Welltower Inc. (WELL) Earnings

Management highlights

- Overall Q2 2026 Financial Performance • Reported net income attributable to common stockholders of $0.61 per diluted share, normalized FFO of $1.60 per diluted share, representing 25% YoY FFO growth, a record quarter for the company. • Revenue grew 39% YoY and adjusted EBITDA grew 36% YoY, driven by the 2025 disposition of the outpatient medical portfolio and redeployment of proceeds into higher-growth senior housing assets. • The company maintained an underlevered balance sheet, ending the quarter with net debt to adjusted EBITDA of 2.99x, matching the year-ago level, with $2.1 billion in cash on hand. • The quarterly dividend was increased by 15% to 85 cents per share, marking the third consecutive year of dividend increases. - Portfolio & Operational Strategy • The company has completed a large-scale portfolio rotation away from bond-proxy outpatient medical assets toward high-growth senior housing, aligned with a long-term view of structural macro headwinds including de-globalization, aging populations and labor scarcity, higher long-term inflation, and rising interest rates. • Welltower has transitioned from a capital-focused asset manager (Welltower 2.0) to a customer-obsessed, operations and technology-first company (Welltower 3.0), with heavy investment in talent and the Welltower Business System (WBS) to drive organic cash flow growth. • WBS deployment is accelerating, with 240-250 assets completed in 2025 and a target of 600-700 assets in 2026; full deployment across the current 2,500-asset portfolio is expected to take approximately 3 additional years, with early results showing meaningful cash flow improvements. • The company benefits from growing cross-operator collaboration under the RIDEA structure, with aligned incentives creating a shared ecosystem focused on incremental operational improvements rather than zero-sum competition. - Capital Allocation & Investment Activity • $3.6 billion in dispositions have been completed year-to-date, with the company actively pursuing off-market acquisition opportunities, 96% of transactions in the current pipeline are off-market. • The remaining $6 billion in committed acquisition activity consists primarily of newer-vintage (average age 6 years) senior housing assets across the U.S., U.K., and Canada, purchased at a ~20% discount to replacement cost with an average in-place occupancy of 75%, providing significant embedded upside as operations are improved via WBS and operator transitions. • The company maintains strict investment discipline, having walked away from tens of billions of dollars in transactions that did not meet its quality, return, and structural criteria; it focuses on per-share FFO and cash flow growth rather than spread arbitrage or asset size. • Both Moody's and S&P revised the outlook on Welltower's investment-grade credit rating to positive in 2026, confirming the company's differentiated access to low-cost capital as a strategic advantage.

Guidance

- Full-year 2026 guidance was raised for the second consecutive quarter, with the midpoint of normalized FFO increased 12 cents to $6.40 per diluted share, bringing the guidance range to $6.36 to $6.44 per diluted share. The full-year net income guidance range is $3.11 to $3.19 per diluted share. - The 12-cent midpoint FFO increase is broken down into 3 cents from higher-than-expected senior housing operating NOI, 8 cents from better-than-anticipated investment and financing activity, and 1 cent from favorable income tax surprises. - The company projects full-year total portfolio same-store NOI growth of 13.75% to 16%, driven by segment growth of: 2-3% for outpatient medical, 2-3% for long-term post-acute, 3.5-4.5% for senior housing triple-net, and 18.5-21.5% for senior housing operating. - For the senior housing operating segment, the midpoint of guidance assumes 9.3% total revenue growth (5.1% REVPOR growth and 350 basis points of year-over-year occupancy growth) and 1% overall expense growth. - Year-end 2026 net debt to adjusted EBITDA is expected to be approximately 3x, in line with prior management expectations.

Segment performance

1. Senior Housing Operating (SHOP) Portfolio: Same-store NOI increased 20.5% year-over-year, contributing approximately 70% of the company's total NOI, marking the 15th consecutive quarter of NOI growth exceeding 20%. This segment drove overall portfolio same-store NOI growth of 15.5% YoY, the second highest level in company history. REVPOR grew 5.2% YoY, same-store occupancy increased 330 basis points YoY, and sequential spot occupancy grew 100 basis points in the quarter, with expense per unit growing just 0.7% YoY. Flow-through margins hit 65%, and overall operating margins expanded 300 basis points YoY to over 32%, exceeding pre-COVID levels. 2. Senior Housing Triple-Net Portfolio: Same-store NOI increased 5.2% year-over-year, with trailing 12-month EBITDA coverage of 1.23x. 3. Long-Term Post-Acute Portfolio: Same-store NOI grew 2.9% year-over-year, with trailing 12-month EBITDA coverage of 1.3x. 4. Outpatient Medical Portfolio: Expected full-year same-store NOI growth of 2-3% as part of guidance projections.

Risks & headwinds

- Macro risks: Continued macroeconomic and geopolitical uncertainty, including ongoing conflicts, volatile interest rates, and structural shifts such as long-term labor scarcity, aging populations, and higher structural inflation that could increase operating costs. - Execution risk: Full WBS deployment across the entire portfolio is a multi-year initiative, and realized margin and cash flow improvements depend on successful execution of operational and technology changes. - Acquisition performance risk: Newly acquired non-same-store assets have lower starting occupancy and margins, and upside from operational improvements may take longer to realize than projected. - Investment risk: While the company maintains strict investment discipline, unforeseen changes in market conditions could impact projected returns on new development and acquisition activity.

Analyst Q&A

• Q: What is the fundamental difference between Welltower's business model and that of shadow bank competitors, and what is the performance of portfolio assets with occupancy above 95%? /

  A: Unlike shadow banks that focus purely on spread investing and cost of capital arbitrage, Welltower is an operations-first company that creates value by improving resident experiences and enhancing the performance of owned assets day-to-day, with capital allocation as a complementary function. For the 95%+ occupancy segment of the portfolio, REVPOR growth exceeds 6% and NOI growth exceeds 20% year-over-year.

• Q: What is driving the recent acceleration in transaction activity, and why do sellers choose Welltower even when competing bids may be higher? /

  A: 96% of Welltower's recent transactions are off-market, with the firm proactively targeting high-quality assets rather than waiting for deals to come to market. A key driver of supply is generational ownership transfer: after several years of tough industry conditions and as cash flows return to pre-COVID levels, many founding and older-generation owners are ready to retire and exit the space. Welltower's ability to close quickly with certainty, paired with its long-standing industry relationships, makes it a preferred partner for sellers.

• Q: How can Welltower achieve attractive development yields when industry-wide construction costs make new development uneconomical for most peers? /

  A: Most of Welltower's current development commitments are organic expansions of existing portfolio assets or came bundled with acquisitions of existing platforms, where land was assembled over many years by prior owners in highly desirable, supply-constrained locations. Welltower only pursues development when the economics work, and has walked away from multiple long-held land positions where projected returns no longer meet thresholds. In the luxury senior housing segment where Welltower operates, prohibitive construction costs create natural supply constraints that benefit existing owners.

• Q: How should we think about performance and growth for the lower-occupancy non-same-store portion of the senior housing operating segment? /

  A: The lower occupancy and margins in non-same-store assets are expected, as this pool is made up of large volumes of recently closed acquisitions (the pipeline averages 75% occupancy) that have not yet been seasoned. As assets are transitioned to new operators and WBS is implemented, occupancy will rise, and once it crosses the 80% threshold, margins will expand meaningfully. Non-same-store assets currently have ~550 basis points lower occupancy than the mature same-store portfolio, and will transition into the same-store pool after five quarters as is consistent with Welltower's long-standing accounting policy.