Toledo, OH-based Welltower reported normalized funds from operations of 84 cents per share for the fourth quarter Tuesday, beating analysts expectations. Occupancy remains pressured by a decline in move-in activity, however, resulting from the continued increase in COVID-19 cases and implementation of new admissions bans across many of the firm’s geographies.
This uncertainty led the real estate investment trust to provide only financial guidance for the first quarter of 2021 during its Wednesday earnings call. Welltower estimated that it would report normalized funds from operations in a range of 71 cents to 76 cents per share, largely due to an expected senior housing portfolio occupancy decline of up to 375 basis points (3.75%) in the first quarter.
Despite the firm’s struggles, Welltower has continued to recycle capital and has plans to proceed with its flurry of dealmaking in 2021, CEO Shankh Mitra said.
“As I sit here today, I’m optimistic that this year is shaping up to be a year of net acquisitions,” he said. The firm completed $657 million in acquisitions since the start of the fourth quarter, including Tuesday’s announcement that it had acquired a 790-unit portfolio of senior living assets operated by Harbor Retirement Associates for $132 million from Healthpeak. These acquisitions were offset by $781 million in dispositions.
Analysts noted that this near-term capital recycling has some risk of earnings dilution, with the company focusing on purchasing non-stabilized senior housing assets that are trading at large discounts to replacement cost, given a challenging financing market for new, but lowly leased, assets despite good locations. But overall, they say it’s a smart move on Welltower’s part.
“We believe an eventual recovery in senior housing should show in hindsight that such transactions create shareholder value in the long run,” Mizuho analysts Omotayo Okusanya and Zachary Silverberg wrote in an investor note on the REIT’s fourth-quarter results.
For additional coverage of Welltower’s fourth quarter and year-end earnings, visit McKnight’s Senior Living.