Chief Executive Officer at Welltower
Thank you, Matt and good morning, everyone. Today, I would like to describe our capital allocation priorities, 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 trends on a sequential basis, driven by several 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. 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 trains, I believe we will see a further improvement in Q4 which will create a strong setup for 2023. However, perhaps what I'm most excited about is the progress we are making on the labor front with compensation per occupied unit 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 a 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. We believe this trend will continue into year-end outside the normal pickup of agency use during the holiday season and into -- well into the next year. We strongly believe that 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. Show portfolio same-store NOI growth was 17.6% in the quarter, led by U.S. which posted third quarter of 20-plus percent growth, an assisted living product type reported same-store NOI growth of an impressive 25.1%.
Let me highlight 3 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'll recall, we transitioned 10 top California assets to Oakland in August, while we expected some initial disruption to occupancy NOI during the transition in actuality, we recognized an immediate benefits 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 we have seen a transition with no negative P&L impact apart from the 6 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 an 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. It is down to low single digit at this point. Number two, StoryPoint.
StoryPoint is 1 of our best operating partners, perhaps will be the source of biggest NY swing next year. We have $1 billion of investment with low occupancy properties which is generating approximately 2.7% yield in Q3. StoryPoint made remarkable improvement in our top line on both occupancy and rates but the properties have not generated significant NOI in 2022 as these properties were just over the breakeven occupancy and the 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. 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 [Phonetic]. We cannot be more flushed [Phonetic] with the execution than and team has pulled off. Number three, Sunrise. Sunrise is our largest operator due to a national presence. Sunrise experienced significant labor challenges and that 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 rate Sunrise benefit from in this incredibly well-located Welltower billings, we should see extremely strong NOI growth contribution from Sunrise. While we are encouraged -- very encouraged by the 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 AD 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. While new development should continue to come down, assuming people want to develop to make any money, another interesting phenomenon we are 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-3s. Both new and renewal leases -- 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 due to low 2% escalator seems to be a thing of the past.
KLCC Bolt which is our largest MOB tenant and also represents into a very significant portion of our development pipeline was acquired by United Health during this 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 it like a broken record for a long time that MOB cap has 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 am relieve to see that has finally changed. Billions of dollars of transactions were consummated at low cap rates often with short-term floating rate debt. The party is over a with capital structure and cash flow as many of these vehicles are now upside down. We'll be observing the space closely in the 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 portfolio and frankly, were underwhelmed by the execution. But the fundamental investment thesis of the original transaction should still protect our shareholders' capital that basis an appropriate structure are critical to any real estate investment.
While we have historically relied on our operators' ability to drive cash flow and that 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 we own an apartment in New York City for $400,000, while everybody owns equivalent apartment for $1 million, you can still charge rent for that unit and generate strong returns. That is such a simple yet perhaps one of the most overlooked concept on Wall Street. The capital funding of noise on 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 health care 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 are not experiencing a rent cut on a cash basis and our investors are the beneficiary of a satisfactory total return to date. And that goes back to our incredibly favorable basis and structure.
To continue my metaphor -- previous metaphor, Manhattan apartment rent might come down from $5,000 to $4,000 in a bad year but we never hypothetically even charge $4,000 as we bought our unit at such a low price. That is why our rent is now going up, not down after this transaction. And 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 the last 90 days through both occupancy gains and lower labor costs -- contract labor costs, particularly. Integra brand entity which we have done multiple transactions previously has successfully executed many turnarounds, including those involving HCR assets that we sold it to them in the 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 the last couple of years.
We are looking through Integra's brand 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. But 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 cost to build and a low leveraged capital structure, it is challenging for me to see how we lose money in most scenarios. We remain partnered with ProMedica, all be done as such on a much smaller scale and we'll 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 know end. 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 will 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 to 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. We are experiencing historic volatility in the treasury market with every part of the yield curve inverted right now, with significantly the most important due to 10 curve [Phonetic] is as inverted as it was during Paul Walker's time 40 years ago.
One approach for us would be to ride out this storm in a shelter and do nothing. But those of you who know us well, no, we're unlikely to do so. We maintain a very favorable capital position and a warchest 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 doubts of global institutions who want to partner with us. And let me remind you again, a simple capital allocation framework I've described to you before.
Every company effectively has 4 choices of raising capital: one, tapping internal cash flow; two, issuing debt; three, issuing equity; and four, disposition of existing assets. It also has 5 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 at 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. 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 pound on this great menu of opportunities, while the most volatile interest rate environment in 4 decades has put in front of us. And 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?