Welltower has the largest owned portfolio of seniors housing communities among the healthcare REITs (SHOP) and census has been steadily rising since the bottom early last year. But the rate of growth, like many others, has been slowing.
Average U.S. occupancy growth was 30 basis points in October, 50 basis points in November and zero in December. Spot occupancy for the U.S. portfolio ended December at 77.8%, or 90 basis points above September 30. That’s not too bad for a fourth quarter, but December was disappointing and most likely reflected the holiday season as well as the spreading Omicron variant. Up until December they had had nine consecutive months of increased occupancy.
The good news is that move-ins remain above 2019 levels, and move-outs are below. If that trend continues, we should see census slowly building through the year. The question is whether the target is 85% stabilized, which we believe is too low to be satisfied with, or something above 90%, which is when we may see margins getting closer to the past, other than the issue of labor costs. But at least the operators will have more flexibility with labor costs as census rises.
Welltower has been the most active investor during the pandemic. In the fourth quarter, the REIT purchased $1.4 billion in assets with an initial yield of 5% and an unlevered yield in the high single digits. Since October 2020, they have purchased $6.1 billion in assets with an initial yield of 6.1% and a three-year expected yield of 8.2%.
Unlike Ventas, whose Canadian seniors housing assets have an average occupancy of about 93%, Welltower’s Canadian communities are around 78%. We believe it is because there they provide different service levels. That may show some larger signs of improvement as the pandemic winds down.
