Shankh Mitra
Chief Executive Operator at Welltower
Thank you, Matt and good morning, everyone. I'll review our first quarter results and describe high-level business trends and our capital allocation priorities. John will provide an update on the performance of our senior housing operating and Outpatient Medical portfolio. Tim will walk you through Triple-net businesses, balance sheet highlights and revised guidance Nikhil is also on the call to answer questions. We're pleased to report another strong quarter with results that exceeded our expectations. Our strong performance was once again driven by outsized growth in our senior housing operating portfolio, which generated 23.4% same-store NOI growth with both revenue and expense trends continuing to move in the right direction. In fact, we produced our fifth consecutive quarter of double digit organic revenue growth on the back of strong pricing power and occupancy build with each coming slightly better than expected. But perhaps equally, if not more encouraging, is the margin expansion story, which is being driven by a significant improvement on the cost side. While we generated strong revenue growth in 2020, these gains were largely offset by pressure across the expense tax, which ultimately resulted in last year in terms of par share growth. We are delighted by the progress made on various expense items, but particularly pleased by the sharp decline in agency labor or temporary staffing across the portfolio.
Over the past few quarters, we have noted the headway our operating partners have made in net hiring as IL employment rates have been weakening. This has ultimately translated into a meaningful reduction of prohibitively expensive temporary staffing with costs declining over 50% versus the first quarter of last year. Though we still have a long way to go to eradicate this problem, which is largely attributed to community leadership challenges, we believe that this trend along with strong pricing power will continue to be a tailwind for further margin expansion.
From a product and geographic standpoint, while assisted living continued to outperform independent living IL pricing is starting to strengthen. This is reflected in our Canadian portfolio, which is finally rebounding after a disappointing couple of years. We are seeing standout performance from our operating partner Cogir, which has returned to almost 40% margin for the first time since COVID. We're grateful to our partner [Indecipherable] to get and his team for their hard work and dedication. Sticking with the international team, our UK portfolio continues to produce strong revenue growth and we're starting to see some green shoots on the cost side.
During our call, I express my enthusiasm around the appointment of Lorna Rose as a CEO of our largest UK operator Avery. Lorna is already making significant impact with a strong commercial acumen and impeccable leadership skills. We expect our UK portfolio to be a strong source of growth as we look at 2024 and beyond. Returning to the U.S., our largest operator Sunrise continues to produce strong top and bottom line results. There is meaningful embedded upside to this incredibly well located and virtually impossible to replicate portfolio, which sits at mid 70s occupancy today.
Also during our last call, I mentioned that we expect meaningful step-function growth from our large regionally concentrated portfolio of StoryPoint. I'm pleased to report that Dan and his team have started the year off with a bang as their no-excuse culture and relentless focus on performance is paying off significantly. And last but not least, Oakmont. A year and a half ago, we [Indecipherable] well-located California properties to Oakmont and at that time, Courtney Siegel, Oakmont's CEO, made me promise that her team would lease up this portfolio in two years. I'm pleased to report that the portfolio today sits at 86% occupancy, while NOI has gone up 13 times since then. Courtney has set a simple performance-driven culture at Oakmont. If you're not 95% occupied, you are not performing. I'm confident that I will be able to soon report to you that this portfolio has reached 90% plus occupancy levels. Pursuit of higher standard is prerequisite of high performance.
Last year, I described to you that we as capital allocators strive to create partial value by compounding over a long period of time. By doing so, but doing what's right in the long term for our continuing shareholders may result in short-term pain. Our proactive portfolio management efforts, which includes transition our properties to our strongest operators is an example of this philosophy. I encourage you to look at the case studies within our business update presentation for more details on Oakmont's success and other key operators including Peace Capital, which has created substantial value for our shareholders following the transition of a portfolio of skilled nursing facilities two years ago.
By operating these facilities more efficiently from an expense perspective while increasing quality mix, Peace has been able to improve EBITDAR by more than 75% relative to the pre-COVID levels. This point is further underscored by our COVID class of acquisitions and our further efforts to transition other assets over the past few years. We're just beginning to capture significant embedded NOI from these properties as they return to their pre-COVID NOI levels and higher, and in fact, we have achieved 20% of that incremental NOI in the past quarter alone.
Shifting to the operating platform and asset management initiatives. As you have come to know, at Welltower, we vehemently reject mediocrity and are in relentless pursuit of high standards. We continue to believe that there is an opportunity to recognize meaningful cash flow from our own portfolio as we optimize location, product, price point and operators using our data analytics platform, Alpha. To further add to this multi-dimensional optimization problem using machine learning, our operating platform initiatives are now becoming more tangible moving from drawing boards to pilots. While a few weeks don't make a trend, we are optimistic that John and his team are on the verge of some real creative breakthrough. More on that in coming quarters.
In terms of recent operating conditions, while don't like to fix them in short-term trends, I want to mention the consistent rise in demand for our Seniors product in Q1, total volumes are up roughly 20% in the quarter, partially attributed to an easier comparison period last year due to Omicron variant, but also because of great organic demand as we enter another year of significant growth of the 80-plus population. Lease [Indecipherable] have picked up father in April. While we remain confident in the prospect of our business, I'd be remiss not to acknowledge the rising macroeconomic uncertainty as we approach the summer and fall leasing season. We're encouraged by what we're seeing so far, which admittedly is also the seasonally slowest point in the year. Therefore, we need to see what market gives us during the all important upcoming leasing season. The need-driven nature of our product gives me hope that we will outperform majority of the asset classes, not just real estate, but it is also important for you to understand that we have no dilution of certainty.
Moving to capital allocation. Since our last call, U.S. banking sector has started to show some significant signs of strength, resulting in material declining trade flow in the economy. While no one is rooting for macroeconomic uncertainty, the current backdrop has certainly created a farther expansion to our already attractive set of capital deployment opportunities. We remain disciplined and will not risk the enterprise that we've built with blood, sweat and tears. But we remain optimistic that we'll be able to grow our portfolio with well-located asset at a highly favorable basis an in-place cash-flow. To illustrate that point further, we acquired $529 million of asset during the first quarter at a great basis and in-place cash flow. The K Street medical office building that we acquired in DC perhaps tells you how favorable the investment in environment has become. We continue to see underwriting standards starting meaningfully, leverage levels decline and banks are now requiring more commercial deposits and more recourse.
As a low leverage buyer, this backdrop is very beneficial for us. Our pipeline today is robust with opportunities to deploy capital across senior housing in all three countries, Outpatient Medical in the U.S. and debt opportunities on the skilled side. Our team remains active and yet highly disciplined and price conscious as always. From a balance sheet standpoint, I wanted to quickly highlight the continued progress we made in terms of leverage and liquidity under Tim's leadership. He will you will get into more details, but I'm very pleased with significant deleveraging that we have achieved in past year with net debt to EBITDA falling almost a turn to 6.3%, with further organic deleveraging going forward. And our ability to source over $1 billion of capital this year in the midst of a very challenging capital market's environment is a testament to the confidence entrusted in us by the banking community, the lenders, our investors and our other partners.
With approximately $700 million of the cash on the books and undrawn line of credit, we're not only positioned to endure further capital market volatility, but also to deploy capital as opportunities arise. To summarize our optimism regarding the long-term growth trajectory of the business remains firmly intact. Topline growth remained strong, expenses are moderating and our external growth opportunities continue to expand, while all the while John and his team are making progress in turning our vision of creating a world-class operating platform into a reality. And with that. I will turn it over to him for an update on the operational elements of the business and build out of the platform. Thank you, Shankh. Another great quarter, 11% same-store NOI growth of the prior year's quarter, led by the senior housing operating portfolio with 23.4% year-over-year growth. These results speak for themselves. They're great. So I'll provide limited color this quarter. Medical office portfolio's first quarter same-store NOI growth was 1.6% over the prior year's quarter. As our guidance outlines, we expect the MOB portfolio to deliver between 2% to 3% same-store NOI growth in 2023 and therefore, we expect the remaining three quarters to be well above the first quarter number. Same-store occupancy was 94.9% while retention remains extremely strong across the portfolio at 91.4%. The 23.4% first quarter NOI increase in our senior housing operating portfolio was a function of the 10% revenue growth and continued expense control for the period. I want to remind everyone that last quarter's revenue growth was driven in part by an operator pulling forward rental increases. Excluding that specific operator, revenue growth in Q1 would have been 10.8%, 130 basis-point increase over the over the growth for Q4 2022 for the comparable portfolio. All three of our regions continue to show strong revenue growth, starting with Canada at 7.7% and the U.S. and UK growing 9.3% and 17.4% respectively. Revenue growth for the quarter was driven by 240 basis-point increase in average occupancy and another quarter of healthy pricing power with RevPOR growth of 6.8%. The 10 basis-point increase in sequential occupancy during the first quarter period that has historically seen an occupancy declined due to seasonal factors, reflects the continued increased demand for senior housing as we move into the all important spring and summer leasing season. Turning to expenses, agency use continues to decline, leading to a 53% expense decreased year-over-year for the same-store portfolio in the first quarter of 2023. Welltower's continued aggressive asset management is keeping expenses in check, enabling margin expansion. During the first quarter, the operating margin expanded 240 basis points over the prior year's quarter. Regarding our operating platform, I'm very pleased with the progress the teams have made. We are executing rapidly as planned. As many of you know, I'm somewhat secretive about the details of our platform for proprietary reasons. However. I will say that one of the challenges our operators in the pilot are having is keeping up with the increased qualified leads. A very good problem to have. We at the very beginning of this process, but all lights are green at this time and I'm very excited about the future. I'm grateful for the diversity of operational experience, engagement and enthusiasm of those operators, who understand how the platform will transform the business, lead to consolidation and great success for the operators who leverage our best-in-class platform to improve the delivery of service to our customers, the quality of life of the employees and returns for our owners. I will now turn the call over to Tim.
