Good morning, ladies and gentlemen, and welcome to the Second Quarter 2018 Welltower Earnings Conference Call. My name is Lori, 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, Vice President, Finance and Investments. Please go ahead, sir.

Thank you, Lori. Good morning, everyone, and thank you for joining us today to discuss Welltower's second quarter 2018 results. On the Safe Harbor, we'll hear prepared remarks from Tom DeRosa, CEO; Mercedes Kerr, EBITDA Business & Relationship Management; Shankh Mitra, Chief Investment Officer; 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 this projected results will be attained. Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in this morning's press release and from time to time in the company's filings with the SEC. If you did not receive a copy of the press release, you may access it via the company's website at welltower.com. Before I hand the call over to Tom DeRosa, I want to highlight a few significant points regarding our second quarter results. First, as announced last night, Welltower and ProMedica Health System completed the acquisition of Quality Care Properties and HCR ManorCare of $4.4 billion. Second, we are increasing our normalized FFO guidance for the year to a range of $3.99 per share to $4.06 per share from our previous guidance range of $3.95 per share to $4.05 per share. Third, as previously announced, we entered into a value-enhancing restructuring our Brookdale relationship, which will provide improved triple net lease coverage and operator diversification. We also converted our existing 27-property triple net relationship with Brandywine Living to an operating lease structure, which we anticipate will drive both long-term growth and value creation. And lastly, we've closed on a new $3.7 billion unsecured credit facility, improving pricing across our line of credit and term loan facility, extending maturities out to 2022 and 2023, respectively. And with that, I will hand the call over to Tom for his remarks on the quarter.

Thanks, Tim. Good morning. Earlier this year, I told you that Welltower was back in business. I hope you agree that last evening's announcement of the closing of our innovative ProMedica joint venture, our solid Q2 results and the increase in 2018 FFO guidance all validate that statement. It's no secret that the operating environment for senior's housing remains challenging. Nevertheless, the benefit of owning a premier major urban market-focused portfolio is that we still managed to deliver some growth over last year. Mercedes will give you some perspective on the current state of the senior housing industry and some insights into why Welltower's operating platform continues to outperform. Welltower is well known for owning the best quality health care real estate in the REIT sector. Owning great real estate allowed us to announce a value-enhancing restructuring of our Brookdale relationships that helps put Brookdale on a more positive path going forward and brings down our exposure to Brookdale from 7.6% to 2.9%. As part of this restructuring, we will move 37 buildings to a new operator, Pegasus, which is owned and operated by our friends and highly regarded industry veterans, Steven Vick and Chris Hollister. We're also bringing the Cogir team, run by the very talented Matthieu Duguay, down from Quebec to run 12 independent living billings in the U.S. We have also restructured our relationship with one of our long-term triple net senior housing operators to a RIDEA structure that will better enable Welltower to capture the long-term value in this excellent real estate located in the super-ZIPs of the mid-Atlantic. Shankh will tell you more about both transactions, but these are examples of how Welltower continues to deliver creative solutions to challenges in the market, thereby creating opportunities to drive long-term shareholder value. In both cases, we…

Thank you, Tom. Seniors housing operating performance in the U.S. market has been under pressure due to new supply, a severe flu season and growing labor costs. According to NIC MAP's second quarter data, there was an 80 basis point year-over-year decline in occupancy as quarter-over-quarter net inventory growth of 3.3% outpaced an otherwise strong absorption rate of 2.4%. Construction starts over the last 12 months have been trading at or below the rate of projected deliveries. Furthermore, construction as a percentage of existing inventory in NIC's primary markets decreased from 6.9% to 6.3% sequentially. These data points are consistent with the slowing trend in new start. While the market settles into this new supply offering, overall rates have continued to gain, with NIC reporting 2.7% same-store asking rate growth. While not immune to these supply trends, Welltower's operating portfolio continues to show the resiliency we expect from our premier operators in top markets and submarkets. Welltower's REVPOR growth has been strong and consistent throughout this challenging period and we expect that to continue. Construction as a percentage of existing inventory in our top 10 markets was 4.7% in the second quarter of 2018. That's 160 basis points lower than NIC's primary market statistics. In addition, our operating portfolio experienced 3.5% year-over-year growth in the quarter or 80 basis points more than the market average. In addition to these reported statistics, our own real-time data indicates positive momentum in certain previously supply impacted cities, such as Boston. That's a good example of this. As new supply is absorbed, best-in-class locations and care continue to be the most important factors in resident decisions. This helps us to maintain and drive rate while recovering occupancy. Our portfolio's solid footing on rate helps us to manage rising expenses more adequately, and we continue to work closely with our operating partners to leverage Welltower's scale and manage costs. For years now, we have grown our operator advisory services platform, expanding the service office -- offering and driving greater partner participation. These programs target key operating expenses of labor, food, utilities and insurance and drive improvements in service and resident satisfaction. We continue to expand and build upon this platform, and the results are clear. Many operating expense categories were reported to be flat or lower this quarter compared to last. We are encouraged by the decelerating pace of construction and city deliveries reported by NIC. These trends, combined, should result in more balanced absorption. Our operating partners have a disciplined approach to managing the business, and equally as important, they continue to provide best-in-class care for the residents and families that we serve. I'll turn the call now over to Shankh.

Thank you, Mercedes, and good morning, everyone. I will now review our quarterly operating results across all of our business segments, providing details on our senior housing triple net business with additional background on Brookdale and Brandywine restructuring. As we have described to you, the peak impact of senior housing supply cycle is flowing through our numbers right now, given the starts and delivery details that Mercedes described. Though we're not happy with our senior housing operating results on an absolute basis, within the context of peak supply, we think 0.1% growth is respectable performance at the bottom of the performance cycle. It speaks to the high quality of our real estate we own and the quality of our operating partners. We will not venture to guess how 2019 might look like at this point in the year, but our sense is we're bouncing along the bottom right now. We're really excited about the growth trajectory of our cash flow when we come of this bottom as we are at 86% occupancy in our SHO portfolio. Our triple net portfolio growth has been consistent and predictable. I'll encourage you to look past the coverage change in the quarter as we have significant first quarter transaction that makes the number still, and we should see significant improvement next quarter. I also want to point out that we have significantly derisked that cash flow stream as we have only $28 million of triple net, senior housing and postacute combined, leases rolling before 2024. However, $22 million of that is a well-covered Brookdale Sally lease, and we have effectively taken care of that. Last quarter, when we discussed with you the QCP-ProMedica transaction, we encouraged you to think about the impact of the transaction beyond just a standalone deal. This transaction has been…

Thank you, Shankh, and good morning, everyone. It's my pleasure to provide you with the financial highlights of our second quarter 2018. As noted, we continue to see some challenges in our senior housing markets in Q2. However, as Q1's tough influenza season and winter conditions abated during the quarter, we have seen a relative stabilization in sequential occupancy. Despite the challenges, the quality of our chosen markets of operation, our superior portfolio and operating partnerships continue to deliver good REVPOR growth at 3.5% in Q2 year-over-year. Overall SSREVPOR growth remained elevated at 5%, driven by wage growth due to strength of labor markets in general and increased demand for senior care staff. Overall same-store NOI growth was 1.4% for the quarter, near the midpoint of our full year guidance. And SHO portfolio same-store growth grew by 0.1% in Q2, which as you would expect, we are not satisfied with. Although it is within our full year guidance range of 0% to 1.5%, it is behind our midpoint expectation for the year. Senior housing's triple net growth remained solid at 3.1%, with long-term postacute being 2.3% and outpatient medical growing by 2%. This quarter, same-store growth was augmented with in-quarter acquisitions and joint ventures of $172 million, $75 million in development funding and loan advances of $5 million. 100% of our gross investments were completed with existing partners. We also placed four development projects into service, totaling $89 million in value at a blended stabilized yield of 7.0%. In addition, we completed $67 million of divestments and loan payoffs. Within Welltower, we continue to enact efficiency and automation programs and look for opportunities to focus and improve our operational excellence. These progressive measures enabled us to report G&A cost for the quarter of $32.8 million, being essentially the same as…

Thanks, John. Why don't we go right to questions. So Lori, please open up the line. Thank you.

[Operator Instructions]. Your first question comes from the line of Jonathan Hughes of Raymond James.

Congrats on closing QCP and the other deals. I know that involves a lot of time and effort. So obviously...

Thanks, Jonathan.

Yes, sir. Obviously, QCP, and partnering with ProMedica was a pretty unique transaction. And you're very optimistic there, and I share your view. I noticed in the investor deck, and from this morning, this new slide about the increasing involvement of health care systems in postacute. I guess, my question is, have you had more systems call you looking to partner on postacute deals after seeing this one of ProMedica? And what would be your appetite or target exposure to health care systems within the postacute space?

Good question, Jonathan. Well, first of all, I mean, we are very much looking to increase our business with large regional health systems. There are a number of health systems that are currently engaged in the postacute space and find it a very effective way of managing the path of their patients. We had one of those health systems, one of the largest regional health systems in the Northeast was in our offices here in New York yesterday. This health system does have a postacute care division, which includes assisted living and independent living. They are able to direct patient flow between the hospital and these assets and actually share staffing. So it's a very efficient way of managing health care delivery. Your question, have we gotten a lot of inbounds? Yes, we have. Many health systems are now calling us because they've seen the ProMedica announcement. They understand the power that ProMedica we now have with HCR ManorCare, having both a postacute care as well as an assisted living focused on memory care business. These are challenges for health systems. They also noticed -- have noted that ProMedica has a very successful insurance business, which also is something many health systems, if they're not already in that business, are looking to figure out how they have -- are able to offer Medicare Advantage and Managed Medicaid programs. Again, all with the idea of keeping the patient or consumer in a circle of wellness, to minimize risk in the future. So this is very topical. There are a number of large health systems that have -- are already doing this. You don't hear a lot about that, but there are a lot of health systems who are already in the postacute care, I think you're going to see many of them looking to partner with Welltower in assisted living. I think that's one of the big opportunities. It's all about health systems moving away from the idea that they treat disease solely, that they meet their customer in the emergency room. That strategy is fraught with risk for a health system, who have seen their margins increasingly compressed. You will start to see more cooperation, more collaboration, and Welltower is really the party that is convening these discussions as well as these opportunities.

Okay, that's great. I appreciate the color there, it sounds like a pretty interesting opportunity going forward. Just one more for me and I'll cede the floor. With SHO, the operating portfolio now almost half of the company after the Brandywine transition. I know I would find it helpful if we could maybe get additional disclosure on your new and renewal leasing spreads within that segment, something we get from the apartment REITs pretty commonly. I know it's pretty single in the low single-digit range on an overall basis. But is this something you would be willing to provide us, either right now or going forward?

Jonathan, we'll -- absolutely, we always have considered the best disclosure practices. We definitely will consider that. We're very excited about where the business is going, given where it is in the performance cycle. So we'll definitely consider that.

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

I wanted to talk about the EBITDAR coverage on the triple net senior housing portfolio. It was 1.07x with just over 6% below the 1.05 level. How much will these numbers improve post the Brandywine and Brookdale restructuring?

So Karin, it will -- as I mentioned in our -- my prepared remarks, it will significantly improve. Just remember that Brookdale was above our average coverage for the portfolio, Brandywine was lower, as I mentioned. But net-net, you will see significant improvement when we report next quarter.

Give an estimate as to where coverage will go?

I'm not going to venture a guess, but I think once we will get there, you will like it.

Okay, great. And then my second question is can you update us as to the sources and the refinancings that are planned for the funding on QCP deal?

Yes, certainly. So to close the transaction, we put in place the new, where we re-stacked our credit line and term loan package, but we also took on a new two-year-termed term loan B. So ultimately, that covers us for the transaction as it is today. You can imagine, we are not intend to sit upon a line drawn to that level and a two-year term loan B with, historically, been quite conservative of financing out acquisitions over time. We have great access to capital markets and we will look to access the markets as we see opportunity to get great pricing. But the good news is we're fully financed. We have no significant sort of financial issue with affording this and our go-forward business plan if there was not access to capital markets. But I think you can anticipate us during something in the future for obvious reasons.

And guidance assumes refinancing or no?

It does. It does. Yes, it does. So it assumes refinancing. The transaction, given where the spreads in bond markets versus the spreads on short-term financing structures is not massively accretive to sit on short-term financing like it may have been in the past. So we've built that into our reset of our guidance range today.

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

I wanted to see if I could spend a second on Brandywine or if you guys could help explain to me little bit. I guess, my perception was that Brandywine, and this may still be the case, was among the highest-quality operators/owners in the space and within your portfolio. And I guess I'm struck by the fact that there's, I guess, yet another -- I don't know if the scenario was a default or some event that caused the restructuring here. And I'm just curious, how do we, and how do you, get confidence that now is the right time to be taking incremental equity exposure at this point in the cycle, from a RIDEA perspective, in senior housing properties?

Yes. So if you think about it, we talked about Brandywine. You are correct that Brandywine is actually, that real estate is the highest-quality real estate in our portfolio. I talked about how the NOI per unit, if you look at it, is $29,000-plus with a REVPOR of $7,500-plus is literally the highest in our portfolio. So you're correct about, absolutely, the view of the real estate as well as operating metrics. But as I mentioned, that deal was struck from day one, it was over-leased and overleveraged. And we absolutely have been talking to Brandywine for a long time about conversion from debt to equity. This was the right time we found because we think about it, you can -- not just a Brandywine conversation, you can imagine that we absolutely are getting excited about where we are in the cycle. Business cycles are different from supply cycles and need-based product like assisted living. So while I'm not going to tell you that I believe that we're exactly at the bottom, we believe we're close to the bottom. We're bouncing along the bottom. So that's when you get equity exposure, not debt exposure, right? So we absolutely -- we think this is the right time. We're not trying to time it quarter-to-quarter.

Yes, well, this is a conversation, by the way, that we've been having with Brandywine for quite some time. This is a very precious business to them, and they were really considering all of the options. They recognize this was not a -- I think you asked if this was a default. This was not that kind of a conversation. It was a conversation about optimizing our relationship and the opportunity for growth together. It was about connecting the capital structure of that business in a way that really will drive growth. And so it's not a -- from that perspective, I think we see this as a great opportunity, and Brandywine is going to be a great partner.

This was not a default. Okay, so what was -- what were the terms under which Brandywine's prior ownership decided to sacrifice their equity stake to the shareholders at Welltower? So obviously wouldn't -- out of the goodness of their hearts. What's the driver there?

So if you think about it, 1x -- effectively, a 1x covered lease, is you're at 100% LTV, right? So from an equityholder, Brandywine equityholders' perspective, that equity obviously is not worth a lot if you are in that scenario forever, right? You also think about the growth opportunities in front of us, just I wouldn't want you to think that this is just Brandywine giving up. We have entered into a next-generation management contract so that if Brandywine performed, Brandywine's equityholders are going to make significant windfall. And as I mentioned in our -- my prepared remarks, now it's aligned, we'll rise and fall together, which was not the structure before. So I don't think they have given up the upside. They will have significant upside, more upside than they had before if they perform very well.

And Jordan, there was an exchange. We have the loans in the Brandywine's management company, and we've converted equity as part of our stake, that 35% interest. So it's not -- there was a change of economics for the management company's estate that we've come on of this with.

Is there a senior housing triple net lease within your portfolio that will survive this cycle without a RIDEA conversion or a recapitalization?

I think a lot of our triple net leases will survive this cycle.

Should we expect more conversions?

Not in any material amount. We are always looking to see what assets we own in what structures. Where it should be a leased or a debt structure versus an equity structure. You can feel from our conversation with us in last 3 to 6 months, that we are getting excited about how the next cycle looks like, so we definitely think that there will be leases that, where our interests are aligned, will survive the interest.

Let me just add to that. When we talk about the future of this business. You hear us repeatedly talk about how assisted living will become much more consequential in the overall health care delivery perspective. And we are very much driving that for our senior housing operators. So in a RIDEA structure, we can, and even our shareholders, can capture the value that Welltower is driving to that senior housing operator. In a triple net lease, we don't capture the value, and a lot of this is about our optimism about where this industry is going. If you look in the rearview mirror of the senior housing industry, an industry that was built by real estate developers who believed their wealth would be based on flipping real estate at low cap rates to REITs, that is not the future of this industry. So we are restructuring RIDEA relationships with the operating platforms that we believe have the best opportunity to increase in value because of the role this real estate will play in the overall health care delivery spectrum.

That's helpful. I mean, I think we all look to your guys' leadership and your voices and guidance on this topic because I think it is important and it is a little bit uncharted territory. But we are seeing, and as Shankh talked about, peak levels of supply at this point. And while we all want to have that optimism and we all know the fundamental framework and the demographics, I think at the same time, we're seeing a lot of these leases being restructured and we're seeing -- and who knows what happens in a downturn? This is a prolonged economic expansion. And so I think we're trying to understand the risk and gain comfort.

Yes, Jordan, I appreciate that, and that's very valid. The issue here is that the population is shifting. This 85-plus demographic starts to increase at a rapid pace starting in about 18 months, is when you'll see the beginning of that. So I appreciate the view, and we're concerned about the overall economy like everyone else is, but if we don't have solution to manage the health and wellness of an increasingly aging population, we have a lot of problems as a society. And we believe that we are structuring Welltower to really capitalize on that threat and that -- and create opportunities around that. This is something that you'll be hearing more from us about. When you hear us say that we are talking to health systems, the major health systems in this country, about the assisted living business, that is a leading indicator that this business is changing. And it's changing, at least, with respect to Welltower.

Your next question comes from Smedes Rose of Citi.

You talked about this a little bit, but I just want to understand a little bit better the change the guidance. Because your initial guidance was for $0.20 accretion from QCP, and it just seemed like it would be a little bit higher, given the timing of the closing. So is that accretion just being offset by some of the changes you just talked about with Brandywine? Or is it more to do with timing of asset sales? Or if you could just speak to that a little bit.

Yes. Smedes, it's John. I can give you some guidance on that. So yes, basically, the answer is yes. So the long-term accretion we said would be in the range of $0.20 per share. The only slight change we have on that is we have a couple of extra dispositions. So we've got the $400 million that we're essentially warehousing on their way through, so we have to finance those, so that drags a little bit on FFO because, you remember, these are not particularly cash flowing to us on the income side, but we are having to finance those on the balance sheet side. We also put in an extra just over $100 million of dispositions. That we're not underway by QCP in their sort of tail portfolio, so that will give us circa another $0.01 of sort of dilution for this year -- for the remainder of this year. You're right, the Brookdale and Brandywine restructurings, and obviously, the below-midpoint performance to date of the SHO portfolio are what basically make up the difference and why, if your math was, why we're not at $4.08, but we're at $4.025. Essentially, they're the building blocks that sort of get you to that number. And I think we're being a little bit conservative just for reasons of conservatism as well.

John, shouldn't you have a little bit more benefit, I think, in that $0.20? You had the 4.5% sort of long-term debt cost. And clearly, you're financing at least, additionally short-term, then you're going to go out. So that would have been a positive offset to warehousing some of these dilutive assets that you're bringing oat the balance sheet. It just seems like a pretty wide spread, that number should be closer to, call it, maybe $4.10 for the balance -- for the year versus the $4.025 midpoint. And maybe you can just be a little bit more specific in terms of the building blocks or each of the pieces of what's going on. And then wrapped around in that, I mean, as guys moved your earnings a week earlier, I don't know if that is indicative of being -- going out and being arguably in the market, either debt or equity -- and/or equity. So maybe just can you talk a little bit about bringing the earnings forward a week?

Yes, sure, certainly. So I mean, warehousing the $400 million doesn't unfortunately give us any upside from an earnings point of view, only downside because these are not income-generating assets. We're just bridging the ownership of that. You're right, that if we were to hold on that line and the TLB, we would have a small pickup. And genuinely, it's quite small when your LIBOR's obviously expended quite a bit. And we're sitting at 82.5 on the line and 90 on the TLB. So there is a spread that's not as much as you'd think. So we've built into the $4.025 midpoint a refinancing of those through the various actions that we believe we need to take. Moving the earnings up was because, a, we have the announcement of closing and we were ready -- essentially ready to announce our earnings for the quarter, it seemed a bit discoordinated to have a closure of the QCP and ProMedica joint venture, update our guidance, because remember, we promised you once we closed and we knew the impact on 2018 full year, we'd give you guidance. So we'd end up giving you guidance a week before giving you our financials, and that's always fraught with danger. So we thought the best thing was accelerate it, were QCP to close before earnings, would have otherwise been released. So it gives us the opportunity to access the markets as we see fit. Again, I come back to my statement. We are expected to be judicious when we raise capital, and we've given ourselves a long window, technically, to be able to refinance the short-term borrowings. So as we see attractiveness in the various markets we can access, then we will do so. But the moving earnings up wasn't that we were anticipating doing something tomorrow, as an example. It was just to do that.

And Michael, I will just add that as we have told you, the equity portion of the ProMedica-QCP deal will come from disposition, and our assumption continued to be -- continued to remain so. So that's how we'll be thinking about it and will continue to think about it. We're not anticipating common equity to fund that deal.

All right. The building blocks on the same-store [indiscernible] other transitions, that is like a $0.08 annual hit that we should think about for next year? I'm just trying to understand the accretion from the QCP transaction. I'm trying to understand the dilution this year, more importantly, to '19 from the Brookdale and other movements you've made that will obviously annualize into next year.

Michael, from a building block perspective, I think maybe the easiest way to simplify it would be our original midpoint of guidance was $4. As John mentioned, year-to-date, we're the lower end of our initial SHO guidance range of 0% and 1.5% and that's kind of these variables if you think about our business lines and their impact on FFO. So that's kind of taking us from $4 down about $0.015. And we mentioned some Brookdale restructuring happening in July. We mentioned that was $5 million on a full year basis. That's a little front-end weighted, so about $3 million of that is impacting the second half of '18. And Brandywine, about $0.02 impact to the back half of '18. Importantly on that front, a little less than $0.01 of that is from the conversion of the loans I spoke to earlier, the Brandywine ManCo that we converted in equity in the management company. And a little over $0.01 is from essentially a roll down of rents to the actual cash flow level and a couple of very high quality developments that Brandywine has. So those will actually be accretive to where rent was by 2019. So if you take the fundamental performance of our SHO and the restructurings, you get kind of to the lower end of our initial guidance. And then to your point on this being a little more accretive than the original $0.20, given just the near-term financing, it probably does, where this would run on a $0.20 basis, this would run about $0.08 accretive to '18. You're right, it probably is closer to $0.10, just hasn't financed right now. But as John mentioned, warehousing $400 million in assets, that's about $0.01 drag. That goes away towards the end of the year even -- not even into '19 as we sell those assets. And then you mentioned, we sold $107 million former QCP assets that were part of the -- obviously, not part of the ProMedica side. It's about $0.01 dilutive to back end of the year and $0.02 dilutive to kind of that $0.20 original number, but obviously, also brings us to a lower pro forma leverage point than the 5.6 that we highlighted initially in the transaction.

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

So sticking with Brandywine for a second. Just -- I just want to get a few more details. You mentioned Brandywine covering about 1x. How has that coverage changed over the past 12 months?

So when I said Brandywine was covering at 1x, you think about that is the stabilized asset, not the development asset. New York, New Jersey, as we have just told you, has been under last six months or so, under pressure. So last six months, directions probably down. Or the one before that, if you go back and look at our calls, you will see those markets were doing very well. So it's up. So net-net, it's hard to pinpoint exactly in 12 months. But as you think about it, it's probably six months doing better and last six months doing worse. So net-net, we probably land in a slightly worse position, just I'm talking about the stabilized asset.

All right. And Tim pointed out that Brandywine, you expect a $0.02 impact with second half dilution, is that correct?

Yes. Something in that order of magnitude.

Got it. And then if that's covering, well, I guess, between stabilized -- it's hard to get between stabilized and development. But that dilution does imply you expect further deterioration this year before improvement on that portfolio? Is that correct?

No, if you think about that dilution, that Tim talked about, we have three very large development asset that is dragging down that number. But on a stabilized basis, we do think that portfolio will be fine this year and probably will add to the growth next year.

So Shankh, fair to say, do you think, the stable portfolio is going to get better, the developed portfolio is going to get better from here?

Yes.

Okay. Then why not transition these properties to a new operator? And what levers can that current Brandywine management pull to actually improve those operations?

So if you look at the operations, I want to make sure that you guys understand. We're talking about fixing a capital structure, not operations. Brandywine is a very good operator. If you look at the CAGR NOI growth of the Brandywine assets, it outpaced our portfolio by about 190 basis points. So this is not a question of operation, this is a question of an over-leased, over-levered structure, the one that we fixed. So there is a difference. I want you to really focus on that. This is the highest-quality portfolio we have.

Well, presumably, it's a high-quality real estate. But what's been the trend in occupancy and rate with them over the past 12 months?

So again, I want to make sure that you understand, we don't make decision based on the last 12 month. If you look at the history of this relationship, their CAGR growth, NOI growth, has been about 190 basis points better than our portfolio average. So it has been very good, operating trends have been very good. Last six months, nine months, New Jersey, New York region had a lot of supply, so that has not been good. But we don't make decision based on the last six months, nine months. We think that Brandywine is a good operator, it's a great real estate and they deliver exceptional care. So we're very confident that you will see significant improvement in these assets.

Chad, so Brandywine is just another example of fixing a broken capital structure that resulted from a period of time when health care REITs were valued based on how large they could grow their asset portfolios. And I think if you know look back over what we've been doing over the last two years, we have been fixing a lot of overlevered situations. This has been what has gotten many good operators in trouble. And what you have to do is figure out who are the good operators that overlevered and who the bed operators that overlevered? If you've seen us exit operators, it's been the ones that we did not believe will be able to participate in this next cycle in the senior housing industry. But when we see an operating platform that is over-levered, but that we believe can participate in this next operating cycle, we're going to restructure that so we and our shareholders can capture the upside. Shankh side, we're not making decisions based on the next 12 months. We don't run this company for the last 12 months, we run this company for the long term and for driving shareholder value. So I would ask you to look closely at what we're doing. We are being proactive. We're not acting out of desperation when we make these decisions and do these types of restructurings. It's all for how do we participate in the upside that we see coming just around the corner.

And Chad, if you go back and look at what we talked about when we did the Sagora restructuring, we mentioned that three of our best operators in our triple net business -- triple net bucket, Sagora, Brandywine and Legend. And we have told you, as our shareholders are well aware of, that we are always intended to have the equity upside in those assets, in those portfolios. And it always depends on the management team when -- where they are in their cycle of growth from an expansion perspective, from an operating perspective, it's relationship. We can't drive this decision just on our own. We have a great partnership with our operating platforms. And when the time is right, we do these transactions. But obviously, we're allocating capital, but the shareholder benefit to maximize shareholder value. And I want you guys to think about not just the business cycle, but the demand and supply cycle of a need-based product called senior housing.

All right. I've just got one more quick question. Tom, your desire to expand partnerships with health systems. Are these health systems calling you on postacute primarily? Or would these include hospitals and specialty hospitals as well?

They're calling us -- very rarely does anyone bring up the idea of owning a hospital. And again, we're talking about the major super-regional health systems in this country. They're not really looking for us to partner around their hospitals. It's really everything but the hospital, is what they're talking about with us and exploring. So I would stay tuned on that. There's a lot of discussions on going on. ProMedica is the first real good example of what I believe you're going to see more of in the future. And again, it's important that we're positioned to participate in this next growth opportunity.

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

So when I'm kind of listing to this call, it occurs to me, there's a lot of whack-the-mole type stuff going on here to kind of fix problems created by the REITs themselves. And I'm not just thinking about you, I think everybody is a little bit guilty of over-investing at the heyday of the expansion. But you have Genesis, wham! Brookdale, wham! Brandywine, wham! And I'm just wondering, are there any more large-scale sort of items like that, that have to be fixed? Or you think it's more smaller-scale stuff that has to get done to get through this cycle?

Rich, that's a great question. And as I mentioned in my prepared remarks, we believe that we're towards the very end of that restructuring phase. So we wanted to talk about -- Tom mentioned the last quarter's call, and the call before, that we see 2019 onwards and earnings growth, cash flow growth, NAV growth. So we wanted to obviously accelerate a lot of these things this year so that we're not looking back. So as I mentioned and alluded to in my prepared remarks, we feel we're largely done. Just remember that from -- but your question was based on any large relationship were largely done? We're active asset manager. There will always be something that we'll look at and think about what is the right structure. But the crust of your question, we -- absolutely, we think we're largely done.

Okay. Looking at the supplemental, I notice the same-store pool came down by 25 or so assets, 461 to 435. Can you just explain that to me, and what implications it had on your same-store guidance?

Yes, I'm really glad you asked that question. I say that in a bunch of notes. So if you think about 12 of those assets are in new England. New England, we have been talking about New England is coming back. That particular operator in New England has mid single digit growth this year. So obviously, if you think about the NOI per door of New England versus the other assets, which are effectively Brookdale assets, they're very different. So the New England portfolio would have been a positive impact, the Brookdale assets would have been a negative impact. I'm not going to give you the number exactly the impact would be, but I would like you to think about the NOI per door and the implications, and then you will get to the conclusion you are trying to gather. We -- specifically, that particular New England operator, and as Mercedes mentioned, the Boston area, is coming back strongly. It had the highest growth in our portfolio.

Okay. And then maybe a broad question for Tom, I think earlier in the call, someone asked about enhanced disclosure sort of consistent with what we get from the multifamily rates. Do you think, let's just say you're 100% RIDEA, or let's just look at the 40-some-odd percent of your portfolio that's just RIDEA. Do you think that's worthy of a multifamily multiple? Or do you acknowledge that maybe there should be some discount to the multifamily multiple for those assets?

I don't like to think any of our assets should trade at a discount to where high-quality real estate trades. I think give it some time, Rich. I think that, again, senior housing -- the senior housing business to me is still being looked at in the rearview mirror. You've heard me say that this is -- a lot of the senior housing assets in the country were built for a generation of people that died five years ago. The business is changing. So -- and we are in a transition phase. So it's hard to demonstrate the true economic impact of this real estate right in this market we're today. I'm going to tell you, I actually think this will trade at a premium in the future to many sectors of multifamily because of the demand around this -- the demand and need for this sector and for a new, a reinvented asset to meet the demands of that sector. So I think it's one, Rich, where there's a lot of upside. That's how we think about it.

But when you think about new lease rate growth in multifamily, the reasons why there's a new lease is a different than why there's a new lease in senior housing. So you imagine that someone who leaves the senior housing asset, they're probably paying the most. And a new -- and anyone who comes in to replace that person is going to play sort of the least, the lowest acuity level until they kind of need more sort of care. So it's always going to be a headwind, the same-store relative to multifamily. Would you agree with that on that issue alone?

John has me in a headlock here. So it's chomping at the bit to answer your question.

It's a good question, Rich. I mean, mostly as in assisted living, you're charging, if you like, for room and board and care. And obviously, on average, people move in at a lower care need than when they move out because a lot of our move-outs were obviously, unfortunately, RIPs. But when you've got thousands and thousands of units, obviously, statistics apply. So on average, you are sort of at the average point. So we do look at -- and I noted down the question here. What is the re-leasing spread on the unit? On the room? Because if there is a supply issue in the market, sometimes, there will be a room rate discount, a transient room rate discount, to induce someone to come in. But I don't believe any of our operators ever discount care. I mean, would you want to be on discount care if someone was looking after you? I know I wouldn't be. So people don't discount care. So there's a sort of a two-part equation to the revenue that a room generates. But we do watch those statistics quite carefully because they're a bit of a diagnostic about how that individual building in that individual market, how that leasing is going. So you can look beyond just what is "occupancy". But on average, of course, as a senior leaves a building, they leave behind on a higher revenue stream than a new senior moving in mostly because of care. Again, you're talking about thousands and thousands of units from a statistical averaging point of view.

I'll just say that if you think about a cap rate or a multiple question, it's a functional IRR. It's an output, not an input, right? So if you think about an IRR is driven by growth, so think about that compares to a multifamily, is it's a higher-margin business. At the same growth rate, multifamily probably should have a higher multiple. But when the growth rate changes, that if you solve for the same IRR and lower downside as you are thinking, I mean, look at where we are in the -- at the bottom of the cycle and compare that where multifamily was at the bottom of the cycle. So you build IRR, at the growth part of that IRR cycle, you will get a lower cap rate or higher multiple. So there is not specific question, it's just where you are in that life cycle of a product.

Your next question comes from the line of Kevin Egan of Morgan Stanley.

Just a quick question for me. So on the QCP deal, a sizable portion was Arden Court. Now that's definitely not in your core market, so I was just curious. Are you looking to tweak your strategy and maybe further expand into more of a mid-market product or a non-coastal market?

So QCP, you thinking about the Arden Court portfolio, you're right that it is not in the costal markets, but I would encourage you to think about that we do need a more affordable memory care -- I mean, affordable is a relative term. If you think about Silverado [indiscernible] which we loaned, is in the tens of thousands of dollars range and Arden Court will be $6,000, $7,000 range. So affordable obviously is a relative term. But we do need that product in affordable market. From our perspective, purely thinking about the cash flow, remember, it's an absolute triple net lease for 15 years with a growth rate baked into it. So from a cash flow impact perspective, that's how we think about both sides of the equation.

Kevin, we have been looking for a mid-market memory care business for quite some time, and we have had our eye on Arden Court. In the memory care space, in the pure play memory care space, we have a very high-priced operator, which is Silverado. We really think Arden Court is going to become a very important platform for us because of the needs that will be dramatically accelerating over the next 3 to 5 years and beyond. And because we believe the co-location of Arden Court with the now ProMedica HCR ManorCare postacute care assets will help drive census to those assets. So we think this is -- we haven't talked a lot about Arden Court. We think Arden Court is a real, as John just said, hidden gem in this acquisition. So we're very excited about this.

And then just in terms -- just now that the deal is closed, can you talk about when we should expect to see the revenue and cost synergies?

Can you say that one more time? You -- we couldn't hear you properly.

Sorry about that. So just in terms of the cost synergies associated with ProMedica, now that the deal is closed, can you just talk about when we should expect to see those cost synergies being realized?

Kevin, we have nothing to add right at this point. I mean, you can imagine, the deal closed yesterday. So really nothing changed overnight. I mean, we're still thinking about synergies that we talked about before. But we'll have more to report soon. Just remember, the deal closed last night, so really, nothing changed overnight.

Your next question comes from the line of Juan Sanabria of Bank of America Merrill Lynch.

Just wondering if you guys can clarify on the RIDEA sort of business, why the total number of assets went down in the same-store pool. I didn't get the explanation for that. And then secondly, as part of that, how are you feeling about guidance? You didn't change the range. Are you just more comfortable at the low end at this point, given the first half trajectory? Or are you expecting a ramp up in the second half to get to the midpoint?

So I will answer the first part of the question. So if you think about the 26 assets so, as I mentioned, that 12 of those are the assets that we are selling with the -- in New England. So they are held for sale, so that's why they changed. And the Brookdale assets, they're obviously being transferred to a different operator, so that's why they changed. And I think you got the explanation of how that will impact the NOI performance. Again, think about not just the number of assets, the NOI per door. As we mentioned to you, this particular operator with 12 assets that we're selling has that high single-digit growth rate, Brookdale would have been negative. And think about how that NOI per door calculation will impact our numbers. So you will get to a pretty good place. John, you want to answer those guidance question?

Yes, Juan. And so on guidance, I think we noted in the remarks, and also Tim said, that we do not generally re-forecast the component parts of same-store NOI in total during the year. And we did say that with obviously a 0.6% print in Q1, a 0.1% print in Q2, we're not anticipating that we will be in the upper end of our range, but more likely to be in the lower end of our range. And that's why we said we'd probably be $0.015 or so behind expectations on NOI for same-store. So we're not anticipating. Our numbers do not include a rebound in the second half of the year to get us back to midpoint.

Okay, great. And then just a question for you, Shankh. You noted in the prepared remarks that you dramatically changed the acquisition focus. I think those were your words. So I was just hoping you could talk us through the pecking order of investment opportunities, where you'd like to invest incremental dollars across the different property types and kind of cap rates as you see them today. Any change there? I think you've talked about before an expansion in seniors housing and medical offices, is that still what you're seeing in the market today?

Yes. So Juan, when I talked about dramatically changing the investment philosophy, I don't -- that's -- I was not thinking about product types. We're agnostic of product, that we would buy anything that makes money on a risk-adjusted return basis for our shareholders. So from a product perspective, there is no -- absolutely no change. The change in the investment process is one where we're focused on total return, we're focused on per share growth, not just the balance sheet growth. We're focused on IRR. So we're a total return based investor. We're not just focused on what the cap rate investors -- or frankly speaking, from the go-go days of expanding balance sheet investor. That's what I intend to mean.

Any change in cap rates that you're seeing? Any evidence of that?

Cap rates have -- is, again, a very difficult thing to talk about because what you are capping is matters the most. Cap rate is a concept of stabilized asset, which I think most people miss in the public markets. We're not seeing much change in the IRR expectations. However, change in the growth rate assumptions of some of the models that we see in the auction field, where we don't necessarily participate, we do see that those are coming down. That would automatically imply that cap rates are going up. But from our perspective, we don't necessarily participate on those. But we do see cap rate pressure. We don't necessarily see IRR changes.

And just lastly, just fundamentally speaking, from the seniors housing perspective, I know you guys don't want to get into '19 and when exactly we'll trough, but hoping you could just maybe lay out the bull and bear case as we think about kind of medium term growth in seniors housing. Like, what's the bull case for '19 recovery? Or what's the bear case in your mind? And just how you're thinking about the puts and takes there?

So Juan, I mean, you know the answer. It's the supply, obviously, is the primary factor. Demand is starting to come back. Obviously, as Tom said, that you see bigger impact of that in '20. So it's very hard to say quarter-to-quarter. We do believe that we're seeing in the numbers that a lot of the markets that went into the supply cycle first is coming now. And we'll see where it lands. I mean, obviously, there's a law of large numbers on supply, but there's also large numbers on the expenses. They have been going up for five-plus percent CAGR for a long time. So we'll see where it already land together. It's very hard to comment where it will be exactly, but if we didn't think that we are at the bottom, then we will not have made some of the portfolio changes that we have made.

Yes. And I would add two more things. First, I think I talked a little bit earlier about absorption, which continues to, frankly, be quite strong. And we think that some of the trends in the pipeline are going to be helpful if there's a slowing down, if you will, of new starts. So absorption should be taking hold, and I think that, that's going to be helpful. But then separately, I would also say that we really study this, and some of our comments are really, I think, from a perspective that is very individual for a portfolio as opposed to sort of the generalized metric that you might get from NIC, for example. You probably already know that we do a lot of work that is very individual in terms of just serving our markets. We look at new supply and study what the impacts of new supply might be on a very, very particular base as these are proprietary type of tools that have been created by our business insights team. So that's really what we're -- where we're coming from when we look at this, the comments that you've heard here today about the future.

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

Your valuation's improved quite a bit in recent months. I'm just curious if that's changed your view on capital allocation priorities. And if so, how?

Our capital allocation priorities have not changed. Regardless of our valuation, if there is an asset or a portfolio that's trading at a price that is -- that does not give us total return to improve long-term growth rate, we don't want to play the game. You have seen how that played out for a lot of these companies. We're not going to go back and do that. We only allocate capital if we can make money on a per share basis.

Your next question comes from the line of Steve Sakwa of Evercore ISI.

Most of my questions have been asked. I just wanted to focus on the dispositions. You guys did raise that guidance by $500 million, but the cap rate also on that blended average dropped about 100 basis points. Year-to-date, you've done about a $1 billion at a 7%, but you're now looking for $2.4 billion and a 6%. Can you just kind of walk us through kind of what's coming? And why the cap rates, I guess, are so low on the back half dispositions?

Yes, certainly. So I think our original guidance ex the QCP held for sale and the extra $100 million, we've anticipated being still around 7% number. So the change entirely relates to the mathematics, including those sort of legacy QCP transactions into our overall dispersion guidance.

Steve, on the QCP side, I'll also clarify this. So in our original transaction, when we outlined it, there's $500 million of assets that are former HCR ManorCare assets that are being sold and transitioned. So we talked about this in the original transaction, it's kind of the mid-$50,000 per bed that are largely under contract, going to be sold over the next 2 to 3 months. When we originally talked about the transaction closing at $930, a large majority of it will be closed and off of our balance sheet by then. And they're non-rent-paying in the meantime. So there's $400 million left of these former HCR assets. They will all be sold kind of between now and likely the end of October. But for the meantime, the impact on earnings will be a drag contract from essentially that balance sitting in our line. So when I outlined kind of the impact on guidance to Michael earlier, that was kind of the $0.01 drag. But it goes way, doesn't long-term impact to the accretion of this deal. But from a blended cap rate perspective, those are being sold with zero cap rate.

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

Real quick question. I'm just trying to reconcile the increase in SHO versus comments about more collaboration or more interest from the hospital systems and assisted living. Are those hospital systems going to be thinking about triple net leases? Or maybe more RIDEA leases? And maybe from your investment philosophy, whether those should be in triple net or SHO if that happens going forward?

Dan, I would say that we're discussing both structures with health systems that are interested. I think it's early days for those, who are not already in the business. But I -- and they don't really understand the RIDEA structure and this is all new to them. So honestly, I think the RIDEA structure, we were literally in a discussion yesterday with a major health system about an assisted-living project, and this was a new concept for them. I think they thought it was very interesting. And I think they come into the discussions thinking that we're talking about triple net leases, and I think they walk away with perhaps a better appreciation that -- for the fact that RIDEA may offer them a better longer-term return in that property.

And then I would also say that I don't want you guys to think that because we converted some triple net to RIDEA, that we think that RIDEA is the structure and triple net is not a good structure. What -- all we are trying to do is to align interest. A well-covered triple net lease, it has significant alignment of interest. Where you get into trouble, when it's not covering, the operator does, is not making money, they're not investing in the asset, so you are in sort of that vicious cycle, that's where the problem is. A well-covered triple net lease can be -- can have significant alignment on interest from both parties, and we're absolutely open to the structure. We're just not going to do cleanly capitalized [indiscernible] covered leases. That's where we're not interested. If it is equity, just call it equity. Just -- we don't want to put it in some sort of a façade of debt, when it is really is equity.

Okay. No, I would think, given the increasing leverage in the hospital space with all the mergers, they might be looking at ways to not over-leverage their balance sheet and over-monetize. So I appreciate the color.

This is Mark Shaver. I just want to add one point. Part of what we're also discussing with health systems is how our senior living platform's more consequential to their care delivery. So some of the conversations are not necessarily about the hospitals owning their own assisted living or joint venturing with us, but how do they become more consequential to their postacute network. And so as we start thinking about the rise in dementia that we're going to see in this market, our operators, Silverado, Sunrise have seen, where they can provide care to patients coming out of the hospital in a lower-cost cutting to free up those hospital beds. That is an extension of how we're trying to create linkages between our senior living platform and health systems. So there's multi-phases to the conversations of how we're going to link these programs.

Your next question comes from the line of John Kim of BMO Capital Markets.

Two-part question on your SHO results. First, I think Shankh, you mentioned in your prepared remarks that we're going to be bouncing along the bottom in the next couple of quarters. Do you think, from an occupancy perspective, that we will be going through a normal course of seasonality trends off of this lower occupancy base? Or will the impact to supply offset the typical pickup in the seasonality? And secondly, Canada also decelerated significantly this quarter. I just wanted some color on what was driving this.

So I'll take the first part of your questions. We are seeing seasonality and improvement in the occupancy. John, you want to talk about Canada?

Yes, I think Canada equally had some tough flu and tough influenza. There is, in selected markets -- not like the U.S., there is selective market supply in Canada as well as, so you saw a little bit of rate pressure compared to a sequential prior quarters and a little bit of occupancy pressure compared to prior quarters. So the operating market there is just a little bit more difficult in the recent past than it has been in the longer-term past.

And secondly, on QCP, can you provide any color on who the competing bidder was?

Well, obviously, we're not going to get into the conversation of who. I'll tell you that, overall, it was a large private equity firm.

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

I just have, I guess, a bigger question. And Tom, maybe you can answer this, is how do you guys think about your portfolio diversification? I know today, you have a pretty high concentration to senior housing assets. Is that still something that Welltower likes? Or is that some of the reasons why you pursued the QCP deal?

Well, we like the senior housing business. And what differentiates Welltower is that it's quite -- our senior housing portfolio is quite diversified by operator. So it's a business we like, it's a business we believe in. The partnership with ProMedica to acquire HCR ManorCare is an example of how we're going to link this senior housing business more closely with the business of a health system which includes postacute care. And I think you just heard a little bit about how assisted living and memory care may become more consequential in how health system manages the journey of their patient or consumer. We're very focused on the fact that how health care is delivered, the settings by which -- where health care will be delivered in the future. It has to change, and it is changing. And the ProMedica HCR ManorCare partnership with us is the best example that one can point to.

The next question comes from Mike Mueller of JPMorgan.

Most questions have been answered. I was just wondering, can you give us an update on the 56th Street project, where you are in terms of that? And then are you also evaluating other sites in Manhattan as well?

So we're very pleased with the progress that we've been making on East 56. And everything going according to plan. Timing is according to plan. I think one important milestone that we're looking forward to at the end of the this year is the topping off of the site, which is a lot of progress. But again, everything as planned, on time. Our partnership with Hines and the work that Sunrise has done in the design and everything else is going as we were thinking. And then with respect to the rest of the market, we're always looking for opportunities in markets that we think are prime for demand and so on. There's nothing to speak about specifically. But certainly, we look at New York, we look at Los Angeles, we look at Toronto, we look at all of those kinds of market.

Your next question comes from the line of Tayo Okusanya of Jefferies.

Two quick ones for me. First one, again, around the whole senior housing. And again, we've had a very long discussion about it in the call today. But given that the NIC data is still forecasting well into 2019 additional occupancy loss, how are you guys really kind of thinking about that? How are you stress-testing different scenarios to ensure that your portfolio kind of does okay through that process? And again, the reason I ask is, clearly, a lot of concern around kind of credit portfolio restructuring, exactly what does that mean on a going-forward basis?

Yes, so if you think about it, we don't obviously make investment decisions based on NIC data. We have very sophisticated data and analytics platform that we think is unmatched, not only in the health care, real estate industry, we think it's unmatched in the real estate industry. So we have a very, very granular view of supply. So which clearly has a different -- can give you a different answer from if you're just looking at NIC data. So that is first, I'll tell you. That's the first answer. The second answer is philosophically, you think about you guys are concerned about a liquid asset, like stocks, you would probably trying to exactly time when the performance is going to bottom, when the performance can come up, that's not what we do. We're focused on long-term capital allocation and making long-term decision. If we're six months off, we're six months off. So there is a difference of the time horizon when we're allocating capital and making these decisions. We understand why you ask these questions, but I want you to appreciate, our focus is not, can we do this exactly at the bottom? We're a long-term capital allocator. That's not how we make decisions.

Yes, and Tayo, I want to add two -- I just want to bring back two data points that I shared at the beginning of this call. And that is, keep in mind that, in our top 10 markets, the construction as a percentage of the existing inventory is 160 basis points lower in our top 10 cities than it is for NIC as an average, or their primary markets, I guess, is what they call them. In addition to that, I also talked about our rate growth, which is also superior to what is happening in the market. So consider that when we analyzed the next moves and what we're -- how we're addressing market competition and so, we don't only think about occupancy, we also think about rate, which we have been able to preserve and expand much, much quicker than the rest of the market is capable of. So we're always interplaying all of these different components to try to optimize what we think is the potential for each asset.

Okay, that's helpful. Number two, the $10.8 million of termination fees you had in the quarter, what did that relate to?

So as I said in my remarks, we do not take through our FFO line unusual items like termination fees or financing fees that we receive. So on our cessation of the certain elements of the Brookdale transaction, as noted in the press release, we received $58 million in total. Some of that is offset against things like straight line, but that was essentially a net profit on a book sense, if you like, a net profit from the cessation of those. So we do not -- again, we do not book things like that through our FFO line. We take them through unusual items and normalize them out. So it's the Brookdale profit on lease termination.

You agree with that? Do you think that matches your policy?

I agree with the policy for sure. I think, again, it's just that when you kind of take a look at the number, again, you have a nice kind of termination fees in quarter one. I guess that's just why I kind of asked. It is an unusual item, so kind of taking it out doesn't make sense.

Yes, if you look at our Brookdale press release few weeks ago, it actually lays out the details. It's $58 million offset by the straight line I've talked about. We do not think that -- and I think I probably say this like a broken record every call. We do not take any fees and onetimers in our same-store, in our FFO. We don't think that gives investors a more rounded view of the company.

But my question for you, Tayo, is do you think we should take those onetime fees into earnings?

I don't think you should. I don't think it presents -- I agree with Shankh. I don't think it presents a clear picture of the underlying fundamentals.

Well, thank you. Because we -- that's our perspective. I'm not sure that is shared, but you're on our page. Thank you.

Thank you for dialing in to the Welltower Earnings Conference Call. We appreciate your participation, and ask that you please disconnect.