Holiday Retirement Sells Operations Business to Atria, 86 Communities to Welltower for $1.6B in Megadeal

by John Nelson

LOUISVILLE, KY., WINTER PARK, FLA., AND TOLDEO, OHIO — In a massive blockbuster deal for seniors housing, the seventh-largest operator of seniors housing in the United States (Atria Senior Living) will acquire the third-largest (Holiday Retirement), with the largest owner in the country (Welltower) buying up a large portfolio of the affected assets.

Atria, a privately held seniors housing operator based in Louisville, has agreed to buy the operations business of Winter Park-based Holiday Retirement. Meanwhile, Toledo-based REIT Welltower (NYSE: WELL) will buy the 86 properties that Holiday owns and self-manages for slightly less than $1.6 billion.

Holiday currently manages 240 communities in 43 states, largely in the independent living sector. The combined company will employ more than 19,000 staffers to serve over 45,000 residents. The new firm will manage 447 communities across 45 states and seven Canadian provinces. The newly combined entity will be the second-largest seniors housing operator in the country, behind only Brookdale Senior Living.

After the transaction, Atria will manage more than 250 “nearly identical” communities and higher end properties such as the recently opened Atria Newport Beach in Southern California, as well as luxury urban properties that Atria is co-developing in a joint venture with Related Cos., according to John Moore, Atria Senior Living chairman and CEO. Welltower is also a partner with Atria and Related for two upscale properties in the pipeline coming to San Francisco and Hudson Yards in Manhattan.

Atria has assumed management of Holiday communities in the recent past. In March, Atria took over operations for a portfolio of 21 independent living properties owned by New Senior Investment Group.

According to a release from Atria, the two brands will continue to operate separately and maintain their own current headquarters. Terms of the Atria-Holiday deal were not released, but multiple outlets list private equity firm Fortress Investment Group as the seller of both the Holiday operations division and the 86 Holiday properties.

The deal values the real estate portion of the transaction at $152,000 per unit, which Welltower estimates as a discount over replacement cost of 30 percent. The capitalization rate comes out to 6.2 percent, and occupancy is currently 76 percent, according to Welltower.

Atria plans to retain Holiday’s senior management and staff, with the transactions expected to close simultaneously in the third quarter. Welltower notes that the low occupancies during the COVID-19 pandemic are already showing signs of improvement, with the portfolio showing an increase of 2.7 percent since “bottoming out” in March 2021. The portfolio’s occupancy rate stood at 76.3 percent as of June 20, 2021, according to Welltower.

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” for the 86 properties, according to Welltower. Richard Anderson, managing director and senior REIT analyst at SMBC Nikko Securities America Inc., expects Atria’s tech-facing approach to pay immediate dividends in property-level performance for the portfolio, which should attract investor attention.

“Once Atria takes over and deploys its technology approach to the Holiday business, we wouldn’t be surprised if a number of follow-up conversations emerge among the REITs,” says Anderson. “It is a congested playing field right now with a lot of cooks in the Atria kitchen. [Ventas] itself owns about 170 facilities currently run by Atria, and a number of other REITs will inherit Atria when the Holiday merger closes.”

Welltower and Atria plan to invest $1.5 million to $2 million in capital expenditures per community in the near future. Ten of the properties will be expanded, including some with new cottages for rent. Five of the properties in the portfolio have been identified as “higher and better use candidates,” meaning they will likely be repositioned or razed.

“By joining forces with [Holiday CEO] Lilly Donohue and the great team at Holiday Retirement, this transaction 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” says Moore. “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.”

“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,” says Shankh Mitra, Welltower CEO and CIO. “Through a highly incentivized and aligned management contract, we have created tremendous upside opportunity for stakeholders of both Welltower and Atria.”

“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,” continues Mitra. “We are delighted that we could finally align the interest of all parties, with strategic and value creation opportunity for Welltower’s shareholders.”

Welltower’s stock price closed on Monday, June 21 at $81.53 per share, up from $51.38 a year ago.

— Jeff Shaw and John Nelson

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