National Healthcare Properties Inc. has agreed to sell 40 outpatient medical facilities for approximately $531 million and signed a non-binding letter of intent covering its last four, moves that would end the healthcare REIT’s ownership of medical office buildings and leave it operating senior housing alone.
The Nasdaq-listed company disclosed the definitive purchase and sale agreement in a statement issued Sept. 28. It expects the sale to generate $511 million in cash before transaction expenses and to close in the fourth quarter. The buyer was not identified.
The price works out to a nominal capitalization rate of 6.9% on trailing 12-month in-place cash net operating income, the company said, and an expected economic cap rate of 6.5% after adjusting for recurring capital expenditures and customary closing adjustments. A capitalization rate is annual income divided by price; the economic figure is the more conservative of the two because it subtracts the money an owner has to keep spending on the buildings.
The letter of intent on the remaining four facilities would bring in $11 million in gross proceeds. Letters of intent are not binding, and the company did not give a timetable for that transaction.
The last pieces of a 130-building portfolio
The announcement completes a disposal program that has run most of the year. In May, National Healthcare Properties signed a definitive agreement with an unaffiliated third party to sell a separate portfolio of 86 outpatient medical facilities for approximately $528.2 million, a deal that included roughly $278.0 million of secured debt to be defeased or assumed by the buyer, according to the company’s second-quarter report filed with the Securities and Exchange Commission. The first 30 of those buildings closed on Sept. 10 for about $198 million, with the rest expected to close in the fourth quarter subject to lender approval of the loan assumption.
Those 86 buildings plus the 40 announced Sept. 28 and the four under letter of intent account for the entire segment: as of June 30 the company owned 130 outpatient medical facilities with approximately 3.7 million square feet of gross leasable area, part of 170 properties across 29 states that also included 39 senior housing communities with 3,616 units.
“These expected transactions complete our strategic evolution into a pure-play SHOP platform with meaningful internal growth and a conservative, largely unencumbered balance sheet,” Chief Executive Officer and President Michael Anderson said in the statement. SHOP stands for senior housing operating portfolio, the structure in which a REIT takes the operating income and operating risk of a community rather than collecting rent from a tenant operator.
Where the money goes
The company said it has signed purchase and sale agreements or non-binding letters of intent for approximately $244 million of senior housing acquisitions covering 724 units, primarily assisted living and memory care. It estimated weighted-average year-one and year-three capitalization rates of approximately 7.2% and 8.4% on those purchases — higher yields than it is accepting on the medical buildings it is selling, and rising over time, which is what operators expect when they buy communities with room to lift occupancy or rents.
Having retired the secured debt tied to the portfolio it is now selling, the company said it anticipates net debt to further adjusted EBITDA of approximately 0x, with cash roughly matching approximately $300 million of outstanding unsecured term loans.
Two healthcare property markets, moving apart
The reallocation tracks a divergence visible in healthcare REIT results this year: outpatient medical buildings producing steady but slow income growth, senior housing producing much faster growth. Healthpeak Properties reported for the second quarter that its same-store senior housing net operating income rose 19.2% while outpatient medical grew 2.5%.
National Healthcare Properties’ own numbers show the flat side of that split. Revenue from tenants in the outpatient medical segment was $29.2 million in the second quarter, essentially unchanged from $29.3 million a year earlier, with the property count down to 130 from 133.
Capital has been moving the other way as well. Buyers have been assembling medical outpatient portfolios at scale this year, including a $400 million joint venture between Catalyst Healthcare Real Estate and Nuveen Real Estate aimed at roughly $1.3 billion of development. On our reading, that demand is what makes a clean exit possible at these prices, and it lets National Healthcare Properties convert a flat rent stream into cash for the business it says it would rather be in.
Both the 86-building sale and the 40-building sale remain subject to customary closing conditions. Additional commercial real estate coverage is available from RealtyWire.
