Welltower Inc. (NYSE:WELL) Q4 2023 Earnings Call Transcript

Welltower Inc. (NYSE:WELL) Q4 2023 Earnings Call Transcript February 14, 2024

Welltower Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. And welcome to the Welltower Fourth Quarter 2023 Earnings Conference Call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Matthew McQueen, General Counsel. You may begin your conference.

Matthew 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 a reasonable assumption, the company can give no assurances that projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company’s filings with the SEC. And with that, I’ll hand the call over to Shankh for his remarks.

Shankh Mitra: Thank you, Matt, and good morning, everyone. I will review our fourth quarter and full year 2023 results and describe high level business trends and our capital allocation priorities. John will provide an update on the operational performance of our Senior Housing and Outpatient Medical portfolios and progress on our operating platform build-out. Nikhil will give you an update on the investment landscape. And Tim will walk you through our triple-net businesses, balance sheet highlights and 2024 full year guidance. First, as I reflect back on 2023, it was a year of solid execution across the Board with significant progress achieved in all aspects of the business. Operating performance far surpassed our initial expectations.

We had a great year, a record-setting year in terms of capital deployment and we meaningfully strengthened our balance sheet and liquidity profile. Just as importantly, perhaps, is the groundwork we laid to sustain this level of performance and continue to deliver outsized growth not only in 2024 but also well into the future. This includes the considerable progress John and his team have made on the build-out of our operating platform, which we continue to believe will transform the industry. On top of that, as we have discussed in recent quarters, we have executed a number of operator transitions across all our geographies, as well as converted a handful of properties from triple-net to RIDEA. All should bear fruit later this year and in 2025.

We finished the year strong with significant momentum to set us up for another year of solid performance in 2024. In terms of our Senior Housing Operating portfolio, I was particularly encouraged by the occupancy growth in fourth quarter, which is seasonally not the strongest period. The portfolio saw 110 basis points of sequential occupancy gains, which translate into 330 basis points year-over-year occupancy growth, and the 330 basis points year-over-year occupancy growth is by far the highest level we have ever achieved in the fourth quarter of any year in our recorded history. Just as compelling is that looking at the intra-quarter trends, year-over-year occupancy growth strengthened each month, which is unusual given the aforementioned seasonality of the business.

We’re also pleased with the rate growth achieved by our managers. During our last call, I described to you that one of our largest operators, Sunrise, pulled forward Jan 1, 2023 rate increases into 4Q 2022. This year they have returned to their historical cadence of Jan 1 rate increases. While this distorts our show portfolio’s reported Q4 2023 RevPOR or the unit revenue, the rest of the portfolio delivered RevPOR growth of 6.8%, reflecting the underlying fundamental strength of the business. While our 2024 guidance assumes some diminution of RevPOR growth from full year of 2023 levels of 6.6%, we still expect another year of near double-digit topline growth as occupancy continues to build at a solid pace. 4Q 2023, same-store ExpPOR or expense per occupied room grew 1.7% year-over-year.

The lowest level of growth in Welltower’s recorded history, driven by 4Q 2023 same-store compensation per occupied room growth, which grew 1.9% year-over-year, also the lowest growth in Welltower’s recorded history. While the normalization of agency labor usage is helping to dampen COMPOR growth, we are also seeing some good trends in the salary and the wages line. All of these trends are resulting in a favorable spread between RevPOR growth and ExpPOR growth. The powerful combination of this revenue backdrop with continued margin expansion that should be expected due to the high operating leverage inherent in the business leaves us feeling very strongly about our 2024 NOI growth setup. Tim will give you our detailed buildup of our NOI guidance based on our current assumptions, but please understand that we have no false pretense about perfectly knowing what the business will look like as we move through the years, particularly the all-important summer months.

But we are optimistic, given the demand-supply backdrop, which improves by the day and the rising system-wide occupancy, as well as the early success we have seen in John’s operating platform buildout. While 24.4% NOI growth last year for our shop portfolio alone was very encouraging, I’m extremely pleased with our capital allocation activities as well. In 2023 was the most active year in our history in terms of raising and deploying capital. We completed almost $6 billion of investments in the year, nearly half of which closed in Q4 alone. While I won’t get into the specific transactions, I will mention that they share some common characteristics. First, we generally grew with our existing operating partners in their respective markets.

Second, we acquired assets at a significant discount to replacement costs from core funds, PE funds, pension funds and financial institutions who were seeking liquidity. We also added a couple of new operating partners along the way who I envision us growing with in the near-term. More to come on this topic as we progress through the year. The torrid pace of investment activity in Q4 has continued with 2024 starting off with a bang. In fact, I do not recall having ever been this busy in first quarter on the deal front. While we have pre-negotiated documents and structure to leverage, it is great trust that we have built with our 2023 counterparties that will make follow-on transactions easier to execute. These counterparties also experienced what our promise always is, that we honor our handshake irrespective of circumstances, as evidenced by the continued — our continued execution through this historic capital market volatility in the fall and winter of 2023.

They know that we remain the clean shirt in an industry where re-trading counterparties is the norm. It is interesting and perhaps coincidental that we’re experiencing another bout of market volatility after a few weeks have come. Over the past few weeks, another regional banking crisis driven by U.S. CRE debt appears to be rearing its ugly head from New York to Tokyo to Germany. We are currently staring at approximately $16 billion of Senior Housing loans maturing in the next 24 months in the U.S., which dwarfs roughly about a couple of billion dollars of agency financing completed in 2023. This should generate significant equity, as well as private credit opportunity for us. Suffice to say, our near-term capital deployment pipeline remains robust, highly visible and actionable, and with — and squarely within our circle of competence, where we can bet with house odds rather than gambler’s odds.

Along with what we have already done in 2023, these acquisitions that carry an attractive basis, operational upside and significant value-add from Welltower’s operating platform, we have a — we will have a meaningful impact on what remains a true North Star, long-term compounding of partial value of our existing short loans. With that, I will hand the call over to John. John?

John Burkart: Thank you, Shankh. Although most of my time at Welltower has spent doing the Welltower hustle, getting up every day, identifying and aggressively pursuing the opportunities that exist, focused on improving the customer and employee experience. I want to take a moment and reflect on how proud I am of the Welltower team for success in doing just that, improving the customer and employee experience, which in part is reflected by our performance. Focusing on Senior Housing for a moment, the Welltower team consists of our top operators and all of their employees, our key vendors, as well as the Welltower employees. We have all worked together to improve the customer and employee experience, which has resulted in fantastic results.

On top of the industry-leading Senior Housing same-store NOI growth for the full year of 2022 of 20.1%, our full year 2023 Senior Housing NOI growth was 24.4%. Often on earnings calls, you hear the words, tough cost. That’s certainly true here. Yet our guidance for 2024 same-store Senior Housing NOI growth at the midpoint is 18%. Therefore, based on our two full years that are completed and in the record books, 2022 and 2023, and our guidance of 18% in 2024, that indicates that the three-year compounded growth of our same-store Senior Housing NOI in 2024 will be over 75%. That’s something to reflect upon. Thank you, Welltower team. Now back to our business. Our portfolio generated 12.5% same-store NOI growth over the prior year’s quarter, led by the Senior Housing Operating portfolio with 23.7% year-over-year growth.

The Outpatient Medical portfolio produced same-store portfolio growth of 2.8% for the fourth quarter of 2023. This was driven by favorable operating expense management, increasing the operating margin by 220 basis points year-over-year to 71.4%. Notably, our proactive appeal process achieved favorable real estate tax reductions. The 23.7% fourth quarter year-over-year NOI increased in our same-store Housing Operating portfolio with a function of 9.7% revenue growth, driven by the combination of 5.5% RevPOR growth and 330 basis points of average occupancy gain and moderating expense growth. Expenses remain in control, coming in at 5.7% for the quarter over the prior year’s quarter. The strong revenue growth and expense control led to continued margin expansion of 290 basis points.

Again, our ExpPOR growth for the quarter set a record for the lowest growth in our recorded history at 1.7%. All three regions continue to show strong same-store revenue growth, starting with the U.S. at 9.4%, Canada and the U.K. growing at 9.7% and 14.1%, respectively. The strong revenue growth in each region, combined with the expense control, have led to fantastic NOI growth in the U.S., Canada, and the U.K. of 21.8%, 21.7% and 75.5%, respectively. We’re flying along with our integrated platform initiative, which will start to go live at our first operator in the first half of this year. I will not go into all the details, but I will say that our focus on improving the customer and employee experience is coming together very well. The integrations of the various modules will simplify the customer experience and reduce the labor around basic tasks, enabling our site teams to focus on what they love, our customers.

More to come in 2024. I will now turn the call over to Tim.

Nikhil Chaudhri: I’ll go next. Yeah. Thanks, John. On the transaction side, as Shankh mentioned, 2023 marked the most active year in the history of the company. Our new investment activity of almost $6 billion spanned more than 50 different transactions with a median transaction size of $54 million, in which we acquired 153 properties over the course of the year. I am sure you all have read about the confluence of a few factors that are creating the current investment backdrop, namely the great wall of CRE debt maturity, expiring SOFR caps, pressure on the regional bank balance sheet and the denominator effect. Welltower is uniquely positioned to capitalize on these trends and serve as a counterparty of choice for our private equity sponsors, large pension and asset managers, and entrepreneurs that are impacted by this challenge.

We are able to source these opportunities directly from sellers or through our operating partners, given our reputation of being a good partner and a reliable and credible counterparty. We are then able to analyze and underwrite quickly and in great detail, thanks to the combination of our data analytics platform, Alpha, and our best in business investment team. Finally, and perhaps most importantly, we then execute on the business plan for each asset through our deep network of aligned operating partners backed by the operating platform that John is methodically building out. These factors drive our sustainable competitive advantage for creating shareholder value. Our 2023 investment activity was focused on granular, off-market, high conviction transactions.

A majority of the transactions were focused on our seniors and wellness housing businesses, where we acquired additional assets and markets where we already have high performing assets. By acquiring these assets at an attractive basis and consolidating operations under the same operator, we are able to reap the operating benefits of regional density. In the fourth quarter alone, we closed on nearly $3 billion of investments while remaining targeted and disciplined. We acquired 44 Senior Housing properties from 11 different sellers, growing our relationship with seven existing operating partners. We acquired roughly 8,800 units with an average age of around seven years at an average basis of $222,000 per unit at an approximately 40% discount to replacement costs.

These transactions have a low 6s year one yield and are expected to generate unlevered IRRs north of 10%. I am also excited to provide an update on the performance of our Integra portfolio, where we have continued to see a sequential improvement in performance. For the 140 buildings that first transitioned to regional operators, we have seen annualized EBITDARM improve by more than $300 million, from losing more than $85 million in the three months prior to the transition to positive $228 million in the third quarter. While there continues to be meaningful remaining upside in performance beyond the current state, I am pleased to announce that EBITDARM coverage is now greater than one and a half times. We also transitioned the last seven remaining buildings earlier this month after getting the final set of regulatory approvals.

On the back of our continued success turning around operations for our legacy Genesis and ProMedica skilled nursing portfolios, we have take — we were active in deploying capital in the skilled space as we partnered with regional operators to acquire under managed assets. Given the credit nature of our skilled nursing investments, we always strive to have meaningful downside protection through a combination of right per bed basis in states with favorable reimbursement landscape and significant credit protection through personal and entity level guarantees. Looking ahead to 2024, we are off to an exciting start. We are delighted to announce our strategic partnership with Affinity Living Communities in which we are entering into a long-term programmatic development relationship and acquiring the Affinity portfolio of 25 active adult properties with an average age of less than eight years for $969 million or $233,000 per unit after allocating the NPV of interest cost savings to the assumed below market debt.

Darin, Scott, Charlie, and John have built a fantastic business over the last decade as they have meticulously iterated and refined the Affinity prototype. Their vertically integrated platform and unwavering focus on efficiency has enabled them to grow their footprint in typically expensive Pacific Northwest markets at an attractive basis to provide moderately priced active adult housing at average rents of approximately $2,100 per month. We have been incredibly pleased with the operating performance of our moderately priced active adult business over the last few years and are excited to partner with the Affinity team to further grow that business. Our investment team remains incredibly busy as we continue to be the steady hand and trusted counterparty in our business and remain well-positioned to capitalize on capital structure issues across the industry.

We are inundated with opportunities up and down the capital stack and continue to balance price discipline, operator selection and capital availability to be thoughtful stewards of our shareholder’s capital. I will now hand over the call to Tim to walk through our financial results in 2024.

Tim McHugh: Thank you, Nikhil. My comments today will focus on our fourth quarter and full year 2023 results, performance of our triple-net investment segments, our capital activity, a balance sheet liquidity update, and finally, the introduction of our full year 2024 outlook. Welltower reported fourth quarter net income attributable to common stockholders of $0.15 per diluted share and normalized funds from operations of $0.96 per diluted share, representing 15.7% year-over-year growth. We also reported total portfolio, same-store NOI growth of 12.5% year-over-year. Now turn to the performance of our triple-net properties in the quarter. As a reminder, our triple-net lease portfolio coverage and occupancy stats reported a quarter in arrears.

So these statistics reflect the trailing 12 months ending 9/30/2023. In our Senior Housing triple-net portfolio, same-store NOI increased 2.2% year-over-year and trailing 12-month EBITDA coverage was 0.95 times. It is also worth noting that our trailing three-month coverage in this segment moved above 1 times for the first time since the pandemic. Next, same-store NOI in a long-term post-acute portfolio group grew 5.2% year-over-year and trailing 12-month EBITDA coverage was 1.36 times. Turn to capital activity. We invested $3 billion in acquisitions, loans and developments in the quarter, led by $2.1 billion of Senior Housing Operating investments. In the quarter, we continue to fund investment activity via equity issuance, completing a bought equity deal in November, which along with regular way ATM activity resulted in $2.8 billion of gross proceeds in the quarter, an average price of $86.20 per share.

This equity issuance allowed us to fund investment activity, along with the extinguishment of approximately $250 million of debt in the quarter and end the year with a $2.1 billion cash balance. Staying with the balance sheet, as we finish 2023, I want to highlight the balance sheet transformation that has occurred over the last 24 months. When COVID hit in 2020, we acted quickly to protect the balance sheet by securing substantial incremental liquidity, in large part by reducing cash outlays and taking advantage of strong asset values by selling long lease duration assets into a zero interest rate environment. These actions helped alleviate the impact of nearly 50% drawdown in Senior Housing Operating NOI that bottomed out in the first quarter of 2021, driving peak leverage to nearly 7.5 times ex-HHS funds.

After stabilizing the portfolio in the sevens in 2021, the combination of a strong recovery in Senior Housing performance and disciplined equitization of external growth over the last two years has allowed us to methodically lower leverage, finishing this year with 5.03 times net debt-to-EBITDA. Consistent with past commentary around the balance sheet, I want to underscore that despite the improvements in metrics, current leverage still does not reflect a full post-COVID recovery in Senior Housing Operating NOI, as our portfolio still sits meaningfully below pre-COVID NOI levels. A recovery back to these levels will drive leverage well below 5 times. In summary, in 2023, our post-COVID balance sheet recovery transitioned into a strategic repositioning, ending the year with substantially upgraded metrics from prior to the pandemic, an expectation for further improvement as our Senior Housing Operating portfolio continues to carry significant organic cash flow growth momentum into 2024.

This positions us with substantial capacity to continue to make systematically opportunistic capital allocation decisions to drive long-term shareholder returns in any market environment. Lastly, as I move on to the introduction of our full year 2024 guidance, I want to remind you that we have not included any investment activity in our outlook beyond that which has already been announced publicly. Last night, we introduced an initial full year 2024 outlook for net income attributable to common stockholders of $1.21 per diluted share to $1.37 per diluted share and normalized FFO of $3.94 per diluted share to $4.10 per diluted share or $4.02 at the midpoint. As mentioned in our release last night, our 2024 guidance contemplates no HHS or other government grants, so after adjusting for $0.03 received in 2023, the midpoint of our initial guidance represents 11.5% year-over-year growth.

This year-over-year increase in FFO per share is composed of a $0.33 increase from higher year-over-year Senior Housing Operating NOI, $0.02 increase from higher NOI in our Outpatient Medical and triple-net lease portfolios, a $0.04 headwind from higher year-over-year growth in G&A expenses tied mainly to the continued build-out of our operating platform, and finally, a $0.10 increase from investment activity and financing activity. Underlying this FFO guidance is an estimate of total portfolio year-over-year same-store NOI growth of 8.25% to 11.5%, driven by sub-segment growth of Outpatient Medical 2% to 3%, long-term post-acute 2% to 3%, Senior Housing triple-net 2.5% to 4%, and finally, Senior Housing Operating growth of 15% to 21%, the midpoint of which is driven by revenue growth of approximately 9.2%.

Underlying this revenue growth is an expectation for RevPOR growth of approximately 5.25% and an acceleration in year-over-year occupancy growth to 290 basis points. And with that, I will hand the call back over to Shankh.

Shankh Mitra: Thank you, Tim. I wanted to address a few important topics before I open the call up for questions. As you may know, on November 28th, we lost my personal hero, mentor and friend, Charlie Munger. We’re deeply saddened by his death and thank many of you for reaching out to my team and me during this difficult time. Charlie was truly generous with his wisdom, continually guiding us not only on the importance of compounding, but also behaving like owners, not managers and deserving great partners by being one, and taking far less crowded high road and acting with conviction when the conditions were right. We witnessed his wit, uncommon sense, simplicity, passion for multidisciplinary running and innate ability to cut through noise and arrive at the right decision.

The influence he had on Welltower, its people and its culture is truly immeasurable. His serene guidance and sage, principled advice has been invaluable to me in my life and my career. Charlie was also an instrumental influence on the members of our senior leadership team to whom he gave his greatest gift of all time, his time. We’re grateful for the time we spent in his presence. I owe him a lifetime debt that cannot be repaid, but we will carry forward his teachings in how we deal with our owners, partners, residents, employees and others. His most profound impact on us is perhaps cemented in the ground rule document that he guided me to write that you can find on our website. Moving on to a less somber topic, I want to draw your attention to some of the partners which we forged new relationship with in 2023.

Beyond what we have announced so far, I want to highlight Affinity as our new growth partner. Nikhil walked you through the investment rational Affinity, but I would also like to express how excited I am to work with Darin Davidson and his team there. As we have gotten to know Darin over the last five years, he has proven to be a man of high integrity and thoughtfulness with a true compass on the future direction of how older Americans want to live. Despite adding a few handful of managers to our growth platform in 2023, our partner and geographic strategy remains to go deep instead of going broad and our consolidating roster of existing managers reflect that. In summary, I hope that the optimism conveyed by my partners today on growth prospect of our business has resonated with you.

While we remain focused on the execution of our 2024 strategic and operational goals, I cannot help but draw your attention to the outsized multiyear growth trajectory in front of us, which is supported by five different growth pillars. Number one, some of it is questionably is a function of favorable demand supply setup that I think you all understand. This should only get better as we look into 2025 and 2026. Number two, a lot of my personal enthusiasm stems from the digital transformation and business process optimization that John is driving. We should start to see some fruits of his labor this year, but much more in 2025 and 2026. Number three, overlay that with the impact of hundreds of properties that we have recently transitioned or agreed to transition to better operators.

I am excited about the improving resident and employee experience that is currently underway with a financial impact following soon thereafter. Number four, add our extremely targeted and disciplined growth, external growth opportunities. And last but not least, number five, our underleveraged balance sheet that which Tim just described to you. We will continue to experience further organic deleveraging, which will either support A rating or provide capacity for additional external growth. As we think about the next couple of years, we have never felt better about the growth prospects or accelerating growth prospects of our earnings and cash flow for our company on a partial basis. With that, I will open the call up for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Connor Siversky with Wells Fargo. Please go ahead.

Connor Siversky: Good morning out there. Thank you for the time and appreciate the detail in your prepared remarks. So an observation, a couple short questions on wellness housing. The Affinity portfolio generating a 60% operating margin, not exactly comparable, but seems to be above the range that a traditional assisted living facility could achieve. So first question on this end, where does that 60% margin sit on the bell curve of wellness housing operating performance outcomes? Second, with what looks like a very solid return profile, how much should we expect Welltower to lean into this segment in the years ahead? And finally, how has RevPOR and NOI growth in that portfolio trended over the last two to three years?

Shankh Mitra: You snuck in three questions. Let me see if I can understand or remember all of them. First is we laid out our strategy of how we see investing in the senior living space, which is high price point, very affluent micro market, high acuity product, if you will, where we provide a service that can be actually charged accordingly and hire people and pay them appropriately. So that’s one strategy. On the other side of the barbell, we went from no acuity and build out a business over the last eight — six years, five years, six years on this wellness housing side, where it’s much lower price point, but almost no services. So it’s sort of from an acuity standpoint and that provides obviously much higher NOI margin.

That’s the two business segment that we know how to do well and make money and that’s where we are. I’m not suggesting that anything in between is not something that is right or wrong or anything like that, but just not something that we’re focused on. Going back to your question, where that 60% or so margin sits in that wellness housing spectrum, I will say it sits towards the upper end, probably, the upper half, but no means and aberration, right? So you think about, I think about this business from mostly a mid-50%s to mid-60% margin business. Your last question, how has the growth has been in the wellness housing? Historically, it has been growing, I would say, mid-to-high single-digit. In 2023, the NOI growth for our wellness housing portfolio on a same-store basis has been 12.2%.

In fourth quarter alone, that was 13.1%. Hope I remember all your questions.

Operator: Your next question comes from Jeff Spector with Bank of America. Please go ahead.

Jeff Spector: Great. Good morning and congratulations on a great year. A bunch of questions, but I’ll just focus on one. After three years of very strong, better than expected internal growth, the market appears to be pricing in approximately 700 basis points to 800 basis points of deceleration. As we look ahead, does growth normalize from here or can the current growth trajectory continue?

Shankh Mitra: Thank you, Jeff, for the question. I’ll start probably with one of my favorite mongerisms, which is knowing what you don’t know is actually a lot more useful than being brilliant. So I want to make sure you understand that, we have no hubris of what we don’t know. So I’m, frankly speaking, I’m pretty surprised, for many months, I’ve been reading about this in research reports, talking to investors, that sort of this idea that if you had three — two good years of numbers, obviously, that has to go down pretty meaningfully. Frankly speaking, I don’t personally understand that. I will tell you that we don’t know how this year is going to completely play out. We give you our best guess that Tim described to you.

It is possible that we have another year of that growth rate that’s sort of similar to last two years, possible if we have a strong summer sort of leasing season, right? But I think we’re going to have many great years in front of us with double-digit NOI growth. Now, with — whether this year, next year, this quarter, next quarter, I don’t know what chips will fall, but as we think about taking this portfolio to where it should be leased with our opinion, as we have told you, that we’ll be very disappointed if we go back to pre-COVID. There is no reason we can’t even go back to where 2015 levels were, because if you look forward next few years, you will see demand-supply has been significantly better and our platform build out should help us get well past that.

We should have double-digit NOI growth for years to come. I hope that sort of answers your question. We have no hubris of sort of knowing what we don’t know. But we think it’s also this idea that, because our business has done so well for last two years, it has to go down, it has to meaningfully decelerate, it sorts of reminds me that, perhaps, we should have more humility of what we don’t know. We’ll see how this plays out. We’ll see what market gives us. Thank you.

Operator: Your next question comes from Vikram Malhotra with Mizuho. Please go ahead.

Vikram Malhotra: Good morning. Thanks for taking the question. I guess, I wanted to — you have very strong outlook on shop. I wanted to dig into that a bit more in two parts. One, can you talk about sort of at the high end of your guidance range, what you or maybe the low end, what you’ve baked in for RevPOR growth? And then related to that, as you sort of trend towards 85%-ish, 86% occupancy, clearly there are benefits to the bottomline. But I wanted to understand, do you — do the operators need to stuff up or spend more marketing dollars? Is there a maybe some broad trends that you can share with us to achieve that 85% of the margin flow too?

Tim McHugh: Yeah. I will start with the RevPOR and then I’ll hand it over to John for any comment on kind of the operating spend side. But thinking about the RevPOR, think about kind of 5 to 5.5 being kind of the range that drives, that kind of flexes from the bottom to the top of that range.

John Burkart: Yeah. So on the — how the numbers work, as Shankh and Tim has said for a long time, the flow through gets pretty fantastic as you get north of 80%. So when you talk about staffing up, you really have, and I mentioned this on the last call, the positions are in place. You have your head chef, you have your executive director, et cetera, et cetera. So it’s very incremental. So this arc of the curve, there’s a lot of money that comes to the bottomline as you increase occupancy. And additionally, as we’ve said, because of supply-demand factors, that’s just expected in the marketplace. We may or may not decide to spend more money on marketing to accelerate that, but the conditions are fantastic right now.

Operator: Your next question comes from Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes: Hi. Good morning. Thank you for the time. I wanted to ask about the trajectory of external growth. You lay out in the business update deck the opportunity to deploy in excess of $3 billion annually with your current stable of proprietary developers and operators. And on top of that are, of course, the opportunities outside of those relationships that could be added of like Affinity. I know you don’t provide guidance on investment activity, but is it fair to assume $3 billion is kind of the low end we can expect year in, year out, given that, these partners of yours, they want to grow their businesses and they can only grow with you due to the proprietary nature of your partnerships? Thanks.

Shankh Mitra: Jonathan, let me see if I can answer that question. We will not give guidance. Our shop is not designed to buy stuff. We only grow if we think we can grow to add value on a partial basis for existing investors. So, if that means it’s $3 billion, it’s $3 billion. That means it’s $300 million, it’s $300 million and that means if it’s $8 billion, it’s $8 billion. That’s sort of where we are. Having said that, if you look at the page seven of our slide deck, we see there’s a massive amount of loans in the Senior Housing space that are rolling. That’s just a U.S. number. We’re also seeing opportunities in both the U.K. and Canada, similar ideas and there is not enough credit in the system to reify this.

So we think the opportunity set, obviously, in front of us is going to be very robust. Speaking of pipeline right now, I want to reiterate the comment that I have made in my prepared remarks. We have never been this busy in Q1. As you understand, there is a seasonality of the deal business as well, right? People work really, really hard into the year end to close out the year and Q1 is usually very, sort of, you don’t see a lot of activity, activity starts to pick up, obviously, in Q2 and then that’s obviously translated into heavy second half. And that normal seasonality, we haven’t seen, and perhaps, because of the debt curve that we’re talking about, perhaps, it’s because of another thing that Nikhil mentioned, which is the interest caps that are coming up and regional banks were nowhere to be found, right?

So, in that context, I think, we’re going to have a record year again. But who knows? If we don’t see the opportunities to invest, we won’t. But the pipeline remains robust, it’s visible, it’s actionable and we can see massive amount of value creation coming through that.

Operator: Your next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead.

Shankh Mitra: Tayo?

Tayo Okusanya: Hello?

Shankh Mitra: Tayo, we can hear you. Hello?

Tayo Okusanya: Okay.

Shankh Mitra: Tayo, we can hear you.

Tayo Okusanya: Perfect. So, good morning, and then congrats on a great quarter and a great outlook. On the regulatory front, again, in the past few weeks or so, there’s been some discussion. The House was kind of doing some hearings on Senior Housing and some concerns around maybe ultimately you also see some minimum staffing rules in Senior Housing. Just kind of curious what you’re hearing on your end, how you kind of see that evolving over time and what that could mean for profitability for Senior Housing operators.

John Burkart: Yeah. Thanks, Tayo. Obviously, we’re very aware of the conversations taking place on the regulatory side. I think something that’s consistent with how we’ve talked about this in the past is, this business, the Senior Housing side, we almost entirely play in a private pay business where the delivery of a high quality product and reputation in the market is the most important driver of your business on a go-forward basis. And so, I think, there’s areas of the healthcare world where that’s not the same and you’ve got more of a captive demand audience and there’s more concern over how you may run a business. But on the Senior Housing side, what we know very well, both the good and the bad, is that the business is entirely driven by reputation.

So, it continues to be the focus of ours is that, whether it’s the staffing levels, the level of care, the quality of the employees, they are what drives the business day in, day out and it’s why we spend so much time focusing on creating these sustainable models for property level.

Operator: Your next question comes from Jim Kammert with Evercore. Please go ahead.

Jim Kammert: Good morning. Thank you. Just tying some of the previous questions together, if I could, thinking about Affinity, those are pretty attractive margins, and obviously, they’re very savvy operators and then you tie together the opportunity set in terms of maturing loans on page seven of your deck. Are there other wellness or active adult type opportunities within that set of the $16 billion or so debt maturities, thinking about your overall margin implications for your portfolio as it changes?

Shankh Mitra: That — I believe that the Senior Housing loan situation we’re talking about is the traditional Senior Housing product. You can, for some lender, can sort of define this as multifamily, some can Senior Housing. So, there’s no way to specifically know. We play into the mid-market segment of that active adult, the wellness housing segment. You think about there are four large players in that space that we know of is that there are others, but the four major ones that we know of, Clover, Calamar, Sparrow and Affinity, and all four of them are existing Welltower partners today. As I have mentioned before, I believe in going deep, not going broad. If we find more opportunities, we will obviously see how that stacks up against our growth potentials, et cetera, but we are definitely focused on growing our business.

And I think you would say starting this business six years ago to about 25,000 units today, we’re doing a pretty good job of it. But growth for growth’s sake is something that I just can’t get my head around. Our job is to create long-term shareholder value, compounding on a partial basis what we’re after. So, we’ll see if we can do it, but I will be optimistic that wellness housing over a period of time will become a very significant portion of Welltower portfolio.

Operator: Your next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt: Yeah. Thank you. Shankh, just kind of touching again on the investment pipeline and all the factors you’ve laid out today of — and previously as to why that opportunity continues to expand. I guess I’m curious how big the investment pipeline you see today is sort of fee simple real estate deals versus the credit opportunities and how much of that expansion that you’ve seen in the investment pipeline more recently is a function of the credit opportunity side versus…