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Welltower's (WELL) Seniors Housing Occupancy Loss Moderates

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The decent pace of the vaccination process and a reduction in COVID-19 cases have infused optimism about the potential recovery of the seniors housing industry. In fact, Welltower Inc. (WELL - Free Report) in its recent business update noted that lead generation for many of its communities has been restored to pre-pandemic levels, supported by a steep decline in COVID-19 cases.

In fact, as of mid-January, 84% of the company’s communities were accepting new residents. The number improved from 84% as of mid-January 2021. Also, in February, move-in and move-out trends improved. These are likely to limit occupancy losses in the upcoming period.

Markedly, Welltower’s seniors housing operating (SHO) portfolio is seeing a moderation in occupancy declines in 2021. While total SHO portfolio spot occupancy declined roughly 230 basis points (bps) in the first two months of 2021, monthly occupancy losses decelerated to 90 bps in February compared with 140 bps in January. Additionally, as of Mar 5, occupancy declined another 20 bps to 73.7%.

With this, portfolio occupancy was 74.8% and 73.9% for the month ended January and February. Notably, average occupancy was 76.2% for December 2020.

Management expects average occupancy decline to “finish favorably to the midpoint of its -275 to -375 bps guidance range” for first-quarter 2021 if these trends persist.

Also, the speedy vaccination process at Welltower’s seniors housing communities is reassuring. In fact, the company noted that as of Mar 5, 2021, nearly all assisted living/memory care communities have finished the first vaccine clinic, whereas 70% have completed the second vaccination clinic as well.

Amid such encouraging prospects for recovery, the company’s efforts to increase focus on seniors housing and reduce exposure to the troubled operators, and the skilled nursing facility asset class are strategic fits.

Notably, the healthcare REIT recently announced a flurry of deals severing its relationship with one of its operators, Genesis, and structured the transactions as joint ventures (“JV”), enabling Welltower to participate in any recovery. (Read more: Welltower Limits Genesis Ties, Enhances ProMedica JV)

Total sale proceeds from all these transactions amount to $1,145 million.

Also, since the start of the year through Mar 5, 2021, completed pro-rata acquisitions amounted to $201 million.This includes the recent buyout of a $132-million portfolio of seniors housing assets under a new triple-net lease operated by Harbor Retirement Associates.

As of the same date, completed pro-rata dispositions aggregated $216 million. This includes the completion of the third and final tranche of the Wafra Inc. JV for the sale of five outpatient medical buildings that generated $110 million in pro-rata proceeds to the company.

In the past year, the company’s shares have gained 11.8% compared to the industry’s growth of 1.2%.

 

 

These moves are likely to boost its already strong liquidity position. In fact, as of Mar 5, 2021, it had near-term liquidity of $4.9 billion and material senior unsecured note maturities until 2023.

While disposition efforts are strategic fits for the company over the long term, the dilutive impact on earnings in the near term cannot be bypassed. Moreover, unless disposition proceeds are reinvested in accretive avenues, lost revenues from sold assets are likely to hinder performance.

Welltower currently carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Alpine Income Property Trust, Inc.’s (PINE - Free Report) funds from operations (FFO) per share estimates for the current year have moved up 5.4% to $1.55 in the past month. The company sports a Zacks Rank of 1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage Inc.’s (EXR - Free Report) Zacks Consensus Estimate for 2021 FFO per share has moved up 2.5% to $5.66 in the past month. The company currently carries a Zacks Rank of 2 (Buy).

Global Net Lease, Inc. (GNL - Free Report) has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for 2021 FFO per share has been revised 4% at $2.10 in a week’s time.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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