Kayne Anderson Buys 34-Property Medical Office, Senior Housing Portfolio From Welltower

The real estate private equity arm of Kayne Anderson Capital Advisors, Kayne Anderson Real Estate, has completed an acquisition of 34 Welltower properties, including seven senior housing properties in Florida.

The portfolio consists of 27 medical office buildings located across the U.S. along with the senior housing communities. An unspecified third-party company exercised the right of first offer to buy another medical office building property. The gross sales price for all of the properties combined was about $1 billion, according to Welltower.

Kayne Anderson Real Estate will own and operate the senior housing portfolio with its operating partners, MB Real Estate and Bonita Springs, Florida-based Discovery Senior Living. Kayne previously owned all but one of the newly acquired senior housing assets, and had originally sold them to Welltower in 2015, according to Max Newland, leader of the firm’s senior housing real estate team.

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The announcement came as Welltower released its second-quarter earnings Wednesday afternoon. Welltower reported normalized funds from operations (FFO) attributable to common stockholders of 86 cents per share in 2Q20, beating analysts’ expectations by three cents.

The senior housing properties, formerly part of Welltower’s senior housing operating (SHO) portfolio, were managed by Discovery Senior Living, and were sold in April. Six of the properties, which were sold in May, were held in a joint venture with an institutional partner in which Welltower kept a stake of almost 54%. Welltower sold the other SHO property — a newly developed community in which Welltower owned a 97.5% stake — in June.

Seventeen of the outpatient medical properties were sold for proceeds of $329 million, with an additional nine properties sold in July for proceeds of $173 million, according to the Toledo, Ohio-based REIT. Welltower expects to complete the final outpatient medical property sale to Kayne Anderson in the third quarter of this year. The REIT also expects the other outpatient medical property sale, pursuant to a right of first refusal, to close in the same time frame.

Chad Lavender and Ryan Maconachy of Newmark Knight Frank acted as advisors for Welltower on the sale, while Wells Fargo Bank financed the senior housing assets through its Freddie Mac Seller Servicer business. Additionally, Capital One Bank NA led financing for the medical office assets.

“This portfolio is a very compelling addition to our platform — institutional quality medical office buildings with long duration leases and seniors housing assets with strong current cash flow and near-term value enhancements through significant capital improvements,” said Kayne Anderson Real Estate Chief Investment Officer David Selznick in a press release. “We believe KA Real Estate’s operator-oriented investment platform positions us very well to continue to acquire attractive assets and create favorable risk-adjusted returns for our investors.”

On Welltower’s end, the sale “significantly enhances our liquidity profile, not only affording us increased flexibility to navigate the ongoing challenges posed by the COVID-19 pandemic, but also allows us to consider opportunistic capital deployment,” Welltower Vice Chair, CIO and COO Shankh Mitra said in a press release.

A representative for Welltower declined to comment further on the sale, but said the company would provide more information during its second-quarter earnings call Thursday morning.

The Covid-19 pandemic impacted Welltower’s senior housing operations and occupancy in the second quarter of 2020. The REIT reported a 79.4% average occupancy rate for its SHO portfolio in July, a marked decrease from the 85.8% occupancy rate it reported in February before the pandemic hit.

Looking ahead, Welltower believes it will shed 125 to 175 basis points of occupancy in the third quarter of 2020, as move-outs are expected to exceed move-ins. And while the REIT is seeing improvements related to the degree of its occupancy declines, the company is also not out of the woods yet, according to Chairman and CEO Tom DeRosa.

“Our seniors housing and post-acute care businesses, in particular, endured significant challenges, which resulted in steep occupancy declines and a sharp increase in expenses through April and early-May,” DeRosa stated in a press release Wednesday. “However, through June and July, we have witnessed a consistent sequential improvement in seniors housing occupancy trends.”

DeRosa added: “While we are encouraged by these recent data points, the path to recovery remains far from certain. Therefore, we continue to prioritize the strength of our balance sheet which will enable us to navigate through near-term uncertainty and position ourselves to deploy capital opportunistically.”

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