After ‘Most Challenging Period in the Company’s History,’ Welltower Sees Stability Ahead for Needs-Based Care

Welltower Inc. (NYSE: WELL) CEO Tom DeRosa didn’t mince words on Thursday when describing the impact of COVID-19 on the real estate investment trust’s (REIT) senior care tenants.

“When we last spoke with you in early May, Welltower was in the midst of the most challenging period in the company’s history,” DeRosa said on REIT’s second-quarter earnings call. “Many of our senior housing and post-acute care operators had implemented admissions bans to prevent or control the spread of COVID within their communities. Critical personal protective equipment and testing kits were difficult to procure, and labor challenges left many of our operators short-staffed.”

Those trends have since abated, with staffing and PPE levels increasing to “appropriate” levels, he said. And while DeRosa cautioned that the Toledo, Ohio-based health care REIT wasn’t “signaling the all-clear” just yet, he painted a picture of a stabilized, managed crisis — with the potential for expansion as safety trumps amenities for families pursuing senior housing and care.


“Our communities are a critical component to the care continuum,” he said. “It is imperative that seniors have access to residential settings in which professional care is offered to meet their everyday needs, including safety, nutrition, hygiene, and medication management. It is important to remember that this is a needs-driven asset class.”

Welltower logged total net income of $179.2 million during the second quarter, the company reported, up from $137.7 million over the same period last year.

The REIT’s senior housing portfolio was the only sector to report a decline in net operating income on a same-store basis, dropping 24.5% from the second quarter of 2019.


Welltower’s health system business — which includes its partnership with hospital system ProMedica to operate the HCR ManorCare chain of nursing homes — actually saw a 1.4% uptick in NOI at $35.8 million, while its remaining post-acute and long-term assets brought in a 2.1% gain with $43.1 million in NOI.

Executives at Welltower blamed the dip in senior living business on blanket admission bans and general consumer reluctance to pursue senior living options amid the ongoing COVID-19 pandemic, though DeRosa indicated that about 95% of the senior living properties in its portfolio have resumed move-ins.

As the coronavirus crisis continues with no signs of easing, DeRosa observed that the motivations for choosing institutional care options have shifted; after years of working to differentiate their products with increasingly luxurious amenities and fulfilling activities, senior housing executives may soon see a wave of demand from families who care mostly about securing the best around-the-clock care for their older loved ones.

“The decision has changed today,” DeRosa said. “It’s number one: Is there COVID in the building? Can you take my mother or father? Are you able to take them in? How are you going to protect them, and can you meet their needs? That is the decision chain today, because so many people have exhausted their ability to care for that relative.”

The company also tried to minimize the specter of rent concessions or restructuring, which have been floated as levers that REITs can pull to ease coronavirus-related financial strains on tenants. Welltower collected 98% of expected rent from its post-acute and senior living tenants during the second quarter, according to the REIT, along with 97% of July rent due.

“Operators see the long-term opportunity in this asset class, and want to remain in these buildings and in control of these buildings,” chief financial officer Tim McHugh said. “And so the the thought of there being kind of a rent reset, based just on current economics, I think is somewhat misplaced.”

Welltower shares finished Thursday’s trading up $3.23, or 6%, to close the day at $56.41.

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