Real estate investment trust Welltower’s plans to use a REIT Investment Diversification and Empowerment Act, or RIDEA, structure to lease the 19 properties it plans to purchase from Vintage Senior Living will “increase the company’s exposure to market volatility and unforeseen capital expenditures,” labor union Unite Here said Thursday in a letter to shareholders.
Welltower announced the planned acquisition Aug. 2, saying it would improve the REIT’s position in five of the “sexy six” seniors housing markets, including Boston, Los Angeles, New York/New Jersey, San Francisco and Seattle.
Upon completion of the sale, however, Unite Here said, more than 40% of Welltower’s portfolio will be under a RIDEA structure, an estimate that Welltower Executive Vice President and Chief Financial Officer Scott Estes provided analysts Aug. 2 on a second-quarter earnings call. “Is increasing Welltower’s RIDEA exposure in the best interests of investors?” the union said shareholders should ask.
Under a RIDEA structure, REITs own a stake in the taxable REIT subsidiary, typically the licensed community operator, so they share risk at the operational level. During the earnings call, Estes said that taking this approach won’t elevate risk for Welltower “because we have very seasoned operators and an infrastructure to manage RIDEA assets that is unparalleled, and we feel much more comfortable in our ability to manage our RIDEA assets than we might with certain triple-net [leases] just by the nature of how the ownership is structured. Not that we would say that triple-net is necessarily riskier, but we think we know how to manage risk and enhance value through a RIDEA structure better than anybody.”
Under a triple-net lease, the tenant is solely responsible for all costs related to the asset being leased, plus the rent fee applied under the lease.
Unite Here, which said it represents more than 270,000 North American workers, also questioned Welltower’s decision to grant operating contracts for seven of the Vintage properties to Sunrise Senior Living, which the union said increases the REIT’s exposure to its second-largest operator.
On the earnings call, Welltower Executive Vice President and Chief Investment Officer Scott Brinker said that the REIT chose Sunrise to manage the seven properties because the company “excels at mid-size properties,” and CEO Thomas DeRosa said that Sunrise has a strong position in the markets in which the communities are located. The REIT chose Senior Resource Group to manage 11 large properties being purchased from Vintage and Silverado to manage one memory care property.
