Welltower (NYSE: WELL) closed on a $300 million sale of six senior housing assets at the end of May and is also disposing of a $1 billion portfolio of seven senior housing and 29 outpatient medical properties.
The transactions were executed on a quick timeline of less than 45 days between signing of confidentiality agreements to closing, indicating that strong demand and liquidity exist even in the midst of Covid-19, the Toledo, Ohio-based real estate investment trust (REIT) stated in a business update released Monday evening.
Chad Lavender and Ryan Maconachy of Newmark Knight Frank acted as advisors on the transaction. Welltower did not disclose the senior living operators involved or the identity of the buyers.
The seven senior housing assets in the billion-dollar portfolio were bringing in average monthly revenue per occupied room of $3,900, with an average property age of 17 years, according to the business update. Welltower previously owned a 53.6% stake in the senior housing assets, and the REIT owned 100% of the outpatient medical properties.
The transaction is closing in two tranches, the first of which closed in May. The second tranche is expected to close in July 2020. Welltower anticipates gross proceeds of $790 million. The senior housing cap rate was 5.65% on trailing 12 months of net operating income (TTM NOI).
The $300 million senior housing sale involved properties in the Midwest; Welltower previously held a 90% ownership stake. The REIT will maintain a 15% ownership in three of the properties, and one additional property will be contributed to a newly formed joint venture. The transaction closed on May 29, with pricing coming in at a 6% cap rate on TTM NOI. Welltower anticipates gross proceeds of $228 million.
“Acquirers of both SH portfolios utilized GSE debt at sub-3% interest rate with execution under 30 days, underscoring strong agency support and liquidity within the SH sector,” the business update states.
These transactions enhance Welltower’s near-term liquidity, and the REIT is also cutting its dividend to 70% of pre-Covid distribution. Overall, the company now has near-term liquidity of more than $4.6 billion.
Improvements in senior housing
Like other REITs, Welltower’s senior housing operating (SHO) and triple-net (NNN) portfolios have been hurt by the Covid-19 pandemic. Occupancy has eroded while expenses have risen. However, the pace of occupancy declines slowed in the second half of May, the business update revealed.
In the SHO portfolio, spot occupancy was 81.1% as of May 29. That was a decline of about 150 basis points since May 1. In April, SHO occupancy declined about 240 basis points. The REIT is expecting Q2 2020 occupancy to decline 500 to 600 basis points from where it ended the first quarter, as stated in a previous business update. Overall, May move-ins declined approximately 79% year-over-year, but move-outs declined by about 21% year-over-year during the month.
Expenses for the second quarter are expected to be roughly 5% higher than in the first quarter, with labor being the primary driver. Labor and personal protective equipment (PPE) costs drove $18 million in property-level expenses in April.
The Covid-19 infection rate within the SHO portfolio is trending positively, according to data provided to the REIT by operating partners.
The triple-net senior housing portfolio is facing similar operational headwinds as the SHO portfolio, but Welltower collected 94% of rent due in May.
The REIT is also continuing various activities to support senior living operators during the pandemic, including assistance with testing, hosting weekly operator forums, and leveraging partnerships with organizations such as the University of California, San Francisco. Welltower has distributed about 1.2 million units of PPE to more than 25 senior housing and post-acute operators, and three health systems.