Healthpeak Properties, Physicians Realty Trust Enter $21B Merger

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Healthpeak Properties and Physicians Realty Trust have entered into a definitive agreement to combine in an all-stock merger valued at $21 billion.

The new company will operate a portfolio of 52 million square feet of health-care facilities, of which 40 million square feet represent outpatient properties in Dallas, Houston, Nashville, Phoenix and Denver. The partners expect to generate run-rate synergies of more than $40 million by the end of the first year, and $60 million by the end of the second year.

Healthpeak will also assume Physicians Realty Trust’s existing debt and will enter into a new five-year, $500 million loan at a rate of SOFR plus 85 basis points. The tax-free transaction is expected to close in the first half of 2024.

Transaction Details

Under the agreement, each Physicians Realty Trust common share will be converted into 0.674 of a newly issued Healthpeak common share. Healthpeak and Physicians Realty Trust shareholders will own 77 percent and 23 percent of the combined company, respectively. The new firm will pay an annualized dividend of $1.20 per share.

Barclays and Morgan Stanley & Co. are Healthpeak’s lead financial advisors, along with J.P. Morgan, Mizuho Securities USA, RBC Capital Markets and Wells Fargo serving as additional advisors. Latham & Watkins LLP is acting as legal advisor for the firm. Physicians Realty Trust worked with BofA Securities and KeyBanc Capital Markets as lead financial advisors, along with BMO Capital Markets Corp. Baker McKenzie is acting as legal advisor.

The medical office market is returning to more stable fundamentals, after having weathered recent economic headwinds, a recent IPA report on the matter shows. Medical office projects only represent 10.7 percent of the overall national office pipeline. The main challenge the sector’s expansion is facing is the health-care labor shortage, rather than supply-related obstacles.

 

Source: CPE

Medical Office Building Sector Remains Stable, Attractive

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Having weathered recent headwinds, the medical office building sector is seeing a return to more stable property fundamentals, according to a new Medical Office National Report from Institutional Property Advisors.

There was a COVID-driven fall-off in medical visits in 2020, but this has “generally dissipated,” the report states, adding that “medical office vacancy has stayed between 8 and 10 percent and, in June 2023, the rate was just 50 basis points above the long-term average.”

Rising construction costs have helped to prevent overbuilding, with medical office space totaling only 10.7 percent of the overall office pipeline. IPA points to a very different factor limiting the product type: “… the sector’s main challenge is not supply, but rather a health-care labor shortage.” The pandemic has exacerbated an existing worker shortage that may hinder practices seeking to expand to meet future medical care demand.

High interest rates have affected both deal flow and pricing. Transaction velocity in the MOB sector fell by more than 30 percent over the 12 months that ended in June.

“The average sale price has begun to recalibrate accordingly,” IPA reported, “dropping 3 percent from the high reached in 2022 to $295 per square foot for the yearlong span ended in June.”

MOB regional performance

MOB regional performance. Table courtesy of IPA Research Services; Bureau of Labor Statistics; Federal Reserve; Centers for Medicare & Medicaid Services; Moody’s

On top of that, a paucity of transactions, especially those of $10 million or more, have hampered price discovery.

Geographic Diversity

A variety of regions across the country split up top marks for different performance metrics.

The Mid-Atlantic and the Southeast (driven by Florida) lead in terms of low average vacancies, and the former is tops for a falling overall vacancy, having dropped by 40 basis points year-over-year. The Mountain States too have seen a sizable fall in overall vacancy, by 30 basis points.

Asking rents are highest (at $32.74) in the Pacific region, and lowest in the Midwest ($17.50). Rental growth was far and away the highest in the Central Plains region, with 7.8 percent year-over-year. The Northeast (4.6 percent) and Southeast (4.5 percent) were essentially tied for a distant second place.

 

Source: Commercial Property Executive

Five Healthcare Merger And Acquisition Trends Ambulatory Surgery Centers Should Know

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Mergers, acquisitions and consolidation are a pivotal part of healthcare operations, particularly at Ambulatory Surgery Centers (ASCs).

It can be helpful for independent practices to be aware of trends to compete with ASCs backed by private equity firms and large health systems and to stay up to date with where investors are interested.

Here are emerging trends in healthcare merger and acquisition activity, as laid out in an article by Ankura, a global expert services and advisory firm, and published Oct. 18 in JDSupra:

1. Expanding Outpatient Networks

Reduced cost of care, patient convenience, technology advancement and the pandemic accelerated health system interest in expanding outpatient care offerings. ASCs are experiencing an increase in demand and thus are increasingly attractive to investors.

Big names such as Nashville-based HCA Healthcare and Dallas-based United Surgical Partners International have used acquisitions to expand their outpatient care networks and are producing a growing share of overall company revenue.

2. Rise In Private Equity And Investor Interest

Nontraditional investors such as retail giants, technology companies and private equity firms are expanding their investments into healthcare services. Several physician specialties, including dermatology, orthopedics, gastroenterology, dentistry and ophthalmology, are key targets for private equity.

3. Expansion Of Care Offerings

Many healthcare groups have placed an emphasis on vertical integration — or having a role in various aspects of the care continuum. By acquiring groups along the care continuum, organizations can achieve greater coordination, improved patient outcomes and cost efficiencies.

4. Increased Use Of Digital Health Technology

Healthcare companies have been acquiring digital health startups and technology companies to accelerate innovation, increase operational efficiency and expand service offerings.

5. Health System Consolidation

Healthcare company mergers continue to play a key role in the industry, such as rural hospitals partnering with larger health systems to continue operations. Despite this, healthcare remains highly fragmented and has the potential to further consolidate, according to the article.

 

Source: Becker’s ASC Review