December 19, 2018
John B. Mugford

After Sitting on the sidelines, Welltower is in the game again

After sitting on the sidelines earlier this year, when its stock price was beaten down a bit and pricing for MOBs was too high for its liking, Toledo, Ohio-based Welltower (NYSE: WELL) has come roaring back with acquisitions and investments totaling billions of dollars.

During an earnings call with analysts on Oct. 30, Thomas DeRosa, Welltower’s CEO, as well as other officers, talked about the REIT’s flurry of investment activities, including making MOB purchases once again. The REIT had shied away from the product type, noting that all of the demand from private equity sources, and others, had driven cap rates too low for it to chase deals.

However, during the earnings call, Mr. DeRosa announced that Welltower had recently entered an agreement to acquire 23 MOBs for about $400 million. Further details of that pending deal have yet to surface, even though Mr. DeRosa noted that the facilities are “affiliated with major high-quality healthcare systems (and have) an average age of 10 years.”

That pending acquisition comes after Welltower made three other MOB acquisitions, including a $79.4 million purchase of the 160,190 square foot Medical Pavilion at Howard County in Columbia, Md., an affluent community outside of Baltimore. The facility is anchored by Johns Hopkins Medicine, with whom Welltower has an existing relationship.

Then, in early December, the REIT announced that it will invest $1 billion in an off-market transaction comprising, according to the REIT, “11 separate seniors housing and medical office transactions.”

As part of the deal, Welltower is forming a joint venture partnership with and acquiring properties from Charlotte, N.C.-based Pappas Properties, a development firm that works on a variety or project types, including healthcare. Further projects could ensue as a result of the partnership.

The transaction has Welltower paying $725 million for senior housing facilities at “a blended cap rate of 6.6 percent across four separate transactions. Three of these transactions build on relationships with existing Welltower operating partners.”

The REIT is also paying $280 million for a 75 percent interest in two MOBs that are under development in a 5.5-acre mixed-use project next to Charlotte-based Atrium Health’s flagship Carolinas Medical Center campus. Welltower says the transaction is at “a blended cap rate of 5.9 percent.”

Of course, the recent transactions come in the aftermath of Welltower’s $2 billion acquisition earlier this year of Bethesda, Md.-based Quality Care Properties (QCP) and its portfolio of skilled nursing facilities. QCP had been the landlord for bankrupt skilled nursing operator HCR ManorCare, which was purchased by Toledo-based provider ProMedica. Welltower and ProMedica formed an 80-20 partnership, with Welltower owning the 80 percent share, in acquiring the QCP properties.

During the Oct. 30 earnings call, Mr. DeRosa acknowledged that the REIT had been on the sidelines earlier this year, noting that “after a long haircut we are in agreement to deploy about (a half of a billion dollars) of capital into very accretive medical office transaction and we are confident in some additional off-market transactions in Q4 and Q1 (2019).”

He added that Welltower has long been bullish on the MOB sector, but that the “pricing of recent trends has not made any economic sense to us, especially given many of these portfolios include as much as 20 percent to 25 percent of hospitals, and other assets that command significantly higher cap rates.”

As for Welltower’s stock price, after hovering in the $50 to $52 range in March and April of 2018, it has been, for the most part, at or above $70 in December, giving the REIT better buying power.

 

John Mugford is the Editor of Healthcare Real Estate Insights. For more information on HREI, please visit www.HREInsights.com.