The Internal Revenue Service (IRS) recently granted a favorable decision for Welltower (NYSE: WELL) regarding its management of 45,000 IL units, according to the real estate investment trust’s presentation at Nareit’s REITworld conference.
On Nov. 7, the IRS concluded that a portion of the Toledo, Ohio-based REIT’s IL communities were “not classified as ‘health care facilities’ under the REIT Investment Diversification and Empowerment Act (RIDEA) that are required to be leased to a third party or to a taxable REIT subsidiary,” its presentation states.
The private letter ruling (PLR) is expected to provide Welltower with “significant flexibility in operating its ~45k independent living units primarily located in Canada and the U.S.”
A Welltower representative declined to comment to Senior Housing News on Tuesday.
The ruling means Welltower now has more latitude, and pressure, to “prove to investors that its data analytics platform and operating expertise brought by John Burkart can make a meaningful difference versus the status quo,” Stifel Analyst Tao Qui told Senior Housing News on Tuesday.
“They’ve showcased some SHOP turnarounds that are impressive, but this would be done at a completely different level and scale,” Quiadded.
Stifel analysts further outlined the implications of the PLR stating that “half” of the 45,000 IL units could be taken over by Welltower starting in 2023, but that it would “keep operators that could operate more profitably.”
Stifel added that Ventas (NYSE: VTR) is also “in the process of obtaining a similar PLR but will likely start small on the operating platform.”
After meeting with various REIT management teams at REITworld, an investor note from Stifel states the outlook for senior housing was “generally upbeat, particularly on pricing power and margin expansion opportunities.” That’s based on most REITs seeing approximately 10% in-place rent growth and improving releasing spread.
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