Welltower to Buy CNL Health-Care Portfolio for $1.3B

The REIT’s acquisition of 55 high-quality medical office buildings and outpatient facilities will expand its holdings by 3.3 million square feet.
MIdtown Medical Plaza
MIdtown Medical Plaza

Welltower Inc.’s health-care portfolio will soon balloon by 3.3 million square feet. The REIT has just entered into a definitive agreement to acquire a portfolio of premier medical office buildings and outpatient facilities from CNL Healthcare Properties for nearly $1.3 billion.

“With market potential metrics and low risk factors, along with a healthy initial cash yield, good escalators and low capital expenditure requirements, this investment will provide an excellent total return for our shareholders,” Shankh Mitra, chief investment officer of Welltower Inc., said in a prepared statement.

The CNL collection encompasses 55 high-quality properties spanning 16 states and providing synergies with Welltower’s existing medical property holdings. Forty-eight percent of the group of assets is located in North Carolina, California and Texas. The list of buildings includes the 218,500-square-foot Midtown Medical Plaza MOB in Charlotte, N.C.; Spivey Station Physicians Center, an approximately 55,300-square-foot property near Atlanta in Jonesboro, Ga.; and CNL’s first MOB acquisition, the 49,000-square-foot Claremont Medical Plaza in Claremont, which is part of metropolitan Los Angeles.

The portfolio’s occupancy level currently stands at 94 percent, and 92 percent of the tenants boast alignment with leading health-care systems. Additionally, two assets offer the possibility for future development.

The 55 MOBs and outpatient facilities became available for purchase in September 2018, when CNL placed 63 of its medical properties on the market on the advice of strategic financial advisors HFF Securities LP and KeyBanc Capital Markets Inc. The REIT will still own and manage an 87-property portfolio of mostly senior housing assets post-transaction.

More to come

Welltower, which has an enterprise value of roughly $37 billion, continues to pursue the strategic transformation of its portfolio at a rapid pace, placing its focus on high-quality senior housing and lower-cost outpatient facilities. During the third quarter of 2018 alone, the REIT closed health system and outpatient medical investments totaling more than $2.1 billion. And in December 2018, the company announced 11 off-market transactions with a total investment volume of $1 billion.

Signs indicate that Welltower will remain an eager but cautious buyer. “We are very disciplined and capital allocated. So, when it will make sense, we will be there,” Mitra said during Welltower’s third quarter 2018 earnings conference call on October 30.

Welltower’s acquisition of the CNL portfolio is on schedule to close during the first quarter of 2019.

Image courtesy of Yardi Matrix