Welltower CEO: Occupancy Down, but Oversupply ‘Not Our Story’

Despite seeing pressure on occupancy, Welltower (NYSE: HCN) isn’t preoccupied with the idea of senior housing oversupply. In fact, leadership at the Toledo, Ohio-based health care real estate investment trust (REIT) feels confident in the company’s current position—especially when it’s compared to that of other senior housing organizations.

“Yes, headlines of senior housing oversupply and the continuing saga of senior housing operators with poorly managed real estate make bad headlines,” Welltower CEO Thomas DeRosa said during the company’s fourth-quarter earnings call on Wednesday. “This is not our story.”

The story that Welltower was telling on Wednesday focused on the REIT’s new partnership with Johns Hopkins Medicine, and the performance of its portfolio when compared with national industry numbers.


Compared to national numbers from the National Investment Center for Seniors Housing & Care (NIC), Welltower’s top 10 U.S. markets have experienced 30% less inventory growth and 200 basis points less construction, according to Welltower Senior Vice President – Finance and Investments Shankh Mitra.

Still, the REIT did lose incremental occupancy in the U.S. in the fourth quarter. Currently, the company’s senior housing portfolio is 88.7% occupied, according to a Feb. 22 filing with the U.S. Securities and Exchange Commission (SEC). In 2015, the senior housing portfolio was 91.2% occupied.

Welltower saw occupancy “weakness” in Atlanta, Chicago and Kansas City during that time, though “most markets held up well,” Senior Vice President – Asset Management Tim Lordan said during the earnings call. Meanwhile, the REIT saw “strong occupancy growth” in the UK and Canada.


To combat declines in occupancy, Welltower is collaborating with one senior housing operator on what it calls its “room turn in a box” initiative. The program is relatively new, but it’s promising. The idea is to enable senior housing operators to turn over unoccupied rooms more quickly.

“The results from a six-property pilot suggest that we may achieve as much as $500,000 in annual savings at these sites alone,” Executive Vice President – Business Development Mercedes Kerr said during the earnings call.

Welltower’s fourth-quarter 2016 revenue of $1.08 billion beat analysts’ expectations by $40 million; its fourth-quarter 2016 FFO of $1.10 beat analysts’ expectations by 1 cent.

Adapting to change

Overall, Welltower expects the changes it made in 2016 to serve it well in the coming year.

“We are pleased with our 2016 results, particularly as it was a transition year,” DeRosa said. The company offloaded a slew of its skilled nursing and long-term/post-acute care properties last year and recently underwent a major corporate reorganization.

When asked whether Welltower would eventually bring on a COO or chief investment officer, DeRosa shot down the possibility. Now, due to the way Welltower is newly structured, these positions are unnecessary.

“Those structural enhancements allow for us not to have a COO role,” DeRosa said, adding that he, Kerr and Executive Vice President – CFO Scott Estes are all very busy.

“We all work 24/7 and that’s what you should expect of any management team,” DeRosa said.

Additionally, although Welltower doesn’t plan to abandon the post-acute care industry entirely, the sector will not be top-of-mind in 2017.

“Our focus in 2017 will be in seniors housing and outpatient medical opportunities,” Kerr said. “We will continue to prioritize high-barrier to entry markets and high-quality partnerships.”

For the most part, Welltower will continue to work with its existing operators—not begin new relationships. The REIT also plans to divest $2 billion worth of assets in 2017.

“We see in senior housing the majority of the capital that we will deploy is behind our bench of leading operators,” DeRosa said, adding that Welltower may occasionally bring a new operator into the mix. All the while, the REIT will stay selective.

“We are very snobbish about the quality of our portfolio,” DeRosa said. “We’re not looking for opportunities to dilute the quality of what we own.”

Welltower does not plan to grow its relationship with Brookdale Senior Living (NYSE: BKD), which is currently the subject of potential sale rumors.

“We have a solid relationship, but it’s not one that we’re expanding,” Kerr said on the earnings call.

Johns Hopkins partnership

Welltower also announced on Wednesday a new strategic collaboration with Baltimore-based Johns Hopkins Medicine. To start, the two organizations plan to create educational programs for patients and caregivers, measure quality outcomes in assisted living and memory care, and more.

Welltower has already begun collaborating with Johns Hopkins on various publications and educational content that will help consumers understand the challenges of caring for an elderly adult, company Senior Vice President – Media & Communications Barbara Montresor told Senior Housing News. That content is expected to be delivered to specific audiences over the next six months.

Welltower anticipates that the strategic partnership will greatly benefit its senior housing operating partners.

“The inititiaves and strategies will help our operators provide better care at a lower cost, which, as you can imagine, is positive as they position themselves in their markets,” Kerr told SHN. She will lead Welltower’s team in evaluating collaborative initiatives and opportunities with Johns Hopkins Medicine across the REIT’s senior housing, outpatient medical and post-acute care portfolio.

Written by Mary Kate Nelson

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