Ladies and gentlemen, thank you for standing by, and welcome to the Welltower Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you'd like to ask a question during that time, press star followed by the number one on your telephone keypad. I will now hand today's call over to Matthew McQueen, Chief Legal Officer and General Counsel. Please go ahead, sir..

Thank you, and good morning. As a reminder, 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 projected results will be attained.

Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. And with that, I'll hand the call over to Shankh Mitra for his remarks..

Thank you, Matt, and good morning, everyone. I'll review business trends, our capital allocation priorities, and the team will follow the usual cadence. We ended 2024 on a high note, delivering strong Q4 results.

The company continues to fire on all cylinders, whether it be business fundamentals, capital allocation, a further strengthening of our balance sheet, or progress on the operating platform build-out.

The result was another quarter of solid bottom-line growth with normalized FFO per share increasing 18% year over year, once again driven by our senior housing operating portfolio. Just as important, however, is that we carried significant momentum into 2025 and expect another year of exceptional growth, which I'll get into shortly.

I'll also provide a brief update on the pillars of growth that I introduced twelve months ago that give us even greater confidence in our growth outlook for the next few years, which we feel is positively spring-loaded. In our senior housing operating business, we continue to see strengthening tailwinds.

The fourth quarter delivered impressive results with nearly 24% same-store NOI growth. This marks our ninth consecutive quarter of net operating income growth exceeding 20%. Notably, we experienced exceptionally strong sequential occupancy growth in Q4, defying typical seasonal trends.

The SHARP portfolio achieved average same-store occupancy growth of 120 basis points sequentially and 310 basis points year over year. This robust performance, particularly during a period when move-in activity usually moderates, stands out as perhaps the quarter's most significant highlight.

In fact, 120 basis points of growth in Q4 nearly matched the level of sequential growth we witnessed in the third quarter, which is typically the strongest period of leasing during the year. I would also note that on a spot basis, we gained 240 basis points of occupancy in the second half alone.

This momentum persisted through the fourth quarter, even during the holiday season. In fact, we observed a pickup of occupancy growth during the week of Christmas, typically our slowest moving week of the year, something I've never seen in this business.

We also witnessed this momentum carry into January, a period in which we almost invariably experience sequential decline in occupancy due to seasonality. The favorable end-market environment, along with our team's superior execution, has put us in an incredibly favorable position to start the year.

This is reflected in our optimism for occupancy growth acceleration in 2025 over 2024, which was already one of the strongest years in the company's history. At the same time, the trends related to RevPAR or unit revenue or export or unit expense continue to move in our favor.

We remain focused on the spread between the two metrics, which during the quarter reached 460 basis points, our highest level in our recorded history. The outcome is another 320 basis points of operating margin expansion in our senior housing operating portfolio.

Going forward, we expect sustained improvement in margins given high operating leverage inherent in the business and the benefit of the build-out of the operating platform, which John will get into momentarily. Putting this all together, we expect 2025 to be another year of exceptional net operating income growth.

Shifting to capital deployment, we capped off a tremendous year of investment activity with the closing of $2.2 billion of transactions in the fourth quarter at attractive economics.

Nikhil will provide more details, but as we described in the last quarter, the opportunity set for capital deployment continues to expand given the widespread capital markets-related challenges in the sector.

To be clear, the fundamentals of the senior housing business are extraordinarily healthy, but for many owners, they continue to be overwhelmed by the impact of high rates, persistent challenges in addressing upcoming debt maturities, and other capital structure issues.

I would also point out that not only will this acquisition be solidly accretive to our growth in the coming years, but it also comes with two often overlooked strategic benefits. First is the greater regional densification, which we described to you in the past, reflects our intention to go deep in our market, not go broad.

Second is the accumulation of data received from these properties, which will further enhance the network effect we have already created within our data science platform, resulting in a wider and deeper moat for Welltower.

Each additional building added to a local cluster enhances the customer and employee experience, resulting in strong overall effectiveness and efficiency, hence a strong network effect.

These bolt-on acquisitions, in combination with our organic growth, drove 23% revenue growth, 26% EBITDA growth, and nearly 20% FFO per share growth for the full year of 2024. And we achieved these results while meaningfully deleveraging our balance sheet.

While we're extremely proud of our recent results, we believe we're just beginning our journey to deliver long-term compounding growth for our existing shareholders. To illustrate this, let's revisit the five growth pillars that I introduced a year ago. These pillars remain firmly intact, bolstering our confidence in a multiyear growth outlook.

Moreover, we have since added a sixth pillar, which I'll also discuss shortly. This expanded framework further strengthens our growth strategy and potential for long-term value creation. First, the demand-supply backdrop of the senior living business.

From a fundamental perspective, we're at the very beginning of an extended period of outsized demographic-driven growth in the sector. In fact, 2026 should be an inflection point in the end-market demand.

The tailwinds which have propelled our business, that is, the growth of the 80-plus population age cohort, will only accelerate in the back half of this decade. And I will remind you that the seniors housing products that we're focused on are almost entirely private pay and needs-driven in nature.

Fundamentals of our business are largely immune from geopolitical crosscurrents, regulatory, or policy changes, and poised to weather any economic headwinds better than most other sectors and industries. While the end-market demand will continue to rise even at a faster clip in the coming years, the new supply remains muted.

The outlook for supply has gotten even worse in recent months as tariffs, immigration policy, and higher rates further dampen development economics, which means nonexistent. The demand-supply outlook alone should drive outsized growth for many years to come. Number two, capital allocation.

Even after a company record of $7 billion of capital deployed in 2024 and putting $20-plus billion of capital to work over the past four years, our investment teams have never been busier. The opportunity set is robust, actionable, and visible, and we believe 2025 will be another year of above-average capital deployment for Welltower.

To that end, we started the year with a bang and already have $2 billion of investments under contract for our balance sheet. This is the strongest start of the year we have ever had.

Our phones are ringing off the hook as it is sinking into the real estate world that the Fed does not control the long end of the curve, hence is not coming to rescue broken capital structures.

We continue to find attractive economics in our circle of confidence where we can bet with house odds rather than gambler's odds, as we seek advantageous divergences in a specific niche amplified by our operating platform and a network of our best-in-class operating partners. Number three, capital-light transactions.

Over the past few years, we have transitioned hundreds of assets to our strongest operating partners. While these transitions can be challenging and occasionally near-term dilutive, they have proven to be tremendously successful, with new operators generating significantly more cash flow than the previous operator.

For example, the Canadian portfolio, which we transitioned from Revera to Cogir at the end of 2023, witnessed approximately 800 basis points of occupancy growth since we announced the transition.

In 2024, we have also transitioned 68 properties from triple net to RIDEA structures, allowing our shareholders to directly participate in the underlying cash flow growth of the community. Since I spoke with you last quarter, we agreed to convert an additional 16 high-quality senior housing communities from triple net to RIDEA.

We'll continue to mine for opportunities for further capital-light transactions. Number four, digital transformation driving unprecedented structural change. John and his team continue to make extraordinary progress on the build-out of the first true end-to-end operating platform in the senior housing sector.

And as we discussed on the last call, our efforts to digitally transform the business are beginning to bear fruit as we went live with our tech platform in the first properties in the third quarter, subsequently rolling it out to additional communities in Q4 and then in Q1 of this year.

Implementation of TechStacks is just one example of countless opportunities to improve virtually every element of the senior housing business to enhance resident and employee experience. Number five, our unleveraged balance sheet.

Twelve months ago, I mentioned that we will continue to experience further organic deleveraging of our balance sheet given our expectation for outsized cash flow growth. Higher-than-expected cash flow growth and tactical funding of capital deployment activity have driven a further reduction of our net debt to adjusted EBITDA to just 3.5 times.

Thus, we have created even greater debt capacity to tap into to fund external growth, further amplifying our out-year growth prospects.

Due to this massive debt capacity, coupled with $9 billion of liquidity and our reputation for being a clean shard in an industry where retrading counterparties is the norm, we continue to get first calls from market participants when they need liquidity.

We can run our deal business in an old-fashioned Ben Franklin way because of our exceptional balance sheet strength. A few weeks ago, we added a sixth pillar, and that's the launch of our private funds management business.

While we cannot provide any more details until the conclusion of this process, we believe this new pillar will result in significant revenue opportunities for Welltower shareholders. The funds business also represents our first foray into creating a capital-light monetization of our data science platform.

To conclude, I'm pleased with our execution in 2024. We have an exciting and frankly very busy year in front of us in every aspect of our business. Rarely, within an industry, do cyclical, secular, and structural growth drivers come together to deliver a positive net vector leap in emergent effect that is unfolding at Welltower.

Our business is bustling with positive energy, vitality, and new ideas to create value for our existing investors. While the outlook for commercial real estate remains foggy, in some cases gloomy, with ongoing malaise due to the higher interest rate environment, it is a clear and bright morning at Welltower.

And with that, I'll hand the call over to John Burkart..

2025 should be another year of exceptional growth. There's seemingly no end in sight. The fundamentals of the senior housing sector remain terrific, and our efforts to transform this business through the operating platform are having a profound impact on our residents, employees, and operators, with the true bottom-line impact soon to follow.

As always, a huge thank you goes out to the Welltower team, including our operators, for their tireless efforts to transform this business.

Finally, I want to recognize the amazing efforts by our operators, site employees, and Welltower employees responding to the recent disasters, including the Southern California wildfires, where they evacuated, transported, and relocated residents and provided furnished units to many seniors who lost their homes. Thank you.

With that, I'll turn the call over to Nikhil Chaudhri..

acquire communities in our targeted micro-markets, continue to build on our regional density with our aligned operating partners in those markets, and treat our counterparties with fairness and respect.

It's no surprise that as soon as we complete a transaction, the conversation with the counterparty often quickly moves on to engaging on a subsequent tranche.

This is evidenced by the fact that more than two-thirds of our $2 billion in investment activity so far in 2025 is with counterparties with whom we have previously done business since the start of the pandemic. This fair and win-win approach gives our platform immense duration and positions us for continued success in the years to come.

I will now pass the call over to Timothy McHugh to cover our operating results and guidance for 2025..

revenue growth of 8.5%, made up of RevPOR growth of 4.8% and year-over-year occupancy growth of 325 basis points, and expense growth of 5%. And with that, I'll hand the call back over to Shankh..

the delayed gratification gene, or an instinctive bias towards sacrificing immediate rewards for substantially larger future gains, and two, the fiduciary gene, an innate desire to prioritize their owner's interest above their own. Their leadership has been instrumental in fostering an exceptional culture at our firm.

These savvy leaders show up every day to win, with qualities such as a seamless wave of deserved trust, shared sacrifices, and a unique purpose. These seemingly mundane qualities in the right combination create a Lollapalooza effect of a culture where everybody is fully committed, they go all in, and they stay all in.

You might be able to copy our deals, but you cannot copy our culture. So what do these seemingly disparate three items that I mentioned above as philosophy behind CapEx, technology, and people have in common? Two things. First, duration, or otherwise known as longevity, and second, power law, otherwise known as exponential network effect.

These two, duration and network effect, are the most foundational architectural principles of nature, and so they are the foundational backbone of our pursuit of targeted incremental continuous progress and growth for our existing investors for decades to come. With that, I'll open the call up for questions..

Thank you. At this time, if you would like to ask a question, press star one on your telephone keypad. We ask that you limit yourself to one question. You may reenter the queue for any follow-ups. Your first question is from the line of Vikram Malhotra with Mizuho..

Good morning, guys. Congrats on the strong results. So I just had a two-part question. Just one on fundamentals.

Can you kind of give us a sense of the pricing power across occupancy bands within the SHARP portfolio? And then, related to the comments on the pipeline, do you mind sort of giving us a sense of the $2 billion in acquisitions and the pipeline itself, like, what are you acquiring? What's the occupancy of what you're acquiring in that pipeline? Thanks..

You still want to start with the second? Yeah. I'll start with the second one, Vikram. So, you know, as I said in the prepared remarks, it's really a continuation of what we've been buying. So it's similar metrics. You know, the $2 billion we talked about, it's low 80's occupancy, generally newer vintage assets..

Vikram, on the second question, as is that at 90-plus percent occupied, the RevPAR growth has been well into the sixes. On the other hand, where the assets are below 70% occupied, they're roughly flat. So everything goes sort of in between. To give you a sense of gradients, I will say maybe 85 to 95 was closer to six.

As I said, below 70 was close to five, which you would expect at different spectrums of occupancy..

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

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

Hi. Good morning. Thanks for the prepared remarks and commentary. The organic growth outlook, we know that remains strong, but I wanted to tie that into external growth in recent years.

As we move through this development cycle and see increasingly fewer deliveries, which is obviously a good thing for existing properties, does that make buying properties with lease-up more challenging? Is there fewer of them, which in turn would impact your growth as fewer get added to the same-store pool? So much of the outperformance in recent years has come from acquiring those newer vintage lease-up properties, and if we see less and less deliveries, does it become more challenging to sustain growth? Thank you..

Yeah. And I think, Jonathan, you know, if you look at the activity, that would suggest the answer is no. Because, candidly, it's a complex operating business. And, you know, without the right tool kits, you don't get the same outcomes from, you know, every provider that's running the buildings.

So, you know, we've had a long-term track record of success in finding under-operating buildings. And, you know, the under-operational element, you know, a, is occupancy because that's obvious today. But there's so many more layers. Right? So it's not just occupancy. At the end of the day, what we care about is NOI.

And every single line item has room for optimization that we bring versus somebody else operating those buildings brings. So we see a long runway to keep doing more of this..

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

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

Yeah. Hey, everyone. Call it what you want, but I'm really focused on culture as a long-term driver of outcomes. To me, a big picture of that culture is retaining talent.

I guess, Shankh, how do you think about retaining talent, and is there a retention problem at Welltower today?.

a single spark can create a prairie fire. And Lee Kuan Yew said that only happens if the prairie grass was actually dry. All we are trying to do at Welltower, what I'm trying to do every day, is to keep that grass wet..

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

Thanks. It's Nick Joseph here with Michael.

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

Nick, as I mentioned in my prepared remarks, we have nothing more to add to the private capital business at this point, more than what we have said in the press release. So we will give you more updates when that process is over.

Now, from the perspective of, you know, you do think about it, we are fundamental buyers from a Welltower balance sheet perspective. Unstabilized assets. That's what we have always done. We're growth investors. We're not yield investors. And we believe that now bringing this private capital business significantly expands our TAM.

That's all I can say at this point in time..

Your next question is from the line of Nicholas Yulico with Scotiabank..

Thanks. Good morning. So in terms of the senior housing operating segment, I was hoping you could just break out how big the same-store bucket of assets will be this year versus the total pool.

And then for the non-same-store, you know, where I think there's often lower occupancy, how do you expect those assets to perform on NOI growth? Is there better potential there versus the same-store guidance you gave? Thanks..

So why don't we start with the last part, and we'll give you the first part. Given that our overall portfolio occupancy is, give or take, call it 85, and our same-store is what? 87 plus. Right? That would suggest to you the non-same-store is very well occupied.

Right? And so, you know, as occupancy goes up, you know, you would expect that the flow-through incremental margin that falls to the bottom line, obviously, starts to pick up. Right? So growth should be better. But, you know, obviously, you will see, but when those properties stabilize, you will get more pricing power.

You're gonna move hand over a growth from occupancy to the growth from rate..

And then I just state by the fourth quarter, we expect over 90% of the current portfolio would be in the pool..

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

Great. And good morning, everybody. Shankh, you mentioned in response to an earlier question that, you know, at 90% plus occupancy, RevPAR growth is well into the sixes. I think with the occupancy gains expected this year over 300 basis points, you know, you should kind of be ending the year approaching that 90% level.

On top of the inflection in demographics next year and then the further rollout in the tech platform, I mean, should we take all that detail to point to a reacceleration in RevPAR growth in 2026?.

So, Austin, just remember, we're also buying, Tim and Nikhil just said that we're buying $2 billion of assets in the first six weeks at 80% or so occupancy. Right? So reported metrics get all sort of jumbled up because of this. But your idea, of course, is the correct one.

I'll remind you of the comment I made, I think, last call, maybe the one before, but in the last couple of calls, which is post-2026 summer leasing season. We should start to see, you know, a better RevPAR environment than we have seen sort of call it, prior to that. We shall see what the market will give us. It's hard to predict where things go.

And so we are fundamental believers. It's not about predicting, it's about positioning. And we're in the business of duration. If that takes one more year, we'll still be here, trying to push things forward..

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

Thank you. Good morning. I'm trying to understand the outsized occupancy gain that you experienced this quarter and then the guide that you're giving.

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

John, why don't I offer you a third choice, which is our execution? You guys have the data from, you know, sort of industry data you guys see other companies in the sector which reported, I think, some of the data. But regardless, you know, just look at that and you realize this is a lot of that what you say is right.

But it is that does not describe the operational, sort of, alpha that we have seen in the quarter. But you know, we shall see what happens going forward..

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

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

Ron, we always have concerns in a business where 60% of our capital, I mean, their expense stack is labor. We always have concerns. But as John mentioned, we are trying to see stabilization in that sort of the growth we have seen before.

We have a tremendous amount of operational initiative, capital initiative, just in our communities today, to significantly bring down turnover. We mentioned some of that in the slides on our business update. You can see that we're seeing tangible impact. But as I've said, this is not an easy business.

This is why you get outcomes in details, not a, you know, sort of industry beta, but we're super focused on it. Shall see what the market gives us..

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

Hey. Thanks. Good morning. Maybe a less exciting topic, but outside of senior housing, you know, what do you feel like medical office and post-acute, what role do they play in the company today? And by that, I mean, obviously, there's a lot of excitement around the growth profile of senior housing going forward.

But is it an off-out-of-sync sort of investment representing over 20% of the portfolio? Is it a view to the future to sort of be in the business longer term because who knows where things will go fifteen years from now? Just curious, you know, your view on the stuff outside of the senior housing and what role it plays for investors today and in the future? Thanks..

We're long-time investors, and our OEM as well as our post-acute segment plays an extraordinarily important role as we think about portfolio construction. And different, you know, you guys get excited about different parts of different asset classes and their cycles around them.

We are thinking about how we create long-term sustainable earnings and cash flow growth on a per-share basis over decades. And we're extraordinarily excited about those businesses. We allocate capital in different parts depending on where we think that we can make the best risk-adjusted return on a long-duration basis.

And, you know, when the opportunities arise, we allocate capital. But at this point, as I've said, that, you know, we're a great player in the skilled nursing business. And obviously, on the OEM side, as I've mentioned before, that I want to see a long-term inflation line before I firm up my mind on that.

That's where we are, and we're watching how to allocate further capital in a significant way or these things very carefully. But there's no question both of those strategies play a very important long-term role in our portfolio construction..

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

Hi. Good morning. John, I believe you mentioned kind of elevated CapEx for a period of time and then kind of normalizing back to below where you were pre-COVID level.

So I was hoping maybe you could provide a little bit more details or benchmarking of how you think long-term CapEx should trend once we get past this hump of kind of deferred or whatever type of spend that you want to execute on..

Yeah. I mean, as far as for long-term run rate, the capital to date or previously was done less efficiently. I've talked about that many times. People made short-term decisions.

For example, you might replace a roof but not do the skylights and the gutters, and then you come back and do both of those, and you've got costs for mobilization, costs for tearing up the roof again to replace those.

And so what we've done when we've stepped in with the team and bringing in the internal expertise to create the proper scopes and planning for capital to execute that, that in the end, that lowers the run rate of the capital. And as I mentioned, you know, people are looking for, you know, reference points.

There, you know, one reference point out there that's been out there for years is, for example, multifamily, residential, what their run rate is on CapEx. There's no reason why our run rate for ongoing capital would not be similar to that. Our units are, you know, slightly smaller with less kitchen, a little bit more on the amenity side for sure.

But balance, it puts it into a zone for context. On the value-add side, as I said, those are pure investments. We could turn it on and off at any point in time. We and Nikhil and I are connected as far as what those investment hurdles are, you know, unlevered IRR investment..

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

Yeah. Thanks. John, I wanted to circle back on your comments regarding the tech platform rollout.

Can you give us an idea of the timing of this? I mean, what percentage of the portfolio has this capability today, and should we think about the majority of your operators having this capability by the end of the year, or is it a longer, more thought-out process in that?.

That's a good question. Yeah. We're rolling it out over the next couple of years. There's a lot of work that goes into doing that and doing it very well to make a seamless experience for our site associates.

So we're very focused on that, and I'm glad you asked because I've talked, I spent a lot of time talking about the benefits of the platform as it relates to digitization and the improved customer and employee experience. I haven't much spoken about the aspects of providing real-time actionable data, insightful data to the site employees.

So I'll give you just a little story on that. I was working my way through college, in the 1980s, I worked at a company called Price Club, which is the predecessor of Costco for those of you who remember.

Every morning about 3 AM, the store manager would come to me with a computer printout which showed all of the sales for every item on my aisle, as well as the aisle in total. So I could see if I placed Tide in the middle, if I placed Tide as an end cap, what the impact was on sales.

And then adjust my aisle accordingly to maximize my total sales from my aisle. Very competitive process there at Costco. And today, what we're able to do, we're at the very cusp of providing our employees with real-time actionable data enabling them to positively impact the business. So super, super excited.

We're going as fast as possible, but we have to do it right. And so it does take a little bit of time..

Mike, just remember, Nikhil is not making this process particularly easy by adding ten, twelve thousand units a year as well. So it's a running target..

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

I was intrigued by Nikhil's comments regarding sounds like an apparent uptick in European investing activity.

Have you ever provided sort of the sense of scale of the opportunity set for Welltower in Europe? And does that extend beyond the U.K.?.

I don't think you heard it correct. We are focused on in sort of, I guess, you can say in the European context is U.K. We -- I've said many, many times, we have no desire to go outside our circle of competence, which is U.S., U.K., Canada, and his comments is entirely focused on the U.K...

Your next question is from Mike Mueller with JPMorgan..

You have about $2 billion of developments in process. Can you talk about how long to stabilize the properties upon completion.

And is that trending faster or slower than a few years ago -- pre-COVID?.

Yes, thinking about that development pipeline, that has predominantly been focused in 2 areas. Active adult within our kind of residential portfolio. And the OM, as you know, is pretty much 100% leased for anything that we're developing. Active adult as a shorter lease-up time frame in seniors.

So it's shorter, and that's kind of more like a 12-, 18-month type time frame..

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

Yes. How does 2025 expected expense growth for the U.S. senior housing portfolio compared to the U.K. and Canada? And then have the increased employment taxes and increased minimum wage in the U.K.

had any notable impact there?.

Yes. So OpEx growth in the U.K. is greater than the U.S., and it's -- and to your question on the impact of the combined impact of the 2 is the right way to look at it, right, because you get the kind of headline cost of living adjustment and then you've got the insurance impact. So 2 of those are item, and that is causing a higher OpEx growth there.

but we're also seeing top line growth in the U.K. So it's offsetting some of that flow through, but we're still seeing positive growth..

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

Can you talk in more detail about the outlook for senior housing development fundamentals are as good as they've ever been. There's a lot of visibility for demand in the next decade.

Why haven't developers or private equity rushed in to get projects started to capture that inevitable upside? Is it lack of operators, financing? I guess what changes this..

Yes. So Jonathan, I'm going to make my comments on average, there's always exception to average. So just think about as an average. I fundamentally believe that people do something and economic activity called development if there is development profit, right? So you sort of have to think about. So let's just dig into that.

I'm going to -- so first, I think there's a fundamental misunderstanding of what development profit is. I hear -- I've seen some very interesting performance of developments that says, just take an example, is an example.

I can make an 8% yield 5 years from now, and is in that 200 basis points above, say, prevailing cap rate 6% that is fundamentally people who say that have a fundamental misunderstanding of the most basic idea of finance call time value of money. We make decision -- development decision based on untrended yields, not trended.

Untrended deal as in what's today's cost and what's today's market rents, right? You can always buy your 6% and trend that and get rent growth for 5 years and we will get to 8%. So that is sort of the fundamental sort of #1 problem.

Number 2 problem, which I described you as sort of underpinned norms reasoning if you have seen that famous South Park episode. And it goes like this. You have a Proposition one, which is there is a lot of demand coming right? That's step number one. Step #3 is we should be able to make profit from that by developing more.

The step #2 in the middle is missing.

And that missing middle is what we talk about, what happened to cost, what happens to your cost of construction, your cost of labor, your cost of sort of your rates, right? All of these things, your exit cap rate, all of these things, so if you just think through that, senior housing development business reminds me of that South Park episode, which is underpinned on surplus.

If you haven't watched it, I will go and like you do quarter. Third one, is what is just straight up preference falsification.

I have talked to smart developers who understand that this idea of silver sonic they're trying to sell it to someone gave the Heldman Capital, just what I call private tools and public lives, right? So all I tell them to do is if you truly believe in that, why don't you just put your 100% of your own money on that.

Why try to get other people's money to try to do that, which this business has 2 really, really bad episodes, one in the '90s, massive oversupply, lots of money lost other people's money loss. And the second is what happened in the last decade.

So if you just put it all together, you will see all I'd say, just if the economics doesn't exist, I fundamentally believe it will not happen. And if somebody is particularly excited about doing it, I recommend they do it on their own money, not get sort of an unassuming small bank who doesn't understand all the details.

And just get them and then obviously get them on the hook just like it happened in the last decade..

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