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Earlier this week, Welltower announced an additional $1.1 billion in new investments, primarily in senior housing – but it was another piece of news in the company’s 2Q24 earnings that caught my attention. During the REIT’s call with investors and analysts Tuesday, management revealed that the company has made a strategic decision to focus more on lower-acuity assisted living residents.
At the heart of the company’s decision is a belief that assisted living residents lower on the acuity scale can create better net operating income (NOI). Although higher-acuity residents pay higher rates, the care they receive is also costly and staffing is limited, according to Welltower Executive Vice President and COO John Burkart.
Welltower is still in the early stages of its overall move toward focusing leasing efforts on lower-acuity assisted living residents. But I think the company’s strategic decision reveals an ongoing shift in the senior living industry as companies act to bolster stubborn margins and contend with changing trends in resident acuity.
In this members-only SHN+ Update, I analyze Welltower’s comments on this issue and offer the following takeaways:
- The strategy behind moving toward lower-acuity assisted living residents
- How Welltower’s move reveals assisted living’s margins problem
- Challenges ahead for assisted living operators
- Higher RevPOR not equal to higher NOI
Welltower conducted a review of the assisted living care levels across its portfolio over the past few months, and management arrived at the conclusion that lower- and higher-acuity assisted living residents have different impacts on the company’s bottom line. “While lower-acuity residents pay less than a higher acuity resident for the same room, they also consume far fewer human resources and tend to stay longer,” said Burkart on the earnings call Tuesday. “This creates healthier rent growth over a longer period of time, leading to higher NOI.”
He added that the company is in the early stages of its process to refocus on lower-acuity assisted living. “We put a lot of work into it,” Burkart said. “But obviously, it takes time to work through all the different rent goals at all the different properties, so we have a ways to go.”
Welltower did not spend much time elaborating on its plans to refocus its efforts on lower-acuity assisted living residents, and CEO Shankh Mitra didn’t immediately answer a request for more information. But I believe the company’s plans reveal a wider ongoing question regarding acuity in the senior living business today.
Considering the trends in the industry and the changing needs of residents, focusing on lower-acuity assisted living residents could be a strategic move for operators to boost profitability while still providing quality care.
It will be interesting to see how other senior living companies adapt to these changing dynamics and whether they will also shift their focus to cater to lower-acuity residents to optimize their NOI and operational efficiency.
