Welltower Continues to Shrink Post-Acute Portfolio, ‘Subpar Bottom Line’ Linked to Staffing Costs

Despite some encouraging top-line trends, expenses increased 8.8% year-over-year for Welltower (NYSE: WELL) leading to “subpar bottom line” results to end 2021. Still, the real estate investment trust is hopeful that once the omicron variant fades, spending will normalize.

Staffing costs, in particular, hit Welltower hard in Q4 2021.

“I am pretty disappointed about the bottom line results in Q4, there’s no two ways about it,” Welltower CEO Shankh Mitra said during the company’s earnings call on Wednesday. “We did not expect that omicron would hit us like it did.”


He said the “subpar bottom line results” were due to increased expenses mainly from the omicron induced labor crisis, but he expects those expenses to diminish over the course of 2022.

The REIT’s normalized funds from operations (FFO) of $0.83 beat consensus estimates by $0.02 in Q4, according to SeekingAlpha, and its revenue of $1.31 billion beat consensus by $40 million, up 17% year-over-over.

Welltower continues to move away from its long-term care post acute portfolio, largely due to ending its relationship with Genesis, as the portfolio represented just 5.2% of total NOI in place year end, versus 10.1% at the end of 2020.


“A 490 basis point decline was driven largely by the exit of our Genesis relationship,” Burkart said.

Over the course of 2021 Welltower completed $458 million of long-term post-acute dispositions, including selling 21 of 25 ProMedica assets that were contributing to negative EBITDA.

Operating expenses increased to $785 million, up from $729 million in Q3 and $621 million in Q4 2020 as the real estate investment trust is hopeful for a strong start to 2022 highlighted by new joint ventures in the UK and a slowdown of the omicron variant.

Staffing costs sink bottom line

Welltower spent approximately $30 million on agency staff in Q4 2021, compared to $5 million in the first quarter of 2020.

“The combination of holiday time off and omicron disruption led to an increase in agency cost in the quarter, almost 4.5 times agency expense versus the prior year’s quarter,” Welltower COO John Burkart said during the call. “Excluding agency costs, expenses increased by 5.3%.”

Welltower operators are not alone in their reliance on staffing agencies, particularly during the holidays as a shrinking labor pool has made recruitment and retention increasingly more challenging.

Widespread staffing agency usage is expected to continue in the skilled nursing space for the foreseeable future, according to Skilled Nursing News readers, with roughly 37.5% expecting their organization to utilize staffing agencies more in 2022 and only 26.61% expecting their organizations to utilize agencies less. More than 200 SNN readers, the majority of whom are skilled nursing owners, responded to the online poll.

Burkart described the inflated expense as “surge pricing”, similar to Uber, and said operators were in a unique situation to end 2021 with the combination of PTO and omicron.

He remains confident that the excessive use of agency will prove to be a “temporary crutch” for operators as they are “less efficient” and “less desirable” than permanent employees.

With a reported 10% decrease in staffing agency usage, Welltower projects to spend around $27 million on contract staff in the first quarter of 2022. Still, agency labor expenses are expected to be moderate to the first half of 2022 and decline substantially in the second half of 2022.

“Our operators have many workflows underway at this time to improve the value proposition for permanent employees, which were bearing fruit prior to the omicron,” Burkart said. “The combination of holiday time off and omicron disruption led to an increase in agency cost in the quarter, almost four and a half times agency expense versus the prior year’s quarter.”

The ‘next generation’ of UK care homes

Earlier this week, Welltower announced plans to expand its footprint in the United Kingdom by forming a long-term strategic partnership with Reuben Brothers.

The U.K.-based real estate company acquired Avery Healthcare, Welltower’ largest operator in the U.K.

The terms of the deal were not immediately announced.

Mitra described the Reuben Brothers as “pioneers” of investing in alternative real estate and infrastructure and said that parternig with them validates the Welltower’s view of the long-term value of the business.

“Reuben Brothers share our optimism for the exceptional growth trajectory for health care and wellness infrastructure as society ages. We’re particularly excited about the prospect of expanding the platform together as Reuben Brothers owns some of the most prime land and real estate in the U.K.,” he said.

The 50/50 joint venture partnership is expected to position Avery for significant future growth in the country by leveraging Reuben Brothers’ real estate investment and development portfolio and expertise, according to a press release announcing the deal.

Mitra said that Welltower is looking to further expand into the U.K. beyond just “trophy assets” and is looking for opportunities to grow its platform through this partnership.

He added that through “the noise” of COVID, Welltower is already seeing some early demand there.

Avery’s homes offer a range of care levels, with more than 20 offering nursing care, according to the company’s website. Independent living, supported retirement living, respite, dementia and residential living are also offered by Avery.

Avery Healthcare currently has five properties in Welltower’s senior housing operating (SHO) portfolio along with 56 triple-net properties, amounting to 16% of Welltower’s senior housing triple-net net operating income.

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