I worry a lot about the depth of REIT — Real Estate Investment Trust — ownership in the senior living industry.

By Steve Moran

I would never make a very good news reporter. I spend way too much time thinking about “the why,” which distracts me from “the what,” and “the what” is all that should be in a great news story. Sometimes it takes me a few days to work through “the why.”

Several days ago Welltower, Inc announced they were acquiring the entire portfolio of California-based, Vintage Senior Living. Vintage has 19 properties — 7 of which will be managed by Sunrise Senior Living; 11 will be managed by Senior Resource Group, and 1 by Silverado. The press release described the portfolio as “premium health care properties in California metro areas..

There was one thing about the announcement that really niggled at me and while I knew immediately what it was, I couldn’t quite figure out what I wanted to say about it or exactly what it meant . . . and I am not sure I yet have it right.

  • The portfolio of properties in Northern California has an average occupancy rate of 87%.

  • The Southern California portfolio has a average occupancy rate of just 82.6%.  

This seems to be a weird disconnect where premium properties have such mediocre occupancy levels.

The REIT Risk

If you are a regular or occasional reader you likely know that I worry a lot about the depth of REIT — Real Estate Investment Trust — ownership in the senior living industry. To me it is a little like getting a mortgage to purchase a house where, the interest rate and payment will go up every 5 years, the mortgage balance will never go down, and when I am ready to sell the house, I will get none of the appreciation.

I don’t think REITs or the people who run them are bad people or even that they don’t care about seniors. I am also sure that as long as the economy is steady or growing the REIT ownership thing works well for everyone. But the economy never grows forever.  

At some point in the future, things will slide backward and I worry about what will happen when lease rates keep going up and the income can’t keep up. With REIT financing, the incentives are mismatched to needs of residents, team members and their families.

Will Welltower Make REITs Look Good?

I think almost certainly that this portfolio represents a huge opportunity to take these properties and make substantial improvements in occupancy levels. The 94% occupancy for the Welltower Southern California portfolio suggests a huge upside for the operators and Welltower. While not nearly as big, there is a fair amount of upside for the Northern California properties as well.  

This becomes, potentially anyway, an extremely positive REIT story, because when occupancies are high, residents, families and team members are better served.  

The Biggest Challenge

The biggest challenge is that we are settling for the idea that 89 or 90 percent occupancy is acceptable . . . maybe even good. This too often leaves very thin margins for things to go wrong or just to improve the resident and team member experience. We need to focus on doing better. This means telling our story better; it means looking for better ways to sell our product; it means finding better ways to reward and motivate team members; it means upping our leadership game.

And who knows, maybe Welltower will help prove I have this whole REIT thing wrong . . .