The operator welcomes listeners to the Welltower Third Quarter 2023 Earnings Conference Call and introduces Matt McQueen, who reminds listeners that some statements may be considered forward-looking. Shankh Mitra then reviews the company's third quarter results and John provides an update on the Senior Housing Operating and Outpatient Medical Portfolios. Tim discusses the triple-net businesses, balance sheet highlights, and revised guidance, with Nikhil participating in the Q&A session. Despite uncertain economic conditions, the Senior Housing portfolio has seen strong revenue growth and occupancy increases, with high occupancy gains in September and a 7% growth in RevPAR.

In the previous year, one of the company's largest operators moved their typical rate increase to September, but this year they will wait until January of 2024. Despite this, the company's pricing power remains strong. On the expense side, the company's results continue to exceed expectations, with the lowest reported expense growth in the company's history. This has led to a record high margin expansion and the highest level of profitability since before COVID. However, the company recognizes that their profitability is still below pre-COVID levels and may not attract external investment in the long term. The company remains committed to providing a superior product and experience for their retired senior residents at an affordable price.

The company is focused on providing highly differentiated services and improving the customer and employee experience. They believe this will lead to increased satisfaction for all stakeholders. They are also focused on optimizing the operating metric of RevPOR minus ExpPOR and expanding this margin. They have seen growth in their assisted living and international businesses and have a large pipeline of investments. However, their ability to execute these deals will depend on their access to capital.

The current market conditions, with low interest rates and high debt, will likely continue and improve in 2024. The company is focusing on opportunities with low risk and high returns, and has adjusted its investment criteria to account for rising real rates. The company has also reduced its debt and is prepared for potential economic and geopolitical challenges.

The speaker discusses the company's strong balance sheet and flexibility, which allows them to remain proactive in the market or weather any economic changes. They mention the upcoming challenges in the debt and real estate sectors and express gratitude to their capital markets team for staying ahead of the curve. The speaker also emphasizes the importance of growing value for existing shareholders and highlights the exciting prospects of their operating platform and digital transformation in the senior housing industry. They mention recent progress in improving their technology infrastructure for a better resident and employee experience.

Welltower's focus on technology solutions and improving the community and employee experience has led to strong same-store NOI growth, with a 14.1% increase in the total portfolio and 26.1% increase in the senior housing operating portfolio. The company is also improving systems and processes to make data-driven decisions and has seen strong occupancy and retention rates in their medical office portfolio.

The 26.1% increase in same-store senior housing operating portfolio NOI in the third quarter was due to 9.8% revenue growth, 220 basis points of average occupancy gain, and controlled expense growth. The marginal increase in expenses at occupancy levels over 80% has led to a 330 basis point margin expansion. The U.S., Canada, and U.K. regions all showed strong revenue growth and expense controls, resulting in impressive NOI growth. Management transitions have been successful and operators are providing a great customer and employee experience.

The company values its employees and customers, and aims to improve their experience by reducing agency labor and implementing an efficient operating platform. This will allow employees to focus on providing quality care, rather than spending time on paperwork. The company's focus on these improvements will benefit all stakeholders, including shareholders, and allow elderly individuals to enjoy their retirement years.

In the third quarter of 2023, Welltower reported positive results, with net income and normalized funds from operations showing significant growth. The company also saw an increase in same-store NOI and closed on several acquisitions and loans. Additionally, they converted 11 StoryPoint assets to RIDEA and announced a joint venture with Revera PSP that will close in three phases. The company's leadership and operators are actively working together to ensure the success of the platform, with more to come in 2024. The call was then turned over to Tim McHugh, who provided further details on the company's performance and outlook.

In the quarter, the U.K and U.S portions of the investment closed, resulting in $75 million of net investment. The Canadian portion is expected to close by year-end. The company raised $1.9 billion through an ATM to fund ongoing investment and also paid off $290 million of debt. This, along with growth in their business segments, has led to a decrease in net debt to adjusted EBITDA compared to a year ago. The company expects this trend to continue as they continue to recover from the effects of COVID-19. They currently have $2 billion in cash and cash equivalents, along with additional liquidity from a revolving line of credit and expected proceeds from dispositions and loan pay downs. The company has updated their full year guidance for net income and normalized FFO, with a $0.055 increase at the midpoint compared to their previous guidance.

The company has increased its guidance for the year due to higher expected senior housing operating NOI and capital allocation activity. This is partially offset by an increase in G&A and a stronger dollar. The company's FFO guidance is based on an estimated total portfolio year-over-year at the same-store NOI growth of 11.5% to 13.5%. The company has also convinced its partner StoryPoint to convert 11 properties from triple-net to RIDEA structure, which may serve as a drag on Q4 results but is important for stabilized earnings. StoryPoint is a top operator and has improved the billings, staffing, service quality, and invested capital in these properties.

The company has seen a significant increase in occupancy and revenue since taking over these properties. They plan to convert debt to equity at the bottom of the cycle, which they believe will be a valuable transaction. They are also seeking similar opportunities with great assets and operators. One of their strongest operating partners, Kisco, recently merged with another operator, Balfour. This is expected to be highly beneficial for the company's earnings and cash flow growth.

The final stages of Project Transformer, a transaction with Cogir, are approaching and the teams are working hard to ensure a seamless transition. The company is proud of this transaction and others, such as the Avery and Oakmont acquisitions, which have contributed to earnings and cash flow growth. The company remains focused on improving customer and employee experience and generating higher earnings per share. The senior housing operating business is recovering and the company's operating platform and capital deployment are expected to lead to increased earnings and cash flow in the future. The recent merger of two peers has not been of interest to the company.

The speaker, Shankh Mitra, is being asked about a recent deal involving another company. He declines to comment on it and instead focuses on their own approach to deals, which involves buying one asset at a time and going deep in their chosen markets. They have no interest in large M&A deals and are currently focused on a potential $30 billion opportunity in the market. The speaker also mentions a recent portfolio transaction of 10 assets and their preference for median-sized transactions.

The speaker, Shankh Mitra, is responding to a question about the Cogir transaction and the potential for increased occupancy and NOI. He mentions that the properties earmarked for management by Cogir currently have an occupancy level of around 80%, but Cogir is known for running properties at over 90% occupancy and 40% margin. He also discusses the Regency case study outlined in the deck and believes that the NOI potential for the broader Cogir portfolio will be better than the Regency example. The next question is about early indications for revenue increases to existing customers.

The speaker discusses the potential impact of the Kisco and Balfour merger on the fourth quarter, as well as the strong expected rate growth for existing customers. They also mention that the SHO portfolio outperformed in the third quarter, potentially due to changes in the same-store pool.

The speaker clarifies that their point was not specifically about Kisco and Balfour, but rather about the seasonality in the business. They continue to outperform historical seasonality and have seen strong occupancy gains in the transition portfolio. The speaker also mentions that G&A expenses will likely remain elevated for another year as they continue to build out their platform.

Shankh Mitra, in response to a question about his involvement in a recent public to public M&A situation, stated that he does not comment on other people's deals. He also mentioned that he is not engaged in any similar deals and that he is focused on being an IR buyer and cost base focused. He explained that he is unsure about the long-term inflation in the medical office space, and therefore, is not interested in making a large investment in that asset class. He also mentioned that they are finding small opportunities in the medical office space where they can add value, but their focus is on senior living opportunities that offer low double-digit plus unlevered IRR.

Shankh Mitra discusses the company's proactive portfolio management and the success they have seen with recent transitions. He mentions that they have learned from past mistakes and have improved their processes. He also mentions that future transitions will depend on their performance goals.

The speaker explains that their business is focused on optimizing location, product, price point, and operator. They are willing to take short-term hits in order to achieve their goals and have successfully mitigated these hits. The speaker then addresses a question about the sustainability of their 7% RevPOR growth, acknowledging that there may be a perceived ceiling for rent increases for older tenants. However, they clarify that this may not apply to their specific customer base and that their rate increases are due to the sale of their mid-market products in the UK and US.

The portfolio is mainly focused on wealthy customers and the product is affordable for them. The company has not raised rates as much as other asset classes and the average length of stay is 20 months. The company is focused on the difference between revenue and expenses and will adjust if there is pushback from the market. The SHO portfolio has strong operating leverage.

The speaker is asking for more information on labor trends and how the company is able to sustain growth in labor expenses. The company is seeing a decrease in turnover and an increase in the availability of employees. The company's goal is to outperform the market and increase productivity. The next question is from Mike Mueller with JPMorgan.

Shankh Mitra, speaking at a conference, was asked about the current state of senior housing development. He compared investing in it to gambling and stated that he does not understand why there are any new developments given the high costs and low margins. He also mentioned that operators with liquidity issues may struggle to provide the same level of care as those without, but he cannot speak for other operators. He also noted that many new operating partners want to be a part of their story.

The company has seen a significant increase in investment opportunities and operators from all over the country are interested in joining their well-capitalized platform. The company has added a bar to their presentation indicating an additional $172 million in NOI, which reflects a stabilized point of 88% occupancy and 31% margins. However, with the recent rent growth, the company is expecting a 29% margin. This addition was made in response to conversations with investors and analysts.

The speaker explains that they want to show how getting back to pre-COVID levels of occupancy and margins would be disappointing, as they were not the best days for the business. They also mention that they do not chase risk to get returns and investors are aware of their track record.

The speaker discusses the impact of COVID on the commercial real estate industry, noting that initially there were broken cash flows due to low occupancy rates, but now the problem is with the underlying leverage of assets. They mention an increase in high-quality opportunities in the past few months and address a question about funding and liquidity.

The speaker discusses the company's recent investments and available liquidity. They then address a question about the development pipeline, clarifying that they have not started any senior housing developments and that their current developments are either fully leased medical offices or wellness housing. They then answer a question about the investment pipeline, providing a breakdown and discussing their target for stabilized deals in various sectors.

The pipeline for senior housing is currently mostly focused on equity opportunities in the US, with some credit opportunities in the UK. There are no significant opportunities for MOBs at the moment. Stabilized yields for senior living are around 8%, but the company is willing to buy at lower yields if the assets are right. The Integra assets are performing well and the company is pleased with their performance. They may consider selling some of the assets after stabilization.

In the last quarter, Welltower's buildings generated $70 million of positive EBITDARM compared to a loss of $90 million in the previous quarter. After another quarter, the same buildings produced $127 million of EBITDARM, resulting in a cash flow swing of $215 million in the 6 months since the transition. This is above the projected rent and shows significant progress, but the company believes there is still a long way to go before stabilization. The call concludes with the operator thanking participants for joining.

This summary was generated with AI and may contain some inaccuracies.