Welltower has been a growth and M&A machine under the leadership of Shankh Mitra. As of October 27, the REIT has closed or has under contract close to $14 billion of pro rata gross investments across the U.S., Canada and the United Kingdom this year. These include more than 700 seniors housing properties with more than 46,000 units. Not too shabby.
We have covered some of these transactions in other stories, but what really caught our eye was the announcement that Mitra and four other key executives are going to put their future compensation where their strategy is, or something like that. They are “all-in” on increasing shareholder value, which is a good thing, as long as no corners are cut on resident quality to achieve their goals. They say the entire company is all in, and that the operators in their stable are good to go. And this is a 10-year plan.
So, what does this involve? These five senior executives have agreed to accept only $110,000 in an annual base salary for the next 10 years, plus a one long-term equity-based incentive award in the form of units in the company’s operating partnership, Welltower OP. Must be one whopper of an award.
This award will only be transferable starting in 2030, and will not become fully transferable until 2035. One half of the award will be subject to Welltower’s total shareholder return relative to its peer group and other indices. The REIT has blown these others away in the past several years, and they are counting on doing it again. It is a very bold move and demonstrates management’s belief and conviction that they will succeed. Talk about an alignment of interests with shareholders.
The cynic might argue that this move will be very accretive because it removes a lot of cash outflow from the P&L, and that is one reason they are doing this. But that seems a bit silly to us, as there would have been other ways to accomplish the same goal. Mitra has been very aggressive on his mission, and has made so much money in the past several years he probably does not need any future compensation anyway. Still, it is a bold and bullish move that shareholders will consider.
On the day after the announcement, Welltower’s shares were on a rollercoaster, going as high as $189.04 per share and as low as $177.55. For the day, the decline settled at -1.59%. Other things were disclosed, including some revisions in forecasts, but maybe investors are just trying to figure out what it all means. They will have 10 years to decide. And it is time to increase the dividend again, which provides a yield of just 1.62%. This one is at the bottom of its peer group, but because the share price has increased so much.
