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Office Properties Income Trust To Merge With Diversified Healthcare

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Citing a “challenging backdrop for traditional office assets,” Office Properties Income Trust has entered into a definitive merger with Diversified Healthcare Trust, a REIT that owns medical office buildings, life science properties and senior housing facilities, in an all-share transaction that values the combined company at $12.4 billion.

The combined company would have 539 properties in 40 states and Washington, D.C. Between $2 million and $3 million in cost savings and synergies annually are expected once the merger is completed.

Both REITs are managed by The RMR Group, an alternative asset management firm based in Newton, Mass. The merger would need to be approved by OPI and DHC shareholders. It is expected to close in the third quarter. OPI has secured a commitment from JPMorgan Chase Bank, NA for a $368 million bridge loan to help finance the transaction.

OPI would be the surviving entity in the merger and would be led by the OPI executive team and managed by The RMR Group. The REIT expects to change its name to Diversified Properties Trust upon closing. It would continue to trade on the Nasdaq Stock Exchange. OPI shareholders would own 58 percent of the combined company and DHC shareholders would own approximately 42 percent.

As of Dec. 31, OPI owned and leased 160 properties with approximately 21 million square feet in 30 states and Washington, D.C. Approximately 63 percent of its revenues were from investment grade rated tenants.

As of Dec. 31, DHC’s portfolio was valued at about $7.1 billion and included 379 properties in 36 states and Washington, D.C., occupied by approximately 500 tenants. The portfolio totals about 9 million square feet of life science and medical office properties and more than 27,000 senior living units. One of DHC’s life science properties, Muse at Torrey Pines in San Diego, underwent a $100 million redevelopment two years ago. The three-building property now has 186,000 square feet of collaborative office and flexible laboratory space and improved indoor and outdoor amenities.

Benefits Outlined

Christopher Bilotto, OPI’s president & chief operating officer, said in a prepared statement the merger would establish the combined company as a larger, more diversified REIT that is better positioned for long-term growth and value creation for OPI shareholders. He described the DHC holdings as attractive health-care real estate assets that have a work-from-home resistant tenant base and private pay senior living communities that are expected to continue to recover following the pandemic and have favorable long-term demographics.

Bilotto said the merger would give OPI access to stabilized cash flows and NOI growth potential from the senior housing portfolio. OPI would also benefit from additional capital sources, including Fannie Mae and Freddie Mac. He stated the merger should create a stronger and more resilient combined company, with more diversified revenue sources and decreased exposure to a weakening office market environment.

The merger will also help DHC strategically and financially, according to Jennifer Francis, DHC’s president & CEO. DHC has $700 million of debt coming due by mid-2024 and is currently not in compliance with its debt covenants. Francis said in prepared remarks the combined company would be in immediate compliance upon closing and also have immediate access to multiple capital sources which would address the upcoming debt maturities and increase liquidity to continue funding its senior housing operating portfolio and capital improvement plan.

Transaction Advisors

BofA Securities is acting as exclusive financial advisor to DHC. Sullivan & Cromwell LLP is the legal advisor to the special committee of DHC’s Board of Trustees.

J.P. Morgan Securities LLC is acting as exclusive financial advisors to OPI. Wachtell, Lipton, Rosen & Katz is the legal advisor to the special committee of OPI’s Board of Trustees.

 

Source: Commercial Property Executive

Medical Properties Trust To Invest $950 Million In Behavioral Health Platform

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Medical Properties Trust, Inc. (the “Company” or “MPT”) recently announced that it has entered into definitive agreements to acquire 18 inpatient behavioral health hospital facilities and an interest in the operations of Springstone, LLC (“Springstone”) from Welsh, Carson, Anderson & Stowe (“WCAS”) for total consideration of $950 million.

Springstone, based in Louisville, Kentucky, is a leading provider of behavioral health services in the United States distinguished by its purpose-built, inpatient facilities in carefully selected markets and care delivery across the full behavioral care acuity spectrum.

The hospitals, along with additional facilities that Springstone expects to develop and acquire, are expected to be master leased pursuant to terms that are anticipated to provide a GAAP-basis yield exceeding 9.0% and lease payment coverage of approximately 1.75x in the near-term. The lease is expected to include an initial 20-year term with CPI-based annual rent escalators subject to a 2% floor.

The Company expects to initially fund the total cash consideration using cash on hand and borrowings under its revolving credit facility and additional financing arrangements, which may include issuances of debt and equity securities, placement of new secured loans on the acquired real estate, or a combination thereof. The sources of financing actually used will depend upon a variety of factors, including market conditions. The transactions are expected to close during the second half of 2021, subject to customary closing conditions, including certain regulatory approvals.

“The Springstone investments give MPT a major presence in the rapidly expanding United States behavioral health care market, which has been underserved in our society despite importance on the same level as acute and post-acute care hospitals,” said Edward K. Aldag, Jr., MPT’s Chairman, President, and CEO. “MPT’s acquisition of the 18 purpose-built inpatient facilities, much like our recent investment in the Priory portfolio in the United Kingdom, appropriately targets the highest level of acuity within the behavioral care continuum, and we believe that our investment in the operating company will result in additional attractive real estate opportunities.”

MPT anticipates that Springstone will continue to be operated by the same senior management team that has created this distinct portfolio of entirely de novo, purpose-built inpatient and outpatient behavioral health facilities in carefully selected markets. It is expected that these highly experienced individuals, led by Executive Chairman Bill Wilcox, CEO Phil Spencer and CFO Greg Miller, will co-invest alongside MPT in the operating company and be responsible for the day-to-day operations of Springstone, which will be essentially unchanged going forward.

“We’re so appreciative of the job the management team did to build this business. We started this company from scratch 10 years ago and are incredibly proud to have built over 50 facilities, created more than 4,000 jobs, and treated tens of thousands of patients with the highest quality care,” said Brian T. Regan, Head of Healthcare and Partner at WCAS. “It was important to us that the management team has the opportunity to be part of Springstone’s ownership and to continue leading the company and its employees to the next phases of growth.”

Philip Spencer, Springstone’s CEO, added, “Over the past decade, Springstone has helped tens of thousands who struggle with mental health and addiction challenges, thanks to the support of Welsh, Carson, Anderson & Stowe and the dedication of our team of compassionate professionals. We look forward to working with MPT to expand our behavioral healthcare model to serve even more communities.”

Benefits of Transaction

Expected to Achieve Immediate Accretion. The strong cash and GAAP returns related to the sale-leaseback transaction and an accretive cash return on MPT’s investments in the operating company, along with MPT’s attractive cost of capital, are expected to result at closing in immediate improvement in per share net income and funds from operations.

Projected to Create an Unmatched Competitive Advantage in Accelerating United States Behavioral Health Care Market. Springstone provides a full continuum of behavioral care including inpatient, partial hospitalization, and intensive outpatient programs and has targeted diversified geographies with positive demographic trends and a commercial-heavy payor mix. These factors, along with its scale and the purpose-built nature of its facilities, differentiate Springstone from competing operators.

The COVID-19 pandemic has accelerated growth in demand for mental health services in the U.S., evidenced by improving Springstone operations throughout 2020. Like in the U.K., the U.S. government and payors alike acknowledge the need for incremental funding for behavioral health care. Multiple Avenues for Growth Including Development and Expansion Projects. Increasing demand for behavioral health services is expected to continue to generate additional attractive development and expansion projects not underwritten in this transaction.

Improved Portfolio Diversification. MPT’s largest individual property investment now represents only 2.6% of pro forma total gross assets. The consummation of the Springstone transaction is subject to customary closing conditions, including applicable regulatory approvals and the finalization of agreements with current management. MPT cannot give assurances that the transactions will be successfully consummated as described above or at all. Barclays and Guggenheim Securities, LLC acted as financial advisors to MPT.

About Medical Properties Trust, Inc.

Medical Properties Trust, Inc. is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities. From its inception in Birmingham, Alabama, the Company has grown to become one of the world’s largest owners of hospitals with 442 facilities and roughly 45,000 licensed beds in nine countries and across four continents on a pro forma basis. MPT’s financing model facilitates acquisitions and recapitalizations and allows operators of hospitals to unlock the value of their real estate assets to fund facility improvements, technology upgrades and other investments in operations. For more information (including additional details related to the Springstone investment as part of an updated investor presentation), visit the Company’s website at www.medicalpropertiestrust.com.

 

Source: HREI

Investor Interest In Medical Properties Continues: JLL Closes $142.9M Sale Of 50-Property National Investment Grade Portfolio

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JLL announced today that it has closed the $142.9 million sale of a 50-property national investment grade portfolio totaling approximately 430,000 square feet across 22 states.

JLL represented the seller, Elliott Bay Capital Trust, and procured the buyer, a publicly traded REIT.

The sale of the Elliott Bay Dialysis Portfolio is a multi-state portfolio containing single tenant dialysis clinics leased to the two largest U.S. dialysis providers, Fresenius Medical Care and DaVita. The net lease properties are 100 percent occupied and backed by investment grade credit or New York Stock Exchange public companies.

Well located across 22 states in desirable major U.S. metro areas, the properties have mission critical infrastructure providing life sustaining dialysis treatment.  The significant investment in the fit out at these locations and arduous Medicare certification and state licensing creates high retention rates and long-term, inelastic tenancy – one of the main drivers for dialysis clinic investment.  Dialysis remains a fundamental and non-discretionary segment of healthcare services that has a long-term trajectory of growth and profitability regardless of the macroeconomic environment.

The sale was a collaboration between JLL’s Healthcare, Corporate Finance and Net Lease verticals led by Managing Director Mindy Berman and Vice President, Brannan Knott, Senior Vice Presidents Peter Bauman and Tivon Moffitt.

Knott, from JLL Capital Markets, Healthcare, described the portfolio as, “a rare, highly durable income portfolio, tenanted by the nation’s leading dialysis providers.  This is the exact investment profile attracting many investors into this sector and is supported by macro demographic trends of the nation’s aging baby-boomers and increased incidence of end-stage renal disease driving significant increases in dialysis demand for the foreseeable future.”

“JLL sees no slowdown in demand for medical office investments,” Berman added.  “We’ve seen consistent annual sales of $9 to $10 billion in the medical office sector and 2019 should be on pace with recent years.”

“Due to the portfolio mix of investment-grade and high-quality dialysis clinics, JLL was able to achieve excellent pricing for the seller with an accelerated closing time period,” Bauman said.

“Single-tenant medical properties and portfolios remain in high demand across various capital sources,” Moffitt added.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.

 

Source: HREI