Q3 2023 Welltower Inc Earnings Call
Participants
John F. Burkart; Executive VP & COO; Welltower Inc.
Matthew Grant McQueen; Executive VP, General Counsel & Corporate Secretary; Welltower Inc.
Nikhil Chaudhri; Executive VP & CIO; Welltower Inc.
Shankh S. Mitra; CEO & Director; Welltower Inc.
Timothy G. McHugh; Executive VP & CFO; Welltower Inc.
Austin Todd Wurschmidt; VP; KeyBanc Capital Markets Inc., Research Division
Connor Serge Siversky; Equity Analyst; Wells Fargo Securities, LLC, Research Division
James Colin Feldman; Equity Analyst; Wells Fargo Securities, LLC, Research Division
James Hall Kammert; Research Analyst; Evercore ISI Institutional Equities, Research Division
Jonathan Hughes; Director & Senior Research Associate; Raymond James & Associates, Inc., Research Division
Joshua Dennerlein; VP; BofA Securities, Research Division
Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Michael Albert Carroll; Analyst; RBC Capital Markets, Research Division
Michael William Mueller; Senior Analyst; JPMorgan Chase & Co, Research Division
Nicholas Gregory Joseph; Director & Senior Analyst; Citigroup Inc., Research Division
Nicholas Philip Yulico; Analyst; Scotiabank Global Banking and Markets, Research Division
Richard Anderson
Ronald Kamdem; Equity Analyst; Morgan Stanley, Research Division
Vikram L. Malhotra; MD; Mizuho Securities USA LLC, Research Division
Presentation
Operator
Thank you for standing by, and welcome to the Welltower Third Quarter 2023 Earnings Conference Call. I would now like to welcome Matt McQueen, General Counsel, to begin the call. Matt, over to you.
Matthew Grant McQueen
Thank you, and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in 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 its 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 turn the call over to Shankh.
Shankh S. Mitra
Thank you, Matt, and good morning, everyone. I'll review our third quarter results and capital allocation activities. John will provide an update on performance of our senior housing operating and outpatient medical portfolios, and Tim will walk you through our Triple-Net businesses, balance sheet highlights and revised guidance. Nikhil will also participate in the Q&A section of the call.
Against a backdrop of increasingly uncertain macroeconomic outlook, I'm pleased to report another strong operating result which continue to exceed our expectations.
Our Senior Housing portfolio posted another quarter of exceptional revenue growth, which continues to approximate double-digit levels, driven by both strong pricing power and occupancy build. We're delighted to report that occupancy growth not only accelerated through Q3, but also that September occupancy gains marked the highest level we have seen over the last 2 years.
From a pricing standpoint, we continue to achieve outsized rate increases as reflected by nearly 7% growth in RevPOR or unit revenue. As you may recall, we previously mentioned that last year, one of our largest operator pulled forward its typical January increase to September 2022. This year, the same operator elected to maintain its historical cadence of rate increases and will therefore wait until January of 2024 to push through rate increases.
As a result, reported pricing of Q3 this year may appear lower than what we are experiencing in the business and it bears repeating that our operators' pricing power remains strong. The story on the expense side is similar to that of our top line and result continues to outperform our elevated expectations. We reported 2.4% expense per occupied room growth or unit expense growth, the lowest reported ExpPOR growth in the company's recorded history.
This is largely driven by a 2.7% increase in compensation per occupied room, which represents a substantial step down in recent quarters. This combination of strong revenue and controlled expense growth has generated 333 basis points of same-store margin expansion, yet another record for the company as it marks the highest level of quarterly margin improvement in our recorded history. And our SHOP NOI margin of 25.6% is the highest level of profitability we achieved since pre-COVID.
NOI growth for the quarter came in 26.1%, our fourth consecutive quarter of 20-plus percent NOI growth and the second highest level of growth in the company's recorded history. While we are pleased that margins are moving in the right direction, we're also mindful that our profitability remains significantly below pre-COVID levels and below where we believe the industry can attract external capital investment on a long-term basis.
Our managers strive to deliver a superior product, experience and provide valuable choices for our retired seniors. Our product remains highly affordable at the high end while we operate in the U.S. and the U.K. and they should continue to focus on highly differentiated services, even if that means rate increases need to remain at the elevated levels.
As I've said many times, cutting corners is not in our DNA. We recommend that our operating partners serve fewer residents well than serve more of them poorly. As a result, one of our key items to focus is to work with the right operator to improve the customer and the employee experience. We believe that doing so will improve the experience of all (inaudible) all of our stakeholders. Conversely, we'll be very disappointed if our operators take the path of least resistance, which ultimately will impact resident and employee satisfaction.
We continue to focus on the delta of RevPOR minus ExpPOR as the single most important operating metric to optimize. While it is too early to comment on anything specific related to 2024, as I sit here today, I believe that the delta of RevPOR minus ExpPOR can expand, which we need to get to a sustainable level of margin.
From a product standpoint, AL continues to outperform IL. And from a geographic standpoint, Canada finally caught up to the level of growth that U.S. and U.K. were experiencing. We have further retailing to do in our Canadian business with our new operating platform being launched in the next few weeks. And going forward, we believe both of our international businesses will be significant contributors to our earnings growth in '24 and '25.
From a capital allocation standpoint, we have never been busier. Last quarter, we spoke about a pipeline of $2.3 billion. We closed $1.4 billion in Q3 and roughly another $900 million in October. Additionally, we have another $1 billion of deals just about to cross the finish line.
Beyond these $1 billion of investments under contract, our pipeline remains large and near-term actionable, but the execution of these deals will depend on our access to capital. The extremely challenged debt and equity market in this higher-for-longer rate environment suggests that this trend will continue and perhaps will get better in '24.
We're continuing to see credit evaporate from our investment universe and are selectively pursuing great opportunities in both whole stack and [med stack] levels with highly favorable last dollar exposure. These opportunities have potential to achieve equity returns with basis and credit downside protection typically seen in low-leverage transactions. We're seeing opportunities across product types and geographies with equity investments in U.S. senior housing and credit investment on the SNF side, making up the large worth of opportunities that we're constantly being pinged on.
I want to remind you that we have a 3-dimensional lens through which we measure investment opportunities: risk, reward and duration. Given the substantial rise of real rates over the last 90 days, we have recalibrated these thresholds -- of these 3 thresholds higher. In other words, for the same risk what we need higher returns today than we did 90 days ago or we can do deals with a similar return profile, but with a much lower risk and so forth -- where student of history and markets and cannot find many times when a lot of good has come out of a period of highly -- sharply higher real rates.
If real rates continue to grind higher, we'll continue to calibrate our 3 guide post higher. So far, we have no problem achieving these recalibrations as sellers understand the markets have changed and we remain the best at many times, the only hope for liquidity. From a balance sheet perspective, amidst the growing macroeconomic, fiscal and geopolitical uncertainty, we are pleased to have reduced our net debt to adjusted EBITDA to one of the lowest levels in our recorded history, which also represents nearly a 2x decline from just 12 months ago.
Our balance sheet strength and flexibility gives us opportunity to remain on offense or provide shelter if the economic environment meaningfully (inaudible) next week. We don't have a clue which direction the wind will blow, but I'm delighted that we don't need fair weather to meet our obligations or grow.
As you all know, a wall of debt maturity in commercial real estate sector is coming exactly at a time when debt capital is (inaudible) the market. We will not be surprised if significant dilutive capital is raised or otherwise, a lot of keys will need to be returned to the lenders.
I am certainly grateful to Tim and our best-in-class capital markets team for keeping us ahead of the cadence that Nikhil and I can spend on as we look to capitalize on the best environment for investments that we have ever seen. Year end is shaping up to be extremely busy and Q1 also looks promising if we continue to have access to growth capital. At the risk of sounding like a broken record, I want to reiterate that we'll only grow externally if and only if we can grow value accretively on a partial basis for existing shareholders.
I hope that you as our shareholders are as excited as I am about our operating results and capital allocation activities. But interestingly, those are not the most exciting areas inside Welltower today. What truly galvanizes us are the exciting prospects of John's operating platform and especially the digital transformation of senior housing industry. As we have discussed ad nauseam, we refused to accept the lack of 21st century business process and technology infrastructure of this primarily people-driven business, where individual communities are on their own island.
We have made tremendous strides in the last 90 days on the technology backbone of what Welltower 3.0 may look like, and how far we can raise the bar for a resident and employee experience. Welltower's engine room is buzzing with pilots and scaling around traditional technology solutions like from ERP and CRM to advance technology solutions around robotics and artificial intelligence.
Our goal is to elevate the community experience by delighting the customer and their families and simplify and enhance the employee experience, all of which should lead to occupancy and NOI growth.
Then and only then do we have perhaps a shot at earning a long-term sustainable return for our owners, which has been less than satisfactory over the last decade. My partners and I are truly inspired and are hopeful that we're turning the corner to achieve multiyear double-digit compounding growth rate. While supply and demand backdrop is quelled in our favor, we're far more focused on the value-add Alpha from our platform which you, as our fellow owners, have funded to build with our blood, sweat and tears.
And with that, I'll pass the call over to John.
John F. Burkart
Thank you, Shankh. I know that it sounds like a broken record, but again, another great quarter. Our total portfolio generated 14.1% same-store NOI growth over the prior year's quarter, led by the senior housing operating portfolio with 26.1% year-over-year growth. We are methodically moving forward focused on the customer and employee experience and that is driving results.
We started with brute force, effectively relying on our raw labor to identify issues and opportunities. We continue to improve the systems and processes and organize the data to make data-driven decisions to improve the business, and we're just at the beginning.
The medical office portfolio's third quarter same-store NOI growth was 3.4% over the prior year's quarter. Same-store occupancy was 95%, while retention remains extremely strong across the portfolio at nearly 93%. The 26.1% third quarter year-over-year NOI increase in our same-store senior housing operating portfolio was a function of 9.8% revenue growth driven by the combination of 6.9% RevPOR growth, 220 basis points of average occupancy gain and moderating expense growth.
Expenses remain in control coming in at 5.1% for the quarter over the prior year's quarter. The strong revenue growth and expense growth led to substantial margin expansion of 330 basis points. As Shankh has mentioned many times, the marginal increase in expenses as occupancy continues to grow over 80%, is relatively low for obvious reasons. Many of the expenses are fixed.
Each property has an Executive Director, Head Chef, Maintenance Director, regardless of the occupancy level. The bulk of maintenance, utility and many other costs are largely factored in at 80% occupancy. As a result, our expense POR or expense per occupied room continues to remain low, enabling the business to improve the margins.
As Shankh mentioned, our ExpPOR growth for the quarter was 2.4%, the lowest in our recorded history. All 3 of our regions continue to show strong same-store revenue growth, starting with the U.S. at 9.6% and Canada and the U.K. growing at 9.7% and 12.9%, respectively. The strong revenue growth in each region, combined with the expense controls, have led to fantastic NOI growth in the U.S., Canada and the U.K. of 25.4%, 27.1% and 37% respectively.
The management transitions continue to perform above expectations. We are grateful to our operating partners who are working so hard to ensure that we achieve the improved operations that we set out to accomplish in our journey to operational excellence. Our operators continue to do an amazing job of managing through the complexities of the business to provide a superior customer and employee experience.
Many of our senior customers were born in the 1930s, The Depression. They have worked hard and sacrificed all their life and now they deserve to enjoy the fruits of their labor. The product and services remain very affordable to a large segment of the population who have purchased and paid off their homes years ago, and are now at a point where they can sell their home, live off their assets enjoying a good quality of life during their golden years, which they deserve.
Our focus with our operating partners on improving the customer and employee experience benefits all stakeholders. For example, our focus on materially reducing agency labor improves both the customer and employee experience as both are benefited by permanent high-quality employees compared to the random agency employees, lacking relationships with our customers and knowledge of the community systems and processes.
Additionally, eliminating the agency or middleman enables us to ensure the hard-working people at our communities receive a fair compensation package with vacation and benefits as well as competitive pay and our shareholders benefit from the reduced leakage to the agency company owners.
Care is the essence of the service provided and ensuring employees can deliver outstanding care is one of our top priorities. Our operating platform efficiencies will increase the time available for care and reduce the stress on our employees. For example, at one site, one of my team members worked at, the Executive Director spends over 3 hours per move-in inputting the documents into the antiquated systems. The CRM, (inaudible) care modules are disparate systems. Our platform has all the documents in e-form and the modules are fully integrated, reducing the potential for errors and saving time, which enables the site leader to focus on the customers and employees, not paperwork.
We continue to make substantial progress on our platform and the related rollout. I'm grateful for the engagement and participation by the leadership of our operators who are actively working with us to ensure the success of the platform. More to come in 2024.
I will now turn the call over to Tim.
Timothy G. McHugh
Thank you, John. My comments today will focus on our third quarter 2023 results. Performance of our Triple-Net investment segment in the quarter, our capital activity, our balance sheet and liquidity update, and finally, our updated full year 2023 outlook.
Welltower reported third quarter net income attributable to common stockholders of $0.24 per diluted share and normalized funds from operations of $0.92 per diluted share, representing 10.4% year-over-year growth or 16.5% growth after adjusting for HHS and the year-over-year impact from changes in FX rates and higher base rates and floating rate debt.
We also reported total portfolio same-store NOI growth of 14.1% year-over-year.
Now turning to the performance of our Triple-Net properties in the quarter. As a reminder, our Triple-Net lease portfolio coverage and occupancy stats are reported (inaudible). So these statistics reflect the trailing 12 months ending 6/30/2023.
In our senior housing Triple-Net portfolio, same-store NOI increased 3.9% year-over-year and trailing 12-month EBITDA coverage of 0.93x. In the quarter, we agreed to convert 11 StoryPoint assets from Triple-Net lease to RIDEA, which will bring their regionally focused managed portfolio up to 55 Midwestern properties in the fourth quarter.
Next, same-store NOI in our long-term post-acute portfolio grew 5.3% year-over-year and trailing 12-month EBITDA coverage was 1.44x.
Turning to capital activity. We closed on $1.4 billion of acquisitions and loans in the quarter, led by $618 million of senior housing operating investments. As a reminder, the (inaudible) joint venture unwind that was announced last quarter will close by geography in 3 distinct phases. The U.K. portion closed in 2Q and the U.S. portion closed this quarter, resulting in $75 million of net investment.
And the Canadian portion is expected to close by year-end. In the quarter, we continue to issue through our ATM to fund ongoing investment spend and position the balance sheet for future opportunities. We raised gross proceeds of $1.9 billion at an average price of approximately $81 per share, allowing us to fully fund year-to-date investment activity and also extinguish $290 million of debt in the quarter.
This capital activity, along with continued growth across our business segments, including the continued post-COVID recovery within our senior housing operating business, helped drive net debt to adjusted EBITDA to 5.14x at quarter end, which represents 1.8 turns of deleveraging versus 1 year ago.
We expect net debt to adjusted EBITDA to settle in the mid-5s on a pro forma basis post near-term investment activity and to continue to trend downward in future quarters as a recovery in our senior housing operating portfolio continues to drive organic cash flow higher.
Additionally, filing this intra and post-quarter capital activity, including $900 million of gross investments closed to date in October, we have a current cash and cash equivalents balance of $2 billion, along with full capacity on our $4 billion revolving line of credit and $624 million in remaining expected proceeds from near-term dispositions and loan paydowns, representing approximately $6.6 billion in near-term available liquidity.
Lastly, moving to our full year guidance. Last night, we updated our previously issued full year 2023 outlook for net income attributable to common stockholders to a range of $0.91 to $0.95 per diluted share and normalized FFO of $3.59 to $3.63 per diluted share or $3.61 per share at the midpoint.
Our normalized -- updated normalized FFO per share guidance represents a $0.055 increase at the midpoint of our previously updated guidance. This increase in guidance is reflective of a $0.03 increase from higher expected full year senior housing operating NOI, a $0.035 increase from capital allocation activity, which assumes no further investment in the year beyond what is closed to date; and these increases are partially offset by a combined penny drag, increase in expected full year G&A and stronger dollar.
Underlying this FFO guidance is an increased estimate of total portfolio year-over-year same-store NOI growth of 11.5% to 13.5%, driven by subsegment growth of outpatient medical, 2.5% to 3%; long-term post-acute, 4% to 5%; senior housing Triple-Net, 1.5% to 2.5%; and finally, increased senior housing operating growth of 23% to 26%.
The midpoint of which is driven by continued better-than-expected expense trends along with revenue growth of approximately 9.8% year-over-year. Underlying this revenue growth is an expectation of approximately 240 basis points of year-over-year average occupancy increase and rent growth of approximately 6.7%.
And with that, I'll hand the call back over to Shankh.
Shankh S. Mitra
Thank you, Tim. I want to conclude by turning your attention to 3 items that may not seem as important or exciting for our near-term results. On a combined basis, they may actually serve as a drag on our Q4. But nonetheless, it's extremely important to underscore as far as our stabilized or run rate earnings is concerned.
First, we have convinced our partners, StoryPoint, to convert 11 properties from Triple-Net to RIDEA structure. Nine of these properties ran a historic lease structure with other operators, and 2 of them are recent acquisitions. StoryPoint is one of our best operators and a current RIDEA operator has cleaned up these billings, improved staffing, service quality and invested significant capital.
These properties have gained 500 basis points of occupancy since the beginning of the year to 70% in September. RevPOR is up 15% since they took over. RevPOR of the new move-in in 2023 is up another 12% from the average of 2023 numbers.
This is setting up the stage for significant cash flow growth in '24 and beyond. Debt-to-equity conversion at the bottom of the cycle are perhaps the most value-accretive transaction we can complete today. As we have experienced in our recent Legend conversion, we can expect to breakeven in 12 to 15 months relative to our previous contractual rent, and then our shareholders will get all the upside afterwards. This obviously will work only if you have great assets run by great managers and we are right about the trajectory of the cash flow. And that is the bet I'm willing to take at this point in the recovery cycle.
We continue to seek additional opportunities to achieve similar outcomes when they check the boxes of great assets and operator quality and when we can expand the pie with our partner, so that we can attain a win-win solution on an outcome for a long-term basis.
Second, Kisco one of our strongest operating partner, measured by margin, occupancy and other operating metrics, recently marched with another one of our operators, Balfour. Balfour, now an affiliate of Kisco, maintains a dominant position in the Denver Metro area, also has (inaudible) buildings nearing completion in Brookline, in Boston MSA and Georgetown in D.C., both properties opening in 2024.
We thank Michael Schonbrun and Susan Juroe for their partnership at Balfour and wish them all the best for the next phase of their lives and welcome Andy Colberg and his team to take over the stewardship and growth of these communities.
Like StoryPoint communities above, this transaction will be significantly accretive to our stabilized earnings and cash flow growth. Last but not least, when the final stages of Project Transformer, the transaction, which I described to you last quarter, with our teams working really hard with Matthew and Frederic at Cogir.
Our brand launch is coming up in the next few weeks, and people are on both sides are working at a frenetic phase to achieve seamless transition. This is yet another transaction like the others above, which will look back at in '24 and '25 and feel really proud to have completed as they have added to our earnings and cash flow growth despite some near-term friction and the tremendous workload for the combined team.
Speaking of earnings and cash flow growth, I would like you to provide a report card on the previous large transactions to Avery and Oakmont from Signature and Sunrise that we discussed with you in Q2. Both Avery and Oakmont have grown occupancy of approximately 300 basis points since transitions have begun.
We, at Welltower, remain focused on the long-term price of getting this business to an elevated level of customer and employee experience and generating earnings per share that is substantially higher than where we came from. To sum it up, the powerful recovery in senior housing operating business, the rollout of our operating platform and a significantly accretive capital deployment are all setting us up for an accelerating earnings and cash flow trajectory for '24 and '25.
With that, I'll open the call up for questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Vikram Malhotra from Mizuho.
Vikram L. Malhotra
I guess, the sort of great opportunity on the external growth front, we have -- yesterday, we saw 2 of your peers merge, and I was hoping you could sort of give us a sense of as that process was explored, have you been -- is that something that's been of interest to you or could be of interest to you? And can you compare and contrast that line sort of entity deal with your sort of more granular approach going forward?
Shankh S. Mitra
So Vikram, I don't comment on other people's deals. It seems like it's a great outcome for both of them. We were not engaged, and we will not be engaged in that process, just to be specific. As we said many times, what works for us is one asset at a time transactions even if we do -- when we do portfolios, Nikhil is finishing up a portfolio transaction right now of 10 assets that we have gotten.
We have picked from a collection of 80-, 90-plus assets. So it's sort of -- we're very, very focused on going deep than going broad in our markets. And we genuinely believe in small transactions with one asset at a time, I believe there are median size of assets, transactions that we have done in the last 3 years, which constitute this $12 million-or-so of assets we've bought is like $30 million. That's what we like, that works for us, and that's what will continue.
We have no (inaudible) opportunities. I mean what we see today, the market is, I will not be surprised, you guys will recall that we had talked about a few years ago, there will be potentially $30 billion of opportunities. As we sit here today, we can say the TAM is actually bigger than that, given how much loans that's coming due, how much of floating rate debts are rolling over.
So we have no problem growing the company as long as we have access to capital and we can do it on a part share basis. But large M&A is something that I've never liked. I'm not saying I'll never do it. But frankly speaking, it's just not much interest to us. And specifically answer to your question, we're not engaged and will not engage in the process that you mentioned.
Operator
Our next question comes from the line of Connor Siversky with Wells Fargo.
Connor Serge Siversky
I've got a 3-part one for you guys here. But on the Cogir transaction, can you offer a sense as to what occupancy levels look like in the properties earmarked to be managed by the operator in the future? And then is there a way to quantify the NOI upside potential from this transaction and ultimately, the transition of those properties? And finally, is that Regency case study outlined in the deck a good example to gauge what that NOI potential could look like for the broader Cogir portfolio?
Shankh S. Mitra
Connor, you were talking about, if I understand your question correctly, the Cogir transaction if you're talking about the properties that Cogir is taking over from Revera, the property occupancy is roughly around 80%. And we think that, as you know, Cogir obviously runs their properties well not of 90% occupancy and 40% margin, and I think we'll get there. What was the other part of the question, sorry, I missed that?
Connor Serge Siversky
So you outlined that Regency case study in the deck for those -- I think in British Columbia, near Alberta. Is that a good example to use as a gauge for the NOI potential of the broader Cogir portfolio?
Shankh S. Mitra
Yes. I think you will see in this particular portfolio that we're talking about, the transition portfolio, Regency portfolio -- Regency was a very well-run portfolio. This Cogir still has been able to get that margins, I believe, from around, call it, say, 40% to about 50%. In this particular case, I believe that the improvement will be better, and will go from -- margins will go from, call it, say, up 20% to 40%. So I think we should see better enhancement in this particular case than the Regency example.
Operator
Our next question comes from the line of Juan Sanabria with BMO Capital Markets.
Juan Carlos Sanabria
Impressive occupancy acceleration into September. Just curious what the early indications are for revenue increases to existing customers. I'm assuming some of the rate letters, have gone out already. So just curious how that year-over-year delta is looking for rent increases to existing customers?
Shankh S. Mitra
So Juan, as you know, we're sort of finalizing that as we speak, right? That's the discussion we are in. As I mentioned in my prepared remarks that we expect that to be very strong like last couple of years and that's where we are. We're not there yet from a purely finalization standpoint. But I continue to believe that we'll achieve -- a customer is expecting an elevated level of service, costs are not coming down any place, the business overall for the industry, not just for us, remain at a suboptimal level of margins where you can attract capital to the business. So all these things putting together, I think you will see strong rate growth. What exactly that is, is too early to say, but I continue to expect that will be very strong.
Operator
Our next question comes from the line of Jonathan Hughes with Raymond James.
Jonathan Hughes
Shankh, could you just clarify the ending comments you gave in your prepared remarks where you said that the Kisco, Balfour merger might be a drag on the fourth quarter? I didn't quite understand why that might be the case? And then maybe one more, if I could sneak it in, the SHO portfolio outperformed that typical seasonality in the third quarter. I think that's expected to continue into year-end. Is that driven more so by the U.K.-related changing same-store pool, something else? Just any additional color there would be great.
Shankh S. Mitra
Let me try the first one. So I did not say that specific transaction might be a drag on the fourth quarter. I said the 3 things that I described together could be a drag on the fourth quarter. But combined, all of them should be a significant driver of growth on -- for '25 or just call it, stabilized earnings. That's the point I was trying to drive, not specifically about Kisco and Balfour.
Timothy G. McHugh
And on your question on the seasonality in the business, you're correct. We continue to outperform the historical seasonality, and we are not seeing major differences between our transition portfolio, as Shankh mentioned, we actually see very strong occupancy gains in the transition portfolio, probably greater than what we've seen in the core portfolio.
Shankh S. Mitra
Jonathan, just the core portfolio, as you know, sequential occupancy growth was around 150 basis points and the transition portfolio, the 2 I talked about was the majority of the transition we did in Q2. The occupancy growth in from signature to Avery and Sunrise to Oakmont, both portfolios achieved a sequential occupancy growth of roughly 300 basis points. So almost double of what the same store did.
Operator
(inaudible) with Scotiabank.
Nicholas Philip Yulico
Yes, I was hoping to get maybe a little bit of a preview about how G&A could trend over the next year. And I know this year, there was the build-out of John's group and just trying to understand like how far along that is, and how that could affect G&A growth over the next year?
Shankh S. Mitra
Nick, as I mentioned early in the year, I think if you go back to fourth quarter call, we have at least another year of elevated G&A increase as a build-out of the platform. So you should -- we have come long, but we have a long ways to go.
So G&A versus NOI, just a geography of where you see, expenses versus revenues. So we do believe that the platform build-out is paying off, has started to pay off in spades. But from a purely -- just looking purely at G&A item, we would expect that another year of build-out, at least another year of build-out.
Operator
Our next question comes from the line of Michael Griffin with Citi.
Nicholas Gregory Joseph
It's actually Nick Joseph here with Michael. Shankh, I recognize you said you're not engaged, you won't be engaged. But last year, you reportedly got involved in a similar public-to-public M&A situation within the medical office space. You talked in the past a lot about being an IRR buyer and cost base focused and that you look at everything. So just curious in this situation or more broadly, is it kind of the current valuation and underwritten returns aren't sufficient against the other opportunities that you're seeing? Is it something about medical office that's keeping you on the sidelines here?
Shankh S. Mitra
So first thing I mentioned that I don't comment on other people's deals. So I have nothing underwritten, so I can't even comment on what the underwritten returns looks like. But specifically to medical office, I think I provided some color last quarter that we're unsure at this point where the long-term inflation land. And because we're unsure -- we are unsure of at this point to make a huge bet on an asset class that we don't know what the growth profile versus the long-term inflation looks like, right?
So that's a very important point. We are finding opportunities where we think we can -- small opportunities where we can do value-add. We're buying assets at 70%, 80% occupancy and leasing up and so that we can see the growth rate higher. But from a stabilized 95%, call it, occupied medical office with a 2.5% increase or whatever it is, the traditional medical office, which provides a good long-term, stable growth for institutional investors is not interesting for us.
For that one reason. And the second reason is, it's always -- it's relative opportunities is the question, right? If that's the only thing that was available to us, will be a different conversation. We're easily picking off at low double-digit plus unlevered IRR opportunities in the senior living side assuming that we don't add much value, and I'm pretty positive we will add value. So it's just a question of relative opportunities of where we see [it will evolve] today. And that's why we have no interest. By no means that suggests that we don't think it's a good deal or not a good deal, I have no idea what the deal is because I'm not engaged in it and as I specifically mentioned will not because of the reasons I just pointed out to you.
Operator
Our next question comes from the line of Josh Dennerlein with Bank of America.
Joshua Dennerlein
I have a question on the transitions. Shankh, you mentioned you've been very active in terms of proactive portfolio management. You achieved a lot of early success recently with Avery and Oakmont. How have these operators driven such strong results so quickly? And just how would you encourage us to think about future transitions in the portfolio?
Shankh S. Mitra
Yes, I'm not going to answer the first question, Josh. Obviously, on a public call, I mean, things called trade secrets that you don't want us to divulge on a public company call.
But we'll say that this doesn't happen like automatically. As I've said before, we have learned. We have done a lot of transitions over the last, call it, 5, 7 years that I've been doing this, and we have learned our lessons from frankly, old school way of losing money.
We have learned what we have done wrong. We have gotten better then sort of -- we learned how to stop bleeding and then finally, we have gotten the other side of how do we -- how we can make an impact. What the prep work you need to do on systems and process and frankly, that's what John taught us, right?
So it's just -- it's an evolution. It's a process that we have gotten over the last few years, and I'm very, very happy that we are there. Now from the point of view of transitions, is it the last transition? Would we do 1,000 more transitions? It just depends on the performance. We're trying to optimize our performance.
I've said it many, many times that this is a business in our opinion, in our humble opinion. It's a business of optimizing location, product, price point and operator, right? So we'll keep optimizing it until we think that we were done. And that's kind of where we are.
It's a journey I've written about that I'm willing to do even if we take short-term hits. And it appears, at least from near-term results, no guarantee of the future that we have achieved how to even mitigate that short-term hit.
Operator
Our next question comes from the line of Rich Anderson with Wedbush.
Richard Anderson
So I want to talk and perhaps to John on the rate number that you mentioned, the RevPOR number of 7% and specifically, the sustainability of that type of growth. It's always been my view that there was some sort of implied ceiling of growing rents for people that are 85 years old. And that at some point along the way that there's just a way of doing business. Now I don't know that there's a real ceiling of some sort, but it always seemed to me that was the case, correct me if I'm wrong?
Number two, though, maybe it involves unpacking the rent, maybe it's rent between rent and care and so that kind of muddies the conversation. But I wonder if you could comment at any level about how rate might grow in the future considering what I would think would be some pushback for the reasons I just described?
Shankh S. Mitra
Rich, let me try to start that. And John, you sort of finish anything that I haven't added. So I think your conversation that you have is a reasonable for -- if you think about a long-term tenant in the middle of the market, right?
So there is a -- you have to think about the customer you're talking about. We -- our rate increase is because we have sold majority of our mid-market product, our U.K. and U.S. portfolio is primarily focused on very high-end customer, very wealthy customer and the product remains incredibly affordable to them.
And at that level, we haven't seen any pushback. The second point you have to consider Rich, is -- we have never raised rates like you have seen in other asset classes, multifamily stores, others, 20%, 25%. We have never raised that, right? So just sort of rates remains high single digits, whatever, like 8%, 9%, 10% is sort of what we have done.
So it's much more sustainable than you think. But put that aside, just understand, put all of those comments in the context of average length of stay, you're talking about an average length of stay of 20 months. So we might be here talking about the 3 year of increase of X percent.
But just understand, the person who got the first year of increase, he or she is gone, right? She's no longer in the community. So if you put all of those together, you will see that if you provide the very important point, if you provide the differentiated services at the highest level, your customer is willing to pay you. Now we are, as I've said many, many times, we're not focused on an individual number, call a RevPOR or rate, right? We're focused on very much of a delta between RevPOR and ExpPOR, and that's what we are focused on. I've said that last year and the year before. And we shall see what the market gives us, right? I have no idea what the market will give us if there's a pushback, we will adjust, but we haven't seen any yet.
John F. Burkart
Yes. No, I fully agree. It's the difference between RevPOR and expense POR and -- it's -- I think you're probably, Rich, thinking about multifamily where people are there for years and years and years, and it's a very different situation here.
Operator
Our next question comes from James with Evercore ISI.
James Hall Kammert
I certainly appreciate the operating leverage embedded in the SHOP portfolio. And I was just wondering if you could provide a little more color sort of regarding labor trends for the general staffing there, and what conviction you have and the ability to really continue to sustain pretty attractive or capitated growth of those expenses?
I mean, are you getting longer tenures, so it's lower turnover and lower recruitment costs or just a better labor talent pool. And again, I'm just thinking more beyond the shaft and the General Manager, what levers are contributing to nice profile in terms of growth on the expenses for labor?
Shankh S. Mitra
Jim, you are correct that we are seeing turnover is coming down significantly. We are seeing that overall availability of employees who wants to be part of our business and part of the communities is increasing significantly. And we are seeing that our operating partners are getting better using technology and other resources to attract talent and keeping them in the business, right?
So that sort of -- it's -- whenever you get hit by a crisis, people figure out ways to do things better, every crisis makes the business better if it survives, right? And that's what we are seeing.
And what conviction do we have that RevPOR minus ExpPOR journey can continue very significantly. For a specific line item, on a specific thing, on a specific quarter, we have no idea. I said this a million times, our goal here is not to predict the future. Our goal is to see what market gives us and do better than market. We'll see what market gives us.
John F. Burkart
Yes. And I would just add, in my comments, my focus is on productivity. So we want our employees to be paid well. We want happy employees and happy customers. We also want to increase productivity of the business so that we can manage to accomplish all of that. So that's really, I think, the take-home point.
Operator
Our next question comes from the line of Mike Mueller with JPMorgan.
Michael William Mueller
Yes. Curious, how are you thinking about, I guess, senior housing development today? And how do you see starts potentially trending over the next couple of years?
Shankh S. Mitra
Yes. Mike, I'm just going to be repetitive here. I was asked this question at the NIC Conference about a week ago or 10 days ago, whenever that was. I'll repeat what I said on the panel. I think if you're a debt provider in senior housing today, you have a better luck going to Vegas. And if you're an equity provider in senior housing development today, you have a better luck buying lottery.
I hope that tells you what my view of senior housing development is. I don't even understand why there is any start, any like more than 0 because the economics doesn't make any sense given where construction cost is, where capital cost is and where the margin of the business is. It should not have any starts and it seems like it's going there.
I think any stock that you are seeing, people are still playing with other people's money, and that's coming down -- closing down pretty quickly. And I think you will continue to see it's moving down. Mike, did I miss any other part of your question?
Michael William Mueller
No, that was it.
Shankh S. Mitra
Thank you.
Operator
Our next question comes from the line of Michael Carroll with RBC.
Michael Albert Carroll
Given the dislocation that we're seeing in the private market, is it harder for operators that are having liquidity issues to provide the same level of care versus your operators that presumably don't have these issues? I mean, are you seeing that in the marketplace at all right now? And if not, do you expect that this will become a bigger storyline over the next several quarters?
Shankh S. Mitra
I can't speak for other people, Mike. I will tell you that we have -- our operators -- operating partners are doing extremely well. And we're getting hit left, right and center with new operating partner who wants to be part of our story. So whether that's because they're inspired to do what John is doing, our data journey or we're trying to professionalize the business or the data transformation journey or they're having troubles on their own end or both, I have no idea.
But I could tell you that we have literally -- I mean, it is -- we have seen really good investment opportunities, but we have never seen anything like what we are seeing today. Whether that's because of a pull or a push, I have no idea. And we're seeing operators from all parts of the country, in all 3 countries we do business with, is calling us to be part of it this well-capitalized -- extraordinarily well-capitalized platform, but also being part of John's platform.
Operator
Our next question comes from the line of Ron Kamdem with Morgan Stanley.
Ronald Kamdem
Great. Just a big picture one. So looking at the presentation, the NOI, the incremental NOI build, I noticed that you guys added a bar here that looks like another $172 million. And I'm tying back to your comments about the focus on RevPOR versus ExpPOR. It's clearly a margin benefit here. So I was wondering if you could talk about that, why add that to the deck where -- are we supposed to read into it just more confidence in the ability to get back to pre-COVID margins, is the question?
Timothy G. McHugh
Yes, Ron. So we added that to deck through conversations with both investors and analysts alike. They're looking at it, interpreting kind of a stabilized point to be reflective of 88% occupancy and 31% margins.
When in fact, with the rent growth we've seen since fourth quarter '19, as we were ignoring that rent growth and -- or with it, we're baking in around 29% margin. So what we wanted to do is just show getting back to just the NOI level on today's rents, means that you're getting to margins that are 200 basis points plus below where we were margin-wise in fourth quarter '19, and what that final bar does is just shows you getting back to 88% occupancy, 31% margin in pre-COVID levels at today's third quarter '23 realized rents where NOI would be.
Shankh S. Mitra
And Ron, I've said this before, I'll repeat it again. If that's all we go back to Q4 of '19 level or pre-COVID level, I would be very, very disappointed. If you have done this in Q4 of '19, you remember, those were not the greatest days of this business, right? So we were getting hit for 4-plus years at this point and through our supply cycle. That is not a high point like a lot of other businesses are, and we're very disappointed that's all we get back to.
Operator
Our next question comes from Jamie Feldman with Wells Fargo.
James Colin Feldman
Great. I'm here with Connor. How should we think about funding assumptions for the next tranche of acquisitions? And then also, how does the quality of the assets you're looking at compared to the quality of your existing portfolio? Or put differently, how do you assure investors that you aren't moving up the risk curve to chase the return profile?
Shankh S. Mitra
I don't want to assure investors of anything. I think investors are aware of our track record, and you guys do a very good job of visiting our properties. So you can see it. The chasing the risk curve to get investments might happen when things are really, really tight. It is an exactly opposite environment, Jamie. And when those environments have occurred in the past, we were massive sellers of assets.
We don't chase risk curves to get return. That's just not what we do. Now going back to your actual -- the crust of your question, is, frankly speaking, the initial part of COVID, what we are noticing was sort of a lot of broken cash flows, right? Assets while 60%, 70% occupied; new development, brand-new assets, 3 years, 4 years, 2-year-old assets, but broken cash flow because that's normal for a business that had breakeven at 60% occupancy and your marginal sort of return, if you will, or your marginal or incremental margins sort of go hockey stick is normal for that period of time given how much occupancy we lost during COVID to have those kind of asset; great assets, broken cash flow because of what the occupancy is and how margins work in this business.
That was 2 years ago -- 3 years ago, that's what sort of we were seeing. Today, we are seeing broken capital structure, assets are generating the cash flow that it should be generating at 80% occupancy, 82% occupancy where the industry is, call it, 6%, 6.5%, whatever it is, the cash flow yield -- that's not the problem.
The problem is the underlying leverage, which is now so far plus 350, 400 is at 9%. That's the problem and those loans are coming to you, you are upside down on a cash flow basis and your upside down on a leverage basis. And those are the ones that are transacting today. So frankly speaking, the number of trophy buildings, number of high-quality, high high-quality buildings, which core investors (inaudible) that we have seen in last, call it, 6 months, even last 4 months, I haven't seen the 4 years before that, right?
And so the quality of opportunities are going up pretty significantly, but it is up to you to decide what is the quality of assets we are buying. And we give assets, you can go and visit them, and I think you will come to the same conclusion. Did I miss any part of the question?
Timothy G. McHugh
Jamie, on your funding question. So in my prepared remarks, I spoke to kind of a liquidity build, and that's as of October 30. So we talked about $900 million in investments just quarter-to-date, closed in October, $1 billion pipeline ahead of us about $2 billion in cash and $6.6 billion of total available liquidity to fund that.
Operator
Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.
Austin Todd Wurschmidt
Great. Shankh, you were crystal clear with your thoughts on why development doesn't make sense broadly in senior housing today, but you did expand the development pipeline, I think it was up $600 million this quarter, roughly half of that was in senior housing. And clearly, you have a cost of capital advantage today. But I mean, is that what gives you the comfort moving forward with these projects? And then I'm curious, are developers coming to you to partner on future projects that can't sort of access construction financing? And how does that opportunity set compare versus acquisitions?
Shankh S. Mitra
I think, if I understand correctly, Nikhil correct me if I'm wrong, all our development starts are either fully 100% leased medical office developments that we have long-term tail or long-term contracts with our existing clients or their wellness housing development. I do not believe that we have started any senior housing development.
I don't remember when was the last time we actually started the senior housing development. So because of the all reporting in the same bucket, Austin, but they're not senior housing development, there are what in the -- what we call wellness housing, which is age restricted and age targeted apartment.
Operator
Our next question comes from Juan Sanabria with BMO Capital Markets.
Juan Carlos Sanabria
It's Juan here with (inaudible). Just a quick question on the investment pipeline. Could you give a breakdown of kind of what you're looking at? And where do you think you see or where are stabilized deals say for what you're targeting in the major food groups?
Shankh S. Mitra
Yes. So the pipeline today is, as I said, I don't know, Nikhil, but it's like 80%-plus would be senior housing. And mostly, I would say, equity in senior living and probably maybe 90%. But vast majority of senior living and core equity opportunities in senior living just because of the size. It's just a lot of it is in U.S. And we just closed a large transaction in Canada.
So if I think about -- remember it correctly, it's almost -- not entirely, but majority is U.S. senior housing and there are some credit opportunities in the skilled side. I don't remember any transaction or pipeline about any MOBs, but do you know anything?
John F. Burkart
Nothing meaningful.
Shankh S. Mitra
Okay. And stabilized yields, I would say, in the senior living today, we're targeting close to 8 on a stabilized basis and going in. I think I said last call, we're seeing sort of opportunities that starting at 6, ending at 8 and given the rise of rail rates, we're seeing better than that today. Frankly, we have ratcheted our return expectations higher. So that's sort of where we are transacting. But we're not a yield buyer. We're still happy to buy 1% yield, if we think that's the right basis and the right assets. But generally speaking, those are the kind of opportunities we're seeing.
Operator
Our final question comes from the line of Vikram Malhotra with Mizuho.
Vikram L. Malhotra
Nikhil or Shankh, can you just update us on the Integra process? How are those assets been performing? And by extension, is there -- are there additional opportunities? I just asked that because you had earlier outlined upon stabilization, you might look to sell some of that. So would just be helpful to get an update on Integra.
Nikhil Chaudhri
Yes, Vikram. So we're pleased with the performance that we're seeing. Last quarter, I talked about the first 133 out of the 147 buildings that have transitioned. In the last quarter, those buildings produced roughly $70 million of positive EBITDARM compared to negative $90 million for the 3 months prior to the transition.
Now fast forward another quarter, those same buildings in the second quarter generated $127 million of EBITDARM. So in the 6 months since transition, you're seeing a cash flow swing of $215-plus million and obviously, every month continues to be better than the prior month. And so if you look at June end and you annualize that, you were roughly $170 million, which is north of the rent, right? So here we are 6 months in when we had underwritten this, we thought it would take us much longer 18 months, give or take, to get to this point. So we are incredibly pleased with the performance. But we think there's still a long ways to go. So your point about exiting upon stabilization, we're happy with the progress, but we're far from stabilization.
Operator
This concludes the Welltower Third Quarter Conference Call. Thank you for joining.
