Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 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. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today to Mr. Matt Karas.
Thank you, Delana, and good morning, everyone. 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 for his remarks.
Shankh?
Thank you, Matt, and good morning, everyone. First and foremost, I hope that all of you and your families are safe and healthy during these extraordinary times. In the spirit of this year end call, I would like to review year 2020, the most challenging in our history, and discuss different paths of growth, long term value creation for our continuing shareholders on per share basis. We came into 2020 prepared for perhaps a plain vanilla business cycle downturn. We pushed out our maturities in Q4 of 2019, sold a lot of short duration assets, bought a lot of longer duration assets and continue to upgrade our portfolio, operators, management contract and talent.
We are hopeful that with the continued decline in senior housing deliveries and starts on one hand and the aging of the population finally picking up on the other hand that 2020 would serve an inflection point in the for the fundamentals after decades of weak demographics resulting from the aging of the baby birth generation. Then a once a century pandemic happened that would turn out to be particularly devastating for our business. The backup of Q1, 2nd and Q3 were all about long term value preservation. We enhanced our liquidity profile dramatically by selling assets in record time atornearpre COVID pricing, more importantly, avoided mistake of raising long term dilutive capital, a consistent theme for managing the company for continuing shareholder on a partial basis. We started during the dark days of March April by selling $1,000,000,000 of assets at great prices in record 43 days from signing a confidentiality agreement to receiving cash.
We continued this journey during Q2 and Q3 and eventually executed on $3,700,000,000 of disposition at extraordinary prices to build an unprecedented watch list. 2 things particularly surprised me during this time, the resilience of our team during our including our extended team of operating partners and the liquidity of our assets. Not that we didn't have doubts or failures, but we continue to move forward in spite of them with a steady hand on the wheel and an unwavering belief that we'll get to the other side. Our team's stoic resilience reminded me every day of Winston Churchill's famous sport that success is not final, failure is not final. It is the courage to continue that comes.
In those moments of reckoning, I realized how privileged I was to be part of this team that didn't miss the beat and blaze new trails. For years, I have heard that healthcare oriented real estate deserves a discount to the 2, say, shiny tower in middle of a large gateway city due to the lack of liquidity and smaller ticket size, especially during down cycles. I hope that during the worst down cycle of our asset class, this debate has been finally settled as demonstrated by our execution and that of our colleagues at Healthpeak. In the fall, we pivoted again from defense to office as we started underwriting and shaking hands on new acquisition. It is important for you to understand that we don't shake hands and find excuses to walk or chip away.
If we shake hands, we close. Our handshake in this business is what's called, and we only enhanced our long term reputation during this pandemic. During last quarter's call, I discussed $1,000,000,000 of deep value opportunity. I'm delighted to report that we have closed roughly $700,000,000 of acquisitions since the start of 4th quarter at a significant discount or replacement cost. Our acquisition pipeline has grown meaningfully.
And as I sit here today, I'm optimistic this year is shaping up to be a year of net acquisition, perhaps significantly so. At the time at the same time, I will remind you that we're not driven and incentivized by volume of acquisition, but the value of it. Asset price is the ultimate determinant of how we'll behave. In this moment of confusion and ambiguity, I indulge you to focus on 4 distinct pillars of long term value creation for Welltower. 1, operating fundamentals.
Tim will get into the details of what happened last quarter and what might happen next quarter. While operating fundamentals is awful right now, with little near term visibility, we are optimistic about the vaccine rollout as 90% of our assisted living and memory care facilities have conducted their first vaccination clinic with virtually all residents taking a shot. While I would not expect this to be a source of value creation in the very near term, I'm hopeful about the second half of the year. Normalization of operating performance remains the largest source of value creation for our shareholders. It is too early to comment on exact timing of the trough and the shape of the recovery, but we'll keep you posted frequently intra quarter so that you can see what we see.
Our focus remains on upholding the reputation of our communities and maintaining the safety of our operator staff and residents. We spared no expenses and have already spent in excess of $80,000,000 on COVID related expenses to date, doing everything we can within our control to support their well-being. Due to the great reputation of our operators and the extraordinary value they provide, rates are holding up. In 2020, RevPAR was up 2% in AL memory care, 1% in independent living and 4.4% in our seniors apartment business. This growth occurred despite the headwind resulting from lower community fees driven by a decline in move in activity.
Number 2, operator platform enhancement, management contracts, leadership and system enhancements and building local scale are some of the examples of this. Let me highlight 2 specifics here. A, Sunrise. We're delighted by the appointment of Jack Callison as the CEO of Sunrise Living, our largest operating partner. Jack will bring much needed attention to operating excellence with an operations first culture.
We are also negotiating a new management contract that will allize the interest of Sunrise and Welltower as the owner of the assets. We're diligently working with the management of Revera, Sunrise's majority owner, to enhance Sunrise's position so that it can emerge from this pandemic as a leading operator poised for excellence and growth. B, building local scale. If I can port Charlie Munger, the advantage of local scale are of ungodly importance to this business. We have and will continue to scale our most important strategic partners as we expand our semi housing footprint.
To name a few in alphabetical order, Balfour, Brandywine, Clover, Cochier, Kelsey Seybold, Kidsco, Oakmont, StoryPoint are just some of the examples of the partners we have grown significantly during this pandemic. What is common amongst them? They're excellent operators in their market, they have great leadership, they're disciplined yet courageous, and they have an aligned relationship with Welltower. We rise and fall together. This list is expanding with our significant opportunity set that I mentioned a few moments ago.
Number 3, capital deployment opportunity. I have already commented on the acquisition opportunity on the deep value side. At the risk of sounding like a broken record, I would remind you that we're an IRR buyer with an incredible focus on basis, operators and structures. Our opportunity set is rising rapidly and I hope to provide you with more specific color in next 60 to 90 days. This comment is obviously focused on the current opportunities.
Let me provide you some color on a related topic, but on future opportunities. We at Welltower have never been in a more advantageous position as a partner of choice. For years, we have focused on growth strategy driven by our relationship based and alignment focused structures and data analytics platform rather than prioritize our cost and access to capital advantage. After all, not all capital is equal. We never imagined that we'd encounter today's extreme stress, But as you can see, we stood by our operators during these difficult times, not only to preserve their businesses, but also to grow it significantly.
Talk is cheap, but action is not. For this reason, we are inundated with request as a partner of choice from all asset classes we play in. As much as I like Zoom calls, we have been on road throughout this pandemic meeting with prospective partners. This is bearing meaningful fruits. We have executed more partnerships and pipeline deals in the last 9 months than over 5 preceding years combined.
We expect to deploy $10 plus 1,000,000,000 of capital in these opportunities in next few years. In other words, we are not only executing on deep value early cycle opportunities, but also laying a strong foundation of growth through the entire cycle when inevitably the significant price discrepancies of today will be gone. To give you an example, we recently re upped our master development agreement for 5 years with Kelsey Seybold, our largest MOB tenant. We're looking to start approximately 600,000 square feet of 100% pre leased development in 2021 2022. Number 4, talent opportunity.
I touched on this last call, but let me elaborate for those of you who are focused on long term. We're seeing an incredible interest in our platform from seasoned professionals to early career applicants. We have taken advantage of recent disruption and brought in 41 new professionals in 2020. We expect at least as many, if not more, to join our team in 2021. In addition to new talent, our existing talent pool is taking on more responsibilities and reaching new heights.
As a result, we had 50 new promotions at QUALTOWER. Through this, some though this puts some early pressure on G and A, which is partially offset by lower executive comp, we think this incredible talent pool is equivalent of a coiled spring, which will manifest itself in a meaningful growth for the firm. Speaking of talent pool, how is the mood inside today inside Wall Tower? What I described to you as a stoic resilience last year has transformed into an environment of optimism and unbridled passion this year. I want to make it abundantly clear, we have no crystal ball about the near term operating fundamental.
But we are doing meaningful work that matters, we have meaningful relationships, and we are seeing a new level of positive energy of people who wants to be part of this team internally and externally to create meaningful value and make a disproportionate impact. With that, I'll pass it over the microphone to Tim. Tim? Thank you, Shankh. My comments today will focus on our Q4 2020 results.
The performance of all of
our investment segments in the quarter, our capital activity and finally a balance sheet and liquidity update and our Q1 outlook. The Q4 was a tough end to a very challenging year and the ongoing impact of coronavirus accelerated meaningfully in the back half of the fourth quarter into the beginning of 2021. The visibility for large parts of our business beyond the next 90 days remain very limited and very dependent on virus related variables such as its unpredictable path of growth, the rollout and efficacy of the vaccine and the continuation of population lockdown mandates. As a result of this uncertainty, we decided to provide a Q1 outlook this morning in place of the full year outlook we would normally provide in our Q4 call. As we have done over the last year, we will continue to disclose and update information on a frequent basis with the intention of providing a more complete outlook as soon as the variance of the virus related variables moderate to a level that allows for reliable forecasting.
Now turning to the quarter. Welltower reported net income attributable to common shareholders of $0.39 per diluted share and normalized funds from operations of $0.84 per diluted share. Normalized FFO was sequentially flat in the 3rd quarter and the decline in senior housing operating earnings and dilution from disposition to close over the last two quarters was offset by recognition of HHS funds, lower G and A, lower interest expense and initial returns on reinvested capital. Now turning to our individual portfolio components. 1st, with our triple net lease portfolios.
As a reminder, our triple net lease portfolio coverage and occupancy stats are reported a quarter in arrears. So these statistics reflect the trailing 12 months ending ninethirtytwenty twenty and therefore only reflect a partial impact from COVID-nineteen. Importantly, our collection rate remained high in the 4th quarter, having collected 97% of triple net contractual rents due in the period. Starting with our senior housing triple net portfolio, same store NOI declined 2.7% year over year as leases that were removed to cash recognition in prior quarters continue to comp against prior full year contractual rent received. Occupancy was down 2 60 basis points sequentially consistent with the average occupancy drop from 2Q to 3Q in our Rodeo portfolio.
And EBITDAR coverage decreased 0.01 times on a sequential basis in this portfolio to 1.01 times. During the quarter, we transitioned a U. K. Development portfolio from triple net to RIDEA transitioned 14 former triple net capital senior assets to new operators in RIDEA structures and disposed of 1 asset, which has a net impact of increasing coverage by 0.03 times. Consistent with my comments in the past, our senior housing triple net lease operators experienced similar headwinds as our a day operators over the past 9 months and we expect reported lease coverage stats to continue to reflect these challenges as more of the pandemic period is reflected in EBITDAR going forward.
That being said, the resilience of this portfolio is reflected by the continued high cash collection rate is encouraging. As I described last quarter, we entered into agreement with Capital Senior beginning of 2020, which allowed for an early termination of CSU leases on 24 Welltower owned assets in exchange for full rent being paid in 2020 in cooperation with transitioning the operations of these assets. We transitioned 14 properties operated by CSU to new operators in the Q4, in addition to 5 that were transitioned during the 3rd quarter and anticipate the remaining assets to be transitioned to new operators in the first half of twenty twenty one. As a result of the continued COVID backdrop, the initial expected dilution from these conversions is expected to be approximately $0.04 per share in 2021. Additionally, the conversion of a development portfolio in the UK from triple net to RIDEA is also expected to be negatively impact normalized FFO by $0.04 per share in 2021.
The combination of these two transitions is expected to result in a sequential roll down of a little over $0.02 per share of normalized FFO from Q4 to Q1. Next, our long term post Q portfolio generated 2% year over year same store growth. However, EBITDAR coverage declined by 0.012 times sequentially to 1.0 times, which was almost entirely due to deterioration in our largest long term post acute tenant, Genesis Healthcare. As we noted last quarter, Genesis Healthcare, which makes up approximately half of our long term post acute exposure, raised concerns around its ability to continue as a going concern in the 2nd quarter financials filed on August 10. As a result of this concern, Welltower began recording revenue in cash basis in the 3rd quarter.
Furthermore, we wrote down our unsecured loan exposure to them by $80,000,000 in the 4th quarter. Similar to our Genesis lease income, we've been recognizing all interest on our unsecured loans on a cash basis. So this impairment does not change income recognition on these loans. Genesis remains current on all financial obligations to Welltower through January. And lastly, Health Systems, which is comprised of our ProMedica Senior Care joint venture with the ProMedica Health System.
We had same store NOI growth of positive 2.7 percent year over year and trailing 12 month EBITDAR coverage was 2.27 times. Turning to medical office. Our outpatient medical office portfolio delivered positive 2.1% year over year same store growth, modestly below long term trends. Growth continues to be negatively impacted by reserves for uncollected rent, the large majority of which is resulting from lease enforcement moratoriums in several California jurisdictions, which we have a sizable footprint, as I described last quarter. As these moratoriums expire, we expect rent collection to approve from the 98.5% received in the 4th quarter.
Looking back at 2020, our outpatient medical platform displayed incredible resilience in a truly challenging year, which include periods of time which basic medical appointments and procedures were flat out not permitted. Yet we still managed to grow same store NOI and average a positive 1.7%. During the Q4, we continued to observe improvements in several key operating trends as business continued to normalize, notably a pickup in our leasing pipeline, which has started to reflect an occupancy positive occupancy pickup towards the back half of twenty twenty one. Now turning to our senior housing operating portfolio. Before getting into this quarter's results, I want to point out that we received approximately $9,000,000 from the Department of Health and Human Services CARES Act Provider Relief Fund and post quarter we received another $34,000,000 delivering $8,000,000 $31,000,000 of net expected proceeds at our share.
We are recognizing these funds on a cash basis until they will flow through financials in a quarter in which they are received. We are normalizing these HHS funds out of same store metrics, however, along with any other government funds received that are not matched to expenses incurred in the period they are received. In the 4th quarter, there were approximately $11,800,000 of reimbursement normalized out of our same store senior housing operating results, mainly tied to the HHS program in the U. S. Now turning to results in the quarter.
Same store NOI decreased 33.8% as compared to Q4 2019 and decreased 11.3% sequentially from the 3rd quarter. Starting with revenue, sequential same store revenue was down 2.4% in Q4, driven primarily by 160 basis point drop in average occupancy. As a reminder, we started the 4th quarter with relative optimism on the occupancy front with improving year over year move in volumes and relatively low prevalence of COVID within our communities. However, these positive trends rapidly reverse as the exponential rise in global COVID cases in November December led the city and statewide lockdowns and mission spans across many of our key MSAs, particularly in the U. K.
And California, which together comprise 34% of our show portfolio NOI. The result of this was 180 basis points occupancy loss from November through year end. As I stated on our Q3 call, the path of COVID will dictate our business trends in the 4th quarter, not seasonality and not the seasonal flu. And that has proved quite true over the past three and a half months. Turning to RevPOR in the quarter, total show portfolio RevPOR was down 1.2% year over year and flat sequentially.
But as I described last quarter, mix shift is distorted in the true picture of rent growth metrics. The standalone year over year RevPAR growth for our active adult, independent living and assisted living segments were positive 3.7%, 0.5% and 1.1% respectively. The combined total portfolio metric is being impacted by considerable changes in composition of occupied units in the year over year portfolio. As lower acuity properties, independent living and senior departments have held up considerably better on the occupancy front since the start of COVID, which has had the mathematical impact of having a higher portion of our total portfolio occupied units being lower acuity and therefore lower rent paying units. The point being rental rates are proving more resilient across our portfolio than would appear in our aggregate reported statistics.
And lastly, expenses. Total same store expenses declined 2.1% year over year and increased 50 basis points sequentially. I'll focus on the sequential since the changes are more relevant to trends in the current operating environment. The 50 basis point increase in operating costs was driven mainly by higher sequential COVID costs as a result of the surge in cases in the 4th quarter. The decline in top line combined with these expenses expense pressures had a meaningful impact on our operating margins, which declined 220 basis points sequentially to 22.3%.
As I noted earlier in the call, we did not include government reimbursement that was not tied to period expenses in period expenses in our same store results. Therefore, COVID expenses negatively impact same store by $18,900,000 in the quarter. We will stay consistent with this treatment in Q1. We've already where we've already received a net $31,000,000 in HHS funds that would likely turn COVID expenses into a net benefit if included in our same store as an offset. Looking forward to the Q1 and starting with 2021 year to date data we have already observed, we've experienced 180 basis point decline in occupancy through February 5.
Given the still heightened presence of COVID, we expect average occupancy to be down 275 basis points to 3 75 basis points from Q4 to Q1. Note that we are providing the average occupancy as opposed to spot occupancy as a form of better ties to our reported financials. And therefore, 2 60 basis points of our expected 275 basis point to 3 75 basis point decline is already baked given the swift drop from mid November to date in occupancy. We expect monthly RevPAR to be down 20 basis points sequentially, although it should be noted that actual rent per unit is up 2.1% sequentially with mix shift, which I mentioned earlier, and 2 fewer days in the quarter skewing reported RevPAR versus actual rent growth. Lastly, we expect total expenses to be effectively flat as higher sequential COVID costs are offset by less labor utilization due to lower occupancy levels.
Turning to capital markets activity. Throughout 2020, we took a series of actions that were difficult, resulted in our ability to retain significant cash flow and ultimately gave us greater control to navigate through the pandemic. It's worth highlighting that despite the stress endured by our business, we've avoided this destabilization of the balance sheet by borrowing to pay the dividend or being forced into raising equity or selling assets at an attractive valuation. Given where we sit today, with $2,100,000,000 of cash and over $5,100,000,000 of available liquidity, we are pleased with our course of actions being the most prudent way to maximize balance sheet stability and positioning us to take advantage of attractive capital deployment opportunities. In addition to shoring up the balance sheet, we undertook a series of actions to optimize spend and maximize retained cash flow by reducing our corporate overhead through tighter cost controls and fine tuning of capital expenditure plans.
We also made the decision in May to reduce our quarterly dividend by 30%, given the uncertainty surrounding the pandemic's timeline and severity. Despite the pandemic's substantial negative impact in our business, our actions throughout 2020 removed any dependence on a quick recovery and also afforded us the opportunity to be patient with respect to the transaction market and take advantage of attractive private market valuations relative to public markets, while also highlighting institutional demand for our high quality portfolio. Over the course of the year, we sold $3,700,000,000 of pro rata assets in a blended 5.4 percent yield, including $1,300,000,000 of senior housing operating assets at a price per unit of $332,000 per bed. Most recently during the Q4, we sold a portfolio of senior housing operating properties operated by Northbridge for $200,000,000 representing a 4.9% cap rate on March trailing 12 month NOI and $395,000 per unit. Also in the Q4, we announced a new joint venture partnership with certain investment vehicles managed by Wapra.
The joint venture comprised a portfolio of 24 outpatient medical properties, previously majority owned by Welltower. Many of these transactions were completed in the midst of significant disruption to real estate and capital markets from the long term viability of our senior housing assets in particular were being called into question. While we are pleased with execution on the disposition front, we are excited to now be executing on the acquisition side with financial flexibility and ample liquidity. On our Q3 earnings call, Shankh described a $1,000,000,000 acquisition pipeline. And since the start of the Q4, we've closed on 657,000,000 dollars at a blended initial yield of 4.5 percent with an expected stabilized yield over 7.5%.
Lastly, moving to our Q1 outlook. Last night, we provided an outlook for the Q1 of net income attributable to common stockholders per diluted share of $0.24 to $0.29 and normalized cents per diluted share of $0.71 to $0.76 per share. The midpoint of our guidance, $0.73 5 per share, represents a sequential decline of approximately $0.105 per share from the 4th quarter. The $0.105 decline is composed of an $0.08 decline in senior housing operating results, driven by $0.06 of fundamental declines and $0.02 of increased COVID costs, a $0.03 per share sequential decline in triple net senior housing NOI, a little over $0.02 of which is related to the Capital Senior and Signature U. K.
Transitions mentioned earlier with the remainder due to fundamental declines on cash recognition leases. A $0.02 per share decline related to net investment activity in Q4 and Q1 and $0.03 related to a combination of other items, mainly made up of increased G and A, income tax and a slight decline in interest income. These declines are offset by a 5.5% increase in pro rata HHS funds received to date in the Q1. As a reminder, we're only guiding HHS funds that have already been received as of today's call. And with that, I will hand the call back over to Shadi.
Thank you, Tim. I want to end with 2 things before we open it up for questions. First, I'm excited about the collaboration that is in March between our peers and us. We have worked diligently with Healtheet, Ventas and Omega to address operator and industry issues and towards mutually beneficial transactions. For example, it was our absolute pleasure to work with Tom Hajjak and his team on 2 separate transactions totaling $170,000,000 I am positive we are embarking on a new era of collaboration amongst the public companies in our space.
2nd, in spite of our challenges being faced by our industry today, our confidence in our business has not changed, and I'm hopeful that my comments this morning have provided you with a framework for how we intend to create long term value for all of our stakeholders. We're grateful to be part of your portfolio as our shareholders. Personally, this management team has established a highly concentrated position in Welltower. In fact, neither Tim nor I have sold a single share of the stock that we have received on a post tax basis since we have come on board few years ago, which should be an indication to you, our fellow shareholders, of our conviction and personal stake we have in this business. As Buffett taught us, diversification may preserve wealth, but concentration builds wealth.
This does not mean the path forward will be without challenges, but it is clear that we're all in on this company and that our alignment with you, our shareholders, is strong and significant. With that, we'll open the call up for questions.
Thank you, sir. I show our first question comes from the line of Juan Sanabrea from BMO Capital Markets. Please go ahead.
Hi, good morning and thank you for the time. Just on the acquisition front, you guys talked about the $1,000,000,000 pipeline and being confident on more opportunities. I was hoping you could provide a little bit more color on what the focus is, if it's still on the kind of the value opportunities in seniors housing buying it at a great basis? And if that's the case or more generally, if you can give color on the timeline to stabilization from the low cap rates going in, what we should expect in terms of when you get those stabilized yields?
Thank you, Juan. Good morning. That is our focus is to buy near term, at least on the near term basis, value opportunities that are significant discount replacement cost where we can bring in the right operators or buy with the right operators if it is owned by some other capital partners of our operators. So we're focused on basis, we're focused on operator, we're focused on structure. Interestingly, we are starting to see some opportunities where the initial yield is not as much of a drag.
That's just a coincidence. We're not focused on that. We're focused very much on basis, structure and operators. And I expect that our blended yield of the opportunities when we talk about next quarter will actually be dragged up overall by this set of opportunities. But I can tell you that is not our focus.
We're purely focused on basis structure and operator.
And any color on time lines to get to the stabilized deals? I mean, it just generally ties to the overall length of the recovery, I know. It just I would appreciate it.
It is. 1, it is purely dependent on the shape of the recovery and when it drops, which I already said that I'm not going to comment on, right, it's a very uncertain environment. That is precisely why that we are buying deep value opportunities so that we don't have to be dependent on that, right? So if we had a perfect sense of what the shape of the cart looks like and when it perfectly drops, then we will be buying everything we possibly can, which we are not. We're very focused on a significant discount replacement cost for that very reason.
But again, we need more time to give you a general sense of what that looks like, but it depends on assets to assets. We're buying assets that are 82% occupied. We're buying assets are 22% occupied. So it's very hard to make a general comment on when what we think as sort of the shape of that accretion looks like.
Thank you. I show our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.
Thanks. Good morning. Shankh and Tim, I know you can't really comment on sort of the exact bottoming and timing of the recovery, but maybe talk about sort of the move ins and the conditions that you think you need to see within your facilities kind of in the macro in order to ultimately start to drive move in volume given what we've seen on the decline?
Yes. Thanks, Steve. So I think the first and foremost what we've seen and learned over the last 10 months is that, one, cases nationally and cases in our buildings have very much mirror each other. The virus presents itself as pretty challenging to kind of keep on anywhere. So I think when I talk about the macro and being cases, we're kind of speaking to both those at the same time.
But we've seen both the negative and positive case counts rise and fall start to impact our business 30 to 45 days afterwards. And that makes sense given thinking about kind of the sales cycle and on average kind of 30 days of a kind of start of a lead to a close. So what we need to see is the direction we're seeing right now in case counts to continue. We need to see likely the vaccinations that are going on at a national level in our buildings to then allow for that to be kind of held at a low level. And we're seeing those things take place now.
But as of today's call, we're still very much at an elevated level of cases nationally in our building. So I think what we need to see is for this current level to this direction continue, the low level to sustain itself and we'll start to see some early indicators of that if that direction continues over the next month or so. And the fundamental impact on our business would come, as I said, kind of 30, 45 days after that. So I think it comes down to simply the path of COVID and it's a big reason of kind of the outlook being 1 quarter here not the full year because I think any full year outlook would essentially be just a more of a guidance on where the path of the virus goes, which is something that we don't think we've got a better view on than those of you in the market. So it really comes down to just COVID.
Thank you. Our next question comes from the line of Connor Stavisky from Berenberg. Please go ahead.
Good morning, everybody. Thanks Thanks for having me on the call. I appreciate the detail in the prepared remarks. I'm looking at lease maturities, specifically as it relates to the post acute care portfolio in 2021. I'm just wondering how those conversations are progressing and if there's any kind of expectation for renewal rates?
I'm sorry, say that again, Aaron. You said which leases?
So the lease maturity is related to the post acute care portfolio and then how those conversations are progressing.
So Connor, the conversation with all tenants is the same, right? If a tenant wants to focus on what is the right near term fundamentals right now and project that as the future, then I don't think that's our right tenant, right? I mean, we have to you cannot think about this business as what is happening right now and mark a lease to market on that basis on today's fundamentals. That's just not how we think about it. I laid out the whole framework of how we think about leases in a previous call.
I'm not going to bore you with the details. But the conversations are always the same. What is the normalized cash flow of a business? What does that mean from a value as well as the last dollar basis of that lease, the leverage in fact, right? So that's how we think about leases.
That's how we do leases, new leases, renewal leases, and that's how we're going to move forward. If we think that our tenants and us, we can't agree on what is the long term value of our real estate is, then we have to move forward with a different operator. Our value is in the real estate, and we know how to preserve it.
Thank you. Our next question comes from the line of Michael Carroll from RBC Capital Markets. Please go ahead. Mr. Carroll, if you have your phone on mute, please unmute your line.
I did,
sorry. Ken, with regard to the seniors housing triple net portfolio in your prepared remarks, can you kind of provide some color on what percent of the operators are being recognized on a cash basis? And I guess what are they paying today versus their contractual rents? And just real quick off of that, in that payment coverage stratification heat map that you have, is that coverage ratio reflected on their contractual rent or is that reflect on the rent that they're currently paying today?
Yes. Thanks, Mike. So it's a little over 5% of our triple net NOI is reflected as cash, not as contractual rent. And on the heat map, if things move to cash, they're removed from the heat map because they essentially at that point are a one for 1 in relative to what's being reflected in our earnings and what's being received in cash. And that kind of is not relevant to the actual contractual and also could end up
kind of
inflating coverages. So we if it moved to cash, essentially what it we move it off because at that point earnings is reflecting exactly that cash. And I'd say just as kind of relative to areas of where we've seen cash recognition where EBITDAR has kind of fallen relative to rents, it's kind of probably been in the 0.5x to 0.75x coverage areas.
Thank you. Our next question comes from the line of Derek Johnston from Deutsche Bank. Please go ahead.
Hi, everybody. Good morning. Spot occupancy stands at 74.4 percent for show. And with COVID cases declining and most of your residents likely vaccinated by the end of Q1, is this 2.75 to 375 basis points of further decline in occupancy that you're guiding? Is this your estimate of Welltower's pandemic trough occupancy given what we know today?
So what we're estimating in our actual Q1 guidance with in my prepared remarks I alluded to this, but if we were to be if today's occupancy was to be held from here through quarter end, we'd end up at an average occupancy decline from 4Q to 1Q of 2 60 basis points. And our guidance is for 2.25 basis points of decline from 4Q to 1Q. So our expectation is that given the heightened COVID cases on a national basis that declines in occupancy continue and we're not making a call on the direction of COVID, which would therefore impact occupancy. So in short, no, we're not we are not calling today's occupancy trough.
Thank you. Our next question comes from the line of Jordan Sadler from KeyBanc Capital Markets. Please go
ahead. Thanks and good morning. I know that you guys are have some optimism because you've sort of transitioned from defense to offense and then began buying assets again. So I just wanted to get a little bit of a sense of what your thinking is as you're underwriting these assets in terms and I mean seniors housing specifically, in terms of the pace of potential lease up. So on the other side of sort of this spike in COVID, how do you think about what and maybe you can give us some brackets for what lease up occupancy might look like during the peak leasing season like April to September?
Thanks, Jordan. So I can put some brackets around it. Just thinking through kind of pre COVID occupancy levels, we've talked a bit this year of looking at move ins as a percentage of pre COVID levels and to give an idea of not only how much they declined since the start of COVID, but kind of where they sit relative to levels in 2019. You were to look at kind of move in levels from April to September 2019 and compare that to move out levels we saw in the Q4 of this year. So just the most recent experience, which is a bit heightened relative to historical, but as you can see in our stats, certainly it's not spiking.
You would see at 100 percent of back to pre COVID demand levels 90 to 110 basis points of occupancy increases on a monthly basis. And that's really a product of, again, demand coming back quite a bit. You look at January of 2021 and we're at 50% of prior year move ins. So thinking about that 50% to back to pre COVID levels, that's quite a climb from here. But another way to look at it is we likely have to get back to kind of 65% of pre COVID demand levels to get to breakeven on occupancy and then from there build to start to gain.
And just putting that in context, when COVID did come down in the late summer, early fall 2020, we did see demand as measured by move ins move back to kind of 70% prior year. So we've seen demand move back in that range during COVID pre vaccine, but certainly we're well below that now. So current trends in moving side have gotten worse, but hopefully that gives you an idea of where they could move to if demand really comes back to pre COVID levels in the short term and also where we kind of need them to get to see some stabilization in the portfolio.
Jordan, that does not mean that we're underwriting that in this April to sort of the early summer to late fall leasing season, we're going to see that kind of occupancy increase. If we did that, we would buy every product that we can possibly buy in the market. So I want to remind you that what we are not, we're focused on basis so that our value creation is not dependent on our ability to pinpoint the shape of the recovery. It is purely dependent on what it takes to build a building. And if you can buy at a significant discount, the 2 things will happen, right?
You can wait for the demand to come back. And if you can't make money at a obviously at a 50% to 60% discount replacement cost, then no one will build a new building at the replacement cost because they have to charge a lot more than you. So ultimately, in any capital heavy asset class like real estate, assuming your overall demand is increasing, ultimately, the demand supply will balance. If I can make money at discount replacement cost, you will not be able to make money by building a new one at replacement cost. This is a particularly interesting phenomena in this cycle.
In most cycles, what you see is replacement cost I mean the cost to build goes down when a recession hits. Because housing is white hot, replacement cost is actually spiking through this particular cycle. That keeps even a bigger gap as we think through a cycle.
Thank you. I show our next question comes from the line of Nick Joseph from Citi. Please go ahead.
Hi, it's Mike Baumann here with Nick. Two part question, Sean, just in relation to partners and relationships that you talked about during your opening comments. You talked about a $10,000,000,000 pipeline of opportunities as you've executed more partnerships over the last 9 months than you did in the 5 years prior. And you mentioned the 600,000 pre lease MOB. Can you just step back and sort of break down that $10,000,000,000 a little bit more detail about what comprises it, what sectors and the timeline?
And then the second part of sort of the relationships, you talked about this new collaboration with your fellow healthcare REITs. What drove the change in those relationships? And I think it's definitely a positive. It's nice to see. But what was the drivers, because I think you've been a little bit more critical over time.
And I just want to know what sort of led to these newfound positive relationships.
Okay. Let me take the first one second one first because that's an easy one. I don't believe that I've ever been critical of our PR companies. What led to the collaboration is that I reached out to my fellow CEOs and we absolutely agreed that we need to work on these industry issues and operator issues together, and I got a very warm reception. So that's just very simple, right?
I mean it's just it is true that we have to work on this, and there is a power in bigger numbers, and we have very smart companies in our space run by very competent and smart management team. It is only in our interest to work together to solve these bigger issues than work alone. So that's a simple one. I'm not going to get into the first question. I will tell you that we are creating, as I said, we're very much focused on from an acquisition side on 2 things, right?
Early cycle opportunities that obviously we're executing and we'll be very pleased as the year progress where that will shake out, but we're very much cognizant of the fact that early cycle opportunities, eventually that will be gone. So if we start working on, then what will eventually become is the normal cycle opportunity is too late. So we have never stopped And it is also pretty much to be a very advantageous position to be a large company in our space, the largest company in our space, which we're expanding pretty rapidly and we didn't bat an eyelid and stopped and because we believe in the business as I laid out, we are you have to think about it. This is a very interesting business where you have to work with other people and you have to work with operators, you have to work with developers. In many cases, they are 1 and the same.
And to grow, create value together, not at the expense of each other, that alignment is extremely important. And this last 9, 10 months has given us the opportunity to work with more of our operators. And frankly speaking, as you can see, being aligned with Welltower has created significant and has continued to create significant value for our operators who if you think about if you're not aligned with a capital source that has the capability and the fierce resolve to deploy capital through this kind of disruption, then ultimately, as I said, you'll come to the other end of the cycle and it's too late. So I'm not going to get into what that looks like. I'll just give you one example.
600,000 square feet of 100% pre leased MOBs, Michael, you can do the math and think about how much value creation and that is not a pipeline. That is just the start that we're sitting here today between 2021 2022.
Thank you. Our next question comes from the line of Jonathan Hughes from Raymond James. Please go ahead.
Hey, good morning. Could you talk about your underwriting assumptions on the recent SHOP acquisitions at a mid-three yield? And the reason I ask is because using some of the assumptions laid out in the December 2018 Investor Day like exit price and 7% IRR requirement, it implies a high single digit NOI growth CAGR for the next decade. I know you won't comment on the growth and the recovery trajectory, but maybe some of those other assumptions like exit price have changed versus 2 plus years ago. So any details or thoughts about how you underwrite SHOP and compare to perhaps now higher yielding but more stable and slower growing medical office buildings would be helpful.
Thanks.
Thank you, Jonathan. It depends obviously, every asset is different where you buy the asset. What basis you buy the asset is completely different. When we made that presentation, we never thought we'll be able to buy assets at a meaningful discount replacement cost. If we look at pre pandemic, health care real estate, particularly on the senior housing, usually traded at a mild to modest premium to replacement cost because the health care income has a multiple, not a real estate multiple, but it's still a multiple, right?
So in asset class where you're starting above some level of replacement cost, you're going to keep your pricing power really strong through the whole cycle. And the next buyer analysis you have to think about your next buyer's analysis and the next buyer has to also believe that will continue. That so that by implication, you are buying above replacement cost and you are selling above replacement cost or you are making a bet that the NOI growth, if you're not NOI growth will meaningfully outstrip the cost of construction increase, right? So in both sides, you are at some form of above replacement cost. That equation changes completely when you can buy at a significant discounted replacement cost.
So if you buy $0.50 on the dollar and at some period of normalization, you send it at $100 on the dollar, you are still at a significant discount to the previous case when your next buyer balances, it's much, much easier. Nothing has changed except the price, and that price tells you why we're so excited about it today.
Thank you. Our next question comes from the line of Amanda Switzer from Baird. Please go ahead.
Great. Thanks for taking the question. As you kind of think about building occupancy post pandemic, how are you thinking either about changing service levels or where and how you invest CapEx, if at all, in order to attract new residents?
Okay. So this is a question that I don't want to be too long winded and give you an answer. It depends on the price really the service level of the assets inside those buildings today. And we don't increase occupancy, our operating partners do. And we work with our operating partners on service levels, CapEx needed and everything, but this is a collaborative process.
And I don't want to sort of sit here and tell you that this is we have the operating expertise to do that. I'm assuming you're asking a sharp question. We have the best operators in the business that are very, very good of what they do and their local dominance in the marketplace, obviously, as well as their particular service area is very much of a very much of what we are depending on. Having said that, we have worked diligently with our operators on payers and provider integration. And this is as I said, this is a very long answer to a question.
We are happy to take this offline. And have you talked to Mark Shaver, who leads this obviously this process in our shop. But the pricing question, the service question is more of an operator question than a Welltower question. CapEx question is definitely something that we work together. Having said that the payer and provider integration is something that we are leading and our operators are collaborating with us.
But that's a long discussion, and we'll take this out offline if this is of interest to
you. Thank you. I show our next question comes from the line of Rich Anderson from SMBC. Please go ahead.
Thanks and good morning. And just a comment, the Olive branch you're extending your peers and the ATU is like red meat to me. So happy to hear about that type of collaboration in the space. And speaking of collaboration, one of the things the gaming sector has noticed gaming REIT sector has noticed the ability to expand margins post pandemic and some lessons learned about what was kind of wasteful in their 4 walls and perhaps a better product at the other side of this. Question is on SHOP.
I know there are a lot of talk about margins going down, of course, these days. But do you envision that there will be some positive lessons learned from all this and that ultimately part of your interest in senior housing and SHOP specifically is that there is a margin expansion sort of thesis down the road here, maybe 2, 3 years down the road perhaps that will come out of this? Or should we not be thinking along those lines?
So, Rich, that's a very good question. It's one we've talked about a lot actually with our operators through the last particularly kind of the last 6 months. I think I'll answer in 2 ways. The first is on the lessons learned. Absolutely, this has made our operators look at their cost constructs in a more critical way than they probably ever could have imagined, just given the pressure to the occupancy and getting back to levels that for a lot of them looks like they haven't been in since they leased up some of these assets years ago.
We've had feedback from operators and large platforms saying they've found ways to do things on labor front just a lot more efficiently. And given the feedback ahead of time to what you're speaking to that when you start to see the business come back, do you think there is significant cost savings in the particularly the labor model as far as getting a bit more leverage off it. Again, on the margin side, I would hesitate to kind of speak to that from a margin expansion story just driven purely by that as of yet. As you know, there's cost in the structure right now that are being added because of COVID. We feel pretty confident a lot of these things are temporary.
But given that those 2 things to speak now are kind of a margin expansion story, we'll having those costs in the current business and having an unclear picture of when and how the kind of the virus moves away from our business, I think would be a bit aggressive. But I do think the margin expansion story, thinking about it relative to even where we were pre pandemic, we think there's an occupancy lift story in this space just given the demand story. And that the thing that makes us still keeps us very positive in the space is that long term demand story hasn't changed from the pandemic and certainly has been a very impactful last 9 months, 12 months and continue to be in the near future, but the long term demand story stands. And that's going to lift occupancy and there's a lot of operating levers in this business even without changes to the structure. So you're going to see as kind of industry occupancies lift up over the next 3 to 5 years, I think you are going to see margins move above where they were pre pandemic even without those operating efficiencies being put into the model.
Rich, I will just add 2 things. One is that we obviously I would encourage you and our team would be happy to set it up to talk to Mark Shaver and our team with what we're doing on the payer provider side, and which should help margins, as well. The second lessons learned, I would say, not a margin point, but a separate point, is one of the lessons learned, Shaw, through not just this pandemic, but through last few years is that you should not lend money to an entity or any type of entity where you are not willing to take the keys, right? As a REIT, we're not allowed to obviously own an operating company more than 35%. So we should not lend money to operating companies where we're not able to take over the asset.
Today, we're only focused obviously in the last few years and through the cycle, through the pandemic. We're only focused on if we write a credit check, we only write. If we are completely able to take over the asset and we're very happy owner of the asset on the last dollar exposure that we have. That is a big lesson learned inside our shop and a good one for the long term value creation of our shareholders.
Thank you. I show our next question comes from the line of Nick Yulico from Scotiabank. Please go ahead.
Thanks. Good morning, everyone. So a couple of questions just here on the vaccine rollout. Clearly, that's important in terms of getting move in activity back. And so I was hoping to get some stats on what the adoption rate has been of the vaccine by residents and staff members so far.
And then I'm also wondering, we saw an announcement from Atria, which is very vocal saying that they were requiring staff members to get vaccinated by May. And we haven't seen anything from Sunrise. And so I guess I'm wondering as a part owner there in Sunrise, are you guys pushing for that policy? And maybe just give us an update on kind of what that policy is in regards to staff members across your operators in assisted living? Thanks.
Nick, I'll answer the second question. Mark will answer the first question. We have tremendous amount of respect for John Moore and his team at Atria. We do not comment on the vaccine policy of different operators. We work with our operators and supportive of their different policies.
I can tell you everybody's focus is to get to the right place. How they get there is the decision that the management teams and the CEOs of specific operators do take that. We do not push for 1 or the other, but I can tell you that everybody is focused on the same outcome. Mark?
Yes. So just to give some stats, the relationships the operators have with CVS and Walgreens has worked quite positively. We've seen over 120,000 vaccinations across the platform as of earlier this week. About 90% of our communities have completed their first clinic and very actively working through the second clinic we feel by the end of February, 1st week of March, most if not all of the second clinics will have taken place. With regards to adoption and consent, 90 plus percent of residents have consent or received the vaccination, 55% of staff across the portfolio that varies from operator to operator have consented to receive the vaccination.
We're not going to get into specifics on number of vaccines by individuals. Some of this is skewed. You may be aware that if there was active COVID or an active COVID diagnosis in the prior 28 days, an individual has to wait to delay that. So we're focusing really on consent and the percentage of vaccinations that have occurred across the communities. But we're happy to provide additional color,
but those are the highlights.
Thank you. Our next question comes from the line of Mike Mueller from JPMorgan. Please go
ahead. Yes. Curious, how are the yields on the various new developments you're looking at compared to what underwriting would have been in pre pandemic?
Our target yields, Mike, have not changed. Market conditions have changed. So obviously, we're even more critically thinking about the cost as well as the land price and ultimately how much it takes to obviously how long it takes to get to that stabilization and the working capital loss in between, right? So our focus again, as I said, you have to imagine these things. That long term we think about at least the developments that we're interested in, you're talking about a 5, 6 year cycle.
So you have to really, really think hard about when you start, when it actually finishes, when you get your approval. And just for an example, as you know, that for the last few months or last year or so, we have worked on a new development project in Brookline. It is one of the hardest place to build in the country, right? You can change your view depending on how you're feeling about your occupancy today. That's a 5 to 7 year process.
And so our return thresholds have not changed. Clearly, what we think sort of the trended yields, the trending has changed given what is going on in the business today. And we still need to make money on an untrended basis to start these developments. So that's how we're thinking about it.
Got it. Okay.
Thank you. I show our next question comes from the line of Todd Stender from Wells Fargo. Please go ahead.
Thanks. Your data analytics team has been instrumental in having you guys drill down on MSAs, just for senior housing, of course, but can you share the recommendations that they're providing now just in light of lingering new supply, out migration from more urban cities due to COVID? Maybe any specifics you can share?
Todd, we have the ability to tell you today, first is they're not just focused on senior housing. The team has built the platform has been enhanced pretty meaningfully in last few quarters. So we have the ability way beyond what you have seen in senior housing, incremental office and our other housing businesses such as active adult where we play pretty heavily. One of the questions that you raised, which is the migration pattern, you can do we have a team entire team, which has been working on this data scientist. Today, I'm glad to tell you that we have the ability to pinpoint that out migration or in migration on a weekly basis, not just focused on the longer term data such as ACS and IRS data, but also cell phone data and other more near term or more instantaneous sort of data.
I don't mean instantaneous as in right at this point, but we can tell you on most on a weekly basis, not almost on a weekly basis. We can tell you on a weekly basis where people have moved out or moved in. That is very much flowing through our models as we're making investments. As you know that we're very, very focused on making new investments on all the asset classes we deal in, and it's definitely a big part of why we're seeing today the attractiveness of us as a capital has enhanced in last few months or few quarters because we're still standing here and taking advantage of the disruption in the marketplace, but also that huge predictive analytics platform that we have built over many years that our partners are attracted to.
Thank you. I show our next question comes from the line of Steven Valiquette from Barclays. Please go ahead.
Thanks. Good morning, everybody. So a couple of questions here. I guess first regarding RevPAR, it was encouraging to see the positive year over year trends in 4Q 2020 in AL, IL and Senior Apartments in that 1% to 4% range. In your walk through of from a fundamental decline in senior housing.
I guess I'm curious what's the RevPAR assumption within that? Does that stay positive year over year or does that start to decline? Thanks.
Yes. That's a good question, Steve. So when you think about a sequential basis, that $0.06 that moves from 4Q to 1Q, Effectively, if you think about like RevPOR and occupancy decline combining to get to your revenue change sequentially, our RevPAR is down 20 basis points. But that's driven by 2 things. 40% of our senior housing revenue in the Q4 is actually from operators that receive rent on a daily basis, which is pretty common in the higher acuity side of senior living.
And so just moving from the Q4 to the Q1, you lose 2 days, you go from 92 days to 90 days. So with RevPOR being an approximation of monthly rent, your rent would go down 2.2% just from that. So there's a headwind from that on a sequential RevPOR basis. And then you've got this continued mix shift where the occupancy, the mix shift, the makeup of revenue in the 4th quarter versus Q1, again, you're seeing a higher occupancy fall off in the higher acuity segments of our portfolio, which pay higher rent. So the combination of those two things is the RevPAR from how that impacts kind of total revenue is down 20 basis points.
But if you look at on a per day per unit rent, we're up 2.1% in the 4th quarter relative to the Q1. And it's actually pretty strong sequential growth. It is driven mainly by roughly half of our operators also have Jan 1, increases. So there was increases pushed through on Jan 1 and that's helped kind of rent growth.
Thank you. I show our next question comes from the line of Lukas Hartwich from Green Street. Please go ahead.
Thanks. Hey, Sean, in the past you've talked about well towers and difference between the shin and shop formats if structured correctly. I'm curious how the team is evaluating that question for the existing portfolio as well as acquisitions in this environment because clearly there's a lot more in this environment because clearly there's a lot more uncertainty in not only near term fundamentals, but the recovery, the trajectory, potential long term impacts in the senior housing business. There are a lot of moving pieces relative to the history there.
Well, I think you just coined a new term. I'm assuming you're asking about the difference between senior housing triple net versus senior housing operating. So look, given where the cycle is, I want to be majority be in the equity position or in the RIDEA side. But there are opportunities to apply capital in the senior housing in the triple net side. If you have assets that are stabilized and you can buy it cheap enough that the last dollar of that lease is still in a place where the operators can make money and we can make money.
There obviously you can create a lot of bells and whistles and what operators have is 2nd bite at the apple. So there's ways you can create that alignment. But remember, if you simplistically think about a RIDEA is an equity exposure and a lease is more of a credit exposure, you can create value if a) from our side if the buildings have stabilized or near stabilization and you buy it cheap enough that your last dollar is still a pretty low rent relative to what the cash flow of the buildings look like, then you can create value. But that's how we think about it. That's how our operators think about it.
And so we have found 2 opportunities to do leases. If we do find more opportunities, we'll do it. But I can tell you that the industry is moving away, at least we're moving away from very tightly covered leases. Today, we're thinking about there should be even more marginal safety. And when we find opportunities where we're buying so cheap that we can, that's when we're going for it.
Thank you. I show our next question comes from the line of Joshua Dennerlein from Bank of America. Please go ahead.
Hey, good morning guys. Shankh, I just wanted to follow-up on your comment in your opening remarks about hiring and it sounds like you added I think you said 41 employees last year. Curious just what area of the business are you guys hiring for that to?
Pretty much across the board. I mean, if you think about it, we have added a lot of people on our investment teams and we have hired a lot of people on our data analytics team. We had a lot of hiring people on our infrastructure teams, their accounting, tax. I can't I don't have the background. I can tell you that we have seen an incredible resurgence of interest in our asset in our company today from both sort of externally and internally and what I mean externally as an operator, as a developer internally as prospective employees, both experienced employees that we're hiring.
There's a lot of talent in the market for obvious disruption. Also a lot of hourly carrier employees that we're seeing. I'll just tell you just one small stat. An interesting one, doesn't change really for anything we do. We hire East Coast, West Coast and Midwest, we hire the top 7 schools for MBA candidates.
This year, we got more than 1400 applications for really 4 or 5 positions we hire. So that sort of tells you the interest in our business and the amount of incredible talent we're seeing both on the early career side as well as super experienced side, and we'll see some really good hires this year as well this year. I expect that we'll add 40 to 50 professionals across the board in the company. Acquisition is not just, as I said, I want you to think about, Josh, acquisition in this kind of market, which is so disruptive in 3 ways. One obvious one, right, we're doing value opportunities that we can add at a discount replacement cost B, acquisition of partnership and operator relationship and developer relationship.
That's B. C is employees. We're in a business of talent. And given the amount of disruption that's in the marketplace that we see and what we think this business will become as we think about 3 years, 5 years, 10 years from now, we're very much adding an incredible level of talent that we have sort of never seen in the marketplace.
Great. Appreciate the color.
Our next question comes from the line of Omidyakosayah from Mizuho. Please go ahead.
Yes. Good morning, everyone. First of all, Shankh and Tim, I just wanted to give your entire team credit for such strong, transparent disclosure on your business updates. I wish more of your peers were doing that. And also, with regards to Tom, I hope he's doing well.
My first question really is around government support. Could you just talk a little bit about kind of post the Phase III announcement kind of what you're seeing in the pipeline at this point or what the lobby group is seeing and what the potential is for further government release for your operators?
So let me take your question and see I can get there. I'm not going to comment on sort of what might happen. There's too much uncertainty. We have a new administration. If I sit here and try to comment on what might happen, I'll be so much outside my zone of confidence, which I think you know that I focus very much on the circle of confidence.
Being a lifelong Buffett and Munger sort of I'm not going to venture that. But I will tell you that Tom is doing well. I talk to him pretty frequently. He's been an incredible mentor and a friend. He continues to help me think through a lot of issues, and he's definitely doing well.
If you reach out to him, he will reply to you. But he isn't he's definitely doing well, and he remains a great supporter of the company and he is helping in any way he can.
Thank you. Our next question comes from the line of Daniel Bernstein from Capital One. Please go ahead.
Good morning. I appreciate you staying on and taking the call here.
It seems to me that
the initial acquisitions you've done here, I mean, clearly just destruction you're buying and blow replacement cost, but they're not really truly distressed sales. So just trying to understand what you're seeing in the marketplace in terms of lenders, bankers kind of exercising covenants and forcing more distressed sales the remainder of this year, especially given your comments on a strong pipeline? And I don't know if you could talk difference between that distressed in seniors housing and skilled nursing. Thanks.
Like beauty, distress is also something that lies in the eyes of the beholder. I can tell you then we're buying assets in core markets of New Jersey, Seattle, California for less than $200,000 a unit where replacement cost is $400,000 $500,000 above $500,000 a unit. If you don't think that's a devalue opportunity, I really don't know how to answer to that. So I guess we just have to obviously think about it different way. We are if you just always remember, price relative to what it takes to build, that gap is what creates the stress.
If you just want to look at purely on a price per pound and does it look cheap, just wait for a few, as I said, 60 to 90 days. I can tell you more about some of those opportunities that we are seeing. But I think we're executing on some very significant sort of discount or replacement cost opportunities. Some we have reported. And if you look at what those assets are and dig into what it takes to build it, you will understand that.
So going back to the banks, look, I have no idea when the banks will obviously push more towards sort of pushing this sort of this whole pipeline of new construction that happened between 2015 and '19 from their books. But I can tell you that we have been working diligently with many of our banking partners. We just yesterday, we executed on one such loan. Look, we're here open for business. We have a sense of what the value is.
We have a sense of how we can create value, not just at the buy, but also with our operating partners, and we're executing. But I can't sit here and tell you when the banks will keep their books. There's just no way to say that.
Thank you. Our next question comes from the line of Vikram Malhotra from Morgan Stanley. Please go ahead.
Thanks again for sticking on. Just to go back to sort of the potential inflection, I know you can't give a near term prognosis on when that's going to happen. But just in terms of early indicators, both on move ins and move outs, Tim, I found your comment that 65% needed for stabilization, interesting. I'm just wondering, in the different geographies, given the COVID cases have trended somewhat differently and that has a correlation to the move ins. Any early signs you're seeing or monitoring that would suggest move in and move outs kind of can turn the other way?
So there is not I think as far as early indicators, we haven't seen enough to note it as a trend, I'd say. You certainly have seen operators where you've seen deposits or tours or initial inquiries move up. You've also seen, as your question goes, you've seen it move down in geographies in which you've had essentially the last 6 to 8 weeks has been shut off in a lot of ways. So not enough of a trend on the initial indicators or first movers to say that there's something there. I do think part of what I was getting at earlier is what we've seen in the past, you follow some of the first indicators being inquiries and quest for tours, etcetera.
You've seen that kind of lag cases in that kind of 30 or 45 day range. So what we've seen in cases, the fact that they're still very high may make this time a bit different as far as how much time it takes post it. But just thinking about a mid January kind of peak in cases, you would likely if things continue on this trend, the positive trend we're seeing, I I think you'd start to see towards the middle to the end of the month maybe some of those first indicators move in a more portfolio wide basis. And so we can provide some more color on that as we update the market over the next month or 2. But right now, it's a little too early to speak to it.
Thanks.
Thank you. Our next question comes from the line of Omotayo Okusanya from Mizuho. Please go ahead.
Hi, guys. Good morning. Thanks for continuing to go on. My question actually ties into what Vikram was just discussing. If the infection rate trends have been getting better over the past few weeks, you guys kind of talk about a 45 day lag.
I guess it does seem to indicate to me that things should get better in the back half of the quarter, but yet you have 2 60 basis points of average occupancy declines baked in today, but the guidance range for 1Q is 2.75 to 3.75. 5. So guidance includes a few things actually getting worse in the back half of the quarter versus better.
Can you
just help me clarify that?
Yes. Yes. I appreciate the question. To clarify that a bit, we're saying if the trends were to continue and I think you're saying the same, you would start to see some improvement in the latter part of the quarter. But trends getting better from here or staying the same is the part that we're not taking a position on, right?
So certainly if that continues that way, that's when we start to see some improvement. Our guidance doesn't take a position on COVID in the path of it. It's even today, despite where we've come off of, case counts in every way shape or form are higher than any point we've given a forward look in the past 9 months. So today still is a lot of uncertainty. It certainly feels better than it did 3 or 4 weeks ago.
But what's baked into guidance in our view is not an attempt to call for a better or a continued improvement and it's more of a current state holding whereas.
Also, Tayo, as Tim sort of pointed out before, majority of that decline is on an average basis is already baked in, right? So if you see the improvement that you are hoping for, which we are not hoping for, we're not guiding for, then that will more impact the second quarter than the first
quarter. Thank you. Ladies and gentlemen, this concludes the Q and A session and today's conference call. Thank you for participating. You may all disconnect at this time.
Everyone have a good day.