Welltower Announces Launch of Private Funds Management Business

Rhea-AI Summary

Welltower (NYSE: WELL) has launched a private funds management business to manage third-party capital in healthcare and wellness real estate. The Abu Dhabi Investment Authority (ADIA) is committing 20% (up to $400 million) as an anchor LP to the first fund, with Welltower and its management matching this commitment.

The first fund will focus on acquiring seniors housing portfolios in the United States, leveraging Welltower's data science platform. The company has already secured an initial portfolio of six seniors housing communities for $240 million, featuring 778 units with 92% occupancy and 31% NOI margins. Additionally, Welltower is under contract to acquire NorthStar Healthcare Income, comprising 40 seniors housing communities, for approximately $900 million.

The new business aims to generate revenue through asset management fees and carried interest, with management's portion of carried interest being allocated to emerging leaders. The initiative will utilize Welltower's industry relationships, operating platform, and proprietary data science capabilities as competitive advantages.

Positive

• Secured ADIA as anchor investor with $400M commitment
• Initial acquisition of 6 properties for $240M with strong 92% occupancy
• Under contract for NorthStar portfolio acquisition worth $900M
• New revenue streams through management fees and carried interest
• Leverages existing data science platform for capital-light business model

Negative

• Challenging capital markets with higher interest rates and debt availability

TOLEDO, Ohio, Jan. 29, 2025 /PRNewswire/ -- Welltower Inc. (NYSE: WELL) (the "Company"), the world's largest owner of healthcare and wellness infrastructure and a pioneer in the application of data science to real estate, today announced the launch of its private funds management business to manage third party capital.  The new business will pursue opportunities to invest across the capital structure in the healthcare and wellness real estate sectors.  A wholly owned subsidiary of the Abu Dhabi Investment Authority ("ADIA") is committing, as an anchor LP to the first fund managed by the new business, 20% or up to $400 million of capital for the first fund.  Welltower and Welltower's management is also contributing 20% of the LP capital up to a total of $400 million.

Through the use of Welltower's industry-leading data science platform, the first fund will seek to identify and acquire seniors housing portfolios in the United States, focusing on properties that are either stable or have a near-term path to stabilization with an ability to enhance the cash flow profile through Welltower's operating platform and the secular tailwinds of the industry.  As the largest owner of seniors housing properties with nearly $20 billion of capital deployment since the fourth quarter of 2020, Welltower has established an expansive network of industry relationships through which opportunities for the new business are expected to be sourced. The new business will also benefit from Welltower's robust partnerships with many of the country's most astute seniors housing operators. Given the large opportunity set, Welltower will continue to acquire unstabilized assets on its balance sheet, consistent with its strategy over the last few years.

Welltower believes the backdrop for acquisitions within the seniors housing sector remains attractive, with capital deployment opportunities having expanded further in recent quarters.  Despite the sharp improvement in seniors housing fundamentals following the COVID pandemic, challenging capital markets conditions - characterized by substantially higher interest rates and a dearth of debt availability - continue to persist, resulting in a further rise in motivated sellers with a need to address upcoming debt maturities and other capital structure issues.  Additionally, ownership of seniors housing remains fragmented, which Welltower believes provides significant longer-term acquisition opportunities.

"We are delighted to announce the formation of Welltower's private funds management business," said Shankh Mitra, Welltower's CEO.  "We have been patiently awaiting the optimal environment to launch this platform as the right fund vintage is a key component to driving success of the business.  Not only do we believe we are in the early stages of a protracted period of compounding cash flow growth for the seniors housing sector, but also expect our near and long-term capital deployment opportunities to expand meaningfully. Importantly, we expect that Welltower's operating platform and proprietary data science capabilities will serve as a critical resource and competitive advantage for the private funds management business."

Mohamed Al Qubaisi, Executive Director of the Real Estate Department at ADIA, said: "Welltower has a successful track record in the healthcare and wellness real estate sector, based on its operational expertise and an extensive network of operating partners. Its data science-led approach is a key differentiator and will play an important role in the identification and evaluation of opportunities for the new funds management business."

The initial investments by the new business will include a portfolio of six high-quality seniors housing communities for a total purchase price of $240 million, which was acquired through a privately negotiated off-market transaction.  With an average age of eight years, the portfolio includes 778 units and is located in attractive micro-markets in which Welltower maintains strong regional density with communities expected to be transitioned to existing Welltower operators. Current portfolio occupancy and NOI margins stand at 92% and 31%, respectively.

In addition, an affiliate of Welltower is under contract to acquire NorthStar Healthcare Income, Inc., comprising a portfolio of 40 seniors housing communities (the "NorthStar Portfolio"), for an enterprise value of approximately $900 million.  The portfolio includes 4,886 units and has been significantly renovated in recent years.  Additional details regarding the portfolio will be provided following completion of the transaction, which is subject to a "go-shop" period and customary closing conditions. Subject to satisfaction of such closing conditions and closing of such transaction, Welltower anticipates that the NorthStar Portfolio will be allocated to an entity affiliated with the funds management business at such closing or some time thereafter.

Mr. Mitra added, "We believe that our fellow shareholders will strongly benefit from the creation of a new business vertical for the Company.  Our funds management business is intended to result in significant revenue generation opportunities, including asset management fees and potential carried interest upon achieving certain performance hurdles. The new business is also intended to provide a secure source of capital during varying economic cycles to capitalize on potential capital allocation opportunities."  

He continued, "We also believe the new business will play a critical role in supporting the career goals of key talent at both Welltower and our operating partners, an important aspect to sustaining our current growth trajectory.  At Welltower, following years of training, mentorship and development of our team members, we have created a deep leadership bench, which is instrumental to driving our growth - but this effort has not gone unnoticed as we've fostered the most sought-after talent in the real estate space.  In our commitment to retaining the next generation of leadership at the Company, management's portion of any carried interest earned from the fund will be fully allocated to our next generation of emerging leaders. While Welltower's executive officers will participate in the new business as investors, they will be ineligible to receive any carried interest.  This action constitutes the second step of Welltower's long-term talent retention strategy as outlined in our press release dated January 2, 2025.  Additionally, we expect the assets targeted by the funds management business to further enhance the deep regional density that Welltower has created over many years. Our regional densification strategy is especially important to providing career growth opportunities for site level employees and reducing the employee turnover that has long plagued our industry. These actions drive a better experience and higher satisfaction for key stakeholders – the residents and the employees in all our communities in the regional area."

Mr. Mitra added, "The data accumulated from acquired properties will further enhance the network effect we have already created within our data science platform, resulting in a wider and deeper moat for Welltower. Over the past decade, we have built a unique data science platform, the first of its kind in the real estate industry, powered initially by machine learning, then deep learning, and finally by AI - all prior to these terms entering the mainstream vernacular. The funds business represents our first foray into creating a capital light monetization of our data science platform.

Mr. Mitra concluded, "As evidenced by our recent announcements, including the strengthening of our leadership team and today's launch of our private funds management business, Welltower will continue to pursue all opportunities to extend the duration of our long-term compounding of per share cash flows for our existing owners."

This press release shall not constitute an offer to sell or the solicitation of an offer to buy any security, nor shall there be any sales of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

Forward-Looking Statements and Risk Factors

This press release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When Welltower uses words such as "may," "will," "intend," "seek," "should," "believe," "expect," "anticipate," "project," "estimate" or similar expressions that do not relate solely to historical matters, Welltower is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Welltower's actual results to differ materially from Welltower's expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators'/tenants' difficulty in cost effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the success of Welltower's efforts to establish and develop new teams and strategies; the ability of Welltower's investment teams to identify appropriate investment opportunities; the conditions impacting the private fund management industry, including its competitiveness and the level of regulation on private fund managers; Welltower's ability to successfully compete for private fund investors, professional talent and investment opportunities, and to effectively manage investor withdrawals; Welltower's ability to appropriately manage conflicts of interest; the expected concentration of private fund investments in healthcare properties; Welltower's ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters, health emergencies (such as the COVID-19 pandemic) and other acts of God affecting Welltower's properties; Welltower's ability to re-lease space at similar rates as vacancies occur; Welltower's ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting Welltower's properties; changes in rules or practices governing Welltower's financial reporting; the movement of U.S. and foreign currency exchange rates; Welltower's ability to maintain its qualification as a REIT; key management and investment personnel recruitment and retention; and other risks described in Welltower's reports filed from time to time with the SEC. Welltower undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.

 

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SOURCE Welltower Inc.

FAQ

How much is ADIA investing in Welltower's new private funds management business?

ADIA is committing 20% or up to $400 million as an anchor LP to Welltower's first private fund, with Welltower and its management matching this commitment with another $400 million.

What is the value and size of Welltower's initial portfolio acquisition for the new fund?

The initial portfolio consists of six seniors housing communities acquired for $240 million, comprising 778 units with 92% occupancy and 31% NOI margins.

What is the value of the NorthStar Healthcare portfolio Welltower plans to acquire?

Welltower is under contract to acquire NorthStar Healthcare Income for approximately $900 million, which includes 40 seniors housing communities with 4,886 units.

How will Welltower's new private funds management business generate revenue?

The business will generate revenue through asset management fees and potential carried interest upon achieving certain performance hurdles.

How will carried interest be distributed in Welltower's new fund management business?

Management's portion of carried interest will be fully allocated to next-generation emerging leaders, while executive officers will be ineligible to receive carried interest despite participating as investors.