Welltower - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong operational momentum: total revenues of $2.423B and diluted EPS of $0.40, with normalized FFO per diluted share up 18.8% YoY to $1.20. Versus consensus, EPS modestly beat while revenue was essentially in line (see Estimates Context).*
• Seniors Housing Operating (SHO) drove the quarter: total portfolio SSNOI rose 12.9% YoY, led by SHO SSNOI growth of 21.7%, 400 bps occupancy increase YoY, 5.9% SS RevPOR growth, and ~290 bps margin expansion.
• Guidance was raised: FY25 net income per diluted share to $1.70–$1.84 (from $1.60–$1.76) and normalized FFO to $4.90–$5.04 (from $4.79–$4.95); blended SSNOI growth lifted to 10.00%–13.25% with SHO at 16.5%–21.5%.
• Balance sheet strength and capital deployment are catalysts: net debt/Adjusted EBITDA improved to 3.33x; liquidity ≈$8.6B; YTD acquisitions ≈$6.2B including the CAD 4.6B Amica ultra‑luxury portfolio; dual credit upgrades to A‑/A3.
• Dividend maintained at $0.67 for the quarter; management emphasized a prudent macro stance (higher rates/credit spreads) but a favorable multiyear setup for need‑based private‑pay seniors housing driving continued margin expansion.

What Went Well and What Went Wrong

What Went Well

• SHO performance: tenth consecutive quarter with YoY SSNOI growth >20%; Q1 SHO SSNOI +21.7%, with 400 bps occupancy increase and 5.9% SS RevPOR growth; margins expanded ~290 bps YoY. “We reported … same-store net operating income growth has exceeded 20%”.
• Balance sheet and ratings: net debt/Adjusted EBITDA improved to 3.33x; liquidity ≈$8.6B; S&P and Moody’s upgraded the company to A‑/A3, citing robust tailwinds and strengthened balance sheet. “Our net debt to adjusted EBITDA further declined to just 3.3x… nearly $9 billion of balance sheet liquidity”.
• Capital deployment and pipeline: ~$2.8B gross investments in Q1; year-to-date ≈$6.2B including Amica CAD 4.6B acquisition with mid‑90s occupancy and low‑mid 40s margins; majority off‑market and with repeat counterparties.

What Went Wrong

• Dispositions outlook reduced: FY25 expected disposition proceeds lowered to ~$166M (from ~$516M), reflecting recalibrated capital recycling relative to robust acquisition opportunities.
• G&A and stock comp higher: FY25 G&A increased to ~$240–$250M (from $235–$245M) and stock‑based comp to ~$51M (from ~$49M), modestly offsetting FFO gains.
• Macro caution: management sees potential for persistent higher rates and wider credit spreads to pressure asset prices, tempering near‑term visibility ahead of the summer leasing season.

Transcript

Operator (participant)

Thank you for standing by. My name is aylin. I will be your Conference Operator today. At this time, I would like to welcome everyone to the Welltower First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star and one. I would now like to turn the call over to Matt McQueen, Chief Legal Officer and General Counsel. You may begin.

Matt McQueen (Chief Legal Officer and General Counsel)

Thank you and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained.

Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. With that, I'll hand the call over to Shankh for his remarks.

Shankh Mitra (CEO)

Thank you, Matt, and good morning, everyone. I'll review business trends and our capital allocation priorities, and the team will follow the usual cadence. I'm pleased to report that we began the year on a positive note, delivering approximately 19% growth in FFO per share, driven by better-than-expected results from our Seniors Housing Operating portfolio and significant acquisition activity.

These results and our refreshed outlook for the remainder of the year have enabled us to raise the midpoint of our full-year FFO guidance by $0.10 per share to $4.97. Before getting into some of the details, I first want to mention that our achievements this quarter extend well beyond operational execution and attractive capital deployment.

Our years of unrelenting effort culminated into an announcement of several major achievements, which I believe will allow us to both augment our growth and extend its duration even farther into the future.

These achievements include: one, the launch of our private fund management business; two, significant advancement in the Welltower Business System, our proprietary end-to-end operating platform; three, solidifying our leadership through several key promotions; four, our successful rollout of a corporate rebranding that reflects Welltower's transformation from a healthcare real estate deal shop to a data science and technology-driven operating company in a real estate wrapper; and finally, and most recently, an upgrade to a trade rating by both S&P and Moody's to A- and A3, respectively.

I'm humbled by this unwavering dedication of our team in achieving these major milestones. Turning to fundamentals, Seniors Housing Operating business remains strong. There is no diminution of the momentum which we carried into the year, as reflected by our 10th consecutive quarter in which same-store Net Operating Income growth has exceeded 20%.

From an occupancy perspective, following a period of exceptional results in 2024, we reported 400 basis points of year-over-year growth in Q1, the highest level of growth we have witnessed in any quarter outside post-COVID recovery. Perhaps even more impressive is that despite seasonal headwinds that we typically encounter early in the year, the portfolio's sequential average occupancy growth of 60 basis points was the strongest we have reported in the first quarter of any year in our recorded history.

Please look at our Slide 6 of our business update to reflect on what kind of seasonal outlier Q1 was. The business also maintained strong pricing power with growth in RevPOR or unit revenue of nearly 6%, with the 90% occupancy cohort experiencing 7%+ growth. Excluding the impact of leap year, RevPOR growth was still strong at 5.1%.

An ExpPOR or unit expense would have been 1.3% and same-store revenue growth of 9.9%. With the spread between RevPOR and ExpPOR remaining at the historically wide level, we achieved another period of outsized margin expansion of nearly 300 basis points year-over-year, with the significant runway of further growth, which John will touch on shortly. As we look ahead, the demand-supply backdrop for Senior Living sector continues to strengthen, setting us up for a multi-year period of attractive growth.

We continue to augment that growth by taking market share with our best-in-class operating partners and Welltower Business System execution. Nonetheless, we're acutely aware of the rise in macroeconomic uncertainty, particularly as we approach the summer leasing season. We're encouraged by the strong trends we have observed thus far in the year, but also need to see what market gives us during the all-important summer leasing season.

The need-based, private-pay nature of our product provides optimism around our ability to outperform not only other forms of real estate but also major asset classes. However, as you know, we have no delusion of certainty. Shifting to transaction environment, as we have discussed in recent quarters, the opportunity set for compelling investments has grown meaningfully, and our recent activity clearly reflects that momentum. In mid-February, we announced $2 billion of pro-rata acquisitions.

In March, we announced the CAD 4.6 billion acquisition of Amica Senior Living. Today, we're pleased to announce another $1 billion of additional acquisition, bringing our total pro-rata acquisition activity to roughly $6.2 billion for the year. To put this into perspective, we have closed $6 billion of investments in all of 2024.

As we reach the end of April, we have already invested more of our precious capital this year than in any previous years in the company's history. However, as you know, our focus is not volume of investment, but the value they deliver. Transactions that we completed this quarter were secured at significant discounted replacement cost and are expected to meaningfully enhance our growth in coming years.

This includes 38 community Amica portfolio, the highest quality senior housing portfolio in North America. This trophy portfolio of 38 communities is located in highly affluent neighborhoods of Toronto, Vancouver, and Victoria, with an exceptional outlook for long-term growth. Nikhil will provide more details, but we are thrilled to form a long-term partnership with Robert, Jens, and their team, who share our vision of delivering a killer value proposition for residents and a dynamic environment for site-level employees to grow and thrive.

If you want to look at another example of what great management does to thriving communities, please look at another Canadian example. In the fourth quarter of 2023, we bought the Jazz portfolio for CAD 885 million. While the portfolio was highly occupied at the time of acquisition, in the last 18 months, Mathieu, Frédéric, and the team have taken the portfolio to 97% occupancy and 47% margin, well exceeding our high expectations.

Another great example of similar win-win success story is taking place in the U.S., our partnership with Tim Buchanan and Legend. Through our RIDEA conversions, acquisitions, and transitions, we have collaboratively created a much bigger pie to share in together by expanding the portfolio to 53 communities.

Legend has since grown the Legacy portfolio cash flow to nearly 2.5x and also received non-linear benefit as greater regional density drives higher management and incentive fees, higher real estate values, and improved employee retention across all Legend communities. Before turning it over to John, I wanted to quickly touch base on our balance sheet.

As I mentioned earlier, our efforts in recent years to reduce leverage and bolster liquidity profile were recognized by S&P and Moody's through an upgrade of our trade rating. During the quarter, our Net Debt to Adjusted EBITDA further declined to just 3.3 times, another record low for the company as a result of prudent funding of our acquisition activity and strong cash flow growth.

Additionally, with nearly $9 billion of balance sheet liquidity, we are not only in position to endure any further capital market volatility but also to deploy capital as opportunities arise. All in all, we're pleased with our execution so far in the year, but we have a long and busy year in front of us. With that, I'll pass it over to John. John?

John Burkart (Vice Chairman and COO)

Thank you and good morning, everyone. As Shankh mentioned, the momentum that continued to build through the fourth quarter of 2024 has carried into the early part of this year. We reported total portfolio same-store NOI growth of 12.9%, driven by another quarter of solid Senior Housing Operating portfolio growth of 21.7%.

I'll start with the Outpatient Medical segment, which remained steady, posting 2.7% year-over-year same-store NOI growth. Same-store occupancy trended higher on both a year-over-year and sequential basis, coming in at 94.5%, while tenant retention also remains healthy at over 94%. Now, shifting to the Senior Housing Operating portfolio, we continue to be pleased with our performance, with Q1 marking the 10th consecutive quarter in which year-over-year same-store NOI growth exceeded 20%.

This incredible feat isn't just a function of the attractive demand-supply backdrop for senior housing, however. Welltower's Alpha continues to be driven more so by our best-in-class operating partners and deployment of the Welltower Business System, our proprietary end-to-end operating platform, and our focus on deepening regional density across the portfolio.

These initiatives continue to bear significant fruit. During the quarter, year-over-year same-store revenue growth of 9.6% was clearly the highlight, driven by a remarkable 400 basis points of occupancy growth and strong RevPOR growth of nearly 6%. Revenue growth was generally consistent across all three of our regions, led by the U.S. at 9.8%, followed by the U.K. at 9.3%, and Canada at 8.3%.

Importantly, we also reported nearly 300 basis points of year-over-year margin expansion during the quarter, as revenue continues to solidly outpace unit expense growth. While NOI margins remain below pre-COVID levels, the inherent operating leverage in our business, combined with the widening of our moat through the Welltower Business System, positioned us well for substantial margin expansion well into the future.

Although I tend to keep quiet about various Welltower Business System initiatives for proprietary reasons, I have commented on the technology platform, which is foundational to the customer and employee experience, as well as driving Alpha. These efforts have continued, and we're on pace with our 2025 rollout plans.

Currently, multiple operators have some portion of their assets on our technology platform, and we continue to add assets monthly, collaboratively working with our operating partners to address pain points and drive efficiencies in the business. While it's early in the peak-leasing season ahead of us, we're pleased with our results thus far.

The need-based and private-pay nature of the business has clearly proven its resilience, but we'll take nothing for granted and will continue to operate with the same level of dogged determination and vigilance across all aspects of operations, with a focus on providing a delightful customer experience and driving site-level employee satisfaction higher.

I'd like to take a moment to commend both our internal Welltower team and our world-class operating partners for their efforts in generating our industry-leading results. We remain relentlessly focused on operational excellence as we strive to deliver an unmatched service offering for residents and their families while making our communities the most desirable places to work in the industry. I'll now turn the call over to Nikhil.

Nikhil Chaudhri (Co-President and CIO)

Thanks, John. As we've discussed over the past few quarters, we have observed a noticeable expansion in capital-deployment opportunities, resulting not only from debt-driven challenges but also from pension funds seeking liquidity and other institutions reducing exposure to commercial real estate.

This backdrop has resulted in year-to-date investment activity, which has already surpassed our acquisition volume for all of last year, which in itself was a record year for the company. In addition, our investment pipeline remains robust, with recent capital markets volatility presenting additional opportunities for us. Turning to the quarter, we completed $2.66 billion of new investments in the first quarter.

On our last call in February, we had previously announced $2 billion of year-to-date activity. Since then, in the last two and a half months, we have expanded our investment activity by $4.2 billion, bringing our total year-to-date balance sheet investment activity to $6.2 billion.

This additional activity is comprised of the $3.2 billion acquisition of Amica Senior Lifestyles announced last month and an additional $1 billion+ of new granular activity. Of this additional $1 billion, $660 million has already closed in Q1, with the remaining transactions expected to close in the coming months.

Zooming in on our Amica transaction, which is expected to close around year-end, we are already incredibly excited to announce our partnership with one of the strongest senior housing operators in Canada. Alongside Cogir, one of Welltower's most valued growth partners, Amica's inclusion in our portfolio further enhances our partnership with best-in-class operators in the country.

As Shankh mentioned earlier, the quality of the Amica portfolio is simply unparalleled, as demonstrated by its locations within highly affluent neighborhoods and its performance track record.

This ultra-luxury portfolio that is comprised of 38 locations in Vancouver, Victoria, and the greater Toronto area boasts home values of CAD 2 million-CAD 4 million within the immediate vicinity of the communities, or three to four times the average home values in those respective provinces. Living in an Amica building is a matter of great pride and prestige for the residents, and the service offering and the food quality are truly five-star.

The total consideration of CAD 4.6 billion is comprised of the following components: 31 in-place operational assets with an average age of 11 years. These properties include 24 in-service assets with in-place occupancy in the mid-90%. These assets have sustained occupancy at these levels for a long period of time and boast margins in the low to mid-40%. Given their strong reputation, these assets have demonstrated CAGR RevPOR growth of nearly 7% during the last five years.

Beyond the stable 24, there are seven in-place assets that are newly built and currently in lease-up, with average in-place occupancy of approximately 70%. Amica has demonstrated an incredible lease-up track record, with their last 10 development projects leasing up in just 18 months on average.

The next bucket includes seven projects that are currently under construction and will be acquired at a preset price upon construction completion without Welltower bearing any construction and cost-related risk. These projects are expected to be completed between 2025 and 2027. The final real estate component includes nine development parcels, which have gone through elongated multi-year entitlement processes.

These parcels comprise expansion opportunities for existing Amica buildings or de novo developments in the most desirable and supply-constrained locations in Vancouver, Victoria, and the greater Toronto area. In addition to these components, the transaction includes the assumption of CAD 560 million of CMHC debt priced attractively at 3.6% and an approximately one-third ownership of the Amica Management Company, along with an aligned RIDEA 5.0 contract.

The non-development components of the transaction are underwritten to generate an unlevered IRR in the double-digit range, with additional upside expected from the expansion and development projects as their respective business plans are executed over the coming years. Zooming back out to our first quarter activity, 93% of our activity was off-market, and 75% of this was with repeat counterparties.

Our activity was comprised of 26 different transactions with a median size of CAD 55 million. I want to let this sink in: 26 different transactions in 13 weeks or, on average, two transactions a week. We acquired 88 properties comprising nearly 10,000 units across all three countries and asset classes that we invested in. Just within the U.S., we invested capital across 23 states in the first quarter.

The team members sitting across just three offices in the U.S. and one office each in the U.K. and Canada were able to invest in a granular manner due to the strength of our data science and machine learning platform. Our data science solutions, which have been created over the past decade by Swagat and his team, provide us with a unique view of the terrain, giving us a neighborhood-level view of 10 million+ micro-markets in the U.S., allowing us to attain a level of scale which is truly unprecedented in real estate.

When combined with our investment team's intellectual curiosity and relentless drive to get it right, not just to be right, with the disciplined execution of our high-performing operating partners backed by the proven strength of the Welltower Business System, we are able to get the air just right. This setup enables us to create significant value and consistently deliver strong returns and durable growth for our investors. I will now pass the call over to Tim to cover our financial results and updated guidance for 2025.

Tim McHugh (Co-President and CFO)

Thank you, Nikhil. My comments today will focus on our first quarter 2025 results, the performance of our Triple-net Investment segments, our capital activity, a balance sheet liquidity update, and finally, an increase to our full year 2025 outlook.

Welltower reported first quarter net income attributable to common stockholders of $0.40 per diluted share and normalized funds from operations of $1.20 per diluted share, representing 18.8% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 12.9%. Now turning to the performance of our triple net properties in the quarter.

As a reminder, our triple net lease portfolio coverage stats were reported a quarter in arrears, so these statistics reflect a trailing 12 months ending December 31, 2024. In our seniors housing triple net portfolio, same-store NOI increased 5.1% year-over-year, and trailing 12-month EBITDA coverage increased to 1.16 times.

Coverage in this portfolio continues to strengthen, now well exceeding pre-pandemic levels, as fundamentals align with those of our operating portfolio, a trend we expect to continue going forward. Next, same-store NOI in our Long-Term Post-Acute portfolio grew 2.8% year-over-year, and trailing 12-month EBITDA coverage is 1.56 times.

Moving on to capital activity, during the quarter, we funded $2.3 billion of net investment activity with equity and retained cash flow. We issued $2.2 billion of equity in the quarter, with over 10% of our investment activity funded through the issuance of units directly to sellers, ultimately ending the quarter with $3.6 billion of cash and lower leverage than we had at year-end.

As Shankh mentioned, we ended the quarter with Net Debt to Adjusted EBITDA ratio of 3.33 times, the lowest level recorded in Welltower's history. As a result of our current capital position and the improvement in the outlook for full-year operating results announced last night, we still expect run-rate Net Debt Adjusted EBITDA to end the year at 3.5 times, while adding $4.2 billion to our planned 2025 acquisition activity since our initial balance sheet guidance was provided in February.

Before we dive into our updated guidance, I want to quickly spotlight a key milestone from this past quarter: the credit upgrade we received from both S&P and Moody's. A strong balance sheet has always been a pillar of our strategy, not just in terms of lower leverage, but also in the quality of our asset base.

Before the onset of the pandemic, we initiated a deliberate transformation of our business, repositioning the portfolio, driving greater alignment in our operating agreements, and building out our asset management capabilities, resulting in a platform with a risk profile that is virtually unrecognizable compared to where we started.

It's gratifying to see that transformation recognized by both agencies. Importantly, we have never managed to a rating, and there's no finish line here. This is an ongoing, deliberate effort to ensure we are optimally positioned for whatever lies ahead. That discipline gives us the strongest possible foundation for uninterrupted compounding through any market environment.

Lastly, as I turn to our updated 2025 guidance, we have not included any investment activity in our outlook beyond the $6.2 billion that has been closed or publicly announced to date.

As a reminder, there is no expected earnings contribution in 2025 from our acquisition of the Amica portfolio, which is expected to close at year-end. Last night, we updated our full year 2025 outlook for net income attributable to common stockholders of $1.70-$1.84 per diluted share and normalized FFO of $4.90-$5.04 per diluted share, or $4.97 at the midpoint.

Our normalized FFO guidance represents a $0.10 increase at the midpoint from our prior normalized FFO range. This increase is composed of a $0.02 increase from higher NOI in our Senior Housing Operating portfolio, a $0.07 increase from accretive capital allocation activity, and a $0.02 increase from FX and income taxes, offset by $0.01 from higher expected G&A in the year.

Underlying this FFO guidance is an estimate of total portfolio year-over-year same-store NOI growth of 10%-13.25%, driven by subsegment growth of Outpatient Medical, 2%-3%, Long-Term Post-Acute, 2%-3%, Senior Housing Triple-net, 3%-4%, and finally, Senior Housing Operating growth of 16.5%-21.5%.

This is driven by the following midpoints of their respective ranges: revenue growth of 9%, driven by increased expectations for both full-year RevPOR and occupancy growth, now at 5% and 350 basis points respectively, and expense growth of 5.25%. I will hand the call back over to Shankh.

Shankh Mitra (CEO)

Thank you, Tim. Before I open the call up for questions, I wanted to quickly reflect on the current macroeconomic environment. Please note that during our second quarter call last year, we described our base case macro view for the next few years.

Without fully repeating my comments, I'll summarize them by saying that we appear to be entering a potentially long period of higher inflation and higher interest rate, a stark contrast to the market conditions over the past 40 years. As a result of that shift, the tailwinds which have lifted asset prices, including that of real estate over the past few decades, are not just subsiding, but also may well, very well, turn into a headwind.

Additionally, the current macro uncertainty may introduce another layer of complexity in the near term, cyclical pressure on economic growth unfolding against a backdrop of elevated rates and persistent inflation that you can observe in the consumer confidence and other high-frequency economic data. While we are not in the business of forecasting economic trends, we are keen observers of market-based signals.

Higher interest rates, coupled with significant widening of credit spreads across investment grade, high yield, and all asset-based financing markets, warrant cautions as it relates to asset prices going forward. Said in another way, in our world of real estate, we expect higher rates, along with wider debt spreads, will put downward pressure on asset prices.

On our recent calls, while we have repeatedly discussed the wall of debt maturities and lack of credit availability, the other trend we are paying close attention to is on the equity side.

Following the slow return of capital to LPs this cycle and the impact of denominator effects after many years of pension funds and endowments steadily marching towards the Yale-Swensen model, many large pools of capital are reducing their exposure to private assets, including private real estate.

This phenomenon has potential to exacerbate the negative credit-driven impact of asset prices, which I just described. We at Welltower are focused on risk, reward, and duration when deploying capital, and we perceive a higher level of risk than we did 90 days ago. While we hope that these clouds will pass, we do not believe hope is a strategy. We believe capital allocation is all about positioning, not predicting.

To that point, I want to thank Tim and our capital markets team for putting us in an enviable position in terms of our balance sheet strength and liquidity to protect our owner's capital on one hand and take advantage of the market opportunities that may arise on the other. Ultimately, we believe that the days of generating returns through financial wizardry and levered beta are over.

Instead, as an operating company in a real estate wrapper, we are convinced that the only path to delivering satisfactory returns will be through compounding of cash flow generated by superior operations and supplemented with capital allocation to sub-optimized assets, further growing our network effect. With that, I will open the call for questions.

Operator (participant)

At this time, I'd like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. Questioners, please limit to one question. You may queue up again for additional questions. Our first question comes from the line of Vikram Malhotra with Mizuho. Your line is open.

Vikram Malhotra (Managing Director)

Morning. Thanks for the question, and 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. You're clearly having very strong internal and external activity. 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? If you could kind of help frame it, perhaps with some numbers or just give us more details, that would be helpful. Thanks.

Shankh Mitra (CEO)

Thank you, Vikram. The margin expansion possibilities that we have talked about, Vikram, which is not unique to our asset class, it's just that we're the last ones from an asset class standpoint, you could observe in multi-families in the 1990s and 2000, then self-storage industries, single-family rentals, and so on and so forth. That is true institutionalization of these asset classes.

We're sort of the last one going through this, our asset class is going through this. I'll tell you whether we're successful in this journey or not, and how far we're successful will matter both on our side, on Welltower Business System execution, as well as our best-in-class operators who are doing this, obviously, this execution on a day-to-day basis and a hand-to-hand combat, frankly. It's a complex business.

It's not an easy business to pull off, but we are with our operating partners shoulder to shoulder no matter what. If you just think about reflecting a little bit on what Welltower business system is or what it is designed to be, it is a complex adaptive system that aims to balance chaos and order and can self-organize based on dynamic feedback loop and adapt to changing conditions.

That's what we are focused on, right? If you think about just sort of what I mentioned, that we're not, we're relied on our operating partners who have great talent pool in these companies, and we're augmenting that talent pool with our talent pool who is coming in to solve their problems, customers' problems, employee pain points, etc.

Ultimately, the goal of Welltower Business System is to bring system-level thinking to remove bottlenecks, streamline flow, and minimize friction in all human interactions that you see in these communities, which is family to residents and obviously our caregivers and our employees, and it's sort of in a round-robin manner, right?

That's sort of what we are focused on, to streamline that flow and minimize that friction in all those human interactions and focus solely in areas where scalability creates a strategic advantage, while relying on our operating partner to solve the unremovable complexities that are inherent in our business. What do we mean by that?

We are focused on providing Welltower Business System to offer site-level employees that John mentioned, obviously, his early college days of Costco experience last call, Welltower Business System to provide site-level employees with real-time actionable business insights and free up valuable time to provide a real human touch to our residents. If we think we can do this, we have a long runway of margin expansion in our business.

Operator (participant)

Your next question comes from the line of John Kilichowski with Wells Fargo. Your line is open.

John Kilichowski (VP of Equity Research)

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 you believe this proprietary technology is directly responsible for?

Shankh Mitra (CEO)

Yeah. I'm not going to walk you through. I wrote in a very detailed format of how a JLL marketed sort of structure works in a marketed transaction. If you go back and read it, you will see the path is sort of a real estate is a very glacially moving slow business, right?

If you just think about what the whole process looks like, John, when you say you are a seller, you are looking to sell something, you hire a broker, you go through all this to ultimately you close a deal, that whole process takes about five to 10 months, depending on whether the counterparty needs financing or not financing and all of those kind of things, right?

If you just think about in our business, let's just say that focus on just our business, market participants in our business, not most, all of them are focused on sort of NIC 99 or that kind of information, which is sort of that's not great level of information, but that's kind of what you have, level of information that's sort of MSA level information, and then sort of that whole process rolls out.

For us, as Nikhil mentioned, our proprietary platform analyzes 10 plus million micro markets nationwide, leveraging a unique and non-replicable data set accumulated over 100+ senior housing operators over 20 years, right? This granular machine learning approach powered by a long time series of data across diverse properties and operators enables us to take a neighborhood level view of any asset and provide initial interest within our team within a few minutes.

It determines a narrow range of predicted performance within a day. It used to be two to three days. We have brought it down with significantly more compute power within a day, allowing us to provide initial sort of preliminary pricing feedback within a week that we can live with, subsequently tour the assets and have a handshake on definitive terms within two weeks that we can, again, we can stand by.

Remember, at Welltower, we have never walked away from a handshake, right? It is not just a question of, "Oh, we'll look at our broker pro forma and give people or throw people a number." That is how real estate industries work, right? Ultimately, close that deal in 45-60 days.

Just think about that velocity to market makes us the first call to most sellers because, frankly speaking, and obviously our reputation that we never walk away from a handshake has fundamentally upended the status quo in this business, the real estate industry, which has not changed in decades, right? Because if you are a seller, what do you have to lose?

If you do not like your answer within a week, you go do that process anyway, right, that we described that will take you five to 10 months. Think about, what are we trying to do? We are trying to bring down latency that is inherent in a glacially moving industry in a significant way. Latency is a very important concept when you study network effect. In most industries that move in that glacial phase, no different in our industry, as I said, in real estate.

That is a very, very thing that we're trying to disrupt by reducing latency in our system by completely turning the velocity to markets on its head. As latency shrinks materially, as we just talked about, the network effect kicks into high gear, creating a new paradigm of maximum growth, maximum gain that simply doesn't occur in businesses and industries that move at a glacial pace, right?

That's how it works. If you think about the journey of our journey of what we have been able to achieve, and you want to point out to one thing, as Tim mentioned, you can't point out to one thing. This is a long, decade-long journey of transforming this industry and transforming the business.

If you want to point out one thing that will be reducing that latency, right, that's how you sort of go into a paradigm of maximum growth, maximum gain, and that sort of creates another level of network effect that kicks into the high gear.

Operator (participant)

Your next question comes from the line of Farrell Granath with Bank of America. Your line is open.

Farrell Granath (Equity Research Associate)

Hi. Good morning. B2C question. I was curious, just given your current size, how can you frame how you continue to think about sustained growth going forward?

Shankh Mitra (CEO)

Farrell, that's a really, really good question. If Welltower was a spread investing vehicle that is relied on financial engineering, I would say growth at some point should be a problem. Size and the growth should be somewhat inversely correlated at some point. I don't know what that is, frankly speaking, and you can see different industries and come to different conclusions.

However, if we can see, as I've mentioned before, we have changed this company, which frankly was that what exactly we're describing. It was a real estate deal shop, which was reliant on capital markets and, frankly speaking, cost of capital. It was a decade-long effort for us to change this company into an operating company in a real estate wrapper.

If you just think about it as an operating company, the opposite trend actually happens due to network effect that I was just talking about to John's question earlier. As we have grown, just think about that for a second, right?

We capture more and more data, and two of our key competitive advantages, our data science platform and Welltower Business System, continues to strengthen, further expanding our moat and driving a wider performance gap between ourselves and our competitors.

You think about what you are describing, which happens in some of these kind of levered beta spread investing vehicles, you will see as they get bigger, their performance spread to market actually shrinks.

If you go back and see that we had our investor day in 2018, and there in that investor day, I talked about this topic, and I said that despite our outperformance to our competitors up to leading up to that point, that will widen. If you just see what happened since then, it has widened. Our market, our performance to market has widened.

That happened because we had transformed this company from a real estate deal shop to an operating company in a real estate wrapper. I would like to tell you that's unique. It's not. If you just look at all operating companies, you will see they have achieved success because of their success. Look at Home Depot. Look at Costco. Look at Amazon, not in spite of their success.

That is because of the network effect, and that is because of the impact these companies have and the data capture and everything else I talked about to John's question earlier, where your size becomes positive to your growth, not negative. It is an extraordinarily important question. Thank you.

Operator (participant)

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open. Hello Omotayo.

Shankh Mitra (CEO)

Hello.

Operator (participant)

We will go ahead and go to our next question with Jonathan Hughes with Raymond James. Your line is open.

Jonathan Hughes (Managing Director of Real Estate Investment Trusts)

Hi. Good morning. Thank you for the prepared remarks and commentary. Tim, you reiterated the three and a half turn leverage target by year-end. That is up from 3.3 today. I am flying the 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 am 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. Thank you.

Shankh Mitra (CEO)

Jonathan, before Tim gives you an answer, I'll just say that we fundamentally disagree with your assumption that our cost of equity is lower than our cost of debt. Our cost of equity is much higher than you think. That's probably because we think our potential growth rate on a long-term basis is much higher, right? You got to think about your cost of equity on a long-term arc, not just your spot cost of equity. Anyway, Tim.

Tim McHugh (Co-President and CFO)

Yeah, Jonathan, I'd just say what's driving our view on leverage higher is putting the cash to work off the balance sheet. It's not the assumption that we're issuing debt. It's just part of the mechanics of the cash coming off the balance sheet, putting it to work. With the guidance we provided last night, we're fully funded for all the capital activity. In fact, we're even paying off $1.25 billion in debt in those assumptions.

Operator (participant)

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Your line is open.

Ronald Kamdem (Managing Director)

Hey, just my question is, look, clearly occupancy jumped off the page 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 price matters, but just staying on the occupancy front, just internally, what are expectations sort of long-term for your markets? Is this pace sustainable? Can it accelerate? Just how are you guys thinking about that? Would love some high-level color.

Shankh Mitra (CEO)

Ron, I would just say our expectation of what we think occupancy growth this year is, Tim just described to you, so I have nothing to add to that. Long time, we believe that as we sort of optimize this business with fewer and fewer operating partners who increasingly have a much greater regional density, we believe that frictional vacancy is a lot lower than we thought. John talked about this in the call, I believe, two, three calls ago.

We believe we have a long journey in front of us to a much higher level of occupancy. Obviously, I'm not talking about optics. I'm talking about current portfolio because remember, Nikhil continues to add a lot of under-occupied buildings. We think we have a long journey in front of us. Just think about this year, right? We're giving you our best guess.

Remember, it's a guess. Our business is a June to October type of a business, right? It's a summer-leasing season business. We will go through summer and we will tell you what we see. If we did not feel good about the current pace of activity, current pace of sort of future resident engagement, we would not have raised guidance in Q1 for both occupancy and rates, right? That is what we see today. We will see what tomorrow brings us.

Operator (participant)

Your next question comes from the line of Austin Wurschmidt with KeyBanc. Your line is open.

Austin Wurschmidt (Senior Real Estate Investment Trust Analyst of Equity Research)

Great. Thanks. Shankh, just kind of wanted to hit on your comments that you wrapped up in the prepared remarks. You discussed this period of potentially higher inflation with cyclical pressure on economic growth, as well as the potential for a negative impact on asset prices from the reliance on credit over the last few decades.

I guess with many seniors utilizing savings and equity from their homes and retirement in that backdrop, how do you think senior housing performs based on what you outlined? Thanks.

Shankh Mitra (CEO)

That is a really, really good question. Why do I not start? You guys jump in as you see fit. We have a pretty good case study of how that might turn out. We can see, obviously, a lot of seniors' wealth is not in the equity market, right? Clearly, the majority of them actually not. They are in other fixed income or housing-type assets. We believe that we do not see a case of why housing prices will collapse like it has during GFC .

Let us just say that we are wrong. You can see even during the global financial crisis, which was driven by housing, and housing collapsed 50%, you could see even then how the asset class has held up, right? The thing is the future is uncertain by definition. It is a redundant statement, but it is a very important one.

We fundamentally believe that life is about positioning, not predicting. Given where we are, whether the near-term we go into, I believe that the asset class will hold up better than all real estate and many, many other industries. We'll see what happens. As you have seen from our track record, if there is disruption, and again, that's not my base case view, there will be disruption.

If there's disruption, you know how we'll behave. We're perfectly predictable. That's why we have a terrific balance sheet for, right? If there is disruption, you will see, obviously, that will put more pressure in asset prices, more pressure on people who have 60%, 70%, 80% leverage. Our leverage is, what, 10%, right? We will go lean into it. We are very optimistic about our business for the next five, 10, 15, 20, 30 years.

Frankly speaking, we'll welcome disruption. That's not our base case scenario.

Operator (participant)

Your next question comes from the line of Seth Bergey with Citi. Your line is open.

Seth Bergey (Senior Analyst)

Hi. Good morning. You kind of mentioned in the opening remarks that the pipeline is expanding given the capital markets dislocation. Can you kind of quantify the expansion and kind of what portion of that expansion would be the type of assets that you would be interested in potentially acquiring?

Shankh Mitra (CEO)

Seth, we are not going to sit here and try to speculate on what our pipeline may or may not do. We do believe that when this kind of capital market disruption happens, people who are absolutely looking for liquidity, whether that's equity-driven or debt-driven that Nikhil talked about, will need to access liquidity. If it is that their expectation is commensurate with today's reality of rates and spreads, we'll provide them that liquidity.

If not, we'll not. We are not in the business of doing deals. We're an operating company. We only add assets in our markets and in our micro markets where we feel we can build regional density. If we can, we will do it. If not, we'll just sit here and wait. Nikhil?

Nikhil Chaudhri (Co-President and CIO)

Yeah. I think the only thing I'd add to that is we talked earlier about what Welltower's pace of execution is versus what the conventional market timeline is to bring a transaction home. That six to 10 months that we talked about, just think about what has happened in the last six to 10 months between Fed rate cuts, the election, Liberation Day.

Just think about sellers that chose to work with somebody else, and they did not have ultimate price certainty from then until now. Just given how macro has changed, imagine the ups and downs and the deal fatigue that they've gone through. There are a lot of broken deals. When there are broken deals, we get the call. We are actively looking at a lot.

As Shankh mentioned, we are squarely focused on playing in places that we have high conviction and in markets that we already have a lot of scale in.

Operator (participant)

Your next question comes from the line of Rich Anderson with Wedbush. Your line is open.

Rich Anderson (Managing Director)

Hey, thanks. Good morning. Great, great quarter, of course. Shankh, you said something, fewer operating partners that are deeper and more densified in their geographies. I'm paraphrasing, but something like that. Where do you see 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. Out of curiosity, do you sense any sort of pushback given the current climate doing business with operators in Canada and the U.K.? What are some of the sort of variables as it relates to that ultimate plan to reduce the number of your operators in your portfolio? Thanks.

Shankh Mitra (CEO)

Yeah. That's a very good question. It's a question that we reflect on in our shop all the time. Let's just take a step back and think about, if you are looking for a numeric answer, I'll just say it's fewer. That's sort of no question that we are focusing on regional density, focusing more and more, concentrating on our existing partners who have performed really well.

There is no question that every year we look at, we look at obviously a lot of new operating teams, and we add one or two, and then obviously a lot of people also fall to the wayside. Generally speaking, I will say, is there a pushback? Look, we're fair people. We're entirely focused on performance, and we're entirely focused on outlook of how some of our operating partners sort of think about the future, right?

This is all about the future. That is nothing to do with, frankly speaking, there are two types of operators, right? You think about what we call Gen One operators in our business, people who have been around with our company, with George Chapman and others, and they have absolutely killed it. Tim Buchanan would be a great example, right?

There are operators that I grew up in this business with who are sort of, say, Gen Two operators who have built a business with us, such as Mathieu at Cogir or, say, Dan at StoryPoint, right? These are the operators that I have grown up in the business with, a tremendous amount of respect for what they do and how they do it. Frankly speaking, their outlook for the future.

They want to get better every day, do new things, try things, fail fast, and move the business forward. Do we find new operating partners sort of who share that view? Amica would be a very good example of that, right? Amica is an exceptionally good operator. We have found it. Care UK in the U.K. would be a great example of that, right? They're an exceptional team.

Generally speaking, our view is, as the business has grown, we want to reduce complexity by focusing on, think about what we're trying to do. We're trying to deploy Welltower Business System across, grow with our operators. It is a moving target. We have not seen any pushback, obviously, from all this sort of U.K. and Canada.

In fact, we can say Canadian businesses are growing fabulously, and we expect that both of those businesses will continue to grow significantly. That is kind of what I have to say at this point in time. I always sort of think about in current context of assets we have. Remember, Nikhil is making our job harder every day by growing the asset base significantly. We will see where these things land.

Philosophically, we want to be with people who, right or wrong, this is not we are not pointing out that we are right; somebody else is wrong. It is just like we are philosophically aligned with us on where we are trying to take the business. That is kind of a very important point. We want to be with people who are shoulder to shoulder with us no matter what.

Operator (participant)

Your next question comes from the line of Nick Yulico with Scotiabank. Your line is open.

Nick Yulico (Managing Director)

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.

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 you just give us a feel about how, again, the macro environment might have impacted that guidance. Did you even build in some cushion there preventing, let's say, there would have been an even bigger raise in sort of a more clear economic environment? Thanks.

Shankh Mitra (CEO)

Let me try to start, and Tim will really give an answer to your question. You just think about it. I have very clearly stated, I think last year, that 90 days is a short enough time frame for a company of our size and scale to even comment on things, let alone talk about month to month what's happening, right? Clearly, we have walked away from all monthly sort of what's going on this month, this week.

We're really, honestly not focused on that. Having said that, Nick, the fundamental premise of your question is a right one. We know how April up to this point has progressed. Frankly speaking, if we didn't feel good about that data, we wouldn't give you sort of in Q1, we would not have raised both occupancy and rate assumption, which, again, I want to make it abundantly clear.

That's our guess, right? It's an educated guess, but it's a guess. We would not have done it as sitting at the end of April. What we see, we really like what we see, but we have no delusion of certainty. Remember, this business is a June to October business, and we need to see how June to October plays out, and we'll tell you as we see. Tim?

Tim McHugh (Co-President and CFO)

Yeah. I'll just add to that. Nick, I like the way you asked that on the guidance side. Clearly, when you provide projections or forecasts, having more uncertainty in an outlook drives a little bit of a wider range of outcomes. That is always factored in. That being said, the biggest piece of it, the anchor to it, is what Shankh just said. What are we actually seeing in the business?

If we're not seeing trends change, that's going to drive the biggest piece. We do not see it as kind of our part of our job here to forecast what may or may not happen beyond what we're seeing and then taking a reasonable range of outcomes into it. I think your view that some sort of increased uncertainty would be taken into account would be correct. I think Shankh's comments on current business show no signs of weakness goes along with that.

Operator (participant)

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open.

Michael Carroll (Managing Director)

Yep. Thanks. I just wanted to touch on 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. I mean, 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 the Welltower Business System rollout kind of change that formula a little bit, and there is some room for that to continue to expand?

John Burkart (Vice Chairman and COO)

I think we've been pretty clear. Our expectations are to grow margin over time. That definitely indicates that we continue to outgrow revenue out past per unit expenses. Yeah, we see a lot of run rate with that. I'm not going to repeat what Shankh said earlier, but Welltower Business System, what goes on there enables us to drive that margin for many years into the future.

Operator (participant)

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

Juan Sanabria (Managing Director)

Good morning. Hoping you could talk a little bit about the skilled nursing investments you made in the quarter. Looks like it was about $1.2 billion. Was that fee simple? Was that loan investments? If you could talk about kind of the coverage there or just the portfolio of assets maybe that was driving that. Thank you.

Nikhil Chaudhri (Co-President and CIO)

Yeah. There was a couple of different transactions. In this particular quarter, we've used the skilled nursing business as a credit business for us. Sometimes that comes in the form of a debt investment. Sometimes it comes in the form of a triple net lease investment, but they're both underwritten from a credit investment perspective. The large transaction this quarter has a lot of things that we're really excited about.

The first thing is it was a broken transaction. There was some softness in the market. The deal fell apart. Welltower was able to come in and come in with a dual-path solution. One was we brought an operator to the table that the deal was lacking, and the other was obviously the certainty to close.

First thing is we leveraged that, the fact that it was a broken deal, to get a favorable price adjustment to the tune of a couple hundred million bucks in our favor. The operator that we brought in is an operator. We have an existing book of business with Aspire that has done an incredibly good job for us.

With Aspire, we bought a turnaround portfolio towards the end of 2023, and their performance in just a matter of five, six quarters has been quite incredible. They took a portfolio that was on the EBITDA basis losing, call it, $15 million and improved cash flow so significantly that today that EBITDA is north of $90 million. There was the scaled portfolio just given the dollars we're talking about here.

Given their strength and the quality of execution, this portfolio, given its size, made a lot of sense for them. From a performance perspective, in place, this portfolio is generating enough cash flow to cover rent 1.0 year one or in place. That is at occupancy in the mid-60s. We have an operator that has a proven track record of improving performance pretty substantially.

In this case, unlike the Florida case, you have significant in place cash flow that covers rent day one. On top of that, there is additional credit enhancements in terms of guarantees. There is north of $500,000,000 worth of net worth that is in assets outside of skilled nursing that is sitting behind with this transaction to support, right?

You have got quality assets, check, quality operator, check, in place cash flow with room to the upside, check, and additional credit protection, check, right? That is the setup here. We just found a great transaction that was broken.

Shankh Mitra (CEO)

All investments, once your question that is in the bucket that was made in the quarter, what people no longer. Correct.

Operator (participant)

Your next question comes from the line of Wes Golladay with Baird. Your line is open.

Wes Golladay (Senior Research Analyst)

Hey. Good morning, everyone. Can you talk about your outlook for development in Canada? Once you close Amica, do you envision any starts next year?

Nikhil Chaudhri (Co-President and CIO)

Yeah. As I mentioned in the prepared remarks, there are nine development parcels that we're acquiring as part of the transaction. They have had extended multi-year, five, six, seven-year entitlement processes. Some of those are expansions. The others are de novo projects.

As you can imagine, expansions are easier to pencil just given that the operating cost load that you're going to add to the incremental units is, in most cases, de minimis or a fraction of what you would have for a de novo project. Those projects continue to make a lot of sense and will develop. The handful that are de novo, they are in the highest quality, highest rent market. Those will evaluate, right?

We'll evaluate to see if once the dust settles a bit on tariffs and cost certainty, we'll see if it makes sense to start them today or in the future. Just given that there's a bunch of expansion projects, we'll certainly expect to see some starts next year.

Operator (participant)

Your next question comes from the line of Emily Meckler with Green Street. Your line is open.

Emily Meckler (Analyst)

Good morning. Thanks for the time. What percentage of the properties has Welltower's operating platform been rolled out to? Have you received any pushback from operators that has maybe delayed the rollout?

John Burkart (Vice Chairman and COO)

Starting with the pushback, the answer is no. We work with our operators, listen to them. They have great feedback. As Shankh said, it's shoulder to shoulder. We iterate with them on how to move forward with the platform. As far as for the percentage, I don't give out the details. When I talk about the platform, there's a broad look at the platform.

We're really working with all the different operators with different aspects of our platform. I'm not going to give much more detail than that. The reception has been fantastic and appreciative and, at this point, quite successful.

Shankh Mitra (CEO)

Emily, I'll just add, Mike asked this question on the last call. I think, John, you said that the whole rollout will be a two to three-year process.

John Burkart (Vice Chairman and COO)

Sure. Yeah.

Shankh Mitra (CEO)

You derive any conclusion that you want from this percent, that percent, but the real businesses are not driven from Excel spreadsheets. We will see where we get to.

Operator (participant)

Your next question comes from the line of Michael Mueller with JPMorgan. Your line is open.

Michael Mueller (Analyst)

Yeah. Hi. The same-store SHOP portfolio, it looks like it's about 88% occupied. What portion of it is stabilized or close to it? How has RevPOR growth in those assets been compared to the 6% average?

Shankh Mitra (CEO)

I mentioned, Mike, in my prepared remark that 90% plus occupied part of the portfolio, which is, Tim, what, like 40-50%?

Tim McHugh (Co-President and CFO)

Yeah. Roughly half. Yeah.

Shankh Mitra (CEO)

About 50% that has grown RevPOR 7-plus percent. And the other end of that, I believe Tim said, like less than 80% cohort, I think Tim said last quarter was like roughly a quarter of the portfolio where RevPOR is lapping flat. I think it was up 1 or 2%, something like that. It just sort of, that's sort of, you think about the gradient of that, everything is in between, right? This is simple demand supply of how many units you need to sell versus if you're full.

Operator (participant)

There are no further questions at this time. This does conclude today's conference call, and you may now disconnect.