Shankh Mitra: Yeah.
Wes Golladay: Yeah. Can you speak to the share? Yeah. Can you speak to the share gains you might be seeing in the Senior Housing versus the local competitors set, you did mention the 230 basis points this year, which is a record year?
Shankh Mitra: Yeah. So, look, we have a very large portfolio, it’s hard to speak in generalities, and obviously, across three countries. But if you look at all of the industry data that you will see, our portfolio has meaningfully outperformed both in rate growth, as well as occupancy growth. But what’s new about that? But you can probably look at the data and others kind of decide that might get to that point. But as I said, we don’t know what the future will give us. Our — what we endeavor, what I promise to you that will put 200% effort to outperform the market and that’s what we are trying to do. And so far, what I’ve seen, I mean, John mentioned a stat that, if we do achieve our NOI growth guidance in the shop portfolio this year, there’s no guarantee we will.
But if we do, that’ll be 75% compounded growth over three years. There is — I don’t believe there’s any precedence of that in a large broad sort of a portfolio. So we are meaningfully performing the market and that gap is widening and I think it will continue to widen.
Operator: Your next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.
Juan Sanabria: Hi. Good morning. Just a question on pricing trends for new customers. One, how is that evolved through the fourth quarter? Just to think about that relative to occupancy. And I guess the second part would be, you mentioned the operating leverage changes as occupancy improves and you’re fully staffed. So how should we think about — how are you thinking about the tradeoff between occupancy and price going into the rest of 2024 and into 2025?
Shankh Mitra: Let me try to answer that question. So fourth quarter, if you look at, I’m actually pretty very pleased with pricing trends. As you know, that we have a lot of the portfolio sort of radically turned through the year, right. So we have — and so if you just look at the Sunrise situation that I talked about, RevPOR growth was up 6.8%. That’s a very, very strong number and with that kind of occupancy growth, you don’t expect that kind of numbers. But put that aside. Let’s just think about what next year’s look like and we passed the Jan 1. A lot of operators in Jan 1, a lot of operators’ sort of have moved from Jan 1 to the February 1. I think I talked about that two years ago. Just not — just the after holidays sort of moved a little bit out of that.
So just generally speaking, talk about the half of the portfolio that sort of rolling in the Q1 specifically rather than just talking Jan 1, I would say existing customer rent increases has been relatively in the same ballpark of last year, but probably 100 basis points to 150 basis points lower. This generally feels right around that level. So, if it was 10 last year, it’s 9 this year, something like that. I’m not saying don’t hold me specific. Some operators have done more than 10 last year. I’m saying generally speaking, in that range of probably 100 basis points, 150 basis points lower. And we will see what the rest of the portfolio does as we go through the year. There’s also remember RevPOR is not just a function of ECRI, our existing customer rent increases, but it’s also a function of sort of market rent, right?
What that your mark-to-market and we will see, we don’t know? Usually speaking, market rent are lower in Q1 and sort of goes up from the summer months and we’ll see how this all plays out. There’s a math aside. We feel that the second part of your question, which is a brilliant question, sort of thinking about in this kind of occupancy, just call it mid-80s occupancy. What is that sort of efficient frontier pricing versus occupancy? That question is hard to answer on a conference call, but I will tell you what you are going after is a very important one, because how operating leverage, because of operating leverage, how your incremental margins work. While it is in the late 70s, early 80s, it is obvious that you should go after the rate, not the occupancy, that may not be true in the mid-80s where your optimized level could be some occupancy, some rates.
We’ll see how this plays out, but we are — we think it’s our guests as we sit here today and nothing but a guest that will be largely in the same ballpark of close to double-digit revenue growth that we have seen last year.
Operator: Your final question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.
Ronald Kamdem: Hey. I just want to sort of close the thought on the occupancy just because of sequential sort of improvement, as well as the guidance acceleration. Coming out of the different way, is this — like how much of this should we think of as an industry wide phenomenon where we should expect other operators to see occupancy accelerate versus sort of John’s operating platform, creating that Alpha is sort of part one. Part two would be when you think about that occupancy recovery slide in your deck, are we at the point where we should start thinking about 91% as the new target versus for the 88%, because based on the guidance, you’re going to be at 85% at the end of the year. Just trying to get a sense of how much conviction and growing conviction you have and getting back to that peak occupancy level? Thanks.
Shankh Mitra: Well, let me try to answer that question. The second part is an easier one. If all we do is we end up at 91% occupancy, which is sort of 2015 achieved, then we frankly speaking, we didn’t add a lot of value. Because if you think about it, I don’t know, just pick a number, two years, three years, whatever your number of years is, demand-supply, I think, you understand, starts to get materially better starting 2025, 2026, right, sort of. And the delivery schedule, if you look at it, you know what the stocks are, which is not much, right? You can see the demand-supply imbalance gets really interesting next year and the year after, right? So at least we can say that, because we don’t know, if there’s other people that without our knowledge is building.
It’s unlikely, but we don’t know. But at least we can sort of see next two years with a reasonable clarity and we don’t believe that friction vacancy of this business is 9%, right? John is that it?
John Burkart: It’s absolutely not. It’s a financial calculation and it is not 9%. It is substantially less. So that that’s just not an option.
Shankh Mitra: So do we believe that we’ll end up at 91%? I’ll be very disappointed if that’s the case, but we shall see what the market gives us. What was the first part of your question, Ron, that I missed?
Ronald Kamdem: Sure. It was just so we expect every operator to see occupancy reaccelerate 2024…
Shankh Mitra: Oh! Yeah. Yeah.
Ronald Kamdem: … or what are you guys doing that’s different?
Shankh Mitra: Yeah. So, look, I can’t speak for others, right, clearly, right? What do I know about others? My promise to you and our fellow shareholders have always been that we will put 100% effort to outperform the market. So far, we have done it, right? I don’t think Q4 numbers will be much different and I think our hope will be that we will continue to do so. My confidence in our ability to outperform the average of the industry is widening. I think that gap is widening and my confidence is increasing. But we still have to — this is February 14th. We have to see what the year gives us.
Operator: There are no further questions at this time. This will conclude the Welltower fourth quarter 2023 earnings conference call. Thank you all for joining us today. You may now disconnect.
