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Welltower's (WELL) Seniors Housing Occupancy Slip Continues in Q4

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With the rollout of vaccines now at play in seniors housing communities, 2021 is starting on a hopeful note for healthcare REITs that have been affected by occupancy and revenue erosions from the onset of the pandemic.

Vaccine distribution from Pfizer and Moderna kick-started on Dec 21 and 28, 2020, respectively, in US seniors housing communities. In fact, in its recent business update, Welltower, Inc. (WELL - Free Report) noted that the number of vaccines administered to its residents and staff at communities has increased by three folds during the week ending Jan 15, 2020, as compared with the prior week.

While the industry beats back the pandemic through vaccination, immediate recovery is less likely as indicated by the continued occupancy loss, a decline in move-in and accelerating move-outs in seniors housing facilities.  This is a concern for REITs like Welltower, New Senior Investment Group , Diversified Healthcare Trust (DHC - Free Report) and Ventas, Inc. (VTR - Free Report) , which have meaningful seniors housing exposures.

Per Welltower’s presentation, the surge in COVID cases in the latter half of fourth-quarter 2020 exacerbated the seasonal slowdown in move-in activity. Moreover, as of Jan 15, 2021, 84% of the company’s communities are accepting new residents, down from 95% as of mid-December. This is expected to have hindered move-in activity. Ultimately, unfavorable trends in move-ins and move-outs are anticipated to have resulted in occupancy loss at the company’s seniors housing operating(“SHO”) portfolio.

In fact, Welltower witnessed approximately 220 basis points (bps) sequential occupancy loss at its SHO portfolio during fourth-quarter 2020 from 78.4% to 76.2%. Further, the decline continued in January, with occupancy slipping an additional 85 bps to 75.3% as of Jan 15, 2021.

SHO portfolio woes aside, the company’s triple net and outpatient medical (“OM”) portfolios seem to display impressive recovery, with near-perfect rent collections. In fact, its triple-net portfolio saw 97% of rent receipts that were due in the December-end quarter. Moreover, Welltower collected 97% of cash rents from OM tenants.

Additionally, with OM portfolio occupancy of 93.7% as of 2020 end, tenant retention remains above historical average rate at approximately 91% and 88% in fourth-quarter 2020 and 2020, respectively.

Moreover, the company remained active on the investment and dispositions front. Making progress on the joint venture with Wafra Inc., Welltower closed the second tranche of asset sales of six OM buildings for $153 million in pro-rata proceeds to the company. With this, the company disposed of 18 OM properties to the joint venture for $308 million in pro-rata proceeds. A third tranche is expected to close in first-quarter 2021.

Further, pro-rata dispositions in the fourth quarter and 2020 aggregated $674 million and $3.7 billion, respectively. Also, pro-rata acquisitions during the October-December period totaled $506 million.

Lastly, the company ended the year with near-term liquidity of around $5 billion, consisting of an estimated cash balance of $2 billion and $3 billion capacity under its revolving credit facility.

Shares of this Zacks Rank #3 (Hold) have gained 13.6% over the past three months compared with the industry’s rally of 3.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

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