Jonathan Hughes • Raymond James Financial

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CFO James Barry explained that Q2 faced a tougher year-over-year comparison. SVP David Corak detailed the monthly performance, noting a tough April, strong May, and weaker June, which led to balancing rate and occupancy while reducing concessions and ad spend. Corak then provided a comprehensive FFO bridge, highlighting accretion from the Maple Bond deal, lower revolver costs, JV debt recaps, operational growth, and reduced G&A.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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%.

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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.

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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.

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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.

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