Good morning, ladies and gentlemen, welcome to the third quarter 2018 Welltower earnings conference call. My name is Regina, and I will be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero, and an operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would like to turn the call over to Tim McHugh, Senior Vice President, Corporate Finance. Please go ahead, sir.
Thank you, Regina. Good morning, everyone, and thank you for joining us today to discuss Welltower's third quarter 2018 results. Today, we will hear prepared remarks from Tom DeRosa, CEO, Shankh Mitra, CIO, Keith Konkoli, SVP Real Estate Services, and John Goodey, CFO. Before we begin, let me remind you that certain statements made during this conference call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act of 1995. Although Welltower believes results projected in any forward-looking statements are based on reasonable assumptions, the company can give no assurances that these projected results will be attained. Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in this morning's press release, and from time to time in the company's filings with the SEC.
If you did not receive a copy of the press release, you may access it via the company's website at welltower.com. With that, I will hand the call over to Tom for his remarks on the quarter.
Thanks, Tim, and good morning. I'm pleased by the financial results and improvement in operating metrics that we report to you this morning. Continued positive NOI growth across all our business segments has given us the confidence to raise our 2018 FFO guidance by $0.03 at the low end and $0.01 at the high end, or a raise of $0.02 at the midpoint. From $3.99-$4.06, to $4.02-$4.07. Despite the fact that we raised $232 million in equity in the quarter under our ATM and DRIP programs at a weighted average share price of $66.07. We've been talking for a number of quarters about dispositions and restructurings. These initiatives enabled us to de-lever and improve the quality of our cash flow.
In 2018, we have shown our ability to reinvest accretively in assets and operator relationships that are aligned with our well-articulated strategy and will drive earnings growth. Welltower's value proposition, which connects seniors housing, post-acute, and ambulatory sites of care to dominant, financially strong health systems, is being embraced by the broader healthcare delivery sector and truly differentiates us from REIT and other capital sources. A knowledge-based strategy aligned with our proprietary data and analytic capabilities is enabling Welltower to drive hundreds of basis points better relative operating performance from our senior housing assets, even in a challenging new supply and labor environment. Shankh will go through our operating performance in greater detail. We are encouraged by our positive results in this part of the cycle.
Our strategy has enabled us to attract a next generation of senior housing operators and assets as we have sold or restructured over $8 billion of non-strategic real estate or misaligned legacy operator relationships in the last 24 months. In a sector that has seen little capital deployed into long-term real estate assets, Welltower has completed approximately $3 billion of high-quality accretive investments and developments year to date. The year is not over. In addition to the $2.2 billion ProMedica joint venture that closed this quarter, today we announced nearly half a billion dollars of new medical office investment, including an expansion of our growing portfolio with The Johns Hopkins Health System and Providence St. Joseph Health. Keith Konkoli will tell you more about these investments.
John Goodey will take you through our third quarter results. I hope you will agree that the investments we have made in people and technology, as well as having made tough decisions, has best positioned Welltower to drive shareholder value as healthcare delivery transitions to lower cost sites of care that will improve health outcomes, particularly in view of the aging of the population. You'll be hearing more about this at our Investor Day to be held at the St. Regis Hotel in New York City on December fourth. Over to you, Shankh.
Thank you, Tom. Good morning, everyone. I will now review our quarterly operating results and provide additional details on four topics. Number 1, show results and trends. 2, senior housing triple net business. 3, HCR ManorCare ProMedica joint venture. 4, capital deployed in the medical office segment. We remain confident in our ability to execute at this point in the cycle, especially given our unique data science capabilities, and are excited about the path towards further value creation, which I will detail you for here. In our Q2 call, we told you that we're encouraged by the return of seasonality to our occupancy trends. Our year-over-year occupancy decline went from 200 basis points in Q4 of 2017 to 190 basis points in Q1 of 2018 to 110 basis points last quarter.
I'm delighted to inform you that gap is only 10 basis points in Q3, and it's actually up 10 basis points in the month of September. Perhaps more significantly, we have been able to effectively close the occupancy gap while holding the rate growth for overall portfolio as 2.8%, driven by major U.S. markets, which is up 3.2%. This speaks to the exceptional quality of our real estate and our operating partners. We had a strong summer where we saw seasonal strength not seen over the last few moving seasons because of the heightened deliveries had absorbed difficult seasonal demand. To provide you some more context, Q3 over Q2 sequential occupancy growth of 80 basis points is the best we have seen since Q3 of 2014. This allowed year-over-year revenue growth of 2.9%, which accelerated for the first time since Q3 of 2014 on a sequential basis.
Clearly, we are encouraged by the trends. Having said that, I would caution you not to draw any conclusion from one quarter of numbers, but focus on longer-term trends. Senior housing is an operating business and will continue to see some volatility as with any other cyclical business. Our extremely diversified portfolio across geographies, operators, product type, and acuity does provide a unique diversification benefit that others cannot even remotely replicate. A second topic I would like to discuss is our senior housing triple net leases. Many of you asked whether any lease will survive this cycle and how many leases will be converted into REIT structure. Our answer has been and remains that real estate and operators first and structure second. We continue to believe that in the triple net structure, when a well-aligned lease exists, where both the operator and Welltower shareholder can make money.
In that context, we're delighted to inform you that Brookdale has agreed to renew our SALI master lease for the next eight years. As I mentioned in the last quarter, with $28 million of cash rent, this was our biggest exposure in our entire triple net business. The lease leaves current base rent in place through 1/1/2019, at which point rent increases at the contractual amount thereafter. Welltower has the opportunity to fund some CapEx on a contractual market return, while Brookdale remains responsible to fund CapEx per the existing terms of the lease after that. We think Brookdale, which makes money from the lease today, will improve performance and will drive even more profitability as it leases off from a cyclically low occupancy. This renewal effectively eliminates any material lease maturities for Welltower until 2024.
This brings me to another topic and a rhetoric du jour, that if an operator has low EBITDA coverage, then they will walk away from a lease. That sounds a lot like the pundits who predicted that anyone with negative equity in their house coming out of the last recession would return their keys to the bank. I would like you to at least consider that the operators see their cash flow in terms of EBITDARM, not EBITDA. They consider cyclically low cash flows relative to their long-term potential, have G&A and scale implication to their broader business, and often build great businesses over many years that they wouldn't necessarily want to give up right before a multi-decade silver tsunami. A majority of the business that go through cyclical lows do not return their keys as this foregoes their ability to participate in the recovery.
Welltower has a unique platform with many operating partners in all major markets. We have alternative plans for every asset and are happy to execute on those plans if need be. However, we will not put any asset in our SHOP portfolio unless we believe they will have superior long-term growth prospects. There are definitely other tools of alignment, as we have demonstrated from the SALI example. We can also leverage structuring rights such as rent reset, which drove the senior housing triple net growth this quarter, subordination of PropCo interests, or other tools that are available to us. To the next topic. We are excited about the closing of the HCR ManorCare transaction in Q3. The integration process has started with a great plan and is on target.
The only financial update we want to provide you is that ProMedica and HCR leadership now expects higher synergies than we expected previously. You will hear more about this topic directly from Randy Oostra and Steve Cavanaugh at our Investor Day on December 4th. We are encouraged by the green shoots in the skilled nursing industry and already improving occupancy picture throughout the Arden Courts portfolio even before our CapEx program is executed. We continue to believe we will create extraordinary value for our shareholders in the long term from this transaction, perhaps even more than what we anticipated. Lastly, we are really pleased to highlight that after a long hiatus, we are in agreements to deploy about half a billion dollars of capital into very accretive medical office transaction, and we are confident in some additional off-market transaction in Q4 and Q1.
We mentioned to you before that we like medical office business very much, the pricing of recent trends has not made any economic sense to us. Especially given many of these portfolios include as much as 20%-25% of hospitals, ARFs, and other assets that command significantly higher cap rates. We have been disciplined and invested all our efforts to build new relationships and expand existing ones, which we believe will bring additional opportunities to deploy capital in the near future. We are extremely happy to have under contract for approximately $400 million on a very high-quality portfolio of 23 class A medical office properties affiliated with major high-quality healthcare systems with an average age of 10 years. Keith, who had a long-standing relationship with the principals, will provide you more details on the portfolio.
While we are very encouraged by the going-in cap rate and total return of this transaction, we think the IRR will be significantly enhanced by the already identified development opportunities. In addition to the announced acquisition of high-quality medical office building on the campus of Johns Hopkins Howard County Medical Center, we are also delighted to inform you that we have signed a development agreement with Johns Hopkins to develop new complementary sites of care on the land under this transaction and three others we currently have with the health system. Over the last two years, you have heard from us how we are positioned for cash flow and NAV growth. We trust all our actions this quarter demonstrated to you that we are squarely on that path to capture the next level of value. While we cannot sound the all-clear on fundamentals, we are encouraged that the outlook for value creation is getting better.
With that, I'll pass it over to Keith Konkoly, head of our outpatient medical business. Keith?
Thank you very much, Shank. Good morning, everyone. I appreciate the opportunity to be able to spend a few minutes on our outpatient medical business. I recently joined Welltower after spending nearly 20 years with Duke Realty. At Duke, I oversaw all facets of the medical office business, including development, leasing, asset and property management until the sale in June of 2017. Having led the very successful exit at Duke, I took the time to evaluate the right next opportunity. It was important to me to join a forward-thinking company and was very intrigued by Welltower's mission to partner with health systems to reduce costs and improve delivery of care across the continuum using creative real estate solutions. I feel fortunate to have the opportunity to be part of this team.
I've spent my first 180 days getting to know the portfolio, the team, and the systems that Welltower built over the last 17 years. I'm happy to report that we have a fantastic high-quality portfolio that is affiliated with some of the best healthcare providers in the country. Naturally, as with any large portfolio, we have work to do. We have a best-in-class team that can tackle any challenge and have built systems to provide best-in-class service to our tenants and health system providers as we drive growth in our future. Our team truly understands how to operate a real estate portfolio in a way that balances client satisfaction and value creation. We've built our portfolio by taking a very disciplined approach, sitting on the sidelines when pricing expectations became realistic, and stepping up our activity as we find the right high-quality accretive opportunities.
I believe one of the most exciting things about our portfolio is the embedded opportunity. We have been very purposeful in partnering with financially strong, leading health systems that will be the drivers of change in the evolving healthcare environment. Shankh highlighted some of our recent activity in the outpatient medical space. Specifically, he mentioned the 23-property portfolio that we'll be closing shortly. I'm particularly excited about this acquisition as it strengthens our relationship with several of Welltower's existing partners and introduces new partners into our fold. These represent some of the most financially strong, successful, and forward-thinking health systems in the nation, all of whom have a history of partnering with third-party capital. I've had the pleasure of working with all of these systems in my time at Duke Realty and look forward to making the full power of the Welltower platform available to them.
Shankh also mentioned our impending acquisition, adding a fourth building and over 160,000 sq ft to our Johns Hopkins-affiliated portfolio. This class A building is in partnership with one of the nation's leading institutions and an outstanding network of distinguished physicians. In parallel, Shankh also mentioned this, we recently signed a development agreement with Johns Hopkins Howard County General Hospital. It calls for the exploration and development of alternative sites of care focused on meeting the hospital's growing need to care for the aging population. This builds on our existing Johns Hopkins relationship and demonstrates how we are using our platform to help health systems implement their real estate strategy to meet the public health and clinical needs of their patient population. I look forward to talking to you more about these transactions at our Investor Day.
Lastly, I would note that we believe the multiple recent partnerships that we've announced are the precursor to future growth in the segment. Our discussions with the best U.S. health systems continue to advance. The pace of the dialogue is increasing. Our partners look to us to help facilitate their broader real estate strategy and make connections with the best-in-class operators in adjacent sectors such as seniors housing and post-acute.
With that, I'd like to turn it over to John Goodey, who will take us through the financial highlights of the third quarter.
Thank you, Keith. Good morning, everyone. It's my pleasure to provide you with the financial highlights of our third quarter 2018. As you have just heard from my colleagues, Q3 has been a successful and very active quarter for Welltower, whether it be in investing, portfolio management, or improving our income quality and balance sheet. This quarter was particularly active in investments completed. In aggregate, we invested $2.2 billion in acquisitions and joint ventures in Q3 at a blended rate of 7.9%. We also placed three development projects into service, totaling $96 million at a blended stabilized yield of 8.5%. Alongside these, we completed $256 million of dispositions and received $60 million in loan payoffs. I'd like to expand on Tom's comments as to the continued increase in the quality of our income line.
Over the last five years, we have divested $8 billion of assets as we refined our portfolio towards future earning stability and growth. In that same time period, we have recycled this capital and invested in and developed over $16 billion of high-quality assets with financially strong best-in-class partners, often in premium locations such as New York, L.A., London, and Toronto. In addition, we've also significantly reduced our earnings from our loan portfolio. Welltower, as an organization, continues to improve our operational excellence, and I would like to thank our colleagues that work judiciously on this every day. These efforts enabled us to report G&A costs for the quarter of $28.8 million, a continued reduction over prior year levels. Our overall Q3 same-store NOI growth was 1.6% for the quarter, slightly above the midpoint of our full-year guidance. All our business segments grew in Q3.
Senior housing operations same-store NOI grew by 0.3%, and as you heard from Shankh, we are encouraged by the recent occupancy improvements. Seniors housing triple net growth was strong at 4.2%, with both outpatient medical and long-term post-acute growth at 2.1%. Today, we are able to report a normalized third quarter 2018 FFO result of $1.04 per share. As in the past, we do not include one-off items such as lease modification or loan repayment fees in our normalized numbers. Last quarter was also very active for Welltower on the balance sheet and capital front. Our Q3 2018 closing balance sheet position was strong with $191 million of cash and equivalents and $1.7 billion of capacity available under our primary unsecured credit facility. Our leverage metrics were slightly above trend.
Expected dispositions will reduce this number significantly in the coming quarter or two, and I would reiterate that over time, our plan sees our leverage returning to levels generally seen prior to the acquisition of QCP. In July, we closed on a new $3.7 billion unsecured credit facility with improved pricing across both our line of credit and our term loan facility. In August 2018, Welltower successfully placed an aggregate $1.3 billion of senior unsecured notes across 5, 10, and 30-year tenors with an average maturity of 15.4 years and a blended yield of 4.4%, again demonstrating our strategy of managing our balance sheet in a long-term, durable way. In addition, during Q3, we raised $232 million through our ATM and DRIP programs at an average price of $66.07 per share. I would now like to turn to our guidance increase for the full year 2018.
We are increasing our normalized FFO range to $4.02-$4.07 per share from $3.99-$4.06 per share prior. This is based upon updated current operational performance expectations with the full year 2018 overall expected adjusted same-store NOI guidance range remaining at approximately 1%-2% and a reduction in anticipated disposition proceeds from $2.4 billion-$2.2 billion at a blended yield of 6.0% overall in 2018. As usual, our guidance includes only announced acquisitions and includes all dispositions anticipated in 2018. On November 21st, 2018, Welltower will pay its 190th consecutive cash dividend of $0.87. This represents a current yield of approximately 5.3%. With that, I will hand back to Tom for final comments. Tom?
Thanks, John. As you've heard from Shankh, Keith, and John, the broad strategic overhaul that we initiated at the start of 2017 prepared us well to manage the current operating dynamics of the senior housing business. If we are bumping along the bottom of a cycle now, our positive Q3 financial results and improvement in operating metrics should give you some level of comfort. The fact that we've been able to identify approximately $3 billion in new strategic and accretive investments year to date demonstrates that we are further well positioned for earnings growth as the cycle turns. Regina, please open up the line for questions.
Ladies and gentlemen, if you would like to ask a question, please press star then one on your telephone keypad. To withdraw your question, please press the pound key. Please limit your questions to one question and a related follow-up so that all callers may ask their questions. You may reenter the queue by pressing star one again. We'll pause for a moment to compile the Q&A roster.
Our first question will come from the line of Steve Sakwa with Evercore ISI. Please go ahead.
Thanks. Good morning, everybody. I guess I wanted to maybe just touch on the senior housing operating platform and kind of, A, your expectations on sort of when that business turns. It sounds like it's picking up. As you sort of look out, how do you sort of look at the supply picture? I don't know if Shankh or Tim, I know the pool changed a little bit this quarter from last quarter, and I'm just trying to see if you could give us a little bit more detail on how some of the maybe changing pool dynamics impacted same-store growth this quarter.
Sure. Steve, obviously, you have three questions there, we'll talk one at a time. First, the pool change. We don't talk about specific operators. We have a very strong same store policy that you have to wait if there's an operator change. You have to wait for five quarters for assets to come in. Without getting into the specific details, I think there's some implication you guys think that we restructured our other relationship and that's driving same store. I would point out that if you go to the last quarter's call, Tim walked you through how the decline on those pools that we have changed actually hurt our earnings.
The second point I would point out that if you look at page three of the supplemental and look at the total occupancy growth of the entire SHOP business, you will see that there was 100 basis points of occupancy increase. For same store, it's only 80. That tells you it's a broad-based trend we have seen, and obviously it's a billion-dollar business for us, five assets going in and out really doesn't change the fact. I'm trying to point you to the page three of the supplemental where you see the overall our SHOP business, and you'll see there has been more increase relative to the same store. Going back to 2019 supply question. This is a very broad topic and probably not suited for this call. We have an Investor Day coming up.
We can tell you we will have a very detailed discussion about this particular topic. I want to tell you how we see supply. It is just not market-level supply. We have a data science team that is very, very granular. We have built a metric called ACU, which is adjusted competition unit, which is based on not only the number of supply, but also the covariance of different products, drive time, exponential decay of drive time, and other machine learning algorithms into it. We have very specific view of how many of the new supply impact our property. We have a shock factor. We'll walk you through at the same store. All those details are Investor Day. Needless to say that you are hearing that we're encouraged about the outlook.
We're not necessarily saying that we're calling for a bottom in any industry, but we're definitely encouraged by the outlook, and we'll have a more broader discussion about this topic on our Investor Day.
Our next question will come from the line of Juan Sanabria with Bank of America. Please go ahead.
Hi. Just maybe a broader question for Tom. You kind of highlighted that you see yourself different as versus all the other REITs out there. Do you consider yourself a REIT? If not, what's the key difference?
I consider the company a healthcare delivery platform that's very real estate heavy. REIT is not an industry, it's a tax election. Because we are a very property-heavy company, it makes sense for us to elect REIT tax status. I don't think I have that much in common with other REITs in other sectors because they invest in different property types. We invest in healthcare assets. Our business model is much more than buying and managing real estate assets in a fund-like operating structure. We are intimately involved in the operations of this business, whether it be our senior housing business, whether it be our medical office business. I would remind you that REIT is not an industry, it's a tax election.
Got it. Thank you for that clarification. Just on the FFO guidance, are you including the MOB acquisitions that are scheduled to close in the fourth quarter? What was the cap rate on those acquisitions, that $400 million portfolio?
Yeah, I'll touch on the FFO aspect of it and Shankh can comment for Keith on the actual transaction. There's no impact from the acquisitions there. From a modeling standpoint, we should consider them occurring at the end of the year and having no material impact on 2018 numbers.
On the cap rate, we have told you several times that we're not a cap rate buyer or cap rate seller. We're a total return buyer and total return seller. I'm not going to talk about the cap rate because the deal hasn't closed. We have confidentiality agreement with the seller. We'll tell you that we said that we do not believe that it makes any sense to buy real estate in the less than 7% unlevered IRR, and we believe that we'll hit 7% unlevered IRR in this particular portfolio.
Thank you.
Your next question will come from the line of Vikram Malhotra with Morgan Stanley. Please go ahead.
Thanks for taking the question. Shankh, just to clarify on the SALI leases. Can you just clarify, was there any cut to rent, any restructuring to the bump? When you said the CapEx investment, is that sort of like a 7% market return?
Brookdale is right now in a quiet period, so it's very hard for us to just talk about specifics. Their operating partner wouldn't want to get into that. I mentioned on the call, and once Brookdale is through their quiet period, I'm happy to walk you through all those. I think your market return comments that you've seen in other restructuring with Brookdale is pretty much spot on. You are in the zip code, but you might be too low. The second question is, I already mentioned the rent is the same as it is. The escalator changed, and it's slightly higher, but I just don't want to talk about that on the call. Once Brookdale goes through its quiet period, we're happy to answer any question.
The whole discussion is, what I want you to focus on is even at that level, we mentioned that Brookdale actually makes money. In any triple net relationship or even in our RIDEA, the focus of Welltower is not to grab all the economics we can, but have a healthy, thriving operator where they can make money and we can make money. Here, Brookdale makes money as we are sitting at a typically low occupancy. As they lease up these buildings, we think they will make significantly more money, which is always good for us.
Okay, great. Then just to clarify on the senior housing side, I know it's tough to call 2019 if it's a turn or not. Certainly, the results are encouraging, but I want to maybe focus on the expense side. The comps were very hard. I think last year, you had a 0.8% increase year-over-year in expenses, that expenses sort of get easier. Can you just walk us through how you think about the structure today going into 2019? Are there other levers you can pull to control other parts of the expenses, assuming labor continues to be a headwind?
Labor continues to be a headwind. I'm glad that you actually noticed that we had a very tough comp. Q3 of 2017, we had a 4.1% NOI increase on back of a very low expense comp. Obviously, the expense growth this year is not just a factor of expense this year, but also a factor of what happened Q3 of last year. That is absolutely the right observation. With that, Mercedes will add some comments on how we think about expenses, but we think that headwind continues.
We've often talked about the initiatives that we have undertaken at Welltower to try to bring expense savings to our operators, and we're doubling down on some of those efforts. I think top of our mind right now is labor. It's something that is impacting a lot of industries naturally, and certainly in senior housing, which is such a labor-intensive business. We're very focused on trying to bring efficiencies to our operators and trying to help them with our scale.
Just to add to one point, I just want you to understand a big part of the minimum wage increases have been flowing through our numbers. San Francisco went to $15 this year. That's flowing through the numbers. From here on, you will see more of the inflationary increase. L.A. will hit $15 next summer. You do have this, but I will say, looking at a more medium to long term, a lot of the minimum wage, $15-driven growth have been flowing through our numbers for the next four or five years. We feel encouraged about the long term, but we're obviously, as Mercedes said, we're managing in the near term.
Okay, great. Thank you.
Our next question comes from the line of Steven Valiquette with Barclays. Please go ahead.
Thanks. Good morning, everyone. Congrats on the results.
Good Steve.
There was an announcement in the industry during the quarter about this additional $3 billion of senior housing development in various urban centers in the U.S. It wasn't a huge number in the grand scheme of things, but the headlines just seemed to draw some attention. I guess from your perspective, I'm just curious if that sort of activity was already contemplated in your development plans when thinking about your focus on urban markets in particular over the next several years. Just wanted to get your thoughts around the kind of the competitor development announcements that are being made. Thanks.
Thanks, Steve. I think that announcement, related clearly validates a thesis that we've been articulating for a few years and have been at for a few years. I think there is demand for a next generation of senior living product in major metro areas. You take a city like New York, which is made up of many villages that are densely populated and have an aging population, there's room for lots of senior housing property to be brought to this market. I would say it's a next-gen product. I don't see any of the product in a market like New York today being sufficient to meet the needs of the upper end of this population. I'm going to tell you, I've dealt with it myself personally, and there really are no options on the island of Manhattan today.
The first viable option will be what we will open in end of 2019, early 2020. On our investor day, you're actually going to have a chance to go into that building. It's coming out of the ground. In summary, Steve, I'd say that we have a number of plans to bring that type of asset into the major metro centers. Stay tuned.
Okay. That's helpful color. Thanks.
Your next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.
Hey, good morning. Thanks for the time. I'll skip the SHOP questions since it sounds like you'll address those in December. This past summer, I recall you saying getting excited about maybe buying more senior housing assets. Shankh, I know you don't focus on cap rates, but could you maybe talk about where potential deals or marketed senior housing deals out there are being priced, what sellers are asking as compared to your replacement cost analysis, or your 7% required IRR threshold?
From our perspective, look, we're product agnostic, as I mentioned. Obviously, different product requires different level of risk-adjusted return. I don't want you to think that the 7% is a hard and fast number. We talked about 7% in terms of the minimum return required for investing capital. Having said that, the senior housing market is a very, very robust market. We're seeing a lot of participants are coming in, a lot of core capital is being priced. Obviously, if you think about the auction tent, they're very densely populated and the prices are very high. If you look at our investment philosophy, and we give you these numbers on our supplemental quarter after quarter after quarter, we are not in those auction tents. We have a relationship-based investment strategy.
We almost pretty much 80%-100% of what an acquisition comes from our existing relationships who are not in those auction tents, but they're very densely populated, and we see cap rates in the levels that we can make sense. We're very disciplined and capital allocators. When it will make sense, we'll be there.
Yeah, Shankh, this is Mercedes. I would add one more comment, and that is, I think for the first time, really, we're starting to see a real distinction between Class A and Class B assets in senior housing in terms of cap rates. That capital that Shankh talked about, really very interested in that Class A quality, which is, I think, generally what makes up the Welltower portfolio. We're happy to be sitting on the assets that we have and that we bought them, but perhaps when that distinction in cap rates wasn't as pronounced as it is today.
Got it. Just one more from me, I know I asked this last quarter, but what's the trend on new and renewal leasing spreads within SHOP? I know it's stable in the low single-digit range on an overall basis, but maybe what are you seeing on new versus expiring and adjusting for acuity, if that's at all possible? Thanks.
That is such a broad swath of numbers across so many operators. It's very hard to predict. It's dependent on, as you said, operators, acuity, as well as locations. We're seeing significant positive spread to negative spread, right? It's very hard to generalize that comment. It is sort of a distribution that has no midpoint that I can talk about. I'll just stay away from it. I just want you to look at the revenue growth, if you're looking for a more of a median outcome, that revenue growth picture that we give to you should tell you what it's going to play out.
Okay, I'll jump off. Thanks for the time.
Thanks.
Our next question comes from the line of Rich Anderson with Mizuho Securities. Please go ahead.
Thanks. Good morning. Yeah, I'm aware there are certain things you want us to focus on, but if you'll forgive me, I'd like to ask a couple questions that I'm focused on. On the cap rate question on medical office, you give a cap rate for the Johns Hopkins one, not a cap rate for the larger $400 million transaction. Is that something that the seller is requesting? Is the actual number below or above the 4.9 that you're willing to provide on the Johns Hopkins? Can you just sort of frame it a little bit for us?
We have a confidentiality with the seller that we can disclose it before the deal closes, but it's above, to answer your question specifically.
Okay.
It is not that hard to think about what drives an IRR. We're already telling you that the very well listed, obviously, portfolio, you know what the bump generally looks like. If I'm telling you that we can solve for an unlevered seven, that gives you a general number. We'll give you the number next quarter when the deal is closed.
That's good enough. Perfectly good answer. Thank you for that. On the Brookdale assets pulled out of the same-store pool, I know you have your reasons for taking them out. HCP discloses how those transitioned assets have performed, including into their same-store. Could you say if those transitioned assets, without putting numbers around them, are sort of dialing down performance as the transitions are underway, or have they held up relatively well over the transition process?
We talked about, obviously, we have a same-store policy that an asset that obviously needs to wait for five quarters when this kind of transition happens, et cetera. However, Tim walked you through last quarter, what is the implication of that decline in cash flow in those assets, which I was trying to allude to you. You have those numbers. They're just in the last transcript.
All right. I'll take a look. Tom, question for you. You have your team in place now for your process or so since you took over as CEO. I'm wondering if you can comment at all on succession. Is that sort of, I assume, a process that's very much structured within the four walls of Welltower? Any comment you can give on that would be great.
Well, we don't comment on succession. Are you suggesting that it's time for me to go?
Not-
What can I tell you?
I have such a great response, but I'll let you talk, Rich.
Okay, Rich. I'd love to hear your response. No, Rich. Look, we have a deep, young, diverse, energized bench of people here that I would stack up against any company that is structured like ours. The last thing I would tell you, hand over my heart, you should be worried about is the depth of management at Welltower. This is a tremendous team. I invite you to spend some time in with us, whether it's in our offices in Toledo or whether it's our offices here in New York or in L.A. or in London. I think you'll be very pleasantly surprised.
Okay. I'm sure I would. Then last question, you adjust your FFO range, but you don't adjust your sort of individual same-store ranges. Obviously, you're not gonna get to 1.5% on the SHOP original guidance at the top end. Any reason for that? You're in the range. You just leave those ranges alone, or is there some sort of possibility you can produce some massive number in the fourth quarter to make the top end of the SHOP range reasonable to still be out there?
We talked about, this is probably the fourth year we're talking about this, that we do not change individual ranges through the year. We're not gonna make. The problem of doing that, once you create that precedent, then people keep asking that question. We think about our portfolio as a world portfolio that, it's a world cash flow that you think about. What you're hearing from us, that we're excited about the world cash flow growth. We don't predict quarter-to-quarter numbers, but we expect fourth quarter will be better than the three quarters you have seen in the SHOP business.
Okay, fair enough. Thank you.
Your next question comes from the line of Karin Ford with MUFG Securities. Please go ahead.
Hi. Good morning. Tom, just wanted to ask you if you see any potential implications of the midterm elections on your business. There's word out there that Congress may try to take another crack at Obamacare. How are you feeling about the political environment today?
Gosh. Really, that's some question, Karin . I really don't want to get into politics. I do think, though, the questions about the midterm elections are clouding so many things across our business and every business right now, KarinKarin . I can't predict what's going to happen. What I do believe is that we will continue to see Washington try to reduce the cost of healthcare, that is by moving healthcare to lower cost settings and really making it a mandate to drive better outcomes. It's not just about cutting costs, but how do we improve the health and wellness. I underscore the word wellness, because Washington is starting to wake up that our healthcare system shouldn't just wait for someone to be sick and show up in the emergency room. We need to prevent people from actually ever coming to the emergency room.
Whether the Democrats are in power or whether it's the Republicans, I'd like to think we still live in a world, and I question that every day, that sanity will prevail. That's the best answer I can give you, Karin . Let's talk about it after the elections.
Appreciate that very much. Thanks. My second question is just on the senior housing triple-net portfolio. It looked like EBITDAR coverage sequentially upticked one basis point. Is that solely due to the Brandywine and the Brookdale restructuring, or do you think it could mark an inflection for future senior housing coverage trends?
I think I went through a very long discussions of why, how you guys should think about, at least consider that the EBITDA coverage is as important, if not the more important than the EBITDAR coverage. We do think the business in the RIDEA SHOP business, the occupancy levels in the triple-net business is very low relative to the long-term potential. Obviously, as those occupancies go up, the coverage will improve. That's only I can tell you. I'm not gonna sit here and predict quarter-to-quarter coverage, because it just depends on so many things that come in and out, but we're not focused on a number. We're focused on drive profitability for us as well as our operating partners.
Okay, thank you.
Your next question comes from the line of Smedes Rose with Citi. Please go ahead.
Hi, thanks. I'm sorry, I might have missed some of your comments just on the Johns Hopkins relationship. Is your agreement with them, I guess, exclusive to build these alternate care sites? Could you maybe just talk a little bit about what those are exactly and what sort of returns or development yields you would be looking for those, and how much capital you'd be investing to develop those?
Alternative sites of care, we mean all sorts of our business that you've seen. It could be a medical office, it could be a senior housing, it could be a post-acute site. How much capital? Again, we don't sit here and predict how much capital at what rates. We only deploy capital if we can make money, and we can obviously enhance the strategic merit of our partners as well as our goal to increase our energy and our cash flow. Mark, do you want to add something to that?
Yes. Smedes, thank you for the questions. Mark Shaver. The acquisition of the Medical Pavilion gives us four assets with Hopkins Howard County in that geographic market, including, if you recall, we have a 30-acre campus that we acquired in 2015 that has two buildings. As Hopkins, like many other leading systems, are looking to move care out of the hospital into the community, there's specific incentives that Hopkins has to drive care in lower cost settings. As Shankh said, we're working early days in terms of identifying and developing what sites of care we can develop with them, either on their campus at Howard County General or our 30-acre Knoll North campus. There's more to come with that, but it's all reflective of Tom's comments of health systems needing to continue to develop alternative sites of care at lower cost.
Okay, thanks. I'd be interested in your comments around ProMedica, with their ratings from the agencies being downgraded after you announced venture with them. A big part of the second quarter call was talking about the A-rated credit, how do you think about them now? Do you feel like your rents are structured such that it's not as much of a concern, or just sort of any thoughts around that?
We talked about if you go back and see that we talked about investment-grade credit, mostly what we talked about is where the rent claim sits in the capital structure, where they obviously, it's a great system, we have that corporate guarantee. We don't specifically talk about ProMedica's ratings. ProMedica's bonds publicly trade. You can go and look at what that had an impact or not on those bonds. The only thing I would tell you that eventually ratings will be driven by cash flow. If you listen to my comments, you will see that I mentioned we would expect higher than anticipated synergy or discussed synergies. That would mean, obviously, if you think through that would mean higher level of cash flow. As ratings follow cash flow, you can come to your own conclusion.
Because ProMedica's bonds trade in the public market, we're not going to sit here and talk specifically about that.
Hey, Shankh, it's Michael Bilerman speaking. As you think about the initial yields versus, you talked about underwriting everything at a minimum of a 7% IRR, how does like the Johns Hopkins outpatient medical building, where you go in at a 4.9, what's the underwriting to get to a 7% unlevered IRR? How should we be thinking about what you're putting in there for an asset that's 100% leased, I assume, under a long-term lease?
Yeah. You're correct about the lease. We will not get to 7% unlevered IRR if you buy an asset at 4.93% cap rate, which it is. This is why I said, you look at the development agreement we signed. This building sits right next to our charter building that has five acres of land. This particular building has 10 acres of land, and we told you we just signed a development agreement with them. Do we think we'll get to 7% or higher IRR from the whole relationship? We do. That's what we are focused on.
It's not in each individual transaction, it's a holistic view about what benefits making a strategic-
Yeah
investment at a low yield on one hand, what benefits you may get on the other.
I want you to think about this as a covered land play. If you bought just land, obviously, that is a negative NOI because you have to pay taxes and utilities and all these things. This is a covered land play, we're obviously getting pretty decent income. We bought these assets as the absolute class A asset we want in the best system at higher cap rate than majority of the transactions you have seen, but we're still not satisfied with that. We're going to get to our required return using the development, and I sort of discussed the land aspect of the deal and the fact that it sits right next to our charter building.
On HCR ManorCare, I'm pretty sure that when you announced the deal on ProMedica, Tom, you told us we shouldn't look at this as a skilled nursing deal. We have to look at this as an A-rated health system deal. While I know you don't-
Investment grade.
Yeah.
We said investment grade, and we told you, in fact, when we had the group here in our offices, that we expected that they could be downgraded to BBB+. They were downgraded to BBB+ by Fitch and Moody's. S&P put them to BB.
Okay. Thank you.
Our next question will come from the line of Todd Stender with Wells Fargo. Please go ahead.
Hi, thanks. Just shifting to dispositions, the guidance applies $800 million in Q4. The cap rate would be in the mid 4% range. Unless that's being dragged down by some other non-yielding properties. I wonder if you could just go through maybe the Q4 stuff.
Yes. Todd, you're correct. It's got of the call it $750 million in assets to be sold in the fourth quarter, about 225 are non-yielding, and the remaining have a 6.4 yield on them. It's about $520 million of normal course disposition at a 6.4 yield, and then 225 at a 0 yield.
Is it more QCP stuff, or what's in that stuff?
You're saying the zero yield?
Yeah.
Yeah. Just going back, the original transaction, when we closed on it. Going back to when QCP was in its early restructuring with ManorCare, they designated about $500 million in assets as to be sold. ManorCare stopped paying rent on those, and all proceeds from sale would go to QCP. Essentially, that agreement came to us when we bought the portfolio. At the time of closing, we disclosed we had a little less than $400 million of these remaining, and we sold about $170 million of them during the third quarter, and we've got 220 remaining.
Got it. Thank you, Tim. Then just shifting gears, the MOB portfolio deal you have under contract, is that something you've had under contract for a while, you needed your cost of equity to improve, or did this come along recently? We just haven't seen that many portfolio deals this calendar year. Maybe you could just go through how long you've been eyeing that.
Well, obviously, we did not wait for our equity to come back. That's not how a real transaction works. If you think about, we mentioned that Keith has a longstanding relationship with, obviously, the principals of the firms who owns the portfolio. I don't think at this point I can say much more than that. When the deal closes, we're happy to walk you through, but this is a normal deal going through a normal sort of channel of when you first bid, then you go through due diligence, then it takes time for the documentation, PSA or PSA, and then it takes time to close. I mean, that's just the way it is. No different for this particular portfolio.
Thank you, Shank.
Your next question comes from the line of Lukas Hartwich with Green Street Advisors. Please go ahead.
Thanks. Good morning, guys. Post-acute coverage is still at market, but it has come down a decent amount the last couple of quarters. I was just hoping you could provide some color around that.
Yeah. Lukas, as you know, we have a handful of LTAC assets left, and obviously there's a lot going on in that business, so they drove significantly the coverage down. The EBITDA coverage for those assets is still 1.7, 1.8 level, so we're not worried about that, but the change is primarily driven by that.
Perfect. Thank you.
Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets. Please go ahead.
Thank you. Good morning. Just wanted to touch on balance sheet. I think your leverage net at EBITDA ticked up to about six times. I'm curious, I would imagine it's going to come down a little bit by year-end as a result of the sales you have teed up. Can you maybe just refresh us on sort of what leverage targets might look like as we look forward and what you're thinking on leverage and balance sheet in the current environment?
Jordan, I'll start that, John can comment on the strategic side. The 5.98x that we printed this quarter, that EBITDA can get a little skewed by timing of transactions. I'm glad you asked that, because for 25 days of the quarter, we didn't have ProMedica or the entire QCP transaction or cash flow. The way we present that to EBITDA is an annualization of the quarter, it's essentially just a simple times four. The 25 days of additional income we'll get in the fourth quarter brings down that leverage 0.17, so it comes down to 5.81. The remaining $225 million of QCP non-yielding assets, which essentially is a liquidation, there's no EBITDA on them, so it's just going to be cash, is going to bring it down another 0.1 of a turn.
Our run rate leverage right now, it is reflected in our kind of 3Q earnings. In fact, there is a little bit of a drag from those non-yielding, but it is 5.71. It is not as much of a gap when you think about when we talked about kind of mid 5.6s being the pro forma leverage. We are almost there right now.
I was going to reinforce, Jordan, that we are nearly or very close to where we said the pro forma would be when we announced the QCP acquisition. You heard in my prepared remarks that overall, we see our trajectory over time going back to levels generally in the order that we saw prior to the acquisition. I would note, obviously, last quarter, we were at 5.4 times leverage. That gives you some guidance to what we contextualize as sort of normal course.
Okay. Just a follow-up on QCP. I am just trying to piece the numbers together a little bit. I think in the original presentation, you had 74 non-core assets to be sold prior to year-end for $475 million. I would imagine maybe a couple of those probably closed before you guys got the deal done. You guys sold 19 in the quarter. I think you have 40 teed up. That would be 59. That is a difference of about, I don't know, 15 assets, 16 assets. You guys sold some non-core QCP assets. I am just curious, will there be additional non-core sales from the QCP portfolio to come?
No, Jordan, we do not expect that at this time. In the quarter, we sold a post-acute portfolio. We will sell another building in fourth quarter that is in our guidance. Between those two assets, of the $28 million of non-ProMedica NOI that came with the QCP portfolio, that is roughly half of it. There is very little left of non-ProMedica income from that transaction. We expect to keep the rest of it for the foreseeable future.
Okay, thanks.
Your next question comes from the line of Chad Vanacore with Stifel. Please go ahead.
Hey, good morning. I was just wondering why the reduced guidance expectations by $200 million. Is that a change in what you consider non-core, or is that merely timing, and we'll see some dispositions pushed into 2019?
Yeah, that's a great question, Chad. That's merely timing. What we wanted in our guidance was what we expect to close in the year-end or early 2019. From an earnings standpoint, I just want to make the point that we raised more than $225 million of equity in the quarter that wasn't in our initial guidance. From an accretion or dilution perspective of moving those off of our dispositions, we're still actually in a net dilution perspective from the equity raise versus the pushing out of dispositions. That was not, in short, that was not accretive to our guidance.
All right. Thanks, Tim. Just thinking about guidance, you increased CapEx assumptions by about $6 million in FY 2018. How much of that is Brandywine conversion versus the MOB acquisitions they've made? What's a good run rate given the increase in operating assets that you have?
Yeah, I'll just comment on your observation on the 2018. Some of that is outpatient related, not tied to the properties we're talking about acquiring. We moved forward some projects that were going to occur in 2019 into 2018 that made up, give or take, around $3 million of that. About $1 million of it was tied to RIDEA conversions of just some extra projects that we caught in 2018.
I will answer the second part of your question. As you think about CapEx, just think through the two abnormal items in our CapEx. One is the Vintage-related CapEx spends, call it about $55 million flowing through our numbers. That is the four Sunrise buildings we bought from SNH. You recall what we said we bought those assets at and what SNH said they sold assets, those same assets at. There's a $25 million difference, and that is the $25 million CapEx that we talked about. These are the two abnormal numbers that are flowing through this year and sort of fresh off of next year. That will significantly negate the CapEx required due to the increase of our SHOP as a percent of overall portfolio.
All right. Shankh, if we think about this quarter, is that a fairly good run rate for CapEx, or should we expect that to go up or down from here?
No, it's not, because the whole Vintage situation is still playing through. The Sunrise situation is starting to play through. You're gonna get eventually, probably 2020 will be a better sort of 15 run rate. I'm hopeful maybe towards the end of 2019 it starts to happen. We have elevated CapEx because of those two transactions. It's a very large number relative to our overall CapEx funding.
All right, just one quick update on the Brookdale repositioning. You had about 60 assets or so. Have you transitioned any of those assets at this point, or is the whole portfolio left to be done?
No, it's in the process, as we talked about. Obviously, license transfer takes time, particularly in California and Washington, they're all in process. They're actually teed up to close in some of them have closed, and some of them are teed up to close in, call it, next 90 to 120 days. They're exactly on plan. We're very encouraged that our future operators of those assets are working very collaboratively with Brookdale, and we have been able to retain a lot of the staff. We're very encouraged. It's too early to comment, but we're grateful for the support Brookdale has provided us. We're also very encouraged by the new operators who are getting involved in the transaction in the process.
Is it fair to think that we won't see any impact in the fourth quarter? It's really a 2019 impact?
You are seeing the impact. It's flowing through earnings, right? There is no impact on the same store because those assets will not even be in the same store as they're going through-
Yeah, I'm not talking about same store. I'm talking about the whole portfolio.
If you're talking about earnings, then yes, you are seeing they're dragging down earnings. Tim walked you through the quantum of every one of them last quarter.
All right, thanks.
Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Yeah, thanks. Shankh, I wanted to touch on your prepared remarks regarding QCP. I believe you said that you saw occupancy pick up sooner than you expected without the CapEx being invested within that portfolio. Can you kind of quantify the occupancy pickup and the reasons why you think that trended higher?
I specifically talked about Arden Courts, which is the memory care business. Remember that we bought 150 skilled nursing assets or post-acute assets and 55 Arden Courts assets. My comment was very specific to Arden Courts, which, as you know, we talked about that we'll go through. Obviously, both sides of the business will get significant CapEx. My comment specifically is we have seen occupancy increase in the Arden Courts business. It's too early to comment how much, why that happened, but it is not very hard to imagine why that happened, right? We're seeing across the board in the senior housing spectrum. When we looked at our entire RIDEA portfolio, it's a $1 billion-plus business. It's almost 550, 600 assets. That sort of gives you a sense of the industry. Obviously, high quality end of the industry, but there is occupancy growth.
We have seen a lot of the seasonal patterns of the business has been really eaten up by new deliveries. As deliveries are starting to come down, the impact, obviously, is getting, on the margin, better.
Okay, great. Then you also mentioned that you expect to see stronger synergies than you thought previously. Can you highlight what those synergies are?
I walked you through all the different aspects of the synergy two quarters ago. As I mentioned that Randy and Steve will be on our Investor Day, and they will talk about this particular topic. I don't think it's appropriate for me to get through blow by blow. The bonds are public bonds. I don't want to talk about it, but we expect better numbers across the board in all those synergies and perhaps one or two new categories of synergies.
Okay, great. Thank you.
Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.
Hi, this is Sarah from JPMorgan on the line for Mike. A question. Your development pipeline today is about 70% senior housing and 30% office. Do you see that mix changing materially over the next three to five years?
It's opportunity driven, Sarah. We are not trying to target a mix. It's purely driven by opportunity. I would not look for any trend quarter to quarter because it's purely deal driven and opportunity driven. Now, we're very focused on development on both sides of our business. It's just whatever comes into a quarter, how big the size of the building, that matters. I would not look for a trend or think there's any specific way or towards the number that we're trying to steer it.
Okay, thank you.
Your next question comes from the line of Daniel Bernstein with Capital One. Please go ahead.
Hey, good morning. Wanted to see if you could talk a little bit more about your earlier comment of the alignment of interests in a triple net lease and maybe go into that a little bit more. In the context of coming out of NIC, we didn't really hear too much in the way of enthusiasm from operators for triple net lease. Maybe comment about what you're seeing out there in terms of the inclination of operators to want to lease versus RIDEA.
Dan, you didn't attend my panel. I talked about that for an hour.
No, I did miss your panel. I heard about it, but I didn't-
Okay. Now I really know. I'm hurt. Look, at the end of the day, I think there's too much focus on whether it's RIDEA, it's triple net, and how different tools. RIDEA is very simple. We need our operators to be making money. We want the thriving operators. At the end of the day, I want you to understand this is people business, right? We want our operators to invest in their people, in their system, and that enhances the value of our real estate. Whether we can do that in a well-covered lease, whether they can do that with other alignment features, I think I mentioned additional four in the call already, I'm not going to repeat myself. We do a pure equity transaction called RIDEA, that's a moot point, right?
At the end of the day, what we want you to know that we are very focused. We think it's an operating business on the senior housing, obviously, senior housing operating side. We want our operators to do very well. We think that enhances the value for real estate. We think there are several ways to get there. There's just not only one path.
Okay. There is a difference in risk profile. I think investors perceive a difference in risk between the operating and the lease. We can talk about it some more offline.
Sure.
The other question I had was on the Columbia, Maryland property that you're buying, which is my backyard. When you get to kind of from the cap rate to the 7% IRR, you talked about it more of a land play. What are you thinking in terms of the buildable square feet? Or if you've gone that far at this point.
Yeah. We're not going to make a comment on that.
Okay
that there's significant land right on our building right next door. There's land obviously there. There is 30 acres of land in our Knoll asset that Mark mentioned we bought. There could be significant expansion of this relationship in those places as Hopkins figure out what their needs are. This is not just we're going to build a building, right? We'll build a building with our partner to meet their need. If you think about, and I encourage you, it's in your backyard, go and look at the land. You'll realize this is a covered land play.
Okay. I appreciate it. Thanks.
Your next question comes from the line of Eric Fleming with SunTrust. Please go ahead.
Good morning. I had a question on managed care. Specifically, you've got Anthem out there talking about their Medicare Advantage and some of the rules that are coming in 2019 and how they're increasing their interest in the senior housing. Is that something you guys are looking to expand any payer relationships, or is that something with the ProMedica relationship that could be an opportunity for you?
Yes. This is Mark, Eric. Yes, absolutely. Nationally, we see a rapid acceleration of Medicare Advantage. Some of the payment methodologies being more value-based in the post-acute. It's PBPM, which we've mentioned a fair amount when we did the ProMedica partnership that our partners both at ManorCare and ProMedica are pretty bullish that the new methodologies should lead to better enhanced care. From a reimbursement perspective, Shankh used the term green shoot, that there's increased reimbursement on that side. I think you'll hear us
in the future, talk a bit more about opportunities with payers. Our senior housing platform is providing a great amount of care to a senior population, and increasingly they're becoming greater sites of care and greater linkage both to the delivery system partners but also to payers. There's more to come in that aspect for sure. Thanks. Thanks.
Our final question will come from the line of Tayo Okusanya with Jefferies. Please go ahead. Tayo, your line may be on mute. If you're on a speakerphone, please pick up your handset.
Hello? Hello?
We can hear you.
Hello, is this Hello?
Yes, we hear you.
Oh, okay. Sorry about that. I'm having some phone issues. The MOB transactions that were done during the quarter, could you just talk a little bit about, a bunch of the pure play MOB guys are actually pulling back on acquisitions, but you guys seem to be finding some really good opportunities. Can you just talk about what may be different about what you're looking at versus what they may be looking at?
Yeah. This is Keith Konkoli speaking. I'll just, I guess, reiterate what I said earlier in my comments. We're really focused on looking for opportunities and to do more health system business. As we've looked around the market and we've evaluated what's available, and we look at the broader opportunity across all of the different spectrums of ways that we can help deliver care in a lower cost setting, we believe that we've found some unique situations that we believe will be accretive as we continue to look to grow our portfolio.
That is not any different from what we have seen at senior housing business. If we go back, I'll not be surprised if you ask the same question on senior housing 3, 4 years ago, right? We have a relationship-driven investment strategy, and obviously, we are very well known to have executed that on the senior housing side, and we're executing that on the medical office side today.
We spend a lot more t3ime in the offices of the leadership of the major health systems in the U.S. than we do trying to put ourselves in the way of properties that are being auctioned off by different brokers. We are generating new business opportunities for our shareholders by knowing the needs of the health system and connecting the other assets that we traditionally have expertise in, like seniors housing and post-acute, to their broader healthcare delivery networks. That is our unique investment thesis that this quarter you should see some indication that that investment thesis is working. Yeah. Just to follow up on that, when I was with Duke Realty, we were a very singularly focused medical office, at least the division that I was responsible for. We didn't have a lot of synergies across the business between the industrial space and the medical office space.
The real opportunity here, and what really excites me about this business, is we have those synergies that enable us to really be able to serve our clients in a very, very effective way.
Got it. The accretion you just talked about a second ago, Keith, I shouldn't necessarily think about that just accretion based on the MOB asset. It's accretion that will accrue to the entire ecosystem you're building in one way or another.
Absolutely. Yeah. Absolutely. That's the thought. These are relationships. Yeah. This is a relationship investing model with the health system.
Interesting. All right. That's all I had. Thank you.
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