Meet the biggest investor in new care homes in Britain today


If asked to list operators building the most care homes in the UK today, you might plump for Four Seasons, Care UK or HC-One. But the biggest investor in new buildings isn’t a care home operator, it is the US real estate investment trust Welltower Inc, which invests in the construction or acquisition of homes for Signature Senior Lifestyle, Avery Healthcare, Sunrise Senior Living and its sister company Gracewell Healthcare. Why is the UK such an attractive market to the multi-billion dollar Welltower? We spoke to the head of its UK operation, John Goodey, to find out.

Welltower Inc. has nearly £400 million committed to the construction of new senior housing facilities in the UK, making it the biggest investor in new build care homes in the country.

John Goodey, senior vice-president international, who heads the UK office for the US-based REIT, says the company is having an exceptional year of new developments. “We hope to support our operating partners by opening seven or eight new facilities this year. It may not always be this pace, but we still see a real need for superior facilities in interesting markets” he told Care Home Professional.

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Welltower focuses exclusively on working with operators that target affluent, privately-funded care home residents. It works with three operators in the UK: Signature Senior Lifestyle, Avery Healthcare, and Sunrise Senior Living along with its sister company Gracewell Healthcare. Avery Healthcare has almost 50 homes in the UK; Signature has 14; Sunrise has 27 properties and its sister company Gracewell has 24.

“We work with operators at the premium end of the market where private pay residents wishing for a superior experience are willing to pay fees that might be two, three, even four times higher than the fees offered by local authorities,” Mr Goodey explains.

In Welltower’s global financial report for the first quarter of 2016, the company states that the UK generated $167 million from 89 properties, which represents 7.9% of its worldwide net operating income. The lion’s share of the company’s $2.1 billion net operating income in Q1 was from the United States and Canada, where its partners run 1,317 homes.

All of the new homes within its £400 million worth of projects under development will be operated by Welltower’s existing partners. Mr Goodey did not predict exactly how many homes will be added within the next few years, but £400 million suggests up to 40 new properties will be created.

The REIT also has the option of partnering with additional operators. Mr Goodey says this is always possible, but is not necessary to achieve Welltower’s UK ambitions. “I am sometimes asked about our market share – how many homes do we have out of the UK total. If you look at it this way, we have a small share, but if you look at the market we compete in, the premium private pay market, I think we account for around 50% of the homes we would like to own. There are other operators doing what our partners do, but we will be very selective in adding to the operators with which we work,” he explains.

In the UK, Welltower supports its operating partners with two types of agreement: Seniors Housing Triple Net and Seniors Housing Operating. In both cases Welltower owns the care homes, the difference is in the way operating partners work with the REIT. In the case of Sunrise and Gracewell, which has a Seniors Housing Operating agreement, the operator has a management contract that pays the company’s senior executive team to run the homes for a fee that grows over time as the business expands.

Avery and Signature operate with a triple net lease, which means they pay Welltower a pre-agreed rent that rises every year; plus they are responsible for insuring each property, maintaining it and capital investment to ensure the homes are always up to scratch. Any profits after these obligations to Welltower have been met are retained by the owners of Avery and Signature.

Virtually all of the homes run by operators backed by Welltower specialise in large, modern, purpose-built, high-spec homes offering support to elderly residents ranging from light touch care assisted living up to full nursing care for people with dementia and other physical and cognitive disabilities.

The smallest homes under management have more than 60 beds, and the largest have over 100, giving Welltower’s partners the challenge of convincing Care Quality Commission inspectors that its big and beautiful homes can also deliver outstanding care.

Andrea Sutcliffe, chief inspector for Adult Social Care at the CQC, voiced concerns to Care Home Professional last month that the large, luxury newly built homes, of the type Welltower favours, find it more difficult to provide the person-centred care that residents need.

The current CQC ratings for Gracewell services illustrates the challenge: of 17 homes listed on the CQC website, nine Gracewell homes have been rated. Four out of nine are rated Good; four Require Improvement; and one is Inadequate. That is more than half of the Gracewell homes rated below the Good grade, compared to a national average 43.6% below Good for homes with nursing.

Given that ratings are publicly available and simple to compare, you might expect Welltower to be concerned that below average CQC ratings could affect occupancy and fees across the company’s portfolio. If Mr Goodey is worried, he isn’t showing it. “Welltower has chosen operating partners that are the best in the business, and choose to place ethics and service at the core of their model. We and our partners know residents and relatives have a choice of where to go. Our partners welcome feedback from the CQC, as they do from residents, relatives and staff, and continually strive to improve the service they offer,” he says.

Welltower is a money-making machine, but it is also a specialist in facilitating care within its buildings. The US headquarters recently raised $3 million for the Alzheimer’s Association, and its CEO Tom DeRosa has called for research and treatment to be recognised as a national priority. Mr Goodey also forcefully rejects any suggestion that profits come before quality of care at Welltower. “We are not the service provider, but we work closely with all our operators to ensure that that we collectively put the needs of every resident at the centre of everything we do,” he says.

Welltower infographic

One of the greatest contributions that Welltower makes to improving care is helping its partners to operate as efficiently as they can. This often means sharing ideas for best practice among the operators, and also helping them to pool their collective buying power to secure the best commercial terms when making capital investment in properties, fixtures, furniture and even staff.

“These operators are in the business of providing the best care possible. If cooperating with another operator who some might think of as a competitor is the way to achieve this, then that is what they will do,” Mr Goodey explains. “They can also draw on expertise directly provided by Welltower. For example, we have a director of care and compliance whose sole job is to focus on supporting our operating partners in delivering the best possible service, and ensuring that the regulator has everything they need when they inspect a facility,” he adds.

The idea of operators working together to secure better prices for products and services could even be extended to businesses outside of the Welltower family. Mr Goodey drops the names of the top brass at Four Seasons, Barchester, HC-One and others as he describes how the industry could cut costs if it negotiated more collaboratively.
Welltower isn’t a natural incubator for what sounds like a traditional buying group, but the REIT does have clout and contacts, and could be a facilitator or even seed the creation of a buying group in the future. “Welltower has been active in this type of initiative for many years in the United States,” says Mr Goodey.

Financial businesses like REITs, private equity firms and investment bankers are viewed with suspicion by touchy-feely businesses like care homes – particularly those dependent on local authority or NHS fees. But Welltower’s model, and the instincts of top executives like Mr Goodey, are much more in tune with the long term needs of operators that live and breathe care for their residents.

We are constantly reminded that the care home business is starved of cash, but Welltower is unafraid to funnel its investor’s money into the sector, and keep the funds flowing as bigger, better and more innovative services develop for the benefit of senior citizens in the UK.

Tags : Care Home ConstructionInvestmentNew BuildReal Estate Investment TrustREITWelltower

The author Rob Corder

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