Shankh Mitra: Yeah.
Austin Wurschmidt: … the more traditional fee simple.
Shankh Mitra: Austin, I just want to make sure I understand your question. A lot of opportunity that we are seeing are driven by current existing owners’ credit situation, whether that’s rate caps, whether that’s LTV, whether that’s DSCR, whether that’s refi. So it’s driven by credit situations on their end. How we execute that on our end could be credit or could be equity and vast majority of what we have done is equity opportunities. But we are interested in the private credit side as an equity owner. I’ve said this many, many times that we’re just not lenders. We are owner of those properties at the last dollar basis where we’re credit stands, right. So that’s how we think about it. In other words, that we’re very comfortable taking back the keys if the buyer decides to — the owner decides to do so.
However, vast majority of our execution on our end is on the equity side, though we remain very interested for the right opportunities on the — in the — to play in the credit stack. However, I will tell you, we never loan against assets at a last dollar value at a given location for a product that we do not want to own. That is not what we do. So that’s something that’s very interesting for you to sort of think through.
Operator: Your next question comes from Michael Griffin with Citigroup. Please go ahead.
Nick Joseph: Thanks. It’s Nick Joseph here with Michael. Shankh, you’ve obviously talked about the robust acquisition opportunities a lot on the call and then the multi-year growth that you expect from senior sales. And so curious how you are seeing competition for both assets and loans. Is this attracting additional capital into the space and then also just some more question on the development side. Obviously, we haven’t seen development pick up yet, but given the multiyear growth outlook, when would you expect that to start to pick back up?
Shankh Mitra: Yeah. I think from a competition perspective, as I mentioned in my prepared remarks, most of the transactions — all of the transactions that we’ve executed on, they have been privately negotiated directly with the sellers. So it’s not that we’re participating in auctions or anything like that and a big part of that is there is really no liquidity in the market. So we’re not seeing any competition really. And then, I think, remind me again, what was your second question?
Nikhil Chaudhri: Let me answer that question. That was the development question.
Shankh Mitra: Yeah.
Nikhil Chaudhri: We — Nick, we put out a page eight in our slide decks that could be informative for some thinking about this question. If you think about there are some interesting things to think through. One, let’s just talk about things that we all know. Cost of construction is up significantly. Cost of capital, you just think about it, a Senior Housing development loan today, if you can get one, good luck with that, even we struggling to get one, if we need one, is at 350, 400 over. So, you’re talking about your debt cost-to-capital in the ninth and the 10th, right? No, we haven’t seen a development pro forma that works. That’s sort of a financial aspect you guys know, then obviously think through what it takes to an average, I’m not talking middle of Manhattan, West LA, west side of Boston, places like that.
An average Welltower location in a very wealthy micro market in East Coast, West Coast or locations like that probably takes two years to three years of redevelopment and you know that it takes a couple of years of construction after that. But what is more interesting that we have noticed is last 12 months to 18 months, that a lot of the changes that happened because of what I just described to you, in the platforms that have developed most of the Senior Housing assets, they have been dismantled. So if you look at page eight, we have added something for you to sort of ponder over is the first thing that needs to happen if people can find money and they think it’s a good thing to do is to first build back the human capital side before you think about the financial capital side.
The last thing I will leave you with to think about, my understanding is developers build or develop product to sell at a profit. When majority of the product traded in last three years at $0.70 on the $1, what confidence do you have that when you build a product for $1 that you will get a $1.30? I don’t think the confidence would be very high on the equity side, and obviously, you’ll take out financing when there is no acquisition financing, because that rollover we just described in the previous one, we think development in any meaningful way is years away. But again, as I said, we don’t know the future. That’s what seems logical. We’ll see what the future plays out.
Operator: Your next question comes from Mike Mueller with JPMorgan. Please go ahead.
Mike Mueller: Yeah. I guess following up on development for the Affinity Development Program, how soon do you think we could see starts there and is there a way to size up how big the annual investment outlay could be that you could ramp up to?
Shankh Mitra: Yeah. Mike, so my question, my answer to Nick’s question was focused on Senior Housing development, as in what do you understand as a regular Senior Housing product. Affinity or wellness housing, these are apartments, right? These are not where care gets delivered. So that — these are housing products. These are rental housing products. How can it be? I’ll tell you, probably if you think about it, Nikhil said, average age is eight years. The portfolio size is 25. So just call it three, four starts a year, something like that would be something that I would expect. But we don’t know, it depends on where the product is year-over-year. What the current pipeline is. But something like that can be expected over time.
Operator: Your next question comes from John Pawlowski with Green Street. Please go ahead.
John Pawlowski: Yeah. Thanks for the time. John, I was curious if you could share a current stat on average age and move-in for your traditional Senior Housing portfolio, how it compares to pre-COVID? And just any big shifts you guys are seeing in terms of the demographics coming in the door or the behavior of the current tenants again versus pre-COVID. We would love to hear?
John Burkart: Yeah. Good question. And what I am seeing is a little bit longer stays. As far as for the details of that, I don’t have that specific information, I can look to see if I can get it and get it back to you offline.
Shankh Mitra: John, I’ll just add that if you look at the coming out of the pandemic, average age and acuity went up right just coming out of the pandemic and sort of first three months, six months, something like that month where we’ve seen the acuity has gone up and the average age has gone up. As we sort of things have normalized, I will say we’re hearing more and more comments from our operating partners that average age is coming down and length of stay because of that acuity is coming down, but length of stay is going up because of that.
Operator: Your next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.
Michael Carroll: Yeah. Thanks. I’m impressed with your guys’ occupancy gains reaccelerating. Is that mostly driven by move-ins coming in or is it kind of the dynamic that you’re talking about in the last question related to move-outs as you’re seeing longer length of stays? So maybe move-outs are trending a little bit lower to helping that that occupancy gain reaccelerate in 2024?
Shankh Mitra: So, Mike, let me try to answer that question. I was just looking at this a couple of days ago. Interestingly, as we looked at the fourth quarter data is, obviously, we’re talking about the context sort of seasonal trends that we have seen in fourth quarter, specifically looking at that, both move-ins and move-outs were better. So we have seen better move-in rates, move-in trends, and we have seen better move-out trends. So that sort of both created this unusual seasonal pattern. As you have noted, not only the quarter was kind of interesting, or frankly, confounding in a positive way from a seasonality standpoint, but what happened intra-quarter was even more confounding because as you go sort of get through more deeper and deeper into winter, we see the business slows down just seasonally and this year exactly opposite happened.
So what’s the reason? Just from a pure math perspective, as I said, both move-ins and move-outs are better, but obviously, we’re not projecting that in the future, but we’ll see how it plays out as we get through the year.
Operator: Your next question comes from Rich Anderson with Wedbush. Please go ahead.
Rich Anderson: Thanks. Good morning. So I guess a question for John and the optimizational — optimization process that you’re going through with Senior Housing. A lot of it is sort of, it’s very interesting and believable, the work that you’re putting into it, but yet to be sort of quantified. And I’m curious if very soon or in some reasonable period of time that we might see sort of this optimization line — a new line item on your slide, page 19, where you’re bringing some of the work into real dollars and cents in terms of the effort, because right now, it’s not really something you can model. And I wonder if that would be more in the way of expense savings, which I would expect or maybe there’d be less frictional vacancy. So it would impact the revenue side. I’m just curious if you could sort of triangulate it all, putting some quantified numbers into your effort or when that might come for all of us to look at?
John Burkart: Great question. I — as you know, I tend to avoid a lot of details, because everyone tends to copy things and it’s better to execute. I think what you’re seeing in our numbers, there’s real numbers coming through. So it’s not just discussing it. You’re seeing it in the output. But I do appreciate you want to get some more specifics. You mentioned frictional vacancy. We’re nowhere close to that right now. The opportunity to just literally increase vacancy without worry to — worry or concern about frictional vacancy is there all day long and so there is really both. There’s some level of opportunities on the expenses, but that really relates to productivity, because again, as I say it over and over, our focus is on improving the customer experience, not about trying to cut anything.
So to the extent there’s some productivity opportunities there, which the platform is focused at, in the sense of I mentioned last time, sometimes it takes hours to move someone in because of the paperwork and having a unified platform will solve for that and eliminate that wasted time, enabling our staff to spend more time with the with the customers. A lot of the opportunity, though, really is focused on the revenue side, whether it be increasing occupancy, because we’re just simply out executing. Frankly, we’re answering the phones and delivering that that quality customer experience that’s driving occupancy or because we’re changing the value proposition and the market says this is worth more. Hopefully that helps.
Operator: Your next question comes from Nick Yulico with Scotiabank. Please go ahead.
Nick Yulico: Thanks. Yeah. Maybe a question for Tim on the balance sheet. If we look at substantial amount of cash at the end of the quarter and then the outline to have another $1 billion of asset sales and guidance, it just seems like, relative to the acquisitions you’ve announced so far that you’re sitting in like a significant excess cash situation. So maybe you could just give us a feel for how you think about that. I don’t know if there’s any planned debt repayments or anything else we should be thinking about there?
Tim McHugh: Yeah. Thanks, Nick. So you’re correct on the excess debt side or excess cash side. I will highlight that, as you indicated in the past, we have $1.35 billion unsecured maturities here in the first quarter. So $450 million of which matured in January and we paid off and the remainder will be paid off in March. So that’s one component of the uses and I think what you’re hearing from the rest of our team today is a lot of optimism around opportunities to put cash to work. So I think the balance sheet is very well positioned for that.
Operator: Your next question comes from Wes Golladay with Baird. Please go ahead.
Wes Golladay: Hey. Good morning, everyone. Can you speak to the share gains you might be seeing in Senior Housing versus the local competitors that when you look at that 230 basis points of expansion this year?
Shankh Mitra: Wes, I missed the first part of your question. Can you please repeat the question and get closer to your phone?
Wes Golladay: Yeah. Okay. Sorry, can you hear me now okay?
