Shankh Mitra: We are not going to give on specific operator level performance on this call, which we never do. We are not going to start that today. We’ll tell you that it was a very broad based outperformance from all of our operators, across three regions. And obviously, that’s not, as I said, is a happenstance, right? Some of the operating partners, you mentioned have done terrifically well. for us over a long period of time, and that continues. But this is a very deliberate strategy that we put together years ago to go deep and not go broad. And that’s as we continue to double down on this strategy. And John gave several examples of that, that plays out, whether that’s on the employee retention side, their long-term career and others.
And that’s also true, we can give you several examples how that plays out, obviously, on the revenue side where customers have different options within a close proximity to each other, right? So at the end of the day, that’s what we are trying to do. We believe, as many of us mentioned on the call, that great customer and employee experience eventually drive great financial results, and we continue to double down on the simple strategy.
Operator: Thank you. Your next question comes from the line of Michael Mueller of JPMorgan. Your line is open.
Michael Mueller: Yes, hi. Tim, a quick question. Was there a change in the same-store operating expense guidance for show? Because it looks like you’re same-store revenue drivers didn’t change, but the NOI growth expectation increased?
Tim McHugh: Yes. Thanks, Mike. It did. So our expense — our overall expense that were underlying our initial budget were 6.5%. So our revised outlook today moving down to 6% is the change to 50 basis points lower.
Operator: Your next question comes from the line of John Pawlowski of Green Street. Your line is open.
John Pawlowski: Hey, thanks for the time. Nikhil, when your team is underwriting new skilled nursing investments, can you give me a sense for kind of a range of EBITDA reductions you’re potentially contemplating in your underwriting for staff [indiscernible] NOI.
Nikhil Chaudhri: Yes. I think, John, in the skilled business, we are essentially structured credit, short-duration providers of capital. And we are super focused on basis and incremental [technical difficulty] beyond that. And so as the basis we play out, it doesn’t really have a meaningful impact just given the downside protection we have. I think this question is probably a better question for folks that play at the equity [technical difficulty].
Operator: [Operator Instructions] Your next question comes from the line of Rich Anderson of Wedbush Securities. Your line is open.
Rich Anderson: Thanks. Good morning and great quarter. It keeps getting better and better. Shankh, used the word were abundant amount of paranoia in the company, which is good to hear. And I want to sort of tackle that aside. I’m sure that you focus not only on the opportunities, which you’re clearly doing, but also on the potential risks that can materialize. And thinking of a company like Prologis [ph] obviously, like you and industry thought leader, but down 21% this year and trading near its 2-year low. How does Welltower anticipate potential pitfalls that may materialize. Some of the things that you’re thinking about to manage around today, to your point, about deploying capital and making sure that it produces the end results that you’re envisioning.
I’m thinking about 25% same-store NOI growth and how someone might say why is WallStreet getting rich at the expense of seniors? Is there a rent control conversation potentially out there? I’m just wondering some of the things that frame your paranoia and how you might respond to that?
Shankh Mitra: Thank you, Rich. I said a healthy amount of paranoia and we do, and we are constantly thinking constantly looking over a shoulder to think what can go wrong. Now let’s talk about numbers. The law of numbers are very unforgiving, right? When your NOI goes down by 50%, $100 become $50, you need to go up 100% to go back to just where you started, right? So while 25% NOI growth is impressive, let’s just be honest, like I think I said this in an industry conference a few months ago that we haven’t made any money over the last 10 years as an industry. So while year-over-year numbers are impressive, we got to understand the basic numbers. Just to go back to where we started as an industry, and if NOI was — let’s just say it was down 50%, somewhere down 40%, but somewhere on cut in half, and that’s what will happen if you lose 20 points of occupancy you need to just go back 100% to go back to a high watermark.
So if you put that in perspective, you realize that, obviously, the profitability of the industry remains pretty challenging. And you can see that in the margins. Margins remain significantly below where pre-COVID and frankly speaking, the peak of this business was not pre-COVID, was peak of the business was 2015 and last, call it, 1.5 decades and we are not even close to that. So all these points that you’re raising, which are very good points are very interrelated, right? If we can’t get to a basic level of margins, that will obviously be driven by basic level of rates and occupancy, then investments, particularly new investment going back to Nick’s question on development doesn’t make any sense. You need to attract capital to invest in the existing community doesn’t make any sense, right?
So all of these things are very interrelated. We are trying to do the best we can to provide a great level of service to our communities, our residents, our employees. And we also have to put in perspective like a lot of other types of operational real estate apartment stores, single-family rentals, which in the heydays have raised rents 20%, 25% plus. Our rent growth has been good, but it has never been sort of a double-digit plus, right? So it’s always sort of hovered around 8%, 9%. That’s purely driven by demand supply on one side as well as obviously an escalating cost environment. So we feel good about it. We will see where we go from here as we are talking about this kind of rate growth. Also, I would like you to remember that just on a same employee basis, rates in the sort of cost of employees are up 30%, 40% in the last 5 years, right?
