As expected, Welltower reported a 150-basis point decline in occupancy in its 557-community seniors housing operating portfolio (SHOP) to 78.4%. The good news is that this is a much smaller decline compared with the second quarter’s drop of 490 basis points. Through October 23, occupancy declined by another 30 basis points since the end of September, and management expects the full fourth quarter drop to be between 75 and 125 basis points.
The slowing decrease is positive, and while they did not forecast 2021 occupancy, as an industry, census has never increased in the first quarter, so even with the slowing trend line, occupancy for this large portfolio is expected to be near 77% by year end, and could close in on 75% by March 31 next year. That is when we all hope for some stabilization. Why is Welltower’s performance so important? Because they have a very high-quality portfolio of communities and operators, and we have to assume their census experience is representative of the industry as a whole. Lesser quality operators may be faring even worse, but it all depends on where they are located and the impact of community spread. Small operators, however, have been seen to be more hands on.
One fact that we think is important to highlight is that out of the 557 SHOP communities, 522 (94%) have had zero COVID cases on a trailing two-week basis, while just 28 have had one or two cases. We know that the virus is not contained in the country, but a 94% “no-case” rate as it spreads elsewhere gives us hope that providers are in a very good position for the winter onslaught of flu and COVID. Perhaps because of this, 94% of their communities are accepting new residents. This is the same as with August 31 and July 31, so just because they are accepting does not mean residents are moving in. Except, move-in activity actually increased by 104% compared with the second quarter, but is still down 39% compared with a year ago. Countering that, move-out activity declined 9% sequentially and by 21% year over year. The key will be increasing the move-in rate and keeping that move-out rate lower than historical patterns. That would seem to result in higher acuity levels, higher revenue per occupied room and higher costs.
On the acquisition front, Welltower disclosed that it entered into an agreement to purchase 25 assisted living and memory care communities located throughout the Midwest, and in October closed on the first tranche of 11 properties for $90 million. Chesterfield, Michigan-based Storypoint Senior Living will operate them under a triple net lease. Welltower management indicated they are in a great position for increasing seniors housing acquisitions, and they see an abundance of opportunity in the next 12 months for a cash buyer.
