‘Coiled spring’ of senior living expanding sector momentum

LONDON: The “coiled spring” of senior living is starting to expand, with growth driven by higher rental rates, increasing occupancy and improving margins, according to Welltower executives.

During a first quarter earnings call on Wednesday, Welltower CEO Shankh Mitra said that momentum in the Toledo, OH-based real estate investment trust’s seniors housing operating portfolio continued into the first quarter after improving during 2021.

“We see very encouraging signs already, and we think it will continue to improve as we go forward,” Mitra said about the portfolio.

Chief Operating Officer John Burkart said that the portfolio experienced twice the growth rate of past quarter and the highest year-over-year revenue increase since at least 2017.

Seniors housing operating portfolio average same-store occupancy increased 460 basis points (4.6%) year over year, to 78%. Average occupancy is expected to increase 500 basis points (5%) in the second quarter compared with the second quarter 2021. Welltower said that seniors housing shows potential for additional upside, and the REIT anticipates peak occupancy of 91.2% in the fourth quarter.

“We continue to be pleased by the momentum of the top-line recovery in our senior housing operating portfolio, driven by a combination of rate and occupancy growth, setting the stage for a multiyear recovery,” Chief Financial Officer Tim McHugh said.

First-quarter agency labor expenses declined 10% on a sequential basis in the first quarter. Reliance on agency labor continued to decline through April as staff COVID-19 cases continued to decline, according to the REIT, and it is expected to continue decreasing.

Welltower reported what executives called one of its most active years for investment activity in its history. The REIT announced that it completed $787 million in acquisitions and loan funding during the first quarter, bringing year-to-date investments to $1.2 billion.

McHugh said that when the company started to see the “coiled spring” release in its core portfolio, Welltower made the conscious decision to allocate capital to distressed, under-operated properties as well as development projects.

“We’re working hard to keep that spring coil even as we start to realize the power of the earnings growth it can drive,” McHugh said.

During the first quarter, Welltower expanded its relationships with Cogir Management Corp. through the acquisition of a portfolio of eight senior living communities for $389 million. The REIT also is acquiring another community under development. In April, Welltower also closed on an additional three-property portfolio in Washington state for $244 million in a joint venture with Cogir, which will manage the properties.

Also during the quarter, Welltower delivered Coterie Cathedral Hall in San Francisco, an upscale 208-unit senior living community representing the first facility under its partnership begun in 2019 with Related Companies and Atria Senior Living. A second location, Coterie Hudson Yards, is expected to be completed during the fourth quarter.

As previously announced, Welltower also expanded its Related and Atria partnership through an agreement to develop two senior living communities in California. The Cupertino development began during the quarter, whereas the Santa Clara will break ground mid year.

After the quarter ended, Welltower also entered into a previously announced agreement to expand its relationship with StoryPoint Senior Living by buying 33 communities in Michigan, Ohio and Tennessee.

Welltower also recently expanded its relationship with Treplus Communities with the acquisition of three wellness housing communities in the Midwest. The communities offer individual cottage-style units, clubhouses, 24/7 concierge services and a wellness-oriented social lifestyle.

The REIT anticipates funding $673 million of development in 2022 related to projects underway as of March 31. The near-term $1.5 billion pipeline includes $1 billion of previously unannounced transactions, including deals with StoryPoint and Oakmont Management Group. Several billion dollars of opportunities remain under evaluation, executives said.

“We see cracks in the market and are focused on where the puck is going, and not where the puck might have been,” Mitra said.

Effective April 1, Welltower completed a legal entity merger in anticipation of an UPREIT reorganization that resulted in the formation of a new holding company (Welltower Inc.) and Welltower OP Inc. (previously known as Welltower Inc.).

Tuesday, Welltower announced an expansion of its partnership with Irvine, CA-based operator Oakmont Management Group. The REIT agreed to buy seven California senior living communities that will be operated by Oakmont, for a total investment of $344 million. The deal includes three continuing care retirement communities, including the Fountaingrove Lodge, the national’s first LGBTQ and Friends-focused CCRC.

“This rapid portfolio growth exemplifies our belief that best-in-class operators will gain significant scale in the post-pandemic environment, and we look forward to announcing further additions to our partnership in the future,” Mitra said.