As many of you know, with the onset of the pandemic, large acquisitions were in short supply. This was because there were few sellers of large portfolios who would take a haircut on pricing, and there were few lenders who would want to fund a billion-dollar plus deal. Well, it took the largest healthcare REIT to break this deal logjam.
Welltower just announced its planned acquisition of 25 purpose-built active adult communities with nearly 3,000 units mostly in the Pacific Northwest. These are all managed by Affinity Living Communities, which will continue to manage them for Welltower. The purchase price is $969 million, or nearly $248,000 per unit. The transaction will be funded by cash on hand and the assumption of approximately $523 million of debt with an average interest rate of 3.8% and a nine-year weighted average maturity. How sweet is that, since it may be several years before a borrower can see that rate again, if ever. The average age of the communities is less than eight years. Welltower plans to form a long-term partnership with Affinity to develop more communities.
The Affinity communities have an average monthly rent of $2,100 and an average length of stay of nearly four years, which provides for stable cash flow. The portfolio operating margin is close to 60%. These are all some of the reasons why active adult has become so popular with investors. Without knowing the occupancy, but with the average rate and estimated operating margin known, we estimate the cap rate to be under 5%, not taking into account the below market interest rate on the assumed debt. Remember, Welltower has an industry-low dividend yield of just 2.8%.
Welltower also announced its fourth quarter results, and its SHOP portfolio continues to do well. Year-over-year same community occupancy increased by 330 basis points, the operating margin increased by 290 basis points, and same-community revenues increased by 9.75%. Not too shabby.
In the fourth quarter, the REIT completed $3.0 billion in pro rata gross investments, including acquisitions, loans and development funding. For the full year 2023, they completed $5.9 billion in pro rata gross investments. No slowdown in M&A activity for Welltower.
