Good day, and thank you for standing by. Welcome to the Q4 2021 Welltower Inc earnings conference call . At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, to Mr. Matt McQueen, general counsel . Please go ahead.
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 Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. 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. With that, I'll hand the call over to Shankh Mitra.
Thank you, Matt, and good morning, everyone. I'll review the quarter, reflect back on 2021 on this year-end call, walk you through high level business trends and our capital allocation priorities. John will provide an update on the operational environment for SHO and MOB portfolios, and Tim will walk you through our triple net businesses, balance sheet highlights, and first quarter guidance. 2021 was a year marked by high conviction capital deployment, partner and talent acquisition, and a powerful inflection in our senior housing business. Our belief in the long-term demand thesis for the senior housing proved out as we witnessed significant occupancy growth starting in the spring of last year, which continued through the historically seasonally weak winter season. Just as importantly, in the second half of 2021, we began to see a significant shift in the pricing power.
Interestingly, we found this pricing power during a period of relatively low occupancy levels. After all, what industry or asset class do you know of that is able to achieve pricing power with occupancy levels in the low 70% range? Lo and behold, that pricing power continued to strengthen in Q4 and in the first quarter of this year, despite the impact of Delta and Omicron. Same-store RevPAR grew 3.4% in Q4, fueling a year-over-year same-store revenue growth of 4.8%, one of the strongest quarter in the company's history. Even more encouraging is the revenue growth in the U.S. exceeded 6% with the momentum accelerating through fourth quarter. John will walk you through the details in a moment.
Though I am not happy with our subpar bottom- line results due to increased expenses, mainly from the Omicron-induced labor crisis, I continue to believe we will see significant improvement throughout the year, given the continued net hiring trends we're seeing from our operating partners. This assumes we don't experience another highly infectious variant. We can offset the higher cost of full-time employees, just as we have done during the years prior to COVID. It is a significant presence of contract labor at surge pricing level that is the source of the issue. From a demand standpoint, we saw record interest in our product in Q4 that continued through January, with inquiries up significantly from December.
However, a meaningful number of tours got canceled or postponed as either the prospective resident or their family got COVID, or a community that did not have enough employees to conduct the tour as there was a COVID crisis in the community. However, the tours have picked up meaningfully in recent weeks, and we're starting to see strong sales activity, which should translate into higher net move-ins in next three to four weeks. If we are right about this, you may see occupancy growth exceed seasonal trends while occurring in an environment of strong rate growth. We project this will put us into the double-digit NOI growth range in Q1, only to accelerate further throughout the year.
As disappointed as I am about the diminished bottom- line flow through in Q4 due to $30 million of agency costs compared to only $5 million in Q1 of last year, I continue to believe that our 2022 exit run rate and 2023 earnings power of this platform is unchanged. Moving to capital allocation. In 2021, we deployed $5.7 billion across great real estate with fantastic operator and at even a better price. The most incredible aspect of this story was the granular nature of execution with a median transaction size of $26 million. We're not believers in elephant hunting, as larger transactions usually result in value accruing to the seller. As you know, we manage this company for our long-term shareholders to increase per share value. Q4 was no exception to this consistent trend.
We have deployed $1.4 billion of capital in Q4 across 20 separate transactions with a median size of $24 million. I won't bore you with the details of every transaction, but I would be remiss not to mention a couple of them, which I'm particularly proud of, including a handful of trophy buildings in Boston and Florida at a very attractive basis. Perhaps the most exciting investment of the quarter was the formation of our partnership with Andy and Glenn at Quality Senior Living or QSL. It is hard to overstate how strong of a team Andy and Glenn have built from conceptualization of the product to development execution and ultimately their operational excellence. For example, despite all the labor challenges that I've highlighted, QSL have used virtually no agency labor and their buildings are well occupied.
Andy, who is one of the biggest users of our data analytics platform, is embarking on a multi-year effort to expand The Blake brand with the full support of our platform behind him. I hope you are seeing a pattern here with how our data and predictive analytics platform attracts some of the best people in the business as we offer so much more than capital. This network effect of platform execution across multi-year partnerships that were formed over the last few years will fuel our growth for years to come. As Delta and Omicron-induced challenges reared their ugly head in Q4, capital deployment opportunity set only expanded, and that continued in Q1, which is seasonally the weakest quarter from a deal activity. After a strong close of 2021, we have already closed approximately $400 million-$600 million investment over the last six weeks.
I'm pleased to report that our pipeline remains robust, highly visible, and actionable. While the capital market backdrop has been volatile of late, driven primarily by the Fed headlines, we're well-positioned to fund our pipeline with well over $1 billion of equity and availability of liquidity in excess of $4 billion. We're proud of our capital allocation track record, both deployment and sourcing. If capital market volatility continues, we will access different tools from our toolbox as we have done before. Lastly, I'm very proud to announce our new partnership with Reuben Brothers, which is buying Avery Healthcare, one of our largest operating partners. Reuben Brothers, founded by David and Simon Reuben, is one of the largest family offices in the world, and is the owner of prime real estate and infrastructure, both in U.K. and globally.
They're also a pioneer of investing in alternative real estate and infrastructure as an early investor and owner of Global Switch. Reuben Brothers share our optimism for the exceptional growth trajectory for healthcare and wellness infrastructure as society ages. We're particularly excited about the prospect of expanding the platform together as Reuben Brothers owns some of the most prime land and real estate in U.K. Tim and I have said on this call many times that temporary degradation of cash flow doesn't necessarily mean the extraction of value. Avery, which constitutes 16% of our same-store triple net NOI, will be significantly delevered through this equity infusion from Reuben Brothers. Partnering with highly sophisticated global investors like Reuben Brothers validates our view of the long-term value of this business despite Wall Street's obsession with point-in-time coverage.
In conclusion, I'm proud for all of our execution in 2021 across operations, capital allocation, and partnership. The stage is set for multi-year earnings growth as we find ourselves at the bottom of both secular and cyclical cycles with unparalleled platform builds with advanced data analytics, 20 or so growth vehicles with different partners and talent to execute on it. The pandemic has been devastating for our entire ecosystem, but we have doubled down during this massive disruption given our high conviction investment thesis. You, as our shareholders, can rest assured that we'll not be resting on our laurels and that we'll continue to dig a deeper and wider moat. With that, I'll pass it over to John. John?
Thank you, Shankh. My comments today will focus on the performance of our management operating segments in the quarter. Starting with our medical office portfolio , in the fourth quarter, our outpatient medical segment delivered 2.4% same-store NOI growth over the prior year's quarter, despite a 20 basis point decline in occupancy. We continue to see strong retention rates at 86% in the fourth quarter, and with increasing construction costs and rising market rates, we will continue to push renewal rates in exchange and accept a reasonable level of increased turnover and related frictional vacancy as we maximize the value of the portfolio. Now turning to our senior housing operating portfolio . The strong demand-based recovery in the senior housing business continues to strengthen.
The SHO portfolio same-store revenue increased 4.8% in the fourth quarter of 2021, representing the first full period of year-over-year same-store revenue growth since the beginning of the pandemic. Occupancy grew 90 basis points over the prior year's quarter, again, the first year-over-year increase in occupancy since the beginning of the pandemic and the largest year-over-year gain for any quarter since 2016. Sequentially, the SHO portfolio spot occupancy increased approximately 70 basis points during the fourth quarter to 77.7%. Compounding these strong occupancy trends is a notable shift in pricing power. Over the second half of the year, operators have successfully raised and are again able to charge community raised rates and are again able to charge community fees, both of which were reflected in a 3.4% year-over-year increase in RevPOR during the quarter.
Following outsized increases in January, in February renewals with little to no pushback, we expect further acceleration in RevPOR growth over the course of the year. Geographically, each of our markets, Canada, the U.K., and the U.S., are showing improvement in same-store top-line metrics through the quarter. Our Canadian portfolio, which has lagged the recovery, posted a year-over-year revenue decline of 3% in Q4 2021. However, the revenue decline improved intra-quarter, moving from a decline of 4.2% in October 2021 to a decline of 1.4% in December 2021 compared to the prior year's respective months. Sequentially, the Canadian same-store portfolio grew at a revenue rate of 1.8% in the fourth quarter.
In the U.K., our same- store revenue increased 7.8% during the fourth quarter on a year-over-year basis, accelerating from 7.1% growth in October 2021 to 9% in December 2021 compared to the prior year's respective months. Finally, in the U.S., where the majority of our portfolio is located, year-over-year revenue growth in the fourth quarter was 6.3%. The acceleration in revenue growth was particularly pronounced in the U.S., accelerating from 3.8% in October 2021 versus the prior year's month to 9.1% in December. Despite these encouraging top-line trends, expenses increased 8.8% year-over-year, driven largely by excessive agency costs.
The combination of holiday time off and Omicron disruption led to an increase in agency costs in the quarter, almost 4.5 x agency expense versus the prior year's quarter. Excluding agency costs, expenses increased 5.3%. Stress in systems highlights opportunities and issues, and the extreme stress in the healthcare system brought on by COVID has identified some opportunities to improve the value proposition for our hardworking healthcare workers. The agencies have been a temporary crutch, which have provided short-term option for both operators and the healthcare workers. That said, the excessive use of agencies is truly short-term in nature, and the exceptional premiums that they charge, as much as 6 x the base rate during the recent holiday period, do not pass through to the agency employees, who typically do not receive benefits either.
The quality of life and their work experience is substantially less desirable than that of a permanent employee. Agency employees lack the connection to their coworkers and customers that they desire as they travel from site to site, city to city, and state to state on a daily basis, often away from their families. Additionally, agency employees are less efficient as they do not know the systems nor the processes of the operator or the site, nor the specific customer requirement. Our operators have many workflows underway at this time to improve the value proposition for permanent employees, which were bearing fruit prior to the Omicron.
Nonetheless, the result of these outsized expenses was a decline in same-store NOI of 9.3% in the fourth quarter of 2021, but still marked an improvement from Q3 2021, with over 50% of operators delivering positive NOI growth for the period. The recovery continues to strengthen despite recent Omicron disruption, and we remain confident in our ability to drive significant NOI growth in 2022. Through January, agency labor expense has declined as staff cases have fallen. Agency labor expense is expected to moderate further through the first half of 2022 and decline substantially in the second half of 2022. The other disruption caused by Omicron was a record cancellation of tours, which Shankh described.
However, at this point, weekly staff cases are down 81% from their peak, including an 89% drop in the U.S., and we are seeing operations normalize. The disruption of tours and sales caused occupancy to fall about 20 basis points in January. However, with the high level of traffic, we expect that the continued occupancy gains will return and that we will regain lost occupancy by the end of the quarter. Here are some quotes from our operators about the strength of traffic and deposits. Quote, "Digital inquiries were up 36% over 2019 in the fourth quarter and continued strong in January." And quote, "Our four-week averages for inquiries, tours, and deposits are the highest they've been since August of 2021. We are seeing week-over-week growth in deposits of 10% the last four weeks running." End quote.
We are experiencing the strongest January for inquiries in several years." Finally, quote, "Our inquiries from the last week alone have been the highest numbers we've ever experienced." In closing, I have shifted from full immersion in the business to planning and action. I'm even more excited about the future opportunities across the Welltower platform. We are leveraging our proprietary data analytics platform and operationalizing the data to drive results. This process is occurring right now as we have several workflows underway, which we expect to bear fruit in the immediate future, as well as many more workflows that we expect to drive our outperformance in the quarters and years to come.
I continue to be appreciative of the warm welcome and excitement expressed by our operators as we leverage our combined real estate, operating company, and care experience to improve the customer and employee experience and drive financial results. Each operator has a unique expertise and opportunities. We have been working very well together and offering support where needed from implementing best practices to applying data analytics to improve their business. In one case, we identified a software tool over 25 years old. As they say, the nineties called, and they want their beeper back. I'm confident there is a substantial opportunity to implement operational excellence across the board and bring the basic back-office and sales operations up to match the high quality of care the operators are delivering, which will drive significant margin growth in the years to come. I'll now turn the call over to Tim.
Thank you, John. My comments today will focus on our fourth quarter of 2021 results, performance of our triple net investment segments in the quarter, our capital activity, our balance sheet and liquidity update, and finally, our outlook for the first quarter. Welltower reported fourth quarter net income attributable to common stockholders of $0.13 per diluted share and normalized funds from operations of $0.83 per diluted share relative to guidance of $0.78-$0.83 per share. Our results included approximately $18 million or $0.04 per diluted share of HHS funds and other out-of-period government grants that were not previously budgeted. Turning to our triple net lease portfolios. As a reminder, our triple net lease portfolio coverage and occupancy stats reported a quarter in arrears, so these statistics reflect the trailing 12 months ending 9/30/2021.
In our senior housing triple net portfolio, same-store NOI increased 4.2% year-over-year, driven by improvements in rent collections on leases currently on cash recognition and the early impact of rental increases tied to CPI. We expect the impact of both these trends to accelerate into 2022 as rent collections improve and given that 20% of our leases are subject to CPI-based escalators. Trailing 12-month EBITDAR coverage was 0.8x. Looking forward, we expect coverages to inflect positively in the first half of 2022 as year-over-year improvements in fundamentals follow the positive trends expected in our senior housing operating portfolio. Next, our long-term post-acute portfolio generated -0.8% year-over-year same-store NOI growth.
However, similar to our senior housing triple net portfolio, we expect NOI growth to improve in 2022 through greater rent collections on leases currently on cash recognition, as well as CPI-based rent escalators. Trailing 12-month EBITDAR coverage was 1.29x . Over the course of 2021, we completed $458 million of long-term post-acute dispositions at a blended cap rate of 8.7%, with an additional $108 million under contract for sale at year-end. As a result, our long-term post-acute portfolio represented just 5.2% of total in-place NOI at year-end versus 10.1% at the end of 2020. A 490 basis point decline driven largely by the exit of our Genesis relationship.
Lastly, health systems, which is comprised of our ProMedica Senior Care joint venture with ProMedica Health System, had same-store NOI growth of positive 2.75% year-over-year, and trailing 12-month EBITDAR coverage was 0.39 x. The sequential improvement in coverage was driven by the previously announced agreement to sell 25 assets that have been contributing negative EBITDAR. As of year-end, we completed the sale of 21 of those assets with the remaining four held for sale. Turning to capital market activity. We continue to enhance our balance sheet strength and position the company to capitalize our robust and highly visible pipeline of capital deployment opportunities by utilizing our ATM program to fund those near-term transactions.
Since the beginning of the fourth quarter, we've sold 11.3 million shares via forward sale agreements at an initial weighted average price $85.06 per share for expected gross base proceeds of $961 million. We currently have approximately 11.1 million shares remaining unsettled, which are expected to generate future proceeds of $949 million. This is in addition to $220 million of expected property disposition loan payoff proceeds. During the quarter, we also issued $500 million of 10-year unsecured debt maturing in 2032 with a coupon of 2.75%.
Following similar discipline in our equity funding strategy, this is our third unsecured issuance of 2021, bringing full year issuance to $1.75 billion, with an average duration of 9.5 years and a coupon of 2.6%. At year-end, when factoring cash and restricted cash balances, our liquidity position exceeded the $4 billion of borrowing capacity on our line of credit. When combined with the previously mentioned $1.2 billion of combined unsettled ATM proceeds and expected disposition proceeds, we are in a very strong liquidity position heading into 2022. We ended the fourth quarter with 6.95x net debt to annualized adjusted EBITDA, down slightly from last quarter. Leverage is impacted by the timing of $1.5 billion in net investment activity completed later in the quarter.
If we run rate the impact of net investment activity completed in the quarter, pro forma net debt to adjusted EBITDA decreased to 6.75 x. We continue to be pleased with the momentum of our top-line recovery in our senior housing operating portfolio , with portfolio spot occupancy ending the quarter at 77.7%, 70 basis points higher than the end of the prior quarter, but still 950 basis points below pre-COVID levels. The portfolio also sits 1,300 basis points below peak occupancy levels, setting the stage for a powerful EBITDA recovery as occupancy upside and strong rent growth is coupled with significant margin expansion off a very depressed base. Lastly, moving to our first quarter outlook.
Last night, we provided an outlook for the first quarter of net income attributable to common stockholders per diluted share of $0.17-$0.22 per share and normalized FFO per diluted share of $0.79-$0.84. $0.815 at the midpoint. This guidance takes into consideration approximately $6 million or $0.015 per share of HHS funds expected to be received in the first quarter. Excluding the HHS funds, the $0.80 per share midpoint of our first quarter guidance represents a $0.015 sequential increase from an as adjusted $0.785 per share number for 4Q, which excludes $18 million of previously recognized HHS and out-of-period U.K. and Canadian subsidies recognized in the quarter.
This $0.015 increase is composed of $0.025 from a sequential increase in senior housing operating portfolio NOI and fourth quarter investment activity, and an offset of $0.01 increase of sequential G&A and income taxes. Underlying this FFO guidance is estimated first quarter total portfolio year-over-year same- store growth of 7%, driven by sub-segment growth of outpatient medical, 1%-2% growth, long-term post-acute, 1%-2%, health systems, 2.75%, senior housing triple net, 5%-6%, and finally, senior housing operating growth of approximately 15%, driven by revenue growth of 10%. Underlying this revenue growth is an expectation of approximately 420 basis points of year-over-year average occupancy increase. With that, I will hand it back over to Shankh.
Thanks, Tim. I wanted to conclude this call by addressing something that we usually don't talk about, and that is our comprehensive team. We have completely overhauled and upgraded our team, and this was a multi-year effort building out new areas such as predictive analytics to create a truly scalable platform. With extremely low volunteer turnover, we continue to hire the best and the brightest to further deepen our capital allocation expertise. Historically, the majority of the alpha we created have been through astute raising or deployment of capital. Over the last 15 months, though, we have also built out an industry-leading and, frankly, a very significant development team under the leadership of Mike Ferry and Ayesha Menon. The last piece of this puzzle is building out our operational excellence and asset management capabilities. This started with the hiring of John in 2021.
John is building out a world-class team that will accelerate value creation for our shareholders for years to come. We have added a net 51 people last year, and we're likely to add another 80 new colleagues in 2022. Many of you who follow our company closely understand that our asset platform is like a coiled spring today. We spent heavily during the pandemic, but most of these assets are sitting with low occupancy and thus cash flow, which is about to be released and surge forward to realize its full value. Similarly, the people side of our business platform is also a coiled spring today. You are only seeing them in G&A line, but their full contribution to the revenue line will be seen in 2023 and beyond. With that, operator, please open up the call for questions.
Thank you, sir. If you have a question at this time, please press the star key, then one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We ask that you keep your questions to no more than one, but please feel free to go back into the queue, and if time permits, we'll be more than happy to take your follow-up questions at that time. Our first question comes from the line of Jonathan Hughes from Raymond James. Please go ahead.
Good morning. I wanted to ask about the quality of the operator relationships in the pipeline or maybe generally out there in the seniors housing industry. I'm just wondering what the landscape looks like after a couple years of pandemic-related headwinds. I know you have a few in progress, and you've had success with, you know, several over the past few years. But, you know, how many high-quality operators remain as an opportunity that you don't already have a relationship with? And, you know, what's the size of those individual opportunities? Are they smaller or larger in terms of investment volume than the relationships established over the past few years? Thanks.
Fantastic question, Jonathan. As I sit right now, I can think of two operators that in U.S. particularly, this is a U.S.-specific comment, and they'll probably be the same for U.K. and Canada, that I can think of two specific operators that we don't have a relationship today that I want to have a relationship. One of them, we already have shaken our hands this quarter and likely probably we're gonna talk about it next quarter's call. What you are likely to see, what that means is we generally have the operator base, the platform that we wanted to build. You would recall that before pandemic, we talked about with you that we have a map, right?
In that map, we have different ideas of where the different types of acuities or assets should be and what kind of operators should be running those, right? We kind of generally filled out that map. Now what you're gonna see, we're gonna go deep. Instead of going broad, which you have seen over the last, call it 18-24 months, you're gonna see us go very deep. That sort of talks about, you know, we have a slide on our presentation you can see that we talked about give or take these 28, you know, 25-30 relationships across all asset classes, not just senior housing.
Senior housing, medical office, and wellness housing, all three platforms that we are growing pretty significantly that we think create a very significant opportunity of external growth that we estimate could be upwards of $2.5 billion-$3 billion a year for a decade to come. That's sort of how we're thinking about it. It's going deep instead of going broad, but we'll talk about hopefully another exceptional operator relationship next quarter.
Thank you. Our next question comes from the line of Nick Joseph from Citi. Please go ahead.
Thanks. John, you talked about the challenges with the staffing agency model. You know, as you think about coming out of COVID, do you expect the business model or expense float to change to rely less on agency staffing or is this more of a perfect storm where it's hard to actually change going forward to limit the use in times of crisis?
Yeah, no. Thank you, Nick. No, my expectation is that the business will at least get back to historical standards, where agency was a small part of the whole picture, just was, you know, an assistance piece. But frankly, with the workflows going on, I think it's a very strong chance that agency diminishes even further because, you know, what has changed is the world's gone from a situation where there's an abundance of employees to a scarcity of employees. The employers now, the good ones, have recognized that, fundamentally changed how they look at things. You know, recruiting has become a sales machine with, you know, KPIs for the recruiters, et cetera. The value proposition has changed dramatically. People are looking at what the employee experience is.
Words that were never said, employee experience, you don't hear that. They're looking at that, and they're trying to figure out how to optimize. Some changes that are going on are people are realizing, like, "Hey, we should change our hours slightly for some employees because they have to drop their children off at school. They can't work here because of when we start." Not a big deal for us, move it an hour and it works perfectly for them. A lot of things like that are changing. I think from my perspective, it's great for the hardworking healthcare employees. It'll be great for the operators, and it'll further diminish the agencies. You know, it'll take time for this to tail off, you know, as I mentioned in my comments, so it won't happen overnight.
I think long-run run rate will be great.
Thank you. Our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.
Thanks so much for taking the question. Just a question on rent growth or RevPAR and margins, and just two parts to it. Just one, in the strong pricing power you're seeing, can you talk about the mix between the in-place bumps and just the re-leasing or the spread you're seeing today and what your expectations are? Then on margin, in your bridge, it seems like you're embedding maybe a 60%-70% incremental margin, which seems like it's reasonable, but how are you thinking about that incremental in the context of pricing power?
Yes. Oh, go ahead.
No, go on.
You managed to get 2 questions in. That was good. On the re-leasing versus the market, clearly net effective markets are up significantly. You know, there were concessions and community fees, well, concessions that were given, community fees that were waived. That's all reversed itself. Certainly at one point, if you go back in the industry, market rents were below in-place. That's now changing. From an in-place perspective, and overall, the rents are moving up pretty significantly. You know, very consistent with the comments that Shankh made previously with the expectations of, you know, mid-5s to 10% in that zone.
What we're seeing is a lot of strength in the marketplace and a recognition that cost have come up and it takes a certain amount of money to provide great care, and that's what people want.
Vikram, to answer your second question, we are getting you back to the pre-COVID margin on that slide. I think you're referring to slide 17. There's no question that if you have pricing power, that will improve. But remember, you also have higher labor costs. So to the extent that you have, you know, higher pricing power in excess of higher labor costs, you'll see upside to that margin. But it is getting you back to Q4 margin, Q4 of 2019 margin for the portfolio that was there in Q4 of 2019.
Thank you. Our next question comes from the line of Derek Johnston from Deutsche Bank. Please go ahead.
Hi, everyone. Good morning. In 2021, you had $5.7 billion in gross investments. Seems off to a solid start here in 2022. Do you believe 2021 number is the high watermark? Is that level of acquisitions repeatable or even beatable this year? Has anything changed in your terms of your ability to source opportunities or even competition for deals since our last call?
Yeah. Has anything changed? The answer is yes. If you think about what we have been saying, that we are mostly focused on what we have been buying, you can see the average age of those assets would indicate they are the children of supply over cycle of 2015 to 2019, right? What you had is disruption from the revenue side because of all these variants. You had a disruption from the cost side because of our employee situation that we talked about. Something changed there? Yes, something has in the last, call it 45 days. That is what you didn't have is the pressure from financing costs. All construction loans are made on LIBOR, right? Pretty much all construction loans are variable rate LIBOR-based loans.
You know, obviously, if you look at how the outlook for the Fed has changed over the last, call it 45-60 days, you can imagine that third pressure is just about to come, which is higher financing costs. Something has changed. Now going back, is this the level of, you know, acquisition possible or beatable? The answer to that question is very simple. We're not a volume-driven investor. We're a value-driven investor. If the volume is there to create per-share value, we will do it. If not, we will not do it. That's just a simple how allocate capital. The success of a team is not measured, at least our team, in our opinion, is not the growth of the enterprise, but per share value creation for existing shareholders. As long as that opportunity is there, we'll absolutely do it.
Thank you. Our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.
Yeah, thanks. I guess I just wanted to circle back a little bit on the guidance just to make sure, Tim, I understood. In the 10%, I think, revenue growth that you talked about for SHO, again, what was occupancy and what was rent? What is included in the expense side from the elevated levels that you saw in Q4? Are you sort of assuming the same level in Q1 as Q4, or did you assume some moderation? Thank you.
Yeah. Thanks, Steve. On the revenue side, we're assuming 420 basis points of occupancy increase on a year-over-year basis, driving that 10% revenue growth. The remainder of that revenue growth is being driven by rate. On the expense side, I think the best way to look at it is sequentially. We're talking a lot about agency labor. We are assuming a sequential reduction in agency labor, about 10% from the fourth quarter to the first quarter in that pool. That's supported by early trends we've seen in the quarter.
Thank you. Our, our next question comes from the line of Richard Hill from Morgan Stanley. Please go ahead.
Hey, good morning, guys. I recognize you're not giving a full year guide, but I think back to 3Q 2021, there was some breadcrumbs given on where renewals and maybe street rates are trending. Based on my notes, one of your competitors have talked about, you know, 8% renewals, and I think you had talked about 1.5x-2x faster the renewals for street rate. Wondering if you could just provide any updates on that as we think through what full year 2022 might look like.
Rich, John just talked about that. You know, the street rate comments I made is a net effective rent. You are seeing because, you know, obviously the concessions that were given, the lack of community fees you had, the effective net, you know, street rate is moving up because of that. Not necessarily the face is moving, but the net effective rent is moving, which, we continue to see. In fact, we're seeing some, a couple of our operators have now moved street rate above in-place rent. Couple of our very large operators have gotten much closer. It's a pretty encouraging sort of, you know, as we look in the future. Tim just walked you through what our 10% guidance means from a rate and occupancy perspective, and that sort of gives you the second answer to that question, right?
We are a SHOP. We're focused on, you know, ultimately optimization of revenue, not necessarily one component of the revenue. On top of that, you have to think about one component of the revenue comes with higher cost, which is labor, right? If you're just occupancy, which obviously rate doesn't. We're trying to optimize all of those things together, and that sort of blends to what we talked about, which is a 10%-ish% revenue growth in Q1, 15% NOI growth in Q1, and that NOI growth should continue to accelerate as we get to the year for two reasons, right? One is, as you build occupancy, you will get, obviously, your marginal margin will expand obviously, right? That's one point. Second, you will get a continuation of sort of burn off the agency labor that you got.
That's sort of two things together. You will get an acceleration of NOI growth as we get to the second half of the year.
Thank you. Our next question comes from the line of Juan Sanabria from BMO Capital Markets. Please go ahead.
Hi. Good morning. Thanks for the time. Recognizing, again, you're not giving full year guidance, but one of the larger operators in the space talked about 500 basis points-600 basis points of occupancy growth for the year as their target. Curious how you feel excluding any new COVID wave, how that feels to you, particularly given, you know, seasonality is still apparent in the business, and typically you don't necessarily gain occupancy outside of the third quarter. Just curious about your general commentary and targets for occupancy growth for the year.
Yeah. First, you said the magic word, excluding any more new variant, right? That's a very important word you mentioned there. Despite that, I'm not gonna venture a guess of what it will look like. I will tell you there are a couple of things to think about. A, last year, you got a massive disruption in Q1. You got a significant occupancy loss. You started at a big hole, and you had to climb up that hole to get to a point where, on an average basis, you can build out the occupancy. You don't have that problem this year, right? John talked about, you know, January, our occupancy from point to point is down 20 basis points, which probably will make this January the best January we ever had from a seasonality perspective. You don't have a hole to climb up.
Second, you have better demographics this year. You can see the demographics is building. You have more demand there, and that's sort of playing out for all the leads and other data that John disclosed, you know, on his script. Third, you have significantly lower number of deliveries this year, right? Under your assumption, if we don't get hit by four waves like we did last year, and hopefully that will translate into better occupancy growth. I'm not going to comment on any specific operator or try to, you know, sort of venture a guess on what the entire year is gonna look like. However, the table is set. If all of these things we just discussed play out, we'll see a better year. You know, we're longtime investors.
We're not focused on, you know, how occupancy plays out this quarter versus that quarter. We're pretty optimistic because of what the underlying trends we see in the marketplace.
Thank you. Our next question comes from the line of Michael Mueller from JP Morgan. Please go ahead.
Hi. Just curious, on the Watermark transaction, what was the pricing difference between, I guess, the entry fee assets versus the rental, just in terms of like a rough cap rate difference?
Mike, we're not gonna get into a specific deal, let alone things within that specific deal, right? Obviously, as you know how these things play out, is that you sign a confidentiality agreement with the seller. We're not gonna get into it. We have talked about, I believe in the last call, that what we like about that transaction is, A, the price per unit was very attractive to us. B, some of the underlying lands that, you know, ultimately, as you are thinking about real estate investment, you have to think about the dirt, exceptional dirt. Three, we think there is value to be created, because what these assets are and the lands that come with it and what you can do with the zoning.
With all of those three combined, we're very excited about the you know the portfolio we bought, but we're not gonna get into economics of a specific deal, let alone different parts of that deal. That just will put us in a significant violation of a confidential agreement that we have signed.
Thank you. Our next question comes from the line of Connor Siversky from Berenberg. Please go ahead.
Good morning out there. Thanks for having me on the call. Just wanna keep this simple, focusing on senior housing in particular in consideration of the value-based investment approach. In this positive environment for pricing, I mean, do you expect to see some cap rate compression this year on increased competition? Then, just how does this change the opportunity set for you? Does that mean more, excuse me, granular transactions or, you know, perhaps a restriction in activity on your end or expectations on your end?
Yeah, Connor, I answered this question earlier. I'm just gonna repeat what I said. What's changed is there's a third stress that's coming, and that's because majority of, you know, construction loans are done on a floating rate basis, if not all of them are done on a floating rate basis. You have a very significant, you know, sort of a potential increase of LIBOR that's coming through the pipe that will put even more stress in the system. The second point is we're not cap rate buyers. It is hard to. Cap rate is a stabilized concept. Senior housing is anywhere but stabilized at this point.
I do not expect cap rates, even if you are talking about in the context of stabilized cap rate, I do not believe there is going to be a significant compression. In fact, I think a lot of institutional investors are looking at all asset classes, including many we own, and then we talked about historically, that underlying growth rate versus inflation at certain cap rates makes no sense, right? I've talked about, you know, for example, for quarters after quarters, that given sort of the outlook of what the forward curve was telling you know, inflation break even and others, it made no sense to me for what people are paying for MOBs with 2% growth rate. Finally, it seems like there is an, you know, obviously an understanding on the institutional investor side.
People are waking up to say, "What did I buy for this, and how do I make return?" I think there has to be a reconciliation of when you look at your IRR, you have to think about what is the real growth versus the nominal growth. That's gonna show up. That's gonna show up at your exit. You know, we're long-term IRR buyers. We think through these things, and that's why we refuse to chase the market. You have seen that for years and years we have done, and there is not gonna be any difference in that discipline going forward.
Thank you. Our next question comes from the line of Richard Anderson from SMBC. Please go ahead.
Thanks. Good morning. You know, Shankh, you've said in the past that you are not likely to be an elephant hunter. You know, that you get noise in the system when you go too big, and I can appreciate that. That is a different mentality versus your predecessor. If you're not willing to be a buyer as an elephant hunter, is there anything that you could see from the sales perspective? I mean, if you're at $26 million average deal price on the buy side, what do you think your average deal price would be on the sell side, given that mentality toward selling?
Yeah. Very, very good question. It's extremely astute observation. Look at 2020 and look at how many billions we sold. If you looked at the disposition, you will see sales were done on a multiple of the buys, right? I don't know exactly what the number is, but it is likely to be multiple of that $24 million, $26 million that we mentioned. We want to buy retail and, you know, and sell, you know, buy wholesale and sell retail. That's what we do, right, you know? Fundamentally, no matter what investment class you are, it's something very simple how you make money. It's buy low, sell high, right? That ultimately is how you allocate capital to make money. You know, portfolio, when there is a lot of hunger in the market to buy certain asset class, you know, portfolio premiums are real.
You go sell portfolios, but you buy smaller assets. I think we mentioned that $5.7 billion we bought in a median size of the transaction. Not median size of the building. Median size of the transaction was $26 million. That's how we create real value.
Thank you. Our next question comes from the line of John Pawlowski from Green Street. Please go ahead.
Hey, thanks for the time. John, as you pick through the SHOP portfolio, either by property type, AL, IL, memory care, or geography, are there any signs within the portfolio of structurally higher vacancy rates while, where, you know, maybe move-in percentages are just not improving in recent months or occupancy is actually sliding here?
No. You know, each area is improving across the board. You know, with the starting points that we're at right now is of course pretty low. The bar is low to build from. You know, as we get to an optimal level, which would be substantially higher, you know, your question's a good question, and there may be some things that we become more apparent. You know, at this point in time, everything's working across the board.
Thank you. Our next question comes from the line of Michael Carroll from RBC Capital Markets. Please go ahead.
Yeah, thanks. I wanted to transition to the triple net portfolio for a second. Tim, can you quantify how many triple net tenants are on a cash basis today? What's the difference between the current cash that's being paid and recognized compared to the contractual rent on those leases?
In the fourth quarter, it's about 15%-20%. It's kinda stayed within that range for most of the last few quarters. That's the quantum of kind of how much of that in-place rent is being recognized in a cash basis. I don't have the gap to contractual right now.
Mike, remember, you know, all our triple net senior housing portfolio is in U.S. and U.K., right? You can see how much that cash flow is, you know, sort of inflected at or expected to be inflected this year. Because they're obviously on cash, the underlying, you know, NOI is what we need, and that underlying NOI is going up significantly, which is translating into that same- store, triple net, growth expectation that Tim just gave you. In other words, we took the hit by putting it obviously on cash recognition. Tim talked about that on many calls. Now we're on the other side of that.
Thank you. Our next question comes from the line of Steven Valiquette from Barclays. Please go ahead.
Great, thanks. Good morning. With all your commentary on the labor expense, that was definitely helpful. I guess I'm curious for the $30 million of the agency labor expense absorbed in the fourth quarter. Is there any further color on whether that was fairly evenly spread geographically across the SHOP portfolio, or did you find it was geographically concentrated maybe in a few markets? Also since Welltower has more of an urban footprint in SHOP overall, just any generalizations from your view whether labor shortage issues are more or less prevalent in rural versus urban markets just in general? Thanks.
Sure. That's a great question, and we've done an awful lot of studies on that particular issue, leveraging our data analytics team. The interesting thing that we found is, you know, it gets back to my comment on stress identifies opportunities and issues. When looking at it closely, clearly some markets can have some level of stress specific to that market. Then when you dig deeper in, you find out that tremendous amount of assets have zero labor and selected assets have a lot of agency. The cause of that is a combination of, in some cases, Omicron came in and had a material impact on a great amount of staff, which is no surprise. In other cases, my belief, frankly, is leadership.
That's partly what gives me great optimism in moving forward in solving this because the leadership issues are solvable. The leadership issues—this is one indication—but they also tie to other issues, occupancy, et cetera. This frankly helps us identify some situations that, as we make adjustments, will improve things going forward dramatically. Hopefully that's helpful. Thank you.
Thank you. Our next question comes from the line of Jordan Sadler from KeyBanc Capital Markets.
Thank you, guys. Good morning.
Good morning, Jordan.
Good morning. I wanted to. This is sort of a little bit of a two-parter. One, I wanted to clarify the contract labor assumption embedded in 1Q. I think you said down 10%. So, $30 million of expense becomes $27 million. Is that the way to think about it? Then, separately, just kinda thinking about the cadence, you know, of your guidance for the SHOP portfolio in particular, right? Last time you gave sequential guidance for 4Q, right? We ended up with a surprise variant late in the quarter that ended up providing pretty significant headwinds, especially on the labor front, and pressured numbers lower relative to what original expectations were.
I'm curious, you know, how much that experience in the fourth quarter impacted sorta your decision surrounding guidance for the first quarter. In other words, this appears kind of conservative relative to the moderation expenses and what seems to be a flat occupancy assumption for the first quarter overall, despite the fact that you only lost 20 basis points in January. I know that's. I've asked a lot there, but I'm basically asking about the cadence on giving guidance.
Yeah. John, why don't I start and Tim will finish. First, understand, you know, Q1 is seasonally a weak period from an occupancy standpoint. As John talked about, we're down in January about 20 basis points. We're kinda thinking, obviously, the sales activity picked up pretty significantly toward the end. We're thinking, you know, as sales picked up, you get some lag, right? Call it 20-30 days lag from sales to occupancy. That kind of puts you at a, you know, sort of toward the end of the quarter. You don't have a lot of time to pick up that occupancy, right? That sort of, I wouldn't call that a conservative, right? I would call that what we, you know, we think was gonna happen. Now, up 10, down 10, who cares?
Just sort of generally speaking, I want you to understand what we're thinking about. Which you are right, I mean, that will on average, quarter-over-quarter average Q1 occupancy goes down about 70 basis points-80 basis points . You get sequentially flat, which would probably put an average of flat and significant year-over-year growth. That's a pretty good outcome because you have to think about what that means for the rest of the year, right? It's not about just Q1. The second point is, you know, look, I mean, I am pretty disappointed about the bottom- line results in Q4. There's no two ways about it. We did not expect that Omicron will hit us like the way it did.
Frankly speaking, there's 45 more days to go in that quarter, and as we have seen, a highly infectious variant comes and how that can impact you. You know, quarter to quarter, John, who knows, right? I mean, we're focused on what's the real run rate of earnings power of the platform, and what we see is pretty exciting, at least, you know, what we see today. But it's hard to get into specifics of when things happen. You have an operating business, right? Which is driving the marginal differences. Trying to get very, you know, sort of prescriptive about how exactly things are gonna play out is hard to comment.
I'll just add to the labor piece of that agency piece, Jordan, so your math is correct on the expectation, kind of the step down. I don't think what happened in the fourth quarter necessarily changes, you know, certainly very carefully using any word like conservative in the way that we're forecasting. The variance in, you know, what we've seen happen over the waves is that the labor disruption has been much greater than the demand disruption, particularly over the last two waves. Omicron was a significant labor disruption. Certainly changes the way you forecast from the inputs and confidence levels around it. You know, not saying it's conservative, it's more of a, that there's a lot of uncertainty in the short term.
It's the labor piece and how it's impacting the labor market, it being the different variants is probably the biggest reason why it's not making a longer term forecast right now. I think as I said earlier, I think the early trends we're seeing in January are very supportive of our view on the step down in agency. You know, we thought that was gonna be a little bit more back half of the quarter weighted. I think in general, it still stands a pretty good assumption.
Thank you. Our next question comes from the line of Nicholas Yulico from Scotiabank. Please go ahead.
Thanks. I just wanna follow up here on this agency question. You know, it sounds like it's gonna be about $27 million for those costs in the first quarter. If you go back to the third quarter, I think it was $20 million. Still up versus then. You know, I'm just trying to hear a little bit more about your assumption for why, you know, at some point that expense, which is about 3% of your expenses, goes away. You know, why you're confident that it's a COVID issue and not a tight labor market issue that's driving the use of that agency cost.
Well, it's both. No doubt about it's both. You know, when you look at the fourth quarter, you know, some more color on that is you've got some healthcare workers, all the healthcare workers who have worked unbelievably. They tirelessly worked and did not take PTO, you know, for long, long periods of time. You had increased PTO that occurred around the holiday season, and then you add in Omicron, and you get the result of agency at 6x. Agency is usually 2x-3x the rate, and it got as high as 6x. It's surge pricing, kinda like Uber. As that backs away, that'll lower the expense regardless of the hours. But again, going back to my comment.
The reality is each of the operators have workflows in play to increase hiring, and they're all working. It was just a unique situation, the combination of the PTO and the Omicron that came. I am confident that it won't be a long-term item in the industry, but exactly, you know, how it abates is. You know, it'll be over time.
Thank you. Our next question comes from the line of Omotayo Okusanya from Credit Suisse. Please go ahead.
Yes. Hi, everyone. I wanted to talk a little bit more about the Reuben Brothers transaction. I'm intrigued by it, just kind of given, again, the high quality assets that they tend to own over here in the U.K. Curious how big that JV could become over time, and if really the idea is you're going to be building stuff like the Sunrise asset at 56th and Second right in central London. Is that the idea there?
The idea is, you know, to expand the JV, to reflect the fact that, you know, U.K. society is aging, just like U.S. society is aging, and there's a lack of high-quality product. If you think about, Reubens, you know, own a lot of extraordinary prime lands, and, you know, buildings obviously around the United Kingdom. We're looking at a lot of opportunities to, grow the platform, and that could include trophy assets, just like you mentioned that Sunrise at East 56th Street, which by the way, opened, this quarter and is, doing pretty well. If you are in New York, you want to visit the asset, let us know.
Finally, through all the noise of the COVID, we're seeing some very early demand story there, which is playing out pretty well. It can be, but doesn't have to be just trophy assets.
Gotcha. Thank you.
Thank you. Our last question comes from the line of Daniel Bernstein from Capital One. Please go ahead.
Hi. Good morning. Sorry to ask a question here last second. You know, you talked about ramping up your development team and, you know, when I was looking at your slide and your supplemental, it pretty noticeable that you only have three MOB properties under development. Almost everything else is senior housing. I was hoping you might be able to talk about on the MOB side whether, you know, the lack of development there is more lack of opportunity versus the lack of value. Certainly on the acquisition side, you talked about, you know, in an inflationary environment, you don't wanna buy four or five cap assets with 2% growth. On the development side, you know, is there a different story there?
Yeah. A couple of things. First is our MOB pipeline is actually pretty meaningful. I don't know then what's in the supplemental versus what's been reported and not reported. I can tell you that the MOB pipeline is very, very significant. It's 1 million-plus sq ft that's fully leased, so it's probably not been reported yet. What you see is reported as senior housing because we don't separate out senior housing from our wellness housing business . It's all reported as one bucket. A very substantial portion of our development activity is on the Wellness side of the house rather than on the senior side of the house. On the senior side of the house, they're very targeted, but they're very large buildings, right? Think about, I'll give you an example.
I mean, East 56th Street, which is delivered, that's a $300 million asset, right? You think about, you know, 1001 Van Ness, that's roughly a $300 million asset. Hudson Yards is a $400+ million asset. You know, Brookline is a $150 million asset, right? We talked about Kisco, that's a $170 million asset, third-party loans, too. So you have very few assets there that are substantial that does make a difference to the number. But from a number of properties perspective, they're actually not that high. The reason being, frankly speaking, other than very special situations, like think about, you know, where 1001 Van Ness is. It's gonna be the most trophy building in San Francisco, period, full stop. Or think about Brookline.
Now, the fact that we got something entitled in Brookline, in middle of Fisher Hill and right next to The Country Club, that should have taken probably 15 years to do, right? It's a special opportunity, and that's where we're executing. Other than that, senior housing development today, in my opinion, doesn't make a lot of sense. The reason it doesn't make a lot of sense is you don't know where the ultimate, labor cost adjusted rent will land. You just don't know that. There is no reason to go and guess that, and just obviously, if you're doing for your own capital, if you're a for-fee developer or a fee-only operator, which is mostly the people I'm seeing starting the development these days because they have no money on the line, right?
If it works out, it's great. I have a promote. If it doesn't, somebody else lost money. I just don't see how that works, particularly in the context of very high cost and high financing costs, right? Just goes back to my point that I made earlier on LIBOR-based and floating rate-based construction loan industry. We are thinking about giving you additional disclosure sometime this year about what's the wellness side of the house versus the senior side of the house. We'll get to that. Majority of our new activity is on the wellness side of the house, where, you know, we're a lot more confident on where the margin lands. Frankly speaking, their cap rates are much, much, much tighter to create value on the acquisition side, so focus on the development.
You're gonna see, as I said, you know, the pipeline is very strong on the MOB development side, and that's just coming through. I said, I'll finish it by, you know, saying what you have said on that question. Very important one. No one has explained to me how someone makes money in a significant inflationary environment on a real basis, not on a nominal basis, with an asset class that grows 2% with a 4% cap rate when your inflation is much higher. So, someone needs to explain to me that. Unless I believe that will not be active on the acquisition side. You saw we bought a small MOB portfolio, you know, which was a high-quality portfolio in Ann Arbor we bought.
We bought it at a 5.5 cap, which I have said for multiple years, sort of gives you the right level of IRR.
Thank you. That concludes today's Q&A session and today's conference call. Thank you for participating. You may now disconnect.