Press "Enter" to skip to content

Welltower Reloads ‘Growth Bazooka,’ Prepares for Wider Rollout of Management Platform With Cogir

Welltower has spent the last few years retooling its relationships with its numerous operating partners — and now, the company is poised to launch a new senior housing operating platform that will “truly transform our company in the next chapter of this evolution,” according to CEO Shankh Mitra.

On Monday, Welltower management announced the Toledo, Ohio-based real estate investment trust (REIT) has sold its stake in one of the nation’s largest operators, Sunrise Senior Living, and that the company is readying a new management platform in Canada with Cogir in “English-speaking Canada.”

The launch of the new operating platform — known as “Project Transformer” behind closed doors — was spurred by a late-2022 favorable ruling regarding the company’s IL portfolio by the Internal Revenue Services (IRS). According to Mitra, the move will help shape the company’s future for years to come.

Welltower for months has teased its new operating platform, which has been under pilot at various communities within its sphere of influence.And during an earnings call with investors and analysts Tuesday, management shed light on high-level results from recent transitions.

Mitra also noted that the juncture marks the conclusion of a seven-year journey of “contract modernization” that converted “top-line focused contracts to bottom-line focused contracts, where we sink and swim together.” Mitra noted that “virtually all” of the company’s operating contacts are now in “RIDEA 3.0” and “RIDEA 4.0” structures.

Mitra noted he believes Welltower is at the beginning of a “multi-year, double-digit NOI growth cycle for our business.”

“Add Project Transformer, along with a relentless optimization of our operating platform … and the constant reloading of our external growth gun — or perhaps the growth bazooka, at this point — through highly targeted deals, get an ideal setup for accelerating earnings and cash flow growth as we look into next year,” Mitra said.

Sunrise CEO Jack Callison told Senior Housing News the company looks forward to continuing its collaboration with Welltower and Revera. He added he will seek to grow Sunrise’s third-party management business over the next five years, while building out its development pipeline in high-barrier-to-entry markets with both new and existing relationships.

“Consistent with industry practice, as part of actively managing our portfolios, both owners and operators will make strategic decisions from time to time that involve transitioning communities both in and out of portfolios,” Callison said in a statement. “Sunrise works each day to meet and exceed the commitments it makes to its stakeholders and continues to enjoy a highly productive and mutually rewarding partnership with its community owners.”

In a note to investors, BMO Capital Markets Managing Director Juan Sanabria wrote the transitions of the Revera JV were to “regional sharp shooters with some early success.” RBC Capital Markets Managing Director Michael Carroll wrote that Welltower reported “solid earnings” in the second quarter, driven by strong senior housing results and spiking investment activity.

The company’s stock came to rest at $84.60 on Tuesday, up $2.45 (2.98%) from the prior day’s trading.

First glimpse of ‘Project Transformer’

Paving the way for the new management platform in Canada was a decision to dissolve a joint-venture agreement with Mississauga, Ontario-based Revera — the owner of Sunrise Senior Living — in a “mutually beneficial restructure,” Mitra said.

Welltower acquired 110 properties from Revera in the U.S., Canada and U.K., while selling to the company interest in 31 properties, and selling its 34% stake in Sunrise Senior Living’s management company.

“We materially simplified our balance sheet and we matched the specific products and locations with the right regional operators to achieve meaningful density in the local markets,” Mitra said of the shift.

Cogir’s new agreement with Welltower represents the company’s first major move toward its new operating platform helps form the company’s vision of a new “post-PLR world,” following the favorable ruling issued by the IRS in November 2022.

“I predict this operating JV will witness rapid growth in the very-near future,” Mitra added.

Welltower management did not detail the exact particulars of the new operating platform with Cogir. But Mitra said the company is gearing up for more expansion north of the U.S. The decision to focus on the “English-speaking” parts of Canada is due to the fact that “Cogir has a tremendous brand in French Canada.”

“What we do in the U.S. is a different conversation,” Mitra said. “Our PLR is for independent living, and the majority for exposure in independent living is in Canada. That’s why we’re starting this.”

Mitra said that occupancy for the properties that Welltower and Cogir are collaborating on currently sits at about 74%, with margins at around 23%.

“Cogir runs, in their Canadian portfolio, at 40-plus percent margins,” Mitra said. “That sort of gives you a sense of where we think that these properties can go.”

In the first quarter of this year, Welltower announced it was rolling out a pilot program for drawing leads into a select number of senior housing properties. Thanks to those efforts,staff on the ground at the selected communities saw an influx of sales opportunities, company leaders said.

On Tuesday, the company unveiled some more detailed results of implementing its new operating model.

“We’re seeing terrific results through the marketing efforts that we’re applying and what that does to pricing power in essence,” said Executive Vice President and Chief Operating Officer John Burkart. “Our focus is on maximizing NOI, so we’re looking at a combination between price and between occupancy, recognizing that occupancy comes with a price.”

One of Welltower’s operators with over 50 properties is in the midst of transitioning to the new operating platform, and the operator has increased occupancy over 600 basis points from last year thanks to the new rollout. That improvement was driven in part through machine and statistical learning using Welltower’s data science platform dubbed “Alpha.”

“The platform isn’t only about technology, it’s about people, processes, data and technology,” Burkart said.

Alongside the new operating platform, Welltower is gearing up from a “massive renovation program” on the West and East coasts of the U.S., along with work being done to communities in Canada and U.K.

“The impact should be very positive for NOIs and increasing occupancy and rate, the value proposition opportunity is significant,” Burkhart said, noting that first impression-renovations, including unit and amenity renovations are expected rather than broad infrastructure reinvestment.

“The expertise that we’re bringing to the table will truly change the game in the renovation of senior housing,” Burkart added.

Second-quarter growth

In the second quarter, Welltower exceeded $1 billion of annualized net operating income (NOI) in the company’s senior housing segment for the first time since the onset of the Covid-19 pandemic.

“We believe we have a ton of growth left in the tank,” Mitra said.

Welltower’s same-store senior housing operating portfolio saw 24.2% net operating income (NOI) growth year-over year in the second quarter, driven by strong AL demand, up from 22.4% in the first quarter.

That AL demand is still ahead of IL demand, Mitra said. But he added that assisted living properties in the company’s senior housing portfolio “continue to outperform.”

Welltower’s Canadian senior housing portfolio saw 17.2% NOI growth in the quarter, with Mitra noting that the Canadian portfolio was “finally in sustainable growth mode.”

Welltower’s tear of investment activity seen most recently in the first quarter carried over into 2Q23, with the company clearing approximately $2 billion in transactions comprising 1,900 units across the U.S., Canada and U.K.

Mitra acknowledged the tough landscape for new transactions. He noted that “there is a significant lack of equity and debt capital” on the market today.

“When we say the debt market is not functioning, most people assume that the debt market remains … fairly flat. That’s not what’s happening,” Mitra said.”Banks are under significant pressure from regulators to shore up capital, which means they’re actually selling — they’re shrinking.”

But Mitra said those challenges should play into Welltower’s hands as it scours the market for new deals with cash in hand and quality operators in tow.

“We’re very excited about an accelerating earnings and cash-flow growth trajectory as we look into ‘24,” he said.

Welltower revised its outlook on Tuesday to normalized funds from operations range of $3.48 to $3.59 per diluted share, up from $3.43 to $3.56 per diluted share issued in June.

Same-store revenue growth within its senior housing portfolio was up 9.9% in the second quarter, led by a 190-basis point increase in average occupancy compared to the same period last year.

The company also reported net income attributable to common shareholders of $0.20 per diluted share in the second quarter, and normalized funds from operations (FFO) attributable to common shareholders of $0.90 per diluted share in the second quarter, up from $0.85 per diluted share in the first quarter.

In the second quarter of this year, Welltower saw continued margin expansion, Mitra said, capitalizing on strong pricing trends and moderating expenses.

Revenue per occupied room (RevPOR) growth of 7.3% in the second quarter, coupled with 3.5% expense per occupied room (ExPOR) that resulted in an approximate 25% operating margin level “not seen since the onset of the pandemic,” Mitra noted.

“We expect to meaningfully exceed our pre-Covid level of profitability over time through [Burkart’s] build-out of the operating platform,” Mitra said.

The post Welltower Reloads ‘Growth Bazooka,’ Prepares for Wider Rollout of Management Platform With Cogir appeared first on Senior Housing News.

Source: For the full article please visit Senior Housing News

Be First to Comment

    Leave a Reply