Welltower Inc. (WELL) Q1 2026 Earnings Call Transcript

Thank you for standing by. At this time, I would like to welcome everyone to the WellTower First Quarter 2026 Earnings Conference Call and Webcast. 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 during this time, simply press star followed by the number 1 on your telephone keypad. In order to ensure full participation, we ask that you limit your questions to one and re-queue with any follow-ups. I would now like to turn the conference over to Matt McQueen, Chief Legal Officer and General Counsel. The floor is yours.

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 that 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 Sean for his remarks.

Thank you, Matt, and good morning, everyone. As usual, I'll review business trends and our capital allocation priorities, and the team will follow the usual cadence. We started the year on a strong note with the business continuing to fire on all cylinders. While the heightened geopolitical tension and macroeconomic volatility dominated the headlines, our niche, need-based, and private-pay rental housing business did not miss a beat. Driven by a combination of strong organic growth and acquisition activity, our total revenue for the quarter increased 38% year-over-year, while adjusted EBITDA was up 36%. Most importantly, we delivered another quarter of strong bottom-line part-share growth, with FFO part-share increasing 23%, while we continue to deleverage our balance sheet and invest in people and systems. our balance sheet provides us with substantial firepower and flexibility these results exceed our already high expectation coming into the year enabling us to raise the midpoint of our full year ffo per share guidance by 11 cents to 6.28 cents the pronounced makeshift of our portfolio resulting from a transformative 2025 capital allocation activity has already began to manifest itself. During the first quarter of this year, we reported 16.4% total portfolio, same-store net operating income growth, by far the highest in our history. This is largely a function of combined strength from a senior housing operating portfolio, which now comprises 74% of our same-store ROI, up from 57% first quarter of last year. This is the first time in history that annualized in-place NOI from a shop portfolio exceeded $3 billion. During the first quarter, U.S. outperformed from an occupancy perspective with nearly 400 basis points of year-over-year growth. On the other hand, Canada, with higher overall occupancy levels than U.S. and U.K., posted growth closer to 300 basis points but generated report growth of 6%, giving you some perspective of the art of the possible as our overall portfolio leases up. Ultimately, all three regions made strong contributions and we achieved nearly 10% organic revenue growth in the quarter. And the subdued expense growth driven by scaling and the welfare business system, same store NOI growth increased 22%, marking 14th consecutive quarter in which shop growth exceeded 20%. Drilling a bit farther, the growth of rapport, the unit revenue, continued to exceed export or unit expenses by a wide margin, resulting in another quarter of significant operating margin expansion of 320 basis points. Perhaps the most remarkable start of the quarter was the circa 20% NOI growth generated by the communities with 95% plus occupancy. While I consider our recent senior housing results to be somewhat satisfactory, I'm convinced that the best years of this business are squarely in front of us. With the total senior housing portfolio occupancy at 87%, there is significant capacity in the system for us to drive multiple years of outsized occupancy gains along with continued pricing opportunity. And with the operating leverage inherent in our high fixed cost business, margins should continue to drift higher. But as we have talked about during our most recent calls, what we remain most excited about and our most meaningful full opportunity to drive bottom line growth is through the expanded role that technology data and innovation will play in our business with the ultimate goal of improving the experience of our customers and site level employees. This structural change driven by the welter business system should continue to impact virtually every revenue and expense line item driving the margins even higher this digital transformation which we are striving for coupled with in place above market compensation and benefits for our site level employees should result in lower turnover and lead happier customers as i mentioned last quarter monger grant is a clear example of how we are putting these ideas into action as i've written extensively in my annual letter which came out a weeks ago we have built a system of scaled economy shared amongst all participants in the ecosystem while shareholders will certainly benefit as we extend the duration of our growth we want our operating partners site level employees residents and their families to benefit meaningfully as well this is the only way to build and sustain a network effect in a complex adaptive system like ours turning to investment activity almost exactly a year after liberation day the conflict in middle east has led to another period of significant capital markets volatility creating a dynamic similar to that of last year recently a spike in interest rates and gapping out of spreads has resulted in retrading of deals and various parties walking away from their new found love of senior housing it is almost comical to see how predictable tourist capital's behavior can be many of our counterparties have seen this movie before and opted to bypass the theater and instead result transacting with us directly in privately negotiated deals however some of the first time sellers have learned the hard way that five to six months timeline required to reach a signed definitive agreement in real estate is an eternity in today's world. We behave exactly how we always have, running a first-class business in a first-class way and never walking from a handshake. Over the last 60 days, we have been busier than ever, generating an incredible amount of activity, which Nikhil will describe to you shortly. But to provide some additional context, we completed $3.2 billion of investments during the quarter and have closed or under contract to close an additional $7.3 billion of investments. Our investment pipeline remained robust, visible, and actionable in all three of our regions. In addition, often overlooked is our disposition activity, which totaled nearly $3 billion in the quarter as we continue to rotate capital into opportunities which we believe will both amplify and extend the revenue growth curve farther into the future overall we have completed 11 billion dollar dispositions since the beginning of 2000 2025 which has meaningfully diluted which has been meaningfully diluted to our 2026 earnings per share however calling our portfolio of lower growth assets we have meaningfully extended our growth curve in outer years for example the assets we acquired in fourth quarter of last year are expected to deliver 10x level of growth in 2026 than the assets we have sold not selling these unprecedented volume of assets would have been easier and frankly more fun as 2026 ffo per share would have been meaningfully higher but we always have and always will choose hard over easy and long term over short term we have a long and hard year of execution in front of us but our team has never been more fired up as it is today we shall see what the market gives us in this summer leasing season with that i'll pass it over to john thank you and good morning

everyone as shank mentioned we are pleased with our start to the year having delivered the portfolio same store noi growth of 16.4 percent the highest level in our company's recorded history once again our results were driven by our seniors housing operating portfolio which delivered a 14th consecutive quarter in which the same store noi growth exceeded 20 percent during the first quarter, show portfolio year-over-year same-store revenue increased 9.5%, driven by 370 basis points of occupancy gains and strong pricing power, with Rev4 growth of 5%. Revenue growth was consistent across all three regions, led by the UK at 9.7%, followed by the US at 9.5%, and Canada at 9.2%. However, peeling back the onion, both the U.S. and U.K. reported occupancy growth of nearly 400 basis points and REVPOR growth just shy of 5%. On the other hand, as Schoenck indicated, Canada reported occupancy growth of roughly 300 basis points, but REVPOR growth of nearly 6%. Ultimately, our goal is to provide a top quality customer experience and to be fairly paid for it, and that's showing up through a combination of occupancy and rate growth. Moving to expenses, we remain encouraged by the trends we are observing across most line items, but particularly with respect to labor, which is almost 60% of show expenses. This is best reflected by compor, or compensation per occupied room, which increased 20 basis points year over year, near the lowest level of growth in recorded history. As a result, expense per occupied room or export was up just 40 basis points. This is largely a function of scaled economics in the business, whereby a growing number of communities are now either fully staffed or approaching those levels. As occupancy continues to grow, the need to add additional staff has moderated, leading to meaningfully higher flow-through or incremental margins. In fact, during the quarter, we achieved a flow-through margin of 64%, while our same-store NOI margin increased 320 basis points to 30.9%. As for the future, we believe that significant upside exists. The combination of our same-store communities at 95% occupancy, posting NOI growth of roughly 20%, and approximately 45% of our same-store shop assets operating below 90% occupancy, with the opportunity for materially increased revenue and NOI via occupancy gain, creating potential for years of compounding per-share growth ahead. While we take nothing for granted due to the operational intensity and persistent challenges which exist in the business, we are confident that through the efforts of our best-in-class operators and continued rollout of the WellTower business system across the portfolio, we will continue to drive outside levels of growth well into the future. It's still early in the year with the peak leasing season ahead, and we will see what the market gives us. but our goal remains consistent, partnering with our operators to deliver an exceptional resident employee experience. Our well tower operations and asset management teams, including the tech quad, continue to make leaps, non-incremental steps on this front and remain committed to maintaining this momentum through a relentless focus on operational excellence. With that, I'll turn it over to Nikhil.

Thanks, John, and good morning, everyone. Since our last call, the macroeconomic and geopolitical backdrop has once again introduced meaningful volatility into the capital markets. Escalating conflict in the Middle East, combined with renewed stress in private credit, has driven a more pronounced risk-off tone, evidenced by higher Treasury yields, elevated volatility across risk assets, and growing signs of strain within private lending markets. Credit spreads have widened in recent weeks. Redemption activity in certain semi-liquid vehicles has increased, and defaults have continued to trend higher. As Shank said, we have seen this movie before. In periods like this, when capital becomes less reliable and execution risk rises, our position strengthens. Our reputation as the highest quality counterparty, backed by our incredible balance sheet, becomes increasingly differentiated. Sellers place the premium on certainty of close. Lenders become more selective. And when that happens, the opportunity set expands. That is exactly what we are seeing today. As a result, we have seen a meaningful increase in our investment activity. Our investment volume for the year now stands at $10.5 billion, an increase of $4.8 billion since our last call in February. During the first quarter, we closed 41 transactions, totaling $3.2 billion. Of these, 37 were sourced off-market, continuing to reflect the strength of our relationships and our origination platform. The majority of our acquisitions activity was highly granular, single-asset transactions, where our teams operated as local sharpshooters, supported by insights from our data science and machine learning platform, WealthTower.ai. These transactions added 37 communities and over 4,200 units to our seniors' housing portfolio. On the disposition side, during the quarter, we completed the remaining $520 million of the previously announced $1.3 billion of dispositions in our Integra JV, as well as an additional $1.3 billion of OM sales to Kane Anderson. With $6.7 billion of sales now complete, we expect the remaining approximately $500 million to be completed during the second quarter. Turning to new activity, we have already closed on additional $4.2 billion of transactions in the second quarter, comprised primarily of our previously announced acquisition of amica senior lifestyle in premium markets across the gta and vancouver the incremental 3.1 billion of activity is comprised primarily of newer vintage seniors housing assets with roughly 95 source off market across a number of transactions i'm also pleased to provide an update on our u.s seniors housing equity fund as i mentioned on our last call we held our final LP close in the fourth quarter of 2025. Since then, consistent with the acceleration and activity in our balance sheet, the entire $2.5 billion of fund capital is now fully committed. While we were significantly oversubscribed, we made a deliberate decision to limit the size of the fund. Our focus was simple, raise the right amount of capital, not the maximum amount of capital. We also structured and are scheduled to deploy the fund in a way that avoids many of the common friction points for LPs. With one and a half years still left in the investment period, capital is being put to work quickly in high conviction opportunity, minimizing the typical J-curve of returns. In addition, we have avoided the use of subscription lines to manufacture IRRs, remaining focused instead on driving real equity value creation over time. I'll leave you with a few thoughts. What we're seeing in the market right now is not new, but it is meaningful. Periods of volatility separate long-term capital from short-term tourists. In these moments, speed, conviction in underwriting, and consistent execution aren't just advantages. They're differentiators. That's where we have focused our time. Our platform is built to identify opportunities at a very granular level, move with speed, and engage directly with counterparties. We are disciplined in how we deploy capital, valuing assets based on in-place performance, while keeping the value-add from WBS for our shareholders. We remain price-disciplined, with unlevered IRRs and discounts to replacement costs being our guiding principles. and with terms like accretion notably absent from our investment committee conversations. Our focus on win-win outcomes and dogged pursuit of the truth rather than woven narratives continues to drive our ability to source opportunities off market and deploy capital thoughtfully, even in more uncertain environments. With that, I'll turn the call over to Tim to walk through our financial results.

Thank you, Nikhil. My comments today will focus on our first quarter 2026 results 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 well tower reported first quarter net income attributable to common stockholders one dollar and two cents per diluted share and normalized funds from operations of one dollar 47 cents per limited share representing 22.5 percent year-over-year growth we also reported year-over-year total portfolio same store noi growth of 16.4 percent driven by 22.1 percent growth in our shop portfolio which now makes up 74 percent of our same store noi now turning to the performance of our triple net properties in the quarter In our seniors housing triple net portfolio, same-store NOI increased 3.9% year-over-year and trailing 12-month EBITDA coverage is 1.23 times. Next, same-store NOI in our long-term post-acute portfolio grew 2.6% year-over-year and trailing 12-month EBITDA coverage is 1.32 times. Moving on to capital activity, in the first quarter, we raised $4.4 billion in gross proceeds through dispositions and equity issuance. allowing us to fund $3.3 billion of investment activity and end the quarter with a net debt to adjusted EBITDA ratio of 2.73 times, more than half a turn reduction from just a year ago. Subsequent to quarter end, we used free cash flow to pay off $700 million unsecured bond maturity in April, highlighting the strength of our balance sheet and the cash flow generating capacity of the portfolio. We ended the first quarter with $4.9 billion of cash on hand, which together with approximately 1.4 billion of incremental disposition activity along with assumed debt and funding of transaction activity with op units positions us to fund roughly 7.3 billion of investment activity through the remainder of the year the meaningful portion again expected to be sourced through capital recycling taken together this net investment activity and continued cash flow growth from the in-place portfolio are expected result year-end net debt to adjusted EBITDA of approximately three times, modestly below our prior expectations. Before turning to our guidance, I want to come back to a point I highlighted last quarter around how our portfolio transformation and what we described as Wealth Tower 3.0 is reshaping our growth profile. What we're seeing play out in the first quarter is a clear validation of the mixed shift we spoke to, with Q1 marking the highest level of total portfolio same-store NOI growth we've delivered in company history. Importantly, that growth is anchored by the strength of our in-place portfolio. Our initial guidance last quarter already reflected a high level of year-over-year visible earnings growth, and our updated outlook this quarter demonstrates the continued momentum we're seeing on the ground. As we continue to increase our concentration in senior housing operating, we believe the Well Tower 3.0 portfolio is positioned to deliver a meaningfully higher rate of sustainable compounding than its predecessor. Moving on to guidance. Last night, we updated our full year 2026 outlook for net income attributable to common stockholders of $3.24 to $3.38 per diluted share and normalized FFO of $6.21 to $6.35 per diluted share or $6.28 the midpoint. Our normalized FFO guidance represents an 11 cent increase at the midpoint from our prior normalized FFO range. This increase is composed of a $0.03% increase from senior housing operating NOI, a $0.07% increase from investment and financing activity, and a $0.01% increase from better-than-expected income tax and other, with some offset from higher G&A expectations. Underlying this FFO guidance is an estimated total portfolio year-over-year same-store NOI growth of 12.25% 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% to 4%, and finally, senior housing operating growth of 16.5% to 21.5%. This is driven by the following midpoints of their respective ranges. Revenue growth of 9.2%, made up of report growth of 5%, and year-over-year occupancy growth of 350 basis points, and expense growth of 5.3%, equating export growth of just below 1.3%. And with that, I will hand the call back over to Shank.

Thank you, Tim. I would like to make three points before opening up the call. First, I want to take a moment to acknowledge the passing of David Simon, a true legendary figure, not just in real estate space, but all of corporate America. David was a visionary in every sense of the term, growing a small portfolio of regional bonds into one of the most well-respected companies in the world. He was a legend, a true pioneer, recognizing the enduring value of highest quality real estate, where shoppers and retailers could come together in vibrant environments. And the Simon ecosystem thrived under his leadership. Just think of the long-term success of so many of America's great retailers, which would not have been possible without the setting that David created for them to grow and thrive. Of many of his qualities, one I personally appreciated the most is that he was unapologetically himself. He spoke his mind with clarity and conviction and remained relentlessly focused on creating long-term value for his investors. The stellar returns Simon delivered for his shareholders under David's leadership was no accident. He navigated the company through multiple recessions and structural changes in the industry via thoughtful counter-cyclical capital allocation, a focus on operational excellence, and maintaining utmost balance sheet discipline. He was unquestionably a stalwart and a true visionary, but also a friend, a mentor, and a fellow board member at Columbia. He was the one who encouraged me to take the leap from buy side to the corporate side, and advice which I will forever be grateful for. He leaves behind a legacy that extends far beyond the real estate sector, setting a standard for what great leadership looks like, our deepest condolences to Simon family and those who are close to David. Second, roughly a year ago, we launched our private funds management business, establishing a capital light revenue stream and another avenue to drive partial growth for existing investors. During the first quarter of this year, we identified another additional revenue through which to expand our capital light business by unlocking from an existing balance sheet asset the monetization of our data science platform as many of you know since 2016 through the efforts of multi-disciplinary team of phd computer scientists engineers statisticians and mathematicians we have pioneered the application of data science and machine learning in real estate investing this was instrumental in driving over 80 billion dollars of acquisition and disposition activity over the last 10 years. Given the modular and portable nature of the platform, we launched our first external partnership during the first quarter, licensing bespoke, supervised, and unsupervised models to public storage and a leading global private equity firm. These models enabling the real-world application of AI by accelerating capital allocation decisions from five to nine months to mere weeks and significantly increasing velocity to market. Ultimately, our mission is to scale real estate investing, which is historically an unscalable business. More to come on this front in months and quarters ahead, but we have been incredibly busy since the announcement in March, as many highly respected real estate, non-real estate, and sovereign wealth funds have reached out to us to explore similar partnerships. Lastly, as I described in my annual letter, we have recently witnessed a surge of talent density that we have been attracting to the company, particularly with respect to TechQuad. Following our ethos that A hire A people, we have been successfully attracting the highest caliber technology and data science professionals to execute our vision. Aiding our effort is what is called SaaSpocalypse, or rapidly spreading narrative around who is the next on the disruptive path of AI, which is releasing an extraordinary pool of talent into the market. This talent pool is increasingly focused on identifying businesses that cannot be replaced by AI, including sectors classified as halo or hard asset low obsolescence, such as housing for a rapidly aging population. We're thrilled with the progress made by TechQuad in reimagining our technology ecosystem to improve the resident and site-level employee experience. Our newest addition to our team will only accelerate these efforts. Nonetheless, our biggest opportunity to drive far-share growth is through unlocking greater value for existing assets, with the most immediate and impactful way of being the implementation of WellTower business system, our end-to-end operating platform across our senior housing portfolio. In a maximum growth, maximum gain wall, the fastest way to move the dial is to narrow the focus. Our relentless and maniacal focus on the digital transformation of the business and dramatically improving customer and site-level employee satisfaction will be the force multiplier on the attractive beta of our business. And with that, I'll open the call up for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, then the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from Ronald Camden with Morgan Stanley. your line is open.

Great. Hey, I just wanted to double click on one of the comments you made on the 95% occupied portfolio and growing 20%. Wondering if we could sort of double click and get some more color around whether ref4, export, margins, mix, anything that could be interesting. Thanks.

Thanks, Ron. First, I clearly don't want you to run with that idea that that's what we're suggesting will forever happen. But that is definitely something that I found in our data to be most surprising. A very significant part of our portfolio today is 95% plus occupied, give or take 50%. And that portfolio grew circa 20% on net operating income, as I said. And for clearly, for a couple of reasons, obviously, you got pricing power increases as capacity comes down in the system. That happened, that part of the portfolio had give it a 6% plus report growth. And with the expenses, major execution on the expense side that John mentioned through our operators and the contribution from our business system, it just landed to be an extraordinary number. So we were very happy about it. We do think that that sort of gives us confidence that will have WG&Y growth for a long time to come in our portfolio as the portfolio leases up. We'll see what market gives us as we sort of get through next few years as the portfolio leases up.

Thank you.

Your next question comes from John Kilichowski with Wells Fargo. Your line is open.

Hi, good morning. Shank, you kind of hit on this at the end of your opening remarks, But could you talk more about, you know, the growth of the talent density and the data science platform, given what you describe as a halo sector and how much this has accelerated the growth outlook of the business in your mind? And then if you could also maybe just talk to how investors should be thinking about the medium term potential for earnings contribution from this business.

Yeah, John, let me take the first second part first, and then I'll go to the first part. If you just think about it, we built this data science capability, machine learning capability over the last 10 plus years to deploy capital on our balance sheet, on our books. And then we realized recently at the really encouragement from some of our largest sovereign wealth partners in our fund business that there could be a much bigger sort of application of this, which you have seen our first partnership announcement. We're in the building mode of this business. Whether something substantial come out of or not, we will see in the future. But I can tell you that since the announcement was made on the early March on public storage, as well as the other PE farm I mentioned, our phones have been ringing off the hook. We have been exploring a lot of the opportunity with a lot of people, real estate, you know, great real estate companies, many non-real estate companies such as banks and others, you know, major sovereign wealth funds, which I mentioned to you at the first ones who actually told us that could be a significant opportunity of that nature. We'll see where it goes, whether, you know, sort of what remains a true major force behind our capital allocation and everything else sort of becomes a fun project or we just sort of, you know, sort of take this as a whole new business. We'll see what happens. Right. Going back to the first part of your question, I have never heard of this concept of Halo even, you know, say 90 days ago. I heard that, as you know, probably that I personally interview most of the people who comes to our organization. And, you know, I heard that increasingly from the talent that was coming through and, you know, many of the businesses were just sort of impacted or people are worried that potentially impacted or frankly, you know, a different level of talent pool I've never seen. And just in last, since the last call, we have hired, you know, either data scientists or software engineers with the backgrounds that we look for, whether it's computer science or math, PhDs, hired from the top quant funds. We never thought that we'll come and work for a real estate company, let alone a senior living company. Or we started to see talent from, you know, people who are code breakers and three later agencies. We never, you know, 90 days ago, if you asked me, I would not have told you that we would attract talent from that kind of places. So, you know, it's a talent density is increasing. We are trying to explore problems that we never thought that we will. Obviously, you know, we think about there's a granularity of those problems, right? You know, one granularity is obvious is, you know, we talk about housing prices, for example, in real estate. Housing prices of what? Most industry uses housing prices as a median house price in the zip code, right? We today use every housing prices in an entire area. Okay, that's an interesting idea. How about you think about whether you have hidden, you know, is there other hidden signals such as, I'm going to make this up, the, you know, the price of which futures, the impact of that in housing assets in Great Plains. I totally made that up as we're going through. but those are the hidden insight we want to discover and understand we and that kind of people are in the industry it can the overall in the world but not in our kinds of industry and that's what we're trying to attract and see where we can take the business right we'll see what uh what happens but thank you for the question your next question comes from michael goldsmith with UBS.

Your line is open.

Good morning. Thanks a lot for taking my question. I'm here with Justin Azbeek. On the topic of capital allocation, Ventas recently acquired this Revell portfolio. Did you evaluate that opportunity? And maybe more broadly, you have the best cost of capital in this space. How do you think about accelerating accretive growth versus maintaining your discipline. Thanks.

We don't, Michael, we don't comment on other deals that our colleagues in the industry do. We did look at the Rebel portfolio and we think that it's a very high quality portfolio that our colleagues at Ventus will do very well with. But I don't really want to get into it. When it was brought to us a few months ago, it was in a structure that was not something we find particularly at that point palatable you know I've mentioned many many times that we we have your problems with encumbrance on assets and when it was brought to us there was an encumbrance of assets of existing operators and asset management and all of those kind of things which I don't want to get to but I think they're high quality real estate and our colleagues at Ventus will do very well on your other part of your questions is accelerating capital allocation, I want you to understand, this is what I wrote in my annual letter, which in under a section called cognitive dissonance of, you know, acquisition volume. And I want you to understand that what we are trying not to do, we're not, it's not a deal shop. That's why, you know, Welltower is different from our predecessor company. We want to allocate capital in a particular product market niche where we think we can add significant value. This is not a cost of capital business for us. We don't compete on cost of capital. We compete on ability on the data science side, on WBA side, and a network of extraordinary operators who can drive higher value for customers and employees and for us and themselves. That's the model. uh you know so not everything you know the if the goal was to do more we would not be selling 12 billion dollars of assets in last 12 months right so you know and we are getting we're seeing everything like we always have them as Nikhil said 90 95 percent of everything uh you know sort of we do comes to us off market and frankly speaking that makes sense right because you know We'll tell you as a seller within a day or two, whether we want to transact and probably within three to five days, give or take what will transact, what price will transact at. So fundamentally, as a seller, you have nothing to lose by coming to us. And so that's how the business rolls. And we'll see what market gives us. If we never buy another asset or we go back to the period pre-COVID where we sold, we're net sellers and we sold $16 billion of asset, we will be just fine. Our goal is to grow partial value for existing investors, not do deals.

Your next question comes from Mike Mueller with J.P. Morgan. Your line is open.

Yeah, hi. First, that was a nice David tribute.

When I think assignment over time, one thing that stands out is David's ability to walk away from deals, whether it was Routh or the first shot at Mills. can you talk about an example or two of steering clear from a big transaction that didn't sit well with you yeah uh thank you very much you know i always think of i was in emailing back and forth with him a couple months ago david was the one on the best and most exciting day of my buy side career called me and said your career has peaked today leave the industry and come join me on the dark side. And that's how this whole thing started rolling. I think many of you, I think we have had the conversations over a period of time. He was an extraordinary leader, extraordinary leader. And it was something I admired. I knew him for a long time. We were on the shared in the Columbia Business School Board. It was just an, I was in awe with our leadership skills, not just his financial success of total returns and all of those things. But one of the thing as you mentioned uh look we uh david's ability to walk away from deals and many times he did it believe it or not many times when you walk away from transaction and you do it in the right way so that you know you're not burning bridges you tell people why you walked away uh you know you can still maintain the relationship one of the largest transaction we have done in this company is the largest transaction we have done in this company is barchester believe it or not i walked away from that deal uh twice pre-covid right you know so we there are many i i don't want to get into granular transaction every day of the week our team walks away from transactions tell the counterparties why we walked away whether we walk away because we don't like the product market fit we walk away because we don't like the income renters that i just mentioned or like written extensively about we're respectful to the marketplace into the industry and we're direct right nobody will tell you that we have ever said something we didn't do it we're very direct to people uh and then you know it's just that we do a very small fraction of what we see and nikhil what do you think our history yeah 10 10 or so so by definition we walk away from 90 of from what we see but sometimes something like barchester we walk away and eventually it happens

when the time is right from a pricing standpoint or from an industry practice standpoint but very very good question mike thank you your next question comes from michael carroll with rbc capital markets your line is open yeah thanks um chunk i know that the wbs model continues to evolve I mean, how beneficial are these new partnerships that you're creating with PSA and others to take WBS to the next level? I mean, I'm assuming that Welltower is getting access to more new data that they didn't have access to before. I guess how beneficial could that be as you kind of refine those systems?

Mike, we think about in our shop technology in two different, completely different segment, which has, you know, obviously they interconnect at some levels, which is one is our data science platform, which is focused on allocation of capital and finding granular opportunity and changing the velocity that exists in this business from months to days. Right. And that's one idea. The other idea is operational side of the business, which we call our business system, which we, you know, we're building out. And I mentioned about Tech Quad and how Jeff and Tucker and Swagat and Logan, all these bronze, they are also taking that to a new level. What our business system, which is the operational side of the business, is not something that we are collaborating with public storage. Public storage or, you know, people like that don't need our help to think about how operationally how they should run the business. That industry is years ahead. We're actually hiring from that industry who can help us to do it. On the other hand, our collaboration is on the data science side, which we have been at this for 10 plus years. And that's where we have changed the real estate investing business where this latency of the system is five to nine months. And we have taken that to date. So I don't want you to confuse the two and understand where the collaborations are coming. we have given you many examples on on our business update the kind of problems that we are going after that people run really people are coming to us for example you know obviously real estate examples are easy and you can see it on examples whether that's multifamily that's other types of asset classes so storage obviously you mentioned or other types of asset classes but people are coming to us with problems that are location type problems but not necessarily specifically real state problems. For example, a big bank has come to us and asked us whether we can help them on predicting where their most profitable next bank branches should be. These are the types of problems that we are exploring, and we'll see where we get to. But thank you for your question.

Your next question comes from Jim Kamert with Evercore ISI. Your line is open.

Thank you. Good morning. Shank and team, is there a way to leverage the data science into other geographies beyond your core UK, US, and Canada? Or those markets just structurally don't have the private pay or other cultural issues that leave you a little unlikely to pursue in terms of external growth?

The short answer is yes. It can be. In fact, just for fun, we're having this conversation with an investor a significant investor in japan and we built a model uh you know over three weeks our guys did uh to show them like how to apply that in japan right you know and obviously we don't have as much of a data and we haven't bought like you know gobs and gobs of data but it is absolutely scalable across geographies and product types and beyond real estate product types that i just mentioned.

Thank you. Your next question comes from Richard Anderson with Cantor Fitzgerald. Your line is open.

Okay. Good morning. So, you know, Shank, you talked about doing the hard things, not the easy things, and, you know, making decisions along with that mindset. And I'm thinking, you know, as you're talking about data analytics and all these sort of tangential opportunities that sort of spawn out of senior housing platform and then i think about amazon which once upon a time sold books and now they're you know what they are today or berkshire hathaway which was insurance company and is what it is today do you have aspirations along those lines where senior housing because you know we can talk to her blue in the face about how great it is and you guys are doing a fantastic job but you know longer term you know this is not going to always be a 20% growing type of industry. Are you thinking about senior housing as sort of a bed from which you grow other businesses outside of data centers or data analytics, if you get my point, right? You become like a diversified vehicle. Is that kind of in your mind today?

No. Let me answer that question. We are not trying to go from senior living to other asset classes in real estate. In fact, we're doing exact opposite, right? We are selling out of all other types of asset classes and focusing our balance sheet capital, our balance sheet capital, if you will, or book into one asset classes, which we think we have competitive advantage. However, if you think about we have built capabilities, right, such as this data business that we talked about could potentially become more than a platform that we use for an internal application. We'll see where we get to. We're not trying to become a diversified company. I do not believe diversification. I do not believe in diversification. In fact, I believe diversification is the worst word that has been taught to investors, right? So if you think about you gave a Baksha halfway example, if you think about, look at Baksha, you will see they've made their almost entirety of their return in five things five names right so you think about it is we believe in concentration we genuinely believe that you know capabilities you cannot be good and five different things but your question is a much more nuanced one which is we we you know right or wrong our whole idea 10 plus years ago was very much that we want to understand the truth we we noticed that the real estate business people talk in heuristics you know rule of thumb and we wanted to know the truth and that's what we found i give an example right you know people use housing prices housing prices are what housing prices and average housing prices mean housing prices median housing prices we're talking about a block group we're talking about zip code what are we talking about right so these are the things now i can complicate this problem many times over right you can think about it depending on product you know how long people are willing to drive you'll notice in real people talk about distance as your competition, not drive time. But again, without getting into too much of this conversation, we do believe that our job, that what we are trying to do is to optimize the duration of the growth over a very long period of time. That's what we're trying to do. So today, a lot of that is obviously coming to the makeshift and everything. But we do believe that there are two other things that can potentially add pretty significantly one is our asset light businesses which is fund management business data you know the data science business and as you know that we are obviously the fees we're getting obviously that is a reflection of our data science business so it's interconnected nature of it and the other thing rich is there's something i want you to think about is you know um what is the potential untapped potential of our balance sheet, right? So we are thinking about, you know, sort of years ahead of what this platform could look like. We're thinking how do we deliver a significant par share growth opportunity for existing shareholders when things will not be as good in senior living, as you might say. But I do think that senior living as a business will remain our primary focus over where we deploy our own balance sheet gap.

Your next question comes from Vikram Mahatra with Mizuho. Your line is open.

Good morning. Thanks for having the question. Shank, I guess one other thing in your letter I really enjoyed is reading about the hummingbird and how they fly very differently and achieve lift at a discount. So in that vein of sort of a different approach, just I guess two questions. One, you know, going forward, is there something WBS or the team can do to sort of monitor reduced capex levels in senior housing, something that usually bites people where there's too much capex load. And then secondly, when you think about supply demand, on the supply side, we still have not seen it start. Is there something different about your relationships or your markets which can limit supply perhaps longer than people perceive? Thanks.

So second question was supply. And the first question was, uh capex on okay so um um you know so the idea of hummingbird i don't want to repeat it i wrote extensively about it you can read it and sounds like you have read it you know the idea is continuous improvement of candles will not give you a light bulb or as you know henry ford will tell you that you can improve horse carriages as long as you want but you're not going to get a right so you got to think about the business in a completely different way which is reimagining what the entire value chain looks like and if you sort of take a first principle approach to say what are my goal is and you start from the customer right and solve okay how do i remove frictions of customers and the people who the customers see as product which is the site level employees you can get very far how far we will get to we'll see in the future um and you know now let's talk if they take the question of capex that you talked about right uh john gotten into this in details the capex in this business because of the sort of short-term private equity type mentality which i'm not actually you know denigrating private equity if i got paid on short-term irr i would have done the same probably but if you just think about is like people take a very piecemeal approach, right? One year you do roof because you have to, then next year you go back and do the gutters. The next year you go back and fix your, you know, skylights. And that's not how full cycle CapEx should work. On our particular, you know, if you look at our cash flow, you are obviously, Vikram, you are seeing that CapEx is improving and it's improving for two reasons. One, CapEx is a concept that is not an idea that you should think about in terms of part available or you know occupied room you should think about all available room because if you think about you know you are doing say first impression it is not going to be whether you're 40 people in the community or 400 people in the community right it will be on all the rooms as the system is filling up obviously you are getting the scaling effort or as the NOI is going up you are getting the scaling effort second uh capex today two years ago we didn't we obviously did all capex that was outsourced to operators today we have 200 people team which works for us uh and that team is working with our operators to figure out how to do capex the best how to do lifestyle think about life cycle cost and executing where the best you know sort of execution we can get uh and that's you know just started to see that scaling effort over last say six months and I think you're going to see a lot more going forward.

And what was the second question?

Did they answer both of the questions? Supply.

Supply, yeah.

Yeah, supply. So look, the fact of the matter is the supply currently is a very low start you are seeing. I would expect that, you know, I personally think about supply, you know it's just almost a Pavlovian response to participants in the market when we see the supply it's sort of almost a third rail and people think supply equals to oversupply why that makes sense last decade every unit of supply was oversupply because demand was flat I think about supply and the impact of supply in terms of oversupply you can see the demand growth and you can sort of think okay how long it takes to bring supply in the market we have a slide on our presentation and that sort of walks you through and you can see sort of what's the oversupply uh you know sort of can be i personally think that supply will chase demand uh for a long period of time just because what the demand growth looks like and the constraint of supply uh that is in in our markets uh in senior living one of the biggest constraint of supply and you know on top of everything else that you can think about is availability of quality operators right that's a big constraint in the market no bank will lend to you if you have a Josh Mo operators especially after what they have gone through last cycle and as you know and this is something that you know you brought up Vikram that I don't think we have a lot of people have asked us over the last three years at the bottom of COVID when we were the only people only people who were actually allocating capital and leaning into senior living we forged 25 to 30 long-term partnership with our operators different developers who are mostly exclusive or near exclusive in nature in our markets which we believe will provide a governor on quality supply and we'll see how this plays out but thank you for your question your next question comes from feral granath with bank of America.

Your line is open.

Good morning. Dave, you're taking my question. I also wanted to touch on a comment that you made in your annual letter where you highlighted several operational heroes. What was some of the best operational advice you took away from those organizations, and how are you applying and executing on that advice across the portfolio?

That's an interesting question. Farrell, some of the some of the heroes we mentioned was not just operational also capital allocation and culture and many other things. However, I will tell you, I personally believe and probably because of the influence of Charlie, one of the most well-run operational company in this country is a company called Glenair. It's a private company whose long-term CEO, Peter Kaufman, has been a great friend and mentor of mine over a long period of time. And he's a true hardcore operator in the airspace defense sector. So first, Peter will tell you, first thing is, before you get advice from people, you need to understand the credibility of their advice. Lots of people have lots of advice in things that they have no expertise in right i i routinely see people have never ran lemonade stand and have opinions on how multi-billion dollar company should be right so that's sort of first you have to have a filtering mechanism to understand who has expertise but beyond that the best operational advice that i actually got that operations can be meaningfully improved from systems and process and technology but operations is not about any of those things. They can be enabler.

Operations is all about people.

So if you have, you know, if you're in LA and you have an hour, let me know. I'll, you know, help you go visit Peter and you will see what a well-run factory could look like and with all the focus of people. But anyway, thank you for the question.

Thank you.

Your next question comes from Austin Werschmidt with KeyBank Capital Markets. Your line is open.

Great. Thanks. Good morning. Just going back to an earlier question about the portfolio of assets that are 95% plus occupied, I guess as we continue to understand, as you put it, the art of the possible within the 6% red port growth for those assets, you indicated the benefits of capacity coming down and just pricing power. Are street rate increases exceeding the increases on in-place customers within this subset of assets? And are you also seeing a greater benefit from high ROI ancillary income opportunities?

Austin, thank you so much. You were a little farther from your mic, but if I understand your question was on the 95% plus, are we seeing even within the pricing, are we seeing greater opportunities of uh what street street versus yes so you you hit on something yeah you hit on something extraordinarily important i have a particular belief that you know uh just because you can doesn't mean you should and you know and this is something i'm boring you with reputation and details clearly sounds like you read my annual letter there's a whole section on trade-offs that would like you to go back to and say you know many places you know in place customer rate increases could be meaningfully higher than what we are comfortable with and i'm fine with that i'm fine with that so how do you if you if you are if you say okay i'm not going to give customers 15 20 percent rent increases how would the report change it will change because of the point you just made right which is not an existing customer increase but it comes from the street rate this is a fundamental negative mark to market in this business because of the person who leaves versus the person who comes in. There's an acuity difference between the two. However, when you have in this kind of assets and its overall trading market when everybody else is full, the street rate goes up and that's the impact you see in the overall report, which is a function of three different pricing, not just existing customer rating, including street rate. You picked up on something very important, and I think that will be a lot of driver as you sort of go forward in many, many of the markets. And ancillary opportunities such as, you know, a lot of the other, such as community fees and others also play an impact on that as well.

Your next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.

Hi, good morning. Thanks for the time. I'm just curious if you could talk a little bit about about market share and the opportunity that's still left to consolidate a fragmented industry. Recognizing that you guys have a very targeted approach, hoping you could help us understand how much is left to consolidate, if you will. There's been a little bit of political pushback in Canada, and there's overviews or reviews going on in the UK.

So, in that context, just hoping you could help us understand how you think about the addressable marketing and the opportunities remaining yeah one so if you just take a step back and think about from a customer standpoint roughly give or take call it seven to eight percent or call it ten percent let's just do easy math ten percent of the people who can use our product use our product so ninety percent of the people fundamentally don't use the product who can use our product right so it's just a small portion of the you know if your customers use the product within that small portion we're probably seven percent of the industry so we're a very small portion of even the existing product and you know so our you know so from that standpoint if you just think about it a seven percent of ten percent you can imagine like we're insignificant from a customer standpoint right they're just that those are the numbers Now, having said that, if we're 7%, say, of the, you know, of the entire base of products, does that mean that our opportunity, and as you mentioned that, obviously, it's an extraordinarily fragmented industry. Does that mean that our, and I think the average, you know, operator or owner or owner-operator has some, like, 10 communities or 1,000 units or something like that? It's a very, very small. Does that mean that we're 7% of the industry, our TAM is 15X? The answer is no, right? Our TAM is probably, we're very focused on, even within senior living, we're very focused on the highest price point or the highest quality assets in a market. So very much of the very focused on the highest, highest end of this business. That product market niche is what we have met our bet on. And that probably is, the TAM is probably to do 3x not 15x. So that's how we kind of think about it. We see what the opportunities are as I mentioned in previous questions and in my annual letter. We would be comfortable if we never bought another asset. So the goal is not asset aggregation. Goal is to you know pick where you think you can add significant value and I think our team is bringing a pretty good job up and we'll take the we'll go forward with that and see what market it gives us.

Thank you.

Your next question comes from Nick Yaliko with Scotiabank. Your line is open.

Thanks. Good morning. I want to ask on the investment side, this quarter, the loan funding was a little over 50% of the investment. So, if you could just remind us sort of what the approach is there and where you're able to get what type of yield on that loan funding. And then all also break out of the $7.2 billion of investments in April so far, what percentage of that is loan funding? Thanks.

Let me start, Nikhil, you go. First is, you were seeing that, Nik, just to remind you that remember that when we did the Cain transaction, we took back a billion-plus dollars in a participating PREF, and that's what showed up in the loan book, right? So it's not really a loan. It's a participating loan. It's with an equity derivative attached to it, but that's what you're seeing. The rest of it, you can think about it as a refill of the HC1 loan and other loans that got paid off. Some of it is just a bridge to heart of some of the assets, the skilled nursing assets we sold. they will be gone as the HUD takes a long time, as you know. When that happens, they will be gone. But overall, that's the construct, is that cane piece that showed up. From your second part of your question, which is the $7.2 billion, I do not recall. Nikhil, you might recall, I think.

Yeah, the next specific question was what's closed in the second quarter. So of the $4.2 billion that's closed, as I said in my prepared remarks, you know amica which is north of three billion there's a vast majority of that there might be one or two small loans but it's been predominantly asset acquisitions so that that's i think you asked about the pipeline as well that is same it's the same thing it's all just in one quarter that cane piece landed and that's what it looks like it's elevated as you look back in the whole year you'll not see that as you said there's you know remaining 500 million of sales left as part of the cane transaction so as that happens of course that'll come with some additional participating PREF funding.

Thank you. Your next question comes from Seth Berge with Citigroup. Your line is open.

Thanks. It's Nick Joseph here with Seth. I was hoping you could just touch on the transaction market more broadly. First, I guess, the impact of competition and then how prevalent is retrading deals and walking away because of the capital markets. And then, And Jacques, I think you mentioned kind of time to close. And I was just curious, kind of well towers, due diligence and time to close versus kind of the average for other buyers in the market.

Yes, I think let's start with the competition piece. As I said in the prepared remarks, regardless of whatever period we look at, transactions that have closed, the pipeline, and I say this every single quarter as an update, that give or take our transaction activities between 90% to 95% off market. And so by definition, in that regard, there is no competition. But what we've seen is over the last couple of years, as more capital has come into senior living, previously when we would say no to one of those off market opportunities, it wouldn't get done. Now what you're seeing is given that there's a more robust marketplace, if we say no, more likely than not, somebody else will end up buying those assets. So that's certainly happening. Then your second question was about our speed. Well, I think, as Shank said earlier, it takes us a couple of days to, within a very narrow range, have a view on what an asset should be priced. Thereafter, assuming there's a meeting of the minds, then it's the traditional diligence process, which involves site visits, finalizing business plans with operators, third parties, negotiating legal documents. And we parallel path all of that, just given upfront how much information we have from our data platform on what to expect from an asset. And so we can parallel path all of that. And it takes us roughly 30 days from when we first see something to close something. In comparison to the broader market process, Shank wrote extensively in his last annual letter last year, a typical process takes six months from starting to think about, hey, we're going to sell something to get BOVs from a bunch of different advisors, to then picking an advisor, to then populating all the information and creating a really pretty offering memorandum, to then negotiating NDAs, to then having a first round process, to then having a second round to the process, finally picking a winner. And then And most transactions occur in a way that you first negotiate a contract, then you have a 30 to 60 day diligence period where you find financing for the asset and eventually close on it. So six months is a long time. If you think about what macro looked like six months ago versus it does today, a lot And given that the buyer is not going hard until 30 days before closing, so five months into six months, there's a lot of uncertainty. And we have, in the last two months, seen a lot of transactions that we liked, but weren't comfortable with the pricing get away from us to then come back to us. So that's certainly happening and happens all the time.

I'll just add two more things, right? So we are one of the very few shop who actually goes and visit every single assets that we That is not predominantly. That is not a percentage of. we visit every single asset that comes on our balance sheet and walk on average 12 people from WorldTower go walk assets not just our investment team our asset management team structural engineers so we we go and do this every single asset which is very important for you to understand and it just a second question is from our standpoint is the reputation is our currency your business if we tell people we're going to do something we do it might as well give people bad news up front then try to drag them through the process and then five months later said these are the you know five different things i didn't like the color of your nails so it will be retraded right and that's sort of what happens in this business every day and that's very standard people accept it in real estate business to do we just don't do that right you know we are always comfortable in the trade-off of you know short-term money versus long-term reputation that works out for us over a period of time. And hopefully, overall, our execution over the years will tell you that if you take a long-term approach, you take a reputation approach, if you take an approach of running a first-class business in a first-class way, it generally works out for you.

Thank you.

Your next question comes from Ometeo Okasanya with Deutsche Bank. Your line is open.

Yes, good morning, everyone. Sean, I wanted to talk a little bit about just, again, the overall business model and, again, the growth mode you're in. You know, you definitely need a specific type of operator and shop to kind of realize, you know, your strategy. And so I'm just curious, at this point, are you still seeing opportunities to bring more operators into the fold? Or does the strategy really become doubling down on the operators you have? And if that's the case, what becomes kind of like the next level of incentive you can provide for your current operators to even have, you know, further, better alignment? Is it stuff like the Munger grants or kind of what else is kind of out there that can really kind of align the two to continue to kind of deliver the results you've been delivering?

Yeah. Thank you very much. It's a very, very important question that we reflect on and debate and talk about. Look, we sort of think about this business as a complex adaptive system. And as we think about this business as a complex adaptive system, we have, after years and years of thinking through this every line item, we have sort of come to a point where we have a very good idea. If you were sitting tile in one of our sort of conference room with one of our operating partners and people i guarantee you will not be able to say who works for world tower who works for this operator they're all working very collaboratively and not trying to say this is your side this is my side and that's just not that type of collaboration trust takes a long time to build which we have built with a handful of our operating partners and we're doubling down with them every day having said that aren't there a couple of people that we have long respected over time that we want to do business with the answer is yes at the same time you will see if If your question is, are we in an expansion mode from a number of operators we do business with or we're in a, you know, sort of flat or we're shrinking, the answer is unequivocally our view is that we're shrinking, right? The number of people that we business with. That is because we are doubling down with our existing partners. We have built these collaborations and, you know, and we are not trying to be everything to every people, every product, every operator. we have found the like-minded a lot of like-minded operating partners who are truly our partners that's not sort of they take partnership very seriously they're extraordinarily focused on excellence like we have they want to treat their people right they want to treat the residents right they want they take reputation as their currency of business and those are the type of cultural alignment not just technological systems money and everything you know financials and everything has to work out, but that cultural element is the most important and we're doubling down with them. And, you know, and sometimes we do find somebody like Amica that we tremendously respected over the time. And then, you know, when the stars align and, you know, we go together and meeting of the mind happened, the same applies for Barchester. But generally speaking, our goal is to do more with our existing partners where the alignment has already happened.

But it's an extraordinary question that we reflect on every day thank you your next question comes from michael stroyek with green street your line is open thanks and good morning i just want to go back to an earlier question on applying the data science platform to new geographies has the company underwritten any transactions in geographies outside of the us uk or canada or are there any additional countries that Wellpower could be interested in entering down the line on balance sheet?

Yeah, Michael, very, very good question. I'm glad that you asked the clarifying question. We have no desire to go to any other countries other than the three countries we are in from a capital perspective and balance sheet perspective. That comment was entirely on the capital light on the data science side. And, you know, obviously we think that is eminently scalable across geographies, across asset classes. But from our standpoint on a purely capital light basis, we're trying to, everything we're doing should tell you, we genuinely believe that in today's world, which is a maximum gain, maximum growth world, the fastest way to get to what we're trying to do is to narrow the focus, not extend the focus.

Yeah. And Michael, to directly answer your question, no, we have not underwritten anything. I don't think we've even signed an NDA to get information beyond the three markets.

Great.

Thanks for the time.

That concludes the Q&A session of the conference call. Thank you for your participation. You may now disconnect and have a wonderful rest of your day.