Welltower Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Capital Allocation: Over $23 billion in incremental transactions YTD, year-to-date activity over $33 billion. Exiting Outpatient Property Management, acquiring HC-One ($1.2 billion) and Barchester ($5.2 billion) in U.K., focusing on transforming into pure-play rental housing platform for aging population.
• Welltower 3.0: Operations and technology-first platform, retooling organization with new talent (e.g., Jeff Stott as CTO, Russ Simon as EVP of Operations). New incentive structure aligning management, operators, and site-level employees with Welltower stock.
• Business Systems: Welltower Business System (WBS) driving results, with senior housing portfolio same-store NOI growth and operational leverage from higher occupancy, amplified by WBS initiatives

Segment Performance

• Senior Housing: Q3 marked 12th consecutive quarter with same-store NOI growth exceeding 20%. Year-over-year organic revenue growth ~10% due to 400 basis point occupancy gain and strong pricing power. U.K. portfolio saw 550 basis point year-over-year occupancy ramp driving 10.4% revenue increase. Operating margins rose 260 basis points with RevPOR outpacing ExpPOR.
• Outpatient Medical: Under contract to sell an 18 million square foot portfolio for $7.2 billion, resulting in $1.9 billion gain on sale. Structured to retain $1.2 billion preferred equity stake with 8% coupon.
• Long-Term Post-Acute: Same-store NOI grew 2.7% year-over-year with trailing 12-month EBITDAR coverage of 2.02x

Guidance

• 2025 net income attributable to common stockholders: $0.82-$0.88 per diluted share; normalized FFO: $5.24-$5.30 per diluted share (midpoint $5.27).
• Medical office portfolio sale expected $1.9 billion gain, $400 million in Q4 2025, $1.5 billion in 2026.
• 2035 executive continuity program: $1.1 billion upfront cost in Q4 2025, recurring amortization over 10 years.
• Normalized FFO increase due to higher NOI in senior housing, accretive capital allocation, FX, and tax benefits

Risks

• Execution risk in acquisitions, dispositions, and new leadership implementation.
• Market uncertainty affecting asset prices and broader economic conditions.
• Alignment of incentives and potential challenges in retaining talent

Question and Answer Q: Congrats on the strong results, all the transactions. I guess just, Shankh, you've outlined a lot of changes, portfolio, personnel, comp plan, et cetera. And I'm just trying to understand like you talked about Welltower 3.0, but things have been going really well for a while. The industry is -- you've got leading results, stock 2x, 3x depending on when you measure it. So I'm just trying to get a sense of like ultimately, 2 things. One, in general, is there a goal? Is there something you're trying to prove? And kind of how should we think about the growth engine from a cash flow standpoint from here on?

A: Thank you, Vikram. We're not trying to prove anything. We fundamentally believe -- I personally fundamentally believe that we're here to contribute. We have really nothing to prove. Fundamentally, what we are trying to do is to take away if you just think about agency problem from the system across the board and try to align people to be owners, right? So align interest with our owners across the way through the whole ecosystem. That's all we are trying to do. And bringing sort of the second question you asked, which is a very important one, which is how do we elongate the growth curve well into the future. Making real money is all about duration. And duration of growth is all that it matters. We're too focused on near term. We're too short term in this world. And if you think about -- think through how real value creation works. It's all about duration. So part of your question was why things are going well, why are we again disrupting it? Think about things were going well -- very well for Netflix when they're killing it by sending people DVDs. And what would -- where would they be if that's what they're still doing today, right? If you don't disrupt your organization from within, somebody else will do it for you. And so that's what we are trying to do, thinking through what the future of this business will look like, and we have taken it on ourselves to transform this business digitally to get to a better outcome for our customers and site level employees. That's all we are doing, and we hope that will generate very significant growth and compounding of cash flow over a period of time for our owners. And frankly speaking, that's the journey we're in.

Q: And our next question comes from the line of Jonathan Hughes with Raymond James. And congrats on the announcements. A lot to talk about, but hoping you can share more details on this new comp plan. Was that presented by the Board as a team package as an all or nothing proposal? Did it evolve into that? And then the 3 operators that are now similarly changing their incentive fee to take units, is that structure being offered to other partners as part of RIDEA 6.0 to further align them with shareholders, now management and extend the duration of hopeful outperformance?

A: Okay. So let me answer the first question, and then we'll go to your second question. So our Board has spent enormous amount of time with leading comp consultants, several law firms and many, many consultants and advisers for months at this point and spend hundreds and hundreds of hours to come up with what they consider is the right plan, which you saw. So I have really nothing to add to that other than the fact that it aligns with the 5 tenets of the incentive design that we have always talked about, right? Simple, significant, earned as a team, duration matched and nongamable, right? That's really what it is. As I said, the first 3 operators that we mentioned, they're the founding class, they don't necessarily have to be the only ones, right? We are trying to simply align the interest of our operating partners with our owners. And obviously, as you know, that regional density is very important to us. So if there will be opportunities to bring in other operating partners into the fold, we'll consider it. But at this point in time, we only have the 3 partners who are the founding class of this new program, and we'll see where future gets us.