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Welltower to Buy CNL Healthcare Properties' Assets for $1.25B

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Welltower Inc. (WELL - Free Report) announced that it has entered into a definitive agreement with CNL Healthcare Properties, to acquire a portfolio of 55 Class A medical office and outpatient facilities for $1.25 billion.

The transaction, subject to customary closing norms, governmental and other third-party consents, will likely close in first-half 2019. The accretive acquisition will enable the company to expand its outpatient medical and health system footprint across 16 states.

In fact, the portfolio, spanning 3.3 million rentable square feet of space, offers significant synergies to Welltower's existing outpatient medical portfolio. Further, the 55 properties are currently 94% occupied and carry average annual rent escalations of 2.4%.

Also, 92% of these properties are affiliated with some of the nation's best healthcare systems, such as Novant, Memorial Hermann and Cleveland Clinic. The portfolio will likely offer initial cash yield of 5.7%, and is supported by high quality and strong credit-backed cash flow.

Per management, the buyout underscores robust market potential metrics, low risk factors, healthy initial cash yield, and low capital expenditure requirements. Hence, it will provide higher return for the company’s shareholders.

Specifically, Welltower is making strategic investments to expand its senior housing and medical office portfolio. In fact, in December, it announced 11 separate Seniors Housing and Medical Office transactions, for an aggregate investment volume of $1 billion.

Such portfolio-optimization efforts are aimed at enhancing operating and financial performance, attracting top-class operators and improve the quality of the company’s cash flows.

Encouragingly, over the past three months, shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to. During this period, the stock has rallied 8.2%, as against the industry’s decline of 3.5%.

Nevertheless, hike in interest rate is a concern for Welltower as the company has substantial exposure to long-term leased assets. The properties under long-term triple-net leases generally have fixed rental rates, which are subject to annual increases.

Key Picks

Some better-ranked stocks from the REIT space are Lamar Advertising Company (LAMR - Free Report) , PS Business Parks, Inc. (PSB - Free Report) and Terreno Realty Corporation (TRNO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lamar’s funds from operations (FFO) per share estimates for 2019 have been marginally revised upward to $5.89 in the past 30 days.

PS Business Parks’ Zacks Consensus Estimate for 2019 FFO per share remained unchanged at $6.58 over the past month.

Terreno Realty’s FFO per share estimates for 2019 remained unrevised at $1.39 in 30 days’ time.

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