Welltower released its second quarter earnings results, and its growth strategy was on full display with $1.5 billion in pro-rata gross investments from April to June, at an initial yield of 8.8%. That does not even include the largest deal, which was its proposed $1.58 billion acquisition of 86 independent living communities owned by Holiday Retirement (and Holiday’s owner, Fortress Investment Group). That deal is set to close in the third quarter at a 6.2% initial cash cap rate. Welltower will also enter into a RIDEA-based management contract with Atria Senior Living, which acquired Holiday’s operating business.
Welltower completed another notable investment in April 2021, a £540 million ($750 million) senior loan advancement to affiliates of Safanad as part of its recapitalization of HC-One in April. The combination of debt, equity and warrant investments, made at a significant discount to replacement cost, are expected to generate an unlevered IRR in the mid-teens. The five-year loan is secured by the corporate credit of HC-One and collateralized by first mortgage rights on 282 properties owned by HC-One. An additional £30 million ($42 million) delayed facility is also available for working capital and capital expenditures.
In total, the REIT has made $4.0 billion in gross investments in 2021, spread across 37 transactions that comprise 181 properties (outpatient and seniors housing) and 17,163 total seniors housing units. Since the end of the second quarter, Welltower also completed the acquisition of seven seniors housing properties for $50 million from White Oak Healthcare Finance, which was the second tranche of 29 total properties that the debt fund had foreclosed on. Newmark handled the transaction, which we profiled in more detail here.
Welltower disclosed some positive occupancy figures too, reporting a 190-basis point sequential increase in spot occupancy for its SHOP portfolio in the second quarter. The initial guidance predicted an approximate gain of 130 basis points, but after 50-basis point gains in April and May, June’s increase of 90 basis points far exceeded expectations. And as of July 23, SHOP occupancy stood at 75.0%, representing a 270-basis point gain from the pandemic-low on March 12, 2021. WELL’s triple-net seniors housing properties achieved similar sequential occupancy growth, according to its operating partners. Broken out by country, the U.S portfolio saw a more dramatic 401-basis point increase in census in that period, compared with 275 basis points for the United Kingdom and an 88-basis point decrease in Canada.
Not only that, but for the same store portfolio of 528 properties, revenues, NOI and margin all increased by 1.9%, 11.3% and 9.3%, respectively, from Q1:21 to Q2:21. Year-over-year same-store REVPOR was also up 3.2% across the company’s assisted living communities and 2.8% across independent living. Considering that a significant portion of Welltower’s portfolio is in Canada and the United Kingdom, which have been more delayed in its vaccination and reopening efforts than the U.S., these are very positive signs.
As capital pours out to pay for these new investments, Welltower is continuing to make balance sheet maneuvers to increase its liquidity, closing on a new $4.7 million unsecured credit facility that includes a five-basis point improvement in pricing from the previous facility that bore interest at LIBOR plus 78 basis points. In addition, Welltower sold 20.1 million shares of common stock under its ATM program via forward sale agreements since the start of the second quarter. The sales are expected to generate $1.6 billion of gross proceeds. Finally, WELL issued $500 million of 2.050% senior unsecured notes due January 2029.
