Q3 2024 Earnings Summary
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +24% | This increase was driven by strong growth in resident fees and acquisitions outpacing dispositions, leading to higher occupancy and rate growth in seniors housing. Steady rental income escalations also supported overall revenue expansion. |
Seniors Housing Operating | +28% | Higher occupancy (supported by improved demand) and rate increases drove revenue, while expense management (e.g., lower agency staffing) contributed to margin gains. Additional acquisitions in 2023 and year-to-date 2024 further boosted this segment’s income. |
Triple-net | +44% | The jump reflects non-recurring income events and modest rent escalations, though conversions of some Triple-net properties to RIDEA structures may temper future top-line growth. The segment also benefited briefly from lease restructurings and select one-time payments. |
Outpatient Medical | +9% | Growth was supported by acquisitions, stable leasing, and completion of construction conversions, lifting rental income and extending lease terms. This segment maintained steady occupancy and rent rates, enabling consistent revenue gains. |
United States Region | +26% | Robust performance stemmed from Seniors Housing Operating occupancy improvements, higher average rate growth, and strategic property additions in key U.S. markets. Ongoing renovations and expansions also contributed to the region’s favorable top-line results. |
Net Income | +239% | The primary driver was a $166.4 million gain from real estate dispositions along with improved operational performance in seniors housing. Additional tailwinds included lower interest expense and fewer losses from unconsolidated entities, significantly raising overall profitability. |
EPS (Diluted) | +196% | The jump in net income translated into higher earnings per share, bolstered by profit from dispositions and the revenue uplift in seniors housing. Reduced interest expense and stabilized expenses further magnified per-share earnings growth. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Income Attributable to Common Stockholders | FY 2024 | $1.52–$1.60 | $1.75–$1.81 | raised |
Normalized FFO | FY 2024 | $4.13–$4.21 (midpoint $4.17) | $4.27–$4.33 (midpoint $4.30) | raised |
Total Portfolio Same-Store NOI Growth | FY 2024 | 10%–12.5% | 11.5%–13% | raised |
Outpatient Medical NOI Growth | FY 2024 | 2%–3% | 2%–3% | no change |
Long-Term Post-Acute NOI Growth | FY 2024 | 2%–3% | 2%–3% | no change |
Senior Housing Triple-Net NOI Growth | FY 2024 | 3%–4% | 4%–5% | raised |
Senior Housing Operating NOI Growth | FY 2024 | 19%–23% | 22%–24% | raised |
Senior Housing Operating Revenue Growth | FY 2024 | 9.2% | 9.2% | no change |
Senior Housing Operating Expense Growth | FY 2024 | 5.5% | 5.0% | lowered |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
SHOP Revenue Growth YoY | Q3 2024 vs Q3 2023 | 9.2% year-over-year | 27.6% year-over-year (1,530.35Vs. 1,199.808) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Portfolio Growth and Acquisitions | Q2 2024: $5B+ YTD acquisitions, focused on senior and wellness housing. Q1 2024: $2.8B in transactions, heavy emphasis on regional density. Q4 2023: $6B total in 2023, $3B in Q4 alone. | Portfolio grew 7% YTD to $90B in enterprise value. Closed $2.15B in Q3 deals across 15 transactions at a median size of $56M. Disciplined investment approach, acquiring only 8% of $15B evaluated. | Continues to be a core growth strategy across all periods. |
Increased FFO Guidance | Q2 2024: Raised to $4.13–$4.21, up $0.06 from NAREIT guidance. Q1 2024: Increased to $4.02–$4.15, up $0.065. Q4 2023: Initial 2024 guidance at $3.94–$4.10, 11.5% YOY growth. | Full-year 2024 FFO guidance raised to $4.27–$4.33, up $0.13 at midpoint. Driven by improved NOI in senior housing, taxes/FX, and accretive capital activity. | Repeated upward revisions each quarter. |
Occupancy improvements and market share gains | Q2 2024: 280 bps YOY occupancy gain, highest Q2 growth outside of 2022. Q1 2024: 340 bps YOY growth. Q4 2023: 330 bps YOY improvement. | Same-store occupancy up 310 bps YOY and 120 bps sequential, strong market share gains. | Maintains a positive trajectory, with repeated gains. |
Significant operating leverage and margin expansion | Q2 2024: SHO margin grew 290 bps YOY, 7th consecutive quarter of 20%+ NOI growth. Q1 2024: 320 bps YOY margin improvement. Q4 2023: 23.7% YOY NOI growth, 290 bps margin expansion. | RevPAR minus expense growth remains historically wide, with margins at 26.5%. Flow-through margins exceed 60%. | Continued margin expansion tied to strong revenue vs. expense spreads. |
Uncertainty about sustaining future top-line growth | Q2 2024: No direct mention but recognized broader uncertainties. Q1 2024: Noted “healthy paranoia” about upholding growth. Q4 2023: Emphasized unpredictability despite favorable demand. | CEO says it’s too early to predict 2025; performance hinges on occupancy and market dynamics. | Persistent caution remains despite strong recent results. |
Potential headwinds in rate growth for assisted living and independent living | Q2 2024: Discussed macro tailwinds potentially turning into headwinds. Q1 2024: No direct reference to rate headwinds. Q4 2023: No mention. | No explicit caution raised in Q3. | Mentioned only once; not a major focus otherwise. |
Selective or reduced investment activity | Q2 2024: No reduction noted; $1B acquisitions under contract. Q1 2024: Maintained active deployment. Q4 2023: Focused on value creation, invests only when it meets strict criteria. | Stressed disciplined deal flow; closed on 8% of $15B opportunities. Not “deal junkies.” | Stressed in Q3 and Q4, but still actively acquiring. |
Organic growth in wellness housing | Q2 2024: Portfolio has grown at 8–10% annually since 2018. Q1 2024: No explicit performance details. Q4 2023: 12.2% YOY NOI growth. | Highly occupied, viewed as a drag on overall occupancy upside. | Consistent contributor, overshadowed by wider SHOP gains. |
Constraints on new senior housing development feasibility | Q2 2024: Starts near record lows, financing scarce. Q1 2024: New supply likely delayed for years. Q4 2023: Labor and capital constraints persist, slowing new development. | Reiterated that high costs and lack of financing make new development “uneconomic”. | Supply shortage continues to benefit existing assets. |
Labor cost inflation and operating cost pressures | Q2 2024: Expense pressures reversed somewhat, comp per occupied room up 0.9%. Q1 2024: Total expenses +5.7% YOY, improved from prior surges. Q4 2023: 1.7% YOY expense growth, a record low. | Labor cost trending more favorably, expenses +0.7% YOY, second-lowest ever. | Progressive moderation in labor costs and operating expenses. |
Potential regulatory staffing requirements | Q2 2024: No mention. Q1 2024: CEO stated short-duration SNF exposure mitigates regulatory impact. Q4 2023: Private-pay focus, maintaining sustainable staffing. | No mention in Q3. | Not actively discussed recently. |
Near-term debt maturities and refinancing risks | Q2 2024: Refinanced revolver, issued convertible note due 2029, liquidity at $8.7B. Q1 2024: Strong liquidity and low net debt/EBITDA. Q4 2023: Proactively tackling $1.35B maturing in early 2024. | Addressed 2025 maturities with a $1.035B convertible note; leverage at 3.7x. | Continual proactive refinancing, well-managed balance sheet. |
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Sustainability of Top-Line Growth
Q: Will 8% top-line growth decelerate in 2025?
A: Management is not speculating on 2025 but is optimistic about occupancy growth potentially improving next year. They focus on RevPOR minus expenses and highlight a record sequential occupancy increase in Q3, suggesting potential for continued growth. -
Incremental Margins at Higher Occupancy
Q: What's the incremental margin as occupancy rises above 90%?
A: Flow-through margins were at 60% this quarter, and excluding one operator, they are closer to 67%. Management expects flow-through margins to move into the mid-60s and approach 70% as occupancy returns to pre-COVID levels of 88% and beyond. -
CapEx Expectations in Senior Housing
Q: Where will CapEx as % of NOI stabilize?
A: CapEx has been elevated due to strategic investments but is expected to lower the long-term run rate. The internal team is reducing costs by 20% to 50% per unit and improving efficiencies, which will reduce CapEx as a percentage of NOI over time. -
Tech Platform Impact on Margins
Q: How will tech rollout affect financials?
A: The goal is significantly better financial results. Initial investments are made by Welltower, with some duplicative costs upfront. Over time, the tech platform will be less expensive and scaled across the operating platform, leading to improved margins without increasing costs. -
SHOP Portfolio Exposure
Q: Will SHOP grow as percentage of NOI?
A: Yes, SHOP will continue to grow as a percentage of the overall portfolio. Even without new acquisitions, improving occupancy and margins will increase SHOP's contribution. Management is comfortable with potential volatility, focusing on long-term value rather than short-term fluctuations. -
Segments Driving Occupancy Gains
Q: Which segments are boosting occupancy?
A: Occupancy gains are across the board, but the majority of growth is from assisted living and independent living. The wellness housing portfolio is highly occupied and thus a drag on occupancy growth. Labor costs are moving favorably, which may benefit expenses. -
Acquisition Pipeline and Competition
Q: Can you maintain investment activity amid competition?
A: Management focuses on value creation rather than maintaining activity levels. They conduct mostly private, bilateral transactions (about 94%), facing less competition. Their cost of capital considerations are based on long-term returns for existing shareholders. -
Path to Recovery and Margins
Q: Is returning to pre-COVID margins realistic?
A: Management expects occupancy growth to surpass pre-COVID levels. Despite lower occupancy, NOI is already $33 million higher than pre-COVID due to higher rates. They focus on improving revenue and believe margins will improve beyond pre-COVID levels. -
Non-Same-Store Portfolio Improvement
Q: How quickly will non-same-store catch up?
A: Non-same-store assets have lower occupancy but are expected to grow faster as they improve. They are acquiring assets with 40%–60% occupancy, which is a drag now but will lead to higher earnings and growth. Over time, margins between portfolios should converge. -
Construction Cost and Development
Q: When will it make economic sense to build?
A: Construction costs remain high due to insurance and labor expenses. Rent growth alone isn't sufficient; markets need a 25%–30% increase in RevPOR minus expenses before development makes sense. In average markets, new construction currently doesn't make economic sense. -
Occupancy Trends and Traffic
Q: How are traffic and turnover affecting occupancy?
A: Traffic is up, and higher closing ratios indicate improved execution. Turnover remains consistent with no issues. The company is focused on executing and taking market share, contributing to occupancy gains. -
Absorption and Occupancy Growth
Q: Will absorption reaccelerate to boost occupancy?
A: Management doesn't speculate on macro absorption trends but focuses on gaining market share through strong execution. Any improvement in industry-wide absorption would be an added benefit but isn't their primary focus. -
Discussions with Private Peers
Q: Are you pursuing larger transactions with private peers?
A: They are in discussions with various groups, and outcomes vary based on asset quality and valuation. While some engagements may lead to larger deals, others may not result in any acquisitions. -
Contribution of External Investments
Q: How much did new investments boost FFO?
A: The $0.045 increase in FFO guidance is due to incremental capital activity since the last update. This reflects new acquisitions and financing, while outperformance from previous acquisitions is reflected in fundamental performance. -
Annualized Margin Improvement from Tech
Q: What margin improvement do you expect from tech?
A: Management is optimistic about achieving higher margins than pre-COVID due to the new platform and initiatives but will not speculate on specific annualized margin improvements. -
Acquisition Selectivity and Deal Flow
Q: What percentage of deals do you pass on?
A: Of the $15 billion in opportunities reviewed, they acquired $1.2 billion, implying a 10% hit rate. This selectivity reflects their focus on quality and valuation, and the percentage can fluctuate each quarter.
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