Welltower Buys Seniors Housing Portfolio for $1.58B

Welltower announced that it is acquiring a portfolio of 86 seniors housing properties owned by Holiday Retirement for $1.58 billion, or $152,000 per unit.

The portfolio includes 80 nearly identical independent living and six combinations of independent living and assisted living properties. Upon the closing date of this transaction, expected to be in the third quarter of 2021, Atria Senior Living will assume operations of the properties and retain Holiday’s in-place senior management and staff.

The price tag of $1.58 billion represents a 30% discount to the estimated replacement cost, according to Welltower. The REIT says the transaction is expected to be approximately $0.10 per diluted share accretive to its normalized funds from operations during the first twelve months post-closing.

Shankh Mitra, Welltower CEO and CIO, commented that the transaction was funded through efficiently priced permanent capital to create significant near and long-term per-share value for the company’s shareholders. “Our pipeline of attractive opportunities across the health and wellness continuum remains robust going forward,” he said in a prepared statement.

As the US recovers from the pandemic, Welltower expects substantial net operating income growth as occupancy growth continues accelerating from near-trough levels of 76.3% as of June 20, 2021. In fact, it has already increased over 2.7% since bottoming in March 2021.

Other sources also expect an increase in seniors occupancy coming out of the pandemic. The fourth annual Seniors Housing Investor Survey and Outlook from the JLL Valuation Advisory said demand will soon be at its highest point ever. Helping magnify that demand will be supply shortages as construction delays from the pandemic hindered starts. As a percentage of existing supply, units under construction dropped from peak levels of 7.0% in Q4 2019 to 4.7% in Q1 2021.

The Holiday portfolio is 100% private pay and includes large rooms, high ceilings and kitchenettes. Most of the acquired properties lease space to third-party home health agencies, enabling residents to age in place by purchasing a-la-carte care as needed.

Welltower and Atria plan significant value-add improvements to the properties, including a capital expenditure plan of $1.5 to $2 million per community, which is expected to drive higher revenue and operating margins in future years. They also are planning for larger-scale refurbishments and redevelopments to ten properties that have been designated for expansion opportunities. The improvements should increase property-level performance while maintaining Welltower’s all-in basis (approximately $165,000 to $170,000 per unit), at a substantial discount to replacement cost.

In addition, five properties have been identified as higher and better use candidates. Finally, Welltower expects that Atria’s operating expertise in assisted living communities will produce additional cash flow growth opportunities in the portfolio’s six independent and assisted living combination communities.