Welltower Inc. (NYSE: WELL), one of the largest diversified healthcare REITs, is mixing up its medical office building portfolio. Although Welltower is incredibly active in the Long-Term Care sector with its post-acute care facility portfolio, its MOB portfolio is worth highlighting. So far this year, the company has announced $3.5 billion worth of outpatient medical acquisitions. The most recent acquisition involves the purchase of a 29 Class-A medical office portfolio from Hammes Partners for $787 million.
The portfolio totals 1.5 million square feet and has an average age of 10 years, with 12 years of weighted average lease term and 2.2% average annual rent increases. The portfolio’s assets are concentrated in the New York and Boston MSAs and other dense population centers in California, Maryland, Massachusetts, and Texas. With an economic occupancy of 97%, the portfolio is affiliated with Baylor Scott & White, Providence St. Joseph, Trinity Health, Medstar and other not-for-profit health systems and multi-specialty physician groups.
Welltower hit the ground running early in the year when it bought 55 MOBs from CNL Healthcare for $1.25 billion, the largest for Welltower in the MOB field so far. At the time of the announcement, the 55 properties had an occupancy of 94% and average annual rent increases of 2.4%.
The properties are located and 92% are affiliated with some of the nation’s premier health systems including Novant, Memorial Hermann and Cleveland Clinic. With 3.3 million rentable square feet in major metropolitan markets across 16 states, the acquisition portfolio will have significant overlap and synergies with Welltower’s existing outpatient medical footprint.
However, Welltower divested a majority stake in some of its portfolio as well. As part of a joint venture with Invesco Ltd., a private investment firm, Welltower sold 85% of its stake in a portfolio of 35 medical office buildings spanning 2.6 million square feet for $850 million. It will retain a 15% economic interest in the portfolio with Invesco absorbing 85%. The properties are 100% affiliated with health systems and have a weighted average lease term of five years. With an average age of 19 years, these properties have experienced strong second generation leasing.
