Medical office investment remains highly desirable as the underlying market dynamics for leasing and resale remain strong. Despite reduced transaction volume, the U.S. MOB sector is showing resilience in the face of economic uncertainty.
Nuveen Global Cities REIT is doubling down on recession-resistant real estate with the $300M acquisition of 10 healthcare facilities.
The 661K SF portfolio covers medical office buildings in four high-growth markets — Dallas, Pittsburgh, Tampa and Atlanta, per a filing with the Securities and Exchange Commission. More than 65K SF of new or renewed leases have been signed since May, signaling strong demand despite a downturn in the economy.
“These buildings are leased to best-in-class healthcare providers that are significantly invested in their space, with nine of the ten assets featuring tenants with imaging, surgical and/or oncology build-outs,” co-President and Lead Portfolio Manager of GCREIT Richard Kimble said in a statement.
The assets were 96% leased at the time of acquisition and are either newly constructed or newly renovated, according to the filing. Lease terms are on average 5.7 years and include a 2.5% annual bump in rent. More than 20% of the REIT’s investments and 1.2M SF of its portfolio are now concentrated in healthcare, per the filing. Earlier this year, CBRE predicted that about $25B worth of capital would flow into the sector this year, much higher than the nearly $16B invested in 2021.
That estimation may prove slightly off given the dip in activity seen at the midpoint of this year. Transaction volume in Q2 landed at about $2.9B, down from the $3.3B seen in the second quarter of last year, according to Commercial Property Executive. During the same period, though, average rents increased 20% to $356 per SF year-over-year.
“Medical office investment remains highly desirable as the underlying market dynamics for leasing and resale remain strong,” Zacuto Group Managing Director Jake Zacuto told Commercial Property Executive. “Medical tenants overall have very low default risk and tend to offer stability even during uncertain times.”
GCREIT is not alone in its strategy to invest in safe haven assets. In late August, CBRE Investment Management announced it would acquire a 282.6K SF, four-building MOB portfolio in Orange County, California, via a joint venture with Healthcare Realty Trust, according to GlobeSt.
Earlier, LTC Properties Inc., a California-based REIT, announced it would sink $62M into a joint venture to acquire three skilled nursing centers in northern Florida, per The Bakersfield Californian.
Source: Bisnow
NorthWest Healthcare Properties REIT has made its debut in the U.S. market with a $765-million portfolio acquisition, expected to close in Q2 2022.
The portfolio is comprised of 27 health care properties including seven hospitals, five micro-hospitals, and 15 medical office buildings totaling 1.2 million square feet. It is 97 percent occupied, with a weighted average lease expiry of 10.7 years and is geographically diversified across 10 states with approximately 60 per cent of net operating income coming from top 20 U.S. metropolitan statistical areas with a focus in the Greater Chicago Area and Sunbelt States.
The portfolio includes 78 per cent of single-tenant, 22 per cent multi-tenant properties and 91 per cent of net operating income is either triple or quadruple net.The portfolio’s acquisition will initially be funded from a combination of new corporate and property level financing as well as the REIT’s existing resources.
“The U.S. portfolio is an excellent starting point to launch the REIT’s U.S. strategy because of the defensive nature of the portfolio’s long-term cash flows, attractive contractual rent growth and low management intensity; all of which aligns strongly with the REIT’s core investment strategy,” CEO Paul Dalla Lana said in a media release. “Moreover, this portfolio is a launching pad for accretive expansion with U.S. pricing typically approximately 100 basis points higher on a cap rate basis than the REIT’s other global markets with transaction volume that is unmatched globally.”
The 18 states in the Sunbelt area include Alabama, Arkansas, Arizona, California, Colorado, Florida, Georgia, Kansas, Louisiana, Mississippi, North Carolina, New Mexico, Nevada, Oklahoma, South Carolina, Tennessee, Texas and Utah.
“One of the attractions for the REIT was that it is highly diversified by both market operators and asset types,” said Dalla Lana.
The current plan for the REIT is to bring an investment partner into the portfolio by the end of 2022, although Dalla Lana did not disclose details on this or on the origin of the U.S. portfolio, only that it was an “institutional vendor.”
“Clearly the U.S. is the largest health care and health care real estate market in the world,” Dalla Lana said during a conference call. “So there’s a very significant opportunity to happening and we’ve been working hard over the last year to identify that.”
At the time of writing, there is “nothing major” planned in terms of further transactions on the portfolio.
Thanks to the planned completion of a U.K. joint venture, its planned U.S. portfolio and global health care precinct initiatives, all of which are expected to close later in 2022, the REIT’s total assets under management plus capital commitments are expected to increase to approximately $20 billion in the near-term.
Its Q4 2021 revenue was stable year-over-year at $96.4 million. Another expansion of its portfolio came with the $153.3 million acquisition of Cheshire Hospital – a 50 bed acute care hospital occupied by the Spire Hospital Group, the U.K.’s third-largest private hospital operator.
Further expansions included the Tennyson Centre acquired by Vital Trust Healthcare, its New Zealand subsidiary, for approximately $83.9 million and the Epworth Geelong & Elim Hospitals acquired by the REIT’s Australian institutional joint venture for approximately $124.2 million.
On the increased geopolitical risk driven by the Russia-Ukraine conflict, Dalla Lana stated: “Despite the organization’s exposure to European markets, the impact of this point has been limited with credit and equity markets open and accessible and no evidence of disruption in acquisition markets.”
Founded in 2004 and publicly traded since 2010, Toronto-headquartered NorthWest Healthcare Properties REIT has focused on health care real estate investment and management. This translates to 192 properties, approximately 15.3 million square feet and about 2,047 tenants in 7 countries.
Vital Trust Healthcare has assets of over $11 billion, also released its fourth-quarter results last month.
Source: Real Estate News Exchange
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