Welltower Inc. (NYSE:HCN.PRJ) Q3 2016 Earnings Conference Call - Final Transcript

Nov 02, 2016 • 10:00 am ET

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Welltower Inc. (NYSE:HCN.PRJ) Q3 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good morning, ladies and gentlemen, and welcome to the Third Quarter 2016 Welltower Earnings Conference Call. My name is Holly and I will be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. Now I would like to turn the call over to Jeff Miller, Executive Vice President and Chief Operating Officer. Please go ahead, sir.

Executive
Jeff Miller

Thank you, Holly. Good morning, everyone, and thank you for joining us today for Welltower's third quarter 2016 conference call. If you did not receive a copy of the news release distributed this morning, you may access it via the Company's website at Welltower.com. We are holding a live webcast of today's call, which may be accessed through the Company's website. (Forward-Looking Cautionary Statements) I will now turn the call over to Tom DeRosa, our CEO. Tom?

Executive
Tom DeRosa

Thank you, Jeff. I'm pleased that the strong results we announced today reflect solid operating performance across all business segments as well as strategic capital allocation decisions. Normalized FFO and FAD were up 4% and 5% respectively. These excellent results were driven by core growth, same-store NOI was up 2.6%, and our track record of making accretive investments. Our Class A healthcare real estate concentrated in major markets has consistently demonstrated resilience. And in a year where wage pressures are challenging operators across the senior care industry as well as new supply coming into many secondary markets, we are confident in our position and we are raising 2016 same-store NOI guidance to 3% to 3.25%.

Let's take a closer look at our senior housing operating portfolio. Year-to-date same-store NOI growth in this business has averaged 3.9% relative to our initial guidance of 2% to 3%. Compared to the third quarter of 2015, these assets saw a strong occupancy increase of 70 basis points and rental rate growth of 4%. Offsetting these strong topline results has been wage increases, which have been growing at 6% plus year-to-date. Our focus on major markets allows us to pass along much of this expense growth to the consumer and same-store NOI growth for our operating portfolio resulted in an expected 2.2% increase for the quarter. Wage inflation is not unique to the senior care industry. Its impact is being felt across all sectors of healthcare.

This creates particularly unique challenges for government reimbursement focused models that do not have the same ability to pass along increases in operating expenses. This is another reason behind Welltower's strategy of focusing on private pay sectors. You all know the aging demographic wave will positively impact utilization across all sectors of healthcare. Welltower, however, is capitalizing on this demographic trend by investing in healthcare assets where commercial forces determine price and where market forces limit supply. Given that, let me make a few comments regarding our capital allocation strategy and the press releases we issued this