Everyone tries to put a good face on their performance, whether it has been average or well above average. But Shankh Mitra, CEO of Welltower, was practically exuberant on the REIT’s recent performance and its future growth and prospects. It certainly helped that same-community NOI in its SHOP portfolio grew by 18.4% year over year. Half of that growth came in the second quarter 2021, but the other half (9.7%) came in the first quarter this year. Increasing census and the ability to now charge higher rates really drove the increases.
Welltower’s seniors housing operated portfolio (SHOP) census beat the first quarter blues as many others have, with the U.S. portfolio posting a month-end occupancy of 78.6%, up 70 basis points from the end of December. This is crucial because it just does not happen in seniors housing in the first quarter, or at least not in the past 10 years. And coming before the all-important selling season during the second and third quarters will help keep the momentum going. It should also be noted that all of that 70 basis-point increase came in March, with zero increases in January and February. March was also 620 basis points above the end of April 2021.
The company provided an update on their partnership with The Related Companies and Atria Senior Living, completing the construction of their first community, a 208-unit property in San Francisco, and expecting to complete their Hudson Yards community in New York City in the fourth quarter. An additional community in California broke ground in the first quarter, and a third will do so in mid-2022. The success of these will be closely watched to see where demand really is for high-end, very expensive communities in large city locations. No word on what happened to forecast versus actual construction costs.
Subsequent to the end of the quarter, Welltower purchased three completed active adult communities developed in partnership with Treplus Communities, a company we featured last month. They also closed on the acquisition of three communities in Washington operated by Cogir Management Corporation for $244 million in a 90/10 joint venture. The Welltower/Cogir relationship now involves 34 properties across Canada and the U.S.
The REIT also expanded its relationship with Oakmont Management Group by agreeing to buy seven senior living communities which will be operated under a RIDEA contract. These are all in California and include four rental communities and three CCRCs (both entrance fee and rental). Welltower also disclosed that it is changing its relationship with Legend Senior Living, converting some of its leased properties to a RIDEA contract. Like so many others, we assume the lease payments became difficult with census declines and operating cost increases, so the conversion made sense for both parties. Assuming current trends continue, they expect the income under RIDEA will break even with what they would have received in rents by the first half of 2023, and then escalate.
Unless we misunderstood management on the earnings call, apparently they have never seen so many deals in the market fall apart, which we take to mean either the seller or buyer walked, as they have recently. If so, we assume it has to do with interest rates rising and the returns not penciling out. And, they have never been as bullish on the acquisition market as they are now. For the “millionth” time, Mitra reiterated that they are buyers based on price and will never do a “strategic” acquisition. It is all about maximizing returns for their shareholders.
