Welltower (NYSE: WELL) executives said Tuesday that its skilled nursing facilities undergoing a change of hands to new operators have gone from losing money to making profits during the course of the second quarter.
CIO Nikhil Chaudhri said during Welltower’s conference call that out of 147 skilled nursing buildings that were being transitioned over to new operators, 133 have already been transitioned.
“And the results we’re seeing are very encouraging,” Chaudhri said. “If you look at those 133 buildings for the three months prior to the transition, those buildings on an EBITDA basis were losing roughly $90 million a year. Three months later, the first quarter of this year, and those same buildings are making positive $70 million. Still a lot more work to be done, but the rapid turnaround has been really encouraging to see.”
The REIT reported strong second-quarter results, surpassing expectations in both its senior housing and outpatient medical segments. During the earnings call, executives said occupancy, rate, and expense metrics all performed better than anticipated.
“Heavily senior housing [we are seeing opportunities], but we are also seeing some outpatient medical and skilled nursing opportunities up and down the capital stack,” Welltower CEO Shankh Mitra said during the call. “All of which we expect to keep us very busy for the rest of the year. Our deal teams didn’t get much of summer vacation and looks like they won’t get much of a Christmas holiday either as many of these deals will close in Q4.”
Welltower executives said they are actively pursuing opportunities in the senior housing segment. The company currently has approximately $2.3 billion of deals under contract in 26 different off-market, privately negotiated transactions, representing 8,900 units across all three regions. These transactions are expected to bring attractive returns with 30% to 40% discounts to today’s replacement cost, accretive in-place cash flow, and significant growth potential.
Welltower reported normalized funds from operations (NFFO) in the second quarter of 90 cents per share, beating analyst expectations of 86 cents.
The senior housing operating portfolio (SHOP) achieved approximately 10% growth on a same-store basis and an impressive 17.8% growth on a total portfolio basis, the company said. This growth was driven by a solid quarter of year-over-year occupancy growth and significant pricing power. The company saw revenue per occupied room (RevPOR) increase by 7.3%, coupled with just 3.5% expense per occupied room (ExpPOR) growth, resulting in an approximate 25% operating margin, the highest level seen since the onset of the pandemic.
Stifel analysts said that Welltower was able to beat Wall Street estimates partly due to government stimulus funds and other income, and that they foresee its SHOP results continuing to improve and remain the key driver of growth.
“It is likely that margins improved more than we thought, while occupancy and REVPOR are trending close to our expectations,” Stifel analysts said in their investment note.
Welltower executives said that the REIT’s assisted living segment outperformed independent living units, driving exceptionally strong results in both the U.S. and U.K., while Canada also showed promise with a notable 17.2% NOI growth. The Canadian portfolio is experiencing sustainable growth, and the company has allocated significant investment dollars to the region.
Welltower has been going through restructuring of its joint venture with Revera. This move has resulted in a simplification of the balance sheet and the matching of specific products and locations with the right regional operators, leading to meaningful density in local markets, the company said.
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