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Welltower Inc. is a real estate investment trust (REIT) that focuses on transforming health care infrastructure by investing in seniors housing, post-acute communities, and outpatient medical properties across major markets in the United States, Canada, and the United Kingdom . The company generates revenue primarily from resident fees and services, rent, interest income, and interest earned on short-term deposits . Welltower aims to protect stockholder capital and enhance value by paying consistent dividends and increasing them through annual NOI growth and portfolio expansion .
- Seniors Housing Operating - Manages seniors housing facilities directly, capturing both rental income and resident fees, and is the largest contributor to the company's net operating income.
- Triple-net - Leases properties to operators under long-term leases, providing a stable income stream through rental agreements.
- Outpatient Medical - Includes properties leased to health care providers for outpatient services, supporting the delivery of medical care outside of hospital settings.
What went well
- Welltower is actively acquiring high-quality seniors housing assets at attractive valuations, capitalizing on distressed opportunities in the market, leading to potential substantial occupancy and cash flow upside. The company has $4.9 billion of transactions closed or under contract in 2024 , with assets offering significant occupancy growth potential from the low-80% range . Executives emphasize that they are in the very early inning of the growth cycle .
- Strategic initiatives, including leveraging technology and operational improvements, are expected to drive significant growth and margin expansion starting in 2025 and beyond . The company is dramatically driving down costs by 20% to 50% , and their initiatives have the potential to meaningfully contribute to growth in 2025 and beyond . They are focused on building regional density and growing with operating partners, emphasizing a total return approach .
- Financial performance is strong, with normalized FFO of $1.05 per share, representing 16.7% year-over-year growth (19% adjusted) , and same-store NOI growth of 11.3% year-over-year . Credit rating agencies S&P and Moody's both moved their outlooks on Welltower's ratings to positive during the quarter , reflecting the company's strong balance sheet and growth trajectory.
What went wrong
- Despite falling lumber prices, Welltower's overall construction costs remain meaningfully higher than they were a couple of years ago, impacting development margins.
- Operating margins in Welltower's senior housing operating portfolio remain in the high 20% range, below pre-pandemic levels, and improving margins requires higher occupancy, which may be challenging.
- Welltower is being cautious about acquisitions of distressed senior housing properties, with no set targets, potentially limiting growth opportunities.
Q&A Summary
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Growth Drivers and Occupancy
Q: What will drive the next phase of growth?
A: Management sees substantial occupancy upside, as industry occupancy is in the low 80% range. They expect tremendous cash flow growth as occupancy increases beyond 80%, where margin flow-through improves significantly. They focus on assets with occupancy upside and believe they are in the very early innings of the growth cycle. -
Margins and Operating Leverage
Q: How high can operating margins go?
A: While not speculating on exact margins, management aims to exceed pre-COVID levels. Achieving higher occupancy and implementing platform initiatives are key to margin expansion. They stress that merely returning to pre-pandemic margins would mean they have failed. -
Acquisition Strategy
Q: What's the current investment environment?
A: The company focuses on total return investments with occupancy upside, not stabilized assets attracting competition. They target assets where they can add value and grow with operating partners. Availability of debt for stabilized properties doesn't affect their strategy. -
Balance Sheet and Leverage
Q: Will you use leverage to drive growth?
A: There's no plan to lean into leverage, but low leverage offers optionality. Organic deleveraging and increased free cash flow provide capacity to tap debt for per-share growth when appropriate. Management acknowledges they won't remain at very low leverage levels indefinitely. -
Cash Flow Generation
Q: Are there upside drivers to free cash flow?
A: They are in the early stages of enhancing free cash flow generation. Operational initiatives are reducing CapEx costs by 25% to 50% and accelerating turnaround times, improving occupancy and NOI. Management is excited about the significant potential in free cash flow as these initiatives take effect. -
Wellness Housing Growth
Q: What's the growth profile of wellness housing?
A: The wellness housing business has expanded to 25,000 units since 2018. Despite high occupancy, it has compounded at 8% to 10% through the pandemic. Management is enthusiastic about its strong organic growth potential. -
Foreign Owners Exiting
Q: Why are foreign owners selling senior housing?
A: Foreign counterparties face debt pressure similar to domestic sellers. A strong U.S. dollar offsets some impact, but they seek to exit entirely. The company is working on transactions to buy them out completely. -
SHOP Portfolio Margins
Q: How to improve SHOP operating margins?
A: Increasing occupancy is crucial for achieving higher margins beyond pre-pandemic levels. Management insists that merely returning to pre-COVID margins is insufficient. Higher occupancy will drive significant margin expansion.
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With operating margins in your SHOP portfolio still in the high 20s, what specific strategies do you have to not only return to pre-pandemic margins but exceed them, and what challenges do you foresee in achieving higher occupancy levels to drive this margin expansion?
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Given that there's $70 million and $40 million of future cash flow upside from recent triple-net to RIDEA transitions, how much of the remaining 7.5% of in-place NOI from Seniors Housing Triple-net do you plan to convert to RIDEA, and what factors influence your decision to retain certain assets under triple-net leases?
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Considering the significant amount of distressed senior housing opportunities totaling roughly $16 billion of "at-risk of default" properties, what percentage of these assets are you targeting for acquisition, and how do you assess quality and price to ensure they fit your strategic objectives?
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Despite falling lumber prices, you mentioned that overall construction costs remain meaningfully higher than a couple of years ago; how does this impact your development plans for wellness housing, and what's your expected timeline to stabilize these developments amidst these cost pressures?
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You have highlighted the inherent operating leverage in your business; given the current market conditions and your expectations for occupancy growth, what is your projected run rate for margins, and what initiatives are you implementing to achieve margins higher than pre-COVID levels?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance: The documents do not contain information about the Q3 2024 earnings call or the guidance provided during that period.
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Net Income Attributable to Common Stockholders: $1.52 to $1.60 per diluted share.
- Normalized Funds From Operations (FFO): $4.13 to $4.21 per diluted share, with a midpoint of $4.17.
- Same-Store Net Operating Income (NOI) Growth: 10% to 12.5%.
- Outpatient Medical: 2% to 3%
- Long-term, Post Acute: 2% to 3%
- Senior Housing Triple-Net: 3% to 4%
- Senior Housing Operating: 19% to 23%
- Revenue Growth: 9.2%, composed of RevPOR growth of 5.25% and year-over-year occupancy growth of 290 basis points.
- Total Expense Growth: 5.5% .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Net Income Attributable to Common Stockholders: $1.48 to $1.61 per diluted share.
- Normalized Funds From Operations (FFO): $4.02 to $4.15 per diluted share, with a midpoint of $4.085.
- Same-Store Net Operating Income (NOI) Growth: 9% to 12%.
- Outpatient Medical: 2% to 3%
- Long-Term Post-Acute: 2% to 3%
- Senior Housing Triple-Net: 2.5% to 4%
- Senior Housing Operating Growth: 17% to 22%
- Revenue Growth: Approximately 9.2%, composed of RevPOR growth of approximately 5.25% and year-over-year occupancy growth of 290 basis points.
- Total Expense Growth: Approximately 6% .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Net Income Attributable to Common Stockholders: $1.21 to $1.37 per diluted share.
- Normalized Funds From Operations (FFO): $3.94 to $4.10 per diluted share, with a midpoint of $4.02.
- Year-over-Year Growth in FFO per Share: 11.5% at the midpoint, after adjusting for $0.03 received in 2023.
- Total Portfolio Year-over-Year Same-Store NOI Growth: 8.25% to 11.5%.
- Subsegment Growth:
- Outpatient Medical: 2% to 3%
- Long-Term Post-Acute: 2% to 3%
- Senior Housing Triple-Net: 2.5% to 4%
- Senior Housing Operating Growth: 15% to 21%, driven by revenue growth of approximately 9.2%
- Revenue per Occupied Room (RevPOR) Growth: Approximately 5.25%.
- Occupancy Growth: An acceleration in year-over-year occupancy growth to 290 basis points.
- Senior Housing Operating Portfolio Same-Store NOI Growth: Guidance at the midpoint is 18% .
Competitors mentioned in the company's latest 10K filing.
- Real estate investment trusts
- Real estate partnerships
- Private equity and hedge fund investors
- Banks
- Insurance companies
- Finance/investment companies
- Government-sponsored agencies
- Taxable and tax-exempt bond funds
- Health care operators
- Developers
- Other investors in the acquisition, development, leasing, and financing of health care and seniors housing properties
- Operators and managers of properties and other health care providers that provide comparable services for residents and patients
Recent developments and announcements about WELL.
Corporate Leadership
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Nikhil Chaudhri has been promoted to Co-President & Chief Investment Officer. He previously served as Executive Vice President – Chief Investment Officer and has been with Welltower for nearly a decade, overseeing significant global capital deployment.
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Tim McHugh has been promoted to Co-President & Chief Financial Officer. He joined Welltower in 2016 and has been instrumental in strengthening the company's balance sheet.
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John Burkart has been promoted to Vice Chairman & Chief Operating Officer. He joined Welltower in 2021 and has driven significant structural changes within the company.
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Matthew McQueen has been promoted to Chief Legal Officer. He has been with Welltower since 2015, providing critical guidance on global transactions and strategic direction.
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John Olympitis has been promoted to Executive Vice President – Head of Corporate Development. He has been with Welltower since 2015, leading business development and relationship management functions.
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Edward Cheung has been promoted to Executive Vice President – International Investments, overseeing the company's offices in Toronto and London.
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Patrick Keppenne has been promoted to Senior Vice President – Investments, leading critical equity, debt, and mezzanine transactions.
Leadership Change
Departures and Promotions at Welltower Inc.:
Board Change
Diana W. Reid resigned from the Board of Directors of Welltower Inc. on December 3, 2024, effective immediately. Her resignation was due to her new role as the CEO of Freddie Mac and not due to any disagreement with the company. Following her departure, the board size was reduced to nine directors .
Leadership Change
Departure: Diana W. Reid has resigned from the Board of Directors of Welltower Inc. on December 3, 2024. Her resignation is due to her new role as the CEO of Freddie Mac, not because of any disagreement with Welltower.
Board Changes: Following her departure, the size of the Board has been reduced to nine directors .
Financial Actions
Dividend Policy
Welltower Inc. (NYSE: WELL) has announced a significant change in its dividend policy. The Board of Directors has declared a cash dividend for the quarter ended June 30, 2024, of $0.67 per share, which represents a 10% increase from the prior quarter. This dividend will be paid on August 21, 2024, to stockholders of record as of August 12, 2024. This marks the company's 213th consecutive quarterly cash dividend .