Thank you for standing by. My name is Brianna, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Welltower Third Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Matt McQueen, General Counsel. Please go ahead, sir.

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 hand the call over to Shankh, for his remarks.

Thank you, Matt. Good morning, everyone. I’ll review third quarter business trends and our capital allocation priorities. John, will provide an update on operational performance for our senior housing and medical office portfolios. Nikhil will give you an update on the investment landscape, and Tim will walk you through our triple-net businesses, balance sheet highlights and guidance updates. I’m once again pleased to report another very strong quarter across the board at Welltower from operations to capital deployment, a further strengthening of our balance sheet, continued progress on our operating platform rollout. The result was a 21% increase in FFO per share and our fourth guidance raised for the year, this time by $0.13 per share, reflecting the extraordinary strength of our platform. This quarter also marks the first time in our company’s history in which our quarterly revenue exceeded $2 billion. In terms of the senior housing operating portfolio, results continue to surpass our already high expectations. Year-over-year same-store NOI growth came in at 23%, eight consecutive quarters in which the growth exceeded 20%. And, despite macroeconomic uncertainty and heightened geopolitical tensions, topline growth on a same-store basis remain resilient at 9% driven by another quarter of outsized occupancy growth of 310 basis points coupled with strong rate growth. Particularly noteworthy is the 160 basis points of sequential spot-to-spot occupancy growth that we experienced, a reflection of both strong tailwinds of our business and especially our operating platform initiative, which will continue to bear fruit in the coming quarters and years. Not only we’re pleased with the sequential growth, but the occupancy run rate exiting the quarter solidly exceeded the prior year and early fourth quarter results have been positive as well. Additionally, I would be remiss not to mention that the spread between RevPOR or unit revenue and…

Thank you, Shankh, and good morning, everyone. At the risk of sounding like a broken record, we posted another quarter of fantastic results with no let up and momentum, which continues to build across the business. Before getting into the details, I’ll echo Shankh’s sentiment that we’re looking forward to closing out the year on a strong note and excited for another period of solid growth in 2025 and beyond. During the quarter, total portfolio same-store NOI increased 12.6% versus the year ago period, once again led by our senior housing operating portfolio. First, I’ll provide an update on our Outpatient Medical business, which posted year-over-year same-store NOI growth of 2.2%. The consistency of the business remains evident with healthy leasing activity during the period and another quarter of strong tenant retention. Same-store occupancy remained stable at an industry leading 94.5%. As for the Senior Housing business, the business continues to deliver exceptional results. Demand for needs-based product is clearly on the rise and our proactive asset management initiatives, which I’ll get into shortly, are unquestionably delivering Alpha. In the third quarter, portfolio achieved year-over-year same-store NOI growth of 23%, once again exceeding our expectations and allowing us to yet again raise our full-year outlook, which Tim will describe shortly. The strength in our Senior Housing business was broad-based with solid occupancy gains experienced across all our geographies and property types. It’s worth repeating that while the summer months typically represent the most active period of leasing during the year, our sequential same-store occupancy gain of 120 basis points and spot-to-spot gain of 160 basis points are well above typical seasonal trends. In fact, this quarter tied a record for sequential same-store occupancy growth when excluding the second half of 2021 as we were coming out of the building. On…

Thanks, John, and good morning, everyone. I am pleased to report that our investment activity and pipeline remain incredibly robust, visible and actionable. Over the past three months since our last call, we have either acquired or entered into agreements to acquire an additional $1.2 billion of assets. This is a fraction of the $15 billion plus of opportunities that we consider during this time frame. These incremental transactions bring our year-to-date investment activity to a record setting $6.1 billion. This growth underscores the strength of our market position and the abundance of opportunities we’re pursuing. As always, our focus and excitement are driven by the expected attractive risk adjusted returns of our transaction activity rather than the deal volume. Acquiring quality assets at a reasonable basis with significant cash flow growth prospects remain at the core of our investment strategy. In the third quarter, we closed on $2.15 billion of transactions. Our activity remains granular with Q3 closings spanning 15 different transactions across 13 different operating partners and a medium transaction size of $56 million. Our Q3 transactions were heavily focused on our seniors and wellness housing businesses, where we added 40 properties and more than 5,200 units. We acquired these assets, which have an average age of just over five years, at $244,000 per unit at a significant discount for replacement cost. We expect our transactions that close this quarter to stabilize in the mid-to-high 7s yield and generate an unlevered IRR in excess of 10%. Our team’s reputation, expertise and network continue to drive our success. An impressive 94% of our investment volume by dollars this quarter was acquired through off market transactions. This approach has allowed us to source opportunities from a diverse range of sellers, including six transactions from developers facing maturing construction loans, three…

Thank you, Nikhil. My comments today will focus on our third quarter results, performance of our triple-net investment segment, our capital activity, a balance sheet liquidity update and finally, an update to our full-year 2024 outlook. Welltower reported third quarter net income attributable to common stockholders of $0.73 per diluted share and normalized funds from operations of $1.11 per diluted share, representing 20.7% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 12.6%. Now, turning to the performance of our triple-net properties in the quarter. As a reminder, our triple-net lease portfolio coverage stats reported a quarter in arrears. So, these statistics reflect the trailing 12-months ending [6/30/2024] (ph). In our senior housing triple-net portfolio, same-store NOI increased 5.8% year-over-year and trailing 12-month EBITDAR coverage was 1.09 times, marking a new post-COVID high in coverage. Coverage in this portfolio continues to improve above pre-pandemic levels and greater than expected growth in this portfolio is being driven mainly by improving underlying fundamentals and leases currently on a cash basis. Next, same-store NOI in our long-term post-acute portfolio grew 3% year-over-year and trailing 12-month EBITDAR coverage of 1.74 times. Moving on to capital activity. In July, we issued a $1.035 billion convertible note due in 2029. We intend to use the proceeds for the note to address our 2025 unsecured maturities coming due in the second quarter of next year. We continue to equity finance our investment activity in the quarter, raising $1.2 billion of gross proceeds at an average price of $122 per share. This allowed us to fund $2 billion in net investment activity and end the quarter with $3.8 billion of cash and restricted cash from the balance sheet. Staying with the balance sheet, we ended this quarter with 3.73 times net debt to adjusted EBITDA.…

Thank you, Tim. As many of you, my fellow shareholders know that my team and I are true believers that compounding is the only way to create substantial long-term value. Compounding not just in the context of middle school math, but in everything in life. We define compounding as dogged, incremental and continuous progress over a very long period of time. And for this team, it has been close to a decade since we took our predecessor company down to a start by turning over roughly 60% of the portfolio, changing out 95% of our human capital in middle management and up, evolving our operating partners while creating greater alignment through win-win structures and so on. More importantly, we change these companies culture as we build what you know as Welltower today, brick-by-brick. We founded a culture of owners not managers with agency problems, a culture or shared value with our operating partners to deliver real value for our customers and site level employees shoulder-to-shoulder no matter what. A culture of resilience having endured four different crisis over last past decade, crisis included oversupply, a crippling pandemic, labor shortage and the worst inflation in 40 years. A culture of extreme excellence to build and create true residual Alpha for our owners not defined by Wall Street’s view of real estate industry which has a checkered history of creating value. We’re focused on creating Alpha, not levered beta for existing owners. Over the past decade, we have built a unique data science platform, the first of its kind in real estate industry, powered initially by machine learning, then deep learning and finally by AI well before many of these terms got into the folklore. And finally, with Chutzpah and perhaps Naïveté, we launched an operating platform initiative by attracting John and…

Thank you. [Operator Instructions] Our first question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Hi there. Thank you for the time and great to see the strong results. Hoping you could talk more about the historically wide gap between, unit revenue and unit expense and margins and specifically trying to understand the incremental margin at today’s 86% occupancy and where that incremental margin goes once occupancy surpasses 90% or even higher since variable costs at that point are minimal? Thank you.

Thanks, Jonathan. So, you’re right in highlighting that the way that, that kind of RevPOR, ExpPOR math is expressed through our financials is in that flow through margin. So last quarter, we noted that flow through margins had gone above 60% for the first time since the kind of post-COVID recovery. Again, this quarter, we were in the low-60s from a flow through. Important to note in that, that we had one operator making about 1% of our same-store pool that through some kind of changes to their operating model they’re implementing and higher expenses right now than we’d expect. So, ex that operator, flow through margins would have been closer to 67%. So, consistent with what we’ve said in the past, you should see flow through margins kind of move into the mid-60s and approach 70% as we start to re-approach kind of pre-COVID levels of occupancy of 88% and then from thereon improve.

Our next question comes from Michael Griffin with Citi. Please go ahead.

Thanks. Nick Joseph here with Michael. Shankh, you had made the comment that it makes no economic sense to build. And, I know it’s hard to generalize and obviously it’s regional, but I’m just trying to get a sense of kind of how far off we are before it does make economic sense either from a rent growth perspective or costs coming down, just trying to quantify that a bit? Thank you.

Nick, really good question. It’s hard to say in a general matter because cost is a function of local situations, labor etcetera. We haven’t seen construction costs come down. You have seen some material costs have come down which has been surpassed obviously taken up more by insurance and labor costs. So, if you just want to sort of have a general rule of thumb, remember rent growth will not get you there. Rent growth relative to labor cost, operating labor cost growth will get you there, right. So, you need in markets 25%, 30% increase of RevPOR minus ExpPOR where construction will start to make sense. I always believe people will do what make economic sense and we have tried to make it work in the best location where pricing is not a question, even we’re struggling with that. That’s the best locations such as Palm Beach and Cupertino’s of the world. Imagine your question is that average of the industry where this makes no economic sense whatsoever.

Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Hey, just a quick one from me. So, I’ve been sort of reflecting over this top line growth of 8% where you got over 300 basis points occupancy gain, but, 5% sort of, pricing growth which is basically the fastest out of any rates that we cover. And I think we’re all trying to figure out what that number is going to look like in 2025. So, I guess my question would be, as you sort of reflect on that number, maybe a little bit more color of what drives that. Is there anything sort of one timing? And not putting words in your mouth, but is there a reason that we should expect that to decelerate as we flip the calendar? Thanks.

Ron, very good question. We’re not going to sit here and try to speculate what 2025 will look like. I’m going to point out a couple of things. John made a specific comment in his prepared remarks about how he’s feeling about pricing. We’ll see what the market gives us. I will tell you that we would get we would have market share increase. So, we’ll but at the end of the day, everybody is subject to market. We are focused on RevPOR minus ExpPOR, not RevPOR. Having said that, you can focus on what John said in his prepared remarks. I will remind you from an occupancy standpoint, remember revenue is a function of pricing and occupancy. I’m going to refocus you what I’ve said on the last call. And I said occupancy can not necessarily saying it will, but can get growth, can get better next year. And hopefully after this record sequential occupancy change in third quarter of this year that gives you probably gives more credence to the comment I made. I’m willing to sit about that much. Hopefully that’s helpful, but just understand it’s too early to say. We’ll see what market gives us.

Our next question comes from Nic Yulico with Scotiabank. Please go ahead.

Thanks. Yes, just following up on the topic of occupancy, maybe Shankh or John. Can you just talk a little bit about what you saw in the quarter in terms of traffic trends, maybe year-over-year sequentially? And also how if there’s if you feel like you’re getting an even bigger benefit right now from lower turnover in the portfolio?

Yes, I’ll jump in. Traffic is up, addition with what we saw is higher closing ratios. In other words, our execution is improving, which is important and it’s a function of the operating platform there. As it relates to turnover, that’s been consistent, no issues there. But the bigger issue is we’re executing and taking market share.

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Great. Thanks. Shankh, you highlighted that you’re carrying significant momentum into ‘25 and kind of the tailwinds in the business continue to strengthen. Soon speaking kind of the demographics, but at the same time I think absorption has been stable in recent quarters across the sector. So, just curious if you think we’re at the cusp of absorption reaccelerating and that being kind of going back to your comment about occupancy growth potentially getting better next year?

Yes. Austin, I’m not going to comment on what may or may not happen in the macro. Absorption is a macro industry-wide phenomena. As John just mentioned that we’re focused on market share. You can see what our sequential occupancy growth is relative to the industry, that you will see that we’re entirely focused on using our operating platform and our best-in-class operators hard work to get market share, right. If we can get improvement in absorption, that’ll be a gravy. That’s just not something we can control. That’s not something we’re focused on.

Our next question comes from Vikram Malhotra with Mizuho. Please go ahead.

Hey, this is [George] (ph) on for Vikram. So, you have highlighted an expanded visible, acquisition pipeline. Can you just provide more color on how much of the flow is non-US? And then as a follow-up, what percentage of the deal flow do you pass and say no to? And has that percentage changed recently?

[George] (ph), on the second question, in my prepared remarks, I talked about how of the $1.2 billion of incremental activity we announced this quarter, the universe of opportunities we looked at was $15 billion. So, from the $15 billion we acquired $1.2 billion. This number fluctuates up or down every quarter depending on what we look at. But generally speaking, it’s roughly a 10% hit rate. And then your second question about geographically, I think Shankh said it in his remarks, but we’ve got active transactions we’re looking at in all three months.

Our next question comes from John Pawlowski with Green Street. Please go ahead.

Great. Thanks for the time. Question on CapEx for the senior housing business. It’s been running 30% to 45% of NOI over the last year and change. Just curious, over the next two to three years, I know there’s kind of unstabilized NOI that’s nominator, but over the next two to three years, where do you expect CapEx as a percentage of NOI for the senior housing business to start to stabilize at?

Yes. So, I’ll step in. John, the question is let me give you a broader answer here. So, as I mentioned last time, we’ve created an internal team. We’re executing at amazing levels where we’re both reducing the cost by 20% to 50% on, say, a unit basis and speeding up the time lines. We’re also changing the fundamental way we do things. Historically, this business is really the operators function kind of like on the PE model where it’s very short time decisions. So, for example, you might have an asset that has three buildings and they’ll do one roof. And then the next year following roof and the following year following roof. What that’s doing is driving up costs dramatically because of smaller projects, because of three mobilizations. And then you have all kinds of other stuff flowing through like the roof leaks impacting the customer experience and all the issues along those lines. So, what’s happening right now is we’re doing things correctly with the long-term life cycle costs in mind, lowering the long-term run rate. So that means we’re pulling some things forward and it won’t change it will lower the long term run rate. But right now, there’s some stuff that’s elevated because in that example, we’d be doing all three roofs, avoiding the future roof leaks and getting the project behind us and moving forward. So, there’s a little noise that’s going on right now, but it’s all for the efforts to lower the long-term run rate and the unit costs are dramatically lower. So, it’s just absolute great execution by the team.

Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, thanks. Can you guys provide some color on the tech platform rollout that you mentioned? And I know that you have other initiatives that you’re working on. But how does this work out financially? I’m assuming Welltower has made the initial investment to build out these platforms. I mean, are your operators paying a recurring fee for this or just does it get reflected into significantly better financial results for you as these get rolled out to your operating partners?

Yes, Mike. The goal is clearly the latter part of your question, so significantly better financial results. How I would describe kind of the flow of the cost is you’re right. The initial investment is coming through Welltower. There’s a bit of duplicative cost upfront because as we kind of transition into this, you have a legacy technology systems of operators moving over to our own. In the end, this isn’t intended to be a cost savings exercise, but it will be the tech stack will be less expensive because it will be scaled across our entire operating platform rather than subscale across all of our operators. And that’ll come through over time. But beyond the investment, the initial thought should be there shouldn’t be an uptick in costs.

Mike, just remember one of the things we have to think through, just in addition to what Tim said that software cost is already part of the SHOP margins, right? So, there is cost flowing through our P&L and it’s duplicative in nature today because obviously you have to make a lot of initial or upfront cost. But just as a run rate cost, remember that technology cost is part of the SHOP expense stack.

Our next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

Hi, thank you. Maybe a question for Nikhil. You mentioned talking to eight private peers. Just hoping you can maybe add a little color on that. Is that larger scale transactions or more of the singles and doubles you’ve been doing today?

Yes. Juan, as you would imagine, right, when you’re talking to eight different groups, from some of those, you might not look to buy any assets either you don’t like the asset quality or the valuation. And with some, you might see eye to eye on a lot. Right? So, it’s hard to generalize, but just given the numbers we’re talking about, the different range of outcomes that everyone we’re speaking with.

Our next question comes from Joshua Dennerlein with Bank of America. Please go ahead.

Yes. Hey, everyone. Thanks for the time. I guess I was looking at your business presentation update, the path to recovery slide on page 21. So, the bridge assumes you go back to pre-COVID occupancy and margin at today’s rate. That seems like it’s a little kind of unrealistic just given the forward-looking backdrop. I guess, how should we think about what else gets layered in beyond this to kind of get to like a bridge? And then maybe tying that into the tech cost you flagged as being part of the SHOP expenses, like how should we think about that influencing this bridge?

Yes. Josh, it’s a good catch that if you just look at the page of what we’re trying to give you a sense of what occupancy growth, how that impacts obviously our NOI embedded NOI growth. Going back to pre-COVID, I’ve said this before, if we only go back to pre-COVID, at least John and I are stepping down. We consider that as a complete failure. So, we expect that occupancy growth occupancy will go substantially higher than where the pre-COVID is. However, the most important point is what you made is at today’s rate. Remember what should be added if we’re just trying to understand what’s a normalized earnings for this company, what you should add, not just whatever you think is the frictional vacancy of our portfolio should be, that’s obviously one add. You have to decide how long it takes there to get obviously get to that frictional vacancy. And meanwhile in those years, what’s your RevPOR minus ExpPOR, because our rates are growing faster than our expense growth, right? That adds to that. And just also point out that we will see that our first set of numbers we gave you few years ago when we started giving you the disclosure, that pool of assets, our NOI is actually $33 million higher than pre-COVID. Occupancy is significantly lower, yet it is $33 million higher. You’ll see that in I believe the fourth bar on that page and that’s because rates are much higher, right? So, you have RevPOR minus ExpPOR got you to that higher NOI despite lower occupancy and that same thing follows through as you are thinking about whatever to whatever your definition of frictional vacancy is. And that’s how you sort of get to the number. We’re not going to sit here and…

Our next question comes from John Kilichowski with Wells Fargo. Please go ahead.

Hi, thank you. Just one on the transaction market, it feels like you’re competing on your own with some of these deals. Could you talk about what you’re seeing in the way of capital flows and when you expect composition to start to pick up? Just trying to understand the likelihood of you being able to maintain the sort of cadence on investment activity?

Let me start and Nikhil you jump in. First, we’re not trying to maintain the level of activity. I have said this before, our company is not designed to buy stuff. We’re not a bunch of deal junkies. We’re trying to invest capital to further strengthening our market position and drive partial earnings and cash flow growth. So, if the market opportunity is there, we’ll do it. If the market opportunity is not there, we’ll not do it. If we believe the market prices have gone to a level where somebody is willing to pay more for assets than what we are willing to pay for, we’ll sell like you have seen pre-COVID we have sell $15 billion of assets. The focus is on value creation on a partial basis for existing shareholders. Having said that, if you have 94% for example in this quarter and number stays around that up or down couple points every quarter, 94% of what you buy is in a privately negotiated bilateral transaction. So, you have to compete with one person in that situation that is yourself, if it gets in your head what your cost of capital is. Our cost of capital is much higher than you guys believe, purely because we believe our normalized earnings is much higher. So, we are not trying to do a cost of capital game on a spot basis. We’re trying to think what a long-term return from our individual stock is for existing owners and trying to make a decision by expanding the partnership, which is buying something, are we increasing the growth rate and terminal value for existing owners who are our investment partners today. That’s how we make capital allocation decisions.

Our next question comes from Richard Anderson with Wedbush. Please go ahead.

Thanks. It’s a perfect segue to my question. So far this year, you’ve grown the portfolio by 7%, $6 billion to $90 billion of an enterprise value. You’ve grown FFO guidance by 7%. That’s probably coincidence. But I noticed that $0.045 of the $0.13 this quarter was attributable to external investing. So, of that, how much of that was driven by this sort of spread investing phenomenon of a seven yield in your low cost of capital? How much of that was previous year outperforming to your point better growth profile of the company? You did $5.9 billion last year at a 7:1 yield. I imagine that’s a higher yield today. So, is the $0.045 purely from activity this year or outperformance from previous years? Thanks.

Thanks, Rich. I would just note that $0.045 is capital activity, right? So, that’s how we’re financing things and that’s also what we’re acquiring. And the bucketing is representive of incremental changes in guidance. So, that is all from incremental capital activity since we last provided guidance. The move in our kind of senior housing or outpatient or triple net, that will be like fundamental performance. And so things we acquired last year outperforming underwriting are showing up in kind of fundamentals. Whereas when I get the guide and talk about capital activity, it’s really just incremental from last time we updated you what’s being driven by the new acquisitions, the timing of acquisitions and the way we finance.

It’s an extraordinary question, Rich, because if you think about the activity, which is obviously what we talk about quarter-to-quarter, but what impacts your number is when you close and majority of the closings are obviously happening in Q3 and Q4. So, the impact of that closings, you’re not going to entirely feel this year that you’re going to feel it next year, especially with a focus on growth. We are growth investors. We’re not I’ve seen enough companies have been destroyed by chasing yields. You can be assured that that’s not what we’re doing. So A, you have a timing issue of obviously how that flows to the number and B, assuming that we are actually buying what we’re telling you buying, which is growth, your impact on a move forward basis will be higher. So, it’s a really, really good question.

Our next question comes from Wes Golladay with Baird. Please go ahead.

Hey, good morning, everyone. Can you answer what segments are driving the occupancy gains? Is it active adult, independent, assisted living and any potential mix headwind on rate next year and potential export benefit?

It’s been across the board given the wellness housing portfolio is extremely highly occupied. You should assume that that’s a drag on growth and majority of the growth that’s flowing through our number overall is coming from assisted living and independent living. Sorry, on the export question, let me finish the call question. And on the export side, go back to and focus on what John said on his prepared remarks. Seems like labor cost is moving in our direction. We have no sense of we can’t give you right now what that may or may not be for next year, but directionally it’s moving in our direction. Thank you.

Our next question comes from James Kammert with Evercore. Please go ahead.

Good morning. Thank you. Looking at the SHOP portfolio, obviously the same store portfolio exhibits a little bit higher occupancy and margin versus the total implying obviously non-same store a little lower. Is there a reasonable expectation on cadence as to how fast the total portfolio sort of catches up the same store, if you will, in terms of occupancy and margins at two to three quarters as you apply your operating platform or that too short, too soon?

Let me take the first part. Maybe Tim, you can provide some guidance on how sort of non-same store flows into same store. But frankly speaking, Jim, we don’t really care about same store, non-same store. All we care about is bottom line FFO growth. But there is no question that the non-same store given its lower occupancy will be growing faster. And that’s a function of remember what I said on last call that we’re buying assets and I think Nikhil mentioned this as well, that are lower than market occupancy, right. We’re buying I think I gave bunch of examples last quarter, but Nikhil is buying assets that are 40%, 50%, 60% occupied, right. That’s a drag to our earnings today, but that gets you to a higher earnings tomorrow and gets you better growth.

Yes. And to add, Jim, so that portfolio total portfolio is probably the biggest difference is you’ve got deliveries on the development side. So you have preopening cost plus just general network capital drags and anything delivered and we’re in a bit of a heavy period of delivery. So, that causes some change. Generally though, you think about kind of the difference between the same store and the total portfolio, the mix is relatively similar. So over time, you should see those margins converge.

Our next question comes from Mike Mueller with JPMorgan. Please go ahead.

Yes, hi. In terms of the tech rollout, can you give us a sense as to what you think the annualized margin improvement could be at the property level based on what you’ve rolled out just so far?

Mike, we’re not going to get on a call and try to speculate what our margin improvement will be. We will tell you that focusing on what we said before, which is we believe that we’re going to get this platform at a higher level margins than pre-COVID. And that is due to a function of where we think operating platform is taking us, where we think the operating platform initiative will take the occupancy to. It’s just an inappropriate sort of a venue to try to speculate what will happen in the future. But we’re optimistic we’ll get to a better place in the future than it was in the past.

Our next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead.

Yes. Good morning, everyone. Good quarter, great outlook. In regards to the SHOP portfolio, and again, of late you have been comparing some portfolios from triple net to SHOP. Obviously, it is kind of improving or increasing your overall growth profile of the company as you kind of get more exposure to SHOP. I guess ultimately just kind of given what you’re seeing in regards to demand supply fundamentals and how you expect senior housing to move over time. Should we still be expecting that the SHOP portfolio could be an even bigger percentage of your NOI going forward? Or at a certain point, do you start picking up again? Well, the downside when you do have supply or when fundamentals get softer suggest that maybe the up optimal exposure is some percentage of NOI to SHOP.

Very good question Tayo, I’ll point out to you. Let me ask answer the easiest question you asked which is will SHOP continue to grow as a percent of the overall portfolio? The answer is a resounding yes. As you see that our SHOP portfolio is obviously low occupied, majority of the margin flow through is just starting to come. If you just think through what that means, even if we don’t buy another asset, you’ll get to a much higher place than where you are today. So just think through that from a portfolio composition for where it exists today and obviously you can see that’s what we’re buying mostly. The second question is an even a more important one as we think about long-term portfolio management. I would recommend that you go back and read the letter to future shareholders that I wrote few years ago. It’s on the Investor section of our website where we focused on really on this topic, on what our true belief that is volatility is not risk, right? You’re talking about okay, what happens in a year or two or whatever you might get a downside volatility of owning equity versus debt. That’s why your question is, I’m okay with that. That’s what we have a balance sheet for to adjust for that risk. Just remember, volatility in our opinion is not risk. The probability of losing permanent capital in our opinion is risk. So, you are asking a question that is near and dear to my heart. I wrote a lot about this topic. I think you will get a kick out of reading the end section of the letter just focusing on this topic. Thank you.

We have no further questions at this time. This will conclude today’s conference call. Thank you all for your participation. You may now disconnect.