Welltower Inc.

Good morning, ladies and gentlemen. Welcome to the Whale Tower first quarter 2023 earnings release conference call and webcast. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone. And if you would like to withdraw your question, please press the down key. Just a reminder, we do ask that you please limit yourself to one question initially. And now at this time, I'd like to turn the call over to Mr. Matt McQueen, General Counsel. Please go ahead, sir.

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 FCC. With that, I'll turn the call over to Sean for his remarks.

Thank you, Matt, and good morning, everyone. I'll review our first quarter results and describe high-level business trends and our capital allocation priorities. John will provide an update on the performance of our senior housing operating and outpatient medical portfolio. Tim will walk you through triple net businesses, balance sheet highlights, and revised guidance. Nikhil is also on the call to answer questions. We're pleased to report another strong quarter with results that exceeded our expectations. Our strong performance was once again driven by outside growth in our senior housing operating portfolio. We generated 23.4% same-store NY growth, with both revenue and expense trends continue to move in the right direction. In fact, we produced our fifth consecutive quarter of double-digit organic revenue growth on the back of strong pricing power and occupancy build, with each coming slightly better than expected. But perhaps equally, if not more encouraging, is the margin expansion story, which is being driven by a significant improvement on the cost side. While we generated strong revenue growth in 2020, these gains were largely offset by pressure across the expense stack, which ultimately resulted in lost year in terms of partial growth. We are delighted by the progress made on various expense items, but particularly pleased by the sharp decline in agency labor or temporary staffing across the portfolio. Over the past few quarters, we have noted the headway our operating partners have made in net hiring as general employment rates have been weakening. This has ultimately translated into a meaningful reduction of prohibitively expensive temporary staffing, with costs declining over 50 percent versus the first quarter of last year. Though we still have a long way to goal to eradicate this problem, which is largely attributed to community leadership challenges, we believe that this trend, along with strong pricing power, will continue to be a tailwind for further margin expansion. From a product and geographic standpoint, while assisted living continue to outperform independent living, IEL pricing is starting to strengthen. This is reflected in our Canadian portfolio, which is finally rebounding after a disappointing couple of years. We have seen standout performance from our operating partner, Cogier, which has returned to almost 40% margin for the first time since COVID. We're grateful to our partner, Matthew Duguay, and his team for their hard work and dedication. Sticking with our international team, our UK portfolio continues to produce strong revenue growth, and we're starting to see some green shoots on the cost side. During our call, I expressed my enthusiasm around the appointment of Lorna Rose as the CEO of our largest UK operator, Avery. Lorna is already making significant impact with a strong commercial acumen and impeccable leadership skills. We expect our UK portfolio to be a strong source of growth as we look at 2024 and beyond. Returning to the US, our largest operator, Sunrise, continues to produce strong top and bottom line results. There is meaningful embedded upside to this incredibly well located and virtually impossible to replicate portfolio which sits at mid 70s occupancy today. Also during our last call, I mentioned that we expect meaningful step function growth from a large regionally concentrated portfolio of StoryPoint. I'm pleased to report that Dan and his team has started the year off with a bang as there are no excuse culture and relentless focus on performance is paying off significantly. And last but not least, Oakmont. A year and a half ago, we moved six well-located California properties to Oakmont, and at that time, Courtney Siegel, Oakmont's CEO, made me a promise that her team would lease up this portfolio in two years. I'm pleased to report that the portfolio today sits at 86% occupancy, while NOI has gone up 13 times since then. Courtney has set a simple performance-driven culture at Oakmont. If you are not 95% occupied, you are not performing. I'm confident that I will be able to soon report to you that this portfolio has reached 90-plus percent occupancy level. Pursuit of higher standard is prerequisite of high performance. Last year, I described to you that we, as capital allocators, strive to create partial value by compounding over a long period of time, but doing what's right in the long term for our continuing shareholders may result in short-term pain. Our proactive portfolio management efforts, which includes transition of properties to our strongest operators, is an example of this philosophy. I encourage you to look at the case studies within our business update presentation for more details on Oakmont's success and the other key operators, including Peace Capital, which has created substantial value for our shareholders following the transition of a portfolio of skilled nursing facilities two years ago. By operating these facilities more efficiently from an expense perspective while increasing quality mix, Peace has been able to improve EBITDA by more than 75% relative to the pre-COVID levels. This point is further underscored by our COVID class of acquisitions and our further efforts to transition other assets over the past few years. We're just beginning to capture significant embedded NOI from these properties as they return to their pre-COVID NOI levels, and higher, and in fact, we have achieved 20% of that incremental NOI in the past quarter alone. Shifting to the operating platform and asset management initiatives. As you know, as you have come to know, World Tower, at World Tower, we vehemently reject mediocrity and are in relentless pursuit of higher standards. We continue to believe that there's an opportunity to recognize meaningful cash flow from our own portfolio as we optimize location, product, price point, and operators using our data analytics platform, Alpha. To further add to this multidimensional optimization problem using machine learning, our operating platform initiatives are now becoming more tangible, moving from drawing boards to pilots. While a few weeks don't make a trend, we are optimistic that John and his team are on the verge of some real creative breakthrough. More on that in coming quarters. In terms of recent operating conditions, while I don't like to fix any short-term trends, I want to mention the consistent rise in demand for our seniors product in Q1. Tore volumes are up roughly 20% in the quarter, partially attributed to an easier comparison period last year due to Omicron variant, but also because of great organic demand as we enter another year of significant growth of the 80-plus population. Lease and tours have picked up further in April. While we remain confident in the prospect of business, I'd be remiss not to acknowledge the rising macroeconomic uncertainty as we approach the summer and fall leasing season. We're encouraged by what we are seeing so far, which admittedly is also the seasonally lowest point in the year. Therefore, we need to see what market gives us during the all-important upcoming leasing season. The need-driven nature of our product gives me hope that we will outperform majority of the asset classes, not just real estate, but it is also important for you to understand that we have no delusion of certainty. Moving to capital allocation, since our last call, U.S. banking sector has started to show some significant signs of strength, resulting in material declining trade flow in the economy. While no one is rooting for macroeconomic uncertainty, the current backdrop has certainly created a further expansion to our already attractive set of capital deployment opportunities. We remain disciplined and will not risk the enterprise that we built with blood, sweat, and tears, but we remain optimistic that we'll be able to grow our portfolio with well-located assets at a highly favorable basis and in-place cash flow. To illustrate that point further, we acquired $529 million of assets during first quarter at a great basis, and in-place cash flow. The K Street medical office building that we acquired in DC perhaps tells you how favorable the investment environment has become. We continue to see underwriting standards tightening meaningfully, leverage levels decline, and banks are now requiring more commercial deposits and more recourse. As a low leveraged buyer, this backdrop is very beneficial for us. Our pipeline today is robust with opportunities to deploy capital across senior housing in all three countries, outpatient medical in the U.S., and debt opportunities on the skilled side. Our team remains active and yet highly disciplined and price conscious as always. From a balance sheet standpoint, I wanted to quickly highlight the continued progress we made in terms of leverage and liquidity on the team's leadership. He will get into more details, but I'm very pleased with significant deleveraging that we have achieved in past year. with net debt to EBITDA falling almost a turn to 6.3, with further organic deleveraging going forward. And our ability to source over a billion dollars of capital this year in the midst of a very challenging capital markets environment is a testament to the confidence entrusted in us by the banking community, the lenders, our investors, and our other partners. With approximately $700 million of cash on the books and an unwrought line of credit, We are not only positioned to endure further capital markets volatility, but also to deploy capital as opportunities arise. To summarize our optimism regarding the long-term growth trajectory of the business remains firmly intact. Top-line growth remains strong, expenses are moderating, and our external growth opportunities continue to expand. While all the while John and his team are making progress, in turning our vision of creating a world-class operating platform into a reality. And with that, I will turn it over to him for an update on the operational element of the business and build out of the platform. Johan.