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

Welltower is at the cusp of multi-year, double-digit growth due to occupancy gains, rate growth and lower operating expenses, according to CEO Shankh Mitra.

Tuesday during a second-quarter earnings call, Mitra said that the Toledo, OH-based real estate investment trust’s senior living-related results exceeded expectations. Along with positive performance on key drivers, the company’s success was supported by accelerated demand and plummeting new construction in senior living, he said.

“Strong pricing trends, along with moderating expenses, are resulting in significant margin expansion we’ve all been waiting for,” Mitra said.

Those trends, he added, led to operating margin levels not seen since the onset of the pandemic. And Mitra said he expects to “meaningfully” exceed pre-pandemic levels of profitability over time due to the implementation of a new operating platform.

Welltower also announced that, in partnership with Cogir Management, it will launch a senior housing operating platform later this year in Canada, the first such venture by Welltower following the private letter ruling it received in late 2022.

Mitra said the project will “transform the company in this next chapter of its evolution.” He said this marks the conclusion of “contract modernization” with its senior living partners. 

Revera joint venture 

During the second quarter, Welltower entered into agreements to restructure its existing Revera joint venture relationship across the United States, the United Kingdom and Canada. The transactions included acquiring the remaining interests in 110 properties from Revera while selling interest in 31 properties to Revera.

Welltower closed the UK portfolio portion of the transaction by buying the remaining ownership interests in 29 properties previously held in two separate consolidated joint venture structures. Operations of those properties were transitioned from Signature UK to Avery Healthcare.

In July, after the quarter ended, the REIT closed on transactions related to its US portfolio by acquiring 10 properties under development or recently developed by Sunrise Senior Living, previously owned in the 34% Welltower / 66% Revera joint venture. The REIT also sold its minority interests in 12 US properties and one Canadian property.

Operations for two recently developed now wholly owned properties, as well as an additional 26 existing 100% owned properties transitioned to Oakmont Management Group. In conjunction with the transaction, Welltowere also sold its 34% interest in the Sunrise Senior Living management company. 

Welltower said it anticipates closing the remainder of the transactions related to its 85-property Canadian portfolio before the end of the year, according to its business update. As part of the transaction, Welltower will acquire Revera’s interest in 71 properties and will sell its interest in the remaining 14 properties.

The dissolution of the Revera joint venture “largely concludes Welltower’s seven-year contract modernization journey,” the company stated in its business update. 

Investment activity hits milestone

A favorable first-quarter transaction environment has resulted in an active second quarter, with $2.3 billion of deals under contract, predominantly in the senior living segment, bringing the company’s year-to-date total investment activity to $3 billion

During the second quarter, the REIT completed $414 million of investments, including $164 million in acquisitions and $250 million in development funding. Following the completion of the transactions under contract, Welltower will have deployed more than $11 billion of capital since the fourth quarter 2020.

Mitra said that the company is “busier than ever, with a robust, visible and actionable pipeline of opportunities that we’re underwriting right now.”

Welltower anticipates funding an additional $441 million of development this year relating to projects underway as of June 30.

“I expect it to be a busy rest of the year,” the CEO said, with several deals expected to close in the fourth quarter. “We have never  been more than delighted with our operating performance and have never been busier on the deal side and buildout of our platform.”

Robust revenue, moderating expenses

Revenue growth of 10% in the second quarter was driven by rate growth and occupancy gains, the REIT said. Occupancy in the senior housing portfolio increased 190 basis points year over year, driven by gains from assisted living and memory care communities. Inquiries and tours remain strong and continue to trend above 2022 levels, Welltower reported. 

Expense growth remained “subdued” following continued improvement in labor trends, including a reduction in agency expenses, according to the REIT. 

In its business update, Welltower indicated that, in its senior housing operating portfolio, it expects continued occupancy gains and “strong” pricing power to result in same-store revenue growth of 9.7%. The REIT said that pricing power remains “robust” with “strong” renewal rate increase and improving street rates.

Minimal new supply in the coming years sets the stage for multi-year occupancy gains, according to Welltower, which expects that supply-demand imbalance to result in sustained occupancy growth this year and beyond.