Image source: The Motley Fool.
Welltower Inc. (WELL 0.56%)
Q4Â 2018 Earnings Conference Call
Feb. 12, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning, ladies and gentlemen. And welcome to the Fourth Quarter 2018 Welltower Earnings Conference Call. My name is Nicole, and I will 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 would like to turn the call over to Tim McHugh, Vice President of Finance and Investment. 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 fourth quarter 2018 results. Following the safe Harbor, you'll hear prepared remarks from Tom DeRosa, CEO; Shankh Mitra, CIO; 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 these projected results will be obtained. 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 in the company's filings with the SEC. If you did not receive a copy of this morning's press release, you may access it via the company's website at welltower.com.
Before I hand the call over to Tom DeRosa, I want to highlight a few significant points regarding our fourth quarter results. Welltower achieved 1.6% total same-store growth in the quarter. We are particularly encouraged by the 40 basis points year-over-year occupancy increase in our senior housing operating portfolio and the sequential coverage increases in both our triple-net senior housing and long-term post-acute portfolios.
The fundamental performance in the quarter was consistent with our expectations, partially offset by delayed timing of investment activity and equity issued to pre-fund announced acquisitions, resulting in $1.01 per share of normalized funds from operations. In the fourth quarter, we issued $552 million of equity at a weighted average share price of $68.41 and since the start of the year, we have raised an additional (Technical Difficulty) all publicly announced acquisitions.
And with that, I'll hand the call over to Tom for his remarks on this quarter and the year. Tom?
Thomas J. DeRosa -- Chief Executive Officer
Thanks, Tim. At our Investor Day on December 4th, we took a notable step of announcing 2019 FFO guidance. Based on our Q4 results and our confidence in our outlook for 2019, I'm pleased to reaffirm that guidance this morning. Our guidance of $4.10 to $4.25 in normalized FFO per share represents a 4% increase at the midpoint in our guidance range over our 2018 results.
As Tim highlighted, our continued strong operating results in Q4 reflected the positive momentum in our seniors housing business that we've talked about throughout the year. Most notable in the quarter was the fact that we completed $559 million in acquisitions at a blended yield of 5.6%, nearly 90% of which our medical office buildings associated with investment grade health systems. These investments helped drive total investment activity to over $4 billion for the year.
Our ability to source accretive investments has continued into 2019 with the announced acquisition of 55 outpatient medical buildings from the CNL Healthcare Properties, for $1.25 billion. Further enhancing our ability to deliver growing, high-quality and sustainable cash flow growth. Given that CNL and the majority of our announced investments will close by mid-year, we expect FFO to accelerate in the second half of the year setting us up well for 2020 and beyond.
In the fourth quarter, we raised $552 million of equity driving down sequential leverage and pre-funding late quarter and early 2019 investment activity, as we continue to manage our business with a focus well beyond the current quarter. This included a $300 million direct investment by the Qatar Investment Authority. One of the highest quality and most resilient capital partners in the world. This is part of a broader investment partnership that was a long time in the making. We are honored to have entered into this partnership with the QIA, which illustrates their belief in Welltower's unique business model and strategy for driving the future of healthcare real estate.
Now, I am delighted to pass the mic to Shankh Mitra, who will give you a closer look at our operating performance and 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 and provide additional details on two topics. One, operating results and trends; two, recent investment activities. We're cautiously optimistic about the recent performance of our senior housing portfolio. On last quarter earnings call, I discussed the narrowing of occupancy gap in year-over-year results. It appears that occupancy has reached an inflection point this quarter. Specifically in SHOP (ph) occupancy increased 40 basis points year-over-year.
Sequentially, fourth quarter over third quarter, occupancy and revenue growth has been the best we have seen since Q4 2015. While, one quarter does not make a trend we are particularly encouraged by the 120 basis points of occupancy increase in our assisted living segment as the impact of new supply is starting to vain and the demand is beginning to pick up. We also saw a sequential occupancy increase of 90 basis points in the senior housing triple-net portfolio driving coverage up 1 basis point. Our reported portfolio -- our reported growth rate of 2.2% in SHOP is somewhat masked by lower growth in international markets, whereas core U.S. markets experienced 2.7% growth.
Expense growth remained elevated driven by labor, we continue to look for greater use of technological and analytical solutions such as On-Shift, Arena, Smart Winner among others to drive greater efficiency in the labor model. We are beginning to see result. For example, since implementing Arena, Sunrise has seen a 27% decrease in 90-day employee turnover and 40-day decrease in 20-month employee turnover. While we're working actively to mitigate labor challenges, the demand side of the equation is starting to look brighter. While it is true that the explosive growth of the 86-plus population is still a handful of years away, median age by definition suggests an equal number of our customers are below that age mark and the population will begin to grow significantly starting later this year and into next year.
We are also gaining confidence in post-acute business, while it is unlikely to be a V-shaped recovery. It appears that the industry fundamentals are on the meant. Meanwhile, pricing of the skilled nursing assets have materially increased due to the flood of capital deployed in that space. For example, during the first quarter of this year, we sold 22 Genesis assets that were below market coverage for $252 million at 8.95% yield. At market coverage and rent that represents $40 plus million of value creation.
As you would recall, we bought HCR ManorCare assets only few months ago at a significantly cheaper price and in a materially better credit structure. While we keep reading about how skilled nursing facility should be around 2 times EBITDARM coverage, this Genesis transaction highlights the significant gap between theoretical assertion versus how practitioners behave.
This is no different from the senior housing triple-net coverage rhetoric, I described during the last quarterly earnings call. While Genesis assets -- selling Genesis asset is short-term earnings dilutive to the tune of 2.5 pennies per share. We believe our shareholders achieved significant value and an improved growth profile for the enterprise going forward. Roughly, 4% of our NOI currently is attributed to Genesis down 70% from peak and a significant portion what remained is in PowerBack format. We continue to invest in the model through partnered skill development, PowerBack is kind of way, we just opened 13 months ago is currently 64% occupied, demonstrating the power of that product.
As we have consistently told you, our investment philosophy is driven by price and total return, not a desire to solve for specific operator or segment exposures. This brings me to my last point, since last quarter earnings call, we have announced $2.25 billion of acquisitions, comprised of $1.5 billion in medical office and $725 billion in seniors housing, bringing our total announced or completed medical office transactions to $2 billion over last six months.
This has prompted speculation in the research community that Welltower is actively trying to tilt its asset mix toward medical office. As we have consistently said, we like the medical office business, but at a price. We are buyers and sellers of almost any assets at a price and implied IRR. The cap rate at which MOB portfolios have traded during the frenzy of 2017 did not make any economic sense for Welltower shareholders. We passed on everyone of these opportunities and would do so again at those economics. As cap rates have expanded, we return to offend and have since executed $2 plus billion of Class-A medical office at a blended cap rate of 5.7% resulting at 7% plus IRR. This diligent approach adds excellent value for our shareholders, while we feel very bullish about our acquisition pipeline. We will not buy any asset unless the total return makes sense, regardless of our current advantageous cost of capital.
We remain disciplined and look for off-market or broken marketed transactions as sellers increasingly focused on strategy and reputation more than just price in this volatile capital market backdrop. Increasingly highly reputed -- reputable developers and operators are joint venturing with Welltower by recapping their current portfolios and forming mutually beneficial growth plan by leveraging our data analytics platform.
While we remain very selective on opportunities to pounce on, we are delighted to announce that we have locked up a $3 plus billion development and under construction pipeline across seven separate relationships in both senior housing and medical office over last six months. This pipeline is not an obligation but our option to deploy capital at an attractive return and basis with first look and last look and will create enormous amount of value for our shareholders.
The first project of this pipeline is in the development of two Class-A trophy Medical Office Building in Midtown Charlotte with Pappas properties. These two buildings are 100% leased to Atrium Health for the next 15 years and will be an anchor as we build out this terrific mixed-use project with our partner. On the senior housing side, we're delighted to inform you that since our last call, we have committed to roughly $725 million of acquisitions at a blended cap rate of 6.6%. These acquisitions have an average age of 4.5 years and will be managed by three different operating partners. Our pipeline remains strong in senior housing across both existing and new relationships.
Our data analytics capabilities, seniors housing and health system relationship, and our team's creativity, reputation and integrity are the main reasons why more and more highly reputable partners are reaching out to us today. While, historically, it was primarily us, who reached out to them. We are very proud that we compete on these capabilities and not on cost of capital.
In summary, while the fundamentals of many asset classes and industries are starting to mature, both the internal and external growth prospects of Welltower are accelerating. We remained disciplined, vigilant and cognizant of the fact that we exist to create value for you, our shareholders and we feel the prospects have never been better.
With that, I'll pass it on to John Goodey, our CFO. John?
John Goodey -- Executive Vice President-Chief Financial Officer
Thank you, Shankh, and good morning, everyone. It's my pleasure to provide you with the financial highlights of our fourth quarter and for the full year 2018. As you just heard from my colleagues, Q4 has been a very successful and active quarter for Welltower as has 2018 overall. Before I proceed with usual commentary, I wanted to highlight three points.
One, we are confident in our continued growth in 2019 and reaffirm our 2019 guidance given at our Investor Day, with growth expected in all our business segments.
Two, our strong proactive and efficient capital -- efficient raising of equity capital in 2018 and in 2019 to-date has enabled us to reduce financial leverage and pre-fund all announced acquisitions.
Three, we are accretively investing 2.1, sorry, $4.1 billion in 2018, making it one of the most active years in the company's history.
Our overall Q4 same-store NOI growth for, sorry, for Q4 2018 was 1.6% for the quarter and 1.6% for 2018 overall. This being above the midpoint of our full year guidance. Senior housing operating same-store NOI growth by 0.6% in the quarter and by 0.4% in 2018 overall. As Shankh noted earlier, we're encouraged by another quarter of improved occupancy. Senior housing triple-net grew by 4.3% in the quarter and by 3.7% for the year, again with improved occupancy. Outpatient medical grew by 1.8% in the quarter and by 2.2% for the year. Finally, long-term post-acute grew by 1.4% in the quarter and by 2.1% for the year.
We continue to focus on Welltower's operational efficiency, even with significant investments in technology enablement and data science, and the hiring of additional high quality colleagues to our team, our G&A expenses relative to the size of our portfolio lead the sector. Total G&A spend was $31 million for the quarter and $126 million for the year.
Today, we are reporting a normalized fourth quarter 2018 FFO results of a $1.01 per share and $4.03 per share overall for the year. These numbers reflects the increased Q4 2018 equity raise total and as in the past, we do not include one-off income items or fees in our normalized numbers. Last year, sorry, I apologize, last quarter and 2018 overall we were very active for Welltower on the balance sheet and capital raising fronts. We continue to be efficient and proactive raises of equity capital to fund the growth of our business. During Q4, including the $300 million strategic investment made by the Qatar Investment Authority, we raised $552 million of gross proceeds from common equity issuance, at an average price of $68.41 per share. This included $129 million raised after our Investor Day in Q4, originally modeled to be in 2019.
Overall for 2018, we raised $795 million of gross proceeds at an average price of $67.51 per share. In addition, since 1 January, 2019, we've raised $195 million of gross proceeds at an average price of $73.97 per share. During the year, we issued a total of $1.85 billion of senior unsecured notes at a blended yield of 4.34% with an average maturity of 13.8 years. We also placed on a new $3.7 billion unsecured credit facility with improved pricing across both our line of credit and term loan facility.
Our Q4 2018 closing balance sheet position improved with $215 million of cash and equivalents, and $1.9 billion of capacity under our primary unsecured credit facility. Our net debt to adjusted annualized EBITDA improved from last quarter and stood at 5.8 times at year-end. In summary, Welltower continues to enjoy excellent access to a polarity of capital sources.
During the fourth quarter, we completed $559 million of acquisitions at a blended yield of 5.6%. The majority being in the outpatient medical segments. This brought us to a yearly total of $3.4 billion in aggregate across all segments at a blended yield of 7.3%, including development funding and other activities, total gross investments for the year were $4.1 billion, making it one of the most active years in the company's history.
During the quarter, we completed $349 million of dispositions and received $46 million in loan payoffs. Overall for 2018, we completed dispositions totaling $1.6 billion, with $209 million of loans being repaid.
I would now like to turn to our guidance for the full year 2019. We are reaffirming our normalized FFO range at $4.10 per share and $4.25 per share. Starting with same-store NOI, we expect average blended same-store NOI growth of approximately 1.25% to 2.25% in 2019, which is comprised of the following compositions.
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 finally, 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. On February 28, 2019, Welltower will pay its 191st consecutive cash dividend being $0.87. This represents a current dividend yield of approximately 4.5%.
And with that, I'll hand back to Tom for final comments. Tom?
Thomas J. DeRosa -- Chief Executive Officer
Before we open the line for questions, it's important that I mention that in 2018, Welltower achieved significant milestones in our environmental, social and governance initiatives. Highlights of the year include being named to the Dow Jones World Sustainability Index. One of only two North American REITs in this most prestigious index. Further -- furthering our commitment to climate change, Welltower continues to be recognized for the number of new green building certifications added this quarter and throughout 2018.
With respect to social impact, the Welltower foundation and our employees donated over $1.5 million in 2018 to organizations engaged in heath, wellness, the arts and education. We were also recognized by the National Diversity Council as one of the top 15 companies for diversity in Ohio.
With respect to governance, I am pleased to announce the appointment of Kathryn Sullivan to our Board of Directors. Kathryn has had a 35-year career in the health insurance industry and was most recently the CEO of UnitedHealthcare's Employer and Individual Local Markets and operating division of UnitedHealth Group. Kathryn joins Dr. Karen DeSalvo former Acting Assistant Secretary for Health at the U.S. Department for Health and Human Services, and Johnese Spisso, President of UCLA Health and CEO of UCLA Hospital System, who both joined our Board in December of 2018. We are delighted to bring these three recognized healthcare leaders to the Board of Welltower. At the same time, we are sad to see Judy Pelham and Geoff Meyers retire from our Board in May and on behalf of our shareholders, we thank them for their guidance and stewardship.
Welltower seeks to model the most successful American Corporations. In order to be counted among the truly excellent companies you need to be a leader in ESG. I am pleased by the fact that with our recently announced Board appointments 60% -- that's 60% our independent directors are women and minorities. The diversity of our employee base, our leadership team and our Board continues to be a priority at Welltower. This is not only a key component of good governance, but it is a proven driver of higher returns to shareholders. This is something we should all be proud of.
At Welltower, we deploy capital in the most relevant sectors of healthcare real estate to deliver sustained cash flow growth, all with an eye toward maximizing long-term shareholder value. We were the top performing large cap REIT in 2018, delivering 15.3% total shareholder return. This reflects not only the high quality of our differentiated business model, but the fact that we have articulated a path for growth. As you will see in 2019, we positioned the company to continue to deliver for our shareholders.
Now Nicole, please open up the line for questions.
Questions and Answers:
Operator
(Operator Instructions) Your first question comes from the line of Nick Joseph with Citi.
Nick Joseph -- Citi -- Analyst
Thanks. Can you break down the components of your 2019 same-store NOI guidance for the SHOP portfolio between occupancy rate growth and expense growth expectations?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Nick, we -- at this point in the year, we would like to give flexibility on how we think that will play out, but obviously we're very encouraged by the occupancy growth. We think that we will continue to have moderate rent growth and expenses are challenging. So we'll see how the year plays out. As you understand that we are trying to maximize our revenue, not one component of the revenue, we'll see how the year plays out, too early to comment on specific breakdown.
Nick Joseph -- Citi -- Analyst
Thanks. And then could you provide an update on ProMedica's integration of the skilled nursing assets. At the Investor Day, you mentioned that trends so far were better than expected?
Thomas J. DeRosa -- Chief Executive Officer
You have heard from the leaders of ProMedica and HCR ManorCare on our Investor Day. It -- and you've heard from them directly that now the leadership team expects better synergies in the medium -- short- to medium-term. We are encouraged, overall, by what's going on in the post-acute sector. I'm not going to make too many comments given the Genesis is a public company, but look for their release and see how the -- obviously that sector is playing out, but we're definitely encouraged by the sector. Just remember that about half -- 45% to be exact of that HCR ManorCare transaction is attributed to seniors housing. We're seeing occupancy in that senior housing both triple-net, as we mentioned, both triple-net and in the SHOP segment is starting to come back. So those are the some of the data points, I would point out to you as you think about overall ProMedica, HCR ManorCare contract.
Nick Joseph -- Citi -- Analyst
Thank you.
Operator
Your next question is from the line of Karin Ford with MUFG Securities.
Karin Ford -- MUFG Securities -- Analyst
Hi. Good morning. I wanted to ask about your senior housing portfolio. Your same-store NOI guidance is over 200 basis points higher than your peers on both the SHOP and the triple-net portfolio. Why do you think you're seeing superior performance and can you confirm that there is no incremental rent relief or portfolio transitions expected in your triple-net portfolio?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
So, we -- I think, Karin, that should not be a surprise to you, if you look at the history, you will see that our portfolio has generated better growth and that sort of, and also if you will, has widened as the cycle got tougher and tougher. And the second thing, I would mention that, if you look at, we have very granular view of where our portfolio or asset should be. You have seen our data analytics presentation, how we're thinking about asset management, very active asset management. We have seen that we have taken a lot of proactive steps to sell assets and not afraid of dilution on a short-term basis. So we're very encouraged by the business. Now it's very hard to comment on this since on a quarter-to-quarter basis, but we are encouraged where that population growth is coming and the supply is starting to roll over.
Thomas J. DeRosa -- Chief Executive Officer
Karin, let me just add that, it's no secret that we've sold a lot of senior housing assets over the years. I think what you're seeing is a planned, dedicated critical view of what we own from an asset management standpoint and when we see assets in senior housing that we do not believe have long-term viability. We will exit those assets. We will take the short-term dilution that you get from that and all with an eye toward owning the best-in-class assets for the long-term, and as Shankh said, in the right markets. And I think, you know particularly, Karin, we take a very granular view of how we define the market that we want to own our senior housing assets. I think what you're just seeing is the benefit of an active asset management program with a view to the future of the business versus trying to manage FFO per share on a quarter-by-quarter basis.
Karin Ford -- MUFG Securities -- Analyst
That's good color. Thanks. And my follow-up is more of a bigger picture question on senior housing. You talked about the demand, the demographics and the timing. Do you think technology is allowing for greater autonomy for seniors later in life, things like grocery delivery, wearable monitors, improving focus on wellness? Do you think that might delay the demand for senior housing?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
If you look at the demand growth for last three years, for example, I mean, Nick has a lot of this data, you can look at it. You will see that demand has been running, particularly in the assisted living IL plus AL minus segment, 3X our population growth. So there is no evidence that we have seen that's the case. Do we think that technology will change this business for better and that will be very helpful for seniors in their home environment, absolutely. But just recall that as lot of seniors home is our communities as well, right. Those technologies and I mentioned a bunch of them in my prepared remarks will help us drive the margin as well. But we'll see how this plays out. It's very difficult to sit here and predict what might happen, but there is no doubt that in the recent past at least we have seen the demand has been running 3X our population growth.
Thomas J. DeRosa -- Chief Executive Officer
Senior housing provides an environment for the aging population to live safely. A lot of historic housing in this country works against a seniors health and wellness. So you could put some new technology in a obsolete residential environment and I'm not sure at the end of the day you're achieving the goals of improving health outcomes at lower cost.
As Shank said, we are very much on the forefront of bringing new technology into our settings and also thinking really hard about what the settings of the future look like and that's why we are so focused on the markets that we're in, because senior housing is a very expensive product. As I always say, it's a luxury good that no one aspires to own, but it's a necessity, but it's within -- it is actually out of reach for the majority of the population.
So we've been very careful about where to own that real estate, because the cost of delivering the care is -- as you all know has been growing significantly. So you need to be in places where people can pay. Overtime, I am hopeful we will figure out how to deliver a much needed environment, a much needed real estate setting at a cost that is not without reach for the majority of the population, so stay tuned on that Karin.
Karin Ford -- MUFG Securities -- Analyst
Good stuff. Thank you.
Operator
Your next question comes from the line of Vikram Malhotra with Morgan Stanley.
Vikram Malhotra -- Morgan Stanley -- Analyst
Thanks for taking the question. Shankh, I know you don't want to give components of the guidance, but is it safe to assume that within the guidance expenses of about 4% are baked in and that you'll likely see the trajectory improve given the expense comps get easier through the year?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
As you know, as you look at our numbers, you will see that the expense growth has been challenging for last five years, so this is nothing new. I would expect that 2019 we'll continue to see that. Maybe we'll see some moderation in 2020, because a lot of the California markets by then will actually have $15 of wage growth, so which has driven a lot of those increases. But 2019 will continue to be a challenging year, and obviously, hopefully, we'll be able to mitigate that like we have using some pricing and some occupancy.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay. And then just my --
Shankh Mitra -- Executive Vice President and Chief Investment Officer
You are correct about the trajectory given obviously year-over-year growth is not just a function of what happened this year, it's also a function of what happened last year. So you are correct about the trajectory.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay. And then just my follow-up, just your comment on, not really looking at portfolio composition, but sort of looking at what's available and what the price is, your reference to skilled nursing sort of pricing moving up, does that sort of make you more a seller today versus a buyer and how would you sort of describe just pricing across your different subgroups?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Vikram, I'm not suggesting by any means that we don't have a view of what our ideal portfolio should be constructed. I'll also say that view is evolving. So it's not a static view. But what I was trying to drive that, that most importantly, we deploy capital to make money. Even if we assume that we had a long-term view of some percent of assets from some segment or some operators, we are not prepared to get to that view, to execute that view, to realize that view, we were not prepared to pay a price that does not make sense from a return perspective. That's what I was trying to drive at.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay. If I may just a one --
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Second question about skilled nursing is --
Vikram Malhotra -- Morgan Stanley -- Analyst
Yeah.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
We are as you have seen within 12 months, we have gone from an opportunistic buyer to an opportunistic seller, right? Every asset this company owns is for sale at a price and total return. So that's no difference on skilled nursing, no different from any other buildings we own in any other segments.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay. If I may just sneak one more in. I was a bit surprised or maybe it's also early in the year, but the $2.25 billion of acquisitions you've done, obviously you've closed Hammes, and especially CNL, it seems like it's modestly accretive. You talked about the trajectory improving for FFO, but it also suggest that maybe your midpoint could move up, just given the amount of acquisitions you've done for this year?
Tim McHugh -- Senior Vice President, Corporate Finance
Yeah. Vikram, Tim here. I think the pre-funding that we pointed to, at this point, it makes sense for us to think about that from conservatism on the closing side of these acquisitions. So as John mentioned in his prepared remarks, not only did we have the issuance from the fourth quarter, but we continue to issue $195 million of equity into the first quarter and had $270 million of dispositions that have already closed as well.
So when you think about kind of where we're at from a funding perspective, our balance sheet is actually in a very good spot to start closing on a lot of the acquisitions that we've spoken to and it's a combination of the timing of our closing on the acquisition plus the seasonality of our senior housing, which steps down in the first quarter, but then picks up throughout the year is what is driving that acceleration of earnings from the first quarter kind of through the end of the year. So I understood on your comments around where we are at midpoint, at this point we're maintaining the range because I think that makes no sense with what the publicly announced information.
Vikram Malhotra -- Morgan Stanley -- Analyst
Great. Thank you.
Operator
Your next question comes from the line of Tayo Okusanya with Jefferies.
Tayo Okusanya -- Jefferies -- Analyst
Hi. Yeah. Good morning, everyone. Congrats on the quarter and the outlook. Things are definitely looking up. A couple of things, the guidance, I'm just trying to understand kind of what's in and what's out given the large amount of transactions that are being contemplated at this point. It sounds like the CNL transaction is in the numbers and all the acquisitions announced pre-CNL. But I'm trying to understand the $725 million of deals in the pipeline that Shankh talked about, are those in the numbers and it also seems like the disposal guidance went up from $800 million to about $1.4 billion. Is that increase also in the guidance?
Tim McHugh -- Senior Vice President, Corporate Finance
Yeah. Tayo, Tim again. Answer is yes and yes. So on the acquisition side, we have $1 billion of acquisitions we announced on our Investor Day, which $180 of which had closed in the fourth quarter and the remaining of which will close during 2019. And then, as you said, we announced CNL on January 2nd and that is $1.2 billion. So between the Investor Day announcements and the CNL announcement, you're getting to your acquisition, your publicly announced acquisitions and our dispositions of $1.4 billion that we revised this morning is all included into our 2019 number.
Tayo Okusanya -- Jefferies -- Analyst
Got you.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
But, again Tayo --
Tayo Okusanya -- Jefferies -- Analyst
Yeah.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
I will just add on more point. If you think about it. We have raised the equity already, but as you say -- as you know, realistic transaction takes time to close, right. So you have a six-month gap between when you're raising capital versus when your deploying capital, which is a prudent thing to do.
Tayo Okusanya -- Jefferies -- Analyst
Yeah.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
We're not going to take that kind of market risk. We have a big balance sheet to maintain. But that's sort of driving the dilution this year, but as you can -- as sort of you can refer from Tom's comments that we don't think that impacts the run rate earnings growth. So you're going to see a good chunk of that run rate earnings growth shows up in the second half and then flows through 2020 and beyond.
Tayo Okusanya -- Jefferies -- Analyst
Yeah. Yeah. That's helpful. Understand. Okay. That's helpful. Then number two, again, the $3 billion of development pipeline that you announced, Shankh, I found that pretty interesting. Can we just talk a little bit about, again the timing around when all of that could be deployed whether, again, I know you guys are just kind of like ROFO, first look, last look type situation, but of that $3 billion how much of realistically did you actually think you guys could execute on that at what timing?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Yeah. So we do think that with the number, I mentioned is the one that we can execute on, and as I said, that we want to do it. We have several different structures and we don't want to do a ROFO, just as you mentioned, but we are deploying capital in various ways equity, debt, different parts of the capital structure and we're not at equity, we -- and we fund a portion of thee capital stock through mezzanine, second mortgage, participating mortgage, you can think about any structural provisions that is available that we use, then we get a ROFO and a ROFR and a participation that's defined on the front end. So we're very careful about our basis --
Tayo Okusanya -- Jefferies -- Analyst
Yeah.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
We're very careful about our IRR that we achieve. But more importantly, as I said, that it's our option and not an obligation. So obviously we would hope when we deploy the capital, we have the cost of capital, if not, we wouldn't.
Tayo Okusanya -- Jefferies -- Analyst
Got you.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
So that sort of gives a sense of how we think about this.
Thomas J. DeRosa -- Chief Executive Officer
But there is high visibility Tayo to that number.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Oh! Yeah.
Thomas J. DeRosa -- Chief Executive Officer
This is a number that we know where those opportunities are.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Yeah. That's a very good point. I should have mentioned that. So, Tayo, I can sit down with you and walk you through building by building what those opportunities are. They are not unidentified opportunities. That's a very good point, Tom.
Thomas J. DeRosa -- Chief Executive Officer
Okay.
Tayo Okusanya -- Jefferies -- Analyst
Excellent. One more if you would indulge me. Just -- I was taking a look at the SHOP and then in regards to properties under construction on the SHOP side for your top three markets LA, New York and Boston. It feels like there are a couple of more properties under construction now. So on a quarter-over-quarter basis, just again what's your viewpoint in regards to supply? Is that kind of shifting back to primary market? Is it still really more of an issue of secondary market at this point in the cycle?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
So, Tayo, we do give you those stats because that's what you guys have asked for and we continue to give those stats. Well, our view of supply as it relates to our own portfolio is very granular -- a much granular. We've shown you some of those stats on our Investor Day, which we see supply is in ACU or Adjusted Competition Unit and our view is competition for our portfolio will be lower in 2019 than in 2018. But that's we'll see, obviously things fall off from '18 to '19 that but also things go from '19 to '20.
Tayo Okusanya -- Jefferies -- Analyst
Correct.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
We are encouraged by what we are seeing. Particularly, as you recall, I mentioned, in our Assisted Living segment, which is a very large portion of our US business we have seen 120 basis points of occupancy increase. That is one of the best uptick we have seen in years. Hopefully that's helpful. Thank you.
Tayo Okusanya -- Jefferies -- Analyst
Great. Thank you.
Operator
Your next question comes from Jonathan Hughes with Raymond James.
Jonathan Hughes -- Raymond James -- Analyst
Hey. Good morning. Thanks for the time and earlier remarks. Kind of a higher level question maybe for Tom or Shankh, but in the last recession, obviously, we didn't have the SHOP or RIDEA structure, at least not in such a meaningful way of today. So, how do you expect SHOP to perform in a recessionary environment since you're not protected by the lease payments, but are instead exposed to free market supply/demand fundamentals. I'm not saying that's --
Shankh Mitra -- Executive Vice President and Chief Investment Officer
No.
Jonathan Hughes -- Raymond James -- Analyst
The broader macro picture is going, but just trying to understand your views there and how that business should perform in a recessionary environment?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Yeah. So you are asking for something that we have absolutely no upside, even when predicting what might happen. I will just mention it to you that, as you know, our senior housing portfolio, particularly SHOP portfolio is very too much geared toward Assisted Living business which is a need-driven business, right? So if you look at the Assisted Living data over those timeframe, you will see the business stayed last couple of hundred basis points of occupancy, but the rate growth remains resilient and expense growth is obviously helpful in that kind of environment.
I'm not going to venture, I guess, of exactly how things are going to play out. I will also mention to you that it depends on when you go into such an environment. What is the supply, more importantly, what the demand side looks like. So it's a complicated answer than you would like. But I would like to point out, when you think about our portfolio, senior housing is a very broad term. When you think about our portfolio, I think, as you know, it's a very much that particular portfolio in the idea place (ph) is very much of a need-driven product.
Jonathan Hughes -- Raymond James -- Analyst
Yeah. Okay. That's helpful. And then I'll just chime in with one more. But looking at the capital stack, you have $720 million of preferred sitting on the balance sheet at a 6.5% coupon that I believe are redeemable. Any plans to call those and maybe you refi with debt or pay down with common equity embedded in 2019 guidance?
Thomas J. DeRosa -- Chief Executive Officer
Yeah. Thanks, Jonathan. On the -- so the preferreds you're referring to -- you're right, they -- they're convertible and are actually convertible at our rates above $73.54. So we've been trading above that for some time and there is a trigger on that that if the stock stays where its at or above that it will hit in the near future. I think the way you should think about that is that the way we manage our balance sheet is always to continue to position it in a better long-term position and it will be in the unique position, if those are mandatory convertible to not only further equitize the balance sheet, but do it in a cash flow accretive way. So I don't want to speak to where the stock price may or may not be in coming weeks, but you should think of us making the right long-term decision from a balance sheet perspective on those.
Jonathan Hughes -- Raymond James -- Analyst
Yeah. Okay. That's it for me. I'll jump off. Thanks for the time.
Thomas J. DeRosa -- Chief Executive Officer
Thanks, John.
Operator
Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Thank you. Good morning. Can you guys offer a bit of granularity on the $1.4 billion of sales that are in guidance for the 6.2%. I think the Genesis sales are $252 million at a 9% cap. So I'm just kind of -- if you can help us get to the other residual amount or maybe what that's (technical difficulty) that will be helpful.
Thomas J. DeRosa -- Chief Executive Officer
Sorry, Jordan, your last part of your question got cut off.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Sorry, the residual amount there would be helpful. Whatever is in that basket?
John Goodey -- Executive Vice President-Chief Financial Officer
Yeah. So far to-date you are correct with that, the Genesis transaction closed and that was $252 million and we had another $16 million of transactions closed year-to-date. So we've closed on $268 million of dispositions at a little less than a 9% cash cap. So the remaining, call it, $1.1 billion should be spread out through the remainder of the year. I would think about it kind of being a mid-year from here as far as timing.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Can you tell us what it is.
John Goodey -- Executive Vice President-Chief Financial Officer
Yeah. The remaining assets are mixed of, medical office buildings and senior housing, and I would think of that being anything but the blended cap rate overall to the remaining $1.1 billion is being done to much lower cap rate than what's been sold. And it's more in the category of what we've talked about in the recent past, which is outside of opportunistic continued kind of calling in the portfolio in some of the higher yielding sectors, there's not much of that left. So when we think about capital recycling going forward, it's really lower cap rate non-core assets in our business that are higher quality, that there's institutional demand for it, but not necessarily part of the company's long-term strategy and that's going to be reflected in the cap rate, but I think it kind of goes back to the --
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Mathematically, it seems almost sub-5 based on what you sold Genesis.
John Goodey -- Executive Vice President-Chief Financial Officer
Yeah. Correct.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay.
John Goodey -- Executive Vice President-Chief Financial Officer
Your math is correct on the blended cap rate of what's remaining. So I think you'll be from a quality perspective, from a sales cap rate perspective, it will fit again in that bucket of higher quality assets just don't fit into our necessarily our long-term strategy.
Thomas J. DeRosa -- Chief Executive Officer
Jordan, we're not definitely disputing your math. We can only tell you that the demand for healthcare assets, both in senior housing and medical office is extremely robust, particularly in seniors housing, we have seen medical office have -- cap rates have come up from the troughs of 2017, but in seniors housing, there is an absolute bidding frenzy, from the institutional investors. Everybody is -- people are seeing where the demand growth curve is going and there is a huge demand for this asset. So we obviously like to recycle our portfolio and our balance sheet over time. So that's what we're doing.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
I would just add to that, Jordan, this is kind of goes back to Vikram's question from earlier. But you are -- the math on kind of our dispositions throughout the year, adds the part of that the acceleration of earnings into the year. So, your math is correct, we being accretive sales in the back half and that's what puts us, I think, Vikram is thinking at the run rate likely to the end of year would be toward the higher end of what our guidance is out there. But throughout the year, we'll have a lower number at the start and partially due to some of these sales occurring at the beginning of the year.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay. And then just a couple of quick clarifications. So looking at your senior housing triple-net rent expiry. Last quarter there was $43 million-ish expiring in the rest of '18 and there was zero in '19. And now it looks like -- I'm curious what happened to that. I don't know if that was Brandywine or something else. And now it looks like there's about $28 million that's set to mature in 2019 and it's expected to be converted in addition to senior housing operating. So just could you confirm that's Brandywine?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
No, Jordan, it's the Brookdale transition that is still happening. A lot of Brookdale assets are in California -- a lot of Brookdale assets are in California and those obviously the licensing transfer takes time. So those are happening right now. There has not been any additional -- senior triple-net to RIDEA conversion other than Brandywine and Brookdale that we have talked about through the years -- last year.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
And the other clarification is for the SHOW guidance for 2019. All transition assets are in the guidance, Brandywine and Brookdale.
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Brandywine is because it is not a change of operator. Brookdale assets are not because it is a change of operator.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay. Thank you.
Operator
Your next question is from the line of Michael Carroll with RBC Capital Markets.
Michael Carroll -- RBC Capital Markets -- Analyst
Yeah. Thanks. Shankh, I wanted to see if you can provide some additional color off of the $3 billion pre-development pipeline. Are these with new and/or existing relationships and can you provide a breakout between MOB and senior housing assets?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Yes. I mentioned seven relationships, three are in MOBs, four are in seniors housing, all but one is a new relationship, one is existing relationship.
Michael Carroll -- RBC Capital Markets -- Analyst
Okay. And I'm sorry if I missed this from Tayo's questions, but is it safe to assume that you guys can break ground on these projects over the next one to two years or should we think about this more of a longer-term type pipeline?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
No. We have broken ground already on the largest project we mentioned, which is the Pappas Property. I also said these are not just development. They are under-construction projects as well. So, obviously, they are coming up, and obviously, at the right point in the life cycle, we'll execute on those opportunities. But they are -- as I said, as you can look at, it is very typical for this company to have this kind of arrangement. That's why we have always executed a relationship investment strategy with our operators. So there is nothing new that I am telling you. But we're very encouraged that six of the seven are new relationships with highly reputable developers and operating partners. And a very interesting part of that trend, which is a change, as I mentioned on my script, a -- out of those seven, four has reached out to us instead of us reaching out to them. And so that sort of gives you a sense of how we compete in the marketplace today is shifting.
Thomas J. DeRosa -- Chief Executive Officer
I had mentioned in an answer to Tayo's question that there is tremendous visibility here. Now, anything can happen in the development world, lots of reasons why things will be delayed. But I can't understand -- underscore more that we know where these opportunities are and the timing of them is not something that we're going to predict for you. But let's just say, this is not 10 years out in the future. These are things that we are actively engaged in right now.
Michael Carroll -- RBC Capital Markets -- Analyst
Great. And I guess last question and it seems like a pretty attractive pipeline. Should we assume that the company's focus on developments will increase from this point forward or are you seeing more opportunities out there, I guess, as highlighted by the $3 billion of deals you kind of just highlighted?
Thomas J. DeRosa -- Chief Executive Officer
I think what Shankh said is that we are engaged with some of the most successful developers in the US today and they're presenting us with many attractive opportunities that are very strategic for us, because these are opportunities with some of the nation's leading health systems. And I think you've gotten a little flavor for that, if you look at what we've done and what we've announced in 2018 and some of the projects, for example, with Providence St. Joseph Health System, the projects that we talked about today with Atrium, a very highly rated system in North Carolina. These should give you an indication of where a significant amount of growth will happen to Welltower. We're not going to give you any more granularity about that other than we've showed you with real examples of what we're doing and we've articulated a $3 billion pipeline, you should assume a big percentage of it is more of that.
Michael Carroll -- RBC Capital Markets -- Analyst
Great. Thank you.
Operator
Your next question comes from the line of Lukas Hartwich with Green Street Advisors.
Lukas Hartwich -- Green Street Advisors -- Analyst
Thanks. Good morning. So for SHOP, the UK portfolio has put up two quarters of high single-digit NOI growth. Can you provide some color on the drivers there?
Thomas J. DeRosa -- Chief Executive Officer
It's driven by significant occupancy ramp in UK.
Lukas Hartwich -- Green Street Advisors -- Analyst
Okay. And then I think in your comments, Shankh, you'd mentioned that you're working on something like $600 million senior housing acquisitions. Can you provide more color on the quality, market mix versus the current portfolio?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
I think, Lukas, you might have misheard, I think, we -- I said that we have announced $725 million worth of senior housing portfolio across three operating partners. And these assets are new assets, young assets, 4.5 years of age. And there's nothing else I have to add to that except that we think that we did these transactions in a very attractive returns of 6.6% cap rate.
Thomas J. DeRosa -- Chief Executive Officer
The question of quality is hard to answer. Quality to us is what is strategically relevant to our long-term plan. We are selling, you've seen us sell assets that many people think are high quality. We talked about where cap rates are in this space. These are high quality assets to some people, but they may not be strategic to us. So it's hard to answer that question.
When you see us deploying capital in seniors housing going forward. Understand, it's in markets and in the types of assets that are relevant to the broader Welltower strategy, which is connecting senior housing more broadly in the health and what is increasingly becoming a wellness continuum. That's what we're driving here. So that's what we think of as quality, because we sell something. It doesn't mean it's low quality and we're getting good prices for it, because to some buyers, they are great assets. They just -- they don't fit necessarily our long strategic plan. I hope that's helpful.
Lukas Hartwich -- Green Street Advisors -- Analyst
That is. Yeah. Thank you.
Operator
Your next question comes from the line of Steven Valiquette with Barclays.
Steven Valiquette -- Barclays -- Analyst
Great. Thanks. Good morning, everyone. Thanks for taking the question here. So, the main question I wanted to ask was just touched on a couple of minutes ago, but just to kind of ask on the same subject anyway, really as a follow-up on the overall pipeline, in the U.S. market right now, we're actually seeing real time that many hospitals and health systems are actually posting a stronger than expected earnings results exiting 2018 and in 2019. Now, intuitively that should give health systems more confidence to pull the trigger on acquisitions, whether it's in post-acute or other types of assets.
So, again, you kind of touched on this a little bit, but as we think about your pipeline of opportunities with health systems, I'm curious if you're getting that same sense, the pipeline could actually be accelerating a little bit. ProMedica ManorCare type deals as we think about Welltower's opportunity with health systems, or it's a pipeline may be accelerating in other asset types with health system. Just given their -- what seems to be strengthening balance sheets? Thanks.
Thomas J. DeRosa -- Chief Executive Officer
Yeah. Good question, Steve. Let me take some of that and maybe Mark Shaver will have some comments on this, because he spends a lot of time with the health systems, as to why. One of the comments I'll make is that as health systems start to see a future for their business model that's different from the very focused acute-care model that drove so much of their real estate investment in the past, I think that opens up opportunities for partners like Welltower.
So, I would say, what you see particularly from the non-profit health systems is a little bit of a mixed bag, because -- in terms of performance, because some of them are very well-positioned to face a brave new world where data, new technologies and an ambulatory focus will have a big impact on profitability. Of those that are attached to an acute-care in-patient bedded hospital model will struggle. Not to say that there aren't markets where there is an under-supply of acute-care. But on balance, there's a lot of outmoded acute-care beds that fit in all of these health systems that are well past their useful life. So when they look at capital going forward, many of them are now seeing that a partnership with Welltower helps them accelerate the transition that they need to undertake. Mark, do you want to make any comments on that?
Mark Shaver -- Senior Vice President-Strategy
Yeah, Tom. Steve, thanks for the question. It's Mark Shaver. I would maybe add two points. I think with health systems we're going to continue to see two very important trends that we're positioned well to help with. One is they're going to continue to need to rightsize their clinical delivery system. This is a lot of what, Tom said, continue to move away from the acute-care and maybe some specialty care environments in the in-patient setting and build out their ambulatory outpatient and other sites of care footprint. So we continue to be very active in those dialogues and I think while their balance sheets maybe strengthening a bit, the ability for them to fund that clinical growth on their own is going to continue to be challenged. That's a great opportunity for us.
And then the second piece which is really where I think your question was starting. There is going to continue to be vertical integration in with health system partners just like you see across the health spectrum. And so that's going to create these ProMedica type transactions where they are looking to grow additional margin businesses. And again, I think, we're very well-positioned to support that.
Thomas J. DeRosa -- Chief Executive Officer
Steve, I will just add one last comment --
Steven Valiquette -- Barclays -- Analyst
Okay. Appreciate the answer there, Mark. Thanks.
Thomas J. DeRosa -- Chief Executive Officer
One last comment. Majority of the pipeline today if you look at with health system though, it is on what you understand as traditional outpatient ambulatory care and medical office segment.
Steven Valiquette -- Barclays -- Analyst
Okay. Got it. Okay. All right. Thanks everybody.
Thomas J. DeRosa -- Chief Executive Officer
Thanks Steve.
Operator
Your next question comes from the line of Chad Vanacore with Stifel.
Seth Canetto -- Stifel, Nicolaus & Company -- Analyst
Hey. Good morning. This is Seth Canetto on for Chad. My first question on the increase disposition guidance going from $800 million to $1.4 billion. What's changed since December that led you guys to increase this so significantly?
Tim McHugh -- Senior Vice President, Corporate Finance
Yeah. Seth, it's Tim here. We're always in talks, as Shankh mentioned in part of his prepared remarks, and as we're consistently saying, with the interested parties in our assets and you shouldn't think of discussions between now and December, having that something changed, but things firm up and it got to the point we're more and more comfortable putting it into guidance now than we would have done back in December.
Seth Canetto -- Stifel, Nicolaus & Company -- Analyst
All right. Thanks. And then, just looking at the triple-net senior housing portfolio, it does look like you have about 2% of your portfolio under 1 times coverage. Should we still think about any triple-net to RIDEA conversions going forward?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
So, well, I think, if you look at last quarter's earnings call, you will see that I've gone through a significant details about how to think about that segment, so I'm not going to repeat that. I mentioned -- I think I answered that question before that you are not going to see something of material side. But we just have to say is this, we don't think about the triple-net better than RIDEA or RIDEA better than triple-net. That's not how we do this business.
We think about an alignment of interest with our operators. So if it is the right alignment, we will take RIDEA assets into triple-net. If it is the right alignment to do the other way, we're going to do that. But just to answer your question very specifically, please go back and read the transcript from last call, you'll see there is a major discussion about the topic. I don't want to waste everybody's time to get into that, but we do not expect anything of size change from triple-net to RIDEA as of today.
Seth Canetto -- Stifel, Nicolaus & Company -- Analyst
All right. Thanks. And just on the segment guidance for 2019, the outpatient medical guidance looks like it declined 25 basis points at the midpoint versus 2018. Can you just give more color what drove that decrease year-over-year?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
Yeah. Absolutely. This is also something we talked about in details in our Investor Day. We have a couple of lease that's rolling this year that will have downtime. We underwrite -- always underwrite downtime and that's what you're seeing sort of get caught in that calendar side. We're very, very excited about that business, as Keith was taking over the business and he's making lots of change. So it's starting toward the end of this year into next year, you will see the fruits of those efforts that Keith is putting in and bringing and hiring a lot of really good talent there. And also empowering a lot of our existing talent, so we're very excited about the business. What you're seeing the 25 basis points, just a function of two lease roll that we described in our Investor Day.
Seth Canetto -- Stifel, Nicolaus & Company -- Analyst
All right. Great. Thanks for taking my questions.
Thomas J. DeRosa -- Chief Executive Officer
Thank you.
Operator
(Operator Instructions) The next question comes from Michael Mueller with JPMorgan.
Michael Mueller -- JPMorgan -- Analyst
Yeah. Hi. Two questions. First, what do you see as being your average annual development spend over the next five years, given how the pipeline is ramping up? And then second for the $1.4 billion disposition target, should we think of that as that's what you want to sell this year. So if you're active on -- more active on the acquisition side, we should be thinking of equity for incremental funding or could we see that disposition numbers scale up more?
Shankh Mitra -- Executive Vice President and Chief Investment Officer
First is, I'm not going to venture, I guess, on what the average development spend will be, it is safe to assume, it will be higher than what it is. It's a question of risk/reward, as you know that we, for example, in the medical office segment, we only put shovel in the ground when it's close to 100% leased. We don't go and build the building, if we have, say, half of that as a commitment. So that sort of gives your question to answer to what the question you asked. It's probably going to be higher, but it is a function of a lot of other factors.
The second answer is, as we think about the ramp-up of the acquisition portfolio. We should also think that the equitation of those assets will come from both common equity, as well as the assets we own. Tom talked about how we think about asset disposition. We have lots of very high quality asset that has a significant bid in the marketplace today and we will continue to recycle capital and the most important point that you are not going to see the dilutive capital raise that you have seen before, and so whether it's from common equity, it's from the assets we own, we do think that we will very prudently manage the balance sheet.
Thomas J. DeRosa -- Chief Executive Officer
Then, Mike, I want to make one comment. I think you should expect that development will accelerate in this next cycle, because of the fact that their -- we're bringing forth the new asset class that didn't exist. I mean, a lot of the urban senior housing models like that we've been announced on 56th Street, which by the way, was capped off just last week, right, Mercedes.
Mercedes Kerr -- Executive Vice President, Business and Relationship Management
Yes. Right.
Thomas J. DeRosa -- Chief Executive Officer
And -- but we announced on 85th and Broadway. These are -- this is a product that's never been delivered. I think what healthcare real estate offer investors is the opportunity to invest in a next-generation class of real estate that they've not seen before. It's going to take a lot of capital. That's what we are positioned to do. I don't know how you do that if you're not investing with Welltower. And Shankh's comment about all the incoming calls now, a lot of it has to do that. We met with an institution who realized they would be much better off investing with us than trying to compete against us, because there are -- just -- you've heard us talk a lot about our data analytics capability. No one can compete with that.
Michael Mueller -- JPMorgan -- Analyst
Got it.
Thomas J. DeRosa -- Chief Executive Officer
So there you go.
Michael Mueller -- JPMorgan -- Analyst
Okay. That's helpful. Thank you.
Operator
And your final question comes from the line of Eric Fleming with SunTrust.
Eric Fleming -- SunTrust -- Analyst
Good morning. I just want to ask a question on, how are you guys looking at potential Medicare Advantage opportunities. I know Sunrise talked about their MA plan on your Investor Day. You've got the ProMedica relationship. When do you think you can get -- start getting any contribution and what do you think the total market opportunity is for the MA plans?
Mark Shaver -- Senior Vice President-Strategy
Yeah. Eric, this is Mark Shaver. I think Medicare Advantage continues to grow as a trend in the country. It's about 35% adoption nationally in MA plans. The larger plans for straightforward Medicare are really looking at the earlier, younger population at the middle 60s to early 70s in population. A lot of the residents living in our communities are older and more frail. And some of the more specialized programs, the institutional programs really which is what Sunrise and some of the others are playing, is actually a much smaller percentage adoption of that nationally. We're talking about less than 100,000 individuals across the country in those plans. So we're very active in those conversations with some of the major payers. And there's -- as Tom says often early days with regards to MA and the adoption, but we're very active and we think there's going to be an important role in partnering with payers in this front.
Thomas J. DeRosa -- Chief Executive Officer
We think they're actually be development of products by the payers that will address the needs of the population that will likely enter the Assisted Living sector. Again, generally a wealthier population. Historically, we don't think of MA as a product that was geared toward someone who is paying $8,500 a month for seniors housing. But I think that's going to change in the future. And as Mark said, we have a lot of discussions with the major payers. You just heard that a very senior executive from UnitedHealthcare came on our Board, we just announced it today, as well as Dr. Karen DeSalvo who was with the largest payer in the world CMS. I mean, the largest payer in the U.S. CMS. So we've got a lot of good knowledge and experience both inside the company and sitting on our Board.
Eric Fleming -- SunTrust -- Analyst
Good. Thanks a lot.
Thomas J. DeRosa -- Chief Executive Officer
Thank you.
Operator
And with no further questions, we thank you for dialing in to the Welltower earnings conference call. We appreciate your participation and ask that you please disconnect.
Duration: 75 minutes
Call participants:
Tim McHugh -- Senior Vice President, Corporate Finance
Thomas J. DeRosa -- Chief Executive Officer
Shankh Mitra -- Executive Vice President and Chief Investment Officer
John Goodey -- Executive Vice President-Chief Financial Officer
Nick Joseph -- Citi -- Analyst
Karin Ford -- MUFG Securities -- Analyst
Vikram Malhotra -- Morgan Stanley -- Analyst
Tayo Okusanya -- Jefferies -- Analyst
Jonathan Hughes -- Raymond James -- Analyst
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Michael Carroll -- RBC Capital Markets -- Analyst
Lukas Hartwich -- Green Street Advisors -- Analyst
Steven Valiquette -- Barclays -- Analyst
Mark Shaver -- Senior Vice President-Strategy
Seth Canetto -- Stifel, Nicolaus & Company -- Analyst
Michael Mueller -- JPMorgan -- Analyst
Mercedes Kerr -- Executive Vice President, Business and Relationship Management
Eric Fleming -- SunTrust -- Analyst
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.
