Welltower Inc (WELL) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2016 Welltower earnings conference call.

My name is Holly, and I will be your conference operator today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Now I would like to turn the call over to Tim McHugh, Vice President, Finance and Investments.

Please go ahead, Sir.

Thank you, Holly.

Good morning, everyone, and thank you for joining us today to discuss Welltower's fourth-quarter 2016 results and outlook for 2017.

Following my brief introduction, you will hear prepared remarks from Tom DeRosa, CEO; Mercedes Kerr, EVP, Business and Relationship Management; Shankh Mitra, SVP, Finance and Investments; and Scott Estes, CFO.

Before we begin, let me remind you that certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Welltower believes results projected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurances projected results will be attained.

Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in this morning's press release and from time to time in the Company's filings with the SEC.

If you did not receive a copy of the press release this morning, you may access it via the Company's website at welltower.com.

Before handing the call over to Tom DeRosa, I want to highlight four significant points regarding our 2016 results.

One, we realized full-year total portfolio average same-store growth of 3%, at the high-end of our original guidance.

All four of our business lines achieved average full-year growth of 2.4% or greater.

Two, we completed $2.8 billion of dispositions during the year, including $2 billion of postacute facilities, which decreased our exposure to postacute as a percentage of total portfolio NOI by 750 basis points since January 1 of 2016, and as a result increased private-pay share of total Company revenue to 93%, the highest level in the history of the Company.

Three, we finished the year with under 5.4 times of net debt to EBITDA and a net debt to book capitalization ratio of 37.4%, a reduction of more than 200 basis points during the year.

And four, we attained credit ratings upgrades from both Moody's and S&P to BAA1 and BBB+ respectively.

And, with that, I will have call over to Tom for some remarks on the year and the quarter.

Tom?

Thanks, Tim.

We were pleased with our 2016 results, particularly as it was a transition year.

While delivering results at the top end of our most recent guidance, we disposed of $2.8 billion in non-core assets, rebalanced our operator exposure thereby improving our risk profile, and we significantly delevered our balance sheet.

We began 2017 with a corporate reorganization that is rationalizing and reinventing the way we do our business.

This plan is expected to realize a $30 million reduction in G&A from our 2016 guidance.

You see we need to adapt the way we do business to respond to the extraordinary opportunity that is before us.

It is well-known that healthcare delivery is transitioning from an acute care hospital-focused model to broader outpatient subacute, postacute and senior care networks that can deliver better outcomes at lower costs.

In order for this transition to be successful, real estate needs to have a seat at the table.

A key element of Welltower's strategy is to be the partner of choice for the major academic and regional health systems across the US.

As they invest in building more advanced and robust outpatient networks, we intend to be their partner and connect our leading senior dementia and postacute care platform to these systems to help them better manage their patient populations and provide them with a competitive advantage to grow market share and profitability across the healthcare delivery continuum.

So today we announced a strategic collaboration with Johns Hopkins Medicine, the world-renowned patient care research and teaching institution.

Mercedes Kerr will tell you more about this first of its kind collaboration, but what I will say is this healthcare REIT is being recognized as best-in-class by the top health systems in the world, and we are using our real estate and service platform to position ourselves to capture the next level of accretive investment opportunities for our shareholders.

We see our healthcare real estate platform as delivering value well beyond the brick and mortar.

Our proprietary leading regional operator bench is critical to managing growing population of frail to demented elderly.

We are in the early days, but this should help explain why Welltower's senior housing operating portfolio consistently outperforms the industry.

This, plus our more efficient operating structure, should drive earnings growth, despite fears that our performance is only a factor of interest rates.

I will stop here to turn the mic over to my colleague, Mercedes Kerr, who will give you a closer look at Q4 investment activity and our view for 2017.

Mercedes?

Good morning.

I am pleased to provide you with an update on our market activity and the opportunities that we're driving from Welltower's best-in-class platform.

I'll start with fourth-quarter 2016 investments and dispositions.

Our operating partner relationship has been and will continue to be a source of differentiation for us.

This is evidenced by our ability to repeatedly source off-market investments and by our consistent track record of follow-on transactions.

In the fourth quarter of 2016, we invested $878 million at an average yield of 6.7%.

73% of these investments were with existing Welltower partners, a series of hand-picked operators with whom we enjoy close working relationships.

We were pleased to welcome our new notable partner this quarter, the Northbridge Companies, and we have long admired Jim Coughlin and Wendy Nowokunski's work in New England.

They share Welltower's commitment to high-quality service offerings in top markets, and we look forward to growing together.

We also made significant progress towards our stated goal of selling non-core assets this quarter.

This included the completion of our previously announced Genesis dispositions, which generated $1.7 billion in proceeds at an effective cap rate of 9%.

These transactions demonstrate a significant institutional appetite for our real estate both locally and abroad.

Our 2016 market activity reflects our highly targeted capital allocation strategy aimed at improving portfolio quality and reducing single tenant concentrations, which we believe will enhance our value to shareholders.

Turning to our plans for 2017, I want to describe how we will execute on one of Welltower's key objectives: to maximize the value of our existing platform.

This is a theme that you are going to hear from me often.

As a result of our improved organizational structure announced in January, I lead an integrated team responsible for domestic and international dealer origination and relationship management, outpatient medical portfolio management, and asset management.

This new structure is designed to optimize portfolio performance and to seize external and organic growth opportunities.

Let me explain what this will look like.

First, we remain very optimistic about Welltower's opportunity to source top-quality investments through our existing partner network and our experienced business development team.

We have created a partnership-focused investment strategy that is very difficult to replicate.

Our focus in 2017 will be on seniors housing and outpatient medical opportunities.

We will continue to prioritize high barrier to entry markets and high-quality sponsorships.

We will seek to enhance our business by adding younger properties and sometimes developing irreplaceable assets.

In select cases, we may also partner with important health systems to deliver next generation postacute real estate solutions at their request.

We feel better about high-quality opportunities now than we did at this time in 2016.

Next, we will find new and improved ways to drive same-store growth and operating efficiencies.

Our scale, data, knowledge of best practices, and ties to expert operators, including our own self-managed outpatient management group, position us for superior performance.

The quality and resilience of our portfolio should become increasingly evident in less favorable operating environments, and we're building tools to differentiate ourselves even further.

For example, the room turn and box program, which affords our seniors housing operators lower negotiated prices, rebates and a process to reduce the time required to refresh a vacated room.

Early adoption in a six property pilot suggests that we may achieve as much as $500,000 in annual savings at these sites alone.

We will look to expand this program and other performance-enhancing tools in 2017.

In addition, we will include our full-service outpatient medical group in our marketing asset and portfolio management programs.

We are one of the largest owners in the medical office sector, and we plan to increase growth in our top-quality portfolio through even more active management.

Our goal is to deliver improved performance through enhanced leasing structures and by combining the service offerings of our seniors housing and outpatient medical portfolios, which are often in the same market.

I'd like to wrap up my comments by reiterating the value of our integration strategy.

As you heard from Tom, healthcare delivery is shifting toward more efficient, higher impact and more consumer friendly settings.

Welltower and its operating partners are well-positioned to benefit from this evolution in care.

I can offer an example.

Welltower introduced one of its most successful memory care partners to one of its key patient medical tenants, which happens to be the leading health system in the region that they both share.

The health systems quickly realized that this expert in seniors housing could improve care outcomes for its patients suffering from dementia and Alzheimer's disease.

In addition to developing a referral relationship, the two groups work together to create training modules for hospital staff and information resources for local seniors.

Since the outset of their relationship in 2016, the two Welltower seniors housing communities that are in that market have increased occupancy by 200 basis points combined.

The improvement added to an already high occupancy level and can be tied directly to this alliance.

This is just one of the ways that we're driving performance.

Earlier today we announced a strategic collaboration with Johns Hopkins Medicine, one of the world's preeminent patient care research and teaching institutions.

Together we will explore best practices and design infrastructure alternatives to offer better care at lower costs.

This arrangement will give Welltower and its partners direct access to Johns Hopkins' vast network of experts as we seek to innovate and advance healthcare delivery models together.

Our work will benefit Welltower's operating platform and enhance shareholder value.

We look forward to demonstrating our exceptional value proposition and our performance, and now over to Shankh Mitra who is going to walk you through our operating results.

Thank you, Mercedes.

Good morning, everyone.

I'll review our quarterly operating results, reflect on our full-year 2016 operating performance relative to our initial expectations, and provide you our preliminary assessment after 2017's operating environment.

Before I add the specifics, one element I trust you will take away from my comments today is our best-in-class assets located in the most affluent market and run by the premier operators have and will continue to drive superior relative and absolute performance.

This is a direct result of a disciplined capital allocation strategy over many years, including our unique relationship investment strategies and a surgically targeted disposition program.

Modern physical plants run by great operators have pricing power because the consumer wants to live in that environment or the modern healthcare can be effectively delivered in that setting.

Our same-store portfolio grew 2.3% in the fourth quarter, bringing the total same-store NOI up to 3% for 2016, meeting the high-end of our initial expectation of 2.5% to 3%.

This outperformance was driven by 3.4% growth in our short duration seniors housing operating portfolio where we originally guided for 2% to 3% for the quarter.

1.7% same-store NOI growth in Q4 was in line with our budget.

Strong revenue growth of 3.8% was dampened by an elevated 4.8% increase in expenses for the quarter, mainly due to high labor costs.

I will come back to this topic in a moment.

We have enjoyed strong pricing power throughout 2016 in the US, UK and Canada and finished strong Q4 RevPAR growth of 4.3% with the highest contribution coming from our US portfolio.

We did lose incremental occupancy in the US in Q4, but saw strong occupancy growth in the UK and Canada.

As a reminder, we set an initial expectation of flat occupancy for the short portfolio in 2016 and ended the year up 50 basis points.

Looking forward to 2017, we are projecting 1.5% to 3% same-store growth for our senior housing operating portfolio, our short portfolio.

This reflects our confidence in our asset quality, superior execution of our operating platforms and our asset management capabilities that are driven by our unique data and analytics platform, which, as most of you know, is unmatched in the industry.

Our operating assumptions include a solid RevPAR growth in the 3% to 4% range, offset by a flat to slight reduction in occupancy as a result of new supply in select market and recent food trends and a 4% to 4.5% increase in expenses, including a 5% to 5.5% increase in labor costs.

While labor costs remain at elevated levels, we hope we have seen the worst of this cost item in 2016 as contributing factors such as living wage growth in the UK moderate in 2017.

Though we do not and will not provide any quarterly guidance, I will remind you that 2016 was a leap year.

We estimate the extra day in last February will negatively affect our Q1 2017 growth rate by roughly $1.8 million or around 1% for the short portfolio.

We will not normalize this item, and the negative effect on our growth rate is already baked into the full-year projection.

The medium duration outpatient medical portfolio continues to produce steady and predictable growth driven by low lease turnover and high tenant retention.

This dynamic led to a solid quarter with 2.1% same-store growth, right in line with our expectation.

We had outstanding tenant retention of 92% in the quarter, offset by an 8.1% same-store operating expenses growth, driven by mostly taxes and other maintenance-related expenses.

For the full year of 2016, same-store NOI was up 2.4% at the high-end of our initial guidance up to 2.5% for the year.

Our exceptional operating team led by Mike Noto, combined with great assets, 95% of which are affiliated with highly regarded health systems, provides us excellent visibility into this income stream.

As such, we are projecting 2% to 2.5% growth for this portfolio in 2017.

The long-duration triple net portfolio continues to produce stable and reliable performance.

This has the benefit of counterbalancing potential volatility in our short duration portfolio in certain parts of the cycle.

Senior housing triple net NOI was up 2.8% in Q4, capping the year at 2.8%, squarely in the middle of our guidance range of 2.5% to 3% for the year.

As a reminder, we don't include fee-related income in our same-store metrics.

We think this provides a more accurate picture of underlying performance.

We're projecting 2.5% to 3% for the segment for 2017.

Turning to postacute and long-term care, which now represents only 13% of our portfolio, same-store NOI grew 3.3% for the quarter, capping the year at 3.4% relative to 3% initial guidance for 2016.

We are projecting 2.5% to 3% NOI growth for the segment in 2017; however, the story here more than the numbers is our significant effort last year to reduce single tenant risk.

Our remaining portfolio is now even more secure with coverage at 1.7 times before management fee and 1.4 times after management fee.

This is a sequential improvement of 7 and 5 basis points respectively.

As a reminder, management fee of operators are subordinate to our rent.

To conclude, we expect another good year of steady growth in 2017.

Our portfolio is diversified by geography, product type, operators and duration, which helps to drive resilient growth through cycles.

We'll continue to focus on highly targeted capital allocation strategies to finetune our portfolio.

This will drive sector-leading operating performance and superior full-cycle returns to our shareholders.

Before I pass it over to Scott, I want to touch on a topic of interest: senior housing supply.

We will continue to emphasize the importance of local market and submarket exposures when evaluating the supply picture.

Compared to national numbers, in 2016 our top 10 US markets experienced 30% less inventory growth and at year-end has 200 basis points less construction as a percentage of existing inventory.

Looking forward, based on construction start data, which peaked in the third quarter of 2015 and using a four-quarter, six-quarter lag, deliveries are expected to top out in the first half of 2017.

This could shift later in the year due to potential construction delays.

We are not in the business of predicting macro supply, but the client development cycle attests to the strength of our high-quality portfolio and the advantages of having the patient and perspective of long-term investors, investing in one of the biggest secular teams of our generation.

With that, I'll pass it over to Scott Estes, our CFO.

Thanks, Shankh, and good morning, everybody.

Throughout calendar 2016, our corporate finance team articulated a capital allocation team that had three primary goals: to enhance the quality of our portfolio and private pay mix, maintain a strong balance sheet and low leverage, and to retain ample liquidity until the broader capital markets environment improved.

Well, I'm happy to say we delivered on all three fronts.

First, we enhanced the quality of our portfolio, minimized single tenant risk, and drove an increase in our private pay revenue mix to 93%.

Second, we reduced our leverage by over 200 basis points to 37.4% at year-end, strengthened our credit metrics, and received ratings increases to BAA1 and BBB+ from Moody's and S&P respectively.

And third, we renewed and extended our line of credit through 2021, ending the year with nearly $3 billion of liquidity.

As we enter 2017, our balance sheet is positioned to support our strategy as we intend to focus on three major financial objectives during the upcoming year.

First, we'll maintain the strength of our balance sheet.

Second, we'll become a leaner, more efficient organization as our 2017 G&A expense is projected to come in $30 million below our original 2016 forecast.

And third, we'll drive incremental cash flow growth by both enhancing the performance of our existing portfolio and through potential acquisitions.

I'll begin my more detailed remarks with perspective on our recent financial results, our 2017 dividend payment rates and several minor changes we made to our supplement and earnings release.

In terms of fourth-quarter earnings, we generated normalized FFO of $1.10 per share and normalized FAD of $0.99 per share.

G&A of $32.8 million for the quarter came in below our expectations.

We recognize significant gains on asset sales of $200 million, and we incurred $13 million of impairment, primarily associated with three properties based on current valuations.

For the full year of 2016, our normalized FFO and FAD per share increased 4% and 6% respectively.

This annual growth was primarily driven by solid same-store cash NOI growth as net investments totaled the relatively modest $244 million in 2016 as a result of the significant $2.8 billion of dispositions completed this year.

Now moving to dividends, we paid our 183rd consecutive quarterly cash dividend on February 21 of $0.87 per share, representing a new rate of $3.48 annually and a current dividend yield of 5.2%.

Now we did make one notable addition to the supplement this quarter where on Page 19 we provided both the effective interest rate and cash interest rate on our loan portfolios, and I would also point out that in our earnings release, we no longer intend to provide FAD guidance due to its potential perception as a liquidity measure, although we will continue to provide the component parts as detailed in our 2017 outlook section in Exhibit 4.

Turning now to our liquidity picture and balance sheet, I think the most significant capital event this quarter was the $1.93 billion in proceeds generated from dispositions through $125 million in loan payoffs and $1.8 billion of property sales, which included $200 million in gains on sale.

A portion of our net proceeds were used for the early payoff of our $450 million in 4.7% senior unsecured notes maturing in September of 2017, as well as reducing our line of credit borrowings by $705 million to a balance of $645 million at year-end.

We also repaid approximately $92 million of secured debt at a blended rate of 4.9% during the quarter, and we assumed or issued $280 million of secured debt at a blended rate of 2.5%.

So, as a result, we have nearly $3 billion of liquidity entering 2017 based on $2.4 billion of credit line availability and $557 million in cash and 1031 exchange funds on balance sheet.

One of the most important achievements during 2016 was emerging at year-end with an even stronger balance sheet.

As of December 31, our net debt to undepreciated book capitalization has decreased to 37.4%, and net debt to enterprise value declined to 31.1%.

Our net debt to adjusted EBITDA improved to 5.4 times, while our adjusted interest and fixed charge coverage for the quarter was strong at 4.2 times and 3.3 times respectively.

Our secured debt level remained at only 12% of total assets at quarter end.

Importantly, we anticipate further strengthening our balance sheet in early 2017 by using near-term disposition proceeds to reduce preferred stock by $288 million and secured debt by over $700 million during the first quarter.

I'll conclude my comments today with an update on the key assumptions driving our 2017 guidance.

In terms of investment expectations, there are no acquisitions included in our 2017 guidance.

Our guidance does include $323 million of development funding on projects currently underway and an additional $544 million in development conversions at a blended projected stabilized yield of 7.7%.

In terms of dispositions, we've added $400 million of incremental loan payoffs and property sales this year to $1.6 billion of dispositions that were previously disclosed in our December 2016 portfolio repositioning release.

This brings our calendar 2017 disposition forecast to $2 billion at a blended yield on precedes proceeds of 7.6%.

As a reminder, the $1.6 billion of dispositions previously disclosed are comprised of $1.2 billion that were expected in the fourth quarter and a Genesis buyback of $400 million.

At this point, we anticipate that virtually all of the $1.2 billion of carryover dispositions have closed or will close during the first quarter.

In terms of same-store NOI cash growth, as Shankh detailed, we are forecasting blended growth of 2% to 3% in 2017 as we continue to project solid predictable internal growth across our portfolio.

Our G&A forecast is approximately $135 million for 2017.

This would represent a significant $30 million reduction relative to our original 2016 guidance.

As our leadership team discussed on today's call, we do believe we owe it to our shareholders to maximize efficiencies within our cost structure.

The vast majority of incremental savings in 2017 are projected to come from reductions in compensation and professional service fees.

Our compensation-related savings are a result of our more efficient management structure and emphasis on leaner, high potential teams throughout the organization.

We've also worked to minimize the cost of external professional services fees by bringing capabilities in-house where appropriate and leveraging technology wherever possible.

So, finally, as a result of these assumptions, we expect to report 2017 FFO in a range of $4.15 to $4.25 per diluted share detailed in our press release.

In conclusion, I will reiterate that our strong balance sheet remains the backbone supporting our strategy as we look to drive operating efficiencies and cash flow growth within our organization and across our portfolio in 2017.

So, with that, Tom, I'll turn it back to you for your closing comments.

Thanks, Scott.

As you've heard from Mercedes, Shankh, and Scott, we cannot be more excited about the opportunities for us.

We've taken the last few years to assemble what is widely regarded as the largest and best located premium seniors housing operating business in the world.

Yes, headlines of senior housing oversupply and the continuing saga of weak senior housing operators with poorly managed real estate make for bad headlines.

As you've just heard, this is not our story.

With respect to assets subject to government reimbursements, there is uncertainty and, as we've seen before, the potential for volatility.

As you know today, these assets represent a much smaller percentage of our NOI.

But we believe we know how to manage this volatility, and our shareholders can trust us to work hard to capture the value of remaining in the postacute care sector even though admittedly the road can be bumpy.

Nevertheless, it is clear to us that major academic and regional health systems do require a postacute care solution.

Given that, we are exploring how we can best deploy capital side by side with these high quality, strong credit systems to address this need.

Nothing more to share on this now, but we are looking into this opportunity.

You see we are laser focused on driving shareholder value, and we're not afraid to make tough decisions when we believe it's all for the long-term benefit of our shareholders.

Welltower prides itself on having the most experienced and talented team, the lowest cost structure, the best senior housing real estate and operating platform, an outstanding national outpatient medical management business and unmatched global access to capital to realize the many opportunities to own the real estate that will drive healthcare delivery forward.

And with that, Holly, please open up the line for questions.

(Operator Instructions) Todd Stender, Wells Fargo.

Hi.

Good morning and, Shankh, thanks for the details on the US and Canada.

As far as senior housing, I wonder if I could hear more on Canada?

You certainly addressed the supply in the US, but maybe we could hear something about Canada just in specific markets if you can?

Sure.

We actually are developing a couple of assets in Canada -- again, part of Toronto, something that as we talked about before, highly targeted location market.

So we are not really seeing any pressure in our individual local markets from new supply that is anything to speak of.

In fact, we had very solid performance in the past year in that particular portfolio.

And I will add to that.

Canada is primarily an independent living market, right?

So you are seeing some construction that we are bringing in with our partners, Chartwell and [Nuvera] and some very high barriers to entry locations in Canada, but there's not a lot of macro supply to speak of at least that's impacting our portfolio.

And Todd, it's Tom.

The other thing to know about Canada is there are provinces in Canada that have greater acceptance of independent living as an option for particularly the 65- to 85-year-old active senior.

This is a concept that is actually promoted by the government as a very good alternative for this older population.

It's lower cost and actually allows -- at some point when people have health issues, it allows a national health service like you have in Canada to more efficiently deliver healthcare services to this population because they are living in settings that range from 100 units sometimes over 800 units.

That's helpful.

It just seems like a bright spot maybe to offset some of the challenges that the US is going to face this year.

So I'll get back in the queue.

Thank you.

Michael Carroll, RBC Capital Markets.

Thanks.

Tom, can you talk a little bit about your investment strategy going forward?

How has that changed or has it changed with the announced restructuring of the management team?

That's a good question, Mike.

Nothing has really changed.

I mean I think we've been pretty articulate about how we deploy capital across healthcare real estate.

I think we've been pretty consistent.

Again, we see in senior housing the majority of the capital we will deploy is behind our bench of leading operators.

Occasionally like we did this past year, we brought a new operator into the mix.

I think you know that we've looked to decrease our postacute care exposure, but we've also been quite vocal about the fact that we're not abandoning the sector because we think there will be opportunities to deploy capital at good returns in the future.

The model by which we deploy capital may be different, and we are continually looking to deploy capital around our outpatient medical business.

As you know, we own 17 million square feet.

Today this is a business that is scalable.

We think we're best in class.

We drive tremendous performance out of that model.

So, again, you will continue to see us looking for opportunities to grow that business.

With respect to outside the US, you should continue to see us look for good opportunities in Canada and for good opportunities in the UK where we have resources on the ground.

We have infrastructure in order to properly own, underwrite and manage those healthcare assets.

Excuse me, I just wanted to add one more thing.

Our relationship strategy is actually very deeply rooted.

We have eight folks in our business development team altogether, and Tom just said, some of them are actually in Canada and the UK.

But the relationship strategy that I touched on earlier and that Tom was just highlighting is very deeply rooted from the organization.

So we continue to see the same momentum that we always have and expect to continue to have that going forward with our shallow pipeline.

Great.

And then are you in the market for larger transactions with new relationships, or should we think about your investments going forward would be more focused with your existing relationships?

Mike, we are always -- we are never in the market for new relationships.

We've been in the business for a very long time.

We are outstanding professionals who have been in the market and the industry for a very, very long period of time, and you have seen we have been following some of these leading operators a decade plus.

Northbridge is a very good example of that.

They happen when they happen.

But as you have seen from other investments, previously most of the investment volumes will come from existing relationships.

Do we have a list of operators that we would absolutely love to have in our family of brands?

Absolutely but it will happen in that time when the opportunity comes.

And, Mike, the other thing I would add is we are very snobbish about the quality of our portfolio.

So we're not looking for opportunities to dilute the quality of what we own.

Great.

Thank you.

Joshua Raskin, Barclays.

First question just again on the investment front, I know you guys have historically not included any investments going forward in any of your guidance.

I understand the prudence there.

Is it fair to say, though, this year is a little bit more of a -- we should take a little bit more of a serious consideration of that in light of the commentary you've made around supply and focusing on existing investments, et cetera.

Should we sort of dial back our expectations, not within guidance, but just broadly as to deployment of capital this year?

Well, you're right in that we don't typically give any guidance on that, but I did touch on the fact that we are actively in the market with our existing platforms and are actually optimistic about some of the opportunities that we see could materialize for us and for our investment.

Okay.

All right.

I think I understand.

And then just on the G&A savings, if I look at the 4-Q run rate on your G&A levels, it looks like you've got a majority of those savings already in place.

Is it fair to say that the $30 million of savings is extremely high visibility that you've recognized a large majority of it?

How much of that is left to go?

Hi, Josh.

It's Scott.

We are highly confident in our ability to get there.

Your run-rate point is right on, and as we look at our budget for the teams as we think about them, as well as just contractually what we're thinking in terms of legal tax and consulting, we already have a good feel for what those numbers are going to look like this year.

Josh, we are questioning everything about the way we do business, and I think that is something you should demand of us in any company.

We're always reevaluating how we can do what we do better and more efficiently.

So this is not a one-time plan.

This should be something you expect from us longer-term.

And it really started this year, frankly, in 2016 because that's why we wanted to point out our original guidance was for $165 million in 2016.

So this is something we've really been driving last year 2016 and 2017 and beyond.

Right.

Okay.

Perfect.

Thank you.

Chad Vanacore, Stifel.

Just thinking about your commentary about reducing your postacute exposure, but not leaving out the option to invest more in the future.

Can you give us a little more color on why you're selling your Mainstreet debt and the options to acquire the properties there?

Well, Chad, we're looking to rebalance our postacute portfolio.

We're looking -- our postacute portfolio was highly concentrated.

That is something that -- we've been very upfront about saying it's something that we needed to address.

So when we think about redeploying capital to postacute, we're thinking about it, as I mentioned, in respect to major health systems and helping them to address their postacute care need.

If we do not have a model that institutions like Welltower can invest in, then we have a bigger problem because it means many people will remain in hospital beds.

So we are working very hard with major healthcare providers to rethink how this postacute care model will work in the future.

So how does that Mainstreet model, how does that fit in with the hospital systems?

And to specifically answer your question on Mainstreet, Chad, Mainstreet was not aligned to the whole health system strategy that Todd was talking about.

As you know, as we've told you last quarter, we have ended our relationship with Mainstreet, and to specifically answer your question on Mainstreet debt, they paid us a premium on face value, and we absolutely -- what we did to sell them our debt that we owned at a higher price than face value.

So, if you think about Mainstreet, which was not in any of the COS states going forward, we ended the relationship.

So that's the answer to that question.

(multiple speakers) that anybody would pay us at a premium we are happy to sell them.

All right.

So sticking with postacute for a second, can you actually give us an update on your loans to Genesis?

You've got a bridge loan out there.

You've got some mezz financing.

Just let us know where they are and as far as the HUD refinancing goes?

Sure.

I Think it's important just to take a step back on our loans big picture.

As a reminder for everyone, loans are only 3% of our total portfolio.

We actually project them to be down in the 2% range by year-end, and we've actually already decreased the loans by about $100 million year to date.

We've disclosed the three different components really of the Genesis loans.

You're right they aggregate to about $464 million.

I think it was the bridge loans are $317 million of that, and it really was a part of a bigger solution that provides a little more time to pay those off at a reasonable rate, and it was, again, contemplated as a part of the all Genesis transactions that we've been working on.

Thanks, Scott.

And then just one last one.

This may come from you, but how about some guidance on CapEx and income tax expectations for 2017?

Sure.

The CapEx number is in that Exhibit 4. It's $71 million for 2017, and the income tax line we're projecting roughly $2 million to $3 million per quarter in 2017.

All right.

That's it for me.

I'll hop off.

Excellent.

Michael Knott, Green Street Advisors.

A question for you on your 2017 senior housing operating NOI growth guidance.

Can you give us any color on what you would expect between the breakout between US Canada and the UK?

Obviously you have quite a bit of divergence there right now with the US I think under 1% and NOI growth in the fourth quarter.

So just any color you can provide and how that breaks out for 2017 would be really helpful.

Michael, it's Shankh.

I will tell you that we are expecting roughly similar growth in US and Canada next year, and what is driving -- we're expecting significantly higher growth for on a relative basis in our UK portfolio next year.

So relatively same US and Canada and higher UK is how I will describe it on a (inaudible) perspective.

Okay.

And then just one other quick one.

The Johns Hopkins announcement today, just curious as you guys go forward and think more about health system relationships, particularly as it pertains to any future investments in skilled nursing and postacute that you might make, just curious how many of those types of relationships in the future would be made explicit like this one is, or how many would just be in the background the way your outpatient medical business runs today?

Just curious how many of those will become more explicit in the future?

I expect them to become more explicit, Michael.

One of the things that we're going to be working with Johns Hopkins on is real estate infrastructure, and our objective is to find ways to innovate to become better partners, if you will, for health systems as they are expanding their ambulatory strategies.

Naturally those ambulatory strategies will have real estate implications, and so that is certainly a focus for us.

Okay.

So I guess another way of saying my question was for those systems where it does become more explicit, is it a different type of relationship than what you've done historically in outpatient medical, for example?

That's right.

Because historically it has been a landlord and tenant relationship that we have had with them, and what I'm describing is a partnership much like the kind that you've seen us have with senior housing operators.

Michael, one of the things that we are seeing is these large superregional and academic medical systems are taking a very keen look at the senior housing space.

So we talked little bit about postacute and why that is -- for them is an issue that needs to be addressed.

But they are also looking at how they can connect to the senior housing operators, particularly around the conditions of high levels of frailty and dementia Alzheimer's.

Mercedes talked a little bit about one of the large regional systems where we have effectively brought our operator together with the system.

And it is not only benefitting that health system, it's benefiting Welltower by seeing a 200 basis point increase in occupancy.

This is very early days.

We were invisible.

Senior housing was completely invisible to hospital systems.

Why?

Because it's outside the reimbursement framework.

But increasingly, these systems need to see senior housing as part of effective healthcare delivery networks because the people that live with us are are the largest risk population for those health systems.

They are seeing how our sector can help them manage that risk, so I would say more to come on this.

Okay.

So you think MOB-type relationships will be more important in the future if you can bring the health system relationships or expertise, not only in the MOBs but across senior housing and postacute as well?

I think it gives us a competitive advantage versus all the capital out there that would like to invest in the MOB space.

What that capital doesn't bring is all the benefits which I just articulated.

Okay.

Thank you.

Karin Ford, Mitsubishi Securities.

Good morning.

In the operating seniors housing portfolio, it sounds like you're getting good pricing, but expenses are keeping the 2017 growth a little below the long-term trend.

If memory serves, it's closer to 3% to 4%.

You mentioned potential moderation of supply and maybe even expense growth later in the year.

Any chance you could see NOI accelerate in the portfolio in the back half and maybe get back up to the 3% plus level in 2018?

So, Karin,i t is very hard to comment on 2018 at this point in time.

But if we look at the [NIC] information, you will see that most of the supply -- the sort of peak of the supply will be delivered in the first half of 2017, and you also have in -- you obviously are following the flu situation -- the impact will also be sort of the first quarter.

So our focus was the first quarter.

So you will see that, relatively speaking, you will see a little bit of acceleration in the back half of 2017 from a numbers perspective.

Now if supply doesn't really pick up, you can see at least in our portfolio, our US portfolio still has occupancy upside left.

And obviously the expense growth moderates, stays at that elevated level but at least moderates from a year-over-year perspective, you can see some acceleration in 2018, but we're not prepared to talk about that just yet.

Fair enough.

Okay.

My second question is on postacute.

Are you guys on track to hit the pro forma coverage level of [145] that you had talked about on the disposition -- following the dispositions?

And I saw you took out the Genesis disclosure.

Can you just tell us on a same-store basis what happened to coverage and occupancy for the retained Genesis facilities?

Hi, Karin.

It's Scott.

I think first in terms of the coverage you can see there was a nice improvement this quarter, but that really was largely the result of those Genesis dispositions that affected the occupancy and affected the coverage that you see on the first Page of the supplement.

It's almost the same answer to your question as why I can't get more color -- why did we take out our disclosure?

We were reporting Genesis information on a one quarter lag like we do with everybody else.

We don't do that for anybody else, and since they are a public company, what would've been in the supplement was what they reported four months ago.

So you can continue to see their dot and their bubble page in terms of their coverage overall, which is a little above 1.2 for the data that we reported, but we're just going to keep reporting on this basis going forward.

Okay.

And are you on track to hit the [145] level?

If we continue to sell Genesis, as Scott said, that obviously Genesis buyback is in our guidance, that coverage you should see should continue to go up.

Paul Morgan, Canaccord Genuity.

Hi.

Good morning.

Just to go kind of go back to the Hopkins relationship, I know it's obviously early days here.

But just maybe is it possible to kind of set expectations on what we should expect to hear next out of the venture and kind of both in terms of the sort of relationship type stuff and hard investment in 2017 and 2018, or is it kind of a longer-term situation then?

The relationship is expected to be a long-term one, but we will be updating everybody certainly as we make progress on the multiple initiatives that we are undertaking.

We are actually already working on a quality measurement tool that we think will illustrate the value in assisted living and memory care that Tom was describing before.

Obviously the information can be shared with existing and potential customers.

It could also help to pave the way for other mutually beneficial partnerships between health systems and our seniors housing operating partners.

So there will be a number of different fronts that we are going to be working on together, and we'll bring updates as they become available on the progress that we're making.

Okay.

Great.

And then just a quick question.

Is there any update you have on the vintage portfolio relative to your kind of initial pro forma and how things are shaping up?

Certainly, as you know, we announced a closing in October, and since then our operators have jumped in and they are very focused.

They are executing on their plans.

So it's early days, but they're doing everything that we would expect them to do hiring staff and working on renovation plans and such.

The property is obviously a great fit for us -- our Sunrise in Silverado, and they are great operators.

So if anybody can deliver on a plan, it would be them.

Okay.

Great.

Thanks.

Vikram Malhotra, Morgan Stanley.

Thanks for taking my question.

Just two quick ones on RIDEA.

First, you kind of mentioned I think overall occupancy was down about 40 bps in the quarter.

Can you give us a bit more color on in the US markets where you're seeing supply how occupancy and maybe NOI growth trended there relative to markets where there is very little supply?

Maybe just rake up the growth profile in the US?

Tim, our head of asset management will give you the details.

But overall obviously, as you know, we provide very detailed disclosure.

We're not prepared to give you even more than the occupancy projection in different parts of our portfolio.

But, as I said, the US we lost occupancy and we gained in UK and Canada.

Relatively that's what I want to think about.

Yes, Vik.

This is Tim Lordan.

The story is the same there.

So we saw weakness in Chicago, Atlanta and Kansas City, but the core markets held up well.

Okay.

And just on as you think about making future investments in senior housing and RIDEA in particular, with incremental capital potentially foreign capital also chasing, have you tweaked or changed anything in terms of your underwriting parameters or any other factor that you are focused on more so today than you were maybe over the last two years?

This is Justin Skiver, SVP of Underwriting.

I would say that we really haven't changed our perspective on what we're looking for from an underwriting perspective.

It's the core markets, and most importantly it's the top operators.

So I would say that the fundamentals there from an underwriting perspective have not changed.

Obviously, on a deal by deal basis, you are evaluating the individual characteristics of that deal related to the real estate, the acuity level of the residents.

So I would say nothing has changed, but obviously deal by deal you are looking at it more deeply.

The one thing I would add to that is everyday we are driving more value from our expertise on the operating side and helping these smaller regional businesses operate on a higher level.

We've been very focused, as you know, on helping them drive down expenses and driving the benefits of scale that they get from being part of the Welltower family.

We're now looking at ways we can help them on the revenue side, so stay tuned on that.

Sheila McGrath, Evercore.

Yes.

Good morning.

Could you give us an update on the New York City developments and your expectations of timing?

Is that a project you would envision some strategic alliance with a major medical entity might make sense?

Yes.

Thank you for that question.

In fact, it is one of those locations that is prime for the innovation that we've been trying to describe, and we are in conversations with the health system about how we can collaborate in that market to bring more value to the population.

We continue to make progress on the project.

We're on track.

The properties that we are actually going to demolish are now vacant.

So we are going to start our pre-demolition work here probably by next week.

So we're excited to see that kind of progress.

We've also actually increased the size of the project slightly because we found some efficiencies.

So more value enhancing our returns.

And, believe it or not, are already fielding phone calls from prospective residents who are quite interested in living in the community and have actually offered to become almost ambassadors on our behalf and getting the message out about the property.

So the schedule continues as we have always advocated for now, and we're starting to make progress.

Jordan Sadler, KeyBanc Capital.

Thank you and good morning.

I just wanted to flesh out the opportunity in outpatient medical.

It sounds like that's an area of focus for 2017, but I guess, if I think back or look back over the last several years, it's not really been an area of focus in terms of incremental investment.

Maybe you've invested a few hundred million dollars over the last three years.

Can you maybe talk about what it is about the opportunity set that's presenting itself today that you're sort of directing us as that's an area of opportunity we should expect you to be investing in?

Well, Jordan, one of the things I said earlier was that the major academic medical systems and regional health systems are really taking a very close look at their outpatient ambulatory care strategy.

It's going to require a lot of capital for them to build the networks they need to grow their patient population base.

One of the key strategies of major health systems is they've invested significant dollars in generally their Center City acute-care facilities where research and teaching and technology are driven from.

In a world where length of stays are decreasing every day in hospitals, how do you keep those beds filled?

You need to build a broader feeder system to that acute-care hospital so you can maintain your competitive edge, and they are going to do that by building larger ambulatory care networks.

This is something that because of our relationships with these systems is an area that people are looking very closely at.

One of the reasons why you haven't seen the business grow perhaps the same rate as senior housing is it's rare that there are large portfolios to acquire in this space, and if they come about, in many cases they haven't been of quality that reach our screen.

So we're always in the market, we're always looking, and we're a big player.

Again, we own 17 million square feet of outpatient medical, and we are a full-service outpatient medical management.

So this is an area that has always been import, and we are seeing some of the changes that are helping across healthcare delivery perhaps bringing a new set of opportunities that we have not seen in the past.

And, Jordan, I'll add to that.

As you know, medical office business has been very, very competitive from a pricing perspective, and you know our investment philosophy is more offmarket relationship driven.

So every time you saw opportunities, obviously the option tends to run very crowded, and that's not how we invest capital.

So obviously now what you're hearing from Tom and Mercedes and the team that we are replicating the same relationship investment strategy from the senior housing that we have been very successful and trying to go and replicate the same idea and same strategy in the medical office business, and that's what you're hearing from us.

The relationship that we announced today is just the beginning of that.

But we do not want to deploy capital for the sake of deploying capital.

We want to deploy capital when we think we can make money for our shareholders.

That's helpful.

And then one other.

As it relates to Brookdale with all due respect to the ongoing process and your relationship, I'm just curious if the margin -- this is one of your top operators listed in your supplemental, would you be inclined to increase exposure to an operator like Brookdale or decrease at the margin?

So I'll start off, we are not actually looking to expand our relationship together.

So consequently we are actually not participating in any process there.

What I can tell you about our properties with Brookdale is that we have a solid group, and I will say that we are not in the habit of giving individual portfolio statistics.

But just to illustrate my point, I can tell you just this one time that our portfolio there covers 1.2 times.

So we have a solid relationship, but it's not one that we are expanding.

And think I think that's pretty similar to what HCP may have announced in the last week or so, that their coverage was about 1.2 times just like ours.

I'll add -- Jordan, I'll just add from the Q4 numbers that we released this morning, our Brookdale exposure, as we said this morning, is lower because we have closed the Brookdale as part of our Cindat joint venture yesterday.

What's that pro forma number?

I don't have it off the top of my head.

That's okay.

I can calculate it.

Thank you, guys.

Juan Sanabria, BofA Merrill Lynch.

Maybe this one is for Scott.

With regards to the dispositions that are scheduled and planned for in 2017, how should we think about the use of proceeds?

Is the plan mainly to delever over and above kind of what you've committed to for development funding?

I think that's a good way to think about it.

So I think really in two phases at least.

The first phase I can give a good bit of detail on.

Like I mentioned in my prepared remarks, there is about $1.2 billion of dispositions that carried over from last year.

Those are largely seniors housing triple net deals that have basically happened or should happen within the next few weeks.

So the use of those proceeds, which are about at least $1 billion of that $1.2 billion, would be to pay off our $288 million of preferred stock.

Plus, we've targeted about $700 million of secured debt.

So I think the rest of it is a little bit wait and see.

We still have some line borrowings available, but hopefully we'll have some success in ongoing acquisitions and development funding.

But I think the net reduction probably comes in the first part of the year.

You would like to keep that level lower leverage going forward?

Yes, I feel great about the balance sheet.

I mean it's been very helpful, I think, in terms of how we're thinking about the business.

It just gives us a ton of flexibility.

So the $3 billion of liquidity I articulated did not even account for the potential $2 billion of dispositions.

So we really have an opportunity to take one more notch down here, and that just puts us solidly in the range we're at today.

And then just on seniors housing CapEx, I know you gave kind of the gross guidance for 2017 for the Company, but kind of what are you expecting on a dollar per bed spin basis?

And how should we think about that going forward?

I think Tom mentioned in his intro remarks that you would like to kind of focus on newer product as you grow and just trying to think about how CapEx should change given all the new supply being added to the purpose built just to keep the existing stock relevant and competitive?

One, we'll follow-up with you on the exact number on CapEx.

I want to make one point, though.

As you know, we have the youngest assets in the industry in our portfolio, as you can see in those numbers.

So we are not particularly worried about as they put CapEx in existing facilities to drive performance.

But if your question is more focused towards the industry, that is definitely something that you should probably see or will see from the industry.

As far as we are concerned, we have the youngest assets asset pool in the business, and we think --

In the best locations.

In the best locations, and we think that we'll be fine.

And just one last kind of question for me.

So you talked about the MOB opportunities and kind of the Johns Hopkins relationship being the first step.

What exactly are you thinking about in terms of the actual product type when you say ambulatory turn networks versus how we traditionally think of MOBs?

Is it the same, or is that kind of a different, more purpose built product, or if you could just elaborate a little bit on that?

I think you're going to see more buildings that are designed to drive procedures out of the acute-care hospital into an outpatient setting.

So what you're essentially seeing is it a transition from the old doc in a box to basically day hospitals.

And we have actually many examples of that in our portfolio already because we identified this trend quite some time ago, and it's actually the reason why we talk about our portfolio as an outpatient medical portfolio and not a medical office building portfolio.

Michael Mueller, JPMorgan.

Two questions.

One, wondering can you comment on development trends for the portfolio in terms of what's coming online?

How long it's taking to stabilize versus expectations?

And then, Tom, one of your comments again about possibly growing postacute, how should we think about that from big picture?

Is it once you sell the $1.6 billion that's identified now, you are probably not going to see anything more meaningful and then just selectively grow it?

I mean do you think the percentage allocation will change dramatically?

No, Mike.

I think we're going to be very selective.

And I hope that came across clear in my remarks.

We're going to be very selective about how we deploy capital into postacute.

We are not looking to roll up existing supply of postacute that is out there.

We are looking to help drive the next generation of postacute where we can feel the opportunity to deploy capital will provide our shareholders with the right risk return scenario.

Next question.

And, Mike, I just want to add, as you heard from Scott, we have the Genesis buyback of $400 million or so built into our guidance.

So, if anything, net net you might actually see our exposure go down.

But we're definitely not looking to bulk up in that space.

Now, Mike, you also asked a question about development -- our development pipeline and occupancy there.

Yeah, fill-up trends.

Mike, this is Tim Lordan.

As Shankh mentioned, it takes about six quarters to develop these projects, and if you do them in the right markets, you develop a nice waiting list or a list of residents as you go through that process.

So fill-up could take anywhere from a year or 18 months after that.

The only thing I would add, Mike, is that we have a good -- most of our fill-up assets are in our triple net or postacute portfolios.

So we're collecting rent from day one on those.

I don't think I've noticed any material change in the time it's taking these assets to fill up.

And I would also note that about 80% of that fill-up, again, is in a master release.

Rich Anderson, Mizuho Securities.

Thanks for hanging on with us.

On the outpatient medical discussion point, do you see that as kind of a slow kind of process of developing assets here and there or something that could require quite a bit of time that by the time it's done, we'll all on this call be retired?

Or is it something that could happen in kind of quick spots through large types of bulky investments, more of a rapid pace to the end game?

One of the things that we're hoping for, if you follow the progress of some of the major regional and academic medical systems, they are acquiring other hospitals.

This gives them large portfolios not only of additional hospitals but also ambulatory and outpatient assets.

We are hoping that at some point these systems will look to sell some of these or partner some of these assets.

That's where most of the high-quality outpatient opportunities lie.

They are sitting in the hands of these major health systems.

And so we're talking $1 billion type dollar deals.

This could be one of the biggest pools of potential investment opportunities that the healthcare REIT space has ever seen, if you think about it, if you look at the amount of real estate that is owned by these major systems.

And that's why we have limited our strategy to these major systems.

We believe they will wind up growing and essentially pushing a lot of weaker systems either out of business because they will be increasingly marginalized or pushing more and more acute-care into the safety net business of caring for the uninsured and Medicaid population.

And that's not where we intend to be.

Okay.

Interesting.

And so buying another medical office REIT is not the strategy that you have in mind here?

We don't comment on M&A, and like anything, Rich, if the stars line up and that's the right thing for the shareholders, we would always review any opportunity.

But that's not anything we are laser focused on at the moment.

Okay.

And then second question is you talk about G&A savings and rightsizing the leadership.

Mercedes and Scott have numerous functions reporting to them.

They may actually need an eighth day of the week to do their job at some point.

How long can a company the size of this operate without an Chief Investment Officer or Chief Operating Officer, or is that in the game plan down the road, just not right now?

Rich, when I stepped into this role a little under three years ago, I inherited a bloated inverted pyramid organizational structure.

Since then, without fending off any major players, we got it to a rectangle.

And as of January 3, we get it to a functional pyramid.

So it's not a trapezoid?

No, it's not a trapezoid.

It's a functional pyramid.

So when you look at the way we're organized, the Company is now organized across three verticals.

So one of those verticals reports to Mercedes, one of those verticals reports to Scott, and one of those verticals reports to me.

Those verticals create a much enhanced internal management structure, functional oversight structure and internal governance structure.

So those structural enhancements allow for us not to have a Chief Operating Officer role because it is those aspects of that role are filled by the structure.

Same thing with not having a Chief Investment Officer.

So that is -- the role of the Chief Investment Officer is fulfilled by a functional structure.

This is something we can talk to you more about at any time, but we think it's working really well.

And you know what?

We all work 24/7, and that's what you should spec of any management team.

Okay.

Sounds good.

Thanks very good much.

(Operator Instructions) John Kim, BMO Capital Markets.

Thanks.

Good morning.

I think Shankh referenced the flu season.

We're about two-thirds the way through this winter.

Can you just comment on how you see the impact of the flu season this year versus last couple of years in your shop portfolio?

Sure.

You probably have heard this from others already and seen the numbers yourselves, and there is, indeed, a spike in 2017 in the incidence of the flu.

Obviously we monitor that very closely, and we're always in very active dialogues with our operators about this sort of thing.

Naturally they have protocols to contain the flu and other such epidemics.

These are the kinds of things that we are in dialogue with them about and their use of those kinds of tactics to try to stay ahead.

John, this is Tim Lordan.

I would say in summary we see the flu being a little bit more impactful than last year, but not anywhere near the historical flu season we saw a couple of years ago.

We are seeing trends like that elevated in the UK.

Fortunately to date we are not seeing a lot of exposure to flu in our communities in the UK, and in the US, as Mercedes said, our operators are all over that.

One of the lessons they learned from the historic flu season a couple years ago is how to improve their protocols to deal with that more effectively.

So we had seen some impacts of flu in Connecticut and some other areas but nothing widespread.

And just as you think about -- John, as you think about the numbers, if we have an outbreak of the flu that is greater than what we're talking about today, that probably gets us towards the lower end of the guidance and vice versa.

So if you thought about the flu trend, it is one of the things we are thinking about.

That's why we sort of created a range.

That gets you from one side of the range to the other side of the range, depending on how it plays out.

I can tell you we've all been passing the flu around here in Toledo.

That should be an area of concern, but we continue to come to work every day.

I can definitely relate to that.

Moving on to Brookdale, hypothetically speaking, if another REIT were to acquire an ownership stake in the company, Brookdale, would that materially change how you view that relationship?

Well, look, as you can imagine, our agreements have consent rights and the like that might apply in different scenarios.

So a process that would require our input, and we always seek to be constructive.

We always seek to protect our shareholders' interests.

So we really have no particular idea of what to play out if anything at all.

It is speculative.

But just know that we will have a seat at the table if ever it's required.

Michael Knott, Green Street Advisors.

Just a couple of quick ones.

Sorry.

I know it's been a long call.

The $1.2 billion, I think it is, of dispositions that will close in 1Q, I thought those were going to close by the end of 2016.

Just is there anything noteworthy in terms of why that was delayed a bit?

No, it was just timing and closing process, which is why they are happening early in 2017.

Michael, they were actually supposed to close in mid-February is what we thought.

And one of them, as I said, closed yesterday.

I thought it was going to close in two or three weeks, but they were never supposed to be closed by that year end.

Okay.

Thanks for that.

And then I'm still a little bit unsure how to think about your acquisition stance for 2017 and sort of how to sort of reconcile the fact that your guidance is zero but at the same time you had a surprisingly large fourth quarter of activity?

And then also I think, Mercedes, you mentioned that you feel better about some types of relationship opportunities than you did a year ago.

So just curious how to really think about all that together.

I know you historically don't really guide on the acquisition side, but still having a little trouble figuring out your stance on how you are thinking about acquisitions in 2017?

And I can appreciate that, Michael.

I maybe I'm just repeating myself, so I apologize for that in advance.

But it's what we said.

We have a strong relationship network.

We have a very strong business development team.

We've described to you some of our initiatives with respect to the new business and how we are looking to replicate our success in outpatient medical.

We feel that that is going to yield us off-market opportunities.

We have -- again, I'm repeating myself a little bit, but it's all to say that those are some of the reasons we feel optimistic about this coming year and our opportunities.

Michael, I'll just add to that that, as you heard from Mercedes, that we feel better about the opportunities as we sit right here.

However, we'd never include acquisitions in our guidance, and it's hard to do that, right?

I mean you don't know when they are going to close, you don't know when you are going to shake hands, what your cost of capital will be, how much you want to keep, how much you want to JV.

So all of these things play, but what you should remember is we have -- opportunity is never constrained, and the second point is we're seeing better opportunities.

The third is we feel pretty good about the business.

So, if the stars align, you should see strong acquisition opportunities from us as you have seen in the fourth quarter.

Okay.

Thanks.

And then just last one, if I may.

Tom, your comment about next-gen postacute, if I can use my words, not yours -- is kind of where it's at in terms of skilled nursing.

Just if I can ask a devil's advocate question of why in the long run keep the existing SNFs that you have now if the next-gen is where it will be at in the future?

Michael, it's because I think there's always going to be a broad need for skilled nursing.

So, remember, our business is more aligned with the top end of the market, and the top end of the market has a skilled nursing need.

But the broader market won't always have a skilled nursing need.

So when you can own skilled nursing with the right operators in the right markets, that should remain a reasonable asset class to invest in.

It has been challenged because of all of the issues, whether they be from Medicare or Medicaid, and we're in a period of uncertainty now because we don't know how the repeal of the ACA will affect particularly Medicaid reimbursement.

There's a lot of questions about that.

All I can tell you is, if this administration can address the fact that Obamacare expanded Medicaid to include able-bodied adults -- so some people believe that of the 20 million of newly insured, 6 million were able-bodied adults that were added to the Medicaid ranks -- that is a problem for everyone because Medicaid is for the elderly children, the blind and the disabled.

So we're hoping for some clarity there, and maybe that provides some relief to SNF operators that rely on Medicaid to get reimbursed for their services.

But, you know, it's been a tough go, and we're trying to be optimistic but we maintain skilled nursing cannot go away.

And, Michael, adding to Tom's point, if you think about it, we're very focused on capital allocation as our main job, right?

Tom said, as you heard from him three times today, we want to maintain flexibility.

And environments change.

Investment opportunities change.

If we see really good risk adjusted return opportunities with great health systems, we'll explore that.

On the other hand, we think that there is a huge demand for these assets coming from foreign and domestic investors.

If we think that we should crystallize the value for our shareholders, we'll go that way.

You have seen us doing both, and we want to be flexible and remain open and change as the market changes.

Final important point, Michael.

This is Scott.

I think we've actually been making this shift already.

Not only is the postacute portfolio getting to about the 10% to 12% range, which is right sized, but we've been selling the more Medicaid-centric skilled nursing assets for really the last five to seven years.

And even with Genesis as well, we've been growing our powerbacks and the assets there -- Medicaid centric and private pay, not even Medicaid certified assets.

So it's actually happening already.

Right.

Thank you very much.

And, at this time, we have no further questions.

We would like to thank you for dialing into the Welltower earnings conference call.

We do appreciate your participation and ask that you disconnect.