Good afternoon. I'm Tom DeRosa. I'm the
CEO of Welltower and welcome to our Investor Day 2018. The last time we held an Investor Day was in 2015 and I can state with great confidence that it's not only our name that has changed. If you go
back to my first earnings call
as CEO in the summer of 2014, I stated that I saw an enormous opportunity set for this REIT that owned a lot of senior housing, post acute and medical office real estate, an opportunity set that imagined a more consequential role for this real estate, a potential value capture that was way beyond the brick and mortar and the next deal.
I stated that I believed one
of the largest pools of real estate that still sat in the hands of the end user was the real estate owned by the nation's non profit health systems. This pool of assets amounted to approximately $600,000,000,000 in value. As a healthcare guy, I saw what was happening more broadly in healthcare delivery. It was being disrupted by technology, payment models and Washington. I believe at a minimum connecting this real estate and the lives that resided in it could help create efficiencies for these health systems and help them lower costs and improve outcomes.
That would improve margins, drive our internal growth and make this real estate more valuable, right? Then I thought, if we could just recapitalize a small portion of this $600,000,000,000 That would be an enormous opportunity for external growth. And maybe, just maybe, these health systems might look to us as a partner to help them build a next generation of care delivery sites that could truly enhance their road to a true value based healthcare model. Good idea in 2014, it's a reality for Welltower in 2018. My friend and partner who you just saw, Shant Mitra, likes to say, we are building a moat around our business model.
That's a profound statement, particularly for a business that many people think is a commodity solely based on cost of capital. Yet, if
you look at the most successful companies
in the S and P 500, that's exactly what they've done. Our moat is based on owning the best in class healthcare real estate. It's based on connecting the people who live in these assets to the larger healthcare delivery landscape. It's about our unique operator and partner platform. It's about our world class data and analytics capabilities.
Those of you who are here in New York just saw what I'm talking about. And it's about our people. You will meet many of them here today, but it's a privilege to work with a diverse, smart and passionate team, passionate about our strategy and passionate about driving shareholder value. Before I wrap up, I'd like to say a few words about something I don't talk much about and that's environmental sustainability, social impact and corporate governance, otherwise known as ESG. For Welltower, ESG is more than words and platitudes, it's about action.
We are committed to programs that produce less greenhouse gas emissions and have recently completed our 2 hundredth LED lighting retrofit. These initiatives will save us over $4,000,000 in annual utility costs. Our numerous ongoing efforts resulted in Welltower being named 1 of 2 North American REITs and the only healthcare real estate company to be named to the prestigious Dow Jones World Sustainability Index.
With respect to social initiatives,
Welltower is a champion of diversity and inclusion. 50% of our executives are represented by minorities and women represent half of all of our employees. We know firsthand that diversity leads to better culture, better investment decisions, better capital deployment and is leading to better shareholder returns. With respect to social initiatives, Welltower puts its money where its mouth is. In 2018, the Welltower Foundation has given over $600,000 to organizations that support health, wellness, the arts and education.
Finally, with respect to governance, we were proud to announce this morning the appointment of Doctor. Karen DeSalvo and Janice Spizzo to our Board. These 2 national healthcare leaders join a highly experienced group of business leaders that comprise the Welltower Board and I'm proud to say a Board that women and minorities account for 55% of all independent directors. That would put us in the very top likely single digits of all S and P 500 Companies for that percentage of minorities and women. So, we are here today to show you how we have built a moat that is deep and formidable.
This
moat allows us to compete principally on capabilities
and talent, not just on cost of capital. So why is this important to you all? Because it will enable us to create sustainable cash flow growth for years to come. So, I've been told I now need to give you the run of show. We're going to start today's Investor Day with the changing face of health systems moderated by Doctor.
Saum Sotarya of Mackenzie. Following that, we're going to hear from Randy Ostra and Steve Kavanaugh, who will talk about the groundbreaking ProMedica HCR ManorCare joint venture announced in April. We're sure you'll all be interested to
hear how that's progressing. Next will be the future
of seniors housing panel with representatives of some of the most forward looking companies in the space today. Our final presentation will be Welltower Financials, where we will discuss in detail some of the information you saw released today as well as provide you with 2019 guidance.
If you have questions for our Q and A session, please submit your questions to investordaywelltower.com
and that's people who are listening in on the webcast and those of you in the room. And we will conclude our program with a Q and A session.
And for those of you here in New York, please join us
for a reception directly following the conclusion of our program in the Fontainebleau Room on the 2nd floor. So I hope you enjoy Welltower's Investor Day 2018. Now over to our Saum Satori and our first panel.
Thank you very much. Let me introduce our panel here and you guys can follow along here, but Doctor. Paul Scheel on the end there. Scott Berkowitz, right next door. John Melm, interesting to meet here and an old friend, Sue Benz.
I'm Tom Sotayo. Thanks for having me here. And I'm just going to make a few opening comments about the industry. I'm not going to torture you with any slides or anything as would be typical of my brethren. But a few things just from my point of view about where this is headed and very much connected to the comments that Tom made before.
First of all, I think that the acute care industry is changing significantly. The odd thing is for an industry that is reported to be in decline, the age of physical plants is declining all over the place because of capital investment that continues to be made in inpatient facilities. Believe it or
not, over the last 5 years, the average age of
physical plans in this country has come down significantly. And yet we all know that the tailwinds are sitting on the ambulatory side of the business. And in other parts of the infrastructure based industry, where frankly the merger between healthcare, healthcare provision, prevention and housing are so significant, especially with the growing population of seniors. I, for believer that all parts of this industry given where the demographics are headed actually still have a significant growth runway ahead of it. I know that's probably counterintuitive for a lot of people, especially when it comes to the acute care side, but I think what's going to happen here is that that growth in the seniors population is going to outpace the growth of the care the rest of the care delivery and especially primary care enterprise and continue to be a tailwind in some ways behind the maintenance of that core in the acute care environment.
But the acute care providers will segment into winners and losers over time largely based upon their ability to build and drive success in a continuum of care. And that continuum of care is no longer simply do I have a surgery center or an imaging center or a specialist office on my campus, but increasingly as I said, it's going to be a lot broader than that, including many of the types of assets that Welltower is very well invested in and thinking about doing creative things there. So in this discussion today, we're going to focus a lot on where we see the folks on this panel thinking that part of the industry is going and get some different perspectives, I hope, about where the opportunities are for investment and success over time. So let me start, John, with you. Maybe you guys have gone through a lot of change.
You brought in a lot of leadership that's from other industries. What do you see as the challenges in your health system looking forward and how are you viewing them differently? So just by background, I'm a practicing emergency physician. I still see patients on a periodic part time basis. And as the SVP of real estate for Providence St.
Joseph system, it's really been a useful sort of a piece for me to see the dichotomy between what happens at the bedside and then what actually we're thinking about from a strategy perspective in the boardroom and being able to bounce back and forth between those venues. And so, to Sean's comment, I think the part of the changes that we've been undergoing, our new CFO came from Microsoft, is thinking about data and thinking about business in a very different way than historically we have before. We are a mission centric organization. Our goal as an organization is to take care of the communities that we function in. But our view of what that means is expanding and changing.
Historically, as I think all of my colleagues here would have tested, we've been a very acute care centric organization. And so as we move from what we refer to as Health 1.0, so what is the future of move forward, what is Health 2.0 really look like for us, it becomes a much more consumer centric sort of a delivery mechanism or much more ambulatory centric delivery type of a system. And obviously, we're bringing in resources in terms of our innovation group, our the way our finance group is changing, the way our health system is evolving to be able to respond to that process of looking at a health system that is very much focused on how do I deliver a consumer centric product as opposed to an acute care doctor centric product. And so it means the types of facilities that we're needing to have are changing the way we're integrating into our communities and to the common vertical integration is something we're very keen on, but that is a much broader mixed use sort of a look at what healthcare delivery looks like. So Sue, you see this across the board with many systems.
Where are people investing? Where are people starting to look for partnerships rather than making direct investments?
Well, I think what we're seeing given what you said in my turn, Kurt, is that the needs for strategic capital are much more diverse today. So when hospitals were financing acute care, you move while issuing tax exempt bonds. Now what you're seeing is that people are investing in things along the continuum. So the acute care hospital will always be an important component of the overall system, but you need everything post acute and non acute along that continuum. So we have home care, IT to connect it all, senior programs for seniors, whether it's senior living, assisted living, memory care.
And those are obviously needs that health systems can't finance, many of them with tax exempt debt.
They also think they don't need to only control everything, which
some when
you and I started, every piece of real estate had. And so what they're doing is partnering not tax exempt, but equally importantly, they're looking for capabilities. They're looking for people that know how to manage or have partnered with people who know how to manage home care or rehab or assisted living or memory care. So that's what we're seeing. It's a combination of capital and capabilities to fund diverse strategic needs along the continuum of care.
So Doctor. Scheele, how do you build a clinical network to actually parallel what's happening on the infrastructure and strategic side of what the industry is trying to do? Yes. So our goal and our mission has changed from how do we get patients in the hospital and how many surgeries we can do to how do we keep patients out of the hospital. It's a total paradigm shift for us.
And so historically, we've built a big hospital with a lot of physicians on campus. If you build it, they would come, we would admit them and all is well over the world. Now that's not true. Consumers don't want to travel for their healthcare necessarily. They want care convenient to home when they want it at the right price.
And so our strategy has moved from the on campus mega building to multiple satellites throughout the state so that we can deliver that care that people want. With millennials now, we also have to consider the different types of the way they want to receive healthcare. No longer do they necessarily want one primary care doctor. They utilize convenient care more than any other group, urgent care, virtual care, things that we never built 10 years ago or even considered part of the health system. And so we have to move from beyond the campus out into the community so that we can deliver that care.
So that sounds like a lot of work to convince physicians to practice in a very different environment. And I guess I would say Doctor. Berkowitz, as you think about what you're trying to do in accountable care, we've now talked a little bit about where the balance sheets are going and how people are investing and the fact that building the clinical network is not that easy. Where do you see the role for risk in all of this either being a driver or a hindrance to this change from your lens? Sure.
It's a great question. I think to the point that my colleagues have made on the panel thus far, there's definitely have been a movement of care to the ambulatory space. We are also on that journey to transformation, it's been going on for 5 to 10 years now and we have some assets that have helped us in supporting that. We have our own health plan with 450,000 covered lives. We have our own home care group.
And we have other programs that we've been developing along those lines. We also which is different than many of you are probably aware in Maryland, we have the only well, there's now another step, but all payer waiver. So, we have a financing model for decades now that has supported that all payer movement in a recent waiver that's transitioned to now total cost of care for all Medicare patients within the state being lumped into all the hospitals within the state. And so we've had an accountable care organization since 2014, track 1, no downside ACO. We've had health plan risk.
We've had other types of initiatives that are focused on managing populations of patients. I think that the state's transition to that total cost of care model in confluence with all these other factors will further propel that forward. And so that has moved all of the delivery systems and mail into some risk based arrangement. It's not typical of a retail insurance risk, but certainly some element of risk. And I think that everyone is on that journey at their own pace and sort of understanding how to be successful in that and to how to do that in particular if we are like we are as an academic medical center to try to balance those issues around each area of trying to excel with the mission and at the same time trying to drive that culture change, which as you suggest can be challenging with the physician groups.
We have to meet people where they are, drive that pace to change and help people to get the resources and the need to meet the needs to be successful. So, it's been crystal ball since you got a lot of experience here. You talked about the balance sheets of these health systems being under some stress from all the acute care investments that have been made. Now what I just heard is a lot more of the balance sheet is going to be potentially put at risk. Can the systems weather
that as you
look at the balance sheets in the industry today? And if not, where is the give and take going to be?
I think the best systems that are forward looking, many of my panelists, my panelists being in that category are
going to
be able to weather the storm. But as was said earlier, they're going to be the haves and the have nots. The haves are going to be able to adapt and change, but they're not going to finance everything off their own balance sheet. I think that's one of the biggest changes that we're seeing. People are partnering, whether it's with private equity firms suffering capital and portfolio companies that meet their needs or companies like Welltower that bring capital and capabilities, we're finding that the balance sheet loan is insufficient to implement this transformation.
And we really are seeing an evolution among the systems in business models as they transform to meet the needs of
the aging population. So just one quick follow-up to that. New sources of capital are always interesting. Sometimes they can be expensive. So how do you see the difference in the new sources of capital?
Which are coming with capabilities? Which are coming as pure sources of capital?
Well, I think that there are those there are certain private equity firms, for example, that have portfolio companies that provide synergies with our healthcare system clients. And so they are certainly an important source and a growing source of capital. And then we see companies like Wellpower, for example, that are bringing memory care capabilities, senior capabilities. There are other organizations that are bringing urgent care and ambulatory surgery capabilities. So I think our system clients are becoming more discerning.
And what we're finding from is because people want to grow faster than their balance sheet or their debt capacity, their credit capacity would allow them to grow on their own, they have to partner in order to meet their needs.
So maybe 1 by 1 for the 3 of you because you guys are doing some creative things. Do you guys mind each talking about something new and creative you're doing vis a vis your balance sheet that would kind of bring this to life for the audience? Let me start with John. So, I mean, we are I generally refer to us as hoarders in the sense that we've got as a system Providence, HLS, we're about 160 years old. We're a faith based, obviously, organization and that we've been buy and hold to a
fault and it's and or build and hold to a fault.
And so we own about $10,000,000,000 worth of stuff and I intentionally use with stuff, right, maybe because it includes some shopping malls, a few bars in there, some mineral rights in Oklahoma, a little bit and so these are things that we've kind of collected in a variety of ways. Either they got at one point because they thought it might be a strategic place where we might want to grow and build or things that have been donated to the health system. We're working on kind of cleaning that closet a little bit and trying to make sure that we've optimized the types of assets that we hold and to the point of where the partnerships as we're looking at, what does it look like to be a much more asset light type of a corporation and structure as we move forward. And really trying to kind of take a page out of many of the other industries that have done some of these similar sort of things 20, 30 years ago and trying to learn those sorts of lessons for ourselves. So, I wouldn't say it's radically revolutionary in finance, but it is somewhat ahead of the curve perhaps in healthcare specifically, where we traditionally have had that I must own everything type of a mentality.
The only thing I think as we look at it is for us, a huge focus is on the technology side and to be able to understand how do we deliver care beyond the four walls of a traditional clinic or beyond a traditional hospital. And so as we're doing bed demand study planning and those sorts of pieces, we're counting starting to count on hospital and home type beds, what are rehab beds, how do we look at what our actual kind of footprint of where we're delivering care might not always be in the standard real estate footprint for us. And so that's a part of marrying our technology and the analytics that go behind that with how we're looking at our real estate portfolio. Sure. So a couple of things.
We're actually currently going through our own clinical strategic planning process right now. So I'd probably be able to better answer that in probably 6 months. But we have for those of you who are not as familiar with Hopkins Medicine, we have 5 hospitals in Maryland and D. C. And then one in Florida.
We have about 3,000 or so physicians, most of which are faculty and more housed around the Baltimore region and then a community physician group as well. And I think that likely what we will be doing over time is probably building out more of the physician workforce out towards into the state, towards the DC area where our hospital growth has been as well. And I think that that will continue to develop as we look at this and try to understand where the opportunities are. To the mention about some of the post acute type facilities, we do have the home care group as I mentioned. And one of the things that we've done in terms of partnership areas is focused on working post acute facilities.
We've got 35 currently in a skilled nursing facility collaborative network that we're developing right now. And there's some work that's been happening both with assisted living and in the Montgomery County region with our community physician group and there's some exciting work that we've been doing with Welltower looking at areas in Howard County as well. So, I think that there's a lot of moving pieces right now. And I agree with the premise, as you suggested that there's likely going to be increased focus on building the infrastructure and developing capabilities for more of an ambulatory base space over time to meet the needs of the population, population health and value based care models. First, I'm jealous.
We're not that advanced. So, what it was anchorage, so I don't know if it's still there or not. Okay. I'm still jealous. For some perspective, our physician group is about 3,500 and our health system is 14 hospitals distributed throughout the Missouri St.
Louis area. Our focus when came to my job 18 months ago, we had over $1,000,000,000 in building projects requested. That goes from research towers to clinical space and office buildings to urgent care centers. And obviously, even though you have a strong balance sheet, you can't finance everything at the speed that we need to build in order to stay competitive. So we view a partner as someone who can bring to the table those infrastructure needs along with the continuum of care requirements that we need that we may not be the best at.
We may not be the best at SNPs. We may not be the best at memory care facilities. And in some areas, we may send we need someone else to manage an office building that's 100 miles away from the main campus because that makes sense for us. And so while we still are having tremendous amount of building projects underway, now we are financing from our balance sheets. We realize there are those projects that we'll need to find a partner with and that's a change in strategy that has not been at the institution for the past 50 years.
Maybe a little bit more about that. I think the steam of partnership is coming up again and again and again. It's not just again as we said partnership around the balance sheet, the partnership around capabilities, but that is as Stu pointed out, it's a pretty new skill set for the industry to think about partnering, let alone being a good partner and getting value from that. What are you guys learning from that? What's working?
What's not working? What skill sets are you having to bring in, in order to partner effectively? Well, it's a difficult dance, because you have to find a partner with similar mission values as well. Not all potential partners have that mission base to the organization. For the not for profit side, we also have tremendous worry as our partner tomorrow will be there 2 years from now.
And that weighs heavily in our decision when we figure out who we want to become a partner with as far as stability, mission values of the company become extremely important in those decisions. And once again, we've never had to make those decisions before because we just built it ourselves and we run it. And so this is all new territory for not for profit centers. Yes. Go ahead.
You want to add to that? Yes. I think those are all excellent points. The only thing I have a couple of things to add. One would be as we have continued to evolve in this value based world, we know that increasingly outcomes of care as it should be are increasingly important.
And as we do that, we realize that we need help sometimes to do better in those particular areas. Just to give some examples, one program that we have developed called the Johns Hopkins Community Health Partnership, which is in East Baltimore. We're partnering with community based organizations. This is not even an infrastructure, but community based organizations to help with training community health workers to assess barriers of care in some of our most challenging patients in East Baltimore who are unable to get the care, unable to access care, can't pay for their electricity. And so a whole host of different challenges.
So in that case, it's finding a group of people with skill sets and capabilities to help in training community health workers, people that they can build trust with, people who sometimes were substance abusers themselves and who really can help our patients and feeling comfortable in accessing care either in traditional or non traditional ways. So that's one example within an urban environment while we're looking at other centers and more suburban based centers and you're talking about post acute care and other types of facilities. We have opportunities there as we focus on managing value within the continuum. We know that we need help and we need to work with others. We can't necessarily own all of those types of assets, so we need to be smart.
I think the cultural issues that Paul mentioned are really important. I think that you have to sort of check some of those points at the door as you're interfacing with these groups. I can say that from the community primary care practices we work within our accountable care organization, We get some of our best learnings from them in terms of how they approach care, how they work with patients and think you have to have an open mind, especially if you're a big system to really recognize and learn from those around you that there's more that we can do together. And so, I think that that's a really valuable piece, but we know that to be successful, we need to be able to manage those patients wherever they are and wherever they go through that continuum of care. So we need to be able to try to meet them where they are.
Can you talk a little bit about scale as we go into I mean, if I think back 20 years ago Hopkins, Wash U probably were much more smaller footprints frankly than you have today and you guys have scaled in your market pretty significantly. You have a whole different kind of scale, John, right, where you've got almost 15 year journey to $25,000,000,000 plus in revenue across the system. You've got a health plan as you described, but you're in a lot of different markets. So how do you think about driving these kinds of strategies when the needs of each market is different? Is there work that can be done at the system level that helps with 1 size fits all or how much time do you spend tailoring market by market?
So for Providence St. Joseph, we've kind of continued to grow by acquisition over the last 15 years. And it's been a bumpy road as everybody in this room has probably experienced mergers and acquisitions at some point. I mean, there's some go well, some go have more challenges to it. For us, we're across 7 states and so are a dominant player in the majority of our markets that we're in up and down the West Coast.
The challenge for us really is that balancing that focus on which has historically been very community based, We are a faith based organization coming out of the Sisters of Providence and the Sisters of St. Joseph there who have really been focused on historically how do I address the needs of the poor and the vulnerable as opposed to the academic background and some of my colleagues here have in terms of as a research focus. And so if you look at our institutions tend to be a diverse mix of Oppenheimer's more community hospital type assets and those in the community. And so trying to nuke those together into a and speaking of each other as an integrated health delivery network as opposed to having grown up out of a core hub that has been expanded out into the community. And so it's much more of a lattice work that has developed over the years for us.
So to your point is, historically, we've allowed each one of those individual hospitals to be able to function very autonomously. It's really over the last 5 to 10 years that we've really started to say how do we leverage this scale. It's great that we've got all of these assets in our portfolio, but unless we really are able to take advantage of them in a much more integrated systemic way that we're going to be able to really weather the storm as we move forward is where we're going with the currents that are in the healthcare market. So, we are spending a lot more time now than ever thinking about those sorts of pieces. How do we standardize the care that's delivered across those?
How do we look at outcomes? How do we drive what quality looks like in those pieces and how do we use the purchasing power across the system to be able to be much more efficient in what we're doing and looking at where we're spending money and are we deploying capital in the right ways. So you'd probably agree that this sort of march to scale in the industry is going to continue. I mean there's some pretty big deals coming together very soon. And you've heard a little bit of what has been said about partnership and even managing across multiple markets.
What's your as you step back and look at it, what's your point of view on the readiness of many of the larger health systems to tackle this? I mean, in some ways, how many John Nones are there already sitting in health systems thinking this way versus just simple design and construction? I mean, where is that capability going to come from to start to create these kinds of partnerships? What we're seeing
some is increasing amount of healthcare leadership coming from outside of healthcare. So and I think that's a good thing that it's very, very important to understand the needs of the healthcare business. We're especially fortunate if you have physician leaders as part of your team. But I think John would say that having done that, joining Providence and Joseph Helt from Microsoft has changed a lot of the way that people think about certain things because he came from a completely different environment and accelerated some of the change that was already going on inside of Providence. So would you agree?
Yes. 100%. I guess the thing the key piece there is a cultural one. And Paul touched on earlier about cultural alignment, one of the huge issues for us as a nonprofit and a faith based nonprofit, many of our employees see profit as a negative word. So, we're not here to make a profit.
And so, the minute you start saying, I want to have a return on my invested capital, they go, wait a minute, that's against our values to be able to do that. And so this whole concept of no money, no mission, it's a tough one for us internally as a cultural piece to kind of pivot away from. And that's the thing that Benkad as our CFO coming from Microsoft has done is brought us in, show me the business plan. If it doesn't pencil out in terms of what a balance sheet is going to look like or what an income statement is going to look like, we probably shouldn't be doing it as just because it feels good and I'll make as a kind of that touchy feely sort of end goal, we can't sustain a business. That he jokingly looks at it and says, well, actually, he's not joking, but he kind of rails his way as well.
We spent $25,000,000,000 to make 25,000,000,000 dollars That doesn't pencil very long if you're doing that for a long period of time. So being able to make that pivot and I think we're not alone in terms of non profit health systems kind thinking that way. And so your point of some are going to make it, some are not, crossing our fingers that with the right leadership we're going to make it in that way. But I think it is a cultural pivot for many of us in that way.
And given all of the needs that we've talked about in the short time we've been discussing the future of the health system, you really have to invest in things that have a return because if all you're doing is replacing your infrastructure, you're not going to grow and you aren't going to be successful. So that discipline comes from people that are inside the system, but I think what we're seeing is that it's turbocharged by having diverse leaders in your management team. They aren't all the CFO, but if you look at the leaders that people in systems are adding, there is a lot of outside of the healthcare industry expertise. And I think that's really helping to accelerate the change that we're seeing.
Yes, one of the things I'd like to hear from all of you guys comment, because I think they'll appreciate the diverse commentary on this is, anytime I think about this space and where it's headed, I think about spoilers as well. And spoilers are often rich in cash, right? And right now, the insurance companies, both investor owned and Blues plans are incredibly rich in cash. And I don't see them putting a lot of that cash into infrastructure surrounding the acute care space, right, both in the post acute, pre acute, etcetera. I mean, there's some diversification work that some of the payers are doing very selectively.
But I'm curious how each of you view the insurance industry at this point as a potential partner and source of capital here or do they just not have interest from your perspective?
In our experience, it really depends on who the insurer is. There are some that are not interested in partnering with not for profit health systems. They want to own everything except the hospital and keep the premium inside of the insurance company. There are others who view partnering with health systems as a way for them to learn how to bend the cost curve and how to have all the pieces that are necessary to deliver costs to deliver to the lower cost and a better outcome. But it really is not one size fits all.
They definitely have a lot of capital and they're definitely a competitor today where they weren't it wasn't always that way.
I think one of the comments my fellow faculty and the name of Hopkins has said, I don't know much about insurance, but every time I go to a city, they have the tallest building. So, it must be doing something right from the financial perspective. Our local insurers, I think, they're very focused on the bottom line. And if you can present to them a value proposition as to how they can continue to have a very proper bottom line and be innovative in how you deliver that care and be disruptive. I would say most are open to that, but you have to be have the underlying proof of concept that you've already performed typically on your own employees.
Our employees are our best experiment and how we can deliver care since we're already paying for it and we are the payer and we can figure out how to deliver better care for our employees and then export that to the commercial sector. That's been a very profitable strategy for us. In terms of our own health plans, that's been a very important foundation with respect to our population health investments, I would say, within our system. If you look at other sort of commercial based insurers, we have a large Blues plan, which is very interested in PCMH and that has not really been focused as much on other sort of broader, more integrated delivery models. And we have some other smaller insurers as well who were we have conversations with about value based models, which I think they're open to.
I think the fact that we do have this all payer structure and rate setting commission does change the dynamics a little bit. And through that program and those efforts at the state side, they have been investing in infrastructures and dollars to help to support interestingly on the sort of hospital driven initially approach to population based care, but also as well a new sort of primary care model, which is going to have funds, which is also going to help to support ambulatory investments as well. So, Cissela has definitely taken important steps and I think that makes the commercial market also a little bit different than it may be in other locations. I guess I would say for us across we work in so many geographic markets in multiple states. Every one of those is a little bit different.
So I can't comment universally and we have good relationships with some payers. We have challenging relationships with some payers. I think the universal comment I would make is that the challenge is the payers have to really say no to a patient, whereas as as we have been on top obligation and people who show up at our door, whether they have insurance or not, are going to be taken care of in our health systems. And so as we think about our paradigm of how we're going to take care of communities as opposed to how we're going to take care of our insured sorts of pieces, there's a slightly different focus there. But to be able to compete with those insurers who to our lens is kind of much like what you're looking at, Scott, is how do we take risk?
How do we better own the risk ourselves and be able to look at those populations and sometimes that's partnering with an insurer who already has the infrastructure to be able to manage risk, sometimes it's directly competing with them in certain markets. And that's for us is a market by market sort of a piece, but in a much more holistic approach about what does that entire community look like. It can't be just the employers in a community who an insurance a commercial insurer made historically targeted. Helpful. One last question and then we may open it up for 1 or 2 questions.
I've often wondered how the industry can perpetually lose money on its largest and most rapidly growing customer, which is Medicare. It's been going on for a long time. Of course, anybody knows the industry knows that it's a cross subsidy game, right? And it has always been a cross subsidy game from that perspective. But it does feel like with commercial insurance being flat and the Medicare population growing and obviously the Medicaid population on top of that, that we're going to face significantly new challenges over the next 20 years, probably different than we have over the last 20 years with respect to these economics.
When you think about the aging population in particular, I'd love to hear from each of you just your one idea or comment about what is the biggest challenge that has to be addressed for that population that health systems actually can play a role in. So Paul, down at the end, we'll work our way this way. I think you have to not make the assumption that you're going to lose medical Medicare patients. And so that's been the assumption all along that the commercial carriers will subsidize it. And so, you have to change the paradigm of how you take care of those patients.
Arthroplasty hip replacement, knee replacement, we used to do all of those at our academic medical center, high cost without really need to do that. Years ago, we transferred all the uncomplicated toiletry classes to a community hospital that had 80 beds. Over that period of time, we were in the top 3 in the country for volume, outcomes and price, all Medicare patients. And so, you have to redevelop your delivery system so that Medicare though. Yes, I agree with Paul's comments.
I think similarly, as I mentioned, the state dynamics are a little bit different, but we now have a focus on total cost for all the Medicare patients in the state. So that really forces in a good way a conversation about unifying the care models and the work that you're able to do across continuum, trying to look at partnership opportunities around assisted living and other areas in the long term care and other post acute care relationships, home care. We have initiatives where we're trying to go to the home and provide more home based service models as well, I think increasingly for patients we need to meet them where they are to the extent that they can thrive at home and not need to be institutionalized or be able to do well within that environment, that's terrific and mind at home for increasing the age patients with dementia and other challenges and behavioral type support for older patients who have depression and things of that sort, which can be very debilitating for some. We define those ways to reach those patients and help those to get the care.
And to the extent you can
do that in ambulatory, home based and community settings, the better off we'll be successful in terms of driving the value in those initiatives. I think the I may take off my real estate hat for a second and put on my ER clinician hat. And as we think about where the spend is, I think the a good chunk of and I would echo everything that Paul and Scott have said here with regard to changing the paradigm, how we deliver care. I also think it's important for us to work culturally as a
society about what are our expectations for care.
And that if we think about the vast majority of your healthcare spend is going to be in the last 10 years of your life and that end of life care becomes a challenging piece. And I see it day in and day out in the ER when an elderly patient comes to the ER who may or may not want to have this type of care delivered, but we make assumptions about this very aggressive invasive types of procedures that we do to patients in those last 10 years. And so, one of the things that we're working on as a system is looking at how do we look at care coordination more effectively, how do we look at empowering patients and families with knowledge to be able to make their own well informed care decisions rather than trying to wait until that last minute when they show up in the ER and suddenly they're in kind of that panic mode of do we intubate grandmother or not, do we send her to the ICU, do we do a whole bunch of surgical things in that last bit versus have we have an effective care plan, what is long term care.
And that becomes a much broader diversity of resources that need to be invested in, in terms of what our community assets look like, what our memory care looks like, what our advanced planning looks like in those sorts of environments. And that's a sea change with in terms of how our clinicians think about the world, how our oncologists think about the world, how our hospice care nurses think about the world and how we're engaging families and really empowering families, empowering patients to own the type of care they want to receive, particularly in
that last decade of life.
I think part of that problem, which is a prevaluable problem, I absolutely agree, is that we're still oriented towards caring for people we love in the hospital. And the way to have Medicare be breakeven or even profitable is to keep people out of the hospital. And that means managing particularly people that have chronic illnesses much more closely, open at home or in the senior living facility or in a memory care facility, but they are going to have acute events, which means we all have to be connected. So that continuum of care is more than just a buzzword. It means that not being in the hospital is going to likely make you happier and feel better and healthier and not just cheaper.
But you have to be able to monitor with information technology those early warning signs, oh my goodness, I get on the scale and I gained £4 overnight, something is wrong and you have a way to immediately connect to someone who will tell you what you need to do. So having people manage much more closely, not in the hospital, overseeing and facilitating that by connecting all of those parts of that continuum through information technology, we think is one of the ways that you're going to make Medicare at least breakeven.
Thank you. Just to summarize here, I think there's a few interesting things that we've learned. I mean, the first from my standpoint is, it's very clear this industry in health systems is moving from a plant management business to a distributed retail outlet business in many ways. And that really is going to require a shift in the way health systems think about their asset base and how they deploy their capital into their asset base looking forward. It is not going to be inpatient centric alone, but a continuum of care.
I think the other thing that's really interesting from the experience of the panelists is how much the mindset is going to have to shift from ownership mindset to partnership mindset. And I actually think that's going to be pretty challenging for the industry. It's going to take some evolution, new capabilities, injection of executives from other industries in order to make that happen. I think interestingly in this case, it's probably necessary for the survival of the industry. This isn't a question of really whether or not the industry is going to be relevant.
But I think if these shifts don't occur, at least the inpatient centric part of the industry kind of needs to do this for survival purposes and sometimes that's a good motivator. So I'm optimistic that it's going to happen. I'd like to thank all of you for your comments and I think we've run out of time. I'm about to get yanked here. So, I think we've run out of time for questions, but certainly you'll be able to talk to the folks here.
Thank you very Good afternoon. So we'll just get started on the next panel and we'll like to build on the previous panel. So I'm really delighted and grateful for Randy Isholz, the CEO of ProMedica and Steve Cavanaugh, who you all know is the CEO of ACI ManorCare here. And we'll talk about some of the questions we asked that you as our shareholders have asked us over a period of time. So we'll get some sense of levers of thinking behind these groundbreaking acquisitions that happened.
So we'll try to sort of distill the questions that you have asked us over a period of time and see where we'll get to. And if we have time, we'll get into more details. So, Randy, you could have acquired other acute care systems like John talked about over a period of time. Why ACM managed care? Why did you you're a hospital, health systems, why did you go on a persecute memory care company?
Good question. Ultimately, it's, I think, for everybody, a strategic question. So, you look at it from just our own individual perspective, kind of what we heard right this morning, mission based nonprofit anchor institution serving communities, a situation where revenues applied, expenses are going up. You begin to look nationally at the model that we have 17% including 8% of the gross domestic product, dollars 3,000,000,000,000 on the way now to $5,000,000,000,000 20 percent of the gross domestic product and now 2,050, we are talking about, I would like from 35 percent to 37% of the gross domestic product unless something changes. Number 1 cause of personal bankruptcy, 85 year olds filing bankruptcy at an all time high.
You over array all the demographic changes. So that number of 85 year olds doubling, number of people turning 65 year olds, the unaffordability of healthcare and what we really just chatted about, we've got Secretary Azer said we've got to drive everything down to the lowest cost setting. And so you look at the unaffordability of healthcare and the impacts, and I think everybody clearly knows that large acute care hospitals will be fine. It's just how are we going to deal with people. And if you think about it, I think the big issue we're going to face Shirley is employers are just flatly going to say we can't do this.
And so you think about where the whole healthcare model is going to go, if you walk into a health care facility today, you're patient. In fact, if you're going outside of post acute patient, well, you didn't wake up this morning thinking you're a post acute patient. You think of your health and well-being kind of in that spectrum. So, if you think about growth in America, where healthcare has to be delivered, it has to be done in this segment. And for all the reasons that Luca Ray talked about, So why wouldn't you look like, it's got a cross streak on this, I didn't hear it either.
Why wouldn't you begin to look at it? We really looked at it. We embrace this as what we believe is really going to be this future platform and how we're going to deliver healthcare in the future. So we heard a lot today in the previous panel about the delivery continuum, which is not something in our world to land when we talk about labels. This is a hospital, this is skilled nursing, this is assisted living.
When we talk to people like you, we don't hear about labels. So why is it different? Why don't you think about from a security perspective, sounds like from the previous panel, it's more of a journey of the person, we used to talk about the patient, now you're thinking obviously you need like after the patient. Could you just tell us a little bit about how that mind shifts, kind of the shift of the mindset? Well, yes, it's just full labels, where it puts up a whole bunch of labels today.
I mean, the worst label is post acute care. You want to live in a post acute care world? I don't I mean and so we have these labels of how we look at health care and how we start to put all these labels and the fact that everything there's a movement right now, age friendly health systems. So now we're going to treat older people nicely, I guess. And we're just full of these labels.
And it's also, I think, a little bit it kind of affects our thinking. So we're thinking very traditionally, why wouldn't we be able to think about home care with the technology and the ability to manage people at home as being feeders to all these sort of facilities, not only thinking that it's feeders from acute care hospitals. So, you would logically think that the biggest feeder in the future for the facilities we talked about today and they will change in complexity. What we do in these facilities is going to radically change. So, I think we really need to be careful about labels and how we think about labels, because I think the moment we do that, we prescribe what they're going to do.
So skilled nursing facilities could be very, very different in the future. Basic home care could be very different in the future. So I think as you think about that, you think about the evolution and then go back to employers not wanting to pay for any of this. I think what we're going to see and the beauty of for us HR ManorCare, there was no way we could get to 30 states with any other transaction. Yes, we could have bought another struggling acute care hospital and put capital, I'll need capital and deploy our capital there.
But on the other side, the people who are working against us, the people that are investing in outpatient and competing for outpatient, they're deploying their capital to take those things away and we're deploying our capital in legacy facilities. And so for us, yes, we have hospitals, we always keep hospitals. Our hospital portfolio will change over a period of time. But our Board has really told us, we really would prefer not to invest more in additional hospitals. But using a platform like HCR, we would have an ability to invest in a lot of other things with better margins.
And by the way, that's where we believe that is going anyway. Great. So Steve, it sounds like I understand what Randy is trying to do, get rid of the labels and think about the patient journey. But what's in it for you? Why is it interesting for you to integrate with a not for profit health system?
Yes. I think for us, it's a lot about where we were at and where we were trying to get to. So everybody knows our story. We had a challenging financial situation. What we really needed was some partners to help us recapitalize where was a company that was really pretty successful at the operating level.
We had 3 businesses that were profitable, had good quality and good patient outcomes, but we had a broken capital structure. And so the opportunity to partner with both Welltower and ProMedica made perfect sense for us because it provided 2 things that you're looking for in a partner. The first obviously is capital to let you have a sustainable business model going forward. And that was the thing that obviously gets you reset to where you can have success going forward. But you guys mentioned earlier, the idea of capabilities and what makes your business better.
And so what attracted us to Welltower's example is you and Tom have thought about healthcare differently. You're not just trying to provide capital. You're trying to provide health care solutions and you're involved in a lot of conversations and the ability for us to be partnered with you and be part of those conversations. And if we can provide solutions, that's going to create value. And so that's really exciting for our organization.
And thinking about ProMedica, the capabilities they bring to the table, they have 1,000 physicians that work for them. So the ability to do things like telehealth and have access to an academic medical center that can help improve quality of care in our facilities. ProMedica is nationally known for its work in social determinants of health. And so that's an area that allows us to have a new capability, let's us get better outcomes for our patients, lower cost per payers, and those things help make our organization better. And so it was really exciting.
And the beauty of it was, we got lucky. We had 2 really great potential partners in Toledo. The other thing was we knew each other and have been talking about these things for a long time. And Randy and I have been talking for 5 or 6 years about whether this was something that we could do. As soon as Tom became CEO, this was an area that we were talking about with him about are there ways Wellpark could participate in helping us recapitalize the company.
And so for us, this was just a great transaction, of those in West Coast going forward. And Steve, if you can just get a little bit into the capabilities side, ProMedica has a fantastic peer inside ProMedica. Tell us a little bit about how are you thinking about working with what they are and how you're thinking about synergies of capabilities, if you will? Great question. So ProMedica has a captive insurance company called Paramount.
And what's nice for us is if you think about our industry, and I think about all of healthcare, you have this sort of convergence going on where sort of payers and providers are coming together and you're sort of breaking down the rails between those because the only way to get the incentives aligned. And so for us, what's great about Paramount, they historically have been we've been they've been one of our customers. And so now we have an
opportunity to kind of
organization. And if we have some success delivering models that get better outcomes, lower costs, that's something that we can then take and sort of export to other parts kitchen for like a better person, we can then take that and kind of try that with the kitchen for like we're better for your name. We can then take that and kind of try that with other folks. And I think that's a real opportunity to innovate for us. So we're excited about that.
On the clinical side, we've talked a little bit about the need to move beyond the perception of SNF and post acute. As both of you have come together, what are some of the clinical indications and opportunities to introduce new models of care, new approaches in your sites. We use the term alternative sites of care. How are you thinking about integrating specialty clinical programs and other opportunities? Yes.
I think a really good example of that. So obviously, as Randy was saying, the goal here is to try and get patients into the lowest cost appropriate setting. And so for that to be successful a skilled nursing setting, what we've got to do is up our clinical capabilities and be able to care for patients that historically were cared for in higher cost settings. And so we're trying to take the capabilities that ProMedica has and overlay them with us. So telehealth is a perfect example of this.
I mean, we've only been closed now, what, 120 days plus or minus. We've already got a pilot up and running. We're working on telehealth, and it's focused on the vascular institute ProMedica has and focusing on wound care, which is a significant issue for the frail elderly population. So this is a way for us to kind of take the capabilities that ProMedica has and overlay that in our setting and then that hopefully lets us take sicker patients, care for those patients and deliver good patient outcomes. That's just one example, but I think there's going to be lots of opportunities like that where they have the feasibilities that we can now bring into a setting that traditionally hasn't been able to avail on top of that care.
And I think you add to that. So, now, so our doctors doing room rounds with staff, that's great. You think about behavioral health, you think about social trends of health, then you think about it back in the home. So again, you think about the opportunities at home as a feeder into in particular the other way, so going from acute care facilities to post acute, you want to go the other direction. So, the ability to do things at home with technology and interventions, talk about social determinants of health and being in between forms there from a technology standpoint.
Again, the way virtual healthcare works today, talking with homecare nurses and having physicians talk to people in the home. I think the technology aspects of this are tremendous and the cost reductions are going to be tremendous. Randy, you've mentioned social determinants a number of times and some folks in the room may not recognize that you're one of the foremost leaders in the country in thinking about social determinants and also acting on that. For an audience that doesn't always wake up and think about impact, explain to the audience social determinants why they're important and why you as a leader working with Steve really feel there's a need to impact that? Yes.
You look at the American healthcare system and kind of how it evolved. It's our system. We evolved this system. We created it. So, 20% of your health is based on what they did done clinically, 20% who spent $3,000,000,000,000 almost 18% of the GDP, 80% of your health bill has nothing to do with anything in medicine.
And a lot of the issues is where you're born, the ZIP code is probably the most important part. And depending on the ZIP code, can mean in our country, life expect differences of 25 years. So the social determinants of health have more to do with how you live and how you're at. So, we began 7, 8 years ago screening for food and security. I won't tell you how we got into that.
But last year, we screened 2,000,000 of our patients for food and security and now we screened for all 10 social determinants and that's things like housing and transportation, childcare, employment and all those areas. And then we do interventions and the work that we've done research wise just on food and security. So, we have food pharmacies where patients get referred to as a pharmacist, a dietitian in essence of food pharmacy. When we do that with our health plan, those that go to a food pharmacy versus those that don't is about a 15% reduction in per member per month, just interaction on food. So again, food is a major health issue in our country.
We make it a welfare issue, a huge impacts on our health and wellness. So now we're screening our employees and we are piloting our 1st employer to screens their employees for social determinants of health and the interventions, happier, healthier employees, less absenteeism, better retention and by the way, it will reduce your healthcare costs. And so our view is that's kind of the next piece of this puzzle that employers will begin to screen social determinants of health because it's going to reduce their health care costs. So that's kind of what we've been working on for the last. And I think what's interesting for us is 2 fold.
The first is the nature of our workforce is we probably have 20,000 employees that we should be doing these types of screenings for as an employer and thinking about can we intervene in their lives or partner with other institutions in the community to help make their lives better. And we think that's going to drive down health costs, improve the retention in our workforce, have a happier, higher engaged workforce and there's a lot of benefits that come from that. And then the second was on the clinical side. If you think about the typical frail elderly patient, you discharge them home and you think about the things they're dealing with. Can they afford their medicines?
If they're diabetic, do they have a proper diet and do they have an access to proper food? Do they have transportation to get to their physician's office? And so if you can crack that code and if you can get some interventions and we don't have to solve all these problems, we have to find a way to work with people that can. If we can do that, once again, we can drive down costs and that's going to allow us to go to people like employers or go to payers and say, look, we've got a better mousetrap, and we can create some value, and we think that's going to let us build our business going forward. So it's both doing good, but it's also good business.
And that's what people ask us like, how do you take this across a bigger footprint? It's that. So, if we can figure this out, other health plans would be interested, other providers would be interested. Medicaid, you think about the aspects of Medicaid and growing senior populations. If we can figure this out, there's a market there for us to be able to talk about those capabilities or those other avenues as well.
So we think that there's a great opportunity there. I think we've talked about capability synergies and we talked about cost in a different context. But if I put my finance hat on, we're talking about a merger. So I'd like to get some sense of how you are thinking about both of you as the possible cost synergies from this merger? And how you are thinking about it?
If you can walk us through your thoughts, that would be very helpful. Sure. I can start, Steve can go on more details than I can. But initially, just like any we took a $3,000,000,000 organization and a 3.8 $1,000,000,000 organization together. We engaged Mackenzie, so I'm helpless.
So we kind of redid our governance model. We did our operating model. There's some immediate synergies, significant dollar changes when you convert from a full profit to a not full profit, that's kind of day 1. The other part from our perspective, their cash flow, which would have been distributed out to investors, it now stays in our system. So, even from a positive cash flow, if you think about if this model looks correctly, the cash flow it generates for our system is fairly dramatic.
And then Steve and his team, along with our team have gone through a whole variety of synergies that we identified and anticipated and are very significant dollar wise. I think like any financial deal, you do a transaction, you want to try and optimize your cost structure and benefit from economies of scale. And so as the team and with the community's help, we think there are probably somewhere between $100,000,000 $150,000,000 of cost synergies that are going to be available to the combined organization. So if you put that in context, the net rent that we're going to take on to finance this transaction is about $145,000,000 to start. So my CFO is really good at summarizing.
If we get it right on the synergy side, we basically can cover the entire rental cost we took on to kind of refinance our balance sheet and refinance our real estate and it comes from the right of areas. So conversions and not for profit certainly helps. There's your good old fashioned corporate G and A synergies. One thing that's interesting ProMedica had a legacy post acute business and like a lot of acute systems, it wasn't really an area of focus. It's a financial money loser for them.
We think we can move that business to breakeven and then into the black and then you've got things like supply chain. And so when you start adding all those things up, there's a real opportunity on the cost side to really drive costs down, drive overhead down, and I think that makes us more efficient as an organization and drive significant earnings and cash flow growth from those synergies. So with the panel earlier, we heard from the different health systems talking about the need to partner in post acute. And on our journey at Welltower to a person when we need health system executives, they talk about the need and the desire for us to help them in creating connectivity to organizations like yours. Can you give some examples of outside of the ProMedica system where you've worked with other major systems and how that thinking has led to better patient care?
Yes. I think if you start with the premise that if we're going to really solve the problems around health care, no one organization can do it nationally in every market. You can't own everything and be involved in everything. So that naturally drives you towards having the partner. And if you think about the problems in the health care system, you have 2 that are really a part of all of our problems.
You have all these silos that make the system incredibly inefficient and then you've got these mixed incentives where for providers the more stuff you do, the more you get paid and for payers that's the exact opposite of what they want. So how do you fix that? You've got to integrate the operations and you've got to integrate the incentives. And so for us, we're thinking about a lot of different types of models. So with payers as an organization and now that we have a ProMedica balance sheet, we really embrace the idea of partnering with payers and really sharing risk, sharing the incentives.
When things go well, we prosper together. And when they don't go so well, that kind comes out of our hide. And we think that's a strategy that not only will let us grow our market share, but let us grow margin, but it's also better for the patients. And then I think what we're finding is as other systems hear about our transaction and they see how we partnered historically with Prometica 5 or 6 years ago, kind of broke down those walls between post acute and acute and now kind of brought the organizations together to say, look, maybe there's a strategy there. And I kind of describe it in a lot of systems.
Post acute is an afterthought. And I tell everybody kind of one man's trash is another man's treasure. We're very glad to try and step in and provide solutions for people on post acute and help them run that part of their business better and also get better patient outcomes. And we think that's a real opportunity kind of
going forward. So Steve, why don't
you talk a little bit about the payment model, how that is evolving? What's your thoughts on sort of the reimbursement change and also within your sort of Medicare and managed Medicare businesses, how the different payment models evolve? Yes. So Medicare, so the good news is our business actually Medicare makes money and so that's a positive. In fact, it's the one providing the cost subsidization to kind of other payers.
The model is going to change. So we go to the so called PDPM system kind of beginning in October of next year. And I think that's an opportunity for us to probably streamline our delivery model some, take some costs out, some also take out some of the compliance and regulatory costs that historically have been in the business. And then over the next 5 to 6 years, Medicare is going to evolve to the so called unified payer system and that's really code for site neutral reimbursement where we're going to reduce reimbursement for inpatient rehab facilities, we're going to reduce reimbursement for LTACs, we're going to try and normalize the reimbursement across all payer models and types of patients in all the living models. And so that that would be an opportunity of the low cost provider for us to kind of improve margins and get share.
But the real action is on Medicare Advantage. There's none of these regulatory you're free to go and make deals, so to speak, or go to Creative Structures, and we're already trying to do that. We see that as a real opportunity. Once again, the idea that we go from a traditional per diem fee for service model and kind of get out of that business and say, look, what's the line incentives? Maybe we do episodic reimbursement.
Maybe we do some sort of risk sharing type model. And if we do those things, once again, we think we provide better value to our partners, better margins for us and also allow us to kind of move market share. And so that to me is the exciting aspect. And then once again, now that we have a balance sheet, it's a lot easier to think about those capabilities. And then if you think about Paramount, we've got an insurance company.
My organization never really had an actuarial capability within it. With Paramount, we now have an actuarial capability to help us think about how do we manage risk, how do we price risk, how do we evaluate risk and how does that let us do different payer models. So that's a very exciting opportunity for us. Okay. Randy, when we talk about this acquisition, we primarily think the first thing that comes to our mind is post acute and skilled nursing.
Goodyear Medicare had a fantastic memory care business, which is, call it, roughly half of the value of the transaction. Talk a little bit about why that is interesting to you, why the military business is interesting to help us? Well, again, I think just look at the aspects of the areas they touch, go back to all these trends in beginning when you think about all the demographics, 85 year olds, the number of people on Saturday are getting Alzheimer's, just all the other aspects of it, huge need, very significant work, great work, especially not only from a profitability standpoint, it's highly profitable, but also just when you begin to think about bringing the social determinants of health And then the ability to work with Medicaid is one of the things that happened in the number of 85 year olds, yes, it's going to change healthcare costs. It's going to major implications for people financially. It's going to major implications for state and local governments and our economy just as you think about that economic pattern, the pressure it's going to be putting on people.
So, we believe that a lot of Medicaid programs across states are going to be looking for partners. There's some opportunity to do a lot of things both from a support standpoint because we know the impacts it has on family that gets back to the social determinants of health. And then also, I think clinically, the ability to link in the clinical aspects and we look at the technology that's available remotely today to monitor people remotely, integrate that with a clinical platform, which we start to see infobatic across the country in different pockets. It's just where we scale that. So when we think about that and working with our health systems as a partner, some cases going in other markets on our own.
So we think that from both a mission standpoint, a care standpoint, from a growth standpoint, we think it would be very good attractive area to grow. So, Kennenius, we spent a little time earlier today talking about labor and labor challenges in our industry. And one of the things that we learned along the way, Wendy, is the incredible reputation ProMedica has as a top employer recognized on par with some of the best of the Fortune 50 companies nationally. As you've rolled Medicare together, what has been the greatest opportunity you both have seen around labor, talent development, labor, talent development, recruitment, especially as we have growing concerns in the future about the state of labor in the healthcare space and the greatest opportunity for you both there? I'll start.
I think first off, you know, for us it's a very different idea. We talked to people in the Midwest and now we talked to people in Florida. They had no idea where Ohio and Michigan are. Now for us, it's very different culturally. And again, I think just that skill matters.
We've heard that already this morning. So our ability to be able to scale up an organization to support people, I think we have to do more for the development of people as well as organizational development. Also, our ability just to recruit more together. And so partnerships with colleges, partnership with universities, our partnership with Welltower speaks to that. And so we think again, one more time, just the opportunity to work together is going to allow us to be a better employer, use some of our resources.
Just like any other health system, we got a dozen people in our graphic design, we got a half dozen video people, those sort of things. HCI got rid of those folks a long time ago. And so our ability to do things from technology, we do videos weekly for our employees, Given the reimbursement challenges, some other challenges, they weren't able to do that. So, we look at this as again what Steve talked about taking some of the things that we do every day and now we just got to scale and think of it a little differently. So we think that helps us be a better employer generally and be a great addition to some of those HCRs already done.
Yes. I think for us, obviously, stability is fantastic for our employees. I mean, they went through a very difficult, challenging period of time. And so to be able to get to a place where the future is they can be confident about it, they can be optimistic about it, that's fantastic. I think our employees are really excited about the conversion to a not for profit.
I think the ability to be kind of mission focused, the ability to kind of reinvest in their communities, I think that's exciting to them. To Randy's point, if they take care of the bills, we have the ability to reinvest in our business and reinvest in our communities. The typical employee that's working in a for profit or not for profit, they come to work for the same reasons. And so I think that's pretty exciting to folks. And then I think the opportunity that's been there has been, I think, there's a lot of talent in both of the teams.
And I think one of the commitments we kind of made early on to each other was as we were putting the management team together, leadership together, we're going to say best athlete plays. And so there have been instances where HR Manicare employees, even though we were the acquired company, have stepped into system wide leadership roles and there have been instances where we said, look, the Promoterica person is better, they need to take the lead on that particular area and think that's an overall strengthening of the organization. And I think people see that. And when both sides of the organization see that being done in an even handed kind of way, I think it really encourages them that the future is bright. We've got a very talented management team, and it doesn't matter what tribe or what organization I came from.
I'm going to have an opportunity in this organization. I think that's been a real positive as well for people. Just on the social trends of health, for example, we have financial opportunity counselors they can be available to the whole system. You don't need to be local. You can get on somebody, talk through your phone, get on phone or kind of help or whatever.
So, there's our ability to communicate with people. And again, every organization has people that have issues and likes. It doesn't necessarily relate to the people living at the federal poverty line. We see a lot of folks that are making good incomes, but they have issues in life because of health care costs, other things. So, having some of those resources available to our team and the HCR team as well, we think we want to build that platform out and there is a lot of that stuff.
Some of it has to be done locally, some of it has to be done when you get centralized with a call center. So we think that again is just one more thing to be able to add to employee services. And we think again those are sort of things that are really going to talk to people. So with that, we have 2 second left. So we're right on the line.
Thank you so much for your participation in your partnership. Thank you very much.
Welcome back. That was a very spirited conversation here during the break. Hopefully about all the interesting things you have been hearing today. I'm being asked to give one more second. I think they're trying to get these microphones to work.
We will get started. I'm very happy to be here today with some of our senior housing operators, many of whom you've heard about. Over time in conversations with us here at Welltower, we thought it would be a great opportunity for you to hear directly from them and hear a little bit about what they are doing. So, to my right first here, I have Chris Winkel. Chris been in healthcare for over 30 years and he is the CEO of Sunrise Senior Living.
As you might already know, Sunrise Senior Living has 327 properties, roughly half of them with Welltower, 169 of them to be precise. He is Welltower's represent Welltower's largest operating partner and also a company in which, as you might know, we have an investment, the management company itself. Next to Chris, we have Matthew DeVoe. Joanne, she is the President and CEO of Cozio Rural State. As well as 17,000 plus residential units in Quebec and Ontario.
These include 35 residences for seniors, 13 of which are Welltower communities. As we look forward at the end of June, they will also be taking over 12 communities for Welltower in the United States, and we're excited to see them bring into this country what they have been doing for Well-up in Canada. Brian Bryan has been in the senior housing industry for almost 30 years and has actually quite experienced just about every aspect of senior housing during that period of time. StoryPoint has 22 communities and they're largely in the Midwest. About half of them or none of them are with Willpower.
And it's very much true for StoryPoint as well as the other two operators here with us today. We are constantly in discussions about opportunities to grow our platforms together. And we hope that over time, we're going to be sharing more and more about these names and what we're doing with these companies. So, today we're going to talk about the future of seniors helping. And certainly, I'm sure many of you think about lifting negative headlines and that's somewhat negative backdrop, I suppose, in recent past, a lot of talk about oversupply, operational headwinds.
But I think we've also probably seen that Willpower has continued to perform above the average and certainly outperforming all of our peers. And you might wonder exactly what is it that we do that allows us to report that kind of performance in our portfolio. And so today, we wanted to have our operators share with you exactly what they're doing, how they differentiate themselves and certainly the superior quality of the real estate, which you all know about. We talk about that very often, but very, very importantly, the superior quality of the operations within. And so the diversity and our operations, and we're going to hear today about very different ideas, some common themes, some common threads that different applications.
I think that is part of the power really behind Welltower's senior processing platform, the diversity of operators, the different types of approaches to the market, the care that is provided. And so how do we be more with what we have? How do we manage what type of which is the one that we're in today? So we're going to share I mean, we're going to do this a little differently today than what you've heard throughout the day because what we want to do is have each one of the operators give you a few minutes with some observations about new initiatives, new projects, innovation, how they're interpreting innovation, how they're addressing operating pressures, how they are addressing labor, which I know is a topic that we all talk about and we've heard about even today. When they're done with some of their remarks, we'll come back and we'll have a little bit of a conversation about what they've already talked about and also what Willpower is doing to perform and differentiate itself in defense and that.
So with that, I will start by saying that Chris' first slide is a depiction of the East 56th Street project. I know that some of you went today to visit the site. It's very comfortable of us who were out there. And we talked a little bit about the progress. You were able to see it.
We're very excited about what we've done. So anybody could a fixed delivery and 82 of them memory tier. So that's why we are going to be topping off or topping out is the right term on the construction. That is we're going to finish sort of the main sort of physical structure of this building in January. And we continue to be on time and on budget with respect to the plans that we have for substantial completion in the Q1 of 2020.
And so, the project, as some of you already heard today, so I will tell the rest of you if you hadn't already picked up on this piece of information, is intended to have an average rate of $20,000 a month. Now, we are very confident about our price point and our ability to deliver a quality product at that price point because of all of the innovation, certainly the location. You heard about the kind of analysis that we might do to select a site and this is a site that Welltower had a direct hand in selecting. And we actually were very welcome this process very early on. And so, what is in the market today gives us every assurance and this kind of performance in the service that right now we're estimating a 2022 type of stabilization with really outstanding innovation, a lot of in the physical structure, as well as in care and the services that will be provided within.
Again, Chris will tell you a little bit more about it. But right now, I'm going to ask each of you to please talk about if we think of 3 different areas of innovation that we're working on, that Welltower might even collaborate with you on innovation in the physical plant over the real estate, innovation in systems for the actual operations and that is the 3rd category being innovation in care, the delivery of care. I would like to ask each of you to talk to us a little bit more about that whether it's Heath 56 Street or anywhere else that you are trying to think of the next generation of seniors housing. So with that, I will turn this over
to you, Chris. Thank you. So just to talk a little bit about Sunrise in general. So Sunrise was a large public company and Welltower led the buyout in January of 2013. And at this point, we're essentially a management company.
We're 327 communities in 4 countries, half of them being owned by Welltower. We're pretty much a triple management company. We only have 3 operating leases. So, structurally, we're literally almost classic asset light model. So when we looked at where we were as an organization in 2013, we really focused on what we need to do really to drive innovation.
And the good news for us is we're really, we believe, focused on the 3 areas in Mercedes' outline. First of all, so of the 3 cornerstones for us, it's development, it's constant operating improvements and then the third one is really the care side and I'll talk about our foray into Medicare Advantage. So first in development, development has historically been one of some ISA strong suits. The Mason design really goes back 30 years and it's been a constant evolution of that product. And we have since took a little foray until the Welltower buyout and we started to redevelop really in 2014 and since then we're really operating equipped with Type A new communities a year.
And the key for us is obviously trying to find the right markets and the beautiful thing about East fifty 6 is Manhattan is full of those dark green dots that the guys talked about earlier, because it is the statistically most underserved population that we have in the country. Now when we look at the design, you're always looking at what areas can we have. So typically in this design, you've got a little bit less square footage per unit. Normally, we got about 850. This is about 750.
And so, the units themselves are about 375 square feet. But when you look at it, the key is what can we do design wise to make sure that this footprint fits our model. And so, one of the things we've done uniquely here is each one of the memory care floors really has a destination theme, very similar to what we do. So we have a program called Live With Purpose. And there's a value to live with purpose.
1 of them is live with artistry. 1 of them is to live with generosity. And so each one of these floors is going to be themed for really what fits the residents' needs. The other design feature is we have fantastic green spaces in 3 different places on the 4th, 11th and 16th floors. So here, we are in an urban setting.
We have the green spaces in this community, I think, will be as good as we always have and we have the secured features for the residents as well. And then we basically got circadian rhythm lighting, which is the first time we've done that. We're all L and B in this community, which is the first time we've done that. But the circadian rhythm lighting really is to make sure that at times with the residents throughout the day and again a unique feature, as well as we're fully up on Wi Fi. We've even got some boosters for hearing aids.
So from a technology perspective, we're fully wired and we think this is going to be just a fantastic community. The key for us is that we're always looking at that evolution of the design model and the great thing for us is since we've restarted our development, what we've been seeing is rate premiums even above and beyond what we've underwrote, which shows really what the market has appetite for new Sunrise products. The second piece, as I mentioned, is an obsession about operational improvement. And this gets in just like you saw in the presentation earlier about Welltower's data analytics, we also are kind of data obsessed in applying it to our operations. So, for us, and when you really look at assisted living, we come from almost a really technology desert, if you will.
So much was not even automated to begin with. So we basically now have an electronic health record that captures all the activity that our care managers are delivering to our residents. So, when you look at this diagram that you see, what it basically shows is all the activity that is being provided to the residents during the typical day. Now the key focus there is when you see white space that basically means inefficiency based on the stabbing at the time. And there are actually 2 parts of that graph where we go over the top of line, which means there is actually more work to be delivered than the staff can even do at that individual point in time.
So, it's all about what we can do with the care managers to try to shift responsibility, to try to balance the care loads and then look for fractional staffing so that we have a dedicated care manager concept, but having a couple of float members that don't work for any one team. This is going to allow us to be more operationally efficient throughout our care delivery. And that's the key. When you're looking at the kind of scale we have, it's about efficiency. It's about making sure that have compliance and delivery of our model over and over and over again.
So, there are 22 key positions in assisted living community. The first two we focused on, care managers, Medicare managers, that's 55% of your labor cost right there. But we've also analyzed all the positions. And so when you look at this, we have over 16,000 hours of observation. We did this by focusing our workforce at the community level by looking at what all the staff is doing by making sure that we're not from a corporate perspective assuming we're actually going and observing.
And as a result, we have so much acceptance from our team members because they know that we're trying to help them find a better way to deliver care. And that's critical when you get to deployment. So, just to give you a very specific example is the move in process was despised by our team and customers. It was one of the worst things we've got in customer satisfaction. So we automated this and this is just a simple workflow where this has a work manager where the family knows in the far right of the screen exactly where they stand in the process, our team knows and there is a cursor that basically gives you the heavy space.
So, it's very, very simple. We have a 97% deployed. Since this deployment, we risk we have 100% satisfaction from customers about a move in 97% acceptance throughout our system, so probably we have a little bit over 200 plus communities that have had this rolled out. We have saved an estimated 21,000 hours for our team and 20,000 hours for our customers. The customers, that's time that they just love to have and they're very pleased that we have the best in class system.
For team members, one of the things that you get to when you're trying to do this level of an operational transformation is you're kind of pushing the balloon a little bit. As you take something like 21,000 hours, that's 10 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es, you take it over 200 communities, that's a fraction of an FTE. So really when you start seeing the results, just the continuing nature of making these changes until then frankly you can combine or reduce positions. So, it doesn't happen immediately, but you really have to do it one process at a time. And it's something that we're very pleased about and we believe that we're going to start seeing some of the impacts of this in 2019 and beyond.
And really all gets to our Care Connect system. The cornerstone of our Care Connect system is an electronic health record, EMAR for medication administration, but we also have automation in TELUS, which is a workflow manager for all the physical plan improvements at the community. We have tableside dining. We have smile, which is our programmatic interface for what we do for the market for the residents. So, every one of these elements fits together and really gets us to what we think is going to be a future state that we believe will be best in class.
But it's really been comprehensive throughout the organization with all these initiatives that we've been deploying. And to hire one that's not on here because this primarily focuses on the care delivery, but we actually need predictive analytics on the hiring side. And so one of the interesting things is you hear all the time, this is a people business. And so how much can you do? And of course, it's all about finding the right people.
But if you think about that, we have a distributed process over 3 27 communities. So, even though the intention is to always find the right people, we all know what happens in an interview. Sometimes if you're rushed, you're looking person, hey, I talked to Joe, we booked a football, I'm hiring the guy. I mean, that's what happens in a large system. What this tool does is it basically predicts the retention of that individual.
So, when we pilot this, we are seeing at least a 10% reduction in turnover. We've now deployed this. Now one of the things we realize with technology, right, is you've got to have people use it. So, in a lot of cases where our team right now will make an override But the beauty of this is this is no different from the technology deployed by Netflix or Amazon. This is a learning algorithm.
So, the more information put into it, the smarter it gets. So, even when you look at the fundamental premise of we want to hire the right people, how do you do that? You're going to distribute it overall, the 30,000 team members that we have in our organization or you're going to come up with something that is a little smarter analytically to be a guide for that team member. So that's really all about our Sunrise Fund initiative for ops improvement. The last piece for us is Sunrise Advantage.
So starting this year, we actually launched a Medicare Advantage program for our residents in our communities. The intention is to go beyond our community walls, hopefully to other system platforms, other communities in the markets that we're serving. So the real key for us is, so why did we decide to do this? When we sat back and we looked at healthcare reform, one of the unique things that we have is that we have 99.5% private pay. But we also have 99.5% of our residents that are Medicare beneficiaries.
So we decided that we have 2 choices, we're either going to be inside of that conversation or outside of that conversation. And so we sat back and thought about it. If you think about it, residents come to us, their family entrust us, they pay our own checkbook every month for the care that we deliver. But then if you look at the other side, they are left with we have to manage and coordinate the care for our loved one ourselves. So, if we really are going to fulfill our mission to champion quality of life for all seniors, we need to cross over.
We need to truly champion that with the family and the resident and really get ahead of the table, basically helping coordinate their care with the provider networks and helping them administer the Medicare benefit because otherwise we're left with trying to approach the health systems and approach folks and try to, quote, ask for business. And the challenge with that is, in a list of folks like Randy and Steve talked, I'm not going to make the top ten list of their to dos. Now that we are payer, it's a game changer. And all the premises that we looked at in making this decision, the first was we have to make sure that we continue to have the culture that is a cornerstone of our success and really helps us fulfill our relationship to our customers. And assisted living was founded on the premise of being non institutional.
That's why people choose assisted living, that's where they pay out of pocket. So the thought of waking up one day and seeing 3 or 4 managed care plans that are in our community, we can't afford to lose that culture. So, one, we wanted to make sure we had control of the culture. We also wanted to expand the offering. So, we have some great statistics right now.
And the physicians that we used to get referrals from were up 300%, now that they're familiar with the plan and have a closer relationship with us. We have people moving in just because we have the offering. So that fulfills my promise to my partner in terms of increasing occupancy, in terms of hopefully length of stay as we continue to focus on wellness. So, we believe that there is no way that healthcare reform is ever solved unless you focus on this population. If you look at people that have dementia and 3 or more comorbidities, they have a 10:one cost per beneficiary in the Medicare system.
So we don't ever control healthcare costs unless we target these folks. And what we find from our families is when they move into Sunrise, they want it to be their last destination. They typically don't want to go back through and back to the healthcare continuum. And so that is why we basically did that initiative. And for us, it's all about the customer and the team member.
And we had record years in overall team member engagement and customer satisfaction. And then from third party recognition, that's culminated in the J. D. Power overall highest customer satisfaction. We are by a factor of 7 fold higher in all the bronze, silver and N CAL quality awards.
And we have got one of the first two golds ever given, 1 to a not for profit and 1 to the UBALTAR community in Gainey, Illinois and also Great Lakes TO Work recognition. So for us, it's what it's all about. So all these methods that you heard about are obviously focused on what we can do to frankly be obsessive about operations, really extend our brand and achieve customer and team member satisfaction.
Thank you, Chris.
Thank you, Chris. All right. Hello, everyone. So I will start to talk about an initiative that is touching technology. So every 2nd week, we get approached by a tech company that is coming to our office and proposing a tech solution based on all kinds of strategies and approach.
In most cases, they're all too expensive or not particularly pertinent or value added in our mind. We've decided this year to take the bull by the horns and to create our own tech initiative. So we call the project the Avatar project. Basically, we've made some approach to some artificial intelligence company based out of Montreal. There's a big hub in many of those companies out there.
We've identified 1, which is a staff of more or less 30 or 40 programmers. And we were able to structure a deal where Cogier took 20% of that company in exchange of $4,000,000 investment. Our money is going towards the development of the Avatar project. So the Avatar is really a software. So it's a virtual concierge, which will be a physical body, a virtual physical body that will work with voice recognition that will be ultimately set on hardware.
So basically a tablet that will be installed in everybody's unit, rental unit. So it will work with voice recognition. And here is a few feature of the avatar going forward and there's many more than those. So of course there will be telemedicine. We want to accelerate and improve customer experience and increase our employee productivity.
So we want to give access to our tenants to direct service to the nursing or a physician or nurses aide through the application, through the avatar directly in their unit. And ultimately, we think that's going to make a big change on our staffing pressure. Fall detection, so 50% of the causes of loss or deterioration of the autonomy for seniors is coming from fall. We're going to equip the unit with different sensors that you see in your house and similar as the security system in a house that are going to monitor if there's movement in the unit or no movement in the unit for a certain period of time. We're going to create parameters where if there's no movement for 6 hours or 9 hours, if any of it's at night or during the day, the avatar will wake up and start to speak with our tenants and make sure, are you okay?
Is everything all right? And it will also send a message to our staff that will come in and visit the unit to make sure everything is okay. It will also be used as a companion, so as a communication tool, All kinds of reminders and information will be provided to the avatar. So it can be the daily menu, the next week menus, the activity for the month, activity calendar, yes, meditation reminders. So most of our clients needs to take those few times a day reminder for birthdays.
And we want this to be an integrator of technology. Today is very hard, even myself, I'm soon to be 40, and I feel all the application and all the technology is hard to follow, go so fast. So if you imagine our clients which are 84 years old, it's almost impossible for them to keep up with what's going on. The avatar will be a verbally ask to use the FaceTime to the other part. So the financial impact and the goal of this is of course to create value on real estate by creating a better experience and a differentiator.
It's always a story for us to be the 1st to market with something new. So we feel that there's a value proposal more or less in the range of 2.50 a month and that's just an example and market will tell us and we'll try that most probably new construction. But 2.50 a month times 12 months is very simple math, 2,000 a year times the 6 cap. If I'm correct, that could have $50,000 of value on a unit. Of course, there'll be a cost, but we want the cost to be very low on the tech side because we want the impact to be on the real estate side as owners.
We have a program to put that on the street in about a year from now and that's a personal project of mine. It's on my office pretty much every day. We have a dedicated team following that initiative. So that's where the other time. Next project initiative is touching labor.
So we're a very, very labor intensive business. We're facing big challenges in the labor market. As everybody knows, there's unemployment rates, which are record low. Our wages for the non executive employees are pretty low. We're kind of in a range not too far from minimum salaries.
So in some cases, in some regions, we have turnover which are in the range of 30% to 40% a year. So that's a challenge and we are trying to fix that by creating a complete alignment of interest. And we want our non executive staff and our executive staff to really have a sense of purpose that is very strong in what we do that they feel ownership about the business, they feel reliable and they feel proud. There's a lot of non monetary initiatives that we've been doing in the last 10 years, but the latest one that we've introduced is a monetary one. So the alignment of interest goes from Welltower as the owner of the real estate and ultimately benefits from the whole initiative in the full circle here.
Property managers, which is my company, Cogier and we're also co investor with Welltower, then the executive employee and then the non executive employee. So at the community level really probably 90% of our staff and colleagues are non executive member at the community level. So we just introduced a program where when a home is outperforming, so in that particular case, 95% enough of occupancy, we're introducing a profit sharing program. So any revenues between $95,000,000 $100,000,000 is being split to the non executive employees. And for those people who make a salary close to the minimum wage, they can have an interest between 5% 15% of annual salary and we do those bonuses quarterly.
And so far, we've got testimony from people that told us that this program is really changing their life financially with not such a big impact. The executive director and the sales manager, they have specific bonus program in line with their performance. We can make up of 50% of their base salaries. They do hit the target. And then the corporate level and the property manager side, we can all think of very creative structure with Welltower where there's promote if we perform in different periods.
I share those promote with my executive people. I invite my executive people to invest in the real estate position that Coget takes. We finance them. We share the upside of the company. So really the alignment of interest needs to be from top to bottom.
And I feel with that initiative, it becomes the key for success at the non executive level, which was really the missing part in my opinion, in our industry. And I'm hoping there's no way back. And we will not push against the well to put that and implement that in our home. It was really a lecture of the challenge of the market and we feel as leaders we have the obligation to create that feeling of the non executive employee level, which are the people which are connecting with our customer every day, every hour, every minute and they are representative. So they're the most important.
So there's one condition in their formula. We need to use very little external agency to find recruit staff and for staff replacement, because we're in a very low unemployment environment, staff agency are could be a disaster for us. So we want to kill that problem. So we ask them to work more, make an extra shift, replace a colleague, sit between them to manage those situations, the time solution, use less agencies. So the residents are more happy.
They're more satisfied because they deal with the same person, right?
So if you're a senior and there's a lot of
changes in turnover in staff and the person who's giving you your back and helping you to take an indication is changing every 2 or 3 months, that's not the best experience you want to live. So we're trying to get that duration of stay much longer with our non executive employee. And the more they're happy, the more they talk about us, the better is our rep station because we're still in a big rep station business, the better is what you can see and then the more money they make. So that's the key for success and that's the initiative with non executive staff. So a few new amenities.
The province of Quebec, we believe is a lot for senior housing because we have the highest attraction ratio in North America. There is 1 out of 5 seniors above 75 years old that lives in a retirement home community. This is more than double of any other markets in North America. So we've been able to do a lot of testing and hit the miss on different initiatives. 2 of them that I'd like to speak, which are pretty recent in the last 2, 3 years and we'd like to come up with different ideas like that more often than not.
But the first one is a multi service center. So we built in the home a professional center that welcomes more or less about 25 different professionals from healthcare to financial, to physicians, to all kinds of advisory. And we hire somebody that takes care of the appointments. We make sure that those professionals are the best in class in their market. And that way our tenants don't have to go outside, book an appointment, deal with somebody which is not too good of an advisor.
We try really to make their life easier, more simple and better with those multi service center. And in our new models, we're opening to the outside of the community, the multi service center. So we really become a friend in the community and a positive player. We are introducing a lot of sharing coming areas with the public. So, very 2 maybe small examples are pools in the homes are used maybe 20% of the time.
So we try now to offer those pools to the senior club, which would like to do swimming in town and have a hard time finding a pool. And so we become friends with them and we collaborate with them and you can offer your pool for classes for kids than the grandparent fire with their young kids and we really open our coming area so that we're not seen as ghettos anymore because we're seen as friends of the community. And our tenants, we want them to take a lot of pride to share the coming areas with the communities, with the cities versus being seen as more of a ghetto, okay? So very lifestyle oriented oriented approach. Last initiative here, the electric car sharing.
So there's five good reasons for that. It's an amazing success. It's environmentally friendly and sharing strategy. It's we're lowering costs for seniors that don't use their car a lot. So they're selling their cars.
They have less expenses on cars because they can now rent the car and use the car. It's a marketing tool. It goes around the villages. It's blended by the property and a lot of people speak about it. And then we're hoping that we're going
to have to build less interior, maybe exterior parking, but up north in
Montreal is pretty cold and we need a lot of interior parking. So and we're very costly. So with the electric car sharing, There's a point here that we're going to build less parking. And lastly, we're in a business where 80% of our clientele is women and 20% men. So the men are very happy to drive the women around in this community and they make all kind of relationship there.
So we still have
a camera on the car, so there's no money to do this. It's socially very positive. So why Wild Tower is so important for us? Basically, we do not capital, culture and vision with our focus to execute the game plan and those strategies. So the outlook to create that complete alignment of interest.
And I must say that we have multiple partners of all kinds and we're extremely excited to work with Thunder Largo and his management team, which are in our opinion, amazing leaders, visionaries and they really get the best out of us. I can guarantee that. And I'm hoping to grow up more with them. So to conclude, we think the opportunity in our business is amazing. There is the demographic room for senior, which just kaboom.
It's unbelievable how big the rate is coming. The new trends, social trends, which we've touched a little bit are kind of changing the game. The community now is seen as a partner versus a gift or a much more lifestyle oriented. That's also a big game changer for us and the technology that is coming sooner than later. We're very excited about the times that we're in.
That's it. Thank you.
Thank you, Matthew. And now, Brian.
I want to listen to your accent. I just love listening to him. I need to say, seriously. So thanks for having me here today. I'm going to talk about innovation, very basic innovation.
And I'm going to talk about innovation as it relates to wealth power, capital and alignment and echo some of the things that have been said today. And then I'm going to talk a little bit about some of the things we're doing in our operating businesses around innovation. But innovation to us, it's not limited to massive change. We look at innovation as though it's hundreds of little things that you're doing and you're working together every day. Every day as an operator, you're innovating and you're trying to get better and that's the way we look at it.
Innovation around capital and alignment. REITs are often looked at simply as owners of real estate, Sean, you referenced it, capital providers, to developers, operators like us. But Welltower is different and Welltower is changing and I think you can see that theme here today with what's going on. They really are the premier spot leader in innovation around capital and alignment with senior housing operators. They're pioneering this through intense efforts on forming deep relationships with best in class operators that bring value.
And the value that I'm speaking about and that a lot of people have referenced today is way beyond capital. If you're an operator or a developer in today's world, there is plenty of capital coming to this space. You can be an average operator or a bad one and still get capital, but the value that they're bringing is way beyond that. Some of the things that we're doing that we've done with Wall Tower, just real quick, I'll go through these group purchasing has been fantastic, the ability to leverage off of their relationships, the data and analytics that they have access to, millions of data points that help us as an operator making more informed decisions. I think you're seeing that pattern today, the business insight groups.
There's not another company out there doing what they're doing. And when you're selecting markets and you're selecting sites and you're selecting where to operate, the value that's brought to us as an operator is fantastic. Creative solutions around deal structuring and financing, no one deal is ever the same. Every deal has nuances and always find a way to get them done. Joint venture partnerships, I'm a huge fan of this.
I was talking to some guys about earlier around the alignment of risk, risk between and reward between the PropCo and the OpCo. I think it's fantastic. And then the long term outlook on this space, We think of this business long term when you're partnered with another company that thinks long term, you tend to make decisions differently. And I think one of the better things about it is because of the relationship, because of the partnership with Welltower, we can focus on what we do, which is to love and care for seniors. Talk about some great innovations around things that we're doing.
These are very basic of culture. Culture is what we believe, It's how we behave and it's the experience that we create. Everyone here that works for a company is part of a culture. Some is good, some is bad and it's hard. It's hard to create.
Our culture is founded on an employee first culture. And in basic terms, we look at it this way. It's employee, resident, shareholder. You invest in your employees, they in turn invest in your residents and the shareholders win. And that's what we've done with our culture, one of the things that we're doing.
When we make decisions, we look at how they impact our employees. Monthly conversations, we have just under 3,000 employees. Every single person in our company gets 15 to 30 minutes with their leader on a monthly basis to see how they're doing, where they're winning, where they can improve. Servant leadership, this is something that we believe in wholeheartedly. And if you're going to scale your business, if you're going to grow, the concept of servant leadership is our home office, myself included, is overhead.
We exist in our home office to serve our employees at the properties because those employees serve our residents. That's ingrained in our culture. Clear expectations for every role and then tools and resources to help every employee become a better version of themselves are some of the things that we focus on. 1440. 1440 is our mission.
It's our mantra. It's who we are. We hired a 1440. We fired a 1440. We challenged each other to 1440.
And the exit to 1440 is this, there's 1440 minutes in a day. The job of all 3,000 of our employees, everyone knows, it's all over our buildings, all over our home office, is to create the absolute best experience in every interaction with every person every minute of every day. And the cool thing about it, it's hard to do. It's aspirational and it's unattainable which then leads to the cost to pursue the better which is also something we believe in Echo. People decisions.
People decisions are the most important decisions we make. There's talk around finding talent. And if you don't have a plan to find talent, you better get one because it is competitive out there to find talent. We invested years ago. It's almost a business within our business, our recruiting group.
We call it talent acquisition, TAD. Look at recruiting as a sales and marketing discipline. We brought the markets, we tell hundreds of unique stories and we have hundreds of unique campaigns in the markets that we operate buildings in and we're telling those EmployFirst stories to people who want to hear it. We have a dedicated team of 20 people in our office who are metric driven recruiters and we're following a scientific process to find best in class talent. When we find talent, we're selective.
We have a 10 step selection process that talent and interviews go through. We definitely have personality profiling and other things that we do. And then we put people in situationally relevant experiences. So, John, if you were going to come and interview for a sales position in our company, we might have you into the home office and there might be 4 or 5 other people competing for 1 or 2 positions. We will put you into the home office.
We'll put you on a panel. We'll put you in situations where we're seeing how you react to realize situations in selling and then we make decisions based on that. So, look quickly, this is given to me last week, this is off cross. I hear caregivers are hard to find. But in Dayton, Ohio, a property that we're opening, we had 2 70 candidates as a result of some of this process, 270 candidates through the interviews and we will be paid hires.
So they're all out there. Senior housing, we all refer to it. It is real estate. It is sticks and bricks, but we look at it differently. We believe we're in the senior life connection business.
There is housing, there is sticks and bricks, but we're in the business of connecting lives. Everyone wants to be connected. Everyone wants to be connected. And unless you think back to high school, I always think that first day of walking in, I don't know if I can remember back that far for some of us, but you walk in that 1st day of high school and you walk into the cafeteria and you don't know anyone and you're walking in and you've got your lunch tray and you're trying to figure out who's who and you've got that feeling in your gut, right? Well, it's the same thing for a senior when they come into a story point.
Maybe their spouse just passed away and they're moving in their learning. Maybe they're leaving a residence that they've lived in for 45 years and neighbors that they know and they're moving into a new neighborhood. Our job is to connect them and don't over complicate this. We do it by giving them safety, a safe place to live, belonging and we inspire and we empower. Briefly, a lot of talk here, but around markets and around supply, there were some questions on it earlier.
But you have to deeply understand your residents and the markets if you're going to be successful. I won't go into all of this, but we spend a lot of time understanding our residents, interviewing them, going through personality profiles with them. We spend a lot of time similar to Welltower in understanding our markets. And if you're really great, if you're mediocre, this may not be the case. But if you're really great at what you do, you're going to have less supply issues where you operate buildings.
But you got to be great at what you do. And to do that, we believe a big part of it is knowing our residents and knowing our markets. So an example of this Clovis, Michigan, which is a suburb of Detroit, it was about a 20 year old building. In the last 24 months, we had 12 new competitors open up, all within 15 miles. We had 10 90 new units added to this micro market.
And we were able to maintain a 94.3% occupancy, sustained occupancy with no rent concessions. Just some of the results and again from left to right following employee, resident and financial or shareholder. We spent a lot of time getting data on our employees, 4.34 out of 5 stars by Glassdoor and indeed we spent equal amount of time on getting resident scores and measuring our satisfaction with residents, 4.76 out of 5 stars from senior advisor and then the financial results, 93 percent out of occupancy across our portfolio and 5% annual increases. So thanks for your time. And we're also extremely optimistic and excited about this business.
So thank you. Thank you, Brian. So, we'll take a few more
minutes to talk about some of the things that we've covered. And as you can probably tell, these are the I started by promising you that we have a very diverse set of operators. They each have their own take on the market, but there are a lot of common themes that run throughout. And I think that's also true for Welltower. In fact, some of the very same initiatives that you've just heard talked about, Welltower has also undertaken on behalf of our operating partners, certainly some of those operating partners who are smaller.
And so they need our scale to be able to access the kind of technology and innovation that is being talked about. We've done a lot of work at Will Tell, for example, with respect to staffing and trying to optimize staffing, whether it's flexing more adequately with occupancy and acuity at any given point. We are in the early stages of studying more about what we can do so that our carers can spend their time caring for the residents as opposed to spending much of their time on administrative functions and things that might be automated over time. So, these are initiatives that Welltower participates in very directly with the help of our operators. I think one of the very important foundations that Welltower has been built on is our relationship strategy.
And as you can imagine, our relationship strategy, one of sort of the fundamental points of it is to say we look for those who are like minded and we find that further for. I hope that you have heard a lot of things and a lot of initiatives, a lot of focus on the very things that Welltower often talks about. So, these are examples in practical terms that, that really translates into. But we work on similar initiatives, spot well power. We've heard today about data analytics, leveraging purchasing power was brought out.
Tom talked about our LED vessel. And we also have certain steps. Some of you might have seen that we most recently announced some progress in our work with Johns Hopkins. There is a report that is available to anyone who might be interested in seeing this more closely. This is essentially trying to bring different stake quarters to a conversation about what is it that ultimately matters when we try to determine what quality looks like in seniors' housing.
And the importance of this report is that we're trying to figure out how to measure the value proposition of seniors' housing and the continuum of care that has been talked about today. So we consider seniors housing to be a redefinition of home. We often hear us talking about our residents. We don't talk about our patients. These are the homes that these individuals live in.
We heard a lot today about care being provided in home settings. And certainly, assisted living memory care type communities are that. They are redefined home settings. And so what I want to ask some of you today, just so we can touch back on what was being talked about earlier with respect to continuum of care, is your experience with respect to providers and the role that your communities might play in the life of that resident who lives with you in their care? And so I'll start maybe with you very quickly, Chris.
Yes. It really varies dramatically for us market by market. We're in so many markets. And what you're trying with health systems is we heard a lot today about post acute. There's a lot of, I will say, different evolutions in terms of the focus to post acute system by system.
And again, the key for us is coordination of care. So it's always reaching out. We basically have business development positions that are really responsible for facilitating both relationships major markets with health systems, provider groups and really making sure in particular in the markets from the advantage perspective that we're really building those networks because now that's a cornerstone to our success. So we feel that senior housing is probably the number one solution in the healthcare system initially going forward. The healthcare costs are exploding everywhere.
And when you send a senior to a hospital, and I'll speak for Canada for a minute, it probably costs $1500 a day. And in some cases, they go there and they don't really have to go at the emergency of the hospital. They could stay at the retirement home. And we're a big believer of the continuum of care where we pay them independent living and we service them assisted living and then some more care. So for a fraction of the price, that's the cost of the hospital, those clients can stay in their home and get the exact same proper service.
So we feel ultimately the governance and they started in Canada, I can tell you and ultimately maybe the insurance company will have no choice but to fund the seniors that will live and they will force them somehow and give incentive that they will stay in senior home because it's a big solution to the healthcare sector. And we feel that's going to give more capacity to pay to the seniors today and it's going to increase a lot of the attraction ratio for our business. That's more in the next couple of years. We're completely sure of this. And we partner just briefly in the word but we partnered with the Northern Community around with health systems.
And we try to keep our residents out of the hospital. And if they do go in, we partner with them to get them back because the best place for care is in our building in their home.
Thank you. And I'm afraid that we've gone out of time, but I hope that at least some of what we've talked about today does help to answer some of the questions that we might have about in a period of operating stress or operating pressure, how does Welltower really continue to outperform the market? I think it's really because we have surrounded ourselves with operators that are very innovative, incredibly focused on those things that will drive Whistles. And we're in partnership with Welltower with some of the initiatives and some of the tools that we can bring to bear are making a difference in that performance. So thank you very much for your time.
Okay. As part of the finance panel today, you'll hear from myself, John Biddy, Chief Financial Officer you'll hear from Shankh Mitra, our Chief Investment Officer and from Tim McHugh, our SVP of Corporate Finance. Following this panel, we will have some time, although maybe slightly translated by the overrun, to answer Q and A for those of you that have been emailing investordaywildtower.com. At the end of Q and A, Tom DeRosa will speak just for 2 minutes with some concluding remarks and I will look forward to joining you for the reception afterwards. As always in these situations, we'll be making forward looking statements in today's presentation, including regarding our 2019 guidance.
There are numerous reasons why actual results may vary materially from expected and expectations and those that we discuss today. Please see our forward looking statements slide, which is displayed right now and digital wildtire.com for additional and important information and factors could affect our results. So where have we come from? Those of you have been following us for some time and now in 2014, Wild Tower produced an AFFO of $4.13 per share. Where are we now?
2018 consensus on FFO $4.05 a share. So the questions are where have we come from, what has changed and where are we going. The transformation we have been undertaking is much more than a name change as Tom told you earlier. Whilst little changes are so evident, over the last 4 years, we have transformed our portfolio, how we monetize the assets beyond our real estate such as data. We also have transformed how we allocate capital and how we operate as a business.
Today's panel will focus on our exciting transformative journey and how we'll take LoRaWTA into the future. Throughout our presentation, we'll demonstrate to you how we've materially improved the quality of our real estate portfolio and surety of our income, how the investment we make in unique cutting edge data and analytics drives enhanced capital allocation, how we can be operated across subsectors to create the investment opportunities centered on improving health outcomes and reducing and lowering cost. How we've created a differentiated morality of efficient capital sources to fund our firm and how we've built a moat around our business and are uniquely positioned to lead sector future growth. On Page 52 on the slide deck, you'll see since 2014, Welltower has made transformational improvements in the quality of our real estate portfolio and the surety of our income stream. We significantly increased our investment in our patients, medical and health systems and combined these segments now represent nearly 1 quarter of our portfolio.
And as our investment announcement of this morning demonstrates, we continue to see and execute upon significant accretive opportunities generated by our deep MIB and health systems relationships. In seniors housing, we have increased our portfolio quality, redefined alignment with our operators and exited legacy relationships. We've also exited life sciences where we believe only those with true expertise and scale should invest. We've also exited U. S.
Hospitals and reduced our exposure to highly levered health long term care and post acute providers. Overall, our private pay mix has increased by 7 percentage points. In summary, Welltower clearly owns the premier portfolio in the sector with a deep diverse operator base that provides durability of income, high quality and we are primed for growth. Since 2014, Wild Tower has been highly active in asset management. We've taken advantage of a very favorable private capital bid for healthcare real estate to exit at very attractive prices, lower quality portfolios and those where operator alignment with Welltower is poor.
Through our differentiated relationship network, we have generated significant accretive proprietary acquisition and development opportunities, recycling disposition proceeds into higher quality, better aligned investments. We also added substantial and growing new segments to our business, which you will now we will be calling Health Systems. I will tell our differentiation goes beyond our portfolio. In our show segment, we are leading the way with version 3.0 RIDEA contracts where we are structuring incentive based management agreements that see the operator financially aligned with Welltower's investment performance. This rewards operator to outperform automated Welltower to change operator if performance is inadequate.
We also often invest in the management company sitting on the Board and having a role in governance which further aligns the parties. You'll note from our lunchtime presentation the quantum leap we've made in data and analytics. This gives us a durable competitive advantage in capital allocation. This capability is not only valued by Welltower, but is a differentiator for us with our partners. And I think you heard some of that earlier.
You see an additional capability and benefit of working with the best platform in the sector. With our unique diversity of operating segments and deep dialogue with payers, Mol Tower is convening these parties to make the real estate we own more consequential. And we are defining and action investments that will improve, have outcomes and lower costs and deliver value to our shareholders. With that, I'll hand over to Tim McHugh, who will take you through some of our recent transformative transactions. Thank you, John.
Given the context of John's comments on Welltower's increasingly differentiated approach to healthcare real estate business, I want to highlight a few key transactions from 2018 and this morning's announcement of $1,000,000,000 of new investment activity. Moving back to 2018 investments, our activity is really highlighted by 2 key things, innovative partnerships with health systems and creating aligned structures in senior housing to capture long term value. On the health system front, the Banner transaction in 2018 was our joint venture with ProMedica. This transaction enabled the creation of the largest health system owner operator of skilled nursing and private pay senior housing and provide evidence of the integrated healthcare delivery landscape we have been speaking to for the last few years. 2018 also marked a banner year for Welltower Medical Office Fund.
As our patients in the overheated market of 2017 paid off, we've been able to source ample opportunities in 2018 that fit our long term return requirements. On the senior housing front, 2018 has amplified our focus on driving value through relationships and aligning structures. The 2 relatively new transactions here were the restructuring of our high end Brandywine living portfolio into our Dea joint venture. We now have a 35% ownership stake in the management company and the development company and the optimization of our Brookdale Senior Living relationship. Which is only possible due to deep operating partnerships we have and relationships with senior housing industry.
I will come back to
this transaction later in the presentation. Moving to the next slide and this morning's investment update. We are pleased to announce $1,000,000,000 in new investment this morning and a blended cap rate of 6.4%. There are a few things I'd like to highlight about this announcement. One, the high quality nature of the acquired properties, highlighted by our Class A medical office joint venture in Charlotte, North Carolina with Pappas Properties.
This development is not only intended by high quality health system but represents a trend we see increasing the real estate space, which is healthcare anchored multiuse developments. Secondly, all 11 properties or transactions we announced this morning All the $1,000,000,000 in transaction announced this morning took place in 11 different transactions, all of which were sourced off market. We direct relationships with developers, operators and health systems. And lastly, to emphasize my earlier point in returning to medical office transaction market, this morning's announcement brings us up to approximately $840,000,000 announced and or closed MOB acquisitions in 2018. This is the largest investment volume we've had in this space since we first entered medical office building sector in 2006 with the acquisition of Windows Properties.
We feel incredibly optimistic about the secular tailwinds in the outpatient medical business and even more optimistic about the value creation potential of our own platform under the leadership of Keith Concholi. Moving on to our next slide, where we've come from and what has changed. In addition to a change in portfolio mix over the last 4.5 years, I want to highlight 2 specific areas in which Well Power significantly increased the quality and sustainability of our cash flow. The first of which is within our triple net lease portfolio and specifically within our single operator concentrations in near term lease maturities. In 2018, Welltower actually managed 2 of our largest triple net exposures, Genesis Healthcare and Brookdale Senior Living.
The first, Genesis peaked at 14% of NOI in the Q3 of 2016. Through 2 large sale transactions in early 2017, we were able to materially reduce our exposure to Genesis to just under 8% coming into 2018, which had the benefit of also driving up our private pay revenue exposure across our entire portfolio. This initial reduction in the concentration was vital in allowing us the flexibility to lead out of court restructuring of Genesis at the beginning of this year. This restructuring creates a much more sustainable and secured lease revenue stream, increasing EBITDA coverage from just above 1.0 to a more stable 1.3 while also preserving the opportunity to recapture economics in the future. The 2nd tenant we'll highlight today is Brookdale Senior Living.
In June, Welltower was able to structure a mutually beneficial transaction with Brookdale, which allowed Welltower to reduce its exposure to Brookdale 7.3% of in place NOI to a pro form a 2.7% of NOI by transitioning 63 properties to new operators, including Cozier, whom you heard from earlier and Pegasys Senior Living, a new senior living platform led by industry best Stephen Bitt and Chris Hollister. Welltower expects significant long term value creation from the world class operators and the well aligned structures we've entered into with them. Both of these transactions have the effect of producing Welltower's senior operator concentrations, eliminating all material near term lease maturities and meaningfully increasing the coverage and sustainability of our remaining cash flow streams.
On to the second area I want
to focus today. We have increased our cash flow quality materially by moving down our exposure to real estate loan book and non real estate loan book. We do not view real estate lending as a standing driver of value creation within Willpower
and definitely not as a driver of earnings growth.
We view the complementary business to our core competency of property investing. We've really fully reduced the size of our loan book since 2016 and its contribution to our earnings stream. We will continue to be very selective in how we allocate capital to investment types going forward. This brings us to our next section, where are we going? Throughout today, you've heard the tremendous opportunity that the challenge of the aging population presents.
The best solution to these problems requires the best access to capital and Volt Howard has worked diligently to attain that. I want to start with our unparalleled access to equity capital. As large cap public REIT and growth industry, we are better positioned than anyone to efficiently capitalize healthcare infrastructure. We've enhanced this structure in 2 meaningful ways. 1, we reduced the frictional cost of raising capital in public market.
And 2, we created private investment partnerships to minimize the funding volatility inherent in the public model. 1st, on reducing frictional costs of raising capital. Over the last 3 years, we've adapted our equity market strategy to a more tactical equity needs, replacing overnight equity offerings for more controlled intraday equity raises, allowing us to opportunistically match fund our development pipeline in granular acquisition opportunities at a significantly lower cost to our shareholders. 2nd, we spent considerable time building relationships with the world's largest sources of private capital. The capital diversification strategy underpins our belief that we are quickly approaching one of the greatest investment opportunities in our life ends.
We're reimaging and redeveloping the infrastructure as required in order to efficiently deliver healthcare to an aging population. This demographic opportunity is not driven by capital market cycles. It's mathematical. And because of these capital relationships, Willpower will not solely depend on capital market cycles in order to source capital, take advantage of these opportunities. Moving to that portion of our capital stay.
Welltower has long been committed to an ever improving balance sheet as we believe the sector leading cost of capital is still a key strategic advantage in the growth sector. Our commitment to building the highest quality portfolio to conservative communities along the way has been recognized by the fixed income community through continually improving cost of debt. We've worked hard to establish a debt investor base in all three geographies we invest in, hiring not only the diversity of our operating platform, but once again the diversity of the capital we can source to support it.
The last point I'll make here is that we have
a well laddered bond maturity profile and revenues on the right side of the slide. 2018 demonstrated the depth of support we've enjoyed from the debt investments in Uniti as well as our ability to continue to extend this ladder. And we are able to put the market twice, raising $1,850,000,000 dollars in debt proceeds, with our most recent offering in August, raising $1,300,000,000 at a 4.4% average yield to maturity a duration of 15.4 years. Lastly, I'm going to highlight the unparalleled asset backed financing available in the asset classes in between us. This is the topic we've discussed with many of our debt and equity investors in this room.
This company believes strongly in the pricing and structural efficiencies of unsecured debt markets offer us and we have our diligence over time to increase our unencumbered NOI pool, which currently sits at just over 85% of NOI. But we do think it's worth recognizing the strength of the asset backed financing market in this asset class. As it's been under as it's very underappreciated in an asset class that is dominated by public REITs and their tendency to utilize the unsecured debt markets to finance their investment. The point we're making here is that 70% of our asset base is backstopped by government backed credit complexes such as Fannie, Freddie and the HUD programs here in the U. S.
And PMIC in Canada. These programs provide resilient cycle proof sources of capital to complement the large defensive nature of underlying cash flows. And assume the multifamily space should create significant support for private market asset pricing over time. And now turning to 2019 guidance. Before getting into 2019 guidance as a result of this morning's announcement of a $300,000,000 direct acquisitions to QIF along with $120,000,000 of additional ATM and DRIP in the quarter to date.
We are reducing the top end of our 2018 guidance down $0.01 to $0.406 from a previously disclosed $0.407. Note that this change is not reflective of any fundamental results quarter to date or indicative of a change to our outlook for the rest of the year. This change is due only to the pre funding of the announced acquisitions that we do not expect to close until the first half of twenty nineteen. Given this change, our revised guidance range for full year 2018 is now 402 to 406. As we shift to 2019 guidance, I would like to remind you that we do not include any speculative investments in our forward guidance.
Therefore, the only acquisitions disposition activity factored into this guidance reflects what we have announced to date including 1 mass period of acquisitions made up of the $486,000,000 of MOB transactions we announced for Q3 'eighteen earnings and the $1,000,000,000 of senior housing and medical office transactions announced this morning. On the disposition front, our guidance remains the same with $800,000,000 of remaining dispositions announced in 3rd quarter earnings, dollars 180,000,000 of which have closed already and $620,000,000 of which we expect to close in the near future. Furthermore, we baked an additional $200,000,000 in equity issuance in our 2019 guidance to match broadened our expected development spend of 350,000,000 dollars With all of our 2019 assumptions factored in from this morning's equity along with this morning's equity issuance, Welltower expects to enter 2019 with a leverage profile of 5.7x net debt to EBITDA. Moving to same store guidance by subsector. We felt it was important to provide a forward looking to 2019 with the December Investor Day.
But it is important to note there's obviously additional risk versus our usual cadence of issuing guidance with 4th quarter earnings. That being said, the following reflects our best view of how 2019 is shaping up given the current underlying operating trends and the most current data we have in our hands. As you know, it is our policy to not adjust subsector guidance intra year. But given our early guidance here, we will provide updated ranges within the with the presentation of fully detailed guidance in February with our 4th quarter earnings. And with that, I will start with our senior housing operating guidance of 0.5% to 2%, driven by moderate improvement in year over year occupancies and rate growth consistent with what we have seen in 2018.
For our senior housing triple net portfolio, we expect 3% to 3.5% same store growth. This above trend growth is driven by development leases that stepped up in the back half of twenty eighteen and will carry through into 2019. In outpatient medical, we're expecting 1.75% to 2.25% same store growth. This below trend growth is due to 2 large leases rolling in the year that we expect to create a slight drag on growth. Our health system bucket which as you know is made up only of our pro medical lease is growing to 1.375% this year before stepping up to 2.75% in year 2 to the remainder of the 15 year lease.
This lease will not enter our same store pool for the Q4 of 2019. And lastly, long term post acute, which we expect to grow 2 percent to 2.5% in 2019, culminating in total portfolio growth of 1.25% to 2.25%. And lastly for our final review, Welltower expects 2019 FFO to be in the range of $4.10 to $4.25 a share. And with that, I will hand the floor over to Shankh Mitra. Well, Tim gets to talk about all the fun stuff.
So I'll get you into a lot more boring conversations. But I think we try to have with you many times is the genesis of this conversation is how do you see the medium term growth? This is 2019, it's fantastic. We've done a lot of things, a lot of restructuring and a lot of acquisition disposition that's flowing into 2019. But we want to give you a sense of conservatively what we think the medium term growth profile of this company looks like.
So what we try to do, we talk a lot about what you can do is put a cap rate on 87% occupied portfolio as you think about how we think IRR. So we try to look at this conservatively what a cash flow growth profile looks like. To do that, what we have done is we try to say, okay, if the base portfolio grows 2.5%, on a levered basis that you get about a 3.5% cash flow growth from the base portfolio. However, you also have to realize that our entire portfolio is effectively at this point is unstabilized. So very conservatively what we have done in this slide that we have taken that portfolio occupancy up to 92%.
All our operating part, I will tell you, that is not a stabilized occupancy for the business and we have pushed that out for 5 years. If you do that, you pick up about a 0.9% annualized growth rate. We have done the development lease up that adds about 0.6% annualized growth. Again, we have done it over 5 year timeframe. And we are free to do this over 3% to 4% or 6%, that's your decision.
We thought conservatively leasing up to 5 years is a very conservative outlook for the company. We have Tim talked about the group build transition assets. We think that adds about 0.5 percent of growth and construction in progress obviously where the capital is already spent. That gives you about 5.6 percent conservative outlook for cash flow growth for this company. So let's look at what does this mean for total return.
So if you think about this is the 5.6% we talked about, stabilized growth, occupancy stabilization, development lease up, good day transition assets and construction progress that's about 5.5%, 5.6% cash flow growth that we think we can get to on an annualized basis. And we have a dividend of 5% that gives you a 10.6% total return with extremely important understand that without any need for external capital. So if we think about on an acquisition and development basis, we think we can do $1,000,000,000 of transactions at only 0.5% spread, that adds about 1.5% of cash flow growth, 1.6% to be specific. And we did $300,000,000 of development starts that adds another 0.5% of cash flow growth. So with the acquisition and development with external growth, we think conservatively we can deliver a 12.7% total return without change or expansion in multiple.
So we are extremely excited about the cash flow growth aspect of our company. We think there is $157,000,000 in our EBITDA that's not reflected in our NOI EBITDA P and L today. And we think just by using EBITDA, we can get to that. So you see that on a basis, we think we can get close to 30% over return without expansion of multiple. So I wanted to see a little bit of what does that mean for our multiple.
I wanted to have a little bit of a multiple conversation about what it means for real estate investors who think about IRR and not just a cap rate, right. So what we have done here we talk about a hypothetical portfolio, we'll just call it a portfolio retail. And we'll say that is a portfolio that is 1,000 for an IRR, the 15% CapEx load, a big step of stakes and a growth rate that is 3.5% over a period of time, okay. And we'll just compare and we'll build an IR table to solve for a 7% unlevered IRR. And so if you do that and let's compare that against our portfolio, we'll just call it the exact same quality portfolio, exact same CapEx reserve, exact same cap rate, but a lower growth rate.
How do they get to that 1%? Let's just say that hyperpredatory, this particular portfolio can go back to the beginning of the cycle in the public markets and get the difference of NOI growth, which is 2 45 basis points between A and B. And if you plug that into that IR model, let's look at selling for exact same returns, so you're seeing exact same quality portfolio, exact same CapEx and you saw for the exact same IRR, what will be the cap rate difference between the 2? And that will be the difference for cap rate. Portfolio L rates for 4.92 percent cap rate, initial cap rate, portfolio B was straight for 6.02 percent capital.
On a multiple basis, that will be a difference of 4.5 times. Just between the 2 assuming that exactly same portfolio with this capital reserve. Now what did you create by portfolio, if I tell you portfolio is a younger portfolio, it is in much better locations, It has 25% higher pricing power, rate power and consistent pricing growth. And you can buy that portfolio for a significantly lower G and A load. You can do the math and come to the same IRR and get you probably better acquisition.
So I want to put that in front of you to think about you hear from us on every quarter that this is a company that sells by total return and not a cap rate. I wanted to show you what the stabilization mean, what that fixed rate growth rate difference means, if you think that will carry forward going forward. Hopefully, we have explained to you today why we are excited about business, what explained to you how our data analytics capabilities are widening that low, much into this. I think Matthew and Brian talked about how we are incentivize our operator in a completely different way, which we call the IDO 2.0 that John talked about. We share the upside with our architects and that's driving different results.
Let me give you an example. Brian and Dan, Dan is sitting right behind this room with a sea of tail points. We have a portfolio that have gone that we bought in 2011 in all of our 14% secondary markets. 7 years, every one of these buildings has an average of 13 competition. One of the worst, one best or worst and the NOI has doubled, almost doubled.
And we've got the portfolio at 90% occupancy. So that's what happened when we won a 14:40 operating philosophy, you don't have to be in the most sort of affluent market. They are in the green dots in those markets. So I hope that gives you a little bit of explanation about what drives Wiltar differentiated growth and why we're excited that at least on a relative basis that we will continue that sort of market leading growth for our shareholders. So let's just recap quickly where have we come from.
In 2014, we had a higher earnings number, significant shipping net maturities, retail and operator relationship, exposure to high level operators and marginal locations. What has changed? We extended the leases, de risked a lot of problem leases. We sold a lot of non core relationships, non core assets. And we talked about IDS 2.0.
This is a much longer conversation. You heard from Matthew and you heard from Ron how we're thinking about in a completely different deal structure and improved fundamentally the underlying cash flow growth by reducing loan exposure and into the private pay. And where we are going? We think that senior housing outlook is improving. Lease up and transition assets will generate significant cash flow growth.
We absolutely believe that data science provides us an opportunity, a life or short approach to capital allocation and balance sheet that we are very proud of is positioned for maximum flexibility. Again, when we think about beyond 2019, we get a significant growth profile that I just talked a few slides ago from a cash flow growth perspective. So we think that all equals to a relative position portfolio or to think that the cost of significant growth, we do not need demographics to play out for this growth to happen. That is very important for you to understand how the medium term outlook of this business is significantly enhanced by structural life and a significantly better look at the balance sheet with the capabilities of data science and health system relationships. With that, I would say, we are very thankful for you for your time today.
We think that we'll deliver for you a significant growth from year on. Thank you very much. Okay. Thanks, everyone. We're going to kick off our Q and A session.
We'll try and keep this to 15, 20 minutes and gain back a little bit of time when we lost during the presentations. I'm going to answer these questions and then drag them to my colleagues. I hope Gerald give them, especially Tom, this time of the year, the worst questions. So I'll maybe start off with one for Shankh. The question is your senior housing operations outlook appears materially more positive than that of most of the street.
We see supply still being elevated. What's the basis for your optimism when the year to date has been behind those in your guidance? Yes. So that's a great question. If you look at our data analytics presentation, we talked about we believe for the ACU impact of our portfolio next year is about 23% less than this year.
So 2019, we'll see And again, this is not number of units. This is the impact. We do think that supply is going to be less of a headwind next year. We also think the demand is slightly better. And we have taken a lot of initiative to improve a lot of structural element that I talked about, which we know in simple what we call IDR2.0 contract that you think will start to kick in second half of next year.
So we're very optimistic that we can generate this type of growth despite what's going on in the marketplace. Thanks, Shankh. Maybe on for Mercedes. How long do you believe room rates will be able to be raised at the current level of increase to cover labor inflation before unaffordability becomes an issue in the sector?
That is an issue that I'm sure lot of operators are thinking about. At World Power, we I think have had the unique opportunity to drive rate and we have outperformed the market consistently with respect to that. And so it does afford us an opportunity to absorb some of the impact of labor cost increases, certainly recognizing that it's an important element, 60% frankly of our revenues
going to
A lot of work is being done by operators. A lot of work is being done by railcar directly. You heard about technology and other solutions that we think are going to help us. So, we rely certainly on our selection of markets, our ability to outperform with respect to rate growth and trying to observe those expenses, but then also we're spending a lot of time trying to think about how do we optimize the use of labor in our communities without letting go of any of the quality indicators that we think are very important and that differentiate our product so that we can try to stay ahead of some of that.
Thanks, Mercedes. Sean, there's a doubling up one for you. You've seen quite significant portfolio turn in the recent past. Are you finished with the sizable divestments? Or is there more to come?
And if so, from where in the portfolio? I think I touched on this before to your IR question. We're a real portfolio that ages every year by 1 year, we're never done. But if you think about from our perspective, all the dilutive dispositions, loans payoff, all those things that you have seen should be at this point behind us. So the market remains very strong for asset pricing.
If we find opportunities to trade in Asset A for Asset B, we're happy to do that. If we improve the quality because of our data analytics capability, we have a differentiated view of what an asset should be long term. If we take advantage of that, obviously, if the market gives us that opportunity, we'll do it. But I can tell you with great confidence that the YouTube asset sales are fundamentally done. And Sean, this is maybe one for you.
What are the real world synergies that you're seeing from the strategy of owning assets across health systems, senior care, MOBs and skilled nursing?
I hope that question was answered by some of the panels we saw today, including the first two panels with people from the health systems as well as Steve Kavanaugh from HMO Americare. It occurred to us that these asset classes were very separate buckets and the one that was totally disconnected from the continuum of care was seniors housing. It was an industry that was essentially developed in the 1990s as a real estate play. And I think you saw many operators back into a service business, particularly as the average move in age started to creep up, because initially these were nice places to live when you were old and generally you were going to die of cancer or heart disease before your 80th birthday. Well, the world has changed, because a lot
of these diseases are now managed very differently
by the miracles of modern medicine. So, I we are seeing every day crossovers. Essentially, there are many senior housing businesses today, many assisted living communities that are essentially private pay nursing homes. People who've been there very sick, they come in for the last 24 months of life. And the good news is when people elect to do that, they are not a burden on the Medicare system.
And I think you heard today that we should not just see Medicare as some slush fund to accommodate inefficiencies in healthcare delivery. We should thinking about the Medicare system as a payer, as a payment source that if managed correctly could be profitable for operators, whether that be health systems, whether that be post acute care providers. I think you're seeing the very early days in these very disparate buckets of care starting to come together. And it's what I hope is going to drive the internal growth in our business because these assets become more consequential than their original intention and that allows an operator and Welltower to drive earnings out of those assets. And I also think it's going to
lead to external growth MLP Yes. I mentioned during the guidance, we have a couple of larger leases rolling in 'eighteen or '19, I'm sorry, that'll just create a little bit of a drag. But normally, it's a 2% to 2.5% growth business. And one of the benefits of that business is that if written correctly, there shouldn't be a lot of variance from that. And so we feel very confident that gets back on track and that's consistently in that range going forward.
But from time to time, we get some larger leases that were low and there will be a little bit of an interruption as a result of that. I'll just add that's a temporary situation, right, because it's a cash guidance. And there's downtime in leases like as we lease it up and we'll get that growth back. But obviously, we're talking about a 12 month time frame. Thanks, Shankh.
And Tom, one for you. We were positively surprised by the QIA announcement today. Can you elaborate a little more about how this came about and what you expect to do together as partners going forward?
Well, QIA contacted us many months ago. They what we believed were looking at the healthcare real estate sector and trying to figure out a strategy to invest in the sector. So we spent an awful lot of time with them And I believe they also did their homework and they looked more broadly across healthcare real estate and look for options to how they might best be able to
invest in the sector. And we were
very pleased that that led to a decision to invest into Welltower's equity and we're likely lead to opportunities to partner in some of our major development initiatives. So, TIA is a very long term investor. I think some of you might
be aware to cover the broader real estate space that they've been
an investor in ESRT for quite some time. I'm on the Board of that company. And so, we're very excited about this. I think it validates I hope it validates a lot of
the things we've been saying about the
company and the way we're trying to differentiate ourselves. I believe they do their work, saw a differentiated platform.
I hope you're seeing that too. Thanks, Tom. Next question maybe for Mark Shaver. We've talked a lot about the or it's been talked about the size of the opportunity with health systems. The initial transaction seemed to be relatively modest.
What do you expect to see in terms of the go forward and the nature and the size of the transactions? As we mentioned earlier, we see that market, that opportunity in the $600,000,000,000 range. And we think in 2018, the ProMedica joint venture of over $2,000,000,000 combined with our smaller projects with Johns Hopkins, Providence and Joe's to build a cancer center in Mission Viejo and the amount of opportunity today with Atrium Health are examples of us partnering with the right types of systems to transform care. I think we heard today from the panelists that these systems are just starting to understand both the need and the opportunity and coming together with a giant mission mindset around transforming care is the opportunity we're going to be chasing together. So it's early days on that opportunity, but we feel we've made meaningful advances in 2018 and have paved the way for
the future. Yes, I think that many people have expected because we've been talking about this for so long, we've expected that we've been we'll be announcing $5,000,000,000 in acquisitions from the top 10 largest health systems. I hope you understand things don't work like that. This is a
sea change in thinking in the health system industry and I hope you were
paying attention to some of the comments that were being made on the health system panel that there's actually a change in leadership. You hear about
it, a system like Providence St. Joseph, the CFO comes from Microsoft. This is
not someone who grew up in the health system space. We have been investing time for almost 5 years in developing relationships. It's not easy. It takes time to establish credibility. And you know what, you're not going to establish your credibility here just by waving dollars around, because I think you've also heard today, capital is very plentiful.
So we're hoping that it is our capabilities that will allow Welltower when this transition in assets happens
that we
will take the lion's share of that. There's going to be lots of room for lots of people to play in this space if we start to see some of that 600,000,000,000 dollars change hands. And then there is also a real opportunity to develop a next gen class of assets. We are very excited about some of the things we're working on that hopefully you'll hear more about next year and in the coming years. But we're changing it up.
This is not the old healthcare delivery, acute care model. That's not what we're thinking about buying here and creating. These are much more consumer friendly ambulatory care sites. You're seeing early examples of that this year. You heard about things we're doing with Hopkins, you see what we're doing with Providence St.
Joseph's in Mission Viejo. And if you come to Beverly Hills, California, you see UCLA Health System in a what was a former petitebateau real estate site retail site. I mean, these are early indicators of a sea change. And I believe and we all believe that we have positioned ourselves to help drive that. That's where we've been investing a lot of time.
We have a
lot of people engaged in
that. And I say, you may not think that's a smart thing to do. That's fine. You don't have to agree with us. But what I hope you do is respect the fact that we have a very defined idea about where healthcare real estate is going.
We have built a strategy around that. We have capitalized that initiative with the right people and the right technology. And like
everyone, you sometimes need a little wind
at your back and I hope you'll get a little wind at our back as well. But we are very excited about this opportunity set.
Sorry for being so worried, but
I'm very passionate about that.
Thanks for your questions, John. We're just running out of time here. We're trying to keep working to schedule. I'll ask Tom to maybe give us just a few concluding remarks and we look forward to carrying on the dialogue and answering questions you have over the course of something called in a moment.
Thanks, John. I think those were my concluding remarks. I will say that we started off by talking about the fact that we've been looking to build a moat around our business and we do believe that companies that successfully do that generally drive very good returns for their shareholders. And so what I hope to leave with is some data points around the moat that we're building. I mean, I'm going to tell you that what we're doing on the in our Business Insight group is very unique and that has been validated by some of the largest direct investors in real estate across every asset class that we've taken Swagat and team on the road to visit and they've come back and said to us, we've never seen anything like this.
So, I hope that you see us differentiating ourselves. And if any of you have questions, if you ever want to come visit us to learn more about what we do, we have an open door. Many of you
are based in New York. We have an office
on 54th Street and Sixth Avenue and it's a fun place to come visit. It looks like a trading floor. Everyone who comes to
see us thinks, wow, this looks like
a fund. Yet we're not a fund. We're a healthcare REIT. But we
think a little bit differently. And what I hope is our different thinking
translates to value for all of you.
So please join us on the
2nd floor in the Fontainebleau room. I'm going to
ask Matthew to tell us about that. I say, you bring it in.
You'll say much prettier than I can, Matthew. And we're happy. There are probably almost 50 people from Welltower here. And so please, I'm sure you have many questions, ones that we like to answer and many that we don't like to answer, but it's always a little bit friendlier to do it over a snack and a cold drink. So thank you
very much. This was a long day and thank you for your attention.