The positive financial results that Welltower is experiencing today are the result of “a deliberate and often painful complete restructuring” involving “considered and sometimes tough decisions” with operators such as Brookdale Senior Living and Genesis, CEO Thomas DeRosa said Wednesday during a third-quarter earnings call.
Today, he added, the Toledo, OH-based REIT is meeting or exceeding the 2019 growth plan outlined in December at its investor day.
Welltower’s seniors housing triple-net lease portfolio saw 3.4% year-over-year same-store growth in the quarter, and the senior housing operating portfolio continued to perform above the REIT’s expectations, with same-store growth of 2.8% in the quarter, said Tim McHugh, vice president of finance and investments.
In fact, Executive Vice President and Chief Investment Officer Shankh Mitra said that SHOP results have exceeded expectations for three consecutive quarters.
“Relative to our initial expectation of 2.5% to 2% net operating income growth in SHOP for 2019, we have year-to-date delivered a solid 3% NOI growth, driven by strong pricing power,” he said.
Top markets — Washington D.C., Seattle, Chicago and San Diego — saw double-digit NOI growth in the third quarter, Mitra added. And the REIT is seeing significant outperformance of assisted living and memory care relative to independent living, he added.
“That gap has reached a multi-year high this quarter,” Mitra said, adding that the trend has been consistent, for the past four quarters.
In the quarter, the chief investment officer said, Welltower and Norwood, MA-based LCB Senior Living entered into a RIDEA relationship and bought an asset in Connecticut together for a pro rata investment of $31 million, or $300,000 per unit. Two former Brookdale Senior Living properties, in Chelmsfold, MA, and Rocky Hill, CT, also were transitioned to LCB after the quarter ended.
“People might have thought we were exiting New England when we exited Benchmark,” DeRosa said. Welltower ended its eight-year relationship with Benchmark Senior Living in July with the sale of its 48-property portfolio for gross price of $1.8 billion.
“But actually what we did is, we aligned ourselves with a premium operator who is in the right markets in New England, and we’re hoping that we’re going to have to growing business with LCB,” the CEO added. “We see them as the premium operator in the [Boston] market.”
Also in the quarter, the REIT expanded a relationship with Senior Resource Group, adding one asset in the San Francisco Bay area. The pro rata investment of $35 million ($360,000 per unit), is a significant discount to the replacement cost in that market, Mitra said.
“While we have seen this kind of per-unit pricing in Florida and Texas recently by other market participants, we’re excited to achieve such remarkable pricing in the San Francisco Bay area,” he said.
Welltower also is expanding its relationship with existing operating partners Frontier Management and Oakmont Senior Living. After the third quarter ended, the REIT closed on two SHOP assets with Frontier, in Boise, ID, and Turlock, CA, for $39 million, or $197,000 per unit. Frontier already was managing the properties, according to Welltower.
With Oakmont, Welltower signed a definitive agreement to buy six newly built Class A properties with approximately $297 million.
“As a result of overbuilding in last few years, we are starting to see more capital deployment opportunities in the memory care segment,” Mitra said, adding that Welltower expects to grow with Oakmont in California.
As far as the REIT’s acquisition pipeline, McHugh said: “We’re seeing real opportunities both in the senior housing space as well as in the medical office space. So I would just say stay tuned.”