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Transactions: $1.2 billion deal kicks off 2019’s MOB sales

Here are a few more details about Welltower’s pending acquisition from CNL

The 218,489 square foot Midtown Medical Plaza in Charlotte, N.C., is one of the 55 properties Welltower has agreed to acquire from CNL Healthcare Properties. (Photo courtesy of Welltower)

TOLEDO, Ohio — As those who follow the medical office building (MOB) space undoubtedly well know by now, Welltower Inc. (NYSE: WELL) announced last week that it has agreed to a $1.25 billion MOB portfolio acquisition. The pending deal calls for the Toledo, Ohio-based, publicly traded healthcare real estate investment trust (REIT) to acquire 55 MOBs across 16 states with a total of 3.3 million square feet from Orlando, Fla.-based CNL Healthcare Properties, a non-traded healthcare REIT.

The Jan. 2 announcement did not identify specific properties or provide much more information. But an “Outpatient Medical Acquisition Update” slide presentation posted to the Welltower website provides details not included in the news release.

In addition, CNL posted to its website a letter to its shareholders that summarizes the pending sale of the 55 MOBs  and explains what it plans to do with another eight MOBs in its portfolio, which Welltower has not agreed to buy — but we will get to that a little later.

As noted above, the Jan. 2 announcement did not name any specific properties that are to be changing hands, but about a dozen of them were highlighted in the Welltower “Update” presentation, including:

■ UT Cancer Institute Building, Knoxville, Tenn.
■ Physicians Plaza Huntersville, Huntersville, N.C.
■ 330 Physicians Center, Rome, Ga.
■ Calvert Medical Arts Center, Prince Frederick, Md.
■ Red Bank Professional Office Building, Cincinnati
■ MedHelp MOB, Birmingham, Ala.
■ Siena Pavilion V and VI, Henderson, Nev.
■ Midtown Medical Plaza, Charlotte, N.C.
■ Claremont Medical Office, Claremont, Calif.
■ Spivey Station Physicians Center, Jonesboro, Ga.
■ Coral Springs MOB I and II, Coral Springs, Fla.
■ Chula Vista Medical Arts Center – Plaza II, Chula Vista, Calif.
In addition, Welltower’s “Outpatient Medical Acquisition Update” presentation noted that, in terms of budgeted net operating income (NOI) from the CNL Portfolio acquisition, 26 percent of the NOI would come from properties in North Carolina, 12 percent from California, 10 percent from Texas, 8 percent from Tennessee, 7 percent from Florida and 37 percent total from the other 11 states. The initial cash yield is anticipated to be 5.7 percent, with a 2.4 percent weighted average annual rent increase.
An industry source tells HREI that the portfolio is “one of the highest-quality large portfolios to be traded in a number of years.”
According to Welltower, the 55-property portfolio has a current overall occupancy of 94 percent, and 92 percent of the space is affiliated with “some of the nation’s premier health systems,” including: Winston-Salem, N.C.-based Novant Health, which has an A1 rating from Moody’s Investment Services; Houston-based Memorial Hermann (Moody’s: A1); and Cleveland Clinic (Moody’s: Aa2).
As first reported by Healthcare Real Estate Insights in June 2018 and publicly confirmed by CNL in September 2018, CNL Healthcare Properties’ parent organization, CNL Financial Group, has been exploring strategic alternatives to provide liquidity to its shareholders through the potential sale of its 63-asset MOB portfolio, as well as several other healthcare facilities.
In last week’s letter to shareholders, CNL explains that the process began in late 2017. The process continued in 2018 when it established a special committee of its board and engaged KeyBanc Capital Markets Inc. and HFF Securities LP to act as financial advisors to the special committee.
But, as noted in its Jan. 2 news release, Welltower has agreed to acquire 55 of the 63 MOBs in CNL’s portfolio. So what about the other eight?

In a Jan. 2 letter to its shareholders, after explaining the pending Welltower transaction, CNL wrote: “We will continue to hold the remaining eight of the 63 properties for sale as we pursue separate efforts to market and sell them. The company believes that selling the eight properties separately from the larger transaction should assist to maximize value for shareholders.

“Furthermore, we will continue to market for sale our six skilled nursing facilities in Arkansas., which included post-acute care facilities and specialty hospitals, that were initially marketed by CNL.”

CNL Healthcare Properties, which focuses on seniors housing and healthcare facilities, is monetizing the MOBs as part of its “ongoing process to pursue strategic alternatives to provide liquidity for its shareholders,” according to the Jan. 2 news release.

After the sale, CNL Healthcare Properties’ portfolio will be focused primarily on seniors housing facilities, of which it owns 87 communities in 31 states.

The announcement of the deal comes during an incredible run by Welltower which, after sitting on the sidelines in early 2018, has announced billions of dollars of investments in recent months.

Some of those investments have included a $400 million acquisition of 23 MOBs from Brookfield, Wis.-based Hammes Partners; a $79.4 million purchase of the 160,190 square foot Medical Pavilion at Howard County in Columbia, Md.; and $1 billion in off-market transactions comprising, according to a Welltower news release, “11 separate seniors housing and medical office transactions.”

“Through the strategic acquisition of 55 high-quality medical office buildings from CNL Healthcare Properties, we continue to accretively expand our outpatient medical and health system portfolio,” Shankh Mitra, Welltower’s chief investment officer, said in the Jan. 2 news release.

For a copy of the Jan. 2 news release, please visit HREInsights.com.

For a copy of the Jan. 2 CNL letter to its shareholders, please visit CNLSecurities.com.

For a copy of the Welltower “Outpatient Medical Acquisition Update” presentation, please visit Welltower.com.

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