TOLEDO, OH – Welltower announced that it has entered into a definitive agreement to acquire a portfolio of 86 senior citizen homes, including 80 nearly identical Independent Living ("IL") and six Independent Living / Assisted Living Combinations ("IL / AL “) Properties currently owned by Holiday Retirement. In addition, as announced on June 21, 2021, Atria Senior Living will take over operations of the properties and retain senior management and employees of Holiday on the closing date of this transaction, which is expected to be in the third quarter of 2021.
This landmark transaction will acquire Welltower's 86-property portfolio for $ 1.58 billion, or $ 152,000 per unit, a discount of more than 30% on estimated replacement costs. The transaction is expected to be estimated at approximately $ 0.10 per diluted share, which will benefit Welltower's normalized operating income for the first twelve months after closing. The portfolio is expected to experience significant net operating income growth over the coming quarters and years as occupancy growth accelerates from a low of 76.3% on June 20, 2021. Portfolio occupancy has already risen over 2.7% since bottoming in March 2021.In addition, the anticipated recovery in occupancy and Atria's operational and technological expertise are expected to maximize performance at the community level and a significant increase in future Operating margins will be achieved.
Welltower and Atria have agreed on a highly incentivized and highly coordinated extended RIDEA 3.0 management contract based on both top and bottom line financial metrics. The contract will also provide Atria with significant advertising opportunities upon achievement of certain long-term financial metrics. Reaching these hurdles would mean significant growth in underlying property performance, resulting in a nominal return of over 9% for Welltower and a net economic return of over 8% for Welltower after investment and payment of the subsidy.
Atria expects to integrate Holiday's corporate employees and retain its experienced and reputable management team, thereby reducing the risk of the entire transaction. Atria has extensive vacation property experience and in recent years has successfully operated two portfolios previously managed by Holiday: a portfolio of 29 properties across Canada in 2014 and a portfolio of 21 properties owned in April 2021 of the New Senior Investment Group Inc.
The portfolio is expected to benefit from Atria's operating model and technology platform, which includes Glennis’s proprietary software for workforce optimization, digital marketing and CRM. Atria's digital marketing capabilities and front-of-house technology suite are also expected to reduce reliance on referral sources and increase organic lead generation. Holiday's management team expects this significant investment in its platform and technology infrastructure to significantly improve its ability to serve residents in the future.
"The Holiday team is focused on continuing to provide the highest levels of service and care to our residents and their families," said Lilly Donohue, CEO of Holiday Retirement. "We are excited to partner with Atria and Welltower as this transaction is fully in line with Holiday's long-term strategy. We believe the significant investment in Holiday's platform, technology infrastructure and most importantly, our communities will improve our collective ability to provide quality services. " to meet the dynamic needs of our customers and to enable our employees a bright future. "
In addition to the improved operations plan described above, Welltower and Atria plan to implement comprehensive value-adding investment initiatives, including but not limited to:
Investment plan of $ 1.5 million to $ 2.0 million per community aimed at increasing sales and operating margins in the coming years.
Major renovations and new developments with ten properties intended for expansion, including very popular new cottages. The capital improvements are expected to result in a significant improvement in property-level performance while maintaining Welltower's all-in base (approximately $ 165,000 to $ 170,000 per unit) with a significant discount on replacement costs.
Five traits were identified as candidates with higher and better utilization.
Atria's renowned expertise in the operation of assisted living communities enables additional cash flow growth opportunities in the six IL / AL combination communities in the portfolio.
"We are excited to announce this groundbreaking transaction with Welltower," said John Moore, Atria Senior Living Chairman and CEO. “It has been a pleasure working with Shankh and the Welltower team and we look forward to carefully investing in this portfolio to position it in the best possible way to bring quality and value to residents. Our shared commitment to improving the customer experience makes this a perfect combination. Working with Lilly Donohue and the great Holiday Retirement team, this transaction also enables Atria to continue on our path of creating thoughtful choices as an unprecedented number of seniors look for new housing options over the next decade to work with the Holiday team together as we work together to build the best senior housing management services business and create value for Welltower and the other owners of the properties we manage. "
"Welltower is excited to expand its strong partnership with Atria by acquiring this unique platform of assets," said Shankh Mitra, CEO and CIO of Welltower. “John and the Atria team share our vision for the significant multi-year growth opportunity in the senior housing sector and we look forward to embarking on this journey together. Thanks to a highly motivated and coordinated management contract, we have enormous upward opportunities for stakeholders from Welltower and Atria. This privately negotiated, operator-driven transaction strategy is key to our unique ability to navigate complex situations and structure the counterparties through our data analytics platform and the ability of our world-class team to ensure execution at unmatched speed for win-win transactions. We know the holiday assets very well through multiple observations in the past and have the greatest respect and admiration for Lilly and her team. We are pleased that we were finally able to reconcile the interests of all parties, with strategic and value-adding opportunities for the shareholders of Welltower. "Mr. Mitra continued:" We are also very pleased to have financed this transaction with efficiently priced permanent capital to create significant value per share for our shareholders in the short and long term. Our pipeline of attractive opportunities across the health and wellness continuum remains robust.
The Holiday portfolio offers 100% private payment at an affordable price and offers attractive physical features including large rooms, high ceilings, and kitchenettes. Most of the properties acquired rent out space to outside healthcare facilities that allow residents to age by purchasing a la carte on-site care if necessary. The average age of the population is 81 years with an average length of stay of around 32 months, which leads to low recurring investments and higher operating margins.