The third quarter has been marked by “strengthening seniors housing fundamentals driving continued momentum during peak leasing season,” Toledo-based real estate investment trust Welltower said Monday in a third-quarter business update.
The 28 properties in California that the REIT transitioned from Sunrise Senior Living to Oakmont Senior Living in the second quarter have generated “stronger than anticipated results” in the quarter, the company said. The REIT previously said that it transitioned the properties to expand the regional densification in its portfolio.
Overall in the seniors housing operating portfolio, expense growth is moderating, and staffing challenges are easing to a degree, Welltower said.
“Capital deployment opportunity set continues to expand, with deal flow accelerating across all regions, property types and up and down the capital stack,” the company said.
Welltower said it has deployed approximately $1.3 billion in capital to date in the third quarter across the board, including investments in senior housing, “wellness housing” (active adult), skilled nursing and outpatient medical properties.
The company has completed $10.7 billion of gross investments since its “pivot to offense” in the fourth quarter of 2022.
Senior living trends in the REIT’s portfolio are unchanged from the firm’s previous update, the company said Monday. First- and second-quarter occupancy growth “continued to outpace historical trends,” according to Welltower, which said that the majority of annual occupancy gains historically have been generated in the second half of the year.
Property sellers are motivated in the wake of regional bank stress and rising interest rates, the REIT said.
“Dramatic increase in interest rates over the past 18 months has resulted in prohibitively expensive floating rate debt costs for seniors housing owners, further lowering debt service coverage ratios,” according to Welltower.
This situation presents an opportunity for the REIT “to play a meaningful role in recapitalizing stressed [commercial real estate] loan portfolios,” according to the update.
In addition to $3 billion in year-to-date acquisition activity, “the near-term pipeline for capital deployment continues to grow,” the company said.
Welltower also said Monday that it has increased its 2023 guidance range for normalized funds from operations.
Citing the “continued strength” in its seniors housing operating portfolio coupled with “robust and accretive capital deployment activity,” the REIT said it now anticipates normalized FFO per share of $3.51 to $3.60. The previous range announced in July was $3.48 to $3.59.