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Transactions: Wisconsin system buys 18 properties it was leasing

Welltower Inc. sells the portfolio for $433 million to Aurora Health Care

Healthcare real estate experts say we might see more “reverse monetizations” this year. (Photo courtesy of Aurora Health Care)

Prior to the start of 2018, several members of the Editorial Advisory Board (EAB) of Healthcare Real Estate Insights predicted that the sector would see some transactions in which health systems would buy medical office buildings (MOBs) they are leasing from third-party owners.

In such so-called “reverse monetizations,” as EAB members called the transactions, the health systems buying the properties might be looking to gain control of as many of their operating costs as possible. Or, they might simply consider buying the MOBs they occupy to be a good business decision, in part because of a new lease accounting rule by the Financial Accounting Standards Board (FASB) requiring them to recognize all leases on their balance sheets.

Whatever the motivation, it didn’t take long for the first reverse monetization to take place in 2018.

According to data from real estate research firm Real Capital Analytics and a report prior to the sale in the Milwaukee Business Journal, Milwaukee-based Aurora Health Care in January acquired 18 properties from Toledo, Ohio-based Welltower Inc. (NYSE: HCN) for $433 million.

Tami Kou, a spokeswoman for Aurora, confirmed the sales agreement in an interview with the Milwaukee Business Journal.

According to filings with the U.S. Securities and Exchange Commission (SEC) and supplemental data filed by Welltower, a publicly traded real estate investment trust (REIT), the buildings have a total of 1.44 million square feet of space.

Welltower acquired 17 of the properties in 2010, as a news release announcing the REIT’s first quarter (1Q) results verified. In that news release, then-CEO George L. Chapman, while listing some of the REIT’s purchases during the quarter, referred to “an acquisition of a medical office building portfolio in Wisconsin master leased to investment grade-rated Aurora Health Care Inc.”

In supplemental information filed with the SEC, Welltower, which was then known as Health Care REIT, shows that its total investment in a 17-property “Aurora portfolio” was $190 million at an initial first-year yield, or cap rate, of 9.1 percent. In addition to that, the file shows that the REIT also invested in the development of another MOB in its Aurora portfolio, bringing its portfolio to 18 properties and a total investment balance in its Aurora portfolio of $312.8 million – a figure that could include, among others, closing costs and depreciation.

All of the buildings involved in the sale are in Wisconsin, with most being in Greater Milwaukee. Aurora, the largest system in the state with 15 hospitals and more than 100 other locations.

Among the buildings included in the portfolio are the on-campus Aurora Health Care Medical Group building, 2801 W. Kinnickinnic River Parkway in Milwaukee for a price of $54 million, and the Aurora Medical Center building in Kenosha, south of Milwaukee, for $24 million.

To read the Milwaukee Business Journal article, please click here.

For background information from SEC filings, please click here.

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