Q3 progress creates ‘strong setup’ for 2023: Welltower CEO
Despite “flat” earnings trends, driven by headwinds such as inflation, interest rates and utility spending, Welltower CEO and Chief Investment Officer Shankh Mitra said he was pleased with the real estate investment trust progress in the third quarter.
In an earnings call on Tuesday, Mitra said it expects further fourth-quarter improvement for the Toledo, OH-based REIT, which will create a “strong setup” for 2023.
“I remind you that we are at the very beginning of the recovery in retirement housing and that we will remain as excited as ever about the prospects for growth in the years to come,” Mitra said. “And the population growth over 80 will continue to accelerate.”
The senior housing portfolio is growing
Same-store sales in Welltower’s seniors housing operating portfolio increased 10.8% in the third quarter, driven by average occupancy growth of 390 basis points year-on-year the other and 100 basis points of occupancy growth in the third quarter.
Strong pricing power, with some operators pushing prices into the 10% range for next year, also contributed to revenue growth, Mitra said, with 5.3% price growth in stores. comparable “the best we have seen in our recorded history”.
Chief Operating Officer John Burkart said all three geographies of the REIT’s overall senior housing operating portfolio posted strong revenue growth: the U.S. portfolio posted growth of 11.6% in the third quarter, the UK portfolio increased by 18.9% and Canada increased by 4.4%.
Welltower expects same-store revenue growth of 9.5% year-over-year in the senior housing operating portfolio in the fourth quarter, driven by accelerating rate growth and pursuing occupancy gains. Pricing power remains “robust,” Mitra said, with strong renewal rate increases and improved street rates.
The occupancy rate in the third quarter was 79.2% for this portfolio and 78.8% for the triple net housing portfolio for seniors.
Work challenges ease
Same-store agency labor spending accounted for 5.7% of compensation spending in the third quarter, down from a peak of 7.3% in the fourth quarter of 2021.
Temporary labor in its overall portfolio of retirement homes accounted for 4.9% of labor spending in September – the lowest level since last year’s delta surge. These trends further improved in September and October. Welltower expects spending growth to decline further in the fourth quarter due to lower overall labor spending.
A significant shift in the labor market results in positive net hiring dynamics. After a strong increase in hiring in July, net hires across the entire SHO portfolio remained positive between August and October, with growth of nearly 4% in the total number of employees since June 30.
In its UK portfolio, total same-store employee hires increased nearly 6% in the third quarter, with net hires in September and October more than doubling from the previous two months. Overseas caregiver programs have boosted hiring and are expected to further reduce agency spending.
In its US and Canadian portfolio, the total number of employees increased by 3% in the third quarter. Overall, operators reported strong attendance and increased take-up of offers at job fairs, as well as success in using dedicated recruiters to drive positive net hiring momentum.
“It’s been a full spring since COVID began, and our operators have risen to one challenge after another,” Burkart said. “We are finally at a point where it seems there is light at the end of the tunnel.”
Investing activity continued in the third quarter
In July, Welltower expanded its relationship with Oakmont Management Group through the acquisition of three rental communities and three fee-paying communities in California.
As previously announced, Welltower has entered into an agreement with StoryPoint Senior Living in Brighton, MI to acquire 33 communities across Michigan, Ohio and Tennessee. In July, Welltower closed the second and third tranches with the acquisition of 23 communities in Ohio and Michigan. In October, the REIT completed an additional purchase of five properties in Ohio. To date, Welltower has acquired 30 properties with StoryPoint in 2022.
During the third quarter, Welltower expanded its relationship with Kisco Senior Living through the acquisition of senior housing in San Francisco.
Welltower expects to fund $263 million in development funding over the remainder of the year for projects underway on September 30.
ProMedica Agreement Moves NFS to Integra Health
On Monday, Welltower announced agreements to transition 147 skilled nursing facilities from ProMedica to Integra Health through a new joint venture.
ProMedica will continue to lease and operate 58 private seniors’ residences under an existing joint venture with Welltower. In a separate announcement Monday, ProMedica said the facilities are all Arden Courts Memory Care Communities.
Mitra said when Welltower invested in ProMedica in 2018, the REIT did not predict COVID-19 and the effects it would have on the portfolio, adding that Welltower was “disappointed” with the portfolio’s performance. He said that while ProMedica has made significant progress in reducing its operating losses through occupancy gains and lower contract labor costs, he is confident in the ability to Integra Health to execute a turnaround of the properties to their “former glory”.
“The transition to Integra Health has a dual benefit, providing us with a well-capitalized strategic partner to focus on skilled nursing properties while leaving ProMedica Senior Care in a significantly better financial position post-transaction,” said VP. Executive Chairman and Chief Financial Officer. said Tim McHugh.