Light the match to watch it blow
In Welltower Musing #2, we wrote about the Transformational change that Welltower management is looking to bring to the real estate industry. In great detail, Welltower discussed for the first time in their 10-K how they use data science and Artificial Intelligence in their underwriting process. We reproduced the full section at the bottom of the Musing but three things are worth calling out:
- WELL's AI capabilities are not a marketing gimmick: The data science team is led by "doctorate-level statisticians and mathematicians" who are doing fundamental research to improve WELL's business. Don't take our word for it, Google search Dynamic Pricing in the Linear Valuation Model using Shape Constraints and let us know what you think.
- Scale = better outcomes: "As our properties continuously produce new data and we acquire more properties, the data science platform scales and becomes more precise in its predictive analytics and has enabled us to conduct broad and deep analysis across our focus markets."
- Real estate is a low productivity industry ripe for change: Real estate has been slow to embrace technology. We believe this largely stemmed from principal agent problems. For example, private equity real estate incentives left them little reason to invest in tech. Meanwhile, long term holders of real estate largely focused on clipping coupons and market pressures did not force them to adapt. But Welltower is attacking these challenges head on by:
- "integrating AI into our data science platform to assist in analyzing and extracting more insights from our internal documents."
- "WBS is intended to support our operating partners through process standardization, shared services and data and technology enablement, centralizing certain repeatable activities that can be performed more efficiently at scale."
- "created internal generative AI chatbots, using our proprietary information to interact with and answer queries by our employees about our human resources and other relevant policies and other internal-facing matters."
Welltower's technology will be the center of the real estate industry
Welltower announced two licensing partnerships for the use of "Welltower's supervised and unsupervised learning models to inform capital allocation across micro-markets." One is with Public Storage (ticker: PSA) and an unnamed real estate private equity firm focused on medical office. Interestingly, Welltower provided an image (see below) showing other potential property types and users who might benefit from their technology plus that the technology can be used around the world.
The World Is Yours
The Coming REpocalypse: the gap between winners & losers will grow
We believe Welltower's licensing deals marks the beginning of a Real Estate apocalypse (REpocalypse). The winners will have access to Welltower's models and those who do not will underperform. Providers of capital have slowly learned: that the best capital raisers are not the best capital allocators. We believe we are entering a world where capital allocation matters more and Welltower's technology drives meaningful alpha.
Welltower gets more than fees from the PSA partnership…
One quote that stood out to us in the WELL 4Q25 earnings call: "Now, if your question is on the operational side, operational technology side, I wouldn't even call us mediocre. I would call us mediocre minus. So we have a long ways to go in that journey." Now combine that with the PSA-WELL Press release and you can see the Welltower win in their new win-win partnership with PSA: "Over time, our [PSA] operational analytics capabilities will help enhance Welltower's operating platform, as well."
All to accelerate cash flow growth on a per share basis
We think the partnership accelerates Welltower's ability to enhance its operating focused AI models (Welltower Business System). In fact, PSA's press release noted: "While Welltower's platform has historically been focused on capital allocation, Public Storage has developed best-in-class operational data science capabilities as part of its transformation, including revenue management, customer behavior modeling, demand forecasting, and operating efficiency analytics, which are core drivers of net operating income growth and margin expansion"
Key call outs from the 4Q25 transcript that went unnoticed:
- The story of Welltower's future is one focused on operations and technology, not necessarily owning real estate: "These actions were part of a decade long effort to transform our firm from a real estate deal shop when we arrived at the company to an operations and technology first business….each day, our team shows up with one question in mind, how do we support our best-in-class operators through Welltower Business System….only then do we have a shot at achieving our North Star, the long-term compounding of per share growth for our existing investors."
- Areas of investment focus on People, Processes, Data and Technology:
- People: "optimizing the human interaction to provide a delightful experience"
- Processes: "remove bottlenecks and streamline flow"
- Data: "provide our operating partners with robust objective data to drive positive outcomes"
- Technology: "leverage technology to improve the customer and employee experience, automating processes and providing personalized experiences."
- Fund promotes now re-directed to other employees: "This group also gave up a substantial portion of the promoted interest in a first fund vehicle and all of their interest going forward. With those economics redirected towards attracting and retaining talent, the next level of leaders within the organization"…."to retain the strongest talent at all levels of our organization. Make no mistake this is a team game."
- Leverage at 3.0x net debt to EBITDA is overstated as 175 properties are not producing any net operating income (NOI): In 2025, Welltower "acquired over 1,000 properties, more than 175 which are either under or under construction or recently delivered."
- Focused on superior performance not gathering assets: "We are moneymakers, not asset gatherers, and we seek opportunities that are compelling, durable, ,and complementary to our balance sheet."
- The ultimate value of Welltower: "The sheer complexity of scaling an un-scalable business is where our value-add lies."
- Constantly improving the portfolio: "We're acquiring very good assets and they're younger assets. And you can actually see that pretty easily when you look at the average age of the assets and the fact that every year I get a year older, but our portfolio has actually stayed the same."
Reproduced from Welltower's 2025 10-K
Data Science, Artificial Intelligence ("AI") and Welltower Business System ("WBS") We collect data related to our portfolio of over 2,500 properties, which allows us key advantages in selecting investment locations, products, price points and partners for our properties, as well as insights into our potential competition, anticipated costs and other metrics. Our data science team, led by doctorate-level statisticians and mathematicians is focused on building and refining proprietary statistical models and algorithms to project financial performance, predict lease-up and occupancy trends, identify specific locations by product type and assess targeted supply-demand dynamics. Using the data science platform, the data science team prepares a report as a typical initial step in our underwriting process for evaluating virtually every potential seniors housing investment opportunity. This report is then reviewed by our investment committee when evaluating such opportunities.
As our properties continuously produce new data and we acquire more properties, the data science platform scales and becomes more precise in its predictive analytics and has enabled us to conduct broad and deep analysis across our focus markets. These predictive tools inform the platform's supply/demand analysis, location analytics, comparative and predictive modeling, investment and capital expenditure analytics and revenue and asset management capabilities by allowing quick insights regarding demand, prospective consumer and depth of the local labor market, as well as improved risk assessment and increased comfort in our underwriting process as markets evolve.
We are integrating AI into our data science platform to assist in analyzing and extracting more insights from our internal documents. Additionally, we have created internal generative AI chatbots, using our proprietary information to interact with and answer queries by our employees about our human resources and other relevant policies and other internal-facing matters.
In addition to supporting investment selection and underwriting, we use standardized data, technology and operating practices to support execution across our seniors housing operating partner network in our end-to-end operating platform, WBS. WBS is intended to support our operating partners through process standardization, shared services and data and technology enablement, centralizing certain repeatable activities that can be performed more efficiently at scale. WBS provides site-level teams with standardized data and operational insights to support day-to-day decision-making and improve the resident and employee experience. Implementation is phased and conducted in collaboration with our operating partners, and we monitor adoption and effectiveness through standardized KPIs and reporting routines.
Published: March 1, 2026