Toledo, OH-based real estate investment trust Welltower experienced a strong start in the first quarter, with a 19% year-over-year increase in funds from operations across the board, CEO Shank Mitra said Tuesday during a call with analysts and investors.
“I remain particularly excited about our senior housing business, which continues to surpass our expectations. Despite continued uncertainty with respect to the direction of the economy and turbulence across many sectors within commercial real estate, the demand/supply backdrop for senior housing gets better with each passing day,” Mitra said.
“And while this demographic demand and market demand continues to strengthen, the new construction remains extraordinarily difficult, pushing off any impact of new supply many years into the future,” he added.
Welltower’s senior housing operating portfolio’s year-over-year same-store revenue increased 10.3% in the first quarter, with 340 basis points of year-over-year average occupancy growth and revenue per occupied room growth of 4.8%, according to a press release issued in conjunction with the earnings call.
Executive Vice President and Chief Operating Officer John Burkhart said Tuesday that the SHOP experienced a 25.5% first-quarter year-over-year same-store net operating income increase. Additionally, he added, this increase represents the sixth consecutive quarter in which Welltower’s growth has exceeded 20%.
“In terms of labor-related trends, we’ve not only seen broader macro pressures continue to ease, but also our various property and portfolio-level initiatives have been paying off,” Burkhart said. “For example, by creating greater regional density within our senior housing portfolio, employees are able to fill open shifts at other regional properties, reducing the usage of agency labor and improving the overall customer experience.”
Executive Vice President and Chief Investment Officer Nikhil Chaudri said that business fundamentals are very strong, with opportunities to deploy capital.
“In large part, this backdrop is a function of the challenged seniors housing debt, which sits on the balance sheets of the largest lenders in the space,” Chaudri said.
During the first quarter, he said, the REIT completed gross investments of $449 million, consisting of $241 million of development funding and $208 million in acquisitions and loan funding “comprised solely of seniors and wellness housing property types.”
Welltower acquired three senior living communities with an average age of eight years for $168,000 per unit, he said. Additionally, the REIT received repayments of $36 million across three outstanding loans over the course of the quarter.
Chaudri said that In addition to the transactions closed in the first quarter, the company is under contract or has closed on $2.6 billion of growth investments across 15 different transactions spanning 146 properties, with a median value of $37 million, across the United States, United Kingdom and Canada.
“Our results are a function of capital allocation and portfolio management decisions of yesterday,” Mitra said. “To paraphrase [Warren] Buffett, someone is sitting in the shade today because someone planted a tree a long time ago. Similarly, capital allocation decisions of today will drive operating performance tomorrow.”
