Shankh Mitra headshot
Welltower CEO Shankh Mitra

Spot occupancy in Welltower’s U.S. senior housing operating portfolio rose 120 basis points (1.2%) in the second quarter, with half of that increase occurring in the last two weeks of June, according to the Toledo, OH-based real estate investment trust’s latest business update, released Wednesday. 

Revenue per occupied room across the entire senior housing operating portfolio (U.S., U.K. and Canada) “modestly exceeded expectations, and pricing power remains robust with strong recognized renewal rate increases and improving street rates,” according to the report.

The REIT said it recently began transitioning 12 West Coast senior housing properties from the portfolio to three existing Welltower operating partners, including Oakmont, Kisco and Cogir. 

Nine properties were moved in July, with an additional three properties expected to be transitioned later this quarter. The portfolio was acquired as part of Welltower’s 20-property Vintage acquisition in 2016 and consists of 2,010 assisted living units across 12 communities. Those property transitions, which previously had not been assumed in the second-quarter guidance, contributed to higher-than-anticipated expenses during June, Welltower said.

The West Coast transitions are expected to drive improved net operating income, the REIT said. Oakmont previously began managing six other properties within the same Vintage portfolio in California markets as of August 2021. Additional improvement is expected, with Oakland currently operating its same-store portfolio at almost 95% occupancy.

Cogir and Kisco will assume management of one property each, and in markets where they already manage communities.

Occupancy is outperforming seasonal trends, according to the REIT. Since the occupancy trough in the latter part of the first quarter of 2021, sequential average occupancy growth has “meaningfully” outpaced pre-COVID averages, and Welltower expects that trend to continue through the second quarter.

Welltower said that a balanced lease structure is lessening the effects of inflationary pressures. “Shorter duration leases in our senior housing portfolio allow for more frequent mark-to-market of rents,” the REIT said. Diversification also is helping the company mitigate challenges, Welltower said.
Demand is outpacing supply, according to the report. Construction starts have decreased significantly, even compared to 2017. There has been a 67% decline in construction starts since a peak in the fourth quarter of 2017. Now, Welltower said, cost inflation has driven starts down even more, even as demand for senior housing increases. The REIT expects to see further decline in units under construction in the foreseeable future.