Ladies and gentlemen, thank you for standing by, and welcome to the Welltower Fourth Quarter 2019 Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone keypad. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero to reach an operator. I'd now like to hand the conference over to your speaker today, Mr. Matt McQueen, Senior Vice President, General Counsel. Please go ahead, sir.
Thank you, Liz, 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 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 Tom for his remarks. Tom?
Thanks, Matt. Good morning. I'm pleased to announce our Q4 and annual results to you today as they reflect the strategic path to growth that we outlined in our Investor Day in December 2018. Simply put, in 2019, we did what we told you we would do. As the clear market leader and dominant provider of real estate capital to the health and wellness care delivery sector, Welltower has redefined this asset class in terms of quality, operating models, technologically advanced building design, data insight, deal structure, and transparency. This has placed us on a sustainable growth path that has generated $4.16 in FFO per share in 2019, a 3.2% increase over 2018, and fueled the optimistic outlook for 2020 we report to you today.
The $5 billion we deployed into new investments between January 1st, 2019, and today was not generated by playing the old game of overpaying for real estate through auctions or being the passive takeout for old school senior housing operators more focused on their personal development profits than running an operating business. For Welltower, that game's over. We are the partner of choice for a next generation of residential senior care operators who enter into aligned structures that reward strong performance, yet don't leave REIT shareholders holding the bag when things don't go according to plan. In business, as in life, things don't always go according to plan. We have also become the partner of choice for health systems. I'm sure you saw Jefferson Health's recent announcement of a broad partnership with Welltower.
Jefferson, one of the nation's largest urban academic health systems, has elected to work with Welltower to advance its strategy of healthcare with no address. This partnership will help recapitalize Jefferson's existing ambulatory assets, build and capitalize their next generation of ambulatory assets, connect Jefferson Health's delivery capabilities into our existing Greater Philadelphia senior population of over 20,000 lives, and together conceive new models of housing and wellness care that can drive better outcomes for an aging and at-risk urban population. We are honored to be working with Dr. Steve Klasko, his team, and the board of Jefferson. They are truly redefining the future of healthcare delivery. Our platform approach is demonstrating that there is value that can be captured in our real estate beyond collecting rent checks.
Our CareMore Anthem collaboration is a great example of this and illustrates that third parties can bring clinical care models into assisted living communities and, with modern Medicare Advantage products, reduce out-of-pocket costs for our residents, enhance resident experience, improve outcomes, and increase occupancy and length of stay. What was a California pilot last year is now being rolled out into other markets. Stay tuned for other innovative models like this one. For an example of how Welltower is driving the next generation of residential care design, I'd point you to our building on East 56th Street and Lexington Avenue opening in late spring. When this building opens, it will be the most technologically advanced residential care facility in the world for seniors suffering with conditions of frailty to memory care.
Not only is this purpose-built building designed to meet the needs of this population, but it will incorporate state-of-the-art Philips technology that will enable more effective and efficient care as well as enhance the experience for our residents and their families. Welltower conceived this project and has driven the development process from day one. This will be followed by our next Manhattan project on Broadway at 85th Street, new urban models we will deliver in Hudson Yards and San Francisco as part of our Related Atria joint venture, and in Boston with Balfour.
These are just a few examples of how we have positioned Welltower to redefine and reimagine the built environment that can deliver better health outcomes and lower costs, particularly in view of the aging of the population. We have largely moved beyond the issues that would have slowed our growth, and that enables the optimism you hear from me this morning. It is our job to deliver a path of sustainable growth, and our 2020 outlook of $4.20-$4.30 in FFO per share illustrates that. I will remind you this does not include any new net acquisitions or investments that have not been announced. Now, Shankh Mitra will give you a closer look at our Q4 operating performance, as well as discuss new investments. Shankh?
Thank you, Tom, and good morning, everyone. I will now review our quarterly and annual operating results, provide additional details on performance, trends, and recent investment activity and new operator relationships. A year ago, when we set our guidance for 2019, we told you that we felt cautiously optimistic about our senior housing operating portfolio, or SHOP, and set the same store guidance at 0.5%-2%. We are delighted to inform you that we have achieved 2.7% growth for the year, primarily driven by stronger pricing power and better than expected labor cost inflation. We want to remind you that our SHOP portfolio consists of 600 communities spread across 25 portfolios of different operating partners focused on different price points, acuity level, geographies, and operating models. We quantitatively manage our SHOP portfolio to drive low cross-correlation, which creates real diversification benefits.
We have added a new disclosure on slide 39 of our corporate presentation that gives you a snapshot of our ability to do this. If you compared to randomly chosen operator from that disclosure and compared the long-term NOI growth rate per occupied room, you will get a median correlation of 0.23. This remarkably low statistical correlation in a business where casual observers believe all operators in the same generic business called senior housing is debunked. We provide further context using 2019 performance. We had three operating partners that experienced mid-single digit to double-digit NOI decline, and we had four operating partners that experienced double-digit NOI growth. With all other operators were in between. This demonstrates our unique business model and portfolio that is able to absorb downside volatility of certain operating partners with the contribution of others.
Other specific highlights of 2019 include significant outperformance of assisted living over independent living and outperformance of large core U.S. markets above smaller markets. We have built a highly differentiated and uncorrelated portfolio of assets by using a barbell approach of portfolio construction, focusing on high-end senior housing and more affordable communities with limited services while exiting the product in the middle. 2019 saw addition of several new operators to the Welltower family, Atria, Balfour, Clover, Frontier and LCB. We are delighted to mention you that we're off to a great start in 2020 and have already welcomed three new operators to our family who we have been working with to come to terms for the last six months. Let me give you some details here.
We're delighted to partner with Michael Glynn, Andrew Teeters, Ross Dingman, along with Mark Stebbins to offer a lower acuity, differentiated, lifestyle-based, highly amenitized and stunning housing solution to seniors under the Monarch brand. We also partnered with Arun Paul of Priya Living to offer a highly differentiated and relatively affordable product targeting a tremendously underserved market in large core U.S. MSAs. In both cases, our exclusive relationship spans multiple years and will provide a multi-billion dollar investment opportunity in the next decade. Reflecting on the fourth quarter specifically, I will mention that we are positively surprised by a few trends. With respect to the seasonality within senior housing business, occupancy typically peaks in late fall and trends down through the winter months. We did not see that seasonal drop-off this year, and occupancy has been pretty much flat sequentially through the year and into this year.
Second, I'm cautiously optimistic about what we have seen on the labor inflation side. While couple of quarters does not make a trend, sequentially, compensation per occupied room was flat in Q4, and it's the best we have seen in last five years. This, taken together with consistent pricing power, gives us the confidence to provide a guidance of 1%-2.5% in SHOP relative to 0.5%-2% this time last year. We have a long year ahead. We need to execute diligently. We remain relatively optimistic today as compared to this time last year. We believe demand is increasing in assisted living business and impact of deliveries is improving on the margin.
A couple of other notable items from Q4 would be, significant increase in insurance costs that I discussed during Q2 call, as well as $2.4 million increase in incentive management fee in Q4 due to significant outperformance, one of our operating partners in a RIDEA 3.0 Construct that was previously not contemplated. In terms of our 2020 guidance, we assume a $4 million increase relative to the incentive management fees. I would like to now shift to our health system portfolio. On our last quarter call, we told you that we're expecting $300 million of EBITDAR in our HCR ManorCare ProMedica portfolio for 2019. I'm delighted to inform you that HCR has achieved $307 million of EBITDAR in 2019. This resulted in a full year 2019 EBITDAR coverage of 2.13 x.
More importantly, for the first time in seven years, all three business lines of HCR ManorCare had year-over-year increase in EBITDAR in Q4. While the Q- mix shift in skilled nursing continues to be a headwind for the business, we're seeing length of stay flattening, occupancy starting to build, cost remains under check, synergies are getting realized, and Arden Courts and home health and hospice business is firing with all cylinders. In addition, HCR is in active negotiation with several health systems to help meet their post-acute needs. I'm optimistic I'll be able to share with you some of the success stories in 2020. ProMedica, which is an absolute pioneer in the social determinant of health side, will drive significant value from the HCR platform for years to come.
On the MOB side, we have significantly upgraded both our operating platform and asset portfolio in the last few quarters, as we have acquired or announced roughly $4 billion of high-quality MOBs under Keith and Ron's leadership. We now own the largest commercial platform of medical office real estate in the U.S. We have used an air pocket in the capital markets to scale up this business in the last few quarters. It appears that some of the pricing frenzy of 2017 is resurfacing. If our reading of tea leaves is correct, we will be largely absent from the acquisition of MOBs this year, and instead focus on privately negotiated deals with the owners such as our health system partners. Overall, on the transaction side, we had the most active year in the company's history with $4.8 billion of high-quality investments and $2.9 billion of dispositions.
We have discussed this transaction with you in detail, and they are listed on our earnings release. I would like to note a few general observations that drive our capital allocation strategy and market trends. One, we invest capital to make money on per share basis for existing shareholders as opposed to solving for any exposure or chasing the latest and greatest asset class. To the contrary, we buy assets when they're out of favor at the right price in the right structure. Our investment in HCR skilled assets at $57,000 a bed just 18 months ago, and the disposition this quarter of three older non-core assets at $156,000 a bed reflect our philosophy and our laser-focused execution. The same goes for our absence in MOB's market in 2017 and a rapid growth in 2018 and 2019.
Two, we invest capital when we can match the timing, cost, and duration of capital. We do not speculate what our cost of capital will be in future years and fund transaction on a granular and current basis. Three, we think in real estate, basis and unlevered IRR matter significantly more than cap rate. Four, we invest granularly with our operating partners. In this model, it is critical to work with well-aligned partners focused on methodical and smart growth. We have grown with all five 2019 class of operators since our first deal earlier in the year. For example, I hope you noticed our press release on our development Hudson Yards with our partner Related and Atria. This is the second major development we announced in last six months after 1001 Van Ness project in San Francisco.
Five, we engage in marketed transactions only when we believe that we have a significant edge due to our data analytics platform or our relationship with health systems or payers. Six, we see an incredible demand of U.S. senior housing product amongst the most highly sophisticated institutional investors today. We cannot be happier with our benchmark transaction 2019. We started this year with another significant senior housing transaction that we reported last night with our earnings release at a very accretive price to our investors. Our guidance of $1.7 billion of 2020 disposition includes this transaction. We have a $1.1 billion of announced acquisition building to our guidance that Tim McHugh will discuss in detail, needless to say, that we feel very optimistic that we'll have a very strong year of net investment. With that, I'll pass it over to Tim McHugh, our CFO. Tim?
My comments today will focus on our fourth quarter and full year 2019 results, our balance sheet, and our initial guidance for full year 2020. Welltower returned to growth in 2019, reporting normalized FFO of $1.05 per share for the quarter, and $4.16 per share for full year 2019, representing positive 4% and positive 3.2% year-over-year growth respectively. Results for the year can be categorized by three main themes, the consistency of our internal growth engine, the volume of accretive capital deployment activity, as we invested $4.8 billion across high-quality senior housing and outpatient medical opportunities, and the discipline of our capital recycling efforts as we had $2.7 billion of property dispositions, including $560 million of high yielding LTAC and post-acute assets, and had $192 million of loan payoffs, reducing our loan investment portfolio to its smallest size since 2015.
The result of all this was a year in which Welltower returned to earnings growth, while also significantly improving the quality of our asset base. Let me provide some details around our portfolio's performance. First, our seniors housing triple net portfolio posts another consistent quarter with positive 2.9% year-over-year same-store growth. Sequential occupancy was flat in the quarter and EBITDAR coverage declined by 0.01 x. Next, our long-term post-acute portfolio generated positive 4.3% year-over-year same-store growth, driven in part by an easier 4Q 2018 comp, which included partial rent recognition from a tenant that is now current on rent. We also benefit from fair market value step-ups in a well-covered Consulate Health Care lease acquired in the acquisition of QCP. EBITDAR coverage declined by 0.03 x, driven in part by the addition of four development assets to the trailing 12-month pool.
As a reminder, we report our coverage a quarter in arrears, so this September 30th trailing 12-month coverage does not reflect any impact from the new PDPM Medicare reimbursement system, which was implemented at the start of October. Turning to medical office. Our outpatient medical portfolio had another solid quarter, delivering 2.3% same-store growth, bringing the full year average to positive 2.1%. We continue to make meaningful progress in our same-store occupancy as well, ending the year at 94%, 60 basis points ahead of fourth quarter of 2018. Next, to health systems, which comprises of our HCR ManorCare joint venture with ProMedica. This portfolio entered the same-store pool for the first time this quarter with 1.375% year-over-year growth and EBITDAR and EBITDARM coverages of 2.06x and 2.77 x respectively.
Lastly, our Senior Housing Operating Portfolio continued to perform above our expectations, with total same-store growth of positive 1.5% in the quarter, bringing full-year average total Senior Housing Operating growth to 2.7%. As with prior practice, I will now provide details on pool changes in our Senior Housing Operating Portfolio. In the fourth quarter, we had nine asset sequential change in our Senior Housing Operating same-store pool. There was an 11-asset West Coast portfolio removed and moved to held for sale, offset by two assets entering the pool. At year-end 2019, we had a total of 77 Senior Housing Operating assets classified as transition properties, a net increase of two properties since the end of 3Q, driven by three assets that transitioned from triple net to RIDEA and one former Brookdale asset that transitioned to a triple net lease.
Of the remaining 74 former Brookdale and Silverado transition assets, 71 have been successfully transitioned and will all re-enter the same store pool by or during the fourth quarter of 2020. Our guidance assumes a slightly positive impact on results from transition properties in 2020, we will provide more color on this as we progress through the year. Turning to capital market activity in the quarter. We continued to take advantage of a very strong bond market, issuing debt across two geographies in December. We issued our inaugural green bond, raising $500 million of seven-year debt at 2.7%. Welltower's ESG team, led by Kirby Brenzel, put a lot of time and effort in preparing for the reporting requirements that come with green bond financing, and it paid off with the tremendous support we received from ESG investors.
Welltower is committed to staying at the forefront of ESG initiatives, and we look forward to growing this part of our capital stack going forward. We returned to the Canadian debt market for the first time since our inaugural offering in 2015, refinancing our 2021 Canadian dollar maturity through the issuance of CAD 300 million of seven-year debt at 2.95%. In terming out our last remaining unsecured 2021 maturity, we removed all major unsecured maturities through 2022, meaningfully de-risking our balance sheet for the next three years and increasing the weighted average maturity of our unsecured debt stack to 8.8 years. We continued to access equity markets during the quarter via our DRIP and ATM programs. In the quarter, we issued approximately 4.3 million shares at a weighted average price of $85.19 per share for estimated proceeds of $364 million.
As of today's call, through our forward ATM program, we have sold 6.8 million shares of common stock that have yet to settle, representing $583 million of estimated proceeds. Turning to leverage. We ended the quarter at 6.37 x net debt to adjusted EBITDA, temporarily above our long-term target range. This is due to the timing of capital recycling, and more specifically, to the fact that $1 billion of our previously announced acquisitions closed in mid-December.
When adjusted for a full quarter of acquisition cash flow and for the updated investment and disposition guidance, along with raised but not settled forward equity, leverage is expected to return to the mid to high fives by the middle of this year. Lastly, before walking through our 2020 initial outlook, I want to address three items pertaining to our total portfolio same-store policy, an outline of which can be found on the investor section of our website. First, we use duration-based qualifiers as frequently as possible in our policies in order to eliminate as much subjectivity from our disclosure decisions as possible. For developments, properties enter the same-store pool following five full quarters of being in service.
Development plays an important role in our senior housing investment strategy, and although our development pipeline represents a small fraction of our total senior housing portfolio, we've determined it's useful to provide more insight into its contribution to our same-store growth by providing a stabilized senior housing operating growth metric as a complement to our total portfolio senior housing growth metric. Stabilized is defined as nine quarters after being placed into service. Given the broad range of product we develop, from senior apartments to assisted living, we believe that using a duration-based metric that is representative of the entire pool's stabilization pattern is more straightforward for investors than attempting to create rules for each bucket. Second, on normalizers. We normalize our same-store results for changes in currency and ownership, as well as for unusual and non-recurring items such as property tax refunds and insurance reimbursements.
We believe this to be beneficial to investors in understanding our run-rate business. We've disclosed all normalization amounts in the back of our supplement since 2016. Per our supplement disclosure, 2019 average full-year SHOP NOI growth would've been 50 basis points higher without normalizing out unusual and non-recurring items that benefited us in 2019. Lastly, in 2020, we will continue our efforts to further align the reporting of our same store in our quarterly filings with our same store in our supplemental presentation with an intent to reach full alignment. On to our 2020 outlook. As indicated in our press release, we are initiating full-year 2020 FFO guidance to a range of $4.20-$4.30, with total portfolio same-store growth of NOI growth of 1.5%-2.5%.
At the segment level, this NOI is comprised of outpatient medical growth of positive 2.25%-2.75%, long-term post-acute growth of positive 2%-2.5%, health systems growth of positive 1.95%, senior housing triple net growth of positive 2.25%-2.75%, and total portfolio senior housing operating growth of 1%-2.5%. At the midpoint of total portfolio senior housing operating growth, stabilized same-store NOI growth is estimated at positive 1.25%. On to guided investment activity. Our initial FFO guidance assumes we are net sellers for the full year, with initial disposition guidance for the year of $1.7 billion at Welltower shares, with an average yield of 5.1%. This includes a little over $1 billion of previously announced dispositions, including $740 million from our Invesco MOB joint venture and $675 million of under contract dispositions announced last night in our earnings release.
On acquisitions, as always, our initial guidance only includes acquisitions closed or announced, which total $1.1 billion as of today's call, made up of $320 million that has already closed and approximately $820 million of remaining MOB transactions that will close in the first half. On developments, we are approaching an inflection point with our development pipeline as it pertains to spend relative to deliveries. We had a relatively light year on the delivery front for the first three quarters of the year before delivering $210 million of our $302 million of full-year deliveries in the fourth quarter. In 2020, we will deliver another $714 million of deliveries against $468 million of spend.
As this development portfolio starts to run out a little bit, we'll feel a bit of near-term dilution, specifically from the SHOP part of our development pipeline, as you will have $400 million of deliveries from the fourth quarter of 2019 through year-end 2020, creating $0.02 per share of drag on FFO for 2020 before stabilizing over the next two years at positive 6%-8% of FFO contribution per share. Development pipeline upside beyond 2020, along with upside from transitions and the continued recovery in senior housing, are what makes us optimistic well beyond 2020, as our portfolio is positioned exceptionally well to benefit from the demographic trends across all of our geographies. With that, I'll turn the call back over to Tom.
Thanks, Tim. You've heard us repeat the word optimism throughout our prepared remarks this morning. This is sincere. The green shoots from our core portfolio we saw in late 2018 that grew in 2019 are fueling this optimism. Our singular strategy to align with major health systems has been validated, and we are mining many interesting investment opportunities that will enable accretive growth and drive shareholder value. We look forward to talking more about this with you throughout the year. Liz, please open up the line for questions.
Ladies and gentlemen, as a reminder, if you'd like to ask a question at this time, please press star then one on your telephone keypad. To withdraw your question, press the pound key. Our first question comes from the line of Steve Sakwa with Evercore ISI. Your line is now open.
Thanks. Good morning. I guess, Shankh, first on just the acquisition environment and kind of the pipeline, could you sort of give us a sense for how big the pipeline is today versus, say, 6- 12 months ago, and what areas is it sort of most robust?
Thank you, Steve. Good morning. The pipeline is as big as we have felt this time, really throughout the year, but particularly relative to last 12 months, the pipeline is significantly bigger. As I told you in my prepared remarks, that the pipeline is focused on two areas. One is on the senior housing side, the other is our deals that are sourced through our relationship with health systems, where mostly you will see that this year, other than the transaction that we have made or we have shaken hands 12 months ago or six months ago plus, will be mostly out of the MOB market this year. Senior housing and health system transactions directly with the systems.
Is there anything, without getting specific, can you share anything just about pricing trends or cap rates, kind of as you look to deploy capital versus maybe where you spent capital in 2019? Are things better or getting tighter?
On the senior housing side, if you look at sort of the top end, really pretty assets, really good markets, very good operators. Cap rates are extremely tight, and they have gotten really tighter in the last, say, 12, 18 months, particularly the last six months. The transaction we announced yesterday sort of shows you that. On the other hand, we're seeing the emergence of distress in memory care and in markets where you saw the first burst of supply in 2015, 2016, 2017. Everything in the middle is sort of, it depends, right? If you look at our pipeline and look at our history, you will see that we grow with our operating partners, with the development or off-market acquisition, one or two assets at a time, and that market remains extremely favorable.
We have a lot of either very small portfolios or a lot of one-off assets, two assets, three assets, that are in the pipeline that add up to a big volume, but that's where we get our pricing, and that becomes very accretive. We're very, very optimistic about the deal pipeline this year.
Okay. Just one follow-up for Tim. I appreciate all the commentary. I couldn't quite get all the numbers. I might have missed an exact spread. I think you said that the developments do help boost same store a little bit, and that you're almost putting a second number out there. Can you just quantify what same store, I guess, is being boosted by in 2020 just from the developments?
Steve, the numbers that I gave were 1%-2.5% range for our total SHOP portfolio, 1.75% midpoint. At that midpoint, it assumes the stable portfolio grows at 1.25%.
Got it. Okay. Thanks very much.
Yep.
Our next question comes from Jonathan Hughes with Raymond James. Your line is now open.
Hey, good morning. Tim, thanks for walking through your same-store definition policy and providing the slide deck on the site. I was hoping you could give us maybe those RevPAR occupancy and expense growth components embedded in your SHOP NOI growth guidance?
Hey, Jonathan, I'll take that. As we talked to you about this before, the three big variables which moves where we land on the same store NOI growth, obviously that's occupancy, that's pricing, and obviously labor, right? They're the three major components. Without getting into too much on how those things will obviously change each other or influence each other, though, I want you to sort of think about is what we have seen in last, call it, four to six quarters. You will see flattish to slightly down occupancy, and you will see 3%+ growth in the rates. We will see what we get on the labor side. As I said, two quarter doesn't make a trend.
We're not assuming the trend will continue, but if we do get some help on the labor side, what we have seen in fourth quarter, if that continues, obviously that'll be upside.
Okay. We can kind of extrapolate maybe the past couple of quarters and roll that forward, and that gets your embedded guidance. Any difference in the non-core portfolio?
No. We have the non-core portfolio. Obviously, there's a significant difference of performance. I'll give you an example. Just in fourth quarter, again, don't take one quarter and run with it, but just if you look at U.S., in fourth quarter, large core U.S. markets were up 3.5%, 3.4% to be specific, in NOI, and other smaller markets were down 2.5%. There's a significant difference of performance between large core U.S. markets versus smaller markets. We're seeing that. I don't know exactly what that will get to, but I suspect that you will see a big difference between the two as we roll through 2020.
Got it. That's great. Just one more for me. Tom, you talked about your partnerships with healthcare providers and capabilities in the prepared remarks, was hoping you could talk about how your new partners, specifically the senior housing partners, ascribe value to gaining access to your data analytics platform. I mean, the world's awash in capital. I think a lot of these operators can go out and admittedly find cheaper sources, clearly, they come to you to gain something others don't provide. I'm just trying to figure out how us, as outside analysts and investors, ascribe value to this part of your business because it is so unique.
Well, thanks, Jonathan. I'd say that it's helping our Senior housing operators understand where to focus. We can provide them such granular information about their target populations, it really helps them become much more efficient and effective senior housing operators. We're now taking this expertise and bringing it to health systems. Health systems are now working with us to figure out how they can build market share in certain markets that are important to them. This is a tool that they've really not had in their arsenal before. We see it as truly a differentiator. I'd also say that our senior housing operators are also seeing the other capabilities we bring. I talked about the CareMore Anthem collaboration. That is a win-win for everyone involved, including the resident, their families, the operator.
From a senior housing operator standpoint, we see expanding the operating model of a senior housing facility by collaborating with third parties like a CareMore, can drive occupancy and increase length of stay, and may offer opportunities to enhance revenue. We're always focused on alignment. That's a word, other than optimism, you hear from us a lot, which is alignment. It's not just talk, it's real, it's happening. That's what's driving the senior housing industry, the people that see the future and know that the future of the senior housing industry is not what exists today, for the most part, and they want to work with Welltower.
Yep. Okay. Yeah, from us in the outside, it's just trying to understand how maybe we price that into the metrics that we see in terms of the yield on new partnerships, that's why.
Yeah. Jonathan, it's early days. I think you'll start to see it's going to help you, I think. Over time, we'll point you to where we're expanding the service model in senior housing through these types of collaborations. You should be able to see better performance. Again, it's early days, but as I said earlier, we're starting to roll these programs out into multiple markets across the country, and I think that's when it'll be more tangible.
Jonathan, these things are hard to model. Just one way to think about it could be that if you look at just in the last 18 months, we have talked to you about eight new operators, right? To your point, they're coming to work with us because of these capabilities, not of our cost of capital, right? Where there are significant cheap sources of capital, the world is awash with capital. It is all these capabilities. One way to think about it, you can think like how many of those operating partners that we may or may not be able to get over a period of time, and then think about our ongoing investment with them. As I mentioned in 2019, earlier in the year, we sort of announced our batch of 2019 partners, and as of today, we have invested more with every one of them.
That's sort of what gives you a sense of, if we're trying to get a sense of what the platform is worth, as Tom talked about. The platform is worth more than just the asset, and obviously, that's the way you can get to the platform value. That might be one way to think about that.
Yep. All right. Thanks very much for the color, guys. Appreciate it.
Thanks, Jonathan.
Our next question comes from Nick Joseph with Citi. Your line is now open.
Thanks. Maybe just sticking with partnerships. Tom, what should we expect in 2020 from the Jefferson one?
Well, we're hopeful in 2020 you will see kind of the first stage of a joint venture around some of their ambulatory assets. That is something that we are currently working with them on. They've identified some of the assets that will go into that joint venture. I would expect you will see that this year. The next piece of it is bringing Jefferson's services into our senior housing and post-acute portfolio in the Greater Philadelphia region. We have a concentration there. We have 20,000 lives, particularly 20,000 lives of people that are mostly paying out of pocket to live in high-end senior housing is a very important population to Jefferson. That's one of the keys here. I think you're going to start to see more health system presence in our senior housing portfolio.
It's happened already. I think with respect to Jefferson, it'll start to be driven at scale because they're such a large system and we have a large portfolio. I'd expect you'll see that in 2020. Some of the other aspects of our relationship are a little bit more longer term focused. You've heard us talk about our Clover housing model. Concepts like that might include Jefferson Clinical, particularly from a primary care standpoint being co-located in those types of communities is something that we are very actively looking on because, again, Jefferson talks about healthcare with no address. That is allowing them to push out their products and services outside the hospital campus. That's very much a focus of what we're doing together.
Thanks. That's helpful. Shankh, just on MOBs cap rate compression that you've seen there. Can you put some numbers around that? Who are those incremental buyers that are driving cap rates down?
I'm not going to give you numbers. You have seen some very aggressive trades in recent times. If you look at what we're closing, or I've talked about, in real estate transaction, you should take everything with a six to nine-month delay. Think about the announcement sort of we made during NAREIT, and you should date that back six, nine months ago, right? Cap rates are tight. They're coming down. A lot of public REITs, institutional owners, private equity. I don't want to specifically name someone, but the whole point is, as we said several times, we think that our bogey that we have to hit on an unlevered IRR basis is 7% or pretty close to that. We think that if that asset class gets priced somewhere in the low fives or five, that makes absolutely no sense for our investors.
If the pricing gets there, we'll stay away. If the pricing remains sort of mid fives, we'll be active.
Thanks.
Our next question comes from Rich Anderson with SMBC. Your line is now open.
Good morning. Want to talk about your peers and you and the same store discussion, Tim, that you went through. I'm just reading the tea leaves, and it seems like maybe you were involved in a kind of cooperative process to get on an equal playing field. I don't know, maybe you were involved. Could you just describe if in fact you weren't, what were the holdups that didn't sort of get you to a point where you would in exact agreement with your peers, namely Ventas and Peak? Is there a chance that we'll get there at some point in the future so that we do have this sort of more agreeable sort of environment among the three of you on that topic specifically?
Good morning, Rich. It's Tom. Let me jump in on that first, and then we'll see if Tim has any additional comments. Look, I'd say that Welltower's had a same store policy for years, and that policy and our adherence to that policy is reviewed quarterly by our audit committee. By the way, this policy applies across all asset types at Welltower, beyond senior housing to triple net, MOB, and the others. Yes, you refer to the chatter about same store senior housing policy, which I suspect has much to do with the significantly stronger performance of our assets versus the others you mentioned. Look, I hope our earnings results that we report today and that we've reported throughout the year, and the fact that we proactively dealt with our problem children over the last three years speaks to the quality differential.
You saw that we posted the policy that we've had in place for a number of years. You can take a close look at that. You can talk to Tim about that. We're a very different business. We are a very development-focused business. The type of senior housing assets that we'd like to buy don't exist, so we have to build them, and we're the ones who are driving that process. I don't think we're talking apples to oranges here necessarily in terms of senior housing portfolios. I hope that we are putting this matter to rest because it's not a productive discussion.
Yeah, Rich, I would just add to that, the intent of the conversation, I think the alignment around it is that the intent to bring more information to investors, transparency, comparability, and the rest of it. I think you're seeing some positive outcomes from that. I think from the presentation or the outline of our historical policies that we put out last night, I think you'll see there's a lot of familiarities between policies. What our commitment is to continue to provide investors with information they need, particularly as it pertains to kind of differentiating quality between portfolios.
Okay. like total portfolio versus just the SHOP portfolio.
Well, I think part of our thought is that total portfolio is the focus, right? What we posted last night was our total portfolio approach, and I think that the idea is that you buy Welltower because of the exposure we have across all of our asset types and what that does to the consistency of our cash flow. Just say it's a more wholesome approach, gives you a better view of how that entire business is operating.
Okay. Tom, early in the conversation, you said sometimes things don't work out. That's life in business and generally.
Yeah.
Can you give an example where something didn't quite work out the way you'd hoped, but that you had dialed in protection mechanisms at the point of the negotiation to protect the downside and protect your investors? Do you have one or two in mind where that, in fact, has happened?
Yes, I wouldn't be able to tell you specifically about that. Yes, that's one of the reasons why our performance is better. I'm not going to call out specific operators on this call. I will tell you that we give our operators an incentive to outperform. That, when you work with the right people, is hopefully that's driving the performance versus the downside protection. We don't go into any arrangement hoping that we're going to be able to pull the downside protection lever.
Rich, this is an inappropriate conversation to call people out on a public call, but we're happy to talk to you offline. Think about how we have changed the business on what a RIDEA 3.0 structure is. It's very much laid out for that downside protection. It also significantly provides upside participation. If you think about how we have moved away from I'll give you another example, which is obviously, it's very easy to think about senior housing. Just think about what we have done on our loan books, which essentially, we have cut it in half. We don't make opco loans anymore. We don't make this kind of lending money to operators or lending money at the opco level. Why is that?
It's because the downside protection will be that if you are a lender in a specific asset or a box, you should be able to take over that box if things don't go right. We are a REIT. We're not allowed to own an opco completely. The fundamental idea behind these kind of loans are flawed, so we don't do that anymore. That's why you see that our loan book has come down. Anyway, I hope that those two examples sort of gives you some ideas in what line to think about. We're happy to speak with you offline.
I didn't mean to put you on the spot there, but I thought the good example is ProMedica, which had its downgrades and all that stuff. Yet, here you are producing, or they're producing over two times coverage versus the 1.8 starting point. I think that would be one example. No fault to them. It just was a function of you guys setting that up well.
As a credit transaction.
Yeah.
We're protected by the credit at the parent level.
It's a very good example of this organization, which is not-for-profit health system, but has an extraordinary business mind. If you've just seen what happened in the insurance business last year, and they have taken really tough calls and exited business, you don't generally see that in a lot of not-for-profits, right? They said they made that promise to their bondholders, and they did it. They executed. If you go back and look at their presentation that they presented at the JP Morgan Healthcare Conference, that lays it all out. A very good example. That's where our interests align, and we will see that we'll want to continue to grow with them.
That's coming from a guy who didn't like it very much at the outset, so good for you.
We understand, Rich.
Thanks, Rich.
Thanks.
Appreciate it.
Thanks very much. Thank you.
Our next question comes from the line of Derek Johnston with Deutsche Bank. Your line is now open.
Good morning, everybody. The $740 million SHOP portfolio that is subsequent to quarters end slated for sale, can you give us some more details, including what percentage of these assets were already converted to the RIDEA 3.0 structure, or had they not been? Also, what percentage of your going-forward SHOP operators have been converted to the new structure?
Thank you very much. Very good question. It's a transaction in process. I'm not going to get into too much of what the transaction is. I will tell you that this is not a portfolio in RIDEA 3.0. The second thing I will tell you about this is then the buyer of this portfolio is an extraordinarily smart and very well-known institutional investor. We have a tremendous amount of respect for them, and we do a lot of business with them in different places. We think not only that this is a great transaction for us, we think this is going to be a fantastic transaction for their investors. About 80%+ of our operators today, number of operators today, are in that RIDEA 3.0 operating.
Derek, what I'll add to that is, perhaps when you see high-quality portfolios being sold by Welltower, that may be an indication that that operator was not interested in a RIDEA 3.0 structure, perhaps.
As a general comment.
As a general comment. That's something you should consider as to why we might choose to sell some portfolios that look to be, and are, very strong portfolios of real estate.
Okay. Very helpful. Just switching gears quickly to health systems. I noticed the same store NOI assumption of 2% growth. I think this is the first time you're including this in guidance. I guess while the health system build-out is in the early days and the growth rates may be initially lower and possibly ramp over time, the question is, what do you feel will be the long-term growth rate of the health systems?
Derek, so obviously, that bucket is, if you think about it, is the ProMedica bucket. As you know, the first year, the escalator was 1.375%, and going forward is 2.75%. I believe we closed the transaction on July 26th. You have a mix of a 1.375% and a 2.75%. When you get the full year, you will get to 2.75%.
Okay, great. Thanks.
Part of the year is 1.375%, part of the year, 2.75%. Going forward, 2.75%.
Got it.
Our next question comes from Vikram Malhotra with Morgan Stanley. Your line is now open.
Thanks for taking the question. Shankh, you referred to sort of the senior housing barbell approach. Obviously in other asset classes, you can think of multifamily as ABC and other asset classes, some different breakups. Just curious, as you described the part of the barbell that you've just started building, can you talk about how competitive that market is, pricing, what type of structures you may be employing similar to sort of the RIDEA 3.0 that you've done for the existing portfolio? Just kind of walk us through how to think about that market in terms of differences, in terms of pricing and structure.
Yeah, I'll be sort of describing to you on a high level basis what I meant by barbell approach. If you think about just purely from a pricing perspective, on the high end, you can pass the labor inflation that's been happening and across the market. If you think about generally speaking across all markets, wages have been going up. Whether that's sort of a move on minimum wage, somewhere closer to 15 or whatever that metric is for a given market or just general sort of a lift in wage because of low unemployment, that is happening across the board. In certain markets, in high-end markets, you can pass that to your consumers, and your consumer understand that's the case, right? That you are not just jacking up rent because you want to jack up rent.
They understand there's so many people who serve them, and their wages are going up meaningfully. In other markets, where I'm talking about is the lower end, sort of we call lower rent market, where you don't have a lot of people, it's a low-service model, so higher margin. You're not impacted by sort of the people end of the inflation that much. We think somewhere in the middle, the problem is you are still facing the labor and a move towards that $13, $14, $15, yet you don't have the price to justify that. That's sort of a dichotomy today is first time we're seeing, irrespective of markets, labor growth has been pretty much towards a much higher number than they have been.
You got to concentrate on the markets where you can do pass that pricing, or you have to be in markets where you are not providing that one-to-one hands-on-hands care, and you have sort of a low-service model. That's sort of we're focused on. Addressing your next question, sort of where you're asking for what are we doing on the lower service model side. Remember, these are apartment asset, effectively seniors apartment. As a REIT, we can own apartments and have complete control. We don't have to get into a RIDEA 3.0 type structure where there is a, what we're allowed to own as part of the opco and not. That does not apply for those kind of assets. You have a much higher level of control there.
Great. Tim, could you just clarify, you mentioned the 50 basis point delta between the same-store portfolio growth and then applying that sort of stabilized layer onto it? Can you just clarify, I may have missed this, I dialed in late. When you say stabilize, what are you sort of excluding? The development properties, I think you laid out, they come in post five quarters.
Correct. The development properties come into the pool post five quarters, so we've got a duration-based rule on that. What we said is they don't stabilize for this metrics purposes until they're in for nine quarters. In my prepared remarks, I went through some of the reasons for that. The non-stabilized portion of the same-store portfolio is made of those assets that have entered the pool but haven't hit that stabilization point yet.
The ninth quarter. Okay. What is the stabilized number for 2019?
The stabilized number for 2019 is 150 basis points lower than our 2.7%.
Okay, great. Tom, just one last one. You've talked a lot about the partnerships with the health systems, kind of what shape Jefferson may take. I'm just sort of curious as to how long that sort of partnership took. What were sort of the pushbacks and what types of systems do you think will be more open to this sort of partnership?
Very good question, Vik. These partnerships take a long time because you have a myriad of people internally that you need to deal with and establish credibility with. There's also boards involved. I think one of the things that made Jefferson successful is that we had established relationships and credibility amongst the management team, as well as with the board of Jefferson. These are not quick, they put an RFP out and you're responding to it. These are very nuanced relationships that take time. There are a number of them simmering on the stove right now that look like Jefferson. I mean, the fact is the truly high double-A plus health systems, for the most part, will believe that they're better served by raising debt in the capital markets. We try to remind them that debt has to be paid back.
We're offering them a long-term solution to help them grow. Not that they won't take advantage of low interest rates in the debt market, but w e're just another oar in the water of capital. I would tell you that there are some relationships we have been developing that some may look like the Jefferson partnership, and some might look a bit different. I would just say stay tuned, but this is an area that we've been very actively engaged in for many years.
I'll just add one thing, Vikram. If you think about there are health systems who still believe that healthcare should be delivered primarily within the confined four walls of the hospital. So they probably will have a different tact, versus a lot of health systems believe that healthcare needs to be out in the community or in where people live and sort of have more of a comprehensive approach to health and wellness. You will see more of them will be our partners.
Yeah. It's beyond cost of capital. If it's just cost of capital, some health systems have a very low cost of capital. This is broader than that, and I think that is an element of why anyone does business with Welltower. There's a broader value proposition that we present. It's not just about cost of capital, and that's why we're growing the way we're growing through off-market transactions. If someone's going to put out an RFP and wants to get the lowest priced capital, well, sometimes maybe that might be us, but that's not how we're thinking about growing our business.
Great. Thank you.
Our next question comes from Jordan Sadler with KeyBanc Capital Markets. Your line is now open.
Thanks. Good morning. Just moving to the SHOP portfolio for a second. Can you talk about the new lease spreads versus renewal increases that are baked into the guide for 2020?
We'll just tell you, Jordan, that we think that we're going to get overall pricing. Our expectation is our pricing trends will remain very strong. The spread between new lease and renewal differs from operating partners to operating partners, building to building. It will be an impossible task to get into that. Generally speaking, people usually don't leave our exceptional communities, which provide exceptional care just for a small increase of price that is justified by what is happening in the labor market.
Obviously there's a pretty broad disparity, probably also in terms of same-store NOI performance across the portfolio. I'm just kind of thinking, blended across the portfolio, if there's any granularity you could offer in terms of what's sort of happening on a mark-to-market basis upon re-leasing?
Yeah. Let me tell you about the disparity. I talked about the disparity of operators from an NOI perspective, right?
Yeah.
Mid-single-digit negative to double-digit positive. I'm not picking the endpoints here, just give you a pretty granular difference there. Let's talk about pricing. We have one operator who has seen pricing in the mid -5% range. Bunch of operators have seen pricing in the sort of the 4%-5% range, and a lot of people have seen that sort of 2% - 3%, 3.5% range. That sort of gives you the broad spectrum. I've seen one that has the sort of the lowest of 1%, 1.5%, that sort of gives you the range. The second question you asked is on a mark-to-market. Remember what happens on an overall cost basis, you come in at an assessment level. Over a period of time, that assessment goes up, right? From a care revenue perspective, and eventually to say, there are care levels of 1%-5% .
I'm making this up to make a point.
Yeah, I get it.
You come in at a 2%, you leave at 4%, 4.5%. There's always a difference of pricing on care on a mark-to-market basis because the next person coming in is at 2%, 2.5%, right? What we are seeing, and we have seen, this is no secret to anyone, we try to keep the level same. The higher acuity people leave, lower acuity residents come in. Mark-to-market on the care side is always negative. On the real estate side, remember, there's two price, right? The rent side, we're seeing rental increases across the board. Pretty much that sort of mirrors what I told you. The market rent I'm talking about mirrors what I've talked about on the pricing side. That gives you a sense of what happens.
Shank, I'm sure you've done this work with your data team. Would you share what the seasoning impact, if you will, is on same-store NOI growth from just basically folks aging in place across the portfolio? Acuity of care rising.
Yep. I will take that up with my team and talk to you offline.
Okay. One other, just PDPM. Tim, obviously, you pointed out nothing in the quarter. Any early comments in terms of what you're seeing across the health system portfolio and/or with Genesis, just basically in your conversations with these tenants and then/partners? Perhaps expectations coming from CMS regarding recommendations for reimbursement come April?
Yep. First is, I think it's too early to comment on what the impact of PDPM. We will first sort of that's something it will take time for everybody to understand, and it'll have different impact on different platforms. Very different impact. That sort of, I'm not going to engage into that and pretend I know exactly what's going on. I will tell you that this is exactly why we don't want to do, and that's why we structure the Atria Medicare lease in the way that we did. We do not pretend that we're an expert in CMS rate increases on an annual basis. We're just not. Second, categorically, given that I told you that we are obviously not an expert, we'll stay away from what might or might not be coming.
I will just remind you that generally speaking, as I said, across the board, we're seeing stabilization of that business. That business has been pretty much under attack for years and years. I think our regulators understand that. There's been a lot of bankruptcy filings in that sector over the last two years. I think regulators understand that that is a very much of a needed sector, and our health system partners will tell you that. That is very much of a needed sector. I think whatever happens, I have zero insight, and whatever happens will be reasonable and will have an impact, positive or negative, differently on different platforms.
All right, I yield the floor. Thanks, guys.
Thank you.
Our next question comes from Joshua Dennerlein with Bank of America Merrill Lynch. Your line is now open.
Hey, good morning, everyone.
Morning.
Curious, how involved were you guys in the site selection of the new Related Atria development in the Hudson Yards?
This specific one or in general?
I guess just with that partnership, is it your data team kind of leading the charge on like, "Hey, these are good sites. These are what you should consider"? Just curious on that front.
Generally the way it works is that you have an extraordinary Related team of professionals that led by Bryan Cho of Related who leads this particular vertical. Bryan interacts with my team and works with our data team directly. It's a two-way process. They're an extraordinarily good developer. We look at whether they find the site or we find the sites. We look at it. What we do is we run that through our analytics process, see demographically, psychographically what it looks like, why this is different, and this is a two-way process. You are correct that every possible site we look at, that goes through our analytics process, and we then debate. I'll give you an example. For example, in D.C., we've so far passed on several pieces of parcels because we couldn't get to what we're actually trying to build.
There is a lot of sausage-making that goes on, and obviously our data analytics team is very much part of that in the front end from the very beginning.
Great. Thank you.
Thanks, Josh.
Our next question comes from Daniel Bernstein with Capital One. Your line is now open.
Good morning. I want to go back to the comment you made about owning and operating the lower-end businesses, the senior apartments, maybe independent living. There's a lot of competition in the apartment space, Greystar, other private equities, Carlyle. How do you think about the risk of that sector, given the competition versus the opportunities? Maybe how do you think about creating and building your own Welltower brand within that segment?
Dan, 85% of seniors have incomes of less than $50,000 a year. Surprisingly, there's very little product for that population. A lot of the independent living you've been referring to sells at a premium to other multifamily in the market. That is not what we're doing at Welltower. There may be markets where we will bring a premium independent living product because the demand is there for that type of a product. When we talk about some of the markets in this country that we currently own assets in, these are addressing a tremendous unmet need. The opportunity for people to live in safe housing that is designed to accommodate a long arc of aging with rents of $900-$1,200 a month, there's a tremendous opportunity there.
What we're doing is when we can connect that housing concept with a payer, because these are people that are on Medicare Advantage plans. When you can work together with the Medicare Advantage plan, you can really help them reduce risk and hopefully create better environments for this population to live in. This is a population that's never going to be able to afford to live in seniors housing, at least the seniors housing that we own. This is a new asset class. Your point about will Welltower brand this sector, stay tuned for that. You'll hear more about that this year.
Dan, if you have time, come over to New York at some point and sit down with our leader who runs that business, Ayesha Menon, and understand how we are working and thinking through those exact same problems we talked about. We're not focused on the high end of that business. If you think about, you talked about Greystar and others. I don't pretend to be an expert in Greystar's business, but my understanding is that they're focused on the high end of that product, very high price point $3,000, $2,500, something like that.
Yes.
If I understand correctly, we're focused on the lower end of that product, $1,000, $1,200, $1,500. It's a different product.
That's actually really helpful to understand that. I will take you up on your offer to come up to New York. One other quick question. MOBs have shown some improving occupancy. To get that occupancy, are you giving away any extra TI? Anything that might cause a little bit of drag on FAD, AFFO? Is that simply the MOB's location's next to a hospital, and there's demand there, and that's driving the occupancy? Just trying to understand that a little bit better.
Dan, this is Keith Konkoli. I would say, actually, our capital expenditures are below our historic experiences, so we're really not giving away any additional CapEx or improvements to get tenants into the spaces. We're really just very focused. Our team is really in the market, canvassing the market, and it's really just driving activity through a focus on the business, I would say, is what's really resulted in our increase in our occupancy.
Dan, one thing I will tell you that your sort of question implies that a building being right next to the hospital is what get them leased. I saw you at Revista. You probably have heard me saying that in the panel. We do not believe that on-campus MOBs are where the industry is and where the industry is going. We have sort of no horse in this race. Our portfolio is roughly half on campus and roughly half off campus. We do believe that consumerism in healthcare is real, and healthcare is moving to where people live. It is asset by asset, system by system, relationship by relationship, but I want to make sure that you understand our view. Right or wrong, that's our view, and we do not believe that on-campus MOB is that sort of this asset class that we need to strive for.
We just don't think that's the model of healthcare or the future is going to be.
That was certainly the view of Revista as well, I think so. Appreciate the color, and I'll hop off. Thank you.
Thanks, Dan.
Our next question comes from Michael Carroll with RBC Capital Markets. Your line is now open.
Yeah, thanks. Tom or Shank, could you provide some color on that lower acuity senior housing product that you guys been talking about throughout the call? What type of investments should we expect out of there? Does this product exist today, or do you need to really build most of it?
We have invested significantly in last, call it 12 months, we've invested close to half a billion dollars. Some of the products do exist, and our team is actually just closed a transaction of three assets in Vegas recently, actually, last couple of weeks. The products do exist, but not in terms of the acquisition volume that you'd expect from us because just what we are trying to address. You will see acquisition, you will see development, but I'm not willing to give you a number that would suggest that we have a target, which we don't, which is the most important point of the call. I read so much about two years ago, we were targeting RIDEA. We didn't. We actually, you saw that when the price was right, we sold a lot of RIDEA portfolio. These days, I see people say we're targeting to buy MOBs. We don't.
We have been absent from that market. I already indicated to you we'll be absent from the market, probably this year. There is no target portfolio in our head that we're trying to get to. It is all an IRR-driven model. I just want you to understand that it's a very important point. We're not trying to solve for an exposure. We're trying to invest capital. We're investors, not deal processor.
That makes sense. How many operators do you have right now that are focused on this? I know Clover is, and I think you mentioned Mark. I guess, how many operators do you have that are focused on this type of product?
We have bunch of relationships that we are in discussions. You mentioned, obviously, Clover, but there are others. Too early to comment on how many people that we'll be doing business with. You will see more of this conversation as the year rolls. I can assure you that we're in conversation. As I offered to Dan, come over to New York, sit down with Ayesha. She will be able to give you a much broader and more sort of accurate view of what's going on in the business.
Mike, I would say at our investor day later this year, this will be an area of focus that we'll present. You'll get a deeper dive on this business line later this year.
Okay, great. Thanks.
Our next question comes from the line of Omotayo Okusanya with Mizuho. Your line is now open.
Hi. Good morning, everyone.
Morning, Tayo.
Hi. Your initial guidance in regards to acquisitions and dispositions actually has you guys set up as a net seller, at least to start the year. I think, again, just kind of given your cost of capital, that's somewhat surprising to a lot of people. But at the same time, seeing the amazing prices you're getting on some of these sales also makes perfect sense. The question I have for you is, 12 months from now, if you kind of look through the mirror on a backwards-looking, do you still see yourselves as a net seller for the year? Do you kind of think, given your positive commentary on the acquisition front-you could still kind of see yourselves as a net buyer by the end of 2020.
Hi, we just gave 2020 guidance this morning. Now you want 2021?
No. No, I'm saying look at 2020 backwards is what I mean.
Yeah, no, I'm kidding. I think that you know this from how we give guidance. We're not going to speculate on acquisitions, and a big reason for that is because acquisitions are cost capital dependent. Shankh spoke to the optimism we have on that side of the business, but we're certainly not going to put things in our numbers before they've been funded. Part of the reason you're correct in saying we're net sellers. We control the sales, and we control the buy process of stuff under contract. There's a reason we don't put anything speculative in there, and that's so you've got an idea of what's driving our numbers and, I think you're likely correct that it'd be surprising given the current backdrop that we would be net sellers, but that's what's currently driving our FFO outlook is that net seller.
If this current capital market stays where it is, I will be very, very surprised if we're not significant net buyer by the end of the year. It is capital markets dependent, it is opportunity dependent, it is return dependent.
Got you. That's helpful. ProMedica, again, great pricing there. In fact, amazing pricing there. Any thoughts around maybe monetizing more of the portfolio going forward?
We are extremely happy with our relationship. That was an opportunistic sale. If there are more like that comes up with ProMedica and we come to the same conclusion that we should take advantage of that, we'll do that. In generally speaking, we're very happy with the relationship, and we will continue the relationship, but obviously it's not gone unnoticed, and that sort of was the point that even Rich was trying to point to remember, we own this real estate. We're just not the only owner of this real estate. We own this real estate with ProMedica. We're 80% owner, they're 20% owner. They're as happy with this pricing as we are, and they are very sophisticated business people. They are thinking about the same thing that you and I are. We'll see where we get to.
Sounds good. Thank you.
Thanks, Tayo.
Our next question comes from Steven Valiquette with Barclays. Your line is now open.
Oh, great. Thanks. Good morning, everyone. Thanks for taking the question. To come back to your comment on the flat trend for compensation per occupied room in senior housing, which is obviously encouraging. It kind of sounded like you were hopeful that the improving trend would stick, you didn't have perfect visibility on it. I guess I just wanted to drill in a little bit deeper on what you think are the primary drivers of that improvement, whether it was just serendipitous or is it related to some specific programs where you're getting some early traction, maybe it's just too early to declare victory on sustaining those trends. Any extra color would help. Thanks.
Thank you very much. I want you to understand my comment. I said sequential trend on the labor cost was flat. It is a sequential comment, not year-over-year comment. I do not want you to think that labor cost is being flat. Perhaps, just perhaps, the second derivative of that growth is somewhat flattening. It is still a big number that's growing big time. Maybe the rate of growth, what we have seen in last three, four, five years, hopefully that is not going to be as bad as we have seen. It is a combination, that is a hope. I specifically said that we did not put that in our guidance.
If we do get that, it will be an upside to our numbers, but we did not obviously model that because it could just be something serendipitous, as you said. There's a lot going on. If you go back about four quarters ago, I talked about different technologies that we're experimenting with and rolling out in different operating platforms. I think I specifically mentioned the use of one such that has helped our largest operator, Sunrise, to reduce the turnover 30%. We are not sitting on our hands and trying to get to somehow outperform the market. We're trying to add alpha through technology, and sort of that's where I will end. Tom?
Steve, you saw that Philips put out a press release a few months ago about the collaboration with Welltower at 56th Street. This building will have technology that no one in the senior housing industry has ever seen. We're hoping that this technology, which will help monitor the needs of that population and anticipate their needs, will over time be able to allow us to have more efficient labor models around how we manage this population. When I took this job when I came off the board to be the CEO here, I remember the management team saying, "Wow, this is such a great operator. They have two FTEs to every resident." I remember thinking, "And that's a good thing?" That's not a good thing. That is not sustainable.
We're looking for how do we improve resident experience and care, and do it at a lower cost of labor. The only answer we can think of is technology. The fact is, we're going to have a great example to look at, which I know is just a few blocks from where you work, Steve. We'll have a chance, in the later part of the spring, early summer, to have you see what's happening there. We're excited about that. That's part of what we think we need to do as a company.
We're advancing this. This is not happening in the industry. It's happening because Welltower is using its tentacles and relationships to challenge the historic operating model in what was essentially a hospitality business, which has really become part of the healthcare continuum. That has been something we've done. That's not happening in the industry. Stay tuned for more of that.
I definitely got the sequential part, by the way. On page three in the supplement, you can see kind of the raw dollar numbers on compensation, flat sequentially and then up about 3.5% year-over-year, which is a little bit better than the 4% -5% that gets talked about. Just final thing on this subject. I was going to suggest a little bit of tongue in cheek that perhaps you're grabbing all of the therapists that are being laid off in the skilled nursing sector because of PDPM, maybe reemploying them at lower wages into assisted living, but obviously, it's not that simple. Could that at least be a general factor in supply demand dynamics around skilled labor overall? Do you think that's not really a factor?
Steve, I'm not an expert in that area, and I'll stay away from making any comments. I'm happy to connect you with our operating partners and the CEO of those operating partners. By no means, I want to pretend that I'm an expert in that area. We'll stay away from that.
Just to answer that, what I have seen is as the senior housing concept moves more in the direction of being part of the healthcare continuum, it attracts a different caliber of labor force. You see that when you see there are a few health systems in this country that actually have their names on senior housing properties, and they also own skilled nursing properties. They will tell you that there's an extra level of credibility because these properties are associated with a highly respected health system. It does attract a better labor force, and oftentimes they have to pay them less because people see a broader value proposition being associated.
I think as we at Welltower start to move our portfolio more in that direction towards the health system, the types of collaborations that you understand we have with the payers, just legitimizes this business from the old age homes that exist all over the country. They're still being built and still being invested in by REITs. That's not what we do. We're in a much higher value part of the chain here, and we're driving that. Again, I always say this, but stay tuned. We're so excited about where this is headed.
Okay. I appreciate the extra color. Thanks.
Our next question comes from Nick Joseph with Citi. Your line is now open.
Hey, it's Michael Bilerman here with Nick. I just had a couple of, hopefully, just quick follow-ups. In terms of, Tim, in your opening comments, you talked about the balance sheet being a little bit more highly geared today, given the timing of the deals in the fourth quarter, and then you have the forward, and then the disposition effective guidance that's there, which by the summer, if you take them a forward, would get you to the mid to high fives. How should we think about, because it sounds like there's a lot of optimism here on the investment pipeline, that you're not going to end up with a $600 million net disposer. How should we think about the funding of that net investment? From this point forward?
Yeah. Thanks, Michael. I think that my prior comment on kind of where acquisition guidance sits relative to where it may end up is that my intention in saying that is directly towards this question, which is, if we end up being a larger net acquirer, or if we end up being a net acquirer, we will fund that all in real time. On the capital recycling side, particularly as you kind of report that leverage metric four times a year, you can have a bit of choppiness in it. There is just a bit more of a choppiness in general when you're talking about selling and buying assets. If we are not selling any more assets, you can count on us being capitalizing any further investment in lockstep. You should assume that kind of leverage.
My language around leverage holds regardless of where we end up on the net disposition or acquisition side for the year.
Is there, I guess, based on the acquisition pipeline you know today, should we expect you would do a big forward equity offering, so that you can take down those proceeds as those deals close? Are you more apt today to sort of look at your portfolio and say, "You know what? Let's push more into the sales market today"? Obviously selling assets and raising equity, given where your stock trades, have very different accretion implications. I just didn't know which way you were leaning.
Yep. I think that the way that we think about that is the sale of assets is being driven by the value that we are seeing in the market for them. It's been opportunistic, and if we don't think there's kind of value there for assets, we'll continue to sell equity. Your point on accretion is dead on, that we have not been selling assets because it's been more accretive to fund through this position of assets. We've been selling assets because it's creating a much more sustainable and high-quality earning stream for the long term. The decision to sell has not been driven by where the capital markets kind of are at. In fact, it's been counter to that. That was part of my opening remarks, is try to get that point that there's drag from how we've been continuing the capital recycle.
Yeah.
We think that's the right move, and we're not calling the cycle, but it certainly is closer to the end than the beginning, and we're very aware of that. That plays into the way that we capitalize in lockstep, and certainly plays into the way that when we see bids for our assets, we're not trying to real time value that relative to where our stock trades.
Right.
Michael, I would add one thing to that. I think you're now tired of hearing it from me. Near-term accretion is a question of cap rate. We're not a cap rate buyer or a cap rate seller, right? We're a total return buyer and a total return seller. There are assets on a total return basis that makes sense to sell, that will not make sense to sell if you just look at cap rate driven near-term accretion.
Right. Tim, just going back to the same-store policy, and thank you for the presentation. Remind me between the 10Q, 10K and the supplemental. I know currency plays into it, pro rata in terms of the Q and the K doing 100% and 0% of the unconsolidated. How does the stabilization on development methodology or guideline differ between the same store that you put in the Q versus the supplemental? Is there a difference in methodology?
Yeah, no difference. There will be no difference in methodology there. The two points you made, FX and pro rata, explain, I think, 80%+ of that delta. When I talk about aligning our policy and our SEC docs more with kind of how we look at in the supplement, part of that is that things like transitions and other things impact same store. Those policies differ between those two docs at this point. The idea is that we'll align those more as the year goes on.
Right. Historically, the stabilization methodology, this five quarter or four quarter and then rolls on the fifth that application was identical between the number in the sup and the number in the 10Q and 10K. There's no difference in guideline or methodology or rule t hat you were using specifically on that item.
No, correct. The commentary up front was just supposed to kind of give you an idea that the reason why we approach it from a duration-based test is because we think it's the simplest and the least subjective way, and I think what's come out of this conversation has been continuing. We think we provide ample disclosure to see how that impacts our results, and we're committed to continuing to do that. That five quarters in is in both of those pools.
Okay. Tom, let me just finish with you just on this topic, and it sounded like from your answer to Rich's question that you guys have had a policy for the last number of years. It's checked by the audit committee. You've had discussions with the other two. The other two clearly came out consistent on Tuesday night. It seems as though there are differences, or else you guys would've all come out at the same time. I'm reading from your comments, if I read the tea leaves, that I guess they weren't willing to come to you versus you not willing to go to them in terms of agreeing to a disclosure. Is that fair?
This is Tim here. I wouldn't say that. One, I think that we want to avoid kind of getting into how that conversation played out. As I said in my comment earlier, I think that the positive parts of this is for investors and analysts. I think there's alignment in getting more information out there. That certainly is our first and foremost goal here. I think what was stressed there was that our approach to this is on a total portfolio basis. The idea is metrics matter. All of our metrics matter to investors. It's a way to value the entire portfolio, and I don't think there's anything to read into of who would come one way versus the other. It's just a different approach to the management team.
Michael, as I said earlier, we believe, with respect to senior housing, we're a very different business than those other companies. Our policy is what we believe is the best representation of how our assets are performing. What I would say is that our policy also has some downside risk to it for us as well. Because something moves into a same-store pool, a new development moves into a same-store pool, doesn't mean that in a year the occupancy might drop 10%. It's not just an upside game we're trying to play.
We have thought very long and hard and with taking advice from others who we respect to build a same-store policy that we think gives the best indication to our shareholders about how the assets are performing. We stand by that, and given that t he scale and the dominance that we have, we think we're in the best position to dictate what a policy should be.
Right. That 150 basis points, the 2.75% down to the 1.25%, the impact of the stabilization from the development, that's for 2019. Tim, are you saying that the effective 1.25 that you would report for a stable portfolio, is that supposed to be mimicking what Peak and Ventas are now reporting as their same-store definition, or do we believe there's still differences even on that measure?
Yeah. I'm going to be clear to say that we're certainly not trying to mimic anyone else's disclosure. We're trying to provide disclosure to investors that allow them to compare and do what they need to do. Your question on the mimicking side is, our intention is to give more disclosure around it so you can make adjustments or view the numbers how you want to across different companies. Most importantly, this is for our investors and the way we think investors should view our numbers. I'm not going to comment on how that compares to others' policies.
One thing I'll say, Michael, if you took the 150 basis points comment, but the other difference, association point that Tim laid out is the normalizers, right? If you are trying to get to a specific type of disclosure, I would not just take one. I would take both. The net difference would be 100, not 150. Obviously, Tim laid out the impact that could be for next year.
Right. I was just trying to, by going to producing this, what you call stable, whether that was supposed to get closer to a comparable number. I understand the normalizing being a headwind this year. I'm just trying to put all the pieces together to try to see whether there's commonality or not.
Yeah, that's where I say that the intent of it is to provide more enhancement of disclosure, to give you more information. I think that's what we've heard from you, investors, et cetera, and that's what we'll continue to provide.
Okay. I appreciate you guys taking the time.
Oh, thanks, Mike.
Our next question comes from Chad Vanacore with Stifel. Your line is now open.
All right. Since the call's running long, I'll just keep it to one question. Just thinking about your ManorCare, it seems like it hit your expectations, and since you'll be absent from the MOB market, could we see any expansion in the SNF portfolio this year? Maybe add some details about how you're viewing the market for SNFs in terms of risk and returns.
Yes. Thank you very much. ManorCare portfolio did not hit our expectation. It exceeded our expectation significantly. If you go back and look at last call transcript, we talked about $300 million EBITDA. As you look at what in my prepared remarks, I said they achieved $307 million EBITDAR. That's point number one. Point number two is we're a buyer of any asset class, skilled nursing included, at a price. We think that today's skilled nursing market pricing is so hot that we should be a seller, not a buyer.
Our next question comes from the line of Michael Mueller with JPMorgan. Your line is now open.
Yeah. Hi. Just a quick one. Same store policy aside, what has been the average time to stabilize your senior housing developments? As you look at these urban projects that are going into the pipeline, do you think they'll stabilize faster or at a similar pace?
We underwrite three years to stabilization. It depends on, obviously, product to product is different, market to market is different. Usually, we have seen between, call it, 18 months to 36 months of stabilization. It does matter in a different product at a different place. I will tell you an example of a product that should have taken a long time to stabilize but has stabilized in 18 months. We have an asset that's with our partner, Belmont Village, in Westwood, that opened weeks after Lehman Brothers collapsed. We thought obviously that product will probably take three to four years to stabilize. It stabilized in eight months. It really depends what the product is, what the offering is, what the demand of the market is. A three-year stabilization is on average what we underwrite.
Got it. Okay. Thank you.
Our next question comes from Lukas Hartwich with Green Street Advisors. Your line is now open.
Thanks. Just one left for me. The year-over-year growth from the Belmont Village portfolio has been pretty volatile. Can you provide a little color there?
It's actually not volatile. What you see on the top is an annualized number. If you look at any given quarter, you are looking at year-over-year, you have to divide that by four. It is actually not volatile. It is one of our most consistent outperformer of all assets we own.
Right. I guess I am doing that. I'm comparing 4Q 2018 versus 4Q 2019.
That's what I'm saying. You can't do that because that's an annualized number. What you see on the top is multiplied by four is what you get. Do you understand what I'm saying?
Yeah, I guess my question is, if the methodology is consistent throughout the years, wouldn't the trends be comparable?
No, it wouldn't be. I can tell you exactly, I don't want to get into these discussions of different operators, but I can tell you that Belmont actually had a very good year. The NOI was up for the year. Again, it's not a quarter-to-quarter business. It was up in the mid-single digit.
Okay, maybe I'll follow up. Thank you.
Thank you.
Our next question comes from the line of Nick Yulico with Scotiabank. Your line is now open.
Okay, thanks. I'm going to avoid some of the philosophical discussion on same store, but instead, I just had a question about for the guidance on 2020 senior housing operating, what percentage of the senior housing operating business is actually captured by that same-store number? If you had it on NOI or number of assets. In the fourth quarter, it was 80% of your senior housing NOI was in same store, 67% of the properties. What is it for 2020?
It'll grow throughout the year. By the end of the year, we'll be back at more than 90% of our assets will be in the pool. One of the reasons, as you know, that it dipped below that kind of historical number, has been the transition piece, and importantly, those assets weren't in senior housing operating. They were in triple net. We've added assets to that SHOP pool, but you'll see as the year progresses, that number will grow, and you'll be back above kind of 90%, and the delta at that point will be primarily just acquisition activity. In reality, if we don't buy anything, it probably is well above 90%, but just thinking about kind of where it sat historically, we'll be back at or above kind of historical trends by the fourth quarter.
Thank you.
Thank you.
I'm showing no further questions in queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.