Q1 2026 Earnings Call Transcript

Thank you for standing by. At this time, I would like to welcome everyone to the Welltower First Quarter 2026 Earnings Conference Call and webcast. [Operator Instructions]. I would now like to turn the conference over to Matt McQueen, Chief Legal Officer and General Counsel. The floor is yours.

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.

And with that, I'll hand the call over to Shankh for his remarks.

Thank you, Matt, and good morning, everyone. As usual, I'll review business trends and our capital allocation priorities and the team will follow the usual cadence. We started the year on a strong note with the business continuing to fire on all cylinders. While the heightened geopolitical tension and macroeconomic volatility dominated the headlines, our niche need-based and private pay rental housing business did not miss a beat.

Driven by a combination of strong organic growth and acquisition activity, our total revenue for the quarter increased 38% year-over-year, while adjusted EBITDA was up 36%. Most importantly, we delivered another quarter of strong bottom line part share growth with FFO per share increasing 23% while we continue to deleverage our balance sheet and invest in people and systems. Our balance sheet provides us with substantial firepower and flexibility. These results exceed our already high expectation coming into the year, enabling us to raise the midpoint of our full year FFO per share guidance by $0.11 to $6.28. The pronounced mix shift of our portfolio resulting from a transformative 2025 capital allocation activity has already begun to manifest itself.

During the first quarter of this year, we reported 16.4% total portfolio same-store net operating income growth, by far the highest in our history. This is largely a function of combined strength from a senior housing operating portfolio, which now comprises 74% of our same-store NOI, up from 57% first quarter of last year. This is the first time in history the annualized in-place NOI from our shop portfolio exceeded $3 billion. During the first quarter, U.S. outperformed from an occupancy perspective with nearly 400 basis points of year-over-year growth.

On the other hand, Canada, with higher overall occupancy levels than U.S. and U.K., posted growth closer to 300 basis points, but generated RevPOR growth of 6%, giving you some perspective of the out of the possible as our overall portfolio leases up. Ultimately, all 3 regions made strong contributions, and we achieved nearly 10% organic revenue growth in the quarter. And the subdued expense growth driven by scaling and the Welltower Business System, same-store NOI growth increased 22%, marking 14th consecutive quarter in which sharp growth exceeded 20%. Drilling a bit further, the growth of RevPOR, the unit revenue continued to exceed ExpPOR or unit expenses by a wide margin resulting in another quarter of significant operating margin expansion of 320 basis points.

Perhaps the most remarkable stat of the quarter was the circa 20% NOI growth gated by the communities with 95%-plus occupancy. While I consider our recent senior housing results to be somewhat satisfactory, I'm convinced that the best years of this business are squarely in front of us. With the total senior housing portfolio occupancy at 87%, there is significant capacity in the system for us to drive multiple years of outsized occupancy gains, along with continued pricing opportunity. And with the operating leverage inherent in our high fixed cost business, margin should continue to drift higher.

But as we have talked about during our most recent calls, what we remain most excited about and our most meaningful opportunity to drive bottom line growth is through the expanded role that technology, data and innovation will play in our business with the ultimate goal of improving the experience of our customers and site level employees. The structural change driven by the Welltower business system should continue to impact virtually every revenue and expense line item driving the margins even higher. This digital transformation, which we are striving for, coupled with in-place above-market compensation and benefits for our site level employees, should result in lower turnover and lead happier customers.

As I mentioned last quarter, Manga Grant is a clear example of how we are putting these ideas into action. As I've written extensively in my annual letter, which came out a few weeks ago, we have built a system of scaled economic share amongst all participant in the ecosystem. While shareholders will certainly benefit as we extend the duration of our growth, we want our operating partners, site level employees, residents and their families to benefit meaningfully as well. This is the only way to build and sustain a network effect in a complex adaptive system like ours.

Turning to investment activity. Almost exactly a year after Liberation Day, the conflict in Middle East has led to another period of significant capital markets volatility creating a dynamic similar to that of last year. Recently, a spike in interest rates and gapping out of spreads has resulted in retrading of deals and various parties walking away from their new found love of senior housing. It is almost comical to see how predictable tourist capital's behavior can be.

Many of our counterparties have seen this movie before and opted to bypass the theater and instead transacting with us directly in privately negotiated deals. However, some of the first-time sellers have learned the hard way that 5 to 6 months time line required to reach a signed definitive agreement in real estate is an eternity in today's world. We behave exactly how we always have: running a first-class business in a first-class way and never walking from a handshake. Over the last 60 days, we have been busier than ever, generating an incredible amount of activity, which Nikhil will describe to you shortly.

But to provide some additional context, we completed $3.2 billion of investments during the quarter and have closed or under contract to close an additional $7.3 billion of investments. Our investment pipeline remains robust, visible and actionable in all 3 of our regions. In addition, often overlooked is our disposition activity which totaled nearly $3 billion in the quarter as we continue to rotate capital into opportunities, which we believe will both amplify and extend the revenue growth curve further into the future. Overall, we have completed $11 billion of dispositions since the beginning of 2025, which has meaningfully dilutive -- which has been meaningfully dilutive to our 2026 earnings per share.

However, calling our portfolio of lower growth assets, we have meaningfully extended our growth curve in outer years. For example, the assets we acquired in fourth quarter of last year are expected to deliver 10x level of growth in 2026 than the assets we have sold. Not selling this unprecedented volume of assets would have been easier and frankly, more fun as 2026 FFO per share would have been meaningfully higher, but we always have and always will choose hard, over easy and long term over short term. We have a long and hard year of execution in front of us, but our team has never been more fired up as it is today.

We shall see what the market gives us in this summer leasing season. With that, I'll pass it over to John.

Thank you, and good morning, everyone. As Shankh mentioned, we are pleased with our start to the year having delivered the portfolio same-store NOI growth of 16.4%, the highest level in our company's recorded history. Once again, our results were driven by our senior housing operating portfolio, which delivered a 14th consecutive quarter in which the same-store NOI growth exceeded 20%. During the first quarter, portfolio year-over-year same-store revenue increased 9.5%, driven by a 370 basis points of occupancy gains and strong pricing power with RevPOR growth of 5%.

Revenue growth was consistent across all 3 regions, led by the U.K. at 9.7%, followed by the U.S. at 9.5% and Canada at 9.2%. However, peeling back the onion, both the U.S. and U.K. reported occupancy growth of nearly 400 basis points and RevPOR growth just shy of 5%. On the other hand, as Shankh indicated, Canada reported occupancy growth of roughly 300 basis points, but RevPOR growth of nearly 6%. Ultimately, our goal is to provide a top quality customer experience and to be fairly paid for it. and that's showing up through a combination of occupancy and rate growth.

Moving to expenses. We remain encouraged by the trends we are observing across most line items, but particularly with respect to labor, which is almost SHO expenses. This is best reflected by comp for or compensation per occupied room, which increased 20 basis points year-over-year, near the lowest level of growth in recorded history. As a result, expense per occupied room or ExpPOR was up just 40 basis points.

This is largely a function of scaled economics in the business, whereby a growing number of communities are now either fully staffed or approaching those levels. As occupancy continues to grow, the need to add additional staff has moderated, leading to a meaningfully higher flow-through or incremental margins. In fact, during the quarter, we achieved a flow though margin of 64%, while our same-store NOI margin increased 320 basis points to 30.9%. As for the future, we believe that significant upside exists.

The combination of our same-store communities at 95% occupancy, posting NOI growth of roughly 20% and approximately 45% of our same-store SHOP assets operating below 90% occupancy with the opportunity for materially increased revenue and NOI via occupancy gain creating potential for years of compounding per share growth ahead. While we take nothing for granted due to the operational intensity and persistent challenges which exist in the business, we are confident that through the efforts of our best-in-class operators and continued rollout of the Welltower business system across the portfolio, we will continue to drive outside levels of growth well into the future.

It's still early in the year with the peak leasing season ahead, and we will see what the market gives us. But our goal remains consistent, partnering with our -- operating with our operators to deliver an exceptional resident employee experience. Our Welltower operations and asset management teams, including the Tech Quad, continue to make leaps, nonincremental steps on this front and remain committed to maintaining this momentum through a relentless focus on operational excellence. With that, I'll turn it over to Nikhil.

Thanks, John, and good morning, everyone. Since our last call, the macroeconomic and geopolitical backdrop has once again introduced meaningful volatility into the capital markets. Escalating conflict in the Middle East, combined with renewed stress in private credit, has driven a more pronounced risk-off tone, evidenced by higher treasury yields, elevated volatility across risk assets and growing signs of strain within private lending markets. Credit spreads have widened in recent weeks.

Redemption activity in certain semiliquid vehicles has increased and defaults have continued to trend higher. As Sean said, we have seen this movie before. In periods like this, when capital becomes less reliable and execution risk rises, our position strengthens. Our reputation as the highest quality counterparty backed by our incredible balance sheet becomes increasingly differentiated.

Sellers place a premium on certainty of close, lenders become more selective. And when that happens, the opportunity set expands. That is exactly what we are seeing today. As a result, we have seen a meaningful increase in our investment activity.

Our investment volume for the year now stands at $10.5 billion, an increase of $4.8 billion since our last call in February. During the first quarter, we closed 41 transactions totaling $3.2 billion. Of these, 37 were sourced off market, continuing to reflect the strength of our relationships and our origination platform. The majority of our acquisitions activity was highly granular, single-asset transactions where our teams operated as local sharpshooters supported by insights from our data science and machine learning platform, welltower.ai.

These transactions added 37 communities and over 4,200 units to our seniors housing portfolio. On the disposition side, during the quarter, we completed the remaining $520 million of the previously announced $1.3 billion of dispositions in our Integra JV as well as an additional $1.3 billion of OM sales to Kayne Anderson. With $6.7 billion of sales now complete, we expect the remaining approximately $500 million to be completed during the second quarter. Turning to new activity.

We have already closed on additional $4.2 billion of transactions in the second quarter, comprised primarily of our previously announced acquisition of Amica Senior Lifestyles in premium markets across the GTA and Vancouver. The incremental $3.1 billion of activity is comprised primarily of newer vintage seniors housing assets with roughly 95% sourced off market across a number of transactions. I'm also pleased to provide an update on our U.S. seniors housing equity fund. As I mentioned on our last call, we held our final LP close in the fourth quarter of 2025. Since then, consistent with the acceleration in activity in our balance sheet, the entire $2.5 billion of fund capital is now fully committed.

While we were significantly oversubscribed, we made a deliberate decision to limit the size of the fund. Our focus was simple, raise the right amount of capital, not the maximum amount of capital. We also structured and are scheduled to deploy the fund in a way that avoids many of the common friction points for LPs. With 1.5 years still left in the investment period, capital is being put to work quickly and high conviction opportunity minimizing the typical J curve of returns.

In addition, we have avoided the use of subscription lines to manufacture IRRs, remaining focused instead on driving real equity value creation over time. I'll leave you with a few thoughts. What we're seeing in the market right now is not new, but it is meaningful. Periods of volatility separate long-term capital from short-term tourists.

In these moments, speed, conviction and underwriting and consistent execution aren't just advantages, they're differentiators. That's where we have focused our time. Our platform is built to identify opportunities at a very granular level, move with speed and engage directly with counterparties. We are disciplined in how we deploy capital, valuing assets based on in-place performance while keeping the value add from WBS for our shareholders.

We remain price disciplined with unlevered IRRs and discounts to replacement costs being our guiding principles and with terms like accretion, notably absent from our investment committee conversations. Our focus on win-win outcomes and target pursuit of the truth rather than woven narratives, continues to drive our ability to source opportunities off-market and deploy capital thoughtfully, even in more uncertain environments. With that, I'll turn the call over to Tim to walk through our financial results.

Thank you, Nikhil. My comments today will focus on our first quarter 2026 results, performance of our triple net investment segments, our capital activity, our balance sheet and liquidity update, and finally, an update to our full year 2026 outlook. Welltower reported first quarter net income attributable to common stockholders $1.02 per diluted share and normalized funds from operations of $1.47 per diluted share, representing 22.5% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 16.4% driven by 22.1% growth in our SHOP portfolio, which now makes up 74% of our same-store NOI.

Now turning to the performance of our triple net properties in the quarter. In our seniors housing triple-net portfolio, same-store NOI increased 3.9% year-over-year and trailing 12-month EBITDA coverage was 1.23x. Next, same-store NOI in our long-term post-acute portfolio grew 2.6% year-over-year and trailing 12-month EBITDAR coverage is 1.32x. Moving on to capital activity.

In the first quarter, we raised $4.4 billion in gross proceeds through dispositions and equity issuance, allowing us to fund $3.3 billion of investment activity and end the quarter with a net debt to adjusted EBITDA ratio of 2.73x, more than half a turn reduction from just a year ago. Subsequent to quarter end, we used free cash flow to pay off $700 million unsecured bond maturity in April, highlighting the strength of our balance sheet and the cash flow generating capacity of the portfolio. We ended the first quarter with $4.9 billion of cash on hand, which together with approximately $1.4 billion of incremental disposition activity, along with assumed debt and funding of transaction activity with OP units, positions us to fund roughly $7.3 billion of investment activity through the remainder of the year with a meaningful portion, again, expected to be sourced through capital recycling.

Taken together, this net investment activity and continued cash flow growth from the in-place portfolio, our expected result in year-end net debt to adjusted EBITDA of approximately 3x, modestly below our prior expectations. Before turning to our guidance, I want to come back to a point I highlighted last quarter around how our portfolio transformation and what we describe as Welltower 3.0 is reshaping our growth profile. What we're seeing play out in the first quarter is a clear validation of the mix shift we spoke to, with Q1 marking the highest level of total portfolio same-store NOI growth we've delivered in company history.

Importantly, that growth is anchored by the strength of our in-place portfolio. Our initial guidance last quarter already reflected a high level of year-over-year visible earnings growth. And our updated outlook this quarter demonstrates the continued momentum we're seeing in the ground. As we continue to increase our concentration in senior housing operating, we believe the Welltower 3.0 portfolio is positioned to deliver a meaningfully higher rate of sustainable compounding than its predecessor.

Moving on to guidance. Last night, we updated our full year 2026 outlook for net income attributable to common stockholders of $3.24 to $3.38 per diluted share and normalized FFO of $6.21 to $6.35 per diluted share or $6.28 at the midpoint. Our normalized FFO guidance represents an $0.11 increase at the midpoint from our prior normalized FFO range. This increase is composed of a $0.03 increase from senior housing operating NOI, a $0.07 increase from investment and financing activity and a $0.01 increase from better-than-expected income tax and other with some offset from higher G&A expectations.

Underlying this FFO guidance is an estimated total portfolio year-over-year same-store NOI growth of 12.25% to 16%, driven by subsegment growth of outpatient medical, 2% to 3%; long-term post-acute, 2% to 3%; senior housing triple net, 3% to 4%; and finally, senior housing operating growth of 16.5% to 21.5%. This is driven by the following midpoints of the respective ranges: Revenue growth of 9.2%, made up of RevPOR growth of 5% and year-over-year occupancy growth of 350 basis points and expense growth of 5.3%, equating to export growth of just below 1.3%. And with that, I will hand the call back over to Shankh.

Thank you, Tim. I would like to make 3 points before opening up the call. First, I want to take a moment to acknowledge the passing of David Simon, a true legendary figure, not just in real estate space, but all of corporate America. David was a visionary in every sense of the term, growing a small portfolio of regional malls into one of the most well-respected companies in the world.

He was a legend, a true pioneer, recognizing the enduring value of highest-quality real estate where shoppers and retailers could come together in vibrant environments. And the Simon ecosystem thrived under his leadership. Just think of the long-term success of so many of America's great retailers, which would not have been possible without the setting that David created for them to grow and thrive. Of many of his qualities, one, I personally appreciated the most is that he was unapologetically himself.

He spoke his mind with clarity and conviction and remained relentlessly focused on creating long-term value for his investors. The stellar returns Simon delivered for its shareholders under David leadership was no accident. He navigated the company through multiple recessions and structural changes in the industry via thoughtful countercyclical capital allocation, a focus on operational excellence and maintain utmost balance sheet discipline. He was unquestionably a stalworth and a true visionary, but also a friend, a mentor and a fellow Board member at Columbia.

He was the one who encouraged me to take the lead from buy side to the corporate side, an advice, which I will never -- which I'll forever be grateful for. He leaves behind a legacy that extends far beyond the real estate sector, setting a standard for what great leadership looks like. Our deepest condolences to Simon family and those who are close to David. Second, roughly a year ago, we launched our private fund management business establishing a capital-light revenue stream and another avenue to drive POR share growth for existing investors.

During the first quarter of this year, we identified another additional revenue through which to expand our capital-light business by unlocking from an existing balance sheet asset, the monetization of our data science platform. As many of you know, since 2016, through the efforts of multidisciplinary team of PHD computer scientists, engineers, statistician and mathematicians, we have pioneered the application of data science and machine learning in real estate investing. This was instrumental in driving over $80 billion of acquisition and disposition activity over the last 10 years. Given the modular and portable nature of the platform, we launched our first external partnership during the first quarter, licensing bespoke, supervised and unsupervised models to public storage and a leading global private equity firm.

These models enabling the real-world application of AI by accelerating capital allocation decisions from 5 to 9 months to mere weeks and significantly increasing velocity to market. Ultimately, our mission is to scale real estate investing, which is historically was an unscalable business. More to come on this front in months and quarters ahead, but we have been incredibly busy since the announcement in March as many highly respected real estate, non-real estate and sovereign wealth funds have reached out to us to explore similar partnerships. Lastly, as I described in my annual letter, we have recently witnessed a surge of talent density that have -- we have been attracting to the company, particularly with respect to Tech quad.

Following our ethos that hire A people we have been successfully attracting the highest caliber technology and data science professionals to execute our vision. Aiding our effort is what is called or rapidly spreading narrative around who is the next on the disruptive path of AI, which is releasing an extraordinary pool of talent into the market. This talent pool is increasingly focused on identifying businesses that cannot be replaced by AI, including sectors classified as halo or hard acid low obsolescence such as housing for rapid aging population. We are thrilled with the progress made by Tech Quad in reimagining our technology ecosystem to improve the resident and site level employee experience.

Our newest addition to our team will only accelerate these efforts. Nonetheless, our biggest opportunity to drive POR share growth is through unlocking greater value for our existing assets with the most immediate and impactful way of being the implementation of Welltower Business System, our end-to-end operating platform across our senior housing portfolio. In a maximum growth, maximum gain wall, the fastest way to move the dial is to narrow the focus. Our relentless and manacle focus on the digital transformation of the business and dramatically improving customer and site level employee satisfaction will be the force multiplier on the attractive beta of our business.

And with that, I'll open the call up for questions.

[Operator Instructions]. Your first question comes from Ronald Kamdem with Morgan Stanley.

Great. I just wanted to double-click on one of the comments you made on the 95% occupied portfolio and the same growing 20%. Wondering if we could sort of double-click and get some more color around whether RevPOR, ExpPOR margins mix anything that could be interesting?

Thanks, Ron. First, I clearly don't want you to run with that idea that that's what we are suggesting happen. But that is definitely something that I found in our data to be more surprising. A very significant part of our portfolio today is 95%-plus occupied, give or take, 50%.

And that portfolio grew circa 20% net operating income, as I said. And for -- clearly, for a couple of reasons, obviously, you got pricing power increases as capacity comes down in the system. That happened -- that part of the portfolio had give or take 6%-plus RevPOR growth. And with the expenses, major execution on the expense side that John mentioned through our operators and the contribution from Welltower Business System, it just landed to be an extraordinary number.

So we were very happy about it. We do think that, that sort of gives us confidence that will have double-digit NOI growth for a long time to come in our portfolio as the portfolio leases up, we'll see what market gives us as we sort of get through the next few years as the portfolio leases up.

Your next question comes from John Kilichowski with Wells Fargo.

Shankh, you kind of hit on this at the end of your opening remarks, but could you talk more about the growth of the talent density and the data science platform given what you described as a halo sector? And how much this has accelerated the growth outlook of the business in your mind? And then if you could also maybe just talk to how investors should be thinking about the medium-term potential for earnings contribution from this business?

Yes. John, let me take the first -- second part first, and then I'll go to the first part. If you just think about it, we built this data science capability, machine learning capability over the last 10-plus years to deploy capital on our balance sheet, on our books. And then we realized recently from -- at the really encouragement from some of our largest sovereign wealth partners in our fund business, that there could be a much bigger sort of application of this, which you have seen our first partnership announcement.

We're in the building mode of this business, where there's something substantial come out or not, we will see in the future, but I can tell you that since the announcement was made under early March on public storage as well as the other PE pharma, I mentioned. Our phones have been ringing up the hook. We have been exploring a lot of the opportunity with a lot of people. Real estate -- great real estate companies, many non-real estate companies such as banks and others, major sovereign wealth funds, which I mentioned to you at the first ones who actually told us that could be a significant opportunity of that nature.

We'll see where it goes. Whether sort of what remains a true major force behind our capital allocation and everything else sort of becomes a fun project or we just sort of take this as a a whole new business, we'll see what happens, right? Going back to the first part of your question, I have ever heard of this concept of halo even, say, 90 days ago. I heard that, as you know, probably that I personally interview most of the people who comes to our organization.

And I heard it increasingly from the talent that was coming through. And many of the businesses which are sort of impacted or people avoid that potentially impacted or frankly, a different level of talent pool I've never seen. And just in last -- since the last call, we have hired either data scientists or software engineers with the backgrounds that we look for, whether it's computer science or math, PhD, hired from the top quant funds, I never thought that will come and work for a real estate company let alone a senior living company. Or we started to see talent from people who are code breakers and 3 agencies.

We're never -- 90 days ago, if you asked me, I would not have told you that we would attract talent from that kind of places. It's talent density is increasing. We are trying to explore problems that we never thought that we will -- obviously, we think about there's a granularity of those problems, right? One granularity is obvious is we talk about housing prices, for example, in real estate.

Housing prices of what? Most industry uses housing prices, as a median house price in the ZIP code, right? We today use every housing prices in an entire area, okay? That's an interesting idea.

How about you think about what you have hidden? Is there other hidden signals such as -- I'm going to make this up, the price of which futures, the impact of that in housing assets in Great Plains? I totally made that up as we're going through. But those that the hidden insight we want to discover and understand we -- and that kind of people are in the industry is kind of overall in the world, but not in our kinds of industry.

And that's what we are trying to attract and see where we can take the business, right? We'll see what happens. But thank you for the question.

Your next question comes from Michael Goldsmith with UBS.

I'm here with Justin On the topic of capital allocation, Ventas recently acquired this portfolio. did you evaluate that opportunity? And maybe more broadly, you have the best cost of capital in this space. How do you think about accelerating accretive growth versus maintaining your discipline?

We don't -- Michael, we don't comment on other deals that our colleagues in the industry do. We did look at the portfolio, and we think that is a very high-quality portfolio that our colleagues are went us will do very well with. But I don't really want to get into it. When it was brought to us a few months ago, it was in a structure that was not something we find particularly, at that point, palatable.

I've mentioned many, many times that we have problems with encumbrance on assets and when it was brought to us, there was an encumbrance of assets of existing operators and asset management and all of those kind of things, which I don't want to get to, but I think they're high-quality real estate and our colleagues at Ventas will do very well. On your other part of your questions is accelerating capital allocation. I want you to understand, this is what I wrote in my annual letter, which under a section called cognitive dissidence of acquisition volume. And I want you to understand that what we are trying not to do, we're not -- it's not a deal shop.

That's why Welltower is different from our predecessor company. We want to allocate capital in a particular product market niche where we think we can add significant value. This is not a cost of capital business for us. We don't compete on cost of capital.

We compete on ability on the data science side, on WBA side and a network of extraordinary operators who can drive higher value for customers and employees and for us and themselves. That's the model. So not everything -- if the goal was to do more, we would not be selling $12 billion of assets in the last 12 months, right? So -- and we are getting -- we're seeing everything like we always have, as Nikhil said, 90%, 95% of everything sort of we do comes to us off-market.

And frankly speaking, that makes sense, right? Because we'll tell you as a seller within a day or 2 whether we want to transact and probably within 3 to 5 days, give or take, what will transact at what price we'll transact at. So fundamentally, as a seller, you have nothing to lose for by coming to us. And so that's how the business rolls, and we'll see what market gives us.

If we never buy another asset or we go back to the period pre-COVID where we sold -- we're net sellers and we sold $16 billion of assets, we will be just fine. Our goal is to grow per-share value for existing investors not do deals.

Your next question comes from Mike Mueller with JPMorgan.

First, that was a nice David tribute. When I think assignment over time, one thing that stands out is David's ability to walk away from deals whether it was or the first shot at Can you talk about an example or 2 of steering clear from a big transaction that didn't sit well with you?

Yes. Thank you very much. I always think of -- I was e-mailing back and forth with him a couple of months ago. David was the one on the best and most exciting day of my buy-side career called me and said, "Your carrier has speak today, leave the industry and come join me on the dock side." And that's how this whole thing started rolling.

I think many of you -- I think we have had the conversations over a period of time. He was an extraordinary leader. Extraordinary leader. And it was something I had admired.

I knew him for a long time. We're in the Columbia Business School Board. It was just in -- I was in all with leadership skills, not just his financial success of total returns and all of those things. But one of the things, as you mentioned, look, we -- David able walk away from deals and many times he did it.

Believe it or not, many times when you walk away from transaction and you do it in the right way so that you're not burning bridges, you tell people why you walked away you can still maintain the relationship. One of the largest transaction we have done in this company is the largest transaction we have done in this company is Barchester, Believe it or not, I walked away from that deal twice right? So we -- there are many -- I don't want to get into granular transaction. Every day of the week our team walks away from transactions, tell the counterparties why we walked away, whether we walk away because we don't like the product market fit, we walk away because we don't like the income rentals that I just mentioned or written extensively about.

We're respectful to the marketplace in the industry. And we're direct, right? Nobody will tell you that we have ever said something we didn't do it. We are very direct to people.

And then it's just -- we do a very small fraction of what we see. Nikhil, what do you think [indiscernible]

Yes, 10%.

10%-or-so. So by definition, we walk away from 90% of what we see. But sometimes something like Barchester, we walk away. And eventually, it happens when the time is right from a pricing standpoint or on a structure standpoint. But very, very good question, Michael. Thank you.

Your next question comes from Michael Carroll with RBC Capital Markets.

Shankh, I know that the WBS model continues to evolve, I mean, how beneficial are these new partnerships that you're creating with PSA and others to take WPS to the next level. I mean, I'm assuming that Welltower is getting access to more new data that they didn't have access to Bulfor. I guess, how beneficial could that be as you kind of refine those systems?

Mike, think about in our SHOP technology in 2 different -- completely different segment, which that's obviously the interconnect at some levels, which is one is our data science platform, which is focused on allocation of capital and finding granular opportunity and changing the velocity that exists in this business from months to days right? And that's one idea. The other idea is operational side of the business, which we call Welltower Business System, which we're building out, and I mentioned about Tech Quad and how Jeff and Tucker and Swagat and Logan and all these they are also taking that to a new level.

Welltower Business System, which is the operational side of the business, is not something that we are collaborating with public storage. Public storage or people like that don't need our help to think about operationally how they should run the business. That industry is years ahead we're actually hiring from that industry who can help us to do it, right? On the other hand, our collaboration is on the data science side, which we have been at this for 10-plus years.

And that's why we have changed the real estate investing business, where this latency of the system is 5 to 9 months and we have taken that today, right? So I don't want you to confuse the two and understand how -- where the collaborations are coming. We have given you many examples on our business update, the kind of problems that we are going after that people run people are coming to us. For example, obviously, real estate examples are easy, and you can see it on examples, whether that's multifamily, other types of asset classes.

So storage, obviously, you mentioned, all other types of asset classes. But people are coming to us with problems that are location-type problems, but not necessarily specifically real estate problems. For example, a big bank has come to us and asked us whether we can help them on predicting whether most profitable next branch -- bank branches should be? These are the types of problems that we are exploring, and we'll see where we get to.

But thank you for your question.

Your next question comes from Jim Kammert with Evercore ISI.

Shankh and team, is there a way to leverage the data science into other geographies beyond your core U.K., U.S. and Canada? Or are those markets structurally don't have private pay or other cultural issues that leave you unlikely to pursue in terms of external growth?

The short answer is, yes, it can be, in fact, on -- just for fun we're having this conversation with an investor -- a significant investor in Japan, and we built a model over 3 weeks, our guys did to show them like how to apply that in Japan, right? I know obviously, we don't have as much of a data and we haven't bought like gobs and gobs of data, but it is absolutely scalable across geographies and product types and beyond real estate product that I just mentioned.

Your next question comes from Richard Anderson with Cantor Fitzgerald.

So Shankh, you talked about doing the hard things, not the easy things and making decisions with that mindset. And I'm thinking as you're talking about data analytics and all these sort of tangential opportunities that sort of spin out of senior housing platform. And then I think about Amazon, which once upon a time sold books and now they're what they are today or Berkshire Hathaway, which was an insurance company and is what it is today. Do you have aspirations along those lines where senior housing -- because we can talk to our blue in the face about how great it is, and you guys are doing a fantastic job.

But longer term, this is not going to always be a 20% growing type of industry. Are you thinking about senior housing as sort of a bed from which you grow other businesses outside of data centers or data analytics if you get my point, right, you become like a diversified vehicle. Is that kind of in your mind today?

No. Let me answer that question. We are not trying to go from senior living to other asset classes in real estate. In fact, we're doing exact opposite, right?

We are selling out of all other asset -- other types of asset classes and focusing our balance sheet capital, our balance sheet capital, if you will, our book into 1 asset classes, which we think we have competitive advantage. However, if you think about we have built capabilities, right, such as this data business that we talked about could potentially become more than a platform that we use for an internal application, we'll see where we get to. We're not trying to become a diversified company. I do not believe diversification -- I do not believe in diversification.

In fact, I believe diversification is the worst word that has been taught to investors, right? So if you think about -- you gave a Berkshire Hathaway example, if you think about -- look at Berkshire, you will see they've made the almost entirety of the return in 5 things -- 5 names, right? So you think about it as -- we believe in concentration. We genuinely believe that capabilities, you cannot be good at 5 different things.

But your question is a much more nuanced one, which is we -- right or wrong, our whole idea 10-plus years ago was very much that we want to understand the truth. We noticed that the real estate business people talk in heuristics rule of thumb. And we wanted to know the truth, and that's what we found. I give an example, right?

People use housing prices. Housing prices are what? Housing prices and average housing prices, mean housing prices, median housing prices, we're talking about a block group, we're talking about ZIP code. What are we talking about, right?

So these are the things now I can complicate this problem many times over, right? You can think about it depending on product, how long people are willing to drive? You'll notice in real estate, people talked about distance as your competition not drive time. But again, without getting into too much of this conversation, we do believe that our job, that what we are trying to do is to optimize over the -- optimize the duration of the growth over a very long period of time.

That's what we're trying to do. So today, a lot of that is obviously coming to the mix shift and everything, but we do believe that there are 2 other things that can potentially add pretty significantly. One is our asset-light businesses, which is fund management business, the data science business. And as you know that we are obviously the fees we are getting, obviously, that is a reflection of our data science business.

So it's interconnected nature of it. And the other thing, Rich, is just something I want you to think about is what is the potential -- untapped potential of our balance sheet, right? So we are thinking about sort of years ahead of what this platform could look like. We're thinking how do we deliver a significant per-share growth opportunity for existing shareholders when things will not be as good in senior living, as you might say.

But I do think that senior living as a business will remain our primary focus of the way to deploy our own balance sheet capital.

Your next question comes from Vikram Malhotra with Mizuho.

Shankh, I guess one other thing in your letter I really enjoyed is reading about the hummingbird and how they fly very differently and achieve lifted at a discount. So in that vein of sort of a different approach, just I guess 2 questions. One, going forward, is there something WBS or the team can do to sort of monitor reduce CapEx levels in senior housing, something that usually bites people where there's too much CapEx load? And then secondly, when you think about supply/demand, on the supply side, we still have not seen it start.

Is there something different about your relationships or your markets which can limit supply perhaps longer than people perceive?

So second question was supply and the first question was CapEx and hummingbird. So the idea of hummingbird, I don't want to repeat it, I wrote extensively about it, you can read it and sounds like you have read it. The idea is continuous improvement of candles will not give you a light bulb or Henry Ford will tell you that you can improve horse carriages as long as you want, but you're not going to get a Model T, right? So you got to think about the business in a completely different way, which is reimagining what the entire value chain looks like.

And if you sort of take our first principal approach to say, what are my goal is and you start from the customer, right? And solve, okay, how do I remove friction of customers and the people who the customers see as product, which is the site level employees, you can get very far. How far we will get to, we'll see in the future. And now let's talk if take the question of CapEx that you talked about, right?

John gotten into this in details. The CapEx in this business because of the sort of short-term private equity type mentality, which I'm not actually denigrating private equity. If I got paid on short-term IRR, I would have done the same probably. But if you just think about it like people take a very piecemeal approach, right?

One year you do roof because you have to then next year, you go back and do the gutters; the next year, you go back and fix your skylights and that's not how full cycle CapEx should work. On our particular -- if you look at our cash flow, you were obviously -- Vikram, you're seeing that CapEx is improving and it's improving for 2 reasons. One, CapEx is a concept that is not an idea that you should think about in terms of available or occupied room, you should think about all available room. Because if you think about you are doing, say, first impression, it is not going to be whether you have 40 people in the community or 400 people in the community, right?

It will be on all the rooms. As the system is filling up, obviously, you are getting the scaling effort or as the NOI is going up, you're getting the scaling efforts. Second, CapEx today, 2 years ago, we didn't -- we obviously did all CapEx that was outsourced to operate us. Today, we have 200 people team, which works for us.

And that team is working with our operators to figure out how to do CapEx the best, how to do lifestyle -- think about lifecycle cost and executing where the best sort of execution we can get. And that's just started to see that scaling effort over the last, say, 6 months. And I think you're going to see a lot more going forward. And what was the second question?

Did I answer both of the questions? Yes. Supply -- so look, the fact of the matter is -- the supply currently is a very low start you are seeing. I would expect that -- I personally think about supply it's almost a Pavlovian response to participants in the market when we see the supply.

It's sort of almost a third rail and people think supply equals to oversupply. Why that makes sense? Last decade, every unit of supply was oversupply because demand was flat. I think about supply and the impact of supply in terms of oversupply.

You can see the demand growth and you can sort of think, okay, how long it takes to bring supply in the market. We have a slide on our presentation and that sort of walks you through. And you can see sort of what's the oversupply sort of can be. I personally think that supply will chase demand for a long period of time, just because what the demand growth looks like and the constraint of supply that is in.

In our markets, in senior living 1 of the biggest constraint of supply on top of everything else that you can think about is availability of quality operators, right? That's a big constraint in the market. No bank will lend to you if you have a operators, especially after what they have gone through last cycle. And as you know, and this is something that you brought up Vikram, that I don't think we have people have asked us over the last 3 years.

At the bottom of COVID, when we were the only people, only people who were actually allocating capital and leaning into senior living, we forged 25 to 30 long-term partnership with our operators, different developers, who were mostly exclusive or near exclusive in nature in our markets, which we believe will provide a governor on quality supply. And we'll see how this plays out. But thank you for your question.

Your next question comes from Farrell Granath with Bank of America.

I also wanted to touch on a comment that you made in your annual letter, where you highlighted several operational heroes. What was some of the best operational advice that took away from those organizations? And how are you applying and executing on that advice across the portfolio?

That's an interesting question. Farrell, some of the heroes we mentioned was not just operational, also capital allocation and culture and many other things. However, I will tell you, I personally believe and probably because of the influence of Charlie, one of the most well-run operational company in this country is a company called It's a private company, who's CEO -- long-term CEO, Peter Kauffman, has been a great friend and mentor of mine over a long period of time, and he's a true hardcore operator in the aerospace defense sector. So first, people will tell you, first thing is before you get advice from people, you need to understand the credibility of their advice.

Lots of people have lots of advice in things that they have no expertise in. I routinely see people have never ran lemonade stand and have opinions on how multibillion-dollar company should be run. So that's sort of first you have to have a filtering mechanism to understand who has expertise. But beyond that, and the best operational advice that I actually got that operations can be meaningfully improved from systems and process and technology, but operations is not about any of those things.

They can be enabler. Operations is all about people. So if you have -- if you're in L.A. and you have an hour, let me know, I'll help you go visit Peter and you will see what a well-run factory could look like and with all the focus of people. But anyway, thank you for the question.

Your next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Just going back to an earlier question about the portfolio of assets that are 95%-plus occupied. I guess as we continue to understand as you put the possible, within the 6% RevPOR growth for those assets, you indicated the benefits of capacity coming down and just pricing power are street rate increases exceeding increases on in-place customers within this subset of assets? And are you also seeing a greater benefit from high ROI ancillary income opportunities?

Thank you so much. You were a little further from the mic, but if I understand your question was on the 95%-plus are we seeing even within the pricing, are we seeing greater opportunities off [indiscernible] So you hit on something extraordinarily important. I have a particular belief that just because you can doesn't mean you should. And this is something I'm boring you with reputation and details.

Clearly, it sounds like you read my annual letter. There's a whole section on trade-offs that I would like you to go back to and will say in many places, in place customer rate increases could be meaningfully higher than what we are comfortable with, and I'm fine with that. I'm fine with that. So how do you -- if you are, if you say, okay, I'm not going to give customers 15%, 20% increases, how would the RevPOR will change?

It will change because of the point you just made, right, which is not an existing customer increase, but it comes from the street rate. This is a fundamental negative mark-to-market in this business. because of the person who leaves versus the person who comes in, there's an acute difference between the 2. However, when you have in this kind of assets and its overall trading market when everybody else is full the street rate goes up and that's the impact you see in the overall RevPOR, right, which is a function of 3 different pricing, not just existing customer increases, increasing street rate.

You picked up on something very important, and I think that will be a lot of driver as you sort of go forward in many, many of the markets. And ancillary opportunities such as a lot of the other such as community fees and others also play an impact on that as well.

Your next question comes from Juan Sanabria with BMO Capital Markets.

I'm just curious if you could talk a little bit about market share and the opportunity that's still left to consolidate a fragmented industry recognizing that you guys have a very targeted approach, hoping you could help us understand how much is left to consolidate, if you will? There's been a little bit of political pushback in Canada, and there's overviews or reviews going on in the U.K. So in that context, just hoping you could help us understand how you think about the addressable market and the opportunities remaining?

Yes. Juan, so if you just take a step back and think about from a customer standpoint, roughly, give or take, call it, 7% to 8% or call it, 10%. Let's just do easy math, 10% of the people who can use our product, use our product. So 90% of the people fundamentally don't use the product who can use our product, right?

So it's just a small portion of the -- of your customers use the product. Within that small portion, we're probably 7% of the industry. So we're a very small portion of even the existing product. And -- so our -- so from that standpoint, if you just think about it, a 7% of 10%, you can imagine, like were insignificant from a customer standpoint, right?

They just that -- those are the numbers. Now having said that, if we're 7%, say, of the entire base of products, does that mean that our opportunity -- and as you mentioned that obviously, it's an extraordinarily fragmented industry. Does that mean that our -- and I think the average operator or owner operator as of like 10 communities or 1,000 units or something like that. It's a very, very small.

Does that mean that 7% of the industry is our TAM is 15x.? The answer is no, right? Our TAM is probably -- we're very focused on -- even within senior living, we're very focused on the highest price point or the highest quality assets in the market, so very much of the very focused on the highest, highest end of this business. That product market niche is what we have made our bet on.

And that probably is -- the TAM is probably 2x to 3x, not 15x. That's how we kind of think about it. We see what the opportunities are. As I've mentioned in previous questions and in my annual letter, we would be comfortable if we never bought another asset.

So the goal is not asset aggregation, goal is to pick where you think you can add significant value, and I think our team is doing a pretty good job of. And we'll take the -- we'll go forward with that and see what market gives us.

Your next question comes from Nick Yulico with Scotiabank.

I wanted to ask on the investment side. This quarter, the loan funding was a little over 50% of the investments. So if you could just remind us sort of what the approach is there and where you're able to get -- what type of yield on that loan funding? And then also, if you could also break out of the $7.2 billion investments in April so far? What percentage of that is loan funding.

Let me start, Nikhil you go. First is, you were seeing that, Nick, just to remind you that remember, that when we did the transaction, we took back $1 billion-plus in participating pref, and that's what showed up in the loan book, right? So it's not really a loan, it's a participating loan. It's with an equity derivative attached to it, but that's what you're seeing.

Rest of it, you can see -- think about it as a refill of the HC1 loan and other loans that got paid off. Some of it is just a bridge too hard of some of the assets and skilled nursing assets we sold. They will be gone as takes a long time, as you know. When that happens, they will be gone.

But overall, that's the construct is that piece showed up. From your second part of your question, which is $7.2 billion. I do not recall, Nikhil, you might recall.

I think the next specific question was what's closed in the second quarter. So of the $4.2 billion that's closed, as I said in my prepared remarks, Amica, which is north of $3 billion, is the vast majority of that. There might be 1 or 2 small loans, but it's been predominantly asset acquisitions.

So -- that's -- I think you asked about the pipeline as well. That is maybe also the same thing. It's all just in 1 quarter, that piece landed, and that's what it looks like it's elevated. As you look back in the whole year, you'll not see it.

And as you said, there's a remaining $500 million of sales left as part of the transaction. So as that happens, of course, that will come with some additional participating pref funding.

Your next question comes from Seth Bergey with Citigroup.

I was hoping you could just touch on the transaction market more broadly. First, I guess, the impact of competition and then how prevalent is retrading deals walking away because of the capital markets? And then Shankh, I think you mentioned kind of time to close. And I was just curious, kind of well towers due diligence and time to close versus kind of the average for other buyers in the market?

Yes. I think let's start with the competition piece. As I said in the prepared remarks, regardless of whatever period we look at transactions that have closed, the pipeline and I say this every single quarter as an update, that give or take our transaction activities between 90% to 95% off-market. And so by definition, in that regard, there is no competition.

But what we've seen is over the last couple of years as more capital has come into senior living, previously, when we would say no to one of those off-market opportunities, it wouldn't get done. Now what you're seeing is, given that there's a more robust marketplace, if we say, no, more likely than not, somebody else to end up buying those assets. So that's certainly happening. Then your second question was about our speed.

Well, I think as Shankh said earlier, it takes us a couple of days to within a very narrow range, have a view on what an asset should be priced thereafter in assuming there is a meeting of the minds, then it's the traditional diligence process, which involves site visits, finalizing business plans with operators, third parties, negotiating legal documents and we parallel path all of that, just given upfront, how much information we have from our data platform on what to expect from an asset. And so we can parallel path all of that, and it takes us roughly 30 days from when we first see something to close something.

In comparison to the broader market process, Shankh wrote extensively in his last annual letter last year, a typical process takes 6 months from starting to think about, hey, we're going to sell something to get BOVs from a bunch of different advisers to then picking an adviser to then populating all the information and creating a really pretty offering memorandum to then negotiating NDAs, to then having a first round process, to then having a second round to the process, finally picking a winner and then most transactions occur in a way that you first negotiate a contract, then you have a 30- to 60-day diligence period where you find financing for the asset and eventually close on it.

So 6 months is a long time, if you think about what macro looked like 6 months ago versus it does today, a lot changes. So -- and given that the price -- the buyer is not going hard until 30 days before closing, so 5 months into 6 months, there's a lot of uncertainty. And we have, in the last 2 months, seen a lot of transactions that we liked, but weren't comfortable with the pricing get away from us to then come back to us. So that's certainly happening, and it happens all the time.

I'll just add 2 more things, right? So we are -- one of the very few SHOP who actually go and visit every single assets that we buy. That is not -- predominantly, that is not a percentage of we visit every single asset that comes on our balance sheet and walk on average, 12 people from Welltower go walk assets, not just our investment team, our asset management team, structural engineers. So we go and do this every single asset, which is very important for you to understand.

And just to take the second question is, from our standpoint, is the reputation is our currency of business. If we tell people going to do something, we do it. I might as well give people bad news upfront than try to drag them through the process and then 5 months later, I said these are the 5 different things. I didn't like the color of your nails, so it will be retreated, right?

And that's sort of what happens in this business every day. That's very standard people accepted in real estate business to do, we just don't do that, right? We are always comfortable in the trade-off of short-term money versus long-term reputation that works out for us over a period of time. And hopefully, overall, our execution over the years will tell you that if you take a long-term approach, if you take a reputation approach, if you take an approach of running a first-class business in fast way, it generally works out for you.

Your next question comes from Omotayo Okusanya with Deutsche Bank.

Shankh, I wanted to talk a little bit about just, again, the overall business model and again, the growth mode you're in, you definitely need a specific type of operator and SHOP to kind of realize your strategy. So I'm just curious, at this point, are you still seeing opportunities to bring more operators into the fold or does the strategy really become doubling down on the operators you have? And if that's the case, what becomes kind of the next level of incentive you can provide for your current operators to even have further better alignment? Is it stuff like the munger grants?

Or kind of what else is kind of out there that can really kind of align the 2 to continue to kind of deliver the results you've been delivering?

Yes. Thank you very much. It's a very, very important question that we reflect on and debate and talk about -- look, we sort of think about this business as a complex adaptive system. And as we think about this business as a complex adaptive system, we have after years and years of thinking through this every line item we have sort of come to a point where we have a very good idea.

If you just -- if you were sitting in it in one of our sort of conference room, with our one of our operating partners and our people. Again, you will not be able to say who works for Welltower, who works for this operator, they are all working very collaboratively and not trying to say this is your side, this is my side, and that's just not. That type of collaboration trust takes a long time to build, which we have built with a handful of our operating partners, and we're doubling down with them every day. Having said that, are there a couple of people that we have long respected over time that we want to do business with?

The answer is yes. At the same time, you will see -- if your question is, are we in an expansion mode from a number of operators we do business with or we're in a sort of flat or we're shrinking? The answer is, unequivocally, our view is that we're shrinking, right? The number of people that we business with.

That is in -- because we are doubling down with our existing partners, we have built these collaborations and we are not trying to be everything to every people, every product, every operator we have found the like-minded, a lot of like-minded operating partners, who are truly our partners. That's not sort of they take partnership very seriously. They are extraordinarily focused on excellence like we have. They want to treat their people right.

They want to treat the residents right. They want -- they take reputation as the currency of business. And those are the type of cultural alignment, not just technological systems, money and everything, financials and everything has to work out. But the cultural element is the most important, and we are doubling down with them.

And sometimes, we do find somebody like Amica that we tremendously respected over the time. And then when the stars align, and we go together and meeting of the mine happen. The same applies for Barchester. But generally speaking, our goal is to do more with our existing partners where the alignment has already happened.

But it's an extraordinary question that we reflect on every day.

Your next question comes from Michael Stroyeck with Green Street.

I just wanted to go back to an earlier question on applying the data science platform to new geographies. Has the company underwritten any transactions in geographies outside of the U.S., U.K. or Canada? Or are there any additional countries that Welltower could be interested in entering down the line on balance sheet?

Yes, Michael, very, very good question. I'm glad that you asked the clarifying question. We have no desire to go to any other countries other than the 3 countries we are in from a capital perspective and balance sheet perspective. That comment was entirely on the capital light on the data science side.

And obviously, we think that is imminently scalable across geographies, across asset classes. But from our standpoint, on a purely capital-light basis, we're trying to -- everything we are doing should tell we genuinely believe that in today's world, which is a maximum gain, maximum growth world, the fastest way to get to what we're trying to do is to narrow the focus, not extend the focus.

Yes. And Michael, to directly answer your question, no, we have not underwritten anything, something we've even signed an NDA to get information beyond the 3 markets.

That concludes the Q&A session of the conference call. Thank you for your participation. You may now disconnect, and have a wonderful rest of your day.