Q1 2025 Welltower Inc Earnings Call
Yeah.
Kaylin: Thank you for standing by. My name is Kaylin. I will be your conference operator today.
Kayla: Thank you for standing by my name is Kayla and I will be your conference operator today at this time I would like to welcome everyone to the well tower first quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Kaylin: At this time, I would like to welcome everyone to the Welltower First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star and one.
Kayla: You'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Kayla: I would like to withdraw your question again press the star in one.
Matthew Mcqueen: I would now like to turn the call over to Matt McQueen, Chief Legal Officer and General Counsel. You may begin. Thank you and good morning.
Speaker Change: I would now like to turn the call over to Matt Mcqueen, Chief Legal Officer, and General Counsel you may begin.
Matt Mcqueen: Thank you and good morning, as a reminder, certain statements made during this call maybe deemed forward looking statements in the meaning of the private Securities Litigation Reform Act, although well power believes any forward looking statements are based on reasonable assumptions. The company can give no assurances that.
Matthew Mcqueen: 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 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 FCC.
Matt Mcqueen: Factors that could cause actual results to differ materially from those before looking statements are detailed in the company's filings with the SEC and with that I'll hand, the call over to Sean for his remarks. Thank.
Shankh Mitra: And with that, I'll hand the call over to Sean for his remarks. Thank you, Matt. And good morning, everyone. I'll review business trends and our capital allocation priorities, and the team will follow the usual cadence. I am pleased to report that we began the year on a positive note, delivering approximately 19% growth in FFO per share, driven by better-than-expected results from our Seniors Housing Operating Portfolio and significant acquisition activity. These results and a refreshed outlook for the remainder of the year have enabled us to raise the midpoint of our full year FFO guidance by 10 cents per share to $4.97.
Sean: Thank you, Matt and good morning, everyone I'll review business trends and our capital allocation priorities and the team will follow the usual cadence.
Sean: I'm pleased to report that we began the year on a positive note.
Sean: Approximately 19% growth in <unk> per share driven by better than expected results from our seniors housing operating portfolio and significant acquisition activity.
Sean: These results and a refreshed outlook for the remainder of the have enabled us to raise the midpoint of our full year <unk> guidance by 10 cents per share to 497.
Shankh Mitra: Before getting into some of the details, I first want to mention that our achievements this quarter extend well beyond operational execution and attractive capital deployment. Our years of unrelenting effort culminated into an announcement of several major achievements, which I believe will allow us to both augment our growth and extend its duration even further into the future. These achievements include, one, the launch of our private funds management business, two, significant advancement in the Welltower business system, our proprietary end-to-end four, our successful rollout of a corporate rebranding that reflects Welltower's transformation from a healthcare real estate deal shop to a data science and technology-driven operating company in a real estate wrapper, and finally, and most recently, an upgrade to a credit rating by both S&P and Moody's to A- and A3, respectively.
Sean: Before getting into some of the details I first want to mention that our achievements this quarter extend well beyond operational execution and attractive capital deployment.
Sean: Yourself unrelenting effort culminated into an announcement of several major achievements, which I believe will allow us to both augment our growth and extended duration, even farther into the future. These achievements include one the launch of our private funds management business to significant advancement.
Sean: In the West Tower business system, our proprietary end to end operating platform.
Sean: Sorry, so all they define our leadership through several key promotions.
Sean: For our successful rollout of our corporate rebranding that reflects onetime transformation from a health care real estate deal shop to a data science and technology, driven operating company in a real estate wrapper and finally and most recently an upgrade to our credit rating by both S&P and Moody's to AA minus and a three.
Shankh Mitra: I'm humbled by this unwavering dedication of our team in achieving these major milestones.
Sean: <unk>.
Sean: I'm humbled by this honor wavering dedication of our team in achieving these major milestones.
Shankh Mitra: Turning to fundamentals, senior housing operating business remains strong. There is no diminution of the momentum which we carried into the year, as reflected by our 10th consecutive quarter in which same-store net operating income growth has exceeded 20%. From an occupancy perspective, following a period of exceptional results in 2024, we reported 400 basis points of year-over-year growth in Q1, the highest level of growth we have witnessed in any quarter outside post-COVID recovery. Perhaps even more impressive is that, despite seasonal headwinds that we typically encounter early in the year, the portfolio's sequential average occupancy growth of 60 basis points was the strongest we have reported in the first quarter of any year in our recorded history.
Sean: Turning to fundamentals seniors housing operating business remains strong there is no degradation of the momentum, which we carried into the year as reflected by our 10th consecutive quarter same store net operating income growth has exceeded 20% from an occupancy perspective, following a period of <unk>.
Sean: Actual results in 'twenty 'twenty four.
Sean: We reported 400 basis points of year over year growth in Q1, the highest level of growth we have witnessed in any quarter outside post COVID-19 recovery, but perhaps even more impressive is that despite seasonal headwinds that we typically encounter early in the year the portfolio's sequential average occupancy.
Sean: Growth of 60 basis points was the strongest we have reported in the first quarter of any year in our recorded history. Please look at US six off our business update to reflect on what kind of seasonal outlier Q1 was the.
Shankh Mitra: Please look at our slide 6 of our business update to reflect on what kind of seasonal outlier Q1 was. The business also maintained strong pricing power, with growth in REP-POR, or unit revenue, of nearly 6%, with 90% occupancy cohort experiencing 7-plus percent growth. Excluding the impact of leap year, REP-POR growth was still strong at 5.1%, and EXP-POR, or unit expense, would have been 1.3%, and same-store revenue growth of 9.9%. With the spread between REP-POR and EXP-POR remaining at the historically wide level, we achieved another period of outsized margin expansion of nearly 300 basis points year-over-year, with a significant runway of further growth which John will touch on shortly.
Sean: The business also maintained strong pricing power with growth in Revpar, our unit revenue of nearly 6% with 90% occupancy cohort experiencing seven plus percent growth.
Sean: Excluding the impact of leap year Revpar growth was still strong at five 1% and export our unit expense would have been one 3% and same store revenue growth of nine 9% with the spread between Revpar and X four remaining at a historically wide level, we achieved another period of outsized margin.
Sean: The expansion of nearly 300 basis points year over year with a significant runway of further growth with John will touch on shortly as we look ahead the demand supply backdrop for senior living sector continues to strengthen setting us up for a multiyear period of attractive growth and we continue to augment that growth.
Shankh Mitra: As we look ahead, the demand-supply backdrop for senior living sector continues to strengthen, setting us up for a multi-year period of attractive growth. And we continue to augment that growth by taking market share with our best-in-class operating partners and Welltower business system execution.
Sean: By taking market share with our best in class operating partners and what is our business system execution. Nonetheless, we're acutely aware of the rise in macroeconomic uncertainty, particularly as we approach the summer leasing season were encouraged by the strong trends we have observed thus far in the year, but also need to.
Shankh Mitra: Nonetheless, we are acutely aware of the rise in macroeconomic uncertainty, particularly as we approach the summer leasing season. We are encouraged by the strong trends we have observed thus far in the year, but also need to see what market gives us during the all-important summer leasing season. The need-based, private-pay nature of our product provides optimism around our ability to outperform not only other forms of real estate, but also major asset classes. However, as you know, we have no delusion of satisfaction.
Sean: See what market gives us during the all important summer leasing season that need based private pay nature of our product provides optimism around our ability to outperform not only other forms of real estate, but also a major asset classes.
Sean: However, as you know we have no dilution of certainty shifting to transaction environment.
Shankh Mitra: Shifting to Transaction Environment As we have discussed in recent quarters, the opportunity set for compelling investments has grown meaningfully, and our recent activity clearly reflects that momentum. In mid-February, we announced $2 billion of pro rata acquisitions. In March, we announced the $4.6 billion Canadian dollar acquisition of Amica Senior Living. Today, we're pleased to announce another $1 billion of additional acquisitions, bringing our total pro rata acquisition activity to roughly $6.2 billion for the year. To put this into perspective, we have closed $6 billion of investments in all of 2024. As we reach the end of April, we have already invested more of our precious capital this year than in any previous years in the company's history.
Sean: As we have discussed in recent quarters the opportunity set for compelling investments has grown meaningfully and our recent activity clearly reflects that momentum.
Sean: In mid February we announced.
Sean: $2 billion of pro rata acquisitions in March we announced the $4 6 billion Canadian dollar acquisition of Ami Garcinia living today.
Sean: Today, we're pleased to announce another $1 billion of additional acquisition, bringing our total provider that prototype acquisition activity to roughly $6 2 billion for the year to put this into perspective, we have close to $6 billion of investments in all of 2024 as we reach the end of April we have already invested.
Sean: More of our precious capital this year than in any previous years in the company's history.
Shankh Mitra: However, as you know, our focus is not volume of investment, but the value they deliver. Transactions that we completed this quarter were secured at significant discounted replacement costs and are expected to meaningfully enhance our growth in coming years. This includes 38 community AMICA portfolio, the highest quality senior housing portfolio in North America. This trophy portfolio of 38 communities is located in highly affluent neighborhoods of Toronto, Vancouver, and Victoria, with an exceptional outlook for long-term growth. Nikhil will provide more details, but we are thrilled to form a long-term partnership with Robert, Gantz, and their team, who share our vision of delivering a killer value proposition for residents and a dynamic environment for site-level employees to grow and thrive.
Sean: However, as you know our focus is not volume of investment, but the value. They deliver transactions that we completed this quarter was secured a significant discount to replacement cost and I expected to meaningfully enhance our growth in coming years.
Sean: This includes 38 community amico portfolio, the highest quality senior housing portfolio North America. This trophy portfolio of 38 communities is located in highly affluent neighborhoods or Toronto, Vancouver, and Victoria with an exceptional outflow for long term growth Nikhil will provide more details, but we're thrilled.
Sean: Law form a long term partnership with Robert <unk> and their team who shared our vision of delivering a killer value proposition for our residents and a dynamic environment for a site level in place to grow and thrive.
Shankh Mitra: If you want to look at another example of what great management does to thriving communities, please look at another Canadian example. In fourth quarter of 2023, we bought the Zazz portfolio for 885 million Canadian dollars. While the portfolio was highly occupied at the time of acquisition, in the last 18 months, Matthew, Frederick, and the team has taken the portfolio to 97% occupancy and 47% margin, well exceeding our high expectations.
Sean: If you want to look at another example of what Great management does to thriving communities. Please look at another Canadian example, in fourth quarter of 2023, we bought the SaaS portfolio for 885 million Canadian dollars, while our portfolio is highly occupied at the time of acquisition in last 18 months.
Sean: Matthew Frederic and the team has taken the portfolio to 97% occupancy and 47% margin well exceeding our high expectations.
Shankh Mitra: Another great example of similar win-win success story is taking place in the U.S., our partnership with Timber Cannon and Legend. Through our idea conversions, acquisitions, and transition, we have collaboratively created a much bigger pie to share in together by expanding the portfolio to 53 communities. Legend has since grown the legacy portfolio cash flow to nearly 2.5x and also received non-linear benefit as greater regional density drives higher management and incentive fees, higher real estate values, and improved employee retention across all Legend communities.
Sean: Another Great example of similar windowing success story is taking place in the U S. Our partnership with timber kind of a legend through a RIDEA conversions acquisitions and transition we have collaboratively created a much bigger pie to sharing together by expanding the portfolio to 53 communities legend has since grown there.
Sean: Legacy portfolio cash flow to nearly two and a half X and also received long linear benefit as greater regional density drives higher management and incentive fees.
Sean: Did values and improved employee retention across all legend communities before.
Shankh Mitra: Before turning it over to John, I wanted to quickly touch base on a balance sheet. As I mentioned earlier, our efforts in recent years to reduce leverage and bolster liquidity profile was recognized by S&T and Moody's through an upgrade of our trade rating. And during the quarter, our net debt-to-adjusted bid further declined to just 3.3 times, another record low for the company as a result of prudent funding of our acquisition activity and strong cash flow growth. Additionally, with nearly $9 billion of balance sheet liquidity we are not only in position to endure any further capital market hostility, but also to deploy capital as opportunities arise.
Sean: Before turning it over to John I wanted to quickly touch base on our balance sheet.
John: As I mentioned earlier, our efforts in recent years to reduce leverage and bolster our liquidity profile was recognized by S&P and Moody's through an upgrade of our credit rating and during the quarter, our net debt to adjusted EBITDA further decline to just three three times and another record low for the company.
John: As a result of our prudent funding of our acquisition activity and strong cash flow growth.
John: Digitally with nearly $9 billion of balance sheet liquidity.
We're not only in a position to endure any further capital market volatility, but also to deploy capital as opportunities. There is all in all we're pleased with our execution. So far in the year, but we have a long and busy year in front of us with that I'll pass it over to John John.
Shankh Mitra: All in all, we're pleased with our execution so far in the year, but we have a long and busy year in front of us.
Shankh Mitra: With that, I'll pass it over to John. John?
John Burkart: Thank you, and good morning, everyone. As Shankh mentioned, the momentum that continued to build through the fourth quarter of 2024 has carried into the early part of this year. We reported total portfolio same-store NOI growth of 12.9%, driven by another quarter of solid senior housing operating portfolio growth of 21.7%. I'll start with the outpatient medical segment, which remains steady, posting 2.7 percent year-over-year same-store NOI growth. Same-store occupancy trended higher on both a year-over-year and sequential basis, coming in at 94.5 percent, while tenant retention also remains healthy at over 94 percent.
John: Thank you and good morning, everyone.
John: As Chuck mentioned the momentum that continued to build through the fourth quarter of 2024 has carried into the early part of this year. We reported total portfolio same store NOI growth of 12, 9% driven by another quarter of solid senior housing operating portfolio growth of 21, 7%.
John: I'll start with the outpatient medical segment, which.
John: Which remained steady posting two 7% year over year same store NOI growth.
John: Same store occupancy trended higher on both a year over year and sequential basis coming in at 94, 5% tenant retention also remains healthy at over 94%.
John Burkart: Now shifting to the Senior Housing Operating Portfolio. We continue to be pleased with our performance, with Q1 marking the 10th consecutive quarter in which year-over-year same-store NOI growth exceeded 20%. This incredible feat isn't just a function of the attractive demand-supply backdrop for senior housing, however. Welltower's alpha continues to be driven more so by our best-in-class operating partners and deployment of the Welltower business system, our proprietary end-to-end operating platform, and our focus on deepening regional density across the portfolio. These initiatives continue to bear significant fruit. During the quarter, year-over-year, same-store revenue growth of 9.6% was clearly the highlight, driven by a remarkable 400 basis points of occupancy growth and strong REV-4 growth of nearly 6%.
John: Now shifting to the senior housing operating portfolio.
John: We continue to be pleased with our performance with Q1, marking the 10th consecutive quarter in which year over year same store NOI growth exceeded 20%. This incredible feat is it just a function of the attractive demand supply backdrop for senior housing however, well towers Alpha continues to be driven more by more so by our best in class.
John: Operating partners and deployment of the <unk> business system, a proprietary end to end operating platform and our focus on deepening regional density across the portfolio. These initiatives continue to bear significant fruit.
John: During the quarter year over year same store.
John: Revenue growth of nine 6% was clearly the highlight driven by a remarkable 400 basis points of occupancy growth and strong revpar growth of nearly 6%.
John Burkart: Revenue growth was generally consistent across all three of our regions, led by the U.S. at 9.8, followed by the U.K. at 9.3, and Canada at 8.3. Importantly, we also reported nearly 300 basis points of year-over-year margin expansion during the quarter, as revenue continues to solidly outpace unit expense growth. And while NOI margins remain below pre-COVID levels, the inherent operating leverage in our business, combined with the widening of our moat through Welltower business system, position us well for substantial margin expansion well into the future. Although I tend to keep quiet about various Welltower business system initiatives for proprietary reasons, I have commented on the technology platform, which is foundational to the customer and employee experience, as well as driving alpha.
John: Revenue growth was.
John: It was generally consistent across all three of our regions led by the U S. At $9 eight followed by the UK at $9 three in Canada and eight three importantly, we also reported nearly 300 basis points of year over year margin expansion during the quarter as revenue continues to solidly outpace unit expense growth.
John: And while NOI margins remained below pre COVID-19 levels, the inherent operating leverage in our business combined with the widening of our moat through well tower business system positions us well for substantial margin expansion well into the future.
John: Although I tend to keep quiet about various wall tower business system initiatives for proprietary reasons I have commented on the technology platform, which is foundational to the customer and employee experience as well as driving Alpha. These efforts have continued and we are on pace with our 2025 rollout plans.
John Burkart: These efforts have continued, and we're on pace with our 2025 rollout plan. Currently multiple operators have some portion of their assets on our technology platform and we continue to add assets monthly, collaboratively working with our operating partners to address pain points and drive efficiencies in the business.
Currently multiple operators have some portion of their assets on our technology platform and we continue to add assets monthly collaboratively working with our operating partners to address pain points and drive efficiencies in the business.
John Burkart: Well, it's early in the peak leasing season is ahead of us. We're pleased with our results thus far. The need-based and private pay nature of the business has clearly proven its resilience. But we'll take nothing for granted and we'll continue to operate with the same level of dogged determination and vigilance across all aspects of operations with a focus on providing a delightful customer experience and driving site-level employee satisfaction higher. I'd like to take a moment to commend both our internal Welltower team and our world-class operating partners for their efforts in generating our industry-leading results. We remain relentlessly focused on operational excellence as we strive to deliver an unmatched service offering for residents and their families while making our communities the most desirable places to work in the industry.
John: Well, it's early in the peak leasing season is ahead of us.
John: We're pleased with our results thus far the need based and private pay nature of the business has clearly proven its resilience resilience, but we'll take nothing for granted and we will continue to operate with the same level of dogged determination and vigilant across all aspects of operations with a focus on providing if you like full customer experience.
John: Driving site level employee satisfaction higher.
John: To take a moment to commend both our internal Welch our team and our World class operating partners for their efforts in generating our industry leading results. We remain relentlessly focused on operational excellence as we strive to deliver an unmatched service offering for residents and their families while making our communities. The most desirable play.
Nikhil: This to work in the industry I will now turn the call over to Nikhil.
Nikhil Chaudhri: I'll now turn the call over to Nikhil. Thanks, John. As we've discussed over the past few quarters, we have observed a noticeable expansion in capital deployment opportunities, resulting not only from debt-driven challenges, but also from pension funds seeking liquidity and other institutions reducing exposure to commercial real estate. This backdrop has resulted in year-to-date investment activity, which has already surpassed our acquisition volume for all of last year, which in itself was a record year for the In addition, our investment pipeline remains robust, with recent capital markets volatility presenting additional opportunities. Turning to the quarter, we completed $2.66 billion of new investments in the first quarter.
John: John.
John: As we've discussed over the past few quarters, we have observed a noticeable expansion and capital deployment opportunities, resulting not only from that driven challenges, but also from pension funds seeking liquidity and other institutions, reducing exposure to commercial real estate.
John: This backdrop has resulted in year to date investment activity, which has already surpassed our acquisition volume for all of last year.
John: Which in itself was a record year for the company and.
John: In addition, our investment pipeline remains robust with recent capital markets volatility presenting additional opportunities for us.
John: Turning to the quarter, we completed $2 $66 billion of new investments in the first quarter on our last call in February we had previously announced $2 billion of year to date activity and since that since then and the last two and a half months, we have expanded our investment activity by $4 2 billion.
Nikhil Chaudhri: On our last call in February, we had previously announced $2 billion of year-to-date activity. And since then, in the last two and a half months, we have expanded our investment activity by $4.2 billion, bringing our total year-to-date balance sheet investment activity to $6.2 billion. This additional activity is comprised of the USD 3.2 billion acquisition of Amica Senior Lifestyles announced last month, and an additional $1 billion plus of new granular activity. Of this additional $1 billion, $660 million has already closed in Q1, with the remaining transactions expected to close in the coming months.
John: Bringing our total year to date.
John: Balance sheet investment activity to $6 2 billion.
John: This additional activity is comprised of the USD three 2 billion acquisition of amicus senior lifestyles announced last month, and an additional $1 billion plus of new granular activity.
John: This additional $1 billion $660 million has already closed in Q1 with the remaining transactions expected to close in the coming months.
Nikhil Chaudhri: Zooming in on our AMICA transaction, which is expected to close around year-end, we are already incredibly excited to announce our partnership with one of the strongest seniors housing operators in Canada. Alongside Cogier, one of Welltower's most valued growth partners, AMICA's inclusion in our portfolio further enhances our partnership with best-in-class operators in the country. As Shankh mentioned earlier, the quality of the AMICA portfolio is simply unparalleled as demonstrated by its locations within highly affluent neighborhoods and its performance track record. This ultra-luxury portfolio that is comprised of 38 locations in Vancouver, Victoria, and the Greater Toronto Area boasts home values of $2-4 million within the immediate vicinity of the communities, or 3-4 times the average home values in those respective provinces.
John: Zooming in on our <unk> transaction, which is expected to close around year end we're already.
John: And incredibly excited to announce our partnership with one of the strongest seniors housing operators in Canada.
John: Long side cause year, one of our towers, most valued growth partners amick is inclusion in our portfolio further enhances our partnership with best in class operators in the country.
Speaker Change: As John mentioned earlier, the quality of the abaca portfolio is simply unparalleled as demonstrated by its locations within a highly affluent neighborhoods and its performance track record.
Speaker Change: Ultra luxury portfolio that is comprised of 38 locations in Vancouver, Victoria, and the greater Toronto area boasts home values up $2 million to $4 million, but in the immediate vicinity of the communities or three to four times the average home values in those respective provinces.
Nikhil Chaudhri: Living in an AMICA building is a matter of great pride and prestige for the residents, and the service offering and the food quality are truly five stars. The total consideration of 4.6 billion Canadian dollars is comprised of the following components. 31 in-place operational assets with an average age of 11 years. These properties include 24 in-service assets with in-place occupancy in the mid-90s. These assets have sustained occupancy at these levels for a long period of time and boast margins in the low to mid 40s. Given their strong reputation, these assets have demonstrated CAGR growth of nearly 7% during the last five years.
Speaker Change: Living in an amicus building is a matter of great pride in prestige for the residents and the service offering and the food quality are truly five star.
Speaker Change: Total consideration of $4 6 billion Canadian dollars is comprised of the following components.
Speaker Change: <unk> 31 in place operational assets with an average age of 11 years. These properties include 24 in service assets, where the in place occupancy in the mid nineties.
Speaker Change: These assets have sustained occupancy at these levels for a long period of time and those margins in the low to mid forties.
Speaker Change: Given their strong reputation and these assets have demonstrated CAGR revpar growth of nearly 7% during the last five years.
Nikhil Chaudhri: Beyond the Stable 24, there are 7 in-place assets that are newly built and currently in lease-up with average in-place occupancy of approximately 70%. Amica has demonstrated an incredible lease-up track record with their last 10 development projects leasing up in just 18 months on average. The next bucket includes seven projects that are currently under construction and will be acquired at a pre-set price upon construction completion without Welltower bearing any construction and cost-related These projects are expected to be completed between 2025 and 2027. The final real estate component includes nine development parcels which have gone through elongated multi-year entitlement processes.
Speaker Change: Beyond the stable 24, there are seven in place assets that are newly built and currently in lease up with average in place occupancy of approximately 70% Anika has demonstrated an incredible lease up track record with their last 10 development projects leasing up in just 18 months on average.
Speaker Change: The next bucket includes seven projects that are currently under construction and will be acquired at a preset price upon construction completion without well tower bearing any construction and cost related risks.
Speaker Change: Projects are expected to be completed between 2025 and 27.
Speaker Change: Yes.
Speaker Change: The final real estate component includes nine development parcels, which have gone through elongated multiyear entitlement processes. These parcels comprise of expansion opportunities for existing buildings or de novo developments in the most desirable and supply constrained locations in Vancouver and Victoria.
Nikhil Chaudhri: These parcels comprise of expansion opportunities for existing AMCA buildings or de novo developments in the most desirable and supply-constrained locations in Vancouver, Victoria and the Greater Toronto Area. In addition to these components, the transaction includes the assumption of CAD $560 million of CMHC debt priced attractively at 3.6%. and an approximately one-third ownership of the Amica Management Company along with an Align Dry DFI.0 contract. The non-development components of the transaction are underwritten to generate an unlevered IRR in the double-digit range, with additional upside expected from the expansion and development projects as their respective business plans are executed over the coming years.
Speaker Change: The greater Toronto area.
Speaker Change: In addition to these components. The transaction includes the assumption of CAD $560 million of CMA sea debt priced attractively at three 6%.
Speaker Change: And then approximately one third ownership of the Omega management company, along with an aligned drive <unk> five point on contract.
Speaker Change: The non development components of the transaction are underwritten to generate an unlevered IRR in the double digit range with additional upside expected from the expansion and development projects as their respective business plans are executed over the coming years.
Nikhil Chaudhri: Zooming back out to our first quarter activity. 93% of our activity was off-market, and 75% of this was with repeat counterparts. Our activity was comprised of 26 different transactions with a median size of 55 million. I want to let this sink in. Twenty-six different transactions in thirteen weeks, or on average, two transactions a week. We acquired 88 properties comprising nearly 10,000 units across all three countries in asset classes that we invested in. Just within the U.S., we invested capital across 23 states in the first quarter. The team members sitting across just three offices in the U.S.
Speaker Change: Zooming back out to our first quarter activity.
Speaker Change: 93% of our activity was off market and 75% of this was with repeat Counterparties. Our activity was comprised of 26 different transactions, where the median size of $55 million.
Speaker Change: I want to let this thinking.
Speaker Change: 26 different transactions in 13 weeks or on average two transactions a week.
Speaker Change: We acquired 88 properties, comprising nearly 10000 units across all three countries in asset classes that we invested.
Speaker Change: Just within the U S. We invested capital across 23 states in the first quarter.
Speaker Change: The team members sitting across its three offices in the U S and one office each in the U K and Canada, we're able to invest in a granular manner due to the strength of our data science and machine learning platform.
Nikhil Chaudhri: and one office each in the U.K. and Canada were able to invest in a granular manner due to the strength of our data science and machine learning platform. Our data science solutions, which have been created over the past decade by Swagat and his team provide us with a unique view of the terrain, giving us a neighborhood level view of 10 plus million micro markets in the U.S. Allowing us to attain a level of scale which is truly unprecedented in real estate. When combined with our investment team's intellectual curiosity and relentless drive to get it right, not just to be right, with the disciplined execution of our high-performing operating partners backed by the proven strength of the Welltower business system.
Speaker Change: Our data science solutions, which have been created over the past decade by swagger and his team provide us with a unique view of the terrain, giving us a neighborhood level view of 10 plus million micro markets in the U S. A.
Speaker Change: Allowing us to attain a level of scale, which is truly unprecedented in real estate.
Speaker Change: When combined with our investment teams intellectual curiosity and relentless drive to get it right not just to be right with the disciplined execution of our high performing operating partners backed by the proven strength of the voluntary business system.
Nikhil Chaudhri: We are able to get the air just right. This setup enabled us to create significant value and consistently deliver strong returns and durable growth for our investors.
Speaker Change: We are able to get the air just right.
Speaker Change: This setup enables us to create significant value and consistently deliver strong returns and durable growth for our investors.
Timothy McHugh: I will now pass the call over to Tim to cover our financial results and updated guidance for 2025. Thank you, Nikhil. My comments today will focus on our first quarter 2025 results, performance of our triple net investment segments, our capital activity, balance sheet liquidity update, and finally, an increase to our full year 2025 outlook. Welltower reported first-quarter net income attributable to common stockholders of $0.40 per diluted share and normalized funds from operations of $1.20 per diluted share. representing 18.8% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 12.9%. Now turning to the performance of our triple net properties in the quarter.
Speaker Change: I will now pass the call over to Tim to cover our financial results and updated guidance for 2025.
Speaker Change: Thank you Neil.
Speaker Change: My comments today will focus on our first quarter 2025 results.
Speaker Change: <unk> of our Triple net investment segments, our capital activity balance sheet liquidity update and finally, an increase to our full year 2025 outlook.
Speaker Change: <unk> reported first quarter net income attributable to common stockholders of <unk> 40 per diluted share.
Speaker Change: Normalized funds from operations of $1 20 per diluted share.
Speaker Change: Representing 18, 8% year over year growth.
Speaker Change: We also reported year over year total portfolio same store NOI growth of 12, 9%.
Speaker Change: Now turning to the performance of our Triple net properties in the quarter.
Timothy McHugh: As a reminder, our Triple Net Lease Portfolio Coverage Stats are reported a quarter in arrears. So these statistics reflect a chilling 12 months ending 12-31-2024. In our seniors housing triple net portfolio, same-store NOI increased 5.1% year-over-year, and trailing 12-month EBITDA coverage increased to 1.16 times. Coverage in this portfolio continues to strengthen, now well exceeding pre-pandemic levels, as fundamentals align with those of our operating portfolio, a trend we expect to continue going forward. Next, same story on the line, our long-term post-acute portfolio grew 2.8% year-over-year. and trailing 12-month EBITDA coverage is 1.56 times.
Speaker Change: As a reminder, our triple net lease portfolio coverage stats reported a quarter in arrears. So these statistics reflect the trailing 12 months ending 12 31 2024.
Speaker Change: In our seniors housing Triple net portfolio same store NOI increased five 1% year over year and trailing 12 month EBITDAR coverage increased to 116 times.
Speaker Change: Coverage in this portfolio continues to strengthen now while exceeding pre pandemic levels as fundamentals in line with those of our operating portfolio a trend we expect to continue going forward.
Speaker Change: Same store NOI in our long term post acute portfolio grew two 8% year over year.
Speaker Change: And trailing 12 month EBITDAR coverage is 156 times.
Timothy McHugh: Moving on to capital activity. During the quarter, we funded $2.3 billion in net investment activity with equity and retained cash. We issued $2.2 billion of equity in the quarter, with over 10% of our investment activity funded through the issuance of units directly to sellers. Ultimately ending the quarter with $3.6 billion of cash and lower leverage than we had at year end. As Shankh mentioned, we ended the quarter with net debt to adjusted EBITDA ratio of 3.33 times, the lowest level recorded in Welltower's history. As a result of our current capital position and the improvement in the outlook for full year operating results announced last night, we still expect run rate net debt adjusted EBITDA to end the year at three and a half times, while adding $4.2 billion to our planned 2025 acquisition activities since our initial balance sheet guidance was provided in February.
Speaker Change: Moving on to capital activity during the quarter, we funded $2 $3 billion of net investment activity with equity and retained cash flow.
Speaker Change: We issued $2 $2 billion back during the quarter with over 10% of our investment activity funded through the issuance of units directly to sellers.
Speaker Change: Ultimately ending the quarter with $3 $6 billion of cash and lower leverage than we had at year end.
Sean: As Sean mentioned, we ended the quarter with net debt to adjusted EBITDA ratio of 333 times, the lowest level recorded in <unk> history.
Sean: As a result of our current capital position and the improvement in the outlook for full year operating results announced last night, we still expect run rate net debt adjusted EBITDA.
Sean: To end the year at three five times, while adding $4 $2 billion to our planned 2025 acquisition activity since our initial balance sheet guidance was provided in February.
Timothy McHugh: Before we dive into our updated guidance.
Sean: Before we dive into our updated guidance.
Timothy McHugh: I want to quickly spotlight a key milestone from this past quarter. The credit upgrades we received from both S&P and Moody's. A strong balance sheet has always been a pillar of our strategy. not just in terms of lower leverage, but also in the quality of our assets.
Sean: I want to quickly spotlight.
Sean: Key milestone from this past quarter.
Sean: The credit upgrade we received from both S&P and Moody's.
Sean: Our strong balance sheet has always been a pillar of our strategy.
Sean: Not just in terms of lower leverage but also in the quality of our asset base.
Timothy McHugh: Well, before the onset of the pandemic, we initiated deliberate transformation of our business. Repositioning the portfolio, driving greater alignment in our operating agreements. and Building Out Our Asset Management Capability. Resulting in a platform with a risk profile that is virtually unrecognizable compared to where we started. It's gratifying to see that transformation recognized by both agencies.
Sean: Well before the onset of the pandemic, we initiated a deliberate transformation of our business we.
Sean: Repositioning the portfolio driving greater alignment and are operating agreements and.
Sean: And building out our asset management capabilities.
Sean: Resulting in a platform of the risk profile, there is virtually unrecognizable compared to where we started.
Sean: It's gratifying to see that transformation recognized by both agencies.
Timothy McHugh: Importantly, we have never managed to a rating and there's no finish line. This is an ongoing, deliberate effort to ensure we are optimally positioned for whatever lies ahead. That discipline gives us the strongest possible foundation for uninterrupted compounding through any market environment.
Sean: Importantly, we have never managed to a rating and there is no finish line here.
Sean: This is an ongoing deliberate effort to ensure we are optimally positioned for whatever lies ahead.
Sean: That discipline gives us the strongest possible foundation for uninterrupted compounding do any market environment.
Timothy McHugh: Lastly, as I turn to our updated 2025 guidance. We have not included any investment activity in our outlook beyond the $6.2 billion that has been closed or publicly announced to date. And as a reminder, there is no expected earnings contribution in 2025 from our acquisition of the Amica portfolio, which is expected to close at year end. Last night, we updated our full year 2025 outlook for net income attributable to common stockholders $1.70 to $1.84 per diluted share. and normalized FFO of $4.90 to $5.04 per diluted share. or $4.97 at the midpoint. Our normalized FFO guidance represents a $0.10 increase at the midpoint from our prior normalized FFO range.
Sean: Lastly, as I turn to our updated 2025 guidance.
Sean: We have not included any investment activity and our outlook beyond the $6 $2 billion has been closed a publicly announced to date.
Sean: And as a reminder, there is no expected earnings contribution in 2025 from our acquisition of the <unk> portfolio, which is expected to close at year end.
Sean: Last night, we updated our full year 2025 outlook for net income attributable to common stockholders.
Sean: $1 70 to $1 84 per diluted share.
Sean: And normalized <unk> of.
Sean: $4 90 to $5 <unk> per diluted share.
Sean: Our $4 97 at the midpoint.
Sean: Our normalized <unk> guidance represents a 10% increase at the midpoint from our prior normalized <unk> range.
Timothy McHugh: This increase is composed of. $0.02 increase from higher NOI in our Senior Housing Operating Portfolio $0.07 increase from accretive capital allocation activity $0.02 increase from FX and income taxes, offset by $0.01 from higher expected G&A in the year. Underlying this FFO guidance is an estimate of total portfolio year-over-year same-store NOI growth of 10% to 13.25%, driven by sub-segment growth of outpatient medical 2-3%, long-term post-acute 2-3%. Senior Housing Triple Net, 3-4%, and finally Senior Housing Operating Growth of 16.5-21.5%. This is driven by the following midpoints of their respective ranges. Revenue growth of 9% Driven by increased expectations for both full-year REVPOR and occupancy growth, now at 5% and 350 basis points respectively, an expense growth of 5.25%.
Sean: This increase is composed of.
Sean: <unk> increased from higher NOI in our senior housing operating portfolio.
Sean: <unk> increase from accretive capital allocation activity.
Sean: <unk> increase from FX and income taxes.
Sean: All set by <unk> from higher expected G&A in the year.
Sean: Underlying this guidance is an estimate of total portfolio year over year same store NOI growth.
Sean: Up 10% to 13.25% driven by sub segment growth of outpatient medical 2% to 3% long.
Sean: Long term post acute 2% to 3%.
Sean: Senior housing Triple net 3% to 4% and finally senior housing operating growth of $16 five to 21, 5%.
Sean: This is driven by the following mid points of their respective ranges.
Sean: Revenue growth of 9%.
Sean: Driven by increased expectations for both full year, Revpar and occupancy growth now at 5% and 350 basis points, respectively and.
Sean: And expense growth of 5.25%.
Shankh Mitra: And with that, I will hand the call back over to Sean.
Sean: And with that I will hand, the call back over to Sean.
Shankh Mitra: Thank you, Tim. Before I open the call up for questions, I wanted to quickly reflect on the current macroeconomic environment. Please note that during our second quarter call last year, we described our base case macro view for the next few years.
Sean: Thank you Tim before I open the call up for questions I wanted to quickly reflect on the current macroeconomic environment. Please note that during our second quarter call last year. We described our base case macro view for next few years without fully repeating my comments I'll summarize them by saying that we are appeared to.
Shankh Mitra: Without fully repeating my comments, I'll summarize them by saying that we appear to be entering a potentially long period of higher inflation and higher interest rates, a stark contrast to the market conditions over the past 40 years. As a result of that shift, the tailwind, which have lifted asset prices, including that of real estate, for the past few decades are not just subsiding, but also may very well turn into a headwind. Additionally, the current macro uncertainty may introduce another layer of complexity in the near term. Cyclical pressure on economic growth unfolding against a backdrop of elevated rates and persistent inflation That you can observe in the consumer confidence and other high-frequency economic data While we are not in the business of forecasting economic trends, we are keen observers of market-based signals.
Sean: Entering a potentially long period of higher inflation on higher interest rates, a star contrast to the market conditions over the past 40 years.
Sean: As a result of that shift the tailwind, which have lifted asset prices, including that of real estate for the past few decades, and not just sub setting, but also may well very well turn into a headwind.
Sean: Additionally, the current macro uncertainty may introduce another layer of complexity in the near term.
Sean: Cyclical pressure on economic growth unfolding against a backdrop of elevated rates and persistent inflation that you can observe in the consumer confidence and other high frequency economic data.
Sean: While we're not in the business of forecasting economic trends, we are keen observers of market based signals.
Shankh Mitra: Higher interest rates coupled with significant widening of credit spreads across investment grade, high yield, and all asset-based financing markets warrant cautions as it relates to asset prices going forward. Said in another way, in our world of real estate, we expect higher rates along with wider debt spreads will put downward pressure on asset prices.
Sean: Higher interest rates, coupled with significant widening of credit spreads across investment grade high yield and all asset based financing markets warrant caution as it relates to asset prices going forward.
Sean: In another way in our world of real estate, we expect higher rates, along with wider that spreads will put downward pressure on asset prices.
Shankh Mitra: On our recent calls, while we have repeatedly discussed the wall of debt maturities and lack of credit availability, the other trend we are paying close attention to is on the equity side. Following the slow return of capital to LPs this cycle and the impact of denominator effects after many years of pension funds and endowments steadily marching towards the Yale Swanson model, many large pools of capitals are reducing their exposure to private assets, including private real estate. These phenomena has potential to exacerbate the negative credit-driven impact of asset prices which I just described. We at Welltower are focused on risk, reward, and duration when deploying capital.
Sean: On our recent calls while we have repeatedly discussed while our debt maturities and lack of credit availability. The other trend we're paying close attention to is on the equity side.
Sean: Following the slow return of capital to Lps This cycle and the impact of denominator effects. After many years of pension funds endowments steadily marching towards the Yelp Swanson model. Many large pools of capital are reducing their exposure to private assets, including private real estate.
Sean: This phenomena has potential to access abate the negative credit driven impact on asset prices, which adjust described.
Sean: We at <unk> are focused on risk reward in duration when deploying capital and.
Shankh Mitra: And we perceive a higher level of risk than we did 90 days ago.
Sean: And we perceive a high level of risk than we did 90 days ago.
Shankh Mitra: While we hope that these clouds will pass, we do not believe hope is a strategy. We believe capital allocation is all about positioning, not predicting.
Sean: While we hope that these clouds will pass we do not believe hope is a strategy.
Speaker Change: We believe capital location is all about positioning not predicting and to that point I want to thank Tim and our capital markets team.
Shankh Mitra: And to that point, I want to thank Tim and our Capital Markets team for putting us in an enviable position in terms of our balance sheet strength and liquidity to protect our owner's capital on one hand and take advantage of the market opportunities that may arise on the other. Ultimately, we believe that the days of generating returns through financial wizardry and levered beta are over. Instead, as an operating company in a real estate wrapper, we are convinced that the only path to delivering satisfactory returns will be through compounding of cash flow generated by superior operations.
Speaker Change: For putting us in an enviable position in terms of our balance sheet strength and liquidity to protect our owners capital on one hand, and take advantage of the market opportunities that may arise on the other.
Speaker Change: Ultimately, we believe that the days of generating returns through financial Wizardry and Levered beta are over.
Speaker Change: Instead as an operating company in our real estate wrapper, we're convinced that the only path to delivering satisfactory returns will be through compounding of cash flow generated by superior operations and.
Shankh Mitra: and supplemented with capital allocation to sub-optimized assets further growing our network effect.
Speaker Change: And supplemented with capital allocation to sub optimize assets further growing our network effect and with that I will open the call for questions.
Kaylin: And with that, I will open the call for questions. At this time, I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. Questioners, please limit to one question. You may queue up again for additional questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: <unk>. Please limit to one question you may queue up again for additional questions. Our first question comes from the line of Vikram Malhotra with Mizuho. Your line is open.
Vikram Malhotra: Our first question comes from the line of Vikram Malhotra.
Vikram Malhotra: When Mizuho, your line is open. Morning, thanks for your question and congrats on the strong internal and external results. I wanted to focus on the platform or the business systems that you've been talking about for a while. You're clearly having very strong internal and external activity. And I'm wondering how the business system overlay now, you know, I think it's been two years. How does that, you know, parlay into both sort of the margins but also CapEx control? I guess accentuating both the magnitude and the duration of the performance. If you could kind of help frame it, perhaps with some numbers or just give us more details, that would be helpful.
Speaker Change: Good morning, Thanks for your question and congrats on the strong internal and external results.
Speaker Change: I wanted to focus on the platform of the business system.
Speaker Change: <unk> been talking about for a while and you're clearly having very strong internal and external activity and I'm wondering how the business system overlay now I think it's been two years how does that.
Speaker Change: You know parlay into both towards the margins, but also capex control.
Speaker Change: I guess accentuating, both the magnitude and the duration of the performance. If you could kind of help frame it perhaps with some numbers or just give us more detail that would be helpful. Thanks.
Vikram Malhotra: Thanks.
Shankh Mitra: Thank you, Vikram. So, the margin expansion possibilities that we have talked about, which is not unique to our asset class, it's just that we're the last ones. And from an asset class standpoint, you could observe in multifamilies in the 90s and 2000s and self-storage industry, single family rentals, and so on and so forth. And that's true, institutionalization of these asset classes, and we're sort of the last one going through this, our asset class is going through this. I'll tell you whether we're successful in this journey or not, and how far we're successful will matter both on our side, on Welltower business system execution, as well as our best-in-class operating operators who are doing this, obviously, this execution.
Speaker Change: Thank you Vikram so the margin expansion possibilities that we have talked about.
Speaker Change: Which is not unique to our asset class adjusted were the last ones and from an asset class standpoint, you could observe in multifamily in the 90% in 2000 and self storage industry single family rentals, and so on and so forth.
Speaker Change: And Thats true institutionalization of these asset classes, and where sort of the last one.
Speaker Change: Going through these are asset classes going through this I will tell you whether.
Speaker Change: Whether we are successful in this journey or not and how far we're successful will matter vote on our side on Walt our business system execution as well as our best in class operating.
Speaker Change: Operators.
Speaker Change: We're doing this obviously this execution on a day to day basis on a hand to hand combat frankly, it's a complex business, it's not an easy business to pull off but we are with our operating partners.
Shankh Mitra: On a day-to-day basis, on a hand-to-hand combat, frankly, it's a complex business, it's not an easy business to pull off, but we are with our operating partners, shoulder to shoulder, no matter what. But if you just think about reflecting a little bit on what Welltower business system is, or what is designed to be, it is a complex adaptive system that aims to balance chaos and order, and can self-organize based on dynamic feedback loop, and adapt to changing conditions. That's what we are focused on, right? So, if you think about just sort of what I mentioned, that we're not, you know, we're relied on our operating partners who have great talent pool in these companies, and we're augmenting that talent pool with our talent pool, who is coming in to solve their problems, customers' problems, employee pain points, et cetera.
Speaker Change: Shoulder to shoulder no matter, what but if you just think about reflecting a little bit on what our business system is or what it is designed to be it is a complex adaptive system that aims to balance chaos in order and can self organized based on dynamic feedback loop and adapt to changing conditions. That's what we are focused on rate.
Speaker Change: So if you think about just sort of what I mentioned that we're not.
Speaker Change: Relied on our operating partners, who have great talent pool in these companies and we're augmenting that talent pool with our talent pool with coming in to solve their problems customers problem employee pinpoints et cetera. So ultimately the goal up well, it's our business system is to bring system level thinking to renew.
Shankh Mitra: So, ultimately, the goal of Welltower business system is to bring system-level thinking to remove bottlenecks, streamline flow, and minimize friction in all human interactions that you see in these communities, which is, you know, family to residents, and obviously, our caregivers and our employees, and it's sort of in a round-robin manner, right? So, that's sort of what we are focused on, to streamline that flow and minimize that friction in all those human interactions, and focus solely in areas where scalability creates a strategic advantage, while relying on our operating partner to solve the unremovable complexities that are inherent in our business.
Speaker Change: Bottlenecks streamline flow and minimize friction in all human interaction that you see in these communities.
Speaker Change: His family to residents and obviously our caregivers.
Speaker Change: Employees, and it's sort of in a round robin manner.
Speaker Change: So that's sort of what we are focused on to streamline that trop and minimize the friction in all of those human interactions and focused solely in areas, where scalability create a strategic advantage, while relying on our operating partner to solve the odd removal complexities that are inherent in our business. So what we mean by that so we are.
Shankh Mitra: So, what do we mean by that? So, we are focused on providing Welltower business system to offer site-level employees that, you know, John mentioned, obviously, his early college days of Costco experience, last call, Welltower business system to provide site-level employees with real-time actionable business insights and free up valuable time to provide a real human touch to a resident. And if we think we can do this, we have a long runway of margin expansion in our business.
Speaker Change: <unk>.
Speaker Change: Providing walter business system.
Speaker Change: We offer a site level employees that John mentioned, obviously his early call as diesel Costco experience last call Walt our business system to provide site level employees with real time actionable business insights and free up valuable time to provide a real human touch to our residents and if we think we can do this we have a long runway of margin expansion.
Speaker Change: Our business.
John Kilichowski: And your next question comes from the line of John Kilichowski with Wells Fargo. Your line is open. Thank you, good morning.
Speaker Change: And your next question comes from the line of John Keller Celski with Wells Fargo. Your line is open.
Speaker Change: Thank you good morning.
John Kilichowski: Shankh, we really enjoyed your annual shareholder letter this year. Something we found particularly interesting was the section on how your data science platform has improved your velocity to market the transaction process. Would you mind walking us through the process in a bit more detail and then also maybe giving some color around what percentage of your pipeline you believe this proprietary technology is directly responsible for?
Speaker Change: Shock, we really enjoyed your annual shareholder letter this year something we found particularly interesting was the section on how your data science platform has improved your philosophy to marketed the transaction process.
Speaker Change: Would you mind walking us through the process in a bit more detail of that also may be giving some color around what percentage of your pipeline do you believe this proprietary technology is directly responsible for.
Shankh Mitra: So I'm not going to walk you through. I wrote in a very detailed format of how a jail market sort of structure works in a marketed transaction. But if you go back and read it, you will see the path is sort of a real estate is a very glacially moving slow business, right? So if you just think about what the whole process looks like, John, when you say you are a seller, you are looking to sell something, you hire a broker, you go through all this, to ultimately you close the deal, that whole process takes about five to 10 months, depending on whether the counterparty needs financing or not financing and all of those kind of things, right?
Speaker Change: Yes so.
Speaker Change: I'm not going to walk you through our broad and a very detailed format of how.
Speaker Change: Gel market sort of.
Speaker Change: Structure works.
Speaker Change: Marketed transaction, but if we go back and read it you will see the path is sort of a real estate is a very glacially moving slow business right. So if you just think about what the whole process looks like John when you say U S seller U S looking to sell something you hire broker and grow through all this to ultimately.
Speaker Change: You closed the deal that whole process takes about five to 10 months, depending on whether the.
Speaker Change: The counterparty needs financing are not financing and all of those kind of things right.
Shankh Mitra: So if you just think about in our business, let's just say that focus on just our business, market participants in our business, not most, all of them are focused on sort of Nick 99 or that kind of information, which is sort of, that's not great level of information, but that's kind of what you have, level of information that sort of MSA level information, and then sort of that whole process rolls out. For us, as Nikhil mentioned, our proprietary platform analyzes 10 plus million micro markets nationwide, leveraging a unique and non-replicable data set, accumulated over 100 plus senior housing operators over 20 years, right?
Speaker Change: If you just think about.
Speaker Change: Our business, let's just say that focus on their solid business market participants in our business.
Speaker Change: Not most all of them are focused on.
Speaker Change: Nick 99, or that kind of information, which is sort of.
Speaker Change: Not great level of information, but that's kind of what you have.
Speaker Change: The level of information that sort of MSA level information.
Speaker Change: And then sort of that whole process rolls out for us as Nikhil mentioned.
Speaker Change: Friday platform analyzes 10, plus million micro markets nationwide, leveraging a unique and non replicable dataset accumulated over 100, plus senior housing operators over 20 years right. So this granular machine learning approach powered by long time series of data across diverse properties and operators.
Shankh Mitra: So this granular machine learning approach, powered by a long time series of data across diverse properties and operators, enables us to take a neighborhood level view of any asset and provide initial interest within our team, within a few minutes. And it determines a narrow range of predicted performance within a day. It used to be two to three days. We have brought it down with significant more compute power within a day, allowing us to provide initial sort of preliminary pricing feedback within a week that we can live with. Subsequently, tool the assets and have a handshake on definitive terms within two weeks, that we can, again, we can stand by.
Speaker Change: Enables us to take a neighborhood level view of any asset and provide initial interest within our team within a few minutes.
Speaker Change: And it determines a narrow range of predicted performance within a day you used to be two to three days, we have brought it down.
Speaker Change: With significant more compute power within a day, allowing us to provide initial started preliminary pricing feedback within a week that we can live with.
Speaker Change: Subsequently towards the assets and having a handshake.
Speaker Change: Designated times within two weeks.
Speaker Change: We can again, we can standby remember at Walter we have nobody walked away from a handshake right. So it's not just a question of how we'll look at it broke our pro forma and give people a throw people a number that's how real estate industries work right. So ultimately close the deal and <unk> 45 to 60 days, so, let's think about that velocity to market.
Shankh Mitra: Remember, at Welltower, we have never walked away from a handshake. So it's not just a question, oh, we'll look at our broker performer and give people or throw people a number. That's how real estate industries work. So ultimately, close that deal in 45 to 60 days. So just think about that velocity to market makes us the first call to more sellers, because frankly speaking, and obviously our reputation, that we never walk away from a handshake, has fundamentally upended the status quo in this business, the real estate industry, which hasn't changed in decades. Because if you're a seller, what do you have to lose?
Speaker Change: Makes us the first fall to more seller.
Speaker Change: Frankly speaking and obviously our reputation that we never walk away from a handshake as fundamentally appended the status quo in this business the real estate industry, which hasnt changed in decades, right because if you're a seller what do you have to lose if you don't like our answer within a week ago go do that process anyway that we described that will take you five to 10.
Shankh Mitra: If you don't like our answer within a week, you go do that process anyway, that we described, that will take you five to 10 months. So think about, so what are we trying to do? We're trying to bring down latency that is inherent in a glacially moving industry in a significant way. And latency is a very important concept when you study network effect. In most industries that move in that glacial phase, no different in our industry, as I said, in real estate. And that is the very, very thing that we're trying to disrupt by reducing latency in our system by completely turning the velocity to markets on its head.
Speaker Change: <unk>.
Speaker Change: So think about so what are we trying to do we're trying to bring down latency that is inherent in a glacially moving industry in a significant way and latency is a very important concept. When you study network effect in most industries that move in that glacial pace.
Speaker Change: No different in our industry as I said in real estate and that is the very thing that we're trying to disrupt by reducing latency and assistant by completely turning the velocity to market on its head.
Shankh Mitra: And as latency shrinks, materially, as we talked about, just talked about, the network effect kicks into high gear, creating a new paradigm of maximum growth, maximum gain, that simply doesn't occur in businesses and industries that moves at a glacial pace, right?
Speaker Change: And as latency shrinks materially as we talked about just talked about the network effect kicks into high gear, creating a new paradigm of maximum growth maximum gain that simply doesn't work hard in businesses, an industry that moves at a glacial pace right. So that's how it works if you think about that journey.
Shankh Mitra: So that's how it works. If you think about the journey of our journey of, you know, what we have been able to achieve, and you want to point out to one thing, as Tim mentioned, you can't point out to one thing. This is a long, decade-long journey of transforming this industry and transforming the business. But if you want to point out one thing, that will be reducing that latency, right? That's how you sort of go into a paradigm of maximum growth, maximum gain, and that sort of create another level of, you know, network effect that kicks into the high gear.
Speaker Change: Our journey of what we have been able to achieve and I want to point out one thing as Tim mentioned, you can point out one thing. This is a long decade long journey of transforming this industry on the transform the business.
Speaker Change: But if you wanted to point out one thing that will be reducing that latency right. That's how you sort of go into a paradigm of maximum growth maximum gain and that sort of create another level off.
Speaker Change: The network effect that kicks into high gear.
Farrell Granoff: And your next question comes from the line of Farrell Granoff with Bank of America. Your line is open. Hi, good morning. Thank you for your question. I was curious.
Sara <unk>: And your next question comes from the line of Sara <unk> with Bank of America. Your line is open.
Speaker Change: Yeah.
Speaker Change: Hi, good morning, Thanks for taking the.
Speaker Change: Question.
Speaker Change: Curious just given your current size how can you frame. How you continue to think about of sustained growth going forward.
Shankh Mitra: Given your current size, how can you frame how you continue to think about Farrell, that's a really really good question. If Welltower was a spread investing vehicle that is relied on financial engineering, I would say growth at some point. The growth should be a problem. Size and the growth should be somewhat inversely correlated at some point. And I don't know what that is, frankly speaking, and you can see different industries and come to different conclusions. However, if we can see, as I've mentioned before, we have changed this company, which frankly was that what exactly we're describing.
Speaker Change: That's a really really good question.
Speaker Change: If one tower.
Speaker Change: While the spread investing vehicle.
Speaker Change: That that is relied on financial engineering, I would say growth at some point.
Speaker Change: Should be a problem.
Speaker Change: The size and the growth should be.
Speaker Change: Somewhat inversely correlated at some point.
Speaker Change: I don't know what that is frankly speaking and you can see different industries and come to different conclusions. However, if we can see as I've mentioned before.
Speaker Change: We have changed this company, which frankly was that what exactly you are describing it was real estate deal shop, which was reliant on.
Shankh Mitra: It was a real estate deal shop, which was reliant on capital markets and, frankly speaking, cost of capital. It was a decade-long effort for us to change this company into an operating company in a real estate wrapper. So if you just think about it as an operating company, the opposite trend actually happens due to network effect that I was just talking about to John's question earlier. As we have grown, just think about that for a second, right? We capture more and more data. And two of our key competitive advantage, our data science platform and Welltower business system, continues to strengthen.
Speaker Change: Capital markets, and frankly speaking our cost of capital we have it was a.
Speaker Change: Decade long effort for us to change this company.
Speaker Change: Into our operating company in our real estate wrapper.
Speaker Change: So if you just think about it as an operating company.
Speaker Change: The opposite trend actually happens due to network effects that I was just talking about to John's question earlier.
Speaker Change: As we have grown just think about that for a second rate, we capture more and more data and two of our key competitive advantage, our data science platform and <unk> business system continues to strengthen.
Shankh Mitra: Further expanding our mode and driving a wider performance gap between ourselves and our competitors. So you think about that, what you are describing, which happens in some of this, you know, kind of lever beta, you know, spread investing vehicles, you will see as they get bigger, their performance spread to market actually shrinks. If you go back and see that we had our investor day in 2018, and there in that investor day I talked about this topic, and I said that despite our outperformance to our competitors up to leading up to that point, that will widen.
Further expanding our moored and driving a wider performance gap between ourselves and our competitors. So you think about that what you are describing which happens in some of the kind of levered beta.
Speaker Change: Hub spread investing vehicles, you will see as they get bigger.
Speaker Change: Their performance spread to market actually shrinks.
Speaker Change: If you go back and see that we had our investor day in 2018, and Theyre in that Investor Day, I talked about this topic and I said that despite our outperformance to our competitors up to leading up to that point.
Speaker Change: That will widen.
Shankh Mitra: And if you just see what happened since then, it has widened our market, our performance to market has widened. And that happened because we had transformed this company from a real estate deal shop to an operating company in a real estate wrapper.
Speaker Change: And if you just see what happened since then it has widened our market our performance to market has widened and that happened because we have transformed this company from a real estate deal shop to an operating company and a real estate wrapper.
Shankh Mitra: And, and, you know, I would like to tell you that's unique. It's not if you just look at all operating companies, you will see they have achieved success . Because of their success, look at Home Depot, look at Costco, look at Amazon, not in spite of their success. And that's because of the network effect. And that's because of the impact these companies have and the data capture and everything else I talked about to John's question earlier, where your size becomes Positive to your growth, not negative, but it's an extraordinarily important question.
Speaker Change: And I would like to tell you that's unique it's not if you just look at all operating companies.
Speaker Change: We'll see.
Speaker Change: <unk> success.
Speaker Change: Because of their success look at home depot look at Costco look at Amazon.
Speaker Change: Not in spite of that success and Thats because of the network effect and Thats because of.
Speaker Change: The impact these companies have and the data capture and everything else I talked about to John's question earlier, where do your size becomes.
Speaker Change: Positive to your growth not negative, but it's an extraordinarily important question. Thank you.
Omotayo Okusanya: Thank you. And your next question comes from the line of Omotayo Okusanya with Doshie Bank.
Speaker Change: And your next question comes from the line of Tayo Okusanya with Deutsche Bank. Your line is open.
Omotayo Okusanya: Your line is open. and Omotayo.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: And I will tell you.
Jonathan Hughes: And we'll go ahead and go to our next question with Jonathan Hughes with Raymond James Financial Inc. Your line is open. Hi, good morning. Thank you for the prepared remarks and commentary. Tim, you reiterated the three-and-a-half-term leverage target by year-end. That's up from 3-3 today, so implying a levering up in the next few quarters. I guess why utilize debt when your cost of equity is arguably lower and would be more accretive and it never has to be refinanced?
Speaker Change: And we will go ahead and go to our next question with Jonathan Hughes with Raymond James Financial Inc. Your line is open.
Jonathan Hughes: Hi, Good morning, Thank you for the prepared remarks and commentary.
Jonathan Hughes: Tim you reiterated the three five turn leverage target by year end, that's up from $3. Three today, so implying a levering up in the next few quarters I guess why utilize that when your cost of equity is arguably lowered would be more accretive and it never has to be refinanced I'm, just trying to better understand that near term leverage.
Jonathan Hughes: I'm just trying to better understand that near-term leverage target and how you think about the right capital structure or target capital structure on a longer-term or normalized basis.
Jonathan Hughes: And how you think about.
Speaker Change: The right capital structure or targeted capital structure on a longer term normalized basis. Thank you Jonathan before Tim gives you an answer.
Shankh Mitra: Jonathan, before Tim gives you an answer, I'll just say that we fundamentally disagree with your assumption that our cost of equity... is lower than our cost of debt. Our cost of equity is much higher than you think. And that's probably because we think our potential growth rate on a long term basis is much higher, right? You got to think about your cost of equity on a long term arc, not just your spot cost of equity.
Speaker Change: Just say that we fundamentally disagree with your assumption that our cost of equity.
Speaker Change: Is lower than our cost of debt or cost of equity is much higher than you think and thats, probably because we think our potential growth rate on a long term basis was much higher right. You got to think about your cost of equity on a long term arc not just your spot cost of it anyway.
Timothy McHugh: Anyway, Tim. Yeah, Jonathan, I just say the the what's driving our view on leverage hire is putting the cash to work off the balance sheet. It's not it's not the assumption that we're issuing debt. It's just part of the mechanics of the cash coming off the balance sheet, putting it to work. With the guidance we provided last night, we're fully funded for all the all the capital activity. In fact, we're even paying off 1.25 billion in debt in those assumptions.
Jonathan Hughes: Yes, Jonathan I would just say.
Speaker Change: Whats driving our view on leverage higher.
Speaker Change: Putting the cash to work off the balance sheet, it's not it's not the assumption that we're issuing debt. It's just part of the mechanics of the cash coming off the balance sheet, putting it to work.
Speaker Change: With the guidance, we provided last night, we're fully funded for all the all the capital activity in fact, we're even paying off $1 5 billion in debt in those assumptions.
Ronald Kamden: And your next question comes from the line of Ronald Kamden with Morgan Stanley. Your line is open. Hey, just my question is, look, clearly occupancy dumped off the page this quarter. And you guys put a couple slides in the presentation, including the acceleration from January, February to March.
Speaker Change: And your next question comes from the line of Ronald Camden with Morgan Stanley. Your line is open.
Speaker Change: Hey, I just my question is look clearly occupancy jumped off the pace this quarter and you guys for a couple of slides in the presentation, including the acceleration from January February to March I guess, I'd love to sort of I know occupancy and price matters, but just staying on the occupancy front.
Ronald Kamden: I guess I'd love to sort of I know occupancy and pricing matters, but just staying on the occupancy front, just internally, you know, what are expectations sort of long term for your markets? Is this space sustainable? Can it accelerate? Just how are you guys thinking about that? I would love some high level color.
Speaker Change: Internally you know what are your expectations sort of long term.
Speaker Change: For your markets and then this is this pace sustainable.
Speaker Change: Salaried just how are you guys thinking about that.
Speaker Change: Love some high level color.
Shankh Mitra: Ron, I would just say our expectation of what we think occupancy growth this year is, Tim just described to you, so I have nothing to add to that. Long term, we believe that as we sort of optimize this business, with fewer and fewer operating partners, who are increasingly have a much greater regional density, we believe that friction of vacancy is a lot lower than we thought. And John talked about this in the call, I believe, two, three calls ago. And so we believe we have a long journey in front of us to a much higher level of occupancy.
Speaker Change: Ron I would just say our expectation of what we think occupancy growth. This year is Tim just described to you. So I have nothing to add to that.
Speaker Change: Long term, we believe that as we sort of optimize this business with fewer and fewer operating partners will increasingly have a much greater regional density we believe.
Speaker Change: That.
Speaker Change: Frictional vacancy is lot lower than we thought and John talked about this in the call I believe two or three calls ago and so we believe we have a long journey in front of us to a much higher level of occupancy.
Shankh Mitra: And obviously, I'm not talking about optics, I'm talking about current portfolio. Because remember, Nikhil continues to add a lot of under-occupied buildings. So we think we have a long journey in front of us. But just think about this year, right? We're giving you our best guess. Remember, it's a guess. And our business is a June to October type of a business, right? It's a summer leasing system business. We'll go through summer and we'll tell you what we see. But if we didn't feel good about the current pace of activity, current pace of, you know, sort of future resident engagement, we would not have raised guidance in Q1 for both occupancy and rates, right?
Speaker Change: And obviously.
Speaker Change: I'm not I'm not talking about optics I'm talking about the current portfolio because remember nikhil continues to add a lot of under occupied buildings.
Speaker Change: So so we think we have a long journey in front of us.
Speaker Change: But just think about this year right, we're giving you our best guess remember, it's a guess and our business is the June to October type of a business right and so the summer leasing season business will go through the summer and we'll tell you what we see.
Speaker Change: But if we didn't feel good about the current <unk>.
Speaker Change: As our activity client base.
Speaker Change: Future resident engagement, we would not have raised guidance in Q1 for both occupancy and rate right, but that's what we see today, we'll see what tomorrow brings.
Shankh Mitra: But that's what we see today.
Shankh Mitra: We'll see you at tomorrow.
Speaker Change: Okay.
Austin Gutschmidt: And your next question comes from the line of Austin Gutschmidt with KeyBank. Your line is open. Great, thanks. Shankh, just kind of wanted to hit on your comments that you wrapped up in the prepared remarks. Discuss this period of, you know, potentially higher inflation.
Speaker Change: And our next question comes from the line of Austin got Schmidt with Keybanc. Your line is open.
Speaker Change: Great. Thanks, Sean just kind of wanted to hit on your comments.
Speaker Change: You wrapped up in the prepared remarks, you discussed this period of potentially higher inflation was cyclical pressure on economic growth as.
Shankh Mitra: Economic Growth and Reliance On Credit I guess with many seniors utilizing savings and equity funds, Retirement in that backdrop, how do you think senior housing Based on what you asked. So that's a really, really good question. Why don't I start you guys jump in, as you see fit. You know, we have a pretty good case study of how that might turn out. We can see obviously, a lot of seniors wealth is not in the equity market, right? Clearly, majority of them actually not. And they are in other fixed income or housing type assets. And we believe that, you know, we don't see a case of why housing prices will collapse like it has during GFC.
Speaker Change: As well as the potential for a negative impact on asset prices from the reliance on credit.
Speaker Change: Over.
Speaker Change: The last few decades.
Speaker Change: I guess with many seniors utilizing savings in equity from their homes and retirement in that backdrop, how do you think senior housing performs.
Speaker Change: Based on what you've outlined.
Speaker Change: No.
Speaker Change: That's a really really good question why don't I start with guys jump in as you see fit.
Speaker Change: We have a pretty good case study of how that might turn out we can see obviously a lot of senior as world is not in the equity market right clearly.
Speaker Change: The majority of them actually not and they are in other fixed income or housing type assets.
Speaker Change: And we believe that we don't see a case of why housing prices will collapse like it has during <unk>, but let's just say that we're wrong and you can see.
Shankh Mitra: But let's just say that we're wrong. And you can see, even during global financial crisis, which was driven by housing, and even and housing, you know, collapsed 50%. And you could see, even then how the asset classes held up, right?
Speaker Change: Even during.
Speaker Change: Global financial crisis, which was driven by housing and even in housing.
Speaker Change: <unk>, 50% and you could see even then how the asset classes held up great.
Shankh Mitra: So look, the thing is, the future is uncertain, by definition, and it's a redundant statement, but it's a very important one. And we fundamentally believe that life is about positioning, not predicting. And, you know, given where we are, whether the near term, you know, we go into, I believe that the asset class will hold up better than all real estate and many, many other industries. We'll see what happens, you know, and if, as you have seen from our, you know, our track record, that if there is disruption, and again, that's not my base case view, there will be disruption.
Speaker Change: So look the thing is the future is uncertain.
Speaker Change: Definition and it has a redundant statement, but it's a very important one and.
Speaker Change: And we fundamentally believe that life is about positioning not predicting and given where we are.
Speaker Change: What are the near term.
Speaker Change: We go into I believe that asset class will hold up better than all real estate and many many other industries will see what happens.
Speaker Change: As you have seen from our.
Speaker Change: Our track record that if there is disruption and again, that's not my base case view, there will be disruption, but if there is disruption you know how well behaved we are perfectly predictable. That's why we have a terrific balance sheet for right.
Shankh Mitra: But if there's disruption, you know, how we will behave, we're perfectly predictable. That's why we have a terrific balance sheet for right. And if there is disruption, you will see, obviously, that will put more pressure in asset prices, more pressure on people who have 60, 70, 80% leverage, our leverage is what 10%, right? And we will go lean into it, we are very optimistic about our business for next, you know, 5, 10, 15, 20, 30 years. And frankly speaking, we'll welcome disruption.
Speaker Change: And if there is disruption you will see obviously that will put more pressure in asset prices more pressure on people, who have 60 70, 80% leverage our leverages what 10%.
Speaker Change: Right and we will go lean into it we are very optimistic about that business for next.
Speaker Change: 510, 15 2030 years.
Speaker Change: And frankly speaking, we'll welcome disruption, but that's not our base case scenario.
Seth Burgey: But that's not our base case And your next question comes from the line of Seth Burgey with Citi. Your line is open. Hi, good morning.
Speaker Change: Okay.
Speaker Change: And your next question comes from the line of Seth <unk> with Citi. Your line is open.
Speaker Change: Hi, good morning.
Shankh Mitra: You kind of mentioned in the opening remarks that the pipeline is expanding given the capital markets this location, can you kind of quantify the expansion and kind of what portion of that expansion would be type of the type of assets that you would be interested in potentially acquiring? Seth, we are not going to sit here and try to speculate on what our pipeline may or may not do. We do believe that when this kind of capital markets disruption happens, people who are absolutely looking for liquidity, whether that's equity-driven or debt-driven that Nikhil talked about, will need to access liquidity.
Speaker Change: And in the opening remarks that the pipeline is expanding given the capital markets dislocation can you kind of quantify.
Speaker Change: The expansion and kind of what portion of that expansion would be type of the type of assets that you would be interested in potentially acquiring.
Speaker Change: That said, we are not going to sit here and try to speculate on what our pipeline may or may not do we do believe that.
Speaker Change: When this kind of capital markets disruption happened people who absolutely.
Speaker Change: Looking for liquidity, whether thats, the equity driven our debt driven that nikhil talked about.
Speaker Change: We will need to access liquidity.
Nikhil Chaudhri: And if it is that their expectation is commensurate with today's reality of rates and spreads, we'll provide them that liquidity, and if not, we'll not. We're not in the business of doing deals. We're an operating company. We only add assets in our markets and in our micro-markets where we feel we can build regional density. So if we can, we will do it. If not, we'll just sit here and wait.
Speaker Change: If it is that their expectation is comments, where it with today's reality of rates and spreads will provide them that liquidity and if not will not we know we're not in the business of doing deals. We're an operating company, we only add assets.
In our.
Speaker Change: No.
Speaker Change: Our market and in our micro markets, where we feel we can build regional density.
Speaker Change: If we can we will do it if not we'll just sit here and wait thank you.
Nikhil Chaudhri: Nikhil? Yeah, I think the only thing I'd add to that is, we talked earlier about what Welltower's pace of execution is versus what the conventional market timeline is to bring a transaction home. And that six to ten months that we talked about, just think about what has happened in the last six to ten months between Fed rate cuts, the election, Liberation Day. And so just think about sellers that chose to work with somebody else, and they did not have ultimate price certainty from then to until now. And just given how macro has changed, imagine the ups and downs and the deal fatigue that they've gone through.
Speaker Change: Yes, I think the only thing I'd add to that as we talked earlier about what we're all towers in our pace of execution is versus what the conventional market timeline is to bring a transaction home and that six to 10 months that we talked about.
Speaker Change: Think about what has happened in the last six to 10 months.
Speaker Change: Between fed rate cuts the election Liberation day, and so I, just think about sellers that chose to work with somebody else and.
<unk> did not have ultimate price certainty from then until now and just given how macro change imagine the ups and downs in the deal fatigue that they've gone through and so there is a lot of broken deals and when theres broken deals.
Nikhil Chaudhri: And so there's a lot of broken deals. And when there's broken deals, we get the call. So we're actively looking at a lot, but as Shank mentioned, we are squarely focused on playing in places that we have high conviction and are in markets that we already have a lot of scalers.
John: We get the calls so we're actively looking at a lot, but as John mentioned.
John: Our squarely focused on playing in places that we have high conviction in our end markets that we already have a lot of scale.
John: Okay.
Rich Anderson: And your next question comes from the line of Rich Anderson with Wedbush. Your line is open. Hey, thanks. Good morning. Great, great quarter, of course.
Speaker Change: And our next question comes from the line of Rich Anderson with Wedbush. Your line is open.
Rich Anderson: Hey, Thanks, good morning, great great quarter of course.
Rich Anderson: So, Shankh, you said something, fewer operating partners that are deeper and more, you know, densified, you know, in their geographies, I'm paraphrasing, but something like that. So, you know, where do you see sort of that optimal sort of cadence in terms of how big of a pie chart of operating partners is the right number for you guys? You know, call it three, five years from now. And out of curiosity, do you sense any sort of pushback given the current climate, doing business with operators in Canada and the UK? You know, what are some of the sort of variables as it relates to that ultimate plan to reduce your operator, the number of your operators in your portfolio?
Speaker Change: So chunk you said something.
Speaker Change: We're operating partners that are deeper and more.
Speaker Change: Densify.
Speaker Change: And their geographies I'm, paraphrasing, but something like that.
Speaker Change: So.
Speaker Change: Where do you see sort of that optimal.
Speaker Change: Sort of cadence in terms of how big of a pie chart of operating partners is the right number for you guys call. It three five years from now and out of curiosity do you sense any sort of pushback given the current climate and doing business with operators in Canada and the U K.
Speaker Change: What are some of the sort of variables as it relates to that ultimate plan to reduce your operator, the number of your operators in your portfolio. Thanks.
Shankh Mitra: Thanks. Yeah, that's a very good question. It's a question that we reflect on in our shop all the time.
Speaker Change: Yes, that's a very good question and it's a question that we reflect on our shop all the time.
Shankh Mitra: So let's just take a step back and think about, so if you are looking for a numeric answer, I'll just say it's fewer. And that sort of, there is no question that we are focusing on regional density, focusing more and more concentrating, concentrating on our existing partners who have performed, performed really well. There is no question that every year we look at, you know, we look at, obviously, a lot of new operating teams, and we add it one or two, and then, obviously, a lot of people also fall to the wayside. But generally speaking, I would say, is there a pushback?
Speaker Change: So, let's just take a step back and think about that.
Speaker Change: If you are looking for a numeric answer I'll just say it's fewer.
Speaker Change: And that sort of noise no caution that we are focusing on regional density focusing more and more concentrating concentrating on our existing partners will outperform performed really well. There is no question that every year, we look at.
Speaker Change: We look at obviously a lot of new operating.
Speaker Change: Teams and we added one or two and then obviously a lot of people also falls away side, but generally speaking I will say is there a pushback.
Shankh Mitra: Look, we're fair people, we're entirely focused on performance, and we're entirely focused on outlook of how some of our operating part, you know, sort of partners that think about the future, right? This is all about the future. And that is nothing to do with, frankly speaking, there are two types of operators, right? Think about what we call Gen 1 operators in our business, people who have been around with our company, with George Chapman and others, and they're absolutely killing it. Tim Buchanan would be a great example, right? Then there are operators that I grew up in this business with, who are sort of, say, Gen 2 operators, who have built a business with us, such as, you know, Matthew at Cogier, or say, Dan at StoryPoint, right?
Speaker Change: Look we're fair people, we're entirely focused on.
Speaker Change: Performance, we're entirely focused on outlook of how some of our operating partner.
Speaker Change: Set of partners that think about the future right. This is all about the future and that has nothing to do with frankly speaking there are two types of operators or do you think about what we call Gen. One operators in our business people who have been around with.
Speaker Change: With our company with George Chapman and others.
Speaker Change: They are absolutely killed it Timna candidate would be a great example, right than there are operators that I grew up in this business with <unk>.
Speaker Change: We're sort of say a gen two operators.
Speaker Change: Build the business.
Speaker Change: With us as such as Matthew <unk>.
Dan: Dan at.
Speaker Change: As Troy point right. So these are the operators that I grew up in the business with a tremendous amount of respect for what they do.
Shankh Mitra: So, these are the operators that I grew up in the business with, a tremendous amount of respect for what they do, and how they do it, and frankly speaking, their outlook for the future. They want to get better every day, do new things, try things, fail fast, and move the business forward. Do we find new operating partners, you know, sort of, who share that view? Amica would be a very good example of that, right? Amica is an exceptionally good operator, we have founded, KRUK and UK would be a great example of that, right?
Speaker Change: And how they do it and frankly speaking the outlook for the future we want to get better every day do new thing striping fail fast and move the business forward do we find new operating partners.
Speaker Change: Sort of who shared that view anika will be a very good example of that right now because an exceptionally good operator were founded.
Speaker Change: U K and U K would be Great example of that read that exceptional team, but generally speaking our view is as the business has grown.
Shankh Mitra: They're an exceptional team, but generally speaking, our view is, as the business has grown, we want to reduce complexity by focusing on, think about what we're trying to do. We're trying to deploy our business system across, grow with our operators, and, you know, so it's a moving target. We have not seen any pushback, obviously, from all this, you know, sort of UK and Canada. In fact, we can, Canadian businesses are growing fabulously, and we expect that both of those businesses will continue to grow significantly.
Speaker Change: We want to reduce complexity.
Speaker Change: By focusing on think about what we're trying to do we're trying to deploy our business system across grow with our operators and so it's just that it is a moving target we have not seen any pushback obviously from all this sort of in the UK and Canada in fact.
Speaker Change: Canadian businesses are growing fabulously.
Speaker Change: Fabulously and we expect that both of those business will continue to grow significantly, but that's kind of what I have to say at this point in time.
Shankh Mitra: But that's kind of what I have to say at this point in time. I always sort of think about in current context of assets we have. But remember, our assets, Nikhil is making our job harder every day by growing the asset base significantly. And we'll see where these things land. But philosophically, we want to be with people who, right or wrong, we're not pointing out that we're right, somebody else is wrong. It's just like we're philosophically aligned with us on where we're trying to take the business. And so that's kind of very important point is we want to be with people who are shoulder to shoulder with us, no matter what.
Speaker Change: I always sort of think about in current context of assets we have.
Speaker Change: But remember our assets Nikhil is making our job harder everyday by growing the asset base significantly and we'll see where this thing land, but philosophically we want to be with people who are right or wrong. This is not we're not pointing out that we're right somebody else is wrong. It just like we're philosophic.
Speaker Change: Clearly aligned with us on where we are trying to take the business and so that's kind of very important point is we want to be with people who are shorter.
Speaker Change: <unk> solar with us no matter what.
Nick Yulico: And your next question comes from the line of Nick Yulico with Scotiabank. Your line is open. Hi, good morning, everyone. Just a couple questions on senior housing. First, you know, given that we are in a more uncertain macro environment, I was hoping to get a feel for, you know, how leading indicators for senior housing looked in April, such as, you know, maybe tour volume, leads, conversions into move-ins, you know, how those are tracking versus a year ago. And then in terms of the guidance and the decision to raise the revenue guidance in senior housing, clearly you have some confidence in the business, but maybe just give us a feel about how, you know, again, the macro environment might have impacted that guidance and, you know, did you even build in some cushion there, you know, preventing and let's say there would have been an even bigger raise in sort of a, you know, a more clear economic environment.
Speaker Change: And your next question comes from the line of Nick <unk> with Scotiabank. Your line is open.
Speaker Change: Hi, Good morning, everyone. Just a couple of questions on senior housing first.
Speaker Change: Given that we are in a more uncertain macro environment.
Speaker Change: Was hoping to get a feel for how leading indicators for senior housing looked in April.
Speaker Change: Such as you know maybe tour volume leads conversions into move ins, how those are tracking versus a year ago and then in terms of the guidance and your decision to raise the revenue guidance in senior housing clearly you have some confidence in the business, but maybe you can just give us a feel about how again the macro environment.
Speaker Change: It impacted that guidance and did you even build in some cushion there preventing and let's say they would have been even bigger ways.
Speaker Change: And sort of a.
Speaker Change: More clear.
Speaker Change: Clear economic environment. Thanks.
Nick Yulico: Thanks.
Shankh Mitra: Let me let me try to, let me try to start and Tim will really give an answer to your question. So you just think about it. I have very clearly stated, I think last year that 90 days is short enough timeframe for a company, you know, of our size and scale to even comment on things, let alone talk about month to month, what's happening, right? So clearly, we have walked away from all monthly, you know, sort of what's going on this month, this week, we're really honestly not focused on that. Having said that, Nick, the fundamental premise of your question is the right one.
Speaker Change: Let me, let me try to let me try to start and Tim will give you an answer to your question. So you just think about it.
Speaker Change: We have very clearly stated I think last year that 90 days a short enough timeframe.
Speaker Change: For a company.
Speaker Change: Our size and scale to even comment on things, let alone talk about month to month, what's happening right. So clearly we have walked away from all monthly sort of what's going on this month. This week, but really honestly not focused on that having said that make the fundamental premise of your question is the right one we.
Timothy McHugh: We know how April up to this point has progressed. And frankly speaking, if we didn't feel good about that data, we wouldn't give you, you know, sort of in Q1, we would not have raised both, you know, occupancy and rate assumption, which again, I want to make it abundantly clear. That's our guess. Right. It's an educated guess, but it's a guess. We've not done it at sitting at the end of April. So what we see, we really like what But we have no dilution of certainty. Remember, this business is a June to October business. And we need to see how June to October plays out.
Speaker Change: Know how April up to this point has progress.
Speaker Change: And frankly speaking if we didn't feel good about that data we wouldn't give you.
Speaker Change: Sort of in Q1, we would not have raised both occupancy and rate assumptions, which again I want to make it abundantly clear that our guests.
Speaker Change: Right.
Speaker Change: Educated guess, but it's a guess.
Speaker Change: <unk> done it is sitting at the end of April so what we see we really like what we see but we have no dilution of certainty and remember this business is the June to October business, and we need to see how June to October plays out and we will tell you as we see.
Shankh Mitra: And we'll tell you as we see.
Speaker Change: Tim.
Shankh Mitra: Yeah, I'll just add to that. Nick, I like the way you ask that guidance side. Clearly, when you provide projections or forecasts, the, you know, having more uncertainty and outlook, you know, drives a little bit of a wider range of outcomes. And so that's always factored in. That being said, the biggest piece of it, the anchor to it is what Shankh just said, what are we actually seeing in the business? And if we're not seeing trends change, that's going to drive the biggest piece, we don't see it as kind of our part of our job here to make to forecast what may or may not happen beyond what we're seeing, and then taking a reasonable range of outcomes into it.
Tim: Yes ill just add to that.
Speaker Change: I like the way you asked the guidance side, clearly when you provide projections or forecast.
Tim: <unk>.
Tim: Having more uncertainty and outlook drives a little bit of a wider.
Tim: Range of outcomes and so that's always factored in that being said the biggest piece of it the anchor too is what Sean said what are we actually seeing in the business and if we're not seeing trends change that's going to drive the biggest piece, we don't see it as kind of our.
Tim: Part of our <unk>.
Tim: Job here to meet to forecast what may or may not happen beyond what we're seeing and then taking a reasonable range of outcomes into it so.
Timothy McHugh: So I think your your view that some sort of increased uncertainty would be taken into account would be correct. And I think Shankh's comments on current business shows no signs of weakness goes along with that.
Tim: I think your view that some sort of increased uncertainty would be taken into account would be correct and.
I think <unk> comments on current business shows no signs of weakness it goes along with that.
Michael Carroll: And your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Yep, thanks. I just wanted to touch on on like how you guys view the spread between REVPOR and EXPOR. I know the current spread has been solid and is well above or at least higher versus historical levels. I mean, how can that trend going forward? I mean, is it fair to assume that it could stay at this level, just because I know there's some sensitivity to push rate? Or does like the Welltower business system rollout kind of change that formula a little bit?
Michael Carroll: And your next question comes from the line of Michael Carroll with RBC capital markets. Your line is open.
Michael Carroll: Yes. Thanks, I just wanted to touch on on like how you guys view the spread between Revpar and ask for I know the current spread has been solid and is well above or at least.
Michael Carroll: Versus historical levels, I mean, how can that trend going forward I mean is it fair to assume that it could stay at this level just because I know there is some sensitivity to push rate or does the well tower business system rollout kind of change that for me a little bit and there is some room for that to continue to expand.
Timothy McHugh: And there is some room for that to continue to expand.
Juan Sanabria: I think we've been pretty clear our expectations are to grow margin over time and so that definitely indicates that that we continue to outgrow revenue out past per unit expenses so yeah we see a lot of run rate with that is I'm not going to repeat what Shankh said earlier but Welltower business system what goes on there enables us to drive that margin for many years into the And your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Good morning.
Michael Carroll: I think we've been pretty clear our expectations are to grow margin over time, and so that definitely indicates that we continue to outgrow revenue out past the per unit expenses. So yes, we see a lot of run rate with that is I'm not going to repeat what Sean said.
Michael Carroll: But with our business system.
Michael Carroll: What goes on there enables us to drive that margin for many years into the future.
Speaker Change: And your next question comes from the line of one Santa Maria with BMO capital markets. Your line is open.
Santa Maria: Good morning, I'm, hoping you could talk a little bit about the skilled nursing investments you made in the quarter.
Juan Sanabria: I'm hoping you could talk a little bit about the skilled nursing investments you made in the quarter. Looks like it was about $1.2 billion. Was that fee simple? Was that loan investments? If you could talk about kind of the coverage there or just the The portfolio of assets may be that was grabbing that. Thank you. Yeah, Juan, so there was a couple of different transactions. But, you know, and in this particular quarter, you know, we've used the skilled nursing business as a credit business for us. Sometimes that comes in the form of a debt investment, sometimes it comes in the form of a triple net lease investment, but they're both underwritten from a credit investment perspective.
Speaker Change: Second was about $1 2 billion.
Speaker Change: Debt.
Speaker Change: The simple was the loan investments if you could talk about.
Speaker Change: The coverage there or just the.
Speaker Change: Yes.
Speaker Change: Portfolio of assets may be there.
Speaker Change: Robin that thank you.
Speaker Change: So there was a couple of different transactions, but.
Speaker Change: And in this particular quarter, we've used the skilled nursing business as a credit business for us sometimes that comes in the form of debt investments sometimes it comes in the form of a triple net lease investment, but their bulk underwritten from a credit investment perspective.
Juan Sanabria: The large transaction this quarter, you know, has a lot of things that we're really excited about.
Speaker Change: The large transaction this quarter.
Speaker Change: It has a lot of things that we're really excited about so the first thing is.
Juan Sanabria: So the first thing is, you know, it was a broken transaction, there was some softness in the market, deal fell apart, Welltower was able to come in, and come in with a dual path solution. You know, one was, we brought an operator to the table that the deal was lacking, and then the other was obviously a certainty to close. So first thing is, you know, we leveraged that, the fact that it was a broken deal, to get a favorable price adjustment, you know, to the tune of a couple hundred million bucks in our Then the operator that we brought in is an operator, we've, you know, we have an existing book of business with Aspire, that has done an incredibly good job for us.
Speaker Change: It was a broken transaction.
Speaker Change: There was some softness in the market develop or volatile or was able to come in and come in with.
Speaker Change: <unk> the fat solution. One was we brought an operator to the table that the deal was lagging and then the other was obviously a certainty to close so first thing is we leverage that.
Speaker Change: That was a broken deal to get a favorable price adjustment after that.
Speaker Change: A couple of hundred million Bucks in our favor.
Speaker Change: Then the operator that we brought in.
Speaker Change: As an operator.
Speaker Change: We have an existing book of business of aspire that has done an incredibly good job for us and with.
Juan Sanabria: And with Aspire, we bought a turnaround portfolio towards the end of 23. And their performance, you know, in just a matter of five, six quarters, has been quite incredible. They took a portfolio that was on the EBITDA basis losing, call it 15 million bucks, and improved cash flow such so significantly that today that EBITDA is, you know, north of 90 million bucks. So given, and it was a scaled portfolio, just given the dollars we're talking about here. So given, you know, their strength and the quality of execution, this portfolio, given its size, made a lot of sense for them.
Speaker Change: With aspire.
Speaker Change: <unk> turnaround portfolio towards the end of 'twenty three and their performance in just a matter of five six quarters has been quite incredible that took a portfolio that was.
Speaker Change: EBITDAR basis to losing call it 15 million Bucks and improved cash flows.
Speaker Change: <unk> data today that EBITDA is in our north of $90 million. So given there was a scaled portfolio just given the dollars. We're talking about here so given their strengthen the quality of execution. This portfolio given its size and made a lot of sense for them and from a performance perspective in place this portfolio is generating.
Juan Sanabria: And from a performance perspective, in place, this portfolio is generating enough cash flow to cover rent, you know, 1.0 year one or in place. And that's that occupancy in the mid 60s. So we have an operator that has a proven track record of, you know, improving performance pretty substantially. But in this case, unlike the Florida case, you have significant in place cash flow that covers rent day one. And on top of that, there is additional credit enhancements in terms of guarantees. You know, there's north of a half a billion dollars worth of net worth, you know, that is in assets outside of skilled working that is sitting behind this transaction to support, right.
Speaker Change: Enough cash flow to cover rent.
Speaker Change: One O year, one are in place and that set occupancy in the mid <unk>. So we have an operator that has a proven track record of improving performance pretty substantially but in this case. Unlike the Florida case, you have significant in place cash flow that covers rent day, one and on top of that there is additional credit enhancements.
Speaker Change: Terms of guarantees there is north of $5 billion worth of net worth.
Speaker Change: That is in assets outside of skilled nursing that is sitting behind with this transaction to support right. So you've got quality assets shacks quality, operator checks in place cash flow with room to the upside check and additional credit protection chat right. So.
Juan Sanabria: So you've got, you know, quality assets check, quality operator check, in place cash flow with room to the upside check, and additional credit protection check, right. So that that's the setup here. And, you know, we just found a great transaction that was broken.
Speaker Change: That's the setup here and.
Speaker Change: Or are you just found an array of transaction that was broken.
Juan Sanabria: All investments want your quotient embedded in the bucket that was made in the quarter. Correct.
Speaker Change: All investments once your caution in batteries in the bucket of retail in the quarter.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Wes Golladay: And your next question comes on the line of Wes Golladay with Baird. Your line is open. Hey, good morning, everyone.
Speaker Change: And your next question comes from the line of Wes Golladay with Baird. Your line is open.
Speaker Change: Hey, Good morning, everyone can you talk about your outlook for development in Canada, and once you close the <unk> do you envision any starts next year.
Wes Golladay: Can you talk about your outlook for development in Canada? And once you close Omeka, do you envision any starts next year? Yeah, so as I mentioned in the prepared remarks, there is nine development parcels that we're acquiring as part of the transaction. And they've had extended multi-year, five, six, seven-year entitlement processes. Now some of those are expansions, the other are de novo projects. As you can imagine, expansions are easier to pencil, just given that the operating cost load that you're going to add to the incremental units is, in most cases, de minimis or a fraction of what you would have for a de novo project.
Speaker Change: Yes.
Speaker Change: Yes, so they'll get as I mentioned in the prepared remarks, there is a nine development parcels that we're acquiring as part of the transaction.
Speaker Change: They have had extended multi year 567 year entitlement processes now some of those are expansions the other our de novo projects.
Speaker Change: As you can imagine expansions are easier to pencil, yes, given that the operating cost load that youre going to add to the incremental units.
Speaker Change: In most cases de minimis or in a fraction of what you would have for de Novo project. So those projects continue to make a lot of sense and we will develop and the <unk>.
Wes Golladay: So those projects continue to make a lot of sense and will develop. And the handful that are de novo, they are in the highest quality, highest rent market, and those we'll evaluate. We'll evaluate to see if, once the dust settles a bit on tariffs and cost certainty, we'll see if it makes sense to start them today or in the future. But just given that there's a bunch of expansion projects, we'll certainly expect to see some starts next year.
Speaker Change: The handful that are de novo.
Speaker Change: In the highest quality highest rent market and those will evaluate rigor will evaluate to see if once the dust.
Speaker Change: Settled a bit on tariffs and cost certainty, we'll see if it makes sense to start them today or in the future but.
Speaker Change: Just given that there is a bunch of expansion projects will certainly expect to see some starts next year.
Emily Meckler: And your next question comes from the line of Emily Meckler with Green Street. Your line is open. Good morning. Thanks for the time.
Speaker Change: And your next question comes from the line of Emily <unk> with Green Street. Your line is open.
Emily: Good morning, Thanks for the time.
Emily Meckler: What percentage of the properties has Welltower's operating platform been rolled out to and have you received any pushback from operators that has maybe delayed the rollout? Starting with pushback, the answer is no. We work with our operators, listen to them, they have great feedback, as Shankh has said, it's shoulder to shoulder, and so we iterate with them on how to move forward with the platform. As far as for the percentage, I don't give out the details, and when I talk about the platform, there's a broad look at the platform, we're really working with all the different operators with different aspects of our platform, so I'm not going to give much more detail than that, but the reception has been fantastic, and appreciative, and at this point, quite successful.
Emily: And then just the properties has wildcards operating platform been rolled out to you and have you received any pushback from operators and that has maybe delayed the rollout.
Emily: Okay.
Emily: Starting with the pushback the answer is no.
Emily: Work with our operators listen to them they have great feedback as Sean said its shoulder to shoulder.
Emily: So we iterate with them on how to move forward with with the platform as far as for the percentage I don't give out the details and when I talk about the platform.
Emily: A broad look at the platform, we're really working with all of the different operators with different <unk>.
Emily: Aspects of our platform, so I'm not going to give much more detail than that but the reception has been fantastic and appreciative and.
Emily: At this point quite successful Emily I'll, just add Mike Carrel, Mike asked this question on the last call I think John you said that the whole rollout will be a two to three year process sure yes. So.
Shankh Mitra: Emily, I'll just add, Mike asked this question on the last call, I think, John, you said that the whole rollout will be a two to three year process. Sure.
Michael Mueller: So, you derive any conclusion that you want from this percent, that percent, but real businesses are not driven from Excel spreadsheet, and so, you know, we'll see where we get to. And your next question comes from the line of Michael Mueller with J.P. Morgan. Your line is open. Yeah, hi, the same store show portfolio, it looks like it's about 88% occupied. But what portion of it is stabilized or close to it? And how is REV poor growth and those assets been compared to the 6% average? I mentioned, Mike, in my prepared remark that 90%-plus occupied part of the portfolio, which is, Tim, what, like 40% to 50%?
Speaker Change: <unk> derive any conclusions that you won from this percent of X percent, but due to real businesses are not driven from excel spreadsheets and so we'll see where.
Emily: And where we get to.
Emily: Okay.
Speaker Change: And your next question comes from the line of Michael Mueller with Jpmorgan. Your line is open.
Michael Mueller: Yeah, Hi, it's the same.
Michael Mueller: Same store show portfolio it looks like it's about 88% occupied but what portion of it is stabilized or close to it and how is revpar growth in those asset spend compared to the 6% average.
Michael Mueller: Okay.
Michael Mueller: I mentioned, Mike in my prepared remarks that 90% plus occupied part of the portfolio, which is.
Michael Mueller: Similar to the 40% to 50% yes.
Timothy McHugh: Yeah, roughly, yeah, yeah. About 50%. That has grown, right, for 7%-plus. And the other end of that, I believe Tim said, like less than 80% cohort, I think Tim said last quarter, was like roughly a quarter of the portfolio, where it was lucky flat, I think it was up one or 2%, something like that. So it just sort of that sort of you think about the gradient of that everything is in between, it's a simple demand supply of how many units you need to sell versus, you know, if you're full.
Michael Mueller: That's about 50%.
Michael Mueller: That has grown revpar seven plus percent.
Michael Mueller: And the other end of that I believe Tim said like less than 80% cohort I think Tim said last quarter was like roughly a quarter of that portfolio.
Michael Mueller: Therefore, as locking Florida, I think it was up 102% something like that.
Michael Mueller: So it just sort of that sort of you think about the gradient of that everything is in between like this it's important demand supply of how many units you need to sell versus.
Paul: Sure Paul.
Michael Mueller: Yes.
Michael Mueller: Yes.
Kaylin: And there are no further questions at this time.
Speaker Change: And there are no further questions at this time. This does conclude today's conference call and you may now disconnect.
Kaylin: This does conclude today's conference call and you may now disconnect.
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