TOLEDO, OH – Welltower announced that it has entered into a definitive agreement to acquire a portfolio of 86 seniors housing properties, including 80 nearly identical independent living ("IL") and six combination independent living/assisted living ("IL/AL") properties, currently owned by Holiday Retirement. Additionally, as announced on June 21, 2021, upon the closing date of this transaction, which is expected to be in the third quarter 2021, Atria Senior Living will assume operations of the properties and retain Holiday's in-place senior management and staff.
Through this landmark transaction, the 86-property portfolio will be acquired by Welltower for $1.58 billion, or $152,000 per unit, representing a discount to estimated replacement cost in excess of 30%. The transaction is expected to be approximately $0.10 per diluted share accretive to Welltower's normalized funds from operations during the first twelve months post-closing. The portfolio is expected to deliver substantial net operating income growth in future quarters and in coming years as occupancy growth accelerates from near-trough levels of 76.3% as of June 20, 2021. Portfolio occupancy has already increased over 2.7% since bottoming in March 2021. Additionally, the anticipated recovery in occupancy and Atria's operational and technological expertise is expected to maximize community level performance and to generate meaningful expansion in operating margins going forward.
Welltower and Atria have agreed to a highly incentivized and strongly aligned enhanced RIDEA 3.0 management contract based on both top and bottom-line financial metrics. The contract will also include substantial promote opportunities to Atria upon achievement of certain long-term financial metrics. The achievement of such hurdles would imply significant growth in underlying property level performance, resulting in a nominal yield in excess of 9% to Welltower and a net economic yield in excess of 8% to Welltower after capital expenditures and payment of the promote.
Atria expects to integrate Holiday's corporate staff and retain its experienced and reputed management team, thereby de-risking the overall transaction. Atria has significant experience with Holiday properties, having successfully assumed operations in recent years of two portfolios previously managed by Holiday: a 29-property portfolio across Canada in 2014 and, in April 2021, a 21-property portfolio owned by New Senior Investment Group Inc.
The portfolio is expected to benefit from Atria's operating model and technology platform, which includes its proprietary Glennis software for staffing optimization, digital marketing, and CRM. Atria's digital marketing capabilities and front of house technology suite are also expected to reduce dependency on referral sources and increase organic lead generation. Holiday's management team expects that this significant investment in its platform and technology infrastructure will significantly enhance their ability to serve residents going forward.
"The Holiday team is focused on continuing the highest level of service and care to our residents and their families," said Holiday Retirement CEO Lilly Donohue. "We are excited to partner with Atria and Welltower as this transaction is squarely in line with Holiday's long-term strategy. We believe the significant investment into Holiday's platform, technology infrastructure and importantly, our communities, will enhance our collective ability to deliver quality services to the dynamic needs of our customers and to create a bright future for our employees."
In addition to the enhanced operating plan described above, Welltower and Atria anticipate implementing comprehensive value add investment initiatives that include, but are not limited to:
Capital expenditure plan of $1.5 to $2.0 million per community which is expected to drive higher revenue and operating margins in future years.
Larger scale refurbishments and redevelopments with ten properties that have been designated for expansion opportunities including highly popular new cottages. The capital improvements are expected to result in a meaningful improvement in property level performance while maintaining Welltower's all-in basis (approximately $165,000-$170,000 per unit), at a substantial discount to replacement cost.
Five properties have been identified as higher and better use candidates.
Atria's renowned expertise in operating assisted living communities allow for additional cash flow growth opportunities in the portfolio's six IL/AL combination communities.
"We're excited to announce this ground-breaking transaction with Welltower," stated John Moore, Atria Senior Living Chairman and CEO. "It has been a pleasure to work with Shankh and the Welltower team and we look forward to thoughtfully investing in this portfolio to best position it to deliver quality and value to residents. Our shared commitment to enhancing the customer experience makes this a perfect combination. By joining forces with Lilly Donohue and the great team at Holiday Retirement, this transaction also enables Atria to continue on our path to create a thoughtful variety of choice as an unprecedented number of seniors seek new residential options in the decade ahead. We are eager to work with the Holiday team as we together build the best pure-play management services business in senior living and create value for Welltower and the other owners of the properties we manage."
"Welltower is thrilled to expand its strong partnership with Atria through the acquisition of this unique platform of assets," said Shankh Mitra, Welltower CEO and CIO. "John and the Atria team share our vision for the significant, multi-year growth opportunity in the seniors housing sector and we are excited to embark on this journey together. Through a highly incentivized and aligned management contract, we have created tremendous upside opportunity for stakeholders of both Welltower and Atria. This privately negotiated, operator driven transaction strategy is the key to our unique ability to navigate through complex situations and provide counterparties certainty of execution at unmatched speed due to our data analytics platform and our best in class team's ability to structure win-win transactions. We are deeply familiar with the Holiday assets having looked at them multiple times in the past and have the utmost respect and admiration for Lilly and her team. We are delighted that we could finally align the interest of all parties, with strategic and value creation opportunity for Welltower's shareholders." Mr. Mitra continued, "Additionally, we are extremely pleased to have funded this transaction through efficiently priced permanent capital to create significant near and long-term per share value for our shareholders. Our pipeline of attractive opportunities across the health and wellness continuum remains robust going forward."
The Holiday portfolio is 100% private pay at an affordable price point and maintains 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 needed. The average resident age is 81 years old with an average length of stay of approximately 32 months, resulting in low recurring capital expenditures and higher operating margins.