Welltower Inc (WELL) — Q3 2019 Earnings Call Transcript

Thank you, Shelby and good morning. 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. And with that, I'll hand the call over to Tom for his remarks on the quarter. Tom?

Thanks, Matt. Back at our Investor Day in December of 2018, I laid out a growth plan for 2019. I'm pleased to say that we have met or exceeded this growth plan year-to-date and today, we again reported strong results, which are enabling us to raise the midpoint of our 2019 FFO guidance. The optimism that I articulated last December was due to a deliberate and often painful complete restructuring of all aspects of a company formerly known as Health Care REIT. We made considered and sometimes tough decisions regarding Genesis, Brookdale, health lease, and other legacy investments that could best be characterized as last generation real estate, bad capital structures, misaligned operating agreements, misguided private equity investments or frankly simply paying too much for real estate. It was sometimes painful for our shareholders, but this management team took actions that were in our shareholders' best long-term interest. While we will never stop optimizing our investment portfolio, the dispositions as well as the acquisitions made in the last three years have significantly de-risked the enterprise. That is why today, our senior housing assets have positive growth, our long-term care assets have strong lease coverage, and our industry-leading MOB portfolio continues to perform and grow through acquisition and development. Welltower has a unique strategy that fundamentally views our health and wellness care delivery real estate as a platform. Like all successful platforms, this platform is able to deliver another level of value far beyond the value of the real estate. This enables synergistic collaborations like CareMore Anthem, which we recently announced, attracts new senior housing operators this year alone like LCB, Balfour, Frontier, Atria, and Clover and has enabled our medical office portfolio to grow by approximately $2 billion this year and the year is not over. As we continue to grow, we have strengthened our balance sheet, so we can continue to drive shareholder value in a measured way. Tim McHugh will now take you through a closer look at our third quarter financial performance. But first, I need to mention that this is Tim's first official earnings call as Chief Financial Officer. I've had the pleasure of working side-by-side with Tim over the last four years and could not be happier to see him ascend to this leadership role at Welltower. A role we've been grooming him for since we stole him away from RREEF. Over to you, Tim.

Thank you, Tom. My comments today will focus on our third quarter results, our balance sheet, and updates to our full year 2019 guidance. Welltower reported normalized FFO of $1.05 per share. Results were primarily driven by strong fundamental performance in our core portfolio and continued accretive capital deployment, slightly offset by $2 billion of property dispositions outlined last quarter, as part of our guidance adjustment and $62 million of loan payoffs yielding 9.4%. Now let me provide you some details around our major segments. Starting with Seniors Housing Triple-net, with another consistent quarter was positive 3.4% year-over-year same-store growth driven by several development leases with fair market value step-ups. EBITDARM and EBITDAR coverages were flat and down 0.1 times respectively. Turning to medical office. Same-store growth, a positive 1.4% in the quarter was below long-term run rate, but above our short-term expectation. We are encouraged by recent leasing velocity as back of vacancies resulted in a 40 basis points sequential increase in occupancy. Importantly, we expect same-store growth to return to trend next quarter as cash rent commences in our newly leased space. Next for health systems, which is comprised of our HCR ManorCare joint venture with ProMedica. This portfolio enters the same-store pool in the fourth quarter. We reported HCR ManorCare's trailing 12-month rent coverage of 2.15 times in the footnote on Page 1 of our supplement this quarter. The presentation is consistent with ProMedica's latest public presentation of the metric and is trailing 12-month coverage from 06/30/2019. The coverage includes revenue and expenses under HCR ManorCare's core business lines including home health and hospice. This is consistent with how HCR's lease coverage has been presented by other public landlords in the past, and more importantly tied to how ProMedica itself reports coverage of Welltower's lease to its public stakeholders. While a reported coverage does not and will not reflect any profitability beyond the cash flow of HCR ManorCare itself, the guarantee in our lease is pari-passu with the senior most claims on its parent company and our joint venture partner, ProMedica. Turning to long-term post-acute same-store growth was positive 2.5% in the quarter and both EBITDARM and EBITDAR coverages declined 0.01 times respectively. Lastly, our senior housing operating segment continued to perform above our expectations. The same-store growth of positive 2.8% in the quarter. As Tom alluded to, these results are a reflection of our continued focus on improving the quality of our portfolio from both the real estate and operator perspective. As I noted last quarter, our active approach to portfolio management may result in sequential changes to our same-store pool. In 3Q, we had an eight-asset sequential change in our senior housing operating same-store pool. There were 15 assets removed made up of 11 Silverado properties in California that were transitioned to triple-net lease structure and four Revera properties in Canada that were moved to held for sale and subsequently sold in early October. If these 15 assets had not been removed from the pool, same-store growth would have been positive 70 basis points higher than what we reported. Additionally, we added 77 properties to the pool this quarter, consisting of five acquisition properties, one redevelopment and one transition property, which all reach their fiscal quarter of operations for our same-store policy. At quarter end, we had a total of 75 senior housing operating assets classified as transition properties. These assets began transitioning in the fourth quarter of last year, and will start to re-enter the same-store pool in the first quarter of 2020. Forty-six of the 75 will re-enter the pool by the second quarter of next year, and virtually all 75 will be in the pool by the start of the fourth quarter next year. While a roll down in rent to EBITDAR has created short-term dilution over the past five quarters, we continue to expect these properties to contribute meaningfully to cash flow growth in the coming years. Turning to the balance sheet, we remained disciplined in our capital raising efforts taking advantage of historically low yield in the investment-grade debt market. In August, we came back to the market for the second time this year raising $1.22 billion of debt with over 8 years of duration and a weighted average yield of just 2.87%. Proceeds from this issuance were used to refinance our 2021 and 2022 maturities. As a result of this activity, we extended the average maturity of our entire debt stack by one full year. Additionally, we continue to access the equity markets during the quarter via our DRIP and ATM programs. We believe that our disciplined approach through these mechanisms provides us with maximum efficiency and flexibility in match funding both our development and our highly visible investment pipeline. As such, in the quarter and through early October, we issued approximately 4.5 million shares at a weighted average price of $88.54 per share for estimated proceeds of $395 million. As of today's call, through our afford ATM program, we have sold 6.1 million shares of common stock, but have yet to settle, representing $528 million of estimated proceeds. This methodical approach to capital raising and long-term asset recycling activity has allowed us to concurrently improve our leverage metrics, while further strengthening the quality of our portfolio. With the closing of the Benchmark senior living portfolio this quarter, we ended the quarter at 5.79 times net debt to EBITDA, which represents a roughly half churn reduction from the end of Q2. We continue to be encouraged by the strong bid for our assets throughout our entire portfolio. We continue to view the disposition of non-core assets, as the efficient and effective way to capitalize on the growing opportunities that we see. I reinforce that we are more than adequately capitalized through our capital raising efforts and asset recycling activities to finance all near-term investment and development opportunities. Lastly, I want to address last night's update to full year 2019 guidance. As indicated in our press release, we are tightening our full-year FFO guidance to a range of $4.14 to $4.18 per share, from our prior range of $4.10 to $4.20 per share. With that change, the midpoint of our guidance has been lifted to $4.16 per share, which reflects better than expected portfolio performance, particularly from our senior housing operating segment. Further details regarding our guidance are contained in last night's press release. And with that, I'll now hand the call over to our Chief Investment Officer, Shankh Mitra.

Thank you, Tim and good morning everyone. I will now review our quarterly operating results and provide additional details on performance, trends, and recent investment activity. We're delighted to inform you that every segment of our business has either exceeded or met our expectations this quarter. We came into this year expecting a slow and steady recovery to take hold in our senior housing operating segment. However, I have to admit for three quarters in a row, our SHOP results have exceeded our own expectations. Relative to our initial expectation of 2.5% to 2% NOI growth in SHOP for 2019, we have year-to-date delivered a solid 3% NOI growth, driven by strong pricing power. Q3 was no exception driven by significantly better-than-expected U.S. results. Overall, same-store NOI was up 2.8% in Q3 driven by 3% revenue growth and partially offset by 3.1% expense growth. Though we experienced a slight decrease in occupancy year-over-year, primarily driven by a Canadian portfolio, we experienced overall sequential occupancy growth. We continue to achieve very strong pricing power differentiating our extremely well-located and diverse portfolio. While labor cost inflation continues to be challenging with 4.8% year-over-year growth, we're encouraged by 4.4% compensation per occupied room or ComPOR growth in U.S. Particularly noteworthy was 30 basis points of sequential ComPOR growth, which is the best we've seen in the last five years. Though we have not and will not provide monthly results, in anticipation of questions, I want to point out that we did not experience a sequential decline in NOI or occupancy on an intra-quarter basis. Occupancy continued to build through September following normal seasonal patterns. Our U.K. business continues to perform as expected. Although same-store portfolio growth moderated, as we discussed last call, our overall U.K. SHOP NOI growth was close to double-digit. Our Canadian SHOP portfolio is still trying to find the bottom. This quarter we have been impacted particularly by new deliveries in Quebec. We're cautiously optimistic about our Canadian portfolio in 2020 from a growth standpoint. Our U.S. portfolio shined through all the rhetoric around supply and labor cost inflation with 4.3% NOI growth in the quarter. We continue to see significant outperformance of assisted living relative to independent living and the gap widened to a multi-year high. Top markets had a particularly strong quarter primarily driven by solid pricing power. Washington, DC, Seattle, Chicago, San Diego, all experienced double-digit NOI growth this quarter. Several of our operating partners contributed to this industry-leading growth and I want to thank them on behalf of our shareholders. As we have said repeatedly, we own the best assets in the best markets; however, the hallmark of our portfolio is our 25 best operating partners. The strong structural alignment between us and our partners is especially important when the industry fundamentals are not necessarily lifting all the boards. To paraphrase Warren Buffett, in these times of low tide, you get to know more about who is swimming without shorts. To continue the team of operating partners, we are delighted to inform you that we have initiated a RIDEA relationship with New England-based highly reputed operator LCB Senior Living. We bought one asset together and transitioned two former Brookdale properties to LCB. We have strong growth plans for this relationship. As such, we have fully negotiated a RIDEA 3.0 management contract and aligned development contract with LCB. This is our fifth new RIDEA relationship this year and we are very excited to welcome Mike Stoller and his team to the Welltower family. In this quarter, we expanded our relationship with SRG by adding one asset in the San Francisco Bay Area for a pro-rata investment of $35 million at a valuation of $360,000 per unit, which is a significant discount to the replacement cost in that market. While we have seen this kind of far unit pricing in Florida and Texas, recently by other market participants, we're excited to achieve such remarkable pricing in the San Francisco Bay area. We are also delighted to inform you that we continue to grow with our existing operating partners such as Frontier and Oakmont. Subsequent to the quarter end, we closed on two additional SHOP assets with Frontier for $39 million or $197,000 per unit, which is also a significant discount to replacement cost. As a result of overbuilding in the last few years, we are starting to see more capital deployment opportunities in the Memory Care segment. We are also incredibly excited to grow with Oakmont in California. We signed a definitive agreement to buy six newly built Class A properties for approximately $297 million. The initial cap rate is in the low 5% range on the current NOI, as one of these assets just opened in the third quarter of this year. We expect the yield will grow into the high 5% range as these assets stabilize over the next 18 months. Oakmont will take 10% of the proceeds in OP units or Welltower stock at approximately $91 per share. We will continue to grow with Oakmont in California markets. Turning to our post-acute business, we significantly de-risked our enterprise this quarter by divesting a majority of our LTAC exposure. As part of this process, we sold our Vibra portfolio for $265 million. We're delighted to inform you that we have effectively managed through the Life Care reorganization process and re-tenanted the building with two operators. We have lost approximately $2 million of annual rent as a part of the restructuring process, but we have improved coverage and credit on these assets. Though income loss and high cap rate sale are dilutive in the near term, we have strengthened the quality of the overall portfolio by minimizing the exposure to this property type. This experience highlights the detailed discussion we provided on triple-net leases a few quarters ago. The key to value preservation is to have the right basis or price per unit, credit support, and alternative set of operators, while keeping the overall exposure to a manageable level. Both times we have given rent concessions in the case of Genesis previously and last year and now we did not have many or all of these boxes checked. However, we believe that today we're in a different position in both the Senior Housing Triple-net and skilled nursing space after the many restructurings that we have done in time through the last three years that Tom mentioned. We now have manageable exposure, low basis, and our credit and the ability to turn to our operating platform to protect our shareholders. This point cannot be overemphasized. Turning to our health systems business, we're pleased with the investment we made last year with our partner ProMedica Health. Since that time, the regulatory environment has turned more favorable and asset pricing has soared. We believe the outlook for total return or forward IRR has materially improved in the last 18 months since we announced the transaction. We have received multiple unsolicited offers for many assets in the last six months in that portfolio. Though we have no current desire to sell these assets in size, we are considering two specific deals. One involves a transaction for a handful of assets, in which the buyer has gone hard on the deposit. These offers present evaluation in excess of $150,000 per bed versus our combined basis of roughly $57,000 per bed. The sheer magnitude of this price increase gives you a sense of what we think the total return looks like today versus when we made that investment. We own real estate at a very low basis with cash flow that has great support and term. Speaking of cash flow, when we set the range for this portfolio at $143 million versus pre-reorganization rent of $474 million, we did this precisely because we did not want to guess when the cash flow will turnaround. Though I will refrain from commenting on other people's opinion on our partners' credit, I want to put things in perspective. ProMedica has a net debt of approximately $800 million with a revenue of $6.8 billion with billions of dollars of unencumbered assets on their balance sheet. One might argue that the system's 20% ownership in our JV along with a reasonable market multiple to the home health and hospice business, the system would be able to pay off all of their outstanding debt. In the past, we have talked about $75 million or so of synergies when the transaction was announced. We believe roughly $46 million will be achieved this year. We are pleased with how the integration has gone so far and continue to anticipate the system will achieve significant synergies above our target. We continue to believe this rental stream, which is roughly two times covered at HCR level will improve, as we look forward in the near to medium term. We also remind you that we have significant structural protection beyond HCR level coverage. However, instead of rehashing what we have said before, I'm delighted to inform you that our collective business case has only gotten better. HCR ManorCare leadership is engaged with several not-for-profit health systems to partner with to address the need in this critical but not easy to execute part of the healthcare continuum. We look forward to discussing many of these topics with you next year. For our outpatient medical business, same-store NOI growth of 1.4% was ahead of our budget, though in-quarter growth remains muted for reasons we described previously, the leasing velocity has been brisk. Based on this leasing velocity, we believe this segment is prime for growth in 2020. We remain very active in the capital deployment side in this segment. In this quarter we closed nine Class-A assets for $193 million and expanded our relationship with Novant, Summit Medical Group, Baylor Scott & White, and TriHealth. Summit and Novant are two prime examples of how we have replicated our relationship business model into the medical office sector. Post quarter end, we have signed a definitive agreement to acquire 18 outpatient assets for $258 million, which will expand our relationship with several systems such as CommonSpirit, University of Texas Health, Henry Ford, and UPMC. This portfolio is approximately 98% leased, has remaining weighted average lease term of 8 years. The portfolio is owned by a private owner, which has directly negotiated the transaction with us instead of going to the market due to our reputation and certainty of close. This once again shows the power of our platform and how we can create significant value in a competitive industry through executing completely off-market transactions. We have a handful of other capital deployment opportunities in a similar off-market fashion that we have been negotiating over the last 9 to 12 months. In Q3, we have funded approximately $141 million of developments at an expected accretive yield of 8.1%. While we are encouraged by a robust cost and access to capital, we remain disciplined and will deploy capital only if we do so on a long-term total return basis. To illustrate this point year-to-date, we have closed $2.95 billion of acquisitions at a blended 1-year yield of 5.5%. As described in our last earnings call, we expect many of these newly built assets to stabilize in the next 12 to 24 months and consequently, that 5.5% will grow above 6%. In addition, we announced today an additional $594 million of post-quarter acquisition in a similar mid to high 5% cap rate range. And as Tom said, the year is not over yet. At the same time, we've sold $2.675 billion of assets this year at a cap rate of 6.2%, which includes $558 million of high cap rate post-acute transactions, which implies we have sold $2.1 billion of senior housing assets at a cap rate of 5.35%, including benchmark disposition described last call which resulted in a $520 million gain. The operating environment and the market for all of our assets remain incredibly vibrant and we think thoughtful capital allocation can create significant alpha for our shareholders. We are focused on building new relationships with the best-in-class senior housing operators and health systems while realizing growth opportunities with these partners, one asset at a time. With that, back to you, Tom.

Thanks, Shankh. Before we open up the line for questions, I wanted to say that when I stepped into this role in 2014, the company was known as the seniors housing relationship REIT. Admittedly, it took me a bit of time to realize that many of those relationships were very one-sided, based on paying the most for an operator's real estate with few rights and they were clearly not in favor of Welltower and its shareholders. That is not who we are today. Welltower's platform encompasses people, real estate and healthcare knowledge, great operating partners, data and technology, access to capital and other capabilities that provide us with a competitive advantage to drive growth from our current asset base as well as create new investment opportunities. We are optimistic about our future. Now Shelby, please open up the line for questions.

Just first question around ProMedica, you mentioned the coverage of 2.15 is not necessarily comparable with the 1.8 that you originally outlined in the transaction. Assuming you can't give the comparable number, could you at least - could you give us a sense of what the original cash flow that you were underwritten or the decline in cash flow, which I think was about 10%. How is that cash flow trending today?

Vikram, thank you for your question. As we said, we want to respect our partner's desire to keep one metric that is consistent across both platforms. I'm happy to give you the cash flow that we have underwritten. We usually don't talk about our underwriting models on the call, but for once, I will give you that and hopefully this will stop this constant conversation on ProMedica, which hopefully you guys understand. We believe that a significant asset has more than its liabilities in debt and how we think about the credit. But anyway, going back to your specific question. In 2018, if you look at the normalized EBITDAR from the continued operation, which effectively is what we bought and what we own. The total EBITDAR was $316.156 million, I'm giving the numbers up to 3 decimal points. So far this year, ProMedica has achieved $230.1 million of EBITDAR and we believe, we expect they will achieve at least $300 million of EBITDAR. You can calculate the difference and come to your own conclusion, but that's how much I'm going to say about our underwriting model. Hopefully, that answers your question.

And just then as a follow-up, not necessarily related, but on senior housing, pretty strong results in the U.S. again for the second quarter and you outlined the pricing power. Just to give us a sense of kind of how widespread the performance was and you have a lot of different operating partners, what was the range of your RevPOR growth across your operators and if you can even give us a sense of the range of NOI growth that will just be helpful to get a broader industry trend?

Yes. So Vikram, it's - I'm not going to get into too many details operator-by-operator, it's not a quarter-to-quarter 90-day business, but if you look at the pricing range, majority of the operators we had, a couple of operators in the 1% range, but the majority of the operators are between 2.5% and 4.5% range, with a couple of large operators having clocked 5.5% rate growth in the U.S., which is remarkable.

Tim, I was just wondering if you could provide a little more detail on the 75 assets that are in transition within Senior Housing. I know in the Investor Day, you sort of outlined a $29 million kind of maybe upside from the assets in transition, but I think that pool has changed since December. So can you just help us frame out sort of the size of that drag this year and just maybe how we can think about that improving moving forward?

Yes. Thanks, Steve, so you're correct at the Investor Day, we outlined the transition bucket mainly that point just being Brookdale. So in addition to that, we transitioned a number of assets from Silverado to Frontier in the second quarter of this year. That number from $29 million has incrementally grown and with that, we will update that year-end as we give 2020 guidance. I'm looking across the portfolio. But it's fair to say that year-to-date, they've had a negative impact on our FFO. But as I said in my comments prior to the beginning of the call, we remain very confident particularly with some of the early results from Frontier that these assets will be very accretive to our 2020 cash flow and beyond.

And as a follow-up, maybe Shankh or Tom, can you maybe just talk about the information flow that you get from your operators on a kind of daily, weekly, monthly basis and maybe how that's changed over time?

So Steve, as you know, we have a significant focus on data and data flow and then analytics on top of the data flow; that's sort of what the core of this organization is along with our focus on healthcare knowledge and how that sort of impacts the physical real estate in the setting around it. So we have a tremendous obviously focus on real-time information. I mean, when I say real-time, I mean we have a weekly view of occupancy, NOI, expenses, how sort of that's flowing, and we're in constant dialogue with our operators and how we act on it with our asset managers, with our investment people, with the dynamics people. It is a very collaborative process between us and our operators and we continue to refine and improve on the process every day.

Steve, the thing I would add to that is really fundamental to the way we run this business is to have boots on the ground in significant markets. So we have a very strong team based on the West Coast. We have a strong team in New York, we have a strong team in Toledo, we have a strong team in Toronto, we have a strong team in London. By having boots on the ground, we not only just look at spreadsheets, but we are in the buildings, we are at the operators' offices. We are all over this portfolio because we are trying to anticipate opportunities or anticipate problems and work with the operator to mitigate those issues or expand upon the opportunities and that's just a unique aspect of how we run this business. I don't think you can sit in an office on one side of the country and have any idea about what's going on in a portfolio that's in the West Coast, and it's the same thing with our medical office business.

First off, congrats Tim on the new role and John on his other opportunity. Just going to SHOP. When do you expect the negative supply impact in Quebec to bottom and stop weighing on occupancy?

Well, Jonathan, I'm not going to get into this call and be specific about what's happening in Quebec and what that's going to sort of carry us behind us. As I said, we're cautiously optimistic that our Canadian portfolio will return to growth next year, but we'll see how that plays out. There is a lot of new competition, a lot of new buildings in Quebec. Some of our buildings that have performed for 15 years had consistently and through that whole time had, and looks great, have great products to sell, but has been impacted. It's just - the market needs to get absorbed and when it does like any other market, a great market over a period of time, it will come back. Overall, as a portfolio which we manage and we have a fantastic team in Canada, and with remarkably strong leadership there, we think that we will expect the portfolio to return to growth hopefully next year.

And then just one more for me and a bit higher level. How discussions with prospective SHOP operators gone since rollout of RIDEA 3.0? I know you signed up five new operators this year, but have some perspective operators expressed that they don't want to be subject to potentially losing their properties, like one of your West Coast operators this past summer. Just any color you can share there would be great.

So, Jonathan if you think about it. As you can see that we have plenty of strong operating partners to do business with and many of them or probably all of them are attracted to our platform because of our strong capabilities, both on our data side as well as on healthcare capabilities. And if you look at who these people are, and you will see the list of capital partners that have worked with them, they have absolutely no issues with getting money into their building, that's not the issue. They have come to us for the specific capabilities that we have that you will not find in any other place. Having said that, if an operator doesn't want to take the bet on themselves and doesn't have the confidence to do so from an operating capability perspective, then I guess that's a very good tool to figure out who you should not do business with at the very front-end. We have plenty of people to do business with and at the end of the day that tool will help us and is helping us from an adverse selection perspective.

The next generation of senior housing operators. Those who see the model changing in the future want to be with Welltower. That is who we see are requesting meetings. I think that if you're just interested in monetizing your real estate, you're not - we don't want you and you don't want us, because we're going to be all over you, we're going to make your life miserable. So, but those who see that there is another iteration in this business, that the senior housing business of the past and in some cases the current is not the senior housing business of the future, the people that are aligned with us about where we're headed, where the future is going to be for this asset class want to work with Welltower.

First question on senior housing operating segment. I realize it's not the same pool this year as it was a year ago for the total portfolio. But you had occupancy down 90 basis points in the total portfolio same-store was better, down 40 basis points. Can you just explain what is driving some of that difference?

What you are seeing in the total portfolio is the transition assets, Nick and that sort of time Tim talked about, how we think those transition assets will play out, and they are going through that particular phase. So there is not much to add other than the fact that when you change an operator, as you know and I know and everybody in this business knows that you have a significant disruption at the building level. We only keep assets out of the pool when there is a change of operator not when there's a change of structure such as triple-net assets become RIDEA. So that's what you are seeing.

Nick, I would just add that the benchmark portfolio that we sold during the quarters in all prior quarters and that was an above 90% occupied portfolio that brought prior quarters occupancy relative to current.

And then, you talked - Shankh, you talked about the $150,000 per bed offer for some of the ProMedica assets. Was that for the assisted living assets?

No. That was for skilled nursing assets.

And then just one last question, you do have from master lease, you have this investment-grade covenant annual lease with ProMedica, essentially it's that ProMedica cannot be rated less than investment-grade by 2 ratings agencies. You now have one that has gotten closer to non-investment-grade, not yet there. I guess I'm just wondering, you just remind us why you have that provision in the lease and if there is a scenario, where you got those downgrades over the next year or so, how would that work in enforcing the provisions of the lease?

So, Nick, let me answer that. First of all, we really cannot comment about the opinion of the rating agencies, but credit rating agencies are there to assess credit risk. So with respect to our joint venture, the first point is we own real estate at a low basis with good lease coverage and you've heard us say that throughout the call this morning. The JV provides us with rights that enhance our credit risk. You've heard us talk about that. And behind that stands a large non-profit health system that has $6.8 billion in revenue, which is the leading health system in Northwest Ohio. They have $800 million in net debt and they've got $1.5 billion in cash on the balance sheet. So we feel good about the position that we're in and I think we've given a lot of metrics that support why we feel good about this investment.

And I'll just add, Nick, if you think about it, that's our option, that's not an automatic trigger, and also our partner has cure rights. Right. So this is not - I don't want you to think this is like an algorithmic trade that they get to a level for whatever reason, and then it's an automatic sort of action on our side. So that's not how the real world works. So it's an option that we kept to protect our shareholders. However, as we - as we told you that we think we know how the asset create risk and we feel comfortable that where our assets are. And as I said, I cannot overemphasize we feel the total return or IRR of that investment as it stands today is significantly higher than when we underwrite that. So hopefully that gives you an answer, but ProMedica does have cure rights.

But one other thing, I just want to add. Nick, essentially we have the right to bring them to the table. As Shankh said, it's not a gunpoint at their head. There is a structure around this investment that brings us to the table to work together to solve whatever bumps in the road may occur over a very long period investment. Historically, REITs sit in positions where the operator could show them the hand and where you have no ability to sit down at a table and work out a rational solution. I mean, we have no idea what the world is going to look like in 10 years or 15 years or in 20 years, but if you have a construct that aligns both the operator with the capital provider and allows you to sit down and make rational business decisions. I think that puts us in such an advantageous position. So again, we feel very good about this investment.

So I just wanted to follow up on the overall same-store portfolio guidance and basically just compare where you are year-to-date now. I know you don't give segment level updates, but you are raising the guidance for the full year. And so my question is in the context of that. Your same-store SHOP performance for the year I think you said Shankh was 3% on a year-to-date basis, and I'm looking at your triple-net performance over the course of the year, as the Senior Housing Triple-net portfolio 4% in Q1, 3.7%, 3.4% very good performance but also markedly above 3%, so now we get 70% of your same-store portfolio coming in at 3% or better year-to-date, how do we get to the 2.5%?

Jordan, we're not going to give you quarter-to-quarter guidance. This is not a 90-day business as we have said several times. All I will tell you, you can come to mathematically any amount of - any number of conclusion you want to but as we said, we feel very good about the year. We thought we have a pretty good handle on the business, turns out the business is better than what we thought, both in our medical office business as well as our senior housing operating business. And we think next year is going to be a good year. But it is - I'm just not going to get into right now on this call, what next year looks like.

Yes. I just wanted to add, Jordan, that we part of - there will be an addition of our health system bucket to the same-store pool in the fourth quarter as well. If you remember that lease was 1.375% for the first year. So that caused a bit of mixed change in the 4 billion in 4Q.

And then just a follow-up, the strength that you guys saw in the Brandywine portfolio sequentially and year-over-year to your point, Shankh, I know this was a portfolio you called out, I think, a few quarters ago struggling with sort of some occupancy issues post-flu and then some operating or personnel issues. Can you maybe just speak to the significant upswing that it saw sequentially and year-over-year, just anecdotally?

So, Jordan if you remember the first part right, which is we talked about the flu in the New York area particularly Long Island and Northern New Jersey, Brandywine has a very stable leadership and it has - we have never mentioned that it's a personal issue, Brandywine had a capital structure sort of reorganization that was needed and we thought the much better aligned relationship with the RIDEA 3.0 management contract with significant skin in the game from Brandywine. Brandywine is one of the best senior housing operators that's out there. It has beautiful real estate. As we said, it is the best real estate we have from an NOI per door perspective and Brandywine leadership is really committed to perform and that's what you are seeing in the marketplace today and in our numbers. So I don't have much to add, I don't want you to think that our numbers were just driven by Brandywine. Several of our operators, six to be specific, have driven massive outperformance. Brandywine is obviously one of them and we're extremely delighted at how much focus that Brandywine leadership team has put to drive performance, and we think there is significant additional upside to that portfolio, which is one of our best real estate with one of our best operators in the business.

Lastly, can you maybe just comment on sort of what the acquisition or investment pipeline looks like for you guys? Obviously, you've had a pretty busy year so far, but it seems like you've got your sights on some other stuff, just interested in sort of what the flavor looks like that's coming down the pipe.

Jordan, we're seeing real opportunities both in the senior housing space as well as in the medical office space. So I would just say stay tuned.

Shankh, you mentioned on the prepared remarks the failure of the Vibra LTAC portfolio. Can you discuss what the cap rate was on the sale and also how much LTAC NOI you have remaining?

So I want you to think about that as a 10% range, double-digit cap rate. And Tim, how much is our LTAC remaining?

We'll have roughly $18 million of run rate LTAC or some non-SNF post-acute rent going forward.

Which includes LTACs and ARFs, right. Okay. Thank you.

Is your intention to sell the remaining soon or…?

It's hard to say John, as you know, we are a seller of every asset at a price, we feel that now the portfolio operator and the credit has stabilized. We’ve taken pain as I mentioned that we have given, obviously, $2 million of rent concession, not technically a rent concession, but lower rent in the new construct versus the old construct, we feel pretty decent about it, but every asset that we own is on sale at a price, so we'll see how that plays out.

Similar question on your total SHOP portfolio approximately 78% of your revenue is in the same-store pool and that's due to transitions and assets held for sale, is this figure roughly a good run rate going forward or do you see it potentially rising for the same-store pool and capturing more of the total SHOP?

Yes. John, it's Tim. I gave some of this color in the call, but we expect the transition portfolio, which is 75 assets for virtually all of it to be in the same-store pool about the fourth quarter of next year. Actually, 46 to 75 assets will be in the pool about the second quarter. So you should see when we gave - Steve asked a question earlier, just around updating our outlook that we gave at our Investor Day last year around the Brookdale transitions and correctly pointed out that the pool has grown from when we gave that initial color, and you should expect when we give our guidance next quarter, we'll give color around how those 75 assets will impact the pool if they enter throughout the year, but we expect to be back to where we've been historically, which has kind of 90% plus of our same-store pool captured in that.

Your question is on the ProMedica asset sales that have gone hard, how many beds are in that portfolio?

I'm not going to get into that, Nick. Investors and analysts are not the only people who listen to these calls. I only want to talk about transactions when they're ready to talk about. Given all the noise around ProMedica, I wanted to mention this to give you a sense of how we are thinking about the total return of the portfolio. But we're not going to talk about a transaction between two parties that is supposed to be private.

And that was added to 150 a bed?

That's what the market is today. If you look at what we have sold, our Genesis assets are about significantly higher than what we bought our ManorCare assets. If you look at where the markets are trading overall, we are seeing somewhere between 120 and 180 per bed, and that's what we're seeing in the marketplace. We'll look at - not just these assets, but that's what we're seeing overall. That's where the business has gone.