Welltower Inc. (NYSE:WELL) Q2 2025 Earnings Call Transcript

Welltower Inc. (NYSE:WELL) Q2 2025 Earnings Call Transcript July 29, 2025

Operator: Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Welltower Inc. Second Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to withdraw your question, press 1 again. We would ask that you limit yourself to one question and requeue if you have any further questions. Thank you. I would now like to turn the call over to Matt McQueen, Chief Legal Officer and General Counsel. Please go ahead.

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 Inc. believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company’s filings with the SEC. And with that, I’ll hand the call over to Shankh Mitra for his remarks.

Shankh Mitra: Thank you, and good morning, everyone. As usual, I’ll review business trends and our capital allocation priorities. And the team will follow the usual cadence. The second quarter marked another period of solid execution across the board at Welltower Inc. From operations to investment activity, and a further strengthening of our balance sheet. We also made significant progress on the rollout of our operating platform which John Burkart will discuss shortly. Ultimately, we are pleased to have delivered another quarter of strong FFO per share growth of 22%, exceeding our already high expectations. These results coupled with increased conviction for the back half of the year have enabled us to once again raise the midpoint of our full-year FFO guidance this time by $0.13 to $5.10 per share.

For the quarter, we reported 23.4% same-store NOI growth for our seniors housing operating portfolio. Representing the eleventh consecutive quarter in which the growth has exceeded 20%. Organic revenue growth came in at 10%, driven by 420 basis points of occupancy gains, the highest level of growth we have achieved outside the post-COVID recovery. Notably, our UK portfolio posted a 600 basis points of pickup in occupancy, and 27% same-store NOI growth. Reflecting strong end-market demand and our favorable positioning of our purpose-built portfolio in highly selective and attractive micro markets. Growth in RevPOR, reflective of pricing power, was approximately 5%. And remained healthy across all regions. We expect a further strengthening of RevPOR in coming years as portfolio and industry-wide capacity continues to diminish.

I will also highlight the spread between RevPOR or unit revenue and ExpPOR or unit expense remains at historically wide levels driving an additional 330 basis points of margin expansion in SHOP. Our consistent pace of growth has allowed us to achieve two significant milestones this quarter as both in-place annualized NOI for SHOP assets has surpassed $2 billion and overall annualized company revenue indicates $10 billion for the first time. While the demand-supply dynamic remains attractive for the industry, we do not believe that the fundamentals alone will drive durable long-term performance in such an operation-intensive business. As in the past, we’ll continue to leverage insights from our industry-leading data science platform and Welltower business systems to drive additional portfolio and asset management initiatives.

Efforts, we believe, have been key contributors to our historical outperformance. For example, from a capital allocation standpoint, over the past five years, we have completed roughly $29 billion of investment activity through the scale achieved from our data science platform. But it’s often forgotten that we also sold $16 billion worth of assets over the past decade to improve the quality and growth trajectory of the overall portfolio as we enter the perceived golden age of the industry. We have painstakingly transitioned hundreds and hundreds of properties over the past few years to best-in-class aligned regional operators to unlock the full operational potential of these communities. This includes the transition of 10,000 units Holiday by Atria portfolio, which we announced last summer.

The largest portfolio of transition to date. For background, Holiday was acquired in 2021 at a price we believe to represent an extraordinary value but so far, it has turned out to be our biggest capital allocation mistake by yours truly. We have increasing conviction that our initial execution plan and structuring was flawed. But regardless of the reason, we considered the deal a failure so far, and our biggest disappointment over the past decade as we have so far been unable to make money for you, our fellow shareholders. You have come to know, we do not take such shortcomings lightly. And as always, to take decisive action when outcomes fall shy of our high standards. So in the middle of last year, we announced the transition of the portfolio to six of our existing regional operators.

This was not an easy feat given the size of the portfolio, geographic discretion, and the challenge inherent in any operating operator transition coupled with the value-add nature of the original business plan. While we have a long way to go, we’re encouraged by the early results. Since the beginning of this year, this portfolio has delivered a 560 basis points of improvement in occupancy which you are not seeing the benefit of in our reported numbers, as these properties are not yet in same-store. I would encourage you to take a look at slides thirteen and fourteen of our business update presentation for more details. While the NOI has yet to recover as operators tweaked the service model, we’re optimistic about the momentum in occupancy and estimate that the NOI will turn the corner in Q4.

We believe that substantial upside remains not only from this portfolio but also other transitions we have announced over the past few years. I’m grateful to the Welltower team for our best-in-class and our best-in-class operating platform partners. For their tireless efforts, and I look forward to providing further updates in future quarters. Shifting to capital deployment, even after announcing a historic level of investment activity in the first quarter, which exceeded the level of acquisitions completed in all of 2024, our investment team has never been busier. Nikhil Chaudhri will provide you with more details. But year to date, we have closed or are under contract to close approximately $9.2 billion worth of highly attractive acquisitions across all of our regions.

We remain pleased with the state of our pipeline which remains robust, visible, and actionable, in all three countries that we do business in. And lastly, turning to our balance sheet, following the current rating upgrade we received last quarter from both S&P and Moody’s to A, our balance sheet has trended even farther. Another quarter of strong cash flow growth, coupled with prudent funding of our balance sheet has driven debt to net debt to the adjusted EBITDA below three times and interest coverage over six times and lifted our total liquidity to $9.5 billion. Our upcoming debt maturities remain modest, and we have created significant flexibility to fund future investment activity. Overall, it has been an incredibly active first half of the year and I’m proud of what we have accomplished.

However, our work is far from being complete this year. Our team shows up every day to win, and we have a long journey ahead of us. With that, I’ll pass it over to John Burkart.

John Burkart: Thank you, and good morning, everyone. We delivered another strong quarter reflecting the ongoing momentum across the business. In Q2, total portfolio same-store NOI increased 13.8% year over year, led by another standout performance from our senior housing operating portfolio. First, I’ll touch on the outpatient medical business, which remained stable, delivering year-over-year same-store NOI growth of 2.6%. Leasing velocity remains healthy, and our retention rate remains consistent at 94.2%. Same-store occupancy, which continues to lead the peer group, also remained steady at 95%, reflecting the high-quality nature of the portfolio. Turning to the senior housing operating portfolio. Performance continues to be outstanding.

With the eleventh consecutive quarter of same-store NOI growth well in excess of 20%. A remarkable feat. The broad-based strength witnessed across the regions and property types resulted in another upward revision to show portfolio guidance, which Tim McHugh will detail shortly. Top-line growth remained resilient at 10.1% year over year, supported by positive trends across all three regions. Canada delivered 8.5% growth, while The US and UK posted increases of 10.2% and 11.5% respectively. We are particularly pleased with another quarter in which occupancy growth surpassed 400 basis points. Reflecting healthy end-market demand for our needs-based product. In terms of rental rates, RevPAR growth remained strong at 5%. We’re pleased to report that expense pressures remain subdued with year-over-year growth in ExpPOR or unit expense reaching the lowest level in our reported history at just 0.2%.

This is largely a function of the scaling benefits received from the rapid increase in occupancy. We’re also encouraged by trends within the labor market with agency labor and employee turnover well below pre-COVID levels. From a margin perspective, the continued historically wide gap between RevPOR and ExpPOR growth resulted in another leg higher in operating margins. Up 330 basis points year over year to 30.7%. And as Shankh Mitra indicated, while we have essentially returned to pre-COVID levels of margins, we still expect significant upside going forward, driven primarily by three factors: First, as we’ve noted before, given the high fixed cost nature of seniors housing business, flow-through margins are expected to rise alongside further occupancy gains.

Said another way, the operating leverage inherent in the business will be recognized in a more meaningful way going forward. Second, continued benefits from the ongoing realignment of the portfolio. Increasing our portfolio concentration with our key growth operators and continuing collections of assets, creating collections of assets, allowing us to increase efficiency by sharing various employees, contractors, and marketing, similar to what’s been done in multifamily. Finally, the impact of WBS or Welltower Business System. Our end-to-end operating platform, which is benefiting from the synergistic partner with our operators as we continue to improve our existing systems and add to our robust WBS roadmap. As I’ve said many times, Coke doesn’t give out the recipe nor do I give out the proprietary details of our business.

That said, I will say that we are touching many parts of the business via WBS in partnership with the operators. And finding both opportunities and successes, which will translate to years of improved operations and margins. Tangible evidence of our work this quarter can be seen in utilities. We’ve bent the curve with an increase of only 2.8% overall on a year-over-year basis, and utilities actually declined 2.1% year over year on a per occupied day basis. Yes. Even a line item that many people believe cannot be improved such as utilities has opportunity for improvement, and we’re all over it. Working with our partners, we’re finding numerous opportunities in every aspect of the business. WBS is transforming all aspects of the senior housing business.

And although the path is never smooth, I continue to have confidence in years of margin expansion as we continue to improve the customer, and employee experience in this business. While we’re encouraged by our results and the initial rollout of the operating platform, the team is running very hard. We’ve trained over 8,000 site employees who are now benefiting from using WBS On-site. The more time you spend with our operating partners going through the details of the business, the more opportunities we identify to improve the customer and employee experience and address numerous inefficiencies which exist in the industry. Into the company in recent years, we continue to seek and attract high-caliber talent from outside the industry to bring their experience and share our vision of disrupting the senior housing business.

A vision that we share with our best-in-class operating partners, who are working shoulder to shoulder with Welltower team to implement the platform while continuing to deliver exceptional care and support to our residents and their families. We continue to be grateful for their unrelenting efforts and the quality of care they’re delivering. More to come in the coming quarters. And with that, I’ll now turn it over to Nikhil Chaudhri.

Nikhil Chaudhri: Since our first quarter call in April, we’ve expanded our investment activity by an additional $3 billion bringing our year-to-date closed or under contract volume to $9.2 billion. As of late July, our 2025 activity already exceeds all of 2024 by 50%. And that was the most active transaction year in our company’s history. While volume is notable, it’s never our measure of success. We remain focused on the quality of assets, the basis at which we acquire them, and most importantly, our ability to execute the business plan and deliver attractive risk-adjusted returns. As many of our friends, family, and peers spent the summer on lakes or golf courses, the Welltower team was out pounding the pavement. Engaging in the art of old-school deal picking.

Looking people in the eye, shaking hands, and operating with honor and integrity. Doing first-class business in a first-class way. Our $9.2 billion in year-to-date activity includes $3.7 billion in closed transactions through the first two quarters with the remaining $5.5 billion under contract and expected to close in the coming months. While we’ve already discussed the $3.2 billion Amica transaction, the remaining $2.3 billion spans 26 separate transactions, 90% of which privately negotiated, and are predominantly focused on our seniors and wellness housing solutions. This speaks to the depth of our sourcing network and the trust and relationships we’ve built across the industry that continues to unlock high-quality top-market opportunities.

During the second quarter, we closed on $1 billion of transactions on our balance sheet. Excluding the pro-rata portion of our investment in the Welltower U.S. Seniors Housing Fund, our on-balance sheet activity spans transactions covering over 2,500 units. Notably, 90% or $900 million of this activity was also sourced on an off-market basis. Underscoring our ability to uncover and execute on differentiated opportunities. With a blended occupancy of 76%, and a median asset age of just three years, this newer vintage portfolio is well-positioned to deliver strong, cash flow growth and compounding. As we execute our business plans alongside our best-in-class operating partners. This quarter’s investments also reflect an expansion of our relationships with several key partners including StoryPoint and Cohere among others.

While strong industry fundamentals can certainly make it more challenging, to uncover high-quality opportunities with tremendous upside, our investment activity this year demonstrates that there is no shortage of attractive opportunities if you’re willing to work hard and dig deeper. And that’s exactly what we’re built to do. The transactions that I described weren’t just negotiated in conference rooms around the globe, they were also forged in living rooms in Canada, at a pub on a street corner in Paris. On a rooftop terrace in London, and even at the bar at the city conference at the Disneyland Hotel in Hollywood, Florida. These moments and the people behind them are what makes this business fun. And they’re a big part of why we continue to find and create value where others might not be looking.

This is also what makes this work so rewarding. As I reflect on our activity this year, I genuinely cherish the many moments where we sat across from counterparties and shook hands on deals built on trust and mutual respect. In a fragmented industry, there are opportunities that span three countries and tens of millions of micro markets. With significant variation in operating outcomes across owners and operators, our team continues to identify opportunities to enhance the value of assets under our platform. This is made possible by our exceptional operating partners, and our ever-expanding operating moat. Powered by the Welltower Business System. I want to take a moment to express my deep gratitude to our team and our operating partners. The unity of purpose, clarity of vision, and mutual respect that define our culture are what make this platform so special.

We all take the responsibility of being fiduciaries seriously and it shows in the care, discipline, and passion with which our team approaches every opportunity. We often reflect internally on the quality of the opportunities we continue to unlock. And how years from now, we’ll look back on this period as one that meaningfully enhanced the strength of our business and the quality of our performance. The actions that we’re taking today are laying the foundation for long-term compounding of earnings and cash flow and we couldn’t be more excited about what lies ahead. With that, I’ll turn the call over to Tim McHugh to walk through our financial results and update you on the outlook.

Tim McHugh: Thank you, Nikhil. My comments today will focus on our second quarter 2025 results. Performance of our triple net investment segments, our capital activity, our balance sheet liquidity update, and finally, an update to our full-year 2025 outlook. Welltower Inc. reported second quarter net income attributable to common stockholders of $0.45 per diluted share and normalized funds from operations of $1.28 per diluted share. Representing 21.9% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 13.8%. Now turning to the performance of our triple net properties in the quarter. As a reminder, our triple net lease portfolio coverage stats are reported at quarter in arrears. These statistics reflect the trailing twelve months ending March 31, 2025.

Our senior housing triple net portfolio, same-store NOI increased 5.1% year over year, and trailing twelve-month EBITDAR coverage increased to 1.19 times. Next, same-store NOI on the long-term post-acute portfolio grew 2.7% year over year. And trailing twelve-month EBITDAR coverage is 1.9x. Moving on to capital activity, we continue to capitalize our investment activity with equity. Raising $2 billion of gross proceeds in the second quarter. In addition, we reentered the bond market for the first time in three years with our first issuance as an A-rated credit. Raising $1.25 billion in senior unsecured notes across two tranches for a blended coupon of 4.825%. This capital along with retained cash flow, allowed us to fund and end the quarter with $4.5 billion cash and restricted cash on the balance sheet.

While driving net debt adjusted EBITDA to 2.93 times. The lowest leverage level recorded in Welltower’s history. As a result of our current capital position and the improvement in outlook for year operating results announced last night, we expect run rate net debt to adjusted EBITDA to end the year at approximately 3.5 times. While having added $7.2 billion to our planned 2025 acquisition activity, since our initial balance sheet guidance was provided in February. Note that a substantial portion of our acquisitions under contract are expected to close in the fourth quarter. Including the previously announced $3.2 billion Amica transaction. Sticking with positive cash flow trends, we announced a 10.4% increase to our quarterly dividend last night.

The decision reflects the Board’s confidence in the durability of our cash flows and our continued growth trajectory. At the same time, we are continuing to improve our cash flow retention profile, giving us greater flexibility to reinvest in high return value accretive opportunities. Lastly, as I turn to our updated 2025 guidance, I want to remind you that we have not included any investment activity in our outlook beyond the $9.2 billion that has been closed or publicly announced to date. Last night, we updated our full-year 2025 outlook for net income attributable to common stockholders to $1.86 to $1.94 per diluted share. And normalized FFO of $5.06 to $5.14 per diluted share. Or $5.10 at the midpoint. Our normalized FFO guidance represents a $0.13 increase in the midpoint from our prior normalized FFO range.

This increase is composed of a $0.03 increase from higher NOI in our senior housing operating portfolio, a $0.07 increase from accretive capital allocation activity, and $0.03 from increased FX income taxes, offset slightly by higher G&A. Underlying FFO guidance is an estimate of total portfolio year-over-year same-store NOI growth of 11.25% to 13.25%. 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 growth of 18.5% to 21.5%. This is driven by the following midpoints of their respective ranges. Revenue growth of 9.2% driven by increased expectations for both full-year RevPOR and occupancy growth now at 5.1% and 360 basis points respectively.

In expense growth, of 5.25%. And with that, I’ll hand the call back over to Shankh Mitra.

Shankh Mitra: Thank you, Tim. Before we start the Q&A, I want to highlight two things that are top of my mind. One, talent management and incentive design. And two, a refined focus on the reimagination of our technology data, and innovation ecosystem. Over the past few months, and through our January 2 press release, annual shareholder letter, and our new website, I’ve written extensively about talent, culture, and incentive design. Now we are in the implementation and expansion phase of many of these ideas both internally at Welltower Inc. and externally with our operating partners. Importantly, we’re engaging with leaders across our key operating partners in Qi the same goals that I outlined previously for internal stakeholders.

Firstly, I’m focused on integrating these work streams guided by the same basic design tenant. As I described in my most annual letter, we believe that there are five pillars of well-designed incentive systems are the following. One, simple. Two, significant. Three, non-gameable either by payer or payee. Four, armed as a team, and five, duration matched. I envision a future where these five pillars shape the incentive structure for everyone. From executive leadership and regional management, to our Welltower Inc. and our operating partners, to critical caregivers and frontline service in our communities. We’re excited about a world where everyone is fully aligned and all in to create an ultimate win-win equation. While I continue to be told that vision is utopian and perhaps even foolish, I remain convinced that it is achievable.

If we make the resident and employee experience our highest priority. This is why I believe the most important pillar is matching duration. We anticipate providing you more in this area as we begin to roll out our sixth generation of aligned partnership agreement and incentive programs in coming quarters. Moving to the next topic. As we continue to ramp up our investments in one of our business systems, we realized that we need to rethink we need to think more boldly and more holistically about the technology ecosystem. Software and hardware both at site level and enterprise level are Welltower Inc., along with data architecture and innovation. All require the same level of focus leadership, and talent that we have invested in the past decade building our data science platform.

And the fastest way to move the dial is to narrow our focus. Over the past year, John Burkart, Tim McHugh, and Nikhil Chaudhri have been pushing me very hard to concentrate on the reimagination of our broader technology ecosystem as admittedly I have historically focused more on the data science side of the house. After having immersed myself in this area during the summer, I see enormous potential in the interconnection of many of the initiatives which are currently underway as well as identifying new opportunities to explore next. You can expect a handful of new leadership performance in these coming months, to drive maximum growth and maximum gain in this area all following the principle of bringing the hottest source to the coldest sink that I spoke about a couple of quarters ago.

To sum it up, while our recent performance has been somewhat satisfactory, we’re never satisfied. But our confidence continues to grow as demand supply backdrop for senior housing business continues to improve, the implementation of Welltower Business System bears fruit, and our capital deployment opportunity set remains robust. And as I have outlined just outlined, we remain focused on rethinking the critical areas of our business, including talent, incentive management, and the transformative potential of technology, information, data, and innovation. We remain intensely focused on pure execution in all facets of our business, and have never been more excited as we are today about our future prospects. While our momentum is strong, we’re still in the early stages of a long journey of delivering compounding partial cash flow growth for our existing owners.

Our North Star. Thank you for your support. Operator, please open the call for questions.

Q&A Session

Operator: Your first question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes: Hi, good morning. Thank you for the prepared remarks and commentary. I wanted to ask about future growth potential. At the start of 2022, you outlined an opportunity to deploy $30 billion of capital over the next ten years. You’ve done nearly that in just three years, and now achieved a market cap over $100 billion. So following the success, you know, what’s next for Welltower Inc. from a growth standpoint? Thanks.

Shankh Mitra: Thank you, Jonathan. Success is a relative term. While we’re certainly proud of what we have achieved, I wouldn’t call it a success. Welltower Inc. is a long organization. It is work in progress, and it is in startup mode. I am deeply worried about, frankly, paranoid about, any perceived notion of success because that creates complacency. I think it’s Rockefeller who said that if you go to sleep on a win, you will wake up with a loss. But then organization and is young, and is on the way up, possess the generative characteristic of a dynamic organization. It’s on the hunt. Playing to win. It’s lean, mean, forward-looking, unified in purpose, nimble, focused, responsive, open to risk, and most importantly, willing to look foolish.

When the organization perceives itself to be successful, degenerative characteristics emerge. We made it mentality brings huddling and storm sellers, playing not to lose, a fear of appearing to be foolish. Culture becomes pervasive while people look in the rearview mirror, become risk-averse, and bureaucracy sets in. And I think I talked a lot about this with you guys for a long period of time. Maybe with size and maturity, some changes are appropriate as we go from sprint to marathon. Nevertheless, the positive genetic field of a young organization is something an organization should never lose. You can define the JRD ceiling as a shared vibe of NCCN immunity doing whatever it takes stretching enriching, and making dreams come true. For us, we’re still in that sprint mode, Jonathan.

Still sprinting, still have an audacious dream of transforming this industry, Previous $30 billion or next $30 billion previous $100 billion or next touch, billion. It’s just a means to an end. It is easier for a team to do really hard things that matter than do easy things that do not matter. As I truly believe, that audacious dreams motivate people. As I’ve said this before, when this game for the love of the game, we’ll see what the market gives us, but I really appreciate the question. But success you know defines a destination. For us, this is a journey. We’ll see where we get to. But thanks for the question.

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

Nick Yulico: Thanks. Good morning. So just had a question in terms of senior housing operating portfolio, you now have I think, more than half the NOI is actually in the non-same store. Can you just talk a little bit about the performance of non-same store sort of in the last year versus some of the same store metrics and how we think about it going forward? Because clearly, it looks like there’s more some more occupancy growth potential in that portfolio, some more margin benefit. But in the last year, realizing that pool has changed a little bit in terms of some of the metrics you report. It feels like the occupancy growth and the margin expansion actually wasn’t as strong in some of the non-same store versus same-store assets? Thanks.

John Burkart: Yes. I’ll start with that, Nick. So when you look at the non-same store portfolio, it’s really important to think about what we’re buying and what Nikhil Chaudhri has highlighted on this call. So we continue to buy under-occupied under-optimized assets. We also continue to have development come online. Both those things come into that pool they come into that pool to quarter acquired. Or the quarter they come online. So that’s part of what, you know, continues to keep the margin and occupancy profile below what the same-store portfolio looks like. And that makes sense. We think through kind of what same-store is supposed to represent as being the more stabilized piece of it. That being said, on an aggregate basis, growth looks very similar to our same-store portfolio. There’s different pieces of that but overall, there’s been pretty similar bottom-line growth network.

Shankh Mitra: On the technique, when you say that it appears that it wasn’t as strong, you are comparing with last quarter’s number, and we don’t restate those numbers. So you have a lot of new assets coming including the elements, and you’re sort of comparing apples to oranges.

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

John Kilichowski: Good morning. Thank you. In your most recent annual letter and on your website, you spent a lot of time on this decade-long journey in harnessing technology and data, but mostly in the context of your data science platform to inform capital allocation decisions and micro market selections. But based on your comments this morning, it sounds like your views are evolving with an opportunity to apply the operating technology to improve the customer experience. Could you elaborate on this? And strategically, what you’re trying to accomplish?

Shankh Mitra: Yeah. So I think I think John look. If you just gotta take a step back and think about different industries. You think about sort of real economic industries, say industrial, company. Say real estate companies, say people like us, right? Retail. You know, these companies have real customers who have real touchpoints in the physical world. What we tend to see is they have their sandwich and the tech. That’s what you see. You look at the client companies, the tech bridge and the tempo. What we have been trying to do is to have a company that we have, by definition, is extraordinarily Cambridge, and the tech, as I just pointed out, on the data science side. John Burkart has been focused last four years on the operational technology side.

And we are sort of now putting even more focus on thinking how do we expand that and from, you know, sort of enterprise technology to site level technology and that integration of everything in between, as the technology ecosystem evolves. So as I mentioned, you know, there’s gonna be more to talk about this in the next six to nine months. More to be seen, but I appreciate the post. But there’s a lot going on in our organization. And I’ll tell you after Tim McHugh has pushed me very, very hard over the last eighteen months, I’m finally focused on it. You’re gonna see some significant changes in this area.

Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

Ronald Kamdem: Hey. Just quick ones. Last quarter, we talked about sort of the gradient of the portfolio. 90 plus versus sort of 80 and below. I’d just love to get an update on how those are performing and reacceleration here, which you got a little bit this quarter, but reacceleration going forward as occupancy builds. Thanks.

Shankh Mitra: Yeah. What really hasn’t changed if we sort of think about you know, sort of same. But on the other hand, if you look at above 90 to, say, 90 to 95, you’ll roughly you know, five seven. Above 95, six seven. So call it above 90, above six. That’s sort of the gradient. Know, sort of, you know, call it you have below 80% occupancy. You don’t have pricing power. You have 90 plus percent occupancy. You have significant pricing power. And it sort of scales in between. Right? Which makes sense. It’s just basic demand supply. And that’s where the excitement is as, you know, it’s just not us who is getting more and more towards, you know, 90 plus percent occupancy. So also the overall industry is getting there. I think you will see you know, at some point, hopefully, and I think I I’m on the record saying it should happen after someone leasing 15 of next year.

We’ll see whether that happens whether that happens. But sometimes the next eighteen, twenty-four months, we should see pricing power probably gets better. But we shall see what the market gives us.

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

Omotayo Okusanya: Yes. Good morning. Shankh, first of all, congrats on another solid quarter. In your opening comments, you talked quite a bit about just aligning incentives. And you know, you mentioned it quite a few times. I guess, I’m just curious. Again, when we kinda take a look at your company in particular, I think since your team has been in place, you guys have increased insider ownership. I can’t recall any stock sales in recent times. Just kinda curious as you kinda think about the overall philosophy around you know, incentives, just you know, you you already kinda think you’re moving in the right direction. What’s the additional kind of in you know, step you’re trying to take in that regard, and what do you ultimately hope to achieve from that in regards to in regards to, you know, increasing additional whether it’s inside the ownership or then more people across the company being, you know, tied into the stock.

Shankh Mitra: Yep. It’s a very important observation, Omotayo. Actually, our management team, we have never sold one stock in this company. Neither I have nor my partners in Welltower Inc. And, you know, it’s hard for me to comment on people’s personal financial situation. I understand. Sometimes you buy a house, you do this, you’re in a wedding or whatever. These things come up in life events. But we I you know, I’ve I’ve never told explicitly to my partner if they can. But they haven’t. Because, you know, at the end of the day, you know, I have trouble with companies that sort of tells you that best thing for unsliced bread. I’m just kinda it just seems at least, it doesn’t particularly work well with how I think about the world.

As I’ve written in our foundational document, many years ago, whether whether look. We all pretty much all my partners, my entire team comes from little or no strong financial backgrounds. They’re all self with people. So the issue is not the amount. The issue is how much of your personal network is on the line. Right? That’s what we have promised that you know, our shareholders tend to benefit from diversification but we don’t because I don’t believe in that that should be the case. And that’s the way you take away sort of the agency problem. This is a very important problem important thing to think about as we are thinking about how we do how do we design incentives think about what we’re trying to do. We’re trying to be all in. I just described how we align that.

You think about you know, sort of what what do we expect from our operating partners. They are not diversifying. There, we know, I have a tremendous amount of for privately owned enterprises in this country. And many of those, they think about what my operating partners do. They own their companies. Right? We expect them to continue to own their company. Right? Through these tough times, you think about I was yesterday with one of my strongest operating partners, StoryPoint, in Toledo, where we are now. And, you know, we’re talking with Dan and his team and talking about how difficult last five years have been. You know, you know, all the investment they have done in that company, you know where that money came from? Their own pockets. It didn’t come from someone else.

Right? If that’s how they are expected to believe, you know, I can I I was thinking about that comment? Was thinking about five years ago, I sat down with Oakmont and StoryPoint it caught the with Courtney, and we’re thinking over what we want to do. The next five years. You know? Where the all this investment in Oakmont came from. It came from Coker’s pocket. Right? So why would it be okay for me to expect her to be all in, but not for us to be all in? Right? So that’s sort of the whole point is what we are trying to do, an incentive perspective are from everybody from executives at Welltower Inc. to the executives at our operating partner to all the way to the people who work in the communities they’re defined by the same structure, they’re defined by the same shared success, and I think that’s possible.

It’s complicated, but it’s possible if we prioritize resident experience and employee experience as a top priority. And if we can do that, think we’ll take this industry a level that has never been seen before. But it remains to be seen.

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

Juan Sanabria: Hi, good morning. Thanks for the time. Just hoping, Shankh Mitra, you could or Nikhil Chaudhri talk a little bit about the competitive dynamics for investments a lot of what you’re buying seems to be newer product, under lease. Just curious on the runway for that type of product. Is the industry kind of approaches pre-COVID levels or 90% next year or shortly thereafter. And just the financing environment more broadly just for seniors housing. If you could.

Nikhil Chaudhri: Yeah. I think, Juan, really comes down to you know, whether it’s occupancy or it’s other aspects of the business. Plan. You know, is there an opportunity to find transactions, find assets where we can improve the cash flow profile. Right? I think there is no shortage of opportunity there given, you know, everything that John Burkart and team are working on to optimize the capital. So whether it’s occupancy optimization or rate optimization, or other aspects of the business plan, that is given how fragmented the industry is, given how varying the outcomes are under different, you know, operators and then owners, we don’t think, really, there’s any limits to finding opportunities to enhance the cash flow profile of assets.

And so, you know, as seen by our activity, that we continue to find this kind of opportunity. We have to work harder. We have to, you know, look in places because of the they haven’t looked at it in the past. But there’s a shortage of opportunities.

Shankh Mitra: And I’ll just add one, you know, obviously, posted is a very important one. Look. At the end of the day, investing capital and making money is not the same thing. We’re focused on, obviously, finding opportunities where we can make a strong risk-adjusted return for our partners. Making money is hard. Right? And let me tell you what is harder. Making money at scale is much harder. And we believe that that is making money at scale. It’s not just a function of your capital allocation acumen, which is important. Right? It’s a necessary but not a sufficient condition. What’s necessary on top of that? What is an asset worth in your own hands? Right? So all these investments that for the last decade we have made from our data science platform to Welltower Business System. Is all designed to do just that. You know, so far, it seems like we have no sort of opportunities. We’ll see what market gives us.

Operator: Your next question comes from the line of Nick Joseph with Citigroup. Please go ahead.

Nick Joseph: Thanks. You talked about the run rate of 3.5 times leverage and kind of the debt offering this year. Reentering the debt markets and obviously the equity. So how do you think about the optimal capital stack going forward, particularly given the amount of and investment opportunity that you’re seeing today?

Shankh Mitra: We believe a company that, you know, you do handshake business and never walk away from a handshake. Needs to operate with a strong balance sheet. Right? That’s the business model. It’s not the balance sheet strategy is different from you know, on one side of the balance sheet, which is the liability side of the balance sheet that you’re talking about. And it’s different from the left-handed side of the balance sheet. This is our business model, so you should expect us to continue to have very strong liquidity, very strong balance sheet all the time. And that’s and so that no counterparty ever questions if we make a promise whether we’ll come through. Right? That’s just sort of business model. Having said that, look, how we fund an investment or a series of investments.

It’s just a function of where we think the best risk-adjusted sort of capital is as a source. That could be debt. Right? Obviously, we think you know, as we think about regarding more and more conviction on what the growth prospects of our company is, the downside of that, that our internal view of our equity cost of capital produces to go higher. Right? So their cost of capital is pretty obvious. You know it’s fixed for next you know, seven years, ten years, twelve years, whatever tenor of this that you are raising. So we you saw that we back to that we got back to the debt market and Tim McHugh and his capital markets team did a terrific execution. So it remains all open. Right? It’s debt, it’s equity, it’s asset sales, and most importantly, most importantly, is massive return free cash flow.

Right? So that’s sort of all four we’re thinking about and depending on, you know, what the combination of capital we you know, assets we see and how our capital we need. You will see us execute different tab, different points of the market different points in time.

Carol Granath: Hi, good morning. This is Carol Granath. A lot of the focus that you have on expense and individual line items. And I’m kind of curious you’re looking further out, how far can margins go?

John Burkart: We’ve said numerous times that there’s not an exact number going to give up. But at the same time, Shankh Mitra has said clearly, and I said to Shankh, I will not be here unless we expand margins pretty significantly. Opportunity is substantial. Again, realize that we’re talking about a business that has been created by numerous different operators and they’re very small as a general rule. They haven’t had the resources to invest in all the various areas that a company like ours can invest in. So as we step into it and partner with our operators, we find all kinds of opportunities. I just pointed out that one item on the utility of this. Every line item of the GL has opportunities across the board we’re just methodically going after them.

So where exactly it ends up, I can’t tell you. I can tell you in multifamily, margins expanded dramatically when that business was professionalized. You can look that up and look at other businesses for comparison’s sake.

Shankh Mitra: Carol, just add one thing from your question. It appears, maybe you didn’t mean it this way, that you think margin expansion is a function of expense management. I would say the bigger impact will come from the revenue side. Obviously, expenses matter. And we’re intensely focused on every single line item. I think we have 14. Who are focused on, you know, or shared between John’s teams, Nikhil’s teams, and Tim’s team. About 50 people are focused on this every single line item or have to think about how to optimize cost. But and we really remove excess that you might see. And I can give you million examples right sitting right here. And I don’t wanna bore you that with that, but just understand that margin expansion, whatever it might be, we’re clearly optimistic about where it can get to. Will be a function of I will not be surprised. Significant more contribution comes from revenue than expenses, particularly comfortable.

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

Mike Mueller: I guess, generally speaking, does the pace of occupancy gains increase or decrease materially once a property crosses 90%? I guess, on the way to what you see as full in the mid-nineties?

Shankh Mitra: Yeah. So it depends, Mike. I think I have said this before. I think John Burkart has said this before. It’s harder to get it get an asset to 95% than staying at 95%. Right? So you just sort of think about it. The occupancy growth again, depends on the area, depends on how what units you have. And not have in others. But just remember, you have if have the same amount of demand in a rising demand environment, lower inventory will be easier to lease. But it’s it’s not that obvious in that sense that if you have, say, billing, or all else, hard to generalize. But generally speaking, in a rising demand environment, less you know, inventory will give you an easier pace of lease-up. But on the other hand, you sort of have to think about what product do you have versus what the demand of that.

So it’s kinda hard to generalize that statement in that way. Do you guys want to add anything to that? That I think that’s spot on. But I you know, again, I stay focused on the total revenue. You know? And so whether it’s occupancy increases or or or increases in market rent, they’re all available.

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

Austin Wurschmidt: Hey. Good morning. For many years now, senior housing development’s been, very difficult to pencil, continues to be the case. At some point that dynamic will likely change. And just curious what you think what part are you doing strategically to develop the moat you talk a lot about should help Welltower Inc. withstand any future pickup and construction activity.

Shankh Mitra: No. The fact of the matter is we want to be in areas with a highly affluent more difficult to build, and takes a long time to build. Right? That’s the environment that where we want to be. Your question of theoretical return of construction, as I I’ve talked about this several times on calls. I don’t want to go and repeat all the comments I made. You can go back and see it. I think there is a future construction will come if the economics is there. Right? Just sort of think about that. And I think my team has described in several ways how to think about that. From the standpoint of replacement cost and point of rent and everything else. I’m just not gonna go into that. But, you know, but your the part of that statement, I just want to sort of reorient you.

In the last decade, where you saw a supply situation, we talked about supply purely because demand was flat. Right? So the conversation was purely about supply. I would like you to think about economic way, which is excess supply. And think about what the demand growth is versus what the supply growth can be, could be, and, obviously, all of these happens if the economic system doesn’t exist. But anyway, reorient your thinking. Just don’t think in terms of what happened in the last decade. When demand is flat, it was last decade, you know, so that the decade of the silent generation, if you will, you only had to think about supply. Next decade, when you think about supply, you gotta think about excess supply as demand is rapidly rising.

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

Georgie Dinkov: Hi. This is Georgie on for Vikram Malhotra. Just on the occupancy cadence through the year, you increased the year-over-year guide by 10 basis points. Are you still baking in normal seasonality in the fourth quarter?

John Burkart: So we continue to see seasonality in the business. I think that’s been one of the things that we’ve certainly talked to investors about is that they view that there’s no seasonality left of business. There’s still seasonality to volume of movements and also seasonality to the move-outs. The absolute level has almost lifted. And so in the shoulders, you’re seeing occupancy still gain or hold. And in the move-in seasons, you’re seeing a greater amount of gains than you’ve seen historically. So as we’ve seen the last few years, you’ll we still continue to think that we’ll be you know, slowdown in move-ins. From seasonal trends towards the end of the year. That’s reflected in the ads.

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

Wes Golladay: Hey, good morning, everyone. Can you give us an update on the private fund business? It looks like you have about $280 million invested to date. Have you deployed the capital, and do you have any debt at the fund level?

Shankh Mitra: Well, as we have talked about, that we’ll give you an update after the fund is closed. We just said that will happen by the end of the year. And then we’ll give you the update on that. We can talk about the fund as it is in progress and fundraising more. Correct me. I just generally speaking, everything was on track. We’re before capital, we’re in capital.

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

Mike Carroll: Yes, thanks. John Burkart, I want to circle back on your comments about the WBS or Welltower Business System platform. And how should we think that this platform will drive margin expansion? I mean, are the benefits more unique to each individual community as Welltower Inc. needs to collect the data and figure out the best way to create value at that specific community. So is it difficult to kind of put it all in in one bucket and say you can drive margin expansion this way just because it’s so unique depending on what operator you’re working with?

John Burkart: Yeah. No. There’s a good question. There’s there’s a really more commonality, across the properties and the system you’re right on the date of the more data we get, the more effective we are, and the more we get into the processes the more effective we can make them. So it does rapidly build on itself. But there’s a lot of consistency across the board as we’re looking at how we’re executing. So the challenges come in in the sense of we’re working with a lot of people. As I said, over 8,000 people we brought on to the platform, which is truly stunning.

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

Emily Meckler: Good morning. Thanks for the time. Are you starting to see a slowdown in leasing and your wellness housing portfolio given the softening of the housing market?

Shankh Mitra: Emily, I say we’re seeing a slowdown because the growth sort of still has continued 10 plus percent. But I will say that you look at some of the sequential occupancy growth, it was tracked down by some well, it’s something sequential. I’m purely talking about in the quarter. That was because last year, we had a bunch of we had a lot of new openings. From the prior year which hit the quarter, you know, sort of hit the same store, but this year, we didn’t. But frankly speaking, that business continues to amaze me low double-digit, 10, 12%, years in, years out. Frankly, it just really has been pretty resilient, consistent. But we haven’t really seen a change in any form or fashion. But our reported metrics do have some slowdown just because of how the openings some new openings of the communities came into last year.

This year, if we look at sequential occupancy growth for the traditional senior housing, because this has actually been better than last year. Our overall metric looks similar in slightly lower just because of the point you made. But that was a function of new openings. Not a sort of new business.

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

James Kammert: I was thinking about the persistent supply-demand imbalance in the seniors arena. Does that translate to a financially meaningful opportunity set for Welltower Inc. sort of the redevelopment front? Your data says this is in any location from demographics and other attributes, but inventories are kind of c assets. That math work, and is that a meaningful market opportunity? Thank you.

John Burkart: Yeah. No. That’s a great question, and there’s no doubt. Strategically, we’ve seen, an opportunity in our portfolio I’ve talked about it previously. Our assets are you know, roughly seventeen years old, which is really the sweet spot. Infrastructure is in good shape, and we can, improve the value proposition for the customer and get a wonderful win-win situation, wonderful return. What we’re doing is providing you know, like new experiences at a time when there really are very limited, if any, new products that’s, online or coming online. So yes, it is a tremendous opportunity. Those teams lean into.

Shankh Mitra: I will just catch the last portion of your question, which is you know, can you can you make a c product? You know, if the product market fit is not right, if the bones of an asset is not good, there’s nothing you can change to. Right? So we’re sort of focused on you know, sort of the value add opportunities, you don’t have to go for, you know, sort of in the front end. But maybe it is possible. Maybe some people will do it at some places that frankly speaking, I do not believe that you can turn a C asset into an A.

John Burkart: Yeah. Thank you, Shankh. I missed that comment because I agree a 100%. This is about well-located quality assets and just improving the value proposition.

Operator: There are no further questions at this time. Therefore, this concludes today’s call. Thank you all for joining. You may now disconnect.