Welltower to Buy MOB Portfolio for $1.3B

TOLEDO, OHIO–Welltower has agreed to acquire a 55-asset medical office and outpatient facilities portfolio from CNL Healthcare Properties for $1.25 billion.

The portfolio consists of 3.3 million rentable square feet in major metropolitan markets across 16 states.

The sale is expected to close during the first half of 2019, subject to customary closing conditions.

CNL Healthcare initially marketed 63 properties, which also included post-acute care facilities and specialty hospitals, through its strategic advisors.

The 55 properties that Welltower is buying have a current occupancy of 94% and average annual rent increases of 2.4%. Almost all, or 92%, of the properties are affiliated with health systems including Novant, Memorial Hermann and Cleveland Clinic. “With market potential metrics and low risk factors, along with a healthy initial cash yield, good escalators and low capital expenditure requirements, this investment will provide an excellent total return for our shareholders,” said Shankh Mitra, Welltower’s chief investment officer.

A Liquidity Play

CNL Healthcare Properties is selling these assets as part of its plan to pursue strategic alternatives to provide liquidity for its shareholders. The company plans to use the proceeds to repay debt, pay closing costs and other related expenses. The company, with approval from its board of directors, may also use the proceeds to further bolster its balance sheet. Post-closing, the company expects to make a special distribution to shareholders, also subject to approval of its board of directors.

“While we are in the early phases of our strategic liquidity process for the fund, we are confident that this transaction is a strong first step to begin returning capital to our shareholders,” said Stephen H. Mauldin, president and CEO of CNL Healthcare Properties.

In June 2018, CNL Healthcare Properties tapped HFF Securities and KeyBanc Capital Markets to act as strategic financial advisors in exploring and executing potential liquidity alternatives.

A Push For Medical Office

In recent months healthcare REITs including Welltower have signaled their intent to increase their medical office footprint.

Welltower, for instance, told investors in its recent quarterly earnings that it intended to close about $500 million of MOB transactions in the short term. “Also, they have always talked about using their senior housing portfolio as a quasi hanging carrot for medical office, as a medical office feeder,” Mizuho REITs analyst Richard Anderson told GlobeSt.com in an earlier interview. The REIT has also brought on board a former Duke Realty executive Keith Knokoli, who has strong credentials in the MOB segment. “You don’t make an investment at that level of executive if you’re not serious about the business,” Anderson said.