Welltower Q3 2022 Earnings Report

Welltower EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.84
• Beat/Miss: N/A
• One Year Ago EPS: $0.80

Welltower Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Welltower Announcement Details

• Quarter: Q3 2022
• Date: 11/7/2022
• Time: After Market Closes
• Conference Call Date: Tuesday, November 8, 2022
• Conference Call Time: 9:00AM ET

Welltower (NYSE:WELL) is a real estate investment trust (REIT) that owns, operates and finances healthcare-related real estate. The company focuses on properties that support healthcare delivery and services, including senior housing communities, outpatient medical facilities and post-acute care properties.

Welltower partners with healthcare providers, senior housing operators and other service providers to develop and manage facilities designed to serve aging populations and patients requiring ongoing or specialized care. Its portfolio and investment activities are concentrated in the United States, the United Kingdom and Canada.

The company was founded in 1970 and was formerly known as Health Care REIT before adopting the Welltower name in 2015. Welltower is headquartered in Toledo, Ohio, and is led by President and Chief Executive Officer Shankh Mitra.

Welltower Q3 2022 Earnings Call Transcript

Key Takeaways

• Senior housing operating portfolio delivered 10.8% year-over-year revenue growth, a record 5.3% same-store rate increase, 17.6% same-store NOI growth and the lowest labor cost growth (4.3%) since the pandemic, setting up a “coil spring” recovery into Q4 and 2023.
• Welltower restructured its ProMedica Senior Care lease with Integra, avoiding any cash rent cuts, implementing rent increases with 10-year resets, and securing equity subordination and guarantees to protect its below-market basis while remaining slightly accretive on a GAAP basis.
• Outpatient medical office segment posted 1.4% same-store NOI growth, maintained 92.7% tenant retention, achieved rent escalators above 3%, and is seeing cap-rate expansion that could create attractive acquisition opportunities.
• The company bolstered its balance sheet by raising about $3.3 billion via ATM equity (including $842 million settled in Q3), maintains $5.6 billion in near-term liquidity, expects net debt/EBITDA below 6.5× and authorized a $3 billion share buyback.
• Management highlighted compelling investment prospects in U.K. assets trading at attractive U.S.-dollar bases amid a strong dollar and an inverted yield curve, positioning Welltower to capitalize on global buy-low opportunities.

Presentation

[Operator]

Hello. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Welltower Third Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. In the interest of time, we ask that you limit your questions to one. I would now like to turn the call over to Mr. Matt McQueen, general counsel. Please go ahead, sir.

[Matt McQueen, Executive Vice President and General Counsel at Welltower]

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

[Shankh Mitra, CEO at Welltower]

Thank you, Matt. Good morning, everyone. Today, I would like to describe our capital allocation priorities for ProMedica Senior Care transaction and the rapidly evolving capital markets environment. I will also review some high-level business trends before handing the call over to John, who will provide details on operational trends and a brief update on our operating platform. I'm very pleased with the progress we have made since we last spoke 90 days ago. Despite a flattish earnings trend on a sequential basis driven by several exogenous headwinds, including FX, interest rate, and utility expenses, our underlying business is actually improving meaningfully and setting up for the coil spring recovery that we hoped for. In our senior housing operating business, same-store revenue is up 10.8% year-over-year, driven by strong occupancy gains and, most importantly, pricing power.

[Shankh Mitra, CEO at Welltower]

5.3% same-store rate growth is the best we have seen in our recorded history, and I want to remind everyone that we're compounding already industry-leading rate growth from last year. From these early trends, I believe we will see a further improvement in Q4, which will create a strong setup for 2023. Perhaps what I'm most excited about is the progress we're making on the labor front with Compensation Per Occupied Room is up 4.3% year-over-year, the lowest level of growth we have reported since the beginning of pandemic. Our operating partners are experiencing a significant surge in applications, which has translated into strong increase in net hiring. In fact, in September, total portfolio monthly contract labor spend was the lowest since August of 2021 and subsequently improved in October.

[Shankh Mitra, CEO at Welltower]

We believe this trend will continue into year-end outside the normal pickup of agency use during the holiday season and well into the next year. We strongly believe the labor market is changing for the better, and it will help our sector to be a total standout amongst all real estate sectors next year on a relative basis. SHOP portfolio same-store NOI growth was 17.6% in the quarter, led by U.S., which posted third quarter of 20%-plus growth. An assisted living product type reported same-store NOI growth of an impressive 25.1%. Let me highlight three operating partners for you that provide further insight into why I'm so pleased with our progress over the last 90 days. Number one, Oakmont. As you recall, we transitioned 10 top California assets to Oakmont in August.

[Shankh Mitra, CEO at Welltower]

While we expected some initial disruption to occupancy NOI during the transition, in actuality, we recognized an immediate benefit due to remarkable performance from Courtney's team. These assets have experienced a slight increase of NOI and occupancy despite challenges that are normally incurred during a transition. This is the first time I've seen a transition with no negative P&L impact apart from the six assets we transitioned to Oakmont last year. I expect these properties, as well as the other assets that we transitioned to Oakmont, to add significantly to our 2023 growth. If you are visiting San Francisco this month for Nareit conference, I recommend you to join our property tour and experience firsthand the remarkable job this team has done. To my earlier point on shift of labor market during the summer, open positions across Oakmont platform was 16% of total jobs.

[Shankh Mitra, CEO at Welltower]

It is down to low single digit at this point. Number two, StoryPoint. StoryPoint is one of our best operating partners, perhaps will be the source of biggest NOI swing next year. We have a $1 billion of investment with low occupancy properties, which is generating approximately 2.7% yield in Q3. StoryPoint made remarkable improvement on top line on both occupancy and rates, but the properties have not generated significant NOI in 2022, as these properties were just over the break-even occupancy, and agency cost was very detrimental. Their open positions are now down more than 50% through the end of October, and we expect 80% reduction of agency by end of this month. We believe that stabilized NOI for this group of portfolio is about circa $80 million, which will be substantially achieved in 2024.

[Shankh Mitra, CEO at Welltower]

While we'll not close this gap in 2023, I expect we'll make significant strides next year and will be over the half-year way mark. We cannot be more pleased with the execution Dan and his team has pulled off. Number three, Sunrise. Sunrise is our largest operator. Due to a national presence, Sunrise experienced significant labor challenges and has had to rely on contract labor for last many quarters. Jack and his team has made remarkable progress in this area over the last 60 days. Contract labor down 52% from year-to-date run rate, and I believe Sunrise will be the biggest contributor to contract labor improvement in the coming months and quarters. Given strong rates Sunrise benefit from in these incredibly well-located Welltower buildings, we should see extremely strong NOI growth contribution from Sunrise.

[Shankh Mitra, CEO at Welltower]

While we're very encouraged by these trends and our fourth quarter guidance of 21% growth at the midpoint, I'll remind you that we are at the very early inning of senior housing recovery. We'll remain as excited as ever about the growth prospects in coming years, and the 80-plus population growth will continue to accelerate and as new construction in the sector will come to near a standstill. In fact, 2023 should see 4.5% increase in 80-plus population. As you may have observed, only 2,700 units got started in Q3, and frankly, I don't even understand how these people will make any money in development.

[Shankh Mitra, CEO at Welltower]

While new development should continue to come down, assuming people want to develop to make any money, another interesting phenomenon we're observing is that the thousands of units are being taken offline either because of obsolescence or because of higher and better use like behavioral health. As of 9/30, almost 15,000 units were taken offline on a TTM basis. I also want to highlight consistent and steady performance of our outpatient medical group under Ryan's leadership. Our retention rate for the quarter is a remarkable 92.7%, and rent rates are ticking up into the mid-three. For both new and renewal leases, I'm pleased that our weighted average escalators are now above 3%. I'm also pleased that the low interest rate environment and the wall of capital that drove too low 2% escalators seems to be a thing of the past.

[Shankh Mitra, CEO at Welltower]

Kelsey-Seybold, which is our largest MOB tenant and also represents a very significant portion of our development pipeline, was acquired by UnitedHealth during the summer. The significant credit upgrade of our largest tenant and our development client represents a meaningful value creation for our shareholders. The most significant change we observed in this, however, in the MOB space, is the remarkable widening of cap rates. I've said like a broken record for a long time that MOB cap rates made no sense to us, given where the forward view of inflation was relative to underlying growth rate of the cash flow. I'm pleased to see other capital sources are now waking up to the ugly realities of real return on capital in this inflationary environment. There was nothing wrong with this asset class except price, and I'm relieved to see that has finally changed.

[Shankh Mitra, CEO at Welltower]

Billions of dollars of transactions were consummated at low cap rates, often with short-term floating rate debt. The party is over with capital structure and cash flow, as many of these vehicles are now upside down. We'll be observing this space closely in coming months and quarter. Now I would like to discuss our recent restructuring of our lease with ProMedica Health System. I'm not going to bore you with the details of our fundamental thesis of this investment in 2018. I laid it out clearly when we did this transaction. We didn't predict COVID and its impact on the cash flow of the portfolio, and frankly, we're underwhelmed by the execution. The fundamental investment thesis of the original transaction should still protect our shareholders' capital. That basis and appropriate structure are critical to any real estate investment.

[Shankh Mitra, CEO at Welltower]

While we have historically relied on our operators' ability to drive cash flow and thus yield, we never make real estate investment decision based on yield. We believe success in real estate investment over a long period of time is a function of right basis and staying power. If you own an apartment in New York City for $400,000 while everybody owns equivalent apartment for $1 million, you can still charge a rent for that unit and generate strong returns. That is such a simple, yet perhaps one of the most overlooked concept on Wall Street.

[Shankh Mitra, CEO at Welltower]

The cacophony of noise around ProMedica's negative EBITDA coverage over the last few months have reached a fever pitch, and we honestly understand and empathize with this Pavlovian response as the history of healthcare REIT sector is full of remedies such as massive rent cuts or disposal of assets at fire sale prices that result in significant value destruction to shareholders. Even though I'm personally humbled by the cash flow deterioration in the ProMedica portfolio, let me repeat that we're not experiencing a rent cut on a cash basis, and our investors are the beneficiary of a satisfactory total return to date. That goes back to our incredibly favorable basis and structure. To continue my previous metaphor, Manhattan apartment rent might come down from 5,000 to 4,000 in a bad year. We never hypothetically even charged 4,000 as we bought our unit at such a low price.

[Shankh Mitra, CEO at Welltower]

That is why our rent is now going up, not down, after this transaction. I continue to believe it remains below market and will be a source of future value creation. As I mentioned in our last call, ProMedica has made significant strides in reducing its operating losses, which have further narrowed in last 90 days through both occupancy gains and lower labor cost, contract labor cost, particularly. Integra or its parent entity, which we have done multiple transactions previously, has successfully executed many turnarounds, including those involving ACA assets that we sold it to them in last couple of years, and is well-positioned to return these assets to its previous glory using a regional operative strategy, just like they have done over last couple of years.

[Shankh Mitra, CEO at Welltower]

We are looking through Integra's parent entity and the owner for the downside protection through subordination of their equity, as well as significant other guarantees, and will subsequently share significant value creation with us. I cannot overemphasize that the fundamental idea of below-market rent basis equals to below-market rent is not about ProMedica. It is about our belief, how we invest, and protect our shareholders' capital. If a business has demand growth and you can own it for significantly less than what it costs to build, in a low leverage capital structure, it is challenging for me to see how we lose money in most scenarios. We remain partner with ProMedica, albeit on a much smaller scale, and will be delighted to see the significant credit improvement of this important institution in Toledo. Finally, let's discuss the current capital markets environment, which excites me to no end.

[Shankh Mitra, CEO at Welltower]

Before I go into what we might do in the future, let's discuss what we have done in the past under this leadership team. If we go back and read all our comments about capital deployment in the last few years, you'll notice a few attributes. One, we're unlevered IRR buyers, and we underwrite significant cap rate expansion at exit. Hence, the recent rate increase don't fluster us, just as we have never chased low rates down under the guise of low cost of capital. Two, our unrelenting focus on basis relative replacement cost, and as a result, we seriously dislike low cap rates in stabilized occupancy scenarios. Nothing has happened so far, even in this turbulent capital markets backdrop, that require us to change how we invest capital.

[Shankh Mitra, CEO at Welltower]

We are experiencing historic volatility in the Treasury market, with every part of the yield curve inverted right now, with significantly the most important 2 to 10 curve is as inverted as it was during Paul Volcker's time 40 years ago. One approach for us would be to ride out this storm in a shelter and do nothing. Those of you who know us well, know we're unlikely to do so. We maintain a very favorable capital position and a war chest due to our extremely talented capital markets team under the leadership of Tim. Despite our unfavorable public cost of capital on a spot basis today, we have no dearth of global institutions who want to partner with us. Let me remind you again, a simple capital allocation framework I've described to you before. Every company effectively has four choices of raising capital.

[Shankh Mitra, CEO at Welltower]

One, tapping internal cash flow. Two, issuing debt. Three, issuing equity, and four, disposition of existing assets. It also has five essential choices of deploying that capital. One, investing in existing assets. Two, acquisitions. Three, buying debt at a discount. Four, paying a dividend, and five, buying stock at a discount. You can loosely call the first set of choices as selling, but the right description would be sourcing or raising capital. You can loosely call the second set of choices as buying, but perhaps the correct description will be deployment of capital. Following the same line of thinking, loosely speaking, consistently buying low and selling high creates value for shareholders. In a more wholesome and thoughtful description, optimizing these choices from this menu of sources and uses in a tax-efficient manner creates meaningful value for continuing shareholders on a per-share basis.

[Shankh Mitra, CEO at Welltower]

Our goal is to maximize per-share value and per-share cash flow, not to become the biggest or the most revolutionary. Our capital allocation team on both sides of the balance sheet is poised to pounce on these great menu of opportunities, while the most volatile interest rate environment in four decades has put in front of us. At the same time, John's team is just getting started on the journey of cash flow and platform optimization. With that, I'll pass it over to John. John?

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

Thank you, Shankh. I'll provide some insight into our operating business, starting with the medical office portfolio. In the third quarter, same store NOI growth for our outpatient medical business was 1.4% over the prior year's quarter, which was below trend due to some timing issues on tenant improvements, delay in move-ins, and higher utility expenses. We continue to see strong retention levels at 93% in the quarter and accelerating renewal rates in the marketplace. Turning to our senior housing operating portfolio. The recovery in this sector continues. As Shankh mentioned, revenue in our same store portfolio came in at 10.8% in the third quarter compared to the prior year's quarter. All three regions showed strong revenue growth, starting with Canada at 4.4%, the U.S. and U.K. growing at an impressive 11.6% and 18.9% respectively.

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

Revenue growth for the quarter was driven by a 390 basis point increase in occupancy and another quarter of healthy pricing power with RevPOR growth of 5.3%. As Shankh mentioned, the highest we've witnessed. Sequentially, the portfolio occupancy continued to improve with a gain of 110 basis points during the quarter. While expenses remain a challenge, our operators continue to control expense POR or expense per occupied room. The CompPOR, or compensation per occupied room, only grew at 4.3% in the third quarter over the prior year's quarter, the lowest growth rate since 2019. Expense POR grew at a rate of 3.7% in the third quarter on a year-over-year basis, well below our RevPOR growth of 5.3%, driving expansion of 130 basis points on a year-over-year basis in our margins.

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

As our operators have pivoted from the COVID state to normalized operations, and as labor and materials have become more available, we have aggressively addressed maintenance that was delayed during COVID, which resulted in slightly elevated repairs and maintenance expense during the quarter. Overall, the quarter's occupancy gains, strong RevPOR, and expense controls enabled the senior housing operating portfolio to deliver 17.6% year-over-year same-store NOI growth in the period, led by the U.S. with over 20% year-over-year growth, while Canada NOI grew at 6.3% and the U.K. was up 9.8%. Going forward, we expect the operating portfolio to continue to deliver outside NOI growth, with each geography expected to experience accelerating NOI growth in the fourth quarter. As we look forward to what many believe will be a weaker labor market in 2023, it's important to realize that labor as an expense represents about 60% of our total expenses.

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

Additionally, nurses are only about 5% of the labor force at the communities. Although there are other, more specialized positions at the communities, most of the positions require skills that are transferable from other sectors of the economy, allowing us to benefit from a softer labor market, as Shankh noted. Regarding our operating platform, we continue to quickly move forward on plans to pilot our first module in early 2023, with several other modules in the works. Like all technology rollouts, it's about people, processes, data, and then technology. It's not about flipping a switch. It takes teamwork. The results will show up over time. Our meetings with our operators have been very productive as we bring together their skills and experience with our own to build a better future for the industry.

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

I would like to thank our operators and their employees for making these results possible. It's been a full sprint since the beginning of COVID, and they have addressed one challenge after the next. We are finally at a point where it seems like there's light at the end of the tunnel. Occupancy continues to rise. Net hiring is occurring month after month. RevPOR continues to outpace expense POR, which will drive further margin expansion, and so much more. We wish to thank everyone and wish them a wonderful Thanksgiving, and thank you for your hard work. I'll now turn the call over to Tim.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

Thank you, John. My comments today will focus on our third quarter 2022 results, the performance of our triple net investment segments in the quarter, our capital activity, a balance sheet and liquidity update, and finally, our outlook for the fourth quarter. Welltower reported third quarter normalized funds from operations of $0.84 per diluted share, representing 6.2% growth over the prior year period when adjusting for HHS funds received and changes in FX rates, and marking our second consecutive quarter of year-over-year growth since the start of the pandemic. We also reported our second consecutive quarter positive total portfolio same-store NOI growth, with 7.2% year-over-year growth. Turning to our triple net lease portfolios. As a reminder, our triple net lease portfolio coverage and occupancy stats are reported a quarter in arrears, so these statistics reflect the trailing 12 months ending 6/30/2022.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

In our senior housing triple net portfolio, same-store NOI increased 1.6% year-over-year, below the low end of our guidance range, which was primarily timing related. Trailing 12-month EBITDAR coverage was 0.83 times in the quarter. Same-store NOI in our long-term post-acute portfolio grew 3.1% year-over-year and trailing 12-month EBITDAR coverage 1.31 times. Lastly, health systems, which comprise of our joint venture with ProMedica Health System, had same-store NOI growth of positive 2.75% year-over-year and trailing 12-month EBITDARM and EBITDAR coverages were -0.01 and -0.6 respectively, as operations continue to be impacted by high agency utilization costs in the second quarter relative to the prior year. Putting these coverage figures in context of our announcement last night, trailing 12-month ProMedica Senior Care EBITDARM coverage of -0.01 implies trailing 12-month EBITDARM of -$1.6 million, relative to $168 million of cash rent paid in the trailing 12-month period ending 6/30/2022.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

The transitioning of the skilled nursing business will bring the remaining ProMedica Senior Care EBITDARM back to profitability, with a trailing 12-month coverage of nearly two times relative to the remaining rent from the 58 assisted living facilities that will continue to operate. Thus, the transition to Integra Health has a dual benefit, providing us a well-capitalized and strategic partner to focus on the skilled nursing properties, while also leaving ProMedica Senior Care in a substantially better financial state following the transaction. Turning to capital market activity. In the quarter, we continued to enhance our balance sheet strength by utilizing our ATM program to raise approximately $760 million of forward equity at an average price of $80.12. We settled 9.1 million shares for total proceeds of $842 million to fund $1 billion of net investment activity, leaving $1.5 billion of unsettled forward ATM as of 9/30.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

Post quarter-end, we settled additional ATM proceeds to fund investment activity and pay down $850 million of total debt, $817 million of which was floating rate. Post-debt paydown, we have the full $4.0 billion of available borrowing capacity on our line of credit and no unsecured maturities until 2024. We expect to finish the fourth quarter with consolidated net debt to EBITDA below 6.5 times for the first time since 2020. From a liquidity perspective, in addition to the $4 billion of capacity in line of credit, we have $1 billion of cash and forward equity and $580 million remaining near-term dispositions and loan paydown proceeds at a 4.6 yield, representing $5.6 billion of total near-term liquidity. Lastly, moving to our fourth quarter outlook.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

Last night we provided an outlook for the fourth quarter of net income attributable to common stockholders of $0.08 to $0.13 per diluted share and normalized FFO of $0.80 to $0.85 per diluted share, or $0.825 in the midpoint. As mentioned in the release, our fourth quarter guidance contemplates no HHS funds to be received in the fourth quarter. After adjusting for $0.015 of non-recurring items, including HHS funds received in the third quarter, we're effectively flat for sequential FFO. The sequential change is composed of $0.02 from sequential increases in senior housing operating portfolio and $0.01 from sequential increases in outpatient medical and senior housing triple-net. These are offset by $0.03 of interest expense and foreign exchange headwinds.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

Underlying this FFO guidance is estimated total portfolio year-over-year same store NOI growth of 8.5%-10.5%, driven by sub-segment growth of outpatient medical 1.5%-2.5%, long-term post-acute 2.5%-3.5%, senior housing triple-net 5%-6%, and finally, senior housing operating growth of 18.5%-23.5%, driven by revenue growth of approximately 9.5% year-over-year. Underlying this revenue growth is an expectation of approximately 200 basis points of year-over-year average occupancy increase and rent growth of approximately 7%. With that, I will hand the call back over to Shankh.

[Shankh Mitra, CEO at Welltower]

Thanks, Tim. One of my mentors, Peter Kaufman, often says, "Life is not about predicting, it's about positioning." Did we predict that ProMedica's EBITDA coverage will turn negative? Absolutely not. We positioned for it and structured as such. Did we know COVID will happen and availability of credit in senior housing sector will weaken? No, we positioned for it. We own more than 11,000 units of age-restricted and age-targeted apartments that will benefit from government agency backed soft financing at very attractive pricing, from which we can generate a couple of billions of dollars of proceeds. Did we predict that our stock will be in the low 60s and we'll lose our access to equity capital? No, we didn't. We positioned for it and raised $3.28 billion of capital at an average price of $86.55 this year.

[Shankh Mitra, CEO at Welltower]

We have no idea if rates are going back down or going back up, and how ugly the capital markets environment might turn before it gets better. We're laser focused on what we can control and have an incredible organization that is rallying to take advantage of the opportunities with house odds as opposed to gambler's odds. I cannot be more excited about the period of unprecedented per share value creation that we are embarking on for our existing owners. With that, I'll open the call up for questions.

[Operator]

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. In the interest of time, we ask that you please limit your questions to one. Your first question comes from the line of Vikram Malhotra with Mizuho.

[Vikram Malhotra, Analyst at Mizuho]

Morning. Thanks so much for taking the question. Just a quick two-parter here. One, you talked a lot about pricing power. You gave the examples across operators on how pricing and labor is improving. Can you just add on to that any early signs that the elevated flu is impacting fundamentals? Thank you.

[Shankh Mitra, CEO at Welltower]

I'll take the pricing part, John, if you take the flu. Great. From a pricing power standpoint, Vikram, if you just look at what we said at the beginning of the year, nothing really changed. Except if you think about what happens is in the industry, not at least for our portfolio, you've got a lot of renewals in the beginning of the year, and this year we got very strong pricing, obviously. Given that there's a gap between where market rent is as well as where your renewal rates are, obviously with the rents that are rolling off, there's a gap over a period of the year that sort of comes down, right? That's sort of what happens in a normal year.

[Shankh Mitra, CEO at Welltower]

What we have said this year, given that market rents have been rising at a faster rate than annual rates, first time, honestly, in like a decade. We have seen that gap close down pretty meaningfully, and you're seeing RevPOR increases are actually getting better through the year. You add on top of that we are seeing some early renewals for next year in that sort of call it another 10-ish percent range, and we expect that obviously we'll do similar type of pricing increases as we come to next year. You will see that pricing power will continue to hold up, RevPOR rate increases will continue to hold up. Pretty excited about it. Remember, pricing power also comes in many forms and substances, right? You have occupancy of the portfolio in many parts of the portfolio is getting to a point.

[Shankh Mitra, CEO at Welltower]

Overall portfolio might still be at 80% occupancy, but there is segments of the portfolio is well above high 80s and 90% occupancy, where it starts to get pretty meaningful pricing power because you have no units to sell anymore, right? As we get into that environment more and more, I believe that you will see sustainable pricing power. I have no crystal ball on exactly what the macroeconomic environment would be next year. As we sit here today, we feel very good about pricing.

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

Yeah. On your question regarding the flu, I most certainly can't predict the future, what I can say is that the COVID protocols, I think will mitigate the situation within our communities. They're still in place. I was at one of the properties very recently, I'm waiting in line to get in. We wash hands, get temperature check, wear a mask, et cetera. I'm in a line with employees

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

any vendor, all of us. That's the protocol. It's a safe, thoughtful protocol. My expectation is that that will have a very positive impact in the communities. How the flu season goes in the U.S. and otherwise, I can't predict that, I do think the COVID protocols will be very positive going forward.

[Operator]

Your next question comes from the line of Derek Johnston with Deutsche Bank.

[Derek Johnston, Analyst at Deutsche Bank]

Hi, everybody. Good morning. Can we discuss the newly authorized $3 billion in share repurchase program? How do you feel about the shares at current levels and, I guess, the possible timing of execution, given the announcement comes in conjunction with earnings, which seems unique? Thanks.

[Shankh Mitra, CEO at Welltower]

Good morning, Derek. I think I laid out pretty clearly what our possible capital deployment opportunities look like. Buying back shares is one of them. Frankly speaking, as you know how we think, we are unlevered IRR buyers. We look at everything from that lens, or you can look at from the basis lens. You will see that we find our stock to be very, very attractively priced, and we'll measure that against every other opportunities we have. I cannot predict on timing. We just don't do that, as you know. You know how we think. We think through a lens of basis, through replacement cost, and we think through an eye of a total unlevered IRR. If you do those calculations, you will come to perhaps the same conclusion that we have come to.

[Operator]

Your next question comes from the line of John Pawlowski with Green Street.

[John Pawlowski, Analyst at Green Street]

Thanks for the time. John Burkart. As operations recover in the SHOP portfolio, in between AL versus IL, do you expect structurally different margins between the two businesses once fundamentals fully stabilize?

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

There naturally are different margins starting out. Do I think that the endpoint will change? I think what we're doing with the operating platform will change that across the board. Because AL has perhaps one might say more opportunity, though the impact might be slightly greater there. I think the whole business is going in the right direction at this point in time, and I think we're benefiting across the board. John, you didn't ask for my opinion. My two cents on this topic is that you will see more improvement in IL than AL, but you'll see improvement in both. You asked the right person that question.

[Operator]

Your next question comes from the line of Wendy Ma with Evercore.

[Wendy Ma, Analyst at Evercore]

Hi. Good morning. Thank you for taking my question. Could you please give us some color about the moving trend of different senior housing property types like IL, AL, and the senior apartments? Also, given the current slowdown of the housing transaction market, have you observed any slowdown of your independent living move-in?

[Shankh Mitra, CEO at Welltower]

I'm not sure I completely followed that question, but I think you asked about the moving trends in the seniors apartment business, if I heard that correctly.

[Wendy Ma, Analyst at Evercore]

Yeah.

[Shankh Mitra, CEO at Welltower]

Go ahead, Wendy.

[Wendy Ma, Analyst at Evercore]

Also, sorry. Can you give some color for different senior housing types like IL, AL, and also the senior apartments?

[Shankh Mitra, CEO at Welltower]

Yep. Okay. I think I understand the question now. Look, if you think about from a product type perspective, as I mentioned that the assisted living is going through probably the most robust recovery, perhaps for nothing other than the fact that it is the most need-based environment. It's least susceptible to a macroeconomic environment. You need the product when you need it. Obviously it also fell farther, so it has more rooms to climb back up. That's why you're seeing the most sort of robust recovery. As I mentioned, the NOI growth in that sector for the quarter was 25+%. Right? That's sort of it. Let's just talk about the seniors apartment business. That business has been as good of a business as any business I've seen. It's been very strong through COVID, it's been very strong through times.

[Shankh Mitra, CEO at Welltower]

Our portfolio is at 95+% occupancy. As you know, we operate in the mid-market portion of that business, which is very dependent on Social Security and everything else. You got a massive COLA increase next year, which we also think will be very beneficial for the pricing power increase in that business next year. Independent living. Obviously, independent living did not fall as far as assisted living, and it's coming back more slowly. I personally think that's a good business when you combine that with other property types. I think, obviously Canada, which is our majority of our independent living exposure, has been slow out to recover, but as John noted, that we are starting to see improvement there.

[Operator]

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

[Daniel Bernstein, Analyst at Capital One]

Hey, good morning. I just wanted to kind of expand on your comments about the upside down, I guess private buyers in the MOB space. Just trying to understand there a little bit more if lenders are actually foreclosing on assets. Maybe if you are already seeing some opportunities there to buy assets or at a better IRR. Maybe on a related question, do your comments also apply to senior housing and skilled nursing, where I believe there are some upside down loans as well?

[Shankh Mitra, CEO at Welltower]

Yeah. Dan, we haven't seen lenders are foreclosing on medical office loans yet. My comment was, it's sort of called the convexity of the situation, right. When you have very low rates and people buy in cap rates that in that environment makes sense, then Treasury curve moves 200, 300 basis points, and now your Treasury curve's sitting on top of or above the cap rates that you have paid. That's a pre- or upside down convexity situation, that's the comment I was making. It takes time for lenders to foreclose. It takes time. We are starting to see some meaningful increase in the cap rates there, which is interesting. We're not yet to talk about whether we are going to look at that and execute on that yet. We have lots of opportunities that we see on a relative basis.

[Shankh Mitra, CEO at Welltower]

We talked about, obviously, senior housing is one of those. Nothing changed. I specifically pointed out MOBs because that has changed. Senior housing as an opportunity was there for the last 18 months. We've been executing on it. Nothing changed there. Right. Continues to be super attractive. On top of that, to the earlier question Derek asked, our stock is really attractive. We'll look at every opportunity and think about what's the unlevered IRR on a risk-adjusted basis, and what's the sort of execution risk, as well as obviously the frictional cost that comes with the execution risk. Is the space finally, first time in years, has become interesting? The answer is yes, but it's interesting at a price. That price is likely a lot lower than most Wall Street thinks.

[Operator]

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

[Ronald Kamdem, Analyst at Morgan Stanley]

Just one two-parter. Just looking back at the slide in the deck on the long-term, $543 million embedded NOI. My question is just on that $230 million that comes from getting back to 4Q 2019 NOI levels. Your comment sounds like you're pretty constructive on sort of margin improvement, especially with sort of the acceleration you saw in revenues relative to expenses this quarter. Can you just remind us how you're thinking about the margins of that $230 million versus sort of the 4Q 2019 level is part one. If I could sneak in a part two, which is just on the ProMedica consideration. That half a billion, how much of that is the 15% stake that they're giving up, and how much of that is sort of the working capital? Sorry. Thanks.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

I'll start with the first comment on the margin side. The assumption is we get back to pre-COVID levels, so no assumption on change in margins. We assume we get back to pre-COVID levels of profitability and operating margins of about 30.8% across the portfolio.

[Shankh Mitra, CEO at Welltower]

On the consideration, it's roughly half and half.

[Operator]

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

[Michael Carroll, Analyst at RBC Capital Markets]

I just wanted to touch on the new SNF JV. I know you just kind of highlighted the rough size of the operating reserves ProMedica is going to be providing. How is that going to be distributed to the new operators? Are they simply earmarked to fund near-term cash flow losses during the transitions? What happens if these new operators don't actually need to access those reserves?

[Shankh Mitra, CEO at Welltower]

The reserves are earmarked for the operating losses, working capital losses, and that reserve will go to them to improve the quality of the portfolio.

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

Yeah, if they do a good job and don't need them all, that's good for them, right? They share the risk, and they get the benefit if there are savings there.

[Operator]

Your next question comes from the line of Adetayo Akisanya with Credit Suisse.

[Omotayo Okusanya, Analyst at Credit Suisse]

Hi. Yes. Good morning. Again, congrats on the quarter and the transition. I've been covering the space 15 years. I don't think I've ever seen a rent restructuring where the rents went up, so that's pretty cool to see. In regards to Integra, and again, this idea that they're going to be subleasing a lot of the assets to regional operators. Just curious a little bit again, your mantra in the past has always been to be as close to the operator as you possibly can. You're actually even on the board at ProMedica. How is that relationship going to be with these subcontracted operators, and how do you kind of manage that to ensure you continue to kind of get operational excellence out of them?

[Shankh Mitra, CEO at Welltower]

Tayo, extraordinary good question. Thank you for your comment there. I'll just add one thing too, that not only the rent is going up. The previous tenant is leaving close to half a billion dollars on the table to make sure that these properties are taken care of going forward. We thank our partner for that. I'll just add to that question of why we didn't go and find the operators. Our mantra is to get close to the operators, that's in the senior housing business. I fundamentally believe in the expertise, we have worked with Integra and its parent company on many of these transactions before. There's no question that they are significantly better in the skilled nursing business than we ever were and will ever be.

[Shankh Mitra, CEO at Welltower]

We are sharing, for creating that value, I've mentioned in my script that we're sharing very significant upside that they can create with them. In return, they're providing us the downside protection, which is very important for us. You think about it, you got to do in life what you are best at. Think about from an ops standpoint, we think we understand operations of senior living, the wellness housing business, as well as MOB business. We want to partner with people who we fundamentally believe, on the other hand, are very good in other businesses, that's what you are saying. Fundamentally, it is sort of going through the decision-making, is going to the people who are the best at what they're good at. At the same time, it sort of cut the risk reward in terms of who creates value.

[Shankh Mitra, CEO at Welltower]

It's just as simple as that. As I've said before, you can see the value still remains at very attractive basis, which you can get to. You know the total rent. You know what market sort of rents, sort of constant of skilled nursing business is. You can divide to get to a value, you will see that value is still extraordinarily attractive, thus the rent is extraordinarily attractive and remains below market. There will be hopefully a lot of upside as the regional operators bring this portfolio back to its previous glory, which we actually, this is not a guess. Nikhil, how many assets we have transacted, managed care assets we have transacted with Integra and its parents?

[Nikhil Chaudhri, Senior Vice President and Co-Head at Welltower]

About 21 assets.

[Shankh Mitra, CEO at Welltower]

21 assets. We have seen them doing it, we are going on an execution path that we have seen in the last couple of years. Hopefully there's a lot of value to be created for residents, for employees, for capital, and that will be shared between the two parties. It is fundamentally the belief of, they're giving us the downside protection for which they should enjoy very significant upside that they create. On the other hand, for us, it's all about where we sit in the risk reward spectrum. It's a win-win-win for all three parties. ProMedica wants to focus on its core business and wants to be in the higher margin business, and that's the leadership that they are taking that forward. It's a very significant improvement in their credit.

[Shankh Mitra, CEO at Welltower]

For Welltower, it's obviously a great day for some value realization, as well as obviously taking this portfolio to the hands where we can create another round of very significant upstep of values. For Integra, they're coming in at a very attractive basis, and obviously they're creating the value that they will share the upside with us. It's a win-win-win on all front.

[Operator]

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

[Michael Mueller, Analyst at JPMorgan]

Yeah, hi. We appreciate the expanded development disclosure, what's the timeframe that you see for ramping the developments from the 1.6% initial yields to the 7% stabilized yields?

[Tim McHugh, Executive Vice President and Chief Financial Officer at Welltower]

Mike, I appreciate recognition that we're trying to help with just the ramp or the kind of trajectory of how that cash flow comes through. It depends on type of development. You think about where a lot of our starts have been as of late is more in the senior apartments, wellness housing side. There you're talking about more 12, 18 month type ramps towards stabilization. On the traditional senior housing side, it's more of that 24, 36 month ramp. That's where more of the lower yields, negative yields come in the first 12 months.

[Operator]

Your next question comes from the line of Nicholas Yulico with Scotiabank.

[Nicholas Yulico, Analyst at Scotiabank]

Thanks. Good morning, everyone. I just want to go back to ProMedica. Clearly, strong pricing you got there and the cash rent going up is attractive. Just want to see though, if you could let us know, the GAAP impact, because I didn't see any mention of lease escalators for the new arrangement. You had them previously. Just trying to understand the FFO impact from this. Separately, if you had, I don't know if you're going to be filing details on the new lease, but if you had anything you can share right now in terms of escalators, financial covenants, CapEx requirements, because those were specific, very sort of onerous conditions of the last lease with ProMedica, which kind of strengthened, I think, the whole process you went through. Any detail there would be helpful. Thanks.

[Shankh Mitra, CEO at Welltower]

Nick, very good question. The escalators remains the same, 2.75%. The GAAP impact, as we mentioned, will be roughly neutral to slightly accretive. One of the leases are remaining the same lease. The Arden Courts senior living lease is going to 10 years, you have a negative GAAP impact there. Net-net, you will be roughly neutral to slightly accretive.

[Operator]

Your next question comes from the line of Austin Wurschmidt with KeyBanc.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Yeah. Hi, good morning. Curious, first off, if there were other partners you approached for the ProMedica joint venture. How do we think about you going from a health system investment with feeders into these assets to the more regional operator approach? Just lastly, I'm curious, going back to 2016, 2017, wasn't the plan to ultimately exit the SNF business? Curious how you think about the strategic direction of that segment of the portfolio.

[Shankh Mitra, CEO at Welltower]

Can you please repeat the first part of your question again?

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Yeah, I was just curious if you approached any other partners beyond just Integra for the new joint venture.

[Shankh Mitra, CEO at Welltower]

Look, it is no secret that we have been thinking about in the industry, that we have been thinking about this particular portfolio for a long time. We have been approached by at least 5 parties who are interested in doing this transaction at similar or higher value, similar or higher structures. We went with a partner that we know very well, where we feel the execution risk is much lower. I think if you have heard, that you have correctly heard that we've been approached by many groups. These assets are not only very attractive assets, they have very good history, but also the basis remains very, very attractive. Going back to 2016, 2017, I think your question was to exit the SNF business.

[Shankh Mitra, CEO at Welltower]

I have very clearly laid out, 2 years ago when I took over as a CEO, we have a very simple strategy that we want to make money on a risk-adjusted basis, on a per share basis for our existing shareholders. That's the strategy. It's a very simple strategy. Whether it's skilled nursing, whether it's medical office, whether it's senior apartments, whether it's senior housing, whether it's debt, equity, value add, development, opportunistic, we'll go anywhere we can find opportunities to make money on a per share basis for existing shareholders. That's the simple strategy.

[Operator]

Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, Analyst at BMO Capital Markets]

Hi, good morning. Shankh, I was just hoping you could talk to maybe opportunities you see outside of the U.S., given the unusually strong U.S. dollar, and whether that presents a wider opportunity set for potential acquisitions.

[Shankh Mitra, CEO at Welltower]

One extraordinarily good question. As you know, we get really excited about basis, and we are at USD. We raise capital in USD. Our expenses are mostly in USD. Capital structure is in USD. We think about basis in terms of USD. As you can figure out, U.K. on a U.S. dollar basis has never looked more attractive, and Canada also looks pretty attractive. U.K. particularly, given what happens to the currency situation, looks extraordinarily attractive. You add on top of that you don't have a super functioning debt market in U.K. like you have the agency support in U.S. and Canada. It's a very, very interesting market. I have never seen U.K. opportunities as cheap as it looks today from the eye of a U.S. dollar investor. That probably perhaps goes for any asset class, anything, even for SHOPs.

[Shankh Mitra, CEO at Welltower]

You're picking up the right thing. We're absolutely thinking about it.

[Operator]

Your next question comes from the line of Rich Anderson with SMBC.

[Rich Anderson, Analyst at SMBC]

Hey, thanks. Good morning. Congrats on the ProMedica Integra transaction. The market seems to be rewarding you for that resolution. The way I look at it is, you kind of married ProMedica in 2018, but you signed a prenup, and that protected your downside. All this is based on basis, and it's all clear and understood. Now, you're selling 15% to Integra. What happens to basis for that 15%? In other words, 85%, I assume, stays put. Are you upping your basis and eliminating some of that "prenup" component so that if there is a disruption going forward with Integra and its regional partners, that you still have an equal amount of protection should something go wrong here? A transition isn't a silver bullet. It sometimes works, but sometimes not.

[Rich Anderson, Analyst at SMBC]

I just want to get a gauge in the future in terms of how you're protected going forward. Thanks.

[Shankh Mitra, CEO at Welltower]

Our basis remains the same, and you can do the calculation on Again, you have the total rent. You know what the give or take yield is in the business, right? You can get to the total value, rent divided by the yield, will get you the value. You can divide that by the total number of beds, and you will see Integra Health's basis is also very attractive. Right? Our basis remains attractive. Remember, what we sold to Integra Health is what we got for ProMedica for nothing. Right? It's important for you to understand the nuances of what's happening here. Our basis remains very attractive. Obviously, we got the support for the operator who is leaving, and leaving, as I mentioned, leaving close to half a billion dollars on the table.

[Shankh Mitra, CEO at Welltower]

We created another structure where that 15%, which Integra Health is paying for, remains subordinated. That further lowers our net basis, which is the first time, when I remember I talked about that condition remains. We have obviously other guarantees in place, as I said. If that's not the case, remember in the last question I said that people want these assets because they're very well-located assets, and they're at very good location and they're very attractive basis. We don't see, as I said-- Look, anything can happen, Rich. As I've mentioned before, 4 years ago on this topic, that low basis, well-located assets that have demand that's held in low leverage structure, it's hard to see how we lose money. Anything can happen, right? Anything is possible.

[Shankh Mitra, CEO at Welltower]

If you think about we have to live within the realms of probabilities, not possibilities, it looks pretty good to me.

[Operator]

Your next question comes from the line of Michael Griffin with Citi.

[Nick Joseph, Analyst at Citi]

Thanks. It's Nick Joseph here with Michael. You've talked a lot about the opportunity for improvements in modernization in senior housing. When you look at the skilled side, and I recognize it's a very different business, more regulatory considerations and everything like that. Are there opportunities to improve either the operations or share best practices from a Well perspective that maybe could help coverage going forward?

[Shankh Mitra, CEO at Welltower]

Nick, first, congratulations for getting the top job. We have been a big fan of yours for a long time, and obviously, thank you for your question on the call today. Look, I've mentioned very clearly that we do not consider ourselves a skilled nursing expert. If we did, then we would not bring in our partners in this deal, who we consider know the business better than we do. I will leave that to our partner to execute the strategy, which we have mentioned, as Nikhil just mentioned, that we have done just from this portfolio of 21 assets before. We'll leave it to them to maximize. Where in this case is a sort of structural protection is what we are after, not maximizing value through operators.

[Shankh Mitra, CEO at Welltower]

That's what they're bringing to the table in this case, and we remain focused on our core businesses where, whether it's senior living, whether it's wellness housing or medical office, and that's where John is spending all his time.

[Operator]

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

[Steven Valiquette, Analyst at Barclays]

Great. Thanks. Good morning. Just sticking with ProMedica for a minute here. I guess one of the expected operational synergies from ProMedica acquiring the ManorCare SNF assets in the first place was likely centered around good flow of patient referrals from ProMedica hospitals into at least some of the ManorCare SNFs, where it made sense geographically. I guess I'm curious, with hindsight, did that part of the strategy play out the way everyone thought it would? Maybe just perhaps the underwhelming execution that you alluded to, Shankh, was just more a function of just tough industry dynamics for SNFs overall. Also under the new agreement then, does ProMedica patient referrals to the SNFs under Integra's operating control stay intact going forward?

[Steven Valiquette, Analyst at Barclays]

Is part of the strategy for Integra to turn things around is really to maybe widen and expand the Medicare post-acute referral sources to improve the occupancy? Thanks.

[Shankh Mitra, CEO at Welltower]

Let me try to address your question, Steve, then Nikhil, you jump in. First is that fundamentally, the strategic part of the patient flow point that you make has not played out. Has it not played out because we walked directly into a very tough environment of COVID, or has it not played out because the idea, we couldn't execute or ProMedica could not execute? I don't know the answer to that question. Hindsight is 2020, right? There's no question that it hasn't played out, and the leadership at ProMedica firsthand will tell you that they're underwhelmed with the execution as well. No question it hasn't played out. The second, but if you think about it, again, I would recommend you, it's easy to say things sort of looking back.

[Shankh Mitra, CEO at Welltower]

I would like you to go back to the call where I've described why we did this transaction. We'll see how much we emphasize that we fundamentally think if everything goes away, what we still have is the basis, right? Think about Steve, as I mentioned, that you have a two-bedroom apartment in New York City where it costs everybody $1 million, but you bought something for $400,000 during GFC. You don't need to charge the rent that everybody else is charging. That is the fundamental idea of how you make money in real estate without taking a lot of risk, right? That's what we saw, and that has played out, I hopefully you'll agree, in this transaction. Nikhil, you want to add anything to the second part of the question?

[Nikhil Chaudhri, Senior Vice President and Co-Head at Welltower]

I think from a clinical programming perspective, I think this portfolio at ManorCare, ProMedica, has always been good at providing good clinical programming. They work closely with hospitals across different markets, whether it's ProMedica hospitals or not, in creating programming that serves the need for the local hospitals. That programming stays in place, and obviously as new operators come in, they'll decide if they want to keep that in place, scale that back, enhance it. This whole platform has been known to have incredible clinical programming, and that stays in place.

[Operator]

Your next question comes from the line of David Rodgers with Baird.

[David Rodgers, Analyst at Baird]

Maybe for John Burkart. John, as you obviously grow occupancy in the SHOP portfolio, you have more and more assets that are likely now at kind of stabilized occupancy. Can you talk about the margins at the stabilized assets and if they've stabilized to pre-COVID levels, and then any delay in between the occupancy stabilization and margin that you're witnessing in that larger group of assets?

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

Let me just give you an interesting piece of data. One of our operators that has very high occupancy in the 95s, actually had expenses going backwards. You see some tremendous margin improvement there. The whole portfolio is going that way, and no doubt at the higher occupancy levels, as Shankh mentioned, was able to push rents or achieve higher rent, which is again, driving better margins. On the expense side, they continue to see opportunities to improve as we go forward and move out of the situation during COVID. As I mentioned in my prepared remarks, one of the situations during COVID was there was a challenge to get some maintenance done, get people into the buildings, et cetera. Our numbers today even reflect some elevated maintenance expenses, which will be reduced over the coming quarters and again, provide a stronger run rate.

[John Burkart, Executive Vice President and Chief Operating Officer at Welltower]

Yes, things are going very good. They're going good at all levels. As Shankh mentioned, we have maybe four buckets of assets with different levels of occupancy across the board. At the top occupancy assets, we're achieving fantastic margins. As you get down the rung, obviously, that's not the case, but we're continuing to improve occupancy, and things are all looking forward. Hopefully that answers your question.

[Operator]

Your next question comes from the line of Joshua Dennerlein with Bank of America.

[Joshua Dennerlein, Analyst at Bank of America]

Appreciate all the color on ProMedica. I guess, maybe one question on the senior housing side for the ProMedica. Was there any discussion of potentially moving that to another operator, or you guys felt pretty comfortable with how they're performing?

[Shankh Mitra, CEO at Welltower]

As Tim mentioned, those assets actually generate a decent amount of profitability for them, ProMedica, that is part of ProMedica's strategic, obviously, plan. Those are, as you know, are high-margin businesses, and they have been even before COVID. We expect they will continue to come back. Remember pre-COVID, these assets on mid-80% occupancy was generating high 30% margin, right? I expect as we sort of come back from the COVID and get that occupancy stabilized, frankly speaking, I will venture a guess, that will be the best sort of margin part of all of ProMedica's businesses. Look, that's where we stand today, and there's no reason to believe that those assets will not. As you can see, as part of this recovery from these occupancy levels in the business, margins are coming back.

[Shankh Mitra, CEO at Welltower]

I'm not happy with where margins are today, and we're seeing obviously a lot of signs of improvement that we discussed. The margin of this business should come back to a much higher level, and ProMedica should enjoy that like everybody else in the business.

[Operator]

At this time, there are no further questions. This concludes today's conference. You may now disconnect.

Participants

Executives

• John Burkart, Executive Vice President and Chief Operating Officer
• Matt McQueen, Executive Vice President and General Counsel
• Nikhil Chaudhri, Senior Vice President and Co-Head
• Shankh Mitra, CEO
• Tim McHugh, Executive Vice President and Chief Financial Officer

Analysts

• Austin Wurschmidt, Analyst at KeyBanc Capital Markets
• Daniel Bernstein, Analyst at Capital One
• David Rodgers, Analyst at Baird
• Derek Johnston, Analyst at Deutsche Bank
• John Pawlowski, Analyst at Green Street
• Joshua Dennerlein, Analyst at Bank of America
• Juan Sanabria, Analyst at BMO Capital Markets
• Michael Carroll, Analyst at RBC Capital Markets
• Michael Mueller, Analyst at JPMorgan
• Nicholas Yulico, Analyst at Scotiabank
• Nick Joseph, Analyst at Citi
• Omotayo Okusanya, Analyst at Credit Suisse
• Rich Anderson, Analyst at SMBC
• Ronald Kamdem, Analyst at Morgan Stanley
• Steven Valiquette, Analyst at Barclays
• Vikram Malhotra, Analyst at Mizuho
• Wendy Ma, Analyst at Evercore