Amidst an increasingly uncertain economic outlook, Welltower reported another quarter of operating results that continue to exceed the company’s expectations, powered by “exceptional” growth in its senior housing operating portfolio, according to CEO Shankh Mitra.
During Tuesday’s third-quarter earnings call, the Toledo, OH-based real estate investment trust reported that occupancy growth not only accelerated through the third quarter, but that September occupancy gains in senior living were the highest they have been over the past two years.
The company’s senior housing operating portfolio saw 220 basis points of year-over-year average occupancy growth in the third quarter, according to a news release. And the portfolio experienced accelerated occupancy gains through the third quarter, with July occupancy increasing 180 basis points, August occupancy increasing 220 basis points and September occupancy up 260 basis points.
Welltower said it expects 240 basis points of year-over-year average occupancy increases and rent growth of 6.7% going into the fourth quarter.
In addition to double-digit revenue growth for the senior living portfolio, controlled expense growth generated 333 basis points of same store margin expansion, the highest level of quarterly margin improvement in the company’s history, the REIT reported.
Net operating income growth for the quarter came in at 26.1%, Welltower’s fourth consecutive quarter of growth rates over 20% and the second-highest level of growth in company history, according to a business update. Normalization in the labor market and decreasing inflationary pressures drove lower levels of expense growth, the firm said.
“While we are pleased that margins are moving in the right direction, we are also mindful that our profitability remains significantly below pre-COVID levels and below where we believe the industry can attract external capital investment on a long-term basis,” Mitra said, adding that the REIT will continue to focus on highly differentiated services, even if rate increases need to remain higher in the short term.
Pipeline, operating platform raise excitement
Welltower closed $1.4 billion in transactions in the third quarter — led by $618 million of senior housing operating portfolio investments — and another $900 million in October, after the third quarter. Another $1 billion in deals are “just about to cross the finish line,” Mitra said.
The investment pipeline remains large, but deal execution will depend on access to capital, the CEO added. Growing financial distress is driving motivated owners to sell properties at discounted rates despite improving industry fundamentals, resulting in a growing number of opportunities for Welltower, according to the REIT.
Mitra said that he is most excited about Welltower’s new operating platform and the digital transformation of the senior living industry. Welltower, he added, has made “tremendous strides” in the past 90 days on the “technology backbone of what Welltower 3.0 may look like” and how far it can raise the bar for the resident and employee experience.
“Welltower’s engine room is buzzing with pilots and scaling, and traditional technology solutions like ERP [enterprise resource planning] and CRM [customer relationship management], to advanced technology solutions around robotics and artificial intelligence,” Mitra said. “Our goal is to elevate the community experience by delighting the customer and their families, and simplify and enhance the employee experience — all of which should lead to occupancy and NOI growth.”
Chief Operating Officer John Burkart said that operating platform efficiencies also will reduce provider reliance on agency labor and increase the time available for care and reduce stress on employees.
“We continue to make substantial progress on our platform and the related rollout,” he said.
“The powerful recovery in senior housing operating business, the rollout of our operating platform and a significantly accretive capital deployment are all setting us up for an accelerating earnings and cash flow trajectory for 2024 and 2025,” Mitra said.
Revera relationship changes
During the second quarter, Welltower entered into agreements to change its relationship with Revera by dissolving its existing joint venture involving properties across the United States, 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 on its US Revera transactions during the third quarter through the acquisition of 10 properties under development or recently developed by Sunrise Senior Living, the sale of its minority interests in 12 US properties and one Canadian development project, and the sale of its interest in the Sunrise Senior Living management company. In addition, the operations of 28 properties were transitioned from Sunrise to the Oakmont Management Group.
Welltower anticipates closing the remainder of the Revera real estate transaction and operator transitions related to its Canadian portfolio at year end, which includes 85 properties. The company intends to acquire Revera’s interest in 71 properties and sell its interests in the remaining 14 properties. To date, operations for 18 of the 71 properties have transitioned to new operators.
Cogir relationship grows
After the third quarter ended, Welltower continued to expand its relationships with Cogir Management, closing on a portfolio of 12 senior living communities in Quebec. Cogir will continue to manage the properties. The transaction expands Welltower’s relationship with Cogir and includes the acquisition of the Jazz brand, resulting in Cogir operating 62 communities owned by Welltower.
Read more about Welltower in our sister publication, McKnight’s Long-Term Care News.
