What Comes After the $4 Billion Start of Welltower’s Shankh Mitra Era

When Shankh Mitra became CEO of Welltower (NYSE: WELL) last fall, it seemed to me that he faced a tricky leadership challenge.

On the one hand, he had helped shape strategy for the real estate investment trust (REIT) as a top executive, and so he intended to maintain continuity as he took the helm.

But he also needed to put a unique stamp on the company, so as not to be continually overshadowed by his charismatic predecessor, Tom DeRosa.

After eight months of intense dealmaking and hiring, I think it’s fair to say that Mitra’s tenure as CEO has started with a bang — including a signature deal, in the $1.6 billion acquisition of 86 Holiday Retirement communities.

And with a slate of new operator and developer partners, and a hiring push that could result in about 100 new employees added since the pandemic started, there is a growing contingent of people who never knew Welltower under any other CEO.

So, the Shankh Mitra era for Welltower is well underway, and based on a recent interview, I’m particularly interested in a few areas that I think will further define the company under his leadership, including:

— Innovations in active adult rental product

— Digesting the recent slew of senior living deals

— How he communicates about Welltower and tells a “better story” about senior living

Active adult innovation

Welltower has invested more than $4 billion since Q4 2020, including through partnerships with active adult developers and operators Treplus Communities and Sparrow Partners.

Treplus and Sparrow join a growing group of Welltower partners focused on lower-acuity senior living targeted at a younger consumer — a category commonly referred to as active adult, but that Welltower termed “wellness housing” in a recent investor presentation.

“Active adult is probably the hardest bucket to put a label on,” Mitra observed.

That difficulty is rooted in the fact that there is a lot of experimentation in this space, with multifamily and senior living developers rushing in to create products that they hope will appeal to the rising generation of consumers.

The senior living players entering active adult tend to bring their high-touch service approach to active adult, Mitra said, while the multifamily players are often motivated more by the fact that designating a project as 55-plus can ease the zoning process by limiting the amount of traffic and school-aged children associated with a project.

“We have a much more nuanced view,” he said.

That nuanced view is based on Welltower’s massive amount of consumer data, with a team dedicated to customer profiling and psychographics.

“We want to know everything about the customer,” Mitra said. “We want to know where she shops, how she lives — we can tell you whether she wants to be contacted via text, Facebook, Instagram or direct mail. That much granular detail we get into.”

Welltower’s data and work in the 55+ sector, including through the welltowerLIVING brand unveiled in early 2020, has Mitra excited about a “tremendous amount of opportunity in the space” and also convinced that “there’s a tremendous amount of mistakes that have been made.”

“You will see that come through in a lot of failed lease-ups, a lot of failed price points,” he said.

He’s particularly frustrated with the “stories” circulating regarding active adult products.

“I am tired of getting pinged by brokers who say, maybe it’s a failed active adult, you can just convert it into an IL and make money — which is all stories” he said. “I don’t buy stories. I’m an investor. I’m focused on what works.”

Welltower has an entire division of people dedicated to discovering and implementing “what works” in this part of the market, and Mitra teased bigger announcements coming in the next year to 18 months.

So, while Welltower’s early active adult strategy and initial investments occurred before Mitra became CEO, I think the company’s ability to create a more well-defined, successful active adult model — or its failure to do so — will be seen as part of his legacy for the REIT and the industry.

Digesting recent acquisitions

Another key piece of Mitra’s legacy — or at least the success of his early years as CEO — will be determined by how all the recent deals play out.

As with all business deals, there is some level of risk involved in the plays that Welltower has been making. For instance, the company has backed Monarch Communities, which has an interesting, vertically integrated model and a seasoned leadership team, but is a recently formed group with no substantial track record to speak of yet.

The REIT also invested in a $97 million, 22-property senior living portfolio with Pathway to Living. That’s a modest deal price by Welltower’s standards, but a lot of properties for an operator to take on at once. Again, there is reason to have faith in Pathway, given the quality and experience of the company leaders, but success is not a foregone conclusion.

And then there’s the blockbuster transaction with Atria and Holiday. It seems to me that a key component in the success of this deal will be how well all the organizations and leaders involved — Mitra, Atria CEO John Moore, and Holiday CEO Lilly Donohue — can stay on the same page.

Mitra has touted the alignment created by Welltower’s RIDEA 3.0 structure in this transaction and others, and he spoke passionately about the need to richly reward operators who execute on a high level and produce results for Welltower shareholders.

But beyond the financial alignment, Welltower has to leverage its data capabilities to inform how communities are run, while still enabling operating companies the level of autonomy that I imagine they want and need.

There’s no question that Welltower has impressive data systems that the REIT leverages both to attractive transaction opportunities and to guide operations at the community level — Mitra noted that Welltower’s data experts can predict with 95%-plus accuracy what a community’s labor costs will be.

This level of data is powerful, but it’s easy to wonder how easily and often collaboration with operators can become too many cooks in the kitchen; it’s a concern, and a complaint, I have sometimes heard not just about Welltower but ownership groups in general.

In her recent SHN+ TALKS, Brandywine Living CEO Brenda Bacon was complimentary of Welltower as a partner, and she did indicate that she thinks boundaries are in place:

“They are the experts of capital, we’re the experts at operations, and if we join forces, we can create some really special situations,” she said.

A better story to tell

Welltower is currently on the hunt for a digital marketing leader, with the job description calling for “someone to leverage our industry-leading seniors housing data and analytics capabilities to redefine the standard for seniors housing marketing.”

Mitra has been thinking “in a big way” about how senior living can do better from a marketing and branding perspective, particularly to tout its safety record during Covid-19, but also beyond that.

“I think our industry has done a remarkable job to protect the residents, and that story needs to be told, and the story needs to be told of the value proposition of what we provide,” he said. “We provide significant value relative to other alternatives and other opportunities, for you to have a wonderful, dignified life, where you are not alone.”

Welltower’s data can no doubt provide evidence to back up this messaging, but Mitra seems self-deprecating about being a messenger himself.

He began our interview by noting that he rarely speaks to the press and does not consider doing so a strength. And he said that Welltower’s operating partners can better deliver the message about the senior living value proposition than he can, claiming, “I’m just a capital allocator, a finance person, and a massive data enthusiast.”

Perhaps we will never find him addressing TV cameras from Davos in a dramatic coat, as his predecessor did, but Mitra seems more than capable of turning a catchy phrase and spoke with conviction during our interview.

As CEO of the largest senior housing owner in the United States, he can command attention like few other people in the industry. How he chooses to use this bully pulpit — or not — will also play a part in defining Welltower under his leadership and could influence the industry as a whole.

It’s my hope as a journalist that he speaks often and candidly, but I also think it could be in the interest of his company and the sector if he picks up his megaphone and personally puts into words the “better story” that can be told about senior living.