Welltower Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2021 Welltower, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After this speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. It is now my pleasure to introduce General Counsel Matt McQueen.

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 Sean for his remarks. Sean?

Thank you, Matt, and good morning, everyone. I hope that all of you and your families are safe and healthy during these extraordinary times. I'll make some introductory comments on the state of senior housing business, our ongoing alignment efforts with our operating partners, and we'll also provide a detailed perspective on our current thoughts related to capital allocation. Tim will then get into detailed operating and financial results. We are cautiously optimistic on the senior housing business with green shoots emerging in U.S. and U.K., While it is too early to raise an all-clear flag as another COVID resurgence can never be ruled out, we're delighted to report an occupancy increase of 120 BIPs in UK and 90 BIPs in US over past six weeks. Despite growing optimism in US and UK, performance in Canada has remained somewhat weak due to an increased COVID cases across many regions. While most residents within our Canadian senior housing properties have been vaccinated, the rollout to the broader population has lagged meaningfully. Due to lockdown in certain areas within Ontario and Quebec, move-in stores and visitation have been highly restricted, which has ultimately led to an occupancy loss of 50 basis points since mid-March. This trend has improved in April. Despite the draft from Canada, the move-in activity in March is higher than the last non-COVID impacted month of February of 2020. In addition, as I have described in past quarters, rates continue to hold. As adjusted for 2020 leap year, AL rates are up 1.6%, IL rates are up 0.7%, mostly dragged down by the Canadian business. Senior apartments and wellness housing rates are up 6.3%. Our operators across the board are seeing broad momentum that continue to build. Irrespective of product type, geography, acuity, this is the most optimistic tone I've heard from our operating partners in a long time. We're even seeing the lifestyle-driven customers are starting to come back, which frankly surprised me in a positive way. Fundamental results have exceeded our expectations in Q1, and we're anticipating strong momentum in Q2. While we continue to have our speculation on what the arc of the recovery may look like, we have provided additional disclosure on the additional NOI and earnings power of our portfolio, assuming a return to 2019 level of NOI for our stable portfolio and adding incremental NOI from our fill-up portfolio. We believe this would result in additional $480 million of NOI. And remember, this assumes a return to 2019 level of occupancy and margin, and it does not assume a return to frictional vacancy or any rate growth since Q4 of 2019. We're seeing something similar happening in the private market. While current cash flow multiples of what we are buying might be high, as compared to what we were willing to pay two to three years ago, this is a moot point. we're paying a much lower multiple and a stabilized cash flow as evidenced by a much lower price per unit. While in most other asset classes this could be a matter of opinion, I believe in real estate is a simple business where you can obtain a very granular view of price per unit and how this compares to replacement cost. While we can sit here and debate how different assets and portfolios prices compared to prices per unit two to three years ago, replacement costs are shooting upwards with a white-hot housing market driving construction costs exponentially higher in recent quarters. This phenomenon is now spelling into other material costs due to a $2 trillion infrastructure plan announced by the Biden administration. As costs continue to rise, the market clearing rent to achieve minimum acceptable return is also ratcheting up. However, those returns are not going to be easy to achieve. Today, as much of the senior housing industry effectively remains in lease-up mode, given the impact of COVID on occupancy. If this was not enough, now the interest rate curve is backing up, creating further pressure on developers' performance. This backdrop clearly is unique to the current cycle, which we believe will result in meaningfully lower new starts in near to medium term. The supply outlook, along with already rising demographic growth in the first half of the decade, gives us confidence that we'll achieve the level of asset performance that we provided. Although I have nothing to add in terms of the timing and or the trajectory of the recovery, our analysis was done one asset at a time, and I hope you will find this new disclosure useful. During the first quarter, we continued our effort to create greater alignment of interest with our operating partners by restructuring several relationship constructs. And as we mentioned on our last call, we have made structural changes to several senior housing agreements. I would also like to highlight some recently announced strategic transactions with Genesys and Prometica, with elements of both deals reflect our approach to value creation for our shareholders. First, Genesys. As we announced last month, after 10 years, we have substantially exited our Genesis real estate relationship through a series of transactions, which meaningfully de-risked our cash flow stream going forward. Effectuating this nearly $900 million transaction wasn't easy. It involved a skilled nursing operator deeply impacted by a COVID-19 pandemic. The transition of access to local and regional operators, working through our outstanding loans to Genesys, at the same time creating opportunity for WorldTower to participate in the post-COVID recovery in post-acute fundamentals. Ultimately, we executed a mutually beneficial transaction for Genesys and WorldTower shareholders. For Genesys, the transaction resulted in a meaningful deleveraging of its balance sheet, which will help you to reposition the company post-COVID-19. And for WorldTower, we're able to execute the transaction at a private value of $144,000 and generated an 8.5% unlevered return over the full term of Genesys' relationship. And upon the repayment of the outstanding debt, that return will rise to 9% with even further upside potential from participating preferred and the equity position. We believe that this represents a very favorable outcome for the shareholders, World Tower shareholders, particularly in light of challenging environment that we have faced in the post-acute sector and then COVID-related pandemic-induced downside we have seen. While transactions will result in some near-term earnings dilution for WorldTower, we expect to create significant value for our shareholders following the deployment of the $745 million of anticipated proceeds over a range of high-quality opportunities that I'll discuss shortly. Since our announcement last month, Genesys has received an infusion of equity capital and named a turnaround specialist in Harry Wilson as CEO. We wish the team of Genesys much success in the future as we have substantially exited a challenging legacy structure with Genesys. I hope our shareholders appreciate the favorable ultimate outcome. As we have done with several operating relationships over the last few years and discussed on various calls, our team embraces complexity, takes creative solutions, doesn't run away from the problems and situations where the choices may be imperfect and ultimately works tirelessly to fulfill our commitment to our owners, operating partners, and employees. Second, Prumerica. Prumerica. We announced two transactions to strengthen and expand our relationship with Prometica, which will enhance the quality of our joint venture position and continued growth. The first transaction involved $265 million sale of 25 skilled nursing assets with an average age of 41 years, which will result in an immediate improvement to the quality of the portfolio. At the same time, we also crystallize a 22% unlevered RR over two and a half years of ownership of the asset, which is a true reflection of the power of our value-oriented investment philosophy. We at Wealthower firmly believe that basis, not yield or cap rate, determines investment success. Through a separate transaction, we're pleased to maintain an 80% stake in our state-of-the-art power back assets, which has been contributed to our 80-20 joint venture with Prometica. Prometica has already assumed the operations of these assets, which have been rebranded as Prometica Senior Care. This successful transaction is yet another example of our focus on improving quality and growth profile of our portfolio, while doing so at favorable economic terms to all stakeholders. Prometica team is making progress in developing new relationships with other health systems as a provider of choice, as Prometica represents the premium not-for-profit provider at the leading edge of healthcare evolution. We're hopeful that we'll be able to deploy far-direct creative capital with this innovative partner of ours. Speaking of accretive capital deployment, we are pleased to share with you that we have closed in excess of $1.3 billion of acquisitions year-to-date with very attractive unlevered RRs. In particular, extremely happy to announce that we have partnered with a softener-led investment group to recapitalize HC1, the largest and most reputable operator of care home communities in the U.K., Our investment in excess of $800 million comes in form of first mortgage debt on HC1's real estate and equity in recapitalization. We also receive significant warrants that will further allow us to participate in the post-COVID upside that we are confident that management is in process of executing. HC1 will add... a value option to our high-end focus UK platform. This is significant. There is significant opportunity to upgrade the asset-based operating platform and people in this portfolio, and we have tremendous confidence in James and David to fulfill their mission to deliver the highest quality care along with the resident and employee satisfaction. In recent weeks, AC1 has experienced the same positive occupancy momentum as our broader UK portfolio, gaining 90 bits of occupancy from the March 2021 trough. Our debt investment represents the last found exposure of just 40K per unit, and important statistics given our unrelenting focus on basis. This basis also represents a significant discount to replacement costs. In addition to the upside from equity and warrants, we think this is an extraordinary risk-adjusted return story. We believe we'll be able to generate low-to-mid teens' unlevered IRR from this transaction while adding a highly strategic partner to fill a gap that we have in our portfolio in the U.K. With acquisitions, patience is a virtue, and so is occasional boldness. Since we mentioned in our October call the moment of boldness is here, we have closed in excess of $1.8 billion of acquisitions. The initial yield of this whole tranche is 6.8%, but we expect it will stabilize at a significantly higher number. While the environment was very uncertain then, and we didn't give in to institutional imperative or headline pressures, and we relied on independent thinking and resilience of our team, we remain very bullish on acquisition opportunities and have several attractive deals under contract currently and a highly visible pipeline, which we think we'll be able to execute through year-end. While our focus continues to be on the right asset with the right basis and with the right operator, I'm hopeful that our 2021 class of acquisition will be immediately accretive to 2022 earnings and will be significantly accretive to 2023 and beyond. Lastly, I will address a very interesting question I received from an investor post our last call. I was asked why we have such an emphasis on partner selection and whether we'd be better off vertically integrating. We think this is an excellent question that deserves some reflecting for a moment. Notwithstanding with the right here law in senior housing, we believe we're better off in this ecosystem of partners than implementing an industrial view of vertical integration. That view is rooted in our belief that the combination of centralized capital allocation and decentralized execution creates the best long-term return. We believe the strategy of decentralized execution releases the entrepreneurial energy and keeps politics and costs at bay. This is especially important in real estate, which is profoundly a local business. However, overall, we're happy with our execution so far in the year to create partial value for our shareholders, but by no means we're satisfied. We're cautiously optimistic about the fundamental environment and excited about our opportunity to acquire assets, create new relationships, and attract quality talent. With that, I'll pass it over to Tim. Tim?