The conference call for Welltower's first quarter 2024 earnings begins with the operator introducing the company's representatives. The General Counsel reminds listeners of the possibility of forward-looking statements and hands over the call to Shankh Mitra, who discusses the strong start to the year and the success of the Senior Housing business. Other representatives will provide updates on operational performance, investment landscape, and balance sheet highlights. Despite economic uncertainty, the demand for Senior Housing continues to improve.

In the first quarter, the company saw double-digit same-store revenue growth of 10.3%, driven by strong occupancy and rate growth. This was the strongest growth seen since Q1 of 2022, when there was a negative comp due to COVID. Same-store expenses were up 5.7%, but unit revenue growth outpaced unit expense growth, resulting in significant margin expansion and same-store net operating income growth of 25.5%. All three regions saw growth in excess of 20%, with the U.K. reaching nearly 50%.

In the third quarter, the company saw strong growth in their independent living and wellness housing portfolios, as well as continued outperformance in their assisted living sector. They are actively seeking opportunities to convert properties to triple-net or RIDEA structures in order to improve resident and employee experiences and drive financial performance. The company is also in the process of converting eight more communities to RIDEA, which they believe will be beneficial in the long run. They have also been successful in deploying capital through various transactions with repeat counterparties and existing operators.

The company is excited about the record level of activity in the first 4 months of the year and is busy evaluating opportunities in the U.S and U.K. They have a robust pipeline for capital deployment and are receiving many requests for solutions. They are particularly interested in tuck-in acquisitions that align with their portfolio and have strong growth prospects. While some sellers are disconnected from asset value, others are more pragmatic and realize the importance of having a reliable partner in the face of a looming wall of debt maturity and lack of financing options. Welltower is committed to being a trustworthy partner in the industry.

The company's strong reputation and focus on long-term growth has led to a successful first quarter, with a 12.9% same-store NOI growth in their total portfolio. The outpatient medical portfolio showed stable growth of 2%, while the senior housing operating portfolio had an impressive 25.5% same-store NOI increase. Revenue growth was driven by occupancy and rate increases, and expense growth has been moderate. Labor-related trends have also improved due to both macro factors and property-level initiatives.

In this paragraph, the speaker discusses the benefits of creating greater regional density within the Senior Housing portfolio, such as reducing the usage of agency labor and improving the customer experience. This also allows for more career progression and lower turnover for employees. The company has seen a 320 basis points year-over-year improvement in margins due to strong unit revenue growth and expects further margin expansion in the future. The speaker thanks the team for their hard work and turns the call over to Nikhil to discuss recent investment activity and market observations.

The article discusses the challenges facing the seniors housing industry, particularly the large amount of debt held by major lenders. A case study of Fannie Mae's Senior Housing Network reveals that a significant portion of these loans are considered high risk and many are past due. The article suggests that a similar percentage of loans on bank balance sheets are also showing distress. As a result, many lenders are looking to reduce their exposure to the seniors housing market.

The paragraph discusses the different options borrowers have when facing a potential loss of equity, and how rising interest rates and inflation are affecting the market. The company is described as being a reliable and preferred counterparty for motivated sellers, and they have completed several investments in the first quarter. They also have several other investments in progress, with a median value of $37 million.

In the first quarter, Welltower continued to focus on building regional density through granular transactions and saw growth with partners such as Oakmont, Cogir, Sagora, and more. The company also expressed gratitude to their investment team and highlighted the challenging but rewarding work environment at Welltower. Tim then discussed the company's financial performance, including net income, normalized funds from operations, and total portfolio same-store NOI growth.

The triple-net lease portfolio performance for the quarter showed an increase in same-store NOI and EBITDA coverage for both the senior housing and long-term post-acute portfolios. The Integra Healthcare JV properties entered the same-store pool this quarter, with 95 assets showing a positive trend in cash flow. As the remaining transition assets are added to the coverage pool throughout the year, there is expected to be a continual upward trend in coverage metrics.

The company has made $2.8 billion in investments so far this year and raised $2.4 billion through equity issuance. They have also reduced their debt and ended the quarter with $2.5 billion in cash. The company's leverage ratio has improved and they expect it to continue to improve as their NOI recovers. The company has updated their full year 2024 guidance, which does not include any future investment activity. The updated guidance predicts a net income of $1.48 to $1.61 per diluted share and a normalized FFO of $4.02 to $4.15 per diluted share.

The incremental increase in FFO guidance per share is due to improved NOI, accretive investments, and offset by higher G&A and a triple-net to RIDEA conversion. The company is expecting total portfolio year-over-year same-store NOI growth of 9% to 12%, driven by various sub-segments. The CEO emphasizes the importance of capital allocation and portfolio management decisions in driving operating performance and mentions the ongoing efforts to optimize the asset side of the balance sheet.

Under Tim's leadership, the company has seen a sharp improvement in cash flow and a decrease in net debt to adjusted EBITDA. They have maintained significant liquidity for future opportunities and have built debt capacity for the future. The company is committed to delivering strong growth and creating value for shareholders. During the call, the company discussed their guidance rate of 20% and noted that occupancy and RevPOR assumptions have not changed. The increase in guidance is primarily driven by same-store expense growth.

The speaker is asking for comments on conservatism in the company's outlook for the peak leasing season and the potential impact on FAD growth and the dividend. The company is pleased with their results so far but remains cautious and will update investors in 90 days. They are focused on long-term growth and have been investing in value-add projects, leading to elevated CapEx but also driving cash flow. The company plans to continue investing in these opportunities and will consider using the free cash flow to grow the dividend.

The company's dividend policy was changed at the start of the COVID pandemic, with cash flow being the main factor. Cash flow has since recovered and the company's confidence in the Senior Housing market has also improved. The company is actively discussing their dividend policy with the Board of Directors. In terms of acquisitions, the $2.6 billion under contract is 100% Senior Housing and Wellness Housing, with a similar return profile to the fourth quarter. The company has already raised the necessary equity for this pipeline and will provide more disclosure next quarter. The current spot capital markets environment is similar to the fourth quarter, with no significant changes in interest rates.

The speaker responds to a question about the company's capital and pipeline, stating that the $2.8 billion raised is for closed or soon-to-be-closed deals, and the pipeline is still strong. They plan to use their balance sheet to drive growth. In response to a question about senior housing operators pushing back rent increases, the speaker says there has been no pushback and the market remains strong.

Jonathan Hughes of Raymond James asks about the increased expected headcount spending and investments being made in the analytics and operations team. John Burkart responds that they are finding opportunities to build out the team and bring operational excellence. Shankh Mitra adds that the analytics team is integral to their investment process and the investments made are paying off. Juan Sanabria of BMO Capital Markets asks about the seniors housing portfolio and how many of the 160 assets in the non-same-store pool will be added over the course of the year.

The speaker discusses the performance of recently acquired assets compared to existing ones and mentions that these assets will contribute to growth in the future. They also mention that there is not much competition from new capital in the market and there are no signs of new supply being planned.

The debt markets are frozen and this is affecting the development cycle. As a result, the company is seeing a decrease in new projects being pursued and an increase in products being given up. The company's operating platform is on track to create efficiencies and reduce administrative burden, allowing more time for care. There are no major updates on the progress of the platform, but it is expected to result in substantial savings and allow senior staff to focus on their jobs.

The speaker is asking John for more information about the performance of the Cogir, PLR portfolio in Canada and whether there are plans to create new PLR relationships. John responds by saying that the focus is on driving value for customers, employees, and shareholders, and that the partnership with Cogir has been successful so far. He also mentions that the portfolio is expected to perform well this year, but there hasn't been much leasing activity due to the quiet period. The next question is about the standout performance of some of the larger operators in Senior Housing, but the speaker declines to give specific details on operator-level performance.

The company's operators have performed well across three regions due to a deliberate strategy of going deep instead of broad. This strategy has led to employee retention and customer satisfaction, resulting in strong financial results. The company's same-store operating expense guidance has been revised to 6% from the initial 6.5%.

Rich Anderson asks about potential risks that Welltower may face and how they are managing them. Shankh Mitra mentions the company's paranoia and focus on both opportunities and risks. He also mentions potential pitfalls such as rent control and the perception of Wall Street getting rich at the expense of seniors.

The speaker discusses the importance of being cautious and aware in the senior living industry, as the law of numbers can be unforgiving. They mention the challenges of maintaining profitability and margins, and how this affects investments and attracting capital. Despite these challenges, they are committed to providing excellent service to their communities, residents, and employees.

The company is discussing their rent growth and how it compares to other types of operational real estate. They mention that their rent growth has been around 8-9%, driven by demand and supply as well as increasing costs. They also mention their responsibility to manage the business and create long-term value for shareholders, rather than focusing on short-term fluctuations in the stock market. They also mention a $19 billion opportunity in the next 2 years, primarily in the domestic market, but also in international markets such as the UK. They plan to take advantage of the lack of credit in the UK by making granular transactions.

The speaker believes that the U.K. debt market is worse than the U.S. debt market currently. The moderator thanks the attendees and ends the call.

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