Kayla, the conference operator, welcomes everyone to the Welltower's Second Quarter 2024 Earnings call. Matt McQueen, General Counsel, reminds listeners that some statements may be forward-looking and that the company can give no guarantees. Shankh Mitra, CEO, reports a 17% growth in normalized FFO per share and $1 billion in acquisitions since the last update in June.

The company is optimistic about the future of their Senior Housing business and has raised their full year FFO guidance. They have seen progress in profitability and expect further improvement through higher occupancy and operating leverage. The demand for senior housing is increasing due to the aging baby boomer population, and there is minimal new supply due to challenges in securing construction financing. This creates a strong market for the company to capitalize on in the future.

The company is facing challenges in the development of their industry due to a lack of development economics, but they are taking steps to generate alpha for their existing owners through various transactions. They have announced the transition of assets to strong operating partners and have converted triple-net leased properties to RIDEA structures for potential growth in the future. The company expects to achieve over $70 million in additional NOI and notes that $2 billion in new acquisitions would be needed to achieve the same level of accretion.

The company is experiencing significant growth due to their investments in senior housing. They have closed or are in the process of closing $5 billion in transactions this year, with a strong pipeline for future investments. They have also announced an increase in their revolving credit facility to $5 billion, showing their strong credit profile and growth outlook. The company remains disciplined in their funding but has created significant debt capacity to further enhance their earnings growth. The speaker then passes it over to John Burkart.

The company reported strong financial results for the quarter, with double-digit same-store NOI growth driven by the Senior Housing operating portfolio. The Outpatient Medical business also performed well, with leasing velocity and occupancy rates remaining high. The Senior Housing sector has seen seven consecutive quarters of over 20% NOI growth, and the company is confident in its ability to continue this trend due to a favorable demand-supply outlook and focus on improving operations. Revenue grew by 8.6%, driven by both occupancy and rate increases. Expenses were positively impacted by a reversal of inflationary pressures and the company's operating leverage.

The company is focusing on driving the difference between revenue per occupied room and expenses per occupied room higher through operational scaling benefits. They have made the strategic decision to focus on leasing to lower acuity assisted living residents, which has resulted in a healthier rent roll and higher NOI. The company is also making strides in optimizing their portfolio and improving the resident and employee experience through the implementation of a tech platform. This platform will streamline the business and integrate information from the website, CRM, ERP, and care module.

Welltower is successfully leveraging technology to improve the overall resident experience and reduce administrative time. They have also created a Cap team to execute projects with their operators, resulting in lower costs and improved execution. This initiative has expanded beyond their original plans and has the potential to contribute to their growth in 2025 and beyond. The success of this initiative requires a high level of collaboration between operating partners, vendors, and corporate employees. The company is focused on improving both resident and employee experience and is well-positioned for compounding earnings growth in the future.

Nikhil Chaudhri discusses the company's investment activity and accomplishments over the past three months. They have closed on $1.6 billion of transactions and are working towards closing the rest by the end of the year. The company has announced an additional $2.1 billion of investment activity, primarily in seniors and wellness housing assets in the U.S. and UK. This has helped grow their relationships with various operators and solidify their reputation as a top choice for sellers. There has also been an increase in interest from Asian and European investors in the company's target markets.

The company has seen an increase in inquiries from foreign buyers for senior housing assets, and during the quarter, they had a net loan funding of $349 million. They were able to close a creative transaction with a previous counterparty, acquiring a subset of their portfolio at a 35% discount and offering a 10% yield on a $456 million first mortgage loan for another subset of assets. The loan is underwritten to achieve an unlevered IRR of over 10%.

In the second quarter, Welltower reported a net income of $0.42 per diluted share and normalized funds from operations of $1.05 per diluted share. They also saw a 11.3% year-over-year growth in their total portfolio of same-store NOI. The performance of their triple-net properties in the quarter showed a coverage stat of 16.7% year-over-year growth after adjusting for relief funds received in Q2 2023.

In the Senior Housing triple-net portfolio, same-store NOI increased and EBITDA coverage reached a post-COVID high. Welltower transitioned 36 properties to RIDEA, which may be dilutive in the short-term but beneficial in the long-term. Same-store NOI in the long-term post-acute portfolio also increased, and EBITDA coverage improved. The company raised $1.6 billion in gross proceeds and refinanced their revolving line of credit to increase capacity and reduce borrowing costs.

The company values its longstanding relationships and has recently issued convertible notes to address upcoming maturities. This has increased their total liquidity and improved their credit ratings. The company has also updated its full year 2024 guidance, with an increase in net income and normalized FFO due to improved NOI and accretive investment and financing activity. However, there is a slight decrease in G&A expectations and a near-term drag from triple-net to RIDEA conversions.

The company has increased its FFO guidance for the year, with a projected total portfolio same-store NOI growth of 10% to 12.5%. This is driven by revenue growth and expense growth. The company's management team is also considering potential headwinds in the investment market, such as an aging society and uncertain factors such as inflation and interest rates. They do not have definitive answers to these questions.

The paragraph discusses the impact of reduced tailwinds on investments and the company's strategy. It also mentions the potential benefits of a lower interest rate environment and the aging population, and how the company is focusing on AL product in micro markets to achieve pricing power.

The speaker discusses the uncertainties in the economy and how they are affecting the Senior Housing industry. They believe that the industry is in the early stages of a period of growth and are confident in their ability to generate long-term returns for shareholders. They also mention the transition from triple-net to RIDEA and the potential for future cash flow upside. The speaker concludes by stating that they believe the best days for the company are still ahead and open the call up for questions.

Shankh Mitra explains that Welltower is focused on growing with exceptional operators and converting triple-net assets to RIDEA over time. They are considering long-term growth prospects and inflation, but are working on opportunities with partners. Vikram Malhotra asks about the next phase of growth, and Shankh Mitra discusses the sustainability of internal expenses and better pricing power.

Shankh Mitra responds to a question about the acquisitions and external growth of the company. He states that the industry is currently at low-80s occupancy and there is potential for occupancy and cash flow to increase. He also mentions that the company is not a yield buyer but a total return buyer. Mitra predicts that occupancy may increase in 2025 due to platform initiatives, and notes that RevPOR growth was close to 7% for properties with 90% or higher occupancy.

The speaker, Shankh Mitra, responds to a question about the company's Senior Housing guidance. He explains that they did not revise the same-store revenue guidance for the segment and attributes the lower sequential occupancy growth in the quarter to thousands of units being under renovation and offline. He also mentions that it is too early to comment on how the next couple of years will play out, but they are pleased with how the summer season is going.

The speaker reiterates the company's commitment to prioritize long-term growth over short-term gains. They are confident in achieving their NOI growth targets and have seen positive results in the summer selling season. The company does not have plans to leverage its balance sheet, but it provides optionality for future investments. The business model can withstand any macroeconomic changes. There is a trend of organic deleveraging and increasing free cash flow, which may lead to a change in the company's capital structure in the long term.

The company does not believe that staying at its current leverage level is sustainable and is focused on tapping into its potential for growth. They are not able to predict their future margins, but believe they will either increase through operational improvements or cost reductions. They are also looking for acquisition opportunities in the current investment environment.

The speaker says that competition is not a concern for them because they are focused on investing in properties with future potential and bringing their own operators. They are not interested in buying stable properties with high occupancy, as they are looking for assets with room for growth. They have been able to invest a large volume of capital because they are approached directly by sellers before the properties go to market. They also consider their existing portfolio and operators in specific markets when making investment decisions. The next question is about the transaction market and whether they are seeing more stabilized or value-add properties being traded. The speaker responds that it depends on the availability of debt and they are more interested in future upside rather than current cash flow. They do not buy properties that go to market and only consider assets that fit their investment strategy.

Juan Sanabria asked a question about the growth of the SHO business in 2025, specifically regarding platform investments. Shankh Mitra responded by saying that they are pleased with the occupancy growth in recent years, but they hope that the initiatives John has been working on will enhance that growth even further. They are not able to determine the exact success until the end of the year.

A question was asked about the company's development pipeline and commitments, specifically regarding the mix between Senior Housing and Outpatient Medical investments. The speaker clarified that the majority of their development projects are in Wellness Housing, which is age restricted or targeted with low service. They have not had success with Senior Housing developments. The next question asked about the organic growth profile of Wellness Housing compared to traditional Senior Housing, and the speaker mentioned that since 2018, their Wellness Housing business has grown by 8-10% despite the pandemic. This shows the company's excitement for this business.

During a conference call, Ronald Kamdem from Morgan Stanley asked a question about the company's cash flow statement. Shankh Mitra, the operator, responded by saying that they are still in the early stages of seeing upside potential, and that John, who is in charge of operations, mentioned being able to drive lower costs and faster turnaround times. Mitra also mentioned that time is more important than money when it comes to occupancy and generating NOI. They are excited about the potential for free cash flow generation and believe they are still in the early stages of this. Another caller, Rich Anderson from Wedbush, asked a question but it is not specified in this paragraph.

The speaker disagrees with the assumption that it is harder to reach 95% occupancy than to stay at 95%. They also state that their first goal is to stabilize assets and increase RevPOR through supply and demand. They mention buying lower occupancy buildings and constantly reloading their portfolio.

The speaker mentions that it will take a few years to get to the desired occupancy level, and that the NOI growth is dependent on operational leverage and flow through margins. They also mention the focus on lower acuity customers and the potential for sustained RevPOR and ExpPOR spread in the long term. They compare the multifamily world to senior housing in terms of rent and expenses.

The speaker discusses the company's focus on optimizing NOI and increasing NOI by targeting lower acuity residents with longer stays and lower care needs. They mention that they are at the beginning of this process and have a ways to go. They also mention that this is separate from other operating initiatives that have a positive impact on both RevPOR and ExpPOR. The speaker is then asked about the SHO portfolio's operating margin and what needs to happen to get back to pre-pandemic levels. They clarify that their goal is not just to return to pre-pandemic margins, but to reach even higher levels, and the key to achieving this is increasing occupancy.

The CEO of a senior housing company discusses the state of the business pre-pandemic and the goal of increasing occupancy. He also mentions the timeline for stabilizing Wellness Housing developments and the impact of falling lumber prices on development costs. The company is not speculating on the percentage of distressed housing opportunities they would be willing to buy.

The company's strategy is to focus on building regional density and growing with their operating platforms. They carefully consider each asset before making a decision to acquire it. They have recently acquired 7000 units in 82 different communities through deliberate, strategic decisions. They do not make large acquisitions without careful consideration. They have been approached by many parties seeking help with debt problems. The conference call has now ended.

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