Welltower Inc.

Good day and thank you for standing by. Welcome to the Q2 2021 Welltower Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Mr. Matt McQueen, General Counsel. Please go ahead.

Thank you, and good morning. As a reminder, certain statements made during this call today 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 of 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. Before I make some introductory comments on the state of senior housing and on capital allocation environment, I want to welcome John Barker, our Chief Operating Officer, to this call. John joined World Tower last week after an illustrious 25-year career at Essex. We believe he will make a tremendous long-term impact on our platform. Following my remarks, as usual, Tim will walk you through our operating and financial results. We're cautiously optimistic on the senior housing business as occupancy is starting to build, and we're encouraged by nearly 200 basis points of spot-to-spot occupancy growth in second quarter, which clearly exceeded our expectations. Momentum in the U.S. continued to be strong, with lead generation returning to pre-COVID levels, resulting in a 280 basis points occupancy gain in the quarter, and the U.K. remained resilient despite a rise in the Delta variant cases being driven by the younger cohorts. Though we are monitoring the situation closely, we have seen very little impact to the portfolio so far, as U.K. case counts more broadly appear to be decreasing rapidly after a recent spike. While Canada was a drag on occupancy, we're witnessing some green shoots following a material decline in COVID cases. In fact, tours almost doubled in June from April and May in Canada as provinces have removed move-in restrictions and are now permitting in-person tours. For our overall portfolio, June was a particularly impressive month with move-ins exceeding 2019 level for the first time since the beginning of the pandemic. I'm also encouraged that our operators were able to achieve these occupancy gains while holding rates, reflecting the need-based nature of our asset class, and strong value proposition of this business. Year over year, same-store report is up 3.2% across our assisted living properties, 2.8% across our independent living properties, and 5.3% across our wellness housing communities. The strength in same-store effort was primarily driven by our high-end luxury product in primary coastal markets. Having said that, I'll caution you that there is still significant uncertainty and many unknowns related to the path of COVID, and it is too early to signal an all-clear. However, we're very pleased with the progress that we're making towards achieving the substantial embedded NOI growth in our show portfolio. Last quarter, we provided information details of nearly half a billion dollars of NOI upside, which assumes a return to fourth quarter 2019 occupancy and margin levels. We are pleased to report that we not only achieved $71 million towards this total goal in one quarter, but also added another $29 million of potential upside through the second quarter acquisition and development deliveries. Going forward, we'll still have another $430 million of NOI upside in that business. Again, this only assumes a return to pre-COVID occupancy with potential upside from higher rates and return to frictional vacancy, which is mid to high single digits. Turning to capital allocations. Last fall, when we made a significant pivot from defense to offense, we made an explicit bet that consumers will return to this need-driven business. With 400 basis points of occupancy ramp in U.S. from March trough, with healthy rates, it appears that we're on the right side of that bet. Over the past three quarters, we have deployed $4 billion of capital at extremely attractive pricing during a time when others were fearful. But we remain paranoid optimists, and our humility and lack of complacency are pushing us to test our hypothesis and underwrite everything we look at with conservatism. And you can rest assured that we look at pretty much everything in our space. Therefore, we are only willing to pay a price per unit that does not require everything to go right for our owners to make a reasonable return. The second quarter was one of the best quarters from a capital deployment perspective, having closed approximately $1.4 billion of growth investments. Q3 will likely top Q2, and we anticipate that it will be another record quarter of investment activity for the company. We started Q3 with a bang, and so far in July, we have already closed $230 million of gross investments and expect our previously disclosed holiday transaction to close in third quarter as well. While it is fun to talk about large transactions like holiday, which I'll get to in a minute, I want to point out that our core strategy and strength is granular transaction with a diverse group of operating partners and is supported by our data analytics platform. Our COVID class, which I define as anything we bought since starting to offense in Q4 of last year, now exceeds $4 billion of gross investment activity, including holiday, across 37 transactions with 24 unique partners. In the U.S., That would, on average, be $16.6 million per community or $161,000 per unit, which we believe represents a significant discount to replacement costs. The pipeline remains very strong, with many owners and operators eager to join our operator and data platform. Let me give you some examples. I'm very pleased to announce that we'll expand our relationship with John Moore and his team at Atria, while Lele and her team at Holiday will join our platform. We're buying 80 nearly identical Holiday independent living assets at more approachable end of senior living spectrum with an addition of six more combination ALIL assets for a total consideration of $1.58 billion, or $152,000 per unit. Our basis remains compelling even after our anticipated investments of $1.5 to $2 million of CapEx per community to bring them to tomorrow's standards. While the lease-up of this portfolio from the compelling basis should generate a double-digit unlevered IRR, we believe there are few opportunities to enhance our return. Number one, our underwritten rent growth is 2.5% per year despite a heavy investment in the portfolio that will improve the asset quality and marketability. Our 2026 underwritten rent remains $700 to $800 below feasibility rent to make development pencil. We have a significant expansion opportunity in 10-plus assets, which we expect will generate a double-digit return on invested capital. Three, the optimization of six AL buildings under ATRIA platform. And four, there are at least five higher and better use opportunities. And a couple of them are so significant that they may generate enough proceeds to pay for a significant portion of the CapEx investment for the whole portfolio. If we are successful in this effort, we'll have a completely renovated portfolio at roughly our going-in basis, which will enhance our IRR materially. Moving on from Holiday, I'd like to make a few operator-specific comments on this call. First, we continue to be encouraged by Jack Carlson's leadership at Sunrise. Jack is refocusing the organization as a premier senior living brand in North America. We are excited about this focused growth strategy and have brought Sunrise in to run a recently-acquired community in the Philadelphia metro area. This is our first acquisition initiative with Sunrise in several years and believe we'll have many opportunities to grow together. In the UK, Sunrise platform and portfolio will be acquired by Signature and Care UK. Signature is an existing World Tower operating partner which runs our highest-end communities in the UK. We're tremendously excited to welcome Care UK to our platform, which is one of the most well-respected and largest senior living operators in the U.K. With the addition of HC1 on the value end and Care UK on the higher end, along with our existing operating partners, the barbell approach to portfolio construction that we have taken in the U.S. and which we always aspired to be in the U.K. is beginning to take shape. We're very excited about CareUK's technology and management platform. We're also thrilled to welcome Pathway Living to Wellstar's operating platform, which we believe opens another avenue for growth for us. Next, I'm excited to announce our expanded partnership with Oakmont Management Group, which is one of our strongest and best operating partners. This expanded partnership with Courtney and her team is expected to result in a nearly doubling of our current portfolio together in California. We're also embarking on a long-term exclusive development program together to meaningfully expand our relationship in the next decade. Fun fact, Oakmont is our first operator in our portfolio to return to the 90% occupancy mark post-COVID, a reflection of Oakmont's operating acumen and market strength. Finally, I'm excited to announce our new partnership with Chris Smith and his team at Aspect Health. We recapped Aspect's existing MOB portfolio in Connecticut and New York and entered into a long-term development partnership with Chris. We believe a combination of our data and operating capabilities with Aspect's relationships and development talent will create significant opportunities for growth for both the companies. We are already on our first development together, which will be a 60,000 square feet outpatient medical building located at a very attractive market in the New York metropolitan area. The property will be master leased to a leading health system for 20 years and is expected to start construction early next year. Speaking of growth opportunities, I'm pleased to announce our continued growth with the Bremner organization. In the second quarter, our partnership closed on the first building of a large development near Norman, Oklahoma, with Norman Regional Health System. The total development cost for phase one of this multi-phase development is expected to be in excess of $100 million, consisting of 181,000 rentable square feet of Class A outpatient medical facilities. Our significant MOB development pipeline, which is 100% leased, is now in excess of 1 million square feet and will create significant value for our shareholders in a very tight acquisition market. All of these operating and development partnerships make us the foundation for our core belief that Their centralized capital allocation and decentralized execution releases entrepreneurial energy while keeping cost and politics at bay. We're very proud that we have formed 50 new operator and developer relationships since the beginning of pandemic, and we have a handful more in the works. The implication of our rapidly growing operator and developer platform are vast, including a network effect whereby addition of more operators create exponentially richer data sets and thus stronger and attractive analytics platform. This dramatically enhances the informational advantage where already processes through our best-in-class data analytics platform, which forms the basis of our capital allocation decision. Needless to say, these relationships create foundation for significant capital deployment opportunities as each one of them are attractive growth vehicles on their own right. This Lollapalooza effect of intertwining operating and data platform has created a wide and increasingly deeper moat for WorldTower. As Tim will speak to you in a moment, we're very pleased with our progress to further strengthen our balance sheet and liquidity profile. More specifically, our sequential adjusted EBITDA growth of roughly $50 million indicates that we're on our way to deleverage organically as senior housing recovery unfolds. Overall, we're very happy with our execution so far in the year to create car share value for our shareholders. We're cautiously optimistic about the fundamental environment and excited about our opportunity set to acquire and develop talent, create new relationships, and attract quality partners, which should result outsized internal and external growth for years to come. After retooling our asset and portfolio operator, and building a formidable predictive analytics platform and talent base and growing with conviction following two negative cycles superimposed on each other resulting from oversupply and COVID, I'm happy to say that we're emerging as a partner of choice, an employer of choice, and an investor of choice on the other side of this pandemic. With that, I'll pass it over to Tim. Tim?