Welltower Announces Planned Acquisition of $1.0 Billion Affinity Active Adult Portfolio and Formation of Long-Term Strategic Partnership

Rhea-AI Summary

Welltower Inc. (WELL) announces a strategic partnership with Affinity Living Communities to acquire a portfolio of 25 active adult communities for $969 million. The acquisition aims to scale Welltower's Wellness Housing portfolio into high-growth markets, expanding to nearly 25,000 units. The transaction is expected to close in tranches over the next few months, funded through cash on hand and below-market rate debt. Affinity communities offer extensive amenity space, resident-led programming, and high operating margins.

Insights

Market Research Analyst

The strategic partnership between Welltower Inc. and Affinity Living Communities represents a significant investment in the active adult community sector. The acquisition of 25 age-restricted communities at an implied purchase price of approximately $249,000 per unit reflects a strategic move to capitalize on demographic trends. Specifically, the focus on regions with a projected 55+ population growth rate more than 2.5 times the U.S. average indicates a targeted approach to market expansion.

From a market perspective, the transaction is not only a growth strategy but also an investment in a stable revenue stream. The average monthly rent of $2,100 and a near-60% operating margin suggest strong profitability for these communities. Moreover, the lower capital expenditure burden due to the relatively new age of the properties (less than eight years) may contribute to higher net income margins in comparison to older properties requiring more maintenance.

Financial Analyst

The funding of the acquisition through cash on hand and the assumption of $523 million of below-market rate debt at an average interest rate of 3.8% is a financially savvy move. The interest rate is notably lower than current market rates, which could be around or above 4% to 5% for commercial real estate loans. This favorable financing will likely enhance Welltower's return on investment and could provide a buffer against potential interest rate hikes in the future.

Furthermore, the staggered closing of the transaction in tranches may allow for better financial management and risk mitigation. Investors should note, however, that the success of this acquisition will depend on the continued management performance of Affinity and the stability of the senior housing market. Any shifts in market demand or regulatory changes affecting senior living facilities could impact the projected returns.

Real Estate Investment Expert

The acquisition's emphasis on amenitized properties with significant square footage dedicated to community space is a reflection of changing consumer preferences in the senior housing market. Properties with extensive amenities and resident-led programming are increasingly in demand as they cater to the lifestyle expectations of active adults. This competitive advantage could lead to sustained occupancy rates and tenant satisfaction, which are critical factors for long-term real estate investment success.

Considering the average length of stay is nearly four years, Welltower's investment in Affinity's communities could also lead to lower tenant turnover costs and more predictable cash flows. This stability is highly valued in real estate portfolios, especially in the context of senior living, where occupancy rates can significantly influence operational efficiency and investment performance.

TOLEDO, Ohio, Feb. 13, 2024 /PRNewswire/ -- Welltower Inc. (NYSE: WELL) ("Welltower" or the "Company") today announced that it plans to form a long-term strategic partnership with Affinity Living Communities ("Affinity"), a vertically integrated developer and operator of age-restricted and age-targeted Wellness Housing. Welltower is under contract to acquire a portfolio of 25 purpose-built active adult communities for $969 million through a privately negotiated, off-market transaction and also expects to enter into a long-term programmatic development agreement with Affinity.

The portfolio encompasses nearly 3,900 units predominately concentrated in the Pacific Northwest. The acquisition will enable Welltower to strategically scale the geographic reach of its Wellness Housing portfolio into markets with a projected 5-year 55+ population growth more than 2.5 times higher than the U.S. average. Post-closing, the portfolio will continue to be managed by Affinity subject to a terminable and aligned management contract.

The acquisition is expected to be funded through cash on hand and the assumption of $523 million of below-market rate debt with an average interest rate of 3.8% and a nine-year weighted average maturity. The implied purchase price of approximately $249,000 per unit, which doesn't allocate any value to the below-market debt, represents a significant discount to replacement cost for a highly amenitized portfolio with an average age of less than eight years. The transaction is expected to close in tranches over the next several months with timing dependent on property-level loan assumption approvals.

Darin Davidson, Affinity's President, commented, "This transaction and partnership with Welltower mark a milestone in our company's history. I am incredibly proud of what we have built and the lives we have touched through our Affinity communities. In Welltower, we found a partner with shared values and forward thinking. The Welltower partnership will enable us to enhance and extend our ability to execute our mission of creating thriving communities in which our engaged residents live full and happy lives."

This transaction will result in the expansion of Welltower's in-place and under development Wellness Housing portfolio of age-targeted and age-restricted communities to nearly 25,000 units. Shankh Mitra, Welltower's CEO, commented, "Our Wellness Housing portfolio helps address the significant and growing unmet demand for wellness focused rental housing for seniors. These communities provide thoughtful amenities and targeted social programming for empty nesters and active adults at moderate price points. I am thrilled to work with Darin and his team at Affinity. In the time we have gotten to know Darin over the last few years, he has shown to be a man of great integrity and thoughtfulness, with a true compass on the future direction of how older Americans want to live."

Affinity communities typically feature over 30,000 square feet of amenity space, significantly more than the industry average, and have a shared sense of community created through extensive resident-led programming. The purpose-built communities have an average monthly rent of $2,100 and an average length of stay of nearly four years, resulting in near-60% operating margins and a lower capital expenditure burden.  

About Welltower

Welltower Inc. (NYSE: WELL), a real estate investment trust ("REIT") and S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. Welltower invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate infrastructure needed to scale innovative care delivery models and improve people's wellness and overall health care experience. Welltower owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties.  

Forward-Looking Statements

This press release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When Welltower uses words such as "will," "expect" or similar expressions that do not relate solely to historical matters, Welltower is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Welltower's actual results to differ materially from Welltower's expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: Welltower's ability to consummate the long-term strategic partnership with Affinity on currently anticipated terms, or within currently anticipated timeframes, and the expected performance of the strategic partnership. Welltower undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.

View original content to download multimedia:https://www.prnewswire.com/news-releases/welltower-announces-planned-acquisition-of-1-0-billion-affinity-active-adult-portfolio-and-formation-of-long-term-strategic-partnership-302061114.html

SOURCE Welltower Inc.

FAQ

What is the ticker symbol for Welltower Inc.?

Welltower Inc.'s ticker symbol is WELL.

How many active adult communities is Welltower acquiring through the partnership with Affinity Living Communities?

Welltower is acquiring a portfolio of 25 active adult communities through the partnership with Affinity Living Communities.

How much is the acquisition of the 25 active adult communities expected to cost Welltower?

The acquisition of the 25 active adult communities is expected to cost Welltower $969 million.

What is the average monthly rent for Affinity communities?

The average monthly rent for Affinity communities is $2,100.

What is the average length of stay for residents in Affinity communities?

The average length of stay for residents in Affinity communities is nearly four years.