Tim McHugh - VP, Finance and Investments Tom DeRosa - CEO Mercedes Kerr - EVP, Business and Relationship Management Shankh Mitra - SVP, Finance and Investments Scott Estes - EVP and CFO John Goodey - SVP, International.

Michael Mueller - JP Morgan Steve Sakwa - Evercore ISI Chad Vanacore - Stifel Nicolaus Vikram Malhotra - Morgan Stanley Omotayo Okusanya - Jefferies John Kim - BMO Capital Markets Smedes Rose - Citi Jordan Sadler - KeyBanc Capital Markets Vincent Chao - Deutsche Bank Michael Carroll - RBC Capital Markets.

Good morning, ladies and gentlemen, and welcome to the Second Quarter 2017 Welltower Earnings Conference Call. My name is Dorothy, and I will be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. Now, I would like to turn the call over to Tim McHugh, Vice President, Finance and Investments. Please go ahead, sir..

Thank you, Dorothy. Good morning, everyone, and thank you for joining us today to discuss Welltower's second quarter 2017 results. Following my brief introduction, you will hear prepared remarks from Tom DeRosa, CEO; Mercedes Kerr, EVP, Business and Relationship Management; Shankh Mitra, SVP, Finance and Investments; and Scott Estes, CFO.

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

Although Welltower believes results projected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurances as projected results will be attained.

Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in this morning's press release and from time to time in the Company's filings with the SEC. If you did not receive a copy of the press release this morning, you may access it via the Company's website at welltower.com.

Before handing the call over to Tom DeRosa, I wanted to point out four highlights regarding our 2Q 2017 results. First, we reported 3.5% year-over-year same-store growth in our seniors housing operating portfolio, driving total portfolio same-store growth of 3% for the quarter.

Second, we increased full year total portfolio same-store guidance to a range of 2.25% to 3% lifted by first half seniors housing operating performance at the high end of our additional expectations.

Third, we paid down a $182 million of debt in the quarter, bringing year-to-date retired debt and preferred securities to $1.275 billion at a bundled rate of 5.6% and a cost of less than 3% of principal.

Finally, as a result of this stable core operating performance and efficient balance sheet management, we finished the quarter with debt to adjusted EBITDA up 5.17 times. And with that, I will hand the call over to Tom for further remarks on our quarter..

Thanks, Tim, and good morning. We are pleased with our operating results for the second quarter, as well as the success of our efforts to further improve our balance sheet and drive operating efficiencies across the Welltower platform.

The strong year-to-date performance of our seniors housing business, which has resulted from strong rate growth, focused asset management and a rebound in our UK business gives us the confidence to announce the increase in our same-store NOI guidance for the year to 2.25% to 3%.

We are broadcasting to you this morning from Welltower's offices in Beverly Hills, California. When you walk the streets here and see scores of four Lee signs, over the windows of high-end shop space, you cannot help, but be reminded of the disruptive impacted ecommerce has had on traditional retail real estate.

There are clearly disrupted forces at play in healthcare as well, but, Welltower's real estate portfolio stands to benefit from this disruption.

As healthcare delivery moves from a high cost acute care hospital centric model to smaller, more efficient disease management sites of care connected to ambulatory, post-acute, seniors housing, memory care and home. Our current real estate assets become even more consequential and valuable.

Further, this phenomenon calls for a new class of real estate to be developed. Welltower has uniquely positioned itself at the table with the leading providers, payers, distributors, data and technology companies that are transforming healthcare, so that we can deliver a next-generation class of real estate.

This potentially represents the largest capital deployment opportunity we have seen in decades. I'll come back with some closing remarks, but it is now my pleasure to hand the mic over to my colleague, Mercedes Kerr..

Thank you, Tom, and good morning, everyone. The Welltower team completed $292 million of investments in the second quarter of 2017, as we remain disciplined in our approach to the market. This amount consisted of a $110 million of acquisitions at a blended yield of 6.5%.

A $163 million [ph] of development funding with projected yields of 7.8%, and $20 million in loans with a blended rate of 6.6%. Our investments continue to be made with existing operators such as Legend Senior Living, Sagora Senior Living and Ascension Health.

But we were also pleased to welcome a new partner to the Welltower's family, the University of California Irvine Health through the acquisition of an outpatient medical office building less than a mile from the highly regarded Hoag Hospital in Newport Beach, California.

This acquisition advances our stated strategy to increase our participation with the Academic Medical Center Community. In addition, we put 10 high quality development properties into service during the quarter, representing total invested capital of $273 million and a blended stabilized yield of 7.6%.

These properties operated by well-known Welltower partners such as Sunrise Senior Living, Brandywine Living and Kisco, will enhance our operating results for years to come. We remain committed to working with our partners to fund development and acquire best in-class properties on a more off-market basis across our countries of operation.

This relationship focus strategy delivers its highest value during market periods like the one we are currently experiencing were widely auction portfolios generally don't seem to offer a shareholder's acceptable rates of return. We completed $160 million of dispositions in the quarter.

This activity consisted of $43 million of loan payoff at an average yield of 8.9%. And a $117 million portfolio sale of 11 skilled nursing facilities with a yield of 9.3% and unlevered IRR of 11.4% and a gain of $42 million.

To provide some context for our investment decision making process and how we behave across cycles, I would like to share a glimpse into our multi-disciplined eight-member investment committee and how it works.

When we scrutinize underwriting results, we focus as much ongoing in-cash yield as we do on the long-term growth potential of an investment opportunity and the CapEx required to sustain that cash flow growth. This results in a total return or unlevered IRR driven investment process.

As we review new investments and dispositions, the committee also focuses on diversification of operators, asset type and geography, which we believe enhances the stability of our portfolio returns. The rating agency seem to agree as evidenced by our recent upgrades after the reduction of our concentration in certain operators.

Our often-used RIDEA structure gives us opportunity to optimize operating performance more directly. You have heard us speak about our initiatives around this before.

We have invested in the people, systems and infrastructure to actively manage our RIDEA portfolio and we have Welltower boots on the ground, enhancing our shareholders' interest in the markets where we have strong concentration such as London, Toronto and Beverly Hills.

Our market leadership position ensures we see the vast majority of what is marketed and we consider each opportunity carefully, relative to our cost of capital and standard real estate metrics such as replacement cost.

In periods, where we don't see a positive balance between the market's pricing of risk and return, we may report modest - at least when measured Welltower's own history. We may also monetize selected investments opportunistically during these periods to crystallize value for our shareholders.

And importantly, we always seek to drive value from our existing portfolio. We feel confident that our approach and discipline through these cycles will prove to be the correct strategy to drive the period shareholder value in an enduring way.

Our off-market investment pipeline for the balance of the year is promising and we will fit in - we'll fit the criteria that I have described. We look forward to sharing our news of progress. I will now turn the call over to Shankh Mitra for a discussion on portfolio performance..

Thank you, Mercedes, and good morning, everyone. I will now review our quarterly operating results with an emphasis on our outpatient medical and seniors housing business. We're pleased with our operating results and increasing our - for the overall portfolio to 2.25% to 3%, which we believe is appropriate given the strength of our shop portfolio.

I'll remind you, we do not - our outlook on segment level NOI growth through the year, but we are tracking towards the top of our original 1.5% to 3% guidance for the shop portfolio. Our overall same store NOI increased 3% for the year. Our Triple-Net portfolio continued its reliable performance.

Our seniors housing Triple-Net segment grew 3% and long-term secured portfolio grew 3.1%. Our outpatient medical portfolio reported 1.6% NOI growth in Q2, which was below our expectations.

New leasing is ahead of our expectation for the year, but we had some later than expected rent commencement due to delays and tenants fit outs and few move-outs in the quarter that are shifting economics to later quarters. Despite this quarter's performance, our expectation for the outpatient medical segment remains unchanged for the year.

We remain confident in our team's ability to execute and expect growth to bounce back in the second half. Our seniors housing operating portfolio is the highlight of this quarter with meaningful outperformance relative to our budget. Occupancy trends were lower than expected.

However, those were significantly offset by our pricing power, which resulted in strong rate growth, 3.9% year-over-year and better expense trends 1.7% a year. Our operating partners are constantly optimizing rate, occupancy question to maximize revenue at this point in the cycle.

We're very proud that they have achieved this growth, while keeping expenses in check. While labor cost remains elevated. They continue to moderate from the highs as our partner strike the right balance between excellent care delivery and efficient staffing model.

Our group purchasing power and other cost initiative being realized through expense savings in food, professional services, insurance, utilities and incentive management fees. Geographically, the U.S.

and Canada were neck-and-neck from a performance perspective contributing solid growth, 2.6% and 2.8% respectively with UK being the clear winner as we continue to benefit from our UK team significant asset management effort in last 18 months. We continue to - UK outperformance for quarters to come.

Overall, growth was driven by our core markets which bounce back as we hoped and discussed last call. So Cal, No Cal Toronto, London, Seattle were significant drivers. Following up on our conversation from last call, the New York MSA has started to demonstrate beta results, but New England continues to be challenging though it is improving.

With respect to different product types, we have observed significant outperformance of both revenue and NOI in assisted living versus independent living this quarter.

Much has been written about the supply stats in AL versus IL which is appropriate and relevant, but as long-term owners of class A real estate we have observed greatest thickness of demand in AL versus IL, when new competition opens around a given asset.

We would also like to point out the recent absorption metrics for both product types as reported by NIC. For Map 31 and Map 99 respectively, absorption for AL was 4.3% and 4.2% for the quarter and 2% and 1.9% for IL for the quarter.

These absorption numbers are more than 2X of current 85 population growth signifying a greater acceptance of this need based product and validating the value proposition that community based care provides to our resident versus the alternatives or receiving care at home.

This above population demand growth indicates the true long-term growth potential of our asset class as that growth in acceptance of the asset class augments the acceleration of 85 population growth in the decades ahead. Overall, we are very pleased with our operating performance of our portfolio.

We allocate capital across geographies product types and operating partners, so that you as our shareholders can enjoy sector leading inflation plus growth through the cycle. We believe our results so far this year is proving out that strategy. With that, I'll pass it over to Scott Estes, our CFO.

Scott?.

Great, thanks Shankh and good morning, everyone. From a financial perspective, I think the highlight of the first half of the year has been our ability to maintain our capital allocation discipline.

Most importantly, it's allowed us to take advantage of the current market dynamics to both sell assets and raise equity optimistically to further enhance our balance sheet. As a result, we're uniquely positioned to capitalize on high quality investment opportunities as soon as they become available in the future.

I'll start my comments today by emphasizing three financial highlights from the second quarter. First, our strong total portfolio same-store NOI growth is 3% and $292 million in growth investments allowed us to report a solid normalized FFO result of $1.6 per share.

Second, we utilized disposition proceeds in the equity capital raise to further strengthen our credit metrics and reduce our un-depreciated book leverage at 35% at quarter ends. And third, we ended June with over $3 billion in liquidity providing considerable financial flexibility as we move into the latter half of the year.

By more detailed remarks, we'll begin with some perspective on our segment financial results and dividends. As second quarter, financial results did exceed our expectations, generating normalized FFO of $1.6 per share versus $1.15 per share last year.

A year-over-year earnings were supported by our solid same-store cash NOI growth and $2.8 billion of growth investments completed over the last 12 months, but declined as expected due to the $3.7 billion of dispositions completed over the same period.

Importantly, these dispositions in equity raise allowed us to significantly lower our leverage by over 4 full percentage points over the last 12 months. Our G&A came in at $32.6 million for the second quarter. This represents a significant 18% year-over-year reduction from $39.9 million in Q2 2016, as we continue to enhance our operational efficiency.

Based on our strong first half of the year, our G&A forecast is now tracking closer to the $130 million to $132 million range for the full year versus our initial guidance of $135 million. We recognized significant gains on asset sales of $42.2 million during the quarter.

This was partially offset by $13.6 million in impairments on several seniors housing properties currently held for sale and some minor charges related to secured debt extinguishment and loss on derivatives during the quarter.

And in terms of dividends, we will pay our 85th consecutive quarterly cash dividend on August 21st of $0.87 per share, representing a current dividend yield of 4.8%. Turning now to our picture on balance sheet.

During the quarter, we generated $160 million in proceeds from dispositions through $117 million of property sales and $43 million in loan payouts, which included an additional $28 million of Genesis loan repayments. In terms of equity, we generated over $190 million in net proceeds under our ATM program during the quarter.

We did use the majority of our net proceeds to reduce our line of credit borrowings by $137 million and to extinguish $182 million of secured debt at a blended rate of 4.4% during the quarter, while we issued or assumed $172 million of secured debt at a blended rate of 3.1%.

So, as a result, we sit today with over $3 billion in current liquidity based on $2.6 billion of credit line availability and $442 million in cash on balance sheet. Our balance sheet continued to strengthen during the second quarter.

As of June 30th, our net debt to undepreciated book capitalization declined another 80 basis points on a sequential basis to 35%, while net debt to enterprise value declined 160 basis points to 27.2%.

As Tim said, our net debt to adjusted EBITDA improved to 5.7 times, while our adjusted interest in fixed charge coverage for the quarter increased to 4.5 times and 3.7 times respectively. Our secured debt declined by 10 basis points to 9.5% of total assets at quarter end.

That conclude my comments today with a brief update on the key assumptions driving our 2017 guidance.

I think in short there are relatively few changes this quarter, in terms of same-store NOI growth, as team said based on the solid performance across the portfolio that really highlighted by the seniors housing operating portfolio in particular, and increasing our blended growth forecast 2.25% to 3% from the previous 2% to 3% range for the full year.

And consistent with our normal practice there are no acquisitions other than those completed during the first half of the year and our 2017 guidance.

Our guidance does include an additional $173 million of development funding on projects that are currently underway and an additional $143 million in development conversions at blended projected stabilized yield of 8.8%.

In terms of our full year disposition forecast, we continue to anticipate a total of $2 billion of disposition proceeds at a blended yield of 7.6% based on $1.3 billion completed year-to-date and $700 million of incremental proceeds through the remainder of the year.

And finally, as a result of these assumptions, we're maintaining our normalized FFO guidance of $4.15 to $4.25 per diluted share.

So, in conclusion, I think we're in an excellent capital position with an even stronger balance sheet in over $3 billion of current liquidity providing us the significant financial flexibility to execute upon our plans as we move into the second half of the year. So, at this point, Tom, I'll flip it back to you for your closing comment..

Thanks, Scott. Since the start of our call, the sun has now come up on the West Coast and we can see outside our windows which are just one block from Boyega [ph] drive, many of those empty Beverly Hills Street retail store fronts, I mentioned at the top of the call. So, like you, we wonder about the future demand for this premium retail space.

Our street retail space here on Bedford and Brighton Way formerly leased to traditional clothing and jewelry retailers is about to be occupied by a next-generation pharmacy within fusion therapy capabilities and a surgery center walking clinic for one of California's largest academic medical centers.

This major health system realized, they need to have a more consumer-friendly retail facing ambulatory care strategy. They chose Beverly Hills and they chose to be at the Welltower. Yes, the four buildings we own in Beverly Hills are branded Welltower. And people here talk about seeing their doctors at the Welltower.

In one of the world's most sought-after retail destinations, the new anchor is Welltower. This is an important indicator of where healthcare delivery is headed, and we cannot be more excited about the opportunities before us. So, now Dorothy, please open up the line for questions..

[Operator Instructions] Your first question comes from the line of Michael Mueller with JP Morgan..

Quick question on development, it looks like you have about $1.6 billion of unstabilized developments and out of curiosity, how long is the average property staying in that bucket and are there any changes in terms of the trends staying in there longer or shorter period of time?.

Traditionally, our development projects might take roughly 18 months to complete and we traditionally also expect anywhere between 18 and 24 months for lease up and I'm talking now about seniors housing, as you probably know in outpatient medical when we develop property, we find large, they are 75% or more pre-leased before we even commence construction.

So, I hope that gives you some rough estimates of how we see our fill up and so on..

Okay, but nothing is really changing or it's taking longer or shorter period of time, it's fairly - is that right?.

No, nothing has changed in those kind of - those are very standard assumptions I think to prove out consistently..

Got it, Okay.

And one other question in terms of shop same-store occupancy ended the quarter at about 89.5%, can you talk a little bit about where you see that going through the balance of the year and even into 2018, if you could?.

So, without being too specific, Michael. As you know there is a seasonality in the business, right. So, if it's purely thinking sequentially we would expect some occupancy improvement through the year, as I mentioned before that occupancy trends have been lowered than what we expected.

And to be honest with you, we're not trying to optimize or maximize occupancy, we're trying to maximize revenue. So, we will see as you sort of think about the revenue maximization, we'll see what market gives us, but we're constantly playing occupancy versus rate game and we will see what market gives us.

But definitely, you will see sequentially as you see in the business slight improvement sequentially through the end of the year..

Okay. That was it. Thank you..

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

Thanks. Good morning.

I guess just wanted to talk, I know you guys have been very active with overseas partners and investors and the Chinese in particular and I'm just wondering if you've seen any change in terms of their appetite given all of the - I guess rhetoric that's come out of the country about deploying capital overseas?.

That's a great question, Steve. If you think about from the two or three categories of overseas investors, we have seen a material increase in the larger companies or larger insurance companies with a very large balance sheets in overseas operations, including the sovereign wealth funds, very, very active.

I have never seen this active before, but if you look at sort of the smaller insurance companies and asset managers, their capital control might have some effect on the private equity with most of the money is in Hong Kong, there has been no change not an increase or decrease that capital seems to be pretty steady and interesting in U.S.

healthcare assets..

Okay, thanks. And then, I guess maybe a question for Scott just on sort of the issuing of equity. Obviously, the balance sheet was in great shape before your tap the ATM.

How are you guys thinking of the usage of the ATM raising equity capital at these levels and what is the kind of primary drivers that make sure it's FFO accretive, NAV accretive I mean how do you guys think about that and what should we think about going forward?.

Sure. I think NAV accretion is a good benchmark but you think about it, we were just opportunistic really. If you think about it, we did complete about $300 million of gross investments this quarter. We have a pretty active development pipeline, we have about $540 million in projects underway and there are some more coming.

So again, I think in small amounts if it's NAV accretive that's how we've chosen to deploy the ATM..

Okay. Thanks..

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

Hey, good morning, all of you. So, just thinking about the seniors housing occupancy trends, which have been getting lower.

Are you seeing anything that indicate the change in the trend of rising any acceleration or deceleration?.

No, Chad as I said that sequentially we would expect the improvement, but year-over-year, I think you will still see a decrease obviously I'm talking about U.S. We're seeing significant improvement in occupancy in UK. So, we're trying to maximize revenue, not occupancy. I cannot emphasize on that enough that how we are thinking about this..

Yeah, Chad from a leading indicator standpoint, I think you'll have to look at capital availability for construction in seniors housing. The supply you're seeing today has a lot to do with capital availability that started back in late 2013, 2014, 2015, that has driven the supply that's really coming on - that started coming on the market last year.

Anecdotally, we've been told that capital availability for new construction in seniors housing is back to 2009 levels, which means that's minimal, So, if you think about that with the aging curve, the 85 plus cohort starting to accelerate in just about 2.5 years from now, you would have expected that the supply of capital would be today to meet that demand, so - but that's not the case.

So, we think actually there'll be - there potentially is a supply demand imbalance when the - really when the demographics when start really propelling our business..

All right, so capital availability getting tighter - and absorption is pretty in the street..

We're pretty encouraged. Yeah, I would say that it's very market specific. We keep harping on the fact that we have and I'll use Mercedes word, curated our portfolio. It's concentrated in high barrier to entry. More resilient regions of the U.S., Canada and the UK and that is what is behind our performance. There you can't paint the U.S.

or any of the other markets with one brush. So, we are now - we also had said, we were seeing spikes in labor costs in the major markets earlier than you were seeing in smaller secondary market. So, in a way - we always believed we were seeing the spikes last year and to early this year. Now we started to see that moderate. It's hard to predict that.

But I think the major markets that Welltower is focused in are behaved differently and it's what's driving our performance..

All right, so now I'm going to ask a granular question that hopefully either you or Mercedes can answer, which is if you're talking about the MSA that are you are in.

Are you seeing any difference in what NIC map is recording in those MSAs and then your performance in those MSAs?.

Chad, if you don't mind me answering that question, we definitely - as you know that we have very significant concentration in great submarkets. So, when you think about NIC map, you think mostly MSA. We do not think about business in MSA terms. We think about our business in submarket terms, even more granular than that.

And we are in a very wealthy location in the markets, so obviously their reports are significantly higher than average MSA.

So, we're seeing outperformance, but I would not just attribute that to very difference of - sort of MSA position like it's just a submarket and wealth locations driving that, but we're definitely seeing very significant demand growth and many, many locations that I mentioned So Cal, No Cal, Seattle and everything else.

From another - there are one place that we are not seeing that. I think I had mentioned that is New England is under - there is some supply in New England, so their MSA is under pressure, we're seeing that too and New York MSA the same thing. New York MSA is starting to bounce back in our portfolio.

We are hoping to see that New England follow very soon..

All right, thanks for taking the questions..

Sure..

Your next question comes from the line of Vikram Malhotra from Morgan Stanley..

Thank you. Shankh, just following up on the RIDEA side.

Would you be able to give us what the change in occupancy was across regions?.

Yes, if you look at, we usually don't do that, but I want you to think about a business as a diversified portfolio where we allocate capital, not just U.S. or UK or Canada. Our focused on one particular country because it's doing well and also doing well. But just throughout, for this I'll give you the numbers, the occupancy in U.S.

is down 180 basis points just 1/4, Canada is down 120 basis points and UK, 180 basis points..

Okay.

And just sticking to an RIDEA, you obviously - you had great cost control, can you maybe just elaborate a bit on that and like what for the exact drivers that I saw on the other bucket that was down about 6%, could you just give us some color for what that was?.

Yes, so I think I try to mention that in my prepared remarks, if that bucket, if you look at consist of A, first is we saw a very significant cost control success in raw foods and utilities by moving to the other buckets, we are seeing some very significant improvement in worker's comp, insurance, marketing, professional services and also our internal management fees.

So, we have seen that pretty much across the board. We now enjoyed the fruits of our efforts for group purchasing and others that we have been talking about for years to come. And very significant and focus asset management efforts in this area.

So, across the board there is not one-line item that I can talk about, that is driving that but we're seeing it across the board..

No, go ahead..

No, I was just going to say no, it's actually very strong performance across the board. So, congrats on that..

Vik, this is a business that really requires the real estate partner to be very hands on. And I know Mercedes mentioned this in her remarks. I mean we have over a number of years made significant investments on the asset management side here. Our UK turnaround has a lot to do with the people that work in our UK office.

We have 10 people in London, they are very hands on. There were a number of management challenges that were negatively affecting performance of our UK portfolio. Those issues would not have been address had Welltower's team really been on the ground there.

And making sure that the right initiatives were being implemented, so we can turn that performance around and that is the same - that's the same story across Canada and the U.S. This is a rollup the sleeves real estate business. And we feel that because of that investment we've made we take some level of risk out of this business..

Tom, I want to include that operators I think overtime at some of these initiatives I was trying to play through have really grown more and more comfortable with our ability to collaborate in some of these projects that Tom was describing.

And so, it's an evolution that we feel very comfortable about and I just want to make sure that I mentioned that our operating partners naturally are an important component of it..

So, that make sense. And Tom, I have to ask you since you talked about Beverly Hills and Welltower, when you changed the name of the company, did you think people would be going to the Welltower store..

Of course, they would - they would think about it, but it's very interesting here. At some point, we'll bring some analysts to see what we have here. What we are doing is in a sense creating a wellness district through the real estate that we are own here in Beverly Hills.

And now the retail, which again if you came here, five years ago, you would have seen typical retail in medical office buildings. What's happening is we are starting to drive a new class of retail here.

And your people even on the - I think in the mall and shopping center, sectors have been talking about how they want to drive healthcare to the traditional mall or street or strip center, we're actually doing it here.

And I think the fact is, I was very surprised how quickly people have grabbed on to the Welltower name, but it's interesting again looking at our windows, I see Neiman Marcus in Fifth Avenue on top of buildings and across the street our four buildings that say Welltower, so people are starting to recognize this name and what we hope it stands for is quality real estate that if you are in healthcare, if you're a healthcare - being in a building it says Welltower stands for quality and stability..

Okay. Thanks guys..

Thanks..

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

Good morning. First of all, congrats on the really solid quarter, it's good to see. I have two questions.

First of all, the shop portfolio, could you talk specifically about the outperformance in the UK like what are markets kind of fundamentals doing in UK that making it kind of have this consistent outperformance versus the other market?.

Yeah, hi there. It's John Goodey from the International team. So, it's a good question. Morning. The market dynamics are relatively benign right now is the only stance or so, we have a in UK a rough balance between supply and demand in the sector that we care about which is the first in business class and equivalent of the industry.

The big difference I think is the partnership as Mercedes said, we have with our operating partner Sunrise that run the Sunrise and Gracewell branded buildings there. So, we've been working diligently with them for the last 18 months.

so on how to maximize the performance of those buildings in the complex of the markets and Shankh used the time neighborhood, this is neighborhood relative business.

And it's been just real diligence hard work, hard work on cost, hard work on positioning those buildings on the revenue side as well and seeking to maximize the overall revenue from the buildings not just occupancy or rate growth.

So, because of the superior locations and you'll see it in some of our supplemental disclosure, our ability to drive the revenue per occupied room in those buildings has been international this year, it was good last year, it's been very good this year and that's just aligned with overall occupancy growth of nearly 2 percentage points across the portfolio.

So, it's just the hard work element seem to be becoming together now and it's just driving performance and it's durable, it's not water change at least not for now until the basis of performance changes, we feel good about H2 as well..

Okay.

But how do you end up measuring kind of incoming supply versus in the competitive kind of property side versus your assets?.

Yeah, so unfortunately, we don't have a NIC database in the UK, but as you can imagine we have our A's to the ground on performance all across the portfolio of - that is also around what our competitors are doing and what's coming on and there are local clusters where there is strong supply growth, because there's strong demand growth as well.

So, we have - Welltower is not operating in a vacuum. We people doing what we do in the UK. I think we do it best, but we are imbalanced in many of the markets and what we are seeking to do and I think I said this before we own a small fraction of the facilities back in the UK but a very high fraction of the quality that Welltower likes.

So, what we're doing is selective info acquisitions small time, but also acquire a lot of construction and that takes hard work like we did in Manhattan another high wealth areas this is where the operator relationships in the Welltower capabilities come together to build buildings in areas of London, for example they're really hard to access, they take multiple years just to find a site and then to construct.

So, that's the competitive advantages is finding these high barriers to entry markets with real resilience to entry as well and then working hard to plant the Welltower flag there..

And I'll just add one more point to that, if you think about our UK business is primarily London focused. London is probably the toughest market to build that we operate in maybe other than the West side of LA.

So, it's significantly harder to build in London than in New York MSA for example, so you're seeing the UK, I don't want you to think just as UK results. This is more greater London centric results..

Got you. That's helpful.

And one more from me Shankh, MOB portfolio - you did talk about a turn around and performance in the back half of 2017, what specifically are you looking as that are you looking at that's going to end up resulting on acceleration in same-store NOI growth for the MOB portfolio?.

Yes, I mean as I said if you think about the quarter, obviously we're not so pleased with 1.6% NOI growth. But it's just a question of timing. If you think about every quarter is a snapshot of 90 days. Right we as long-time owner real estate, we don't run our business for 90 days increment.

So least thing, as I said has been pretty strong and running ahead of our expectation. But there has been couple of unexpected move-outs as well as it's taking longer for tenant [ph] and other things. For this, tenant to come into the space and commence it.

So, it's just a question of timing, you will see the economics have shifted from quarter-to-quarter. We don't really focus too much on that, but given from here you would see the acceleration, of course..

Yes, Tayo, the MOB portfolio has been unbelievably consistent for years and years and years. The occupancy has been 94.5% to 95% and we very consistently generated the 2% to 2.5% growth. So, that's what we continue to expect in short-term here..

Got you. Thank you very much..

Thanks, Tayo..

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

Thanks, Tom. I think with your balance sheets, the strong has it's been for a while in getting strong in the near-term. I was wondering if you could elaborate on what you're seeing in terms of investment opportunities as far as the investment type and the timing..

So, we have been working for some time. I think I mentioned earlier that we are reticent to participate in widely auctioned sort of processes where there seems to be some exuberance and little bit of a flossy market, not enough growth for what we think our shareholders deserve.

And so, what we have been working on instead is this off-market more proprietary type of a pipeline. We are actually very encouraged by what we see. Some of that we will take a longer to materialize because the relationships for example with top health system are ones that we are building from scratch and but we have some real momentum in that case.

And then there is what we sometimes have referred to as our shadow pipeline, the ongoing business that we get from our own existing operating platform from our partners, which is very consistent again largely off-market. So that we're not knocking ourselves up, trying to compete in the market with others and so. There is a very solid pipeline ahead.

It is - in some cases, I think we'll be able to talk about it this year and in some cases, these are through opportunities like the ones that Tom was describing in the disruption of healthcare real estate that may take just a little longer to materialize that will be significant..

Mercedes, you've mentioned increasing your exposure to academic and medical centers.

Is life sciences at the class you would consider entering back in again?.

It's not something that we're considering at this time.

It is such a unique and different asset class even though I know sometimes it's considered into healthcare category, I supposed I understand why, but from our perspective with respective to how it is underwritten, how it is managed, it's just such a different animal from what we're focused on right now..

Great. Thank you..

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

Hi. Thanks. So, I'm going to a follow-up, you mentioned your sort of Welltower health district in Beverly Hills and I was just wondering could that kind of strategy of creating a consumer-friendly healthcare facility for consumers. It's actually you could formally be targeting other U.S.

markets to create a similar kind of concentrated healthcare facilities..

Definitely, Smedes. We think that it's really important that healthcare and the concept of wellness is hard to be really come to mainstream and that's what we are seeing here in Beverly Hills and we clearly think there are other markets for that.

The concept of wellness is finally rising to a priority, not only for major health systems but also for the healthcare industry at large. And if you think about the only institutionalized wellness model that we now, exist in senior housing industry.

So, and when I wellness I mean nutrition and hydration and physical movement on social comment of engagement safety usually elements that we deliver to the 85 plus cohort but the fact is other populations need that wellness model as well.

So, we think that there is an opportunity in partnership with health systems and partnership with major health insurers to start to take wellness and bring it to mainstream, bring into the consumer. So, we are very excited about that..

Okay, thanks. And I just want to ask one more on your shop via comparisons, I know there is some fitness here but I should be starting if you could provide a little more color around the adjustments to last year's number, let's say healthcare to bring 60% growth for the U.S. portfolio.

Could you just walk through that a little bit more?.

Sure Smedes, this is Scott. It sounds like you're just referencing the normalizing adjustments and again I would - for everyone's benefit. We have a strict policy that we review with the audit committee every quarter and these are just really unusual item.

So, actually a lot of the things that happened in 2016 were benefit that we didn't take like we received some insurance reimbursement proceeds of almost $8 million that out of last year's number. There is some minor adjustments like a worker's comp and a payroll approval that we didn't take the benefit of.

So, they're all listed there and the footnotes on page 24 and if you wanted to spend more time, we would be happy to do it, that is pretty straightforward. But we're not - this quarter, there were more things that we did more in our supplement in 2Q 2016..

Okay. All right, thank you..

Sure. Thanks, Smedes..

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

Thank you. Good morning. So, the next data suggest that the under-construction pipeline continues to win and HCN's portfolio looks relative good on this basis? And it seems to show up a little bit in your sequential performance year-over-year at least.

So, do you believe that show fundamentals have bottomed here and who are we setting up into 2018?.

Jordan, it's too early to comment on 2018, but we definitely paying that the show fundamentals for the year have definitely bottomed last quarter.

So, I can tell you that, overall, I mean I will not - if you think about the numbers as we said, starts our peak in Q3, Q4 of 2016 and they are coming down, if you think about average it takes as of the 18 months to 24 months impact.

I still think we have few quarters to go through a tough operating environment, we're very pleased that kind of performance we are generating even in that environment. But I would not be saying that from the supply impact has bottomed just yet. But we hope to see it in next probably 12 months.

It's very hard to predict but definitely in our time horizon, we are very excited that is in near-term..

Okay. And then on the - this is complete [indiscernible], but on the acquisition of the on-campus MOB in the quarter, I guess in Austin, Ascension Health asset, it looks like a pretty good yield. I'm wondering one if that's stabilized number and two - or if it's the going in number.

And two, if you see significant incremental one-off opportunities for outpatient medical purchases?.

Yes, that's actually there is - it's a multi-tentative building but there is a gap master lease if you will, to support master lease from the health system in place that is for now bridging frankly a very small difference between what the actual occupancy or the real occupancy of the building is and what we would consider stabilized.

So, we have a support mechanism in place, but soon to probably be of no need because have the same occupied with the final users. So, that's sort of but the property that you're asking about in Texas, the Ascension property.

And you're right, we are - so Ascension is a system with which we have large relationship, we have actually many of those and to the extent that we can be helpful to them even on a one-off basis given the existing of relationship, the nature of existing contract, et cetera.

It just makes it efficient for us to - from time-to-time to a single property, a single development or acquisition whereas sometimes we might look to try to move the needle faster.

But this is a more efficient that you said it's a good yield, there is no reason why we wouldn't be doing a follow-on business here and so, we really enjoy that that's part of the shadow pipeline that I was referring to earlier..

Okay, so that seller provided the master lease?.

No, it's actually the health system, that's it and like I said, it's a really small amount space, I'm talking about maybe 5000 square feet or something like that, I think that largely that space is now occupied, I don't have the number in front of me, but if you would like more details about that we can speak separately..

Okay. Thank you for the color..

Your next question comes from the line of Vincent Chao with Deutsche Bank..

Hi, good morning, everyone.

Shankh, maybe just question for you back to the optimization of the show seems the revenue growth 2.3% in the quarter mysterious how close you think, you are to opted more at this point or do you think there we could see occupancy dip maybe even more below where we're used to seeing most real estate have price and power?.

Yes, so I think, thanks for your question, Win. If you think about its we've to say this is not something we do sitting in front of a computer and deciding more in our optimized revenue occupancy or rate should be.

You have to see what the market gives you, right? You have to see what the demand is and you are doing this on a daily basis and obviously our operators are very sophisticated, they understand the market and they are doing it on a daily basis, this is the way asset management in sense of business, right? So, you have to see that, I can tell where things are going sitting today, I'll tell you how things have played out.

Sequentially, we should expect some occupancy improvement and as I said that year-over-year the occupancy is down or can we see that it will be down more, we absolutely can see.

We're trying to maximize the revenue not occupancy and but sequentially we'd probably see improvement from here from an occupancy perspective and it's too early to talk about 2018..

Okay. And then maybe a question on the pipeline Mercedes, it sounds like there is a pretty healthy pipeline there, but investment volumes as you said are below by historical standards for yourselves.

What you think is the delta, the pipeline is strong, is it just seller expectations are too high at this point?.

I hope that not in the pipeline that I'm talking about. This is off-market pipeline we think is going to bring adequate returns.

I would almost as we sit in our table and talked among ourselves, we sometimes think that as we continue to remain disciplined as I described before, we are likely to do much better even with the lower investment volume than others will, who might be putting more dollars to work with a lot less storks if you will.

We actually do feel like this proprietary - that we are describing, it's going to not only show an opportunity for us to put money to work, but then for us to put money to work really above average..

Okay. Thank you..

Your next question....

We know you all have to get on another call in 2 minutes, we're just going to have time from one other question of, we'll be happy to take, those of you who are in the queue, who did not get your question answered, please reach out today. So, final question..

Our final question comes from line of Michael Carroll with RBC Capital Markets..

Great. Sounds like I just made it this time.

For Shankh, could you go real quick, I think last quarter you talked about you had three term sheets out for the Genesis portfolio or at least portions of the Genesis portfolio, can you give us an update on that?.

Yes, we are still negotiating a lot of this term sheet and we see very significant demand as I said from overseas as well as domestic sources.

It's too early to comment you know these things obviously take a long time as we have told you last year that we have a steady hand on the wheel here and we will continue to execute, but as you know unfortunately real estate transaction takes longer than 90 days period to get done, but we have lot of interest from a lot of investors including those three..

Okay, great.

And then just last question on the remaining portfolio is there much differences between what you have left versus what you sold in the prior quarters?.

Yes, absolutely. So, if you think about our crown jewel in our Genesis portfolio that's our power back asset. We have retained all those assets, most of those assets in the remaining portfolio..

Okay, great. Thank you..

Thanks. So, we're going to wrap up here and please reach out to us with any questions you have. Thank you..

Thank you for dialing-in to the Welltower earnings conference call. We appreciate your participation and ask that you disconnect..