Welltower Inc.

ground noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star followed by the number one. I will now hand today's call over to Matt McQueen, Chief Legal Officer and 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 the 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 filing with the SEC. And with that, I'll hand the call over to Sean for his remarks.

Thank you, Matt, and good morning, everyone. I'll review business trends and our capital allocation priorities and the team will follow the usual cadence. We ended 2024 on a high note, delivering strong Q4 results as the company continues to fire on all cylinders, whether it be business fundamentals, capital allocation, a further strengthening of our balance sheet, our progress on the operating platform build out. The result was another quarter of solid bottom line growth with normalized FFO per share increasing 18% year over year, once again driven by a senior housing operating portfolio. Just as important, however, is that we carried significant momentum into 2025 and expect another year of exceptional growth, which I'll get into shortly. I'll also provide a brief update on the pillars of growth that I outlined 12 months ago that give us even greater confidence in our growth outlook for next few years, which we feel is positively spring-loaded. In our senior housing operating business, we continue to see strengthening tailwinds. The fourth quarter delivered impressive results with nearly 24% same-store NY growth. This marks our ninth consecutive quarter of net operating income growth exceeding 20%. Notably, we experienced exceptionally strong sequential occupancy growth in Q4, defying typical seasonal trends. The SHOP portfolio achieved average same-store occupancy growth of 120 basis points sequentially and 310 basis points year-over-year. This robust performance, particularly during a period when moving activity usually moderates, stands out as perhaps the quarter's most significant highlight. In fact, 120 basis points of growth in Q4 nearly matched the level of sequential growth we witnessed in third quarter, which is typically the strongest period of leasing during the year. I would also note that on a spot basis, we gained 240 basis points of occupancy in the second half alone. This momentum persisted through fourth quarter, even during the holiday season. In fact, we observed a pickup of occupancy growth during the week of Christmas, typically our slowest moving week of the year. something I've never seen in this business. We also witnessed this momentum carry into January, a period which we almost invariably experience a sequential decline in occupancy due to seasonality. The favorable end market environment, along with our team's superior execution, has put us in an incredible favorable position to start the year. This is reflected in our optimism for occupancy growth acceleration in 25 over 24, which was already one of the strongest years in the company's history. At the same time, the trends related to rep or unit revenue or export or unit expense continues to move in our favor. We remain focused on the spread between the two metrics, which during the quarter reached 460 basis points, our highest level in our recorded history. The outcome is another 320 basis points of operating margin expansion in our seniors housing operating portfolio. Going forward, we expect sustained improvement in margins given high operating leverage inherent in the business and the benefit of the build out of the operating platform, which John will get into momentarily. Putting this all together, we expect 2025 to be another year of exceptional net operating income growth. Shifting to capital deployment, we capped off a tremendous year of investment activity with the closing of $2.2 billion of transactions in fourth quarter at Attractive Economics. Nikhil will provide more details, but as we described in the last quarter, the opportunity set for capital deployment continues to expand given the widespread capital markets-related challenges in the sector. To be clear, the fundamentals of senior housing business are extraordinarily healthy, but for many owners, they continue to be overwhelmed by the impact of higher rates persistent challenges in addressing upcoming debt maturities, and other capital structure issues. I would also point out that not only will this acquisition be solidly accretive to our growth in coming years, but also come with two often overlooked strategic benefits. First is the greater regional densification, which we described to you in the past, reflects our intention to go deep in our markets, not go broad. Second is the accumulation of data received from these properties, which will further enhance the network effect we have already created within our data science platform, resulting in a wider and deeper mode for World Tower. Each additional building added to a local cluster enhances the customer and employee experience, resulting in strong overall effectiveness and efficiency, hence a strong network effect. These bolt-on acquisitions, in combination with our organic growth, drove 23% revenue growth, 26% EBITDA growth, and nearly 20% FFO per share growth for the full year of 2024. And we achieved these results while meaningfully deleveraging our balance sheet. While we're extremely proud of our recent results, we believe we're just beginning our journey to deliver long-term compounding of partial growth for our existing shareholders. To illustrate this, let's revisit the five growth pillars that I introduced a year ago. These pillars remain firmly intact, both starting our confidence in a multi-year growth outlook. Moreover, we have since added a sixth pillar, which I'll also discuss shortly. This expanded framework further strengthens our growth strategy and potential for long-term value creation. First, the demand supply backdrop of senior living business. From a fundamental perspective, we're at the very beginning of an extended period of outsized demographic driven growth in the sector. In fact, 2026 should be an inflection point in the end market demand. The tailwinds which have propelled our business, that is the growth of 80 plus population age cohort will only escalate in the back half of this decade. And I will remind you that seniors housing products that we're focused on are almost entirely private pay and needs driven in nature. The fundamentals of our business are largely immune from geopolitical cross currents, regulatory or policy changes, and poised to weather any economic headwinds better than most other sectors and industries. While the end market demand will continue to rise even at a faster clip in coming years, the new supply remains muted. The outlook for supply has gotten even worse in recent months as tariffs, immigration policy, and higher rates will further dampen development economics, which remains non-existent. The demand-supply outlook alone should drive outsized growth for many years to come. Number two, capital allocation. Even after a company record of $7 billion of capital deployed in 2020 and putting $20-plus billion of capital to work over the past four years, our investment teams have never been busier. The opportunity set is robust, actionable, and visible, and we believe 2025 will be another year of above-average capital deployment for WorldTower. To that end, we started the year with a bang and already have $2 billion of investments under contract for our balance sheet. This is the strongest start of the year we ever had. Our phones are ringing up the hook as it is sinking into the real estate world that the Fed does not control the long end of the curve and hence is not coming to rescue broken capital structures. We continue to find attractive economics in our circle of competence where we can bet with house odds rather than gambler's odds as we seek advantageous divergences in a specific niche amplified by our operating platform and our network of our best-in-class operating partners. Number three, capital light transactions. Over the past few years, we have transitioned hundreds of assets to our strongest operating partners. While these transitions can be challenging and occasionally near-term dilutive, they have proven to be tremendously successful we knew operators generating significantly more cash flow from the previous operator. For example, the Canadian portfolio, which we transitioned from Rivera to Cogier at the end of 2023, witnessed approximately 800 basis points of occupancy growth since we announced the transition. In 2024, we have also transitioned 68 properties from triple net to radius structures. allowing our shareholders to directly participate in the underlying cash flow growth of the community. Since I spoke with you last quarter, we agreed to convert an additional 16 high-quality senior housing communities from TripleNet to RIDEA. We'll continue to mine for opportunities for further capital light transactions. Number four, digital transformation driving unprecedented structural change. John and his team continue to make extraordinary progress on the build-out of the first true end-to-end operating platform in the senior housing sector. And as we discussed on the last call, our efforts to digitally transform the business are beginning to bear fruit as we went live with our tech platform in the first set of properties in third quarter and subsequently rolled it out to additional communities in Q4 and then in Q1 of this year. Implementation of tech stack is just one example of countless opportunities to improve virtually every element of senior housing business to enhance resident and employee experience. Number five, our unleveraged balance sheet. 12 months ago, I mentioned that we will continue to experience further organic deleveraging of our balance sheet given our expectation for outsized cash flow growth. Higher than expected cash flow growth and tactical funding of our capital deployment activity has driven a further reduction of our net debt to adjusted EBITDA to just 3.5 times. Thus, we have created even greater debt capacity to tap into to fund external growth, further amplifying our out-year growth prospects. Due to this massive debt capacity coupled with $9 billion of liquidity and our reputation For being a clean shirt in an industry where retrading counterparties is the norm, we continue to get first calls from market participants when they need liquidity. We can run our deal business in an old-fashioned Ben Franklin way because of our exceptional balance sheet strength. A couple of weeks ago, we added a sixth pillar, and that's the launch of our private funds management business. While we cannot provide any more details until the conclusion of this process, We believe this new pillar will result in significant revenue opportunities for World Tower shareholders. The funds business also represents our first foray into creating a capital light monetization of our data science platform. To conclude, I'm pleased with our execution in 2024. We have an exciting and frankly very busy year in front of us in every aspect of our business. Rarely within an industry do cyclical, secular and structural growth drivers come together to deliver a positive net vector leaping emergent effect that is unfolding at World Tower. Our business is bustling with positive energy, ingenuity, vitality, and new ideas to create partial value for our existing investors. While the outlook for commercial real estate remains foggy, in some cases gloomy, With ongoing malaise due to higher interest rate environment, it is a clear and bright morning at Welltower. And with that, I'll hand the call over to John. John?

Thank you, and good morning, everyone. 2024 was another fantastic year for Welltower, and based on our recent results and outlook, there appears to be no abatement in the momentum we're experiencing. For the fourth quarter, we posted total portfolio same-store NOI growth of 12.8%, driven by our senior housing operating portfolio growth of 23.9%. I'll first comment on the outpatient medical business, which remains stable in the quarter, with year-over-year same-store NOI growth of 2%. At some level, the business is boring, and yet at another level, it's incredibly stable, backed by top credit tenants with long-term leases delivering consistent returns. Occupancy during the period was consistent at an industry-leading 94.3%, and tenant retention remained strong at 93.6%. As for 2025, we expect another year of stable same-store NOI growth of 2% to 3%. During turning to the senior housing operating portfolio, our streak of unprecedented growth continues, having now posted nine consecutive quarters in which same-store NOI growth has exceeded 20%. We are particularly pleased with the better-than-expected occupancy ramp during the quarter, which equated to 310 basis points of year-over-year growth. I would also note that the 120 basis points of sequential occupancy growth, which Shank mentioned, was one of the strongest we have witnessed in any quarter outside the post-COVID recovery. For this strength to be witnessed during a seasonally slow period of the year is testament to not only to the tailwinds driven driving the business, but especially to our proactive and dedicated asset management initiatives, which I'll detail shortly. Revenue growth was strong across property types, but we witnessed particular strength at the two ends of the acuity spectrum between our assisted living and wellness housing portfolios. In terms of pricing power, as I noted last quarter, rate growth remains healthy, and we expect another year of favorable growth in 2025. On the micro level, rate growth is clearly impacted by occupancy level, by unit type at each community amongst other factors. Therefore, as the assets in the portfolio lease up, their market rate will continue to rise to reflect the value proposition provided. It's important to realize that the senior housing business is very different than the multifamily business when it comes to funding the payments. The payments are generally funded mostly by assets for the relatively short period of time residents are staying at our communities, on average about two years. compared to the multifamily industry, where rental rates are limited by earned income. I'd also note that the exponential rise in the value of homes, equity, and fixed income securities and other assets over the past 50 years has provided many seniors in our markets the ability to comfortably afford the cost of senior living, which is much more efficient than home care. Not to mention other benefits of senior living, including safer social and active lifestyles and peace of mind for families. Moving to expenses, we remain encouraged by the trends which we're observing across all line items, but particularly with respect to labor. This is best reflected by COMFOR, or Compensation for Occupied Room, which increased just 1.2% year over year, representing one of the lowest levels of growth in our recorded history. This is largely a function of the significant operating leverage inherent in the business, whereby most communities are now either fully staffed or approaching those levels. And as occupancy continues to grow, the need to add additional staff has moderated, leading to higher flow through or incremental margins. The benefit of the building occupancy continues to be reflected in our operating margins, which expanded 320 basis points year over year, the second highest level achieved in our history. While we have witnessed a substantial recovery in margins over the past few years, we believe that the runway for further margin expansion remains long, Not only are we still well below pre-COVID levels of profitability, but given our expectation for REV4 growth to continue to outpace X4, we expect this margin expansion trend to persist well into the future. Additionally, the operating platform initiatives, which are well underway to optimize our business, should serve to further boost our margins while also improving the resident and employee experience. This is no different than what has been experienced over the last two to three decades in many other property types across the commercial real estate universe. Onto our operating platform. We made great strides in 2024 building a capital team with internal expertise capable of directly executing and or working hand in hand with our operators and vendors. The result has been fantastic. For example, in one case, our elevator experts stepped in and corrected the scope of work related to nine buildings, recognizing a reduction of 49% in the cost of the work. It's critical as an owner of real estate to have internal expertise and not be forced to rely on vendors to effectively run the capital decisions on the properties, often making short-term decisions. The team has been strategically taking advantage of the vacant units available as our occupancy continues to rapidly increase. to renovate the units in advance of the increasing demand in the coming years. Additionally, they have been executing numerous exterior renovations at our communities and modernizing the amenities where appropriate, including creating wonderful employee break rooms, delighting our critical team members. The positive impact on our site employees cannot be understated. In one case, on a property visit, the employees hosted a small surprise party for me. including a special song and dance they had created in appreciation of Welltower's work. After having put 20 billion of capital to work over the last four years and converting over 100 triple net leases to IDEA, the capital team is rapidly executing capital plans for the acquired and transitioned buildings, which is a combination of value add as well as planned capital. Our value add investment program, like all investments at Welltower, is based on an unlevered IRR hurdle. As I've mentioned previously, we expect elevated capital spend for a period of time, ultimately lowering to the ongoing capital run rate, which should be consistent with other residential properties such as the multifamily REITs. On the technical front, we are in rollout phase with our main site-level platform, and my team is hard at work with many other related workflows that will continue to improve the customer and employee experience and improve the margins of our business. I'll reiterate what Shank mentioned. 2025 should be another year of exceptional growth, and there's seemingly no end in sight. Fundamentals of the senior housing sector remain terrific, and our efforts to transform this business through the operating platform are having a profound impact on our residents, employees, and operators, with the true bottom line impact soon to follow. As always, a huge thank you goes out to the Welltower team, including our operators, for their tireless efforts to transform this business. Finally, I want to recognize the amazing efforts by our operators, site employees, and Welltower employees responding to the recent disasters, including the Southern California wildfires, where they evacuated, transported, and relocated residents and provided furnished units to many seniors who lost their homes. Thank you. With that, I'll turn the call over to Nikhil.

Thanks, John. I'll start with a quick refresher on the market conditions which continue to drive significant investment activity for us and then provide an overview of our 2024 transaction activity as well as color on our 2025 activity. The U.S. commercial real estate debt market continues to face significant headwinds with substantial maturities in 2025 and in subsequent years. Total outstanding CRE debt stands at approximately $5.9 trillion, with $1 trillion of loans coming due in 2025. This compares to maturities of $700 million in 2023 and $950 million in 2024, with upcoming maturities exceeding $1 trillion in each year through 2028. Banks hold just over 50% of this CRE debt with regional banks holding a disproportionate share of roughly two-thirds of these loans. These regional banks, which are some of the largest lenders to the seniors' housing sector, continue to face significant challenges due to persistently high long-term interest rates hampering refinancing efforts. This is illustrated by the fact that regional banks with less than $100 billion in assets experienced three times as many loan modifications in the second half of 2024 compared to the first half. Higher long-term rates further compound issues for these lenders due to larger unrealized security losses on their balance sheets. This struggle is evident in the stock performance of regional banks. In 2024, the KBW Regional Banking Index underperformed the broader U.S. Bank Index by 29% and the S&P 500 by 12%. Looking at other major lenders, GSEs hold the next highest share at 17% of total CRE debt. I've previously mentioned that over one-third of the seniors' housing loans on Benny May's book are credit-sized and their origination volume is at historic lows. In addition, potential policy changes further complicate the situation with the GSEs going forward. The CMBS market. which accounts for the next highest concentration of CRE debt, continues to be similarly fickle, as evidenced by a consistent monthly increase in the percentage of loans subject to special servicing throughout 2024. Putting all of this together, the banks and other lenders have grown increasingly reluctant to extend loans and remain extremely selective in the limited instances in which they do. Against this backdrop, we find ourselves in an extraordinary market environment where many industry participants are compelled to divest assets, allowing us to acquire high-quality properties at attractive valuations. Our competitive advantage stems from a powerful combination of three factors. First, our industry-leading data science platform efficiently identifies the most compelling opportunities from large data sets, enabling rapid market response. Second, our team's expertise in swift and effective underwriting and due diligence. And third, the scalability of our operating partners' efforts bolstered by John's robust operating platform. This synergy creates an enviable flywheel effect for Welltower, positioning us to capitalize on market dislocations. While we don't have a crystal ball, due to the factors that I have mentioned, we anticipate these favorable conditions will persist for the foreseeable future providing a sustained pipeline of attractive investment opportunities. Moving on to our transaction activity, 2024 marked WealthTower's most active year, as we completed $7 billion of gross investment activity, comprising approximately of $900 million of development spend and just over $6 billion of acquisitions and loan funding. Our acquisition activity spanned 54 different transactions, with a median transaction size of $48 million. Through these transactions, we acquired more than 12,000 units across 119 properties. With an average basis of $265,000 per unit for these properties and an average age of eight years, we acquired these assets at a substantial discount to replacement cost. In the fourth quarter, our acquisition and loan funding activity totaled $2.2 billion across 21 different transactions. After relatively muted international investment activity, in 2022 and 23, roughly one third of our acquisition activity in 24 was represented by our international business, including our expanded partnership with Care UK completed in the fourth quarter, which represented roughly half of our investment activity for the quarter. Our relationship with Care UK dates back to late 2021 when we transitioned 26 former Sunrise and Graceville communities to Care UK. Since then, Occupancy has improved by more than 10% under Care UK's management, and monthly NOI has doubled. Under Andrew and Matt's leadership, the Care UK team has achieved this success by delighting their customers and providing exceptional service, as demonstrated by a good or outstanding CQC rating for each of the original 26 homes. Following our recent transaction in which the Care UK management team acquired the management platform from Bridgepoint, our partnership with Care UK now spans 72 communities across the UK. Moving on to 2025. The beginning of this year has been unprecedented in terms of acquisition activity. We have not seen such activity in my nearly decade-long career at Welltower. In less than 45 days, we have already closed on or have under contract an incremental $2 billion of acquisitions expected to be acquired on our balance sheet across 27 different transactions. Thematically, these transactions continue our activity from last year, predominantly focused on our seniors and wellness housing businesses. One-third of this activity is across our international business in the UK and Canada, and approximately 85% of these $2 billion in transactions were negotiated on an off-market basis. This robust activity underscores our position as the preferred counterparty for those seeking certainty and rapid execution in the current challenging capital markets environment. Our ability to close such a significant volume of transactions in a short timeframe demonstrates our strong market position and efficient deal-making capabilities. Our transaction model is simple. Acquire communities in our targeted micro-markets, continue to build on our regional density with our aligned operating partners in those markets, and treat our counterparties with fairness and respect. It's no surprise that as soon as we complete a transaction, the conversation with the counterparty often quickly moves on to engaging on a subsequent tranche. This is evidenced by the fact that more than two-thirds of our $2 billion in investment activity so far in 2025 is with counterparties with whom we have previously done business since the start of the pandemic. This fair and win-win approach gives our platform immense duration and positions us for continued success in the years to come. I will now pass the call over to Tim to cover our operating results and guidance for 2025.

Thank you, Nikhil. My comments today will focus on our fourth quarter full year 2024 results, performance of our triple net investment segments, capital activity, a balance sheet liquidity update, and finally, the introduction of our full year 2025 outlook. Welltower reported fourth quarter net income attributable to common stockholders of 19 cents per diluted share. and normalized funds from operations of $1.13 per diluted share, representing 17.7% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 12.8%. Now turning to the performance of our triple net properties in the quarter. And as a reminder, our triple net lease portfolio coverage stats reported a quarter in arrears. These statistics reflect the trillion 12 months ending 9-30-2024. In our senior housing triple net portfolio, same-store NOI increased 5.1% year-over-year, and trailing 12-month EBITDA coverage was 1.12 times, marking a new post-COVID high in coverage. Coverage in this portfolio continues to strengthen, now well exceeding pre-pandemic levels, as fundamentals align with those of our operating portfolio, a trend we expect to persist into 2025. During the quarter, we finalized agreements to transition 16 Segor-operated properties from TripleNet to Rodea, effective in the first quarter, bringing the total TripleNet to Rodea transitions in 2024 to 68 properties. Consistent with our strategy over the past two years, these conversions are expected to be highly accretive over time, as Walltower assumes an equity position, and these assets could continue to benefit from recovering fundamentals and industry's long-term secular growth. For this operator specifically, The transition also unifies our entire relationship under our data structure, ensuring complete alignment across our relationship. Next, same-store NOI in our long-term post-skew portfolio grew 2.6% year-over-year, and trailing 12-month EBITDA coverage was 1.58 times. Moving on to capital activity, we continued to equity finance our investment activity in the quarter, raising $2.2 billion gross proceeds. This allowed us to fund $2.2 billion of investment activity and end the quarter with $3.7 billion of cash and restricted cash in the balance sheet. Staying with the balance sheet, we ended the quarter with a net debt to adjusted EBITDA ratio of 3.49 times, a one and a half turn decrease from the end of 2023. We intend to use cash on hand to fund both the additional $2 billion of net investment activity announced in last night's release and the $1.25 billion unsecured debt maturing in June. As a result, Driven by accretive investment activity and continued cash flow growth from our in-place portfolio, we expect to finish the year with net debt to adjusted EBITDA at approximately three and a half times. Reflecting on 2024, the combination of organic cash flow recovery and disciplined financing of our external growth led to a historic strengthening of our balance sheet. The improving fundamentals of our business over the past two years have enabled us to deliver sector-leading per share cash flow growth to our shareholders, while also harnessing the power of the early part of the typical recovery to build balance sheet capacity. Looking ahead, as the powerful demographic trends the next two decades begin to unfold, we remain as confident as ever in our ability to capitalize on long-term high ROI investments in people, technology, and both digital and physical infrastructure, regardless of the capital market backdrop. Lastly, as I turn to our initial 2025 guidance, which was introduced last night, I want to remind you that we have not included any investment activity in our outlook beyond the $2 billion that has been closed or publicly announced to date. Last night, we introduced a full-year 2025 outlook for net income attributable to common stockholders of $1.60 to $1.76 per share, and normalized FFO of $4.79 to $4.95 per diluted share, or $4.87 at the midpoint. Our normalized FFO guidance represents a $0.55 increase in the midpoint from our 2024 full-year results. This increase is composed of a $0.42 increase from higher year-over-year senior housing operating NOI, $0.03 increase from higher NOI in our outpatient medical and triple net lease portfolios, a $0.20 increase of investment and financing activity, and a $0.65 of growth is netted against $0.10 of offsets made up of $0.06 from increased G&A and other expenses, and $0.04 from FX headwinds. Underlying this FFO guidance is an estimate of total portfolio year-over-year same-store and ally growth of 9.25% to 13%, 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 15% to 21%. This is driven by the following midpoints of their respective ranges. Revenue growth of 8.5%, made up of report growth of 4.8%, and year-over-year occupancy growth of 325 basis points, and expense growth of 5%. And with that, I'll hand the call back over to Sean.

Before we go to Q&A, I want to touch on three topics that appear to be unrelated on the surface. Number one, CapEx and Capital Team. As John mentioned on the last couple of calls, he has built a hundred or so person capital team at World Tower, creating internal capital and value add expertise as part of our build out of our operating platform. This has helped us to become a real operating business focused on total life cycle cost over long duration, not a deal shop that write checks. We put a few pictures of the team's work towards the end of our business update. I want to draw your attention to those because I want you to see Philosophically, what are we trying to achieve? For example, look at our efforts to build what I call Costco break rooms. The site level employees at our communities work really hard and we're trying to give them a really inviting and rejuvenating experience when they take their break. In 2024, we finished more than 80 of these break rooms. While some of you might legitimately see this as expenditure, we see this as an important step to hire and retain talent. I was recently reading a book on Walt Disney called Remembering Walt that talks about how Walt wanted to build a 120 feet tunnel of a railroad on a long escarp as he liked mystery and loved delighting his customers with joy and wonder. The foreman on the job suggested to him that it was way cheaper to build it straight. Walt said, it's cheaper not to build at all. The only way you make lots of money for your shareholders over a long period of time is having a killer customer value proposition. In our business, our residents' first line of interaction leading to that value proposition are site-level employees. We cannot delight our customers without delighting the site-level employees. If you don't believe me, please study the break rooms at Costco and Jim Senegal's philosophy, take care of your employees and they will take care of your business. You will understand why that company is such a long-time compounding machine. Number two, technology platform. When we talk about technology at World Tower, we mean two completely different things that sometimes get conflated. One is our data science platform, and the other is our operational tech platform. Our data science efforts go back almost a decade. They started with machine learning focused on structured data, and then deep learning towards the end of last decade focusing on unstructured data, and finally powered by AI in last few years. While we'll perhaps never win a prize for coming up with a new frontier model, our goal is to harness the power of these incredible technology advances in human history to make the right capital allocation decisions. In other words, we're trying to disrupt how capital gets invested in world's largest asset class called real estate. On the other hand, our operational technology efforts, which goes back to John Bockhart's arrival, to digitize and professionalize the business is set to disrupt how senior living operates as an industry. When we are successful in the latter, it will make the former machine, our data science platform, even more powerful as it will feed every minute customer interaction data into our algorithms, not just transactional data and vice versa, creating a positive feedback loop. While the individual goal of both of these platforms is to challenge the status quo of two completely different industries, The philosophical underpinning is the same, and that stems from the second law of thermodynamics. The second law of thermodynamics holds the greatest thermodynamic efficiency is achieved by working with the hottest possible source and the coldest possible sink. In other words, it is not about how fancy the underlying math or tech is, but the competitive niche where we're applying this, where the contrast is the greatest. To put it simply, we found two easier games where the competitive dynamic is still focused on either levered beta financial engineering, in case of real estate investing, or fundamental assumptions that work in a low or declining interest rate environment, or fly by sight, not by instrument, in case of senior living operations. And finally, number three, people. I want to congratulate John Burkhardt Nikhil, Tim, Matt, John Olympedos, Eddie, and Patrick for their expanded role and promotion that we announced on January 2nd. It is perhaps the single most important release from this company in years. While I am not going to detail how their roles are expanding, which is described in the release, I would like to say I've never written something that I'm more proud of. I will not remember a bunch of deal offers I wrote during the Christmas break. even forget how freakishly good it felt seeing the occupancy grow during Christmas week. But I will never forget the pride I felt when I wrote that release during the holiday break. Many of these extraordinary leaders joined me as associates and analysts, and today they run this farm. Others have joined me later to pursue this audacious dream to disrupt an industry or two. All these individuals have been instrumental in creating what is known today as WorldTower. by laying one airtight brick at a time with an outsider mindset. These exceptional leaders share two rare qualities that set them apart. The delayed gratification gene or an instinctive bias towards sacrificing immediate rewards for substantially larger future gains. And two, fiduciary gene, an innate desire to prioritize their owner's interest above their own. Their leadership has been instrumental in fostering an exceptional culture at our farm. These savvy leaders show up every day to win with qualities such as a seamless wave of deserved trust, shared sacrifices, unity of purpose, mirrored reciprocation. These seemingly mundane qualities in the right combination create a Lollapalooza effect of a culture where everybody is fully committed They go all in, and they stay all in. You might be able to copy our deals, but you cannot copy our culture. So what do these seemingly disparate three items that I mentioned above, such as philosophy behind CapEx, technology, and people have in common? Two things. First, duration, or otherwise known as longevity. And second, power law, otherwise known as exponential network effect. These two, duration and network effect, are the most foundational architectural principle of nature. And so they are the foundational backbone of our pursuit of target, incremental, continuous progress, or partial growth for our existing investors for decades to come. With that, I'll open the call up for questions.

Thank you. At this time, if you'd like to ask a question, press star 1 on your telephone keypad. We ask that you limit yourself to one question. You may re-enter the queue for any follow-ups. Your first question is from the line of Bikram Mahotra with Mizzio.

Good morning, guys. Congrats on the strong results. So I just had a two-parter, just clarifying. Just one on fundamentals. Can you kind of give us a sense of the pricing power across occupancy bands within the SHO portfolio?

um and then and related to the comments on the pipeline do you mind sort of giving us a sense of the two billion in acquisitions and the pipeline itself like what what are you what are you acquiring what's the occupancy of what you're acquiring in that pipeline thanks you want to start with the second yeah i'll start with the second one mikram so you know as i said in the prepared remarks it's really a continuation of what we've been buying so it's it's similar metrics uh you know the two billion we talked about it's low 80s occupancy generally in your vintage assets.

Vikram, on a second question, assets that are 90-plus percent occupied, the report growth has been well into the sixes. On the other hand, where the assets are below 70 percent occupied, they're roughly flat, so everything goes sort of in between. To give you a sense of gradients, I would say maybe 85 to 95 was closer to six, and as I said, below 70, it was close to five, which you would expect a different spectrum of occupancy.

I would just add that as of year end, over a quarter of the portfolio is still sub 80% occupied.

Your next question is from the line of Jonathan Hughes with Raymond James.

Hi, good morning. Thanks for the prepared remarks and commentary. The organic growth outlook, we know that remains strong, but I wanted to tie that into external growth in recent years. As we move through this development cycle and see increasingly fewer deliveries, which is obviously a good thing for existing properties, does that make buying properties with lease-up more challenging? Is there fewer of them, which in turn would impact your growth as fewer get added to the same store pool? So much of the outperformance in recent years has come from acquiring those newer vintage lease-up properties, and we see less and less deliveries. Does it become more challenging to sustain growth? Thank you.

Yeah, I think Jonathan, you know, if you look at the activity, you know, that would suggest the answer is no, because candidly, it's a complex operating business. And, you know, without the right toolkits, you don't get the same outcomes from, you know, every provider that's running the buildings. So, you know, we've had a long-term track record of success of finding under-operating buildings. And, you know, the under-operational element, you know, A, is occupancy, because that's obvious today. But there's so many more layers, right? So it's not just occupancy. At the end of the day, what we care about is NOI, and every single line item has room for optimization that we bring versus somebody else operating those building springs. So we see a long runway to keep doing more of this.

Yeah, and I would just also add, don't forget the massive delivery cycle, oversupply cycle we have gone through post-GFC sort of last decade, right? So there are plenty of people who need help on the liquidity side, and we'll see what the market gives us.

As a reminder, we ask that you only ask one question. You may re-enter the queue for any follow-ups. Your next question is from the line of Joshua Denlemon with Bank of America.

Yeah. Hey, everyone. Call it what you want, but I'm really focused on culture as a long-term driver of outcomes. And to me, a big picture of that culture is retaining talent. I guess, Sean, how do you think about retaining talent? And is there a retention problem at well today?

OK, so let me let me answer both of those questions separately. So first is. You think about this is that, as I said, mentioned many times. Retaining talent is my number one priority. It's hard to find really good people who do not think of what we do as work, but take that as their life's work. And there's a tremendous difference between the two. This is a hard business. It's a hand-to-hand combat on a 24-7 for all of us, right? So it is all these results that you guys are seeing today has been a function of this entire team working together and build this trust. And as I said, it's a seamless wave of deserved trust, right? And definitely there's a lot of shared sacrifice with the unity of purpose that I talked about at North Star. And everybody has bought in. If they're all in, they stay all in. That's a very hard thing to pull off. So obviously, if you think about it, and that shows up clearly on our track record, being a public company, our track record is public. So anybody can see what my team is capable of. And so obviously, if you think about the demographics of the industry, whether it's private or public, you will see in that microcosm, a huge retirement wave is unfolding as we speak. So obviously, there's a tremendous amount of demand for people who are really good at the job, right? And not everybody is very good at the job. There is a fundamental tectonic shift is happening in the real estate business, which last 40 years have been all about declining interest rates. That game is over. So if you think about that in that context, there is just tremendous demand for our people. So let's just think about this. Is there a problem of retention at Welta? The answer is a resounding no. But that does not mean that we should not be acting, in my capacity, I should not be acting before there's a problem. There's an interesting interview we can go and see of Lee Kuan Yew, who founded Singapore, was the leader, was once asked by a reporter about a famous Mao quote, which he talked about, a single spark can create a prairie fire. And Lee Kuan Yew said that only happens if the grass was actually dry. All we are trying to do at World Tower, what I'm trying to do every day is to keep that grass wet.

Your next question is from the mind of Michael Griffin with Citi.

Thanks. It's Nick Joseph here with Michael. Just on the private funds management business, I know we're targeting different stabilized versus non-stabilized assets, but I was hoping you could discuss kind of what the targeted IRRs are for both, and then just the size of opportunity you see in terms of those stabilized assets versus those that still have more of a growth opportunity.

Nick, as we have mentioned in my prepared remarks, that we have nothing more to add to the private capital business at this point more than what we have said in the press release. So we will give you more updates when that process is over. Now, from the perspective of, you know, if you think about it, we are fundamental buyers from the World Tower Balance Sheet perspective, unstabilized assets. That's what we have always done. We're growth investors. We're not yield investors. And we believe that now bringing this private capital business significantly expand our time. That's all I can say at this point in time.

Your next question is from the mind of Nick Lucio with Scotiabank.

Thanks. Good morning. So in terms of the senior housing operating segment, I was hoping you could just break out how big the same store bucket of assets will be this year versus the total pool. And then for the non-same store, you know, where I think there's often lower occupancy, how do you expect those assets to perform on NOI growth, you know, better Is there better potential there versus the same store guidance you gave? Thanks.

So why don't I start with the last part, and Tim will give you the first part. Given that our overall portfolio occupancy is, give or take, call it 85, and our same store is, what, 87 plus, right? That would suggest to you the non-same store is very well occupied, right? And so, you know, as occupancy goes up, you know, you would expect that the flow through incremental margin that falls to the bottom line obviously starts to pick up, right? So growth should be better. But, you know, obviously you will see, but when those properties stabilize, you will get more pricing power. So you're going to hand over growth from occupancy to growth from rates.

Tim. By the fourth quarter, we expect over 90% of the portfolio, current portfolio, to be in the pool.

Your next question is from the line of Austin Werschmitt with KeyBank.

Great. And good morning, everybody. Shank, you mentioned in response to an earlier question that, you know, at 90% plus occupancy, RevPort growth is well into the sixes. I think with the occupancy gains expected this year over 300 basis points, you know, you should kind of be ending the year approaching that 90% level on top of the inflection in demographics next year and then the further rollout in the tech platform. I mean, should we take all that detail to point to a reacceleration in Rev4 growth in 2026?

So, Anshin, just remember, we're also buying, Tim, Nikhil just said that we're buying $2 billion of assets in the first six weeks at 80% or so occupancy, right? So reported metrics gets all sort of jumbled up because of this. But your idea of your question is the correct one. I'll remind you of the comment I made, I think last call, maybe the one before, but in the last couple of calls, which is post-2026 summer leasing season, we should start to see a better report environment than we have seen, sort of call it prior to that. We shall see what the market will give us. It's hard to predict where things go. And so we are a fundamental believer it's not about predicting, it's about positioning. And we're in the business of duration. You know, if that takes one more year, we'll still be here trying to push things forward.

Your next question is from the line of John Kilkowski with Wells Fargo.

Thank you. Good morning. I'm trying to understand the outsized occupancy gain that you experienced this quarter and then the guide that you're giving. Do you think it's more to do with the acceleration of retirement age individuals, or do you think part of this occupancy gain is due to maybe a psychological effect where there's less and less opportunity now as you lease up to move into the facilities that you'd like to be in, and therefore you're seeing sort of people being willing to move in a little bit earlier and therefore maybe making the pace of occupancy gains that you're seeing sustainable into the future until you reach stabilization?

John, why don't I offer you a third choice, which is our execution. You guys have the data from, you know, sort of industry data. You guys see other companies in the sector which reported, I think, some of the data. But regardless, you know, just look at that and you realize this is, a lot of that what you say is right, but it is, that does not describe the operational sort of alpha that we have seen in the quarter. But, you know, we shall see what happens going forward.

Your next question is from the line of Ronald Camden with Morgan Stanley.

Hey, just a quick one. Maybe touch on expenses a little bit in terms of an update on the labor market and any concern about sort of labor shortages and what you're seeing. Thanks.

Ron, we always have concerns in a business where 60% of our capital, I mean, their expense tax is labor. We always have concerns. But as John mentioned, we are trying to see stabilization in that sort of the growth we have seen before. We have tremendous amount of operational initiative, capital initiative just in our communities to today to significantly bring down turnover. We mentioned some of that in the slides on our business update. You can see that we're seeing tangible impact. But as I've said, it's not an easy business. This is why you get outcomes in the tails, not a sort of industry beta. But we're super focused on it. We shall see what the market gives us.

Your next question is from the line of Rich Anderson with Wedbush.

Hey, thanks. Good morning. maybe a less exciting topic, but outside of senior housing, you know, what do you feel like medical office and post-acute, what role do they play in the company today? And by that, I mean, obviously, there's a lot of excitement around the growth profile of senior housing going forward, but is it an out-of-sync sort of investment? representing over 20% of the portfolio. Is it a view to the future to sort of be in the business longer term? Because who knows where things will go 15 years from now? Just curious, you know, your view on the stuff outside of the senior housing and what role it plays for investors today and in the future. Thanks.

We're longtime investors, and our OEM, as well as our post-acute segment, plays an extraordinarily important role as we think about portfolio construction. And different, you know, you guys get excited about different parts of different asset class and their cycles around them. We are thinking about how we create long-term sustainable earnings and cash flow growth on a partial basis over decades. And we're extraordinarily excited about those businesses. We allocate capital in different parts depending on where we think that we can make the best risk-adjusted return on a long-duration basis. And when the opportunities arise, we allocate capital. But at this point, as I've said, we're a debt player, a credit player in the skilled nursing business. And obviously, on the OM side, as I mentioned before, that I want to see where long-term inflation lands before I farm up my mind on how to further allocate capital in a significant way or not. That's where we are, and we're watching these things very carefully. But there's no question, both of those strategies play a very important long-term role in our portfolio construction.

Your next question is from the line of Juan Sanabria with BMO Capital Markets.

Hi, good morning. John, I believe you mentioned an elevated CapEx for a period of time and then kind of normalizing back to below where you were pre-COVID level. So I was hoping Maybe you could provide a little bit more details or benchmarking of how you think long-term CapEx could trend once we get past this hump of kind of defer to whatever type of spend that you want to execute on.

Yeah, as far as for long-term run rate, the capital to date or previously was done less efficiently. I've talked about that many times. People made short-term decisions. For example, you might replace a roof but not do the skylights and the gutters, and then you come back and do both of those, and you've got costs for mobilization, costs for tearing up the roof again to replace those. And so what we've done when we've stepped in with the team and bringing in the internal expertise is to create the proper scopes and planning for capital to execute that. In the end, that lowers the run rate of the capital, and as I mentioned, People are looking for reference points. One reference point out there that's been out there for years is, for example, multifamily residential, what their run rate is on CapEx. There's no reason why our run rate for ongoing capital would not be similar to that. Our units are slightly smaller with less kitchen, a little bit more on the amenity side for sure, but balance, it puts it into a zone for context. On the value-add side, as I said, those are pure investments. We could turn it on and off at any point in time, and Nikhil and I are connected as far as what those investment hurdles are, you know, unlevered IRR investments.

Your next question is from the line of Michael Carroll with RBC Capital Markets.

Yeah, thanks, John. I wanted to circle back on your comments regarding the tech platform rollout. Can you give us an idea of the timing of this? I mean, what percentage of the portfolio has this capability today, and should we think about the majority of your operators having this capability by the end of the year, or is it a longer, more thought-out process than that?

That's a good question. Yeah, I know we're rolling it out over the next couple of years. There's a lot of work that goes into doing that and doing it very well to make a seamless experience for our site associates, so very focused on that, and I am glad you asked because I've spent a lot of time talking about the benefits of the platform as it relates to digitization and the improved customer and employee experience. I haven't much spoke about the aspects of providing real-time actionable data, insightful data to the site employees. So I'll give you just a little story on that. When I was working my way through college, 1980s, I worked at a company called Price Club, which is a predecessor of Costco, for those of you who remember. Every morning about 3 a.m., the store manager would come to me with a computer printout which showed all of the sales for every item on my aisle, as well as the aisle in total. So I could see if I placed Tide in the middle, if I placed Tide as an end cap, what the impact was on sales, and then adjust my aisle accordingly to maximize my total sales for my aisle. Very competitive process there at Costco. And today, what we're able to do, we're at the very cusp of providing our employees with real-time, actionable data, enabling them to positively impact the business. So super, super excited. We're going as fast as possible, but we have to do it right. And so it does take a little bit of time.

And Mike, just remember, Nikhil is not making this process particularly easy by adding 10,000, 12,000 units a year as well. So it's a running target.

Your next question is from the line of Jim Cameron with Evercore.

Thank you. Good morning. I was intrigued by Nikhil's comments regarding it sounds like an apparent uptick in European investing activity. Have you ever provided sort of the sense of scale of the opportunity set for Welltower in Europe and does that extend beyond the UK?

Thanks. I don't think you heard it correct. We are focused on I guess you can say in a European context is UK. I've said many, many times we have no desire to go outside our circle of competence, which is US, UK, Canada. And his comment is entirely focused on UK.

Your next question is from Mike Mueller with JP Morgan.

Yeah, hi. You have about 2 billion of developments in process. Can you talk about how long to stabilize the properties upon completion? And is that trending faster or slower than a few years ago, pre-COVID? Yeah, Mike.

So, yeah, thinking about that development pipeline, that has predominantly been focused in two areas, active adult within our kind of residential portfolio, and then OM. OM, as you know, is pretty much 100% leased for anything that we're developing. active adult has a shorter lease up timeframe than seniors. So it's shorter and that's kind of more like a 12, 18 month type timeframe.

Your next question is from the line of Emily Merkel with Green Street.

Yes. How does 2025 expected expense growth for the US senior housing portfolio compared to the UK and Canada? And then, have the increased employment taxes and increased minimum wage in the UK had any noticeable impact there?

Yeah, so OPEX growth in the UK is greater than the US, and it's, Emily, to your question on the impact of, you know, the combined impact of the two is the right way to look at it, right? Because you get the kind of headline cost of living adjustment, and then you've got the insurance impact. So two of those are heightened and that is causing, you know, higher OPEX growth there. But we're also seeing great top line growth in the UK. So it's offsetting some of that flow through, but we're still seeing positive growth.

Our final question will come from the line of Jonathan Hughes with Raymond James.

Thanks for taking the follow up. Can you talk in more detail about the outlook for senior housing development? I mean, fundamentals are as good as they've ever been. There's a lot of visibility for demand in the next decade. Why haven't developers or private equity rushed in to get projects started to capture that inevitable upside? Is it lack of operators, financing? I guess, what changes this?

Thank you. Yeah. So Jonathan, I'm going to make my comments on average. There's always exception to average. just think about as an average, I fundamentally believe that people do something, an economic activity called development, if there is development profit, right? So you sort of have to think about it. So let's just dig into that. I'm going to, so first, I think there's a fundamental misunderstanding of what development profit is. I hear, you know, I've seen some very interesting performers of development that say, you know, just take an example, this is an example. I can make a 8% yield five years from now And isn't there 200 basis points above, say, prevailing cap rate of six? That is fundamentally, people who say that have a fundamental misunderstanding of the most basic idea of finance called time value of money. We make decision, development decision based on untrended yield, not trended yield. Untrended yield as in what's today's cost and what's today's market rent, right? You can always buy a six and trend that and get rent growth for five years and we'll get to eight. So that is sort of the fundamental, so number one problem. Number two problem, which I describe you as sort of a underpants gnomes reasoning, if you have seen that famous South Park episode, and it goes like this. You have a proposition one, which is there's a lot of demand coming, right? That's step number one. Step number three is we should be able to make profit from that by developing more. The step number two in the middle is missing. And that missing middle is what we talk about. What happened to cost? What happens to your cost of construction, your cost of labor, your cost of, you know, sort of your rates, right? All of these things, your exit cap rate, all of these things. So if you just think through that, senior housing development business reminds me of that South Park episode, which is under Penn Nome's episode. If you haven't watched it, I will go and like you to watch that. Third one is what is just straight up preference falsification. I have talked to, you know, smart developers who understand that this idea of silver tsunami they're trying to, you know, sell it to someone gave development capital, just what I call, you know, private truths and public lives, right? So all I tell them to do is if you truly believe in that, why don't you just put your 100% of your own money and develop? Why try to get other people's money to try to do that, which this business has two really, really bad, episodes, one in the 90s, massive oversupply, lots of money lost, other people's money lost, and the second is what happened in the last decade. So if you just put it all together, you will see, you know, all I say, you know, just if the economics doesn't exist, I fundamentally believe it will not happen. And if somebody is particularly excited about doing it, I recommend they do it on their own money, not get, you know, sort of an unassuming small bank who doesn't understand all the details and just get them and then obviously Get them on the hook just like it happened in the last decade.

This does conclude today's call. Thank you for joining. You may now disconnect your lines.