Calling it a “significant, multi-year growth opportunity in the senior housing sector,” Welltower is acquiring 86 properties from Holiday Retirement for $1.58 billion in a deal that will close simultaneously with Atria Senior Living’s purchase of Holiday Retirement’s management services business.
When the transactions close, likely in the third quarter, Atria will assume operations of the 86 properties and retain Holiday’s senior management and staff. The portfolio consists of 80 independent living and six combination independent living/assisted living properties. The deal values the properties at about $152,000 per unit, representing a discount to estimated replacement cost of more than 30 percent.
Holiday currently manages 240 communities in 43 states. The combined Atria/Holiday company will serve more than 45,000 residents with more than 19,000 employees and manage 447 senior housing communities across 45 states and seven Canadian provinces. The Atria and Holiday brands will continue to operate separately but the teams, including Holiday CEO Lily Donohue, will work together to create a long-term strategy for the combined company which will create North America’s second largest senior living provider.
John Moore, Atria chairman & CEO, said in a prepared statement the management portfolio will now be focused on two types of products—one that will include more than 250 purpose-built, nearly identical communities that provide an approachable price-point product and Atria’s legacy collection of amenity-rich, higher-priced communities concentrated in coastal communities. Those communities include the recently opened Atria Newport Beach and the luxury urban communities underway in a joint venture with Related Companies. Welltower is a partner in the first two buildings in San Francisco and Hudson Yards in Manhattan.
Capital Improvements Planned
Moore said Atria is also working with Welltower on strategies to invest in improvements in the Holiday communities it will acquire. Welltower and Atria anticipate implementing value-add initiatives including making $1.5 million to $2 million in capital improvements at each of the 86 properties. Other plans call for making larger scale refurbishments and redevelopments at 10 properties designated for expansion opportunities including highly popular new cottages. Five additional properties have been identified for “higher and better use” though no details were provided.
Moore called the deal with Welltower a “groundbreaking transaction” and said Atria looks forward to “thoughtfully investing in this portfolio to best position it to deliver quality and value to residents.” He added by joining forces with Holiday Retirement the transaction also enables Atria to create a variety of choice “as an unprecedented number of seniors seek new residential options in the decade ahead.”
The portfolio is expected to benefit from Atria’s operating model and technology platform, including its proprietary Glennis software for staffing optimization, digital marketing and CRM. Holiday’s management team expects this investment in its platform and technology infrastructure will significantly enhance their ability to serve residents going forward.
Shankh Mitra, Welltower CEO & CIO, said in a prepared statement the REIT was very familiar with the Holiday assets having looked at them multiple times in the past. The Holiday portfolio is 100 percent private pay at an affordable price point and has attractive physical characteristics including large rooms, high ceilings and kitchenettes. Most of the acquired properties lease space to third-party home health agencies, which enables residents to age in place by purchasing a-la-carte care as need. The average resident is 81 years old with an average length of stay of approximately 32 months, resulting in low recurring capital expenditures and higher operating margins.
Welltower stated it expects the portfolio to provide significant cash flow growth through post-COVID recovery in senior housing fundamentals. The REIT noted portfolio occupancy has already increased more than 2.7 percent since bottoming out in March 2021. As of this week, overall occupancy was at 76.3 percent.