For news on Welltower’s leadership change, please watch “60 Seconds with Steve” above. The REIT did this week finally disclosed (what we broke last week) its $702 million sale of 11 senior living properties in California, Washington and Nevada to a joint venture between AEW Capital Management and Merrill Gardens, which has been operating the portfolio for Welltower.
We reported that the cap rate of pre-COVID cash flow was about 5% based on trailing-12 months ended March 31, 2020. But with the occupancy decline in the past six months, August’s cash flow annualized had dropped to about $25.3 million, producing a cap rate based on that annualized number of 3.6%. The team at Newmark Knight Frank represented Welltower on the deal.
Obviously, the buyer did not buy it based on a 3.6% cap rate (at least we hope not), as occupancy had already started to trend back up. How long it will take to get back to the 96% to 97% area is anyone’s guess. With an average age of 12 years, these communities, which include independent living, assisted living and memory units, must have had great reputations to have had such a high pre-COVID occupancy rate.
In another seniors housing divestiture, Welltower is selling a portfolio of six communities in Massachusetts operated by Northbridge Companies in a RIDEA structure in which Welltower owned 95% and the third-party seller owned 5% (presumably Northbridge partners). Now, Welltower is selling the portfolio for $200 million, or about $395,000 per unit, to a fund co-managed by Taurus Investment Holdings and Northbridge Asset Management. Welltower will keep 20% and the new partner will own 80%. Newmark Knight Frank represented Welltower in this transaction as well.
Back in March when occupancy was 88%, the trailing 12-month NOI was about $9.8 million. That resulted in a 4.9% cap rate, which probably went lower assuming the portfolio census declined like it did most everywhere else. The average age of the portfolio is 19 years, or older than the higher-priced Merrill Gardens portfolio, and there were 507 units. Northbridge Senior Housing will continue to manage the communities, and the partners of the fund will have an option to buy Welltower’s interest over the next 12 months at a fixed price. Based in Boston, Taurus has sold or bought more than $7.6 billion of real estate assets.
Welltower also sold a portfolio of 20 outpatient medical buildings which have about 1.0 million square feet in five states. The price was $402 million, and WELL will retain a 15% economic interest in the portfolio, together with leasing and property management responsibilities. More dry powder for the REIT. What are they waiting for, the bottom?