cost what happens to your cost of construction cost of labor cost of.
Speaker Change: Sort of.
Speaker Change: Oh right right all of this thing Youre exit cap rate all of these things.
Speaker Change: So if you just think through that senior housing development business reminds me of that South Park episode, which is underpinned gnomes episode, if you haven't watched it I will go in like you do Pakistan.
Speaker Change: Hard one is water just straight up reference falsification.
Speaker Change: I have talked with smart developers, who understand that this idea of silver tsunami that trying to sell it to someone gave development capital is just what I call.
Speaker Change: Private schools and public lives right. So all I would tell them to do is if you truly believe in that why don't you just put your 100% of your own money and Hello, well I tried to get other peoples money to try to do that which this business has two really really bad episodes. One in the nineties massive oversupply lots of money lost other people's money loss and the <unk>.
Speaker Change: Second is what happened in the last decade. So if you just put it all together you will see and all I say you know just if the economics doesn't exist I fundamentally believe it will not happen and if somebody is particularly excited about doing it I recommend they do it on their own money not get sort of an unassuming small bank who doesn't understand.
Speaker Change: The details and just get them and then obviously get them on the hook just like it happened in the large ticket.
Speaker Change: This does conclude today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: Okay.
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