Jonathan Hughes

Jonathan Hughes inquired about the new compensation plan, specifically whether it was presented as an all-or-nothing proposal by the board, and if the RIDIA 6.0 structure, which ties operator wealth creation to Welltower stock, will be extended to other operating partners beyond the initial three.

Answer

CEO Shankh Mitra stated that the board spent extensive time with consultants to develop the compensation plan, which aligns with the five tenets of incentive design. He clarified that the initial three operators are a "founding class" for RIDIA 6.0, and while regional density is important, the company will consider opportunities to include other operating partners in the future to align interests.

Jonathan Hughes of Raymond James Financial asked about Welltower's future growth strategy, noting the company has nearly achieved its ten-year, $30 billion capital deployment goal in just three years and surpassed a $100 billion market cap.

Answer

CEO Shankh Mitra responded by stating the company avoids a 'success' mindset to prevent complacency, emphasizing that Welltower remains in 'sprint mode' with an 'audacious dream of transforming this industry.' He described the large capital and market cap figures as a means to an end, not a destination, and stressed the team's focus is on the journey and continued execution.

Jonathan Hughes questioned the year-end leverage target of 3.5x net debt to EBITDA, asking why Welltower would lever up instead of using its arguably lower-cost equity for funding.

Answer

CEO Shankh Mitra countered that the company's cost of equity is much higher than perceived due to its significant long-term growth potential. Executive Tim McHugh clarified the projected leverage increase is not from issuing new debt but from deploying existing cash from the balance sheet for investments, noting their guidance even assumes paying off debt.

Jonathan Hughes from Raymond James asked if slowing new development will make it more challenging to acquire lease-up properties, potentially impacting Welltower's external growth strategy.

Answer

Executive Vice President Nikhil Chaudhri stated that opportunities remain plentiful due to the operational complexity of the business, allowing Welltower to find underperforming assets regardless of the development cycle. CEO Shankh Mitra added that the massive oversupply from the last decade ensures a steady stream of owners needing liquidity.

Jonathan Hughes asked about the sustainability of the historically wide gap between unit revenue and expense, and how incremental margins will evolve as occupancy surpasses 90%.

Answer

Tim McHugh (EVP & CFO) explained that flow-through margins were strong at over 60% and are expected to approach 70% as occupancy returns to pre-COVID levels of 88% and beyond. He noted that one operator's temporary higher expenses are currently masking even stronger underlying performance, which is closer to 67%.

Jonathan Hughes of Raymond James Financial inquired about the drivers of revenue growth volatility and its impact on rate and occupancy management for the rest of 2025. He also requested a detailed bridge from the Q2 FFO per share to the higher implied guidance for the second half of the year.

Answer

CFO James Barry explained that Q2 faced a tougher year-over-year comparison, which was anticipated in guidance. SVP David Corak detailed the monthly demand fluctuations, noting the company successfully grew occupancy while reducing concessions and marketing spend. Corak then provided a comprehensive FFO bridge, citing accretion from the Maple Bond transaction, lower interest costs on the revolver, sequential NOI growth, higher managed REIT income, and a lower G&A run-rate as key drivers for the expected growth.

Jonathan Hughes of Raymond James Financial inquired about the current investment pipeline, specifically asking for details on yields for US senior housing opportunities and asset sales. He also asked for an update on the rent payment trajectory for their operator, Maplewood.

Answer

Vikas Gupta, CIO, stated that the investment pipeline remains strong across US and UK assets, with a continued focus on achieving 10% initial yields. Robert Stephenson, CFO, and Vikas Gupta clarified the Maplewood situation, noting that guidance assumes the current monthly payment of $6.1 million continues, with potential for upside as the operator improves occupancy and rates.

Jonathan Hughes of Raymond James inquired about the recent payment issues with Genesis, asking for details on its capital structure, accounting basis, and portfolio geography. He also asked about the recent UK portfolio acquisition, specifically the drivers behind the attractive 10% yield and how the deal was structured.

Answer

CEO Taylor Pickett addressed the Genesis situation, describing it as a one-time liquidity issue stemming from their ABL lender and expressing confidence in Omega's strong collateral position. He noted Genesis is on a cash basis for rent. CFO Bob Stephenson clarified the loan is on an accrual basis due to strong collateral. CIO Vikas Gupta explained the UK deal's favorable 10% yield was due to Omega's unique platform and ability to provide a quick, comprehensive solution for a seller looking to exit, which limited competition.

Jonathan Hughes asked for expectations on cash earnings, specifically whether the gap between Adjusted FFO (AFFO) and Funds Available for Distribution (FAD) would remain similar to last year's levels.

Answer

CFO Bob Stephenson stated that while they don't provide FAD guidance, the relationship between AFFO and FAD should be pretty similar to Q4. He highlighted two factors that will close the gap: annual escalators on the 26% of revenue on a straight-line basis will boost FAD but not AFFO, and the capitalized interest from the Maplewood development asset will cease as it converts to revenue-generating.

Jonathan Hughes asked about Omega's ability to reset rents on expiring triple-net leases given high EBITDAR coverage and questioned if the company's leverage target of 4-5x has changed due to its current decade-low leverage.

Answer

CEO C. Pickett explained that most leases have operator renewal options, which structurally limits opportunities for significant rent resets. CFO Robert O. Stephenson confirmed the 4-5x leverage target remains but noted that strong equity issuance and accretive investment spreads could continue to drive leverage lower.

Jonathan Hughes asked about the drivers behind the strong volume of early lease renewals, questioning if tenants were trying to lock in rates before a supply inflection or pull forward demand ahead of potential tariffs.

Answer

CFO Matts Pinard explained it's a combination of factors. He stated that tenants perceive an opportunity to secure better rates ahead of a potential market inflection point. Pinard also pointed to pent-up demand from the previous year and highlighted the 1 million square feet of new leasing in Q2 as a strong indicator of underlying demand, despite longer decision-making timelines due to macro factors.

Jonathan Hughes asked for clarification on the accounting treatment for Steward's catch-up rent in Q4 and questioned the rationale for presenting a dividend payout ratio adjusted for absorption-related capital.

Answer

Interim CFO Austen Helfrich confirmed a positive reserve release related to Steward is expected in Q4. Executive Todd Meredith explained that presenting the payout ratio adjusted for absorption capital is intended to provide a forward-looking view of the dividend's sustainability as the significant, near-term capital spend for occupancy gains converts to recurring cash flow, projecting the ratio will decline below 100% in 2025.

Jonathan Hughes inquired about the trade-off between investment volume and deal complexity, the composition of the remaining $200 million pipeline, and the company's interest in RIDEA or seniors housing operating structures.

Answer

President and CEO David Sedgwick confirmed that more complex deal structures, such as JVs, are often necessary to secure exclusive, off-market transactions through key relationships. He also stated that while CareTrust is open to a compelling RIDEA opportunity, its primary focus remains on its robust triple-net lease business. Chief Investment Officer James Callister clarified that the remaining pipeline is almost entirely composed of real estate acquisitions, not loans, with yields pushed higher by deal structuring.

Jonathan Hughes inquired if the quarter's professional fees were related to a large transaction or platform improvements, and whether that transaction was included in guidance. He also asked about other tenants on the watchlist and the company's long-term strategy given its persistent NAV discount and cost of capital.

Answer

CEO John McRoberts stated the fees were for a large, complex transaction not currently in guidance. CFO Jeffery Walraven and Mr. McRoberts confirmed no other tenants pose a concern, highlighting the strong performance of operators like Vibra and Life Generations. Regarding strategy, Mr. McRoberts acknowledged that if the stock's valuation does not improve, management would consider all options to maximize shareholder value, including a potential sale of the company or its assets.

Jonathan Hughes of Raymond James & Associates asked about the rationale for making a $5 million loan instead of a direct acquisition of the Adora property, the future relationship with OnPointe, leasing updates for the Brownfield asset, and the definition and expected yield of 'integrated medical facilities'.

Answer

CEO John McRoberts explained the loan structure for Adora facilitates an ownership change and provides an option to purchase the asset after monitoring its stabilization. He stated the current focus is on improving OnPointe's performance before considering new deals. McRoberts also defined 'integrated medical facilities' as properties with fewer, larger tenants and higher acuity, targeting yields in the low-eight percent range.