Recent portfolio performance and demographic trends have Welltower executives feeling hopeful about senior housing for 2019, they told investors and analysts Tuesday.
“Cautiously optimistic” is the phrase that Executive Vice President and Chief Investment Officer Shankh Mitra used during the real estate investment trust’s fourth-quarter and full-year 2018 earnings call.
“Sequentially, fourth quarter over third quarter occupancy and revenue growth has been the best we have seen since the fourth quarter of 2015,” Mitra said. “While one quarter does not make a trend, we are particularly encouraged by the 120 basis points of occupancy increase in our assisted living segment, as the impact of new supply is starting to wane, and the demand is beginning to pick up.”
Assisted living is “a very large portion of our U.S. business,” he noted.
Across Welltower’s senior housing operating portfolio, occupancy increased 40 basis points year-over-year, Mitra said. “We also saw a sequential occupancy increase of 90 basis points in our senior housing triple-net portfolio, driving coverage up one basis point.”
Senior housing operating same-store net operating income grew by 0.6% in the fourth quarter and by 0.4% in 2018 overall, Executive Vice President and Chief Financial Officer John Goodey said. In the senior housing triple-net portfolio, NOI grew by 4.3% in the fourth quarter and by 3.7% for the year, he added.
Demographic trends also are favorable for Welltower, Mitra said.
“While it is true that the explosive growth of the 86-plus population is still a handful of years away, median age, by definition, suggests that an equal number of our customers are below that age mark, and the population will begin to grow significantly starting later this year and into next year,” he said.
Since the REIT’s third-quarter 2018 earnings call, Mitra said, Welltower has announced $725 million in senior housing acquisitions. The properties involved have an average age of 4.5 years and will be managed by three different operating partners, he said. “Our pipeline remains strong in senior housing across both existing and new relationships,” Mitra added.
Goodey said an “absolute bidding frenzy” exists among institutional investors looking for senior housing properties.
“People are seeing where the demand growth curve is going, and there is a true demand for these assets,” he said.
Going forward, Goodey said, the REIT will deploy capital in senior housing “in markets and the types of assets that are relevant to the broader Welltower strategy, which is connecting senior housing more broadly in the health — and what is increasingly becoming a wellness — continuum.”
