January 29, 2019
John B. Mugford

As Welltower Keeps Buying, its Strategy is Becoming Clearer

Sure, we featured Toledo, Ohio-based Welltower (NYSE: WELL) in this space last month, noting that the publicly traded REIT had come off the sidelines and was making plenty of acquisitions in the latter half of 2018.

Well, we have to feature the REIT once again, as its officers, including CEO tom DeRosa, have been providing some of the reasons and strategies behind the company’s recent string of purchases, which has included increasing its commitment to the medical office building (MOB) space.

Overall, in late 2018 and early 2019, Welltower had closed on investments, or entered agreements to make transactions, approaching, even perhaps topping, $5 billion. Those investments include MOBs as well as senior housing facilities.

The REIT’s biggest transactions in recent weeks, of course, was its agreement to pay $1.25 billion for a 3.3 million-square- foot portfolio of MOBs put on the market earlier in 2018 by Orlando, Fla.-based CNL Healthcare Properties, a non-traded REIT in the process of executing a liquidity event for its shareholders.

While CNL offered 63 MOBs, Welltower entered an agreement to acquire 55 of those.

The Welltower-CNL deal, which is expected to close in Q1 2019, will certainly get the year’s MOB sales off to a good start.

It also looks to be part of Welltower’s push to increase the amount of net operating income (NOI) it receives from ambulatory facilities.

In fact, as recently as the third quarter (Q3) of 2017, just 17 percent of Welltower’s NOI was generated from MOBs. Within a year, by Q3 2018, the REIT had grown its NOI from MOBs to 26 percent. During that same time, after selling off numerous senior housing facilities, its NOI from the post-acute sector dropped from 70 percent to 63 percent.

During a recent healthcare conference sponsored by JP Morgan in San Francisco, Welltower’s CEO, Tom DeRosa, told the audience that the REIT’s strategy in recent years has involved selling properties that it does not believe will be “viable” in the future.

It is now focused, he said, on investing in healthcare facilities that are “modern, efficient, technologically advanced and sensitive to the environment.”

Welltower does remain committed to the post-acute sector, Mr. DeRosa said in San Francisco, adding that it plans to help “redefine” that industry. It has, in fact, acquired billions of dollars of the property type in the last year or so.

During the JP Morgan conference, Mr. DeRosa added that the REIT has reached a point in its evolution where most of its “recycling” days are behind it.

He talked about the type of facilities that Welltower looks to own in the future. As an example, he pointed to the REIT’s recent $280 million investment to acquire a 75 percent interest in two MOBs under development in a mixed-use project next to Carolinas Medical Center in Charlotte, N.C.

The outpatient projects are part of a growing trend in which healthcare becomes a part of “everyday life,” he said.

“When we think about the settings were healthcare will be delivered, we think about the concept of wellness,” he said. “For too long, healthcare delivery has been focused solely on treating disease, and if we are to truly achieve better outcomes and lower the cost of healthcare delivery, we need to get out in front of disease.”