Welltower CEO: REITs’ Outpatient Medical Opportunity is Enormous
Health system consolidation has been picking up steam in recent years—and it’s expected to continue, whether or not the Affordable Care Act (ACA) is repealed. This trend, in part, is compelling Welltower (NYSE: HCN) to grow its outpatient medical portfolio in 2017, executives indicated during the company’s fourth-quarter 2016 earnings call on Feb. 22.
Specifically, the Toledo, Ohio-based health care real estate investment trust (REIT) believes major academic and regional health systems will continue to grow, eventually driving “weaker systems” out of business. Additionally, Welltower predicts increasingly more acute-care companies will be relegated to the “safety net business” of caring for the Medicaid and uninsured population.
“And that’s not where we intend to be,” Welltower CEO Thomas DeRosa explained during the call.
The REIT is hoping that, at some point, major academic and regional medical systems will begin to sell the various outpatient or ambulatory assets they acquired as they grew.
“That’s where most of the high-quality outpatient opportunities lie,” DeRosa said. “They are sitting in the hands of these major health systems.”
The opportunity for REITs to buy assets off of health systems, DeRosa feels, is enormous.
“This could be one of the biggest pools of potential investment opportunities that the health care REIT space has ever seen,” DeRosa said.
Welltower’s fourth-quarter 2016 revenue of $1.08 billion beat analysts’ expectations by $40 million; its fourth-quarter 2016 FFO of $1.10 beat analysts’ expectations by 1 cent.
Johns Hopkins partnership
Welltower also announced on Wednesday a new strategic collaboration with Baltimore-based Johns Hopkins Medicine. The collaboration will be focused, in part, on health systems’ outpatient medical strategies.
“One of the things that we’re going to be working with Johns Hopkins on is real estate infrastructure and our objective is to find ways to innovate to become better partners, if you will, for health systems as they are expanding their ambulatory strategies,” Welltower Executive Vice President – Business Development Mercedes Kerr said during the earnings call.
Welltower also plans to alter the way it interacts with its outpatient medical tenants in connection with this partnership, Kerr indicated.
“Historically, it has been a landlord and tenant relationship that we have had with them, and what I’m describing is a partnership much like the kind that you’ve seen us have with senior housing operators,” she said.
Written by Mary Kate Nelson