Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Welltower Earnings Conference Call. My name is Nicole, and I will be your operator today. At this time, all participants will are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

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

Thank you, Nicole. Good morning, everyone, and thank you for joining us today to discuss Welltower's fourth quarter 2018 results. Following the Safe Harbor, we will hear prepared remarks from Tom DeRosa, CEO; Shankh Mitra, CIO; and John Goodey, CFO.

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

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

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

Before I hand the call over to Tom DeRosa, I want to highlight a few significant points regarding our fourth quarter results. Welltower achieved 1.6% total same-store growth in the quarter.

We are particularly encourage by the 40 basis points year-over-year occupancy increase in our Senior Housing operating portfolio, and the sequential coverage increases in both our triple-net Senior Housing and long-term post acute portfolios.

Fundamental performance in the quarter was consistent with our expectations, partially offset by delayed timing in investment activity and equity issued to prefund announced acquisitions, resulting in $1.01 per share of normalized funds from operations.

In the fourth quarter, we issued $552 million of equity at a weighted average share price of $68.41. And with that, I will hand the call over to Tom for his remarks on the quarter and the year. Tom..

Thanks, Tim. At our investor day on December 4th, we took the notable step of announcing 2019 FFO guidance. Based on our Q4 results and our confidence in our outlook for 2019, I'm pleased to reaffirm that guidance this morning.

Our guidance of $4.10 to $4.25 in normalized FFO per share represents a 4% increase at the midpoint in our guidance range over our 2018 results. As Tim highlighted, our continued strong operating results in Q4 reflected the positive momentum in our seniors housing business that we talked about throughout the year.

Most notable in the quarter was the fact that we completed 559 million in acquisitions at a blended yield of 5.6% nearly 90% of which are medical office buildings associated with investment grade health system. These investments help drive total investment activity to over $4 billion for the year.

Our ability to source accretive investments that continued since 2019 with the announced acquisition of 55 outpatient medical buildings from the CNL Healthcare property for $1.25 billion. Further enhancing our ability to deliver growing high quality and sustainable cash flow growth.

Given that T&L and the majority of our announced investments will close by mid-year, we expect FFO to accelerate in the second half of the year, setting us up well for 2020 and beyond.

In the fourth quarter, we raised $552 million of equity driving down sequential average and prefunding late quarter and early 2019 investment activity as we continue to manage our business with a focus well beyond the current quarter.

This included a $300 million direct investment by the Qatari Investment Authority, one of the highest quality and most resilient Capital partners in the world. This is part of a broader investment partnership that was a long time in the making.

We are honored to have entered into this partnership with the QIA, which illustrate their belief in Welltower's unique business model and strategy for driving the future of healthcare real estate. Now, I'm delighted to pass the mic to Shankh Mitra, who will give you a closer look at our operating performance and investment activity.

Shankh?.

Thank you, Tom and good morning everyone. I will now review our quarterly operating results and provide additional details on two topics. One operating results and trends, two recent investment activities. We are cautiously optimistic about the recent performance of our Senior Housing portfolio.

On last quarter earnings call I discussed the narrowing on occupancy GAAP in year-over-year results. It appears that occupancy has reached an inflection point this quarter, specifically in - show, occupancy increase 40 basis points year-over-year.

Sequentially fourth quarter over third quarter occupancy and revenue growth has been the best we have seen since Q4 2015, while one quarter does not make a trend, we are particularly encouraged by the 120 basis points of occupancy increase in our Assisted Living segment, as the impact of new supply is starting to wane and the demand is beginning to pick-up.

We also saw a sequential occupancy increase of 90 basis points in our Senior Housing triple-net portfolio driving coverage of one basis point. Our reported growth rate of 2.2% in somewhat masked by lower growth in international market whereas core U.S. market experience 2.7% growth. Expense growth remains elevated driven by labor.

We continue to look for greater use of technological and analytical solutions such as on shift, arena, smart winner amongst others to drive greater efficiency in the labor model. We are beginning to see the results.

For example, since implementing arena, sunrise have seen a 27% decrease in 90 days employee turnover, and 40 day decrease in 20 month employee turnover. While we are working actively to mitigate labor challenges, the demand side of the equation is starting to look brighter.

While it is true that the explosive growth of that 86 plus population is still a handful up here to weigh, medium age by definition suggests an equal number of our customers are below that age mark, and the population will begin to grow significantly starting later this year and into next year.

We are also getting confident in post acute business, while it is unlikely to be a V-shape recovery it appears that the industry fundamentals are under-met. Meanwhile pricing of skilled nursing assets have materially increased due to the slot of Capital deployed in that space.

For example, during the first quarter of this year, we sold 22 Genesis assets that were below market coverage for $252 million at 8.95% yield. At market coverage and rent that represents $40 plus million of value creation.

As you would recall we bought [indiscernible] assets only few months ago at a significantly cheaper price and in a materially better credit structure.

While we keep reading about how skilled nursing facilities should be around two times EBITDA on coverage, this Genesis transaction highlight the significant gap between theoretical [indiscernible] worth as how practitioners behave.

This is no different from the Senior Housing triple-net coverage rate, I described during the last quarterly earnings call. While Genesis assets selling Genesis assets is short-term earnings, diluted to the tune of $0.025 per share, we believe our shareholders achieved significant value and an improved growth profile for the enterprise going forward.

Roughly 4% of our [NY] (ph) currently is attributed to Genesis down 70% from peak and a significant portion what remains is in PowerBack format. We continue to invest in the model, through corporate skill development. PowerBack Piscataway, we just open 13 months ago is currently 64% occupied demonstrating the power of that product.

As we have consistently told you our investments philosophy is driven by price and total return. Not a desire to solve for specific operator or segment exposure. This bring me to my last point.

Since last quarter earnings call, we have announced $2.25 billion of acquisition comprised of $1.5 billion in medical office and $725 million in Senior Housing, bringing our total announced or completed medical office transactions to two billion over the last six months.

This has prompted speculation in the research community that Welltower is actively trying to tilt its asset mix towards medical office. As we have consistently said, we like the medical office business, but at a price. We have buyers and sellers of almost any asset at a price and implied IRR.

The Cap rates at which MOB portfolios have traded during the frenzy of 2017 did not make any economic sense for Welltower's shareholders. We passed on everyone of these opportunities and would do so again at those economics.

As Cap rates have expanded, we are determined to often and have since executive $2 billion plus of Class A medical office at a blended Cap rate of 5.7% resulting at 7% plus IRR. This diligent approach add excellent value for our shareholders.

While we feel very bullish about our acquisition pipeline, we will not buy any asset unless the total return makes sense regardless of current advantages of the Capital.

We remain disciplined and look for off market or broken market transactions at sellers increasingly focused on [indiscernible] and reputation more than just price in this volatile Capital markets backdrop.

Increasingly highly reputable developers and operators are joint venturing with Welltower by recapping their current portfolio and forming mutually beneficial growth plans by leveraging our data analytics platform.

While we remain very selective on opportunities to [pause] (Ph) on, we are delighted to announce that we have locked-up in $3 plus billion under developments and under construction pipeline across seven separate relationships in both Senior Housing and medical office over the last six months.

This pipeline is not an obligation, but our options to deploy Capital at an attractive returns and benefit with first look and last look and will create enormous amount of value for our shareholders. The first project of this pipeline is in the developments of two Class A trophy medical office building in midtown of Charlotte with Pappas property.

These two buildings are 100% leased to Atrium Health for next 15 years and will been an anchor as we build out [Indiscernible] project with our partner. On the Senior Housing side, we are delighted to inform you that since our last call, we have committed to roughly $725 million for acquisitions at a blended Cap rate of 6.6%.

This acquisition have an average age of 4.5 years and will be managed by three different operating apartment. Our pipeline remains strong in Senior Housing across both existing and new relationships.

Our data analytics product Capabilities, Senior Housing and health system relationship and our team’s creativity, reputation and integrity are the main reason why more and more highly reputable partners are reaching out to us today. While historically it was primarily us who reached out to them.

We are very proud that we compete on this Capability and not on cost of Capital. In summary, while the fundamentals of many asset classes and industries are starting to mature both the internal and external growth prospects of Welltower are accelerating.

We remain disciplined, vigilant and cognizant of the fact that we exist to create value for you our shareholders and we feel the prospects have never been better. With that, I will pass it on to John Goodey, our CFO.

John?.

Thank you, Shank, and good morning, everyone. It's my pleasure to provide you with the financial highlights of our fourth quarter and for the full-year 2018. As you have just heard from my colleagues, Q4 has been a very successful an active quarter for Welltower as has 2018 overall.

Before I proceed with usual commentary, I wanted to highlight three points. One, we are confident in our continued growth in 2019, and reaffirm our 2019 guidance given at our Investor Day, with growth expected in all our business segment.

Two, our strong, proactive and efficient writing of invested Capital in 2018 and in 2019 to-date has enabled us to reduce financial leverage and improve funds for all announced acquisition. Three, we are fruitfully investing $4.1 billion in 2018, making it one of the most active years in the Company's history.

Our overall Q4, same-store NOI growth for Q4 2018 was 1.6% for the quarter and 1.6% for 2018 overall. This being above the midpoint of our full-year guidance. Senior Housing operating same-store NOI grew by 0.6% in the quarter and by 0.4% in 2018 overall. As Shank noted earlier, we are encouraged by another quarter improved occupancy.

Seniors housing triple-net grew by 4.3% in the quarter and by 3.7% for the year, again with improved occupancy, outpatient medical grew by 1.8% in the quarter and by 2.2% for the year. Finally, long-term post acute grew by 1.4% in the quarter and by 2.1% for the year.

We continue to focus of Welltower's operational efficiency even with significant investments in technology enablement and data science and the hiring of additional high-quality colleagues to our team. Our G&A expenses relative to the size of our portfolio is the protector.

Overall G&A spend was $31 million for the quarter and $126 million for the year. Today, we are reporting a normalized fourth quarter 2018 FFO result of $1 per share and $4.03 per share overall for the year.

These numbers reflect the increased Q4 2018, [indiscernible] total and as in the past, we do not include one-off income items or fees in our normalized numbers. Last quarter and 2018 overall, we are very active for Welltower on the balance sheet and Capital raising front.

We continue to be efficient and proactive raisers of equity Capital to fund the growth of our business. During Q4, including the $300 million strategic investment made by the Qatar Investment Authority, we raised $552 million of gross proceeds from common acquisition at an average price of $68.41 per share.

This included $129 million raised after at our Investor Day in Q4 originally modeled to be in 2019. Overall, for 2018, we raised $795 million of gross proceeds at an average price to $67.51 per share. In addition, since January 2019 we have raised $195 million of gross proceeds at an average price of $73.97.

During the year, we issued a total of $1.85 billion of senior unsecured notes at the blended yields of 4.34%, with an average maturity of 13.8 years. We also closed on a new $3.7 billion unsecured credit facility with improved pricing across both our line of credit and term loan facilities.

Our Q4 2018, closing balance sheet position improved with $215 million of cash and equivalents and $1.9 billion of Capacity under our primary unsecured credit facility. Our net debt to adjusted annualized EBITDA improved from last quarter and stood at 5.85 times at year-end.

In summary, Welltower continues to enjoy excellent access to a polarity of Capital sources. During the fourth quarter, we completed $559 million for acquisition at a blended yield of 5.6%. The majority being in the outpatient medical [indiscernible].

This brought us to a yearly total at $3.4 billion in aggregate across all segments the blended yield of 7.3%. Including developments funding and other activities, total gross investments for the year were $4.1 billion making it one of the most active years in the company's history.

During the quarter, we completed $349 million dispositions and received $46 million in loan pay-offs 2018. Overall for 2018, we can see dispositions sourcing $1.6 billion with $209 million of loans being repaid. I would now like to turn to our guidance for the full-year 2019. We are reaffirming our normalized FFO range at $4.10 to $4.25 per share.

Starting with same-store NOI, we expect average blended same-store NOI growth of approximately 1.25% to 2.25% in 2019, which is comprised of the following components. Senior Housing operating approximately 0.5% to 2.0%.

Senior Housing triple-net approximately 3.0% to 3.5%, outpatient and medical approximately 1.75% to 2.25%, our systems approximately 1.375%, and finally, long-term post acute care, approximately 2% to 2.5%. As usual, our guidance includes only announced acquisitions and includes all disposals anticipated in 2019.

On February 28, 2019 Welltower will pay 191st consecutive cash dividend being $0.87. This represents a current dividend yield of approximately 4.5%. And with that, I will hand back to Tom for final comments..

Before we open the line for questions. It's important that I mention that in 2018 Welltower achieved significant milestones in our environmental, social and governance initiatives. Highlight for the year include being named to the Dow Jones world sustainability index, one of only two North American REITs in this most prestigious index.

Furthering our commitments to climate change, Welltower continues to be recognized for the number of new green building certifications added this quarter and throughout 2018. With respect to social impact the Welltower foundation and our employees donated over $1.5 million in 2018 to organizations engaged in health, wellness, arts and education.

We were also recognized by the National Diversity Council, as one of the Top 15 companies, for diversity in Ohio. With respect to governance, I’m pleased to announce the appointment of Catherine Sullivan to our Board of Directors.

Catherine has had a 35 year career in the health insurance industry and was most recently, the CEO of UnitedHealthcare’s employer and individual local market, and operating division of United Health Group. Catherine join Dr. Karen DeSalvo, former acting Assistant Secretary for Health at the U.S.

Department of Health and Human Services and Johnese Spisso, President of the UCLLA Health and CEO of UCLA Hospital System, who both joined our Board in December of 2018. We are delighted to bring these three recognized healthcare leaders to the board of Welltower.

At the same time, we are sad to see Judy Pelham, and Jeff Myers retire from our Board in May. And on behalf of our shareholders, we thank them for their guidance and stewardship. Welltower seeks the model accessible American corporations. In order to be counted among the truly excellent companies, we need to be a leader in ESG.

I’m pleased by the fact that with our recently announced board appointments 60% that 60% of our independent are women and minorities. The diversity of our employee base, our leadership team and our board continues to be a priority at Welltower.

This is not only a key component of good governance, but it has been proven driver of higher returns to shareholders. This is something we should all be proud of. At Welltower, we deploy capital in the most relevant sectors of healthcare real estate to deliver sustained cash flow growth all with an eye towards maximizing long-term shareholder value.

We were the top performing large Cap REIT in 2018, delivering 15.3% of total shareholder return. This reflects not only the high quality of our differentiated business model, but the fact that we have articulated a path for growth. As you will see in 2019, we have positioned the Company, we position to continue to deliver for our shareholders.

Now Nicole, please open up the line for questions..

[Operator Instructions] Our first question comes from the line of Nick Joseph with Citi..

Thanks.

Can you break down the components of your 2019, same-store NOI guidance for the shop portfolio between occupancy rate growth and expense growth expectations?.

Nick, at this point in the year we would like to give flexibility on how we think those would play out, but obviously we are very encouraged by the occupancy growth. We think that we will continue to have moderate rent growth and expense are challenging. So we will see how the year plays out.

As you understand that we are trying to maximize our revenue not one component of the revenue, we will see how the year plays out. Too early to comment on specific breakdown..

Thanks.

And can you provide an update on ProMedica's integration of the skilled nursing assets, at the Investor Day you mentioned that trend so far were better than expected?.

You have heard from the leaders of ProMedica's and HCR ManorCare on our Investor Day and you have heard from them directly that now the leadership team expects better synergies in the short-to-medium term.

We are encouraged overall by what is going on in the post acute sector, I'm not going to make too many comments given that Genesis as a public company, but looking for the release and see how obviously that sector is playing out, but we are definitely encouraged by the fact that -.

just remembered that about half 45% to be exact of that each managed care transaction is attributed to Senior Housing with seeing occupancy in that Senior Housing both triple-net as we mentioned, both triple-net and the shop segment is starting to come back.

So those are some of the data points I would point to you as you think about overall ProMedica, HCR ManorCare construct..

Thank you..

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

Hi, good morning. I wanted to ask about your Senior Housing portfolio, your same-store NOI guidance is over 200 basis points higher than your peers on both the shop and the triple-net portfolio.

Why do you think you are seeing superior performance and can you confirm that there is no incremental rent relief or portfolio transitions expected in your triple-net portfolio?.

So I think that should not be a surprise. If you look at the history, you will see that how our portfolio has generated data growth and that sort of the Alfa if you will has widened as the cycle got tougher and tougher.

And the second thing I would mentioned that if you look at, we have very granular view of where our portfolio or asset should, you have seen our data analytics presentation and how we are thinking about asset management, very active asset management, you kind of seen that we have taken a lot of proactive steps to sell asset and not afraid of the delusion on a short-term basis.

So we are encouraged by the business, now it's very hard to comment on this things on a quarter-to-quarter basis, but we are encouraged where that population growth is coming and the supply is staring to roll over..

Karin let me just add that it's no secret that we have sold a lot of Senior Housing assets over the years.

I think what you are seeing is a plan dedicated critical view of what we own from an asset management standpoint and when we see asset in Senior Housing that we do not believe have long-term viability, we will exit those assets, we will take the short-term dilution that you get from that and all with an eye towards owning the best-in-class asset for the long-term and as Shank said in the right market.

And I think you know particularly Karin, we take a very granular view of how we define the markets that we want to own Senior Housing assets in. I think what you are just seeing is the benefit of an active asset management program with the view to the future of the business and were just trying to manage FFO per share on a quarter-by-quarter basis..

That is a good color, thanks. And my follow-up is more of the bigger picture question on Senior Housing. You talked about the demand, the demographics and the timing. Do you think technology is allowing for greater autonomy for seniors later in life, - grocery delivery, wearable monitor is improving focus on wellness.

Do you think that might delay the demand for Senior Housing?.

If you look at the demand growth for last three years for example, I mean Nick has a lot of this data, you can look at it. You will see that demand has been running particularly in the Assisted Living IO plus AL minus seg brand 3x of population growth. So there is no evidence that we have seen that is the case.

Do we think that technology will change this business for better and that will be very helpful for senior in their home environment? Absolutely, but just recall that as lot of senior home is our communities as well, right. Those technologies and I mentioned a bunch of them in my prepared remarks will help us drive the margin as well.

So we will see how this plays out. It's very difficult to sit here and predict what might happen. But there is no doubt that in the recent past at least we have seen the demand have been running 3x of population growth..

You know Senior Housing provides an environment for the aging population to live safely. A lot of historic housing in this country works against seniors health and wellness.

So you could put some new technology in a obsolete residential environment and I'm not sure at the end of the day you are achieving the goals of improving health outcomes at lower costs.

As John said, we are very much on the forefront of bringing new technology into our settings and also thinking really hard about what the settings of the future look like. And that is why we are so focused on the markets that we are in. Because Senior Housing is a very expensive product. As I always say, it's a luxury good that no one aspires to own.

But it's a necessity, but it's actually out of reach for the majority of the population. So we have been very careful about where to own that real estate, because the cost of delivering the care as you all know has been growing significantly. So you need to be in places where people can pay.

Overtime, I am hopeful, we will figure out how to deliver a much needed environment, a much needed real estate settings at a cost that is not without reach for the majority of the population. So stay tuned on that Karin..

Thank you..

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

Thanks for taking the question.

Shankh, I know you don't want to give components of the guidance, but is it safe to assume that within the guidance expenses of about 4% are baked in and that you are like to see the trajectory improve given the expense comps get easier through the year?.

As you know, as you look at our numbers, you will see the expense growth has been challenging for last five years, so this is nothing new. I would expect that 2019 we will continue to see that, maybe we will see some moderation in 2020, because a lot the California markets by then will actually have $15 of wage growth.

So which is driven a lot of those increases. By 2019 will continue to be a challenging year and obviously, hopefully we will be able to mitigate that like we have using some pricing and some occupancy.

You are correct about the trajectory given obviously year-over-year growth is not just a function of what happened this year, because the function of what happened last year. So you are correct about the trajectory..

Okay. And then just my follow-up, just your comment on not really looking at portfolio composition, but sort of looking at what is available and what the price is.

Your reference to skilled nursing sort of pricing moving up, does that sort of make you more a seller today versus a buyer and how would you sort of describe just pricing across your different subgroups?.

I'm not just suggesting by any means that we don’t have a view of what our ideal portfolio should be constructed. I will also say that view is evolving, so it's not a static view, but what I was trying to drive that most importantly we deploy Capital to make money.

Even if we assume that we had a long-term view of some percent of asset from some segment or some operators, we are not prepared to get to view, to execute that view, to realize that view, we are not prepared to pay a price that does not make sense from a total return perspective. That is what I was trying to drive at.

As you have seen within 12 months we have turned from an opportunistic buyer to an opportunistic seller right. Every asset this Company owns is for sale at a price and total return. So that is no different from skilled nursing, no different from any other billings we own in any other segments..

Okay. If I may just sneak one more in, I was a bit surprised or maybe it’s also early in the year, but the $2.25 billion of acquisitions you have done, obviously you have closed Hammes and specifically CNL, it seems like it's modestly accretive.

You have talked about the trajectory improving for FFO, but it is also suggest that maybe your midpoint could move up, just given the amount of acquisitions you have done for this year?.

Yes, background in 10 year. I think the pre-funding that we pointed to at this point makes sense for us to think about that from conservatism on the closing side of these acquisitions.

So as John mentioned in his prepared remarks, not only did we have the issuance from the fourth quarter, but we continue to issue 195 million of equity into the first quarter and had $270 million disposition that have already closed as well.

So, when you think about kind of where we are at from at from a funding perspective our balance sheet is actually in a very good spot to start closing on a lot of the acquisitions that we have spoken to and the combination of the timing of our closing the acquisitions, plus the seasonality of our Senior Housing, which steps down in first quarter, but then picks up throughout the year is what is driving that acceleration of earnings from the first quarter through the end of the year.

So, understood on your comments around where we are at that midpoint, at this point we are maintaining a range because that makes the sensitive what the properly announced information..

Great. Thank you..

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

Hi, yes good morning everyone. Congrats on the quarter and the outlook, it’s been definitely looking up. A couple of things, the guidance, I'm just trying to understand kind of what is in and what is out given the large amount of transactions that are being contemplated at this point.

It sounds like the CNL transaction is in the numbers and all the acquisitions announced pre-CNL, what I'm trying to understand is $725 million of deals in the first line that Shankh talked about are those in the numbers and it also seem like this full guidance went up from 800 to about 1.4 billion, is that increased also in the guidance?.

Yes Tayo, Tim again. Answer is yes and yes. So on the acquisition side, we have $1 billion acquisition we announced on our Investor Day, which 180th, which had closed in the fourth quarter and the remaining of which will close during 2019. And then as you said, we announced CNL on January 2nd and its $1.25 billion.

So between the Investor Day announcements and the CNL announcement, you are getting you are your acquisition, your publicly announced acquisitions. And our disposition of $1.4 billion that we revised this morning is all included into our 2019 number..

I would just add one more. If you think about it, we have raised the equity already. But as you know, real estate transaction takes time to close, right? You have a six month gap between when you are raising capital versus when you are deploying capital, which is the prudent thing to do.

We are not going to take that kind of market with, we have big balance sheet to maintain. But that is sort of driving the dilution this year, but sort of, you can refer from Tom's comments that we don't think, that impacts the run rate earnings growth.

So you are going to see a good chunk of the run rate earnings growth shows up in the second half and then flows through 2020 and beyond..

Yes I understand. Okay that is helpful. And number two, again, the $3 billion of development pipeline that you announced. I found that pretty interesting.

Can we just talked a little bit about again the timing around when all that could be deployed, whether again I know - you just kind of like row for first look, last look, type situation, but of that $3 billion, how much realistically do actually think, you guys could execute on that over what timing?.

Yes. So we do think that the number I mentioned is ones that we can execute on. And as I said that we want to do it, we have several different structures. And we don't want to do a role for just we mentioned. But we are deploying capital in various ways equity that different parts of the capital structure.

And when not equity, and we fund a portion of our capital stack to mezzanine, back in mortgage, participating mortgage. You can think about in structural, provisions that is available that we use. Then we get a role for [indiscernible] and a participation that is defined on the front end. So we are very careful about our basis.

We are very careful about our IRRs that we achieve. But more importantly, as I said, that is our options and not an obligation. So obviously we would hope when we deploy the capital, where the cost of capital, if not we wouldn’t. so that sort of gives you a sense of how we think about this..

But there is high visibility Tayo to that number. This is a number that we know where those opportunities are..

Yes. That is a good point I should have mentioned that. So Tayo I can sit down with you and walk you through building-by-building what those opportunities are and unidentified opportunities that is a very good point Tom..

Okay. Excellent. One more you would indulge me. I would take a look at the sub and then in regards to properties under construction on the shop side for your top three markets L.A., New York and Boston. Still like there are a couple of more properties under construction now on a quarter-over-quarter basis.

Just what is your viewpoints in regards to supply.

Is that kind of shifting back to primary markets, is it's still really more of an issue of secondary markets at this point in the cycle?.

So, Tayo we do give you those stats, because that is what you guys have asked for and we continue to give those stats.

Well our view of supply as it relates to our own portfolio is very granular and much granular, we have shown you some of the facts on our Investor Day, which you know we see a supply is an ACU or Adjusted Competition Units and our view is competition or our portfolio will be lower in 2019 than in 2018.

But that we will see obviously things fall off from it 2018 to 2019 that I also think go from 2019 to 2020. We are encouraged by what we are seeing particularly as you recall, I mentioned in Assisted Living segment, which is a very large portion of our U.S. business we have seen 120 basis points in occupancy increase.

That is one of the best uptick we have seeing in years hopefully that is helpful. Thank you..

Thank you..

Our next question comes from Jonathan Hughes with Raymond James..

Hey, good morning. Thanks for the time in earlier remarks. Kind of a higher level question. Maybe for Tom or Shank, but in the last recession obviously we didn’t have the sharper [Indiscernible] structure at least not that meaningful ways of today.

So how do you expect shop to perform in a recessionary environments since you are not protected by the least payments, but are instead exposed to premarket supply and demand fundamentals.

I'm not saying that is - the broader macro picture is going, but you should just trying to understand your views there and how that businesses should perform in a recessionary environment?.

Yes. So you are asking for something that we have absolutely no upside, either than predicting what might happen. I will just mention it to you that as you know our Senior Housing business, which is an e-driven business. Right.

So if you look at the Assisted Living data, over those timeframe you will see a business stage, lost a couple of 100 basis points of occupancy, but the rates growth remains resilient and expense growth is obviously helpful in that kind of environment. I'm not going to venture a guess of to exactly how things are going to play out.

I will also mention to you that it depends on when you go into such an environment, what is the supply more importantly what the demand side looks like. So it's a complicated answer than you would like, but I would like to point out when you think of our portfolio Senior Housing is a very broad term.

When you think about our portfolio, think as you know it's a very much that particular portfolio and our idea says is very much the new driven product..

Yes okay. That is helpful. And then I will just try to have one more, but looking at the capital stack you have $720 million of preferred sitting on the balance sheet at a 6.5% coupon that I believe are redeemable.

Any plans to call those and maybe refi with debt or pay down with common equity embedded in 2019 guidance?.

Thanks Jonathan. So the preferred you are referring to, you are right there, they are convertible and are actually convertible at all right above 73.54. So even trading above that for some time, and there is a trigger on that that if the stock stays where as that or above that it will hit in the near future.

I think the way you just think about that is that the way we manage our balance sheet is always to continue to position it, in a better long-term position, and we will be in the unique position if those remains convertible to not only further exercise the balance sheet, but do it in a cash flow accretive way.

So I don't want to speak to where the stock price may or may not be in the coming weeks, but you should think of us making the right long-term decision from a balance sheet perspective on this..

Yes. Okay, that is it from me, I will jump off. Thanks for the time..

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

Thank you. Good morning. Can you guys offer a bit of granularity on the 1.4 billion of sales that are in guidance at a 6.2? I think the Genesis sales or $252 million at a nine Cap.

So I'm just kind of - if you can help us get to the other residual amount or maybe what that [indiscernible] price of the deal?.

Sorry Jordan, last part of your question got cut off..

Sorry.

The residual amount there would be helpful whatever is in that basket?.

Yes. So far to-date you are correct. The Genesis transaction close now its $252 million and we had another $16 million of transactions close year-to-date. So we have closed on 268 million dispositions at a little less than a nine cash cut. So the remaining call it $1.1 billion should be spread out through the remainder of the year.

I will think about it kind of being in mid-year from here as far as timing..

Can you tell us what it is?.

Yes. The remaining assets or mix of medical office buildings and Senior Housing. And I would think of that being, so getting about the blended Cap rate overall you see the remaining $1.1 billion is being done in much lower Cap rate than what has been sold.

And it's more in the category of what we have talked about in the recent past, which is outside of opportunistic continued kind of calling in the portfolio and some of the higher [indiscernible] sectors, there is not much of that left.

So when we think about capital recycling going forward it's really lower Cap rate non-core assets in our business that are higher quality, but there is institutional demand for it, that aren’t necessarily part of the Company's long-term strategy. And that is going to be reflected in the Cap rate. But it kind of goes back..

Mathematically it seems almost sub five based on what you saw Genesis?.

Yes. Correct. Your math is correct, an abundant Cap rates of what is remaining. So I think it will be from a quality perspective, from a sales Cap rate perspective it will fit again in that bucket of higher quality assets just don't fit into our necessarily our long-term strategy..

Jordan. We are not definitely just building a math, we can only tell you that the demand for healthcare assets both in Senior Housing and medical office is extremely robust.

It's clearly Senior Housing, we are seeing medical office have Cap rates have come up from the cross of 2017, but in seniors housing there is an absolute bidding frenzy from institutional investors. People are seeing where the demand growth curve is going and there is a true demand for this assets.

So we obviously like to recycle our portfolio and our balance sheet or working in those time. So that is what we are doing..

I would was just add that Jordan. This is kind of back to the Karin’s question from earlier. But the math on kind of our dispositions throughout the year adds to the part of that to the acceleration of earnings into the year.

So your mouth is correct, we are being accretive sales in the back half and to put that I think Vikram said anything as the run rate likely during the year would be towards the higher end of what our guidance is out there.

But throughout the year, we will have a low remember at the start and partially due to some of the sales currently going to be it..

Okay. And then just a couple of quick clarification.

So, looking at your Senior Housing triple-net rent expired - last quarter there was 40 million-ish expiring in the rest of 2018 and there was zero in 2019 and now outlooks like - I'm curious what happened to that, I don’t know if that was Brandywine or something else, now it looks like there is about 28 million that is set to mature into 2019, and it's expected to be converted in addition to Senior Housing operating.

So just could you confirm that Brandywine?.

No, Jordan, it's a Brookdale transition that is still happening. A lot of those assets – California, a lot of Brookdale assets are in California and those obviously the licensing transfer takes time, so those are happening right now.

There has not been any additional triple-net to write their conversant other than Brandywine and Brookdale that we have talked about though the year - last year..

And the other clarification is for the show guidance for 2019, all transition assets are in the guidance Brandywine and Brookdale?.

Brandywine is, because it is not a change of operators. Brookdale assets are not because it is a change of operator..

Okay. Thank you..

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

Yes, thanks. Shankh, I wonder if you can provide some additional color off of the $3 billion predevelopment pipeline.

Are these with new and/or existing relationships and could you provide a breakout between MOB and Senior Housing assets?.

Yes. I mentioned seven relationships, three are in MOB, four are in senior’s housing, all but one is a new relationship, one is existing relationship..

Okay. And I'm sorry if I missed this from a Tayo's questions.

But is it safe to assume that you guys can break ground on these projects over the next one to two years or should we think about this more of a longer-term type pipeline?.

No. We have broken ground already on the largest project we mentioned, which is a [Indiscernible] property. I also said these are not just development, they are under construction project as well. So, obviously they are coming up and obviously at the right point in the lifecycle we will execute on those opportunities.

But they are as I said, as you can look at, it is very typical for this company to have this kind of arrangements that is why we have always executed in relationship investment strategy with our operators, so there is nothing new that I'm telling you.

But we are very encouraged that six of the seven new relationship with highly reputable developers and operating partners and a very interesting part of that trend which is a change as I mentioned in my script out of those seven, four has reached out to us instead of us reaching to them.

And so that sort of gives you a sense of how we compete in the marketplace today is shifting..

I had mentioned in an answer to Tayo’s question, that there is tremendous visibility here. Now anything can happen in the development world, lots of reasons why things will be delayed, but I can’t underscore more that we know where these opportunities are and the timing of them is not something that we are going to predict for you.

But let's just say, this is not 10 years out in the future. These are things that we are actively engaged in right now..

Great and I guess last question and it seems like a pretty attractive pipeline.

Should we assume that the Company's focus on developments will increase from this point forward is? Are you seeing more opportunities out there, I guess it was highlighted by the $3 billion of deals you kind of just highlighted?.

You know I think what Shankh said is that we are engaged with some of the most successful developers in the U.S. today. And they are presenting us with many attractive opportunities that are very strategic for us, because these are opportunities with some of the nation's leading health systems. And I think you have gotten a little flavor for that.

If you look at what we have done and what we have announced in 2018, and some of the projects, for example, with Providence St. Joseph Health system, the projects that we talked about today with Atrium, a very highly rated system in North Carolina. These should give you an indication of where a significant amount of growth will happen to Welltower.

We are not going to give you any more granularity about that, other than we showed you with real examples of what we are doing and we have articulated a $3 billion pipeline you should assume a big percentage of it is more of that..

Great. Thank you..

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

Thanks, good morning. So for Shankh, the UK portfolio has put up two quarters of high-single-digit NOI growth.

Can you provide some color and the drivers there?.

It's driven by significant occupancy ramp in UK..

Okay. And then I think in your comments Shankh, you mentioned that you are working on something like $600 million Senior Housing acquisitions.

Can you provide more color on the quality market mix versus the current portfolio?.

I think Lukas, you might have a start, I think, I said that we have announced $725 million worth of Senior Housing portfolio across three operating partners. And these assets are new assets, young assets 4.5 years of age.

But there is nothing else I have to add to that, except that we think that we did this transactions at a very attractive returns of 6.6% Cap rate..

The question of quality is hard to answer. Quality to us is what is strategically relevant to our long-term plan. We are selling and you have seen us sell assets that many people think are high quality. We talked about where Cap rates are in this space. These are high quality assets to some people, but they may not be strategic to us.

So it's hard to answer that question. When you see us deploying capital in senior's housing going forward. Understand it's in markets and the types of assets that are relevant to the broader well tower strategy which is connecting Senior Housing more broadly in the health and what is increasingly becoming a wellness continuum.

That is what we are driving here. So that is what we think of this quality, because we sell something it doesn't mean low quality and we are getting good price for it, because to some buyers they are great assets, just they don’t fit necessarily our long strategic plans. I hope that is helpful..

That is yes. Thank you..

Your next question comes from the line of Steven Valiquette with Barclays..

Great, thanks. Good morning everyone, thanks for taking the question here. So the main question I wanted to ask was to just touched on a couple minutes ago, but just to kind of ask on the same subject, anyway really as a follow-up on the overall pipeline. In the U.S.

market right now, we are actually seeing real-time that many hospitals and health systems are actually posting stronger than expected earnings results exiting 2018 and in 2019. That should give health systems more confident before the trigger on acquisitions whether it's in post acute or other types of assets.

So again you are kind of touching this a little bit, as we think about your pipeline of opportunities with health systems you know I'm curious if you are getting that same sense that pipeline could actually be accelerating a little bit ProMedica ManorCare type deals as we think about Welltower's opportunities with health systems or just pipeline will be accelerating in other asset types that with health system just given their what seems to be strengthening balance sheets? Thanks..

Good question Steve. Let me take some of that and maybe Mark Shaver will have some comments on this, because he spends a lot of time with the health systems as to why.

One of the comments I will make is that as health systems start to see a future to their business model that is different from the very focused acute care model that drove so much of their real-estate investment in the past, I think that open-up opportunities for partners like Welltower.

So I would say what you see particularly from the non-profit health systems is a little bit of a mixed bag in terms of performance, because some of them are very well positioned to face a great new world, where data, new technologies and an ambulatory focus will have a big impact on profitability.

Those that are attached to an acute care in patient bedded hospital models will struggle, not to say that there aren't markets where there is an undersupply of acute care. But on balance, there is a lot outmoded acute care beds that fit in all of these health systems that are well packed or useful life.

So when they look at capital going forward, many of them are now seeing that a partnership with Welltower helps them to accelerate the transition that they need to undertake. Mark do you want to make a comment….

Yes. Tom and Steve thanks for the question its Mark Shaver. I would maybe add two points. I think with health systems, we are going to continue to see two very important trends that we are positioned well to help with. One is there are going to continue to need to right size their critical delivery systems, this is a lot of what Tom said.

we continue to move away from the acute care and maybe some specialty care environment in the in-patient setting and build out there ambulatory outpatient and other sites of care footprint.

So we continue to be very active in those dialogues, and I think while their balance sheet is maybe strengthening a bit, the ability for them to fund that clinical growth on their own is going to continue to be challenged. That is a great opportunity for us.

And then the second piece, which is really where I think your question was starting, there is going to continue to be vertical integration with health system partners, like you see across the health spectrum. And so that is going to create these ProMedica type transactions where they are looking to grow additional margin businesses.

And again, I think we are very well positioned to support that..

And I would just add one last comment. Majority of the pipeline today, if you look at with health system though. It is on what you understand as traditional outpatient ambulatory care medical officer segments..

Okay. got it, okay. alright, thanks everybody..

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

Hey, good morning. This is [indiscernible] on for Chad. It's my first question on the increase disposition guidance going from 800 million to 1.4 billion.

What changed since December that lead you guys to increase this so significantly?.

Yes. It's Tim here. We are always talks talk, as Shankh mentioned as part of his prepared remarks and as we are consistently saying with interested parties in our assets.

And you shouldn't think of discussions between now in December having been something changed, but things firm up and it got to the point where we have to putting it into guidance now than we would have been back in December..

Alright. Thanks. And then just looking at the triple-net Senior Housing portfolio. It does look like, you have about 2% of your portfolio under one times coverage.

Should we still think about any triple-net to write their conversion going forward?.

So, well I think, if you look at last quarter earnings call, you will see that I have going through significant details about how to think about that segments, I'm not going to repeat that. I mean, I think, I answered that question before that you are not going to see something of material size.

But we have to say it, we don't think about is a triple-net better than idea, or idea better than triple-net and that is not how we do this business. We think about alignment of interest with our operators. So if it is the right alignment, we will take ideas into triple-net, if it is the right alignment to do it the other way, we are going to do that.

But just to answer your question very specifically, please go back and read the transcript from last call, you will see there is a major discussion about that topic. I don't want to waste everybody's time to get into that. But we do not expect anything aside change from triple-net or idea as of today..

Alright, thanks. And just on the segment guidance for 2019, the outpatient medical guidance budgets declined 25 basis points of the midpoint verses 2018.

Can you just give more color what drove that decrease year-over-year?.

Yes. Absolutely. This is also something we talked about in details and our Investor Day. We have a couple of lead test role in this year that would have downtime. We always underwrite downtime. And that is what you are seeing, sort of gets caught in that calendar site.

We are very, very excited about that business as key towards taking over the business and is making lots of change. So starting towards the end of this year into next year, you will see the fruits of those efforts that key just putting in and bringing and hiring a lot of really good talent there. And also empowering a lot of our existing talent.

So we are very excited about the business. What you are seeing the 25 basis points, it’s just a function to lease role that we described on our Investor Day..

Alright, great. Thanks for taking my questions..

[Operator Instructions] The next question comes from Michael Mueller with JPMorgan..

Hi, two questions. First, what do you see is being your average annual development spend over the next five years, given how the pipeline is ramping up. And then second, the billing for disposition target, should we think of that as that is what you want to sell this year. So if you are more active on the acquisition side.

We should be thinking of equity for incremental funding or could we see that disposition number scale-up more?.

First is I'm not going to venture to give us on what average development spend will be, it is safe to assume it will be higher than where it is, it's a question of risk reward. As you know that we for example in the medical office segment, we already put shovel in the underground when it's close to 100%.

We don't go and build a building if we have say a half of that as a commitment, so that sort of to answer to what the question you asked, it’s probably going to be higher, but it is a function of lot of other factors.

The second, answer is, as we think about the ramp-up of the acquisition portfolio, we should also think that equitization of those assets will come from both common equity as well as the assets we own. Tom talked about how we think about asset dispositions, we have lots of very high-quality assets that has a significant bid in the marketplace today.

And we will continue to recycle capital and the most important point that you are not going to see the diluted capital rates that you have seen before, so whether it's from common equity, it’s from the assets we own, we do think that we will very prudently manage the balance sheet..

You know Mike I want to make one comment.

I think you should expect that developments will accelerate in this next cycle, including the fact that there we are bringing forth a new asset classes that didn’t exist, I mean a lot of that have been Senior Housing models like that we have announced on 56th Street which by the way was tapped off just last week right Mercedes?.

Okay..

But we announced on 85th in Broadway, this is a product that is never been delivered. I think what healthcare real-estate offer investors is the opportunity to invest in a next-generation class of real estate that they have not seen before. It's going to take a lot of capital, that is what we are positioned to do.

I don’t know how you do that if you are not investing with Welltower. And Shanks comments about all this incoming calls now, a lot of it has to do that, we met with an institution who realize they would be much better off investing with us than trying to compete against us.

Because there are - just you have heard us talk a lot about our data analytics capabilities. No one can compete with that, so there you go..

Okay. That is helpful. Thank you..

And your final question comes from the line of Eric Fleming with SunTrust..

Good morning. Just wanted to ask a question on how are you guys looking at potential Medicare advantage opportunities. I know Sunrise talked about their plan at the Investor Day, you have got the ProMedica relationship.

When do you think you can start getting any contribution and what do you think the total market opportunity is for the NA plants?.

Yes Eric. This is Mark Shaver. You know I think Medicare advantage continues to grow as the trend in country it's about 35% adoption nationally in MA plants. The larger plans for straightforward Medicare really looking at the earlier younger population that the middle 60s to early 70s of population.

A lot of the residents living in our community are older and more frail. And some of the more specialized programs, the institution programs, really, which is what Sunrise and some of the others are playing. It's actually a much smaller percentage adoption of that nationally.

We are talking about less than 100,000 individuals across the country in those plans. So we are very active in those conversations with some of the major payers and there is, as Tom says often early days with regards to MA and the adoption.

But we are very active and we think there is going to be an important role in partnering with payers years in this front..

We think there actually will be develop of products by the payers that will address the needs of the population that will likely enter the Assisted Living sector. Again, generally a wealthier population. Historically, we don't think of MA as a product that was geared for somebody paying $8500 a month for Senior's Housing.

But I think that is going to change in the future. And as Mark said, we have a lot of discussion with the major payers, you just heard that a very senior executive from United Health Care came on our board. We just announced it today, as well as Dr. Karen DeSalvo, who was with the largest payer in the world CMS and he is the larger payer in the U.S.

CMS. So we have got a lot of good knowledge and experience of both inside the Company and sitting on our board..

Okay. Thanks a lot..

Thank you..

And with no further questions, we thank you for dialing to the Welltower earnings conference call. We appreciate your participation and ask that you please disconnect..