Good afternoon. I'm Tom DeRosa, I'm the CEO of Welltower, welcome to our Investor Day 2018. The last time we held an Investor Day was in 2015, 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 billion 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 believed, 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? I thought, if we could just recapitalize a small portion of this $600 billion, that would be an enormous opportunity for external growth. 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, Shankh 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&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. It's about our people.
You will meet many of them here today, 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, 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 200th LED lighting retrofit. These initiatives will save us over $4 million in annual utility costs. Our numerous ongoing efforts resulted in Welltower being named one of two North American REITs and the only healthcare real estate company to be named to the prestigious Dow Jones Sustainability World 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. With respect to governance, we were proud to announce this morning the appointment of Dr. Karen DeSalvo and Johnese Spisso to our board. These two 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&P 500 companies for that percentage of minorities and women. 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. Why is this important to you all? Because it will enable us to create sustainable cash flow growth for years to come. 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 Dr. Saum Sutaria of McKinsey. Following that, we're going to hear from Randy Oostra and Steve Cavanaugh, 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&A session, please submit your questions to investoday@welltower.com, and that's to people who are listening in on the webcast and those of you in the room. We will conclude our program with the Q&A session. 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 second floor. I hope you enjoy Welltower's Investor Day 2018.
Now over to our Saum Sutaria and our first panel.
Thank you very much. Let me introduce our panel here. You guys can follow along here. Dr. Paul Scheel on the end there. Scott Berkowitz right next door. John Milne, interesting to meet here. An old friend, Sue Benz. I'm Saum Sutaria. Thanks for having me here. 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. A few things just from my point of view about where this industry 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 plant 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 five years, the average age of physical plant in this country has come down significantly. 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 provision, prevention, and housing are so significant, especially with the growing population of seniors. I, for one, am a big 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. I think what's going to happen here is that that growth in the seniors population is going to outpace the growth of the rest of the care delivery, and especially primary care enterprise, and continue to be a tailwind in some waysBehind the maintenance of that core in the acute care environment. 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.
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, is going to be a lot broader than that, including many of the types of assets that Welltower is very well invested in thinking about doing creative things there. 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's going, and get some different perspectives, I hope, about where the opportunities are for investment and success over time. All right? Let me start, John, with you. Maybe you guys have gone through a lot of change. You've 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?
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. To some kind of, 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 attest to, we've been a very acute care-centric organization. As we move from what we refer to as Health 1.0 to what is the future or a move forward, what does 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. Obviously, we're bringing in resources in terms of our innovation group, 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.
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 comment about 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. I'll stop there.
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?
I think, what we're seeing, given what you said and what John said, is that the needs for strategic capital are much more diverse today. When hospitals were financing acute care, your move was issuing tax-exempt bonds. What you're seeing is that people are investing in things along the continuum. The acute care hospital will always be an important component of the overall system, but you need everything post-acute and non-acute along the continuum. Rehab, 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 own and control everything, which from when you and I started, every hospital owned every piece of real estate it had.
What they're doing is partnering, particularly for those assets along the continuum, and they're looking for capital, which is 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. That's what we're seeing. It's a combination of capital and capabilities to fund diverse strategic needs along the continuum of care.
Dr. Scheel , 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?
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. Historically, you build a big hospital with a lot of physicians on campus. If you build it, they will come, we would admit them, and all is well with 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. 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. We have to move from beyond the campus out into the community so that we can deliver that care.
That sounds like a lot of work to convince physicians to practice in a very different environment. I guess I would say, Dr. 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 been a movement of care to the ambulatory space. We are also on that journey to transformation. It's been going on five to 10 years now. 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. We have other programs that we've been developing along those lines. We also, which is different than many of you are probably aware of, in Maryland, we have the only all, well, there's now another state, but all-payer waiver.
We have a financing model for decades now that has supported that all-payer movement, and 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. We've had an accountable care organization since 2014, track one, no downside risk 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. That has moved all of the delivery systems in Maryland to some risk-based arrangement. It's not typical of what we would say is insurance risk, but certainly some element of risk.
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're 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 they need to meet the needs to be successful.
Sue crystal ball, since you've 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. 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? If not, where is the give and take going to be?
I think the best systems, those that are forward-looking, many of my panelists being in that category, are going to be able to weather the storm. As was said earlier, there are 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 sheets, Tom. I think that's one of the biggest changes that we're seeing. People are partnering, whether it's with private equity firms that bring capital and portfolio companies that meet their needs, or it's companies like Welltower that bring capital and capabilities. We're finding that the balance sheet alone is insufficient to implement this transformation. We really are seeing an evolution among the systems and business models as they transform to meet the needs of the aging population.
Just one quick follow-up to that. New sources of capital are always interesting. Sometimes they can be expensive.
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 certain private equity firms, for example, that have portfolio companies that provide synergies with our healthcare system clients. They are certainly an important source and a growing source of capital. Then we see companies like Welltower, for example, that are bringing memory care capabilities, senior capabilities. There are other organizations that are bringing urgent care and ambulatory surgery capabilities. I think our system clients are becoming more discerning. What we're finding, Tom, is because people want to grow faster than their balance sheets 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.
Maybe one by one for the three 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 sheets that would kind of bring this to life for the audience? Let's start with John.
I jokingly refer to us as hoarders, in the sense that we've got a system, Providence St. Joseph. We're about 160 years old. We're a faith-based, obviously, organization, and that we've been buy and hold to a fault, or build and hold to a fault. We own about $10 billion worth of stuff, and I use the word stuff, because it includes some shopping malls, a few bars in there, some mineral rights in Oklahoma. These are things that we've kind of collected in a variety of ways. Either they got purchased at one point because somebody thought it might be a strategic place where we might want to grow and build, or it's 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 them to the point of where the partnerships is 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? Really trying to kind of take a page out of many of the other industries that have done some of these similar sorts of things 20, 30 years ago and trying to learn those sorts of lessons for ourselves. 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 other 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. As we're doing bed demand study planning and those sorts of pieces, we're starting to count in hospital-at-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. 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. A couple 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 six months. We have, for those of you who are not as familiar with Hopkins Medicine, we have five 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. 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 D.C. area where our hospital growth has been as well. 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. One of the things that we've done in terms of partnership areas is focused on working with post-acute facilities. We have about 35 currently in a skilled nursing facility collaborative network that we're developing right now. There's some work that's been happening, both with assisted living and in the Montgomery County region with our community physician group. There's some exciting work that we've been doing with Welltower, looking at areas in Howard County as well.
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-based space over time to meet the needs of the population health, and value-based care models.
Well, first, I'm jealous. You have a bar. We're not that advanced.
Well, what it was anchoring, I don't know if it's still there or not.
Okay. Well, still jealous. For some perspective, our physician group's about 3,500, and our health system is 14 hospitals, distributed throughout the Missouri, St. Louis area. Our focus, when I came to my job 18 months ago, we had over $1 billion in build building projects requested. That goes from research towers, to clinical space and office buildings, to urgent care centers. 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. 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 SNFs. We may not be the best at memory care facilities.
In some areas, we may need someone else to manage an office building that's 100 miles away from the main campus because that makes sense for us. While we still have a tremendous amount of building projects underway that 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 this theme of partnership is coming up again and again and again. It's not just, again, as we said, partnership around the balance sheet, but partnership around capabilities. That is, as Sue pointed out, that'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 order to partner effectively?
Well, it's a difficult dance because you have to find a partner with similar mission values as well.
Right.
Not all potential partners have that mission base to their organization. For the not-for-profit side, we also have tremendous worry, is our partner tomorrow going to be there two years from now? 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. Once again, we've never had to make those decisions before because we just built it ourselves and we ran it. This is all new territory for not-for-profit centers.
Yeah. Go ahead. You want to add to that?
Yes, I think those are all excellent points. The only thing, I have a couple things to add. One would be is, as we've continued to evolve in this value-based world, we know that increasingly outcomes of care, as they should be, are increasingly important. As we do that, we realize that we need help sometimes to do better in those particular areas. To give some examples, one program that we developed, called the Johns Hopkins Community Health Partnership, which is in East Baltimore. We're partnering with community-based organizations. This is learning and infrastructure, but it's 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 aren't able to get the care, unable to access care, can't pay for their electricity, a whole host of different challenges.
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, who really can help our patients in feeling comfortable in accessing care, either in traditional or non-traditional ways. That's one example within an urban environment. While we look in 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 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 with in 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 to get that, 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. I think that that's a really valuable piece. 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 we talk a little bit about scale as we go into this? If I think back 20 years ago, Hopkins, Washington University probably were much more, they were 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 a 15-year journey to $25 billion plus in revenue across the system. You've got a health plan, as you described, but you're in a lot of different markets. 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 one size fits all? Or how much time do you spend tailoring market by market?
For Providence St. Joseph, we've continued to grow by acquisition over the last 15 years, it's been a bumpy road, as everybody in this room has probably experienced mergers and acquisitions at some point. Some go well, some have more challenges to it. For us, we're across seven states, our 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're a faith-based organization coming out of the Sisters of Providence and the Sisters of St. Joseph there, who really been focused on, historically, how do I address the needs of the poor and the vulnerable, as opposed to an academic background as some of my colleagues here have in terms of as a research focus.
If you look at our institutions tend to be a diverse mix of oftentimes more community hospital-type assets, and those in the community. Trying to knit those together, thinking of each other as an integrated health delivery network, as opposed to having grown up out of a core hub that has then expanded out into the community. It's much more of a lattice work that has developed over the years for us. To your point is, historically, we've allowed each one of those individual hospitals to be able to function very autonomously. It's really only been in the last five to 10 years that we've really started to think, 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. We're 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? 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?
Sue, you'd probably agree that this sort of march to scale in the industry is going to continue. There's some pretty big deals coming together very soon, and you heard a little bit of what has been said about partnership and even managing across multiple markets. 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? In some ways, how many John Milne are there already sitting in health systems thinking this way versus just simple design and construction? Where is that capability going to come from to start to create these kinds of partnerships?
What we're seeing, Tom, is increasing amount of healthcare leadership coming from outside of healthcare. I think that's a good thing, that it's very, very important to understand the needs of the healthcare business. You're especially fortunate if you have physician leaders as part of your team. I think John would say that having Venkat join Providence St. Joseph Health 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. Would you agree?
Yeah, 100%. I guess the key piece there is a cultural one. Paul touched on it earlier about cultural alignment. One of the huge issues for us as a non-profit and a faith-based non-profit, many of our employees see profit as a negative word. We're not here to make a profit. 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." This whole concept of no money, no mission, it's a tough one for us internally as a cultural piece to pivot away from.
That's the thing that Venkat, as our CFO coming from Microsoft has done, has brought is saying, "Show me the business plan." If it doesn't pencil out in terms of what a balance sheet's going to look like or what an income statement's going to look like, we probably shouldn't be doing it. Just because it feels good and has that touchy-feely sort of end goal, we can't sustain a business. He jokingly looks at it and says, well, actually he's not joking, but he just rails us with this. "We spent $25 billion to make $25 billion." That doesn't pencil very long if you're doing that for a long period of time. Being able to make that pivot, and I think we're not alone in terms of non-profit health systems thinking that way.
To your point of some are going to make it, some are not.
Right.
Crossing our fingers that with the right leadership, we're going to make it in that way. I think it is a cultural pivot for many of us in that way.
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 as successful. 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 and systems are adding, there is a lot of outside of the healthcare industry expertise. I think that's really helping to accelerate the change that we're seeing.
Yeah. 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 every time I think about this space and where it's headed, I think about spoilers as well. Spoilers are often rich in cash, right?
Yes.
Right now, the insurance companies, both investor-owned and Blues plans, are incredibly rich in cash. I don't see them putting a lot of that cash into infrastructures surrounding the acute care space, right? Both into post-acute, pre-acute, et cetera. There's some diversification work that some of the payers are doing very selectively. 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 care at a lower cost and a better outcome. It really is not one size fits all. They definitely have a lot of capital, and they're definitely a competitor today, whereas it wasn't always that way. What would you
I think one of the comments my fellow faculty member at Johns Hopkins has said, "I don't know much about insurance, but every time I go to the city, they have the tallest building." They must be doing something right from a financial perspective. Our local insurers, I think, they're very focused on the bottom line. If you can present to them a value proposition as to how they can continue to have a very profitable bottom line and be innovative in how you deliver that care and be disruptive, I would say most are open to that. You have to have the underlying proof of concept that you've already performed, typically on your own employees. Our own employees are our best experiment in how we can deliver care since we're already paying for it, and we are the payer.
If 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 really important foundation with respect to our population health investments, I would say, within our system. If you look at other commercial-based insurers, we have a large Blues plan, which is very interested in PCMH, but has not really been focused as much on other sort of broader, more integrated delivery models. We have some other smaller insurers as well, who 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. Through that program and those efforts at the state side, they have been investing in infrastructure, in dollars to help to support, interestingly, on the sort of hospital-driven, initially, approach to population-based care.
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. The state 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, we're in so many geographic markets in multiple states. Every one of those is a little bit different. 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 the payers are the ones that say no to a patient. Whereas we have an EMTALA 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. 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.
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? 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, 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 a commercial insurer may historically target.
Helpful. One last question, then we may open it up for one or two 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 in the industry knows that it's a cross-subsidy game, right? It has always been a cross-subsidy game from that perspective. It does feel like with commercial insurance being flat and the Medicare population growing, and obviously the Medicaid population on top of 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? We start with 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 money on Medicare patients. That's been the assumption all along, that the commercial carriers will subsidize it. You have to change the paradigm of how you take care of those patients. One example, joint arthroplasty, hip replacement, knee replacement. We used to do all of those at our academic medical center, high cost, without really a need to do that. Two years ago, we transferred all of our uncomplicated joint arthroplasties to a community hospital that had 80 beds. Over that period of time, we're in the top three in the country for volume, outcomes, and price, all Medicare patients. You have to redevelop your delivery system so that Medicare patients aren't losing money and they're having better outcomes. The emphasis has to be placed on that, though.
Yeah, 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. That really forces, in a good way, a conversation about unifying the care models and the work that you're able to do across the 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. Where 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 minded home for increasing aged 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 need to find those ways to reach those patients and help those patients to get the care, and to the extent we 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 I'm going to take off my real estate hat for a second and put on my ER clinician hat. As we think about where the spend is, I think a good chunk of it, and I would echo everything that Paul and Scott have said here with regard to changing the paradigm of how we deliver care. I also think it's important for us to look culturally as a society about what are our expectations for care. 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.
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 the very aggressive, invasive types of procedures that we do to patients in those last 10 years. 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 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 an effective care plan of what is long-term care? That becomes a much broader diversity of resources that need to be invested 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. That's a sea change 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 societal problem, I absolutely agree, is that we're still oriented toward caring for people we love in the hospital. The way to have Medicare be break even or even profitable is to keep people out of the hospital. That means managing, particularly people that have chronic illnesses, much more closely, hopefully at home or in a senior living facility or in a memory care facility. They are going to have acute events, which means we all have to be connected. 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. You have to be able to monitor with information technology, those early warning signs.
Oh my goodness, I get on the scale, I gained four pounds overnight. Something is wrong, you have a way to immediately connect to someone who will tell you what you need to do. Having people managed much more closely, not in the hospital, but 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 break even.
Thank you. Just to summarize here, I think there's a few interesting things that we've learned. The first, from my standpoint, is it's very clear this industry and health systems is moving from a plant management business to a distributed retail outlet business in many ways. 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. 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 needs to do this for survival purposes, and sometimes that's a good motivator. I'm optimistic that it's going to happen. I'd like to thank all of you for your comments. I think we've run out of time. I'm about to get yanked here. 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 much.
Why don't we take our seats? Thank you. Why don't we take our seats and get started on the next panel?
Just put it right here on the table would be great. Thank you. You need a water?
No, I'm good.
Matt, I'm going to go talk.
Good afternoon. We'll just get started on the next panel. We'd like to build on the previous panel. I'm really delighted and grateful for Randy Oostra, the CEO of ProMedica, and Steve Cavanaugh, who you all know is the CEO of HCR ManorCare . Here. We'll talk about some of the questions we asked that you as our shareholder have asked us over a period of time so that we get a sense of what was the thinking behind these groundbreaking acquisitions that happened. We'll try to distill the questions that you have asked us over a period of time and see where we get to. If we have time, we'll get into more details. Randy, you could have acquired other acute care systems like John talked about over a period of time. Why HCR ManorCare? You're a hospital health system.
Why did you go and acquire a post-acute memory care company?
Well, good question. Ultimately, it's, I think for everybody, a strategic question. You look at it from just our own individual perspective, what we heard already this morning, mission-based, non-profit, anchor institution serving communities. A situation where revenues are flat, expenses are going up. You begin to look nationally at the model that we have, 17.8% of the gross domestic product, $3 trillion on the way now to $5 trillion and 20% of the gross domestic product. Now 2050, we're talking about anywhere from 35%-37% of the gross domestic product unless something changes. Number one cause of personal bankruptcy. 85-year-olds filing bankruptcy at an all-time high. You overlay all the demographic changes. The number of 85-year-olds doubling, number of people turning 65 years old. The unaffordability of healthcare, and what we already just chatted about.
You got Alex Azar said we got to drive everything down to the lowest cost setting. You look at the unaffordability of healthcare and the impacts, I think everybody clearly knows that large acute care hospitals will be fine. It's just how are we going to deal with people, if you think about it, I think the big issue we're going to face shortly is employers are just flatly going to say, "We can't do this." You think about where the whole healthcare model is going to go. If you walk into a healthcare facility today, you're a patient. In fact, if you're going outside of it, you're a post-acute patient. Well, you didn't wake up this morning thinking you're a post-acute patient. You think of your health and wellbeing kind of on that spectrum.
When 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 we've already talked about. Why wouldn't you? Luckily, I was across the street from this. I didn't hear it either. Why wouldn't you begin to look at it? When we looked at it, we embraced this as what we believe is really going to be this future platform in how we're going to deliver healthcare in the future.
We heard a lot today in the previous panel about the delivery continuum, which is not something in our world. In language, 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. Why is it different? Why don't you think about, from a senior perspective, sounds like from the previous panel, is more of a journey of the person. We used to talk about the patient. Now we're saying obviously you didn't wake up to be a patient. Could you tell us a little bit about how that mind shifts, sort of the shift of the mindset?
Well, yeah, this whole labels, where I put 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. We have these labels of how we look at healthcare, how we start to put all these labels, the fact that everything, there's a movement right now, age-friendly health systems. Now we're going to treat older people nicely, I guess. We're just full of these labels. It's also, I think, a little bit, it kind of affects our thinking. 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 of it as feeders from acute care hospitals.
You would logically think that the biggest feeder in the future for the facilities we talked about today, They will change in complexity. What we do in these facilities is going to radically change. I think we really need to be careful about labels and how we think about labels, because I think the more we do that, we prescribe what they're going to do. Skilled Nursing Facilities could be very different in the future. Basic home care could be very different in the future. I think as you think about that and you think about the evolution, again, 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, HCR 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, our money capital, and deploy our capital there. 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. For us, yes, we have hospitals. We'll always keep hospitals. Our hospital portfolio will change over a period of time. Our board has really told us we really would prefer not to invest more in additional hospitals. Using a platform like HCR, we would have an ability to invest in a lot of other things with better margins. Oh, by the way, that's where we believe healthcare is going anyway.
Great. Steve, it sounds like I understand what Randy is trying to do, get rid of the labels and think about the patient journey. What's in it for you? Why is it interesting for you to integrate with a not-for-profit health system?
I think for us, it's a lot about where we were at and where we were trying to get to. Everybody knows our story. We had a very challenging financial situation, and what we really needed was some partners to help us recapitalize what was a company that was really pretty successful at the operating level. We had three businesses that were profitable, we had good quality and good patient outcomes, We really had a broken capital structure. The opportunity to partner with both Welltower and ProMedica made perfect sense for us because it provided two things that you're looking for in a partner. The first obviously is capital, and once you have a sustainable business model going forward, that is the thing that obviously gets you reset to where you can have success going forward.
You had mentioned earlier the idea of capabilities and what makes your business better. 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 healthcare solutions, and you're involved in a lot of conversations. 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. That's really exciting for our organization. I think about ProMedica, the capabilities they bring to the table. They have 1,000 physicians that work for them. 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. That's an area that allows us to have a new capability, lets us get better outcomes for our patients, lower cost for payers, and those things help make our organization better. It was really exciting. The beauty of it was we got lucky. We had two really great potential partners in Toledo. The other thing was we knew each other and had been talking about these things for a long time. Randy and I had been talking for five or six 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 Welltower could participate in helping us recapitalize the company?
For us, this was just a great transaction. I think I'm very excited about the possibilities it opens up for us going forward.
Steve, if you can just get a little bit into the capabilities side. ProMedica has a fantastic payer inside ProMedica. Tell us a little bit about how you're thinking about working with that payer and how you're thinking about synergies of capabilities, if you will.
No, great question. ProMedica has a captive insurance company called Paramount. What's nice for us is if you think about our industry and you 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 walls between those, because the only way to get the incentives align. For us, what's great about Paramount, they historically have been one of our customers. Now we have an opportunity to kind of innovate and try new models where we're pretty much doing it with house money, doing it within our own organization.
If we have some success delivering models that get better outcomes, lower cost, that's something that we can then take and sort of export to other parts of our business, whether it's Optum and UnitedHealthcare, Humana, Aetna, any of the big national payers, as we're coming up with ideas and giving those the run through the test kitchen, for lack of a better phrase, we can then take that and kind of try it out with other folks. I think that's a real opportunity to innovate for us. We're excited about that.
On the clinical side, we've talked a little bit about the need to move beyond the perception of SNFs 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? You used the term alternative sites of care. How are you thinking about integrating specialty clinical programs and other opportunities?
I think a really good example of that. Obviously, as Randy was saying, the goal here is to try and get patients into the lowest cost appropriate setting. For that to be successful in 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. We're trying to take the capabilities that ProMedica has and overlay them with us. 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, it's focused on the vascular institute that ProMedica has and focusing on wound care, which is a significant issue for the frail elderly population.
This is a way for us to kind of take the capabilities that ProMedica has and overlay that in our setting, 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 these abilities that we can now bring into a setting that traditionally hasn't been able to avail itself of that care.
A quick add to that. Our doctors doing wound rounds with staff, that's great. You think about behavioral health, you think about social determinants of health. You think about it back in the home. Again, you think about the opportunities at home as a feeder into, particularly the other way, instead of going from acute care facilities to post-acute, you want to go the other direction. The ability to do things at home with technology and interventions, talk about social determinants of health and being able to influence there from a technology standpoint. The way virtual healthcare works today, talking with home care nurses and having physicians talk to people in the home, I think the technology aspects of this are tremendous, the cost reductions are going to be tremendous.
Randy, you've mentioned social determinants a number of times, some folks in the room may not recognize that you're one of the foremost leaders in the country in thinking about social determinants impact also acting on that. For an audience that doesn't always wake up and think about impact of social, 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.
You look actually American healthcare system and kind of how it evolved. It's our system. We evolved this system. We created it. 20% of your health is based on what gets done clinically. 20%, we spend $3 trillion, almost 18% of the GDP. 80% of your healthcare has nothing to do with anything in medicine. A lot of the issues is where you were born, the ZIP code is probably the most important part, and depending on the ZIP code, can mean, in our country, life expectancies differences of 25 years. These social determinants of health have more to do with how you live and how you act. We began seven, eight years ago, screening for food insecurity.
I won't tell you how we got into that. Last year, we screened 2 million of our patients for food insecurity. Now we screen for all 10 social determinants, that's things like housing and transportation, childcare, employment, all those areas. Then we do interventions. The work that we've done, research-wise, just on food insecurity. We have food pharmacies where patients get referred to a pharmacist, a dietician, in essence, a 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. Again, food is a major health issue in our country. We make it a welfare issue, huge impacts on our health and wellbeing.
Now we're screening our employees. We are piloting our first employer to screen their employees for social determinants of health and do interventions. Happier, healthier employees, less absenteeism, better retention. Oh, by the way, it'll reduce your healthcare costs. Our view is that's the next piece of this puzzle that employers will begin to screen on social determinants of health because it's going to reduce their healthcare costs. That's what we've been working on for the last eight years.
I think where it's interesting for us is twofold. 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? We think that's going to drive down health costs, improve the retention in our workforce, have a happier, higher engaged workforce, there's a lot of benefits that come from that. Then the second is on the clinical side. If you think about the typical frail level patient, you discharge them home. You think about the things they're dealing with. Can they afford their medicines? If they're diabetic, do they have the proper diet? Do they have an access to proper food?
Do they have transportation to get to their physician's office? If you can crack that code, if you can get some interventions, we don't have to solve all these problems. We just have to find a way to work with people that can. If we can do that, once again, we can drive down costs. 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. We can create some value. We think that's going to let us build our business going forward." It's both doing good, it's also good business.
That's what people ask us, like, "How do you take this across a bigger footprint?" It's that. 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 with those other avenues as well. We think that there's a great opportunity there.
Great.
I think we've talked about capability synergies, and we've talked about cost in a different context. If I put my finance hat on, we're talking about a merger. I'd like to get consensus on 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, and that would be very helpful.
Sure. I can start and Steve can provide more details when I can. Initially, just like any, we took a $3 billion organization and a $3.8 billion organization together. We engaged McKinsey, I'm helpless. We redid our governance model, we did our operating model. There's some immediate synergies, significant dollar changes when you convert from a for-profit to a not-for-profit. That's day one. The other part, from our perspective, their cash flow, which normally would've been distributed out to investors, it now stays in our system. Even from a positive cash flow, if you think about if this model works correctly, the cash flow it generates for our system is fairly dramatic. Then Steve and his team, along with our team, have gone through a whole variety of synergies that we identified and anticipated, and they're very significant dollar-wise. Yeah.
I think it's like any financial deal. You do a transaction, you want to try and optimize your cost structure and benefit from economies of scale. As a team, and with McKinsey's help, we think there are probably somewhere between $100 million-$150 million of cost synergies that are going to be available to the combined organization. If you put that in context, the net rent that we're going to take on to finance this transaction is about $145 million to start. 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 refinance our balance sheet and refinance our real estate. It comes from a variety of areas. Conversion to not-for-profit certainly helps. There's your good old-fashioned corporate G&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 break even and then into the black. Then you've got things like supply chain. 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. I think that makes us more efficient as an organization and drive significant earnings and cash flow growth from those synergies.
With the panel earlier, we heard from the different health systems talking about the need to partner in post acute. On our journey at Welltower, to a person, when we meet 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?
Yeah. I think, if you start with the premise that if we're going to really solve the problems around healthcare, no one organization can do it nationally in every market. You can't own everything and be involved in everything. That naturally drives you towards having to partner. If you think about the problems in the healthcare system, you have two that are really at the heart of all of our problems. You have all these silos that make the system incredibly inefficient, 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. How do you fix that? You've got to integrate the operations, you've got to integrate the incentives. For us, we're thinking about a lot of different types of models.
With payers as an organization, now that we have a ProMedica balance sheet, we've really embraced 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 of comes out of our hide. 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. I think what we're finding is, as other systems hear about our transaction, and they see how we partnered historically with ProMedica five or six years ago, kind of broke down those walls between post-acute and acute, and now it kind of brought the organizations together.
They're saying, "Look, maybe there's a strategy there." I 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. We think that's a real opportunity going forward.
Great.
Steve, I wanted to 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 Medicare and managed Medicare businesses, how the different payment models are evolving.
Yeah. Start with Medicare. The good news is, in our business, actually, Medicare makes money, that's a positive. In fact, it's the one providing the cross-subsidization to kind of other payers. The model is going to change, we go to the so-called PDPM system beginning in October of next year. I think that's an opportunity for us to probably streamline our delivery model some, take some costs out, also take out some of the compliance and regulatory costs that historically have been in the business. Over the next five to six 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 and all delivery models. I think that would be an opportunity as a low-cost provider for us to improve margins and get share. The real action is on Medicare Advantage. There's none of these, you're free to go and make deals, so to speak, or go to creative structures. 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, let's align incentives. Maybe we do episodic reimbursement.
Maybe we do some sort of risk-sharing type model." If we do those things, once again, we think we provide better value to our partners, better margins for us, and also allows to kind of move market share. That to me is the exciting aspect. Once again, now that we have a balance sheet, it's a lot easier to think about those capabilities. 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. That's a very exciting opportunity for us.
Great. Randy, when we talk about this acquisition, we primarily think the first thing that comes to our mind is post-acute and skilled nursing. HCR ManorCare had a fantastic memory care business, which is probably roughly half of the value of the transaction. Talk a little bit about why that is interesting to you, why memory care business is interesting to health systems.
Again, you just look at the aspects of the areas they touch. Go back to all these trends in the beginning when you think about all the demographics, 85-year-olds, the number of people who sadly are going to get Alzheimer's, just all the other aspects of it. Huge need. Very significant work. Great work. Especially not only from a profitability standpoint, because it's highly profitable, but also just when you begin to think about bringing in the social determinants of health. The ability to work with Medicaid is one of the things that happen when you see the number of 85-year-olds. It's going to change healthcare costs. It's going to have major implications for people financially.
It's going to have 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. 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 the support standpoint, because we know the impacts it has on family. That gets back to those social determinants of health. Also, I think clinically, and the ability to link in the clinical aspects. When you look at the technology that's available today to monitor people remotely, integrate that with a clinical platform, which we start to see hints of that across the country in different pockets. It's just we haven't scaled it.
When we think about that and working with other health systems as a partner, some cases going into other markets on our own. We think that from both a mission standpoint and a care standpoint, from a growth standpoint, we think it's going to be very.
Can I ask, we spent a little time earlier today talking about labor and labor challenges in our industry. One of the things that we learned along the way, Randy, 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 ManorCare together, what has been the greatest opportunity you both have seen around 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, for us, it's a very different idea. We talk to people mainly in the Midwest. Now we talk to people in Florida that have no idea where Ohio and Michigan are. Now for us, it's very different culturally. Again, I think just scale matters. We've heard that already this morning. 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 far as organizational development, also ability just to recruit more together. Partnerships with colleges, partnerships with universities, our partnership with Welltower speaks to that. 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 12 people in our graphic design. We got six video people, those sort of things. HCR got rid of those folks a long time ago. Our ability to do things from technology, we do videos weekly for our employees. Given their reimbursement challenges, some of their challenges, they weren't able to do that. We look at this as, again, what Sue talked about, taking some of the things that we do every day, now we just got to scale and think of it a little differently. We think that helps us be a better employer, generally, and ought to be a great addition to some of the things HCR has already done.
I think for us, obviously stability is fantastic for our employees. They went through a very difficult, challenging period of time. 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 mission-focused, the ability to reinvest in their communities, I think that's exciting to them. To Randy's point, if we 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. I think that's pretty exciting to folks.
I think, the opportunity that's been there has been, I think there's a lot of talent in both of the teams. I think, one of the commitments we made early on to each other was, as we were putting the management team together, leadership together, we were going to say best athlete plays. There have been instances where HCR ManorCare employees, even though we were, quote, "the acquired company," have stepped into system-wide leadership roles. There have been instances where we said, look, the ProMedica person's better. They need to take the lead on that particular area. I think that's an overall strengthening of the organization. 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 to think, look, the future's 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.
Yeah, I'd agree. Just on the social determinants 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's talk through your phone, get on a phone or telehealth or whatever. There's an ability to communicate with people. Again, every organization has people that have issues in life. It doesn't necessarily relate to 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 healthcare costs or other things. Having some of those resources available to our team, the HCR team as well, we think we want to build that platform out, and there's a lot of that stuff.
Some of it has to be done locally, we can do it centralized with a call center. We think that, again, is just one more thing to be able to add to employee services. We think, again, those are the sort of things that are really going to talk to people.
Okay, Brad, we have three seconds left. You're right on time. Really, thank you so much for your participation in your partnership. Thank you very much.
Thank you.
Thank you. Appreciate it.
Hi, everybody. Can we ask you to please take your seats? We're going to start getting ready to start. We're going to start soon, in five minutes. If you could please take your seats, everybody. I don't know if you can hear me. I have it. Everybody, if we could ask you to please take your seats. Thank you. I don't know if everybody can hear me. Yeah. Thank you, everybody. If you could please take your seats, we're going to start in a few minutes.
What I'll do is from whatever time she leaves.
Perfect. Thank you, everybody. 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. To my right first here, I have Chris Winkle. Chris has 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 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 Mathieu Duguay, and he is the President and CEO of Cogir Real Estate. Cogir manages 7 million sq ft of real estate properties in the commercial, office, and industrial sectors, as well as 17,000-plus residential units in Quebec and Ontario. These include 40 private residences for seniors, 13 of which are Welltower communities.
As we reported at the end of June, they will also be taking over 12 communities for Welltower in the U.S., and we're excited to see them bring into this country what they have been doing so well up in Canada. Brian Spear is joining us today as president of CommonSail Investment Group and StoryPoint. Brian has been in the senior housing industry for almost 30 years and has actually probably 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 nine of them, are with Welltower, 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.
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. Today, we're going to talk about the future of senior housing. Certainly, I'm sure many of you think about there's been negative headlines and a somewhat negative backdrop, I suppose, in recent past, a lot of talk about oversupply, operational headwinds. I think you've also probably seen that Welltower has continued to perform above the average and certainly outperforming all of our peers. You might wonder exactly what is it that we do that allows us to report that kind of performance in our portfolio. 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 importantly, the superior quality of the operations within. The diversity in our operators, and you're going to hear today about very different ideas, some common themes, some common threads, but different applications. I think that is part of the power, really, behind Welltower senior housing platform, the diversity of operators, the different types of approaches to the market, the care that is provided. How do we do more with what we have? How do we manage through a cycle such as the one that we're in today?
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 top 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 Welltower is doing to perform and differentiate itself in defense of that. With that, I will start by saying that Chris's first slide is a depiction of the East 56th Street project. I know that some of you went today to visit the site.
It was very cool for all of us who were out there. We talked a little bit about the progress. You were able to see it. We're very excited about what we've seen. For anybody who'd missed the site tour, this is a project that will have 151 units, 59 of them will be assisted living, and 82 of them memory care. Thus far, where we are is we're going to be topping out is the right term on the construction. That is, we're going to finish sort of the main physical structure of this building in January, and we continue to be on time and on budget with respect to the plan that we had for substantial completion in the first quarter of 2020.
The project, as some of you already heard today, 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 innovations, certainly the location. You heard about the kind of analysis that we might do to select a site, this is a site that Welltower had a direct hand in selecting. We actually were involved in this project very early on.
What is in the market today gives us every assurance and the kind of performance and 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 you think of three different areas of innovation that you're working on, that Welltower might even collaborate with you on, innovation in the physical plant or the real estate, innovation in systems or the actual operations, and then the third 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 East 56th Street or anywhere else that you are trying to think of the next generation of seniors housing. With that, I will turn this over to you, Chris.
Thank you. Just to talk a little bit about Sunrise in general. Sunrise was a large public company, Welltower led the buyout in January of 2013. At this point, we're essentially a management company. We have 327 communities in four countries, half of them being owned by Welltower. We're pretty much a pure play management company. We only have three operating leases. Structurally, we're literally your almost classic asset-light model. 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. The good news for us is we're really, we believe, focused on the three areas that Mercedes outlined.
First of all, of the three cornerstones, for us, it's development, it's constant operating improvements, the third one is really the care side, and I'll talk about our foray into Medicare Advantage. First thing, development. Development has historically been one of Sunrise's strong suits. The mansion design really goes back 30 years, it's been a constant evolution of that product. We obviously took a little foray until the Welltower buyout, we started to redevelop really in 2014. Since then, we're really operating a clip of about five to eight new communities a year. The key for us is obviously trying to find the right markets. The beautiful thing about East 56th is Manhattan is full of those dark green dots that the guys talked about earlier, because it is the statistically most under-served population that we have in the country.
When we look at the design, you're always looking at what elements can we have? Typically in this design, you've got a little bit less square footage per unit. Normally, we go at about 850. This is about 750. The units themselves are about 375 square feet. When you look at it, the key is what can we do design-wise to make sure that this footprint fits our model? 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. We have a program called Live with Purpose, there's eight elements to Live with Purpose. One of them is live with artistry. One of them is to live with generosity.
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 fourth, 11th, and 16th floors. Here, we're 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. We basically got circadian rhythm lighting, which is the first time we've done that. We're all LED in this community, which is the first time we've done that. The circadian rhythm lighting really is to make sure that it 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.
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 we're always looking at that evolution of the design model. 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 that the market has appetite for new Sunrise product. The second piece, as I mentioned, is an obsession about operational improvement. This gets in, just like you saw a presentation earlier about Welltower's data analytics, we also are data obsessed in applying it to our operations. For us, and when you really look at assisted living, we come from almost a really technology desert, if you will. Much was manual and automated to begin with.
We basically now have an electronic health record that captures all the activity that our care managers are delivering to our residents. When you look at this diagram that you see, what it basically shows is all the activity that is being provided to a resident during a typical day. Now, the key to focus there is when you see white space, that basically means inefficiency based on the staffing at the time. There are actually two parts of that graph where we go over the top red line, which means there's actually more work to be delivered than the staff can even do at that individual point in time.
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 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. 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 we have compliance and delivery of our model over and over and over again. There are 22 key positions in assisted living community. The first two we focused on, care managers, med care managers, that's 55% of your labor cost right there. We've also analyzed all the positions.
When you look at this, we have over 16,000 hours of observation. We did this by focusing on workflows at community level, by looking at what all the staff's doing, by making sure that we're not, quote, from a corporate perspective, assuming we're actually going and observing. 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. That's critical when you get to deployment. 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 done in customer satisfaction.
We automated this, and this is just a simple workflow where basically it 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's a cursor that basically gives you the empty space. It's very, very simple. We have a 97% deployed. Since this deployment, we basically have 100% satisfaction from customers about our move-in process. 97% acceptance throughout our system, so probably 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 a balloon a little bit. Because if you take something like 21,000 hours, that's 10 FTEs. You take it over 200 communities, that's a fraction of an FTE. Really, when you start seeing the results are just the continuing nature of making these changes until then, frankly, we can combine or reduce positions. It doesn't happen immediately, but you really have to do it one process at a time. 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. Really, it all gets to our CareConnect system.
The cornerstone of our CareConnect system is electronic health records, eMAR for medication administration, but we also have automation in Tellus, 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 programmatically for the residents. 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. It's really been comprehensive throughout the organization with all these initiatives that we've been deploying. To highlight one that's not on here, because this primarily focuses on the care delivery, but we actually use predictive analytics on the hiring side. One of the interesting things is you'll hear all the time, well, this is a people business.
How much can you do? Of course, it's all about finding the right people. If you think about that, we have a distributed process over 327 communities. 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, well, the first person, "Hey, I talked to Joe. We both like 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. When we piloted this, we were seeing at least a 10% reduction in turnover. We've now deployed this. One of the things you ask with technology, is you've got to have people use it.
We have a lot of cases where our team right now will make an override decision, and they'll say, "I'm going to go against this, and I'm going to hire the person." We say, "That's terrific, but we're going to track that, too." We're going to track how that performs against our tool. The beauty of this is this is no different from the technology deployed by Netflix or Amazon. This is a learning algorithm, the more information put into it, the smarter it gets. 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 over all 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. That's really all about our Sunrise Strong initiative for ops improvement. The last piece for us is Sunrise Advantage. 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. The real key for us is, 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 are 99.5% private pay. We also have 99.5% of our residents that are Medicare beneficiaries.
We decided that we have two choices. We're either going to be inside of that conversation or outside of that conversation. We sat back and thought about it. If you think about it, residents come to us, their family entrusts us, and they pay out of their own checkbook every month for the care that we deliver. If you look at the other side, they are left with, we have to manage and coordinate the care for our loved one ourselves. We said, if we're really going to fulfill our mission to champion quality of life for all seniors, we need to cross over, and we need to truly champion that with the family and the resident and really be at the head of the table, basically helping coordinate their care with the provider networks and helping them administer the Medicare benefit.
Otherwise, we're left with trying to approach the health systems and approach folks and try to "ask for business." The challenge with that is, listening to folks like Randy and Steve talk, I'm not going to make the top 10 list of their to-dos. Now that we're a payer, it's a game changer. 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. Assisted living was founded on the premise of being non-institutional. That's why people choose assisted living. That's why they pay out of pocket.
The thought of waking up one day and seeing three or four managed care plans that are in our community, we can't afford to lose that culture. One, we wanted to make sure we had control of the culture. We also wanted to expand the offering. We have some great statistics right now. In the physicians that we used to get referrals from, we're 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. That fulfills my promise to my partner in terms of increasing occupancy, in terms of customer satisfaction, and in terms of hopefully length of stay as we continue to focus on wellness. We believe that there's no way that healthcare reform is ever solved unless you focus on this population.
If you look at people that have dementia and three or more comorbidities, they have a 10 to 1 cost for beneficiary in the Medicare system. We don't ever control healthcare costs unless we target these folks. 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 through the healthcare continuum. That is why we basically did that initiative. For us, it's all about the customer and the team member. 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 in Customer Satisfaction.
We are by a factor of sevenfold higher in all the Bronze, Silver, and NCAL Quality Awards, and we got one of the first two golds ever given, one to a not-for-profit, and one to the Welltower community in Green Hill, Illinois, and also a Great Place to Work recognition. For us, it's what it's all about. 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.
Sure.
Thank you, Chris. All right. Hello, everyone. I will start to talk about an initiative that is touching technology. Every second 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 minds. We've decided this year to take the bull by the horns and to create our own tech initiative. 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 and many of those companies out there.
We've identified one which is a staff of more or less 30 or 40 programmers, and we were able to structure a deal where Cogir took 20% of that company in exchange of a $4 million investment. Our money is going towards the development of the Avatar Project. The Avatar is really a software. 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. Basically a tablet that will be installed in everybody's unit, rental unit. It will work with voice recognition. And here's a few feature of the Avatar going forward, and there's many more than those. Of course, there will be telemedicine. We want to accelerate and improve customer experience and increase our employee productivity.
We want to give access to our tenants to direct service to their nursing or a physician or nurses' aide through the application, through the avatar, directly in their unit. Ultimately, we think that's going to make a big change on our staffing pressure. Fall detection. 50% of the causes of loss or deterioration of 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 six hours or nine hours, depending if it occurs 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?" It will also send a message to our staff that will come 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. It can be the daily menus, the next week menus, the activity for the month, activities calendar, yes/no medication reminders. Most of our clients need to take pills three times a day. Reminder for birthdays. We want this to be an integrator of technology.
Today it's very hard, even myself, I'm soon to be 40, and I feel all the applications and all the technology is hard to follow. It goes so fast. 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 consolidator with voice recognition to facilitate and be very user-friendly with different features like that, as simple as using FaceTime if you want to call your family, actually, you can verbally ask it to use the FaceTime through the Avatar. The financial impact and the goal of this is, of course, to create value in real estate by creating a better experience and a differentiator. It's always a story for us to be the first to market with something new.
We feel that there's a value proposal, more or less in the range of $250 a month, and that's just an example, and market will tell us, and we'll try that most probably new construction. $250 a month times 12 months is very simple math, $3,000 a year times the six 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. That's for the Avatar. Next project initiative is touching labor.
We're a 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 in a range, not too far from minimum salaries. In some cases, in some regions, we have turnover which are in the range of 30%-40% a year. That's a challenge, and we're trying to fix that by creating a complete alignment of interest. We want our non-executive staff and our executive staff to really have a sense of purpose that is very strong in what they do, that they feel ownership about the business, they feel liable, and they feel proud. There's a lot of non-monetary initiatives that we've been doing in the last many years, but the latest one that we've introduced is a monetary one.
The alignment of interest goes from Welltower as the owner of the real estate, and ultimately benefits from the whole initiative, is a full circle here. Property managers, which is my company, Cogir, and we're also co-investor with Welltower, then the executive employee, and then the non-executive employee. At the community level, really, probably 90% of our staff and colleagues are non-executive member at the community level. We just introduced a program where when a home is outperforming, in that particular case, 95% and up of occupancy, we're introducing a profit-sharing program. Any revenue between 95% and 100% is being split to the non-executive employees. For those people who make a salary close to the minimum wage, they can have an increase between 5% and 15% of annual salary, and we do those bonuses quarterly.
So far, we've had 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. They can make up for 50% of their base salaries if they do hit the target. On the corporate level, on the property manager side, we got all kinds of very creative structure with Welltower, where there's promote if we perform in different periods. I share those promotes with my executive people. I invite my executive people to invest in the real estate position that Cogir takes. We finance them. We share the upside of the company. Really, the alignment of interest needs to be from top to bottom.
I feel with that initiative, it becomes the keys for success at the non-executive level, which was really the missing part, in my opinion, in our industry. I'm hoping there's no way back. We will not push against the wall to put that and implement that in our home. It was really a lecture of the challenge of the market. We feel as leaders, we have the obligation to create that feeling at the non-executive employee level, which are the people which are connecting with our customer every day, every hour, every minute, and they are representatives, so they're the most important. There's one condition in the 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 could be a disaster for us, we want to kill that problem. We ask them to work more, make an extra shift, replace a colleague, sit between them to manage those situations, to find solutions, use less agencies. The residents are more happy. They're more satisfied because they deal with the same person, right? If you're a senior and there's a lot of changes in turnover in staff, and the person who's giving you your bath and helping you to take your medication is changing every two or three months, that's not the best experience you want to live.
We're trying to get that duration of stay much longer with our non-executive employee, the more they're happy, the more they talk about us, the better is our reputation because we're still in a big reputation business, the better is the occupancy, the more money they make. That's the keys for success and that initiative with non-executive staff. Three new amenities. The province of Quebec, we believe, is a lab for senior housing because we have the highest attraction ratio in North America. There's one out of five seniors above 75 years old that lives in a retirement home community. This is more than double of any other market in North America. We've been able to do a lot of testing and hit and miss on different initiatives.
Three of them that I'd like to speak, which are pretty recent in the last two, three years, we like to come up with different ideas like that more often than not. The first one is a multi-service center. We built in the homes a professional center that welcomes more or less about 25 different professionals from healthcare to financial to physicians to all kinds of advisory. We hire somebody that takes care of the appointments. We make sure that those professional are the best in class in their market. In 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. In our new models, we're opening to the outside of the community, the multi-service center.
We've really become a friend in the community and a positive player. We are introducing a lot of sharing common areas with the public. Two maybe small examples are pools in the homes are used maybe 20% of the time. 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. We become friends with them, we collaborate with them, you can offer your pool for classes for kids when the grandparents are with their young kids. We really open our common areas so that we're not seen as ghettos anymore, but we're seen as friends of the community.
Our tenants, we want them to take a lot of pride to share the common areas with the communities, with the cities, versus being seen as more of a ghetto. Okay? Very lifestyle-oriented approach. Last initiative here, the electric car sharing. There's five good reasons for that. It's an amazing success. It's environmentally friendly and sharing strategy. We're lowering costs for our 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 a car and use a car. It's a marketing tool. It goes around the villages. It's branded by the property, a lot of people speak about it. We're hoping that we're going to have to build less interior, maybe exterior parking. Up north in Montreal, it's pretty cold, we need a lot of interior parking.
They're very costly. With the electric car sharing, there's a point here that we're going to build less parking. Lastly, we're in a business where 80% of our clientele is women and 20% men. The men are very happy to drive the women around in their community. They make all kind of relationship there. We still have a camera on the car, so there's no monkey business. Socially, it's very positive. Why Welltower is so important for us, basically, they match capital, culture, and vision with our focus to execute the game plan and those strategies. They help us to create that complete alignment of interest.
I must say that we have multiple partners of all kinds, and we're extremely excited to work with Tom DeRosa 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. I'm hoping to do a lot more with them. To conclude, we think the opportunity in our business is amazing. There's the demographic boom 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 ghetto, much more lifestyle-oriented. That's also a big game changer for us. The technology that is coming sooner than later. We're very excited about the times that we're in, and that's it. Thank you.
Thank you, Mathieu. Now, Brian.
I want to listen to your accent. I just love listening to you. I need to trip. Seriously. 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 Welltower, capital, and alignment, and echo some of the things that have been said today. Then I'm going to talk a little bit about some of the things we're doing in our operating businesses around innovation. 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.
Shankh, you referenced it, capital providers to developers, operators like us. 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 thought 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. 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. The value that they're bringing is way beyond that. Some of the things that we're doing, that we've done with Welltower, 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. 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. 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 and reward between the prop co and the op co. I think it's fantastic.
The long-term outlook on this space. When you think of this business long-term, when you're partnered with another company that thinks long-term, you tend to make decisions differently. 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 brief innovations around things that we're doing. These are very basic, but 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. 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. 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. 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, 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 hire to 1440, we fire to 1440, we challenge each other to 1440. The essence of 1440 is this: There's 1,440 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. The cool thing about it's hard to do. It's aspirational and it's unattainable, which leads to the constant pursuit of better, which is also something we believe in in Echo. People decisions. People decisions are the most important decisions we make.
There's talk around finding talent. 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. Our talent, we call it Talent and Acquisition, TAG. We look at recruiting as a sales and marketing discipline. We go out to markets, we tell hundreds of unique stories. We have hundreds of unique campaigns in the markets that we operate buildings in. We're telling those employee-first stories to people who want to hear it. We have a dedicated team of 20 people in our office that are metric-driven recruiters. They'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. We put people in situationally relevant experiences. John, if you were going to come and interview for a sales position in our company, we might have you in to the home office, and there might be four or five other people competing for one or two positions. We would put you into the home office, we put you on a panel, we put you in situations where we're seeing how you react to real-life situations in selling. We make decisions based on that. Real quickly, this was given to me last week. This is off the press.
I hear caregivers are hard to find. In Dayton, Ohio, a property that we're opening, we had 270 candidates as a result of some of this process, 270 candidates, 30 interviews. We made eight hires. They are out there. Senior housing. We all refer to it. It is real estate, it is sticks and bricks. We look at it differently. We believe we're in the Senior Life Connection Business. It is housing, it is sticks and bricks. We're in the business of connecting lives. Everyone wants to be connected. Everyone wants to be connected. If you think back to high school, I always think to that first day of walking in.
I don't know if we can remember back that far for some of us, but you walk into that first day of high school, and you walk into the cafeteria, and you don't know anyone. You're walking in, and you got your lunch tray, and you're trying to figure out who's who, and you got that feeling in your gut, right? Well, it's the same thing for a senior when they come into a StoryPoint. Maybe their spouse just passed away, and they're moving and they're lonely. 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, we don't overcomplicate this. We do it by giving them safety, a safe place to live, belonging, we inspire and we empower.
Briefly, a lot of talk here around markets and around supply. There were some questions on it earlier, you have to deeply understand your residents and your markets if you're going to be successful. I won't go into all of this, 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. If you're really great, if you're mediocre, this may not be the case, if you're really great at what you do, you're going to have less supply issues where you operate buildings. You got to be great at what you do, to do that, we believe a big part of it is knowing our residents and knowing our markets. An example of this, Plymouth, 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 1,090 new units added to this micro market, we were able to maintain a 94.3% occupancy, sustained occupancy with no rent concessions. Just some of the results, 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 five stars by Glassdoor and Indeed. We spend equal amount of time on getting resident scores and measuring our satisfaction with residents, 4.76 out of five stars from SeniorAdvisor.com. Then the financial results, 93% average occupancy across our portfolio and 5% annual rent increases.
Thanks for your time, we're also extremely optimistic and excited about this business. Thank you.
Thank you, Brian. We'll take a few more minutes here to talk about some of the themes that were covered. As you can probably tell, I started by promising you that we have a very diverse set of operators. They each have their own take on the market, 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, 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 Welltower, 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're 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. 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. 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, we find that fertile soil.
I hope that you have heard a lot of themes and a lot of initiatives, a lot of focus on the very things that Welltower often talks about. These are examples in practical terms of what that really translates into. We work on similar initiatives at Welltower. You've heard today about data analytics, our leveraging of purchasing power was brought up. Tom talked about our LED retrofits. We also have taken 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 stakeholders to a conversation about what is it that ultimately matters when we try to determine what quality looks like in seniors housing.
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. We consider seniors housing to be a redefinition of home. You often hear us talking about our residents. We don't talk about our patients. These are the homes that these individuals live in. You heard a lot today about care being provided in home settings, certainly, assisted living memory care type communities are that. They are redefined home settings.
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. I'll start maybe with you very quickly, Chris.
Yeah. It really varies dramatically for us market by market. We're in so many markets, and what you find 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 with post-acute system by system. Again, the key for us is coordination of care. It's always reaching out. We basically have business development positions that are really responsible for facilitating those relationships in the major markets with health systems, provider groups, and really making sure, particularly in the markets from the Advantage perspective, that we're really building those networks, because now that's a cornerstone to our success.
We feel that senior housing is probably the number 1 solution in the healthcare system and issues going forward. The healthcare costs are exploding everywhere. When you send a senior to a hospital, and I'll speak for Canada for a minute, it probably costs CAD 1,500 a day. In some cases, they go there, and they don't really have to go to the emergency of the hospital. They could stay at the retirement home. We're big believers of the continuum of care, where we take them independent living, and we service them assisted living, and then some more care. For a fraction of the price that the cost of the hospital, those clients can stay in their home and get the exact same proper service.
We feel ultimately the governments, 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 incentives that they will stay in senior home because it's a big solution to the healthcare sector. We feel that's going to give more capacity to pay to the seniors today, and it's going to increase a lot the attraction ratio for our business. That's more in the next couple of years. Completely sure of this.
Yeah. We partner, just briefly, with another community around with health systems. 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 your home.
Thank you. I'm afraid that we've run 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 you 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 results. 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. Thank you very much for your time.
Thank you.
Yeah.
Okay, everyone. We're going to call the last panel through order. This is our financials panel.
If you can take your seats, please. Thank you. Okay. As part of the finance panel today, you'll hear from myself, John Goodey, 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 it may be slightly truncated by the overrun, to answer Q&A, for those of you that have been emailing investortoday@welltower.com. At the end of the Q&A, Tom DeRosa will speak just for two minutes with some concluding remarks, and then we look forward to joining you for a 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 statement slide, which is displayed right now, and visit welltower.com for additional and important information and factors could affect our results. Where have we come from? Those of you who have been following us for some time will know 2014, Welltower produced an AFFO of $4.13 per share. Where are we now? 2018 consensus on FFO, $4.05 a share. The questions are, where have we come from? What has changed? 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 four 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 Welltower 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 convene operators across sub-sectors to create investment opportunities centered on improving health outcomes and reducing and lowering costs, how we've created a differentiated plurality 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 number 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've significantly increased our investment in outpatient medical and health systems, combined, these segments now represent nearly one-quarter of our portfolio. As our investment announcement of this morning demonstrates, we continue to see and execute upon significant accretive opportunities generated by our deep MOB 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 also exited U.S. hospitals and reduced our exposure to highly levered long-term care and post-acute providers. Overall, our private pay mix has increased by seven 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, Welltower 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 was 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 segment to our business, which we're now calling Health Systems. At Welltower, our differentiation goes beyond our portfolio. In our SHO 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 operators who outperform but enables Welltower to change operator if performance is inadequate.
We also often invest in the management company, sitting on the boards 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. We see it as 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, Welltower is convening these parties to make the real estate we own more consequential. We are defining and actioning investments that will improve health 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. In 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 billion of new investment activity. Looking back at 2018 investments, our activity is really highlighted by two key themes: innovative partnerships with Health Systems and creating aligned structures in senior housing to capture long-term value. On the Health Systems front, the banner transaction of 2018 was our joint venture with ProMedica. This transaction enabled the creation of the largest health system-owned operator of skilled nursing and private pay senior housing to provide the 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 on the medical office front, as our patience 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 exemplified our focus on driving value through relationships and aligned structures. The two most significant transactions here were the restructuring of our high-end Grandeur Living portfolio into our RIDEA joint venture, where 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 because of the deep operating partnerships we have and the 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 billion in new investments this morning at 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 funded by a high-quality health system, but represents a trend we see increasing the real estate space, which is healthcare anchored, multi-use developments. Secondly, all 11 properties or transactions we announced this morning, or all of the $1 billion in transactions announced this morning took place in 11 different transactions, all of which were sourced off-market through direct relationships with developers, operators, and health systems. Lastly, to emphasize my earlier point in returning to the medical office transaction market, this morning's announcement brings us up to approximately $840 million announced in or closed MOB acquisitions in 2018.
This is the largest investment volume we've had in this space since we first entered the medical office building sector in 2006 with the acquisition of Windrose 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 and Coley. 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 four and a half years, I want to highlight two specific areas in which Welltower 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 actively managed two of our largest triple net exposures, Genesis HealthCare and Brookdale Senior Living. The first, Genesis, peaked at 14% of NOI in the third quarter of 2016. Through two 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 an out-of-court restructuring of Genesis at the beginning of this year. This restructuring created a much more sustainable and secure 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 second 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 from 7.3% of in-place NOI to approximately 2.7% of NOI by transitioning 63 properties to new operators, including Cogir, whom you heard from earlier, and Pegasus Senior Living, a new senior living platform led by industry vets Steven Vick and Chris Hollister. Welltower expects significant long-term value creation from these world-class operators and the well-aligned structures we've entered into with them. Both of these transactions had the effect of reducing Welltower's single 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 standalone driver of value creation within Welltower, definitely not as a driver of earnings growth. We view it as a complementary business to our core competency of property investing. We have meaningfully 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 this investment type 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 an aging population presents. The best solution to these problems requires the best access to capital. Welltower has worked diligently to attain that. I want to start with our unparalleled access to equity capital.
As a large cap public REIT in a growth industry, we are better positioned than anyone to efficiently capitalize healthcare infrastructure. We've enhanced this structure in two meaningful ways. One, we've reduced the frictional costs of raising capital in public markets. Two, we've created private investment partnerships to minimize the funding volatility inherent in a public model. First, on reducing frictional costs of raising capital. Over the last three years, we've adapted our equity market strategy to our more tactical equity needs, replacing overnight equity offerings for more controlled intraday equity raises, allowing us to opportunistically match fund our development pipeline through granular acquisition opportunities at a significantly lower cost to our shareholders. Second, we've 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 of our lifetimes in reimagining and redeveloping the infrastructure that is required in order to efficiently deliver healthcare to an aging population. This demographic opportunity is not driven by capital market cycles. It's mathematical. Because of these capital relationships, Welltower will not solely depend on capital market cycles in order to source capital to take advantage of these opportunities. Moving to the debt portion of our capital stack. Welltower has long been committed to an ever-improving balance sheet, as we believe a sector-leading cost of capital is still a key strategic advantage in a growth sector. Our commitment to building the highest quality portfolio and conservative financing along the way has been recognized by the fixed income community through a continually improving cost of debt.
We've worked hard to establish a debt investor base in all three geographies we invest in. Highlighting 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, as evidenced by the right side of the slide. 2018 demonstrated the depth of support we've enjoyed from the debt investments community, as well as our ability to continue to extend this ladder. As we were able to come to market twice, raising $1.85 billion in debt proceeds, with our most recent offering in August, raising $1.3 billion at a 4.4% average yield to maturity and a duration of 15.4 years. Lastly, I want to highlight the unparalleled asset-backed financing available in the asset classes in which we invest.
This is a 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 the unsecured debt markets offer us, and we have worked diligently over time to increase our unencumbered NOI pool, which currently sits at just over 85% of NOI. We do think it's worth recognizing the strength of the asset-backed financing market in this asset class, as it can be very underappreciated in an asset class that is dominated by public REITs, and their tendency to utilize the unsecured debt markets to finance their investments. The point we are 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 CMHC in Canada.
These programs provide resilient, cycle-proof sources of capital that complement the already defensive nature of underlying cash flows, as seen in the multifamily space, should create significant support for private market asset pricing over time. Now turning to 2019 guidance. Before getting into 2019 guidance, as a result of this morning's announcement of a $300 million direct equity issuance to QIA, along with the $120 million of additional ATM and DRIP in the quarter to date, we are reducing the top end of our 2018 guidance down $0.01 to $4.06 from the previously disclosed $4.07. 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 2019. Given this change, our revised guidance range for full-year 2018 is now $4.02-$4.06. 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 in today's guidance reflect what we have announced to date, including $1.5 billion of acquisitions made up of the $486 million of MOB transactions we announced with third quarter 2018 earnings and the $1 billion of senior housing and medical office transactions announced this morning.
On the disposition front, our guidance remains the same, with $800 million of remaining dispositions announced at third quarter earnings, $180 million of which have closed already and $620 million of which we expect to close in the near future. Furthermore, we baked in an additional $200 million in equity issuance in our 2019 guidance to match fund our expected development spend of $350 million. 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 5.7 times net debt to EBITDA. Moving to same-store guidance by subsector. We felt it was important to provide a forward look into 2019 with the December investor day. It is important to note that there's obviously additional risk versus our usual cadence of issuing guidance with fourth 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. Given our early guidance here, we will provide updated ranges with the presentation of fully detailed guidance in February with our fourth quarter earnings. With that, I will start with our senior housing operating guidance of 0.5%-2%, driven by moderate improvement in year-over-year occupancies and rate growth consistent with what we are seeing in 2018. For our senior housing triple net portfolio, we expect 3%-3.5% same-store growth. This above-trend growth is driven by development leases that stepped up in the back half of 2018 and will carry through into 2019. In outpatient medical, we're expecting 1.75%-2.25% same-store growth.
This below-trend growth is due to two 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 ProMedica lease, is growing just 1.375% this year, before stepping up to 2.75% in year two for the remainder of the 15-year lease. This lease will not enter our same-store pool until the first quarter of 2019. Lastly, long-term post-acute, which we expect to grow 2%-2.5% in 2019, culminating in total portfolio growth of 1.25%-2.25%. Lastly, for our final reveal, Welltower expects 2019 FFO to be in the range of $4.10-$4.25 a share. With that, I will hand the floor over to Shankh Mitra.
Tim gets to talk about all the fun stuff, I'll get you into a lot more boring conversations. I think we try to have with you many times is, the genesis of this conversation is, how do we 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. We want to give you a sense of conservatively what we think the medium long-term growth profile of this company looks like. What we try to do, we talk a lot about what you can't do is put a cap rate on an 87%-occupied portfolio as you think about how we think IRR. 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, unstabilized. Very conservatively, what we have done in this slide, that we have taken that portfolio occupancy up to 92%. All our operating partners will tell you that is not a stabilized occupancy for this business, and we've 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 a 5-year timeframe, and you are free to do that over three to four or six. That's your decision.
We thought conservatively leasing up to 5 years is a very conservative outlook for the company. Tim talked about the Goodey transition assets. We think that adds about a half a percent of growth and construction in progress, obviously, where the capital is already spent. That gives you about 5.6% conservative outlook for cash flow growth for this company. Let's look at what does this mean for total return. If you think about this is the 5.6% we talked about, stabilized growth, occupancy stabilization, development lease-up, Goodey transition assets, and construction in progress. That's about 5.5%, 5.6% cash flow growth that we think we can get to on an annualized basis. We have a dividend of 5%. That gets you a 10.6% total return. It's extremely important to understand that's without any need for external capital.
If we think about on an acquisition and development basis, we think we can do a $1 billion of transactions at only half a percent spread. That adds about 1.5% of cash flow growth, 1.6% to be specific. We did $300 million of development starts. That adds another half a percent of cash flow growth. 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. We are extremely excited about the cash flow growth aspect of our company. We think there's $157 million in EBITDA that's not reflected in our NOI, EBITDA, P&L today. We think just by leasing it up, we can get to that. You're seeing that on a very conservative basis, we think we can get close to 13% total return without expansion of multiple.
I wanted to see a little bit of what that does mean for our multiple. I wanted to have a little bit of a multiple conversation for what it means for real estate investors who think about IRR and not just a cap rate, right? What we have done here is we talk about a hypothetical portfolio. We'll just call it a portfolio, retail, and we'll say that is a portfolio that we're charging for an IRR, let's say it requires a 15% CapEx load, a good chunk of fix, and a growth rate that is 3.5% over a period of time. Okay? We'll just compare, and we'll build an IRR table to solve for a, say, 7% unlevered IRR.
If you do that, let's compare that against another 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 did I get to the 1%? Let's just say that hypothetically, 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 245 basis points between A and B. You plug that into that IRR model. Let's look at solving for exact same returns. You're seeing exact same quality portfolio, exact same CapEx, and you solve for the exact same IRR. What will be the cap rate difference between the two? That will be the difference of cap rates. Portfolio A trades for 4.94% cap rate, initial cap rate. Portfolio B will trade for 6.03% cap rate.
On a multiple basis, that will be a difference of 4.5 times. Just between the two, assuming they're exactly same portfolio with same capital reserve. Now, what would you pay for a portfolio if I tell you portfolio is a younger portfolio, it is in much better locations, it has 25% higher pricing power, growth rate, and consistent pricing growth, and you can buy that portfolio for a significantly lower G&A load. You can do the math and come to the same IRR and get you probably a better acquisition. 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 solves for a total return and not a cap rate.
I wanted to show you what that stabilization means, what that historic growth rate difference means, which we think that will carry forward going forward. Hopefully, we have explained to you today why we're excited about business. Explained to you how our data analytics capabilities are widening that moat, not shrinking it. I think Mathieu and Brian talked about how we incentivize our operator in a completely different way, which we call RIDEA 2.0 that John talked about. We share the upside with our operators, That's driving different results. Let me give you an example. Brian and Dan is sitting right behind us, this room, who's the CEO of StoryPoint. We have a portfolio with Dan and Brian that we bought in 2011 in all of what you consider secondary markets. Seven years, every one of these buildings has an average of 13 competition.
Brian talked about one that's the worst, The NOI has doubled. Almost doubled. We bought the portfolio at 90% occupancy. That's what happens when you run a 1440 operating philosophy. You don't have to be in the most affluent markets. They are in the green dots in those markets. I hope that gives you a little bit of explanation about what drives Welltower's differentiated growth and why we're excited that at least on a relative basis, that we'll continue that sort of market-leading growth for our shareholders. Let's just recap quickly where have we come from. In 2014, we had a higher earnings number, significant tripping of maturities, misaligned operator relationships, exposure to high-lever 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 RIDEA 2.0 . This is a much longer conversation. You heard from Mathieu and you heard from Brian how we're thinking about a completely different deal structure, and we improved fundamentally the underlying cash flow growth by reducing loan exposure and increasing private pay. And where we're going, we think the senior housing outlook is improving. Lease-up and transition assets will drive significant cash flow growth. We absolutely believe that data science provides us an opportunity, a rifle shot approach to capital allocation and balance sheet that we're very proud of is positioned for maximum flexibility. Again, when you think about beyond 2019, we get a significant growth profile that I described in few slides ago from a cash flow growth perspective.
We think that all equals to a well-positioned portfolio what we think is at the cusp 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 rights and a significantly better located balance sheet with the capabilities of data science and healthy relationships. With that, I'll say, we are very thankful for your time today, and we think that we'll deliver for you a significant growth from here on. Thank you very much.
Okay, thanks everyone. We're going to kick off our Q&A session. We'll try and keep this to 15-20 minutes and gain back a little bit of time that we lost during the presentations. I'm going to MC these questions and then direct them to my colleagues. I hope I don't give them, especially Tom, this time of the year, the worst questions. I maybe I'll start off with one for Shank. 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 original guidance?
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. 2019, we'll see. And again, this is not number 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 elements that I talked about, which in simple word, we call RIDEA 2.0 construct, that you think will start to kick in second half of next year. We're very optimistic that we can generate this type of growth despite what's going on in the marketplace.
Thanks, Shank. Maybe on to 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 a lot of operators are thinking about. At Welltower, we, I think, have had the unique opportunity to drive rate. We have outperformed the market consistently with respect to that. 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 are represented in the costs of labor. You heard some initiatives being talked about today, trying to optimize the use of labor. A lot of work is being done by operators. A lot of work is being done by Welltower directly. You heard about technology and other solutions that we think are going to help us. We rely certainly on our selection of markets, our ability to outperform with respect to rate growth, and trying to absorb some of those expenses.
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. Shank, there's probably another one for you. You've seen a 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 it before to an earlier question. We're a real estate portfolio that ages every year by one year. We're never done. If you think about, from our perspective, all the dilutive dispositions, loans pay off, all those things that you have seen should be at this point behind us. The market remains very strong for asset pricing. If we find opportunities to trade 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. I can tell you with great confidence that dilutive asset sales are fundamentally done.
Thanks, Shank. Tom, this is maybe one for you. What are the real-world synergies that you're seeing from a strategy of owning assets across health systems, senior care, MOBs, and skilled nursing?
I hope that question was answered by some of the panels you saw today, including the first two panels, with people from the health systems, as well as Steve Cavanaugh from HCR ManorCare. 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. I think you saw many operators back into a service business, particularly as the average move-in age started to creep up. 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. The world has changed because a lot of these diseases are now managed very differently by the miracles of modern medicine.
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 move in, they're very sick. They come in for the last 24 months of life. The good news is when people elect to do that, they are not a burden on the Medicare system. I think you heard today that we should not just see Medicare as some slush fund to accommodate inefficiencies in healthcare delivery. We should be 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. I also think it's going to lead to external growth opportunities. Hopefully, you've heard about some of that today.
Thanks, Tom. I think this one's probably for Tim McHugh. The MOB forecast was slightly below normal trend. Could you just elaborate a little more on that, please?
I mentioned, during the guidance, we have a couple larger leases rolling in 2018 or 2019, I'm sorry. That'll just create a little bit of a drag. That normally is a 2%-2.5% growth business, and one of the benefits of that business is that, if run correctly, there shouldn't be a lot of variance from that. We feel very confident that gets back on track and that's consistently in that range going forward. From time to time, you get some larger leases that will roll, and there'll be a little bit of an interruption as a result of that.
I would just add that's a temporary situation, right? Because it's a cash guidance, and there's downtime in leases, like as you lease it up, and we'll get that growth back. Obviously, we're talking about a 12-month timeframe.
Thanks, Shankh. 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?
QIA contacted us many months ago. What we believed were looking at the healthcare real estate sector and trying to figure out a strategy to invest in the sector. 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 looked for options to how they might best be able to invest in the sector. We were very pleased that that led to a decision to invest into Welltower's equity and will likely lead to opportunities to partner in some of our major development initiatives. QIA is a very long-term investor. I think some of you might be aware, who 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.
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, through their work, saw a differentiated platform, and I hope you're seeing that too.
Thanks, Tom. Next question may be for Mark Shaver. It's been talked about the size of the opportunity with health systems. The initial transactions seem to be relatively modest. What do you expect to see in terms of the go-forward there and the nature and the size of the transactions?
As we mentioned earlier, we see that market, that opportunity in the $600 billion range. We think in 2018, the ProMedica joint venture of over $2 billion, combined with our smaller projects with Johns Hopkins, Providence St. Joseph to build a cancer center in Mission Viejo, the announced 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 joint mission mindset around transforming care is the opportunity we're going to be chasing together. It's early days on that opportunity, but we feel we've made meaningful advances in 2018. It's paved the way for the future.
I think that many people have expected, because we've been talking about this for so long, would've expected that we'd be announcing $5 billion 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. 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 the 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 five years in developing relationships. It's not easy. It takes time to establish credibility. 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. 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 billion change hands. 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. 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 in Mission Viejo. If you come to Beverly Hills, California, you see UCLA Health System in what was a former Petit Bateau retail site. These are early indicators of a sea change. 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. I say, you may not think that's a smart thing to do. That's fine. You don't have to agree with us. 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. Like everyone, you sometimes need a little wind at your back, and I hope we'll get a little wind at our back as well. We are very excited about this opportunity set. Sorry for being so wordy, but I'm very passionate about that.
Thanks for your passion, Tom. We're just running out of time here. We're trying to keep roughly to schedule. I'll ask Dan to maybe give us just a few concluding remarks. We'll look forward to carrying on the dialogue and answering questions you have over a glass of something cold 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. What I hope you leave with is some data points around the moat that we're building. I'm going to tell you that what we're doing 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." I hope that you see us differentiating ourselves.
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 6th 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. We think a little bit differently, and what I hope is our different thinking translates to value for all of you. Please join us on the second floor in the Fontainebleau Room. I'm going to ask Mathieu to tell us about that. I should have you bring it. You'll say it much prettier than I can, Mathieu. We're happy.
There are probably almost 50 people from Welltower here. 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. Thank you very much. This was a long day, and thank you for your attention.