What figures to be an active Q4 2021 for healthcare real estate transactions got started on Day 1.
Physicians Realty Trust is acquiring 15 Class-A medical office buildings located in eight states, comprising approximately 1,460,000 square feet, for $764.3 million.
“Activity in the sector has remained consistently strong, although there is still a relatively limited supply of quality product available in the market, Toby Scrivner, Senior Director, Stan Johnson Company, tells GlobeSt.
The Pending Acquisitions
The portfolio is approximately 95% leased with a weighted average remaining lease term of approximately 7.4 years. Each of the 15 buildings are either located on a health system campus or are affiliated with a health system, and approximately 74% of aggregate leased space is attributable to investment grade health systems or their subsidiaries.
“This limited supply, combined with increased cost of new construction, has bolstered the confidence of investors that existing tenants will likely renew, as well as providing certainty that owners will be able to increase rental rates,” Scrivner said. “PRT has historically been a very competitive buyer of on-campus-adjacent medical buildings, and this portfolio appears to have many of the hallmarks of assets that fit their criteria.”
Mike Adams, Managing Director, Stream, tells GlobeSt that medical office investors are looking for steady cash flows and well positioned real estate.
“Well positioned real estate is located next to major health care systems,” Adams said. “We are seeing an overarching theme of limited supply of medical office real estate. Since COVID-19, there has been a greater need for medical office space and this has led to some conversion opportunities for operators that have entrenched relationships in the market.”
He said a trend he is seeing among health care systems and hospitals is “the openness for them to tap third-party ownership and management of their real estate. This has led to a flood of institutional investors taking down these deals in large sums.”
PRT Sees 4.9% Cash Yield on Portfolio
For PRT, upon closing, the first-year unlevered cash yield of the portfolio is expected to be 4.9%. The company expects that the transaction will be completed by year’s end.
At closing, PRT anticipates funding the purchase of the pending acquisitions through the issuance of units of the operating partnership, the assumption of indebtedness on certain properties, the satisfaction of existing mezzanine loans outstanding, and proceeds from its unsecured line of credit, according to a release.