Welltower’s first-quarter senior housing operator portfolio results exceeded expectations in rate, occupancy and labor costs, the real estate investment trust’s executive vice president and chief investment officer, Shankh Mitra, said Tuesday during a first-quarter earnings call.
“Same-store [net operating income] for the SHOP portfolio is up 3% year-over-year, driven by 60 basis points of occupancy growth [and] 2.9% rate growth, partially offset by a 3.6% labor cost growth,” he said. “These are the best fundamental results we have seen in a long time.”
Mitra said Welltower is even more encouraged by sequential results.
“Sequential revenue growth of 0.4% in a usually seasonally weak first quarter is one of the best we have seen in years and is driven by both strong rate and occupancy,” he said. “More interestingly, this quarter, for the first time in five years, we saw sequential revenue per occupied room growth of 3.3%, outpaced compensation per occupied room growth of 2.8%, resulting in a positive spread of 50 basis points.”
The results cover 23 operators in three countries — the United States, Canada and the United Kingdom — and the diversity helps the REIT whether tough market conditions in any given area, he said. The U.K. portfolio is experiencing “exceptional” results now, for instance, whereas the portfolio of properties in Canada has been facing a “tough” year by comparison, Mitra said.
In the United States, Welltower is “encouraged” by the portfolio performance in the first quarter, he said.
“NOI is up 2.2% year-over-year, driven by 40 basis points of occupancy increase, 2.8% rate growth and, particularly encouraging, 3.8% compensation per occupied room growth,” Mitra said. “We have seen broad-based trends across larger and smaller markets.”
Assisted living and memory care communities have driven senior housing results in the U.S., he said, noting 4% NOI growth.
“While a handful of quarters does not make a trend, we are cautiously optimistic that our portfolio is positioned for significant cash flow growth for years to come,” he said.
Welltower CEO Thomas DeRosa described the quarter as “strong” and said overall results were in line with the REIT’s expectations.
“These results are the product of consistent growth across all of our business segments, in particular seniors housing, where performance is being driven by an ongoing stabilization of occupancy, which Welltower began to benefit from in 2018. We expect this to continue through the rest of the year,” he said.
‘Very happy’ with short-term ProMedica/ManorCare results
Welltower is “very happy with how the short term has played out” with the HCR ManorCare properties it owns with ProMedica, Mitra said.
A 80/20 joint venture between Welltower and ProMedica leases ManorCare’s real estate to ProMedica.
“We’re very happy with the capital deployment plan in our ProMedica / HCR ManorCare assets,” he said. “The ProMedica / HCR ManorCare team is working diligently with our data analytics team to prioritize capital deployment. We have 45 assets slated to go through this [capital expenditure] program in the next two to four months.”
Projects at ManorCare skilled nursing facilities and ManorCare’s Arden Courts memory care communities range from complete renovations to “touch-ups,” Mitra said.
Occupancy in the skilled nursing facilities is up more than 100 basis points, he said, and occupancy in the memory care communities is “close to that.”
“These things take time, and we are focused on what the long term looks like, but we’re happy, very happy with how the short term has played out, whether that’s on the reimbursement side or on the cost side,” Mitra said.
“Notable” U.S. senior living transactions during the quarter, Welltower said:
- The REIT completed the disposition of the eight StoryPoint Senior Living communities in its triple-net portfolio for $290 million. The gain on the sale was $169 million, with an unlevered IRR of 18.7%. “We consider StoryPoint to be one of our best and most strategic operating partners, yet we sold this asset at an offer we could not refuse,” Mitra said.
- Welltower expanded its RIDEA relationship with StoryPoint by acquiring a senior living community in Michigan for a pro rata investment of $57 million. “We continue to grow with StoryPoint through a new RIDEA joint venture with two brand new assets that we just bought, several in development and are transitioning many more communities to [the company] that we believe will see cash flow growth similar to that experienced in the portfolio that we just sold,” Mitra said.
- The REIT formed a new RIDEA relationship with Portland, OR-based Frontier Management and acquired four assisted living and stand-alone memory care properties in Oregon and Washington for a pro rata investment of $39 million. “Greg Roderick, who is the CEO and majority owner of Frontier, is a third-generation operator and leads one of the most operationally focused teams that we have seen in this industry,” Mitra said. “We have significant plans for growth with this team in the future.”
- Welltower expanded its relationship with Chelsea Senior Living, an operator in the triple-net senior housing portfolio, by acquiring three senior living communities in New Jersey for $80 million.
- The REIT closed on the disposition of its 47.5% interest in a stand-alone memory care community operated by Senior Resource Group for $9 million based on 100% ownership.