Welltower Inc. (WELL) Q3 2018 Earnings Report, Transcript and Summary

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. At this time, all participants will are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. [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, we 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 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. And with that, I will hand the call over to Tom for his remarks on the quarter.

Thanks, Tim, and good morning. I am 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, senior’s housing, post-acute and ambulatory sites of care to dominant, financially strong health systems is being embraced by the broader healthcare delivery sector and truly differentiates us from REIT and other capital sources. A knowledge-based strategy aligned with our proprietary data and analytics 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 and assets as we have sold or restructured over 8 billion of non-strategic real estate on misaligned legacy operator relationships in the last 24 months. In a sector that is seeing 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 Provident St. Joseph 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 healthcare delivery transitions to lower cost sites of care that will improve health outcomes, particularly in view of the aging of the population. You will 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 your Shankh.

Thank you, Tom, and good morning everyone. I will now review our quarterly operating results and provide additional details on four topics. Number one, SHO results and trends, two, senior housing triple net business, three ATM managed care for medical 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 y the return of seasonality to our occupancy trends. Our year-over-year occupancy declines went from 200 basis points on Q4 of 2017 to 190 basis points in Q1 of 2018 to 110 basis points last quarter. I am 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 by holding the rate growth for overall portfolio as 2.8% driven by major U.S. markets which is 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 deliveries had absorbed typical 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 allows 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 would 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 will continue to see some volatility as with any other cyclical business. But our extremely diversified portfolio across geographies, operators, product set and equity does provide the unique diversification benefits 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 operators first and structure second. We continue to believe that in the triple net structure when a well-aligned lease exists by both operators and Welltower shareholder can make money. In that context, we are delighted to inform you that Brookdale has agreed to renew our Sally master lease for next eight years. As I mentioned in the last quarter with $28 million of cash rent, this was our biggest exposure in our entire triple net business. The lease signed trending 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 as Brookdale remains responsible to fund CapEx at 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 REIT maturities for Welltower until 2024. This brings me to another topic and a rhetoric that if an operator has low EBITDA coverage and 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 large 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 relative to their long-term potential. Have G&A and scale implications to their broader business and often dealt great business over many years that this wouldn’t necessarily want to give up right before a multi ticket of economy. A majority of the business that go through cyclical lows do not return their keys as this foregoes 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 tool sets of alignments as we have demonstrated from the Sally example. We can also leverage structuring right such as rent reset, which drove the senior housing triple net growth this quarter, subordination of 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 is that ProMedica and HCR leadership now expects higher synergies than we expected previously. You will hear more about this topic directly from Randy Oostra and Steve Cavanaugh at our Investor Day on December 4. We are encouraged by the green shoots in the skilled nursing industry and already improving occupancy pictures throughout the Arden Court portfolio even before our CapEx program is executed. We continue to believe it will create extraordinary value for our shareholders in the long-term from this transaction perhaps even more than what we anticipated. And lastly, we are really pleased to highlight that after a long haircut 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 transactions in Q4 and Q1. We mentioned to you before that we like medical office business very much but the pricing of recent trends has not made any economic sense to us, especially given many of these portfolios include as much as 20% to 25% of hospitals, and other assets that commend 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 are extremely happy we have under contract for approximately $400 million on a very high-quality portfolio of 23 Class A medical office properties affiliated with major high-quality healthcare systems with an average age of ten years. Keith who had a longstanding relationship with the principals will provide you more details on the portfolio. While we are 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 John Hopkins, Howard County hospital, we are also delighted to inform you that we have signed a development agreement with John Hopkins to develop new complementary sites of care on the land under bridge transaction and three other we currently have with the health system. Over the last two 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 are squarely on the path to capture the next level of value. While we cannot sound the all peer on fundamentals we are encouraged that the outlook for value creation is getting better. With that, I will 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, consultant sales in June of 2017. Having led the 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 I 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 felt fortunate to have the opportunity to be part of this team. I’ve spent my first 180 days getting to know the portfolio, the teams and the systems that Welltower built over the last 17 years. I am happy to report that we have fantastic high-quality portfolio that is affiliated with some of the best healthcare 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 with pricing expectations became realistic and stepping 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 healthcare environment. Shankh highlighted some of our recent activity in the outpatient medical space. Specifically, he mentioned the 23 properties portfolio that will be closing shortly. I am particularly excited about this acquisition as it strengthens our relationships with several of Welltower’s existing partners and introduces new partners into our hold. These represents 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 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 a 160,000 square feet to our John Hopkins affiliated portfolio. This Class A building is in partnership with one of the nation’s leading institutions in an outstanding network of distinguished positions. In parallel, and Shankh also mentioned this, we recently signed a development agreement with John Hopkins Howard County General Hospital calls 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 John 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 populations. 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 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 investing, portfolio management or improving our income quality and balance sheet. This quarter was particularly active and investments completed. In aggregate, we invested $2.2 billion in acquisitions and joint ventures in Q3 at the blended rate of 7.9%. We also placed three 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 payouts. I would like to expand on Tom’s comments as to the continued increase in the quality of our income line, over the last five years, we have divested $8 million of assets as we refined that portfolio towards future earnings 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 work judiciously on this every day. These efforts enabled us to report G&A cost for the quarter from $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. Senior housing triple net growth was strong at 4.2% with both outpatient medical and long-term post-acute growth at 2.1%. Today, we are able to report a normalized third quarter 2018 FFO results of $1.4 per share. As in the past, we do not include one-off items such as lease modifications, or loan repayment fees in our normalized numbers. Last quarter was also very active for Welltower on the balance sheet and capital fronts. Our Q3 2018 closing balance sheet position was strong with $191 million of cash and equivalents with $1.7 billion of capacity available under our primary unsecured credit facility. Our leverage metrics were slightly above trends. However, expected dispositions will reduce this number significantly in the coming quarter or two and I would reiterate that over time, our average plan sees our 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 with improved pricing across both aligned and credit and off term line facility. In August 2018, Welltower successfully placed an aggregate $1.3 billion of senior unsecured notes across five, ten and thirty 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 and $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 2018 overall expected adjusted same-store NOI guidance range remaining at approximately 1% to 2% and the reduction in anticipated disposition proceeds on $2.4 billion to $2.2 billion at a blended yield of 6.0% overall from 2018. As usual, our guidance includes only announced acquisitions and includes all dispositions anticipated in 2018. On November 21, 2018, Welltower pay its 190th consecutive cash dividend of $0.87. This represents the current yield of approximately 5.3%. With that, I will hand it 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, an 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. Please go ahead.

Thanks, good morning everybody. 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, Shankh or Tim, I know the pull changed a little bit this quarter from last quarter and I am just trying to see if you could give us a little bit more detail on how some of the maybe changing pull dynamics impacted same-store growth this quarter.

Sure. So, Steve, obviously, let’s talk about, you have three questions and so we’ll talk one at a time. First the pull 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 is an operator change, you have to wait for five quarters for assets to come in. Without getting into the specific details, I think there is some implication you guys think that we restructured another relationship and thus 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 pulls 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 cash SHO business, you will see there was a 100 basis points of occupancy increase while same-store is only 80. So that tells you it’s a broad based strength we have seen and obviously it’s a billion dollar for us. So, five x is going in and out really doesn’t change the fact, but I am trying to look – point you to the Page 3 of the supplemental where you see that overall our shop business and you will 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 diverse supply we have a data science team that is very, very granular. We have build a metric called ACU which is adjusted composition units which is based on not only the number of supplies, but also the co-variants of different products, drive time, exponential detail of drive time and other machine learning algorithms into it. We have very specific view of how many of the new supply impacts us. Property we have shock factor. We will walk you through at the same-store all those details at our Investor Day. Needless to say that you are hearing that we are encouraged about the outlook. We are not necessarily saying and that we are calling for a bottom in any industry. But we are definitely encouraged by the outlook and we will have a broader discussion about this topic on our Investor Day.

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

Hi, 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 your softer REIT and if not what’s the key difference?

I consider the company a healthcare delivery platform that’s very real estate heavy. REIT is not an industry it’s a tax selection 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 healthcare assets. But, our business model is much more than eyeing and managing real estate assets in a fund like operating structure. We are intimately involved in the operations of this business, whether it be our senior housing business, whether it be our medical office business. But, I would remind you that REIT is not an industry, it’s a tax selection.

Got it. Thank you for that clarification. And then 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 on the actual transaction. There is no impact from the acquisitions there from a modeling standpoint we should consider them occurring at the end of the year and having no material impact on 15 numbers.

On the cap rate, we have told you several times that we are not a cap rate buyer or a cap rate seller. We are total return buyer and total return seller. I am not going to talk about the cap rate because the deal hasn’t closed and we have 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 less than 7% unlevered IRR and we believe that we’ll hit 7% unlevered IRR in this particular portfolio.

Thank you.

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

Thanks for taking the question. Shankh, just to clarify on the Sally lease. Can you just clarify was there any cut to rent? Any restructuring to the bump? And when you said the CapEx from it, and if that’s 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 are very – we don’t want to – the opposite partner wouldn’t want to get into that. I have mentioned on the call and once Brookdale is through their quiet period I am 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 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 is changed and it’s slightly higher, but I just don’t want to talk about that on the call. Once Brookdale goes through it quiet thorough we are happy to answer any questions. 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 our RIDEA, the focus of Welltower is not to grab all the economics we can, but have a healthy driving operator where they can make money and we can make money. Here Brookdale makes money as we are sitting under typically low occupancy and as they lease out 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 2019 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 higher. I think last year, you had a 0.8% increase year-over-year in expenses and that expenses sort of get easier, but can you just walk us through how you think about the structure today going into 2019? Like, are there other levers you can pull to control like, other parts of the expenses assuming labor continues to be a headwind?

So, labor continues to be a headwind. I am glad that you actually know this that we had a very, very touch 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, it’s not just a factor of expenses, but also a factor of what happened Q3 of last year and so that is absolutely the right observation. So that Mercedes will add some comments on how we think about expenses, but we think the headwind continues.

We both have talked about the initiatives that we have undertaken at Welltower to try to bring expense savings to our operators in work. Some are being down, some of those efforts I think pop up 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 are very focused on trying to bring efficiencies to our operators and trying to help them with our scale.

Just to add one point, I just want you to understand that the big part of the minimum wage increases have been flowing through our numbers. San Francisco went to $15 this year, that’s flowing through the numbers. So, from here on, you will see more of inflation and 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 flow have been flowing through our numbers for the next four, five years. We feel encouraged about the long-term. But we are obviously, as you said, we are managing in the near term.

Okay, great. Thank you.

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

Thanks, good morning everyone. Congrats on the results.

Hey, Steve.

There was an announcement in the industry and 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 headlines seems to draw some attention. And I guess, from your perspective, I am just curious, that sort of activity was already contemplated in your development plans when thinking about your focus on every markets in particular over the next several years. Just want to get your thoughts around the – kind of the competitor developments and how that’s sort of being made? Thanks.

Thanks, Steve. I think that announcement 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 is 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 product in a market like New York today being sufficient and meet the needs of the upper-end of this population. I am 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 were open in the end of 2019 early 2020 and on our Investor Day, you are actually going to have a chance to go into that building. It’s coming out of the ground. So, in summary, Steve, I would say that we have a number of plans to bring that type of asset into the major metro centers. So, stay tuned.

Okay, that’s helpful color. Thanks.

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

Hey, good morning. Thanks for the time. I will skip the shop questions and it sounds like you’ll address those in December. But this past summer, I recall you are 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 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 are product agnostic, as I mentioned, obviously, with different products requires different level of risk-adjusted returns. So, I don’t want you think that the 7% is a hard and fast number. We talk about 7% as we have some a minimum return required for investing capital. And you said that, the senior housing market is a very, very robust market. We are seeing a lot of participants are coming in. Lot of core capital are being priced. So obviously, if you think about the option, they are very densely populated and the risk of the prices are very high. If you look at our investment sources and we give you these numbers on our supplemental, quarter after quarter after quarter, we are not in those options. We have a relationship based investment strategy. We almost pretty much 80% to 100% of what the acquisition done from our existing relationships. We were not in those option pens but they are very densely populated and we see cap rates in levels we can’t make sense. But we are very disciplined and capital allocated. So, when it will make sense, we will be there.

Yes, Shankh, this is Mercedes Kerr and I would add one more comment and that is, I think for the first time, really we are starting to see a real distinction between Class A and Class B assets in senior 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 up the Welltower portfolio. But, so, happy to be sitting on the assets that we have and that we’ve – perhaps distinction in cap rates wasn’t as pronounced as it is today.

Got it. And then just one more from me and I know I asked this last quarter. What’s the trend on new and renewal leasing spreads in shop? I know, it’s stable in 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. Thanks.

So, that is such a broad swath of numbers across so many operators. It is very hard to predict. It’s dependent on, as you said, operators, acuity, as well as location. We are seeing significant positive spreads to negative spreads. Right. So it’s very hard to generalize that comment. It is sort of a distribution that has no midpoints that I can talk about. So I’ll just say I live from it I just want you to look at revenue growth and if you are looking for a more of a median outcome, that revenue growth picture that we gave to you should tell you what it’s going to play out.

Okay, I’ll jump off. Thanks for the time.

Thanks.

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

Thanks. Good morning. So, I am aware there are certain things you want us to focus on, but if you will forgive me I’d like to ask a couple questions that I am focused on. On the cap rate question on medical office, you gave 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 are willing to provide in the John Hopkins? Can you just sort of frame it a little bit for us?

So, we have a fee 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. We are already telling you that it’s a very well leased obviously, portfolio. You know what the bump generally looks like. So, if I am telling you that we can solve on unlevered 7 that gives you a general number. We will give you the number next quarter when the deal is closed.

That’s good enough. Perfectly good answer. Thank you for that. On the Brookdale assets pulled out of the same-store pool. I know you are not – you have your reasons for taken the amount. HCP discloses how those transitioned assets have performed including into their same-store. Could you say if those transactions 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?

So, we talked about obviously, we have a same-store quality that an asset that obviously needs to wait for five 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 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 in place now for your processors. So, since you took over as CEO, I am 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. I have such a great response, but I’ll let you talk at.

Okay, great. I’d love to hear your thoughts. No Rich, but we have a deep young, diverse, energized bench of people here that I would stack up against any company that is structured like ours. The last thing I would tell you and over my heart, you should be worried about with the depth of management of Welltower. This is a tremendous team and I’d 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 will be very pleasantly surprised.

Okay. I am sure I would. And then, last question, you adjust your FFO range, but you don’t adjust your sort of individual same-store ranges. Obviously, you are not going to get to 1.5% on the shop, original guidance at the top-end. Any reason for that? You are 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 at there?

So, we talked about, this is probably the fourth year we are talking about this. But we do not change individual ranges through the year. And so, we are not going to make. The problem of doing that, once you create the precedence and people keep doing, asking the question we think of our portfolio as overall portfolio that it’s overall cash flow as you think about and what you are hearing from us that we are excited about the overall cash flow growth. We don’t predict quarter-to-quarter numbers, but we expect fourth quarter will be better than the three quarters you have seen in the shop business.

Okay. Fair enough. Thank you.

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

Hi, good morning. Tom, just wanted to ask you if you see any potential implications of the mid-term elections on your business? Where there is word out that Congress may try to take another crack at Obama Care. How are you feeling about the political environment today?

Really, that’s some question, Karin. I really don’t want to get into politics. I do think though this the questions about the mid-term 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 healthcare to lower cost settings and doing - and really making it a mandate to drive better outcomes. It’s not just about cutting cost, but how do we improve the health and wellness and I underscore the world wellness, because Washington is starting to wake up that – our healthcare system shouldn’t just wait for some of the dissects and show up in the emergency room. We need to prevent people from actually ever coming to the emergency room. So, whether the Democrats are in power or whether it’s the Republicans, I would like to think we still live in a world and I question that every day, but sanity will prevail. That’s the best answer I can give you, Karin. I want to talk about it after the election.

Appreciate that very much. Thanks. My second question is just on the senior housing triple net portfolio. It look like EBITDAR coverage sequentially uptick a 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 discussion of why, how you guys should think about at least consider the EBITDARM coverage is as important if not the more important than the EBITDAR coverage. We do think the business like our 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. So, that’s only I can tell you. I am not going to sit and predict quarter-to-quarter coverage, because it just depends on so many things that come in and out and but we are not focused on a number, we are focused on driving profitability for us as well as our operating partners.

Okay, thank you.

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

Hi, thanks. I wanted to ask a little bit more and I am sorry I might have missed some of your comments just on the John Hopkins relationship. And is your agreement with them, I guess, exclusive to build these alternate care sites? And could you maybe 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 alternate types of care, we mean all sorts of our business that you have seen. It could be on medical office, it could be a senior 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 nets of our partners as well as our goal to increase our energy and our cash flow. Mark, do you want to add something to that?

Yes, Smedes, thank you for the question. It’s Mark Shaver. The acquisition of the Medical Pavilion gives us four 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 two 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 are 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 Mill North Campus. So, there is 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.

Okay, thanks. And then, just, 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 how do you think about them now or just do you feel like your rents are structured such that it’s less of a concern or just sort of any thoughts around that.

We’ve talked about and if you go back and see that it is – and we talked about investment-grade credit and mostly what we talked about is where the playing the rent is going to fit and the capital structure. We have obviously a great system and we have the output guarantee. We don’t specifically talk about ProMedica’s ratings, ProMedica’s bond is publicly trade. You can go and look at what that had an impact or not on those months. 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 distressed 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 are not going to sit here and talk about – specifically about that.

Hey, Shankh it’s Michael Bilerman speaking. Just, as you think about the initial yields versus you talked about underwriting everything at a minimum of a 7% IRR. How does like the John Hopkins outpatient medical building where you go in at a 4.9? What are the – what’s the underwriting to get to a 7% unleveraged IRR? How should we be thinking about what you are putting in there for an asset as 100% leased. I assume under a long-term lease.

Yes, so, you are correct about the lease. We will not get the 7% unlevered IRR to 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 fits right next to our charter building that has five acres of land. This particular building has ten acres of land and we told you we just signed a development agreement with them. So do we take we will 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 that it fits making a strategic investment at a low yield on one hand, what benefits you may get on the other?

I want you to think about this is a covered land play. So we have – if you bought this land, obviously, that is a negative NOI, because you have to pay taxes and you service on all those things. This is a covered land play. So we are obviously getting pretty decent income. We’ve part this asset – it’s an absolute Class A asset and really one of the best system at higher cap rate than majority of the transactions you have seen, but we are still not satisfied with that. And we are going to get our required returns using the developments that I sort of discussed the land, aspects of the deal and the fact that it fits right next to our charter building.

And on HCR ManorCare, I am pretty sure that when you announced the deal on ProMedica, Tom, you told us, we shouldn’t look at this as a skilled nursing deal. We asked about this is A rated health system deal. So, while, I know you don’t…

Investment-grade – 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 triple B plus. And they were downgraded to triple B plus by Fitch and Moody’s, S&P put them to Triple B.

Okay. Thank you.

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

Hi, thanks. Just shifting to dispositions. The guidance implies $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. So one of you just go through maybe the Q4 stuff?

Yes, Todd, you are correct. So it’s got of the $750 million in assets to be sold during the fourth quarter. But 225 are non-yielding and the remaining have a 6.4 yield on them. So, it’s about $520 million of non-recourse dispositions at a 6.4 yield and then 225 at the zero yield.

Is it more QCP stuff or what’s in that stuff?

The zero yield?

Yes.

Yes, so, going back, 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 to be sold. ManorCare stopped paying rent on those and all proceeds from sale got to QCP. So, we essentially, that agreement came to us when we bought the portfolio. So at the time of closing, since close we had less than $400 million of these remaining and we sold about a $170 million of them during the third quarter and we’ve got $220 million remaining.

Got it. Thank you, Tim. And then, just shifting gears. The MOB portfolio deal you have under contract, is that something you had under contract for a while. You needed your cost of equity to improve or does this come along recently? We have just haven’t seen that many portfolio deals this calendar year. Maybe you could 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. As you think about, we mentioned that Keith has a longstanding relationship with obviously and the principals are – which owns the portfolio and I don’t think at this point I can say much more than that. When the deal closes, we are 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. Then it takes time for the documentation and a PSA or NBSA and then it takes time to close. I mean, that just where it is. No different for this particular portfolio.

Thank you, Shankh.

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

Thanks. Good morning guys. Post-acute coverage is still a market, but it has come down a decent amount last couple quarters. I was just 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 is a lot going on in that business. So that drove significantly the coverage down. The coverage for EBITDAR, coverage was still assets at still 1.7, 1.8 level. So we are not worried about that, but the change is primarily driven by that.

Perfect. Thank you.

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

Thank you. Good morning. Just wanted to touch on balance sheet. I think your leveraged net debt to EBITDA take up to about six times. I am curious, I re-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 as we look forward? And what you are thinking on leverage and balance sheet in the current environment?

Jordan, I’ll start that and John can comment on the strategic side. The 598 that we printed this quarter, the debt-to-EBITDA can get a little skewed by timing of transactions. So I am glad you asked that, because we for 25 days at the quarter, we didn’t have ProMedica as – or the entire QCP transaction, our cash flow. The way we present debt-to-EBITDA is an annualization of the quarter, since it's essentially a simple time for us. The 25 days of additional income we’ll get on the fourth quarter bringing down that leverage, 0.17, comes down to 5.81 and then, the remaining $225 million of QCP non-yielding assets was essentially to the liquidation, right. There is no EBITDA on them. So it just can be cash. It’s going to bring it down another 0.1 of a turn. So, our runrate leverage right now, it’s reflected in our kind of 3Q earnings and then, the in fact three a little bit of drag from those non-yielding, I mean it’s 5.71. So it’s not as much of a gap when you think about – when we talked about kind of mid to 5.6 is being the pro forma leverage. We are almost there right now. ProMedica income left in that transaction and we expect to keep.

Yes, I was going to reinforce, Jordan that we are nearly or very close to where we said the pro forma would be when we announced the QCP acquisition. You heard in my prepared remarks, that overall, we see us capturing over time coming that levels generally in the order that we saw prior to the acquisition. I’d know obviously, last quarter we were at 5.4 times leverage 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 am just trying to piece the numbers together a little bit. I think in the original presentation, you had 74 non-core assets to be sold prior to year end from $475 million, I would imagine maybe a couple of those probably closed before you guys got the deal done. But I am just, you guys sold 19 in the quarter, I think you have 40 teed up that would be 59. So, there is – that’s the difference of about, I don’t know, 15 assets, 16 assets. And then, you guys sold some non-core QCP assets. I am just curious will there be additional non-core sales from the QCP portfolio to come?

No, Jordan, we don’t expect that this time. We sold, so any quarter, we sold post-acute portfolio. We will sell another building in fourth quarter that’s in our guidance and between those two assets, of the $28 million of non-ProMedica NOI that came with the QCP portfolio, that’s roughly half of it. So, there is very little left with non-ProMedica income from that transaction. And we expect to keep the rest of it for the foreseeable future.

Okay. Thanks.

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

Hi, good morning. So, I was just wondering, why the reduced guidance expectations by $200 million? Is that a change in what you consider non-core? Is that merely timing and we will see some dispositions pushed into 2019?

Yes, that’s a great question. That’s merely timing. We just wanted to give what we want in our guidance was we expect to close in the year end or early 2019. And from an earnings standpoint, I just want to make the 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 are 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.

All right. Thanks, Tim. And then, just thinking about guidance, you increased CapEx assumptions by about $6 million in FY 2018. How much of that is Brandywine conversion versus the MOB acquisition we made and then what’s a good runrate given the increase in operating assets that you have?

Yes, I think, on the – I’ll just comment on the – on your observation on the 2018. We actually, some of that is outpatient related, not tied to the properties, we are talking about acquiring. We moved forward some projects that were going to be occur in 2019 into 2018 that made us give or take around $3 million of that. And then about $1 million of it was tied to RIDEA conversions of just some extra projects that we thought in 2018.

And I will answer the second part of your question, as you think about CapEx, just think through the normal items in our CapEx. One is the vintage-related CapEx spends, call it about $55 million flowing through our numbers and then is fourth Sunrise buildings we bought from S&H. You recall, what we aid, we bought those asset sets and what – S&H they sold the assets. Those assets add to the $25 million difference and that is the $25 million CapEx that we talked about. These are two abnormal numbers that are flowing through this year and sort of first half of next year. So that will significantly negate the CapEx required due to the increase of our SHO as a percent of the overall portfolio.

All right. Then, Shankh, if we think about this quarter, is that a fairly good runrate for CapEx? Or should we expect that to go up or down?

No, it’s not, because, the whole vintage situation is still playing through. The Sunrise situation is starting to play through. So you are going to get eventually probably 2020 will be a better sort of 15 runrate. But I am hopeful maybe towards the end of 2019 it starts to happen. So, we have really good CapEx because of those two transactions. It’s a fairly large number relative to our overall CapEx budget.

All right. And then just one quick update on the repositioning, you had about the 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, California and Washington, they are all in process, they are actually teed up to closing next. Some of them have closed and some of them have teed up to close in call it next 90 to 120 days. They are exactly on plan and we are very encouraged that our future operators also are working very progressively with Brookdale. And we have been able to retain a lot of the staff. So we are very encouraged. It’s still early to comment. But we are very – we are grateful for the support Brookdale has provided us. We are 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?

No, you are seeing the impact is flowing through earnings, right. There is no impact from the same-store because those assets will not even be in same-store.

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

And if you are talking about earnings, then, yes, you are seeing the dragging down earnings and Tim walked you through the quantum of every one of them last quarter.

All right. Thanks.

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

Yes, thanks. Shankh, I want to touch on your prepared remarks regarding QCP. I believe you said that you saw occupancy pickup sooner than you expect without the CapEx being invested within that portfolio. Can you kind of quantify the occupancy pickup and the reasons why you think that trended higher?

I specifically talked about Arden Court which is the memory care business. Remember that we got 150 skilled nursing assets or post-acute assets and 55 Arden Court assets. My comment was very specific to Arden Court, which as you know, we talked about that will go through it – obviously both sides of the business was significant CapEx. My comment specifically is, we have seen occupancy increase in the Arden Court 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. Look at our entire RIDEA portfolio, it’s a $1 billion business. It’s 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 margin better.

Okay, great. 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 one that – two 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 a 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 niche categories of synergies.

Okay, great. Thank you.

Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

Hi, this is Sarah from JP Morgan on the line for Mike. Quick question, the development pipeline is about 70% senior housing and 30% office. Do you see that mix changing through the year in the next three to five years?

It’s opportunity-driven, Sarah. I mean, we are not trying to target a mix. It’s surely driven by opportunity. So I would not look for any trends quarter-to-quarter. This is purely deal-driven and opportunity-driven, so now, we are very, very focused on development on both sides of our business. It just whatever comes into a quarter, how big the size of that building that matters. So, I will not look for a trend or I think there is anything specific way or the number that we are trying to steer it.

Okay. Thank you.

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

Hi, good morning. Wanted to see if you could talk a little bit more about the earlier comment of the alignment of interest in a triple net lease and maybe go into that a little bit more? And in the context of coming out a nick, we didn’t really hear too much in the way of enthusiasm from operators for triple net lease. So, maybe you could comment about what you are seeing out there in terms of a the inclination of operators to want to lease versus RIDEA?

Dan, you didn’t attend my panel. I talked about that for an hour.

No I did miss your panel. I heard about it, but…

Okay, so that now I really know, I am honest. So, look, there is – at the end of the day, I think there is too much focus on, whether it’s RIDEA, it’s triple net, I mean, how different tools. The idea is very simple. We need our operators to be making money. We want the thriving operators. At the end of the day, I wanted to understand this is people business, right? We want our operators to invest in the people, in that 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 four in the call already. So, I am not going to repeat myself or we do a pure equity transaction called RIDEA, that’s a moot point, right? So we want - at the end of the day, what we want you to know that we are very, very focused. We think it’s an operating business. And 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 that. There is just not only one path.

Okay, okay. I mean, there is a difference in the risk profile, I think investors perceive a difference in risk between the operating and leasing nets, which we talk about some more offline. The other question I had was on the Columbia Maryland property that you are 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?

Yes, we are not going to make comments on that. I think I said, that the significant land, right, on our building right next door, there is land obviously there. There is 10 acres of land and are no assets that Mark mentioned we bought. So, there could be significant expansion of this relationship in those places as Hopkins figure out what their needs are. This is not just we are going to build a building. Right, we will build a building with our partner to meet that need. So, but, if you think about and I would encourage you, it’s in your backyard, go and look at the land. You will realize this is a covered land play.

Okay, okay. I appreciate. Thanks.

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

Good morning. I had a question on managed care. You got Anthem out there talking about their Medicare Advantage and some of the rules 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? Or is that something with the ProMedica relationship that could be an opportunity for you?

Yes, this is Mark, Eric. So, yes, absolutely. So, nationally, we see a rapid acceleration of Medicare Advantage. Some of the payer methodology is being more value-based in the post-acute it’s EDPM which we’ve 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 is increased reimbursement on that side. I think you will see us in the future talk a bit more about opportunities with payers. Our senior housing platform is providing a great amount of care to the senior population and increasingly they are becoming greater sites of care and greater linkage both to the delivery system partners, but also to payers. So there is more to come in that aspect for sure.

Okay, thanks.

Our final question will come from the line of Tayo Okusanya with Jefferies. Please go ahead. Tayo, your line may be on mute. If you are on a speaker phone, please pick up your handset.

Hello

Yes, we hear you.

Okay. Sorry about that. I am having some phone issues. The MOB transactions that were done during the quarter. Could you just talk a little bit about, I mean, a bunch of the pure play would be guys actually pulling back on acquisitions, but you guys are seem to finding some really good opportunities. Can you just talk about what would be different what you are looking at versus what they may be looking at?

Yes, so, this is, Keith Konkoli speaking. And I will just, I guess, reiterate what I said earlier in my comments. We are 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, and 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 have seen in the senior housing business. If you go back, I’ll not be surprised, if you ask the same question I think you asked me three, four years ago, right. We have a relationship-driven investment strategy and we are execute – obviously we are very well known to have executed that on the senior housing side and we are executing that on the medical housing sector.

We spend a lot more time in the offices of the leadership of the 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 expertise in like seniors housing and post-acute to their broader healthcare delivery networks. That is our unique investments thesis that this quarter, you should see some indication that that investment thesis is working.

Yes, and just to follow-up on that. When I was with Duke, we really we were a singly focused medical office in which 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. The real opportunity herein, 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 actually kind of think about that just accretion based on the MOB asset is accretion that will accrue to be entire ecosystem you are building in one way or another.

Absolutely, yes. Absolutely, it is, that’s the thought.

It’s a relationship, this is a relationship investing model with the health system.

Interesting. All right. That’s all I had. Thank you.

Thank you for dialing into the Welltower earnings conference call. We appreciate your participation and ask that you please disconnect.