Physicians RealtyTrust on April 5 upped its acquisition guidance for 2016 as it executeda series of purchase and sale agreements and a letter of intent with regional healthsystems controlled by Catholic Health Initiatives.
Physicians Realty executed purchase and sale agreements for 47medical office facilities, a signed LOI for three medical office facilities andis negotiating to purchase of two additional medical office facilities owned andanchored by Catholic Health Initiatives regional health systems for a total purchaseprice of approximately $724.9 million. The purchase price includes $32.9 millionof future capital improvements, the majority of which should be completed withinfive years.
The 52 medical office facilities in question contain 3,159,495rentable square feet located in 10 states.
The REIT also commenced a public offering of 18.0 million commonshares of beneficial interest, with plans to grant the underwriters a 30-day optionto purchase up to an additional 2.7 million common shares.
The company will contribute the net proceeds of the offeringto its operating partnership in exchange for common units in the partnership, whichplans to use the proceeds to fund a portion of the purchase price of the CHI propertyportfolio, and for general corporate purposes.
In addition to the proceeds from the stock offering, the companyexpects to fund the acquisition with its unsecured line of credit and has secureda commitment for a $400.0 million one-year bridge loan from KeyBank NA to help fundthe purchase, if necessary.
It expects to close the acquisition in two tranches, with thefirst tranche expected to close in April for a total purchase price of approximately$202 million.
The second tranche is expected to close before the end of thesecond quarter for a total purchase price of approximately $490 million. It is expectedto include most, if not all of the remaining properties not included in the firsttranche.
Meanwhile, the company expects the remaining $32.9 million offuture capital commitments for capital improvements to the facilities to be fundedwithin five years.
The CHI portfolio is 94.4% leased, and the weighted average leaseterm remaining is 8.6 years. Approximately $40.6 million, or 93%, of the first yearin-place NOI of $43.5 million will be represented by new 10-year leases with associatedCHI health systems.
The company's board of trustees has approved the acquisitionunanimously. However, the acquisition of 35 facilities will require Vatican approval,due to the sponsorship of CHI by the Catholic Church, the company noted.
Additionally, the company said it closed approximately $96.7million of previously unannouncedmedical real estate investments, made directly or indirectly through its operatingpartnership, taking the company's total investment activity since Jan. 1 to approximately$202.3 million.
On March 15, the company closed the acquisition of a new 28,057-square-footmedical office building in Glendale, Ariz., for a purchase price of approximately$9.8 million. The first-year unlevered cash yield on the investment is expectedto be approximately 6.0%.
On March 21, it closed the acquisition of a 65,965-square-footmedical office building in Cornwall, N.Y., on the campus of Columbia Memorial Hospital,for a purchase price of approximately $18.5 million. The first-year unlevered cashyield on the investment is expected to be approximately 6.5%.
On March 23, it closed the acquisition of three on-campus medicaloffice buildings in Birmingham, Ala., for an aggregate purchase price of approximately$29.3 million. The portfolio contains approximately 224,876 square feet on the campusof St. Vincent's Birmingham Hospital. The first-year unlevered cash yield expectedto be approximately 7.1%.
On March 24, Physicians Realty closed the acquisition of a 39,184-square-footmedical office facility in Creve Coeur, Mo., for a purchase price of approximately$14.3 million. The first-year unlevered cash yield is expected to be approximately7.2%.
On March 30, the company closed the acquisition of a 9,890-square-footambulatory surgical center in Gallatin, Tenn., for a purchase price of approximately$4.8 million. The first-year unlevered cash yield is expected to be approximately7.3%.
On March 31, the company closed the acquisition of two medicaloffice buildings in New Mexico totaling 52,630 square feet for a combined purchaseprice of approximately $19.2 million. The first-year unlevered cash yield is expectedto be approximately 7.0%.
Additionally, the company completed an $800,000 acquisition ofthe final condominium interest it did not already own in the Randall Road MedicalOffice Building in Elgin, Ill. Following the acquisition, Physicians Realty fullyowns the facility. The company's aggregate investment is approximately $17.3 million,and the first-year unlevered cash yield is expected to be approximately 8.1%.
John Thomas, president and CEO of Physicians Realty, said ina statement that with its acquisitions to date and upon the completion of the CHIinvestments, the company will have approached the high end of its 2016 acquisitionguidance.
Thomas added that the company continues to see additional opportunitiesfor growth in the second half of the year, and has, therefore, increased its investmentguidance to $1.0 billion to $1.25 billion of total investments for 2016, from arange of $750 million to $1.0 billion.
KeyBanc Capital Markets, BofA Merrill Lynch and RBC Capital Marketsare serving as joint book-running managers for the common stock offering.