This article is available as part of your SHN+ membership
Every quarter, GreatCall publishes a newsletter called “Connected Living.” The newsletter is only distributed to subscribers of GreatCall’s SHN+ program, which provides members with exclusive access to senior housing news and in-depth analysis.
Just the other day, Welltower (NYSE: WELL) hit the headlines when it acquired a 25-property portfolio operated by Affinity Living Communities for close to $1 billion. The portfolio, comprised of 3,900 units concentrated in the Pacific Northwest, boasts an average age of less than eight years. This latest deal has expanded Welltower’s “wellness housing portfolio.” CEO Shankh Mitra outlined plans for further growth in the active adult and wellness housing segment, describing it as the “mid-market segment.” Welltower is now working with four major players in the space: Clover, Calamar, Sparrow, and Affinity. Mitra expressed his confidence in the company’s immediate growth prospects, adding that this type of senior housing will become a much more significant part of Welltower’s overall strategy.
The current move appears to be strategic, as Welltower reported that the Affinity portfolio in particular carries margins of close to 60%, with opportunities to expand by as many as three or four projects per year. In this members-only SHN+ Update, I analyze the REIT’s recent moves in the active adult space and offer key insights, including:
- How Welltower has become dominant in this sector
- Welltower’s plans to scale up in this space
- How Welltower’s other partners in the sector offer a glimpse into the company’s overall strategy going forward
- Growth opportunities and higher margins
More than four years ago, Welltower hinted at a new senior housing venture focused on wellness and an attainable price point for older adults. The company has continued in this direction and has accumulated a portfolio of over 25,000 wellness- and mid-market-focused senior housing units. Its strategy is to address significant and growing unmet demand for wellness and social-focused rental housing in non-coastal U.S. markets with a moderate price point for age-targeted residents, including empty nesters and active adults.
Welltower’s bet on the active adult space turned out to be prudent in light of its resilience during the Covid-19 pandemic and its consistently high demand. The operating partners in the portfolio “maintained high levels of occupancy throughout Covid, with favorable annual renewal rate increases, demonstrating unmet demand for moderately priced senior apartments.” Furthermore, active adult communities can carry margins closer to multifamily apartments, with a 2022 NIC analysis noting they can be as high as 55% to 60%, given the lower overhead of operating such communities in comparison to for-profit and non-profit independent living communities.
The Affinity deal is seen as a milestone in the maturation of the active adult segment, giving Welltower a dominant position in this fast-growing market. The operator’s markets project a 5-year 55+ population growth more than two and a half times the U.S. average. The communities are purpose-built and carry resident rates of $2,100 with 30,000 square feet of amenity space, significantly more than the industry average. Welltower’s prior acquisitions with operators such as Clover, Sparrow, and Calamar reflect a similar focus on growing its presence in the active adult market.
Welltower has made clear its intentions to continue scaling up in the active adult sector and can manage these communities directly, leveraging the technology-driven operating platform that the company is building. Going forward, this approach will allow the company to build margin where there is an opportunity for more efficient operations and sustain margin on an ongoing basis.
