Why Ceo Mitra Describes Welltower As An ‘operating Company In A Real Estate Wrapper’

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One comment that CEO Shankh Mitra made on the recent Welltower (NYSE: WELL) earnings call stood out to me. He called the Toledo, Ohio-based real estate investment trust (REIT) “an operating company in a real estate wrapper.”

The quote seems to sum up the journey that REITs in the senior living sector have been on, in evolving from deal shops to play an increasingly pivotal role in operations, with Welltower being the foremost example of this evolution.

Mitra believes that the REIT is like Home Depot, Amazon and Costco in that it can use data and scale to improve performance on the ground and grow its “network effect,” the phenomenon where a product or service’s potential customer base increases as more people buy or use it.

“As an operating company in a real estate wrapper, we’re convinced that the only path to delivering satisfactory returns will be through compounding of cash flow generated by superior operations and supplemented with capital allocation to sub-optimized assets, further growing our network effect,” Mitra said during the REIT’s first-quarter call with investors and analysts Tuesday.

I reached out to Welltower this week, and a spokesperson told me that the company’s leaders see it “as an operating company that is distinct from our operators.”

“As the owner of the facility P&L, we take aligned operating risk in the RIDEA structure,” the spokesperson told me. “We are providing the technology, infrastructure and capital expenditure expertise through the Welltower Business System, which is designed with our operators and for our operators to collaboratively support not only the health and longevity of our real estate, but also the business taking place within.”

Welltower’s leaders, along with those of other REITs, have said for years that achieving better occupancy and margins would result in hundreds of millions of dollars in embedded NOI gains. So it’s obvious to me why Welltower would want to act more like an operating company than a simple buyer and seller of real estate. And REITs have had the ability to do so since the REIT Investment Diversification and Empowerment Act (RIDEA). RIDEA allows health care REITs to take a greater role in operations, provided their properties are still leased to a third party or to a taxable REIT subsidiary.

Welltower gained even more flexibility to take a direct hand in operating the properties it owned when the IRS in 2021 said a subsection of the REIT’s independent living communities were not classified as “health care facilities.”

Welltower’s approach to RIDEA has gone through a process of development, since its first RIDEA contract with Merrill Gardens as operating partner. Welltower is now on “RIDEA 5.0,” and I think that it’s been the company’s gradual process of fine-tuning contract terms and investing in technology that can power operations through data insights that has gotten it to the point at which Mitra can describe it in the way he now is.

But Welltower is not alone. Senior living REITs generally are increasingly moving toward taking more control over their operations. Welltower helped lead the RIDEA charge, and now I think it’s pioneering a new era where senior living REITs control even more of their own destinies, even if only by guiding their partners to better results.

In this members-only SHN+ Update, I analyze Mitra’s comments and recent REIT moves and offer the following takeaways:

• Welltower’s journey from “health care real estate deal shop” to “operating company in a real estate wrapper”
• How Welltower is following in the example of Costco, Home Depot and Amazon
• How other REITs are seeking more control over operations

From real estate shop to operating company

At the heart of Mitra’s “operating company” comment is the fact that the company’s leaders view senior living as a “product business,” where generating long-term, compounding growth through operations is the goal.

“While we are extraordinarily proud of the unmatched portfolio we have curated over the course of many years, it isn’t just our ownership of physical real estate or their locational attributes which creates value – it’s what’s taking place within those buildings that also creates true long-term value,” the company’s website reads. “As such, we are continuously asking ourselves a simple question: how do we work with our best-in-class operating partners to truly delight residents and their families while also enhancing the employee experience?”

The company’s journey from a health care real estate shop to today took about a decade to achieve, Mitra said. Welltower was previously “reliant on capital markets, and frankly speaking, the cost of capital,” he added.

Mitra noted that if the REIT was a spread investing vehicle that relied on financial engineering,  “growth, at some point, should be a problem. Size and the growth should be somewhat inversely correlated at some point.”

Hence the company’s focus on operations, which led to Welltower’s data science platform and its business intelligence efforts. These “further expand our moat, and drive a wider performance gap between ourselves and our competitors,” Mitra said.

To Mitra, Welltower isn’t totally unique in this regard, and it is following the example of other product-focused companies that leveraged data to drive better results on the ground, including Amazon (Nasdaq: AMZN), Home Depot (NYSE: HD) and Costco (Nasdaq: COST). 

“That’s because of the network effect, that’s because of the impact these companies have, and the data capture and everything else I talked about … where your size becomes positive to your growth, not negative,” Mitra said during the company’s earnings call.

The REIT has followed the example of these companies in other ways, including by creating Costco-quality break rooms at dozens of communities across the U.S., or by creating databases from which to make strategic decisions a la Amazon.

Welltower’s efforts to create new kinds of RIDEA contracts and iterate on them have served it well over the years, and that is evident in the company’s recent stock price highs nearing $150 per share. This strategy hinges on the efforts of senior living operators, and properly incentivizing them to actually drive better results – including through being open to and harnessing the data and practices brought to the table by their REIT partner – is key, as I’ve noted before.

Senior living as a ‘product business’

Welltower’s new self-designated status as an “operating company in a real estate wrapper” exemplifies an evolution that I think substantially every senior living industry REIT is undergoing in 2025.

I agree with Mitra that senior living is a “product business.” Unlike some other kinds of real estate, the industry has an important operations component that can mean the difference between success and failure at scale. I believe that is the force that is pushing other senior living companies in a similar direction as Welltower.

I see that evolution underway in how REITs such as LTC Properties (NYSE: LTC) and National Health Investors (NYSE: NHI) have embraced RIDEA deals with operating partners despite being lukewarm on those kinds of deals in the past.

Welltower’s closest peer, Ventas (NYSE: VTR), has its own data and analysis platform it calls “Ventas operational insights.” The company has used that approach to create an operational playbook its operators can use to improve their results. That is in tandem with how the REIT seeks to grow its SHOP segment to comprise half of its NOI by the end of this year.

Operators themselves are also gaining operational sophistication. LCS has built a data science platform that helps it make operational decisions, and building a better analysis system is also a goal of Legend Senior Living CEO Tim Buchanan in 2025.

Looking ahead, the “product business” nature of senior living is not changing. And as more companies like Welltower and Ventas build operationally focused portfolios, I think their “moats” will continue to widen relative to companies that aren’t taking this approach.

To the extent that this increases the sophistication of the sector and attracts an increasing amount of capital, this evolution of the REITs is a positive for the industry. But there are also significant differences between senior living operating companies versus Costco and Amazon. Just consider the difficulties that Amazon has encountered in trying to disrupt health care, shuttering its Amazon Care business, and facing CEO churn at One Medical while also facing patient safety concerns.

I think that the key to the “network effect” being a positive will be in how well REITs and their operating partners can collaborate. Having distinct OpCo and PropCo entities may not have driven the best alignment in senior living, but essentially having two operating entities in both the REIT and the operating partner also brings the potential for friction.

And above all, success seems to me to be dependent on the ability to harness the benefits of the network effect while empowering on-the-ground operating teams to serve their particular resident populations in the most effective ways possible.

In this regard, another major retail company might be an instructive parallel for what’s happening in senior living: Barnes & Noble. While other booksellers have not survived the Amazon effect, Barnes & Noble is on an upswing, opening nearly 60 stores in 2024. The company’s strategy has relied largely on local differentiation and trusting boots-on-the-ground decisionmaking.

“The key insight that I have is that it is about the bookselling team and it’s about how you take all of this huge number of books and arrange them and display them in a manner which really engages with your local community,” CEO James Daunt told PBS earlier this year. “The insight that gives me in terms of running lots of bookstores is, leave it to the teams in each store. The vast majority of them will do it exceptionally well, and your stores will become better and busier and the business will thrive.”

Barnes & Noble is even acquiring bankrupt independents and, at least according to Daunt, taking a strategically light touch.

“Bookstores get into trouble. What we now do as a chain is, we rescue them,” Daunt said. “We give them a safe home. We don’t change them. We don’t change the people. We don’t change the name. But we give them the structure of the large chain.”

Welltower is bullish on the larger role it’s playing in senior living operations, and judging by metrics like the company’s stock performance, the leadership has every reason to tout their approach. But part of the secret sauce, if we’re looking at the B&N model, will also be in striking the right balance between the operational say-so of the behemoth REIT versus the decisions rooted at the community level.

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