Following the rapid distribution and high acceptance rate of COVID-19 vaccinations by residents within assisted living and memory care communities in the United States and United Kingdom, Welltower’s total senior housing operating portfolio occupancy increased by approximately 60 basis points (0.6%) to 73.8% from its pandemic-low on March 12, 2021.
Yet despite this optimistic trend, the Toledo, OH-based real estate investment trust say they remain cautious, given the prevalence of the virus among the general population, the timing of the reopening of the economy and the timing of further rollbacks of operating restrictions, according to Chief Financial Officer Tim McHugh.
“The result is a near-term operating environment that, although notably improved, remains highly unpredictable in the short term,” McHugh said Thursday during the REIT’s first-quarter earnings call. “As we have done over the past 14-plus months, we will continue to disclose and update information on a frequent basis with the intention of providing a more complete outlook as soon as the virus-related variables moderate to a level that allows for more reliable forecasting.”
Welltower reported first quarter net income attributable to common stockholders of 17 cents per diluted share and normalized funds from operations of 80 cents per diluted share versus guidance of 71 cents to 76 cents per share. The firm also reported Thursday that it had collected approximately 96% of first-quarter rent due from operators under triple-net lease agreements, primarily within its seniors housing and post-acute care facilities.
Welltower CEO Shankh Mitra also discussed current progress on the firm’s recent move to largely end its relationship with nursing home giant Genesis HealthCare, noting that the $144,000-per-bed value is set to generate an 8.5% unlevered return over the full term of the Genesis relationship.
“In addition, upon the repayment of the outstanding debt, that return will rise to 9% with even further upside potential from participating preferred and the equity position,” Mitra said.
He also discussed the firm’s partnership, announced Wednesday, with a Safanad-led investment group to recapitalize HC-One, the largest UK-based senior housing operating platform. This recapitalization will de-leverage HC-One, extend its debt maturity by five years and inject significant new equity in the company, enabling it to invest in its communities and people, enhance resident experience, and augment its operating and technology platform.
“Our investment in excess of $800 million comes in the form of first mortgage debt on HC-One’s real estate and equity in recapitalization. We also received significant warrants that would further allow us to participate in the post-COVID upside that we are confident that management is in the process of executing,” Mitra said. “HC-One will add a value option to our high-end focused U.K. platform. There is a significant opportunity to upgrade the asset base, operating platform and people in this portfolio.”
Although analysts cheered the potential upside of Welltower’s acquisition Thursday, some also expressed concern over the expected length of recovery within the firm’s senior housing portfolio, given its second quarter forecasted occupancy gain of just 1.3%.
“Welltower’s second quarter forecast for a senior housing operating portfolio occupancy gain of 130 bps suggests it takes over two years to regain the ~1200 bps occupancy loss during the pandemic, which may disappoint investors expecting a faster recovery,” wrote Mizuho analysts Omotayo Okusanya and Corey DeVito in an investor note on the REIT’s first-quarter results.
For additional coverage of Welltower’s first-quarter earnings, please visit McKnight’s Senior Living and McKnight’s Long-Term Care News.
