Physicians Realty Trust Buying $725M Medical-Office Portfolio

Physicians Realty Trust, a self-managed healthcare properties REIT that conducts its business through an UPREIT structure in which its properties are owned by Physicians Realty L.P., announced that is buying a portfolio of 52 medical office facilities owned by Englewood, CO-based based Catholic Health Initiatives (CHI) for approximately $724.9 million. The purchase price includes $32.9 million of future capital improvements, the majority of which should be completed within 5 years. The buildings are controlled by regional health systems affiliated with CHI, and because of CHI's sponsorship by the Catholic church, the deal requires Vatican approval, according to a Healthcare Finance News report.

"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, President and Chief Executive Officer at Physicians Realty Trust, said in a statement. "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. 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."

The purchased buildings amount to nearly 3.2 million square feet of rentable space in 10 states, and are 94.4% leased with an average of 8.6 years left on their leases. Leases at the properties are expected to bring in $43.5 million of net operating income, according to a Law360 report. Physicians Realty Trust expects to close the acquisition in two tranches; the first tranche is expected to close in April 2016, for a total purchase price of approximately $202 million. The second tranche, expected to include most, if not all of the remaining properties, is expected to close before the end of the second quarter of 2016, for a total purchase price of approximately $490 million. Thomas added that the company continues to see additional opportunities for growth in the second half of the year, and has, therefore, increased its investment guidance to $1.0-1.25 billion of total investments for 2016, from a range of $750 million-1.0 billion.

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