Covid-19 Trends Make Welltower CEO More Optimistic About Senior Housing Recovery Timeline

As vaccination rates increase, Covid-19 infections decline, occupancy loss slows and lead generation picks up, Welltower CEO Shankh Mitra is becoming more optimistic about the potential timing of a bounceback in senior housing.

Mitra resisted predicting when senior housing occupancy would hit a bottom during the recent Q4 2020 earnings call for the Toledo, Ohio-based real estate investment trust (REIT). On Monday, he again emphasized that it’s “hard to point out exactly where the trough is,” but said that he is feeling increasingly optimistic.

In fact, current Covid-19 trends raise the possibility that the inflection point has moved up six to nine months and could occur in the second quarter of the year, Mitra said during the Citi Global Property CEO Conference.

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Since the last earnings call, performance has improved in Welltower’s senior housing operating (SHO) portfolio. Occupancy declines slowed meaningfully over the course of February, reaching 74% as of February 26.

Meanwhile, lead generation “for many communities” has returned to pre-pandemic levels, according to a business update that Welltower issued Monday. And 95% of SHO communities are accepting new residents, versus 84% that were doing so in mid-January.

The improved metrics coincide with an 87% decline in the trailing two-week Covid-19 case count in the portfolio since infections peaked in mid-January.

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There is no way of knowing the extent to which Covid-19 will affect senior housing penetration rates going forward, Mitra said, but he does believe that demand will return.

“Every time the overall infection rate has come down to where people can make the move [to senior living], they did,” he said. “We’ve seen that even in the last few weeks.”

There is the potential for rental rate discounts and concessions as operators compete to regain census, but Welltower’s leaders believe that the REIT’s operators will be able to maintain rates in 2021.

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And while some pandemic-related costs — particularly related to personal protective equipment (PPE) and additional cleaning — are likely to persist for the foreseeable future, Welltower’s executives do not think that the cost structure of senior housing will permanently change in a meaningful way.

Mitra also is bullish on opportunities to acquire senior housing at an attractive basis. Most assets in the space never go to market, but trade because family owners want to transition out. Welltower is poised to do “a lot of privately negotiated transactions,” Mitra said.

In fact, asked what investors will be most surprised by in a year, his answer was: “How well we bought in the prior 12 months.”

Recent senior housing acquisitions for Welltower include a 790-unit portfolio operated by Harbor Retirement Associates (HRA), purchased for $132 million. The REIT also significantly trimmed its skilled nursing exposure, largely splitting with Kennett Square, Pennsylvania-based operator Genesis HealthCare (NYSE: GEN) while adding to its joint venture with Toledo-based health system ProMedica.

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