Toledo, OH-based real estate investment trust Welltower is restructuring to form an umbrella partnership real estate investment trust, or UPREIT, Welltower CEO and Chief Investment Officer Shankh Mitra announced Monday.
The idea is to align Welltower’s corporate structure with other publicly traded REITS and provide a platform for Welltower “to more efficiently acquire properties in a tax-deferred manner. “ The UPREIT structure will allow owners of appreciated property to contribute their property to an “operating partnership” in exchange for partnership interests, according to Welltower.
A new holding company will become the publicly traded parent company and will inherit the name Welltower Inc., according to a press release distributed Monday. The current REIT will continue to exist as a wholly owned subsidiary, initially called Welltower OP Inc. Welltower OP also plans to convert to a Delaware limited liability company, pending shareholder approval at the May 9 annual shareholder meeting.
“We are pleased to avail ourselves of this corporate structure, better aligning us with the REIT industry, which will enhance our ability to compete in the acquisition of real estate assets,” Mitra stated, adding that the conversion should have no impact on Welltower’s existing shareholders, debt security holders, lenders or other constituencies.
“Additionally, we believe that the conversion will further expand our already robust external growth pipeline, as OP units potentially offer a unique tool for sellers seeking tax deferral and advanced tax planning,” he added.
Strategic partnerships
In addition to forming the UPREIT, Welltower announced Monday that it is expanding existing partnerships and will grow in various local markets.
Specifically, the REIT is expanding its relationship with Brighton, MI-based StoryPoint Senior Living with the $548 million ($197,000 per unit) acquisition of three senior living portfolios. StoryPoint will be the operating partner under a REIT Investment Diversification and Empowerment Act contact.
The portfolios have a total of 2,787 units across 33 communities throughout Michigan, Ohio and Tennessee. Assisted living and memory care account for approximately three-fourths of the units, with independent living representing the balance.
StoryPoint CEO Dan Hughes said that the past four years had been “a journey” and credited Mitra and his team for helping the company achieve success.
“We navigated the convoluted and demanding times without straying from our mission; that does not happen without Shankh and his team. It began with alignment and is succeeding because of trust,” he said. “Shankh’s position has always been, tell me what you are trying to accomplish; together, we can figure it out. Our equation for our successful partnership has been simple: alignment and trust.”
Additionally, Welltower said that it plans to build on its relationships with Related Companies and Atria Senior Living by developing two more upscale senior living communities, in Santa Clara, CA, and Cupertino, CA.
The developments will be the third and fourth locations for the joint venture’s new series of communities in major metropolitan areas after the newly opened Coterie Cathedral Hill in San Francisco and Coterie Hudson Yards in New York City, which will open later this year.
Capital deployment
Even with the UPREIT restructuring and expanding strategic partnerships, Welltower’s near-term capital deployment pipeline exceeds $1 billion, the REIT announced in a business update Sunday.
Welltower said it had executed several opportunistic investments at significant discounts to estimated replacement cost. For example, the company bought 14 Watermark properties for $580 million, representing a 40% discount to estimated replacement cost. The REIT also purchased three New Perspective properties for $119 million and 85 Atria properties for $1.6 billion.
Since the fourth quarter of 2021, Welltower invested $6.8 billion with an initial yield of 5.9% and a table yield of approximately 8.2%. Welltower said it expects the transactions to generate high-single-digit to mid-teens unlevered internal rates of return. Senior housing acquisitions were executed at an average investment of $20.6 million per property, the REIT said.
Lawsuit
In other news, National Health Investors said Monday that it expects to drop its lawsuit against Welltower in April after 16 Holiday Retirement communities are moved to new owners.
