Following fourth quarter earnings from Ventas, Welltower also posted solid gains in its SHOP portfolio, both sequentially and year over year.
On a same-community basis, Welltower’s 654 communities posted a 20-basis point sequential increase in occupancy and a 200-basis point increase year-over-year to 79.1%. Now, while we are sure management would like to see the final year-end numbers higher, and getting over 80% (if not 85%) is crucial, the slowdown in the fourth quarter does not bode well for the first quarter this year. At least this year’s flu season has not been as bad as previously forecast by the media.
The same-community net operating income increased 6.3% sequentially, but at a much larger 28.1% increase year-over-year to $185.1 million. The operating margin increased by 80 basis points sequentially, and 320 basis points year over year to 22.8%.
Total compensation costs increased 1.5% sequentially, and 5.2% year over year, which means the fourth quarter saw a larger increase than the average for the three previous quarters. Food costs were a major problem, increasing 4.6% sequentially and 13.3% year over year. Part of the increase reflects higher occupancy, but inflation has certainly taken its toll on food costs in general.
Same-community total expenses increased 1.5% sequentially compared with a 2.56% increase in revenues. For today’s market, that is a decent spread, which if continued or increased, means higher future cash flow growth. It was even better on a year-over-year basis, with expenses increasing 6.0% compared with a 10.3% increase in revenues, for a 4.3% spread. It was telling, and something that we agree with and have been saying for quite a while, that Shankh Mitra, the CEO, said he would be very disappointed if the SHOP operators could only get back to pre-COVID census and margin numbers. They need to do much better to get the value back.
In other news, the skilled nursing assets that were taken back from ProMedica Senior Care have now been dispersed among 16 different operators, with four additional operators coming soon. We do not know how many of these are new relationships, but it is a good hedge to have that many different providers involved.
The market appeared to like what it heard, sending the shares up 3.5% in an otherwise down market.
