U.S. Markets close in 6 hrs 5 mins

WELLTOWER INC (WELL) Q1 2019 Earnings Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

WELLTOWER INC  (NYSE: WELL)
Q1 2019 Earnings Call
April 30, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the First Quarter 2019 Welltower Earnings Conference Call. My name is Nicole, and I'll be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Now I'd like to turn the call over to Tim McHugh, Senior Vice President of Corporate Finance. Please go ahead sir.

Tim McHugh -- Senior Vice President, Corporate Finance

Thank you, Nicole. Good morning, everyone, and thank you for joining us today to discuss Welltower's first quarter 2019 results. Following the Safe Harbor, you will hear prepared remarks from Tom DeRosa, CEO; Shankh Mitra, Chief Investment Officer; and John Goodey, CFO.

Before we begin, let me remind you that certain statements made during this conference call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act of 1995. Although Welltower believes results projected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurances that its projected results will be attained.

Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in this morning's press release and from time to time, the Company's filings with the SEC. If you did not receive a copy of the press release this morning, you may access it via the Company's website at welltower.com.

And with that, I'll hand the call over to Tom for his remarks on the quarter.

Thomas DeRosa -- Chief Executive Officer and Director

Thanks, Tim. I'm pleased to report a strong quarter completely in line with the expectations we laid out for you at our Investor Day, last December. These results are the product of consistent growth across all of our business segments. In particular, seniors housing where performance is being driven by an ongoing stabilization of occupancy which Welltower began to benefit from in 2018.

We expect this to continue through the rest of the year. We also continued to benefit from excellent access to capital, which allowed us to both fund our contractual investment pipeline and position the balance sheet for opportunistic investments going forward. Locking in long-term value creation for our shareholders. Our differentiated strategy and approach to capital allocation has resulted in a total of $2 billion in new investments closed or announced, since the start of 2019.

Bringing accretive new investment volume to over $6 billion since early 2018. This is enabling Welltower to deliver the earnings growth we report to you today. Simply put, we run Welltower to deliver sustainable and reliable growth to our shareholders. Our results demonstrate that our strategy works.

Shankh Mitra, will now give you a closer look at our operating performance in the quarter as well as our new investment activity. Shankh?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Thank you, Tom, and good morning, everyone. I will now review our quarterly operating results, provide additional details on performance, trends, and recent investment activity.

At our Investor Day in December, we gave you a detailed look into our view of senior housing supply and how adjusted competition units and yet to open inventory shock, impacts our best-in-class portfolio within our specific micro markets, while pundits proclaims supply headwinds for years to come using their gut feel as it suits their story at a given moment, our data analytics team of statistician and computer scientists armed with machine-learning not gut feelings informed our prediction of the time in our operating trends that I have discussed with you over the last three quarters.

However, I have to admit, our first quarter SHOP results exceeded our expectations in all three main drivers. Rate, occupancy and labor costs. Same-store NOI for the SHOP portfolio is up 3% year-over-year driven by 60 basis points of occupancy growth, 2.9% rate growth partially offset by 3.6% labor cost growth. These are the best fundamental results we have seen in a long time.

Sequential results are even more encouraging. Sequential revenue growth of 0.4% in a usually seasonally weak first quarter is one of the best we have seen in years and is driven by both strong rate and occupancy. More interestingly this quarter for the first time in five years, we saw sequential revenue per occupied room growth up 3.3% outpace compensation per occupied room growth up 2.8% resulting in a positive spread of 50 basis points.

One of the most under-appreciated aspect of our Company is the strength and diversity of our senior housing operating platform, which has 23 operators in three countries. In any operating business, growth is not always a straight line as many of us wish it was.

However, due to significant diversity of our operating partners across geographies and acuity spectrum that volatility is softened in the aggregate. Over the last few years, we have routinely seen parts of our portfolio results that resembles the challenges of the industry at large, but these operators have consistently been pulled up by other operating partners who serve a completely different customer needs in another part of the country.

Having said that, this quarter we experienced broad strength across a majority of our operators. Exceptional UK results are driven by significant asset management effort by our UK team headed by Justin Skiver, a deep negative comp in prior year and the lease up of a couple of low occupancy assets. We expect UK results to normalize as we move through the year.

On the other hand, the Canadian platform facing a tough comparison year is expected to normalize upwards as the year progresses. We continue to be encouraged by our US portfolio this quarter. NOI is up 2.2% year-over-year driven by 40 basis points of occupancy increased, 2.8% rate growth, and particularly encouraging 3.8% compensation per occupied room growth.

We have seen broad based strength across larger and smaller market. From a product type perspective, our industry leading assisted living and memory care portfolio drove results with 4% NOI growth. While a handful of quarters does not make a trend we are cautiously optimistic that our portfolio is positioned for significant cash flow growth for years to come.

While results were in line in our other lines of businesses. I want to highlight few things to help you understand the trend. First, in our senior housing Triple-Net segment, the reduction of coverage is driven primarily by the removal of StoryPoint portfolio, which we sold in the quarter and somewhat by Brookdale underperformance.

As you know, we consider StoryPoint to be one of our best and most strategic operating partners. Yet, we sold these assets at an offer we could not refuse. We've sold this 20-year plus old assets at a 4.6% yield at an unlevered IRR of almost 19% for our eight plus years of ownership we can achieve an NOI CAGR of 7.2% in the face of significant headwinds.

We continue to grow with StoryPoint through a new RIDEA joint venture with two brand new assets that we just bought. Several in development and are transitioning many more communities to Dan and Ryan that we believe we'll see cash flow growth similar to that experienced in the portfolio that we just sold.

While we are not working on any lease restructuring in our senior housing Triple-Net portfolio at this moment. We have plans for every asset and frankly will be happy to get back many of these assets, so that we can transfer them to the operators like StoryPoint. So that you, as our shareholders, can enjoy significant upside.

Secondly, our post-acute portfolio decline in coverage is driven by a handful of LTACHs we own, which is less than 1% of our asset base. Skilled nursing licensed assets which constitute a vast majority of our post-acute bucket either in the traditional sense or in the short-stay category are stabilizing as I have described in our last quarter earnings call and you subsequently heard from Genesis.

Well, mix shift is still a headwind. We're encouraged by occupancy growth, recent reimbursement announcement and upcoming PDPM implementation in Q4. Third, we're very happy with the capital deployment plan in our ProMedica, HCR ManorCare assets. ProMedica, HCR ManorCare team is working diligently with our data analytics team to prioritize capital deployment.

We have 45 assets slated to go through this CapEx program in the next two to four months. And last as I have no noteworthy update for the outpatient medical operating results. We're very encouraged by 2.1% net rent increase in the quarter and the dramatic changes that Keith and Ryan are making in that platform to position us for growth next year and beyond.

On the capital deployment side we are busier than ever. We have closed 778 million of investments so far this year and have significantly more that are closing in coming months. These investments have been made both in senior housing as well as medical office segments. In senior housing segment, we continue to grow with our existing partners such as Chelsea and Discovery.

We are very excited about our new joint venture RIDEA relationship with Frontier Management that we established this quarter. Portland, Oregon-based Frontier is one of the finest operator in the higher acuity segments of the senior housing business. Greg Roderick who is the CEO and majority owner of Frontier is a three generation operator and leads one of the most operationally focused teams that we have seen in this industry.

We have significant plans for growth with this team in near future. As we continue to acquire attractive assets with great operating partners or health systems, we will fund this capital needs to disposition and common equity. We expect the parting yield on disposition will be similar, very similar to the initial yield on acquisition.

But our thesis is to drive higher total return or IRR in the trade through higher growth rate and lower CapEx. Whether through disposition or common equity we only allocate capital when we believe this thesis holds. However, there can be timing difference when the capital is raised and an acquisition is closed.

This timing difference which has no impact on our run rate earnings can impact quarterly earnings, but we're willing to make that trade-off in order to minimize balance sheet risk and locking long-term value creation as Tom described. We are not interested in rolling the dice in this volatile capital markets by playing short-term gain, short-term earnings gain, but rather driving long-term cash flow and NAV growth.

Beyond our significant organic acquisition machine, we are beginning to see the emergence of value-add opportunities. By definition these transaction are not accretive to cash flow they won, but they come at a significant discount on core real estate valuation metric such as price per door or price per foot and will drive significant IRR and NAV growth. We believe our acquisition of South Bay portfolio with Discovery that we closed subsequent to the quarter end fits in this bucket.

We are exploring a few opportunities in the medical office space in this category as well. We are looking for the right opportunity, but we very much like the idea of what these asset can become in hands of Keith and team.

In summary, we are very encouraged by exciting prospect of both internal and external growth opportunities. This will be a very busy year for us on all fronts.

With that I'll pass it on to John Goodey our CFO. John?

John Goodey -- Executive Vice President and Chief Financial Officer

Thank you, Shankh, and good morning , everyone. It's my pleasure to provide you with the financial highlights of our first quarter 2019. As you have just heard from my colleagues, Q1 has been another successful and very active quarter for Welltower that are highlighting our differentiated portfolio and corporate capabilities.

During the quarter, we completed $367 million of gross investments, including $259 million high-quality acquisitions at a blended yield of 6.3%. We twice that value already placed to date in Q2, we also completed $612 million of dispositions in the quarter at a blended yield of 6.7%. In addition, we received $14 million in loan payoffs.

Q1 was especially active for Welltower on the balance sheet and capital raising fronts. During the quarter, we successfully raised $513 million of gross proceeds from our common equity issuance via our DRIP and ATM programs at an average price of $74.69 per share. In addition, we elected to affect the mandatory conversion of all our outstanding 6.5% Series I Cumulative Convertible Perpetual Preferred Stock into common stock of the firm.

During the quarter, we successfully accessed the senior unsecured notes market issuing an aggregate $1.05 billion across five and 10-year tenants using the proceeds to redeem an aggregates $1.05 billion of existing notes due in 2019 and 2020. In doing so, we increased our average debt maturity profile by six months to 8.1 years at the quarter-end.

Finally, we initiated and up to $1 billion unsecured commercial paper program providing us with an alternative source short-term financing. In summary, Welltower continues to enjoy excellent access to a up to a plurality

of capital sources to fund and pre-fund our acquisition pipeline and future growth opportunities.

Our Q1 2019 closing balance sheet position was strong with $249 billion of cash and equivalents and $2.6 billion of capacity under our primary unsecured credit facility. Our leverage metrics improved from last quarter with net debt to adjusted EBITDA falling to 5.47 times. Moving on to earnings. Today, we're able to report a normalized first quarter 2019 FFO result of $1.30 per share, representing growth of 3% over Q1 2018.

As in the past, we do not include one-off income items such as these modification or loan repayment fees in our normalized numbers. Our overall Q1 same-store NOI growth was an encouraging 3.1% for the quarter with all our segments reporting solid growth. Senior housing operating same store NOI grew by 3% in the quarter with the UK delivering a standout results. Senior housing Triple-Net grew by 4%, outpatient medical grew by 2.3% and long-term post-acute grew by 3.2%.

I'd now like to turn to our guidance for the full year 2019. We are reaffirming our expected normalized FFO range of $4.10 and $4.25 per share on our previously announced expected average blended same-store NOI growth of approximately 1.25% to 2.25% with growth expected in all our business segments.

We are also reaffirming our segmental guidance of senior housing operating approximately 0.5% to 2%. Senior housing Triple-Net approximately 3% to 3.5%, outpatient medical approximately 1.75% to 2.25%, health systems approximately 1.375% and long-term post-acute care approximately 2% to 2.5%.

As usual, our guidance includes only announced acquisitions and includes all disposals anticipated in 2019. Finally, on May 28th 2019, Welltower will pay its 100th and 92nd consecutive cash dividend being $0.87 per share. This represents a current annualized dividend yield of approximately 4.8%.

With that, I'll hand back to Tom for final comments. Tom?

Thomas DeRosa -- Chief Executive Officer and Director

Thanks, John. Now Nicole, please open up the line for Q&A.

Questions and Answers:

Operator

(Operator Instructions) The first question comes from the line of Daniel Bernstein with Capital One.

Daniel Bernstein -- Capital One Securities -- Analyst

Good morning.

Thomas DeRosa -- Chief Executive Officer and Director

Good morning, Dan.

Daniel Bernstein -- Capital One Securities -- Analyst

Hi, good quarter. Wanted to expand on the comments about value-add opportunities that you first opened up your comments with. What sectors are you seeing that in and maybe what is causing those opportunities to pop up, is that private equity pulling back, is it simply developers have kind of hit the end of their line on their development funding and now need to go ahead and sell assets. Just wanted to kind of understand the kind of the scope and extent of that?

Thomas DeRosa -- Chief Executive Officer and Director

Good question, Dan. I'd say it's all of the above. We're seeing opportunities across all of the sectors that we have focused in historically and there are value-add opportunities we see outside of our portfolio and we've talked about value-add opportunities we see inside the portfolio. Shank, you want to expand on that?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes, I think, Dan you are right. What happened is, if you think about, we think about supply as it impacts operating portfolio, right, operating results, and also if you think about supply, you think about a lot of inventory that you can either acquire or inventory that people have built people who are not from this business.

Think about multifamily developers people have never been into an operating business have built now they can lease up, right. So, that's sort of the point, they are hitting a wall, so you can buy these things at 40%, 50%, 60% occupancy at a very, very good price per door. I'm talking about senior housing segment and you know you can do very well with them.

On the medical office there are few and far between, as I said, we're looking at a couple of opportunities, it's price per foot, and the ownership of some of these buildings either have changed strategic objective or they just could not maintain the capital structure that will require ongoing investment like we do in our portfolio and great owners other great owners doing that portfolio.

So, we are seeing that more in seniors housing, but we have some significant opportunities in medical office as well.

Daniel Bernstein -- Capital One Securities -- Analyst

Okay. Were those opportunities require significant amount of CapEx or is it more of an operational improvement that needs to happen? Just trying to understand, it's not clear from day one, I'm just trying to understand how much you need to put in and how long is that going to take?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes. So, if you buy 60% leased senior housing portfolio, it's not going to be accretive day one, we know that. Some of these assets are newly built. So you don't have to do anything. Some of these assets are order that you need to bring in operational improvement and refreshed the physical plan, so it can be both. So if we do require if some of these things require CapEx that will be part of our underwriting, right.

We're not going to think, OK, if you think about what we do with the four Sunrise Assets we bought from SNH, it was a great value-add opportunities. We put capital and we underwrote as a part of it. So it can be both. We are seeing the one portfolio we did with Discovery, it's a newly built portfolio. So, you don't have to put any CapEx in it and we're seeing opportunities that we do, we're seeing both.

Thomas DeRosa -- Chief Executive Officer and Director

And if the value add is bringing in one of our operators into a, let's just say, less than optimally managed portfolio of senior housing assets understand that's not like flipping on a switch, it takes some time, there is always going to be some level of disruption.

So that and we're seeing many opportunities like that where we're seeing assets, the types of assets that Shankh was referring to or actually our operators are seeing assets in their markets that are struggling, where they know that their management template could significantly turn the performance around.

So, it's a little -- it's coming from lots of different directions, Dan.

Daniel Bernstein -- Capital One Securities -- Analyst

Okay. One more quick question, if I could, just wanted to ask about how you saw the flu impact in the season. I know it's just a quarter and there is normal seasonality, but the flu season did start late attending late. How did that impact 1Q and how do you see that rolling through your same-store numbers as we get into second quarter?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

So, I'll just start and then I have Mercedes will add color to that. So, first is that we are very encouraged by, as I said, we're seeing in rate growth, occupancy growth as well as first-time in the expense growth. So, I would not characterize our first quarter results driven by flu. Having said that, we have, as I said, we expect UK to normalize down and Canada to normalize up as we go through the year. We have high hopes for rest of the year as you have seen. But, Mercedes, you want to comment on flu?

Mercedes Kerr -- Executive Vice President of Business and Relationship Management

Just something specifically, I would say, that it's been a slightly longer season that we traditionally see. Having said that, we haven't had any reports from any of our operators particular impact that is noteworthy.

Daniel Bernstein -- Capital One Securities -- Analyst

Okay. I appreciate it. Thank you. I'll hop off.

Operator

Your next question comes from the line of Vikram Malhotra with Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. So, Shank, just wanted to -- just wanted to get more color on sort of the value add not only product, but just thinking about geography as well. Obviously, I know you focus more on micro markets and submarkets. But as these opportunities come about how do we think, how should we think about sort of your focus on the traditional coastal markets that you have focused on versus maybe newer markets for newer opportunities in the new markets?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes, Vikram, it's a very good question. So, we are seeing these opportunities across all markets. As you know that we don't focus on just what the headline major MSA looks like. We are focused on micro markets. We believe there are seniors that you need to take care of in every market. Just needs to be the right price point and as you getting into investment it needs to be the right price per door.

So, as you can see that even in a Michigan, Ohio portfolio and the StoryPoint, we sold our assets at 19% unlevered IRR. I want to repeat it unlevered IRR. So you can make significant amount of money, if it's the right assets with the right basis with the right operator.

So, no change of template across the US, we are seeing this kind of opportunity. We're seeing sort of emergence of certain opportunities in UK, we are seeing certain emergence of opportunities in Canada or just we're interested in all three of our countries across all product.

Thomas DeRosa -- Chief Executive Officer and Director

What I would add to that Vik is that when you see us go outside of the core coastal markets or the major metro markets in Canada and the UK, it's very operator specific. We cannot underscore enough the operating excellence of companies like StoryPoint who face tremendous competition from new supply and have outperformed consistently because of their focus on operations.

These are not real estate developers that are trying to participate in a what's considered a new sector of real estate. These are people that come from really the health and technology sectors who have a differentiated product. Again not first tier markets and they performed consistently, we align ourselves well.

Vikram Malhotra -- Morgan Stanley -- Analyst

That makes sense. And then just second question. We've obviously seen you be fairly active on the MOB side, but maybe Tom and Shank, can you sort of remind us or update or you've talked in the past about opportunities with health systems and sort of opportunities both that could be specific to health system that also touch senior housing. So, could you remind -- maybe update us on what sort of opportunities you're seeing with health systems and tie that back to the ProMedica deal?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I will just talk about the medical office aspect of your question and then Tom will add on the health system side. If you look at, we have seen as we have described in the last call of 18 months. Really, we have seen sort of the air pocket in that aspect that part of the capital markets where the cap rates have become more reasonable. And we have done a lot of transactions.

As we told you that we need to hit a give or take 7% unlevered IRR to do any transactions. So, we're still seeing opportunities to do that and there are many ways to get there, but we're focused on unlevered, not lever recurrent and if those pricing changes then you will see that we will get out of the market, again, like we have two to three years prior to that.

Thomas DeRosa -- Chief Executive Officer and Director

Vik, what I'll say about health systems is that when I came here or and I came into the CEO spot here five years ago. I came with a knowledge and relationships of a large non-for-profit health systems. I have been engaging in that space over the last five years initially by myself.

And then I brought other people to the company like Shank and Mark Shaver who have helped really developed the dialog and relationship and the one thing I will tell you as major health system start to consider their futures. They are thinking much more outside of the acute care hospital space about where they will meet their customers.

And I'm saying, I said that word specifically, not necessarily patients because patients means that you are sick. Where they will meet their customers as their models evolved more toward health and wellness of the population rather treating sick people in acute care hospital beds, which is simply not sustainable.

So, that is leading to multi-level discussions with major health systems. And what I can tell you is, it takes a lot of time to develop these relationships. This does not happen overnight. And we're making very good progress.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Jordan Sadler with KeyBanc Capital.

Jordan Sadler -- KeyBanc Capital -- Analyst

Thanks. Good morning.

Thomas DeRosa -- Chief Executive Officer and Director

Good morning. ,

Jordan Sadler -- KeyBanc Capital -- Analyst

Wanted to just start on the same-store performance and particularly relative to the guidance. It seems like you guys came in very strong, particularly relative to the guidance and particularly within the senior housing operating portfolio. Can you maybe just comment on sort of what the expectation is that's embedded in the rest of the year's performance for the overall portfolio but SHOP in particular?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes. So, as you know by policy, we do not update segment level guidance for the year. We are, you are right Jordan, that we are very excited about the same-store performance. Really in this SHOP, but also medical office also outperformed as well. So, we are excited about what sort of the year will shape up, but it's too early to change overall same-store guidance, but just remember that we do not change segment level guidance through the year.

Jordan Sadler -- KeyBanc Capital -- Analyst

Well, having said that, I was just going to ask, is there something we should be looking at that will soften up the trajectory like so in other words, you did 3% in the SHOP portfolio in the quarter versus your guide of one in a quarter, but as I look out to the next three quarters. Is there something either comp wise on the revenue or expense line item that should cause a meaningful slowdown that I may not be focused on?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

No, I'm not going to comment on that. That will be giving you guidance. I would say that we are just focused on different three countries. I expect UK will normalize down. Canada will normalize up and I expect continued and very, very encouraged by the US performance just focus on what I said on sequential basis, right.

First time in five years, we saw RevPAR growth that outpace comp per growth, right, if you just think about that, what that does for the P&L rest of the year I'll leave you to that math. But I would just say, answer to your question, I don't see anything that dramatically slows down and the performance of the SHOP portfolio except the UK and UK dynamic that I just described.

Jordan Sadler -- KeyBanc Capital -- Analyst

Okay. That's helpful. And then could you maybe just talk about the character of the StoryPoint buyer. So, we get an idea of who's out there chasing assets like this?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I can't because of NDA, but I can tell you that everybody and anybody. You know, we are in the public markets are focused that we know when many participants are focused and when the business exactly turns which what our -- which you know private buyers are not.

They are seeing a multi-year trend that's coming and people are excited to deploy capital. So, from private equity to all the institutional investors that you are seeing everybody's interest in the asset class. But this is obviously there's an operating aspects of the business. So, people are trying to partner with the right types of operating partners or people like us.

Jordan Sadler -- KeyBanc Capital -- Analyst

Okay. My last one, just regarding the provision you took in the quarter. Is that something based on something that's already happened. I just was confused by the footnotes $18.7 million charge related to a planned restructuring of seniors housing Triple-Net? That new role.

John Goodey -- Executive Vice President and Chief Financial Officer

Jordan it's John. Is that exhibit you're looking at the exhibit two?

Jordan Sadler -- KeyBanc Capital -- Analyst

On a normalizing adjustment. Yeah, correct.

John Goodey -- Executive Vice President and Chief Financial Officer

Yes, I mean, that was a provision for loan -- we've taken provision for loan loss on our restructuring of a couple of triple-net buildings are in special purpose entities.

Jordan Sadler -- KeyBanc Capital -- Analyst

As you pointed out.

Thomas DeRosa -- Chief Executive Officer and Director

That was, yes, that occurred during the quarter and there was no income impact, no restructuring was built during the quarter.

Jordan Sadler -- KeyBanc Capital -- Analyst

Okay. So that was just another like a conversion when you say restructuring?

John Goodey -- Executive Vice President and Chief Financial Officer

No, this is a provision.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

This is a provision in case something happens, right. So this is a provision not a loss?

John Goodey -- Executive Vice President and Chief Financial Officer

It was provision against the loan that we've provided for a non-full recovery on then we did not recognize interest income on that loan in the quarter.

Jordan Sadler -- KeyBanc Capital -- Analyst

Okay. Got you. Okay. Thank you.

Operator

Your next question comes from the line of Chad Vanacore with Stifel.

Chad Vanacore -- Stifel -- Analyst

Hi, thanks. Good morning all.

Thomas DeRosa -- Chief Executive Officer and Director

Good morning.

John Goodey -- Executive Vice President and Chief Financial Officer

Good morning.

Chad Vanacore -- Stifel -- Analyst

All right. Since we touched on StoryPoint a couple of times, you now, it looks like you sold the triple-net portfolio but you actually expanded your RIDEA relationship there. So could you tell us what was the coverage on the triple-net portfolio and then what was the rationale behind selling it to the operator at a purchase option if you want to reduce Michigan exposure. Is it something else there?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes. So, we did not expand on RIDEA portfolio created a new RIDEA joint venture.

Chad Vanacore -- Stifel -- Analyst

All right. Thanks for the clarification.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

So, that sort of first one. Second is the coverage was almost 1.7 times. The reason to sell the operator those particular assets is what I told you in my prepared remarks. If you can hit 20-plus years building, old building, you can hit a 4.6% yield to get to a 19% unlevered IRR, you do that all day. Every asset is for sale at a price. So, we sold assets because we thought we got the fantastic value. It's nothing to do with --

Chad Vanacore -- Stifel -- Analyst

Did you go to the operator or did the operator come to you?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

No. We got an unsolicited offer.

Chad Vanacore -- Stifel -- Analyst

Okay. All right. And then just thinking about the SHOP portfolio, you've got Brookdale assets, looks like you transitioned about 18 of those. What's the expectation of the performance there. What's left to also transition there?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

So, I'm glad you asked that question.Our same-store pool for SHOP portfolio has not changed. It was 473 assets, it is still 473 assets. The total number of SHOP assets change to 599, why? Because the restructuring of Brookdale that we talked about last summer got done finally got done some of assets in California in other places this quarter.

So, you saw those transition from Brookdale to Pegasus happened this quarter actually on to one. So that changed the overall number of store asset, but I want to reemphasize again that our same-store pool did not change and what is the expectation, we told you, that we are pretty happy when we did the Brookdale transition.

We transitioned the assets so that we have good coverage, right. Our EBITDA coverage for the Brookdale assets is not 1.3 times, right. Having said that, is it, I don't want to talk about specifically about Brookdale. Any assets we have in the operating portfolio. Just think about it just RIDEA portfolio has 23 operators. Our triple-net portfolio has several operators.

There are assets that can be maximized, the value can be maximized in different operators. So, we have plans for every one of these assets and I went through this in detail two quarters ago. How we think about it, how we look at it, we're more than happy to transition any of these assets if we knew too.

Brookdale is now about 2.5% our total income. So, it is very, very manageable that assets cover and we think that Brookdale under the current leadership is turning the business around. If not, we have other operators to do transition the assets too as we have done US in last year.

Tim McHugh -- Senior Vice President, Corporate Finance

Chad, we have 10 more buildings from the transition portfolio to transition from Brookdale to other operators. We expect that to be done over the next two quarters.

Chad Vanacore -- Stifel -- Analyst

Okay. Thanks, Tim. And then just one more question on there, which is , 10 more buildings is that outside of, you had a restructuring agreement, I think, it was about 5 million or so of rent. Is that outside that and then when would you expect that to be affected?

Tim McHugh -- Senior Vice President, Corporate Finance

Now that is, so these are still part of the original restructuring plan. There's been no further assets add to that since the original transaction. So, it's just a matter of, we gave that it's kind of a pro forma when fully transitioned what the difference in income would be and assets -- the last 10 assets from that originally described transaction.

Chad Vanacore -- Stifel -- Analyst

All right then I just want to take one more question in here which is labor court costs look like they were down quarter-over-quarter SHOP. That seems to be the ultimate that the rest of the senior housing market is seeing. So, what was the contributor there and then what's the expectation going forward through '19?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Labor cost is not down, Chad. Labor cost is up significantly. The trajectory for the first time we saw is on the mend [ph]. So, if you look at what I talked about that if you in the first quarter sequentially very good quarter.

Chad Vanacore -- Stifel -- Analyst

Wait, Shankh, wait one second there. OpEx from last quarter to this quarter and looks like it was up like 0.4%, which is flattish right? And that probably should be the expectation going forward, right?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I'm sorry, I don't understand the question.

Chad Vanacore -- Stifel -- Analyst

All right.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Occupied units, the labor cost is up 2.8%. Sequentially quarter-over-quarter.

Chad Vanacore -- Stifel -- Analyst

Okay.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

And the rate is 3.3%, you understand what I'm saying. Labor costs is still up significantly year-over-year. I'm talking about.

Chad Vanacore -- Stifel -- Analyst

So, should we expect you've got rate going up much higher than our OpEx and?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Not much higher. Let's be dramatic. 50 basis point.

Chad Vanacore -- Stifel -- Analyst

That's a pretty good portion of growth right there.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

First time in five years we got a positive spread, I'll take it. But just let's not be dramatic, it's not, it's a 50 basis points, but look as we talked about labor cost has been increasing in our portfolio five-plus percent on a occupied room basis for last five plus years.

I mean, now you see in the market, I'll give you an example. Let's just talk about, New Jersey. Where labor cost is a problem. New Jersey is not slated to be a $15 market until 2021. If you look at our portfolio across the board it's $15 plus today.

So, maybe the regulatory side in many aspects hasn't changed, but the actual labor market because of competition has already moved there. Because that I talked about some of the regulatory driven change, which is the $15 more to the $15. So, let's talk about California, LA has hit $15 last summer, San Francisco has it $15 plus last summer, LA's doing that this summer.

So, after that you're going to get more of a market driven increase rather than just a big move from 11 to 15 which on a percentage basis. It's a big number. So I'm not suggesting the labor cost is not going to be a problem. All I'm saying is, I am happy that finally the curve has been on the mend for the first time too early to comment whether that continues or not.

Chad Vanacore -- Stifel -- Analyst

Okay. So, fair to say, good quarter on that side of the expenses, but maybe changes going forward.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

We'll see.

Chad Vanacore -- Stifel -- Analyst

All right. Well thanks for your time. I appreciate it.

Thomas DeRosa -- Chief Executive Officer and Director

Thanks, Chad.

Operator

Your next question comes from the line of John Kim with BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Thank you. The occupancy gap between senior housing triple-net and SHOP has lighten over the past year. I think a year ago is basically the same and I'm wondering if this is a reflection of the quality difference between the two portfolios, there are difference in CapEx spend and what do you think happens as the year progresses?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

So, look, I mean we have our SHOP portfolio in bigger markets in better locations generally that's true. And we also have some really good operators in the triple-net portfolio, right. We talked about different operators over a period of time. I think it's just different if you think about a recovery. This is a fundamentally a local business. Different parts of the country is participating in the recovery in different times.

So, I wouldn't suggest there is fundamentally something different about senior housing business. We're encouraged by the first quarter results. But this is not the time to take a victory lab. But we do think if you think about a longer period of time, we think that you will see improvement in both sides of the house.

John Kim -- BMO Capital Markets -- Analyst

Okay. And then on the supply in a three mile -- five mile ring around your assets. I know that's not really how you look at it, but it has increased sequentially, and I'm just wondering how much of a headwind do you think this will be this year given you have maintain your guidance?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I think your question has the answer, John. That's not how we look at it. We give you how we look at it, which is adjusted competition unit and yet to open SHOP. And we described that we expect roughly 15% to 20% reduction this year. And walk you through the details of that on Investor Day. We still expect that. Now what happens is delays happened some '18 flows into '19 and then '19 flows into '20. So obviously all of these things can be stretched out, but as you can see from our results the thesis that we had directionally is playing out.

John Kim -- BMO Capital Markets -- Analyst

But did that level of supply increase, the price you just given is, it seems like it's impacting your markets more than the national average.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Again we don't look at it that way. The way we look at it, it's actually down which is on a ACU and yet to open way.

Thomas DeRosa -- Chief Executive Officer and Director

We're not surprised.

John Kim -- BMO Capital Markets -- Analyst

Got it. Okay. Thank you.

Operator

Your next question comes from the line of Karin Ford with MUFG Securities.

Karin Ford -- MUFG Securities -- Analyst

Hi. Good morning.

Thomas DeRosa -- Chief Executive Officer and Director

Good morning, Karin.

Karin Ford -- MUFG Securities -- Analyst

Appreciated your decision to over-equitize the balance sheet again this quarter and keep your powder dry. Just was wondering if the capital markets stay open. We continue the strategy and how do you expect leverage to trend over the balance of the year?

Thomas DeRosa -- Chief Executive Officer and Director

Yes, Karin. I'll take the leverage side first. So, beginning in our Investor Day we talked about keeping leverage flat throughout the year. We've obviously taken it down significantly. As a just quick note on that, the time of the Investor Day we spoke about that from a debt to EBITDA perspective. And as it was not part of our plan to convert our preferreds. In the first quarter given where our stock was trading. We were given the opportunity to force the conversion on those and we did. So, we now expect our leverage on a debt plus preferred basis to come down significantly during the year as it already has.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

And Karin I'll just add to that, we think about the impact when you actually raise capital whether through disposition or ATM versus closed an acquisition. There is gap because not because we did not know what we'll do with the capital. But because it takes time, right. So, if we generally think about match fund when we sign the PSA, but you think about this diligence after that.

And if you think about it, medical office building, you have to think about a role for our process, which a health system is on the sign up. They don't respond in seven days, because we like to close the deal. On the senior housing side, you have to think about just look at our some of the Quotient [ph] and Pegasus transaction.

In California it takes six, nine months to -- for you to get the license transfer. So these are the reasons, I think, changed. We're not looking at our either stock on an asset to say that's a pretty good level. Let's just do that. We are doing a match fund basis that difference of timing comps from all these things that are just part of life. If you do real estate transactions.

I hope that helps you to understand we do match fund, we're not looking at our stock. We're not looking at a price of an asset and that looks pretty good. Let's just do it, right. We are match funding, but when you sell a stock on a given day, you got the money that day. When you got the license ultimately in California to transfer to close the deal, that probably take six months. We're not going to roll the dice to think where the capital markets will be six months from now.

Thomas DeRosa -- Chief Executive Officer and Director

Karin, just to finish that. We expect leverage come back up as we closed on our under contract pipeline not more than expected. And then on ATM as Shankh said, we've gotten nothing planned as of now, but you should expect us to continue to match fund as we see opportunities and we're very optimistic on that front right now.

Karin Ford -- MUFG Securities -- Analyst

Understood. That's helpful. My second question is on the ProMedica HCR continuing integration. I think you said on your comments that you're happy with the way that's going. Can you give us any metrics on that front? Can you talk about what trends are and occupancy margin or synergies? Just to flesh that out a little bit.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Well, I think, you've heard from many of those on our Investor Day directly from Randy and Steve. So , I'm not going to get into too much. I was trying not to do it. I'll just give you one.

So, that you are happy that your question was answered. We're looking at occupancy both on the skilled side as well as on the Arden Courts side, which is the Senior Housing part of ProMedica occupancy up in both sides of the house. In skilled it's up 100 plus basis points and it's in the Senior Housing side it's close to that, but less than 100 basis points, but I'll just leave it at that.

And these things take time and we are focused on what long-term looks like, but we are happy, very happy with how the short-term has played out whether that's on the reimbursement side or on the cost side, on the synergy side. So, we are excited about it, and obviously as you know, the part of our thesis was these assets we bought at a very, very low basis that was capital starved, and I touched on that, that finally the program it takes time to do these things.

Finally, that program is on the way. We have 45 assets or so actually really exactly 45 assets to go through that program in next three to four months. So, we're very, very excited what will happen and some of them are complete rental, some of them are touch-ups, (inaudible) fields some of them are in between. So it's just going through a whole series of renovation program, both on the skilled side, as well as on the senior housing side.

Karin Ford -- MUFG Securities -- Analyst

I appreciate you answering the question.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Thank you.

Operator

Your next question comes from the line of Lukas Hartwich with Green Street Advisors.

Lukas Hartwich -- Green Street Advisors -- Analyst

Thanks. Hey guys, just a quick one for me. On the StoryPoint sale, was there a near term rent reset or something like that, that explains low cap rate?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

No. It doesn't.

Lukas Hartwich -- Green Street Advisors -- Analyst

All right. That was it. Thank you.

Operator

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Michael Carroll -- RBC Capital Markets -- Analyst

Yes, thanks. I wanted to touch on the long-term post-acute coverage ratios and, Shankh, I believe you mentioned that the sequential drop related to the LTACHs, which is a small part of the portfolio. Can you kind of go through what's actually happening with those LTACHs and it seems like it had to be a pretty big drop to impact coverage that much?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes because you can see what's happening in the LTACH industry, that would suggest that you are right about your assumption.

Michael Carroll -- RBC Capital Markets -- Analyst

So, what's the plan with the LTACH. Is that something that you guys going to have to address here in the near term or do you expect that they have some things that they can pull to help improve the results or what's the outlook with that part of the portfolio?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I would like to comment on that. But as you know that we are -- it's a very, very small part of our portfolio, right. We own a handful of assets. We look at everything from a total return perspective. And if we have to address, we'll address, but I just want to remind you again that it is a very, very small part of our portfolio.

That's why I wanted to have the differentiation or secured is now less than 10% of our overall cash flow from a value perspective, it's much lower than that, but 10% less than 10% of our cash flow. Primarily that is skilled nursing licensed businesses which means also Genesis Rehab, short-stay which is technically skilled nursing, but obviously it's a completely different business, but also traditional skilled nursing.

That's primarily what that bucket is, but the handful of LTACHs that we own, we are thinking about how to maximize value there.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay, great. And then just touch on last question on the value-add projects that you're looking at. What size of the pipeline does the value add represent right now?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I couldn't even tell you what the pipeline size looks like. We just (inaudible) business that way. So, everything is a function of total return and we see opportunities that are great. We'll do it if that 100% of the pipeline or 5% of the pipeline that is we're not trying to sort of put those things in the bucket.

Michael Carroll -- RBC Capital Markets -- Analyst

All right, great. Thanks.

Operator

Your next question comes from the line of Nick Yulico with Scotiabank.

Nicholas Yulico -- Scotiabank -- Analyst

Thanks. I just wanted to go back to SHOP, same-store pool. Just a clarification, I think, you said the pool did not change this quarter versus the fourth quarter, is that right?

Thomas DeRosa -- Chief Executive Officer and Director

Yes, I did.

Nicholas Yulico -- Scotiabank -- Analyst

Okay. So what I'm confused about then if I look at the supplemental, why did the numbers changed now versus the fourth quarter in terms of revenue and expenses for that pool?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I'm not sure I understand the question because there was growth.

Thomas DeRosa -- Chief Executive Officer and Director

It's a different quarter.

Nicholas Yulico -- Scotiabank -- Analyst

No, I just mean if you look at the historical results of the same-store pool in the fourth quarter supplemental versus in this supplemental those numbers are different, the revenue, the expenses and some NOI. And so I'm just wondering if there was a change in accounting or if there's something else if this is since this is seems to be the same, I guess, the same pool, full of change?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

There was no change in accounting. They are exactly the same 473 assets. The only thing you have to think about the change is FX.

Thomas DeRosa -- Chief Executive Officer and Director

Remember we own assets outside the United States.

Nicholas Yulico -- Scotiabank -- Analyst

Okay.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

But if you do raise a very important question that you know just sort of I hear a lot of noise in recent months about our same-store policy and our same-store and there's just a lot of wasted time on it. So I would like John to address those question. John?

John Goodey -- Executive Vice President and Chief Financial Officer

Yes, certainly. And I think, Nick, we essentially disclosed two same-store parameters. One, is the one that we spend all our time talking about our non-GAAP sort of supplemental disclosure and that is essentially our economic participation in those same-store buildings and what do I mean by that.

I mean that it is prorated for our ownership position, as you know, with our 23 RIDEA partners. We often have joint venturing agreement. So, we're not a 100% owner of those buildings and therefore not a 100% owner of the income stream.

Whereas for our GAAP disclosure, we are required, obviously, on the GAAP to do a consolidated view. So, we have to take all the buildings where we have greater than a 50% ownership consolidate that and then report that on a 100% basis.

So, we actually have two different pools, which is why you see two different numbers between the supplemental sort of business view that we use and we talked about with you because we believe that's the one that drives our view of how we are performing and drives your view should drive your view on how we are performing versus the GAAP, which is essentially a mathematical equation that we have to produce to comply with our GAAP accounting requirements.

So, that's why that's different, sometimes that number is above, sometimes it's below, it doesn't have a necessarily a consistent trend over time.

Nicholas Yulico -- Scotiabank -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Todd Stender with Wells Fargo.

Todd Stender -- Wells Fargo Securities -- Analyst

Thanks. Just to drill into the Chelsea acquisition, obviously, shows you still have an appetite for triple-net. But can you share some of the decision behind that. I guess not going the RIDEA. Is it the growth trajectory, labor costs and maybe just some of the rent coverage and underwriting? Thanks.

Thomas DeRosa -- Chief Executive Officer and Director

So, Mike, if you look at, I believe, two quarters ago, I addressed this issue holistically on our earnings call. We completely believe in the triple-net business. I cannot emphasize that enough that we're sitting here trying to say RIDEA is the only way to go.

Structure is secondary. Primary focus is the quality of assets, the quality of markets, and alignment with an operator. Several ways you can get to that alignment. You can do it in what we call, RIDEA 3.0. obviously it's a different bells and whistles on a normal RIDEA contract, which makes it very, very different.

You can also do it done a triple-net lease structure and we obviously have different bells and whistles around it. So, we continue to believe in that business and we think Chelsea is a good operator and we're going to continue to grow that business.

Todd Stender -- Wells Fargo Securities -- Analyst

And, Shankh, about the rent coverage, it was underwritten and how about maybe the CapEx responsibilities of Chelsea? Thanks.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes, so rent coverage, it was underwritten at, roughly what we do is, when we underwrite a new triple-net assets, we're underwriting at a north of 1.5 times EBITDA basis or 1.2 times EBITDA basis. As you know that, I believe, in our Investor Day we talked about that some of the assets that we're buying that $1 billion pool has an average age of 4.5 years.

Some of the Chelsea assets that we're buying, they are just developed. So, if you think about it from that perspective, the NOI, the EBITDA is still ramping up. So but stabilize coverage, we believe, will be in that range that I described.

Todd Stender -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Your next question comes from the line of Steven Valiquette with Barclays.

Steven Valiquette -- Barclays -- Analyst

Great, thanks. Good morning, everybody. Congrats on these results. So, there's been some, a lot of big picture question so far. I guess I have another one here for either Tom or for Shankh. Basically, over the past month or so in the medicare rate updates for 2020 from CMS have been pretty strong for most healthcare facilities business models. So, I guess I'm curious to hear whether it feels like this has helped keep momentum going with health systems and other partners just regarding development projects another transaction activity in that context. And also conversely maybe more importantly, I guess, is that medicare for all proposals and discussions are probably way too preliminary to give anyone pause or hesitation on development or planned projects. I'm wondering if you're just able to collaborate that view as well? Thanks.

Thomas DeRosa -- Chief Executive Officer and Director

Yes, Steve, I would definitely agree with you on the Medicare for all point that is not driving the strategic thinking at the health systems today. I think it's very early and I sit on the side of, I think, it's a completely something that would not work, but we will get into that at another time. But I'm going to have Mark Shaver who spent a lot of time with the health systems comment on your earlier point.

Mark Shaver -- Senior Vice President of Strategy

Steve, thanks. This is Mark. I think we track pretty closely what's happening at CMS in fact Tom and I were just at a session with Administrator Verma maybe two weeks ago and I think we -- the country holistically is moving more toward value both PDP and that Shankh alluded to on our post-acute side, the new CMS reforms last week around primary care.

We feel it's moving in the right direction, but just like all of our businesses, in certain markets, value is accelerating, in certain markets fee for service and the traditional commercial business, very important. So, we continue to work with health systems in different markets that we think are progressive, understand where values going, but also understand reimbursement under the traditional form as well.

And as Tom mentioned, we're working pretty closely with the systems on alternative sites of care and lower cost venues of care everything that we do is outside the four walls of the hospital, which we think bodes well for how reimbursement is moving in the country.

Steven Valiquette -- Barclays -- Analyst

Okay. I appreciate the color. Thanks.

Mark Shaver -- Senior Vice President of Strategy

Thanks, Steve.

Operator

The next question comes from the line of Nick Joseph of Citi.

Nicholas Joseph -- Citi -- Analyst

Just want to clarify one question on guidance. In terms of the segments same-store NOI. Do you plan to update that throughout the year?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

No, Nick. I addressed that before on this call. By policy we don't do that. We don't update segment level same-store guidance. We will update, if necessary, the total guidance for the same-store pool. And honestly, you can look at the trends, and you can come to your own conclusion, the problem of updating guidance in segments is that over emphasizing any segment, we're not, we don't have a favorite children among the segments, right.

As a buyer of Welltower stock, you got to buy all of them, right. So, we are trying to de-emphasize any part of our portfolio and have you focus on, are we good capital allocators, are we good manager of the portfolio. Those are the decision, but if you look at the numbers and the trajectory and sequential you should be able to get pretty close to what those numbers look like.

Nicholas Joseph -- Citi -- Analyst

Right. But why give segment level guidance not updated throughout the year, if you're going to update other line items with guidance?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Because we don't want you to emphasize on any particular segment. We will update the total if it's necessary. We do think that gets you to -- market to focus too much on one segment versus other when we as the manager of the business don't focus on one particular segment versus others.

Nicholas Joseph -- Citi -- Analyst

Thanks.

Operator

Your next question comes from the line of Rich Anderson with SMBC Nikko.

Richard Anderson -- SMBC Nikko -- Analyst

Hey, thanks. Good morning, everyone. Hello?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Good morning.

Richard Anderson -- SMBC Nikko -- Analyst

Okay. So, Shankh, I know you don't want to talk about ProMedica in advance of the real numbers coming out, but I just want to make sure understand the starting point, as we get closer to the time where you have some more real time info. The 1A coverage that was identified when you did the deal, I think, was really, if you look at the math is really something higher than that or should be based on, I think, a function of the 80%, 20% joint venture on the real estate. Am I thinking about that correctly about how the coverage is in reality from a real cash flow perspective?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I'm not sure I completely understand the questions. I will give you two answers, which hopefully will help you to get to the answer. One is Karin has been able to get me to talk about it. So I actually gave some real time sort of feedback on how the portfolio is performing. And I don't want to repeat myself, but I did say that occupancies are both on the skilled side as well as on the senior housing side and we're just starting the CapEx program, which we think will dramatically change businesses.

Going back to your question 20%, we have 80% ownership in the real estate and now our partner ProMedica is the 20% owner and our cash flow is -- rather their cash flows is brought into our cash flow and that's how the coverage starts.

Richard Anderson -- SMBC Nikko -- Analyst

Okay. Maybe I'll take it a little bit more offline later and then the second question is --

Shankh Mitra -- Executive Vice President and Chief Investment Officer

And Rich by the way welcome back. You can go back to the call we did or when we did the deal and I walked through line by line of how that is calculated. But anyway regardless welcome back.

Richard Anderson -- SMBC Nikko -- Analyst

Thanks. Second question is on medical office, I think, I recall you saying something about cap rates drifting up and it got you guys more interested in doing deals on the outpatient medical and you obviously did with C&L very early this year. Is that an observation that you would agree with that there has been a trickle up on cap rates that have made the asset class more interesting to you? Just some clarity on that, please.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Yes, Rich. We think the cap rates, I forgot two years ago or 18 months ago, I can keep the track of time got to an unsustainable level and since, obviously, it got into a level is, they definitely have trickled up. I think I mentioned that probably last three calls, every call we have done, not just C&L, we have done so far $2 billion plus of medical office acquisition in last 12 month.

So, they have come to a level where we think that IRR now makes sense. We kind of give you a guidance that we think we need to hit a 7% IRR to get to the transaction, it's still there. But, as I said, if they go down again, because people want to be aggressive again and we'll get out of the market again.

Richard Anderson -- SMBC Nikko -- Analyst

Right. So what does that say about this investment in particular like to what degree is the over under that cap rates still trickle up following the closing of the transaction and perhaps making the investment you made a less pervasive or something do you worry about that going forward?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I don't. No, I don't. We're trying to get to total return. We're not a buyer or seller of any assets on a cap rate. We are not trying to top tick the market, bottom tick the market. We're trying to get to a total return in IRR and funded through capital whether equity or assets, but the total return will be lower, right. So that sort of what we're trying to drive value, that's a different. I don't you know.

Richard Anderson -- SMBC Nikko -- Analyst

But if cap rates go up and your IRR calculation on the terminal value change and that's the part of the concern perhaps you, I guess, you don't have?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

No, we don't because we'll continue to do deploy capital, I remember, that would be a concern if we debt finance the deals. We're not debt financing the deals, right. We are equity financing the deal. So, even if that's the case, we will continue to deploy capital. We hope that happens. And if it does happen, if it doesn't happen then we'll just wouldn't do it, you understand my question is. If it is equity finance transaction, the value of what we just bought on a spot basis does not matter. We locked in a difference of total return on what we bought versus what we sold.

Richard Anderson -- SMBC Nikko -- Analyst

Okay, got it. Thanks very much.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Thank you.

Operator

(Operator Instructions) The next question comes from the line of Sarah Tan with JPMorgan.

Sarah Tan -- JPMorgan -- Analyst

Hi. Good morning, everyone. On for Michael Mueller. Just had one question regarding the development pipeline. I think last quarter you guys talked about the 3 billion development pipeline locked up across the seven different projects. Could you give us update on which other projects has been under way?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Sarah, I will just say, I think, you probably missed, it's not seven different project, it's seven different operating partners. And I'll just say many of that you will start to see later this summer. So, let's just, today's call is not the appropriate time, but more to come.

Sarah Tan -- JPMorgan -- Analyst

Okay. Thank you so much .

Operator

Your next question comes from the line of Tayo Okusanya with Jefferies.

Austin Caito -- Jefferies -- Analyst

Hi. This is Austin Caito on for Tayo. Thanks for taking the question. I guess just a follow-up to that. I saw that the New York development project was pushed out the conversion date another quarter and at the Investor Day, the expectation was that construction was done by 1Q and just curious any new updates with that project?

Mercedes Kerr -- Executive Vice President of Business and Relationship Management

Yeah, I mean, everything seems to be proceeding according to plan, both in terms of cost and timeline up to this point. So, there's no real update.

Thomas DeRosa -- Chief Executive Officer and Director

I don't know where there has been no announcement, but any change.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

I don't know where you saw that, I mean, our expectation is still pretty much what it was during the Investor Day.

Austin Caito -- Jefferies -- Analyst

Okay, great. Thank you.

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Thank you.

Omotayo Okusanya -- Jefferies -- Analyst

Yes. This is Tayo. Could I also ask one more follow-up question?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Go ahead, Tayo.

Omotayo Okusanya -- Jefferies -- Analyst

Yes, it's actually more around again your data analytics platform. Again, I think, you guys really put that on the split during the Investor Day. And I'm just kind of curious, just kind of given the micro level analysis that you do, if your data analytics platform is telling you anything different about operating trends today versus your Investor Day whether across senior housing or any of your other business segments?

Shankh Mitra -- Executive Vice President and Chief Investment Officer

Our data analytics platform did give us that insight which is why we started talking about three quarters ago that the business is turning, when the topic (inaudible) was it's going to be really bad for next five years, that's what I hear.

So, it's hard to talk about stuff that already happened and again victory lap that just not a display of humility, I would say, but as you can see -- these people are very, very good and they have called the turn and you are seeing the results, you are seeing the turn in the results from December to today, Tayo, we are making 10, 15, 20 year decisions, I mean, like from December to today, we don't change our views like that.

Thomas DeRosa -- Chief Executive Officer and Director

Remember we're not making a call on the industry sector with our data analytics. This is very specific to the Welltower portfolio. Our operators and the locations of our assets. As you learned at our Investor Day, we do look at the country on a micro market basis.

So we have been managing our portfolio over the last five years and making tough decisions always didn't reflect well in quarterly performance, but they were the right decisions for the long-term. And that is what you're starting to see flow through our results.

So, yes, our data analytics gives us what we believe to be unique and proprietary insights into the way we run our business. But, again, we are not, do not think our results and what we're seeing in our portfolio it's a call on the senior housing industry changing.

Omotayo Okusanya -- Jefferies -- Analyst

Got you. I appreciate the explanation. Thank you.

Thomas DeRosa -- Chief Executive Officer and Director

Thank you very much.

Operator

And thank you for dialing-in to the Welltower earnings conference call. We appreciate your participation and ask that you please disconnect.

Duration: 77 minutes

Call participants:

Tim McHugh -- Senior Vice President, Corporate Finance

Thomas DeRosa -- Chief Executive Officer and Director

Shankh Mitra -- Executive Vice President and Chief Investment Officer

John Goodey -- Executive Vice President and Chief Financial Officer

Daniel Bernstein -- Capital One Securities -- Analyst

Mercedes Kerr -- Executive Vice President of Business and Relationship Management

Vikram Malhotra -- Morgan Stanley -- Analyst

Jordan Sadler -- KeyBanc Capital -- Analyst

Chad Vanacore -- Stifel -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Karin Ford -- MUFG Securities -- Analyst

Lukas Hartwich -- Green Street Advisors -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Nicholas Yulico -- Scotiabank -- Analyst

Todd Stender -- Wells Fargo Securities -- Analyst

Steven Valiquette -- Barclays -- Analyst

Mark Shaver -- Senior Vice President of Strategy

Nicholas Joseph -- Citi -- Analyst

Richard Anderson -- SMBC Nikko -- Analyst

Sarah Tan -- JPMorgan -- Analyst

Austin Caito -- Jefferies -- Analyst

Omotayo Okusanya -- Jefferies -- Analyst

More WELL analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.