There were rumors circulating last month of a major portfolio sale by one of the healthcare REITs, and given the dearth of deals in May, we clung on to the promise of it. Well, on June 1, Welltower announced not one, but two large seniors housing portfolio dispositions, along with a major medical office building sale, all combined for a roughly $1.3 billion purchase price. Ryan Maconachy and Chad Lavender of Newmark Knight Frank handled the transactions, bringing one of them from NDA to closing in just 45 days, including securing agency financing to fund it. To close any deal these days is exceedingly difficult, not only one of this scale, so well done to the Newmark team.
It certainly took a motivated seller to help close the deal, and we imagine Welltower’s desire for liquidity may have been a catalyst for the sale. All told, there were two transactions, the first with seven seniors housing properties in Florida and 29 medical office buildings selling in two tranches (one in May and the other later this summer), and the second including six properties located throughout the Midwest.
First to Florida, the first tranche comprises six seniors housing properties that were originally acquired by Welltower in 2016 from Kayne Anderson Real Estate Advisors for $569 million, or about $295,000 per unit at a roughly 5.2% cap rate. Dubbed the Aston Gardens portfolio, they total 1,930 units, with a majority being independent living, and assisted living/memory care units representing the rest. Welltower made that deal four years ago with JV partner Canada Pension Plan Investment Board, where Welltower owned nearly 55% of the JV and the Pension Plan owning nearly 45%, and the manager, Discovery Senior Living, keeping a 2.5% interest. Occupancy at the time was close to 100%, and it is not far off that right now. Currently, the seven properties, which averaged 17 years in age, generated about $3,900 in average monthly revenue per occupied unit.
Local news sources showed that Kayne Anderson was the buyer of the properties, and its familiarity of the portfolio probably helped get the deal closed amid the difficulty in getting due diligence done. Twelve MOBs wholly owned by Welltower were also included in the first tranche, leaving one seniors housing property and 17 MOBs. The whole portfolio sold for about $1 billion, with a cap rate on trailing 12-month NOI of 5.65% for the seniors housing assets and 5.45% for the MOBs.
Meanwhile, the Midwest seniors housing transaction saw Welltower sell its 90% interest in six properties for $300 million at a 6.0% cap rate based on trailing financials. The REIT did retain 15% ownership in three of the six properties, with one additional property contributed to a newly formed joint venture. Both acquirers utilized GSE debt at sub-3% interest rates to fund the deals.