Q3 2025 Welltower Inc Earnings Call
Speaker #2: Thank you for standing by at this time . I would like to welcome everyone to today's Welltower third Quarter 2020 Earnings call . All lines have been placed on mute to prevent any background noise .
Speaker #2: 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 .
Speaker #2: Once again , star one . And if Thank you . I would now like to turn the call over to Matt McQueen . Chief Legal Officer and General Counsel .
Speaker #2: Matt .
Speaker #3: Doing . Good morning . As a reminder , certain statements made during this call may be deemed forward looking statements in the meaning of the private Securities Litigation Reform Act .
Speaker #3: Although Welltower believes any forward looking statements are based on reasonable assumptions , the company can give no assurances that its projected results will be attained .
Speaker #3: Factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the company's filings with the SEC .
Speaker #3: And with that , I'll hand the call over to Shankh for his remarks .
Speaker #4: Thank you , Matt , and good morning , everyone . Given the sheer volume of announcements last evening , will keep our Q3 related comments concise .
Speaker #4: But I'm pleased to report that it was another record quarter with occupancy margins and net operating income . All exceeding our already very high expectations .
Speaker #4: However , it was a watershed period in our company's history from two important perspectives capital allocation and people . After I walk you through our significant capital allocation related activities , the team will provide details of Q3 results .
Speaker #4: Then I'll return to discuss my favorite topics of people , culture , incentive , design , and beginning of a new era of our farm .
Speaker #4: Welltower 3.0 . Let's start with acknowledging lack . Many of yesterday's transaction announcements started six months ago at the height of uncertainty . Post Liberation Day .
Speaker #4: We always believed that life is not about predicting . It is about positioning . So when the lark knocked on our door in April and May , we're positioned with our balance sheet .
Speaker #4: Exceptional team technology , platform and perhaps most importantly , courage to run towards this uncertainty and chaos . This positioning drove more than $23 billion in incremental transactions , resulting in year to date activity over $33 billion and bringing us closer to ever realizing our decade long ambition of transforming Welltower into a pure play rental housing platform for the rapidly aging population .
Speaker #4: At the core of our offering will always be systems , process , technology and data driven insights to enhance the experience of our customers and site level employees , not capital , which is ultimately a commodity .
Speaker #4: Every capital allocation decision made at Welltower is viewed through an opportunity cost prism . Evaluating the value foregone by pursuing a specific course of action while considering all implications of those decisions .
Speaker #4: Well into the future . And that opportunity cost prism allow us to narrow our focus on technology driven transformation of our niche housing business .
Speaker #4: There will always room in organizations to boost performance by amping up their pace and intensity , and the fastest way to move the dial is to narrow the focus in a maximum growth .
Speaker #4: Maximum gain world . This is why we are exiting our outpatient property management business while we continue to own some outpatient medical assets , it will consume little management time and effort due to triple net nature of the retained properties .
Speaker #4: This is not to say a B2B business like Om is not a good business , but the intensity that is needed to achieve our audacious dream of transforming a tech poor , Tam rich , B2C industry like senior housing requires the laser focus of a hedgehog and the discipline to say no to hundreds of good ideas .
Speaker #4: While our motivation to go all in on senior living with focus and opportunity to enhance the enterprise growth rate , we recognize that the direction of asset prices for what we are giving up is uncertain .
Speaker #4: Hence, we structured our large OM sale with significant participating profit interest. While the deal structure reflects a degree of heightened creativity.
Speaker #4: It is by no means a novel approach within our farm , we applied a similar idea nearly five years ago when we wrote a participating senior credit note on Hc1 assets in UK with warrants and equity kicker .
Speaker #4: At the height of Brexit and Covid , uncertainty . I am delighted to inform you that the significant downside protected structure generated a nearly 14% unlevered IRR at exit , while providing us an opportunity for a seat at the table in a bilateral negotiation for this recap .
Speaker #4: This recapitalization transaction marks the beginning of new chapter of new operating income growth . As our long duration strategy unfolds for Hc1 assets .
Speaker #4: Speaking of the UK . I'm delighted to announce that after six years of conversations , negotiation and a near transaction were finally the proud owner of Barchester Senior Living portfolio .
Speaker #4: We recognize that buying highly successful , family owned businesses requires patience , finesse and a commitment to excellence that their legacy deserves . While a large checkbook that no counterparty ever question is necessary , it is by no means a sufficient condition .
Speaker #4: We have carefully studied many transactions that Warren and Charlie have completed over the years with family owned businesses , and I'm has to inform you that this $7 billion negotiation was done during a single sitting resulting into a firm handshake .
Speaker #4: Our years of conversation and close familiarity with the Barchester assets and management were certainly helpful . As preparation . Equally important were the integrity and professionalism demonstrated by our counterparty .
Speaker #4: We're proud to welcome Pete and Barchester management team to Welltower operating partner family . Despite giving up in-place yield and Hc1 and other loans and initial dilution incurred from 170 assets that are in lease , up from our recent acquisitions .
Speaker #4: Together , the dispositions and acquisitions are expected to be accretive to FFO per share in 2026 , to be clear , we would have completed this deal even if they were collectively near-term dilutive because of the significant opportunity of earnings and cash flow growth in 27 and beyond .
Speaker #4: And due to the long duration aspect of the transactions . These capital allocation decisions together are expected to change the near and long term growth rate of our farm .
Speaker #4: Despite the significant size of our asset base , this speaks to the level of excitement and high expectations we have from this year .
Speaker #4: $33 billion of transformative capital allocation activity . With that , I'll pass it on to John .
Speaker #5: Good morning everyone . I'll keep my comments relatively brief this morning . But as Sean mentioned , we reported another fantastic quarter with no letup in the strong momentum experienced in the first half of the year .
Speaker #5: While uncertainty persists for the direction of the broader economy , our business continues to gain strength . Given the needs based and private pay nature of our business , while our asset management initiatives through the Welltower business System or WBS continue to bear fruit .
Speaker #5: Our strong results this quarter were once again driven by the exceptional performance from our senior housing portfolio . In fact , Q3 marked the 12th consecutive quarter in which show portfolio same store NOI growth exceeded 20% , attaining 20% plus NOI growth for any sector is an incredible achievement , but 12 consecutive quarters is truly exceptional and likely unprecedented year over year organic revenue growth remains at approximately 10% , driven by a 400 basis point occupancy gain and strong pricing power .
Speaker #5: Our solid top line results were led by our UK portfolio as a 550 basis point year over year ramp in occupancy drove a 10.4% increase in revenue .
On the disposition front, we are under contract to sell an additional uh 20118 million square foot outpatient. Medical portfolio, for 7.2 billion, dollars resulting in a 1.9 billion gain on sale. We structured this investment to retain a 1.2 billion. Preferred Equity, stake accompanied by a profits, interest giving us 25% of upside, while protecting our downside through the buyers subordinated equity.
Can we close on the first 2 billion? Tons of this transaction last week with subsequent closings, expected through next summer.
Additionally, we will exit the OM, Property Management business with over 160 of our colleagues transitioning, to remedy medical properties, allowing them to continue their career growth.
Following this transaction of a residual om portfolio will essentially consists of Premium net. Leased assets to high-quality investment grade tenants.
The long-term absolute net. Nature of these. Leases require minimal management. Intensity.
Turning to Acquisitions. We are pleased to announce the 1.2 billion. Pound acquisition of the 8C. 14 portfolio in the UK.
Many of you will recall our courageous 540 million pound First Mortgage Investment in hc1, recapitalization at the height of Co and brexit uncertainty.
That investment was structured with downside protection. Through a claim on 8C 1's, real estate portfolio at a last pound basis of approximately 40,000 a bed and upside participation through warrants and Equity kickers.
We have enjoyed a close working relationship with the company's management and ownership and have supported the company's growth through modest additional capital support. This investment has now delivered a profit of greater than £350 million and, over the last 4 plus years, an unlevered IRR of nearly 14% and a 1.6 times equity multiple.
While the payoff of this high yield loan is modestly, diluted near term, the equity ownership of these assets, adds significant duration to our returns. By deploying significant value, add capital and leveraging. Well, Tower Business Systems and the best practices from our broader UK business. We expect this transaction to generate an unlevered irr in the low teens.
Moving on to our 5.2 billion, pound acquisition of barchester, which spans 3 buckets.
First 111 assets under a highly aligned rights, 6.0 structure. These high growth assets ranked in the top quartile within the UK and have in place occupancy in the high 70s, due to 39, newly delivered assets,
Second 152 mature Assets in a triple net structure.
These mature assets are 90% occupied with strong coverage, 3.5% annual, red escalators, and the ability for well Tower to reset threat, every 5 years to capture additional upside.
Third 21 assets that are currently being developed.
In addition, through several other transactions, we are acquiring an additional 9 assets under construction in the UK.
Given the significant non-purge opportunity embedded within this portfolio.
While I have highlighted our larger transactions. Our focus on granular activity remains unabated.
Diligence and establishing business plans with our operating partners.
91% of this activity was sourced off Market.
16 of these transactions were in the UK 2 in Canada and the remaining 32 in the US.
I expect that with our narrower focus and Relentless pursuit of better outcomes. The transactions announced today will fundamentally enhance. The long-term growth potential of our company's earnings
With yesterday's announcements, we have added over 170, senior housing, communities to our investment pipeline that are under development or are still in Lisa.
These communities will be a drag on near-term results. But as we detailed in our letter to our future shareholders, we will not hesitate to make capital allocation decisions that are a drag today but have the potential to create significant value tomorrow.
I'll now turn the call over to Tim to walk through our financial results and updated earnings guidance.
Thank you Nathaniel.
My comments today will focus on our third quarter 2025 results.
Performance of our triple, net Investments, our Capital activity, a balance sheet, and liquidity update. And finally, an update to our full year 2025 Outlook.
while Tower, reported third quarter, net income attributable to Common stockholders a 41 cents, polluted share, and normalized, funds from operations of 1.34, cents per diluted, share representing 20.7% year-over-year growth
We also reported year-over-year total portfolio, same store. Noi growth of 14.5%.
Now, turning to the performance of our triple, net properties in the quarter.
As a reminder, our triple net lease portfolio. Coverage stats are reported a quarter in Rears.
So these statistics reflected trailing, 12 months, ending 6:30, 2025
In our senior housing, triple net portfolio. Same store on noi. Increased 3.1% year-over-year in trailing 12-month, even our coverage increased to 1.21 times.
Next.
Same store on AI and our long-term post-acute portfolio. Grew 2.7% year-over-year in trailing 12-month. Even our coverage was 2.02 times.
Moving on to Capital activity, we continue to capitalize our investment activity with predominantly equity.
Raising 2.9 billion dollars of gross proceeds in the third quarter.
Additionally, in August, we completed a follow-on issuance of 1 billion dollars in senior unsecured notes, across 2 tones for a blended coupon of 4.875%.
This Capital along with retained cash flow allowed us to fund 1.7 billion in net investment activity and end. The quarter was 7 billion dollars of cash and restricted cash in the balance sheet.
While driving net debt to adjusted IBA to 2.36 times representing. Yet another record low, leverage level for the company.
with our current capital position near-term, liquidity profile, an expected proceeds from asset sales and Loan payoffs
We are fully funded for the entirety of our acquisition pipeline including the 14 billion of new acquisition activity, which we announced last night.
And we expect run right. Net debt to adjusted ibida. Take modestly Higher by approximately 1 turn on a run rate basis. For all of our announced transaction activities.
Lastly, as I turn to our updated 2025 guidance, I want to remind you that we have not included any investment activity in our Outlook beyond what has been closed or publicly announced today?
Last night, we updated our full year 2025 outlook for net income attributable. To Common stockholders of 82 cents to 88 cents per diluted share.
And normalize ffo of $5.24 to $5.30 collected per diluted share.
for 5 dollars, 27 cents at the midpoint
There are 2 items. I want to highlight and last night's net income guidance, that relate to fourth quarter activity and Beyond.
The first is our medical office portfolio sales, which as the K detailed earlier, is expected to have a total gain on sale of approximately 1.9 billion.
400 million of, which is expected to be reflected in net income in the fourth quarter, with the remaining 1.5 billion, expected in 2026.
The second item relates to 2035 10 year, executive continuity, in alignment program.
We expect the approximately 1.1 billion of upfront costs associated with the initiation of the plan to impact net income in the fourth quarter.
Which will be adjusted out of normalized ffo.
In addition, the programmer will result in a recurring amortization expense stream that will flow through normalized earnings over the next decade.
Alongside the ongoing impact of the increased diluted share count.
Now, turning to a normalized, ffo guidance.
Lives FFL range.
This increases composed of.
A 4.5 cent increase from higher occupancy in our senior housing operating portfolio.
10 and a half cents from a creative Capital, allocation activity.
And a 2, cent increase, from FX and income tax benefits.
Underlying this faux guidance is an estimate of total portfolio. Year-over-year same store noi growth of 13.2 to 14.5%.
Driven by sub segments growth.
Of outpatient medical 2 to 3%.
Long-term post-acute 2 to 3%.
Senior housing, triple, net 3 and a half to 4 and a half percent.
And finally, senior housing operating growth of 20.5 to 22%.
This is driven by the following midpoints of their respective ranges.
Revenue growth of 9.6%.
Driven by increased expectations for occupancy, growth of 390 basis points, and RevPAR growth of 5.1%.
And expense growth of 5.25%.
And with that, I will hand the call back over to Sean.
Thank you, Jim.
Before we start Q&A, I want to highlight the most important announcements we made last night, the launch of Wella 3.0 an operations and Technology first platform. This is the third iteration of our company. After a refunding, our from, from a deal shop called healthcare reach. We took hcn down to it, starts and built waltar, 10 with a goal of being a great Capital allocator. We turned over half of the assets, majority of the operators and 95% of the people and we launched a data science platform that in words of a CIO from a leading private Equity, Firm has become synonymous with the category, much like Band-Aid or Kleenex, then came Co. And with Charlie's, prodding I realized we needed to recruit individuals from industries of high standards or equivalent of short, Haul Trucking Executives, who addressed the challenges of the railroad industry decades ago,
The hiring of John bachart from multi family industry and subsequent hiring of hundreds of our colleagues who are focused on operations and asset management to Delight customers and site. Level employees, Mark the beginning of World Tower 2.0, a well oiled Capital allocation machine with high performance compute power to sort through trillions of data points to buy 1 assignment.
We brought in best-in-class operators under aligned contracts and provided them with an entry and asset management and Technology platform. While also building Regional density, things have been going on. Well, in recent years, which are with performance, which I would describe as being somewhat satisfactory.
and yet, again, we are disrupting our own farm from, within, which we believe will create a leaping emergent affect culminating into what are 3.0 and operating company, in a real estate rapper, this new era,
Places operations and Technology. First with a singular focus on delighting customers and prioritizing site level employee satisfaction with complimentary Capital allocation actions to go deeper in our markets with a narrower Focus.
This phase starts with a complete retooling of our organization. Not writing a Manifesto, many organizations hire management, Consultants create pretty PowerPoint decks and our new mission and vision statement, but, ultimately change nothing about how they go about doing business. There's no place for a Consultants silver tongue, Bankers or managerial layers at our shop, only leaders who are willing to get their hands dirty by actually doing the work and building the business laying 1, airtight break at a time.
We're taking the best from our Capital, allocation side of our house including Tim McHugh, and Ross Simon to lead the next phase of our journey focused on operations, technology and innovation.
Additionally, we are once again bringing in significant Talent from Industries with higher standards, which includes proven Tech Executives such as Jeff, Logan and Tucker to join, Swagger to form a tech quad, which will serve at the core of Walter 3.0.
Creating a new paradigm of Maximum growth and maximum gain that simply does not occur in an industry like ours which changes at glacial pace.
Lastly today, I will describe a dramatic change which strikes at the heart of this companies incentive structure from my first day. In this business, I've been bothered by the misalignment of the incentives between our company, the owner of our assets.
And our operating Partners, the manager of the community. I wish I could have said better things about the alignment of between management and forever owners of a company like ours. Hence, you have seen a decade-long effort from us to fix and align external and internal incentives as Charlie would constantly tell us.
Show me the incentives and I'll show you the outcome.
Following years of deep structural changes in this area, I'm delighted to inform you that my utopian idea of everyone's swimming or syncing together is finally, taking shape and ecosystem of internal and external participants where everybody is fully aligned. And everybody is all in,
I would urge you to read our press release from last night, carefully to fully grasp, the changes that are taking place in 3. Distinct steps to achieve the same goal of alignment and ownership, 1, elimination of compensation for welfare management and making them owners to performance-oriented World. Our stock 2 introduction of idea, 6 of construct where the operator wealth creation is now E-Revo tied to what our stock and 3 and 10 million dollar annual grant for site, level employees, for the 10th, for filming, senior housing communities. Also in World Tower staff,
all of them, can
Capture the 5 keys of the incentive design that we have previously laid out to you. Simple, significant non-game Bowl aren't as a team and duration matched with the immediacy of a roles impact, 10 years to forever for World Tower Management 5 to 7 years for operating partners and 1 year for site level employees.
I would underscore that my colleagues are betting their prime years of their career on this idea. And so are many of our my operating Partners Dan Hughes had story points Matthew to get Koji are and Courtney sigil at Oakmont while we are embarking on, what we are embarking on, embodies a Unity of purpose.
Share sacrifice and perhaps some shared delusion woven in a seamless way of deserved trust and mirrored reciprocation by a group of random employee people from different walks of life.
And they share 2 rare genetic qualities. A fiduciary Gene representing their innate desire. To put the interests of our owners ahead of their own and a delayed gratification Gene, which refers to their instinctive bias.
Towards sacrificing an immediate reward for a much larger game tomorrow.
While a long-winded person like me with long attention fans, span is perfectly capable of spending hours, detailing every part of this plan. Let's focus on my favorite. The Welter grant for site level employees to honor the memory of Charlie Munger and let's start by inverting.
Our ultimate goal is to Delight customers and their family and of course, they want a digital experience. The ability to find us easily in a crowded and rapidly tending data world, and so on and so forth. But more than anything residents, want a consistent and happy place who cares for them. Imagine a world where our site level employee work in beautiful and inviting communities equipped with most advanced and easy to use digital tools, freeing them from paperwork and administrative burdens not to mention meaningful career advancement.
Silently compound over many years and decades to come.
Charlie often said, take a simple idea and take it seriously.
He would be happy to know today, that we have taken the simple idea of baksha style stewardship, along with Costco style customer Obsession. Very, very seriously and waiting our life on it. And with that, I'll open the call up for questions.
All right, thank you. And at this time I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad. Once again star 1.
In the interest of time, we ask that you please limit yourself to one primary question. Then, if you have additional questions, you may rejoin the queue.
And we will pause. Just a moment to compile the Q&A roster.
All right, looks like our first question today comes from the line of Vikram. Malhotra with meizuo Vikram, please go ahead.
Uh morning uh you know, thanks so much and congrats to the strong results to all the the transactions I get to shank. Um,
You’ve outlined a lot of changes: portfolio, personnel, comp plan, etc. And I’m just trying to understand, like you talked about Welltower 3.0, but things have been going really well for... Well, the industry is, you know, you’ve got leading results, stocks, you know, 2x, 3x depending on when you measure it. So, I’m just trying to get a sense of, like ultimately, you know, two things: 1, in general, is there, you know, is there a goal? Is there something you’re trying to...?
Approved, uh and and kind of how should we think about the growth engine from a cash flow standpoint from here on?
I think we fundamentally believe—we, personally, fundamentally believe—that we're here to contribute, but really nothing to prove.
Uh, you know, a fundamentally. What we are trying to do is to take away, uh, if you just think about Agency problems from the system across the board, and try to align people to be owners, right? So aligned interests with our owners, across the way to the whole ecosystem. That's all we are trying to do.
And bringing sort of the second question you asked, which is a very important 1, which is, you know, how do we elongate the growth curve? Well, into the future?
Making real money is all about duration.
And duration of growth is all that it matters. We are too focused on near-term with 2 short term in this world. And if you think about think through how real value creation works, it's all about duration. So, you know, a part of your question, was why if things are going well, why are we again? Disrupting it, think about things. We're going well very well for Netflix, when they're killing it by sending people DVDs. And what would where would they be if that's what they're still doing today? Alright, if you don't disrupt your organization from within somebody else,
Will do it for you. And so that's what we are trying to do thinking through what the future of this business will look like. And we have taken up on ourselves to transform these business digitally to get to a better outcome for our customers and site level employees, that's all we are doing and we hope that will generate very significant growth and compounding of cash flow over a period of time for our owners and you know, Frankly Speaking, that's the journey we're in
All right. Thank you Vic. My apologies for the delay. Uh, had a network hiccup there.
And our next question.
Comes from the line of Jonathan Hughes with Raymond James. Jonathan please go ahead.
Hi, good morning. Uh, thanks for the prepared, remarks and commentary, and congrats on all the announcements, um, a lot to talk about, but hoping you can share more details.
You know, on this this new comp plan was represented by the board as a team package as an awl or or nothing proposal. Did it evolve into that and then the the 3 operators that are now similarly
Uh, changing their send-a-fee to take units, is that structure being offered to other partners as part of our DS6.0 to further, you know, align them with shareholders, now management, and extend the duration of hopeful, you know, outperformance. Thank you.
Okay, so, um, let me answer the first question and then we'll go to your second question. So, our board, um, has spent enormous amount of time with leading, um, comp Consultants.
Some hours to come up with what they consider, uh, is the right plan, which you saw. So I have really nothing to add to that. Other than the fact that it aligns with the 5, ten of the incentive design that we have always talked about, right? Simple, significant, uh, aren't as a team duration matched and non-goal, right? That's really what it is. Um, as I said, the first G operators that we mentioned, they're the founding class, uh, they don't necessarily have to be the only ones, right? We are trying to simply align the interests of our operating partners with our owners, and obviously, as you know, that regional density is very important to us. So if there are opportunities to bring in other operating partners into the fold, we'll consider it. But at this point in time, we only have the three partners who are the founding class of this new program, and we'll see what the future gets us.
All right. Thank you, Jonathan. Our next question comes from the line of John Kilichowski with Wells Fargo. John, please go ahead.
Uh, thank you. Good morning, uh, Sean in the past, you've talked about the various source of capital available to the company. Um, in the case of the acquisition, do you announce yesterday? Why not issue Equity to fund some of those Investments instead of the asset sales?
Good very very good question. So if you um go to John, the first call, I did a CEO I laid out my belief or how Capital allocation works.
Most people.
Of capital allocation as a function of uh, where Capital goes or what you buy in. A very simplistic term. It's actually so much more intricate than that. And then you have to think about your source of capital
and you have to think about relative cost of that capital.
And so, as you can think about what we are doing, if you fix the side which is the buy and just purely consider the sale, um, you're right, correct? We could have done it through equity, and frankly speaking, the spot cost of that equity is lower than the spot cost of that asset sales, which is like $9.9 billion of asset sales, and Nikhil talked about. So it would have generated a higher near-term equation.
And it would have created a disaster for the long-term value creation of this company.
So in other words, if you think about our assessment of what we are giving up, you have to think about these things from an opportunity cost standpoint. What we are giving up, by definition, is that we are not doing it through equity. This tells you that our view, which is a view—you don't have to agree with our view—is that our cost of equity is higher.
Than the cost of the capital of the asset itself so you can come to the decision. Obviously, why is that? Because we have a higher view of growth and the duration of growth of that Equity, it is an incredibly important question. I have seen so many companies and their management get sucked into near-term. SFO accretion math and dilute their shareholders without thinking through how long-term value creation works. Thank you for the question.
Thanks John.
And our next question comes from the line of Michael. Carroll with RBC Capital markets. Michael, please go ahead.
Yep. Thanks, uh, Sean. I wanted to Circle up on the recent uh, Care Home deals, the barchester and and hc1. I mean, how do these portfolios compared to to well, Towers current portfolio in terms of asset quality and and maybe the private pay percentage and and does that impact the growth Outlook of those assets at all or or is it very similar to to the current portfolio?
Yeah, an accumulated basis. It's very, very similar, it's uh, you know, similar quality assets, um, on a blended basis similar metrics. So, definitely don't change their
Okay, thank you very much for that question. And our next question comes from the line of feral Granite with Bank of America, Ferrell, please go ahead.
Good morning, and thank you for taking my question.
I know in the opening remarks, you outlined a lot of the aspects of the mob disposition. I was wondering if you could discuss your decision. Why? Um, for the structure.
So um let me, let me repeat F, what I said, if you just think about it. Uh we are making an opportunity cost decision of 2 things first refocusing you know, entirely have a singular Focus.
Behind this. The second obviously is the cost of capital conversation we just had now remember you know at the end of the day we have no idea what future looks like.
Uh, we don't have a crystal ball. It is entirely possible that the value of these assets tomorrow is significantly higher, right? We obviously have a view that, you know, the next 10 years in a de-globalized world is going to look, um, obviously relative to the last 10 years when we had zero inflation and zero rates. It is going to be different, but we have no idea where, right or not. So the structure reflects.
That you know, if values go up significantly right or value goes up at all, we our shareholders will still rip the benefit of that value. Um, accretion that, you know, that we are living behind today. That's what the whole structure is about, is how do we, you know, sort of do what we are trying to do.
And uh Focus that Capital into high growth opportunities at the same time. We think very highly of Remedy as an operator, our all our colleagues are going there. We think they will continue to create a lot of value. It is entirely possible that cap rates come down. Interested come down, we're totally uh wrong about our macro views. And if all of those things happen, you have to sort of think about okay, did I sell these assets in the wrong time in a cycle, right? So it's just sort of think about an opportunity cost from a strategic standpoint also an opportunity cost.
Department Capital standpoint and that's how we came to this conclusion.
All right, thanks for the question. Frel.
And our next question comes from the line of Nick ulo with Scotia Bank. Nick, please go ahead
Uh thanks. Yeah, I just following back up on the outpatient, medical sale. Um just a few questions there. I mean, you guys in the sub, give that held for sale know, I just wanted to make sure that that sort of apples to apples to apply that.
To the sale of the $7.2 billion, and that looks like it's a 6.25 cap rate, and I just want to see if that's right. And then also on the preferred, if you could just talk about, you know, what the yield is you're getting on the preferred, and then also if you guys are offering any seller financing as part of the transaction. Thanks.
Sure. So I I'll start kind of backwards on the preferred the coupon is 8% and, uh, you know, it's 1.2 billion. And that's really all we're leaving behind. That's why the 7.2 billion dollar transaction results in net proceeds of 6 billion. So no seller financing. Uh this will be financed through uh Bank financing um then secondly to answer your question about the yield um that 6 and a quarter is in the right ballpark. That includes some Property Management uh, in a profitability as well. The real estate yield is a little bit lower but then obviously, if you think about the net, you know yield once you factor in the reinvestment of the prep, that's closer to 6%.
Thanks Nick. And our next question comes from the line of omu. Oka omu, please go ahead.
Uh, yes uh good morning, son team, uh, more high level question for you guys. Um, when your numerous species hit last night, I couldn't help but go back.
Uh, to Sean's, uh, annual letter, where, you know, you really kind of doubled down on this idea that, you know, you can actually grow faster at a bigger size.
And that, uh, you know, because of various network effects, you would get. And you also kind of talked a lot about doubling down on data design because of just kind of improved latency and how it would just kind of help you do business, you know, uh, you know, with better operational efficiency. Could you talk a little bit about just Welltower 3.0? You know, and everything that's going on, whether it's with a 6.0 or all this alignment with management compensation. How you kind of just see all that sitting together and exactly what does that set you up for going forward?
A little bit more and how they reflect right? You think about? Okay, let's just take easy example, dumb examples, right? Um,
This is a business. John talked a lot.
About the community. There is a there's a pretty good chance that 50% of the chance that you will not hear back.
And if you do hear back, there's a pretty good chance that you'll hear back in 2 business days. Now think about where our business still has been deployed. Our customers and prospective customers are hearing back in single digits.
Which is still not acceptable to me, but at least that's hearing back in single-digit minutes of 2 days.
That's significantly reducing latency. Think about historically, this business room turnaround happened in 37 days. Now it's happening in 11.
Still significantly higher than what John Burkart did or Jerry did, which was 3 to 5 days. But as we're getting there, that's latency; you are taking latency out of the system, right? Do you think about, you know, we just talked about, right in our company. I'll give you a third corporate-level example: in our company, there's no management layer. It's not like things flow through layers from A to B to C to D, and finally, it comes to the executive. We make decisions; that's not how this organization works. We actually do the work with our bare hands, sitting down and making decisions on the spot, right? So you think about that, taking latency out of the system, and you make decisions fast, right? That's how you get.
Get this kind of results when latency comes down in a system. That's when the network effect kicks into gear, high gear, and you get into a world of maximum gain, maximum growth in what is otherwise a glacially moving pace of doing business. That's what we're trying to do. We have done that. As I have talked about in my, you know, in my annual letter on the transaction side, deal side of the house, right? Think about how many people have, think about the common nickel, man? We have bought 700 communities, and I'm going to repeat what he said: we have walked every single one of these communities.
That is not given. How do we do that right, sort of that? How do we take that? Latency out of the system, is a lot of Technology initiative. Lot of, you know, decade of effort
So, that's kind of what we do. And you know, on the other hand, if you just think about it.
The hiring of Jeff and Tucker and Logan. And you know, what is the next step of that is to do that in the operations? Uh I expect someday that no calls will go unanswered and every calls if it goes it will be returned immediately that will be taking latency to zero and those days of operations are coming.
All right, thank you for the question. I'm Matteo.
And our next question comes from the line of Michael Goldsmith with UBS. Michael, please go ahead.
Good morning. Thanks a lot for taking my question. Lots of exciting news today so I'll ask something, maybe more holistic in that. How do you go about managing managing the execution risk of everything announced today? Including Acquisitions dispositions, new leaders, were you focused from an operational perspective? To ensure these changes are implemented successfully and you know what? Could go wrong here.
Oh, that's a very, very, very broad question.
Look, the fact of the matter is, how do we manage risk on, um, on the deal side of the house, we have a very, very large team, which obviously has more experience in doing transaction, uh, than pretty much any team in this business, right. Not not that doesn't require an asterisk. It does. So you think about it, you know, that's obviously that happens. Uh that team has done even during coid incredible execution. When you couldn't fly you couldn't do all of those things. So so that sort of a and that team is you know, teams in the kill team. Um our deal uh tax deal accounting and deal law, sort of then the legal side so there's a very very strong team combined, you know, or whether it's US Canada and UK on the operation side. You know, the reducing risk on operations is a purely function of what we we talked.
Business with legal documents is entirely a people-driven business. Most businesses, I believe, are people-driven businesses.
And for us, it is all about bringing, you know, attracting the best talent and retaining the best talent. That's all we are trying to do. That's your ultimate Mis risk. Mitigation through building a real vibrant culture where people everybody is all in and they behave like owners
All right, thank you for the question, Michael.
And our next question comes from the line of Ronald Camden with Morgan Stanley. Ronald, please go ahead. Great quick 2-part from me. Uh so the on the incentive uh structure for wall Tower 3.0, the presentation mentioned you know the 5 named executive officers but far down in the release, it also notes that you know management is working with the board on long-term incentive and and retention for 2 existing and 5 newly promoted EVPs. So I guess my first question is, is it, is it possible for all 12 to go all in on the incentive structure? And then my quick, follow-up is just on competition over the next 10 years. Whether it's Talent, whether it's technology is more Capital comes to the space. How do you think about protecting, well, Towers mode? Uh, over that time period? Thanks.
Thank you, Ron. Those 2 questions are actually fairly uh correlated. So let's start with your first question. As we said that, you know, we are working with our board to come up with a strategy to retain our colleagues who are actually doing all the works where where, absolutely have doing all these things and hopefully, um, that you guys have pleased with our executive and that's not because of, you know, me, or Tim or nikil, that's our group of Team. You know, this is a team game where all putting tremendous amount of effort, 24/7, and this has been 10 years in a row. So this is been obviously for us that retaining that group of people that you mentioned is extremely important. Um, how we go about it. It is a broad process. Our, as I mentioned in the previous, uh, question that our our board has gone through enormous amount of effort, uh, with their lawyers and bankers. And
Comp Consultants. Um, you know, to come up with the process that has been satisfactory for us and we'll hope that that same process will unfold. And we'll get to the satisfactory answer for our rest of our colleagues here, that you mentioned. But you know, as far as I'm concerned. As you know, I only believe in 1 way of living go all in and do it, you know, in that manner, right? Do very few things, the only things, you know, like to do is to go absolute all in. So that's will be my hope. Um, you know, and think about it.
Second point of your question as more Capital comes in. There's a uh structural element to that question, as you think about it. A lot of capital is structured in GP style. Um, Frankly Speaking LPS don't pay GP enough to spend uh, the hundreds of millions of dollars that we spend on technology to get there because, you know, there's no way to get that money back. Frankly Speaking. So we shall see how that happens. It needs to be done my apartment capital and from apartment Capital standpoint, you need a mindset. It's not a question of money. You just need a mindset to say, how do I transform a business? How do I invest today? Uh, you know, where I may or may not see the benefits of which, for a long time to come? That's the question of long attention span. You guys don't remember? But when we went after this, you know, sort of the data science approach where, you know, in those days we did was not called AI or something we call machine learning, you know, supervised learning unsupervised learning.
We got nothing out of it for 3 years.
And we keep investing, right? And keep going around and seeing who we can get there. Ultimately, it's exciting to talk about, you know, after five years, we got something out of it. And what has been done to today for latency in our farm, but it requires years of investment. And that sort of evolves, the needs of the organization, the talent of the organization. We are constantly trying to move the world forward, and we will come to other people to do most of the work.
You know, so that, you know, we want to see what is out of the possible looks like, and if other people come up with good stuff, we have no problem to copy. But unfortunately, in this world, most people don't have long attention span. Instant gratification is how most of the, you know, companies work. And as I said, glp structure is actually not very amenable to longtime Innovations. It needs to come from Forever capital.
All right, thanks for the question, Ronald.
And our next question comes from the line of Seth Bergie with City. Seth, please go ahead.
Make sure that there was Seth. Um, Sean just, uh, 1 question, obviously on the, on the strategy change. Um, curious, if you could touch on the balance between going more, all in on senior housing versus the earnings volatility, um, as well Terror becomes less Diversified going forward.
Very good question.
Um so Nick, um I would refer you to sort of understand how we think about this topic.
Um starting from our foundational document uh which is called the letter to Future shareholders, you will see that there's a whole section. I wrote about this topic of volatility versus risk.
We are not concerned about volatility. You are concerned about risk, and risk is the probability of losing Carman Capital. So for your first question, if you just think about how we behave, let's take an example of the last 5 years. What are the 2 periods of our facility? One was COVID, right? And sort of what happened subsequent to that? COVID, whether it's labor and other inflation issues. All what did we do? We ran towards it, not ran from it. So we like volatility. What happened 6 months ago? Liberation, the exact same thing. So if you think about where we built our organization, we built through the balance of volatility. We love volatility, but on the other hand, risk mitigation—that's why you are seeing we're running a balance sheet impossibly low leveraged, right? So risk management is not just you, you, you have to think through. You can do it from the asset size, asset mix.
Or you can do through the liability side. So that sort of thing, I sort of, I would like you to sort of think about that. Now, you know, some kind of bells and suspenders we have built into it. Second is operational and think about what we are doing in this business from an operational standpoint to reduce meaningfully, reduce risk, to get into to understand how these business works, right? It says, you know, obviously it is a business where it's a complex adaptive system. Different people got, obviously results are almost always on the Tails, I wrote about that, you know, for many years in my annual letters. And so we know how to manage that tail risk and that's what we are doing. Everything we are doing to build out our operating systems, what our business system is to manage that risk. We like volatility we're trying to manage risk and that comes in both forms. 1 is to managing the risk, through balance sheet and managing operational risk throughout our business system, which is why putting all the efforts. Hopefully, that answers your question.
All right, thank you for the question. Seth.
And our next question comes from the line of Wands and Areo with BMO Capital Markets. Please go ahead.
Hi, good morning, thanks for the time. Um, just on the investment side, I'm curious about your thoughts on both single-family and manufactured housing, uh, and opportunities or lack thereof in those two food groups, relative to...
the seniors and active adults.
Very, very good question. Finally. Somebody gave me an easy question to answer. I remain within my circle of competence. I don't comment on things that I don't know anything about.
So that's one of our key tenants of our business that we are very much focused on. You know what, we know and our cycle of competence. You know, what do I know about manufactured housing? Nothing. So we will remain within our circle of competence and keep doing what we do.
Great. Thanks. Juan
And our next question comes from the line of rooster to Anderson with Cantor Fitzgerald. Richard, please go ahead. Thanks. Good morning everyone. Um so um you know the investments in hard assets is real interesting and you know, headline grabbing and all that but I you know I think you would agree the most important Investments you're making are and it I don't even know, I don't know if the guests and people but also in um, Operating Systems and Technology. But so I want to, I want you to reconcile something for me and and how you're approaching this, so, your incremental Tech investment. Um, is, is requiring, a requisite, return on that in
The technology Investments, whether it's technology itself or its people around technology, we almost have an unlimited appetite to do it. And the way we see that returns, it's a significantly higher returns than real estate returns. And you see that Returns come through a real estate pnl, I hope you are seeing that. Look at your performance relative to the industry performance or relative to anybody, and you will see that and these performances are not coming through because we have easy comps, we have very, very hard comps and despite that these results are coming through. So you are getting back that Roi which is significantly higher than as I said, Real Estate Roi through the, uh, through the pnl. So that's sort of the first question. Second question is the nuanced question? Much more nuanced question, which is, if you think about, I said this before, you know, we, we like to think about how this business Works. Obviously, if you have no rooms to sell by nature of demand Supply rents, go on
Top, however, we have always kept rents sort of, you know, in the high single-digit level. We think that’s sustainable in that sense. And we have no problem leaving money on the table today for tomorrow. Right now, one of the things that, you know, in the Senior Living business, you think about sort of how long people stay in the community. An average of say, 20 months, you only get one of those rent increases, right? So, from your perspective of thinking, people are getting first 10, 12 is not something we send people, but.
Regardless, if you're thinking, okay? What if somebody gets 10% for 5 years? That's not really how it works, right? Then average duration is call it 18 to 24 months. So usually get 1 Trend increases. So, put all of those things together. Just know philosophically is a philosophical question. I said this that delayed gratification Gene is part of this organization's. Ethos will always leave money on the table today for a greater game tomorrow. That's just how this place works. So we're not in a hurry. Uh, we want the duration of that growth and duration of the growth comes from Happy customers and happy employees and that's what we're focused on.
Great. Thanks. Richard.
And our next question comes from the lime of Jim cert with evercore Jim. Please go ahead.
Good morning, thank you. Apologies. A bit of a pedestrian question, but maybe for Tim. How was the 1.1 billion dollar non-cash charge for the comp plan? Calculated, just trying to understand some of the accounting mechanics here please?
Yeah Jim. So the plan is uh is highlighting our our 10 Q. We're the plan is essentially broken up into 2 pieces.
There's a upfront expense piece of it, which is the 1.1 million that you're alluding to, and then there's another 200 million, that'll be advertised over the following 10 years of the plan.
Okay, thank you very much, Jim.
And our next question comes from the line of West Gal, with Beard West. Please go ahead.
Hey, good morning everyone. Uh, do you see similar opportunities for the Welltower business system in the UK as you do in the US? Is it pretty much plug-and-play?
Um, it is nothing but plug and play, but yes, we do enormous opportunity. Um, just think about generally speaking. Um, there's a tremendous amount of opportunity overall in this business uh from an operations and operation sophistication perspective and that same with Samuel opportunity exists in UK as well in a very much so. And you know, our operating partners are welcoming us to bring in new ideas. New technology, you know, new process business systems is about business for our systems later. It's about process and, you know, First Technology later, but still, all of those things were enormously excited about that opportunity in Camp actually want to add anything to that or John.
No, they had covers, it's uh it's really the same opportunity Set, uh, 1 of the things I just mentioned. Um you know, from a UK standpoint as you have seen hopefully in the code um on a press release that the UK government is meaningfully welcoming us to bring that technology that off uh that operational sophistication to the care sector. So that's also a very much of a strong angle that we have been working with with the government.
Great. Thanks for the question, Wes.
And our next question comes from the line of John Paloski with Green Street. John, please, go ahead.
Hey, thanks for the time. Um, can you help frame? How noi is performing on the 2024 vintage senior housing Acquisitions versus expectations that underwriting
We've worked obviously very big in Holiday right. Other than holiday, I would say, most on, not just as an individual, but as an also, as an aggregate Acquisitions, have performed in line to higher than what we on the road nikl. Would you say that? Yeah, definitely correct. Yeah.
All right, thank you, John.
And our next question comes from the line of Austin Wormit with KeyBanc Capital Markets. Austin, please go ahead.
Hey, thanks. Um, just curious what percent of the show know why? The 3 operators under my idea 6.0 represent and, and I guess as you can continue to grow, how do you keep a, a large percentage of the show in Ohio, under that new alignment. And and just curious, if there are, you know, hurdles to adding other operators to the structure in the near term.
Yeah so um I don't really have that information. It should be in the sub, I don't have the number top of my head uh 20%
So, uh, that's that Austin that stands at 20%. But remember, as I've answered in the previous, um, question that he this doesn't have to be. That was the founding class. This doesn't have to be only those 3 operating Partners. Uh, and you know what? We are trying to do is to run a regional density of a business, bring in our operators, operating Partners, uh, to focus on what they do. This is a business that has unreal complexity.
At the customer level which are operating Partners do an exceptional job of providing the care and handling that, you know, complexity on the other hand, we are only focused on where scalability, uh, creates a strategic Advantage, right? So that sort of how the responsibilities are divided being divided. And where both as, I know, as I mentioned times, several times that our interests are aligned. And, uh, we're all trying to get to the same place, right? So if that's the case, uh, we don't see a lot of, um, issues to get there, you know, as operational issues come up, we obviously solving it together and we'll see where we get to.
All right. Thank you, Austin. And our final question today comes from the line of Mike Mueller with JP Morgan Mike. Please go ahead
Yeah, hi. Just a quick one on the announcement investments. You've talked about IRRs, but can you just give a sense as to the overall initial blended yield on the 14th parameters, and how wide the range was between the different components?
Yeah, Mike. Uh, you know, we never really disclosed yields until the transaction is closed and then it shows up in the sub. But in general, the activity is not that dissimilar to our activities in the last couple of years.
Okay, thank you.
All right, thank you, Mike, and thank you all for your questions today. Ladies and gentlemen, this does conclude today's call. So again, thanks for joining in; you may now disconnect.
Have a great day, everyone.