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Welltower Continues Dispositions, Announces $1.3B of Sales

Zacks Equity Research
·4 min read

Welltower Inc. WELL announced a series of transactions for the sale of three portfolios of healthcare assets, with a combined valuation of $1.3 billion. Nonetheless, the company retained the ownership in some assets by disposing them into existing joint ventures and consequently retaining a minority position. Through the deals, it has strengthened relationships with institutional real estate investors and aims to bolstered liquidity.

These dispositions include two portfolios of seniors housing operating assets and an outpatient medical building portfolio.

The first portfolio of seniors housing operating portfolio consists of 11 properties in California, Washington and Nevada, and was sold for $702 million. Welltower had an 80% stake in the JV that owned the portfolio and managed it under a legacy RIDEA contract. The sale was closed in mid-September and the company received $584 million in pro-rata proceeds from the sale.

The assets generated revenue per occupied room (REVPOR) of $5,200 and had an average age of 12 years. While the disposition of the assets illustrates the revival of the senior housing transaction market, the pandemic has affected the valuation of the portfolio. In fact, the transaction price represents a 5% decline in valuation as compared to the pre-pandemic levels as of the company’s fourth-quarter 2019 earnings release.

The second portfolio of $200-million worth seniors housing assets consists of six properties in Massachusetts. The company will reduce its stake from 95% to 20% in the JV that held the assets in a RIDEA structure. The transaction is expected to close this month, with the company receiving $157 million of pro-rata proceeds. The assets generated REVPOR of around $7,519 and had an average age of 19 years.

The company also announced a $402-million sale transaction for 20 outpatient medical buildings, spanning 1 million square feet across five states. Specifically, the properties, which were previously wholly-owned by Weltower, will now be held in a JV between the company and Invesco Real Estate. Welltower will have a 15% interest in the portfolio as well as leasing and property management responsibilities. The properties have an average age of 16 years and indicate a valuation of $400 per square foot.

The transaction will close in two tranches, with the first one closed in late September. This concluded the sale of 13 outpatient medical assets for $221 million pro-rata proceeds to Welltower. The second tranche for the remaining seven properties is anticipated to close in the ongoing quarter for $120 million in pro-rata proceeds to the company.

In addition to the 20 outpatient medical assets, the company will receive $25 million of proceeds from the exercise of the right of first refusal on two assets in the ongoing quarter.

In recent months, the company has been active on the disposition front with $3.1 billion in pro-rata dispositions completed year to date. This indicates a strong demand for its high-quality assets despite the challenges raised by the pandemic. Moreover, in light of the prolonged weakness in the seniors housing business, such transactions enable the company to reduce exposure to such assets, while sale proceeds generated will help to de-lever its balance sheet.

However, the near-term dilutive impact on earnings from such asset dispositions cannot be bypassed.

Shares of this Zacks Ranks #3 (Hold) company have lost 37.2% compared with the industry’s decline of 7.1% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

Stocks to Consider

Iron Mountain Incorporated’s IRM funds from operations (FFO) per share estimates for 2020 have been revised marginally upward to $2.17 over the past month. It currently carries a Zacks Rank of 2 (Buy).

Duke Realty Corporation’s DRE Zacks Consensus Estimate for 2020 FFO per share has been revised 3.5% upward to $1.49 over the past two months. The company currently carries a Zacks Rank of 2.

Sabra Healthcare REIT, Inc.’s SBRA FFO per share estimates for the ongoing year have been revised 1.2% upward to $1.74 over the past month. The company currently carries a Zacks Rank of 2.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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