This story is a part of your SHN+ subscription
Well being care-focused actual property funding trusts (REITs) are inserting more and more giant bets on senior dwelling with an eye fixed on demand forward. It’s a method that’s reshaping the business.
Days in the past, leaders with Welltower (NYSE: WELL) introduced a “transformative” shift towards senior dwelling with a $14 billion deal to amass greater than 700 senior dwelling communities. The corporate additionally offered to Kayne Anderson a 296-property outpatient medical workplace portfolio for $7.2 billion. Publish-sale, Welltower expects that greater than 80% of the REIT’s annual in-place web working revenue (NOI) will stem from senior housing communities.
Three days later, Ventas (NYSE: VTR) introduced that its senior housing working portfolio (SHOP) now contains greater than half of its annual NOI thanks partially to its $2.2 billion slate of acquisitions in 2025.
Zooming out the lens, it’s straightforward to see why these corporations are making larger and greater bets on senior housing. The variety of folks age 80 and older is anticipated to extend 28% over the subsequent 5 years, in accordance to a knowledge level that Ventas generally cites. That’s in comparison with simply 5% progress of the identical group within the 5 years following the Nice Monetary Disaster of 2008.
The senior housing sector for the third straight quarter in 2025 led in whole returns amongst a wide range of industries, together with resort and self-storage, based on a latest Nationwide Council of Actual Property Funding Fiduciaries (NCREIF) report.
As Ventas and Welltower construct up their senior housing portfolios, primarily via RIDEA contracts, they’re amassing a rising steady of working companions and touching an ever-widening slate of properties.
REITs are plugging these properties into information science platforms that assist operators make higher selections, often for communities in a regional footprint. Within the case of Welltower, new incentives are pushing these operators to align themselves much more carefully with the REIT and its share worth, a transfer that CEO Shankh Mitra stated is a “dramatic change which strikes on the coronary heart of this firm’s incentive construction.”
Larger bets additionally include larger dangers. Though I don’t see a lot on the horizon that might derail the plans of REITs which might be more and more specializing in senior dwelling, I additionally felt that manner simply earlier than the Covid-19 pandemic plunged all the business – to not point out the world – into chaos. That’s to not say I feel one other black swan occasion is coming, however solely that going “all-in” on senior dwelling does demand confidence in market stability.
On this members-only SHN+ Replace, I analyze latest earnings calls from Ventas and Welltower together with different latest business information and provide the next takeaways:
- How Ventas and Welltower have upped their wager in senior dwelling this 12 months
- Why giant REITs are “all-in” on senior dwelling
- What latest strikes from Ventas and Welltower imply for senior dwelling at giant
Welltower, Ventas put extra chips on senior housing
On Oct. 27, Welltower introduced a collection of offers carrying the most important greenback quantity I’ve ever seen for such an occasion, $14 billion. The REIT added greater than 700 senior housing communities, comprising greater than 46,000 models within the U.Ok., U.S., and Canada. Included in that whole was a deal to amass 284 communities managed by Barchester Healthcare within the U.Ok. for greater than $6.9 billion in at present’s trade charges.
Welltower’s transactions included the acquisition of greater than 150 communities within the U.S., together with “trophy senior housing communities” in Boston and in Westchester County, New York.
The REIT financed the transactions partly through the use of money readily available and proceeds from the sale of an outpatient medical portfolio valued at $7.2 billion. The medical officer portfolio contributed round 16.1% of the corporate’s annualized NOI within the second quarter of 2025, earlier than the sale.
Due to the acquisitions and gross sales, greater than 80% of the REIT’s annual NOI now stems from senior housing, its leaders stated this week in the course of the firm’s third-quarter 2025 earnings name. Earlier than the sale, the REIT’s triple-net and senior housing working portfolio (SHOP) segments collectively contributed 69% of the corporate’s annual NOI.
Ventas crossed a equally important threshold within the third quarter of this 12 months. On Thursday, the corporate’s leaders famous that senior dwelling now contributes greater than half of the corporate’s annual NOI, representing the realization of a aim set earlier this 12 months. To get there, the Chicago-based REIT has for the reason that center of 2024 accomplished $4.1 billion in senior housing investments.Each Welltower and Ventas see much more alternatives to develop these elements of their companies forward by way of extra M&A as improvement stays at a standstill.
Ventas should buy properties for reductions as little as half of alternative value. As such the REIT has “seen the chance to purchase property which might be delivering important progress potential, and that’s the place we’re leaning in,” stated Ventas Chief Funding Officer Justin Hutchens in the course of the firm’s 3Q25 earnings name.
The REIT will not be shy about its perception {that a} larger, extra focused SHOP phase provides it extra means to assist its working companions’ pricing, gross sales, expense management and capital expenditures by way of a playbook of instruments and tech.
In the same vein, Welltower is also choosing up properties at cheap costs given the upside forward, in some circumstances far beneath alternative value.
“We consider that re-doubling our efforts within the seniors housing enterprise represents the surest and quickest path to reaching our mission of elevating each the resident and site-level worker expertise, whereas additionally enhancing our alternative to ship long-term compounding of per share progress for our current traders,” Mitra said in an announcement of the acquisitions.
Notably, Mitra stated that the transaction and different latest adjustments has ushered in “Welltower 3.0,” an organization that’s “an working firm in an actual property wrapper.” That may be a time period I’ve heard him use earlier than, however with the transaction and different latest strikes, Welltower is placing much more of its cash the place its mouth is, so to talk.
With each new acquisition, I see the items coming collectively for a world dominated by massive REITs and their regional companions. Working corporations just like the companions of Ventas and Welltower merely have extra instruments and assets at their disposal because of these relationships. Executives at each Welltower and Ventas have stated that they’ll successfully create new destinies for operators with regional densities.
It’s not laborious for me to examine a close to future that’s tougher for high-quality operators to stay aggressive with no deep-pocketed, institutional capital associate, at the very least whereas new improvement is sluggish. And since senior dwelling operators that wish to work with them should conform to their requirements, I see the affect of those corporations solely rising within the years to come back.
New incentives shift owner-operator relationships
Welltower’s $14 billion acquisition wasn’t the one a part of the corporate’s latest launch that caught my eye.
The REIT additionally introduced a brand new incentive construction that aligns the efficiency of three operators – Cogir, Oakmont Senior Residing and StoryPoint – with that of Welltower’s worth as an organization. These operators have chosen to obtain a portion of their incentive payment within the type of possession models of the corporate’s working partnership, Welltower OP. In different phrases, these operators will stand to learn by really creating worth for his or her possession companions.
“I’ve been bothered by the misalignment of the incentives between our firm (the proprietor of property) and our working companions (the supervisor of the neighborhood),” Mitra stated on the corporate’s third-quarter earnings name.
Within the not-too-distant previous, senior dwelling operators earned a straight administration payment for his or her efforts, which generally was round 5%. Then got here administration constructions beneath RIDEA that rewarded operators not only for managing a neighborhood, however for the outcomes that happen within it.
Welltower’s new incentive takes that concept even additional down its logical trajectory. Finally, neighborhood efficiency fuels outcomes on the firm that owns the neighborhood. By giving operators a bit of that pie, Welltower has much more deeply linked its enterprise outcomes with that of its companions.
“My utopian concept of everybody swimming or sinking collectively is lastly taking form – an ecosystem of inner and exterior contributors the place everyone is absolutely aligned and everyone is all-in,” Mitra stated.
Until I’m mistaken, no different senior housing REIT has created something like that earlier than. However I can see why it’s a transfer that Welltower and Mitra made. Neither senior dwelling neighborhood homeowners nor their operators have been wild in regards to the present state of senior dwelling alignment. Welltower’s new incentive implies that the next share worth presumably means the next payout for an operator, I assume greater than what they may have earned with a easy incentive payment. That alone may push operators to work tougher and ship higher outcomes, particularly throughout a time when senior dwelling corporations are attempting to realize higher margins.
I do see a potential danger of those sorts of preparations, nonetheless. Whereas I haven’t but talked with Welltower administration and due to this fact don’t know the precise particulars of those new incentive constructions, strikes that enhance the worth of a inventory don’t essentially translate into higher neighborhood operations – even when in a “utopian” situation, these are tied. Sure varieties of traders, notably personal fairness companies, are beneath intense scrutiny for taking actions comparable to cost-cutting measures or overleveraging property that drive shareholder returns however primarily intestine an organization. The REITs are portray a clearer image of tying working high quality to worth, however they should stay disciplined and centered on the suitable time horizons to realize and preserve this alignment.
All of this stated, I’m wanting to see whether or not Welltower’s new incentive construction pushes its working companions to new heights with regard to efficiency. If that’s the case, I feel others will weigh these types of approaches sooner or later.
