Welltower Sees Momentum on Margins as Self-Managed Platform Plans Become ‘More Tangible’

With strong senior housing portfolio performance in recent quarters, and plans to launch its self-managed operating platform later this year, leaders at Welltower (NYSE: WELL) expect momentum to carry the company forward in 2023.

The Toledo, Ohio-based REIT reported total portfolio NOI growth of 11% compared with the first quarter in 2022, a result that was driven by strong performance in its senior housing operating (SHO) portfolio, which logged net operating income (NOI) growth of 23.4% in the period. Welltower reported normalized funds from operations (FFO) of $0.85 per diluted share for the quarter.

Welltower CEO Shankh Mitra added that the company’s revenue and expense trends are moving in the “right direction.”


“We produced our fifth consecutive quarter of double-digit organic revenue growth on the back of strong pricing power and occupancy,” Mitra said during the earnings call with investors and analysts Wednesday. “But perhaps equally, if not more encouraging, is the margin expansion story, which has been driven by a significant improvement on the cost side.”

The company’s first-quarter 2023 results beat the previous estimates of Stifel Managing Director Stephen Manaker, who noted that “almost all the NOI beat” came from the REIT’s SHO portfolio, with higher-than-expected occupancy and stronger margins.

“We continue to believe the biggest factor in the SHOP recovery will be operating margin improvements, but we believe this will remain challenged near-term due to wage and goods inflation,” Manaker wrote.


Welltower has 2,008 properties, including 373 in its triple-net senior housing portfolio and 959 in its SHO segment.

The company’s stock increased  by 0.22% to rest at $77.52 per share at market close on Wednesday. 

Operators drive performance

Driving performance in Welltower’s SHO portfolio in the first quarter of 2023 were strong results from the company’s “key operators,” including Oakmont Senior Living. Mitra highlighted the Irvine, California-based operator in particular as a standout, with a portfolio currently sitting at 86% occupancy.

“I’m confident that I will be able to soon report to you that this portfolio has reached a 90-plus percent occupancy level,” he said.

He also noted that the company’s Canadian senior housing portfolio is also rebounding after a “disappointing couple of years.”

“We have seen standout performance from our operating partner Cogir, which has returned to almost 40% margin for the first time since Covid,” Mitra said.

Same-store revenue for the SHO segment increased 10% in 1Q23 versus the same period a year prior. That was driven by a 240-basis point increase of year-over-year occupancy growth and revenue per occupied room (RevPOR) growth of 6.8%.

Senior housing occupancy in the first quarter was 79.8% for the portfolio, up slightly from 79.1% in 4Q22.

Welltower’s operating partners have also substantially reduced expenses, including by slashing usage of agency labor, with costs declining 50% from 1Q22. Mitra added that Welltower’s operating partners were also making headway on hiring, something other operators have highlighted in recent days.

Welltower Executive Vice President and COO John Burkart noted that the company has “fundamentally changed … how the operators look at that personnel.” He added that the company has “effectively created a hiring funnel” to help operators hire and support workers.

“The employees are very hard-working people, and making sure that they have what they need … whether it be things as simple as parking to break rooms to time off, et cetera — we put a lot of effort into that,” he said.

Same-store NOI margin increased to 22.4% in the first quarter, up from 21.5% in 4Q22; reflecting a 2.2% gain since the same time last year. In the short-term, Welltower reported a consistent rise in tour volumes which were up 20% in the first quarter as the industry heads into “yet another year of significant growth of the 80-plus population,” Mitra noted.

But success in 2023 will only come after the industry moves through what Mitra called the “all-important upcoming leasing season,” a time in which senior living prospects are seeking new homes at a higher cadence.

“The needs-driven nature of our product gives me hope that we will outperform the majority of the asset classes,” Mitra said.

In the first quarter, Welltower made $785 million in gross investments, including $529 million in acquisitions and loan funding and $257 million in development funding, having opened four development projects for an aggregate investment of $57 million. Loan payoffs and dispositions were made to the tune of $92 million.

On the acquisition side, investments in the quarter included a portfolio of care homes located in Northern Ireland for $75 million and two senior housing communities for $20 million.

Down the road, Mitra said Welltower’s capital deployment pipeline was “robust with opportunities” to deploy capital across its senior living assets in the U.S., Canada and U.K.

During Wednesday’s call, Mitra also referenced operator performance to highlight the road ahead with its strong senior living operating partners. He specifically believes there is much more upside to be had by improving properties.

For example, Welltower said it could, in theory, fund CapEx improvements across its entire Holiday/Atria portfolio through gains made at a single property managed by Oakmont. The company also highlighted its seven-community portfolio with Kisco Senior Living, which as of the first quarter reported same-store occupancy at nearly 99% and an NOI margin of 40%.

“We do think that there are significant opportunities to enhance our portfolio,” Mitra said.

Operating platform efforts now ‘more tangible’

On Wednesday’s call, Burkart said the company is expecting to roll out its self-management operating platform by the end of this year.

“I think it’s probable that we end up in some form of self-management this year,” Burkart said.

At present, Burkart said Welltower was working on the technology and data analytics tools of the soon-to-launch operating platform that’s currently under pilot programs with select Welltower-affiliated operators.

“Our operating platform initiatives are now becoming more tangible, moving from drawing boards to pilots,” Mitra said, noting that he felt Burkart’s team was “on the verge of some creative breakthroughs,” with more details to be provided in “coming quarters.”

With minimal costs to rollout the self-management operating model, Burkhart said Welltower does not expect any “very big surprises” when the rollout happens across its portfolio.

“It’s really just changing out and getting these improved modules going forward,” Burkhart said.

In February, Burkart noted that 80% of its 2023 overhead costs will be driven by technology investments and new staff additions.

So far this year, Burkart said Welltower teamers were “executing rapidly as planned” in the operating model rollout, with pilot communities reporting “challenges” “keeping up with the increase in qualified leads.”

“A very good problem to have, indeed,” Burkart said. “We’re at the very beginning of this process but all lights are green at this time and I am very excited about the future.”

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