$WELL Welltower: Exposing The Shell Game
Welltower Inc. (NYSE:WELL) is a healthcare REIT with a $32.1 billion market cap that is the largest owner of senior housing facilities in the U.S., with investments in 1,568 properties.
Until last month, Welltower’s largest tenant was a non-profit health system in the Midwest called ProMedica, which accounted for 12% of the company's annual Net Operating Income (NOI). ProMedica faced severe distress and began breaching bond covenants in early 2022, threatening Welltower’s investment.
Given its size as Welltower’s largest operator, Welltower has stressed the importance of ProMedica’s financial health as a key risk factor.
On November 7th, 2022, Welltower announced a solution: it would transfer the operation of 147 skilled nursing facilities out of ProMedica and into a new joint venture with a health care operator called Integra Health. The deal helped fuel a 9% spike in Welltower’s stock.
Welltower’s CEO said that Integra provided a “well-capitalized strategic partner” resulting in Welltower being paid 4% more in cash rent under the new JV, coming out ahead despite the distressed situation.
Despite the high praise from Welltower’s management and claims of being a well-experienced operator, Integra seems to barely exist. The entity was registered 6 months ago, according to Delaware corporate records. Its website was registered on the same day.
Integra’s CEO, 29-year-old David Gefner, appears to have no background in the skilled nursing space at all. Integra has no employees on LinkedIn except for Gefner, who claims to have worked at the 6-month-old entity for 11 months.
A senior ProMedica employee told us Integra had no operating experience and came in after the company couldn't find genuine operators. A former Welltower executive told us he had never heard of Gefner, saying that Integra would need "a lot of people" to manage the deal with Welltower.
Red flags indicate that another of Welltower’s distressed deals, a 2021 restructuring with its troubled 4th largest operator, Genesis Healthcare, mirrored the latest ‘miracle’ deal.
In late 2021, evidence suggests that Welltower quietly disposed of 21 of its distressed Genesis assets to a Gefner-affiliated firm, once again handing skilled nursing facilities over to an inexperienced operator and clearing its books of the mess.
We found signs of overt conflicts of interest with the deal. Gefner previously worked at the investment firm that owned Genesis, according to contact database records. Gefner’s own private equity firm at one point shared an office suite with an affiliate of the firm that ran Genesis. None of these relationships have been disclosed by Welltower or Gefner.
In addition to his CEO role at Integra, Gefner is CEO of private equity firm "Perigrove", which at one point claimed to have raised $3 billion. We found no regulatory Form ADVs or Form Ds for Gefner or Perigrove. We also found no association with a broker/dealer, indicating that Perigrove may have either lied about the size of its capital raises or raised the capital illegally.
Perigrove claimed on its website to have run 12 prior real estate projects. We found no evidence to support this. Real estate records show all were led by other developers.
Perigrove had a documented role in only 1 of the claimed projects on its website that we could find; an attempted launch of a $30 million crypto token to raise funds for a property once dubbed by Crain's Business as the "city's worst illegal hotel". The token offering looks to have failed.
Perigrove’s website claims it operates out of a prestigious office building in Manhattan. We visited and found the company has no presence at its claimed address.
Instead, we found Perigrove’s office on the outskirts of New York City, in a strip mall sharing an address with an auto parts store. On the front door of the building, Perigrove's name was spelled wrong, as "Perigove", with stickers.
Welltower trades at a premium to competitors, with its price/estimated NTM AFFO at 22.7x, 22% higher than the average multiple of comparably-rated peers. It has the lowest dividend yield of its peers, indicating that the market views it as a safe asset.
Welltower’s valuation comes despite an industry in turmoil: a 2022 BDO report reported that 50% of long term / post-acute home health facilities had defaulted in the last 12 months. The report surveyed 100 Healthcare CFOs and found that one in four who had not defaulted in 2021 were concerned they would default on bond or loan covenants in 2022.
Welltower also faces significantly larger maturities moving past 2023, with 2024 and 2025 debt totaling over $3.7 billion in a rising interest rate environment.
Meanwhile, the company has been diluting its equity via at-the-market (ATM) offerings, having raised $4.5 billion in total net proceeds in the past 2 years. It has raised over $400 million in 5 months through its latest ATM, with $2.57 billion in remaining capacity as of September 30, 2022.
Overall, we think Welltower is an overpriced-to-perfection REIT obfuscating its distressed assets, raising questions about both its portfolio and the credibility of management as it attempts to raise capital from investors.
Initial Disclosure: After extensive research, we have taken a short position in shares of Welltower, Inc. (NYSE:WELL). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.
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