Two-phase, highly structured transaction enabled client to retain important controls, ability to self-manage key assets while still yielding aggressive cap rate
New York – October 28, 2014 – Hammond Hanlon Camp LLC (“H2C”), through its wholly owned subsidiary H2C Securities Inc., today announced that while serving as the exclusive financial advisor to PinnacleHealth System (“Pinnacle”), it achieved a sub-six percent cap rate on medical office buildings (“MOBs”) in monetizing Pinnacle’s portfolio of healthcare real estate assets to a healthcare REIT. This is among the most aggressive cap rates achieved for medical office buildings in the industry.
As the first phase of a two-phase transaction, the REIT acquired six medical properties (five MOBs and one hospital) totaling 645,225 square feet for $132 million, with two additional MOB acquisitions anticipated to close in the fourth quarter of 2014.
As part of its advisory process, H2C conducted its proprietary Real Estate Transaction Alternatives Study (“RETAS”) with respect to a larger portfolio of real estate assets owned by Pinnacle. As a result, H2C professionals determined that a sale/partial leaseback involving a portfolio of eight properties totaling approximately 780,000 square feet was the optimal transaction structure to achieve Pinnacle’s goals of maximizing proceeds, retaining certain controls, increasing liquidity, and attaining operating lease treatment, among others.
“The highly structured, competitive process conducted by H2C allowed us to achieve extremely favorable pricing on the monetization of our medical office buildings,” said William H. Pugh, CFO of Pinnacle. “Being able to self-manage gave us an added level of control and cost savings that further enhanced the transaction.”
H2C professionals carefully managed a marketing process that generated numerous competitive bids to acquire the portfolio before ultimately selecting the REIT as the buyer for the properties. H2C structured the transaction so Pinnacle would retain important controls and the ability to self-manage key assets in their portfolio, while still achieving a sub-six percent cap rate on its MOBs — which is among the most aggressive cap rates achieved for MOBs anywhere in the United States. The ability for Pinnacle to self-manage the properties, using its own staff rather than paying a third party, not only allowed greater control over the assets but also created substantial cost savings for the system.
“Pinnacle’s decision to monetize a portfolio of healthcare real estate assets at this highly favorable time in the market is a great example of how the system is taking lower-yielding assets and converting them into higher-yielding ones,” said PJ Camp, Principal at H2C. “This approach allows the system to free-up capital trapped in bricks-and-mortar assets so that it can be redeployed into its healthcare business where it can earn a much greater return.”
About PinnacleHealth
PinnacleHealth (“Pinnacle”) is one of the largest not-for-profit health systems in the mid-Atlantic region, providing a total of over 700 licensed beds across four hospital campuses. Supported by a broad range of services, strong investments and liquidity position, Pinnacle employs over 5,000 full-time employees with over 1,300 physicians, making it one of the largest employers in its region. Pinnacle maintains an investment-grade credit rating of A3/A by Moody’s and Standard & Poor’s, respectively.
PinnacleHealth is a pioneer not-for-profit healthcare system dedicated to providing and improving the health and quality of life for the people of central Pennsylvania since 1873. A proven leader in medical innovation, PinnacleHealth offers a wide range of services from primary care to the most complex surgeries and Magnet® recognition for nursing excellence. The healthcare network includes three campuses (Community, Harrisburg and West Shore) and medical services including family practice, imaging, outpatient surgery, and oncology, at multiple locations throughout the region.
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