Thank you for joining us for the Q3 2021 Welltower Inc. Earnings Conference Call. All participants are currently on mute. After the presentation, we will have a question-and-answer session. I will now turn the conference over to Matt McQueen, General Counsel. Please proceed.

Thank you and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements from 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 projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the Company's filings with the SEC. And with that, I'll hand the call over to Shankh for his remarks.

Thank you, Matt. Good morning, everyone. I hope you and your families are safe and healthy. I will outline our key business trends and capital allocation priorities. John Burkart, our COO, will provide details on the operating environment in SHO and MOB. Tim will discuss the triple-net businesses, earnings guidance, and capitalization. This is Jon's first call, so please be kind to him. Despite average bottom-line results, we are very pleased with the overall quarter's performance. Six months ago, many industry participants were concerned that the COVID pandemic would greatly reduce demand for senior housing. Even those who expected demand to return were anxious about how each surge of the virus might impact the business. Typically, we’ve seen these surges lead to decreased revenue and increased costs, hitting the bottom line hard. For the first time since the pandemic began, we saw a break from this trend. Even during the significant Delta variant surge following our last call three months ago, we achieved the strongest sequential revenue growth in the Company's history. Occupancy increased by 210 basis points compared to our pre-Delta guidance of 190 basis points, and rate growth accelerated, leading to a 3.5% sequential rise in top-line revenue across our same-store SHOP portfolio. Notably, year-over-year revenue growth turned positive in our U.S. and UK portfolios for the first time since the pandemic started. This trend continued into September, with a year-over-year revenue increase for the entire portfolio, led by the U.S. and UK, which experienced over 2% growth. This is especially remarkable given the Delta surge. The improved performance can be attributed to nearly all residents being vaccinated and staff vaccination rates nearing 90%, well above the general population. Prospective residents and their families now recognize that our communities provide a much safer environment than alternative settings. Our data supports this. In the U.S., despite a tenfold increase in daily COVID cases in July and August, the number of cases within our short portfolio was only 10% of peak levels from previous surges. A similar pattern was noted in our Canadian and UK portfolios. This created significant top-line momentum as we benefited from both occupancy and rate growth, which we expect to continue into next year. I believe this trend will continue to gain pace as we see considerable upward movement in rates. However, our bottom-line performance was average, affected by a perfect storm of expenses. We encountered a combination of high costs, including agency labor due to the COVID surge, increased repair and maintenance expenses, insurance costs, utility expenses, and other miscellaneous charges all occurring simultaneously. Additionally, an extra day in the quarter created a mismatch between revenue and expenses, as most of our operators collect rent monthly. We also saw a significant rise in paid time off as employees took advantage of eased travel restrictions during the summer. COVID's resurgence caused additional last-minute call-offs from team members, leading to a surge in agency labor usage, which is two to three times more expensive. The vaccination mandate added further complexity to our situation. The only positive on the expense front is that we began to see some normalization in October. While it's too early to determine how long it will take for the situation to fully stabilize, we need to discern what will persist in the medium to long term and what will fade away. We believe the trend of increasing prices is likely to stick, as will the costs associated with labor. We are confident that Welltower's operating partners will navigate this challenge through rent increases, as they offer premium products in premium micro-markets. The alternative of one-on-one care has become significantly more expensive. We are starting to see early signs of recovery as operating partners benefit from an expanding labor pool due to the end of supplemental unemployment benefits and the return of children to school. John will share more details on this front. However, we believe the reliance on agency labor will decline moving forward. Our Q4 guidance indicates we do not expect a complete reversal of the current situation for three main reasons. First, we have a lag in revenue growth compared to expense growth since a large portion of our annual increases occurs on January 1. Second, hiring new staff requires significant time for pre-employment and training before they can start work. Third, the Delta wave, which peaked in late September, is still affecting us in November. Nonetheless, I maintain that the stabilized SHOP margin for Welltower post-COVID will be higher than pre-COVID margins. Even in the near term, I believe the earnings potential for this portfolio's exit run rate in 2022 or 2023 has not changed. I want to emphasize that the earnings power has not changed. The best operators will emerge stronger from these challenging times, gaining a larger market share, while many others may struggle with the complexities of the business. We are having distinctly different conversations with the management teams of operators in the industry. While everyone is feeling the strain from the past 18 months, many partners are eager to explore how technology, operational excellence, revenue optimization, and data analytics can fundamentally transform this business. Consider some basic questions: labor costs are rising, but how many units do we actually need? Prices must increase, but how do we differentiate pricing for a unit with a view of Central Park versus one facing a brick wall? Many in the industry hope the situation will improve on its own, but hope is not a viable strategy. Our strong operational focus directly influences our capital allocation strategy. To reiterate, we want to own the right assets in the right micro-markets with the right operators focused on the right equity and price point, acquiring them at the right basis. We aim to buy at or below replacement cost or build selectively at replacement costs. While bidding opportunities are limited, mainly involving a few inexperienced capital entrants, we remain highly active in off-market, privately negotiated transactions where we can reliably close with operators and cash capital. In these situations, where urgency often stems from debt maturities, certainty of closing is crucial for sellers. As you know, we uphold a reputation for not negotiating and never retrading after a firm handshake. This approach has led to one of the most active quarters in our Company's history. We successfully closed $2 billion in investments at a notable discount to replacement costs, with anticipated IRRs in the high single-digit to low double-digit range. We maintained that momentum after the third quarter with an additional $1.3 billion transaction for which we've signed a purchase and sale agreement. Each transaction is significant, but I want to highlight a few. We are excited about a $580 million deal to acquire eight rental and six entrance fee communities in excellent micro-markets. This is reminiscent of our 2018 acquisition of a few Sunrise CCRCs from SNH, both in asset quality and location, but at a better price point. The previous owner invested over $50 million in these communities over the last five years. We anticipate achieving a high single-digit unlevered IRR as our operating partner Watermark takes over these communities. However, our goal is to drive this return into the double-digit unlevered IRR range through a strategy similar to our 85-property Atria portfolio. For instance, there’s a prime piece of land in a highly sought-after residential area of Bellevue, Washington, entitled for high-density residential by right. We could either develop a vertical campus for senior or wellness living there or sell it to a multi-family developer. In many instances, we plan to construct additional cottage-sized units, which are already sold out in this area. In a separate deal, we purchased five class A senior housing communities in the Southeastern and Mid-Atlantic regions for $172 million from an outstanding partner with a top-notch operating and development group. These communities are on average three years old, and we expect to generate a high single-digit unlevered IRR from this acquisition. We’ve also secured a long-term exclusive development contract with this team. I'm eager to share more about this group's details and our growth plans in the next call. Just as a teaser, this team has executed flawlessly during Q3, even without any agency labor, showcasing their operational capabilities. Similar to our new buildings, we purchased three brand new communities in the Midwest from a multi-family developer along with our existing operator. On average, these buildings are two years old, and we’re optimistic about a robust future pipeline, with several granular transactions lined up over the next two years. We're also gaining significant momentum with redevelopment and real estate value-add initiatives, leveraging John Burkart's strategy and expertise built over two decades. Historically, my team focused on value-add strategies; however, we lacked the necessary experience after some disappointment from previous Vintage transactions. With John and Mike Ferry, our Global Head of Development on the same team, redevelopment and real estate value-add will be key growth avenues moving forward. Stay tuned for more updates. I'm thrilled to announce that we are initiating two new development projects with Kisco, marking the second phase of Cardinal and another project. Kisco is among our top operators. Occupancy is rebounding impressively, back to the high nineties. I’m proud to partner with Andy Kohlberg and his team to identify a few more A++ micro-markets, as the Cardinal model is set to be very successful. We have signed a long-term exclusive development contract with Kisco and look forward to expanding our partnership over the next decade. From the success of these exciting new projects to the exclusive pipeline agreements generated quarter after quarter, I hope that you, as our Investor, see that we have built a solid foundation for our real estate business through a unique predictive analytics platform that stands out in the industry. With that, I will hand it over to John for a detailed look at operational trends. John.

Thank you, Shankh. My comments today will focus on the performance of our outpatient medical and seniors housing operating portfolio, starting with our outpatient medical. During the third quarter, our outpatient medical segment delivered 3.1% same-store revenue growth over the prior year's quarter, leading to same-store NOI growth of 3.4%. The increases were driven by increased property-level expense recovery and a reduction in bad debt. Occupancy in our same-store portfolio ended the quarter at 94.7%, a 30-basis point reduction from the prior year's quarter. We continue to see record retention rates with the third quarter exceeding 90%. With increasing construction costs and rising market rates, we will continue to push renewal rates and accept a reasonable level of increased turnover and related frictional vacancy as we strive to optimize top and bottom-line performance and maximize the value of the portfolio. Now, turning to our Senior Housing Operating portfolio. I'm pleased to report that year-over-year revenue growth in our SHO portfolio turned positive in September, marking the first monthly increase since the onset of COVID-19. The strong demand-based recovery in seniors housing was led by our U.S. portfolio, which saw year-over-year revenue turn positive in August, and our UK portfolio, which turned positive in September. The occupancy recovery and improvement in REVPOR, which began in Q1, reflect a needs-based nature of senior housing and a recognition that these communities are active, safe, and social—three key elements to quality senior living. The U.S. continues to lead the recovery, growing occupancy by 600 basis points from the trough in mid-March through September 30th, followed by the UK at 540 basis points. Our Canadian portfolio remains behind the U.S. and UK in the recovery but posted occupancy gains in the third quarter compared to a decline in Q2. While the Delta variant has impacted staffing and related costs, it has clearly not slowed the demand-driven recovery in occupancy and our operators' ability to drive rate growth. Year-over-year, same-store NOI for the SHO portfolio decreased 14.9% compared to Q3 2020, driven by a 200 basis point decrease in average occupancy and increased expenses, in part due to the Delta spike and related impact on staffing. While still down versus last year, same-store NOI has improved markedly from the decline of 44% in the first quarter, a trend that should continue going forward. The increased labor costs during the quarter were driven by a host of macro factors, which led to temporary labor shortages affecting virtually all industries. The result was increased compensation in the form of wages, overtime, bonuses, and the use of agency labor as our operators have been squarely focused on both meeting the increased demand for their active, safe, and social communities and a refusal to compromise on the quality of care. The use of agency labor, which can be 2 to 3 times more expensive than permanent employees, was particularly impactful during the quarter as employees who had COVID, were exposed to COVID, or even had a cold had to call in sick, leaving agency staffing as the only option. As Shankh alluded to, these extraordinary labor expenses are starting to abate, although I expect we will still see some continued pressure for several months. I'm hearing green shoots as our operators are making comments such as, 'the peak labor challenge has passed,' or 'we've seen a substantial pickup in applications,' or 'our new hires outnumber the employees leaving 2.5 to one,' and even 'we're currently fully staffed at almost all of our communities.' Going forward, obviously, I don't know how COVID will impact the economy. But we do know that the operators are increasing their rates substantially to cover the increased labor costs. Similar to the multifamily business, there can be timing issues or delays between expenses hitting the bottom line when the revenue flows through to the bottom line. We're seeing that right now with elevated maintenance expenses, which in part relate to preparing units for occupancy due to increasing demand. Additionally, rental rates and care service reimbursements are typically adjusted annually and require 60 to 90 days’ notice, similar to multifamily. Therefore, as we continue to move forward in this demand-driven recovery, we expect to see the impact from these rate increases in 2022. Additionally, despite similar occupancy improvements across all states, which grew earlier, we’ve seen a divergence in the impact of agency expense between states that opted out of federal unemployment programs early versus those that maintained supplemental benefits through early September. More specifically, states opting out of these programs early saw roughly two-thirds of the incremental sequential increase in agency expense compared to those states that maintained supplemental benefits. Finally, during the last 90 days, I've been fully immersed in the various aspects of Welltower's senior housing business, including volunteering at sites, meeting with the leadership of various operators, and of course, touring numerous properties. My experience has been consistent with my expectations in that I have found that operators deliver a very high level of care to our residents and provide a top-quality living experience. While the focus on care has been and continues to be very high, I believe that similar to the multifamily industry 20 to 30 years ago, there is an opportunity to modernize our Seniors Housing business and improve the effectiveness and efficiency of the operations. These efforts will further improve the resident experience, employee engagement, and the financial performance of these communities, including the potential for significant margin expansion. Without giving away my entire playbook, renovating and redeveloping certain communities, implementing revenue management across the portfolio, and engaging in a digital transformation are just a few examples of what I'm thinking about. Being at the beginning of this coming demographic demand wave and seeing rays of growth and optimization opportunities across all our businesses make this a very exciting time to be at Welltower. Now I will turn the call over to Tim.

Thank you, John. My comments today will focus on our third quarter 2021 results, the performance of our triple-net investment segments in the quarter, our capital activity, and finally, a balance sheet liquidity update in addition to our outlook for the fourth quarter. Welltower reported net income attributable to common stockholders of $0.42 per diluted share and normalized funds from operations of $0.80 per diluted share versus guidance of $0.78 to $0.83 per share. Turning to our triple-net lease portfolios, our triple-net lease portfolio coverage and occupancy stats are reported a quarter in arrears. So these statistics reflect the trailing 12 months ending June 30, 2021. Importantly, our collection rate remained high in the third quarter, reflecting 92% of triple-net contractual rent due in the period across our senior housing triple-net and long-term post-acute portfolios. In our senior housing triple-net portfolio, same-store NOI declined 80 basis points year-over-year as the negative year-over-year impact of leases moving to cash recognition began to dissipate. We expect same-store NOI growth to turn positive next quarter. Trailing 12-month EBITDA coverage was 0.83 times. Looking forward, we expect coverage to bottom next quarter near current coverage levels before starting their recovery in Q1. Over the first seven months of the recovery, we have observed occupancy and EBITDA trends within our senior housing triple-net portfolio that are in line with our U.S. and UK operating portfolios. As these recovery trends have strengthened, the solvency risk of our operators has decreased in tandem, and our continued strong cash rent collection along with the value of the collateral that sits behind many of our lease agreements continues to provide us confidence that Welltower's real estate position remains strong. Next, our long-term post-acute portfolio generated negative 1% year-over-year same-store growth and trailing 12-month EBITDA coverage of 1.25 times. In the quarter, we transitioned 11 more Genesis assets to new operators, bringing total year-to-date Genesis transitions to 48 properties. We also completed the disposition of 21 of these transition assets, bringing total year-to-date dispositions to 30 former Genesis assets, including our nine Power back assets sold in the ProMedica joint venture in the second quarter, with another 14 scheduled for disposition in the coming months. Long-term post-acute in-place NOI concentration is now 5.4% of total portfolio in-place NOI. Lastly, our health systems, which comprise our ProMedica senior care joint venture with a ProMedica Health System, had same-store NOI with a positive 2.8% year-over-year, and trailing 12-month EBITDA coverage was 0.24 times. The drop in splinter coverage was driven largely by the timing of HHS stimulus. As the majority of HHS revenue received by ProMedica was received in Q2 2020, and this was not repeated in Q2 2021. At HHS funds, Q2 2021 EBITDA was up relative to Q2 2020 as revenue grew both on a year-over-year and sequential basis. Our June trailing 12-month coverage also includes results of the previously announced sale of 25 assets held by the joint venture, 21 of which have already been sold to date with the remaining four expected to be completed in the coming months. These assets had contributed more than $30 million in negative EBITDA for the trailing 12-month period ending June 30, 2021, and their disposal alone will create considerable coverage accretion on a go-forward basis. I'd also like to remind everyone that our lease is fully backed by a senior claim and the substantial real estate value held at the joint venture, as well as the full corporate guarantee from the ProMedica Health System. Turning to capital market activity, we continue to enhance our balance sheet strength and position the Company to efficiently capitalize on a robust and highly visible pipeline of capital deployment opportunities by utilizing our ATM program to fund those near-term transactions. Since the beginning of the third quarter, we sold 11.5 million shares via forward sale agreement at an initial weighted average price of approximately $84.36 per share for expected gross proceeds of $966 million. Since the beginning of the year, we have sold a total of 29.5 million shares of common stock via forward sale agreements, which are expected to generate total proceeds of $2.4 billion, of which 12.7 million shares were settled during the third quarter, resulting in $1 billion of gross proceeds. At the end of the third quarter, we had approximately 11.8 million shares remaining unsettled, which are expected to generate future proceeds of $1 billion. When run at an adjusted 6.97 times net debt to annualized adjusted EBITDA, up slightly from a prior adjusted 6.88 times at the end of the last quarter. The uptick in leverage was a result of $1.7 billion of net investment activity completed during the quarter. If we run-rate the impact of the investment activity completed in the quarter, pro forma net debt-to-EBITDA decreased to 6.82 times. As a reminder, we ended the quarter with approximately $1 million in equity raised on a forward basis, along with $309 million in expected disposition proceeds and loan payoffs. Our efforts to strengthen our balance sheet and improve our liquidity profile, coupled with a recovery underway in our senior housing sector, have been recognized by S&P and Moody's with both rating agencies recently rating our credit outlook to stable. The upgrades validate the prudent measures Welltower has taken to mitigate risk through the pandemic and to appropriately capitalize our recent investment activity. On a forward-looking basis, as both Shankh and John noted, we continue to be pleased with the momentum of the recovery of the senior housing operating portfolio. With portfolio occupancy ending the quarter at 76.7%, 210 basis points higher than at the end of the prior quarter but still over 1,000 basis points below pre-COVID levels. The portfolio also sits 1,400 basis points below peak occupancy levels achieved prior to the last decade's supply wave, setting the stage for a powerful EBITDA recovery as occupancy upside and strong rate growth are coupled with significant margin expansion from a very depressed base. Lastly, moving to our fourth quarter outlook, last night we provided an outlook for the fourth quarter of net income attributable to common stockholders per diluted share of $0.20 to $0.25, and normalized FFO per diluted share of $0.78 to $0.83 per share. This guidance does not take into consideration any further HHS or similar government programs in the UK and Canada. So, in comparing it sequentially to our third quarter normalized FFO per share, it is better to use an as-adjusted $0.79 per share for Q3, which excludes $5 million in out-of-period revenue. On this comparison, the midpoint of our fourth-quarter guidance represents a sequential increase from Q3. This increase is composed of contributions from strong investment activity in the third quarter and a sequential increase in the Senior Housing Operating Portfolio, driven by an expected 140 basis points increase in sequential average occupancy, offset by dilution from increased sequential G&A and increased share count from shares settled in the third quarter. And with that, I'll hand the call back over to Shankh.

Thank you, Tim. I want to make three quick points before Q&A. First, despite our historic amount of capital deployment over the last few months, I am very optimistic about the momentum into the year-end and next year. A recent prominent trend that we are starting to see is that deals are bouncing back to us as buyers from buyers who need property-level financing as the debt market has become very skittish after recent disruptions from Delta and labor challenges while we work on such transactions right now. Second, with a significant rise in labor and other costs, operators are left with two choices if they are to survive as a business. Either to cut services or corners or to increase prices. We believe families understand from looking at prices of virtually all goods and services, from fast food to apartment rents, that there is unprecedented upward pressure on costs. After speaking with the vast majority of our operators, I can assure you that Welltower’s operating partners do not plan to diminish the level of services and care provided to our residents. So for the industry in general, the recent increase in expenses means it would be difficult to continue to provide quality services without an appropriate balance in revenue. As such, rent levels will need to be increased. The industry should not cut corners, and it should never lose focus on the quality of its services. Please remember the simple mantra that there is no mission without margin. Third, our frenzied pace of new hiring continued through the summer and fall for both early career as well as experienced professionals. In fact, we have added 125 new colleagues since the beginning of COVID, representing a 25% increase in our overall headcount. We're rounding up on our campus recruitment programs as we speak and are delighted that this year's class will be the biggest in the history of the Company. With that, operator, please open the call up for questions.

Thank you. To answer questions, please press the appropriate instructions. To withdraw a question, use the same instructions. We will limit questions to one per person. You will be muted after asking your question. Please hold while we prepare the Q&A roster. Our first question comes from Steve Sakwa of Evercore ISI. Your line is open.

Thanks. Good morning. Shankh, I was just wondering if you could talk a little bit about the occupancy trend that you're expecting into the fourth quarter. I realize that things may be seasonally slowing down as we move into the holidays, but I'm just wondering if the trends you've seen in October and into the early part of November, what are sort of the risks that you see to hitting the guidance that you've put out there?

Steve, that's a really good question. Let's talk about—if you look at the history, you will see sequentially from Q3 to Q4, we usually have 20 to 40 basis points of average occupancy growth. We guided 440. If occupancy is obviously up meaningfully from that number, we are trying to give you is get away from this monthly, weekly numbers. We've got to run a long-term Company. But we can tell you if occupancy stays flat from here to the end of the quarter, we'll still hit our number. Now let's talk about the fundamentals, not about guidance. We are seeing an unprecedented level of demand and sales environment that we have never seen even this late into the year. If you look at how our October sales trends have ended and then how November has started, this is truly unprecedented. Now are we—how are we going to protect that through the holiday season? We're just not in the business of doing that. We're running a long-term business, but I can tell you the momentum that we feel in the sales trend, which obviously translates into—October sales trends translate into November and December occupancy. We have never seen this kind of momentum. That's all I'm willing to say.

Thank you. Next question comes from the line of Amanda Sweitzer of Baird. Your line is open.

Thanks. Good morning. Can you help frame up how you're thinking about the potential magnitude of sharp price increases next year a bit more, either in terms of current implied loss to lease in the portfolio, or the pricing power you expect the portfolio to achieve relative to the industry?

Amanda, we created a new slide in our slide deck. If you look at it, the inflation versus what we think our historic rate growth has been. Now remember that senior housing is not an income-driven sector; it's an asset-driven sector. Housing is obviously the primary one, and there are other factors too. That should frame what is possible for you. I will also tell you, just if you go back and read my prepared remarks, we talked about how there needs to be a price increase to offset labor costs. You saw that will also give you some bookends of what is possible. Clearly, we know what the numbers are because obviously, you have to send letters 45, 60 days before. So, we know what is being sent out, and the early feedback from some of our operators who have sustained this entirely. Remember, we also have roles going through. Well, not the entire portfolio is returning, so we have some early indications of as we have seen the spike of expenses and our operating partners have adjusted their pricing and how that update, that what is behind my comment that I am very optimistic about pricing next year. But it is too early to comment. We'll talk about it in the February call. But I cannot emphasize it enough that we are very optimistic about the pricing increases. And frankly, the industry as a whole needs to do that if we need to make more revenue than expenses in this business.

Thank you. Next question comes from the line of John Pelusi of Green Street. Your line is open.

Thanks. Maybe just one follow-up to that conversation there. Could you share what rent increases you're currently sending out today?

John, you're putting me in a pretty tough spot. I don't want to put a number out there, but I'm trying to avoid that. If you look at the inflation versus rent chart that we provided, we intentionally provided that. If I were you, I would look at that. And then I would look at what that pricing power comes from, which is the housing and other asset rates and how people fund this expense. And you will get to a number, but I will tell you the industry overall, I just came back from the industry conference. The industry is talking about substantial rate increases, not mediocre pricing increases.

Thank you. Next question comes from the line of Nick Joseph of Citi. Your line is open.

Best operators will rise, just on expense and labor pressures. Are you saying that across all of the operators? Is it across all geographies, or are there any differences that you're seeing either from strategy or location or any other factor?

We have seen it across the board, but of different magnitudes. As I mentioned, the new operator that we brought in Q3, the $172 million transaction, used zero agency labor. And we have seen some operators where contract labor costs have gone up tenfold in six months. I want to repeat, Nick, tenfold in six months, right? So obviously, you have seen a very different experience depending on who the operator is. But I will tell you; all these management teams are very focused on bringing that number down significantly. Our guidance, as Tim suggested, does not contemplate that you will see a step down in Q4, but we are already starting to hear—as Jon said—we're already starting to hear that step down is taking place even in October going through November of the year. But we don't know what is going to happen during the holiday season. So, we're not going to sit here and speculate. Our goal is not to speculate on what's going to be a one-quarter number, but go back to my comment that our stabilized portfolio margins— I can talk about the industry. It is my firm belief that our margin will be higher than the pre-COVID margin on a stabilized basis.

Thank you. Next question comes from the line of Mike Mueller of J.P. Morgan. Your line is open.

Yeah. Hi. I was just curious, what's the fourth-quarter guidance assumed for labor cost trends? Any improvement whatsoever, or just a continuation of increased costs on a full-quarter impact?

Mike, as I mentioned in the previous caution, Tim assumed that it will not improve. That's what's in the numbers that we provided you. However, as I mentioned, we are already starting to see improvement. The wild card here is how things play out during the holiday season. We just don't know.

Thank you. Next question comes from the line of Juan Sanabria of BMO Capital Markets. Your line is open.

Good morning. Just hoping you could talk to pricing for new customers in the market today. I recognize the intention is for the industry and for Welltower operators to push charges either on January 1 or on the 12-month anniversary. But I’m curious how pricing trends are faring for new customers across the industry or across your portfolio.

Juan, exceptionally good question. It's actually my favorite topic. I like this topic more than even the rent increases. I’m not going to mention any specific numbers. I will say—let's just say that we're talking about X percent increase on average for the whole portfolio. From my operating partners, I'm hearing, the street-level increase in the rate is between 1.5x to 2x. The street is moving up faster than the renewal. That's what I'm hearing from my operating partners. We'll see how that plays out. This is a very interesting cycle that we're seeing. There has never been more focus on quality and safety. In previous cycles, if you competed on whether you were a new shiny penny on the corner or not, the customers are focused on— they've always focused on debt, but this cycle they’re primarily focused on quality of services, quality of care, and the reputation of operators. They’re not competing on price.

Thank you. Next question comes from the line of Derek Johnston of Deutsche Bank. Your line is open.

Hi, good morning. The $5.6 billion of investments over the past year really stands out; how much of this would you consider opportunistic driven by the pandemic versus perhaps in a normal Welltower growth that would have happened anyway? And is this level of investment repeatable going forward? How much more capacity do you have to get through the investment process and take advantage of this market?

So, Derek, I do not give guidance on how much transaction we want to do. We're not a volume-driven investor; we're value-driven investors. That’s the first point. The $5.6 billion significantly understates what that investment volume is. Just to give you a simple example, what the transaction we closed represents the $5.6 billion that you mentioned; it includes 25,000 units. Let’s just think about it—25,000 units we have done had a $172,000 value per unit. In a normal environment, that would have been $10, $11, $12 billion of transactions. We’ve got to put that into perspective. Secondly, the industry remains very fragmented, and there is a lot of churn going on in ownership as people are finding it either this is—if you are in three different businesses, and you don't want to be in this business anymore, we're seeing a lot of data from a lot of families. The labor pressure obviously COVID was hard enough. Now the labor pressure challenge is rising from this. In the last few months, we have seen those repeat transactions that we had conversation a month ago. You recall I mentioned that when we were not getting to the finish line on a transaction, that’s not because it’s going somewhere else. It really means they’re not selling. At that price, they’re not selling. And now we’re seeing a lot of people giving up. Now remember, they can give up because we bring an operator to the table. You will not sell your real estate and continue to run it. The reason you are selling real estate is that you don’t want to run it. So, putting all this together, as I said in my prepared remarks, despite a significant acquisition volume, I remain very optimistic that this trend of acquisition at these kinds of prices will continue—frankly, longer than I thought.

Thank you. Next question comes from the line of Tayo Okusanya of Credit Suisse. Your line is open.

Good morning, everyone. In your recent business update, there’s an interesting slide that shows your SHOP portfolio on the power of diversity. I'm just kind of curious. Shankh earlier on mentioned that he ultimately expects to see winners and losers in the senior housing space over the next few years. So that suggests that we’ll start to see a little bit more concentration going forward across acuity geography on operating models based on who you believe the winners will be? Or should we still expect to see real diversification across acuity and monthly rents with the idea being you just pick the best players at each point on this graph?

Thank you. Tayo, welcome back. First, you picked the right slide to talk about. We do believe that diversification will continue, but there is going to be significant consolidation in the industry. Let me give you an example—a pretty good example to talk about. One of our best operating partners is operating in the Midwest, named StoryPoint. You've heard several times how highly I think of this team. Before the pandemic, we got an incredible offer for an incredible price. So, we sold the 13 buildings we had with StoryPoint and kept two new developments that recently opened. So, a big partner—we went from 13 to 2. That was two years ago. Today, with all the transactions we have done and all the transactions that are in the pipeline, in those two years, frankly, through the pandemic and the last 18 months, we are back to 50-plus communities with StoryPoint. That tells you how the winners and losers are changing in the business. The market share of great operators is changing, right? I'll give you another example. Look at how many assets Oakmont managed. It’s a great example of a fantastic operator. Look at how many assets Oakmont managed 12 months ago, 18 months ago. And make a note on your calendar and see how Oakmont has become a dominant player in California today, 12 months from now, 24 months from now. Right? This is just an example I'm trying to give you. So, you will see that shift of winners and losers, you have seen some spectacular failures of senior housing operators in the business, and I can tell you those are not the only ones that you know of.

Our next question comes from the line of Rich Hill of Morgan Stanley. Your line is open.

Hey, good morning, guys. Hey, Shankh, you had a really interesting slide deck about historical revenue relative to inflation. And as I listen to you talk and listening to you saying that this is a different cycle in the past, it does strike me that maybe the outperformance versus inflation could be even higher this time. Could you maybe talk about that over the medium to long term and how you think about that?

Absolutely. First, welcome to our call. We're glad to hear from you. If you think about inflation, inflation and most people think about inflation is a matter of how much not just obviously from the supply side but also the demand side and the people's ability to pay. Generally speaking, inflation is an income concept. As we all know, that's for most types of products and services. Senior housing is different. Senior housing is not an income-driven sector; it's an asset-driven sector. Look at the asset inflation of what happened. Obviously, we tried to put together some slides to give you some sense of what happened to the people who are funding the residences, these expenses. And you will see that asset inflation has never been more significant, aka, the affordability of the product has never been better. So, I think you are onto something. As I've tried to say without putting a number, putting those two slides should give you a context of how much rent increases are possible, not just near-term but over a long period of time. And frankly speaking, as I said, if you think about—we have a barbell strategy in our portfolio. If you go back and look at the Q4 of '19 call—this was the last call before COVID—I talked about in detail how this barbell strategy works, where you have a high-touch, high-service product in the coastal markets, where you can recover labor costs and still generate a margin. On the other side of the barbell is our housing portfolio, which has no labor cost. We have gone to that strategy, and that diversification; we have been very focused and very intentional. So, between the two, you will see a very significant inflation plus growth that's coming. That will be funded obviously to the asset inflation that already has happened.

Next question comes from the line of Michael Carroll of RBC Capital Markets. Your line is open.

Yes, thanks. I want to go back to the street rates answer that you provided earlier. I guess what's the reasoning that the seniors housing street rate growth is increasing at a faster clip than the renewal growth? Are street rates slower right now than those existing rates, and it's just that the gap is closing? Or is there something different there that I'm not thinking about?

So, Mike, if you have to think about total rates versus real estate rates, because usually a portion comes in at a say, X level of care, and then that goes up to say, X plus 2 level of care. You've got to obviously think about when you say street rates versus in-place trends; do you mean just total rates or the real estate rate? The real estate rate, if you just call it the relative component of the rent is not—the street rates are lower. It is just that the operators are realizing that they're not competing just on price. They have a quality product, and that quality product people know—they don’t hear from my operating partners that people are coming, saying, 'I want to stay down the lane for $500 less.' My operating partners know that there's a cost to providing the services, the first-class services that we provide. That's just not going to happen that you will cut it. You're not going to stay in Wisconsin for Hilton Garden's price. Nothing wrong with any of those models, but that's just not the model. The street rates are going up because you have demand. Look at the take; what we are seeing even this kind of late into the year when seasonally we should have come off, and we haven't. So, as operators gain momentum on the sales side, they're realizing that our special product has a cost, obviously, of providing that piece of occupancy. And we have to charge for it.

Thank you. Next question comes from the line of Jordan Sadler of KeyBanc Capital Markets. Your line is open.

Thanks. Good morning. Shankh, I wanted to just talk about some of the new things we saw this quarter, heard on the call, and a couple of things that popped out to me, were in the CCRCs that you purchased during the quarter, and then separately when I heard you talking about John, you mentioned the ability to do redevelopment and real estate value-add opportunities. So, could you expand on these two pieces? One, just the interest level in these entrance fee communities and the return profile for those types of assets? And then maybe what specifically—or maybe even generically—you’re thinking in terms of redevelopment or value-add dollars or opportunities.

Very good question, Jordan. And thank you for getting two questions through that the first time on the line. So, I'll answer both, and I hope I can remember it. Let's just try first. It's not an increased level of interest in the CCRC communities; we are value-driven real estate investors. We saw a tremendous opportunity because of the pandemic. If I'd give you some details, we bought that portfolio for $195,000 a unit, and with remarkable opportunities. Talk about Westchester, New York, Dana Point, California, Bellevue, Washington, Alexandria. At that level, that kind of opportunity. Then we thought about what we can do with the land. Then I mentioned that there is an extraordinary piece of land that is the last residentially zoned piece of land in residential Bellevue. When we look at a lot of CCRCs, we've always had an interest in them, but we've never seen this opportunity where we can do more than what we buy—not just leasing up obviously what we've done, but also a lot more than what can be done with the site. That's why we're interested in them. As I mentioned, I will give you details of what I think that it can go from a high-single-digit unlevered IRR to a low double-digit unlevered IRR as we execute on this. And frankly, we bought it. That's where most of our returns have been focused on. We continue to see returns between 9% to 12%, 13% on unlevered IRR for the transactions we have done, and that's where our focus is. Focused on the real estate value-add; one of the big real estate value-adds that this Company tried to do was Vintage. As you are well aware of the fact that hasn't played out well for us. As I went through the experience, I realized that we didn't have the right talent. It's much more difficult to do it than we thought. And we stopped that whole focus on real estate value add in a traditional sense of the real estate. As you know, John has done this for billions of dollars of transactions and executed based on that strategy. Now, obviously, John is the one who has marched into that portfolio, and he is obviously one of the most important members of our investment committee. So, those opportunities we are now ready to really expand on and execute. Also as to what I mentioned, we have built an extraordinary development team over the last 18 months under the leadership of Mike Ferry. We brought in Mike over a year ago, and he has built a large team. And those are all thoughts that are now coming together. But it's a skill set we didn't have and now we do have.

Next question comes from the line of Rich Anderson of SMBC. Your line is open.

I'm going after John Burkart here. So, John, welcome to the call.

Thank you.

The comments you made about some of the things that you want to apply to the business from your experience in multi-family, I just wanted to touch on a couple. I know you're not going to give away the secret sauce now, but revenue management and some of the multi-family tech initiatives that have been the name of the game in that business, isn’t revenue management only as good as it’s fully kind of used in the industry? So if you're using revenue management and no one else is, it's sort of not useless, but certainly not as effective. So, how do you get the word out on using revenue management? How much is it being used in the industry? And then also in the tech initiatives, how much is that out there already? I think you can make a real difference relative to your peers. I just wanted to see if I can get some color from you on those two topics. Thanks.

Certainly. And it's chalk to tell you two questions. On the revenue management, actually, I don't agree with you. I think it is operator-related, and it has really nothing to do with what the industry as a whole. It's an individual; how you price the units, but more than that and more than even the software. And this gets into one of the wonderful things here is leveraging our data analytics platform because what you have to do is you have to price the units right on the amenity pricing—the base pricing—which is not just about changing the price over time. It’s about pricing the base price correctly, the relationships between ones and twos, the values of certain units—those with views, those without, etc. And looking at a portfolio, you just can't possibly do that with one person or even a team of ten, twenty people, and get it right. But leveraging the data analytics platform and going back in time and looking at how the market has priced it—that’s a game-changer. That’s what we're working on right now is I'm partnered up with our data analytics platform to go back and look at our units, look, and understand how the market's priced. For example, we looked and saw substantial variations in demand versus pricing in some cases, a $1,000 a unit. Really dramatic changes in how we're going to price that product based on what the market has told us. We'll take that and then add on top of it some other software that will ultimately create price optimization. I'm excited about that. The second question was—the technology—yes, there are tremendous opportunities. No question about it. I won't go into the details here; I don't want to give that away. But yes, tremendous opportunities to really improve the customer experience but also to reduce the labor. Of course, that's a big component by just applying existing technology into the business that hasn't been used in the past, so I'm very excited about that.

Thank you. Next question comes from the line of Nick Yulico of Scotiabank. Your line is open.

Thanks. I just wanted to go back to the expense topic and how to think about labor because it was up 4% year-over-year in the third quarter, the occupancy was down a bit. So maybe that's an unusual relationship, but just trying to understand how we should think about labor expenses going forward because it doesn't seem like that is the pressure that's going to abate any time soon. I mean, you talked about agency labor. Maybe, I'm a little bit confused why the use of agency labor would be reduced going forward if it's still a challenging time to be hiring people. And maybe you can just triangulate how you guys are thinking about labor when you talk about, Shankh, your comment that SHOP margin will be higher than that of pre-COVID. Eventually, you give IRR calculations, which assumed something presumably about margin and labor expenses. Maybe you can just give us a feel for how you guys are really underwriting labor as an expense going forward.

Fantastic. I would highly recommend you go back and read the script, and you will see that we have detailed that out in our prepared remarks as well as in answering other questions. But I'll try to summarize it. First, you have to understand the confluence of factors having just purely focused on the labor side in the quarter. People didn’t travel for 18 months. Then that’s the first time you've got a lot of PTOs being taken, and that’s what caused a significant demand because our operators provide PTOs, right? So, you've got a significant surge of that. Second, we had one extra day in the quarter. You get paid by obviously daily basis, but you get revenue in most cases on a monthly basis. Third, you have to understand that because of the rise of COVID, people are extra cautious. There's a reason there is no COVID in the communities. You’ve got sniffles, and you called in; you should have called in. But at that last moment, look at the spike of COVID through the quarter. Majority of the problems came obviously in July, but then we got a massive spike as you followed the COVID curve through August and September. We're on the other side of that. That's why if you put all of this together, then obviously follow the opt-in state versus opt-out state comments that John made. You'll understand it's not a question of optimism; we're actually seeing it. We're on the other end of it. Only time will tell how long it takes. But if you follow all these comments we made, you can put together that picture pretty clearly. I would just add that if you look, compensation was basis points year-over-year. So, to your point, occupancy was down a bit, but we still saw compensation costs up. There is real base wage inflation. But the driver of that 4.1% year-over-year expense growth, the lion’s share of it is being driven by agency.

Thank you. There are no further questions at this time, and that does conclude our conference call. You may now disconnect.

Thank you.