Q4 2024 Earnings Summary
- Strong talent retention and culture: Welltower prioritizes retaining top talent, which is critical for long-term success. Despite high industry demand for skilled personnel, the company does not have a retention problem and proactively ensures employee satisfaction.
- Limited new supply due to unfavorable development economics: High development costs and insufficient profits are discouraging new senior housing projects. This reduces future supply, benefiting Welltower's existing properties through higher occupancy and pricing power. ,
- Opportunities to optimize underperforming assets: Welltower continues to find growth by acquiring underperforming properties and improving operations across various areas, not just occupancy. This ability to unlock value in existing assets supports sustained growth even with fewer new property deliveries.
- Rising labor costs and potential labor shortages, with labor constituting 60% of expenses, pose a significant risk to margins, and despite management efforts, challenges in the labor market remain.
- Operational expenses in the U.K. are growing faster than in the U.S. due to increased employment taxes and minimum wage hikes, which could negatively impact margins even with top-line growth.
- The company's portfolio occupancy is still below 80%, raising concerns that if occupancy does not improve as expected, it could impact revenues and margins.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Income Attributable to Common Stockholders | FY 2024 | $1.75 to $1.81 per diluted share | no current guidance | no current guidance |
Normalized FFO | FY 2024 | $4.27 to $4.33 per diluted share (midpoint: $4.30) | no current guidance | no current guidance |
Increase in Normalized FFO Guidance | FY 2024 | $0.13 per share increase (midpoint) | no current guidance | no current guidance |
Same-Store Growth | FY 2024 | Total portfolio: 11.5% to 13%; Subsegments – Outpatient: 2–3%, Long-term post-acute: 2–3%, Senior housing triple net: 4–5%, Senior housing operating: 22–24% | no current guidance | no current guidance |
Revenue & Expense Growth for Senior Housing Operating Portfolio | FY 2024 | Revenue growth: 9.2% (RevPOR: 5.25%, occupancy growth: 300 bps); Expense growth: 5% | no current guidance | no current guidance |
Net Income Attributable to Common Stockholders | FY 2025 | no prior guidance | $1.60 to $1.76 per share | no prior guidance |
Normalized FFO | FY 2025 | no prior guidance | $4.79 to $4.95 per diluted share (midpoint: $4.87) | no prior guidance |
Year-over-Year Normalized FFO Increase | FY 2025 | no prior guidance | Midpoint increase of $0.55 vs 2024 | no prior guidance |
Same-Store Net Operating Income (NOI) Growth | FY 2025 | no prior guidance | Total portfolio: 9.25% to 13%; Subsegments – Outpatient Medical: 2–3%, Long-Term Post-Acute: 2–3%, Senior Housing Triple Net: 3–4%, Senior Housing Operating: 15–21% | no prior guidance |
Senior Housing Operating Segment Drivers | FY 2025 | no prior guidance | Revenue growth: 8.5% (midpoint), RevPOR growth: 4.8%, Occupancy growth: 325 bps, Expense growth: 5% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Income (EPS - Basic) | FY 2024 | $1.75 to $1.81 per diluted share | $1.59 per diluted share (sum of Q1 at 0.22, Q2 at 0.43, Q3 at 0.75, Q4 at 0.19) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Labor Costs and Labor Shortages | Q1 2024: Easing labor pressures; labor expense growth at 5.7% but moderating. Q2 2024: Lower compensation growth at 0.9%, aided by operational scaling. | Q4 2024: Labor remains 60% of expenses with 1.2% growth; turnover reduction efforts and employee experience enhancements noted. | Consistent focus on controlling labor costs with further improvement in Q4 |
Senior Housing Occupancy Levels | Q1 2024: Occupancy below pre-COVID at 82.5%; multi-year margin expansion expected. Q2 2024: Occupancy still below historical levels but targeting higher than pre-pandemic benchmarks. | Q4 2024: Strong sequential and year-over-year occupancy gains (+120bps QoQ, +310bps YoY) with optimism for 2025 acceleration. | Continued improvement with optimism for further growth |
Strategic Acquisitions | Q1 2024: Tuck-in approach and distressed opportunities; $2.8B of investments. Q2 2024: Focus on regional density, $5B transactions YTD. | Q4 2024: Highlighting long track record in optimizing underperforming assets; $7B investment in 2024. | Ongoing strategy with continued momentum in acquisitions |
Limited New Senior Housing Supply | Q1 2024: High costs and unfavorable economics limiting construction. Q2 2024: Negligible starts; difficult construction financing. | Q4 2024: Developers hesitant to start due to high development costs and poor returns. | Consistent shortage of new supply across all periods |
Margin Improvement | Q1 2024: 320bps YoY gain via operational efficiencies and tech adoption. Q2 2024: Occupancy-driven expansion; focus on CRM/ERP integration. | Q4 2024: Another 320bps YoY expansion; digital transformation and platform rollout. | Persistent margin growth through technology and efficiencies |
Strong Balance Sheet and Credit Outlook | Q1 2024: Net debt-to-EBITDA at 4x; $6B liquidity. Q2 2024: Record-low leverage at 3.68x; $8.7B liquidity; positive ratings. | Q4 2024: Net debt-to-EBITDA 3.49x; $9B liquidity; supports transaction pipeline. | Continuously strengthening balance sheet enabling more deals |
UK Market Challenges | Q1 2024: Worse debt conditions than US; strong NOI growth but high expenses. Q2 2024: No mention. | Q4 2024: Faster OpEx growth noted, less emphasis on UK debt. | Mentioned in Q1, not Q2, then re-emerged in Q4 |
Strong Talent Retention and Culture | Q1 2024: Focus on hiring and retaining top talent; regional densification aids retention. Q2 2024: No mention. | Q4 2024: CEO cites talent retention as #1 priority; culture of shared sacrifice. | Heightened emphasis in Q1 and Q4, absent in Q2 |
Potential for Long-Term Impact | Q1 2024: Occupancy gains, cost moderation, strategic initiatives fueling multi-year growth. Q2 2024: Emphasis on operator transitions, tech rollout, sustained NOI improvement. | Q4 2024: Continued occupancy gains, margin expansion, RIDEA conversions, and digital transformation drive outlook. | Consistent optimism on multi-year growth driven by core initiatives |
-
Pricing Power and Acquisitions
Q: What's the pricing power across occupancy bands and details on $2B acquisitions?
A: Assets with over 90% occupancy have seen RevPOR growth well into the 6% range, while assets below 70% occupancy are roughly flat. Assets between 85% and 95% occupancy are closer to 6% growth. The $2 billion in acquisitions are generally low 80% occupancy, newer vintage assets, similar to previous purchases. -
RevPOR Growth Outlook
Q: Should we expect RevPOR growth reacceleration in 2026?
A: With occupancy gains expected over 300 basis points, the company could approach 90% occupancy by year-end. Demographic inflection and tech platform rollout may lead to better RevPOR growth post-2026 summer leasing season. However, metrics may be affected by acquisitions of assets at around 18% occupancy. -
External Growth and Supply
Q: Does fewer new deliveries make buying lease-up properties more challenging?
A: Acquiring underperforming buildings remains viable due to the company's operational expertise. Despite fewer new deliveries, there's a long runway to optimize assets. The oversupply cycle post-GFC provides opportunities as many need liquidity assistance. -
Occupancy Gains Drivers
Q: What is driving the outsized occupancy gains?
A: Significant occupancy gains are attributed to the company's execution and operational alpha. While demographic factors play a role, their performance surpasses industry data, highlighting effective operations. -
Labor Market and Expenses
Q: What's the update on labor market and labor shortages?
A: Labor comprises about 60% of expenses, and while concerns persist, the company focuses on reducing turnover through operational initiatives. They've seen tangible impacts but acknowledge ongoing challenges requiring continual focus. -
CapEx Expectations
Q: Details on long-term CapEx after elevated period?
A: Long-term CapEx run rate is expected to be similar to multifamily residential benchmarks. Efficient capital planning and proper scoping aim to lower ongoing capital needs. Value-add investments are discretionary, based on unlevered IRR targets. -
Senior Housing Development Outlook
Q: Why haven't developers rushed into senior housing development despite strong fundamentals?
A: Development occurs if profitable, but current economics don't support it due to costs and misunderstood development profits. Decisions should be based on untrended yields. Past oversupply cycles led to significant losses, and without favorable economics, new development is unlikely. -
Senior Housing Operating Segment Growth
Q: How big is the same-store bucket and expectations for non-same-store assets?
A: Overall portfolio occupancy is around 85%, with same-store over 87%. Non-same-store assets offer potential for higher growth as occupancy increases, leading to greater margins. By Q4, over 90% of the portfolio is expected in the same-store pool. -
Tech Platform Rollout Timing
Q: What's the timing for tech platform rollout?
A: The tech platform is rolling out over the next couple of years to ensure a seamless experience. It provides real-time actionable data to employees, enhancing efficiency. The process takes time due to complexity and ongoing acquisitions adding 10,000–12,000 units annually. -
Role of Medical Office and Post-Acute Segments
Q: What's the role of medical office and post-acute segments in the company?
A: Both segments play crucial long-term roles, contributing to sustainable earnings and cash flow growth over decades. Capital allocation depends on risk-adjusted returns, with cautious approach until there's clarity on long-term inflation trends. -
Private Funds Management Business
Q: What are targeted IRRs and opportunity size in private funds business?
A: Management provided no additional details beyond acknowledging that focusing on unstabilized assets for growth, not yield, will expand their total addressable market through private capital. -
Development Stabilization Time
Q: How long to stabilize $2B developments upon completion?
A: The pipeline focuses on active adult and medical office buildings. MOB developments are typically 100% leased upon completion. Active adult properties have shorter lease-up times, around 12–18 months, shorter than senior housing. -
Expense Growth in U.S. vs U.K.
Q: How does 2025 expense growth in U.S. compare to U.K. and Canada?
A: Operating expense growth in the U.K. is greater than in the U.S., due to cost of living adjustments and increased employment taxes and minimum wage. Top-line growth in the U.K. offsets some increased expenses, resulting in positive growth. -
Talent Retention
Q: How is the company addressing talent retention?
A: Retaining talent is a top priority. Despite high industry demand, the company doesn't have a retention problem. A strong culture and shared purpose keep talent engaged and committed. -
European Investing Activity
Q: What's the scale of European investment opportunity beyond the U.K.?
A: The company's European focus is solely on the U.K. They have no intention of expanding beyond their circle of competence, which includes the U.S., U.K., and Canada.