Welltower Inc. WELL recently entered into a definitive agreement to acquire a portfolio of Class-A medical office buildings (MOBs) from Hammes Partners, in line with its efforts to strengthen the company’s outpatient medical platforms. The firm will shell out $787 million for the transaction, scheduled to close in fourth-quarter 2019.
The acquisition is for 29 properties spanning 1.5 million square feet of space. These properties are concentrated in the New York and Boston MSAs, and other densely-populated areas in California, Massachusetts, Texas and Maryland.
Further, the portfolio, with an average age of 10 years, is affiliated with well-known health systems and multi-specialty physician groups like Baylor Scott & White, Providence St. Joseph, Trinity Health, Medstar. An economic occupancy of 97% and portfolio-weighted average lease term of 12 years makes the acquisition a strategic fit. Additionally, with average rent escalators of 2.2%, the company will likely enjoy revenue and cash-flow growth.
Separately, the company has announced additional gross investment volume of $885 million, relating to four outpatient medical transactions for 30 properties, covering 2 million square feet of space. These transactions are currently under contract, with a blended year one cash cap rate of 5.4%. The company will also receive exclusive development rights through these transactions. This will offer significant value-creation opportunities.
Notably, in its third-quarter earnings release, the company announced year-to-date pro rata acquisition volume of $3 billion. Post the recently-reported quarter, the company has announced three acquisitions worth $594 million. This includes a portfolio of six Class-A senior living communities in Oakmont, two senior living communities in the Frontier region, and an off-market transaction for the purchase of 18 properties. This apart, Welltower has additional outpatient medical acquisitions worth $885 million under contract.
With these transactions, the company has announced $3.5 billion of outpatient medical acquisitions and pro rata total investment activity of $5.2 billion in the year so far.
The MOB acquisitions will add 450 properties, spanning 8 million square feet, to the company’s asset portfolio. Moreover, per management, the Hammes transaction highlights the company’s ability to fund and execute high-quality buyouts from best-in-class developers and operators.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 6.9%, as compared with the industry’s rally of 3.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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