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Welltower's NYC property will target an 'affluent, cognitively challenged population,' CEO says

's planned memory-carefacility on Manhattan,N.Y.'s East Side will serve "an affluent, cognitively challenged population"and is part of a long-term strategy to focus on markets where people have the abilityand willingness to pay, company executives said in a May 3 conference call.

On thecall, which followed the release of the company's first-quarter earnings, executiveslargely declined to provide details on the Manhattan property, citing a nondisclosureagreement. Yet CEO Tom DeRosa said the property, to be developed on the corner ofEast 56th Street and Lexington Avenue along with Hines, will address a "pathetic"shortage of residential senior care options in the city.

For apopulation of more than 1 million people in Manhattan, there are only 70 memorycare beds in the borough, "and I can tell you that they are of marginal quality,because we used to own them," DeRosa said.

The newproperty, known as The Welltower, will be a dementia and Alzheimer's care facility,he said, describing it as "an anchor for an affluent, cognitively challengedpopulation that has been forced to live in the shadows."

The propertywill make residents "part of a larger community which includes Billionaires'Row one block away," DeRosa added.

Whilethe company cannot detail pricing, "what I can tell you is that we didn't sacrificeour return expectations and underwriting criteria to be in Manhattan," DeRosasaid, adding, "Frankly, I cannot think of a more class A real estate opportunity."

Laterin the call, Chief Investment Officer Scott Brinker said the company, in both theU.S. and the U.K., is "a private-pay, high-end business," which givesit the ability to better offset cost pressures.

"Seniorshousing is a private-pay business, and the laws of supply and demand apply,"he said. "That's why we chose to concentrate in markets with the ability andwillingness to pay. These also happen to be the markets where it is more difficultto bring new supply. We know that location impacts performance, because we havebeen tracking the data inside our portfolio for years."

As moredetailed operating data becomes available in the seniors-housing industry, "ourunmatched scale in premier markets will be highly valuable," Brinker said.

The company'sseniors-housing operating portfolio has outperformed the broader industry in recentmonths in occupancy and rates, Brinker said.

Whenan analyst pressed for "color," he added: "The color is, the majorityof our portfolio is located, at least in the U.S., in six core markets. And thosemarkets continue to outperform by a very meaningful factor. … And those are themarkets that we've prioritized for years, and we will continue to prioritize."

DeRosaadded that the company had also maintained "discipline" in exiting "marginal"markets over time.

"Thatis paying a dividend today," he said. "You know, for a REIT, that's adifficult thing to do.  But our shareholdershave been on that ride with us now for a number of years. We have sold a lot ofassets. We've acquired a lot of assets. And it's all about having the data and thediscipline to allocate capital into the best markets and de-emphasize the marketsthat just will not perform over time."