Welltower Inc (WELL) 2018 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2018 Welltower Earnings Conference Call.

My name is Regina, and I will be your 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, Senior Vice President, Corporate Finance.

Please go ahead, sir.

Thank you, Regina.

Good morning, everyone, and thank you for joining us today to discuss Welltower's third quarter 2018 results.

Today, you will hear prepared remarks from Tom DeRosa, CEO; Shankh Mitra, CIO; Keith Konkoli, SVP, Real Estate Services; and John Goodey, CFO.

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

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

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

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

And with that, I will hand the call over to Tom for his remarks on the quarter.

Thanks, Tim and good morning.

I'm pleased by the financial results and improvement in operating metrics that we report to you this morning.

Continued positive NOI growth across all our business segments has given us the confidence to raise our 2018 FFO guidance by $0.03 at the low end and $0.01 at the high end or a raise of $0.02 at the midpoint, from $3.99 to $4.06 to $4.02 to $4.07.

And despite the fact that we raised $232 million in equity in the quarter under our ATM and DRIP programs at a weighted average share price of $66.07.

We've been talking for a number of quarters about dispositions and restructurings.

These initiatives enabled us to delever and improve the quality of our cash flow.

In 2018, we have shown our ability to reinvest accretively in assets and operator relationships that are aligned with our well-articulated strategy and will drive earnings growth.

Welltower's value proposition, which connects seniors housing, post-acute and ambulatory sites of care to dominant financially strong health systems is being embraced by the broader health care delivery sector and truly differentiates us from REIT and other capital sources.

A knowledge-based strategy aligned with our proprietary data and analytic capabilities, is enabling Welltower to drive hundreds of basis points better relative operating performance from our senior housing assets, even in a challenging new supply and labor environment.

Shankh will go through our operating performance in greater detail but we are encouraged by our positive results in this part of the cycle.

Our strategy has enabled us to attract a next-generation of senior housing operators in assets as we have sold or restructured over $8 billion of nonstrategic real estate or misaligned legacy operator relationships in the last 24 months.

In a sector that has seen little capital deployed into long-term real estate assets, Welltower has completed approximately $3 billion of high-quality, accretive investments and developments year-to-date, and the year is not over.

In addition to the $2.2 billion ProMedica joint venture that closed this quarter, today we announced nearly $0.5 billion of new medical office investments, including an expansion of our growing portfolio with the Johns Hopkins Health System and Providence St.

Joseph's Health.

Keith Konkoli will tell you more about these investments.

John Goodey will take you through our third quarter results and I hope you will agree that the investments we have made in people and technology as well as having made tough decisions has best positioned Welltower to drive shareholder value as health care delivery transitions to lower cost sites of care that will improve health outcomes, particularly in view of the aging of the population.

You'll be hearing more about this at our Investor Day to be held at The St.

Regis Hotel in New York City on December 4.

Now over to you, Shankh.

Thank you, Tom, and good morning, everyone.

I will now review our quarterly operating results and provide additional details on 4 topics.

Number one, show results and trends; two, senior housing triple net business; three, HCR ManorCare-ProMedica joint venture; and four, capital deployed in the medical office segment.

We remain confident in our ability to execute at this point in the cycle, especially given our unique data science capabilities and are excited about the path towards further value creation, which I will detail you for here.

In our Q2 call, we told you that we are encouraged by the return of seasonality to our occupancy trends.

Our year-over-year occupancy decline went from 200 basis points in Q4 of 2017 to 190 basis points in Q1 of 2018 to 110 basis points last quarter.

I'm delighted to inform you that gap is only 10 basis points in Q3 and it's actually up 10 basis points in the month of September.

And perhaps, more significantly, we have been able to effectively close the occupancy gap, while holding the rate growth for overall portfolio as 2.8%, driven by major U.S. markets, which are up 3.2%.

This speaks to the exceptional quality of our real estate and our operating partners.

We had a strong summer where we saw seasonal strength not seen over last few moving seasons because of the heightened delivery had absorbed difficult seasonal demand.

To provide you some more context, Q3 over Q2 sequential occupancy growth of 80 basis points is the best we have seen since Q3 of 2014.

This allowed year-over-year revenue growth of 2.9%, which accelerated for the first time since Q3 of 2014 on a sequential basis.

So clearly, we are encouraged by the trend.

Having said that, I will caution you not to draw any conclusion from one quarter of numbers but focus on longer-term trends.

Senior housing is an operating business and we'll continue to see some volatility as with any other cyclical business.

But our extremely diversified portfolio across geography, operators, product types and acuity does provide a unique diversification benefit that others cannot even remotely replicate.

A second topic I would like to discuss is our senior housing triple net leases.

Many of you asked whether any lease will survive this cycle?

And how many leases will be converted into RIDEA structure?

Our answer has been and remains that real estate and operator is first and structure second.

We continue to believe that in the triple net structure, when a well aligned lease exists, where both the operator and Welltower's shareholder can make money.

In that context, we're delighted to inform you that Brookdale has agreed to renew our SALI master lease for next 8 years.

As I mentioned in the last quarter, with $28 million of cash trend, this was our biggest exposure in our entire triple net business.

The lease leaves current base rent in place to 1/1/19 at which point rent increases at the contractual amount thereafter.

Welltower has opportunity to fund some CapEx on a contractual market return, while Brookdale remains responsible to fund CapEx for the existing terms of the lease after that.

We continue -- we think Brookdale, which makes money from the lease today, will improve performance and will drive even more profitability as it leases out from a cyclically-low occupancy.

This renewal effectively eliminates any material risk maturities for Welltower until 2024.

This brings me to another topic and a rhetoric du jour that if an operator has low EBITDA coverage, then they will walk away from a lease.

That sounds a lot like the pundits, who predicted that anyone with negative equity in their house coming out of the last recession return their keys to the bank.

I would like you to at least consider that the operators see their cash flow in terms of EBITDARM not EBITDAR.

They consider cyclically-low cash flows related to their long-term potential, have G&A and scale implication to their broader business and often build great businesses over many years that they wouldn't necessarily want to give up, right before a multiticket silver tsunami.

A majority of the business that goes through cyclical lows, do not return their keys as this forgoes their ability to participate in the recovery.

WELL has a unique platform with many operating partners in all major markets.

We have alternative plans for every asset and are happy to execute on those plans if need be.

However, we will not put any asset in our SHO portfolio unless we believe they will have superior long-term growth prospect.

There are definitely other tools of alignment as we have demonstrated from the SALI example.

We can also leverage structuring rights such as rent reset, which drove the senior housing triple net growth this quarter, subordination of PropCo interest or other tools that are available to us.

To the next topic, we are excited about the closing of the HCR ManorCare transaction in Q3.

The integration process has started with a great plan and is on target.

The only financial update we want to provide you is that ProMedica and HCR leadership now expects higher synergies than we've expected previously.

You will hear more about this topic directly from Randy Oostra and Steve Cavanaugh at our Investor Day on December 4. We're encouraged by the green shoots in the skilled nursing industry and already improving occupancy picture throughout the Arden Courts portfolio even before our CapEx program is executed.

We continue to believe will create extraordinary value for our shareholders in the long-term from this transaction, perhaps even more than what we anticipated.

And lastly, we're really pleased to highlight that after a long hiatus, we are in agreement to deploy about $0.5 billion of capital into very accretive medical office transaction and we are confident in some additional off-market transaction in Q4 and Q1.

We mentioned to you before that we like medical office business very much, but the pricing of recent trades has not made any economic sense to us, especially given many of these portfolios include as much as 20% to 25% of hospitals, IRFs and other assets that command significantly higher cap rates.

We have been disciplined and invested all our efforts to build new relationships and expand existing ones, which we believe will bring additional opportunities to deploy capital in the near future.

We're extremely happy to have under contract for approximately $400 million on a very high-quality portfolio of 23-plus in medical office properties affiliated with major high-quality health care system, with an average age of 10 years.

Keith, who has a long-standing relationship with the principals, will provide you more details on the portfolio.

While we're very encouraged by the going-in cap rate and total return of this transaction, we think the IRR will be significantly enhanced by the already identified development opportunities.

In addition to the announced acquisition of high-quality medical office building on the campus of Johns Hopkins Howard County hospital, we're also delighted to inform you that we have signed a development agreement with Johns Hopkins to develop new complementary sites of care on the land under this transaction and 3 other we have currently have with the health system.

Over last 2 years, you have heard from us how we are positioned for cash flow and NAV growth.

We trust all our actions this quarter demonstrated to you that we're squarely on the path to capture the next level of value.

While we cannot sound the all-clear on fundamentals, we're encouraged that the outlook for value creation is getting better.

With that, I'll pass it over to Keith Konkoli, Head of our Outpatient Medical Business.

Keith?

Thank you very much, Shankh, and good morning, everyone.

I appreciate the opportunity to be able to spend a few minutes on our outpatient medical business.

I recently joined Welltower after spending nearly 20 years with Duke Realty.

At Duke, I oversaw all facets of the medical office business including development, leasing, asset and property management until the sale in June of 2017.

Having led a very successful exit at Duke, I took the time to evaluate the right next opportunity.

It was important to me to join a forward-thinking company and was very intrigued by Welltower's mission to partner with health systems to reduce costs and improve delivery of care across the continuum, using creative real estate solutions.

I feel fortunate to have the opportunity to be part of this team.

I spent my first 180 days getting to know the portfolio, the team and the systems that Welltower built over the last 17 years.

I'm happy to report that we have a fantastic, high-quality portfolio that is affiliated with some of the best health care providers in the country.

Naturally, as with any large portfolio, we have work to do.

But we have a best-in-class team that can tackle any challenge and have built systems to provide best-in-class service to our tenants and health system providers as we drive growth in our future.

Our team truly understands how to operate a real estate portfolio in a way that balances client satisfaction and value creation.

We build our portfolio by taking a very disciplined approach, sitting on the sidelines when pricing expectations became realistic and stepping up our activity as we find the right high-quality accretive opportunities.

I believe one of the most exciting things about our portfolio is the embedded opportunity.

We have been very purposeful in partnering with financially-strong, leading health systems that will be the drivers of change in the evolving health care environment.

Shankh highlighted some of our recent activity in the outpatient medical space.

Specifically, he mentioned the 23-property portfolio that we'll be closing shortly.

I'm particularly excited about this acquisition as it strengthens our relationship with several of Welltower's existing partners and introduces new partners into our fold.

These represent some of the most financially-strong, successful and forward-thinking health systems in the nation, all of whom have a history of partnering with third-party capital.

I've had the pleasure of working with all of these systems in my time at Duke Realty and look forward to making the full power of the Welltower platform available to them.

Shankh also mentioned our impending acquisition, adding a fourth building and over 160,000 square feet to our Johns Hopkins-affiliated portfolio.

This classic building is in partnership with one of the nation's leading institutions and an outstanding network of distinguished physicians.

In parallel, and Shankh also mentioned this, we recently signed a development agreement with Johns Hopkins Howard County General Hospital called for the exploration and development of alternative sites of care, focused on meeting the hospital's growing need to care for the aging population.

This builds on our existing Johns Hopkins relationship and demonstrates how we are using our platform to help health systems implement their real estate strategy to meet the health and -- the public health and clinical needs of their patient population.

I look forward to talking to you more about these transactions at our Investor Day.

And lastly, I would note that we believe the multiple recent partnerships that we've announced are the precursor to future growth in the segment.

Our discussions with the best U.S. health systems continue to advance and the pace of the dialogue is increasing.

Our partners look to us to help facilitate their broader real estate strategy and make connections with the best-in-class operators in adjacent sectors such as seniors housing and post-acute.

With that, I'd like to turn it over to John Goodey, who will take us through the financial highlights of the third quarter.

Thank you, Keith and good morning, everyone.

It's my pleasure to provide you with the financial highlights of our third quarter 2018.

As you have just heard from my colleagues, Q3 has been a successful and very active quarter for Welltower whether it be in investing, portfolio management or improving our income quality and balance sheet.

This quarter was particularly active in investments completed.

In aggregate, we invested $2.2 billion in acquisitions and joint ventures in Q3 at a blended rate of 7.9%.

We also placed 3 development projects into service, totaling $96 million at the blended, stabilized yield of 8.5%.

Alongside these, we completed $256 million of dispositions and received $60 million in loan payoffs.

I'd like to expand on Tom's comments as to the continued increase in the quality of our income line.

Over the last 5 years, we have divested $8 million of assets as we refined our portfolio towards future earning stability and growth.

In that same time period, we have recycled this capital and invested in and developed over $16 million of high-quality assets, with financially strong best-in-class partners, often in premium locations such as New York, LA, London and Toronto.

In addition, we have also significantly reduced our earnings from our loan portfolio.

Welltower as an organization continues to improve our operational excellence and I would like to thank our colleagues that worked judiciously on this every day.

These efforts enabled us to report G&A cost for the quarter of $28.8 million, a continued reduction over prior year levels.

Our overall Q3 same-store NOI growth was 1.6% for the quarter, slightly above the midpoint of our full year guidance.

All our business segments grew in Q3.

Senior housing operations, same-store NOI grew by 0.3%.

And as you heard from Shankh, we are encouraged by the recent occupancy improvements.

Seniors housing triple net growth was strong at 4.2%, with both outpatient medical and long-term post-acute growth at 2.1%.

Today, we're able to report a normalized third quarter 2018 FFO result of $1.04 per share.

As in the past, we do not include one-off items such as lease modification or loan repayment fees in our normalized numbers.

Last quarter was also very active for Welltower on the balance sheet and capital front.

Our Q3 2018 closing balance sheet position was strong, with $191 million of cash and equivalents and $1.7 billion of capacity available under our primary unsecured credit facility.

Our leverage metrics were slightly above trend.

However, expected dispositions will reduce this number significantly in the coming quarter or 2, and I would reiterate that over time, our plan seasonal leverage returning to levels generally seen prior to the acquisition of QCP.

In July, we closed on a new $3.7 billion unsecured credit facility and improved pricing across both our line, credit and our term loan facility.

In August 2018, Welltower successfully placed in aggregate $1.3 billion of senior unsecured notes across 5, 10 and 30-year tenants, with an average maturity of 15.4 years and a blended yield of 4.4%, again, demonstrating our strategy of managing our balance sheet in a long-term durable way.

In addition, during Q3, we raised $232 million through our ATM and DRIP programs at an average price of $66.07 per share.

I would now like to turn to our guidance increase for the full year 2018.

We are increasing our normalized FFO range to $4.02 to $4.07 per share from $3.99 to $4.06 per share prior.

This is based upon updated, current operational performance expectations, with the full year of 2018 overall expected, adjusted same-store NOI guidance range remaining at approximately 1% to 2% and the reduction in anticipate disposition proceeds from $2.4 billion to $2.2 billion at a blended yield of 6.0% overall in 2018.

As usual, our guidance includes only announced acquisitions and includes all dispositions anticipated in 2018.

On November 21, 2018, Welltower will pay its 190th consecutive cash dividend of $0.87.

This represents the current yield of approximately 5.3%.

With that, I will hand back to Tom for final comments.

Tom?

Thanks, John.

So as you've heard from Shankh, Keith and John, broad strategic overhaul that we initiated at the start of 2017 prepared us well to manage the current operating dynamics of the senior housing business.

So we are bumping along the bottom of a cycle now, our positive Q3 financial results and improvement in operating metrics should give you some level of comfort.

The fact that we've been able to identify approximately $3 billion in new strategic and accretive investments year-to-date demonstrates that we are further well-positioned for earnings growth as the cycle turns.

Now Regina, please open up the line for questions.

(Operator Instructions) Our first question will come from the line of Steve Sakwa with Evercore ISI.

I guess, I wanted to maybe just touch on the senior housing operating platform and kind of A, your expectations on sort of when that business turns?

It sounds like it's picking up, but as you sort of look out, how do you sort of look at the supply picture?

And then, I don't know if Shankh or Tim, I know the pool changed a little bit this quarter from last quarter.

And I'm just trying to see if you could give us a little bit more detail on how some of the maybe changing pool dynamics impacted same-store growth this quarter?

Sure.

So Steve, obviously, let's talk about how -- you have 3 questions there, so we'll talk one at a time.

First the pool change.

If you look at -- we don't talk about specific operators.

We have a very strong same-store policy that you have to wait.

If there's an operator change, you have to wait for 5 quarters for assets to come in.

Without getting into the specific details, I think there's some implication you guys think that we have restructured our other relationship and that's driving same-store.

I would point out that if you go to the last quarter's call, Tim walked you through how the decline on those pools that we have changed actually hurt our earnings.

The second point I would point out that if you look at Page 3 of the supplemental and look at the total occupancy growth of the entire SHO business, you will see that there was a 100 basis points of occupancy increase, while Same-store is only 80.

So that tells you it's a broad-based trend we have seen.

And obviously, it's a $1 billion business for us.

So 5 assets going in and out really doesn't change the fact but I'm trying to look -- point you to the Page 3 of the supplemental where you see.

But overall, our SHO business and you will see there has been more increase relative to the same-store.

And going back to 2019 supply question, this is a very broad topic and probably not suited for this call.

We have a Investor Day coming up.

We can tell you -- we will have a very detailed discussion about this particular topic.

I want to tell you how we see supply.

It is just not market-level supply, we have a data science team that is very, very granular.

We have built a metric called ACU, which is adjusted composition unit, which is based on not only the number of supply but also the co-variance of different products, drive time, exponential decay of drive time and other mission learning algorithms into it.

We have very specific view of how many of the new supply impact.

The property or the shock factor we'll walk you through at the same-store, all those details at our Investor Day.

Needless to say, that you're hearing that we're encouraged about the outlook.

We're not necessarily saying that we're calling for a bottom in any industry but we're definitely encouraged by the outlook and we'll have a more broader discussion about this topic on our Investor Day.

Our next question will come from the line of Juan Sanabria with Bank of America.

Just maybe a broader question for Tom, you kind of highlighted that you see yourself different as versus altogether REITs out there.

Do you consider yourself a REIT?

And if not, what's the key difference?

I consider the company a health care delivery platform that's very real estate heavy.

REIT is not an industry, it's a tax election.

And because we are a very property-heavy company, it makes sense for us to elect REIT tax status.

So I don't think I have that much in common with other REITs in other sectors because they invest in different property types.

We invest in health care assets.

But our business model is much more than buying and managing real estate assets in a fund-like operating structure.

We are intimately involved in the operations of this business, whether it'd be our senior housing business, whether it'd be our medical office business.

But I would remind you that REIT is not an industry, it's a tax election.

Got it.

Thank you for that clarification.

And just on the FFO guidance, are you including the MOB acquisitions that are scheduled to close in the fourth quarter?

And what was the cap rate on those acquisitions, that $400 million portfolio?

I'll touch on the FFO aspect of it and Shankh can comment or Keith on the actual transaction.

There's no impact from the acquisitions there.

From a modeling standpoint, we should consider them occurring at the end of the year having no material impact on '18 numbers.

On the cap rate, we have told you several times that we're not a cap rate buyer or a cap rate seller.

We're a total return buyer and total return seller.

I'm not going to talk about the cap rate because the deal hasn't closed.

And we have a confidentiality agreement with the seller.

But we will tell you that we said that we do not believe that it makes any sense to buy real estate that's less than 7% unlevered IRR and we believe that we'll hit 7% unlevered IRR in this particular portfolio.

Your next question will come from the line of Vikram Malhotra with Morgan Stanley.

Shankh, just to clarify on the SALI lease, can you just clarify, was there any cut to rent -- any restructuring to the bump?

And when you said the CapEx investment, is that sort of a -- is that sort of like a 7% market return?

So Brookdale is right now in a quiet period, so it's very hard for us to just talk about specifics.

And they're a very -- we don't want to -- the operating partner wouldn't want to get into that, I mentioned on the call.

And once Brookdale is through their quiet period, I'm happy to walk you through all those.

I think your market return comments that you've seen in other restructuring with Brookdale is pretty much spot on.

You might be -- you are in the ZIP Code but you might be too low.

The second question is, I already mentioned, the rent is the same as it is.

The escalator has changed and is slightly higher, but I just don't want to talk about that on the call.

Once Brookdale goes through its quiet period, we're happy to answer any question.

The whole discussion is what I want you to focus on is even at that level, we mentioned that Brookdale actually makes money.

In any triple net relationship, or even in a RIDEA, the focus of Welltower is not to grab all the economics we can but have a healthy thriving operator, where they can make money and we can make money.

Here, Brookdale makes money as we are sitting at a cyclically low occupancy.

And as they lease-off these buildings, we think they will make significantly more money, which is always good for us.

Okay, great.

And then just to clarify on the senior housing side.

I know it's tough to call '19 if it's a turn or not, certainly the results are encouraging but I want to maybe focus on the expense side.

The comps were very hard.

I think, last year, you had a 0.8% increase year-over-year in expenses and that the expenses sort of get easier.

But can you just walk us through how you think about the structure today going into '19, like are there other levers you can pull to control like other parts of the expenses assuming labor continues to be a headwind?

Labor continues to be a headwind.

I am glad that you actually noticed that we had a very, very tough comp.

Q3 of 2017, we had a 4.1% NOI increase on back of a very low expense comp.

Obviously, the expense growth this year not just to factor our expense this year but also factor of what happened Q3 of last year.

And so that is absolutely the right observation.

With that, Mercedes will add some comments on how we think about expenses but we think that headwind continues.

We've often talked about the initiatives that we have undertaken at Welltower to try to bring expense savings to our operators and we're doubling down on some of those efforts.

I think top of our mind right now is labor.

It's something that is impacting a lot of industries naturally, and certainly in seniors housing, which is such a labor-intensive business.

So we're very focused on trying to bring efficiencies to our operators and trying to help them with our scale.

Just to add to one point, I just want you to understand a big part of the minimum wage increases have been flowing through our numbers.

San Francisco went to $15 this year, just going through the numbers.

And so from here on, you will see more of the inflation increase.

LA will hit $15 next summer.

So you do have this but I will say, looking at a more medium- to- long-term, a lot of the minimum wage $15-driven growth have been flowing through our numbers for next 4 or 5 years.

We feel encouraged about the long-term, but we're, obviously, as Mercedes said, we're managing in the near term.

Our next question comes from the line of Steven Valiquette with Barclays.

Congrats on the results.

There was an announcement in the industry during the quarter about this additional $3 billion of senior housing development in various urban centers in the U.S. It wasn't a huge number in the grand scheme of things, but the headline just seemed to draw some attention.

And I guess, from your perspective, I'm just curious if that sort of activity was already contemplated in your development plans, when thinking about the -- your focus on urban markets in particular over the next several years?

Just wanted to get your thoughts around the kind of the competitor development and how that's sort of being made?

Steve, I think that announcement was related clearly validates a thesis that we've been articulating for a few years, and have been at for a few years.

I think there is demand for a next-generation of senior living product in major Metro areas.

You take a city like New York, which is made up of many villages that are densely populated, that have an aging population.

There's room for lots of senior housing property to be brought to this market.

But I would say, it's a next-gen product.

I don't see any of the products in a market like New York today being sufficient to meet the needs of the upper end of this population.

I'm going to tell you, I've dealt with it myself personally and there really are no options on the island of Manhattan today.

The first viable option will be what we will open in the end of 2019, early '20.

And on our Investor Day, you're actually going to have a chance to go into that building.

It's coming out of the ground.

So in summary, Steve, I'd say that, we have a number of plans to bring that type of asset into the major Metro centers.

So stay tuned.

Your next question comes from the line of Jonathan Hughes with Raymond James.

I'll skip the SHOP question, it sounds like you'll address those in December.

But this past summer, I recall you saying getting excited about maybe buying more senior housing assets.

Shankh, I know you don't focus on cap rates but could you maybe talk about where potential deals or marketed deals, senior housing deals out there are being priced?

What sellers are asking as compared to your replacement cost analysis or your 7% required IRR threshold?

So from our perspective, look, we're now -- we're product agnostic, as I mentioned.

Obviously, with different product requires different level of risk-adjusted return.

So I don't want you to think that the 7% is a hard and fast number.

We talked about 7% in terms of the minimum return required for investing capital.

Having said that, the senior housing market is a very, very robust market.

We're seeing a lot of participants are coming in.

A lot of core capital are being priced.

So obviously -- if you think about the auction tents, they are very densely populated and the risk of the prices are very high.

If you look at our investment close at the end, we give you these numbers on our supplemental quarter after quarter after quarter.

We are not in those auction tents.

We have a relationship-based investment strategy.

We almost pretty much 80% to 100% of our acquisitions come from our existing relationships.

We're not in those auction tents, but they are very densely populated and we see cap rates in the levels that we can make sense.

But we're very disciplined and capital allocator.

So when it will make sense, we will be there.

Yes, if I could add to that.

This is Mercedes Kerr, I would add one more comment and that is I think for the first time, really, we're starting to see a real distinction between Class A and Class B assets in seniors housing, in terms of cap rates.

And that capital that Shankh talked about really very interested in that Class A quality, which is I think generally what makes us the Welltower portfolio.

But so we're happy to be sitting on the assets that we have and that we bought them perhaps when that distinction in cap rates wasn't as pronounced as it is today.

Got it.

And then just one more for me and I know I asked this last quarter, but what's the trend on new renewal leasing spreads within SHOP?

I know it's stable and low single-digit range on an overall, basis, but maybe what are you seeing on new versus expiring and adjusting for acuity if that's at all possible?

Well, that is such a broad swath of numbers across so many operators.

It's very hard to predict.

It's dependent on as you said operators' acuity as well as locations.

We're seeing significant positive spreads and negative spreads, right?

So it's just -- it's very hard to generalize that comment.

It is sort of a distribution that has no midpoint that I can talk about.

So I'll just stay away from it.

I just want you to look at the revenue growth and if you're looking for a more of a median outcome, that revenue growth picture that we give to you should tell you what it's going to play out.

Our next question comes from the line of Rich Anderson with Mizuho Securities.

I'm aware there are certain things you want us to focus on, but if you'll forgive me, I'd like to ask a couple of questions that I'm focused on.

On the cap rate question on medical office, you give a cap rate for the John Hopkins one, not a cap rate for the larger $400 million transaction.

Is that something that the seller is requesting?

Is the actual number below or above the 4.9% that you're willing to provide on the Johns Hopkins?

Can you just sort of frame it a little bit for us?

So we have a confi with the seller that we can't disclose it before the deal closes, but it's above, to answer your question specifically, it is not that hard to think about what drives an IRR and we're already telling you that the very well (inaudible) Obviously portfolio, you know what the bond generally looks like.

So if I'm telling you that we can solve for an unlevered 7% that gives you a general number.

We'll give you the number next quarter when the deal is closed.

On the Brookdale assets pulled out of the same-store pool, I know you're not -- you have your reasons for taking them out.

HCP discloses how those transitioned assets have performed, including into their same-store, could you say if those transaction assets, without putting numbers around them, are sort of dialing down performance as the transitions are underway?

Or are they held up relatively well over the transition process?

Yes.

So we talked about, obviously, we have a same-store policy that an asset that obviously needs to wait for 5 quarters when this kind of transition happens et cetera.

However, Tim walked you through last quarter what is the implication of that decline in cash flow in those assets.

Which I was trying to allude it to you.

So you have those numbers.

They are just in the last transcript.

All right.

I'll take a look.

Tom, question for you.

You have your team placed now for your processor, so since you took over as CEO, I'm wondering if you can comment at all on succession?

Is that sort of -- I assume a process that's very much structured within the four walls of Welltower, any comment you can give on that would be great.

Well, we don't comment on succession, are you suggesting that it's time for me to go?

Not, not, not -- that was such a great response, but I'll let you talk it.

Okay great I love to hear you talk Rich, but we have a deep, young, diverse, energized bunch of people here that I would stack up against any company that is structured like ours.

The last thing I would tell you, hand over my heart, that you should be worried about is the depth of management at Welltower.

This is a tremendous team, and I invite you to spend some time with us, whether it's in our offices in Toledo or whether it's our offices here in New York or in LA or in London, and I think you'll be very pleasantly surprised.

Okay, I'm sure I would.

And then last question, you adjust your FFO range, but you don't adjust your sort of individual same-store range, as obviously you're not going to get to 1.5% on the SHOP original guidance at the top end.

Any reason for that?

You're in the range and so you just leave those ranges alone?

Or is there some sort of some possibility you can produce some massive number in the fourth quarter to make the top end of the SHOP range reasonable to still be out there?

So we talked about -- this is probably the fourth year we're talking about this that we do not change individual ranges through the year.

And so we're not going to make -- you know the problem of doing that, once you create the precedence and people keep doing, asking the question, we think about our portfolio as overall portfolio that -- so overall cash flow that's what you think about, and what you're hearing from us that we're excited about our cash flow growth.

We don't predict quarter-to-quarter numbers, but we expect fourth quarter will be better than the 3 quarters you have seen in the SHOP business.

Your next question comes from the line of Karin Ford with MUFG Securities.

Tom, just wanted to ask you if you see any potential implications of the midterm elections on your business?

Where there's word out there that Congress may try to take another crack at ObamaCare, how are you feeling about the political environment today?

Gosh, really that's some question, Karin.

I really don't want to get into politics, I do think though this -- the questions about the midterm elections are clouding so many things across our business and every business right now , Karin.

I mean, I can't predict what's going to happen, but what I do believe is that we will continue to see Washington try to reduce the cost of healthcare and that is by moving health care to lower-cost settings and doing -- and really making it a mandate to drive better outcomes.

It's not just about cutting costs, but how do we improve the health and wellness.

And I underscore the word wellness because Washington is starting to wake up that our healthcare system shouldn't just wait for someone to be sick and show up in the emergency room.

We need to prevent people from actually ever coming to the emergency room.

So whether there -- the Democrats are in power or whether it's the Republicans, I'd like to think we still live in a world, and I question that every day, that sanity will prevail.

That's the best answer I can give you , Karin.

I'd like to talk about it after the elections.

Appreciate that very much.

My second question is just on the senior housing triple net portfolio.

It looked like EBITDAR coverage sequentially upticked 1 basis point.

Is that solely due to the Brandywine and the Brookdale restructuring?

Or do you think it could mark an inflection for future senior housing coverage trends?

So I think I went through a very long discussions of why, how you guys should think about at least consider that the EBITDARM coverage is as important if not the more important than EBITDAR coverage.

We do think the business in the (inaudible) SHOP business , the occupancy levels in the triple net business is very low relative to the long-term potential.

So obviously, as those occupancies go up, the coverage will improve.

And so -- that's only I can tell you, I'm not going to sit here and predict quarter-to-quarter coverage because it just depends on so many things that come in and out, and we're not focused on a number, we're focused on driving profitability for us as well as our operating partners.

Your next question comes from the line of Smedes Rose with Citi.

I wanted to ask a little bit more, and I'm sorry, I might have missed some of your comments, just on the Johns Hopkins relationship.

And is your agreement with them, I guess exclusive to build these alternate care sites?

And could you may be just talk a little bit about what that -- what those are exactly?

And what sort of returns or development yields you would be looking for those?

And how much capital you would be investing to develop those?

So alternative types of care, we mean all sorts of our business that you've seen, it could be a medical office, it could be a seniors housing, it could be a post-acute type.

How much capital, again, we don't sit here and predict how much capital at what rates.

We only deploy capital if we can make money and we can obviously, enhance the strategic merits of our partners as well as our goal to increase our NAV and our cash flow.

Mark you want to add something to this?

Smedes, thank you for the question, this is Mark Shaver.

The acquisition of the Medical Pavilion gives us 4 assets with Hopkins Howard County in that geographic market, including -- if you recall, we have a 30-acre campus that we acquired in 2015 that has 2 buildings.

And so as Hopkins, like many other leading systems are looking to move care out of the hospital into the community, there is specific incentives that Hopkins has to drive care and lower-cost settings.

As Shankh said, we're working early days in terms of identifying and developing which sites of care we can develop with them, either on their campus at Howard County General or our 30-acre North Campus.

So there's more to come with that, but it's all reflective of Tom's comments of health systems needing to continue to develop alternative sites of care at lower costs.

So I just -- I mean, I'd be interested in your comments around ProMedica with their ratings from the agencies being downgraded after you announced venture with them.

Because a big part of the second quarter call was talking about the A-rated credit.

And just how do you think about them now or just you feel like your rents are structured such that it's not a concern?

Or just sort of any thoughts around that?

So we talked about, if you go back and see that it is an -- we talked about investment grade credit and mostly, what we talked about is where that -- the claims , the rent claim sits in the capital structure, where they obviously a great system, and we have that corporate guarantee.

But we don't specifically talk about ProMedica's ratings, ProMedica's bonds publicly trade.

You can go and look at whether that had an impact or not on those bonds.

But the only thing I would tell you that eventually ratings will be driven by cash flow and if you listen to my comments, you will see that I mentioned we would expect higher than anticipated synergy, or discussed synergies.

So that would mean obviously, if you think through that, that would mean higher level of cash flow.

And as ratings follow cash flow, you can come to your own conclusion.

But because ProMedica's bonds trade in the public market, we're not going to sit here and talk about -- specifically about that.

Shankh, it's Michael Bilerman speaking.

Just if you think about the initial yields versus you talked about underwriting everything, you have the minimum of 7% IRR, how does like the John Hopkins Outpatient Medical Building where you go in at a 4.9% have -- what are the -- what's the underwriting to get to a 7% unleveraged IRR?

How should we be thinking about what you're putting in there for an asset of 100% leased, I assume under a long-term lease?

Yes, so you're correct about the lease.

We will not get to 7% unlevered IRR as you buy an asset at 4.93% cap rate, which is it is.

But this is why I said, you look at the development agreement we signed, this building sits right next to our charter building that has 5 acres of land.

This particular building has 10 acres of land, and we told you we just signed a development agreement with them.

So do we think we'll get to 7% or higher IRR from the whole relationship?

We do.

That's what we are focused on.

So it's not in each individual transaction, it's a holistic view about what benefits, making a strategic assessment at a low yield on one hand, what benefits you may get on the other?

I want you to think about this as a covered land play.

So we have -- if you bought just land, obviously that is a negative NOI because you have to pay taxes and utilities and all those things.

This is a covered land play, so we're obviously getting pretty decent income.

We've bought these assets, they're absolute Class A assets, well, we wanted the best system, at higher cap rate, in majority of the transactions you have seen, but we're still not satisfied with that.

And we're going to get through our required return using the development, and I sort of discussed the land aspect of the deal and the fact that it sits right next to our charter building.

And on HCR ManorCare, I'm pretty sure that when you have the deal on ProMedica, Tom you told us, we shouldn't look at this as a skilled nursing deal, we have to look at this as A-rated health system deal.

So while, I know you don't...

Investment grade, investment grade, yes, we said investment grade, and we told you, in fact when we had the group here in our offices, that we expected that they could be downgraded to BBB+.

And they were downgraded to BBB+ by Fitch and Moody's, S&P tipped them to BBB.

Our next question will come from the line of Todd Stender with Wells Fargo.

Just shifting to dispositions to guidance applies $800 million in Q4.

But the cap rate would be in the mid-4% range, unless that's being dragged down by some other non-yielding properties.

I wonder if you could just go through maybe the Q4 stuff.

Yes, Todd you're correct, so it's got of the, call it, $750 million in assets to be sold in the fourth quarter, about $225 million are non-yielding and the remaining have a 6.4% yield on them.

So it's about $520 million of normal course disposition at a 6.4% yield and then $225 million on a 0 yield.

Is it more QCP stuff?

Or what's in that stuff?

Are you saying the 0 yield?

Yes.

Yes, so this -- the original transaction when we closed on it, there was -- going back to when QCP was in its early restructuring with ManorCare, they designated about $500 million in assets as to be sold.

ManorCare stopped paying rent on those and all proceeds from sales will go to QCP.

So we essentially -- that agreement came to us when we bought the portfolio.

So at the time of the -- of closing, it was closed, we had a little less than $400 million of these remaining, and we sold about $170 million of them during the third quarter and we've got $220 million remaining.

Got it.

And then just shifting gears, the MOB portfolio deal you have under contract, is that something you've had under contract for a while?

You needed your cost of equity to improve?

Or did this come along recently?

We just haven't seen that many portfolio deals this calendar year, maybe you can just go through how long you've been eyeing that.

We obviously, we did not wait for our equity to come back.

That's not how a real transaction works.

When you think about -- we mentioned, that Keith has a long-standing relationship with obviously, and the principles of the funds which are on the portfolio, and I don't think at this point, I can say much more than that.

When the deal closes, we're happy to walk you through, but this is a normal deal going through a normal sort of channel.

When you first bid, then you go through due diligence, and it takes time for the documentation, and a PSA, we're in PSA and then it takes time to pass.

I mean that's just the way it is.

No different for this particular portfolio.

Your next question comes from the line of Lukas Hartwich with Green Street Advisors.

Post acute coverage is still at market, but it has come down a decent amount last couple of quarters, I was hoping you could provide some color around that?

Yes, Lukas as you know, we have handful of health-backed assets left and that obviously, there's a lot going on in that business so that drove significantly the coverage down.

The coverage for -- EBITDAR coverage for (inaudible) assets at still 1.7, 1.8 level.

So I'm not worried about that but the change is primarily driven by that.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

I just wanted to touch on balance sheet.

I think your leverage net debt to EBITDA ticked up to about 6x.

I'm curious, I imagine it's going to come down a little bit by year end as a result of the sales you have teed up.

But can you maybe just refresh us on sort of what leverage targets might look like through -- as we look forward?

And what you're thinking on leverage in balance sheet in the current environment?

Jordan, I'll start that and John can comment on the strategic side.

The 5.98x that we printed this quarter, that EBITDA can get a little skewed by timing of transactions, so I'm glad you asked that.

Because we, for 25 days of the quarter, we didn't have ProMedica as -- or the entire QCP transaction, or cash flow.

The way we present that to EBITDA is an annualization of the quarter since it's essentially a simple 4x.

The 25 days of additional income we'll get on the fourth quarter, brings down that leverage 0.17x, comes down to 5.81x and then the remaining $225 million of QCP nonyielding assets is essentially a liquidation, right, there's no EBITDA on them, so it's just going to be cash.

It's going to bring it down another 0.1 of a turn.

So our run rate leverage right now, it's reflected there in our 3Q earnings and then in fact, there's a little bit of drag from those nonyielding -- it's 5.71x.

So it's not as much of a gap when you think about -- when we talk about kind of mid 5x, 6x being the pro forma leverage.

We're almost there right now.

I was going to reinforce Jordan, that we're nearly or very close to where we said that pro forma would be when we announced the QCP acquisition.

You heard in my prepared remarks that overall, we see our trajectory over time going back to levels, generally in the order that we saw prior to the acquisition.

As you know, it's obviously last quarter we were at 5.4x leverage.

So that gives you some guidance to what we conceptualize as sort of normal course.

Okay, and then just a follow-up on QCP.

I noticed -- I'm just trying to piece the numbers together a little bit.

I think in the original presentation, you had 74 noncore assets to be sold prior to year end for $475 million.

I would imagine maybe a couple of those probably closed before you guys got the deal done.

But I'm just -- you guys sold 19 in the quarter, I think you have 40 teed up, that would be 59.

So there's -- that's a difference of about 15 assets, 16 assets.

And then, you guys sold some noncore QCP assets, I'm just curious will there be additional noncore sales from the QCP portfolio to come?

No Jordan , we don't expect that at this time.

We've sold -- in the quarter, we sold a post-acute portfolio, we will sell another building in fourth quarter that's in our guidance.

And between those 2 assets, of the $28 million of non-ProMedica NOI that came with the QCP portfolio, that's roughly half of it.

So there's very little left of non-ProMedica income from that transaction, and we expect to keep the rest of it for foreseeable future.

Your next question comes from the line of Chad Vanacore with Stifel.

So I was just wondering, why the reduced guidance expectations by $200 million?

Is that a change in what you consider noncore?

Is that merely timing and will we see dispositions pushed into 2019?

That's merely timing.

We just wanted to give what we want in our guidance, what we expect to close in the year end or early '19.

And from an earnings standpoint, I just want to make a point that we raised more than $225 million of equity in the quarter that wasn't in our initial guidance.

So from an accretion or dilution perspective of moving those off of our dispositions, we're still actually in a net dilution perspective from the equity raise versus the pushing out of dispositions.

So that was not, in short, that was not accretive to our guidance.

And then just thinking about guidance, you increased CapEx assumptions by about $6 million in FY '18.

How much of that is Brandywine conversion versus the MOB acquisitions that you made?

And what's a good run rate given the increase in operating assets that you have?

I think -- on the -- I'll just comment on your observation on the 2018.

We actually -- some of that is outpatient related, not tied to the properties we're talking about acquiring.

We moved forward some projects that were going to be -- occur in '19 into 2018 that made up, give or take around $3 million of that.

And then about $1 million of it was tied to RIDEA conversions and just some extra products that we bought in '18.

And I will answer the second part of your question, as you think about CapEx, just think through the two abnormal items in our CapEx.

One is the Vintage where the CapEx spend is call it about $55 million flowing through our numbers.

And that is the 4 Sunrise buildings we bought from SNH.

If you recall what we said, we bought those assets at and what SNH said, they sold the assets.

Those same assets add to the $25 million difference and that is the $25 million CapEx that we talked about.

These are the 2 abnormal numbers that are flowing through this year and sort of first half of next year so that will significantly negate CapEx required due to the increase of our SHO as a percent of our overall portfolio.

All right, well then Shankh, if we think about this quarter, is that a fairly good run rate for CapEx?

Or should we expect that to go up or down for the year?

No.

No, it's not.

Because of the -- the whole Vintage situation is still playing through, the Sunrise situation is starting to play through.

So you're going to get eventually, probably a 2020 will be a better sort of a teen run rate.

But I'm hopeful, maybe towards the end of 2019 it starts to happen.

So we have a little bit of CapEx because of those 2 transactions.

It's a very large number relative to our overall CapEx funding.

All right.

And just one quick update on the Brookdale repositioning, you had about 60 assets or so.

Have you transitioned any of those assets at this point?

Or is the whole portfolio left to be done?

No it's in the process as we talked about, like obviously license transfer takes time and particularly, in California and Washington, they're all in process, they're actually teed up to close in next -- some of them have closed and some of them are teed up to close in, call it, next 90 to 120 days.

They're exactly on plan and we're very encouraged that our future operators all of those assets are working very collaboratively with Brookdale and we have been able to retain a lot of the staff, so very encouraging.

Still early to comment, but we're very -- we're grateful for the support Brookdale has provided us.

We're also very encouraged by the new operators who are getting involved in the transaction and the process.

So is it fair to think that we won't see any impact in the fourth quarter, it's really a 2019 impact?

You are seeing the impact, it's flowing through earnings, right?

There's no impact from the same-store because those assets will not even be in the same-store.

I'm not talking about same-store, I'm talking about the whole portfolio.

If you're talking about earnings, then yes, you are seeing they're dragging down earnings.

And Tim walked you through the quantum of every one of them last quarter.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Shankh, I wanted to touch on your prepared remarks regarding QCP.

I believe you said that you saw occupancy picked up sooner than you expected without the CapEx being invested within that portfolio.

Can you kind of quantify the occupancy pick up and the reasons why you think that trended higher?

I specifically talked about Arden Courts which is the memory care business.

Remember that we bought 150 skilled nursing assets or post-acute assets and 55 Arden Courts assets.

My comment was very specific to Arden Courts which as you know, we talked about that will go through -- obviously, both sides of the business will get significant CapEx.

My comment specifically is we have seen occupancy increase in the Arden Courts business.

It's too early to comment how much, why that happened, but it is not very hard to imagine why that happened, right.

We are seeing across the board in the senior housing spectrum, if you look at our entire RIDEA portfolios, it's a billion plus business is almost 550, 600 assets.

That sort of gives you a sense of the industry.

Obviously, high-quality end of the industry, but there is occupancy growth.

So we have seen a lot of the seasonal patterns of the business has been really eaten up by new deliveries as deliveries are starting to come down, the impact, obviously, is getting on the margins better.

And then you also mentioned that you expect to see stronger synergies than you thought previously.

Can you highlight what those synergies are?

I walked you through all the different aspects of the synergy, when the -- 2 quarters ago and as I mentioned, that Randy and Steve will be on our Investor Day and they will talk about this particular topic.

I don't think it's appropriate for me to get through blow-by-blow the bonds or public funds.

I don't want to talk about it, but we expect better numbers across the board in all those synergies and perhaps one or two new categories of synergies.

Your next question comes from the line of Mike Mueller with JP Morgan.

This is Sarah from JP Morgan on the line for Mike.

A question, your development pipeline today is about 70% senior housing and 30% office.

Did you get changing materially over the next 2 to 5 years.

It's opportunity-driven, Sarah.

I mean, we are not trying to target a mix.

We're surely driven by opportunity.

So I would not look for any trends quarter-to-quarter.

It is purely deal-driven and opportunity-driven, so no.

We're very, very focused on developments on both sides of our business.

It just whatever comes into a quarter, how big the size of the buildings, that matters.

So I would not look for trends or think there any specific way or the number that we're trying to steer it.

Your next question comes from the line of Daniel Bernstein with Capital One.

I wanted to see if you could talk a little bit more about your earlier comment of the alignment of interest in a triple net lease and maybe going to that a little bit more.

And in the context of coming out of NIC, we didn't really hear too much in the way of enthusiasm from operators for triple net lease.

So maybe you can comment about what you're seeing out there in terms of inclination of operators who want a lease versus RIDEA?

Dan, you didn't attend my panel.

I talked about that for an hour.

I did miss your panel.

I heard about it, but I didn't...

Okay, so that now I really know.

I'm hurt.

So look, there is -- at the end of the day, I think there's too much focus on whether it's RIDEA, it's triple net and how different tools.

Idea is very simple.

We need our operators to be making money.

We want the thriving operators.

At the end of the day, I want you to understand this is people business, right?

We want our operators to invest in their people, in their system and that enhances the value of our real estate.

So whether we can do that in a well-covered lease, whether we can do that with other alignment features, I think I mentioned, additional 4 in the call already, so I'm not going to repeat myself or we do a pure equity transaction called RIDEA, that's a new point, right?

So we want at the end of the day, what we want you to know is that we are very, very focused.

We think it's an operating business in the senior housing -- obviously senior housing operating side.

And we want our operators to do very well.

And we think that enhances the value for real estate, and we think there are several ways to get there.

There's just not only one path.

I mean there is a difference in risk profile, I think investors perceive a difference in risk between the operating and the lease.

Maybe we can talk about it some more offline.

The other question I have was on the Columbia, Maryland property that you're buying, which is my backyard.

When you get to the kind of from the cap rate to the 7% IRR, you talked about it more of a land play.

What are you thinking in terms of the buildable square feet?

Or if you've gone that far at this point.

We're not going to make a comment on that.

I think I said that there is significant land right on our building right next door, there is land obviously, there, there is 30 acres of land in our NOL asset that Mark mentioned we bought.

There could be significant expansion of this relationship in those places as Hopkins figure out what their needs are.

This is not just we're going to build a building, right?

We're going to build a building with our partner to meet their need.

So -- but if you think about and I encourage you, it's in your backyard, go on and look at the land, you'll realize this is a covered land play.

Your next question comes from the line of Eric Fleming with SunTrust.

I had a question on managed care.

Assumedly you've Anthem out there talking about Medicare Advantage and some of the rules that are coming in 2019 and how they are increasing their interest in the senior housing.

Is that something you guys are looking to expand any payer relationships?

Is that something with the ProMedica relationship that could be an opportunity for you?

Yes.

This is Mark, Eric.

So yes, absolutely.

Nationally we see a rapid acceleration of Medicare Advantage.

Some of the payment methodology is being more value-based, in the post-acute it's PBPM, which we mentioned a fair amount when we did the ProMedica partnership that our partners both at ManorCare and ProMedica are pretty bullish that the new methodologies should lead to better enhanced care and from a reimbursement perspective, Shankh used the term green shoot, that there's increased reimbursement on that side.

I think you'll hear us in the future talk a bit more about opportunities with payers, our senior housing platform providing a great amount of care to the senior population, and increasingly they're becoming greater sites of care and greater linkage both for the delivery system partners but also to payers.

So there's more to come in that aspect, for sure.

Our final question will come from the line of Tayo Okusanya with Jefferies (Operator Instructions)

Hello?

We can hear you.

Hello?

Yes, we hear you.

Sorry, about that, I'm having some phone issues.

The MOB transactions that were done during the quarter, could you just talk a little bit about a bunch of the pure play MOB guys actually pulling back on acquisitions but you guys seem to be finding some really good opportunities.

Can you just talk about what may be different about what you're looking at versus what they may be looking at?

Yes, so this is Keith Konkoli speaking and I'll just, I guess, reiterate what I said earlier in my comments, we're really focused on looking for opportunities and to do more health system business.

So as we've looked around the market, and we've evaluated what's available, we look at the broader opportunity across all of the different spectrums of ways that we can help deliver care in a lower-cost setting.

We just -- we believe that we found some unique situations that we believe will be accretive as we are -- as we continue to look to grow our portfolio.

Tayo, that is not any different from what we've seen in senior housing business.

And if we go back, I'll not be surprised, you asked the same question on senior housing 3, 4 years ago, right?

We have a relationship-driven investment strategy and we'll execute -- obviously, we have -- very well known to have executed that on the senior housing side and we're executing that on the medical housing sector.

We spent a lot more time in the offices of the leadership of major health systems in the United States than we do trying to put ourselves in the way of properties that are being auctioned off by different brokers.

We are generating new business opportunities for our shareholders by knowing the needs of the health system and connecting the other assets that we are traditionally -- have the expertise in like seniors housing and post-acute to their broader health care delivery networks.

That is our unique investment thesis that this quarter, you should see some indication that, that investment thesis is working.

And then just a follow-up on that, when I was with Duke, we really -- we were a very singly-focused medical office, at least the division that I was responsible for, and we didn't have a lot of synergies across the business between the industrial space and the medical office space.

There is the real opportunity here and what really excites me about this business is we have those synergies that enable us to really be able to serve our clients in a very, very effective way.

So the accretion you just talked about a second ago, Keith, I shouldn't necessarily kind of think about that accretion-based on MOB asset.

It's accretion, that will accrue to the entire ecosystem you're building in one way or another?

Absolutely.

Yes, absolutely.

It is -- that's the thought.

These are relationships.

This is a relationship-investing model with the health system.

Thank you for dialing into the Welltower earnings conference call.

We appreciate your participation and ask that you please disconnect.