Healthcare Realty Trust Selling $1.7B in Assets

Healthcare Realty Trust is preparing to sell $1.7B in assets, with proceeds from $1.1B of these divestitures funding the REIT’s merger with Healthcare Trust of America.

HRT disclosed this week it is under contract with five counterparties to sell 27 properties worth a total of $807M in asset sales and joint venture transactions. The REIT also said it has letters of intent with three counterparties to sell 10 additional properties for $295M, all at a blended cap rate of 4.8%.

These transactions will close within 10 days of the completion of the $11B deal to merge HRT and Healthcare Trust of America (HTA), which is expected to close on July 20. The merged REIT will operate under the Healthcare Realty Trust name.

The $1.1B of divestitures and joint venture transactions will fund the merger, the terms of which require a stock exchange ratio of 1:1 and a special cash dividend of $4.82 per share to HTA shareholders.

As part of the merger, HRT will be forming a joint venture with CBRE Investment Management that will absorb four former HTA properties while retaining for HRT a 20% stake in the joint venture and managing and leasing of the properties.

HRT also said this week it is in “active discussions” with multiple buyers to sell an additional portfolio worth more than $600M, bringing the total sale of assets by the REIT to $1.7B. The sales of the $600M portfolio is expected to close in August.

In a statement, HRT President and CEO Todd Meredith said the asset sales will “refine (our portfolio) by increasing the percentage of on-campus properties (and) improving the percentage of properties in top 100 MSAs.”

The merger of HRT and HTA, announced in February, will create the largest pure-play MOB REITs, with more than 700 properties encompassing a total of 44M SF, nearly double the footprint of the closest competitor.

The combined portfolios include 147 clusters, each comprising two to 11 properties within two miles of each other and averaging about 195K SF per cluster.

The company headquarters for the merged REIT will be based in Nashville, with additional corporate offices in Scottsdale and Charleston. The combined REIT will have an MOB development pipeline in excess of $2B, concentrated in growing markets in Seattle, Houston, Denver, Dallas and Raleigh.

In an analysis in April of the merger of Healthcare Trust of America and Healthcare Realty Trust, The Motley Fool cited several factors it believes are setting the stage for more shotgun weddings between publicly traded REITs, GlobeSt.com reported.

“Conditions remain ripe for additional REIT consolidation, especially given the likelihood that interest rates will rise over the coming years. REITs will likely want to lock in the rates on new debt while they’re low, which could spur them to complete a deal as soon as possible,” Motley Fool’s analysts said.

According to Motley Fool’s analysis, other factors spurring the wave of REITs acquiring REITs is a desire to increase scale, which can reduce the merged entity’s operating costs and cost of capital, and the surge in REIT equity values over the past year, which gives them “a valuable currency to make acquisitions.” 

“With more than 200 publicly traded REITs—including more than a dozen healthcare REITs—there’s ample room for additional consolidation. Given Healthcare Realty’s growing scale in the MOB sector, it could spur some of its rivals to join forces so they can reap the benefits of scale advantages,” Motley Fool noted.