Physicians Realty, Catholic Health in $725M Deal

A Catholic Health Initiatives faciluty in Grand Island, NE. The sale to DOC includes properties in 10 states.

MILWAUKEE—Physicians Realty Trust has boosted its 2016 acquisition guidance as a result of a pending transaction with Catholic Health Initiatives announced after the markets closed Tuesday. The healthcare REIT on Tuesday also priced an upsized public offering that will partly fund the $724.9-million CHI deal, which includes $32.9 million of future capital improvements. John Thomas, president and CEO of Physicians Realty, which trades on the New York Stock Exchange under the DOC symbol, says the deal is believed to be “one of the largest and most important medical office facility relationships established by a REIT directly with a major healthcare system.” The nation’s fifth-largest nonprofit health system, CHI in 2015 served over 16 million outpatient visitors and 500,000 inpatient patients, realizing more than $15 billion in revenue. “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,” Thomas adds. “Our investment provides substantial liquidity to CHI” and enables the healthcare system to enhance and provide greater access to care to the communities they serve.” As of Tuesday, DOC had executed purchase and sale agreements for 47 CHI medical office facilities, signed a letter of intent for three more and was negotiating the acquisition of two additional properties. The CHI portfolio totals nearly 3.2 million square feet across 10 states, including Arkansas, Colorado, Idaho, Kentucky, Nebraska, North Dakota, Pennsylvania, Tennessee, Texas and Washington. It’s currently 94.4% leased and the weighted average lease term remaining is 8.6 years. The REIT expects to close the CHI deal in two tranches, with the first, $202-million tranche expected to close later this month. On 35 of the properties, Vatican approval will be required. DOC has increased its original full-year acquisition guidance of between $750 million and $1 billion to a range between $1 billion and $1.25 billion. Year to date, the REIT has closed on about $202.3 million of investments, including $96.7 million announced Tuesday. The latest acquisitions include medical office buildings in Birmingham, AL; Cornwall, NY; Glendale, AZ; and Creve Coeur, MO.