Welltower was the first REIT out of the gate with its first quarter earnings release, something the market has been waiting for to see if there are any signs that a turnaround is on the way. The answer is…sort of.
First the bad news. Average first quarter 2021 occupancy in its seniors housing owned portfolio declined by about 310 basis points from the fourth quarter, which was near the middle of management’s forecast, so totally expected. The occupancy at the end of March was 73.6%, or 1,210 basis points lower than at the end of January 2020. That’s a big hole their operators have to dig out of.
Assisted living and independent living revenue per occupied room (REVPOR) increased by just 1.6% and 0.7%, respectively, year over year, and to begin to recover past NOI levels those numbers will have to increase. Move out activity increased by 6% sequentially, but the first quarter is always a tough one.
On the good news front, senior apartments saw a 6.3% increase in REVPOR year over year. We have heard this from some Active Adult providers that the pandemic did not hurt their pricing. In addition, overall move-in activity increased by 8% sequentially, and for the first time since January 2020, month-end occupancy in March did not drop sequentially (at 73.6%).
Even better, by April 23, SHOP occupancy was 73.8%, 20 basis points above the end of March and about 60 basis points higher than the pandemic low on March 12, 2021. Four weeks do not make for a sustained turnaround, but management at least can see the light at the end of the tunnel, even if it might be a candle. Let’s hope the canary does not die.
Management presented how NOI for the SHOP portfolio could get back to normal (at 87.3% occupancy), increasing by 1,350 basis points. They combined annualized current in-place NOI ($520 million, excluding provider relief funds), the incremental increase from census stabilization ($362 million), development fill-up and stabilization ($95 million), and $22 million of other. The grand total comes to $999 million.
Someone asked when this would happen, and at least the answer of “we have no clue” was honest, even if not what investors are looking for. The reality is that no one really knows. But keep in mind that to hit that occupancy level by the end of 2023, quarterly increases in occupancy would have to average 122 basis points for the entire period. To reach it by the end of 2025, the average quarterly increase would have to be about 70 basis points. For the record, the industry has never seen sustained quarterly increases like these; but the industry has never seen the quarterly decreases we witnessed in the past year either, so you never know. We will go more into depth on this in the May issue of The SeniorCare Investor.
The vaccine continues to work wonders for the sector, and Welltower’s SHOP portfolio had move-ins in March that were 86% of 2019’s level, the highest percentage of the pandemic and a huge jump from 67% in February. In April of 2020, the number was 17%, so they have come a long way. Move-outs as a percentage of 2019 (81%) were also the lowest since October 2020, but part of that reflects the smaller number of residents available to move out. At least they are moving in the right direction. Now, it is just a question of timing.
