Ladies and gentlemen, thank you for standing by, and welcome to the Welltower 4th Quarter 2019 Earnings Conference Call. At this time, all participant lines are in listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference may be recorded. 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. And with that, I'll hand the call over to Tom for his remarks.
Tom? Thanks, Matt, and 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 $5,000,000,000 we deployed into new investments between January 1, 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 is 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. And 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 Doctor.
Steve Klaskow, 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 3rd 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 1.
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 to $4.30 in FFO per share illustrates that. And 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% to 2%. We're 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 show 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 compare it to randomly choose an operator from that disclosure and compare 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 3 operating partners that experienced mid single digit to double digit NOI decline, and we had 4 operating partners that experienced double digit NOI growth, with all other operators well 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 are off to a great start in 2020 and have already welcomed 3 new operators to our family who we have been working with to come to terms for the last 6 months. Let me give you some details here. We're delighted to partner with Michael Glynn, Andrew Tieters, Ross Dignan, along with Mark Stebbels to offer a lower acuity differentiated lifestyle based, highly amortized 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 and tremendously underserved market in large core U. S. MSAs. In both cases, our exclusive relationship spans multiple years and will provide a multi $1,000,000,000 investment opportunity in next decade. Reflecting on the 4th quarter specifically, I will mention that we are positively surprised by a few trends.
First, with respect to the seasonality within senior housing business, occupancy typically peaks in late fall and trends down through the winter months. However, 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. 2nd, I am 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 is the best we have seen in last 5 years. This, taken together with consistent pricing power, gives us the confidence to provide a guidance of 1% to 2.5% in SHOP relative to 0.5% to 2% this time last year.
We have a long year ahead and we need to execute diligently, but 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 $2,400,000 increase in incentive management fee in Q4 due to significant outperformance one of our operating partners in a RIDEA 3 year construct that was previously not contemplated. In terms of our 2020 guidance, we assume a $4,000,000 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 are expecting $300,000,000 of EBITDAR in our HCR ManorCare ProMedica portfolio for 2019. I'm delighted to inform you that HCR has achieved $307,000,000 of EBITDAR in 2019. This resulted in a full year 2019 EblaR coverage of 2.13x. More importantly, for the first time in 7 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 are seeing length of stay flattening, occupancy starting to build, cost remains under check, synergies are getting realized, and Arden Court 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 them 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 $4,000,000,000 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. However, 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 our owners such as our health system partners. Overall, on the transaction side, we had the most active year in the company's history with $4,800,000,000 of high quality investments and $2,900,000,000 of dispositions.
We have discussed these transactions with you in detail and they are listed on our earnings release. I would like to note 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 are out of favor at the right price, in the right structure. Our investment in HCR skilled assets at $57,000 to bed just 18 months ago and the disposition this quarter of 3 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 2019. 2, 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. 3, we think in real estate basis and unlevered IRR matters significantly more than cap rate. 4, 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 5 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 2nd major development we announced in last 6 months after 1,001 Van Ness project in San Francisco. 5, 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.
6th, we see an incredible demand of U. S. Senior housing product amongst the most highly sophisticated institutional investor today. We cannot be happier with our benchmark transaction in 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 $1,700,000,000 of 20.20 building to our guidance that Tim will discuss in detail, needless to say that we feel very optimistic that we'll have a very strong year of net investments. With that, I'll pass it over to Tim McHugh, our CFO. Tim? Thank you, Shankh.
My comments today will focus on our Q4 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 3 main themes: the consistency of our internal growth engine the volume of accretive capital deployment activity as we invested $4,800,000,000 across high quality senior housing and outpatient medical opportunities and the discipline of our capital recycling efforts as we had $2,700,000,000 of property dispositions, including $560,000,000 of high yielding LTAC and post acute assets and add $192,000,000 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. Now let me provide some details around our portfolio's performance.
First, our seniors housing triple net portfolio posted 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 0.01x. 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 healthcare lease acquired in the acquisition of QCP. EBITDAR coverage declined by 0.03x, driven in part by the addition of 4 development assets to the trailing 12 month pool.
As a reminder, we report our coverage a quarter in arrears. So this September 30 trailing 12 month coverage does not reflect any impact in 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 Q4 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 percent year over year growth and EBITDAR and EBITDARM coverages of 206 and 277 times respectively. Lastly, our senior housing operating portfolio continued to perform above our expectations. The 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'll now provide details on pool changes in our senior housing operating portfolio.
In the Q4, we had 9 assets 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 2 assets entering the pool. At year end 2019, we had a total 77 senior housing operating assets classified as transition properties, a net increase of 2 properties since the end of 3Q, driven by 3 assets that transitioned from triple net to RIDEA and one formal Brookdale asset that transitioned to a triple net lease. The remaining 74 former Brookdale and Silverado transition assets, 71 have been successfully transitioned and will all reenter the same store pool by or during the Q4 of 2020. Our guidance assumes a slightly positive impact on results from transition properties in 2020, and we will provide more color on this as we progress through the year.
Turning to capital market activity in the quarter. We continue to take advantage of a very strong bond market, issuing debt across 2 geographies in December. First, we issued our inaugural green bond, raising $500,000,000 of 7 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 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.
Secondly, we returned the Canadian debt market for the first time since our inaugural offering in 2015, refinancing our 2021 Canadian dollar maturity through the issuance of $300,000,000 of 7 year debt at 2.95 percent. In terming out our last remaining unsecured 2021 maturity, we removed all major unsecured maturities through 2022, meaningfully derisking our balance sheet for the next 3 years and increasing the weighted average maturity of our unsecured debt stack to 8.8 years. Additionally, we continue to access the equity markets during the quarter via our DRIP and ATM programs. In the quarter, we issued approximately 4,300,000 shares at a weighted average price of $85.19 per share for estimated proceeds of $364,000,000 As of today's call, through our forward ATM program, we have raised we have sold 6,800,000 shares of common stock that have yet to settle, representing $583,000,000 of estimated proceeds. Turning to leverage.
We ended the quarter at 6.37x 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 $1,000,000,000 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 mid to high fives by the middle of this year. Lastly, before walking through our 2020 initial outlook, I want to address 3 items pertaining to our total portfolio same store policy, an outline of which can be found on the Investors 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 5 full quarters of being in service. Development plays an important role in our senior housing investment strategy. And our lower 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 9 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 stabilization pattern is more straightforward for investors and attempting to create rules for each bucket. 2nd, 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 supplement disclosure, 2019 average full year SHOP NOI growth would have 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. Now 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 to $4.30 with total portfolio same store growth NOI growth of 1.5% to 2.5%. At the segment level, this NOI is comprised of outpatient medical growth of positive 2.25% to 2.75 percent long term post acute growth of positive 2% to 2.5 percent health systems growth of positive 1.95 percent and senior housing triple net growth of positive 2.25 percent to 2.75 percent and total portfolio senior housing operating growth of 1% to 2.5%.
At the midpoint of total portfolio senior housing operating growth, stabilized same store NOI growth is estimated at 1 positive 1.25%. On to guidance investment activity. Our initial FFO guidance assumes we are net sellers for the full year, with initial disposition guidance for the year of $1,700,000,000 at Well Power share, with an average yield of 5.1 percent. This includes a little over $1,000,000,000 of previously announced dispositions, including 740,000,000 dollars from our Invesco MOB joint venture and $675,000,000 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 totaled $1,100,000,000 as of today's call, made up of $320,000,000 that has already closed and approximately $820,000,000 of remaining MOB transactions that will close in the first half.
Lastly, on developments, we are approaching inflection point with our development pipeline as it pertains to spend relative to deliveries. We are relatively light year on the delivery front for the 1st 3 quarters of the year before delivering $210,000,000 of our $302,000,000 of full year deliveries in the 4th quarter. In 2020, we will deliver another $714,000,000 of deliveries against $468,000,000 of spend. So as this development portfolio starts to run out a little bit, we'll feel a bit of near term dilution, specifically from the show part of our development pipeline, as you will have $400,000,000 of deliveries from the Q4 of 2019 through year end 2020, creating $0.02 per share of drag on FFO for 2020 before stabilizing over the next 2 years at positive 6% to 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 the demographic trends across all of our geographies.
And with that, I'll turn the call back over to Tom.
Thanks, Tim. So 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. Now Liz, please open up the line for questions.
Our first question comes from the line of Steve Sakwa with Evercore ISI. Your line is now open.
Thanks. Good morning. I guess, Sean, 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 to 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 2 areas. 1 is on the senior housing side.
The other is our deals that are sourced through our relationship with health systems. Mostly, you will see that this year, other than the transaction that we have made or we have shaken hands 12 months ago or 6 months ago plus, will be mostly out of the MOB market this year. So senior housing and health system transactions directly with the systems.
And 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 look to deploy capital versus maybe where you spent capital in 2019? Are things better or getting tighter?
So, 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 last 6 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 'fifteen, 'sixteen, 'seventeen. 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 a development or off market acquisition, 1 or 2 assets at a time, and that market remains extremely favorable.
So we have a lot of either very small portfolios or a lot of one off assets, 2 assets, 3 assets that in the pipeline that add up to a big volume, but that's where we get our pricing and that becomes very accretive. So we're very, very optimistic, very, very optimistic about the deal pipeline this year.
Okay. And then just one follow-up for Tim. I appreciate all the commentary. I couldn't quite get all the numbers, so 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 so can you just quantify what same store, I guess, is being boosted by in 2020 just from the developments? Yes. So Steve, the numbers that I gave were 1% to 2.5% range for our total show portfolio, so 1.75% midpoint. And at that midpoint, it assumes the stable portfolio grows at 1.25%. Got it.
Okay. Thanks very much.
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 this Rev 4 occupancy and expense growth components embedded in your shop NOI growth guidance?
Hey, Jonathan, I'll take that. So as we talked to you about this before, the 3 big variables which moves where we land on the same store NOI growth, obviously, that's occupancy, that's pricing and obviously labor, right? I mean, they are the 3 major components. Without getting into too much on how those things will obviously change each other or influence each other, I want you to sort of think about is what we have seen in last, call it, 4 to 6 quarters, you will see flattish to slightly down occupancy and you will see 3 plus percent growth in the rates and we will see what we get on the labor side. As I said, 2 quarter doesn't make a trend.
We're not assuming that trend will continue. But if we do get some help on the labor side, what we have seen in Q4, if that continues, obviously, that will be upside.
Okay. So 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 Q4, again, don't take 1 quarter and run with it, but just if you look at U. S, in Q4, 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 is a significant difference of performance between large core U. S. Markets versus smaller markets. We are seeing that.
So I don't know exactly where that will get to, but I suspect that you will see a big difference between the 2 as we roll through 2020.
Got it. That's great. And then just one more for me. Tom, you talked about your partnerships with healthcare providers and capabilities in the prepared remarks, but 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, but clearly they come to you to gain something others don't provide.
So 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 because we can provide them such granular information about their target populations, it really helps them become much more efficient and effective senior housing operators. And 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. And this is a tool that they've really not had in their arsenal before.
So we see it as truly a differentiator. And 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. And from a senior housing operator standpoint, we see expanding the operating model of a senior housing facility by collaborating with 3rd parties like a CareMore can drive occupancy and increase length of stay and may offer opportunities to enhance revenue.
So we think that we're always focused on alignment that you hear, that's a word, other than optimism. You hear from us a lot, which is alignment. And it's not just talk. It's real. It's happening.
And 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.
Okay. Yes, I mean from us and 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. So,
that's right. Yes, Jonathan, it's early days. I think you'll start to see it's going to help you, I think. And over time, we'll point you to where we're expanding the service model in senior housing through these types of collaborations and you should be able to see better performance. So that will 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 will be more tangible.
Jonathan, just these things are hard to model, but I would just one way to think about it could be that if you look at just in last 18 months, we have talked to you about 8 new operators, right? I mean, and 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 out of these capabilities. So you can one way is 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 so far today as of today, we have invested more with every one of them. So 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.
So that might be a one way to think about that.
Yes. All right. Thanks very much for the color guys. Appreciate it all.
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 1?
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. So I would expect you will see that this year. And then 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, and 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, but I think with respect to Jefferson, it will start to be driven at scale because they're such a large system and we have a large portfolio. So I'd expect you'll see that in 2020.
Some of the other Clover housing model. Concepts like that, 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 health care with no address. That is allowing them to push out their products and services outside the hospital campus, and that's very much a focus of what we're doing together.
Thanks. That's helpful. And then, Shankh, just on MOBs, cap rate compression that you've seen there. Can you put some numbers around that? And then who are those incremental buyers that are driving cap rates down?
I mean, I'm not going to give you numbers. You have seen some very aggressive trades in recent times. Again, if you look at our what we're closing or talked about, in real estate transaction, you should take everything with a 6 to 9 month delay. So think about the announcement sort of we made during NAREIT and we should date that back 6 months, 9 months ago, right. So 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 we as we said several times, we think our bogey that we have to hit on an unlevered IRR basis is 7% or pretty close to that. And we think that asset class, if that asset class gets priced somewhere in the low 5s or 5, that makes absolutely no sense for our investors. So if the pricing gets there, we'll stay away. If the pricing remains sort of mid-5s, we will be active.
Thanks. Our next question comes from Rich Anderson with SMBC. Your line is now open.
Good morning. So I 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 were in exact agreement with your peers, namely Ventas and Peak?
And is there a chance that we'll get there at some point in the future, so that we do have this sort of a more agreeable sort of environment among the 3 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 has 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.
So yes, you referred 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 3 years speaks to the quality differential. And so 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.
So I don't think we are talking apples to oranges here necessarily in terms of senior housing portfolios. And I hope that we are putting this matter to rest because it's not a productive discussion.
Yes, Rich, and 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. And I think you're seeing some positive outcomes from that. And I think from our the presentation or the outline of our historical policies that we put out last night, you'll see there's a lot of familiarities between policies and what our commitment is to continue to provide investors with the information they need, particularly as it pertains to kind of differentiating quality between portfolios.
Okay. So like total portfolio versus just the SHOP portfolio?
Well, I think that's part of it is part of our thought is that total portfolio is the focus, right? And having, what we posted last night is our total portfolio approach and that's I think that the idea is that you buy Welltower because of our the exposure we have across all of our asset types and what that does to the consistency of our cash flow. And so 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. 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 1 or 2 in mind where that in fact has happened?
Yes. But I wouldn't be able to tell you specifically about that. But yes, that's one of the reasons why our performance is better. But I'm not going to call out specific operators on this call. But I will tell you that we give our operators an incentive to outperform.
And 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, but think about how we have changed the business on what an ideal Trio 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. But just think about what we have done on our loan books, right, 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, right, completely. So the fundamental idea behind this kind of loans are flawed. So we don't do that anymore. So that's why you see that our loan book has come down. But anyway, I hope that those two examples sort of gives you some ideas to in what line to think about.
We're happy to speak with you offline.
Yes, 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, fun one example, no fault to them. It just was a function of you guys setting that up well. So I just want to
That's a credit transaction. Yes. Yes. That we're protected by the credit at the parent level.
And 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 seen just in 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 it.
If you go back and look at their presentation that they presented at the JPMorgan Healthcare Conference, that lays it all out. So very, very good example. That's where our interests are aligned, and we will see that we'll continue to grow with them.
And that's coming from a guy who didn't like it very much at the outset. So so good for you. Thanks, Rich.
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 $740,000,000 SHOP portfolio that is subsequent to quarters and 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? And then 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. So 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 Radia 3.0.
And 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 investors. We have a tremendous amount of respect for them and we do a lot of business with them in different places. So 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 plus percent of our operators today, number of operators today are in that Radia 3 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. So that's something you should consider as to why we might choose to sell some portfolios that look to be and are very, 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 mean, I think this is the first time you're including this in guidance. So 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, And the question is, what do you feel will be the long term growth rate of the health systems?
So, Derek, so that is obviously that bucket is if you think about it, it's a ProMedica bucket. As you know, the 1st year, the escalator was 1 point 3 5%, 3.75% and going forward is 2.75%. I believe we closed the transaction on July 26. So you have a mix of a 1,375 and a 2.75, but when you get the full year, you will get to 2.75. So 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. And obviously, in other asset classes, you can think of multifamily as ABC and other asset classes, some different breakups. But 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 right area that you've done for the existing portfolio. Just kind of walk us through how to think about that market from in terms of differences in terms of pricing and structure?
Yes. 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 in across the market. But if you think about, generally speaking, across all markets, wages have been going up, whether that's sort of a move or 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 understands 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 and of the inflation that much. So we think somewhere in the middle, the problem is you are still facing the labor and a move towards that $13,000,000 $14,000,000 $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. So you've got to concentrate on the market where you can do past that pricing or you have to be in markets where you are not providing that one to one hands on hand care and you are sort of a low service model.
So that's sort of we're focused on. Just 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 effectiveness apartments. And as a REIT, we can own apartments and have complete control. We don't have to get into ARIDIA Trio type structures 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. And then, Tim, could you just clarify the 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 stabilized, what are you sort of excluding?
Because the development properties, I think, you laid out, they come in post 5 quarters?
Correct. So the development properties come into the pool post 5 quarters. So we've got a duration based rule on that. And they don't stay what we said is we they don't stabilize from for this metrics purposes until they're in for 9 quarters. And in my prepared remarks, I went through some of the reasons for that.
So the non stabilized portion or the of the same store portfolio is made up of those assets that have entered the pool, but haven't hit that stabilization point yet.
The 9 quarter, okay. And what is the stabilized number for 2019?
The stabilized
number for
2019 is 150 basis points lower than our 2.7%.
Okay, great. And then, Tom, just one last one. You've talked a lot about the partnerships with the health systems, kind of how 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 do you see this as being what types 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. And there's also boards involved. And 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. But these are not quick.
They put an RFP out and you're responding to it. These are very nuanced relationships that take time. And so there are a number of them simmering on the stove right now that look like Jefferson. I mean the fact is the truly the high AA 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 have a 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 we are just another ore in the water of capital. So 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. So I would just say stay tuned, but we are actively 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 believes that healthcare should be delivered primarily within the confined 4 walls of the hospital. And so they'll probably will have a different tact versus a lot of health systems belief that health care needs to be out in the community or in where people live and sort of have a more of a comprehensive approach to health and wellness. And you will see more of them will be our partner.
Yes, 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 is a broader value proposition that we present.
It's not just about cost of capital and that's why we are growing the way we are growing through off market transactions because if someone is 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 increase 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 above 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. So it will be an impossible task to get into that. But 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.
So I mean, I know there's obviously there's a pretty broad disparity probably also in terms of same store NOI performance across the portfolio. But 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 releasing?
Yes. So let me tell you about the disparity. I talked about the disparity of operators from an NOI perspective, right, mid single digit negative to double digit positive. And not just I'm not picking the endpoints here, just give you a pretty big granular difference there. Let's talk about pricing.
We had one operator who has seen pricing in the mid-five range, bunch of operators have seen pricing in the sort of the 4 to 5 range and a lot of people have seen that sort of 2% to 3%, 3.5% range. That sort of gives you the broad spectrum. I've seen one that has the sort of the lowest Remember, what happens on an overall cost basis, you come in, 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? So, from a care revenue perspective and eventually, so say, there are care levels of 1% to 5%, I'm making this up to make a point.
Yes, I get it.
You come in at a 2, but 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? So, but from a so what we are seeing and we have seen, this is no secret to anyone, we try to keep the level same. So we the higher acuity people leave, lower acuity residents come in. So, mark to market on the care side is always negative. On the real estate side, remember there's 2 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. So that gives you a sense of what happened.
Shankh, 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? I will Acuity of care rising?
Yes. I will take that up with my team and talk to you offline.
Okay. And then 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 thenpartners and then perhaps expectations coming from CMS regarding recommendations for reimbursement come April?
Yes. So first is, I think it's too early to comment on what the impact of PDPM. So we will first sort of that something it will take time for everybody to understand and it will have different impact on different platforms, very different impact. So that's 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 ATM 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. 2nd, 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 years.
I think our regulators understand that. There's been a lot of bankruptcy filings in that sector over the last 2 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 and negative, differently on different platforms.
All right. I'll 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.
Good 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 like 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.
So generally the way it works that you have an extraordinary related team related who leads this particular vertical. Brian interacts with my team and works with our data team directly. It's a two way process. They are extraordinarily good developer. We look at whether they find a site or we find a site, we look at that.
Then 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. So, but you are correct that every site, possible site we look at, we do it through our that goes through our analytics process and we then debate. I'll give you an example. For example, in D.
C, we have so far passed on several pieces of parcels because we couldn't get to what we're actually trying to build. So there is a lot of sauces making 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 operating your 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? And maybe how do you think about creating and building your own Welltower brand within that segment?
So Dan, 85 percent of seniors have incomes of less than $50,000 a year. And 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. And that is not what we are 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.
But when we talk about some of the markets in this country that we currently own assets in, these are addressing a tremendous unmet need. And the opportunity for people to live in safe housing that is designed to accommodate a long arc of aging with rents of $900 to $1200 a month. That is there's a tremendous opportunity there. And 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. And 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. And 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 the exact same problems we talked about, but we're not focused on the high, high end of that business. So 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 are focused on the high end of that product, very high price point, dollars 3,000 $2,500,000 something like that. If I understand correctly, we're focused on the lower end of that product, dollars 1,000 $1200 $1500 So it's a different product.
Okay. That's actually really helpful to understand that And 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 expertise, Anything that might cause a little bit of drag on FAD, AFFO?
Or is that simply the MOB's locations 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 Concoli. I would say we're 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 focus on the business, I would say, is what's really resulted in our increase in our occupancy.
Dan, one thing I'll 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.
We 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. So 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 MOBs are sort of this asset class that we need to strive for.
We just don't. We just don't think that's the model of healthcare what the future is going to be.
That was certainly the view at RAVISTA 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.
Tom or Shankh, can you provide some color on that low acuity senior housing product that you guys have 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 have invested close to $500,000,000 Some of the products do exist and our team has actually just closed a transaction of 3 assets in Vegas recently, actually last couple of weeks. The products do exist, but not in terms of the acquisition volume that you would 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 2 years ago, we're 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. And we have been absent from the 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. So, I just want you to understand that. That'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 a 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. But 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 the business.
Mike, I would say at our Investor Day later this year, this will be an area of focus that we'll present. So 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, yes. Good morning, everyone. Good morning, Tayo.
Hi. So 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. And I think again just kind of giving 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 sales also makes perfect sense. So the question I have for you is 12 months from now, do you guys kind of still see yourselves if you kind of look at the through the mirror on a backwards looking, do you still see yourselves as a net seller for the year? Or do you kind of think, given your positive commentary on the acquisition front, that you could still kind of see yourselves as a net buyer by the end of 2020?
Ira, we just gave 2020 guidance this morning. Now you want 2021?
No. Look at 2020 backwards is what
I mean. No, 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. And so Sean spoke to the optimism we have on that side of the business, but we're not going to certainly not going to put things in their numbers before they've been funded.
So part of the reason you're correct in saying we're net sellers. We certainly we control the sales, and we control the process of stuff under contract. But there's a reason we don't kind of 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 would 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. Again, but it is capital markets dependent, it is opportunity dependent, it is return dependent.
Got you. That's helpful. And then ProMedica, again, great pricing there, in fact amazing pricing there. Any thoughts around maybe monetizing more of the portfolio going forward?
We are extremely, extremely happy with that we should take advantage of that, we'll do that. But in generally speaking, we're very happy with the relationship and we will continue with the relationship, but obviously it's not get 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. So they are thinking about the same thing that you and I are. So we will see where we get to.
Sounds good. Thank you.
Thanks, Todd.
Our next question comes from Steven Valiquette with Barclays. Your line is now open.
Great. Thanks. Good morning, everyone. Thanks for taking the question. Just 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 sound like you were hopeful that the improving trend would stick, but you didn't have perfect visibility on it. Like I said, 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 or maybe it's just too early to declare victory on sustaining those trends? Just 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 will I do not want you to think that labor cost is being flat.
My whole point was on a sequential basis and perhaps, just perhaps, the second derivative of that growth is somewhat flattening. So it is still a big number that's growing big time. Maybe the rate of growth, what we have seen in last 3, 4, 5 years, hopefully, that is not going to be as bad as we have seen. It is a combination and that is a hope. I specifically said that we did not put that in our guidance.
So 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 4 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 1 such that has helped our largest operator Sunrise to reduce the turnover 30%. So, we are not sitting on our hands and trying to get to somehow trying to 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 Phillips 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 at 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 2 FTEs to every resident. And I remember thinking, and that's a good thing. That's not a good thing. That is not sustainable. And so we're looking for how do we improve resident experience and care and do it at a lower cost of labor.
And the only answer we can think of is technology. And the fact is, we are going to have a great example to look at, which I know is just a few blocks from where you work, Steve. So we will have a chance in the later part of the spring, early summer to have you see what's happening there. But we are excited about that. That's part of what we think we need to do as a company.
We are 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.
So stay tuned for more of that.
Okay. Also, I mean, I definitely got the sequential part, by the way. I mean, on Page 3 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% to 5% that gets talked about. Also just final thing on this subject, I was going to suggest a little bit 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, you're reemploying them at lower wages into assisted living, but obviously, it's not that simple. But could that at least be a general factor in supply demand dynamics around skilled labor overall or do you think that's not really a factor?
Steve, I'll just I'm not an expert in that area and I'll stay away from making any comments. I'm happy to connect with you connect you with our operating partners and the CEO of those operating partners. But by no means, I want to pretend that I'm an expert in that area. So we'll stay away
from that. But just
to answer that, what I have seen is as the senior housing concept moves more in the direction of being part of the health care continuum. It attracts a different caliber of labor force. And 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 also they also own skilled nursing properties. And they will tell you that there's an extra level of credibility because these properties are associated with a highly respected health system. So it does attract a better labor force And oftentimes, they have to pay them less because people see a broader value proposition being associated.
So 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 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. So again, I always say this, but stay tuned.
I mean, we're so excited about where this is headed.
Okay. Appreciate the extra color. Thanks.
Our next question comes from Nick Joseph of 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 Q4. And then you have the forward and then the disposition effective guidance that's there, which by the summer, if you take them forward, would get you to do the mid to high fives. How should we think about it sounds like there's a lot of optimism here on the investment pipeline that you're not going to end up with a $600,000,000 net disposer.
How should we think about the funding of that net investment from this
point forward? Yes. Thanks, Mike. From this
point forward.
I think that's the my prior comment on kind of where acquisition guidance is relative to where it may end up is that my intention in saying that is directed towards this question, which is if we are end up being a larger net acquirer or if we end up being a net acquirer, we will fund that all in real time. So on the capital recycling side, particularly as you kind of report that leverage metric 4 times a year, you can have a bit of choppiness in it. But there is just a bit more of 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. So you should assume that kind of leverage.
My language around leverage holds our list of where we end up on the net disposition or acquisition side for the year.
So is there I guess based on the acquisition pipeline you know today, would you should we expect you would do a big forward equity offering, so that you can take down those proceeds as those deals closed? Or you're more apt today to sort of look at your portfolio and say, you know what, let's push more into the sales market today? Because obviously selling assets and raising equity given where your stock trades have very different accretion implications. And so I just didn't know which way you were leaning.
Yes. And 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. And so 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 earnings stream for the long term. So the decision to sell has been has not been driven by where the capital markets kind of are at. In fact, it's been counter to that. And that was part of my opening remarks, just try to get that point that we are there's drag from how we've been continuing to capital recycle. But we think that's the right move.
And this is the cycle is we're not calling the cycle, but it certainly is closer to the end than the beginning. And we're very aware of that. So that plays into the way that we capitalize in lockstep and certainly plays in 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.
I'll just add one thing to that and I think you're now tired of hearing it from me. Near term accretion is a question of cap rate and we're not a cap rate buyer or a cap rate seller, right? We're a total return buyer and total return seller. So there are still 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 10 Q, 10 ks 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. But 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?
Yes. No difference. There will be no difference in methodology there. And the two points you made, FX and pro rata are explained 80 plus percent of that delta. And then we talk about when I talk about aligning our policy in our SEC docs more with kind of how we look at in supplement.
Part of that is that we things like transitions, things impact same store that we don't those policies differ between those two docs at this point. So that the idea is that we'll align those more as the year goes on.
Right. But
historically, the stabilization methodology, this 5 quarter that you or 4 quarter and then rolls in the 5th, that application was identical between the number in the sup and the number in the 10 Q and 10 ks. There's no difference in guideline or methodology or rules that you were using specifically on that item?
Correct. We've always that's the I mean, the commentary upfront was just supposed to kind of give you an idea. The reason why we approached 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.
But those that 5 quarters in is in both of those pools.
Okay. And then Tom, I may just finish with you just on this topic. And it sounded like from your answer to Rich's question You've had discussions with the other 2. The other 2 clearly came out consistent on Tuesday night. It seems as though there are differences, or else you guys would have 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. I don't think that one, I think that we want to avoid kind of getting into how that conversation played out. I think that 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. But I think what was stressed there was that we want to our approach to this is on a total portfolio basis. So 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 an approach different approach to the management.
And Michael, as I said earlier, we believe with respect to senior housing, we're a very different business than those other companies. And so we 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%. So it's not just an upside game we're trying to play.
I mean, this is we have fought very long and hard and with other 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. So we stand by that. And given that the scale and the dominance that we have, we think we're in the best position to dictate what a policy should be.
Right. And that 150 basis points, the 275, down to the 125, the impact of the stabilization from the development, that's for 2019. Tim, are you saying that the effective $125,000,000 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?
Yes. I'm going to be clear to say that we're not 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. But that your question on kind of the mimicking side is our intention is to get more disclosure around it. So you can make adjustments or kind of view the numbers how you want to across different companies.
But most importantly, this is for our investors and the way we think investors should view our numbers. So I'm not going to comment on kind of how that compares to other's policies.
One thing I'll say, Michael, if you just you took the 150 basis points comment, but the other difference, CACI point that Steve laid out is the normalizers, right? So you if you are trying to get to a specific type of disclosure, I would not just take 1, I would take both. So the net difference would be $100,000,000 not $150,000,000 And 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.
Yes. I think I mean 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're hearing we've heard from you, investors, etcetera, and that's what we'll continue to provide.
Okay. I appreciate you guys taking the time.
Thanks, Mike.
Our next question comes from Chad Vanacore with Stifel. Your line is now open.
All right. Since call is running long, I just keep it one question. Just thinking about your ManorCare, it seems like it hit your expectations and since you'll be absent from the MLB market, can we see any expansion of the SNF portfolio this year? Maybe add some details about how you're viewing the market for SNF 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 $300,000,000 EBITDA.
And as you look at what in my prepared remarks, I said they achieved $307,000,000 EBITDA. So that's sort of point number 1. Point number 2 is where 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.
Yes, hi. Just a quick one. Same store policy aside, what has been the average time to stabilize your senior housing developments? And 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 3 years to stabilization. It depends on obviously product to product is different, market to market is different. Usually we have seen sort of between call it 18 months to 36 months of stabilization. It does matter, 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 that's obviously that product will probably take 3 to 4 years to stabilize, it's stabilized in 8 months. So it really depends what the product is, what the offering is, what the demand of the market is. But a 3 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 sub is an annualized number. So if you look at in any given quarter, you are looking at year over year, you have to divide that by 4 And 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 'eighteen versus 4Q 'nineteen.
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 4 is what you get. You understand what I'm saying that is not
Yes, 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, Juve. I don't want to get into these discussions of different operators, but I can tell you that Belmont actually had a very, very good year and 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 the 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 Q4, it was 80% of your senior housing NOI was in same store, 67% of the properties. What is it for 2020?
So it will grow throughout the year. By the end of the year, we'll be back at more than 90% of the pool is going to be in or of our assets will be in the pool. So one of the reasons as you know that dip below that kind of historical number has been the transition piece. And importantly, that's not those assets weren't in senior housing operating. They were in triple net.
So it's we've added assets to that show 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. So in reality, if we don't buy anything, it probably is well above 90%. But just thinking about kind of where it it sat historically, we'll be back at or above kind of historical trends by the Q4. 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.