What can one say about a healthcare REIT, Welltower, that is the largest in the world with a $48.8 billion market cap, more than twice the size of its nearest rival, Ventas? Not much, other than at some point they may become too big to maintain order in its portfolio.
Welltower is also the most prolific buyer of all the REITs, and for anyone else for that matter. In the fourth quarter 2023 alone, they completed $2.8 billion in gross investments, and $4.8 billion for the entire year. Plus, they have another $1.2 billion under contract ready to close in the first half of 2024. No one is boasting that kind of activity these days, but most don’t want to boast about it either.
Back when they were a $20 billion REIT, we used to joke that they could hide any problem portfolio because none of them were material relative to the total portfolio. Any financial problem could be buried, very easily. Now, they would not even have to dig a very large hole to bury a problem.
While that may be good, it also can lead to some risky behavior. No one knows the exact details of the deal they did with newly formed Integra (and not all the Integra’s that many people thought were involved) for the financially troubled ProMedica nursing home assets, but there were a lot of questions about who “Integra” was (a shell) and who was going to operate the facilities (divvied up over time).
Welltower’s performance has been helped by the largest slowdown in new development we have ever seen, plus many of its managers contributing to the year-over-year same-community NOI growth in 2023 of 23% to 26%. Even though that growth is partly from the recovery, it is still out of this world. We just hope they are reading the headlines and are not pressuring their managers to keep costs down by cutting staff or prohibiting agency labor to fill the gaps in staffing, which always occurs. Given the increased scrutiny of the industry after some negative major media stories about staffing and what you get for the rates changed, you really don’t want to be under the media microscope.
There is little doubt that Welltower has the process of acquiring assets down to a fine-tuned instrument, but we had to chuckle at a banner headline in its recently filed 8-K talking about all these points. It read, “Welltower competes on Data Science, Operating Platform and Capital Allocation Capabilities – NOT cost of capital.” You have to be kidding. They have the lowest cost of capital in the industry, probably the lowest cost of capital ever in the industry, on a relative basis, and should be proud of it. We suspect if their cost of capital doubled, the other parts of the equation would not be enough to allow them to be the buyers they have been. Ya’ think?
