Scottsdale-based Healthcare Trust of America Inc. (NYSE:HTA) is looking to purchase a $2.75 billion, 6.1 million-square-foot medical office portfolio from Indiana-based Duke Realty Corporation.
On Monday, Healthcare Trust announced that it entered into a definitive agreement to acquire every medical office building asset and the medical development platform of Duke Realty.
If the deal goes through, Healthcare Trust’s portfolio will increase to 25 million square feet of leasable space.
The cash deal will close through several tranches and is based on closing conditions, according to Healthcare Trust’s announcement. The deal could close as early as the second quarter of 2017.
The portfolio is 94 percent leased, which includes Duke’s proportionate interest in two unconsolidated joint venture entities.
There are 78 properties in the portfolio, which also includes two land parcels under development that total approximately 17 acres.
Outside of the portfolio, the transaction includes Duke’s medical office operating and development platform. Healthcare Trust states the platform will allow for expansion with new and existing healthcare providers within its markets.
“In addition to the strategic benefits, this acquisition will be accretive financially,” said Chief Financial Officer Robert A. Milligan. “The significant overlap in markets allows for extensive synergies in operations and leasing, which will drive margin expansion. Additionally, the portfolio was recently developed and has limited lease roll-over, creating limited on-going capital requirements which is key to cash flow accretion.”
The transaction has hurdles moving forward.
This transaction is worth $2.75 billion, net of credits for an incremental $50 million in capital to be paid by the seller to complete properties currently under development. The portfolio Healthcare Trust is looking to purchase includes 78 properties, with 64 of the properties complete and operating, which amounts to $2.35 billion worth of the portfolio.
The remaining properties are either in development or undergoing lease-up. One of the closing conditions has 31 properties, which make up $1.3 billion of the purchase price, subject to rights of first refusals or offer, which could reduce the size of this deal.
Duke is requiring that HTA accept seller financing of $330 million, in the form of a senior secured first mortgage loan, which will bear interest at 4 percent per annum. This note will require three annual principal payments of $110 million beginning in 2018 and is not pre-payable.
“This transaction solidifies HTA as the dominant owner and operator of medical office buildings located in key, gateway markets in the United States,” said Scott D. Peters, chairman and CEO of Healthcare Trust. “Duke’s medical office portfolio is a high quality mix of primarily on-campus properties that are uniquely well-located, with 85% located in HTA’s existing key markets. In addition, we believe the combination of our best in class property management and leasing platform and their development platform creates a full service platform that can consistently execute and deliver disciplined growth in this expanding sector.”
This story will be updated.