WELLTOWER INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Launched private fund management business.
• Significant advancement in Welltower business system, proprietary end-to-end operating platform.
• Key promotions solidifying leadership.
• Successful corporate rebranding reflecting transformation to data science and technology-driven operating company.
• Credit ratings upgraded to A- (S&P) and A3 (Moody's).
• Seniors' housing operating business strong: 10th consecutive quarter of same-store net operating income growth >20%, Q1 occupancy growth 400 basis points, sequential average occupancy growth 60 basis points, RevPOR growth nearly 6%, same-store revenue growth 9.9%, margin expansion nearly 300 basis points.
• Transaction activity: $6.2 billion of pro rata acquisitions in 2025, including $4.6 billion Canadian acquisition of Amica Senior Living and $1 billion additional acquisitions.
• Balance sheet: Net debt to adjusted EBITDA 3.3 times, record low; $9 billion balance sheet liquidity.

Segment Performance

• Outpatient medical segment: Trended higher in same-store occupancy (94.5% year-over-year and sequential), with 2.7% year-over-year same-store NOI growth and tenant retention over 94%.
• Senior housing operating portfolio: Q1 marks 10th consecutive quarter with year-over-year same-store NOI growth exceeding 20%. Year-over-year same-store revenue growth 9.6%, driven by 400 basis points occupancy growth and nearly 6% RevPOR growth. Achieved nearly 300 basis points year-over-year margin expansion.

Guidance

• Raised midpoint of full-year FFO guidance by $0.10 per share to $4.97.
• Full-year 2025 net income attributable to common stockholders expected $1.70 to $1.84 per diluted share, normalized FFO $4.90 to $5.04 per diluted share ($4.97 midpoint).
• Total portfolio year-over-year same-store NOI growth expected 10% to 13.25%, driven by various segments with revenue growth 9% and expense growth 5.25%.

Risks

• Macroeconomic uncertainty: Potential long period of higher inflation and interest rates, downward pressure on asset prices.
• Credit spreads widening across investment grade, high yield, and asset-based financing markets, impacting asset prices.
• Equity side trends: Large pools of capital reducing exposure to private assets, exacerbating negative impact on asset prices.

Question and Answer

Q: Good morning, thanks for your question. Congrats on the strong internal and external results. I wanted to focus on the platform or the business systems that you've been talking about for a while. I mean you're clearly having very strong internal and external activity. And I'm wondering how the business system overlay now. I think it's been two years. How does that parlay into both sort of the margins but also CapEx control. Just I guess, accentuating both the magnitude and the duration of the performance?

A: The Welltower business system is a complex adaptive system aiming to balance chaos and order. It aims to streamline flow and minimize friction in human interactions in communities, providing site-level employees with real-time actionable insights to free up time for human touch, with a long runway of margin expansion.

Q: Thank you, good morning. Shankh, we really enjoyed your annual shareholder letter this year. Something we found particularly interesting was the section on how your data science platform has improved your velocity to market in the transaction process. Would you mind walking us through the process in a bit more detail? And then also maybe giving some color around what percentage of your pipeline do you believe this proprietary technology is directly responsible for?

A: Our proprietary platform analyzes 10 million-plus micro markets, leveraging unique data sets, enabling initial interest within minutes, predicted performance within a day, preliminary pricing feedback within a week, and definitive terms within two weeks, upending the traditional real estate transaction timeline. The exact percentage of pipeline directly responsible isn't specified but has significantly accelerated velocity to market Q: Hi, good morning. Thanks for taking questions. I was curious, just getting your current size, how can you frame how you continue to think about of sustained growth going forward?

A: As an operating company in a real estate wrapper, size drives network effect. Capturing more data, strengthening data science platform and business system, widening performance gap with competitors, so growth widens with size, unlike levered beta spread investing vehicles Q: Hi, good morning. Thank you for the prepared remarks and commentary. Tim, you reiterated the 3.5 leverage target by year-end. That's up from 3.3 today, so flying a levering up in the next few quarters. I guess, why utilize debt when your cost of equity is arguably lower and would be more accretive and it never has to be refinanced. I'm just trying to better understand that near-term leverage target and how you think about the right capital structure or target capital structure on a longer-term or normalized basis?

A: Driving leverage higher is about putting cash to work off the balance sheet. Fully funded for capital activity, even paying off $1.25 billion in debt, with guidance fully accounting for capital activity Q: Hey. Just my question is, look, clearly, occupancy jumped off the pace this quarter. And you guys put a couple of slides in the presentation, including the acceleration from January, February to March. I guess I'd love to sort of -- I know occupancy and pricing matters, but just staying on the occupancy front, just internally, what are expectations sort of long term for your markets? And then is this pace sustainable? Could it accelerate? Just how are you guys thinking about that?

A: Expect long journey to higher occupancy as business optimizes with fewer operating partners and greater regional density. Current pace is a guess, an educated one, but business is June to October, will see how summer leasing plays out. If not confident, wouldn't have raised guidance Q: Hey, thanks. Good morning. Great quarter, of course. So Shankh, you said something fewer operating partners that are deeper more densified in their geographies, I'm paraphrasing, but something like that. So where do you see that sort of that optimal sort of cadence in terms of how big of a pie chart of operating partners is the right number for you guys, call it three, five years from now. And out of curiosity, -- do you sense any sort of pushback given the current climate doing business with operators in Canada and the UK. What are some of the sort of variables as it relates to that ultimate plan to reduce your operator -- the number of your operators in your portfolio?

A: Optimal number is fewer, focusing on regional density and existing high-performing partners. No pushback, work with operators shoulder to shoulder, iterate with them, with examples like Amica and Care UK showing aligned views Q: Hi, good morning, everyone. Just a couple of questions on senior housing. First, given that we are in a more uncertain macro environment, I was hoping to get a feel for how leading indicators for senior housing looked in April such as maybe tour volume, leads, conversions into move-ins, how those are tracking versus a year ago? And then in terms of the guidance and the decision to raise the revenue guidance in senior housing clearly, you have some confidence in the business. But maybe just give us a feel about how, again, the macro environment might have impacted that guidance? And do you even build in some cushion there, preventing and, let's say, there would have been an even bigger raise in sort of a more clear economic environment?

A: Focus not on monthly data, but April trends are seen, and guidance raised based on educated guess. Increased uncertainty leads to wider range of outcomes, but current business trends show no weakness Q: Yeah, thanks. I just wanted to touch on like how you guys view the spread between RevPOR and ExpPOR. I know the current spread has been solid and is well above or at least higher versus historical levels. How can that trend going forward? I mean is it fair to assume that it could stay at this level just because I know there's some sensitivity to push rate -- or does like the Welltower business system rollouts kind of changed that formula a little bit and there is some room for that to continue to expand?

A: Expect to grow margin over time, outgrowing revenue past per unit expenses. Welltower business system rollouts enable continued margin expansion into future Q: Yeah, hi. The same-store show portfolio, it looks like it's about 88% occupied but what portion of it is stabilized or close to it? And how is RevPOR growth in those assets been compared to the 6% average.

A: 90%-plus occupied part of the portfolio (SIM) has grown RevPOR 7%-plus, with the rest of the portfolio having varying RevPOR growth, from flat to low single-digit growth