WELLTOWER INC. (WELL) Q2 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Welltower Second Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q&A session. Press star then the number 1 on your telephone keypad. And if you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Matthew Grant McQueen, Chief Legal Officer and General Counsel. Matthew, please go ahead.

Thank you, and good morning. As a reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. And with that, I will hand the call over to Shankh for a few remarks.

Thank you, Matthew, and good morning, everyone. I will review business trends, our capital allocation priorities and the team will follow the usual cadence. I am pleased to report a record quarter for our company as the end-market demand for our needs-based senior housing business remains resilient, despite continued macroeconomic and geopolitical uncertainty. The uncorrelated nature of demand growth combined with the mix shift of our portfolio resulted in 25% year-over-year increase in per-share FFO, one of the highest levels achieved in our history. As Tim would describe shortly, our strong start to 2026 and increased confidence in the back half of the year enabled us to increase the midpoint of our full-year FFO guidance by $0.12 to $6.40 per share. Notably, our second-quarter bottom-line growth would have been even stronger absent nearly a billion dollars of dispositions during the quarter, as well as more than $11 billion over the past year. Our maniacal focus remains on compounding per-share growth well into the future for existing owners, and incurring near-term dilution from $3.6 billion of dispositions completed year to date is a trade-off we will gladly make. Remember, every decision we make is evaluated obsessively through an opportunity-cost lens to extend the duration of our growth curve. The trade-offs we made last year vis-à-vis the sale of our outpatient medical portfolio and concurrent redeployment of proceeds within senior housing are clearly being reflected across our P&L. This includes revenue and adjusted EBITDA growth this quarter, which increased 39% and 36%, respectively. At the same time, we maintained an underlevered balance sheet and continue to invest heavily in operations and technology. Turning to operating results, we are pleased with our second-quarter performance, particularly when weighed against an economic backdrop fraught with uncertainty. Organic revenue growth of 9.2% was driven by another quarter of strong occupancy gains and healthy pricing power. Same-store occupancy increased 330 basis points year-over-year, which follows a 420 basis-point increase in the second quarter of last year. Our sequential spot occupancy growth in the quarter was 100 basis points, reflecting a strong start to the summer leasing season versus 80 basis points in Q2 of last year. We also continue to be pleased with the pricing power that our operating partners are achieving, with RevPOR, or unit revenue, increasing 5.2% during the quarter relative to 4.9% achieved in Q2 of last year. We believe this reflects two powerful dynamics. First, capacity in the system continues to shrink with a strong percent of our portfolio rapidly crossing 90% and 95% occupancy thresholds, creating additional pricing power. This is not solely a supply-demand story, though. We serve the wealthiest of age cohorts in history, with a significant concentration of wealth held by the baby boomer generation. This cohort increasingly prioritizes exceptional experiences and high-quality amenities and service, particularly later in life. This is also a highly discerning customer base that expects the best and is willing to pay for it. Our operators and their on-site teams work relentlessly every day to deliver that exceptional and differentiated experience. Ultimately, we believe the combination of supply constraint and a highly affluent need-based customer will continue to support healthy rate growth for many quarters and years to come. It is also worth highlighting that RevPOR growth continues to meaningfully outpace the growth of ExpPOR, or unit expenses, which resulted in another strong quarter of operating margin expansion of 300 basis points to over 32%, surpassing pre-COVID levels. We believe that meaningful margin upside remains for the portfolio driven by operating leverage inherent in our high-fixed-cost business, coupled with structural changes being effectuated by the Welltower Business System. Turning to capital allocation. Transaction activity across the senior housing space has picked up in recent quarters, but our ability to execute on highly attractive investments in the U.S., U.K., and Canada has not diminished. In fact, the pace of activity has picked up meaningfully as a result of geopolitical uncertainty coupled with a spike in interest rates. Even after a record level of investment activity in 2025, we have already completed or are under contract to close on approximately $15.5 billion of investments this year. The vast majority of these opportunities are off-market in nature, with sellers coming to us first, knowing our reputation as a fair counterparty and our ability to provide certainty and close quickly. This is particularly important given the recent rise in interest rates and growing uncertainty with respect to the direction of the economy. Our investment teams remain busy as ever, and I suspect that will be the same in the fall and into year-end. Not only does our investment pipeline remain robust, visible, and actionable, but our conviction in deploying capital is enhanced by our ability to meaningfully increase cash flow post-acquisition through transitioning assets to one of our best-in-class operators, and the implementation of the Welltower Business System. Despite this confidence, make no mistake that we remain exceptionally disciplined in deploying our shareholders' precious capital. We will not compromise our standards for asset quality, management contract structure, or a host of other criteria embedded in our investment process in pursuit of near-term accretion or overall size. Our goal is simply and only per-share growth. While we almost invariably remain the first call from sellers, we have passed on tens of billions of dollars of transactions this year alone which did not meet our stringent criteria for quality, price, acuity, future growth, and contract structure. At the risk of sounding like a broken record, this is not a spread-investing business — at least not for a product-obsessed operating powerhouse like us. I cannot speak for the shadow banks in our space, who only understand the spread-investing language and are perhaps particularly impressionable by silver-tongued investment bankers. Lastly, we are delighted to have announced an increase in our quarterly dividend by 15% to $0.85 per share. This marks the third consecutive year in which the board has elected to raise our dividend and marks a step-function higher from the previous increases. This increased size of the dividend reflects the board's continued confidence in the growth trajectory of the business and health of our balance sheet. At the same time, our free cash flow generation continues to grow rapidly, providing us with greater flexibility to allocate capital in ways to maximize shareholder value and extend the duration of our per-share growth. With that, I will pass it over to John.

Thank you, and good morning. The second quarter not only marks another period of substantial growth for the business, but also continued progress on Welltower Business System initiatives, which I will get into shortly. As Shankh mentioned, we reported another quarter of stellar results, with the company firing on all cylinders. Total portfolio same-store NOI increased 15.5% year-over-year, marking the second-highest level in our company's recorded history. As we discussed last quarter, the portfolio is growing at a meaningfully faster pace driven primarily by the continued mix shift toward senior housing operating portfolio, which now contributes approximately 70% of our total NOI. Importantly, senior housing remains largely insulated from the various cyclical and secular pressures affecting many sectors across corporate America. The business continues to perform at a high level, resulting in our 15th consecutive quarter where NOI growth exceeded 20%. Top-line growth remained strong, supported by another quarter of 330 basis points of occupancy growth and 5.2% RevPOR growth. We are pleased to report that expense pressures remain subdued with year-over-year growth in ExpPOR, or unit expense, of just 0.7%. This is largely a function of scaling benefits received from the rapid increase in occupancy across the portfolio. With the properties fully staffed and with continued normalization of wages, compensation per occupied room came in at just 0.8%, one of the lowest levels in our recorded history. As a result, we achieved flow-through margins of 65%, a continued improvement from prior years. The combination of healthy RevPOR growth and constrained ExpPOR growth drove another 300 basis points of year-over-year margin expansion during the quarter. As Shankh mentioned, we believe significant margin upside remains given the inherent operating leverage in our business combined with the competitive advantages we are building through the Welltower Business System. One of the most important ways in which we are expanding our moat is by attracting exceptional talent from a broad range of industries. The tech squad represents an expansion of the tech team we introduced last year, tasked with accelerating the reimagination of our technology ecosystem, including initiatives related to data science, information technology, and innovation. Their objectives feed into our broader companywide mission to dramatically improve the customer and employee experience and provide a fantastic value proposition for our residents and their families. Our goal has been to attract the highest-caliber professionals with tech or tech-adjacent backgrounds to execute on this vision. We will continue to allocate significant resources and talent as we continue to deploy WBS across our portfolio. We have already seen encouraging early results across the properties where WBS has been deployed. Operators are refining their site labor model enabled by WBS automating previously paper-based back-office workflows, allowing community-level employees to reinvest their time savings into improving the resident experience. Overall, WBS is beginning to result in meaningful improvements in cash flow. We believe expanding the platform across the portfolio will further extend the duration of our growth. To sum it up, it was another strong quarter for the company. We take nothing for granted and remain relentlessly focused on every operational detail, not simply to produce strong results this quarter or this year, but to build an organization capable of sustaining exceptional performance for years to come. That requires a culture of continuous improvement, a willingness to upend the status quo, and an unwavering commitment to execution and operational excellence. Finally, I would like to thank the Welltower team, our exceptional operating partners, and the dedicated, caring community employees for their tireless efforts and for embracing this journey alongside us. Their dedication is what makes these results possible. With that, I will pass it to Nikhil.

Thanks, John, and good morning, everyone. Since our last call, the macroeconomic and geopolitical environment has remained highly fluid. The Middle East war has seemingly been both on and off, and markets have repeatedly moved between expectations of de-escalation. Globally, central banks such as the ECB and BOJ have recently tightened their policy rates, while in the U.S., the 30-year Treasury has reached levels not seen since before the global financial crisis. The Federal Reserve has adopted an increasingly hawkish posture as inflationary pressures have persisted. In an environment like this, the margin for error narrows. Asset quality and basis become the primary sources of downside protection, and the ability to distinguish between genuine value and a compelling narrative becomes increasingly important. Our competitive advantages continue to show through. For counterparties, we remain the preferred and most reliable buyer, one with the credibility and track record to provide certainty, regardless of what is happening in the capital markets. Our advantage lies in the ability to identify value at a highly granular level, underwrite with conviction, and move with unparalleled speed when the facts support doing so. Since our last call, our investment activity has increased by another $5 billion and now totals $15.5 billion for the year. During the second quarter, we completed more than 30 transactions totaling $6.2 billion, with a median transaction size of $46 million, and approximately 96% of our second-quarter activity was sourced off-market. Through these transactions, we acquired 138 communities across the three countries where we do business. Through the end of the second quarter, we had completed nearly $9.5 billion of investments. The remaining $6 billion of announced activity consists primarily of newer-vintage senior housing assets across 26 transactions in the United States, Canada, and the United Kingdom. These assets have an average age of six years and in-place occupancy of roughly 75%, providing us with attractive physical plants and meaningful embedded opportunities to improve operating performance. These assets were acquired at an approximate 20% discount to replacement cost. Importantly, approximately 20% of these transactions were sourced directly by our key growth operating partners through relationships in their local markets. Many of these partners have elected to receive their incentive compensation in Welltower stock. As a result, their alignment with our owners is not theoretical — they participate directly in the value they help create. That alignment is producing tangible results. We operate as one team, developing relationships, identifying opportunities, and improving the business together. These network effects strengthen our platform and make the entire ecosystem more valuable. The flywheel is humming. Our confidence in these investments is grounded in what we are already seeing across our portfolio. As the Welltower Business System continues to mature, our ability to increase cash flow following an acquisition has become both more significant and more repeatable. That distinction matters. Spread investing and cost-of-capital arbitrage are not value creation, nor are they durable investment strategies. Our focus is different. We seek to acquire assets at a fair price based on a reasonable view of their prospective cash flows, while retaining for our owners the upside we believe our platform can create beyond that. I would also like to spend a moment on how we define success. In parts of the market today, simply completing a transaction appears to be treated as an accomplishment. A deal is announced, champagne is popped, and victory is declared. Attention quickly turns to the next opportunity. We see it differently. Closing an acquisition is not the culmination of the work; it is the moment the work begins. There is nothing inherently worthy of celebration about winning an auction or signing a purchase agreement. After all, any fool can write a check. The more difficult task is determining whether the prospective returns adequately compensate our owners for the risks being assumed and having the discipline to walk away when they do not. At times, that means watching others claim victory in processes in which we chose not to participate. We are comfortable with that. To us, success is not simply buying something. Success is establishing a thoughtful business plan, executing against it, achieving the cash flows we underwrote, and continuing to push for outcomes that exceed our original expectations. It means never becoming satisfied with current performance. It means improving the experience of residents, creating a better environment for employees, and generating durable value for our owners. The acquisition itself earns no credit — the results that follow are what matters. In an uncertain environment, the temptation to confuse activity with accomplishment becomes even greater. Our focus remains unchanged: pursue the truth rather than the narrative, maintain a margin for error, and deploy capital only when the prospective returns justify the risks through the arc of time. Our objective is not to win the announcement; it is to win the outcome. With that, I will turn the call over to Timothy.

Thank you, Nikhil. My comments today will focus on our second-quarter 2026 results, the performance of our triple-net investment segments, our capital activity, our balance sheet and liquidity update, and finally, an update to our full-year 2026 outlook. Welltower reported second-quarter net income attributable to common stockholders of $0.61 per diluted share, and normalized funds from operations of $1.60 per diluted share, representing approximately 25% year-over-year growth. We also reported year-over-year total-portfolio same-store NOI growth of 15.5%, driven by 20.5% growth in our SHOP portfolio. Turning to the performance of our triple-net properties in the quarter: in our senior housing triple-net portfolio, same-store NOI increased 5.2% year-over-year and trailing 12-month EBITDAR coverage was 1.23x. Next, same-store NOI in our long-term post-acute portfolio grew 2.9% year-over-year, and trailing 12-month EBITDAR coverage was 1.3x. Moving on to capital activity. During the second quarter, we raised $3.9 billion through share issuance, OP unit funding, and capital recycling. When combined with internally generated cash flow, this allowed us to repay nearly $1 billion of senior unsecured notes and fund $6.3 billion of gross investment activity, while ending the quarter with net debt to adjusted EBITDA of 2.99x, in line with a year ago. During the quarter, S&P revised our outlook on our A- credit rating to positive following Moody's decision earlier this year to revise the outlook on our A3 rating to positive. Together, these actions further validate what we believe has become one of Welltower's growing strategic advantages: differentiated access to capital supported by an exceptional all-weather balance sheet. We ended the second quarter with $2.1 billion of cash on hand, which together with recent capital activity and $1.1 billion of incremental dispositions, positions us to fund approximately $6 billion of incremental investment activity, the majority of which we expect to close later in the year. Subsequent to quarter-end, we successfully returned to the Canadian unsecured debt market for the first time since 2019, issuing $1.15 billion of senior unsecured notes across two tranches at a blended coupon of 3.95%, extending the duration of our liability profile at attractive pricing. Taken together, this net investment activity and continued cash flow growth from the in-place portfolio are expected to result in near-end net debt-to-adjusted EBITDA of approximately 3x, in line with our prior expectations. Before turning to our guidance, I want to come back to a point I highlighted last quarter around how the vertical integration of our model and the portfolio transformation underpinning Welltower 3.0 is creating a powerful compounding network effect that is only beginning to unfold. While our updated outlook reflects another quarter of strong execution, we continue to believe the more important story is the structural evolution of the business. As we have increased our concentration in senior housing operating assets, we have fundamentally changed the earnings profile of the enterprise. One example of this is the operating leverage now emerging within the portfolio. For the second consecutive quarter, our SHOP portfolio generated flow-through margins in the mid-60% range. As occupancy continues to trend higher, unit economics should improve further as a higher proportion of incremental revenue is translated to bottom-line NOI. This fundamental strength is reflected in our guidance. We began the year with an outlook that already reflected a substantial amount of visible year-over-year earnings growth driven by the continued evolution of our portfolio toward higher-growth senior housing operating assets. Two quarters later, we are raising that outlook for the second consecutive quarter, reinforcing both the strength of our underlying portfolio and the continued momentum of the business. Moving on to guidance. Last night, we updated our full-year 2026 outlook for net income attributable to common stockholders to $3.11 to $3.19 per diluted share and normalized FFO to $6.36 to $6.44 per diluted share, or $6.40 at the midpoint. Our normalized FFO guidance represents a $0.12 increase at the midpoint from our prior normalized FFO range. This increase is composed of a $0.03 increase from our senior housing operating NOI, a $0.08 increase from investment and financing activity, and a $0.01 increase from better-than-expected income tax and other. Our updated outlook assumes total-portfolio year-over-year same-store NOI growth of 13.75% to 16%, driven by subsegment growth of outpatient medical 2% to 3%; long-term post-acute 2% to 3%; senior housing, net, 3.5% to 4.5%; and finally, senior housing operating 18.5% to 21.5%, which is driven by the following midpoints in their respective ranges: revenue growth of 9.3%, comprised of RevPOR growth of 5.1% and year-over-year occupancy growth of 350 basis points, and expense growth of 5%, equating to ExpPOR growth of approximately 1%. With that, I will hand the call back over to Shankh.

Thanks, Timothy. I want to make two general observations before opening the call up for questions. First, exactly two years ago on our July 2024 earnings call, we laid out our macro view of the world, suggesting that the powerful secular tailwinds experienced over the last 40 years which resulted in subdued levels of inflation and a historic bond bull market could diminish or yet turn into headwinds. This includes shifting from a period of globalization to deglobalization, from an abundant labor force driven by baby boomers in their prime working years to a scarcity of labor due to a rapidly aging population. We reflected on increased deficit spending across the world and growing international conflicts after a period of relative peace and cooperation. We specifically called out structural changes in Japan, the global anchor of low interest rates, which has been experiencing the highest level of inflation in decades. While the 10-year Treasury has increased over 100 basis points in the past two years, we believe we are still in the early innings of the structural forces playing out. How has this been reflected at our company? Through both transformation of capital and resource allocation. First, we executed a massive portfolio rotation from bond proxies such as outpatient medical into higher-growth senior living communities where we believe we can meaningfully outperform inflation and where we can effectuate positive divergences in outcomes through our competitive advantages. And second, through a substantial resource reallocation to increase talent density in operations and technology. Over the past few years, we have recruited incredibly high-caliber technology and operating talent from some of the most sophisticated and innovative firms in corporate America. The acceleration of this trend during the past six months can be seen on page 13 of our business update presentation. This is a testament to our transformation from Welltower 2.0 — a capital allocator with strong asset management expertise — to Welltower 3.0, a customer-obsessed, operations- and technology-first company with a complementary disciplined capital allocation function. As a result, we do not achieve returns like spread-investing shadow banks whose currency is either interest compression or leverage. Instead, we create returns by driving cash flow the old-fashioned way in our pursuit of dogged, incremental, and continuous progress over a long arc of time. Finally, I want to provide an update on an important topic that I had anticipated discussing after we established the RIDEA 6.0 construct nine months ago, although I certainly did not expect it to become relevant this soon. As you might recall, many of our growth operating partners have elected to take their multiyear promoted interest in Welltower stock. The ultimate value of the wealth they create will not only be a function of their own achieved results, but also perhaps turbocharged by their peers in other parts of the country or different countries. As I have sat down with many of these operating partners during the summer, I have heard unprompted more about the cooperation they are receiving from other Welltower operating partners than ever before. Imagine historically, for example, two operators working on a culinary initiative or digital marketing priority in isolation. Now you have other operators jumping in at the same time as a team and amplifying the outcome regardless of who started the project. Organizations spend an inordinate amount of time and resources to deconstruct intricate complexities. Together as partners, we are maniacally focused on capturing unrecognized simplicities that are hiding in plain sight, quickly resolving pain points for both customers and employees to consistently deliver a better experience. What started as a shared incentive is now turning into a shared dream and shared sacrifice. I have never seen and felt this level of deserved trust among the ecosystem with true unity of purpose and mirrored reciprocation. I want to thank my operating partners who are pushing us and pushing each other every day to get better. As the old adage says, if you want to go fast, go alone. If you want to go far, go together. Life is more fruitful and fulfilling if we focus on growing the size of the pie versus the share of the pie. This unprecedented level of cooperation is reflective of a win-additive-sum mentality as opposed to the narrow zero-sum mentality which is prevalent in our industry. I am confident that we are gathering tremendous momentum at the beginning of a leaping Red Queen effect that will shape our shared future together and transform this industry. With that, I will open the call up for questions.

Thank you. If you would like to ask a question, please press star one. We also ask that you limit yourself to one question. Your first question comes from Ronald Kamden with Morgan Stanley. Please go ahead.

Great. Good morning, everyone. You mentioned the term 'shadow banks' twice in your opening comments. We were wondering if you could elaborate on fundamental differences between how you view your business and those players. Also, a quick update on the 95%-plus portion of your portfolio that you referenced last quarter — how are those assets doing this quarter? Thanks.

Thank you, Ronald. If you think about what a traditional bank does, it takes deposits, has a cost of funds, and lends money on a spread over that cost. If you look at the health care REIT industry, which is why this industry started, many were focused on triple-nets and that was all they did. Even as the industry shifted from credit investing to equity investing, that mentality of spread investing has not changed at some firms. They see the industry as a zero-sum financing game rather than an additive-sum where we can create value together. That is not what we do. If you think about the transformation of this company — from a spread-investing vehicle to a true capital allocation powerhouse and now to an operating- and technology-first company — our entire focus is to enhance resident and customer experience to create value, with a complementary capital allocation side. Every day we think about how to create value by enhancing what we own, which is to increase customer and resident experience. That is the key difference and that percolates through our culture and our ecosystem. On the second question regarding the 95%-plus of the portfolio, we are seeing higher RevPOR growth, over 6%, and NOI growth in excess of 20% year-over-year.

Your next question comes from the line of John Kilichowski with Wells Fargo. Please go ahead.

Good morning. Nikhil, you made helpful comments in the opening remarks regarding the composition of sellers. Could you dig into what constitutes the rest of that pie of sellers and what is driving this acceleration in transaction activity? Also, why are sellers coming to Welltower when there may be a higher bidder?

John, first and foremost, practically 96% of our transactions this quarter were off-market. Our model has changed. With the tools our data science team provides, we have a very granular view of assets that are out there — who owns them and their expected performance. We then proactively pursue those assets rather than wait for them to come to our desk. In some cases, these are family businesses where the generation that created the business is not looking to hand it off to the next generation. These conversations can take years before they come together. There are also local owners who own a handful of assets; we work with our operating partners to identify who has the best relationship to unlock those opportunities. It's classic business development to pursue specific assets and portfolios we've been tracking and have a strong view on performance. That is how we pursue these opportunities.

I cannot overemphasize what Nikhil said. There is a tremendous amount of generational transfer happening across society and in our industry. It has been a tough five to six years in this industry, and now cash flow has returned toward pre-COVID levels. Many owners are ready to move on into retirement or other pursuits, and that is driving activity across all three countries.

Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Thanks so much. Shankh, thinking about durability and longer-term cash flow from the perspective of your operators, can you give more color on the evolution of operators — those that got you here today versus those that will get you where you want to be in five years? You referenced that 95% plus is still growing 20% — how do you think about operator evolution to sustain that durability?

Thank you, Vikram. First, let me be clear: our goal is per-share earnings and cash flow growth, not a myopic target for same-store NOI or occupancy. Everything else is an input to that outcome. Performance and a pursuit of excellence are extraordinarily important, but culture is more important. We look for operating partners who share a long-term focus on taking care of residents and employees, an obsessive view on raising standards every day, and a win-win mentality. We are increasingly concentrating our portfolio with partners who have that additive-sum mentality. This is a very hard business that requires stoicism through ups and downs, and we are seeking people who share that mindset of shared sacrifice and shared dreams. That culture alignment is critical to sustaining durable performance.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead.

Good morning, and congrats on an excellent quarter. In the business plan presentation, you made a strong point around lack of supply and factors leading to constrained supply, including high construction cost. You have a fair amount of development commitments, nearly $1 billion, at attractive yields over 10%. How are you finding these opportunities that generate good returns when the industry generally struggles to develop at attractive yields?

Omotayo, the majority of the development commitments you see relate to the first buckets of activity and some organic expansion opportunities in our portfolio, but the majority ties to certain acquisitions, such as Amica or Barchester. For example, the Amica team worked relentlessly for eight to ten years to assemble land in places where land is scarce, creating assemblages in difficult markets. We will do development for exceptional product in exceptional locations — replaceable communities where supply is constrained, such as Brookline or Cupertino or Palm Beach. At the same time, we have taken impairments and given up the pursuit of several land opportunities that we worked on for years when economics did not make sense. The point is that development economics must work on an untrended basis relative to construction cost. In a world where construction costs are rising rapidly, few things work out. If the economics work, we will engage; if they do not, we will not. Development is selectively pursued where it is justified.

Your next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Thanks. I want to ask about the non same-store pool within the senior housing operating segment. About 30% of that segment's NOI is non same-store, which appears to have lower occupancy and lower margin. How have those assets been performing, and how should we think about growth there over the next year versus the same-store pool, given the greater occupancy upside and margin upside?

Let me start and then Timothy can add color. Given the volume of acquisitions over the last 12 to 15 months, it's expected that non same-store assets have lower occupancy and therefore more occupancy upside and margin upside. We mentioned acquisitions at roughly 75% occupancy. At that level, communities are not making much money; you start making money after 80%, and margins expand dramatically in the high-80s to low-90s. As WBS is applied and operators implement initiatives, these assets are moving well from NOI standpoint. Non same-store is primarily an occupancy story; same-store is moving from occupancy to rate. Think of it as a manufacturing process: you bring assets in, improve occupancy, and then pricing power kicks in.

To add, our overall same-store portfolio is approaching 89.5% occupancy. The non same-store portfolio is about 550 basis points lower in occupancy. This has been a consistent strategy: our pipeline today is roughly 75% occupied on average, and we expect to close additional assets in the back half of the year. The manufacturing-line analogy applies: continue to bring in assets, deploy WBS, and we expect continued good results as these assets mature.

Your next question comes from the line of James Cameron with Evercore. Please go ahead.

Welltower has an extensive pool of SHOP opportunities. What is your current thinking regarding the total addressable market and financial opportunity for Welltower in active adult?

Jim, active adult is a space we like. The wellness housing portfolio has compounded very strongly, high single digits to low double digits, for a long period. From our initial transaction in 2018 through COVID and subsequent market dislocations, that asset class has compounded meaningfully. We are the largest owner in that industry, we remain active, and we like a specific price point in that asset class. It is a cash-flow compounder for us but it is unlikely to be a scaled opportunity compared with our core SHOP business. We'll continue to grow selectively in active adult.

Your next question comes from the line of Farrell Granath with Bank of America. Please go ahead.

Good morning. You commented about diversified sources of capital. We've seen unique JV structures announced by peers, especially partnerships with private equity for capital. How much appetite do you have for that going forward, especially as you consider this level of investment opportunity?

Farrell, I am not the best person to comment on the evolving structures, but from our prior engagement and understanding, many of those arrangements are debt-like structures rather than true equity JVs. When I previously engaged in those conversations, my understanding was that the structures effectively represented debt — not hybrid equity — and had asset-value markers as the first defense and the sponsor as the second defense. Given our access to capital and balance-sheet strength, and our ability to issue bonds at attractive rates today, we would not pursue structures that are effectively debt with a different label. If the market has evolved, I'm not currently best positioned to comment, but historically, our view has been that those arrangements are debt-centric.

Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good morning. In your June 1 press release, you noted that unlevered returns on acquisitions are comparable or higher than returns achieved on prior acquisitions by leveraging Welltower Business System. How do we reconcile that with the acquisition yields in the quarter of 6%?

Michael, the reported yields are going-in numbers based on the seller's cash flow at acquisition. The change is our confidence in the end-state cash flows driven by WBS. The underwriting now incorporates the improvement trajectory from going-in to stabilized cash flows, and that transition generates the total IRR. So while going-in yields may be low, the terminal yields and overall IRR expectations are materially higher given the expected cash-flow improvements.

Michael, if the going-in yields were zero or negative and we still buy them, that's fine — what matters to us is the end state. Buying 75%-occupied assets will produce low going-in yields, and we are comfortable with that as total-return investors rather than yield-driven, spread investors.

Your next question comes from the line of Michael Stroyeck with Green Street. Please go ahead.

Shankh, can you talk about pricing power in the U.K. relative to the U.S.? RevPOR growth has decelerated a bit the past couple quarters in the same-store pool there. What is driving that deceleration and how do you view long-term rent growth potential in the U.K. versus the U.S.?

Michael, a lot of the quarter-to-quarter differences are due to asset-mix change: we have acquired many U.K. assets in the last two years, so optical shifts occur. Economically, occupancy in the U.K. is roughly 300 basis points lower than in the U.S., while occupancy in Canada is about 300 basis points higher than the U.S. Where occupancy is higher, you see stronger RevPOR growth; where occupancy is lower, the current focus is on bringing occupancy up, which results in lower short-term RevPOR growth. I would not worry about quarter-to-quarter optical moves; the dynamics you observed reflect occupancy differentials and the mix of assets currently in or out of same-store.

Your next question comes from the line of Juan Sanabria with BMO. Please go ahead.

Good morning. Shankh, you made comments about the aging of the workforce and referenced Japan. How do you expect ExpPOR to trend, particularly as we may see decreases in immigration and available labor?

Juan, regarding that specific issue, the impact has been minimal across the majority of our operating partners. My comment was more about a societal change: a diminishing labor force and changes in family caregiving as populations age. That is one reason we focus at the high end of senior living — product, price point, and service level optimization. At the high price point and higher-acuity levels where customers prioritize service and experience, we believe pricing power will help offset long-term labor cost increases. Cyclically, labor costs are moderating now, but long-term labor availability is a concern and one reason we concentrate on products where customers are willing to pay for higher-quality service.

Your next question comes from the line of Seth Bergey with Citigroup. Please go ahead.

Hi. Shankh, you spoke about collaboration with operators and capturing unrecognized simplicities. What does the operator-performance gap look like between your strongest and weakest operators running on WBS? How much does that gap narrow when a new operator comes onto the platform?

Seth, the spread in operator performance is large — there is no beta in this business. You can see NOI growth from near zero to 30% or 40% across operators. That's why returns in this business sit in the tails. Our portfolio size helps manage volatility, but WBS is not primarily about cost reduction or efficiency; it's about efficacy. We are focused on capturing every interaction between residents, caregivers, families, and employees in a timely and complete way. In human-intensive systems, cumbersome workflows and paper processes reduce quality and timeliness of information, which degrades outcomes. WBS is designed with operators for operators to increase efficacy — improving resident experience and enabling staff to do their jobs better. There's a long way to go, but that is our focus rather than only narrowing a simple performance spread.

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Thanks. Can you give an update on the fund business? How much of Seniors Housing Fund I has been deployed and where does Seniors Housing Debt Fund I stand?

Mike, we provided an extensive update last quarter. The senior housing equity fund was fully committed as of last quarter. The debt fund we raised was a small, discrete, targeted fund of about $750 million, and that is practically fully deployed as well.

Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Please go ahead.

Good morning. On the demand side, thinking about the silent generation and baby boomers, what percentage of those cohorts can afford your product? And what is the timeline for those generations to support continued outsized organic growth? Essentially, is there a finite runway and when might the volume of demand start to decline?

Richard, please see Slide 10 in our business update, which shows the concentration of wealth in baby boomers as they age into our customer base. The silent generation did not have the same wealth profile, which impacted demand for previous cycles. Baby boomers are the wealthiest generation in history, roughly controlling about $100 trillion of assets in the U.S., and similar dynamics exist in Canada and the U.K. They are willing to spend on themselves but are discerning and will pay only where they perceive value. We also updated Slide 27, which shows affordability has meaningfully improved because net worth growth has outpaced rent growth in the sector. I am optimistic about demand for at least the next 20 years given the demographics and wealth concentration in this cohort.

Your next question comes from the line of Michael Mueller with JPMorgan. Please go ahead.

Hi. For the portfolio you own today, how long should we expect it to take to fully implement WBS?

Are you referring to the portfolio we own today? The portfolio is expanding, so implementation timelines move as we acquire more assets.

If you consider we own roughly 2,500 assets today and our annual cadence has been about 240 to 250 assets historically, and this year we're on pace for 600 to 700 acquisitions, a reasonable way to think about it is another three years after today's portfolio to deploy WBS across a growing portfolio, recognizing the portfolio itself expands as we invest.

Right — given that cadence, call it another three years after today's portfolio, bearing in mind the portfolio is expanding as we execute on our strategy.

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Shankh, regarding labor, and tying that to WBS and operational efficiencies, are you getting to a point where FTE needs or labor-hour needs are less at certain occupancy levels or on a stabilized basis?

Austin, I'll frame it this way: certain roles in a community are required regardless of occupancy, so the business has substantial fixed costs. As occupancy expands, incremental revenue flows to the bottom line because of that fixed-cost structure. WBS is focused on decreasing friction points between residents, families, and employees so staff can do the job they signed up to do — to care for customers. Automation and systematization of administrative functions may reduce back-office friction, allowing staff to spend more time on resident care. Importantly, as WBS improves efficacy, we expect a portion of the benefit to be reinvested in community experience and a portion to enhance margin. It's a trade-off and a long-term process.

Your next question comes from the line of Richard Hightower with Barclays. Please go ahead.

Hi. I had a question on the under-contract pipeline staying at approximately 75% going-in occupancy for some time. Is there something structural about those assets where occupancy is materially lower than elsewhere in the industry, especially since you are acquiring high-quality assets?

No, Richard. That 75% is an average. The pipeline includes a mix of assets — some 90% occupied and some newly delivered assets that may be 10%–30% occupied. The average age is about six years with a median age of four, so there are many newer assets in lease-up bringing the average down.

A couple of other points: that 75% figure hasn't been fixed at a single number — some quarters it was in the low 80s. If there were structural issues across these assets, the overall portfolio occupancy and per-share cash-flow growth would not be where they are. The acquisitions were intentionally made at lower occupancies to create upside, and the overall operatings metrics demonstrate the success of that approach.

Your next question comes from the line of Wesley Golladay with Baird. Please go ahead.

Good morning. You discussed the wealthiest cohort seeking a more discerning customer experience. Are you seeing that same dynamic in the U.K. and Canada?

Absolutely. Across these three countries, post-World War II wealth creation — through stocks, housing, and other assets — means the baby-boomer generation controls a disproportionate share of consumer wealth. They are discerning customers across the U.S., U.K., and Canada. They know what they want and will pay for value. So it is more than a demand-supply question; it is about delivering superior experience and services to this customer base.

Your next question comes from the line of Dave Rodgers with Raymond James. Please go ahead.

You’ve framed a path to mid-30s margins pre-COVID as occupancy returned, but you seem ahead of that path today. Can you give additional detail around flow-through at different points in the portfolio and what components are performing better than anticipated that are contributing to this stronger outcome? Any updated thoughts on where margins can reach given where you are today?

Dave, Timothy highlighted flow-through margins in the mid-60% range for SHOP this quarter. As occupancy approaches the higher thresholds, flow-through increases because of the fixed-cost nature of the business. Our view on margin upside stems from the sustained deployment of WBS and the operating improvements from our partners. We started this journey several years ago and have seen encouraging results across the communities on WBS, though there's still a long way to go. Much of the incremental upside comes from a combination of improved occupancy, pricing power, and operational efficacy that WBS brings. We will continue to focus on execution and further rollouts to capture additional margin expansion.

And ladies and gentlemen, that does conclude our Q&A session and today's conference call. Thank you all for your participation and you may now disconnect.