Q2 2026 Welltower Inc Earnings Call

July 28, 2026

Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Welltower Q2 2026 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 would like to ask a question at that time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Matt McQueen, Chief Legal Officer and General Counsel. Matt, please go ahead.

Speaker #1: Ladies and gentlemen, thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the WELLTOWER second quarter 2026 earnings call.

Speaker #1: 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 would like to ask a question at that time, simply press star, then the number 1 on your telephone keypad.

Speaker #1: And if you'd like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Matt McQueen, Chief Legal Officer and General Counsel.

Speaker #1: Matt, please go ahead.

Speaker #2: Thank you, and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the private securities litigation reform act, although WELLTOWER believes any forward-looking statements are based on reasonable assumptions the company can give no assurances that its projected results will be attained.

Matt McQueen: Thank you, and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. With that, I'll hand the call over to Shankh for his remarks.

Speaker #2: Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. And with that, I'll hand the call over to Shankh for a few remarks.

Speaker #3: 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'm pleased to report a record quarter for our company, as the end-market demand for our needs-based senior housing business remains resilient despite continued macroeconomic and geopolitical uncertainty.

Shankh Mitra: Thank you, Matt, and good morning, everyone. I'll review business trends and our capital allocation priorities, the team will follow the usual cadence. I'm pleased to report a record quarter for our company as the end market demand for our needs-based senior housing business remains resilient despite continued macroeconomic and geopolitical uncertainty. The uncorrelated nature of demand growth, combined with the mix shift of our portfolio, resulted in 25% year-over-year increase in per share FFO growth, one of the highest levels achieved in our history. As Tim will describe shortly, our strong start to 2026 and increased confidence in the H2 of the year enabled us to increase the midpoint of our full-year FFO guidance by $0.12 to $6.40 per share.

Speaker #3: The uncorrelated nature of demand growth, combined with the mixed shift of our portfolio, resulted in 25% year-over-year increase in partial FFO growth, one of the highest levels achieved in our history.

Speaker #3: As Tim will describe shortly, our strong start to 2026 and increased confidence in the back half of the year enabled us to increase the midpoint of our full-year FFO guidance by $0.12 to $6.40 per share.

Speaker #3: Notably, our second quarter bottom-line growth would have been even stronger absent nearly $1 billion of dispositions during the quarter, as well as more than $11 billion over the past year.

Shankh Mitra: Notably, our Q2 bottom-line growth would have been even stronger, absent nearly $1 billion of dispositions during the quarter, as well as more than $11 billion over the past year. Our maniacal focus remains on compounding our share growth well into the future for existing owners. Incurring near-term dilution from $3.6 billion of disposition completed year to date is a trade-off we will gladly make. Remember, every decision we make is evaluated obsessively through an opportunity cost lens to extend the duration of our growth curve. The trade-offs we made last year vis-a-vis the sale of our outpatient medical portfolio and concurrent redeployment of proceeds within senior housing are clearly being reflected across our P&L. This includes revenue and adjusted EBITDA growth this quarter, which increased 39% and 36%, respectively.

Speaker #3: Our maniacal focus remains on compounding per-share growth well into the future for existing owners, and incurring near-term dilution from $3.6 billion of dispositions completed year to date is a trade-off we will gladly make.

Speaker #3: Remember, every decision we make is evaluated obsessively through an opportunity cost lens to extend the duration of our growth curve. And the trade-offs we made last year vis-à-vis the sale of our outpatient medical portfolio and concurrent redeployment of proceeds within senior housing are clearly being reflected across our P&L.

Speaker #3: These include revenue and adjusted EBITDA growth this quarter, which increased 39% and 36%, respectively. At the same time, we maintained an underlevered balance sheet and continue to invest heavily in the operations and technology side of the house.

Shankh Mitra: At the same time, we maintained an under-levered balance sheet and continue to invest heavily in operations and technology side of the house. Turning to operating results, we're pleased with our Q2 performance, particularly when weighed against an economic backdrop fraught with uncertainty. Organic revenue growth of 9.2% was driven by another quarter of strong occupancy gains and healthy pricing power. Same store occupancy increased 330 basis points year-over-year, which follows a 420 basis point increase in the Q2 of last year. Our sequential spot occupancy growth in the quarter was 100 basis points, reflecting a strong start of the summer leasing season versus 80 basis points in Q2 of last year.

Speaker #3: Turning to operating results, we're pleased with our second quarter performance, particularly when weighed against an economic backdrop fraught with uncertainty. Organic revenue growth of 9.2% was driven by another quarter of strong occupancy gains, and healthy pricing power.

Speaker #3: Same-store occupancy increased 330 basis points year over year, which follows a 420 basis point increase in the second quarter of last year. And our sequential spot occupancy growth in the quarter was 100 basis points, reflecting a strong start to the summer leasing season versus 80 basis points in Q2 of last year.

Speaker #3: We also continue to be pleased with the pricing power that our operating partners are achieving with REPPOR, or unit revenue increasing 5.2% during the quarter, relative to 4.9% achieved in Q2 of last year.

Shankh Mitra: We also continue to be pleased with the pricing power that our operating partners are achieving with RevPOR or unit revenue increasing 5.2% during the quarter, relative to 4.9% achieved in Q2 of last year. We believe this reflects two powerful dynamics. First, capacity in the system continues to shrink with strong percent of our portfolio rapidly crossing 90% and 95% occupancy thresholds, creating additional pricing power. This is not solely a supply-demand story, though. We serve the wealthiest of age cohorts in history with a significant concentration of wealth held by baby boomer generation. This cohort increasingly prioritizes exceptional experiences and high-quality amenities and service, particularly later in life. This is also a highly discerning customer base that expects the best and willing to pay for it. Our operators and their on-site teams work relentlessly every day to deliver that exceptional and differentiated experience.

Speaker #3: We believe this reflects two powerful dynamics: first, capacity in the system continues to shrink, with strong percent of our portfolio rapidly crossing 90 and 95 percent occupancy thresholds, creating additional pricing power; this is not solely a supply-demand story, though.

Speaker #3: We serve the wealthiest age cohorts in history, with a significant concentration of wealth held by the baby boomer generation. This cohort increasingly prioritizes exceptional experiences and high-quality amenities and service, particularly later in life.

Speaker #3: This is also a highly discerning customer base that expects the best and is willing to pay for it. Our operators and their on-site teams work relentlessly every day to deliver that exceptional and differentiated experience.

Speaker #3: Ultimately, we believe the combination of supply constraint and a highly affluent need-based customer will continue to support healthy rate growth for many quarters and years to come.

Shankh Mitra: Ultimately, we believe the combination of supply constraint and a highly affluent need-based customer will continue to support healthy rate growth for many quarters and years to come. It is also worth highlighting that RevPOR growth continues to meaningfully outpace the growth of ExpPOR or unit expenses, which resulted in another strong quarter of operating margin expansion of 300 basis points to over 32%, surpassing pre-COVID levels. We believe that meaningful margin upside remains for the portfolio, driven by operating leverage inherent in our high fixed cost business, coupled with structural changes being effectuated by Welltower Business System. Turning to capital allocation. Transaction activity across seniors' housing space has picked up in recent quarters, but our ability to execute on highly attractive investments in US, UK, and Canada has not diminished.

Speaker #3: It is also worth highlighting that REPPOR growth continues to meaningfully outpace the growth of EXPOR, or unit expenses, which resulted in another strong quarter of operating margin expansion of 300 basis points to over 32%, surpassing pre-COVID levels.

Speaker #3: And we believe that meaningful margin upside remains for the portfolio, driven by operating leverage inherent in our high fixed-cost business, coupled with structural changes being effectuated by WELLTOWER business system.

Speaker #3: Turning to capital allocation, transaction activity across senior housing space has picked up in recent quarters, but our ability to execute on highly attractive investments in US, diminished.

Speaker #3: In fact, the pace of activity has picked up meaningfully as a result of geopolitical uncertainty coupled with a spike in interest rate. Even after record level of investment activity in 2025, we have already completed or under contract to close approximately 15.5 billion investments this year.

Shankh Mitra: In fact, the pace of activity has picked up meaningfully as a result of geopolitical uncertainty, coupled with a spike in interest rates. Even after a record level of investment activity in 2025, we have already completed or under contract to close approximately $15.5 billion investments this year. The vast majority of these opportunities are off-market in nature, with sellers coming to us first, knowing our reputation as a fair counterparty and our ability to provide certainty at a lightning speed and close quickly, as depicted on slide 15 of our business update presentation. This is particularly important given the recent rise in interest rate and growing uncertainty with respect to the direction of the economy. Our investment teams remain busy as ever, and I suspect that will be the case in fall and into the year-end.

Speaker #3: The vast majority of these opportunities are off-market in nature, with sellers coming to us as a fair counterparty and our ability to provide certainty at lightning speed and close quickly, as depicted on slide 15 of our business update presentation.

Speaker #3: This is particularly important given the recent rise in interest rate and growing uncertainty with respect to the direction of the economy. Our investment teams remain busy as ever, and I suspect that will be the same in case of in will be the case in fall and into the year-end.

Speaker #3: Not only does our investment pipeline remain robust, visible, and actionable, but our conviction in deploying capital is enhanced by our ability to meaningfully increase cash flow post-acquisition through transitioning assets to one of our best-in-class operators, and implementation of WBS.

Shankh Mitra: Not only does our investment pipeline remains robust, visible, and actionable, but our conviction in deploying capital is enhanced by our ability to meaningfully increase cash flow post-acquisition through transitioning assets to one of our best-in-class operators and implementation of WBS. Despite this confidence, make no mistake that we remain exceptionally disciplined in deploying our shareholders' precious capital. We will not compromise our standards for asset quality, management contract structure, or host of other criteria which are embedded in our investment process in pursuit of near-term accretion or overall size. Our goal is simply and only per share growth. While we almost invariably remain the first call from sellers, we are passed on tens of billions of dollars of transactions this year alone, which did not meet our stringent criteria for quality, price, acuity, future growth, and contract structure.

Speaker #3: Despite this confidence, make no mistake, that we remain exceptionally disciplined in deploying our shareholders' precious capital. We will not compromise our standards for asset quality, management contract structure, or host of other criteria which are embedded in our investment process in pursuit of near-term accretion or overall size.

Speaker #3: Our goal is simply and only partial growth. And while we almost invariably remain the first call from sellers, we are passed on tens of billions of dollars of transactions this year alone, which did not meet our credit stringent criteria for quality, price, acuity, future growth, and contract structure.

Speaker #3: At the risk of sounding like a broken record, this is not a spread investing business. At least not for a product-obsessed operating powerhouse like us.

Shankh Mitra: At the risk of sounding like a broken record, this is not a spread investing business, at least not for a product-obsessed operating powerhouse like us. I cannot speak for the shadow banks in our space who only understand the spread investing language and are perhaps particularly impressionable by silver-tongued investment bankers. Lastly, we are delighted to have announced an increase in our quarterly dividend by 15% to $0.85 per share. This marks the third consecutive year in which the board has elected to raise our dividend and marks a step function higher from the previous increases. This increased size of the dividend reflects the board's continued confidence in the growth trajectory of the business and health of our balance sheet.

Speaker #3: I can't speak for the shadow banks in our space, who only understand the spread investing language and are perhaps particularly impressionable by silver-tongued investment bankers.

Speaker #3: Lastly, we're delighted to have announced an increase in our quarterly dividend by 15 percent to 85 cents per share. This marks the third consecutive year in which the board has elected to raise our dividend and marks a step function higher from the previous increases.

Speaker #3: This increase size of the dividend reflects board's continued confidence in the growth trajectory of the business and health of our balance sheet. At the same time, our free cash flow generation continue to grow rapidly providing us with greater flexibility to allocate capital in ways to maximize shareholder value and extend the duration of our partial growth.

Shankh Mitra: At the same time, our free cash flow generation continued to grow rapidly, providing us with greater flexibility to allocate capital in ways to maximize shareholder value and extend the duration of our per share growth. With that, I will pass it over to John.

Speaker #3: With that, I will pass it over to John.

Speaker #1: Thank you. Good morning. The second quarter not only marked another period of substantial growth for the business, but also continued progress on WELLTOWER business system initiatives, which I'll get into shortly.

John Burkart: Thank you and good morning. The second quarter not only marks another period of substantial growth for the business, but also continued progress on Welltower Business System initiatives, which I will get into shortly. As Shankh mentioned, we reported another quarter of stellar results, with the company firing on all cylinders. Total portfolio same store NOI increased 15.5% year-over-year, marking the second highest level in our company's recorded history. As we discussed last quarter, the portfolio is growing at a meaningfully faster pace, driven primarily by the continued mix shift towards senior housing operating portfolio, which now contributes approximately 70% of total NOI. Importantly, seniors' housing remains largely insulated from the various cyclical and secular pressures affecting many sectors across corporate America. The business continues to perform at a high level, resulting in our 15th consecutive quarter in which NOI growth exceeded 20%.

Speaker #1: As Shankh mentioned, we reported another quarter of stellar results, with accompanying firing on all cylinders, total portfolio same-store NOI increased 15.5 percent year over year, marking the second highest level in our company's recorded history.

Speaker #1: As we discussed last quarter, the portfolio is growing at a meaningfully faster pace driven primarily by the continued mix shift toward senior housing operating portfolio, which now contributes approximately 70 percent of total NOI.

Speaker #1: Importantly, seniors' housing remains largely insulated from the various cyclical and secular pressures affecting many sectors across corporate America. The business continues to perform at a high level, resulting in our 15th consecutive quarter in which NOI growth exceeded 20%.

Speaker #1: Top-line growth remains strong, supported by another quarter of 330 basis points of occupancy growth and 5.2 percent rev for growth. We're pleased to report that expense pressures remain subdued with year-over-year growth in export or unit expense of just 0.7 percent.

John Burkart: Topline growth remained strong, supported by another quarter of 330 basis points of occupancy growth and 5.2% RevPOR growth. We are pleased to report that expense pressures remain subdued, with year-over-year growth in ExpPOR or unit expense of just 0.7%. This is largely a function of scaling benefits received from the rapid increase in occupancy across the portfolio. With the properties fully staffed and with continued normalization of wages, CompPOR or compensation for occupied room came in at just at 0.8%, one of the lowest levels in our recorded history. As a result, we achieved flow through margins of 65%, a continued improvement from prior years. The combination of healthy RevPOR growth and constrained ExpPOR growth drove another 300 basis points of year-over-year margin expansion during the quarter.

Speaker #1: This is largely a function of scaling benefits received from the rapid increase in occupancy across the portfolio, and with the properties fully staffed and with continued normalization of wages, comp for or compensation for occupied room came in at just at 0.8 percent, one of the lowest levels in our recorded history.

Speaker #1: As a result, we achieved flow-through margins of 65 percent, a continued improvement from prior years. The combination of healthy rev for growth and constrained export growth drove another 300 basis points of year-over-year margin expansion during the quarter.

Speaker #1: And as Shankh mentioned, we believe that significant margin upside remains given the inherent operating leverage in our business combined with the competitive advantages we are building through the WELLTOWER business system.

John Burkart: As Shankh mentioned, we believe that significant margin upside remains given the inherent operating leverage in our business, combined with the competitive advantages we are building through the Welltower Business System. One of the most important ways in which we're expanding our moat is by attracting exceptional talent from a broad range of industries, highlighted on slide 13 of our business update presentation. The Tech SQUAD represents an expansion of the Tech Quad we introduced last year. Tasked with accelerating the re-imagination of our technology ecosystem, including all initiatives related to data science, information, technology, and innovation. Their objectives feed into our broader company-wide mission to dramatically improve the customer and employee experience and provide a fantastic value proposition for our residents and their families. In this light, our goal has been to attract the highest caliber professionals with tech or tech adjacent backgrounds to execute on this vision.

Speaker #1: One of the most important ways in which we're expanding our moat is by attracting exceptional talent from a broad range of industries, highlighted on slide 13 of our business update presentation.

Speaker #1: The tech squad represents an expansion of the tech quad we introduced last year. Tasked with accelerating the reimagination of our technology ecosystem, including all initiatives related to data science, information, technology, and innovation.

Speaker #1: Their objectives feed into our broader, company-wide mission to dramatically improve the customer and employee experience, and provide a fantastic value proposition for our residents and their families.

Speaker #1: In this light, our goal has been to attract the highest caliber professionals with tech or tech-adjacent backgrounds to execute on this vision. We will continue to allocate significant resources and talent as we continue to deploy WBS across our portfolio.

John Burkart: We will continue to allocate significant resources and talent as we continue to deploy WBS across our portfolio. We've already seen encouraging early results across the properties where WBS has been deployed, including operators refining their site labor model enabled by WBS, automating previously paper-based back-office workflows, allowing community level employees to reinvest their time savings into improving the resident experience. Overall, WBS is beginning to result in meaningful improvements in cash flow, and we believe that expanding the platform across the portfolio will further extend the duration of our growth. To sum it up, it was another strong quarter for the company. As you know, we take nothing for granted and remain relentlessly focused on every operational detail. Not simply to produce strong results this quarter or this year, but to build an organization capable of sustaining exceptional performance for years to come.

Speaker #1: We've already seen encouraging early results across the properties where WBS has been deployed, including operators refining their site labor model enabled by WBS automating previously paper-based back office workflows. This allows community-level employees to reinvest their time savings into improving the resident experience.

Speaker #1: Overall, WBS is beginning to result in meaningful improvements in cash flow and we believe that expanding the platform across the portfolio will further extend the duration of our growth.

Speaker #1: To sum it up, it was another strong quarter for the company. But as you know, we take nothing for granted and remain relentlessly focused on every operational detail—not simply to produce strong results this quarter or this year, but to build an organization capable of sustaining exceptional performance for years to come.

Speaker #1: That requires a culture of continuous improvement, a willingness to upend the status quo, and an unwavering commitment to execution and operational excellence. Finally, I'd like to thank the WELLTOWER team, our exceptional operating partners, and the dedicated, caring community employees for their tireless efforts and for embracing this journey alongside us.

John Burkart: That requires a culture of continuous improvement, a willingness to upend the status quo, and an unwavering commitment to execution and operational excellence. Finally, I'd like to thank the Welltower team, our exceptional operating partners, and the dedicated, caring community employees for their tireless efforts and for embracing this journey alongside us. Their dedication is what makes these results possible. With that, I'll pass it to Nikhil.

Speaker #1: Their dedication is what makes these results possible. With that, I'll pass it to Nikhil.

Speaker #2: Thanks, John. And good morning, everyone. Since our last call, the macroeconomic and geopolitical environment has remained highly fluid. The Middle East war has seemingly been both on and off, and markets have repeatedly moved between expectations of escalation and de-escalation.

Nikhil Chaudhri: Thanks, John, and good morning, everyone. Since our last call, the macroeconomic and geopolitical environment has remained highly fluid. The Middle East war has seemingly been both on and off, and markets have repeatedly moved between expectations of escalation and de-escalation. Globally, central banks such as the ECB and BOJ have recently tightened their policy rates. While in the US, the 30-year Treasury has reached levels not seen since before the global financial crisis, and the Federal Reserve has adopted an increasingly hawkish posture as inflationary pressures have persisted. In an environment like this, the margin for error narrows. Asset quality and basis become the primary sources of downside protection, and the ability to distinguish between genuine value and a compelling narrative becomes increasingly important. Our competitive advantages continue to show through.

Speaker #2: Globally, central banks such as the ECB and BOJ have recently tightened their policy rates, while in the US, the 30-year Treasury has reached levels not seen since before the global financial crisis.

Speaker #2: And the Federal Reserve has adopted an increasingly hawkish posture as inflationary pressures have persisted. In an environment like this, the margin for error narrows.

Speaker #2: Asset quality and basis become the primary sources of downside protection, and the ability to distinguish between genuine value and a compelling narrative becomes increasingly important.

Speaker #2: Our competitive advantages continue to show through. For counterparties, we remain the preferred and most reliable buyer—one with the credibility and track record to provide certainty, regardless of what is happening in the capital markets.

Nikhil Chaudhri: For counterparties, we remain the preferred and most reliable buyer, one with the credibility and track record to provide certainty regardless of what is happening in the capital markets. Our advantage lies in the ability to identify value at a highly granular level, underwrite with conviction, and move with unparalleled speed when the facts support doing so. Since our last call, our investment activity has increased by another $5 billion and now totals $15.5 billion for the year. During Q2, we completed more than 30 transactions totaling $6.2 billion, with a median transaction size of $46 million and approximately 96% of our Q2 activity was sourced off-market. Through these transactions, we acquired 138 communities across the three countries where we do business. Through the end of Q2, we had completed nearly $9.5 billion of investments.

Speaker #2: Our advantage lies in the ability to identify value at a highly granular level, underwrite with conviction, and move with unparalleled speed when the facts support doing so.

Speaker #2: Since our last call, our investment activity has increased by another $5 billion and now totals $15.5 billion for the year.

Speaker #2: During the second quarter, we completed more than 30 transactions totaling $6.2 billion. The median transaction size was $46 million, and approximately 96 percent of our second quarter activity was sourced off market.

Speaker #2: Through these transactions, we acquired 138 communities across the three countries where we do business. Through the end of the second quarter, we had completed nearly $9.5 billion of investments.

Speaker #2: The remaining 6 billion of announced activity consists primarily of newer vintage senior housing assets across 26 transactions in the United States, Canada, and the United Kingdom.

Nikhil Chaudhri: The remaining $6 billion of announced activity consists primarily of newer vintage senior housing assets across 26 transactions in the US, Canada, and the UK. These assets have an average age of six years and in-place occupancy of roughly 75%, providing us with attractive physical plants and meaningful embedded opportunities to improve operating performance. These assets were acquired at a circa 20% discount to replacement cost. Importantly, approximately 20% of these transactions were sourced directly by our key growth operating partners through relationships in their local markets. Many of these partners have elected to receive their incentive compensation in Welltower stock. As a result, their alignment with our owners is not theoretical. They participate directly in the value they help create. That alignment is producing tangible results. We operate as one team, developing relationships, identifying opportunities, and improving the business together.

Speaker #2: These assets have an average age of six years and in-place occupancy of roughly 75%, providing us with attractive physical plants and meaningful embedded opportunities to improve operating performance.

Speaker #2: These assets were acquired at a circa 20 percent discount to replacement cost. Importantly, approximately 20 percent of these transactions were sourced directly by our key growth operating partners, through relationships in their local markets.

Speaker #2: Many of these partners have elected to receive their incentive compensation in WELLTOWER stock. As a result, their alignment with our owners is not theoretical.

Speaker #2: They participate directly in the value they help create. That alignment is producing tangible results. We operate as one team, developing relationships, identifying opportunities, and improving the business together.

Speaker #2: These network effects strengthen our platform and make the entire ecosystem more valuable. The flywheel is humming. Our confidence in these investments is grounded in what we are already seeing across our portfolio.

Nikhil Chaudhri: These network effects strengthen our platform and make the entire ecosystem more valuable. The flywheel is humming. Our confidence in these investments is grounded in what we are already seeing across our portfolio. As the Welltower Business System continues to mature, our ability to increase cash flow following an acquisition has become both more significant and more repeatable. That distinction matters. Spread investing and cost of capital arbitrage are not value creation, nor are they durable investment strategies. Our focus is different. We seek to acquire assets at a fair price based on reasonable view of their respective cash flows, while retaining for our owners the upside we believe our platform can create beyond that. I would also like to spend a moment on how we define success. In parts of the market today, simply completing a transaction appears to be treated as an accomplishment.

Speaker #2: As the WELLTOWER business system continues to mature, our ability to increase cash flow following an acquisition has become both more significant and more repeatable.

Speaker #2: That distinction matters. Spread investing and cost of capital arbitrage are not value creation, nor are they durable investment strategies. Our focus is different. We seek to acquire assets at a fair price, based on a reasonable view of their prospective cash flows.

Speaker #2: While retaining for our owners the upside we believe our platform can create beyond that. I would also like to spend a moment on how we define success.

Speaker #2: In parts of the market today, simply completing a transaction appears to be treated as an accomplishment. A deal is announced, the champagne is popped, victory is declared, and attention quickly turns to the next opportunity.

Nikhil Chaudhri: A deal is announced, the champagne is popped, victory is declared. Attention quickly turns to the next opportunity. We see it differently. Closing an acquisition is not the culmination of the work. It is the moment the work begins. There is nothing inherently worthy of celebration about winning an auction or signing a purchase agreement. After all, any fool can write a check. The more difficult task is determining whether the prospective returns adequately compensate our owners for the risks being assumed, and having the discipline to walk away when they do not. At times, that means watching others claim victory in processes in which we chose not to participate. We are comfortable with that. To us, success is not simply buying something.

Speaker #2: We see it differently. Closing an acquisition is not the culmination of the work. It is the moment the work begins. There is nothing inherently worthy of celebration about winning an auction or signing a purchase agreement.

Speaker #2: After all, any fool can write a check. The more difficult task is determining whether the prospective returns adequately compensate our owners for the risks being assumed.

Speaker #2: And having the discipline to walk away when they do not. At times, that means watching others claim victory in processes in which we chose not to participate.

Speaker #2: We are comfortable with that. To us, success is not simply buying something. Success is establishing a thoughtful business plan, executing against it, achieving the cash flows we underwrote, and continuing to push for outcomes that exceed our original expectations.

Nikhil Chaudhri: Success is establishing a thoughtful business plan, executing against it, achieving the cash flows we underwrote, and continuing to push for outcomes that exceed our original expectations. It means never becoming satisfied with current performance. It means improving the experience of residents, creating a better environment for employees, and generating durable value for our owners. The acquisition itself earns no credit. The results that follow are what matters. In an uncertain environment, the temptation to confuse activity with accomplishment becomes even greater. Our focus remains unchanged. Pursue the truth rather than the narrative. Maintain a margin for error, and deploy capital only when the prospective returns justify the risks through the arc of time. Our objective is not to win the announcement, it is to win the outcome. With that, I will turn the call over to Tim.

Speaker #2: It means never becoming satisfied with current performance. It means improving the experience of residents, creating a better environment for employees, and generating durable value for our owners.

Speaker #2: The acquisition itself earns no credit. The results that follow are what matter. In an uncertain environment, the temptation to confuse activity with accomplishment becomes even greater.

Speaker #2: Our focus remains unchanged: pursue the truth rather than the narrative. Maintain a margin for error and deploy capital only when the prospective returns justify the risks through the arc of time.

Speaker #2: Our objective is not to win the announcement; it is to win the outcome. With that, I'll turn the call over to Tim.

Speaker #3: Thank you, Nikhil. My comments today will focus on our second quarter 2026 results, the performance of our triple net investment segments, our capital activity, a balance sheet and liquidity update, and finally, an update to our full-year 2026 outlook.

Tim McHugh: Thank you, Nikhil. My comments today will focus on our Q2 2026 results, the performance of our triple net investment segments, our capital activity, a balance sheet liquidity update, and finally, an update to our full year 2026 outlook. Welltower reported Q2 net income attributable to common stockholders of $0.61 per diluted share, and normalized funds from operations of $1.60 per diluted share, representing approximately 25% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 15.5%, driven by 20.5% growth in our SHOP portfolio. Turning to the performance of our triple net properties in the quarter. In our senior housing triple net portfolio, same-store NOI increased 5.2% year-over-year, and trailing 12-month EBITDAR coverage was 1.23 times. Same-store NOI in our long-term post-acute portfolio grew 2.9% year-over-year, and trailing 12-month EBITDAR coverage was 1.3 times. Moving on to capital activity.

Speaker #3: Welltower reported second-quarter net income attributable to common stockholders of $0.61 per diluted share, and normalized funds from operations of $1.60 per diluted share.

Speaker #3: Representing approximately 25 percent year over year growth. We also reported year over year total portfolio same store NOI growth of 15.5 percent. Driven by 20.5 percent growth in our shop portfolio.

Speaker #3: Now, turning to the performance of our triple net properties in the quarter. In our senior housing triple net portfolio, same-store NOI increased 5.2 percent year-over-year, and trailing twelve-month EBITDA coverage was 1.23 times.

Speaker #3: Next, same store NOI in our long-term post-acute portfolio grew 2.9 percent year over year, and trailing 12 month EBITDA coverage was 1.3 times. Moving on to capital activity, during the second quarter we raised $3.9 billion through share issuance, OP unit funding, and capital recycling.

Tim McHugh: During the Q2, we raised $3.9 billion through share issuance, OP unit funding, and capital recycling, which when combined with internally generated cash flow, allowed us to repay nearly $1 billion of senior unsecured notes and fund $6.3 billion of gross investment activity, while ending the quarter with net debt to adjusted EBITDA of 2.99 times, in line with a year ago. During the quarter, S&P revised their outlook on our A-minus credit rating to positive, following Moody's decision earlier this year to revise the outlook on our A.3 rating to positive. Together, these actions further validate what we believe has become one of Welltower's growing strategic advantages, differentiated access to capital supported by an exceptional all-weather balance sheet.

Speaker #3: Which, when combined with internally generated cash flow, allowed us to repay nearly $1 billion of senior unsecured notes and fund $6.3 billion of gross investment activity, while ending the quarter with net debt to adjusted EBITDA of 2.99 times.

Speaker #3: In line with a year ago. During the quarter, S&P revised our outlook on our A- credit rating to positive, following Moody's decision earlier this year to revise the outlook on our A3 rating to positive.

Speaker #3: Together, these actions further validate what we believe has become one of WELLTOWER's growing strategic advantages, differentiated access to capital, supported by an exceptional all-weather balance sheet.

Speaker #3: We ended the second quarter with $2.1 billion of cash on hand, which together with recent capital activity and $1.1 billion of incremental dispositions, positions us to fund approximately $6 billion of incremental investment activity, the majority of which we expect to close later in the year.

Tim McHugh: We ended the Q2 with $2.1 billion of cash on hand, which together with recent capital activity and $1.1 billion of incremental dispositions, position us to fund approximately $6 billion of incremental investment activity, the majority of which we expect to close later in the year. Subsequent to quarter end, we successfully returned the Canadian unsecured debt market for the first time since 2019, issuing CAD 1.15 billion of senior unsecured notes across two tranches at a blended coupon of 3.95%, extending the duration of our liability profile at attractive pricing. Taken together, this net investment activity and continued cash flow growth from in-place portfolio are expected to result in year-end net debt to adjusted EBITDA of approximately 3 times, in line with our prior expectations.

Speaker #3: Subsequent to quarter end, we successfully returned to the Canadian unsecured debt market for the first time since 2019, issuing $1.15 billion of senior unsecured notes across two tranches at a blended coupon of 3.95 percent.

Speaker #3: Extending the duration of our liability profile and attractive pricing. Taken together, this net investment activity and continued cash flow growth from in-place portfolio are expected to result in year-end net debt to adjusted EBITDA of approximately three times.

Speaker #3: In line with our prior expectations. Before turning to our guidance, I want to come back to a point I highlighted last quarter around how the vertical integration of our model and the portfolio transformation underpinning WELLTOWER 3.0 is creating a powerful, compounding network effect that is only beginning to unfold.

Tim McHugh: Before turning to our guidance, I want to come back to a point I highlighted last quarter around how the vertical integration of our model and the portfolio transformation underpinning Welltower 3.0 is creating a powerful compounding network effect that is only beginning to unfold. While our updated outlook reflects another quarter of strong execution, we continue to believe the more important story is the structural evolution of the business. As we have increased our concentration in senior housing operating assets, we have fundamentally changed the earnings profile of the enterprise. One example of this is the operating leverage now emerging within the portfolio. For the second consecutive quarter, our SHOP portfolio generated flow-through margins in the mid-60% range. As occupancy continues to trend higher, unit economics should improve further as a higher proportion of incremental revenue is translated to bottom-line net operating income.

Speaker #3: While our updated outlook reflects another quarter of strong execution, we continue to believe the more important story is the structural evolution of the business.

Speaker #3: As we've increased our concentration in senior housing operating assets, we have fundamentally changed the earnings profile of the enterprise. One example of this is the operating leverage now emerging within the portfolio.

Speaker #3: For the second consecutive quarter, our shop portfolio generated flow-through margins in the mid-60 percent range. As occupancy continues to trend higher, union economics should improve further as a higher proportion of incremental revenue is translated to bottom line net operating income.

Speaker #3: This fundamental strength is reflected in our guidance. We began the year with an outlook that already reflected a substantial amount of visible year over year earnings growth.

Tim McHugh: This fundamental strength is reflected in our guidance. We began the year with an outlook that already reflected a substantial amount of visible year-over-year earnings growth, driven by the continued evolution of our portfolio toward higher growth senior housing operating assets. Two quarters later, we are raising that outlook for the second consecutive quarter, reinforcing both the strength of our underlying portfolio and the continued momentum of the business. Moving on to guidance. Last night, we updated our full year 2026 outlook for net income attributable to common stockholders to $3.11 to $3.19 per diluted share, and normalized FFO to $6.36 to $6.44 per diluted share, or $6.40 at the midpoint. Our normalized FFO guidance represents a $0.12 increase at the midpoint from our prior normalized FFO range.

Speaker #3: Driven by the continued evolution of our portfolio toward higher-growth senior housing operating assets. Two quarters later, we're raising that outlook for the second consecutive quarter.

Speaker #3: Reinforcing both the strength of our underlying portfolio and the continued momentum of the business. Moving on to guidance, last night we updated our full-year 2026 outlook for net income attributable to common stockholders to $3.11 to $3.19 per diluted share.

Speaker #3: And normalized FFO to $6.36 to $6.44 per diluted share, or $6.40 at the midpoint. Our normalized FFO guidance represents a $0.12 increase to the midpoint from our prior normalized FFO range.

Speaker #3: This increase is composed of a $0.03 increase from our senior housing operating NOI, a $0.08 increase from investment and financing activity, and a $0.01 increase from better-than-expected income tax and other items.

Tim McHugh: This increase is composed of a $0.03 increase from our senior housing operating NOI, an $0.08 increase from investment and financing activity, and a $0.01 increase from better than expected income tax and other. Our updated outlook assumes total portfolio year-over-year same-store NOI growth of 13.75% to 16%, driven by sub-segment growth of outpatient medical 2% to 3%, long-term post-acute 2% to 3%, senior housing triple net 3.5% to 4.5%, and finally, senior housing operating 18.5% to 21.5%, which is driven by the following midpoints in their respective ranges. Revenue growth of 9.3% comprised of RevPOR growth of 5.1% and year-over-year occupancy growth of 350 basis points, and expense growth of 5%, equating to ExpPOR growth of approximately 1%. With that, I will hand the call back over to Shankh.

Speaker #3: Our updated outlook assumes total portfolio year over year same store NOI growth of 13.75 percent to 16 percent. Driven by sub-segment growth of outpatient medical, 2 to 3 percent, long-term post-acute, 2 to 3 percent, senior housing triple net, 3 and a half percent to 4 and a half percent, and finally senior housing operating 18 and a half to 21 and a half percent.

Speaker #3: Which is driven by the following midpoints of their respective ranges. Revenue growth of 9.3 percent, comprised of rev poor growth of 5.1 percent and year over year occupancy growth of 350 basis points, and expense growth of 5 percent, equating to ex poor growth of approximately 1 percent.

Speaker #3: And with that, I'll hand the call back over to Shankh.

Speaker #1: Thanks, Tim.

Shankh Mitra: Thanks, Tim. I want to make two general observations before opening the call up for questions. First, exactly two years ago, on our July 2024 earnings call, we laid out our macro view of the world, suggesting that the powerful secular tailwinds experienced over the last 40 years, which resulted in subdued levels of inflation and a historic bond bull market could diminish or yet turn into headwinds. This includes shifting from a period of globalization to de-globalization, from an abundant labor force driven by baby boomers in their prime working years, to a scarcity of labor due to a rapidly aging population. We reflected on increased deficit spending across the world and growing international conflicts after a period of relative peace and cooperation.

Speaker #2: I want to make two general observations before opening the call for questions. First, exactly two years ago, on a July 2024 earnings call, we laid out our macro view of the world.

Speaker #2: Suggesting that the powerful secular tailwinds experienced over the last 40 years, which resulted in subdued levels of inflation and a historic bond bull market, could diminish or even turn into headwinds.

Speaker #2: This includes shifting from a period of globalization to deglobalization, from an abundant labor force driven by baby boomers in their prime working years to a scarcity of labor due to a rapidly aging population.

Speaker #2: We reflected on increased deficit spending across the world and growing international conflicts after a period of relative peace and cooperation. And we specifically called out structural changes in Japan the global anchor of low interest rates.

Shankh Mitra: We specifically called out structural changes in Japan, the global anchor of low interest rates, which has been experiencing the highest level of inflation in decades. While the 10-year Treasury has increased over 100 basis points in the past two years, we believe we're still in the early innings of the structural forces playing out. How has this been reflected at our company? Through both transformation of capital and resource allocation. First, we executed a massive portfolio rotation from bond proxies such as outpatient medical into higher growth senior living communities, where we believe we can meaningfully outperform inflation and where we can effectuate positive divergences in outcomes through our competitive advantages. Second, through a substantial resource reallocation to increase talent density in operations and technology.

Speaker #2: Which has been experiencing the highest level of inflation in decades. While the 10-year Treasury has increased over 100 basis points in the past two years, we believe we're still in the early innings of the structural forces playing out.

Speaker #2: How has this been reflected at our company? Through both transformation of capital and resource allocation. First, we executed a massive portfolio rotation from bond proxies such as outpatient medical into higher-growth senior living communities, where we believe we can meaningfully outperform inflation and where we can effectuate positive divergences in outcomes through our competitive advantages.

Speaker #2: And second, through a substantial resource reallocation to increase talent density in operations and technology. Over the past few years, we have recruited incredibly high caliber technology and operating talent from some of the most sophisticated and innovative firms in corporate America.

Shankh Mitra: Over the past few years, we have recruited incredibly high caliber technology and operating talent from some of the most sophisticated and innovative firms in corporate America. The acceleration of this trend during the past six months can be seen on page 13 of our business update presentation. This is a testament to our transformation from Welltower 2.0, a capital allocator with strong asset management expertise, to Welltower 3.0, a customer-obsessed operations and technology-first company with a complementary, disciplined capital allocation function. As a result, we do not receive returns like spread investing shadow banks whose currency is either interest rate compression or leverage. Instead, we create returns through driving cash flow the old-fashioned way in our pursuit of dogged, incremental, and continuous progress over a long arc of time.

Speaker #2: The acceleration of this trend during the past six months can be seen on page 13 of our business update presentation. This is a testament to our transformation from WELLTOWER 2.0, a capital allocator with strong asset management expertise, to WELLTOWER 3.0, a customer-obsessed, operations- and technology-first company, with a complementary, disciplined capital allocation function.

Speaker #2: As a result, we do not receive returns like spread-investing shadow banks, whose currencies are either interest rate compression or leverage. Instead, we create returns through driving cash flow the old-fashioned way, in our pursuit of dogged, incremental, and continuous progress over a long arc of time.

Speaker #2: Finally, I want to provide an update on an important topic that I had anticipated eventually discussing after we established the RIDEA 6.0 construct nine months ago.

Shankh Mitra: Finally, I want to provide an update on an important topic that I had anticipated eventually discussing after we established the RIDEA 6.0 construct nine months ago. Although I certainly didn't expect it to become relevant this soon. As you might recall, many of our growth operating partners have elected to take their multi-year promoted interest in Welltower stock. The ultimate value of the wealth they create will not only be a function of their own achieved results, but also perhaps turbocharged by their peers in other parts of the country or different countries. As I've sat down with many of these operating partners during the summer, I have heard unprompted more about the cooperation they're receiving from other Welltower operating partners than ever before.

Speaker #2: Although I certainly didn't expect it to become relevant this soon. As you might recall, many of our growth operating partners have elected to take their multi-year promoted interest in Welltower stock.

Speaker #2: The ultimate value of the WELLTH they create will not only be a function of their own achieved results, but also perhaps turbocharged by their peers in other parts of the country or different countries.

Speaker #2: As I've sat down with many of these operating partners during the summer, I have heard unprompted more about the cooperation they're receiving from other WELLTOWER operating partners than ever before.

Speaker #2: Imagine, historically, for example, Cogir and WELLTOWER would be working on a culinary initiative, or StoryPoint and WELLTOWER would be working together on a digital marketing priority.

Shankh Mitra: Imagine historically, for example, Courtyard and Welltower would be working on culinary initiative, or StoryPoint and Welltower would be working together on a digital marketing priority. Now you have other operators such as QSL, Amica, Care UK, are jumping in at the same time as a team and amplifying the outcome regardless of who started the project. Organizations spent an inordinate amount of time and resources to deconstruct intricate complexities. However, together as partners, we're maniacally focused on capturing unrecognized simplicities that are hiding in plain sight, quickly resolving pain points for both customers and employees to consistently deliver a better experience. What started as a shared incentive is now turning into a shared dream and shared sacrifice. I have never seen and felt this level of deserved trust amongst the ecosystem with true unity of purpose and mirrored reciprocation.

Speaker #2: Now you have other operators such as QSL, Amica, KRUK, jumping in at the same time as a team and amplifying the outcome, regardless of who started the project.

Speaker #2: Organizations spend an inordinate amount of time and resources deconstructing intricate complexities. However, together as partners, we are maniacally focused on capturing unrecognized simplicities that are hiding in plain sight.

Speaker #2: Quickly resolving pain points for both customers and employees to consistently deliver a better experience. What started as a shared incentive is now turning into a shared dream and a shared sacrifice.

Speaker #2: I have never seen and felt this level of deserved trust amongst the ecosystem, with true unity of purpose and mirrored reciprocation. I want to thank my operating partners, who are pushing us and pushing each other every day to get better.

Shankh Mitra: I want to thank my operating partners who are pushing us and pushing each other every day to get better. As the old adage says, "If you want to go fast, go alone. If you want to go far, go together." Life is more fruitful and fulfilling if we focus on growing the size of the pie versus the share of the pie. This unprecedented level of cooperation is reflective of a win-win additive sum mentality as opposed to a narrow zero-sum mentality, which is prevalent in our industry. I'm confident that we're gathering tremendous momentum at the beginning of a leaping imagined effect that will shape our shared future together and transform this industry. With that, I'll open the call up for questions.

Speaker #2: As the old adage says, if you want to go fast, go alone. If you want to go far, go together. Life is more fruitful and fulfilling if we focus on growing the size of the pie versus the share of the pie.

Speaker #2: This unprecedented level of cooperation is reflective of a win-win, additive-sum mentality, as opposed to a narrow, zero-sum mentality, which is prevalent in our industry.

Speaker #2: I am confident that we are gathering tremendous momentum at the beginning of a leaping, emergent effect that will shape our shared future together and transform this industry.

Speaker #2: With that, I'll open the call up for questions.

Speaker #1: Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Krista: Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw that question, again, press star one. We also ask that you limit yourself to one question. For any additional questions, please re-queue. Your first question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw that question, again, press star one. We also ask that you limit yourself to one question. For any additional questions, please re-queue. Your first question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Speaker #1: And if you'd like to withdraw that question, again, press star one. We also ask that you limit yourself to one question. For any additional questions, please re-queue.

Speaker #1: And your first question comes from Ronald Camden with Morgan Stanley. Please go ahead.

Ronald Kamdem: Great. Good morning, everyone. You mentioned the term shadow banks twice in your opening comments. We're just wondering if you could elaborate on fundamental differences between how you view your business and those players. If I could ask a second part or just a quick update on the 95% plus of your portfolio that you gave last quarter, wondering how they're doing this quarter. Thanks.

Speaker #3: Great. Good morning, everyone. You mentioned the term "shadow banks" twice in your opening comments. We're just wondering if you could elaborate on fundamental differences between how you view your business and those players.

Speaker #3: And if I could ask the second part or just a quick update on the 95% plus of your portfolio that you gave last quarter.

Speaker #3: Wondering how they're doing this quarter. Thanks.

Speaker #4: Thank you. Ron, so if you think about what a bank does, it takes deposits, it has a cost of funds, and it lends money on a spread on that cost of funds.

Shankh Mitra: Thank you, Ron. If you think about what a bank does, it takes deposits, it has a cost of funds, and it lends money on a spread on that cost of fund. If you look at healthcare REIT industry, which is where this industry started, they're all in triple nets, and that's all they did. Despite this industry has gone from a credit investing to an equity investing, that mentality of spread investing has not changed. It sees the industry as a zero-sum financing game rather than an additive sum where we can create value together. That's not what we do.

Speaker #4: If you look at the healthcare retail industry, which is why this industry started, they're all in triple nets. And that's all they did. And despite this industry having gone from credit investing to equity investing, that mentality of spread investing has not changed.

Speaker #4: It sees the industry as a zero-sum financing game, rather than an additive sum where we can create value together. That's not what we do.

Speaker #4: If you think about the transformation of this company, what we have been trying to do—from a spread investing vehicle, which it was before us, to a true capital allocation powerhouse, to finally changing into an operating and technology-first company whose entire focus is to enhance resident and customer experience to create value, with a complementary capital allocation side.

Shankh Mitra: If you think about the transformation of this company, what we have been trying to do from a spread investing vehicle, which was before us, to a true capital allocation powerhouse, to finally change into an operating and technology-first company whose entire focus is to enhance resident and customer experience to create value with a complimentary capital allocation side. We're not saying that's not what we do. We're saying our first, every day we wake up to think about how to create value by enhancing what we own, which is to increase customer and resident experience. That's the key difference, right? Hence the question of what Nikhil sort of talked about. We define our success differently, and that's the difference, right? Second, that just percolates through our culture, percolates through our entire ecosystem.

Speaker #4: That's not—we're not saying that's not what we do. We're saying our first, every day we wake up, we think about how to create value by enhancing what we own, which is to increase customer and resident experience.

Speaker #4: That's the key difference, right? Hence the question of what Nikhil sort of talked about—we define our success differently. And that's the difference, right?

Speaker #4: Second, and that just percolates through our culture—percolates through our entire ecosystem. So that is, sort of, a different mentality on how we think about the business and how we allocate both capital and resources, right?

Shankh Mitra: That sort of is a different mentality on how we think about the business and how we allocate both capital and resources, right? Very, very important part. The second question, the 95%+ of the portfolio had obviously higher RevPAR growth, 6%+, and it also a higher NOI growth of 20%+. Hope that answers your question.

Speaker #4: Very, very important part. The second question—the 95% plus of the portfolio had, obviously, higher RevPOR growth, 6% plus. And it also had higher NOI growth of 20% plus.

Speaker #4: Hope that answers your question.

Speaker #1: Your next question comes from the line of John Kilichowski with Wells Fargo. Please go ahead.

Krista: Your next question comes from the line of John Kilichowski with Wells Fargo. Please go ahead.

Operator: Your next question comes from the line of John Kilichowski with Wells Fargo. Please go ahead.

Speaker #5: Good morning. Nikhil, you made some very helpful comments in the opening remarks regarding the composition of sellers, and I was hoping you could dig in there a little bit and talk about what constitutes the rest of that pie of sellers. Also, what's driving this acceleration in transaction activity? As you put it, any fool can write a check, and Welltower has always prided itself on offering a fair price for assets.

John Kilichowski: Good morning. Nikhil, you made some very helpful comments in the opening remarks in regards to the composition of sellers, and I was hoping you could dig in there a little bit and talk about what constitutes the rest of that pie of sellers and also what's driving this acceleration in transaction activity. As you put it, any fool can write a check, and Welltower's always prided itself on offering a fair price for assets. What do you think is the driving factor or factors that are, one, bringing sellers to market in the best senior housing operating market, and two, to Welltower when there may be a higher bidder?

Speaker #5: So what do you think is the driving factor or factors that are one, bringing sellers to market in the best senior housing operating market, and two, to WELLTOWER when there may be a higher bidder?

Speaker #6: Yeah, I think, John, first and foremost, if you look at how many transactions we did and how I quantified that, practically 96% of those transactions are off-market.

Nikhil Chaudhri: Yeah, I think, John, I think first and foremost, if you look at how many transactions we did and how I quantified that practically 96% of those transactions are off-market. The model has been changed, right? Sitting here backed by all the tools that our data science team has provided to us, we have a very granular view of all the assets that are out there, who owns them, and what the expected performance of those assets is. We turn the model around and go pursue those assets rather than wait for those assets to come to our desk, right? In some cases, these are family businesses where the one generation that created the business is not looking to hand it off to the next generation as they have other priorities.

Speaker #6: The model has been changed, right? I mean, sitting here backed by all the tools that our data science team has provided to us, we have a very granular view of all the assets that are out there, who owns them, and what the expected performance of those assets is.

Speaker #6: And so then we turned the model around and went to pursue those assets, rather than wait for those assets to come to our desk, right?

Speaker #6: So in some cases, these are family businesses where the one generation that created the business is not looking to hand it off to the next generation as they have other priorities.

Speaker #6: And so we go unlock those opportunities. And at times, those conversations take years. To eventually come together. And then there's local owners who own a handful of assets where we get together with our operating partners and say, who has the best relationship?

Nikhil Chaudhri: We go unlock those opportunities, and at times, those conversations take years to eventually come together. There's local owners who own a handful of assets where we get together with our operating partners and say, Who has the best relationship? Who has the ability to go unlock these opportunities? It's just old school classic business development to go pursue specific assets, specific portfolios that we've been tracking and have a strong view of what the performance can be. That's how we go pursue these opportunities.

Speaker #6: Who has the ability to go unlock these opportunities? And it's just old-school, classic business development to go pursue specific assets, specific portfolios that we've been tracking and have a strong view of what the performance can be.

Speaker #6: So that's how we go pursue these opportunities. I just cannot overemphasize what Nikhil...

Shankh Mitra: I just cannot overemphasize what Nikhil says, the first one, which is there's a tremendous amount of generational transfer is happening. It is happening across our society with many, many businesses are changing hands, and you will see a lot of write-ups on this over the years. We're seeing that in our industry. It has been particularly tough last five years, six years in this industry. Finally, cash flow has sort of come back to pre-COVID levels, and a lot of the owners are ready to move on into their retirement or in other pursuit, and enjoy their life. That's sort of what we are seeing driving across all three countries.

Speaker #7: says. The first one, which is there's a tremendous amount of generational transfer is happening. It is happening across our society with many, many businesses are changing hands.

Speaker #7: And you will see a lot of write-ups on this over the years. But we're seeing that, in our industry, it has been particularly tough the last five or six years in this industry.

Speaker #7: And finally, cash flow has sort of come back to pre-COVID levels. A lot of the owners are ready to move on into their retirement or pursue other interests and enjoy their life.

Speaker #7: And that's sort of what we are seeing, driving across all three countries.

Speaker #1: Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Krista: Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Speaker #3: Thanks so much for the question. Maybe, I guess, Shankh, sort of thinking about durability and longer-term cash flow from the perspective of your operators, I'm wondering if you can give a bit more color.

Vikram Malhotra: Thanks so much for the question. Maybe, I guess, Shankh, sort of thinking about durability and longer term cash flow from the perspective of your operators. I'm wondering if you can give a bit more color. You've sort of alluded to maybe consolidating a bit going forward and sort of the operators that got you here today versus the operators that will get you to where you want to be in 5 years, particularly as you referenced that 95% plus is still growing 20%. The operators that can get you that high occupied pool to compound in that range or maybe a plus minus, I'm just wondering if you can give us a sense of where are we in that evolution of operators, and what may we see that allows you to keep that durability on?

Speaker #3: You've sort of alluded to maybe consolidating a bit going forward, and sort of the operators that got you here today versus the operators that will get you to where you want to be in five years, particularly as you referenced that 95-plus percent is still growing 20%.

Speaker #3: And so the operators that can get you that high-occupied pool to compound in that range, or maybe a plus or minus—I'm just wondering if you can give us a sense of where we are in that evolution of operators, and what we might see that allows you to keep that durability on.

Speaker #7: Yeah. Thank you, Vikram. First, I want to be very clear that Ron asked the question, I answered the question. The goal is not same-store NOI growth of any number.

Shankh Mitra: Yep. Thank you, Vikram. First, I want to be very clear that, Ron asked a question, I answered the question. The goal is not same-store NOI growth of any number. That is not our goal. Our goal is partial earnings growth and cash flow growth. Very important you understand that. That's not a function of a myopic view of occupancy growth, rate growth, expense growth, NOI growth. It is a pure function of what we are focused on, is what is the ultimate partial cash flow growth and partial earnings growth. That's what shareholders eat. Everything else is irrelevant, just the input to the ultimate that system, not anything else. I've talked about this very specifically in our annual letter, that how mix shift impacts, and also very importantly, how as free cash flow generation goes up in the system, how that impacts and all of those things.

Speaker #7: That is not our goal. Our goal is partial earnings growth and cash flow growth. Very, very important. You understand that. And that's not a function of a myopic view of occupancy growth, rate growth, expense growth, NY growth.

Speaker #7: It is a pure function of what we are focused on is what is the ultimate partial cash flow growth and partial earnings growth. That's what shareholders eat.

Speaker #7: Everything else is irrelevant—just the input to the ultimate net system, not anything else. And I’ve talked about this very specifically in our annual letter: how makeshift impacts, and also, very importantly, how as free cash flow generation goes up in the system, how that impacts, and all of those things.

Speaker #7: So there's a multiple input to that. Now, going back to your question very specifically, performance and the pursuit of excellence that you are alluding to in that question is extraordinarily important.

Shankh Mitra: There's a multiple input to that. Now, going back to your question very specifically, performance and a pursuit of excellence that you are alluding to in that question is extraordinarily important. What is more important is the culture at this operator level. Whether they're aligned with us, they see the world the way we see it. Nobody's saying we're right or some of our growth operators are correct in every pursuit of everything. Do they have the mentality, the culture to have a long-term view of taking care of the resident, taking care of the customer, have an obsessive view, a maniacal focus on increasing the standards every day, and see the world in a win-win way, like the way we see it? Not saying that if you don't subscribe to that view, Vikram, you or anybody else, is correct or incorrect, but that's just our view.

Speaker #7: But what is more important is the culture. At this operator level, whether they're aligned with us, whether they see the world the way we see it—nobody's saying we're right, or that some of our growth operators are correct in every pursuit of everything.

Speaker #7: But do they have the mentality, the culture to have a long-term view of taking care of the resident, taking care of the customer—having an obsessive view and maniacal focus on increasing the standards every day?

Speaker #7: And see the world in a win-win way like the way we see it. Not saying that if you don't subscribe to that view, Vikram, you or anybody else, is correct or incorrect, but that just our view.

Speaker #7: That's how we live and run this business 24/7. This is a very, very hard business. And because this is a very hard business, you've got to be somewhat stoic about how you see the good days and the bad days.

Shankh Mitra: That's how we live and run this business 24/7. This is a very hard business. Because this is a very hard business, you got to be somewhat stoic about how you see the good days and the bad days, and there's been plenty of both, particularly the bad ones in last 10 years, 11 years that I've been doing this. We are looking for a particular group of people who share that view of the world, was that long-term focused, and have the similar culture of shared sacrifice, shared dreams, and we'll see where we get to. There is no question that we're increasingly concentrating our portfolio with people who have that mentality of an additive sell.

Speaker #7: And there’s been plenty of both, particularly the bad ones in the last 10 or 11 years that I’ve been doing this. So, we are looking for a particular group of people who share that view of the world, who have that long-term focus, and have a similar culture of shared sacrifice, shared dreams, and we’ll see where we get to.

Speaker #7: But there is no question that we're increasingly concentrating our portfolio with people who have that mentality of an additive sum.

Krista: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead.

Operator: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead.

Speaker #1: Your next question comes from the line of Anamateo Akusanya with Deutsche Bank. Please go ahead.

Omotayo Okusanya: Hi. Yes. Good morning, everyone, and congrats on an excellent quarter. Shankh, in the business plan presentation, I think you make a very strong point around lack of supply and kind of all the different factors that probably lead to a lack of supply for a while. One of them just kind of being high construction costs, and it's really hard to get really good returns at this point. I also do think that you have a fair amount of development going on and almost $1 billion of commitments on that side at pretty attractive yields of over 10%. I'm just trying to understand how you're finding these opportunities at really good returns when it just kind of feels generally, the industry should be struggling with development at attractive yields.

Speaker #3: Yes. Good morning, everyone, and congrats on an excellent quarter. Shankh, in the business plan presentation, I think you make a very strong point around lack of supply and all the different factors that will probably lead to a lack of supply for a while.

Speaker #3: But I wanted them to kind of be in high construction cost, and it's really hard to get really good returns at this point.

Speaker #3: But I also noted that you have a fair amount of development going on, with almost a billion dollars of commitments on that side, at pretty attractive yields of over 10%.

Speaker #3: So, I'm just trying to understand how you are finding these opportunities at really good returns, when it generally feels like the industry should be struggling with development at attractive yields.

Speaker #7: I understand. The majority of what you see here is that the increase has come from the first three buckets. Some are organic expansion opportunities within our own portfolio.

Shankh Mitra: Understand. Majority of this that you see as the increase has come with the first three buckets. Some are organic expansion opportunities in our own portfolio. Majority of them has come with either Amica or Barchester acquisitions. If you think about it, what we discussed during Amica, that team has worked relentlessly 8, 10 years to assemble this land in places that there is no land, right? One house at a time, two house at a time, and 10 years working with that to create a land assemblage and in sliding through that, some of the most difficult parts in North America. What you saw is that sort of the addition is assuming those. Right? I have said this many times that I have no problem. I have started development during COVID. If it is an exceptional product in exceptional location, we will do it. Right?

Speaker #7: But the majority of them have come from either Amica or Barchester acquisitions. If you think about it, what we discussed during Amica—that team has worked relentlessly, eight to ten years, to assemble this land in places where there is no land, right?

Speaker #7: One house at a time, two houses at a time, and 10 years working with that to create a land assemblage and entitling through some of the most difficult parts of North America, and what you saw is that sort of the addition is assuming those.

Speaker #7: I have said this many, many times, that I have no problem. I have started development during COVID. If it is an exceptional product, an exceptional location, we will do it.

Shankh Mitra: For example, I've talked about Brookline development, right? It's a truly irreplaceable community. You cannot build it. You cannot buy it. We did it during COVID, at the height of COVID. I've said it many times. Do I want to do Cupertino? We'll do Cupertino. Right? Palm Beach? We'll do Palm Beach. Places like that. At the same time, Tayo, you can see this quarter, I believe we mentioned this in our earnings release or one of those documents, that we have taken impairments and given up pursuit of several lands that we have been working on 10 years, including, I believe, a big one in Wellesley, after working years on it. Right? It's just a question of economics. If the economics works out, we'll engage in an economic activity. We have no bias against it or for it.

Speaker #7: For example, I've talked about Brookline development, right? This is a truly irreplaceable community. You cannot build it. You cannot buy it. We did it during COVID, at the height of COVID.

Speaker #7: I have said it many times. Do I want to do Cupertino? We'll do Cupertino. Palm Beach? We'll do Palm Beach. Places like that. At the same time, Tao, you can see this quarter—I believe we mentioned this in our earnings release or one of those documents—that we have taken impairments and given up pursuit of several lands that we have been working on for 10 years, including, I believe, a big one in Wellesley, after working years on it, right?

Speaker #7: So it's just a question of economics. If the economics work out, we will engage in an economic activity. We have no bias against it or for it.

Shankh Mitra: The point we're trying to make in the segment that we operate, which is luxury senior housing, cost has become so prohibitive that it's very difficult to make returns work. We think about returns, it's very simply untrended returns relative to untrended construction cost. As you know, that you have to have that view in a world where construction cost is rising rapidly. You can just think about what will be the yield 7 years from now if you keep trending your rent. You have to have that view, and that's how development should be done, and very few things work out in that world.

Speaker #7: The point we're trying to make in the segment that we offered, which is luxury senior housing, is that cost has become so prohibitive that it's very difficult to make returns work.

Speaker #7: And when we think about returns, it's very simply untrended versus untrended returns relative to untrended construction cost. And as you know, you have to have that view in a world where construction cost is rising rapidly. You can just think about what will be the yield seven years from now if you keep trending your rent.

Speaker #7: You have to have that view, and that's how development should be done. And very few things work out in that world.

Speaker #1: Your next question comes from the line of Nick Yuliko with Scotiabank. Please go ahead.

Krista: Your next question comes from the line of Nicholas Yulico with Scotiabank. Please go ahead.

Operator: Your next question comes from the line of Nicholas Yulico with Scotiabank. Please go ahead.

Nicholas Yulico: Thanks. I wanted to ask about the non-same store pool within the senior housing operating segment. About 30% of that segment NOI is non-same store. It looks like it has lower occupancy, lower margin. If you could just talk about how the assets have been performing and how we should think about growth there over the next year versus the same store pool, since it looks like there is more occupancy upside and more margin upside in those non-same store assets. Thanks.

Speaker #8: Oh, thanks. I want to ask about the non-same store pool within the senior housing operating segment. So, about 30% of that segment's NOI is non-same store.

Nick Yulico: Thanks. I wanted to ask about the non-same store pool within the senior housing operating segment. About 30% of that segment NOI is non-same store. It looks like it has lower occupancy, lower margin. If you could just talk about how the assets have been performing and how we should think about growth there over the next year versus the same store pool, since it looks like there is more occupancy upside and more margin upside in those non-same store assets. Thanks.

Speaker #8: It looks like it has lower occupancy and lower margin. So, if you could just talk about how the assets have been performing and how we should think about growth there over the next year versus the same-store pool, since it looks like there is more occupancy upside and more margin upside.

Speaker #8: in those non–same-store assets. Thanks.

Speaker #7: Let me start, and Tim, you jump in. If you think about the volume of acquisition in the last 12 to 15 months, that should be the case, right?

Shankh Mitra: Let me start, Tim, you jump in. If you think about the volume of acquisition in last 12, 15 months, that should be the case, right? It takes some time to season. They will come in same store after 5 quarters as it always has. The acquisition volume in last few quarters would suggest that would be the case. You make a very good observation that the occupancy is lower, which means there is obviously more occupancy upside, and there's a significantly for margin upside. For example, if you think about what Nikhil said, this quarter with the Q2 activity, not Q2 close, but the activity. These close to $6 billion of senior living assets we bought at 75% occupancy. As you know Nick, at 75% occupancy, these communities are not making much money.

Speaker #7: You take some time to season; they will come in same-store after five quarters, as it always has. But the acquisition volume in the last few quarters would suggest that would be the case.

Speaker #7: You make a very good observation. That the occupancy is lower, which means there is obviously more occupancy upside and there's a significantly for margin upside.

Speaker #7: For example, if you think about what Nikhil said this quarter, with the second quarter activity—not second quarter close, but the activity—the close to $6 billion of senior living assets we bought at 75% occupancy.

Speaker #7: As you know, Nick, at 75% occupancy, this communities are not making much money. It's really you start to make money after 80 and your margin really goes up after high 80s, low 90s, right?

Shankh Mitra: It's really, you start to make money after 80, and your margin really goes up after high 80s, low 90s, right? There is tremendous amount of opportunity. Clearly, they're moving really well from an NOI standpoint as they're going through our platform, new operators, WBS initiatives and everything. That sort of, I would not say easy, sort of low-hanging fruit. Occupancy is never a low-hanging fruit, but there's occupancy upside. Having said that, you will expect they will transition into same store. They will get to a higher level of occupancy, and then pricing power will kick in. This is sort of think of this as a more of a manufacturing process, if you will. You have same store where the handover from occupancy to rate has happened or is sort of happening right now. Non-same store is more still an occupancy story, not a rate story.

Speaker #7: So there is a tremendous amount of opportunity. Clearly, they're moving really, really well from an NOI standpoint as they're going through our platform, new operators, WBS initiatives, and everything.

Speaker #7: So that's sort of I would not say sort of low hanging fruit, occupancy is never a low hanging fruit, but there's occupancy upset. It has been said that you will expect they will transition into same store they will get to a higher level of occupancy and then pricing power will kick in.

Speaker #7: So this is sort of think of this as a more of a manufacturing process, if you will. You have same store, where the handover from occupancy to rate has happened or is sort of happening right now.

Speaker #7: Non–same store is still more of an occupancy story, not a rate story. That's why cash flow is moving the way it is, and it will happen as we go forward.

Shankh Mitra: That's why sort of cash flow is moving, and it will happen as we go forward.

Speaker #2: Yeah, and I would just add to that, Nick, that so think about our overall our same store portfolio approaching 89 and a half percent occupancy.

Tim McHugh: Yeah, I would just add to that, Nick, that, think about our overall, our same store portfolio approaching 89.5% occupancy. That non-same store portfolio is about 550 basis points lower than that on occupancy. To Shankh's point, this has kind of been the consistent strategy. We gave some color around our current pipeline is 75% occupied, what we expect to close in the back half. Consistency on that kind of manufacturing line analogy of continuing to bring in assets. As we build out WBS and implement, Nikhil is keeping us very busy with the additional assets. I think about it in terms of kind of like TAM, that we continue to see really good results in what we're bringing on board as far as the more mature portfolio, and we continue to bring a larger opportunity set.

Speaker #2: That non-same store portfolio is about 550 basis points lower than that on occupancy. The Shankh's point, this has kind of been the consistent strategy we gave some color around our current pipeline is 75% occupied.

Speaker #2: So, what we expect to close in the back half—so, consistency on that kind of manufacturing line analogy of continuing to bring in assets. And as we build out WBS and implement, Nikhil is keeping us very busy with the additional assets.

Speaker #2: And I think about it in terms of kind of like TAM that we continue to see really good results in what we're bringing on board as far as the more mature portfolio.

Speaker #2: And we continue to set.

Speaker #1: Your next question comes from the line of James Kammert with Evercore. Please go ahead.

Krista: Your next question comes from the line of James Kammert with Evercore. Please go ahead.

Operator: Your next question comes from the line of James Kammert with Evercore. Please go ahead.

James Kammert: Hi. Good morning. Thank you. Obviously, Welltower has an extensive and fertile plate of SHOP opportunities. I was just curious, what is your thinking at present regarding the, I guess, the TAM, to use Tim's word recently there, and/or the financial opportunity, if you will, for Welltower in active adult?

Speaker #7: Good morning. Thank you. Obviously, Welltower has an extensive and fertile plate of shop opportunities, but I was just curious—what is your thinking at present regarding the, I guess, the TAM, to use Tim's word recently there, and/or the financial opportunity, if you will, for Welltower in active adult?

Shankh Mitra: Tim, active adult is a space we like. Our wellness housing portfolio has compounded very strongly, high single digit, low double digit for a very long period of time. Imagine, just think about this, that going back to 2018, when is the first time we did it. Our first transaction into the space to today, you had COVID, you had massive spike in inflation, interest rate through all of these. It has compounded that meaningfully, which is obviously what we like. We think there is a tremendous sort of position in our portfolio. It's a very small sort of an industry. We're the largest owner in the industry. We continue to be active, but it's not a scaled opportunity. We like a specific price point in that particular asset class, and we continue to grow, and we'll continue to do that.

Speaker #3: Tim, active adult is a space we like. Our wellness housing portfolio has compounded very strongly over a long period of time. Just think about this: going back to 2018, when is the first time we did it.

Speaker #3: Our first transaction into the space to today, we had—you had COVID, you had a massive spike in inflation, interest rates. Through all of these, it has compounded that meaningfully, which is obviously what we like.

Speaker #3: And we think there is a tremendous sort of position in our portfolio, but it's a very small sort of an industry. With the largest owner in the industry, we continue to be active.

Speaker #3: But it's not a scaled opportunity. We like a specific price point in that particular asset class, and we continue to grow. We'll continue to do that.

Speaker #3: But we like that cash flow compounder that the industry is, or that those assets are. But it is highly unlikely a scaled opportunity. I don't know what else you want me to add to that.

Shankh Mitra: We like that cash flow compounder that industry is or that those assets are, but it is highly unlikely a scaled opportunity. I don't know what else you want me to add to that.

Speaker #1: Your next question comes from the line of Farrell Granath with Bank of America. Please go ahead.

Krista: Your next question comes from the line of Farrell Granath with Bank of America. Please go ahead.

Operator: Your next question comes from the line of Farrell Granath with Bank of America. Please go ahead.

Speaker #5: Good morning. I wanted to touch on your comments about diversification, especially the source of capital. Recently, we've seen some unique JV structures that have been announced with other peer companies, especially partners with private equity and/or other sources of capital. I'm curious about your appetite for doing that going forward, especially as you consider this investment opportunity.

Farrell Granath: Good morning. I wanted to touch on your comments about diversified, especially source of capital. Recently we've seen some unique JV structures that have been announced with other peer companies, especially partners with private equity in order to source capital. I'm curious about your appetite for doing that on the go forward, especially as you consider this investment opportunity.

Shankh Mitra: Farrell, I'm pretty rusty in this area. We have explored doing that with the sort of the, one of the largest or probably the first one who came up with that idea a few years ago. Maybe the structures have changed, evolved. I'm not the right person to comment on it. If I remember that, I personally engaged a lot in that conversation, and the structure, my understanding is every way you look at it's a debt structure. It's not an equity structure. I wouldn't describe what you called an JV equity structure. Debt is debt. A piece of capital cannot be debt and equity at the same time. That's my understanding of it. As you can see, where our balance sheet has gone, we can raise bonds today for sub 4%.

Speaker #3: Farrell, I'm pretty rusty in this area. We have explored doing that with, sort of, one of the largest or probably the first one who came up with that idea a few years ago.

Speaker #3: So maybe the structures have changed—evolved. So I'm not the right person to comment on it. But if I remember, and I personally engaged a lot in that conversation and the structure, my understanding is everywhere you look at it, it's a debt structure.

Speaker #3: It's not an equity structure, so I wouldn't describe what you called a JV equity structure. Debt is debt—a piece of capital cannot be both debt and equity.

Speaker #3: At the same time, and that's my understanding of it. As you can see where our balance sheet has gone, we can raise bonds today for sub-4%.

Speaker #3: So, obviously, we would not engage in that. We’d not engage in that kind of structure. We understand some people raise debt where they probably don’t have better access to capital.

Shankh Mitra: Obviously, we would not engage in some sort of that kind of structures. We understand some people raise debt where they probably don't have better access to capital. It makes sense, right? I don't know how the structures have evolved. I'm not the right person to comment on it. When I did engage, my understanding is unequivocally it's a debt structure. The JV structure that I understood it to be, that the asset values of those are just sort of a marker that doesn't drive, obviously, the return of the debt. It is sort of an interesting piece of debt that is both secured and unsecured within. Your first round of defense is the assets, and then second round of the defense is the sponsor. That's sort of my understanding what was. What has become, I have no idea.

Speaker #3: It makes sense, right? But I don't know how the structures have evolved. I'm not the right person to comment on it, but when I did engage, my understanding is, unequivocally, it's a debt structure.

Speaker #3: And the JV structure—and sort of, I understood it to be that the asset values of those are just sort of a marker that doesn't drive, obviously, the return of the debt.

Speaker #3: And it is sort of an interesting piece of debt that is both secured and unsecured, with your first round of defense being the assets, and then the second round of defense being the sponsor.

Speaker #3: So that's sort of my understanding with what has become. I have no idea—I don't comment on things I don't understand.

Shankh Mitra: I don't comment on things I don't understand.

Speaker #1: Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Krista: Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Operator: Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. In your 1 June press release, you noted that unlevered returns on acquisitions that are comparable or slightly higher than returns achieved on acquisitions made in prior years by leveraging WBS. Can you help us reconcile that statement with the acquisition yields in the quarter of 6%? Thanks.

Speaker #6: Good morning. Thanks a lot for taking my question. In your June 1st press release, you noted that unlevered returns on acquisitions are comparable to or slightly higher than returns achieved on acquisitions made in prior years by leveraging WBS.

Speaker #6: Can you help us reconcile that statement with the acquisition yields in the quarter of 6%? Thanks.

Speaker #2: Yeah, I mean, you know, the yields are, at that time, just the seller's cash flow, right? So now what has changed is, with WBS, we have more and more confidence in what the end state is.

Nikhil Chaudhri: Yeah. The yields are going in numbers. That is, at that time, just the seller's cash flow. Right? Now what has changed is with WBS, we have more and more confidence on what the end state is. That's part of the underwriting, right? You've got going in, then what is the stabilized trended cash flow. Going from the starting point to the ending point is what creates the total IRR. The point is that the terminal yields are much greater than what they used to be, given how we're improving cash flow.

Speaker #2: And so that's part of the underwriting, right? So you've got going in, and then what is the stabilized, trended cash flow. And going from the starting point to the ending point is what creates the total IRR.

Speaker #2: So the point is that the terminal yields are much greater than what they used to be, given how we're improving cash flow.

Shankh Mitra: Michael, if those yields were zero or negative, which we continue to buy four or five years later, I would be equally pleased. All we care about, what the end state looks like, not the beginning state looks like. As I said, you buy 75% occupied assets, your yields would be substantially lower than 6%. We're completely fine with that. We're total return investors, and we're not yield-driven spared investors to my earlier point.

Speaker #3: Michael, if those yields were zero or negative, which we buy, we continue to buy four or five years later, I would be equally pleased.

Speaker #2: All we care about is what the end state looks like, not what the beginning state looks like. As I said, if you buy 75% occupied assets, your yields would be substantially lower than 6%.

Speaker #2: And we're completely fine with that. We're total return investors, and we're not yield-driven, spirit investors, to my earlier point.

Speaker #1: Your next question comes from the line of Michael Stroyak with Green Street. Please go ahead.

Krista: Your next question comes from the line of Michael Stroyeck with Green Street. Please go ahead.

Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Please go ahead.

Speaker #4: Thanks, and good morning. Can you just talk a bit about pricing power in the UK relative to the US? Reported growth has decelerated a bit over the past couple of quarters, at least in the same-store pool.

Michael Stroyeck: Thanks. Good morning. Can you just talk a bit about pricing power in the UK relative to the US? Rent for growth has decelerated a bit over the past couple quarters, at least in the same-store pool. Just what's driving that recent deceleration, and how do you view the long-term rent growth potential of that market versus the US?

Speaker #4: What's driving that recent deceleration, and how do you view the long-term rent growth potential of that market versus the U.S.?

Speaker #3: Yeah, yeah. Michael, if you look at it, it's a lot of change as policy. Understand that we've bought a lot of assets in the UK.

Shankh Mitra: Yeah. Michael, if you look at it's a lot of change of asset pools. Understand that we have bought a lot of assets in UK in the last 2 years. Quarter-to-quarter change are driven by a lot of pool change, this, that, and others. Generally speaking, if you just think about, take not an optics view, which is what that is in itself, but economic view. The occupancy in UK is 300-plus basis points lower than that of US. On the other hand, you can see occupancy in Canada, which is, call it, give or take, circa 300 basis points higher than the US. You are seeing pricing power change, like exactly what you should see. Which is where higher occupancy drives higher rent for growth. Where occupancy is lower, the focus is on bringing occupancy up, but you get a lower rent for growth.

Speaker #3: In the last two years, so quarter-to-quarter changes are driven by a lot of pool changes—this, that, and others. But generally speaking, if you just take a, not an optics view, which is what that is in the sub, but an economic view, the occupancy in the UK is 300-plus basis points lower.

Speaker #3: Then that of the U.S. On the other hand, you can see occupancy in Canada, which is, call it, give or take, circa 300 basis points higher than the U.S.

Speaker #3: You're seeing pricing power change like exactly what you should see. Which is where higher occupancy drives higher report growth. And where occupancy is lower, you have the focus is on bringing occupancy up, but you get a lower report growth.

Speaker #3: And that is, sort of, the fine-tuning of the model. I would not worry too much about quarter to quarter. As you know, we have a historic and very long-term, unchanged, consistent policy of bringing in assets after five quarters in the same store.

Shankh Mitra: That sort of is the fine-tuning of the models. I would not worry too much about quarter to quarter as you know that we have a historic and a very long-term unchanged consistent policy of bringing in assets after 5 quarters in the same store. A lot of assets are coming in. Don't worry about sort of the optical nature of this basis point, that basis point from this quarter to that quarter. Generally, your observation is correct, and that's because the occupancy is lower.

Speaker #3: And a lot of assets are coming in, so that's sort of it. Don't worry about the optical nature of this basis point or that basis point from this quarter to that quarter.

Speaker #3: But generally, your observation is correct, and that's because the occupancy is lower.

Speaker #1: Your next question comes from the line of Juan Sanabria with BMO. Please go ahead.

Krista: Your next question comes from the line of Juan Sanabria with BMO. Please go ahead.

Operator: Your next question comes from the line of Juan Sanabria with BMO. Please go ahead.

Speaker #5: Good morning, thanks for your time. Shankh, at the beginning of the call, you made comments around the aging of the workforce and kind of alluded to Japan.

Juan Sanabria: Good morning. Thanks for the time. Shankh, at the beginning of the call, you made comments around the aging of the workforce and kind of alluded to Japan. I'm just curious on how you expect or the trend, particularly as we've seen maybe a decrease in the immigration available labor with the offsetting of TPS here in the US.

Speaker #5: They're just curious on how you expect, or the trend—particularly as we've seen maybe a decrease in the immigration-available labor with the setting of TPS here in the US.

Speaker #2: Yeah. So, with regard to that specific issue, we have discussed it with all of our operating partners—or a majority of the operating partners—and the impact has been pretty minimal.

Shankh Mitra: For that specific issue, we have discussed with all of our operating partners, the majority of the operating partners. The impact has been pretty minimal. My comment is more of a societal change of sort of lack of labor force or diminishing labor force, family caregiver and all of those things that we have talked about for a long period of time. There's a reason, 1, that we specifically focused on the highest end of the senior living. Things are good now. It's a cyclical turnaround. Everything is, everybody's dancing. I see it, no problems. We are very focused on a price point and a product combination.

Speaker #2: My comment is more of a societal change. Of sort of lack of labor force, as or diminishing labor force, and sort of family caregiver and all of those things that we have talked about for a long period of time, there's a reason one that we specifically focused on the highest end of the senior living.

Speaker #2: And things are good now. It's a cyclical turnaround. Everybody is dancing—I see it. No problems. We are very, very focused on a price point and a product combination.

Shankh Mitra: I've always said this is an optimization game of product price point and service level, that at the highest price point level, at the higher acuity level, where we think we understand the business, we believe that there, the pricing power would negate the long-term increase of labor cost. That's what we believe. You're not seeing that. Cyclically, I would say, right now, labor is going the other way. Labor cost is rolling over. You're seeing that right now. From a long-term standpoint, availability of labor is something that I worry about, just purely from numbers standpoint.

Speaker #2: Sort of I've always said this is an optimization game. Of product price point and service level. And that at the highest price point level, at the higher acuity level, where we think we understand the business and we believe that there the pricing would be pricing power would negate the increase long-term increase of labor cost.

Speaker #2: Right? That's what we believe. You are not seeing that cyclically. I would say, right now, labor is going the other way. Right? Labor cost is rolling over.

Speaker #2: You are seeing that right now. But from a long-term standpoint, availability of labor is something that I worry about, just purely from a numbers standpoint.

Speaker #2: And that's why we have increasingly focused and narrowed our attention on a specific product price point range where customers are willing to pay and they understand.

Shankh Mitra: That's why we want, increasingly, we have focused and narrowed our focus on a specific product price point range where customers are willing to pay and they understand they don't want their providers to cut services, and they're willing to pay for that services and where the pricing could negate the increase of inflation labor. That's why we do what we do.

Speaker #2: They don't want their providers to cut services, and they're willing to pay for those services, where the pricing could negate the increase of inflation labor.

Speaker #2: And that's why we do what we do.

Speaker #1: Your next question comes from the line of Seth Bergi with Citi. Please go ahead.

Krista: Your next question comes from the line of Seth Berge with Citi. Please go ahead.

Operator: Your next question comes from the line of Seth Berge with Citi. Please go ahead.

Seth Berge: Hi, thanks for taking my question. Shankh, you gave some comments about the collaboration with the operators and the focus on capturing unrecognized simplicities. Just curious, what does the operator performance gap look like between your strongest and weakest operators running on Welltower Business Systems, and how much does that gap narrow when a new operator comes onto the platform?

Seth Bergey: Hi, thanks for taking my question. Shankh, you gave some comments about the collaboration with the operators and the focus on capturing unrecognized simplicities. Just curious, what does the operator performance gap look like between your strongest and weakest operators running on Welltower Business Systems, and how much does that gap narrow when a new operator comes onto the platform?

Speaker #4: Hi, thanks for taking my question. Shankh, you gave some comments about the collaboration with the operators and the focus on capturing unrecognized simplicities.

Speaker #4: Just curious, what does the operator performance gap look like between your strongest and weakest operators running on both of our business systems? And how much does that gap narrow when a new operator comes onto the platform?

Shankh Mitra: If you're talking about what's the operation results spread of best performing operators to weakest performing operator, I will tell you, this is the conversation. There's no beta in this business. You got NOI growth approaching zero, negative, very low single digit to NOI growth of 30%, 40%, and everything in between. Right? The spread is as big as it gets, and that's my historic point. I've written about this topic for a very long period of time, that the returns of this business will be in the tails. Right? You see that, you guys don't see it because we have a very large portfolio. We manage the volatility, and some days better than others, but that's what you don't see. Now, focus on what our Welltower Business System has been primarily not necessarily to just reduce that volatility.

Speaker #3: So, if you're talking about, sort of, what's the operation—sort of results spread, or best performing operators to weakest performing operator—I will tell you this is the conversation.

Speaker #3: There's no beta in this business. You've got my growth approaching zero—negative, very low single digit—to New York growth of 30% to 40%, and everything in between.

Speaker #3: Right? So the spread is as big as it gets, and that's sort of my historic point. I have written about this topic for a very long period of time.

Speaker #3: The returns of this business will be in the tails, right? And you see that—you guys don't see it because we have a very large portfolio.

Speaker #3: We manage the volatility. And some days better than others. But that's what you don't see. Now, focus on what our business system has been primarily not necessarily to just reduce that volatility.

Shankh Mitra: There are certain things that are uncontrollable in life that you just have to live with. There is a fundamental misunderstanding of what Welltower Business System is or what we are trying to achieve. Efficiency is a very small part of it. We are really focused on the efficacy. Obviously you do not want to pay late utility bills. You want to, obviously, for a company, when you go from manually processing your utility bills to systems, you will not. That is efficiency. What we are really focused on, capturing every interaction between residents, their caregivers, their families, and in a timely basis. That is the key. In human-intensive systems, what happens is cumbersome technology and workflow do more than waste time. They reduce quality, completeness, and timeliness of that information, as details are omitted, delayed, or inconsistently recorded.

Speaker #3: There are certain things in life that are uncontrollable and that you just have to live with, right? There's a fundamental misunderstanding of what our business system is or what we're trying to achieve.

Speaker #3: Efficiency is a very small part of it. We're really focused on the efficacy. And obviously, you don't want to pay late utility bills. That's— and you want to obviously, for a company— and when you go from manually processing your utility bills to systems, you won't.

Speaker #3: That's efficiency. What we are really, really focused on capturing every interaction between residents, their caregivers, their families, and in a timely basis that's the key in human intensive systems, what happens is cumbersome technology and workflow to more than waste time.

Speaker #3: They reduce quality completeness and timeliness of that information as details are omitted, delayed, or inconsistently recorded. What happens is because of that, as a consequence, it's not just lower productivity, but less accurate understanding of the business.

Shankh Mitra: What happens is because of that, as a consequence, it is not just lower productivity, but less accurate understanding of the business. That is what we are trying to do through Welltower Business System, helping our operators. This Welltower Business System is built with the operators, for the operators, and that is what we are doing. We have a long ways to go, but that is the key, is we are trying to bring in a level of efficacy in this business that you do not see in more of a cumbersome workflow managed by a lot of papers and all of those things. I hope that sort of helps you understand that the goal is not necessarily just the performance. That is an output. The input is what we are focused on, which is to enhance customer and employee experience.

Speaker #3: That's what we are trying to do throughout our business system, helping our operators. Our business system is built with the operators, for the operators, and that's what we are doing.

Speaker #3: We have a long ways to go. But that's the key is we're trying to bring in a level of efficacy in this business that you don't see in more of a cumbersome workflow managed by a lot of papers and all of those things.

Speaker #3: I hope that sort of helps you understand that the goal is not necessarily just the performance. That's an output. The input is what we are focused on, which is to enhance customer and employee experience.

Krista: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Speaker #1: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Speaker #5: Yep, thanks. Shankh, can you give us an update on the fund business that Welltower is currently pursuing? I mean, how much of Seniors Housing Fund I has been deployed at this point?

Michael Carroll: Yeah, thanks. Shankh, can you give us an update on the fund business that Welltower is currently pursuing? How much of Seniors Housing Fund I has been deployed at this point, and where does the Seniors Housing Debt Fund I stand right now?

Speaker #5: And where does the Seniors Housing Debt Fund I stand right now?

Shankh Mitra: Mike, I gave a pretty extensive update last quarter, the Senior Housing Equity Fund was fully deployed or fully committed, I should say, as of last quarter. On the debt fund, we raised a pretty small, discrete debt fund, very targeted, about $750 million, and that is also practically fully deployed.

Speaker #2: Mike, I gave a pretty extensive update last quarter, but the senior housing equity fund was fully deployed—or fully committed, I should say—as of last quarter.

Speaker #2: And on the debt fund, we raised a pretty small, discrete debt fund—very targeted—about $750 million. And that is also practically fully deployed.

Speaker #1: Your next question comes from the line of Richard Anderson with Cancer Fitzgerald. Please go ahead.

Krista: Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Please go ahead.

Operator: Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Please go ahead.

Speaker #5: Hey, thanks. Good morning, everyone. So, I wanted to talk a little, maybe put a finer point on the future tail of the opportunity set from a demand point of view.

Richard Anderson: Hey, thanks. Good morning, everyone. I wanted to talk a little, maybe more finer point on the future tale of the opportunity set from a demand point of view. Specifically, when you think of the silent generation of 18 million people, baby boomer, about 67 million sort of, I mean, still alive today. What percentage of those two groups do you think can afford your product? Second, what do you think the timeline is for these two generations to be supportive of your ability to continue to produce outsized organic growth? My point being, there's a finiteness to this and not to be tongue in cheek, but these are older folks. How long can this go on? The volume of the music start to come down? Thanks.

Speaker #5: And specifically, when you think of the Silent Generation, about 18 million people, Baby Boomers, about 67 million, sort of, I mean, still alive today.

Speaker #5: What percentage of those two groups do you think can afford your product? And second, what do you think the timeline is for these two generations to be supportive of your ability to continue to produce outsized organic growth?

Speaker #5: My point being there's a finite nest to this and not to be tongue in cheek, but these are older folks. How long can this go on?

Speaker #5: And when does the music, at least the vibe of the music, start to come down? Thanks.

Speaker #3: Yeah, so very good question. I would like to point out a couple of new slides that you can find on our business update. One is slide 10.

Shankh Mitra: Yeah. Very good question. I would like to point out to couple of new slides that you can find on our business update. One is slide 10, it talks about sort of the concentration of wealth in the baby boomers as they become part of the customers. The silent generation was not. They didn't have wealth. There's just not been a growth of silent generation, which you saw the impact on the demand last cycle. If you look at the baby boomer generation, you can see sort of not only the growth of that generation as they come of age to become our customer, but all can see it is the wealthiest generation of all time, right? Roughly controlling about $100 trillion of assets. That is also equivalently true for Canada and UK.

Speaker #3: And it talks about sort of the concentration of wealth in the baby boomers as they become part of the customers. The silent generation was not they didn't have wealth.

Speaker #3: They're just not been a growth of silent generation, which you saw the impact on the demand last cycle. If you look at the baby boomer generation, you can see sort of not only the growth of that generation as they come of age, to become our customer, but you can see it is the wealthiest generation of all time.

Speaker #3: Right? Roughly controlling about $100 trillion of assets. And that is also equivalently true for Canada and the UK. And that generation wants to spend money on themselves.

Shankh Mitra: That generation wants to spend money on themselves, they're extraordinarily discerning customer that they will only spend money where they perceive value. The point that you are making, I think the trends are going to be exact reverse. You are seeing that across all luxury segment of the economy. I'm actually very optimistic about it. Now from an affordability standpoint, we have a new slide, or maybe an update of a slide that I just noticed. Let me pull it up, which is page 27, it shows you how affordability actually has meaningfully improved. Look at the right side of the page, slide 27 in our deck, you will see that what happened, the rise of the net worth has meaningfully outpaced rent growth in the sector.

Speaker #3: But they're extraordinarily discerning customers, and they will only spend money where they perceive value. And so the point that you are making—I think the trends are going to be the exact reverse.

Speaker #3: And you are seeing that across all luxury segments of the economy. So I'm actually very optimistic about it. Now, from an affordability standpoint, we have a new slide, or maybe an update of a slide, that I just noticed.

Speaker #3: Let me pull it up, which is page 27. And it shows you how affordability actually has meaningfully improved. So look at the right side of the page, slide 27 in our deck.

Speaker #3: And you will see that what happened the rise of the net worth has meaningfully outpaced rent growth in the sector. So I'm actually very optimistic on this particular topic, which I'm not a very optimistic person to begin with.

Shankh Mitra: I'm actually very optimistic on this particular topic, which I'm not a very optimistic person to begin with. On this particular topic, at least for next 20 years.

Speaker #3: But on this particular topic, at least for the next 20 years.

Speaker #1: Your next question comes from the line of Mike Mueller with J.P. Morgan. Please go ahead.

Krista: Your next question comes from the line of Mike Mueller with J.P. Morgan. Please go ahead.

Operator: Your next question comes from the line of Mike Mueller with J.P. Morgan. Please go ahead.

Speaker #4: Yeah, hi. For the portfolio that you own today, how long should we think about as a time frame to fully implement WBS?

Mike Mueller: Yeah, hi. For the portfolio that you own today, how long should we think about a timeframe to fully implement WBS?

Speaker #3: So, you’re saying just the portfolio we own today? Because the portfolio is expanding, right? So, if you sort of think about what we own today—what, 2,500 assets, give or take?

Shankh Mitra: You are saying just the portfolio we own today.

Mike Mueller: Yes.

Shankh Mitra: Because the portfolio is expanding, right?

Mike Mueller: Yes.

Shankh Mitra: You sort of think about, we own today, what, 2,500 assets, give or take. If you think about last year we did 240, 250 assets, as I think Tim said, 6 to 700 this year. That's the right cadence. I'll call it another three years after that.

Speaker #3: So if you think about last year, we did 240, 250 assets. I think Tim said 6 to 700 this year. That's the right cadence.

Speaker #3: So call it another three years after that.

Speaker #1: Your next question comes from the line of Austin Worschmidt with KeyBank Capital Markets. Please go ahead.

Krista: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt: Just, Shankh, going back to your comments about labor and just tying in kind of the focus on resident employee experience. Through WBS and some of the operational efficiencies you're achieving or at least have line of sight to, are you getting to a point where the FT needs or even labor hour needs are less at certain occupancy bands or maybe even on a stabilized occupancy basis?

Speaker #5: Just Shankh, going back to your comments about labor, and just tying in the focus on resident and employee experience. Through WBS and some of the operational efficiencies, you're achieving—or at least have line of sight to.

Speaker #5: Are you getting to a point where the FTE needs, or even labor hour needs, are less at certain occupancy bands? Or maybe even on a stabilized occupancy basis?

Speaker #3: I will frame that in a different way than John did. If you just think about it, there are several positions in a community you have to have, whether you have one resident or 100 residents, right?

Shankh Mitra: I will frame that in a different way that John did. You just think about there are several positions in a community that you have to have, whether that's you have one resident or 100 residents, right? There is a tremendous amount of fixed cost associated with the business. As occupancy sort of expands, you see more incremental sort of flow through to the bottom line because it's a fixed cost nature of the business. That we are seeing. WBS, as I've gone through, I don't want to repeat what I said earlier. We're very focused on decreasing the friction points, between residents, customers, their families, and the employees of the community so that they can do the job that they have signed up to do, which is to care for the customers, right? That's the goal.

Speaker #3: So there is a tremendous amount of fixed cost associated with the business. And as occupancy sort of expands, you see more incremental sort of flow through to the bottom line because it's a fixed cost nature of the business.

Speaker #3: And that way of seeing, WBS, as I've gone through—I don't want to repeat what I said earlier—we're very focused on decreasing the friction points between residents, customers, their families, and the employees of the community.

Speaker #3: So that they can do the job that they have signed up to do, which is to care for the customers, right? That's the goal whether we can some administrative function can be more sort of automatized or systematized probably that's the right word.

Shankh Mitra: Whether we can, some administrative function can be more automatized or systematized, probably that's the right word, we shall see. That's our hope. As I've said in the last earnings call, that we should not expect as analysts and investors, and including us with our entire life's work and net worth is in this company, to come back to investors. I wrote about this topic several times, that we see this as a scaled economic shared, but shared with who? Investors, operators, but also the customers, right? We think about if we are successful in systematizing part of the workflow, you would expect that we'll contribute that back Some of that back into the communities for improving resident experience. Part of that obviously will enhance margin, and that's how we're thinking about the business.

Speaker #3: We shall see. That's our hope. And as I've said call, that we should not expect as analyst and investors and including us with the our entire life's work and net worth is in this company, to come back to investors.

Speaker #3: I wrote about this topic several times that we see this as a scaled economic shared. But shared with who? Investors, operators, but also the customers, right?

Speaker #3: So we think about what we if we are successful in systematizing part of the workflow, you would expect that will contribute that back. Some of that back communities for improving resident experience.

Speaker #3: And part of that obviously will enhance margin. And that's how we're thinking about the business. It's sort of a we go and read the trade-off section of my annual letter.

Shankh Mitra: If you go and read the trade-off section of my annual letter, there's long conversations about this stuff. Very good question. Thank you.

Speaker #3: There's a long conversations about this topic. But very, very good question. Thank you.

Speaker #1: Your next question comes from the line of Rich Hightower with Barclays. Please go ahead.

Krista: Your next question comes from the line of Rich Hightower with Barclays. Please go ahead.

Operator: Your next question comes from the line of Rich Hightower with Barclays. Please go ahead.

Speaker #5: Hi, good morning, everybody. Thanks for taking the question here. I had a question on the under contract pipeline and sort of you've had a stabled 75% kind of going in occupancy figure for that for a while.

Rich Hightower: Hi, good morning, everybody. Thanks for taking the question here. I had a question on the under contract pipeline and you've had a stable 75% kind of going and occupancy figure for that for a while. Is there something structural about those assets where occupancy is just materially lower than what we see maybe elsewhere around the industry, especially given that it's presumably the highest quality stuff available? Is there something that we should understand about that dynamic?

Speaker #5: Is there something structural about those assets where occupancy is just materially lower than what we see maybe elsewhere around the industry, especially given that it's presumably the highest quality stuff available?

Speaker #5: Is there something that we should understand about that dynamic?

Speaker #3: No, Rich, it's just the average, right? So, the average is made up of a bunch of assets that are, call it, 90% occupied and a bunch of assets that are newly delivered.

Nikhil Chaudhri: No, Rich, it's just the average, right? The average is made up of a bunch of assets that are, call it 90% occupied, and a bunch of assets that are newly delivered that are 10%, 20%, 30% occupied. The average age is 6. The median age is 4. Half of these assets are below the age of 4, and obviously there's newer assets to lease up.

Speaker #3: They are 10%, 20%, 30% occupied. So again, the average age is 6. The median age is 4, right? So half of these assets are below the age of 4.

Speaker #3: And so, obviously, there are newer assets at least.

Shankh Mitra: A couple of other points, Rich, that number was not stuck at 75% some quarter. Nikhil said it's 80%, low 80%. I think I heard the 75% after actually a long period of time.

Speaker #4: A couple of other points, Rich. That number was not stuck at 75%. Some quarter, Nikhil said it's 80%, low 80%. I think I heard the 75% after actually a long period of time.

Speaker #3: Yeah, it's been a really long time.

Nikhil Chaudhri: Yeah, it's been a really long time, years.

Shankh Mitra: That caught my attention. What you're alluding to, which is if there are some structural issues with these occupancies, if that was the case, overall portfolio occupancy wouldn't be where it is because all these assets were bought at a much lower level. More importantly, par share cash flow growth wouldn't be mid 20%. That you can think through from overall operating metric level. You can also think through from a par share impact of cash flow level, and you'll come to the conclusion from a basic understanding of numbers, the impacts have been exact reverse.

Speaker #4: That caught my attention. But what you're alluding to—which is, if there are some structural issues with these occupancies—if that was the case, overall portfolio occupancy wouldn't be what it is, because all these assets were bought at a much lower level.

Speaker #4: More importantly, per share cash flow growth wouldn't be mid-20%. Right? That, you can sort of think through from an overall operating metric level. You can also think through from a per share impact of cash flow level.

Speaker #4: And we'll come to the conclusion from a basic understanding of numbers, the impacts have been exact reverse.

Speaker #1: Your next question comes from the line of Wes Golliday with Baird. Please go ahead.

Krista: Your next question comes from the line of Wes Golladay with Baird. Please go ahead.

Operator: Your next question comes from the line of Wes Golladay with Baird. Please go ahead.

Speaker #6: Hey, good morning, everyone. Going back to the comment about the wealthiest cohort looking for a more discerning customer experience, are you seeing that same dynamic in the UK and Canada?

Wes Golladay: Hey, good morning, everyone. Going back to the comment about the wealthiest cohort looking for a more discerning customer experience, are you seeing that same dynamic in the UK and Canada?

Speaker #3: 100%. The same—it's extraordinary if you think about what happened in these three countries post-World War II. The wealth creation, whether it's in stock markets or housing markets—no matter how you look at it—this is the generation that controls the majority of the world.

Shankh Mitra: 100%. If you think about what happened in these three countries post-World War II, the wealth creation, and whether it's stock market, it's housing markets, no matter how you look at it, this is the generation that controls majority of the wealth. If you just look at how small baby boomer generation is as a percent of the overall US population, for example, it controls more than half of the overall consumer wealth in the United States, and they're very similar in UK and very similar in Canada. They're very similarly discerning. These people are anything but idiots. They're very discerning customers. They understand what they want. They're willing to pay for it only if they perceive value. This is much more than, Wes, just a question of demand supply. It's also a question of, are we providing the best of experience and services to the customer?

Speaker #3: If you just look at how small the baby boomer generation is as a percent of the overall U.S. population, for example, it controls more than half of the overall consumer wealth in the United States.

Speaker #3: And it's very similar in the UK and very similar in Canada. And they're very similarly discerning. These people are anything but idiots. They're very discerning customers.

Speaker #3: They understand what they want. They're willing to pay for it only if they perceive value. So this is much more than whereas just a question of demand supply.

Speaker #3: It's also a question of: Are we providing the best experience and services to this customer? If not, no matter what the demand and supply is, we'll be a giant failure.

Shankh Mitra: If not, no matter what the demand supply is, we'll be a giant failure.

Speaker #1: Your next question comes from the line of Dave Rogers with Raymond James. Please go ahead.

Krista: Your next question comes from the line of Dave Rogers with Raymond James. Please go ahead.

Operator: Your next question comes from the line of Dave Rogers with Raymond James. Please go ahead.

Dave Rogers: Good morning. You guys have framed the path to the mid-30s margins on a pre-COVID flow through getting occupancy back to historical levels, but you seem to be clearly ahead of that path right now. A couple of questions on that. One is, are there additional details you can give us around flow through at different points in the portfolio that would shine a little bit more light on where all that's coming from? Are there components that are performing much better than you had anticipated that are getting you higher? Do you have a new kind of, I don't want to say target, but a new thought in mind of where you can get margins too, given where you are today?

Speaker #5: Yeah, good morning. You guys have framed the path to the mid-30s margins kind of on a pre-COVID flow-through, getting occupancy back to historical levels.

Dave Rodgers: Good morning. You guys have framed the path to the mid-30s margins on a pre-COVID flow through getting occupancy back to historical levels, but you seem to be clearly ahead of that path right now. A couple of questions on that. One is, are there additional details you can give us around flow through at different points in the portfolio that would shine a little bit more light on where all that's coming from? Are there components that are performing much better than you had anticipated that are getting you higher? Do you have a new kind of, I don't want to say target, but a new thought in mind of where you can get margins too, given where you are today?

Speaker #5: But you seem to be clearly ahead of that path right now. So a couple of questions on that. One is, is there additional details you can give us around flow through at different points in the portfolio that would kind of shine a little bit more light on kind of where all that's coming from?

Speaker #5: Are there components that are performing much better than you had anticipated that are getting you higher? And do you have a new kind of I don't want to say target, but a new thought in mind of where you can get margins to given where you are today?

Speaker #3: Let me try. And Tim, you jump in, as I invariably will miss part of the question. Tim said flow-through margins are mid-60s.

Shankh Mitra: Let me try and, Tim, jump in as I invariably will miss part of the question. Tim said flow through margins is mid-60s. If you look at 95%, you should be in sort of 70 plus. That's sort of the markers we're willing to give you. We have never put a marker on overall portfolio margin, neither we will. It is a journey for us, not a destination. I have said on the call today that we believe that there's a significant margin upside remains. Why is it outperforming our expectation? Nothing ever outperformed my expectation. I just have too high of an expectation of everything in life. Why is this happening? This is what we do. This is what the whole idea of WBS was, that we have been on this journey for a very long period of time, as you can imagine, at least at this point.

Speaker #3: If you look at 95%, you should be in sort of the 70-plus range. That's sort of the markers we're willing to give you. We have never put a marker on overall portfolio margin.

Speaker #3: Neither will we. It is a journey for us, not a destination. I have said on the call today that we believe there is significant margin upside remaining.

Speaker #3: Why is it outperforming our expectations? Nothing ever outperforms my expectations. I just have too high of expectations. Everything in life—why is this happening?

Speaker #3: It's just, this is what we do. This is what the whole idea of WBS was—that we have been on this journey for a very long period of time.

Speaker #3: As you can imagine, at least at this point. And John, when did you start? Five plus years ago, right? At this point, that was the change of this company when we changed our view from what we wanted to be when we grew up, which was to be a centralized capital allocation and decentralized execution.

Shankh Mitra: John, when did you start? 5 plus years ago, right, at this point? That was the change of this company. When we changed our view from what we wanted to be when we grew up, which was to be a centralized capital allocation and decentralized execution. That was our view in going back 10 years ago, call it, to a centralized capital allocation, decentralized execution, but whole network of platform technologies. That was initiatives we started 5 years ago and completely changed this company. Good, bad, ugly, does not matter in that direction, right? That's what we do. That's what we are seeing. Nothing is ever done well or fast enough as far as I'm concerned. It has not exceeded my expectation. I'm very encouraged by all the things we have seen on the 250 communities that are on WBS.

Speaker #3: That was our view. Going back 10 years ago, call it a centralized capital allocation, decentralized execution, but a whole network of platform technologies that was initiated.

Speaker #3: We started five years ago and completely changed this company. Good, bad, ugly—does not matter in that direction, right? That's what we do. That's what we are seeing.

Speaker #3: But nothing is ever done well or fast enough as far as I'm concerned. So it has not exceeded my expectation. I'm very encouraged by all the things we have seen on the 250 communities that are on WBS.

Speaker #3: But we were working with our operating partners, as we have talked about. Just in the last 90 days, our operating partners have come up with ideas that, frankly speaking, I absolutely had not thought about.

Shankh Mitra: We're working with our operating partners, as we have talked about. Just in the last 90 days, our operating partners have come up with ideas that, frankly speaking, I absolutely have not thought about, and I don't think they have thought about. This is what happens when collaborations come together and we're trying to solve problems. There's a long ways to go. We'll see where we end up.

Speaker #3: And I don't think they have thought about. This is what happens when collaborations come together and we're trying to solve problems. So there is a lot of long ways to go.

Speaker #3: We'll see where we end up.

Speaker #1: And, ladies and gentlemen, that does conclude our question and answer session. That also concludes today's conference call. Thank you all for your participation.

Krista: Ladies and gentlemen, that does conclude our question and answer session, and that does conclude today's conference call. Thank you all for your participation, and you may now disconnect.

Operator: Ladies and gentlemen, that does conclude our question and answer session, and that does conclude today's conference call. Thank you all for your participation, and you may now disconnect.

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