Welltower Continues Its Pivot to Offense

The senior living and care sector is heading in a positive direction, with early third‐quarter indications pointing to continued growth in transaction volume, JLL Managing Director Bryan Lockard, MAI, tells GlobeSt.

“Continued competition will lead to higher property prices in 2022 and increased investment, as operators transition from emergency response mode to recovery mode.”

That in mind, Welltower is continuing its unprecedented capital deployment in seniors and healthcare assets.

The REIT entered into definitive agreements to acquire four seniors housing portfolios for a pro rata gross investment amount of $1.3 billion, subject to customary closing conditions. The execution of these transactions, along with Welltower’s previously announced completion of $4.3 billion of pro rata gross investments exclusive of development funding, brings the company’s total pro rata gross investments to $5.6 billion since October 2020.

JLL Managing Director Brian Chandler, MAI, CRE, Co-Lead for the Seniors Housing Practice, Valuation Advisory, along with Lockard, tells GlobeSt, “We anticipate to see stabilized occupancy above 91% again within the next three to four years and believe the demand of the boomers is often understated. 

“We need to increase deliveries by 35,000 units per year in order to meet peak demand levels. This is almost double current annual supply growth, signaling long-term demographics remain incredibly strong.”

Executing a Value-Driven Thesis

Meanwhile, Welltower’s CEO and CIO, Shankh Mitra, said in prepared remarks, “Since pivoting to offense 13 months ago, Welltower is pleased to have executed on its value-driven investment thesis, largely through granular and off-market transactions completed at a significant discount to estimated replacement cost.

“We expect these investments to drive significant per share cash flow growth and generate high single-digit to mid-teens unlevered IRR’s to Welltower. Additionally, we have recently observed a meaningful uptick in potential investment opportunities as the level of motivation from various sellers has risen, coinciding with further industry disruption due to the Delta variant and challenging labor environment. 

“With $5.3 billion of current near-term liquidity, including $1 billion of efficiently raised unsettled equity proceeds, we are well positioned to capitalize on the robust near-term capital deployment pipeline and continue to create significant per share value for our shareholders.”

Acquisition Breakdown

Welltower is acquiring the following four portfolios:

The $580 million acquisition of 14 property seniors housing portfolio: 

• The portfolio is comprised of eight rental and six entrance fee communities located in attractive markets across the United States, including Bellevue, Wash.; Data Point, Calif.; and Alexandria, Va.;
• Watermark Retirement Communities will be retained to manage the portfolio under a highly aligned RIDEA 3.0 management agreement;
• Transaction price represents a 40% discount to estimated replacement cost.

The $475 million acquisition of nine seniors apartment communities:

• The Class “A” portfolio is 100% private pay and located in highly attractive markets;
• An existing Welltower operator will assume operations upon acquisition of the portfolio.

The $172 million acquisition of five class A seniors housing properties across Mid-Atlantic and Southeastern US.

• Recently developed and operated by a best-in-class operator and developer which will be retained to operate the portfolio under a highly incentivized contract;
• Initiated a long term exclusive strategic partnership agreement to develop Class “A” seniors housing properties across the Southeast.

The $119 million acquisition of three seniors housing properties:

• Recently developed portfolio carries an average age of two years with properties located in fast growing micro-markets in the Midwest;
• New Perspective, an existing Welltower operator, will assume operations under a strongly aligned RIDEA 3.0 management contract;
• Portfolio has further development and densification opportunities.