Welltower (NYSE:WELL) is off to a busy start in 2024, carried by momentum ending 2023 and a “torrid” landscape for new investment activity.
Mitra on Wednesday outlined the Toledo, Ohio-based real estate investment trust’s “five different growth pillars,” amid favorable demand for senior living, something Mitra said would “only get better” in the coming years.
“We have never felt better about the growth prospects or accelerating growth prospects of our earnings and cash flow for our company on a per-share basis,” Mitra said to round out his prepared remarks given on Wednesday’s call.
Looking ahead, Welltower is gearing up for a period of growth through transactions. Giving Mitra more confidence in the company’s market position is the fact that the senior living industry is facing a wall of approximately $16 billion in loan maturities in 2024, which puts REITS like Welltower in the driver’s seat.
“We’re experiencing another bout of market volatility after a few weeks of calm over the past few weeks. Another regional banking crisis driven by U.S. care debt appears to be rearing its ugly head from New York to Tokyo to Germany,” Mitra said. “It should generate significant equity as well as private credit opportunities for us. Suffice to say, our near-term capital deployment pipeline remains robust, highly visible and actionable.”
He later added: “There is not enough credit in the system to refi [the looming debt], so we think the opportunity set in front of us is going to be very robust.”
Net operating income (NOI) growth in 2023 was up 24.4% with guidance at the midpoint of the year to see NOI up 18%.
Mitra said the “torrid” pace seen in the fourth quarter of last year has continued into this year, with 2024 “starting off with a bang.” Last year marked the most active year in Welltower’s history in regard to transactions with new investment activity spanning $6 billion across 50 transactions with a median transaction size of $54 million acquiring 154 properties.
“I don’t recall having ever been this busy in the first quarter on the deal front while we have negotiated and structured to leverage… that will make following transactions easier to execute,” Mitra said.
That comes as analysts monitoring the company continue to watch the rebound. Stifel Managing Director Stephen Manaker wrote that Welltower was among operators “trying to redefine the senior housing business model.”
“While this will take time to fully implement, we believe we are seeing positive signs in the operating results,” Manaker wrote to investors.
BMO Healthcare REITS Analyst Juan Sanabria also wrote that Welltower’s operational guidance “beat a high bar with upside from acquisitions and significant investment momentum.”
Welltower stock shot up nearly 7% by the time financial markets closed, ending the day at $93.37.
Starting off 2024 strong
Underlying Mitra’s rosy optimism for Welltower’s continued revenue recovery journey are some trends never before seen on the Welltower balance sheet.
In the fourth quarter, senior housing occupancy for the company reporting a 110 basis point sequential occupancy increase, and 330 bps occupancy growth compared to 4Q22, something that was “by far the highest level” achieved by Welltower “in the fourth quarter of any year in recorded history,” Mitra noted.
“The quarter was kind of interesting or frankly confounding in a positive way from a seasonality standpoint,” Mitra added, noting that the 4Q23 occupancy figures saw an increase compared to past trends. “This year, the exact opposite happened … we’re not projecting that in the future but we’ll see how it plays out as we get into the year.”
On Tuesday, Welltower outlined the acquisition of a 25-community active adult portfolio from Affinity Living Communities for $969 million, with Affinity to continue to manage the portfolio once the acquisition is complete.
During the call Wednesday, Mitra discussed the company’s senior living investment strategy that’s bifurcated into higher-acuity, high-price point properties and middle-market active adult communities with “a much lower price point but almost no service.”
On lower-acuity senior living, Mitra said, “That’s the business segment that we know how to do well and make money and that’s where we are.”
The Affinity portfolio has a near-60% operating margin that sits “towards the upper-half but by no means an aberration,” for future low-acuity operating margins. Net operating income (NOI) growth for the company’s wellness housing portfolio on a same-store basis was 12.2%, and in the fourth quarter of last year that figure was 13.1%.
Mitra said he envisioned Welltower to “play into the mid-market segment” of active adult and wellness housing with four major players in the space including Clover, Calamar, Sparrow and Affinity – all of which currently have contracts with Welltower.
“I remain optimistic that wellness housing over a period of time will become a very significant portion of all of our portfolio,” Mitra said, along with anticipating three-to-four new starts per year for Affinity going forward.
Cogir platform rollout in 1H24
Near the midpoint last year, Welltower said its new operating platform was becoming “more tangible” amid behind-the-scenes work led by Executive Vice President and COO John Burkart focused on technology and data systems development.
Welltower’s new operating platform stems from a federal ruling related to independent living units in the company’s portfolio and will be used by operators with a goal to improve various aspects of how senior living communities function.
On Wednesday, Mitra said Burkart and his team have made “considerable progress” on the platform’s development.
Burkart added that the company was “flying along” with integrating operating platform initiatives that will start to go live in the first-half of the year.
“The integrations of various modules will simplify the customer experience and reduce the labor around basic tasks,” Burkart said.
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