National Healthcare Properties to exit medical office with $531M portfolio sale

Less than six months after its initial public offering, National Healthcare Properties has agreed to sell 40 outpatient medical facilities to an unnamed buyer for $531 million, a deal expected to close by the end of the year and the second large outpatient block it has contracted this year. Because it had already retired the debt on the portfolio, the company expects to keep $511 million of the price, 96 percent of the headline, so the sale frees cash rather than paying off secured lenders.

The May agreement to move 86 such facilities for $528 million, the first tranche of which closed this month, and a letter of intent to sell four more outpatient properties expecting to gross $11 million mean that if every intended deal closes, the REIT would own no outpatient buildings at all. It would be a healthcare landlord whose name describes the business it just left.

NHP went public less than six months ago, raising $462 million in its initial public offering, and since the second quarter it has worked to offload 130 outpatient facilities spanning 3.7 million square feet; the May block plus the 40 buildings now under contract account for 126 of them. The proceeds are expected to repay a revolving credit facility and buy senior housing, a $531 million disposition larger than the IPO that created the currency for it.

Per building, the 40-facility sale prices each property at about $13.3 million, while the 86 buildings agreed in May come to roughly $6.1 million apiece. Asset quality, market, tenancy and lease term could each explain a gap that size, and with the buyer of the 40-building package unnamed there is no read on whether the spread reflects the real estate or medical office repricing between spring and fall.

A REIT six months past its listing is converting an outpatient book into senior housing cash, and it has not said why the strategy changed so soon after the raise.

Senior housing is the destination: as of June 30, NHP owned 39 communities, about 3,600 units, and had contracts to add more than 700 units at a cost of $244 million, roughly $349,000 a unit at the floor of that range. The existing portfolio was 84 percent occupied at the end of the second quarter and generated $6,391 in monthly revenue per average room, up nearly $400 from a year earlier, which annualizes to about $76,700.

CEO Michael Anderson framed the pivot around demographics: “As the population of older adults continues to expand and the need for specialized senior housing and care increases, we believe our focused strategy positions us well to capture the growth from this long-term demographic trend,” he said in a statement.

Against $511 million of expected outpatient proceeds, the $244 million of committed senior housing acquisitions leaves room to repay the revolving credit facility and, presumably, to keep buying. Yet the timing remains unexplained: the same company that raised $462 million from public investors less than six months ago is now selling its outpatient portfolio, and it has not said why.

Whether that is a market signal or one company's reshuffle turns on a buyer the company has not named, and a single seller exiting its namesake sector tells you only what one REIT thinks of outpatient medical pricing, not where the sector trades. Watch who the purchaser of the 40 buildings turns out to be, and whether this price per building holds in the next medical office trade, and a $531 million sale becomes a comp rather than an anecdote.

The equity market gave the plan a shrug: shares moved up 1 percent on news of the latest outpatient sales and gave the gain back at the start of trading Tuesday, sitting at $16.09 by mid-morning, up roughly 34 percent from the offering price. The gain from the listing is intact; the pivot is not yet priced in, and the next markers are the $531 million close expected by year's end and the occupancy and rent growth in the senior housing portfolio the proceeds go to buy.