headshot - Welltower CEO and Chief Investment Officer Shankh Mitra
Welltower CEO and Chief Investment Officer Shankh Mitra

Toledo, OH-based real estate investment trust Welltower had one of its most active starts for investment activity in its history, completing $1.6 billion of investments in the second quarter. But even with an increase in total revenue, CEO and Chief Investment Officer Shank Mitra said he’s not happy with the results, characterizing them as “mediocre at best.”

Although total revenue is up 29% year over year, driven by organic revenue growth and activity, and same store revenue growth in the REIT’s senior housing operating portfolio increased 11.5% in the second quarter, Mitra said during a second-quarter earnings call on Wednesday that the results do not reflect the cash flow the portfolio is capable of generating, given its size and significant amount of capital deployment.

“We started the quarter with results coming in better than expected, only to get hit by multiple challenges related to another COVID spike during the last weeks of June,” he said. The result, Mitra added, was a disruption to move-ins and an increase in the use of agency labor. 

Operators, he said, made good progress in July, as broad-based demand recovery continued, leading to increased leads, tours and move-ins in the past couple of weeks.

Several transactions occurred

During the second quarter, as McKnight’s Senior Living previously reported, Welltower acquired a portfolio of 25 senior apartment communities in the East Coast and Midwest markets for $502 million. With this acquisition, the REIT said that it is the largest owner of moderately priced, age-restricted and age-targeted rental housing in the country.

Its “wellness housing” platform, the REIT said, offers low- to moderate price points for middle income, age-targeted residents. The platform will consist of almost 10,000 units following completion of a portfolio transaction with Calamar, with significant growth expected through additional capital deployment opportunities. 

In April, Welltower closed on a three-property portfolio in Washington state for $244 million in a 90 / 10 joint venture with Cogir Management Corp., which will assume management of the properties. Cogir also will manage two properties Welltower closed on in Montreal, Quebec, for $102 million, and Brentwood, CA, for $35 million.

Other second-quarter transactions:

  • A Bakersfield, CA, assisted living and memory care community, which will be managed by Oakmont Management Group.
  • A previously announced acquisition of 33 communities in Michigan, Ohio and Tennessee, managed by StoryPoint Senior Living.
  • Three wellness housing communities in the Midwest, to be managed by Treplus Communities.

In July, after the quarter ended, Welltower began the previously announced transition of 12 West Coast properties to Oakmont, Cogir and Kisco Senior Living. The REIT also acquired three rental communities and three entrance fee communities in California, which will be managed by Oakmont.

Mitra said the second quarter was a favorable transaction environment and that Welltower’s “off-market, privately negotiated transaction machine kept humming,” deploying an additional $1.1 billion in capital. 

“We’re seeing high-quality opportunities, and I think the environment will only get more favorable,” he said. “The pipeline remains robust. I continue to believe this will be a record year for Welltower from a capital deployment standpoint.”

The REIT has deployed $2.5 billion in investment capital so far this year on 39 transactions, including 70 senior housing and outpatient medical properties. Welltower anticipates funding $670 million in development through the remainder of the year related to projects that were underway as of June 30.

Occupancy up 5%

Same-store average occupancy in its senior housing operating portfolio increased 500 basis points (5%) in the second quarter, led by the US and UK portfolios, which had occupancy gains of 640 basis points (6.4%) and 750 basis points (7.5%), respectively.

Total occupancy in its senior housing operating portfolio was 77.1% for the second quarter.

Although a “significant” drop in tour volume occurred in the first week in July, after the quarter ended, trends improved in the second half of the month, driving overall US tour volume to about 95% of June levels, Mitra reported. Lead volumes declined in mid-June and early July, but overall demand remains “robust,” with lead volumes for certain operators recovering above June levels, he said.

Recent spikes in COVID-19 have not dulled the ability of operators to push strong rates, with some operators implementing 15% to 20% rate increases, he said.

Net hiring improving

After the quarter ended, net hiring improved, with the July increase almost equal to net hires through the first six months of the year, Welltower reported.

The REIT expects the year-over-year same-store expense growth of 10.5% seen in the second quarter to moderate in the second half of the year, driven by recent improvement in full-time employee hiring and declines in agency labor use.

The US senior housing operating portfolio has seen an 85% decline in staff COVID-19 cases since they peaked in January 2021, whereas the UK portfolio saw a 68% decline and the Canadian portfolio saw an 88% decline in cases. 

Business initiatives launched

Chief Operating Officer John Burkart discussed several operating platform initiatives being undertaken.

Challenges across the board, he said, include basic functions such as care revenue billing. Welltower’s review of operations determined that care revenue was underbilled by 25% or more. Other challenges, Burkhart said, include keeping up with changing consumer expectations, such as the need for building-wide, high-speed internet connectivity; identifying and integrating technology systems; and providing actionable reporting to improve operational results.

Welltower, he said, is focusing on improving the resident and employee experience and optimizing results by implementing leading-edge technology to simplify and automate processes.

“It’s about fundamentally transforming the business,” he said, adding that the company has formed an internal multidisciplinary team of experts focused on improving senior housing operations, hired a chief technology officer and completed implementation of enterprise resource planning software. 

Burkart said he expects to begin a data analytics pilot project in the next six months and create a sales force automation plan, which he expects to test early next year. 

“The business transformation will continue to deepen and widen the moat Welltower has built, while improving the overall experience of all stakeholders,” he said.