What happened?
Brookdale Senior Living (BKD 0.65%) is the leading operator of senior living communities throughout the U.S. and is one of Welltower's (HCN 0.61%) largest partners -- operating 7.3% of the massive healthcare REIT's portfolio.
When Brookdale reported its fourth-quarter earnings, it was disappointing to say the least. The company reported a net loss of $174.3 million for the quarter, which translated into $0.94 per share. For the year, the net loss was a dismal $2.48 per share. Shares of Brookdale plunged by more than 20% on the day following the announcement, before rebounding slightly. This caused senior housing and healthcare real estate stocks to slump across the market, including Welltower, which fell by nearly 10% the next day to a new 52-week low.
Does it matter?
What exactly spooked Welltower's investors about Brookdale's report? The drop seems to be fueled by the lack of revenue growth and declining occupancy in Brookdale's senior housing portfolio.
Senior housing is Welltower's bread and butter, and Brookdale reported that its senior housing revenue dropped 0.8% year over year, mainly due to a combination of a drop in occupancy of 150 basis points and a 1.9% increase in revenue per unit. On a same-community basis, the numbers look even worse -- occupancy fell by 190 basis points and revenue per unit increased by just 1.7%.
While this is indeed a setback in the short term and should be monitored, I still believe that the positive demographic trends will cause demand to increase over the long term. The U.S. population is aging rapidly, and the need for senior housing will increase tremendously over the coming decades.
It's never easy to watch stocks that are considered to be rock-solid income stocks like Welltower drop 10%. However, I feel that this move is an overdone, knee-jerk reaction and a great opportunity to get into Welltower -- which, by the way, is now yielding 6.3%, a nice discount. Therefore, while it's worth keeping an eye on trends like this, it doesn't change my long-term investment thesis much.
