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

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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.

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.

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. 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.”

 

Source: Senior Housing News

Healthcare Real Estate Gains Steam As Possible Downturn Nears

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Professionals involved in owning, developing, leasing or financing medical office buildings (MOBs) often point to the Great Recession as an instigator for new investors to become interested in the property type.

To be sure, the healthcare real estate (HRE) space and MOB development and investment certainly suffered during the big downturn of 2007-09. However, thanks to other, unrelated circumstances, existing properties performed well, retaining their physician and health system tenants and, as a result, maintaining their values.

With many economic and business pundits predicting that the country’s economy is once again heading toward a  downturn – albeit not as severe as the last one – the recession-resistant qualities of MOBs are once again piquing the interest of a wide range of would-be investors as well as providing a sense of comfort for those already involved.

A panel of well-known, experienced HRE professionals recently explored this topic, as well as a host of others, while discussing the short- and long-term outlook for the sector during a panel session at the recent InterFace Healthcare Real Estate Conference in Dallas. The panel, titled “What is the Short- and Long-Term Outlook for Healthcare Real Estate?” was moderated by Murray W. Wolf, publisher of Healthcare Real Estate Insights.

The panelists comprised: Lee Asher, vice chairman of the U.S. Healthcare Capital Markets team with CBRE Group Inc.; John Pollock, CEO of San Ramon, Calif.-based Meridian; Gordon Soderlund, executive VP, strategic relationships with Charlotte, N.C.-based Flagship Healthcare Properties; Jonathan L. “John” Winer, senior managing director and chief investment officer with White Plains, N.Y.-based Seavest Healthcare Properties; and Erik Tellefson, managing director with Capital One Healthcare Financial Services.

As the session kicked off the conference on Sept. 17, one of the panelists, Mr. Winer of Seavest, said that during “recessions, healthcare facilities, in particular those with the characteristics that we all know about, do just fine.” But he added that if there is a caveat to that perspective. If a recession is indeed eminent, he cautioned, investors should make sure not to acquire assets with only short-term prospects for success, be they aging buildings and/or those that will not provide flexibility as the healthcare delivery model changes in the future.

“The assets most of us are going to be looking for are newer assets that we’re very comfortable with as a long-term hold; we’re not looking for short-term turnaround plays,” Mr. Winer said. “But otherwise, I think we’re in good shape and I think businesses (in this sector) are in good shape, whether a downturn occurs or not.”

Other Panelists Agreed

“We operate a private REIT (real estate investment trust),” said Mr. Soderlund of Flagship, “and so we have a very long-term view of holding assets, and we are becoming more aggressive, reasonably aggressive in pursuing acquisitions. We want to build our portfolio and we … figure out what we should (hold on to and) not hold on to. We’ve been through that process. There’s a continuing imbalance of supply and demand, and until that changes, and until interest rates maybe go in a different direction, we’re all in a relatively safe place right now.”

Mr. Pollock of Meridian, which often redevelops value-add medical facilities, noted that during a recent meeting with investors from various sectors of commercial real estate, he was “peppered” with questions about HRE.

When he told that group that the tenant retention rate in medical facilities is often in the 85 percent to 90 percent range, “they were like, ‘You’re kidding!’” Mr. Pollock said.

“In general office, it’s 70 percent across the board,” Pollack said. “I think what we’re all seeing is that investors who are in industrial, multifamily and office are now asking more about healthcare. So we’re seeing pension funds that haven’t been in the sector, institutional investors who haven’t been allocating to the space with the theme being that medical office assets are performing better and they’re readying, maybe not for an economic downtown, but toward diversifying their investor base,”

 

Source: HREI

Welltower Sells Senior Living Portfolio for $1.8B; Signs $1B Development Deal

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Healthcare REIT Welltower has signed a $1 billion development agreement with Discovery Senior Living, as well as acquired a handful of facilities from the company along with a 6-building, 270,000 square foot medical office campus for $140 million from Summit Medical Group.

The exclusive development agreement focuses on two new projects that the companies are currently reviewing. That, however, is just one piece of a number of agreements struck by the two companies, which have a pre-existing relationship.

“We are excited by the opportunity to expand a key operator relationship,” said Welltower’s Chief Investment Officer Shankh Mitra, in prepared remarks.

Among its agreements, Welltower has:

– Sold its stake in the Benchmark Senior Living portfolio for $1.8 billion. Benchmark has recapitalized the portfolio with private institutional capital. The 4,137-unit seniors housing portfolio consists of 48 assisted living properties located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, and had $24 million of secured debt that was extinguished at closing.

– Made an off-market acquisition of three infill seniors housing campuses that are located in the Dallas-Fort Worth and San Antonio metro areas. The portfolio, recently developed by South Bay was acquired for $216 million, or $280,000 per unit, through a newly formed joint venture between Discovery and Welltower. Once the last phase of the Alliance Town Center development in Dallas-Fort Worth opens in the fourth quarter of 2019, the total cost of the portfolio will be $237 million, or $273,000 per unit. In-place occupancy throughout the recently built portfolio (excluding the last phase of the Alliance Town Center) was 72% upon acquisition.

– Gone under contract to fund three newly opened assets located within Discovery’s core footprint in Florida for $92.7 million, or $255,000 per unit. These three buildings achieved certificates of occupancy in the second quarter of 2019. “All of these assets, including those that are under contract, are steel and concrete construction and represent a significant discount to Discovery transactions we have seen in the marketplace recently,” Mitra says.

– Entered into a definitive purchase agreement to purchase a 43-acre, 6-building, 270,000 square foot medical office campus in Berkeley Heights, NJ for $140 million. The campus will be master leased by Summit Medical Group, an independent multispecialty medical practice, under a new 20-year, absolute net lease. This campus is the largest and most comprehensive of five “hubs” in Summit’s 80-location hub-and-spoke model, and will bring Welltower’s total Summit-leased footprint to over 500,000 square feet. The sale is expected to close in the third quarter of 2019, subject to customary closing conditions. The sale of the medical office campus is conditioned upon Summit’s recently announced intended merger with CityMD.

– Acquired a six-community portfolio located in the Denver and Boulder metro areas from Colorado-based Balfour Senior Living for $308 million. The portfolio includes Balfour’s downtown Denver flagship community, Riverfront Park, and the recently developed Lavender Farms, which opened in April. As part of the portfolio purchase, Welltower has received exclusivity on Balfour’s future acquisition and development pipeline, as well as an option to acquire up to a 34.9% interest in Balfour’s management company. Several development initiatives are currently underway in East Coast markets, rapidly expanding the existing relationship between Welltower and Balfour.

 

Source: GlobeSt.