Ladies and gentlemen, thank you for standing by, and welcome to the Q3 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.
Would now like to hand the conference over to your first speaker today, to Mr. Matt McQueen, General Counsel. Thank you. Please go ahead, sir.
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. And with that, I'll hand the call over to Sean for his opening remarks.
Sean?
Thank you, Matt, and good morning, everyone. 1st and foremost, I hope that all of you and your families are safe and healthy during these difficult times. Before I get into the accomplishment for the quarter and discuss our capital allocation strategy, let me make some comments on leadership changes and strategy going forward for World Tower. Let me start with our outgoing CEO, my close friend and mentor, Tom DeRosa. Tom's impact on our industry, our company and me can never be overstated.
He was a visionary who saw the need of integrating senior housing into healthcare continuum years before COVID and now we all know the importance of that today and going forward. He was a successful entrepreneur he took a successful entrepreneurial company and made it a process driven institutional company that attracted an incredible caliber of talent. And last but not the least, his contribution on me personally and my career can never be overemphasized. He has been a terrific boss, a great mentor and a close friend. He continues to help me even today and guide me as necessary.
We wish Tom the very best in his retirement. I'm also pleased to announce that Phil Hawkins, one of the most well respected ex CEOs of the REIT space has joined our Board. We're looking forward to Phil's guidance and mentorship for many years to come. And finally, I'm thrilled to be working with our new independent Chairman of the Board, Ken Bacon, who has a strong track record of leadership and experience, both in real estate and finance. Ken will lead our Board and partner with me and our leadership team as we execute our company strategy.
As far as our team is concerned, the company has never been in a better place. There are about 20 women and men who are leading this company forward every day. I cannot be more proud of this team. In the coming weeks months, you will see a series of promotions and new roles that will consolidate the leadership of this company. Not a change per se, just the recognition of the exceptional work that the team is doing.
Our team has never been busier and more excited to create once in a lifetime value for our owners. Many of you have asked me if our strategy will change going forward. The answer to that question is an emphatic no. Welltower will continue to strive to be the premier wellness infrastructure company that allocates capital in the path of growth of healthcare and wellness trends. We're not you're not going to get any grand strategic pronouncement from me.
We'll focus continue to focus on creating value for our partners and our employees if they create significant value for our owners. And the partners and employees will be able to create long term sustainable value only if their end customers are happy. It is that simple. We do not need to complicate a simple idea. We need to continue to execute and deliver superior cash flow growth on a partial basis.
To paraphrase one of my favorite CEOs of all time, Tom Murphy, the goal is not to have the longest train, but to arrive at the station first using the least amount of will. We will continue to be vigilant as ever that institutional imperatives do not creep into our culture and we remain focused on efficiency of the platform, data driven decision making and employee satisfaction. Given it is my first call as CEO, I'll lay out a simple capital allocation framework for you. A company effectively has 4 choices of raising capital: capping internal cash flow, issuing debt, issuing equity, and disposition of its existing assets. It also has 5 essential choices of deploying that capital: investing in existing assets, acquisitions, paying down debt, paying dividends and buying back stock.
You can loosely call the 1st set of choices as selling, but right description of that would be sourcing or raising capital. You can loosely call the 2nd set of choices as buying, but the current description would be deployment of capital. Following the same line of thinking, loosely speaking, consistent buying low and selling high creates value for our shareholders. In a more wholesome and thoughtful description, optimizing these choices from this menu of sources and uses in a tax efficient manner creates value for our continuing shareholder on a per share basis. The goal is to maximize cash flow and value per share, not to become the biggest or the most revolutionary.
We at World Tower do not spend a second strategizing on how to win the popularity contest on Wall Street. In fact, as stated in the past, we focus on buying assets when they're out of favor, that is unpopular at the right price, in the right structure. Ultimately, this capital deployment strategy allows for outsized return with a large margin of safety. Price, not exposure, is the ultimate mitigant of risk. We are constantly striving to create value and trust you as our shareholders will revert the companies that create true intrinsic value over long term.
If you allow me to continue this theme of sourcing and deployment of capital, let's look at what we have achieved in Q3 and post quarter close. We are delighted to inform you that we have executed on 2 large senior housing transactions at a valuation significant in excess of $400,000 unit in the mid 3% cap rate on current NOI and around 5% cap rate on pre COVID NOI. These transactions with our Invesco joint venture on MOBs puts us in an enviable position of balance sheet strength. We currently have $5,200,000,000 of liquidity and $2,200,000,000 of cash, which is expected to rise farther as the quarter progresses. We at World Tower do not see balance sheet as a matter of managing like vintage cars, but the most important countercyclical tool to create value as the cycle loads and avoid the need of raising dilutive capital at the exactly the wrong time in the cycle.
That gets us to our menu of capital deployment to particular of interest, investing in hard assets and doubling down on the assets that we already own through buying back our own stock. In matter of any acquisition, assets of stock, patience is a virtue with occasional boldness. And we think that momentum of occasional boldness is finally here. We have in excess of $1,000,000,000 of acquisition in our pipeline comprised of 6,500 plus units at an average price of $165,000 units at a material discount to replacement cost. 17 deals in the pipeline represents a wide range of transactions from a $10,000,000 redevelopment asset to $188,000,000 core portfolio of brand new assets.
We have identified many of these assets working with our existing partners through our data analytics platform or who are buying out other capital partners of our existing operators. The pipeline's initial yield is a low force, but we believe it will stabilize in the high single digit to low double digit yield. That is a very short term, but incorrect way to look at this will be, we're deploying capital in the low 4% range and sourcing that capital in the mid 3% range. We believe the correct way to look at this will be that we're sourcing that capital in the mid single digit unlevered IRR and deploying at a low double digit unlevered IRR, as evidenced by sourcing the capital in the $400,000 plus per unit level and deploying that capital at $165,000 per unit level. Despite our weak cost of public capital, this spread has never been wider and hence the opportunity to create generational value for our owners on a part share basis.
And that completes the loop for you and explains why our team is so excited and so busy. We believe we're making real impact and anticipate creating exceptional value. We not only see this environment as an opportunity for smart capital allocation in the financial realm, but also in the human capital area. We are seeing availability of superior talent in the marketplace today and we are pouncing on this opportunity as we are on the investment side. With that, I will hand the mic over to Tim, who will walk you through the operational and financial results for the quarter.
I will come back to make some additional comments on the operation operating environment after him. Tim?
Thank you, John. My comments today will focus on the Q3 2020 results, the performance of all property segments in the quarter, our capital activity and finally a balance sheet liquidity update. In the Q3, Welltower reported normalized FFO of $0.84 per diluted share, a $0.02 decline from the 2nd quarter, driven by $0.03 dilution from dispositions completed in Q2 and Q3, a $0.01 negative impact from changes in revenue recognition in our post acute senior housing triple net portfolios and a slight decline in sequential senior housing operating performance. Those items were offset by tighter cost controls at corporate and reduction in COVID related expenses in our senior housing operating portfolio. As a reminder, on the dilution type dispositions, we had $2,000,000,000 of cash and cash equivalents inclusive of 10.31 deposits as of ninethirty.
Now turning to our individual property segments. 1st, 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 sixthirtytwenty twenty and therefore only reflect a partial impact from COVID-nineteen. Across all triple net lease segments, Multi Tower collected 98% of contractual rent due in the 3rd quarter.
Now starting with our senior housing triple net portfolio. Same store NOIs declined 10 basis points year over year and higher bad debt accrual in a tough comp drove growth slightly negative. Combined FFO impact of revenue recognition changes on one restructured lease in the quarter was 0.0 $0.005 relative to 2Q and expected to grow to a full penny in 4Q, I. E. Another $0.005 impact sequentially from 3Q to 4Q.
Occupancy was down 3.90 basis points sequentially and EBITDAR coverage decreased 0.02 times on a sequential basis to 1.02. Consistent with my comments in the past, our senior housing triple net operators experienced the same headwinds as everyday operators over the past 7 months and we expect reported lease coverage starts staffed to continue to reflect these challenges as more of the pandemic periods reflected in EBITDAR going forward. In the quarter, we also transitioned 5 of a planned 9 properties from Capital Senior to StoryPoint Senior Living and expect the other four properties to transition by the end of the year. This is the first phase of the transition agreement we entered into with Capital Senior at the beginning of the year, which allowed for an early termination of CSU's leases on 24 Welltower owned assets in exchange for full year 2020 rent being paid in cooperation with transitioning the operations. Despite the challenging environment, our team and our operators have been able to organize and execute transition plans for the StoryPoint transitions as well as the remaining 15 properties CSU currently operates, which will be transitioned to 3 of our existing VA operators in the Q4.
As a result of the COVID backdrop, the initial expected dilution from these conversions is expected to be approximately $12,000,000 or $0.03 per share in 2021 relative to rent recognized in 2020. As a reminder, since our capital senior rent continues to be paid, the leases on these assets that have yet to be transitioned are reflected on our payment coverage stratification presentation on page 7 of our supplement and make up roughly 3 quarters of the triple net senior housing rent that is less than 0.85 times covered by EBITDAR. Although the last 7 months have been very challenging for the senior housing triple net operators, the sequential stabilization we observed in between the second and third quarter along with relief funds from HHS to be received in the 4th quarter should help our operators find their footing heading into 2021. Turning to long term post acute portfolio. We generated positive 2% year over year same store growth and EBITDAR coverage declined by 0.01 times sequentially.
As noted in our business update earlier this month and in last night's release, Genesis Healthcare, which makes up approximately half of our long term post acute segment exposure, includes language in the 2nd quarter financials filed on August 10th regarding its ability to continue as a going concern. As a result of this, Welltower began recording Genesis lease revenue on a cash basis in the 3rd quarter, retroactive July 1. This had negative $2,200,000 impact or approximately 0.0 $0.005 of FFO per share relative to Q2 2020. This also resulted in the write down of $97,000,000 of straight line rent receivables. Genesis continues to remain current on all financial obligations to Welltower through October.
And lastly within our triple net lease segment is Health Systems, which is comprised of our ProMedica Senior Care joint venture with ProMedica Health System. NOI growth was positive 2.3% year over year driven by a 2.75% increase here in August and trailing 12 month EBITDAR coverage was 2.61 times. Turning to medical office. Our outpatient medical portfolio delivered positive 1% same store growth. This below trend growth was driven mainly by increased bad debt reserve, majority of which related to lease enforcement moratoriums in several California jurisdictions in which we have a sizable footprint.
As these moratoriums expire, we spent rent collection to further improve. We continue to see signs across our outpatient portfolio that activities return to pre COVID levels, evidenced by the number of tenant work order requests received, our tenants owned volume data and parking income entered properties. In the quarter, parking income was still a slight headwind year over year, but its negative contribution to NOI growth decreased to 10 basis points this quarter versus 70 basis points in the second quarter. During the quarter, we collected approximately 97% of contractual rents and had an additional 2% of rents deferred, majority of which are located in the aforementioned jurisdictions with lease enforcement moratoriums. We also continue to have very strong rent collection in the deferral plans we put in place in April, May June.
Since we started collecting on these plans in June, we've experienced 99.5% collection rates through September. As a reminder, the large majority of our 2nd quarter deferral plans were structured to pay back entirely by year end. Now turning to our senior housing operating portfolio. Before reviewing this quarter's senior housing operating portfolio results, I want to briefly summarize the outlook we provided back in August. At that time, our expectation for the 3rd quarter that occupancy would be down between 125 basis points and 175 basis points from July 1 through September 30th and that RevPOR and total expenses would be flat sequentially.
We ended the quarter with occupancy down 150 basis points start to finish. RevPOR was down 40 basis points and expenses were down 3.4%. Turning to results in the quarter. Same store NOI decreased 27.3% as compared to the Q3 of 2019, driven largely by a 6 80 basis point year over year drop in average occupancy. As we indicated last quarter, two factors drove this outside decline in occupancy.
First, the portfolio began the 3rd quarter at significantly lower level occupancy, following the steep drop experienced in the 2nd quarter and continued to decline during the quarter, albeit at a significantly decelerated pace from 2Q. And secondly, we experienced a seasonal increase in occupancy in the Q3 of 20 9, creating a tougher sequential comp. RevPOR for the quarter was down 1% year over year, but I want to provide a bit more color here as mix shift is distorting the use of this metric as a proxy for rate growth. Over the last two quarters, our lower acuity properties, active adult independent living have held up considerably better on the occupancy front than our higher acuity buildings. This has driven up the percentage of our total portfolio occupied units that are lower acuity and therefore lower rent paying units.
This has had the mathematical effect of averaging down our total portfolio rent per occupied unit. If you break the portfolio in 2 buckets, active adult independent living in 1 and assisted living and memory care in the other, you will see the lower acuity bucket had a 20 basis point decrease in RevPOR year over year, while the higher acuity bucket had a positive 1.4% year over year change. While we are seeing evidence of select discounting on room rates in some of our markets, in general rates continue to be fairly resilient in the face of occupancy declines. And lastly, show operating expenses. Same store operating expenses declined 1.1% year over year and 3 point and declined 3.3% sequentially.
I'll focus on sequential growth since the changes are more relevant to trends in the current operating environment. We experienced better than expected sequential expense trends driven by 2 main items lower compensation growth as operators adjusted their staffing to lower occupancy levels and lower COVID expenses. The same store COVID expenses decreased from $33,000,000 to $15,000,000 sequentially, driven by lower emergency staffing costs and significant reductions in price per unit cost of PPE. We expect COVID related costs to continue to decrease in the Q4, but at a much lower pace than in 3Q. Looking forward to the Q4 and starting with October data we've already observed, we've experienced a 30 basis point decline in occupancy through the week of October 23rd.
And we expect to finish the 4th quarter approximately 75 to 125 basis points lower than where we ended the 3rd quarter. We also expect both Rev 4 and total expenses to be flat on a sequential This outlook does not include any impact from HHS funds that may be received in the Q4. Now into capital markets activity. In July, we completed the successful tender of $426,000,000 of our 3.75% and 3.95% senior notes due in 2023. Proceeds for the tender were generated from the June issuance of $600,000,000 in senior unsecured notes bearing interest rate of 2.75% with maturity date of January 2031.
We use the remaining proceeds to pay down $140,000,000 of our term loan due in 2020 2. These transactions both derisk near term maturities through 2023 and increased our unsecured bond borrowings weighted average maturity to 9.2 years. Additionally, in the quarter, we repaid $289,000,000 of secured debt, of which $120,000,000 $112,000,000 was defeased and subsequently extinguished in October. Moving to investment activity, which was mainly focused on our envelopment pipeline with $96,000,000 invested this quarter. On the disposition front, we completed $1,400,000,000 of pro rata dispositions at a fivethree cap rate.
Post quarter end, we closed in the previously announced sale of senior housing operating portfolio for $200,000,000 or $395,000 per unit. The sale price represents a cap rate of 2.6% based on 3rd quarter annualized NOI and a 4.9% cap rate on pre COVID or March trailing 12 month NOI. Inclusive of this disposition, we have completed $3,300,000,000 dispositions year to date at a 5.4% cap rate. We expect to close another $186,000,000 of transactions in the 4th quarter comprised of secondary tranches or rover asset sales tied to previously executed outpatient medical transactions. The near term FFO impact from the completion of these intra and post quarter dispositions will be approximately $0.03 per share sequentially in the 4th quarter.
It will bring cash and cash equivalents to $2,400,000,000 and total liquidity to $5,400,000,000 We believe that the continue to build execute dispositions and strong pricing supports our view that our private cost of equity capital is substantially better than our public cost at this time. Underlying cash flow continues to be impacted by a challenging backdrop. We ended the quarter at 6.02 times net debt to adjusted EBITDA, a 34 basis points decrease from last quarter as a result of liquidity generated from successful dispositions in the quarter, which have continued to bolster the balance sheet. Adjusting for EBITDA loss to sales in the quarter and the post quarter end sales just mentioned, run rate net debt to EBITDA is approximately 6.1 times with $2,400,000,000 of cash and cash equivalents. And with that, I will hand the call back over to Shankh.
Thanks, Jim. Let me provide you some color on underlying trends of what's happening in the Senior Housing business. Needless to say that we're very encouraged by the sequential stabilization of NOI in the quarter. I would like to draw your attention to Slide 16 of our deck, which describes a significant sequential improvement of move ins. Last quarter, I talked about the hesitation of customers to move in after they put a deposit on.
As communities resumed visitation, we have seen a significant improvement in this area, frankly, which was my biggest concern as described last quarter call. Let's take an example of 5 very large operators, which constitute of national operators, large regional operators in Northeast, West Coast and Sunbelt, a pretty diverse group. The average delay between deposit to move in during October of last year was 19 days. In March of this year, it was 17 days. That increased to a whopping 41 days in June.
We have seen a meaningful decrease every month in Q3 and finally it is down to about 18 days in October. We are hearing from our AL focused partners that in many cases this lag is now getting shorter than pre COVID days as families can no longer delay the care needs of their loved ones. No question we're very encouraged by that. However, we're unwilling to project this move in trend as we are in middle of a 3rd wave of COVID across the country. It will be a complete foolhardy for us to predict how things will play out in next few weeks months before the COVID curve flattens out again.
But the experience of this accelerated move in in the pace of move ins tells you that our customers need our product. They moved in as soon as they could. We have no ability to predict when we'll be on the other side of the COVID, but we're optimistic when that day finally comes, our need based product will likely to see meaningful traction in demand. What bridges us between now and then is our fortress balance sheet and what creates value between now and then is our ability to allocate capital to make outsized returns for our owners. In this age of torrents of information, it is sometimes hard to differentiate signals from noise.
It is important that we periodically take a step back and remind ourselves that stock is a fractional ownership in a business and not a ticker. As managers of the business, we can assure you that our team has never been more energized and excited about creating long term value for our shareholders. With that, we'll open the call up for questions.
Thank you, sir.
I guess, Sean, going back to Page 16, it's encouraging to see the move ins. Could you talk maybe a little bit more about leads and kind of where leads are? And I know you spoke a little bit about the time from a lead to a move in, but just what are you seeing specifically on that timetable as it relates to move ins?
So Steve, leads have not been a problem. Even when we were here 90 days ago, leads have come back not completely to pre COVID level, but definitely on a year over year basis, but sequentially it has. And it is even on a year over year basis is approaching pre COVID level, maybe 10%, 15% still lower. But we're definitely approaching the amount of leads and the quality leads more importantly in the system. The issue has been then you obviously had a very good follow through of how many people are doing either seeing the units whether virtually or physically and then getting to the deposit.
That's what I talked about the pressure on the sort of the front door if you will. That has not been the issue. The issue has been that the customer was hesitating after that, right? This is a purely an IL focus comment. We're still seeing hesitation in the IL focus communities where if you don't have a need, you're not you're taking time to make a decision, right?
I mean, with all the noise and then obviously hopeful good news around vaccines, people are just taking time. I can't tell you why that is the case. But on the IL side, people are taking the time. On the AL side, we have faced that pressure on the front door, but that was not translating into the move in. That sale was not translating into the move in, which we kind of described that.
And since we said that, we have seen some very significant improvement in that area. So that's what you're seeing in that rapid pace of acceleration in that move in and that continued even through last week.
Thank you. I show our next question comes from the line of Nick Joseph from Citi. Please go ahead. Okay. I show our next question comes from the line of Rich Anderson from SMBC.
Please go ahead.
Hey, thanks. Good morning, everybody.
Good morning, Rich.
So just want
to get in a little bit to the 4th quarter sequential occupancy numbers that you went through. Okay, so down 100 basis points versus the Q3, which is reasonable in perhaps a seasonal environment and you could comment on seasonality that would typically impact you. But I'm curious how would 100 basis points compare to your pre COVID history? Is this a fairly typical change in occupancy? Or is it still being impacted in your view by the unique environment we're in?
Yes. I'll start with that, Rich. It's higher than we usually see. You typically see kind of a 50 basis point decrease over that stretches from 4Q to 1Q. But over a typical seasonality of occupancy, you'll see 50 basis points lost over kind of the Q4 and Q1.
So this is higher than that. And I think speaking about the seasonality is important, because it adds some uncertainty to the number which is factored in now we're looking at the 4th quarter. We've talked about this a bit and it's at this point in some ways the best guess hypothesis and that we won't see as much of a seasonal change in demand just due to the disruption we've seen in demand during the year. And so seasonality there's two things that drives seasonality. There's a change in seasonal demand and there's also the impact of the flu.
I think data is very supportive of the flu at this point won't play a large role in the typical seasonality we see. And on the demand side, we don't necessarily think that the typical demand changes we see will play a role. But the 100 basis points is really just due to the COVID environment, what we've seen so far in the quarter. And certainly, when I say COVID environment, it's really the national picture, the acceleration in cases and this that adding a bit of uncertainty to what the outlook is for the next 2 or 3 months.
Thank you. Our next question comes from the line of Vikram Malhotra from Morgan Stanley. Please go ahead.
Thanks. Good morning. And Sean congrats on taking the leadership and congrats to the whole team. I know you guys put in a lot of hard work. Just building on or digging into 2016 a little bit, seen the acceleration like you pointed out and the lead conversion, the timelines narrowing.
I'm just wondering if you described sort of second or third wave or it's hard to categorize now. But can you sort of comment on this decline in timing and the leads in markets where you've really seen a true second and a true third wave versus markets where we're just seeing sort of a new wave? In other words, like is this more kind of uniform? Are you seeing real dispersion in markets?
That's a really good question, Micah. We're actually not seeing a lot of dispersion in markets per se. There's a huge dispersion from a product type perspective, right? So you are seeing whether in West Coast or East Coast or Texas or you pick your market, if you have a need driven product, the customer's willingness to make a decision is significantly higher. And frankly, we are hearing from some of our partners that that is even accelerated relative to women pre COVID levels.
But in case of where you have a lifestyle driven product where somebody wants to be in that environment, but doesn't have to be, U. S. Still things have visitation. So it's not a market driven. It is a definitely a product driven phenomenon.
Thank you. Our next question comes from the line of Nick Joseph from Citi. Please go ahead.
Hey, it's Michael Bilerman. Can you hear me now?
Yes.
Awesome. So Sean, congrats again on the
CEO role. How do you
see your leadership style and approach both similar but also different than Tom? And maybe secondarily, Tom obviously was highly visible within the industry and as well as globally going to Davos and other events. I guess how do you see yourself doing that? And is that going to be part of your approach as well as CEO of Welltower?
That's a really good question. So I will tell you, look, as you guys know that Tom has trained me for the job over many years and definitely been very influenced by how he saw the world. The first and foremost, he has taught us and that's sort of ingrained in my leadership style as well as a lot of other people in our leadership team is to think that what we can do more from this platform, not just think about disparate aggregation of assets, but thinking through platform, right? And the importance of being in the bleeding edge of healthcare and wellness trends and that will continue to happen. I'm very much focused on execution, very much focused on partial value creation and that's where the team is and capital allocation.
So it's everybody's leadership style is different and nuanced. I would obviously, it is less important on the difference between Tom's leadership style and my leadership style. I will tell you that it is as collectively as a leadership team, we see our biggest focus today is to increase the value per share, execute and obviously there's a tremendous amount of potential for us to get back to our lost earnings, not just to the pre COVID level. As you imagine, we have talked about even pre COVID, our portfolio was under leased and get back to that and create that value through execution and capital allocation, then that's what we are focused on today.
Thank you. Our next question comes from the line of Daniel Bernstein from Capital One. Please go ahead.
Good morning, everyone. I just wanted to ask a little bit more about the other side of the equation on move outs and just understand maybe why residents are moving out, if you have that information at this point? Is it pent up move outs, AL to SNFs that you've seen higher acuity, families taking residents out before the winter, any change in length of stay, just trying to understand that other side of the equation for move ins.
Dan, you asked a very interesting question. If you think about move outs, move outs have come down pretty much across the board for over the last 7, 8 months through COVID. Last couple of weeks, I would say that we have seen some increased move outs. It's hard to say why that is the case, because it's too short of a timeframe to make this as a trend. But it is also the most difficult part of our business to predict, right?
It is all of the above of what you mentioned as reason for move out. We don't see financial reasons for move outs in our industry. But we have seen some elevated move outs for the last couple of weeks. We also saw some reduced move outs few weeks before that, right? This is a very, very hard business to predict on a weekly basis, monthly basis.
So I think it is hard for us to sort of get into that and see what's the trend and what's not. You could have taken last 4 weeks and say the first two weeks is that you had wanted to have an optimistic trend and you could have said that I will take that move out trends and move in trends and project or you could have taken the last 2 weeks of elevated move out trends and project forward. And there's no right and wrong answer. We have just done the latter part. Now the first part, we could be wrong and things can turn out to be better than we thought.
But as we sit here today with the uncertainty that we see, the overall the national COVID environment, I think it's prudent for us to at this point not to try to get too excited about what might or might not happen.
Thank you. Our next question comes from the line of Juan Sanabrea from BMO Capital Markets. Please go ahead. Hi, good morning.
Thanks for the time. Shok, I just wanted to follow-up with one of your points at the end there when you talked about conversions of people putting down money to actually coming in to the communities and that kind of compressing back to kind of pre COVID levels. Does that mean potentially that once COVID passes that you don't have kind of deferred demand, I guess, particularly on the AL side that would be coming in the door post COVID, whenever that may be 1st or second quarter that's kind of deferred the decision and now is ready to come in if those leads and deposits are converting today?
No, Juan, it simply means that the customers need our product, right? So what has been going on is with all the national headlines and all the COVID in the overall situations, people are hesitating. Now we obviously have a need that's sort of adding up. And now the customers are saying where they can move in. Again, we're not projecting that into the future, right?
That's a very important point. If we did, then we would not give you the guidance for Q4 that we did. But very much with thinking that very simply the customers move in when they could. Now if COVID spikes up again and they can't because you have visitation bans or you have shutdown of facilities and all of those things that you will see that, but most importantly when they moved in when they can. I was simply answering the question on the need driven nature of our product and the secular demand of the product.
COVID will eventually be behind us and the demand of the product hasn't changed through this period of time.
Our next question comes from the line of Connor Zversky from Berenberg. Please go ahead.
Just a quick one on testing capacity. Among your peers at the last round of earnings, it still seemed like point of care tests were in short supply. So I'm just wondering how this dynamic has improved at all. And then given some news on the vaccination front, what are the goals in terms of testing for taking a 6 or 12 month view?
We have Connor, we have made a very significant improvement even in last 90 days on point of care testing. We tested over 200,000 employees and residents and that continues to progress. We got some very significant improvement, I would say, in 45 days on in that particular area, a point of in the testing side. But it's very it's too premature to say how that will impact the consumer behavior and our ability to move in people. We think it will improve, but again given the overall uncertain environment, it is too early for us to comment.
Thank you. Our next question comes from the line of Derek Johnston from Deutsche Bank. Please go ahead.
Hi, everyone, and congrats, Shankh. I was hoping to get a sense of the legacy RIDEA contracts that were embedded in the show dispositions during 3Q. And if the majority were actually legacy structures, I believe heading into 2020, you had 80% of operators converted to what is seemingly a more favorable RIDEA 3.0 contract. And I guess the second part of the question is where would that percentage stand today? Thank you.
Thank you, Derek. I don't have the number percentage for you, but I can tell you that both of what was the 2 portfolios were sold, they were not in right year 3 year contract. So your fundamental assumption would be correct.
Thank you. Our next question comes from the line of Lukas Hartwich from Green Street. Please go ahead.
Thanks. Good morning.
Good morning, Drew. Just a
little bit color on
EPCOR earlier. That was really helpful. I was hoping you could dive a bit below the surface and describe what you're seeing with face rents versus concessions things like that?
Lucas, can you repeat the question please one more time?
Sure.
So I was curious on the RevPOR
front, if you could dive a little bit deeper on what you're seeing with face rents versus concessions, what's kind of driving the headline Rev 4 number? I thought the color around the mix shift was helpful. I'm just curious what's going on with face turns and concessions?
So I think from the numbers we're seeing and what we're seeing in the market is we're not seeing a lot of evidence of concessions. I think as Sean spoke to, you're probably seeing more in the lower acuity side as far as just of what we're seeing in the market as far as it's because of the lack to the difference in the kind of needs based aspect of it that there is it's a little bit more of a consumer discretionary good and therefore you're seeing a bit more of that I'd say in the front end. Whereas on the assisted living side, you're seeing very little of it. We've talked about this a bit. Community fees which typically align with when you move in and are both kind of cover cost of move in as well as having testing etcetera to get your acuity level of care set up.
You're seeing some discounting of those. And so we've said the combination of community fees coming through RevPAR is that you have less people moving in on a year over year basis. So you're seeing kind of community fees in total come down and also you're seeing some discounting. But in assisted living, importantly, you're not seeing discounting in care. And more of the residents we're seeing coming in, they're coming in because of the care.
And so there isn't a lot of price competition there. Reputation is a huge factor. You saw some competition in general in the market to the supply cycle over the last couple of years impact pricing. I'd say in the COVID environment, you're actually seeing a bit of that dissipate because more of the consumer residents are being attracted towards the better brand names and the more well known names in the market. So assisted living pricing is holding up, I'd say, pretty well, as I said in the opening remarks, given the steepness of the occupancy declines.
Thank you. Our next question comes from the line of Michael Carroll from RBC Capital Markets. Please go ahead.
Yes. Thanks. Shankh, I was hoping you can provide some color on the investment pipeline and the types of deals that you've been able to source. I guess private market valuations appear to have held up well, especially given Welltower's recent sales, I guess, this past several months. I mean, what is or is there a difference between the assets that you sold versus the deals that are in your pipeline, which you're being able to source at much below replacement costs?
Thank you, Mike. There is. So if you think about in today's marketplace very if you take a very simple view of what gets you financing is you got to check 3 boxes pretty assets, pretty market, most importantly, very well known, well reputed operators, right? If you can't check all those three boxes, it will be very hard, if not impossible, for you to line up financing. And that gets you to everything else outside that.
We talked about this on the last call. We are bringing our operators into assets. So these assets will become financeable, but today it's not. Many of these assets were built in last 2, 3 years, so they don't have a stabilized 2019 NOI that a lender can underwrite, right? So a lot of things we're buying brand new assets that have been built last 2 to 3 years does not fit that criteria.
So those are the ones that we are going. Interestingly, if you see that in real estate over a period of time for apples to apples newer asset trades for a higher price than lower price just purely the difference of CapEx that's relative to vintage, right? Given what is happening today in the marketplace, you are seeing exactly opposite of that. Newer assets are trading at a discount purely because they can't get financing because they don't have a stabilized NOI for a lender to underwrite. And that's why we are coming in to buy things for cash.
So we don't obviously put financing in, we buy assets for cash and that's bringing in our operators or these assets are all obviously owned by other capital partners of our existing operators and are buying this asset. So there is a difference. So if you think about what we sold, that checks all the 3 boxes, pretty asset, pretty market and very experienced and well known well reputed operator. You don't you miss one of those checks, it comes back to pretty much very, very few buyers in the marketplace and we'll tell you it's the most dominant one.
Thank you. Our next question comes from the line of Steven Valiquette from Barclays. Please go ahead.
Great. Thanks. Good morning, everyone. Shankh, let me offer my congrats on your promotion as well. And your actually the comments you had on the call regarding the portfolio buying and selling was definitely helpful.
One of the lines in our model that's really sticks out is the gain on sale of properties with some $3,000,000,000 recognized over the last 5 years or so. So it's definitely not lost upon us. The question I really have though is just related to your comments on the lower expenses in the SHOP portfolio, particularly on the lower PPE where you said the price per unit costs are now way down. Just curious how much you think that trend is more of a industry phenomenon versus how much Welltower maybe driving a better than average trend on that either due to some of the initiatives like the Dallas procurement center and other stuff that's more company specific? Thanks.
Yes. It's a good question Steve. I'd say on the we actually have wound down a lot of the activity we had in the Dallas Procurement Center. That was very important to operations when to our operators' operations early on in the March April period when the only way to access PPE or one of the only ways to kind of guarantee access to it was through scale. And I think as we've seen distribution channels normalize and they're still not back to where they would be pre COVID.
But as we've seen them normalize, our operators have been able to access PPE themselves. And in instances where they haven't, we've stepped in to help. But for the most part, that's going direct from operators to providers of PPE. So I think in saying that the pricing is more of just seeing a bit of a normalization from you look at mass prices where some mask uppers of $8 and things are retailing $0.80 to $1.10 in a normal environment. And they're still elevated even today.
But if they're in the $3 to $4 range, they've come down significantly from what we were paying on average in the second quarter.
I'll just add some commentary to the first part of your question, which is, I want you to understand that we're not trying to buy and sell assets like trade assets. That's not our goal. Well, obviously, when we see how to finance a transaction, we're very we're trying to always think about what our sources of capital will be, right? Sometimes that could be stock at some point in the cycle. Some point that could be the equity that's trapped into the asset that you think you have maximized under your sort of umbrella, right?
So we have alluded to this before that the huge amount of portfolio transformation, which I believe sort of amounts to close to $30,000,000,000 of assets disposition and acquisition over the last 5 years is roughly complete. However, we have seen that a propensity of companies to continue to grow and that is not inside Welltower, right? We're always trying to think how we maximize value per share for the continuing shareholder, right? You can say the one good thing will be when your stock is at the right place, just continue to sell your stock instead of selling your assets. And that would be a correct approach if you just look at capital allocation from the lens of spot NAV.
I told you that's not how we see the world, right? We see the world from the perspective of long term IRR of what you're selling versus what you're buying and look at a comprehensive way of what your tools, the sort of sources and uses of capitals are. So we'll continue to do that, but that overall transformation of the portfolio that we wanted to do that some started, I would say we're roughly close to being done, but that doesn't mean that we'll not sell assets. We'll continue to sell assets if we think that is the best source of capital to fund what we are buying.
Thank you. Our next question comes from the line of Omotayo Okunsoya from Mizuho. Please go ahead.
Yes. Good morning, everyone. First question, just around government aid to senior housing. Again, we've kind of had this first round and
you guys are getting some proceeds in 4Q. But I
think clearly everyone thinks that's not enough. I mean, what's the viewpoint that you have internally of just what the government still has to do or what you would like to see the government do in regards to help for the industry to kind of stabilize things?
Yes, Tyler, I'll start with that. We don't have an internal view of what we'd like to see the government do. I think it's been very beneficial to our operators to have seen them step in with the first tranche that they provided through HHS. And there's a second tranche that's currently being contemplated and I think open for application. It's more performance based.
The first one was just more based on 2019 revenue. And but as far as kind of further funds from HHS, management doesn't have an internal view. Part of the reason why we've acted the way we have as far as building our balance sheet and continuing to strengthen our capital position is that we're not reliant on the duration of the pandemic or the government taking a view on funds to the industry.
Thank you. Our next question comes from the line of Nick Yulico from Scotiabank. Please go ahead.
Good morning, everyone. Just a question on the move ins. I know you guys pointed to Slide 16, which is showing the move ins coming back versus February being indexed to February. And I guess I'm wondering though why is February the appropriate month to be comparing to? I mean isn't February, the dead of winter kind of a slower move in time?
Isn't the more relevant metric that your move ins are down 39% from a year ago?
We do think that's a relevant metric. That's what we put out in our slide deck. However, as far as we understand, if you think about the business, the February marks the last month of pre COVID, right? So we're trying to understand the business trends, how that has changed through COVID. So putting out last year over year is not a function of just what's happening today.
It's also a function of what happened last year. All of us on this call know what happened last year at this point is fairly irrelevant given how COVID has changed our business, right? But we do think that the point that you are making, which is the year over year decline, is an important one and that's why we put it in bold face on our slide deck.
Thank you. Show our last question comes from the line of Mike Mueller from JPMorgan. Please go ahead.
Yes. Hi. Just two quick ones here. Number 1, should we think of all near term acquisitions as pretty much entirely being focused on senior housing? And then second, can you update us on progress at the 56th Street project that opened recently?
So let me answer both of those two questions. Our near term acquisition pipeline is primarily focused on senior housing. We have a couple of smaller MOB deals in the pipeline. However, it's primarily focused on senior housing because that's where we see the significant disruption on the pricing side. MOBs are not priced for distress and we see the for the marginal use of the capital, we see significantly higher bigger opportunity on the senior housing side.
And the East 56th Street, we're still waiting for our license. New York State seems to be opening up again for licensure. So when we get the licensure, then we'll open the buildings for residents.
Thank you. I show we have a follow-up from Jordan Sadler from KeyBanc. Please go ahead.
Thank you. Good morning and congratulations, Shankh. So I wanted to ask you and I might have missed this because I can drop for a second off the call. But I had a question about sort of the market in general, right? I mean, I appreciated your commentary and I know this has been your cadence about sort of buying low, selling high essentially, very focused on capital allocation.
What do you how would you characterize the market for seniors housing right now? In other words, supply of assets versus demand. I mean, are we in equilibrium? Are people better to buy or better to sell? Is it tough to source stuff, easy to source stuff?
How would you sort of characterize it?
That's a great question, Jordan. And it's a tale of 2 cities. If you have, as I described previously, pretty assets, pretty markets and most importantly experienced operator and a stabilized 2019 NOI base that a lender can underwrite, you cannot it is a feeding frenzy. You cannot have enough assets for capital to buy because everybody private capital is not focused on what's going to be the occupancy from Q4, right? They're focused on what's coming for next 3 year, 5 year, 10 year, 15 year and the opportunity to make a generational return given where we are from an industry perspective, the demand side of the equation.
So that sort of you have one side. On the other side, the finance that misses 1 of those 1 or more of those checks that I talked about, then you cannot finance those transactions today. And because of that, usually transactions like that has been financed in the bank side of the house rather than life companies or agencies on civilized assets and banks are obviously not lending in the space today anywhere close to where they were. No, I don't want I almost would venture a guess to say they're not lending at all other than like couple of select circumstances. So you have a tail of city, 2 cities on those kind of assets which are not financeable because of that you didn't check all the three boxes that I talked about, there's almost no bid for the assets, because you have to buy those assets for cash.
And there, we are very significant buyers. You know, we buy assets we buy everything for cash, right? And so we're finding tremendous opportunity on the assets. And frankly, as I described previously, we're finding many of these assets you can buy, brand new assets at a significantly lower price than the older assets, purely because of all the margin building activity that has happened in our industry from, call it, 2016, 2017 to 2018, 2019. And those assets are, in many cases, are not financeable and we are finding tremendous risk adjusted return, bringing our operators and our data capabilities and filling those assets out that you will see in next few years.
Thank you. I show our last question and follow-up comes from Omotayo Okusanya from Mizuho. Please go ahead.
Yes. Just another quick one. Is there any pressure to kind of ramp up acquisition activity in
a world where you have a
Biden win and he kind of eliminates the 1031 exchanges? Like how does that kind of change how you think about deals going forward?
There is only one pressure of buying things in our shop and that's price. We're not trying to find assets exactly at the bottom regardless of outcome of election. It is possible that you will see asset prices are lower in 3 months than it is today. But again, if you think about the scale and scope of our balance sheet of how much value we want to create for our shareholders, if the asset prices go down, we'll buy more. So there is no pressure other than price.
And we can tell you at Welltower, we're salivating on the prices that we see today in the marketplace.
Thank you. Hi, I do show we have a question. Thank you. I show no further questions in the queue. I'd like to turn the call over to management.
Thank you very much. We'll see you in another 90 days. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.