Welltower’s seniors housing operating portfolio (SHOP) continued on its road to recovery in the first quarter of 2023, a quarter that historically has always had a difficult time. Same-community SHOP net operating income surged an impressive 23.4% year over year, as well as by 6% sequentially. This was helped by COVID going into remission and a mild flu season.
Same-community SHOP occupancy (746 communities) increased by 240 basis points year over year, and by 10 basis points sequentially, to 79.4%. The year-over-year increase was less than what we expected, and we have to believe that Welltower management is still concerned about the overall level of occupancy at this point in the recovery. But an increase is on the books. The entire SHOP portfolio had an average occupancy of 79.8% in the quarter, while the seniors housing triple-net leased portfolio was at 79.5%. Would be nice to break through that 80% number.
The operating margin for the portfolio increased by 240 basis points year over year and by 90 basis points sequentially, to 22.4%. While still a far cry from the pre-pandemic levels, it is just taking everyone longer than anyone wanted for a recovery.
The main reason for the financial improvements has been the fact that same-community revenues increased by 10% year over year, the result of needed rate increases and occupancy increases, while operating expenses were up “just” 6.67%. Within those expenses, food was up 11.6% year over year, while compensation costs increased 7.8%. Once their operators can get those under better control, NOI and margin improvements will become larger, especially on the labor front.
Initially, Welltower’s shares jumped by 2.1% during the day. But after the Fed raised rates by another 25 basis points, and the overall market tanked, those early gains slipped and Welltower ended rising by just 0.22% by the end of the day.
