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Welltower (WELL) to Buy Seniors Housing Portfolio for $1.58B

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Welltower Inc. (WELL - Free Report) inked an agreement to acquire Holiday Retirement’s 86-property seniors housing portfolio for $1.58 billion. It includes 80 nearly identical independent living and six combination independent/assisted living properties. The move comes in conjunction with Atria Senior Living’s acquisition of Holiday Retirement.

The buyout values the portfolio at $152,000 per unit, marking a discount to estimated replacement costs in excess of 30%. Importantly, in the first 12 months post-closing, the transaction is estimated to be 10 cents per share accretive to Welltower’s normalized funds from operations.

On closing of the transaction, which is slated to close in third-quarter 2021, Atria Senior Living will assume operations of the properties and retain Holiday Retirement’s in-place senior management and staff.

The move is a strategic fit for Welltower, given the substantial cash flow growth opportunities amid the post-COVID recovery in seniors housing fundamentals. As occupancy growth accelerates from near-trough levels of 76.3% as of Jun 20, 2021, the portfolio in discussion is likely to provide substantial net operating income growth in the future. Along with anticipated recovery in occupancy, Atria Senior Living’s operational and technological expertise is likely to drive community-level performance. Also, the initial cash cap rate is seen at 6.2%.

Moreover, there are considerable value creation opportunities through portfolio reinvestment. In fact, Welltower and Atria Senior Living plan for capital expenditure of $1.5-$2.0 million per community, in turn, facilitating higher revenues and operating margins in the long term.

In fact, capital improvements are expected to lead to significant growth in property-level performance, even while maintaining Welltower’s all-in basis (roughly $165,000-$170,000 per unit) at a substantial discount to replacement costs.

Notably, acceleration in vaccination drives has reduced resident cases, while the relaxation of restrictions has enabled the majority of the company’s communities to restart accepting residents, resulting in higher move-in activity and occupancy growth in recent weeks. The resumption of in-person tours, indoor visitation, communal dining and social activities at Welltower’s communities is also encouraging.

In addition, in the wake of aging baby boomers, we expect the company’s communities to absorb vacancy at a faster pace. Amid such encouraging prospects for recovery, its efforts to magnify focus on senior living asset class are strategic fits. Further, Welltower is focusing on portfolio optimization and synergistic collaborations with health systems to invest in the next-generation assets of health and wellness care delivery.

However, expenses might continue to be high due to additional health and safety measures adopted in light of the pandemic. Hence, amid such rising expenses, the company is likely to witness pressure on margins in the near term.

Shares of this Zacks Rank #3 (Hold) company have gained 24.7% so far in the year compared with the industry's growth of 18.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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