Welltower Inc. (WELL) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Welltower Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I’d now like to hand the conference over to your first speaker today to Mr. Matt Carrus.

Thank you, [Dillaman], and good morning, everyone. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the Company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the Company's filings with the SEC. With that, I'll hand the call over to Shankh for his remarks. Shankh?

Thank you, Matt, and good morning, everyone. First and foremost, I hope that all of you and your families are safe and healthy during these extraordinary times. In the suite of this year-end call, I would like to review year 2020, the most challenging in our history and discuss different paths of growth, long-term value creation for our continuing shareholders on par share basis. We came into 2020 prepared for perhaps a plain-vanilla business cycle downturn. We pushed out our maturities in Q4 of 2019, sold a lot of short duration assets, bought a lot of longer duration assets, and continued to upgrade our portfolio, operators, management contract, and talent. We are hopeful that with the continued decline in senior housing deliveries and starts on one hand and the ageing of the population finally picking up on the other hand that 2020 would serve an inflection point for the fundamentals after decades of weak demographics resulting from the ageing of the baby-boomer generation. Then, the once-a-century pandemic happened that would turn out to be particularly devastating for our business. The back half of first quarter, the second and third quarters were all about long-term value preservation. We enhanced our liquidity profile dramatically by selling assets in record time at or near pre-COVID pricing, more importantly avoided mistakes of raising long-term dilutive capital, a consistent theme for managing the company for continuing shareholder on a par share basis. We started during the dark days of March and April by selling $1 billion of assets at great prices in record 43 days from signing a confidentiality agreement to receiving cash. We continued this journey during Q2 and Q3 and eventually executed on $3.7 billion of disposition at extraordinary prices to build an unprecedented war chest. Two things particularly surprised me during these times. The resilience of our team including our extended team of operating partners and the liquidity of our assets. Not that we didn't have doubts or failures, but we continued to move forward in spite of them with a steady hand on the wheel and an unwavering belief that we’ll get to the other side. Our team’s stoic resilience reminded me every day of Winston Churchill's famous quote, that “Success is not final, failure is not final, it is the courage to continue that counts.” In those moments of reckoning, I realized how privileged I was to be part of this team that didn't miss a beat and blazed new trail. For years, I have heard that healthcare-oriented real estate deserves a discount for the – to say, a shiny tower in middle of a large gateway city due to the lack of liquidity and smaller ticket size, especially during down cycles. I hope that during the worst down cycle of our asset class, this debate has been finally settled as demonstrated by our execution and that of our colleagues that helped [indiscernible]. In the fall, we pivoted again from defense to offense as we started underwriting and shaking hands on new acquisitions. It is important for you to understand that we don't shake hands and find excuses to walk or chip away, which if we shake hands, we close. Our handshake in this business is worth gold, and we only enhanced our long-term reputation during this pandemic. During last quarter’s call, I discussed $1 billion of deep value opportunity. I am delighted to report that we have closed roughly $700 million of acquisitions since the start of fourth quarter at a significant discount to replacement cost. Our acquisition pipeline has grown meaningfully, and as I sit here today, I am optimistic this year is shaping up to be a year of net acquisition, perhaps significantly so. At the same time, I will remind you that we are not driven and incentivized by volume of acquisition, but the value of it. Asset price is the ultimate determinant of how we'll behave. In this moment of confusion and ambiguity, I indulge you to focus on four distinct pillars of long-term value creation for Welltower. One, operating fundamentals. Tim will get into the details of what happened last quarter and what might happen next quarter. While operating fundamentals is awful right now with little near-term visibility, we are optimistic about the vaccine rollout as 90% of our assisted living and memory care facilities have conducted their first vaccination clinic with virtually all residents taking the shot. While I would not expect this to be a source of value creation in the very near term, I'm hopeful about the second half of the year. Normalization of operating performance remains the largest source of value creation for our shareholders. It is too early to comment on exact timing of the trough and the shape of the recovery, but we'll keep you posted frequently intra-quarter so that you can see what we see. Our focus remains on upholding the reputation of our communities and maintaining the safety of our operator staff and residents. We spared no expenses and have already spent in excess of $80 million on COVID-related expenses to-date doing everything we can within our control to support their wellbeing. Due to the great reputation of our operators and the extraordinary value they provide, rates are holding up. In 2020, REVPOR was up 2% in AL memory care, 1% in independent living, and 4.4% in our seniors’ apartment business. This growth occurred despite the headwinds resulting from lower community fees driven by a decline in move-in activity. Number two, operator platform enhancement, management contracts, leadership and system enhancements, and building local scale are some of the examples of this. Let me highlight two specifics here. A) Sunrise, we are delighted by the appointment of Jack Callison as the CEO of Sunrise Living, our largest operating partner. Jack will bring much needed attention to operating excellence with an operations-first culture. We are also negotiating a new management contract that will align the interest of Sunrise and Welltower as the owner of the assets. We are diligently working with the management of Revera, Sunrise's majority owner to enhance Sunrise's position so that it can emerge from this pandemic as the leading operator of poised for excellence and growth. B) Building local scale. If I can quote Charlie Munger, the advantage of local scale are of ungodly [ph] importance to this business. We have and we will continue to scale our most important strategic partners as we expand our senior housing footprint. To name a few in alphabetical order, Balfour, Brandywine, Clover, Cojir, Frontier, Kelsey-Seybold, Kisco, Oakmont, StoryPoint are just some of the examples of the partners we have grown significantly during this pandemic. What is common amongst them? They are excellent operators in their market. They have great leadership. They are disciplined. Yes, courageous, and they have an aligned relationship with Welltower. We rise and fall together. This list is expanding with our significant opportunity set that I mentioned few moments ago. Number three, capital deployment opportunity. I have already commented on the acquisition opportunity on the deep value side. As a risk of sounding like a broken record, I would remind you that we are an IRR buyer with an incredible focus on basis, operators and structure. Our opportunity set is rising rapidly and I hope to provide you with more specific color in next 60 to 90 days. This comment is obviously focused on the current opportunities. Let me provide you with some color on a related topic, but on future opportunities. We at Welltower, has never been in a more advantageous position as a partner of choice. For years, we have focused on growth strategy driven by our relationship-based and alignment-focused structures and data analytics platform rather than prioritize on costs and access to capital advantage. After all, not all capital is equal. We never imagined that we've encountered today's extreme stress, but as you can see, we stood by our operators during this difficult time not only to preserve their businesses, but also to grow it significantly. Talk is cheap, but action is not. For this reason, we are inundated with requests as a partner of choice from all asset classes we play in. As much as they like do call, we have been on roads throughout this pandemic meeting with prospective partners. This is very meaningful truths. We have executed more partnership and pipeline deals in next nine months then over five proceeding years combined. We expect to deploy $10-plus billion of capital in these opportunities in next few years. In other words, we are not only executing on deep value early cycle opportunities, but also laying a strong foundation of growth through the entire cycle when inevitably the significant price discrepancies of today will be gone. To give you an example, we recently reupped our master development agreement for five years with Kelsey-Seybold, our largest MOB tenant. We are looking to start approximately 600,000 square feet, 100% pre-leased development in 2021 and 2022. Number four, talent opportunity. I touched on this last call, but let me elaborate for those of you who are focused on long-term. We are seeing an incredible interest in our platform from seasoned professionals to early career applicants. We have taken advantage of recent disruption and brought in 41 new professionals in 2020. We expect at least as many, if not more to join our team in 2021. In addition to new talent, our existing talent pool is taking on more responsibilities in reaching new heights. As a result, we had 50 new promotions at Welltower. Though this puts out early pressure on G&A, which is partially offset by lower executive comp, we think this incredible talent pool is equivalent of a cold spring, which will manifest itself in a meaningful growth for the farm. Speaking of talent pool, how is the mood inside today inside Welltower. What I described to you as a stoic resilience last year has transformed into an environment of optimism and unbridled passion this year. I want to make it abundantly clear. We have no crystal ball about the near-term operating fundamentals, but we are doing meaningful work that matters we have meaningful relationship and we are seeing a new level of positive energy of people who wants to be part of this team internally and externally to create meaningful value and make a disproportionate impact. With that, I'll pass it over the microphone to Tim. Tim?

Thank you, Shankh. My comments today will focus on our fourth quarter 2020 results, the performance of all of our investment segments in the quarter, our capital activity, and finally, a balance sheet and liquidity update and our first quarter outlook. The fourth quarter was a tough end to a very challenging year as the ongoing impact that coronavirus accelerated meaningfully in the back half of the fourth quarter and into the beginning of 2021. The visibility for large parts of our business beyond the next 90 days remain very limited and very dependent on virus-related variables, such as its unpredictable path of growth, the rollout and efficacy of the vaccine and the continuation of population lockdown mandates. As a result of this uncertainty, we decided to provide our first quarter outlook this morning in place of the full-year outlook we would normally provide in our fourth quarter call. As we have done over the last year, we will continue to disclose and update information on a frequent basis, with the intention of providing a more complete outlook, as soon as the variants of the virus-related variables moderate to a level that allows for liable forecasting. Now turning to the quarter. Welltower reported net income attributable to common shareholders of $0.39 per diluted share and normalized funds from operations of $0.84 per diluted share. Normalized FFO was sequentially flat in third quarter and the decline in senior housing operating earnings and dilution from disposition to close over the last two quarters was offset by recognition of HHS funds, lower G&A, lower interest expense, and initial returns on reinvested capital. Now turning to our individual portfolio components. First, with our Triple-Net lease portfolios. As a reminder, our triple-net lease portfolio coverage and occupancy stats reported a quarter in arrears. So these statistics reflected trailing 12 months ending 9/30/2020, and therefore, only reflect a partial impact from COVID-19. Importantly, our collection rate remained high in the fourth quarter, having collected 97% of triple-net contractual rent due in the period. Starting with our senior housing triple-net portfolio. Same-store NOI declined 2.7% year-over-year as leases that were moved to cash recognition in prior quarters continue to comp against prior full-year contractual rent received. Occupancy was down 260 basis points sequentially consistent with the average occupancy drop from 2Q to 3Q in our RIDEA portfolio and EBITDAR coverage decreased 0.01x on a sequential basis in this portfolio to 1.01x. During the quarter, we transitioned a UK development portfolio from triple-net to RIDEA, transitioned 14 former triple-net capital senior assets to new operators in RIDEA structures and disposed of one asset to the net impact of increasing coverage by 0.03x. Consistent with my comments in the past, our senior housing triple-net lease operators experienced similar headwinds as our RIDEA operators over the past nine months and we expect reported lease coverage stats to continue to reflect these challenges as more of the pandemic periods reflected in EBITDAR going forward. That being said, resilience of this portfolio is reflected by the continued high cash collection rate is encouraging. As I described last quarter, we entered into agreement with Capital Senior at beginning of 2020, which allowed for an early termination of CSU leases on 24 Welltower owned assets in exchange for full rent being paid in 2020 in cooperation with transitioning the operations of these assets. We transitioned 14 properties operated by CSU to new operators in the fourth quarter in addition to the five that were transitioned during the third quarter and anticipate the remaining assets to be transitioned to new operators in the first half of 2021. As a result of the continued COVID backdrop, the initial expected dilution from these conversions is expected to be approximately $0.04 per share in 2021. Additionally, the conversion of a development portfolio in the UK from triple-net to RIDEA is also expected to be negatively impact normalized FFO by $0.04 per share in 2021. The combination of these two transitions is expected to result in a sequential roll down with a little over $0.02 per share of normalized FFO from Q4 to Q1. Next, our long-term post-acute portfolio generated 2% year-over-year same-store growth. However, EBITDAR coverage declined by 0.012x sequentially to 1.0x, which was almost entirely due to deterioration in largest long-term post-acute tenant Genesis HealthCare. As we noted last quarter, Genesis HealthCare, which makes up approximately half of our long-term post-acute exposure raise concerns around its ability to continue as a going concern in the second quarter financials filed on August 10. As a result of this concern, Welltower began recording revenue on a cash basis in the third quarter. Furthermore, we wrote down our unsecured loan exposure driven by $80 million in the fourth quarter. Similar to our Genesis lease income, we've been recognizing all interest on our unsecured loans on a cash basis. So this impairment does not change income recognition on these loans. Genesis remains current on all financial obligations to Welltower through January. And lastly, health systems, which comprised of our ProMedica Senior Care joint venture with the ProMedica Health System. We had same-store NOI growth of positive 2.7% year-over-year and trailing 12-month EBITDAR coverage was 2.27x. Turning to medical office. Our outpatient medical office portfolio delivered positive 2.1% year-over-year same-store growth modestly below long-term trends. Growth continues to be negatively impacted by reserves for uncollected rent, the large majority of which resulting from lease enforcement moratoriums in several California jurisdictions in which we have a sizable footprint as I described last quarter. As these moratoriums expire, we expect rent collection to improve from 98.5% received in the fourth quarter. Looking back at 2020, our outpatient medical platform displayed incredible resilience in a truly challenging year, which includes periods of time, which basic medical appointments and procedures were flat out, not permitted. We still managed to grow same-store NOI in an average of positive 1.7%. During the fourth quarter, we continued to observe improvements in several key operating trends as business continue to normalize, notably a pickup in our leasing pipeline, which has start to reflect positive occupancy pickup towards the back half of 2021. Now turning to our senior housing operating portfolio. Before getting into this quarter’s result, I want to point out that we received approximately $9 million from the Department of Health and Human Services CARES Act Provider Relief Fund and post-quarter we received another $34 million, delivering $8 million and $31 million of net expected proceeds at our share. We are recognizing these funds on a cash basis and so there were flow through financials at quarter in which they are received. We are normalizing these HHS funds on a same-store metrics, however, along with any other government funds received that are not matched to expenses incurred in the period they received. In the fourth quarter, there are approximately $11.8 million of reimbursement normalized out of our same-store senior housing operating results, mainly tied with HHS program in the U.S. Now turning to results in the quarter. Same-store NOI decreased 33.8% as compared to fourth quarter of 2019 and decreased 11.3% sequentially from the third quarter. Starting with revenue, sequential same-store revenue was down 2.4% in Q4 driven primarily by 160 basis point drop in average occupancy. As a reminder, we started the fourth quarter with relative optimism on the occupancy front with improving year-over-year moving volumes and relatively low prevalence of COVID within our communities. However, these positive trends rapidly reverse as the exponential rise in global COVID cases in November and December, but the city and statewide lockdowns, admissions bans across many of our key MSAs particularly in the UK and California, which together comprised 34% of our SHO Portfolio NOI. Result of this was 180 basis points of occupancy loss from November through year-end. As I stated on our third quarter call, the path of COVID will dictate our business trend from the fourth quarter, not seasonality and not the seasonal flu, and that has proved quite true over the past 3.5 months. Turning to REVPOR in the quarter, total SHO Portfolio REVPOR was down 1.2% year-over-year and flat sequentially. But as I described last quarter, mix shift is restored in the true picture of rent growth metrics. The standalone year-over-year REVPOR growth for active adult, independent living and assisted living segments were positive 3.7%, 0.5% and 1.1%, respectively. The combined total portfolio metric is being impacted by considerable changes in composition of occupied units in the year-over-year portfolio, as lower acuity properties, independent living and senior departments have held up considerably better on the occupancy front since the start of COVID. We just had the mathematical impact of having a higher portion of our total portfolio occupied units being lower acuity and therefore, lower rent paying units. The point being rental rates are proving more resilient across our portfolio than would appear in our aggregate reported statistics. And lastly, expenses, total same-store expenses declined 2.1% year-over-year and increased 50 basis points, sequentially. I'll focus on the sequential since the changes are more relevant to trends in the current operating environment. The 50 basis point increase in operating costs was driven mainly by higher sequential COVID costs as a result of the surge in cases in the fourth quarter. Decline in topline combined with these expense pressures had a meaningful impact on our operating margins, which declined 220 basis points sequentially to 22.3%. As I noted earlier in the call, we did not include government reimbursement that was not tied to period expenses – NPL expenses in our same-store results, and therefore, COVID expenses negatively impact same-store by $18.9 million in the quarter. We will stay consistent with distribution in Q1, where we've already received a net $31 million in HHS funds that would likely turn COVID expenses into a net benefit if included in our same-stores and offset. Looking forward to the first quarter and starting with 2021 year-to-date data we have already observed. We've experienced 180 basis point decline in occupancy through February 5. Given the still heightened presence of COVID, we expect average occupancy to be down 275 to 375 basis points from fourth quarter to first quarter. Note that we are providing the average occupancy as opposed to spot occupancy as a former better tie to our reported financials, and therefore, 260 basis points of our expected 275 to 375 basis point decline is already baked given the swift drop from mid-November to-date in occupancy. We expect monthly REVPOR to be down 20 basis points sequentially, although it should be noted that actual rent per unit is up 2.1% sequentially. With mix shift, which I mentioned earlier, and two fewer days in the quarter is Q1 reported REVPOR versus actual rent growth. Lastly, we expect total expenses to be effectively flat as higher sequential COVID costs are offset by less labor utilization due to lower occupancy levels. Turning to capital markets activity. Throughout 2020, we took a series of actions that were difficult result in our ability to retain significant cash flow and ultimately gave us greater control to navigate through the pandemic. It's worth highlighting that despite the stress driven by our business, we've avoided the destabilization of the balance sheet by borrowing to pay the dividend or being forced in raising equity or selling assets on attractive valuations. Given where we sit today, the $2.1 billion of cash in over $5.1 billion of available liquidity, we are pleased with our course of actions being the most prudent way to maximize balance sheets stability and positioning us to take advantage of attractive capital deployment opportunities. In addition to showing up a balance sheet, we undertook a series of actions to optimize spend and maximize retaining cash flow by reducing our corporate overhead through tighter cost controls and fine tuning of capital expenditure plans. We also made the decision in May to reduce our quarterly dividend by 30%, given the uncertainties from the pandemic timeline and severity. Despite the pandemic substantial negative impact on our business, our actions throughout 2020 removed any dependence on a quick recovery, and also afforded us the opportunity to be patient with respect to the transaction market and take advantage of attractive private market valuations relative to public markets, while also highlighting institutional demand for a high quality portfolio. Over the course of the year, we sold $3.7 billion of pro rata assets at a blended 5.4% yield, including $1.3 billion of senior housing operating assets at a price per unit of 332,000 per PPE. Most recently, during the fourth quarter, we sold a portfolio of senior housing operating properties operated by Northbridge for $200 million, representing a 4.9% cap rate on March trailing 12-month NOI and $395,000 per unit. Also in the fourth quarter, we announced a new joint venture partnership with certain investment vehicles managed by Wafra. The joint venture comprised a portfolio of 24 outpatient medical properties previously majority owned by Welltower. Many of these transactions were completed in the midst of significant disruption to real estate and capital markets, when the long-term viability of our senior housing assets in particular were being called into question. While we are pleased with execution on disposition front, we’re excited to now be executing on the acquisition side with financial flexibility and ample liquidity. On our third quarter earnings call, Shankh described $1 billion acquisition pipeline. And since the start of the fourth quarter, we've closed on $657 million at a blended initial yield of 4.5% with an expected stabilized yield over 7.5%. Lastly, moving to our first quarter outlook. Last time we provided an outlook for the first quarter of net income attributable to common stockholders per diluted share of $0.24 to $0.29 and normalized per diluted share of $0.71 to $0.76 per share. The midpoint of our guidance $0.735 per share represents a sequential decline of approximately $0.105 per share from the fourth quarter. The $0.105 decline is composed of a $0.08 decline in senior housing operating results driven by $0.06 of fundamental decline and $0.02 of increased COVID cost. A $0.03 per share sequential decline in triple-net senior housing NOI, a little over $0.02 of which is related to the Capital Senior and signature UK transitions mentioned earlier with the remainder due to fundamental declines on cash recognition leases. A $0.02 per share decline related to net investment activity in Q4 and Q1 and $0.03 related to a combination of other items mainly made up of increased G&A, income tax and a slight decline in interest income. These declines are offset by a 5.5% increase in pro rata HHS funds received to date in the first quarter. As a reminder, we are only guiding the HHS funds that have already been received as of today's call. And with that, I'll hand the call back over to Shankh.

Thank you, Tim. I want to end with two things before we open it up for questions. First, I'm excited about the collaboration that is the March between our peers and us. We have worked diligently with healthy Ventas and Omega to address operator and industry issues and towards mutually beneficial transactions. For example, it was an absolute pleasure to work with Tom DeRosa and his team on two separate transactions, totaling $170 million. I'm positive we are embarking on a new era of collaboration amongst the public companies in our space. Second, in spite of our talent is being faced by our industry today, our confidence in our business has not changed, and I'm hopeful that my comments this morning have provided you with a framework for how we intend to create long-term value for all of our stakeholders. We are grateful to be part of your portfolio as our shareholders. Personally, this management team has established a highly concentrated position in Welltower. In fact, neither Tim nor I have sold a single share of the stock that we have received on a post-tax basis since we have come on board few years ago, which should be an indication to you our fellow shareholders of our conviction and personal stake we have in this business. As Buffet taught us, diversification may preserve wealth, but concentration builds wealth. This does not mean the path forward will be without challenges, but it is clear that we are all in on this company and that our alignment with you, our shareholder is strong and significant. With that, we'll open the call up for questions.

Thank you, sir. [Operator Instructions] I show our first question comes from the line of Juan Sanabria from BMO Capital Markets. Please go ahead.

Hi. Good morning and thank you for the time. Just on the acquisition front, you guys talked about the $1 billion pipeline and being confident on more opportunities. I was hoping you could provide a little bit more color on what the focus is. Is it still on the kind of the value opportunities in seniors housing buying at a great basis? And if that's the case or more generally, if you can give color on the timeline to stabilization from the low cap rates going in, what we should expect in terms of when you get those stabilized yields?

Thank you, Juan. Good morning. That is, our focus is to buy near-term – at least in the near-term basis value opportunities that are significant discount replacement costs where we can bring in the right operators or buy with the right operators if it is owned by some other capital partners of our operators. So we're focused on basis, we’re focused on operator, we’re focused on structure. Interestingly, we're starting to see some opportunities where the initial yield is not as much of a drag. That’s just a coincidence. We're not focused on that. We're focused very much on basis, structure, and operators. And I expect that our blended yield of the opportunities when we talk about next quarter will actually be dragged up overall by this set of opportunities. But I can tell you that is not our focus. We're purely focused on basics, structure, and operator.

And any color on timeline to get to the stabilized deals. I mean, it just generally ties to the overall length of the recovery. I know it’s just…

Juan, it is purely dependent on the shape of the recovery and when it drops, which I already said that I'm not going to comment on, right. It is a very uncertain environment. That is precisely why we're buying these value opportunities so that we don't have to be dependent on that, right. So if we had a perfect sense of what the shape of the curve looks like and when it perfectly troughs, then we will be buying everything we possibly can, which we are not. We're very focused on a significant discount/replacement cost for that very reason. But again, we need more time to give you a general sense of what that looks like, but it depends on assets to assets. We're buying assets that are 82% occupied. We're buying assets that are 22% occupied. So, it's very hard to make a general comment on when, what we think that sort of the shape of that acquisition [ph]looks like.

Thank you. I show our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Thanks. Good morning. Shankh and Tim, I know you can't really comment on sort of the exact bottoming and timing of the recovery, but maybe talk about sort of the move-ins and the conditions that you think you need to see within your facilities kind of in the macro in order to ultimately start to drive move-in volume given what we've seen on the decline?

Yes. Thanks, Steve. So, I think the first and foremost what we've seen and learned over the last 10 months is that one; cases naturally and cases in our buildings have very much married each other. The virus has presented itself as – it’s pretty challenging kind of keep out of anywhere. So, I think you may talk about the macro and being cases, we're kind of speaking to both of those at the same time, but we've seen both the negative and positive case counts rise and fall, start to impact our business 30 to 45 days afterwards. That makes sense given thinking about kind of the sales cycle on an average kind of 30 days of a kind of start that will lead to a close. So what we need to see is the direction we're seeing right now in case counts to continue. We need to see likely the vaccinations that are going on at a national level in our buildings and then allow for that to be kind of held at a low level. And we're seeing those things take place now, but as of today’s call, we're still very much at an elevated level of cases nationally in our building. So I think what we need to see is for this current level to drastically continue at the low level to sustain itself, and we'll start to see some early indicators of that if that direction continues over the next month or so, and the fundamental impact in our business would come, as I said kind of 30, 45 days after that. So I think it comes down to simply the path of COVID. And it's a big reason of kind of the outlook being one quarter here and not the full-year because I think any full-year outlook would essentially be just more of a guidance on where the path of the virus goes, which is something that we don't think we've got a better view on those of you in the market. So, it really comes down to just COVID.

Thank you. Our next question comes from the line of Connor Siversky from Berenberg. Please go ahead.

Good morning, everybody. Thanks for having me on the call. Appreciate the detail on the prepared remarks. I'm looking at lease maturities, specifically as it relates to the post-acute care portfolio in 2021. I'm just wondering how those conversations are progressing and if there's any kind of expectation for renewal rates?

I'm sorry. Say that again, Connor, you said which leases?

So the lease maturity is related to the post-acute care portfolio and then how those conversations are progressing?

So Connor, the conversation with all tenants is the same, right. If a tenant wants to focus on what is the right – near-term fundamentals right now, and project that as the future, then I don't think that's our right tenant, right. I mean, we have to – you cannot think about this business as what is happening right now and Mark – at least to market on that basis on today's fundamental. That's just not how we think about it. I laid out the whole framework of how we think about leases in a previous call. I'm not going to bore you with the details, but the conversations are always the same. What is the normalized cash flow of a business? What does that mean from a value as well as the last dollar basis of that lease? The leverage in fact, right? So that's how we think about leases. That's all we do leases, new leases, renewal leases, and that's all going to move forward. If we think that our tenants and us, we can't agree on what is the long-term value of our real estate is. Then we have to move forward with a different operator. Our value is in the real estate and we know how to preserve it.

Thank you. Our next question comes from the line of Michael Carroll from RBC Capital Markets. Please go ahead. Mr. Carroll, if you have your phone on mute, please unmute your line.

I do. Sorry. Tim, with regard to the seniors housing triple-net portfolio in your prepared remarks, can you kind of provide some color on what percent of the operators are being recognized on a cash basis? And I guess what are they paying today versus their contracts for the rents? And just real quick off of that, in that payment coverage stratification heat map that you have, is that coverage ratio reflected on their contractual rent? Or is that reflected on the rent that they're currently paying today?

Yes. Thanks Mike. So a little over 5% of our triple-net NOI is reflected as cash and not as contractual rent. And on the heat map, if things move to cash, they're removed from the heat map because essentially, at that point are one-for-one in relative to what's being reflected in earnings and what's being received in cash. And that kind of is not relevant to the actual contractual and also could end up kind of inflating coverages. So we – if it moved to cash, essentially what we move it off because at that point, earnings is reflecting exactly that cash. And I'd say just as kind of relative areas of where we've seen [indiscernible], where EBITDAR has kind of fallen relative to rent, it's kind of probably been in the 0.5x to 0.75x coverage areas.

Thank you. Our next question comes from the line of Derek Johnston from Deutsche Bank. Please go ahead.

Hi, everybody. Good morning. Spot occupancy stands at 74.4% for SHO and with COVID cases declining and most of your residents likely vaccinated by the end of first quarter, is this 275 to 375 basis points of further decline in occupancy that you're guiding, is this your estimate of Welltower’s pandemic trough occupancy given what we know today?

So what we're estimating in our actual first quarter guidance with – in my prepared remarks, I alluded this. But if we were to be, if today's occupancy was to be held from here through quarter end, we'd end up at an average occupancy decline from 4Q to 1Q up 260 basis points. And our guidance is for 225 basis points of decline from 4Q to 1Q. So our expectation is that given the heightened COVID cases on a national basis that declines and occupancy continue, and we're not making a call on the direction of COVID, which would therefore impact occupancy. So in short, no, we're not, we are not calling today's occupancy trough.

Thank you. Our next question comes from the line of Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Thanks. Good morning. I know that you guys have some optimism because you've sort of transitioned from defense to offense and began buying assets again. So I just wanted to get a little bit of a sense of what you are thinking is as you're underwriting these assets in terms and I mean, seniors housing specifically in terms of the pace of potential lease up, so on the other side of sort of this spike in COVID, how do you think about what – and maybe you can give us some brackets for what lease up occupancy might look like during the peak leasing season, like April to September?

Hey, Jordan. So I can put some brackets around it just thinking through kind of pre-COVID occupancy levels. We've talked a bit this year looking at move-ins as a percentage of pre-COVID levels and to give an idea of not only how much they've declined at start of COVID, but kind of where they sit relative to levels in 2019. If you were to look at kind of move-in levels from April to September 2019 and compare that to move-out levels we saw on the fourth quarter of this year, so just the most recent experience, which is a bit heightened relative to historical. But as you can see in our stats certainly is not spiking. You would see at 100% back to pre-COVID with demand levels 90 to 110 basis points of occupancy increases on a monthly basis. And that's really a product of – again, demand coming back quite a bit, if you look at January of 2021 and we're at 50% of prior year move-ins. So thinking about that 50% back to pre-COVID levels, that's a quite a climb from here. But another way to look at it is we likely have to get back to kind of 65% of pre-COVID demand levels to get to breakeven on occupancy and then from there build to start to gain. And just putting that in context, when COVID did come down in the late summer, early fall of 2020, we did see demand is measured by move-ins moved back to kind of 70% prior year. So we've seen demand moved back in that range during COVID pre-vaccine. But certainly we're well below that now. So current trends move-ins have gotten worse, but hopefully that gives you an idea of where they could move to if demand really comes back to pre-COVID levels in the short-term and also where we kind of need them to get to just see some stabilization of the portfolio.

Jordan, does not mean that we're underwriting in this April to sort of the early summer to late fall leasing season, we're going to see that kind of occupancy increase. If we did that, we would buy every product that we can possibly buy in the market. So I want to remind you that we are not – we're focused on basis so that our value creation is not dependent on our ability to pinpoint the shape of the recovery. It is purely depended on what it takes to build a building. And if you can buy at a significant discount, the two things will happen, right. You can wait for the demand to come back. And if you can make money at a – obviously at a 50% to 60% discount replacement costs, then no one will build a new building, add the replacement costs because they have to charge a lot more than you. So ultimately in any capital heavy asset class like real estate, assuming your overall demand is increasing, ultimately the demand supply is well-balanced. If I can make money at discount replacement costs, you will not be able to make money by building a new one at replacement cost. This is particularly interesting phenomenon in this cycle. In most cycles, what you see is replacement cost, I mean, the cost to build goes down whenever recession hits because housing is [indiscernible], replacement cost is actually spiking through this particular cycle that keeps even a bigger gap as we think through a cycle.

Thank you. I show our next question comes from the line of Nick Joseph from Citi. Please go ahead.

Hey, it's Michael Bilerman here with Nick. Just a two-part question, Shankh, just in relation to partners and relationships that you talked about during your opening comments, you talked about $10 billion pipeline of opportunities as you've executed more partnerships over the last nine months than you did in the five years prior, and you mentioned 600,000 pre-lease MOB. Can you just step back and sort of break down that $10 billion, a little bit more detail about what comprises it, what sectors and the timeline? And then the second part sort of the relationships, you talked about this new collaboration with your fellow healthcare REITs, what drove the change in those relationships? I think it's definitely a positive, it's nice to see, but what was the driver because I think you've been a little bit more critical over time and I just want to know what sort of led to these newfound positive relationships?

Okay. Let me take the second one first because that's a easy one. I don't believe that I've ever been critical of our peer companies. What led to the collaboration is that I reached out to my fellow CEOs, and we absolutely agreed that we need to work on this industry issues and operator issues together. And I got a very warm reception. So that’s just very simple, right? I mean, it is true that we have to work on this and there is a power in bigger numbers and we have very smart companies in our space run by very confident and smart management team. It is only in our interest to work together to solve these bigger issues than work alone. So that's a simple one. I'm not going to get into the first question. I will tell you that we are creating, as I said, we're very much focused on from an acquisition side on two things, right? Early cycle opportunities that obviously we're executing and you'll be very pleased as the year progress where that will shake out, but we're very much cognizant of the fact that early cycle opportunities, eventually that will be gone. So if we start working on, then what will eventually become is the normal cycle opportunities to late. So we have never stopped. And it is also pretty much to be a very advantageous position to be a large company in our space – the largest company in our space, which we're expanding pretty rapidly and we didn't bat an eyelid and stopped. And because we believe in the business as I laid out, we are – you have to think about it. This is a very interesting business where you have to work with other people and you have to work with operators. You have to work with developers. In many cases they are one and the same and to go create value together, not at the expense of each other. That alignment is extremely important. And this life nine, 10 months has given us the opportunity to work with more of our operators. And frankly speaking, as you can see, being aligned with Welltower, has created significant and is continued to create significant value for our operators who – if you think about if you're not aligned with an capital source that has the capability and the fierce resolve to deploy capital to this kind of disruption, then ultimately, as I said, you come to the other end of the cycle and it's too late. So I'm not going to get into what that looks like. I'll just give you one example, 600,000 square feet of 100% pre-leased MOBs, Michael, you can do the math and think about how much value creation. And that is not a pipeline that is just a start that we're sitting here today between 2021 and 2022.

Thank you. I show our next question comes from the line of Jonathan Hughes from Raymond James. Please go ahead.

Hey. Good morning. Could you talk about your underwriting assumptions on the recent SHOP acquisitions at a mid-three yield? And the reason I ask is because using some of the assumptions laid out in the December 2018 Investor Day, like exit price and 7% IRR requirement, it implies a high single-digit NOI growth CAGR for the next decade. I know you won't comment on the growth and the recovery trajectory, but maybe some of those other assumptions like exit price have changed versus two-plus years ago. So any details or thoughts about how you underwrite SHOP and compare to perhaps now higher yielding, but more stable and slower growing medical office buildings would be helpful? Thanks.

Thank you, Jonathan. It depends – obviously every asset is different where you buy the asset, what basis you buy the asset is completely different. When we made that presentation, we never thought we'll be able to buy assets at – and meaningful discount replacement costs. If we look at pre-pandemic, healthcare real estate, particularly on the senior housing, usually traded at a mild to modest premium to replacement costs because the healthcare income has a multiple, not a real estate multiple, but it's still a multiple, right? So in asset class where you’re starting above some level of replacement costs, you're going to keep your pricing power really strong through the whole cycle. And the next buyer analysis, you have to think about your next buyer analysis. And the next buyer has to also believe that we'll continue. That by implication, you are buying above replacement costs and you are selling above replacement costs or you were making a bet that the NOI growth, if you're – NOI growth will meaningfully outstrip the cost of construction increase, right? So in both sides, you are at some form of above replacement costs. That equation changes completely when you can buy at a significant discount replacement costs. So if you buy $0.50 on the $1 and at some period of normalization, you sell it at 100 cents on the $1. You are still at a significant discount to the previous case, when your next buyers’ analysis it's much, much easier. Nothing has changed except the price and that price tells you why we're so excited about it today.

Thank you. Our next question comes from the line of Amanda Sweitzer from Baird. Please go ahead.

Great. Thanks for taking the question. As you kind of think about building occupancy post-pandemic, how are you thinking either about changing service levels or where and how you invest CapEx if at all in order to attract new residents?

Okay. So this is a question that I don't want to be too long-winded and give you an answer. It depends on the price – really the service level of the assets inside those buildings today. And we don't increase occupancy our operating partners do. And we work with our operating partners on service levels CapEx needed and everything, but this is a collaborative process. And I don't want to sort of sit here and tell you that this is – we have the operating expertise to do that. I'm assuming you're asking a SHOP question. We have the best operators in the business that are very, very good of what they do and their local dominance in the marketplace, obviously, as well as this particular service area is very much of what we are depending on. Having said that, we have worked diligently with our operators on payers and provider integration, and as I said, this is a very long answer to a question. We're happy to take this offline. And have you talked too much ever – obviously this process in our SHOP, but the pricing question, the service question is more of an operator question than a Welltower question, CapEx question is definitely something that we work together. Having said that the payer and provider integration is something that we're leading and our operators are collaborating with us, but that's a long discussion. And we'll take this up offline if this is of interest to you.

Thank you. I show our next question comes from the line of Rich Anderson from SMBC. Please go ahead.

Thanks and good morning. And just a comment, the olive branch are extending your peers and they to you, is like red meat to me. So happy to hear about that type of collaboration in the space. And speaking of collaboration, one of the things the gaming sector has noticed – gaming REIT sector has noticed the ability to expand margins post-pandemic and some lessons learned about what was kind of wasteful in their four walls and perhaps a better product at the other side of this. Question is on SHOP. I know there is a lot of talk about margins going down, of course, these days, but do you envision that there will be some positive lessons learned from all this and that ultimately part of your interest in senior housing and SHOP specifically is that there is a margin expansion sort of thesis down the road here, maybe two, three years down the road, perhaps that will come out of this or should we not be thinking along those lines?

So Richard that's a very good question. It's one we've talked about a lot actually with our operators through the last period kind of the last six months. I think I'll answer in two ways. The first is on lessons learned. Absolutely, this has made our operators look at their cost constructs in a more critical way than they probably ever could or imagined just given the pressure to occupancy and getting back the levels that for a lot of them look like they haven't done in since at least of some of these assets years ago. We've had feedback from operators and large platform saying they've found ways to do things from labor front, just a lot more efficiently. And given the feedback ahead of time to what you're speaking to that when you start to see the business come back and you think there is significant cost savings in the – particularly the labor model as far as getting a bit more leverage off it. Again, in the margin side, I would hesitate to kind of speak to that from a margin expansion story just driven purely by that as of yet. As you know, there's cost and the structure right now that are being added because of COVID. We feel pretty confident that a lot of these things are temporary. But given that, there's two things to speak now as kind of a market expansion story. We're having those cost in the current business and having an unclear picture of when and how the kind of the virus moves away from our business. I think it would be a bit aggressive. But I do think the margin expansion story of thinking about it relative to even where we were pre-pandemic. We think there's an occupancy lift story in this space just given the demand story and that makes us – still keeps us very positive in the spaces that long-term demand story hasn't changed in the pandemic. And certainly has been a very impactful last nine months, 12 months, and need to continue to be in the near future. But the long-term demand story stands and that's going to lift occupancy and there's a lot of operating leverage in this business even without changes to the structure. So you're going to see as kind of industry occupancy lift up over the next three to five years, I think you are going to see margins move above where they were pre-pandemic even without those operating efficiencies being put into the model.

Rich, I would just add two things. One is that, we obviously – I would encourage you and our team would be happy to set it up to talk to Mark Shaver in our team with what we're doing on the payer provider side, and which should help margin as well. The second lessons learned, I would say not a margin point, but the separate point is one of the lessons learned in our SHOP through not just this pandemic, but through last few years, is that you should not lend money to an entity or any type of entity where you are not willing to take the keys, right. As of REIT, we're not allowed to obviously own an operating company more than 35%. So we should not lend money to operating companies where we're not able to take over the assets. Today, we're only focused – obviously in the last few years, and through the cycle, through the pandemic, we're only focused on if we write a credit check, we only write, if we are completely able to take over the assets and we're very happy owner of the assets on the last dollar exposure that we have. That is a big lessons learned inside our SHOP and a good one for the long-term value creation of our shareholders.

Thank you. I show our next question comes from the line of Nick Yulico from Scotiabank. Please go ahead.

Thanks. Good morning, everyone. So a couple of questions just here on the vaccine rollout. Clearly that's important in terms of getting move-in activity back. So I was hoping to get some stats on what the adoption rate has been of the vaccine by residents and staff members so far. And then I'm also wondering, we saw an announcement from Atria, which was very vocal saying that they were requiring staff members to get vaccinated by May. And we haven't seen anything from Sunrise. And so I guess I'm wondering as a part owner there in Sunrise, are you guys pushing for that policy and maybe just give us an update on kind of what that policy is in regards to staff members across your operators in assisted living? Thanks.

Nick, I’ll answer the second question and Mark will answer the first question. We have tremendous amount of respect for John Moore and his team at Atria. We do not comment on the vaccine policy of different operators. We work with our operators and supportive of their different policies. I can tell you everybody's focus is to get to the right place. How they get there is the decisions that the management teams and the CEOs of specific operators to take that. We do not push for one or the other, but I can tell you that everybody is focused on the same outcome. Mark?

Yes. So just to give some stats, the relationships the operators have with CVS and Walgreens has worked quite positively. We've seen over 120,000 vaccinations across the platform as of earlier this week. About 90% of our communities have completed their first clinic and very actively working through the second clinic we feel by the end of February, 1st week of March. Most, if not all of the second clinics will have taken place. With regards to adoption and consent, 90 plus percent of residents have consent or receive the vaccination, 55% of staff across the portfolio that varies from operator-to-operator have consented to receive the vaccination. We're not going to get into specifics on number of vaccines by individuals. Some of this is skewed. You maybe aware that if there was active COVID or inactive COVID diagnosis in the prior 28 days, an individual has to wait to delay that. So we're focusing really on consent and the percentage of vaccinations that have occurred across the communities. But what happened to provide additional color, but those are the highlights.

Thank you. I show our next question comes from the line of Mike Mueller from JPMorgan. Please go ahead.

Yes. Curious how are the yields on the various new developments you're looking at compared to what underwriting would have been in pre-pandemic?

Our target yields Mike have not changed. Market conditions have changed, so obviously or even more critically thinking about the cost as well as the land price and ultimately how much it takes to – obviously how long it takes to get to that stabilization and the working capital loss in between, right. So our focus, again, as I’ve said, you have to imagine these things. They're long-term. We think about at least the developments that we're interested in. You're talking about a five, six-year cycles, so you have to really, really think hard about when do you start, when it actually finishes, when you get your approval. And just for an example, as you know that for last few months or last year or so, we have worked on in new development project in Brooklyn. It is one of the hardest place to build in the country, right. You can't change your view depending on how you're feeling about your occupancy today. That's a five to seven year process. And so our return thresholds have not changed. Clearly, what we think sort of the trended yields, the trending has changed given what is going on in the business today, and we still need to make money on an untrended basis to start this development. So that's how we're thinking about it.

Got it. Okay.

Thank you. I show our next question comes from the line of Todd Stender from Wells Fargo. Please go ahead.

Thanks. Your data analytics team has been instrumental in having you guys drill down on MSAs just for senior housing, of course. But can you share the recommendations that they're providing now just in light of lingering new supply out migration from more urban cities due to COVID, maybe any specifics you can share?

So Todd, we have the ability to tell you today. First is that not just focused on senior housing the team has built. The platform has been enhanced pretty meaningfully in last few quarters, so we have the ability. We're beyond what you have seen in senior housing into medical office and other housing businesses such as active adult, where you play pretty heavily. One of the questions that you raised, which is the migration pattern, you can do. We have a team – entire team, which has been working on this data scientist. Today, I'm glad to tell you that we have the ability to pinpoint that out migration or in migration on a weekly basis, not just focused on the longer-term data such as ACS and IRS data, but also cellphone data and other more near-term or more instantaneous sort of data. I don't mean instantaneous in right at this point, but we can tell you most on a weekly basis – not almost on a weekly basis, we can tell you on a weekly basis where people have moved out or moved in. That is very much flowing we’re through models as we're making investments. As you know, that we're very, very focused on making new investments on all the asset classes we deal in. And it's definitely a big part of why we're seeing today the attractiveness of us as the capital has enhanced in last few months or few quarters because we're still standing here and taking advantage of the disruption in the marketplace, but also that huge predictive analytics platform that we have built over many years that our partners are attracted to.

Thank you. I show our next question comes from the line of Steven Valiquette from Barclays. Please go ahead.

Thanks. Good morning, everybody. So a couple of questions here. I guess, first regarding REVPOR, it was encouraging to see the positive year-over-year trends in 4Q 2020 in AL high urban senior apartments in that 1% to 4% range. In your walkthrough of the FFO sequentially into 1Q 2021, you mentioned that’s $0.06 hit from a fundamental decline in senior housing, I guess, I'm curious, what's the REVPOR assumption within that? Does that stay positive year-over-year, or does that start to decline? Thanks.

Yes, that's a good question, Steve. So when you think about on a sequential basis that $0.06 that moves from 4Q to 1Q effectively, so think about like REVPOR and occupancy decline combining to get your revenue change, sequentially, our REVPOR is down 20 basis points, but that's driven by two things. 40% of our senior housing revenue in the fourth quarter is actually from operators that receive rent on a daily basis, which is pretty common in the higher acuity side of senior living. And so just moving from the fourth quarter to the first quarter, you lose two days, you go from 92 days to 90 days. So with REVPOR being an approximation of monthly rent, your rent will go down 2.2% just from that. So there's a headwind from that on a sequential REVPOR basis. And then you've got this continued mix shift where the occupancies and mix shift, the make-up of revenue in the fourth quarter versus first quarter, again, you're seeing a higher occupancy fall off in the higher acuity segments of our portfolio, which pay higher rent. So in combination of those two things is the REVPOR from how that impacts kind of total revenue is down 20 basis points. But if you look at on a per day per unit rent were up 2.1% in the fourth quarter relative to the first quarter, and it's actually pretty strong sequential growth and it’s driven mainly by – roughly half of our operators also have Jan 1 increases. So there’s increases that’s pushed through on Jan 1 and that's helped kind of rent growth.

Thank you. I show our next question comes from the line of Lukas Hartwich from Green Street. Please go ahead.

Thanks. Hey, Shankh, in the past, you've talked about Welltower and difference between the SH-NNN and SHOP format is structured correctly. I'm curious how the teams evaluating that question for the existing portfolio, as well as acquisitions in this environment because, clearly there's a lot more uncertainty and not only near-term fundamentals, but the recovery, the trajectory, potential long-term impacts in the senior housing business. Still a lot of moving pieces relative to the history there.

Well, I think you just coined a new time. I'm assuming you're asking about the difference between senior housing triple-net versus senior housing operating. So look, given where the cycle is, I want to be a majority being the equity position are in the RIDEA side. But there are opportunities to deploy capital in the senior housing in a triple-net side. If you have assets that are stabilized and you can buy it cheap enough that the last dollar of that lease is still in a place where the operators can make money and we can make money. Obviously, you can create a lot of bells and whistles than what the operators have the second bite of the Apple. So there's ways you can create that alignment, but remember, if you simplistically think about RIDEA is an equity exposure and at least it's more of a credit exposure, you can create value if a) from our side, if the buildings are stabilized or near stabilization and you buy it cheap enough that your last dollar is still a pretty low rent relative to what the cash flow of the buildings look like then you can create value, but that's how we think about it. That's how our operators think about it. And so we have found two opportunities to do leases. If we do find more opportunities, we'll do it, but I can tell you that the industry is moving away, at least we're moving away from very tightly covered leases. Today, we're thinking about there should be even more margin of safety, and when we find opportunities where we're buying so cheap that we can that's when we're going for it.

Thank you. I show our next question comes from the line of Joshua Dennerlein from Bank of America. Please go ahead.

Hey. Good morning, guys. Shankh, I just wanted to follow-up on your comment in your opening remarks about hiring [indiscernible]. I think you said 41 employees last year. Curious, just what area of the business are you guys hiring…

Pretty much across the Board, I mean, if you think about it, we have added a lot of people on our investment teams and we have hired a lot of people on that data analytics team, we hired a lot of – hiring people on our infrastructure teams or accounting, tax. I don't have the background. I can tell you that we have seen an incredible resurgence of interest in our asset in our company today from both sort of externally and internally. And what I mean externally as an operator, as developers, internally as prospective employees. Both experienced employees that we're hiring there's a lot of talent in the market for obvious disruption. Also a lot of early career employees that we're seeing. I'll just tell you just one small stat. Interesting one, doesn't change really when we do. We hire – East Coast, West Coast and Midwest, we hire the top seven schools for MBA candidates. This year, we got more than 1,400 applications for really four or five positions we hire. So that sort of tells you the interest in our business and the amount of incredible talent we're seeing both on the early career side as well as super experienced side, and we'll see some really good hires this year as well. This year, I expect that we'll add 40 to 50 professionals across the Board in the company. Acquisition is not just as I said, I want you to think about, Josh, acquisition in this kind of market, which is so disruptive in three ways. One, obvious one, right, we're doing value opportunities that we can add, edit discount replacement costs; b) acquisition of partnership and operator relationship and developer relationship, that's B; c) is employees. We're in a business of talent and given the amount of disruption that's in the marketplace that we see and what we think this business will become as we think about three years, five years, 10 years from now. We're very much adding an incredible level of talent that we have sort of never seen in the marketplace.

Great. Appreciate the color.

I show our next question comes from the line of Omotayo Okusanya from Mizuho. Please go ahead.

Yes. Good morning, everyone. First of all, Shankh and Tim, I just wanted to give your entire team credit for such strong transparent disclosure on your business updates. I wish more of your peers were doing that. And also regards to Tom, I hope he's doing well. My first question really is around government support. Could you just talk a little bit about kind of post the Phase III announcement kind of what you've seen in the pipeline at this point or what the lobby group is seeing, what the potential is for the government released for your operators?

So let me take your question and see what I can get there. I'm not going to comment on sort of what might happen. There's too much uncertainty. We have a new administration. If I sit here and try to comment on what might happen, I'll be so much outside my zone of confidence, which I think, you know, that I focus very much on talking about confidence. Being a lifelong Buffett and Munger, sort of decide, I'm not going to answer that. But I will tell you that Tom is doing well. I talk to him pretty frequently. He has been an incredible mentor and a friend. He continues to help me think through a lot of issues and he's definitely doing well. If you reach out to him, he will reply to you, but he's definitely doing well and he remains safe, great supporter of the company and he's helping any way he can.

Thank you. I show our next question comes from the line of Daniel Bernstein from Capital One. Please go ahead.

Hey. Good morning. I appreciate you staying on and taking the calls here. It seems to me that the initial acquisitions you've done here, I mean, clearly the disruption you're buying it below replacement costs, but they're not really truly distressed sales. So just trying to understand what you're seeing in the marketplace in terms of lenders, bankers, kind of exercising covenants, enforcing more distressed sales the remainder of this year, especially given your comments on a strong pipeline. And I know if you can talk difference between that distress in senior housing and skilled nursing? Thanks.

Like beauty, distress is also something that lies in the eyes of the beholder. I can tell you Dan, we're buying assets in core markets of New Jersey, Seattle, California for less than $200,000 a unit where replacement cost is $400,000, $500,000 above $500,000 a unit. If you don't think that's a deep value opportunity, I really don't know how to answer to that. So I guess, we just have to obviously think about it different way. We are – if you just always remember price relative to what it takes to build that gap is what we've distressed. If you just want to look at purely on a price per pound and does it look cheap, just wait for a few, as I said, 60 to 90 days, I can tell you more about some of those opportunities that we're seeing. But I think we’re executing on some very significant sort of discount replacement cost opportunities, some we have reported. And if you look at what those assets are and dig into what it takes to build it, you will understand that. So going back to the banks, look, I have no idea when the banks will obviously push more towards – sort of pushing these sort of these whole pipeline of new construction that happened between 2015 and 2019 from their books. But I can tell you that we have been working diligently with many of our banking partners. Just yesterday we executed on one such loan. Look, we're here open for business. We have a sense of what the value is. We have a sense of how we can create value, not just at the buy, but also with our operating partners and we're executing. But I can't sit here and tell you when the banks will pick the books. That’s just no way to say that.

Thank you. I show our next question comes from the line of Vikram Malhotra from Morgan Stanley. Please go ahead.

Thanks again for sticking on. Just to go back to sort of the potential inflection. I know you can't give near-term prognosis on when that's going to happen. But just in terms of early indicators both on move-ins and move-outs, Tim I found your comment that 65% needed for stabilization, interesting. I'm just wondering, in the different geographies given the COVID cases have trended somewhat differently, and that has a correlation to the move-ins. Any early signs you're seeing on monitoring that would suggest move-in and move-outs kind of can turn the other way.

So there is not – I think as far as early indicators, we haven't seen enough to note it as a trend, I'd say. You certainly have seen operators where you've seen deposits or tours or initial inquiries move up. You've also seen – as your question goes, you've seen it move down in geographies in which you've had, essentially last six to eight weeks has been shutoff in a lot of ways. So not enough of a trend on the initial indicators or first movers to say that there's something there. I do think part of what I was getting on earlier is what we've seen in the past. You follow some of the first indicators being inquiries and quest for tours, et cetera. You've seen that kind of lag cases in that kind of 30 to 45 day range. So what we've seen in cases, in fact that there’s still very high may make this time a bit different as far as how much time it takes to post it, but just thinking about it a mid-January kind of peak in cases, you would likely – if things continue on this trend, the positive trend we're seeing, I think you’ve start to see towards the middle or the end of the month, maybe some of those first indicators move in a more portfolio wide basis. And so we can provide some more color on that as we update the market over the next month or two, but right now it’s too early to speak to it.

Thanks.

Thank you. I show our next question comes from the line of Omotayo Okusanya from Mizuho. Please go ahead.

Hi, good morning. Thanks for continuing to go on. My question actually ties into what Vikram was just saying. If the inflection rate trends have been getting better over the past few weeks, you guys kind of talk about a 45 day lag, I guess it does seem to indicate to me that things should get better in the back half of the quarter. But yet you have 260 basis points of average occupancy, big decline backed in today, but the guidance for 1Q is 275 to 375 basis points. So guidance – a few things actually get worse in the back half of the quarter versus better. Could you just help me clarify that?

Yes. I appreciate the question. To clarify that a bit, we're saying if the trends were to continue and I think you’re saying the same, you would start to see some improvement in latter part of the quarter. But trends getting better from here or staying the same as the part that we're not taking a position on. And so certainly if that continues that way, that's when we start to see some improvement, our guidance doesn't take a position on COVID in the path of it. It's even today despite where we've come off of. Case counts in every way, shape or form are higher than any point we've given a forward look in the past nine months. So today still there is a lot of uncertainty. It certainly feels better than it did three or four weeks ago. But what's baked into guidance in our view is not an attempt to call for a better or a continued improvement and it's more of a current state holding.

Also Tayo, as Tim sort of pointed out before majority of the decline is on an average basis is already baked in, right. So if you see the improvement that you are hoping for, which we're not hoping for, we're not guiding for then that will more impact the second quarter than the first quarter.

Thank you. Ladies and gentlemen, this concludes the Q&A session and today's conference call. Thank you for participating. You may all disconnect at this time. Everyone have a good day.