Welltower (WELL) Q2 2026 earnings call transcript

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 Well Tower 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'll hand the call order to Sean for a few more minutes.

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. I'm 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 makeshift of our portfolio resulted in 25% year-over-year increase in partial FFO growth, one of the highest levels achieved in our history.

As Tim would describe shortly, our strong start to 2026, an 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 $1 billion of dispositions during the quarter, as well as more than $11 billion over past year.

Our maniacal focus remains on compounding our share growth well into the future for existing owners. And incurring near-term dilution from $3.6 billion of disposition 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. And the trade-offs we made last year vis-a-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 epider growth this quarter, which increased 39% and 36% respectively.

At the same time, we maintained an under-livered balance sheet and continued to invest heavily in operations and technology side of the house. 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 per increase in the second quarter of last year. And our sequential spot occupancy growth in the quarter was 100 basis points reflecting a strong start of the summer leasing season versus 80 basis points in Q2 of last year.

We also continued to be pleased with the pricing power that our operating partners are achieving with REPOR 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 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 baby boomer generation. This cohort increasingly prioritizes exceptional experiences and high quality amenities and surveys, particularly later in life.

This is also a highly discerning customer base that expects the best and willing to pay for it. Our operators and their own side 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 REPOR growth continues to meaningfully outpace the growth of export or unit expenses which resulted in another strong quarter of operating margin expansion of 300 basis points to over 32%. Surpassing pre-COVID levels. And 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 fituated by the system.

Turning to capital allocation, transaction activity across seniors housing space has picked up in recent quarters but our ability to execute on highly attractive investments in US, UK and Canada has not diminished. In fact, the base of activity has picked up meaningfully as a result of geopolitical uncertainty coupled with a spike in interest rate. Even after a record level of investment activity in 2025, we have already completed or under contract to close approximately 15 and a half billion dollars 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 at a lightning speed and close quickly as depicted on slide 15 of our business update presentation. This is particularly important given the recent rise in interest rate 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 case in fall and into the year end. Not only does our investment pipeline remains robust, visible and actionable but our conviction in deploying capital is enhanced by our ability to meaningfully increase cash flow post acquisition through transitioning access to one of our best in class operators and implementation of WBS.

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 host of other criteria which are embedded in our investment process in pursuit of near-term accretion or overall size. Our goal is simply and only partial growth and while we almost invariably remain the first call from sellers who 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 can't 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 85 cents 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 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 continued to grow rapidly providing us with greater flexibility to allocate capital in ways to maximize shareholder value and extend the duration of our far share growth.

With that, I will pass it over to John.

Thank you. Good morning. The second quarter not only marks another period of substantial growth for the business but also continued progress on well-tailored business system initiatives which I'll get into shortly.

As Sean 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 towards senior housing operating portfolio which now contributes approximately 70% of total NOI. Importantly, seniors' 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 in which NOI growth exceeded 20%. Top line growth remains strong, supported by another quarter of 330 basis points of occupancy growth and 5.2% rev poor growth. We're pleased to report that expense pressures remain subdued with year-over-year growth in X-4 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 and with the properties fully staffed and with continued normalization of wages, comp poor or 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. A combination of healthy rev poor growth and constrained expert growth drove another 300 basis points of year-over-year margin expansion during the quarter.

And as Shank mentioned, we believe that significant margin upside remains, given the inherent operating leverage in our business combined with the competitive advantages we are building through the well-toured business system. One of the most important ways in which we're expanding our moat is by attracting exceptional talent from a broad range of industries highlighted on slide 13 of our business update presentation.

The tech squad represents an expansion of the tech quad we introduced last year, tasked with accelerating the reimagination of our technology ecosystem, including all initiatives related to data science, information, technology and innovation. Their objectives feed into our broader company-wide mission to dramatically improve the customer and employee experience and provide a fantastic value proposition for our residents and their families.

In this light, 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've already seen encouraging early results across the properties where WBS has been deployed, including operators 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, and we believe that 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, but as you know, 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'd like to thank the Well Tower 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'll 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 escalation and 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, and 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 the 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 and better opportunities to improve operating performance.

These assets were acquired at a circa 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 well tower 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 well tower 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 in cost of capital arbitrage are not value creation, nor are there durable investment strategies.

Our focus is different. We seek to acquire assets at a fair price based on reasonable view of their respective 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, the champagne is popped, victory is declared, and attention quickly turns to the next opportunity. We see it differently.

Closing and 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'll turn the call over to Tim.

Thank you, Nikhil. My comments today will focus on our second quarter of 2026 results. The performance of our triple net investment segments, our capital activity, a balance sheet and liquidity update, and finally, an update to our full year 2026 outlook.

Well Tower reported second quarter net income attributable to common stockholders of 61 cents per looted share, and normalized funds operations of $1.60 per looted share, representing approximately 25% 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.

Now 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 in trailing 12-month EBITAR coverage was 1.23 times.

Next, same store NOI in our long-term post-acute portfolio grew 2.9% year over year, and trailing 12-month EBITAR coverage was 1.3 times.

Moving on to capital activity, during the second quarter, we raised $3.9 billion through share issuance, OP unit funding, and capital recycling, which, when combined with internally generated cash flow, allowed us to repay nearly $1 billion of a senior unsecured notes and fund $6.3 billion in gross investment activity, while ending the quarter with net debt to adjusted EBITAR of 2.99 times, in line with a year ago.

During the quarter, S&P revised our outlook on our A minus 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 well-towers 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, positioned us to fund approximately $6 billion of incremental investment activity, the majority of which we expected to close later in the year. Subsequent to quarter-end, we successfully returned 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 and attractive pricing.

Taking together, this net investment activity and continued cash flow growth from in-place portfolio are expected to result in year-end net debt to adjusted EBITAR approximately three times 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 well-tower 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, union economics should improve further as a higher proportion of incremental revenue is translated to bottom line net operating income. 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 were 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 12 cent increase at the midpoint from our prior normalized FFO range. This increase is composed of a 3 cent increase from our senior housing operating on OI, an 8 cent increase from investment and financing activity, and a 1 cent increase from better than expected income tax and other. Our updated outlook assumes total portfolio year-over-year same store in OI growth of 13.75 percent to 16 percent, driven by sub-segment growth of outpatient medical, 2 to 3 percent, long-term post-acute, 2 to 3 percent, senior housing triple net, 3.5 percent to 4.5 percent, and finally, senior housing operating 18.5 to 21.5 percent, which is driven by the following midpoints of their respective ranges.

Revenue growth of 9.3 percent, comprised of rev poor growth of 5.1 percent, and year-over-year occupancy growth of 350 basis points, an expense growth of 5 percent, equating the export growth of approximately 1 percent. And with that, I'll hand the call back over to Sean.

Thanks, Tim. I want to make two general observations before opening the call up for questions. First, exactly two years ago, on a 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 will market, could diminish, or yet, turn into headwinds. This includes shifting from a period of globalization to de-globalization, from an abundant labor force driven by baby boomers in the 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.

And 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 past two years, we believe we're 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 out portion medical, into higher growth senior living communities where we believe we can meaningfully outperform inflation and where we can effectuate positive divergences and 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 farms in corporate America. The acceleration of this trend during past six months can be seen on page 13 of our business update presentation. This is a testament to our transformation from World Tower 2.0, a capital allocator with strong asset management expertise, to World Tower 3.0, a customer obsessed operations and technology first company with a complementary disciplined capital allocation function.

As a result, we do not receive returns like spread investing shadow banks whose currencies either interest rate compression or leverage. Instead, we create returns through 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 eventually discussing after we established the idea 6.0 construct nine months ago. Although, I certainly didn't expect it to become relevant this soon. As you might recall, many of our growth operating partners have elected to take their multi-year promoted interest in World Tower stock. The ultimate value of the wealth they create will not only be a function of their own achieve results, but also perhaps turbocharged by their peers in other parts of the country or different countries. As I've sat down with many of these operating partners during the summer, I have heard unprompted more about the cooperation they're receiving from other World Tower operating partners than ever before.

Imagine historically, for example, Cogeer and World Tower would be working on culinary initiative or StoryPoint and World Tower would be working together on a digital marketing priority. Now you have other operators such as QSL, Amica, KREUK, are jumping in at the same time as a team and amplifying the outcome regardless of who started the project. Organizations spent an inordinate amount of time and resources to deconstruct intricate complexities. However, together as partners, we're 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 deserve trust amongst the ecosystem with true unity of purpose and middle education.

I want to thank my operating partners who are pushing us and pushing each other every day to get better. As the old edit 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 a reflective of a win-win additive mentality as opposed to a 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 imagine effect that will shape our shared future together and transform this industry.

With that, I'll open the call up for questions.

Thank you. So if you think about what a bank does, it takes deposit, it has a cost of funds, and it lends money on a spread in on that cost of fund. If you look at health care, reach industry, which is why this industry started, they're all in triple nets. And that's all they did. And despite this industry has gone from a credit investing to an equity investing, that mentality of spread investing has not changed. It sees the industry as a zero sum financing game, rather than an adhesive sum where we can create value together. That's not what we do. If you think about the transformation of this company, what we have been trying to do from a spread investing vehicle, which was before us, to a true capital allocation powerhouse to finally change into an operating and technology first company, whose entire focus is to enhance resident and customer experience to create value with the complimentary capital allocation side.

That's not what we're not saying. That's not what we do. We're saying our first, every day we wake up to think about how to create value by enhancing what we own, which is to increase customer and resident experience. That's the key difference, right? Hence, the question of what Nikhil sort of talked about, we define our success differently. And that's the difference, right?

Second, and that's just parkourless through our culture, parkourless through our entire ecosystem. So that sort of is a different mentality on how we think about the business and how we allocate both capital and resources, right? Very, very important part. The second question, the 95% plus of the portfolio had obviously higher report growth, six plus percent. And it was also a higher and wide growth of 20 plus percent. Hope that answers your question.

Yeah, I think John, first and foremost, you know, if you look at how many transactions we did and how I quantified, you know, that practically 96 percent of those transactions are off market, you know, the model has been changed, right? I mean, sitting here back by all the tools that our data science team has provided to us, we have a very granular view of all the assets that are out there who owns them and what the expected performance of those assets is. And so then we turn the model around and go pursue those assets rather than wait for those assets to come to our market. So in some cases, these are family businesses where, you know, the one generation that created the business is not looking to hand it off to the next generation as they have other priorities.

And so we go and lock those opportunities. And at times, you know, those conversations take years to eventually come together. And then there's, you know, local owners who own a handful of assets where, you know, we get together with our operating partners and say, who has the best relationship? Who has the ability to go and lock these opportunities? And it's just old school classic business development to go pursue specific assets, specific portfolios that we've been tracking and have a strong view of what the performance can be. So that's how we go pursue these opportunities.

I just cannot overemphasize what Nikhil says, the first one, which is there's a tremendous amount of generational transfer is happening. It is happening across our society with many, many businesses are changing hands and you will see a lot of write-ups on this over the over the years. But we're seeing that in our industry, it has been particularly tough last five years, six years in this industry. And finally, cash flow has sort of come back to pre-COVID levels. And a lot of the owners are ready to move on into their retirement, or in other pursuit and enjoy their life. And that's sort of what we are seeing driving across all three countries.

Thank you, Vikram. First, I want to be very clear that, you know, Ron asked the question, I answered the question, the goal is not same store and wide growth of any number. That is not our goal. Our goal is partial earnings growth and cash flow growth. Very, very important. You understand that. And that's not a function of a myopic view of occupancy growth, rate growth, expense growth and wide growth. It is a pure function of what we are focused on is what is the ultimate partial cash flow growth and partial earnings growth. That's what shareholders eat. Everything else is irrelevant, just an input to the annual letter that how makeshift impacts and also very importantly how as free cash flow generation goes up in the system, how that impacts and all of those things.

So there's a multiple input to that. Now going back to your question very specifically, performance and a pursuit of excellence that you are alluding to in that question is extraordinarily important. But what is more important is the culture at this operating level. Whether they're aligned with us, they see the world the way we see it, nobody's saying we're right or some of our growth operators are correct in every pursuit of everything.

But do they have the mentality, the culture, to have a long-term view of taking care of the resident, taking care of the customer, having an obsessive view, a maniacal focus on increasing the standards every day and see the world in a win-win way, like the way we see it. Not saying that if you don't subscribe to that view Vikram, you or anybody else is correct or incorrect, but that's just our view. That's how we live and run this business 24-7. This is a very, very hard business. And because this is a very hard business, it got to be somewhat stoic about how you see the good days and the bad days. And there's been plenty of both, particularly the bad ones in last 10 years, 11 years that have been doing this.

So we are looking for a particular group of people who shared that view of the world, was that long-term focused and had the similar culture of shared sacrifice, shared dreams. And we'll see where we get to. But there's no question that we're increasingly concentrating our portfolio with people who have that mentality of an additive sound.

Understand, a majority of this that you see as the increase has come with the first three buckets. Some are organic expansion opportunities in our own portfolio. But majority of them has come with either Amica or Barchester acquisitions. If you think about it, what we discussed during Amica, that team has worked relentlessly eight, 10 years to assemble this land in places that there is no land. One house at a time, two house at a time, and 10 years working with that to create land assemblage and enlightening through that some of the most difficult parts in North America. And what you saw is that sort of the addition is assuming those. I have said this many, many times that I have no problem.

I have started development during COVID. If it is an exceptional product, an exceptional location, we will do it. For example, I've talked about Brookline development. It's a truly replaceable community. You cannot build it. You cannot buy it. We did it during COVID at the time. Palm Beach will do Palm Beach. Places like that. At the same time, you can see this quarter. I believe we mentioned this in our earnings release or one of those documents that we have taken impairments and given up pursuit of several lands that we have been working on 10 years, including I believe a big one in Wellesley after working years on it. It's just a question of economics if the economics works out, we will engage in an economic activity.

We have no bias against it or for it. The point we are trying to make in the segment that we operate, which is luxurious in your housing, cost has become so prohibitive that it's very difficult to make returns work. And we think about returns. It's very simply untrended versus untrended returns relative to untrended construction cost. And as you know, that you have to have that view in a world where construction cost is rising rapidly. You can just think about what will be the yield seven years from now. If you keep trending your rent, you have to have that view. And that's how the element should be done. And very few things walk out in that world.

Let me start. And Tim, you jump in. If you think about the volume of acquisition in last 12, 15 months, that should be the case, right? You take some time to season. They will come in same store after five quarters as it always has. But the acquisition volume in last few quarters would suggest that would be the case. You make a very good observation that the occupancy is lower, which means there is obviously more occupancy upside. And there's a significantly for margin upside. For example, if you think about what Nikhil said, this quarter with a second quarter activity, not second quarter close, but the activity, you know, these close to six billion dollars in a living assets we bought at 75% occupancy.

As you know, Nikh, at 75% occupancy, you know, these communities are not making much money. It's really you start to make money after 80. And your margin really goes up after high 80s, low 90s, right? So there is tremendous opportunity. Clearly, they're moving really, really well from an N. O. I standpoint, as they're going through our platform, new operators, WBS initiatives and everything. So that sort of, I would not say, sort of, you know, low hanging fruit. Occupancy is never a low hanging fruit. But there's occupancy upside. As they said that, you will expect they will transition into same store. They will get to a higher level of occupancy and then pricing power will kick in.

So this is sort of think of this as a more of a manufacturing process, if you will. You have same store, where the handover from occupancy to rate has happened or is sort of happening right now, non-same store is more still an occupancy story, not a rate story. That's why sort of cash flow is moving and it will happen as we go forward.

Yeah, I would just add to that, Nikh, so think about our overall, our same store portfolio approaching 89.5% occupancy. That non-same store portfolio is about 550 basis points lower than that, an occupancy. The shonk's point, this has kind of been the consistent strategy. We gave some color around our current pipeline to 75% occupied. So what we expect to close in the back half, so consistency on that kind of manufacturing line analogy of continuing to bring in assets. And as we build out WBS and implement, Nikhil is keeping us very busy with the additional assets. And I think about it in terms of kind of like TAM, that we continue to see really good results in what we're bringing on board as far as the more mature portfolio.

And we continue to bring a larger opportunity set.

Jim, active adult is a space we like. Our wellness housing portfolio has compounded very strongly, high single digit, low double digit for a very long period of time. Imagine, just think about this, that going back to 2018, when it's the first time we did it, our first transaction into the space to today, you had COVID, you had massive spike in inflation interest rate to all of these. It has compounded that meaningfully, which is obviously what we like.

And we think there is a tremendous sort of position in our portfolio, but it's a very small sort of an industry where the largest one in the industry, we continue to be active, but it's not a scaled opportunity. We like a specific price point in that particular asset class, and we continue to grow, and we'll continue to do that, but we like that cash flow compounder that that industry is or that those assets are, but it is highly unlikely a scaled opportunity. I don't know what else you want me to add to that.

Feral, I'm pretty rusty in this area. We have explored doing that with the sort of the one of the largest or probably the first one who came up with that idea a few years ago. So maybe the structures have changed, evolved. So I'm not the right person to comment on it. But if I remember that and I personally engaged a lot in that conversation and the structure, my understanding is everywhere you look at it, it's a debt structure. It's not an equity structure. So I wouldn't describe what you called and JV equity structure. Debt is debt.

A piece of capital cannot be debt and equity at the same time. And that's my understanding of it. As you can see, where our balance sheet has gone, we can raise bonds today for a sub 4%. So obviously, we would not engage in that. We would not engage in some sort of that kind of structures. We understand some people raised debt where they probably don't have better access to capital. It makes sense, right? But I don't know how these structures have evolved. I'm not the right person. But to comment on it, when I did engage, my understanding is, unequivocally, it's a debt structure. And the JV structure and sort of that I understood it to be, that the asset values of those are sort of a marker that doesn't drive, obviously, the return of that debt.

And it is sort of an interesting piece of debt that is both secured and unsecured with it. You know, first, your first round of defense is the assets and then second round of the defense is the sponsor. So that's sort of my understanding with was what has become. I have no idea. I don't comment on things I don't understand.

Yeah, I mean, you know, the yields are going in numbers. And that is at that time, just the seller's cash flow, right? So now what has changed is with WBS, we have more and more confidence on what the end state is. And so that's part of the underwriting, right? So you've got going in and then what is the stabilized, you know, trended cash flow and going from the starting point to the ending point is what creates total IRR. So the point is that the terminal yields are much greater than what they used to be given how we're improving cash flow. Michael, if those yields were zero or negative, which we buy, you know, we continue to buy four or five years later, I would be equally pleased.

All we care about what the end state looks like, not the beginning state looks like. As I said, you buy 75% occupied assets. Your yields would be substantially lower than 6%. And we're completely fine with that. We're total return investors and we're not yield-driven spade investors to my earlier point.

Yeah. Michael, if you just look at it, it's a lot of change as pools understand that we have bought a lot of assets in the UK in the last two years. So quarter to quarter chains are driven by a lot of pool chains, this, that and others. But generally speaking, if you just think about not an optics view, which is what that is in the south, but economic view, the occupancy in the UK is 300 plus basis points lower than that of U. S. On the other hand, you can see occupants in Canada, which is call it give or take a 300 basis points higher than the U. S. You are seeing pricing power change like exactly what you should see, which is where higher occupancy drives higher rep for growth and where occupancy is lower, the focus is on bringing occupancy up, but you get a lower rep for growth.

And that sort of is the fine-tuning of the model. I would not worry too much about quarter to quarter as you know that we have a historic and a very long-term unchanged consistent policy of bringing in assets after five quarters in the same store, and a lot of assets are coming in. So that sort of it, don't worry about sort of the optical nature of this basis point, that basis point from this quarter to that quarter, but generally your observation is correct. And that's because the occupancy is lower.

Yeah, so that specific issue we have discussed with all of our operating partners, majority of the operating partners, the impact has been pretty minimal. My comment is more of a societal change of sort of lack of labor force or diminishing labor force and sort of family, a caregiver, and all of those things that we have talked about for a long period of time, there's a reason, Juan, that we specifically focused on the highest end of the senior living.

And, you know, things are good now. It's a cyclical turnaround. Everything is, everybody is dancing. I see it. No problems.

We are very, very focused on a price point and a product combination, you know, service level and that at the highest price point level, at the higher equity level, why we think we understand the business and we believe that there, the pricing would be, you know, pricing power would negate the increased, long-term increase of labor cost, right? That's what we believe. You're not seeing that cyclically, I would say, right now labor is going the other way, right? You know, labor cost is rolling over. You're saying that right now, but from a long-term standpoint, availability of labor is something that I worry about just purely from numbers standpoint.

And that's why we want, increasingly, we have focused and narrowed our focus on a specific product, price point range, where customers are willing to pay and they understand, they don't want, you know, that provide us to cut services and they're willing to pay for that services and where the pricing could negate the increase of inflation labor. And that's why we do what we do.

So if you're talking about, you know, sort of what's the operation sort of results spread, our best performing operators to weakest performing operators, I will tell you, this is this is the conversation. There's no beta in this business. You got an online growth of, you know, approaching zero negative very low single digit to an online growth of 30, 40 percent and everything in between. So, you know, the spread is as big as it gets. And that's sort of my historic point. I've written about this topic for a very long period of time that the returns of this business will be in the tails, right? And you see that, you know, you guys don't see it because we have a very large portfolio.

We manage the volatility, you know, and some days better than others, but that's what you don't see. Now, focus on what our business system has been primarily not necessarily to just reduce that volatility. There are certain things that are uncontrollable in life that you just have to live with, right? There's a fundamental misunderstanding of what what our business system is or what we're trying to achieve. Efficiency is a very small part of it. We're really focused on the efficacy. And, you know, obviously you don't want to pay, you know, late utility bills. That's, and you want to, obviously, for a company. And, you know, when you go from manually processing your utility bills to systems, you won't.

That's efficiency. What we are really, really focused on capturing every interaction between residents, their caregivers, their families, and in a timely basis, that's the key. In human intensive systems, what happens is, converse some technology and workflow to more than waste time. They reduce quality, completeness, and timeliness of that information as details are omitted, delayed, or inconsistent recorded. What happens is, because of that, as a consequence, it's not just lower productivity, but less accurate understanding of the business. That's what we are trying to do to what our business system, helping our operators, this what our business system is built with the operators for the operators. And that's what we are doing. We have a long ways to go.

But that's the key is we're trying to bring in a level of efficacy in this business that you don't see in more of a converse and workflow managed by a lot of papers and all of those things. I hope that sort of helps you understand that the goal is not necessarily just the performance, that's an output. The input is what we are focused on, which is to enhance customer and employee experience.

Michael, I gave a pretty extensive update last quarter, but the senior housing equity fund was fully deployed or fully committed, I should say, as of last quarter. And on the debt fund, we raised a pretty small discrete debt fund very targeted, about 750 million bucks, and that is also practically fully deployed.

Yeah, so very, very good question. I would like to point out a couple of new slides that you can find on a business update. One is slide 10. And it talks about sort of the the concentration of wealth in the Baby Boomers as they become part of the customers. The silent generation was not, they didn't have wealth, that just not been a growth of silent generation, which you saw the impact on the demand last cycle. If you look at the Baby Boomer generation, you can see sort of not only the growth of that generation as they come of age to become a customer, but you can see it is the wealthiest generation of all time, right?

Roughly controlling about hundred trillion dollars of assets. And that is also equivalent to true for Canada and UK. And that generation wants to spend money on themselves, but they're extraordinarily discerning customer that they will only spend money where they perceive value. And so the point that you are making, I think the trends are going to be exact reverse. And you're seeing that across all luxury segment of the economy. So I'm actually very optimistic about it. Now, from an effortability standpoint, we have a new slide or maybe an update of a slide that I just noticed. Let me pull it up, which is page 27. And it shows you how affordability actually has meaningfully improved. So look at the right side of the page, slide 27 in a deck.

And you will see that what happened, the rise of the network has meaningfully outpaced rent growth in the sector. So I'm actually very optimistic on this particular topic, which I'm not a very optimistic person to begin with, but on this particular topic, at least for the next 20 years.

So you were saying just the portfolio we want today, because the portfolio is expanding, right? So you sort of think about, you know, we own today what 2,500 assets give or take. So if you think about last year, we did 240, 250 assets. I think Tim said six to 700 this year. That's the right cadence. So I'll call it another three years after that.

I will frame that in a different way that John did. If you just think about, there are several positions in a community that you have to have, whether that's a, you have one resident or 100 residents, right? So there is a tremendous amount of fixed cost associated with the business. And as occupancy sort of expands, you see more incremental sort of flow through to the bottom line because it's a fixed cost nature of the business. And that way I say, you know, WBS, as I've gone through, I don't want to repeat what I said earlier, we're very focused on increase, decreasing the friction points between residents, customers, their families, and the employees of the community so that they can do the job that they have signed up to do, which is to care for the customers, right?

That's the goal. You know, whether we can, you know, some administrative function can be more, you know, sort of automatized or systematized that probably that's the right word, we shall see. That's our hope. And as I've said in the last earnings call, that we should not expect as analysts and investors, including us with the, you know, our entire life's work and net worth is in this company to come back to investors.

I wrote about this topic several times that we see this as a, you know, scaled economy shared, but shared with who investors, operators, but also the customers, right? So we think about what we, if we are, you know, successful in systematizing part of the workflow, you would expect that we'll contribute that back, some of that back into the communities for improving resident experience. And part of that, obviously, will enhance margin, and that's how we're thinking about the business. It's sort of a, if you go and read the trade-off section, a manual letter, there's a long conversations about this stuff, but very, very good question.

No, right. It's just the average, right? So the average is made above a bunch of assets that are, you know, call it 90% occupied or a bunch of assets that are newly delivered that are 10, 20, 30% occupied. So the average, again, average ages six, the median age is four, right? So half of these assets are below the age of four. And so obviously there's newer assets, at least so. A couple of other points, rich, that that number was not stuck at 75%, some quarter. Nikhil said it's 80%, low 80%. I think I heard the 75% after a long period of time. That caught my attention. But what you're alluding to, which is if there are some structural issues with these occupancy, if that was the case overall portfolio occupancy wouldn't be where it is, because all these assets were bought at a much lower level, more importantly, par, share, cash flow growth wouldn't be me 20%.

Right? That sort of, you can think through from overall operating metric level, you can also think through from a partial impact of cash flow level, and you'll come to the conclusion from a basic understanding of numbers, the impacts have been exact reverse.

100%. The same, you know, it's an extraordinarily, if you think about what happened in these three countries, post World War II, the wealth creation, and whether it's stock market, it's housing markets, no matter how you look at it, this is the generation that controls majority of the world. If you just look at how small baby boomer generation is as a percent of the overall US population, for example, it controls more than half of the overall consumer wealth in the United States, and they're very similar in UK and very similar in Canada, and they're very similarly discerning.

These people are anything but idiots. They're very discerning customers. They understand what they want. They're willing to pay for it only if they perceive value. So this is much more than where it's just a question of demand supply. It's also a question of are we providing the best of experience and services to this customer? If not, no matter what the demand supply is, we'll be a giant failure.

Let me try and Tim jump in as I invariably will miss part of the question. Tim said flow through margins is mid 60s. If you look at 95%, you should be in sort of 70 plus. That's sort of the markers we're willing to give you. We have never put a marker on overall portfolio margin, neither we will. It is a journey for us, not a destination. I have said on the call today that we believe that there's a significant margin upside remains. Why is it outperforming our expectation? Nothing ever outperformed my expectation. I just have too high of an expectation from everything in life. Why is this happening? This is what we do. This is what the whole idea of WBS was that we have been on this journey for a very long period of time, as you can imagine, at least at this point.

And John, when did you start five plus years ago, right at this point? That was the change of this company when we changed our view from what we wanted to be when we grew up, which was to be a centralized capital allocation and decentralized execution. That was our view going back 10 years ago, call it, to a centralized capital allocation, decentralized execution. But in a whole network of platform technologies, that was we initiated, we started five years ago and completely changed this company. Good, bad, ugly does not matter in that direction. That's what we do. That's what we done well or fast enough, as far as I'm concerned. So it has not exceeded my expectation.

I'm very encouraged by all the things we have seen on the 250 communities that are on WBS. But we were working with our operating partners, as we have talked about, just in the last 90 days, our operating partners have come up with ideas that, frankly speaking, I absolutely have not thought about, and I don't think they have thought about this is what happens when collaborations come together and we're trying to solve problems. So there is a lot of long ways to go. We'll see where we end up.