$1.15 billion Vintage deal improves Welltower's position in 'sexy six' markets, CEO says
Welltower's $1.15 billion acquisition of 19 senior living communities from Vintage Senior Living will improve the real estate investment trust's position in some of the “sexy six” seniors housing markets, Welltower CEO Thomas DeRosa told participants in a second-quarter earnings call Tuesday.
“It allows us to go deeper into two important core markets, significantly solidifying our No. 1 market share in Los Angeles, gaining the No. 1 position in San Francisco and which, by the way, adds to our already No. 1 market positions in New York, Boston and Seattle, five of the ‘sexy six' core markets in the United States,” he said.
The sixth market is Washington, D.C./Northern Virginia, where Welltower has the No. 2 position, said Scott Brinker, Welltower executive vice president and chief investment officer. The New York market also includes New Jersey.
Toledo, OH-based Welltower announced the planned purchase of the Vintage assets Tuesday morning. The properties, located in California and Washington, are a mix of independent living, assisted living and memory care communities. Vintage will continue to operate the communities until the purchase has been completed, at which time Welltower will transition management to Senior Resource Group (11 properties), Sunrise Senior Living (seven properties) and Silverado (one property).
“SRG is an expert in large communities, Sunrise excels at mid-size properties and Silverado is the memory care specialist, and that's exactly how we allocated the 19 properties,” Brinker said.
Scott Estes, Welltower executive vice president and chief financial officer, said that the service levels offered at the communities are going to change “pretty dramatically.”
The transaction is expected to close in tranches beginning in September. “Including the Vintage acquisition, our six core markets will account for nearly 60% of the net operating income in our U.S. operating portfolio,” Brinker said.
DeRosa told analysts that overall same-store net operating income for all of Welltower was up 3.3% versus last year. “This is largely being driven by the performance of our senior housing business,” he said.
Welltower's seniors housing operating portfolio registered 4% same-store net operating income growth versus a year ago, DeRosa added. “Despite the industry concerns about new supply and wage expense growth, the Welltower family of operators were able to pass along, on average, 4% rate increases while increasing occupancy by 100 basis points.”
Ninety percent of the REIT's revenue is from private-pay sources, he said, adding, “You should expect to see our private pay-percentage increase through this year.”
DeRosa told analysts that it's too soon to know what moves the REIT will make in response to the British vote to exit the European Union.
“Ninety-nine percent of the population in our buildings [there] are U.K. residents,” he said. “So they are not leaving the U.K. because of Brexit. The U.K. is not going to be building new assisted living assets for its population. More and more, the U.K. residents will have to turn to a private-pay alternative to local authority-funded elder care.”
Most of Welltower's assets in the U.K. are in the London metropolitan area, DeRosa said. “I don't think you bet against London long-term.”
Estes said that the REIT has “fairly little financial exposure to the recent weakness in the pound,” adding that U.K. properties represent 8% of Welltower's total net operating income.
Editor's note: Welltower announced that it had completed the purchase of the former Vintage properties on Oct. 13, 2016.