Healthcare REIT Expands Portfolio in $725M Deal

Physicians Realty Trust is shelling out $724.9 million to acquire 52 medical office facilities from Catholic Health Initiatives.
John Thomas, Physicians Realty Trust

John Thomas, Physicians Realty Trust

MilwaukeePhysicians Realty Trust executed purchase and sale agreements for 47 medical office facilities, signed letters of intent for 3 medical office facilities and is also in the midst of negotiating the acquisition of 2 additional medical office facilities owned and anchored by the Catholic Health Initiatives regional health systems, for a total price of approximately $724.9 million.

Catholic Health Initiatives is currently the fifth largest non-profit health system in the U.S., with more than 103 hospitals, 3,950 employed affiliated physicians, and 95,000 employees. In 2015, these providers served over 16 million outpatient visitors and 500,000 inpatient patients, realizing more than $15 billion in revenue.

“Today we announce what we believe to be one of the largest and most important medical office facility relationships established by a REIT directly with a major healthcare system,” John Thomas, Physicians Realty Trust president & CEO, said in a prepared release. “We are honored and humbled to be selected to monetize these facilities and enhance CHI’s healthcare real estate service delivery platform through this partnership.”

The Catholic Health Initiative transaction comes on the heels of the closing of approximately $96.7 million of previously unannounced medical real estate investments, bringing PRT’s total investment activity for 2016 at approximately $202.3 million.

“Our investment provides substantial liquidity to CHI. More importantly, we are helping to free CHI executives, management, physicians, providers and staff to focus on their primary mission, to nurture the healing ministry of the church, supported by education and research, while we provide real estate capital, management, and strategic intellectual support to enhance their existing facilities, physician recruiting and outpatient strategies,” Thomas said. “Altogether, this relationship empowers CHI to enhance and provide greater access to care to the communities they serve.”

The CHI portfolio is currently 94.4 percent leased with the weighted average lease term remaining at 8.6 years. Approximately 93 percent of the first year in place net operating income of $43.5 million will be represented by new 10-year leases with associated CHI health systems.

PRT expects to close the acquisition in two parts; the first tranche is expected to close in April, followed by the remaining properties before the end of the second quarter of 2016.

According to Thomas, $32.9 million of future capital commitments for capital improvements to these facilities are expected to be funded within the next 5 years.

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