Transactions (September 2006)

Washington REIT continues MOB spree

REAL ESTATE INVESTMENT TRUST PICKS UP PORTFOLIO FOR $94 MILLION

By John Mugford

Washington Real Estate Investment Trust (WRIT), a publicly traded real estate investment trust (NYSE: WRE), has acquired a portfolio of offices that includes a medical office building (MOB) in the northern Washington, D.C., suburbs for $94 million.

The buildings contain a total of 442,467 square feet and are 95.6 percent occupied. The portfolio consists of West Gude Office Park, The Ridges and Crescent office buildings. West Gude has four buildings containing 289,491 square feet of space. The tenants in the Rockville, Md., office complex include a variety of technology firms and educational institutions.

When combined, The Ridges and The Crescent have a total of 152,976 square feet. The buildings are located in Gaithersburg, Md., within close proximity to numerous U.S. regulatory agencies, biotech facilities and several of the areas largest hospitals. The portfolio is 95.6 percent occupied.

Acquiring the portfolio substantially increases WRIT’s presence within the growing region of Maryland’s Montgomery County. WRIT officials say they expect a first-year, unleveraged yield of 6.6 percent on a cash basis, 7.1 percent on a generally accepted accounting principals (GAAP) basis.

The company will assume two loans worth $57.3 million to help pay for the buildings and will fund the remaining $36.7 million through a line of credit.

Since its founding 1960, WRIT has concentrated on acquiring income producing properties in the greater Washington-Baltimore metropolitan region. WRIT’s portfolio contains 82 properties composed of 14 retail centers, 24 office properties, 13 medical office properties, 22 industrial/flex properties, nine multi-family properties and land for development.

The second quarter of 2006 was an active one for WRIT in the medical office arena, as it acquired MOBs with more than 236,000 square feet of MOBs for a total of about $71.4 million. The MOBs the REIT acquired during that time were:

• § Alexandria Professional Center, a 100 percent leased, 113,000 square foot MOB in Alexandria, Va., for $26.9 million
• § Shady Grove Medical Building, a 38,300 square foot MOB in Rockville, Md., for $15.8 million
• § Shady Grove Professional Center, a 51,100 square foot MOB in Rockville for $21.0 million
• § And Plumtree Medical Building, a 33,400 square foot MOB, also located in Rockville, for $7.7 million.

 

Lee Memorial agrees

to buy two hospitals

in Florida from HCA

FORT MYERS, Fla. – Lee Memorial Health System has agreed to buy two hospitals in Fort Myers from Nashville, Tenn.-based HCA Inc. (NYSE: HCA) for $250 million. Should the deal be approved by anti-trust regulators, Fort Myers-based Lee Memorial would spend $285 million on building of a previously planned inpatient facility next to one of the hospitals.

The hospitals involved in the pending transaction are the 279-bed Southwest Florida Regional Medical Center and the 107-bed Gulf Coast Hospital. The Lee Memorial system, which includes five hospitals, has long been in competition with Southwest Florida Regional. The new hospital, which would include an inpatient rehabilitation facility and a children’s hospital, is planned for land adjacent to Gulf Coast Hospital.

Also as part of the deal, Lee Memorial would close the acute-care operations at Southwest Florida Regional, which would be in accord with HCA’s previous plans. The closure would come after the new facility at Gulf Coast is complete – slated for early 2009.

Officials with Lee Memorial report that the acquisition is expected to close Oct. 31, pending the necessary approvals.

HCA spokesman Jeff Prescott said in news reports that the pending sale is not related to the for-profit hospital company’s recent plan to go private as part of a $33 billion buyout. Mr. Prescott said Lee Memorial approached HCA in May with a serious purchase offer.

Triple Net Properties

continues buying

medical buildings

SANTA ANA, Calif. – Triple Net Properties LLC, a relative newcomer to healthcare real estate market, has closed on another major acquisition. In mid-August, the firm announced its acquisition of Southpointe Office Parke and Epler Park in Indianapolis. The parks are a conglomeration of seven, one-story MOBs with a total of 96,756 square feet.

The properties are located adjacent to Community Hospital South, a 150-bed acute-care facility that’s part of the Community Health Network. The hospital and MOBs are located in the Southport area of Indianapolis, a densely populated suburban-style area south of downtown.

The MOBs were built between 1991 and 2002 and are currently 96 percent leased to a variety of medical and office tenants, according to a statement from Triple Net Properties. The sellers were Southpointe Associates LLC, 1030 Associates LLC, and Epler Parke LLC. The sellers were represented in the transaction by Janice Hawkins of NAI Olympia Partners of Indianapolis. Danny Prosky and Tania Konishi of Triple Net Properties represented the buyer.

Triple Net Properties manages a growing portfolio of more than 30.9 million square feet of commercial properties with a combined market value of more than $4.2 billion. The company is headquartered in Santa Ana, Calif., and has regional offices throughout the country.

Triple Net Properties in July acquired a Las Vegas office building occupied by administrative offices of Sierra Health Care Services Inc. (NYSE: SIE), the parent company of Nevada’s largest HMO. It also acquired, in June, an office complex in Indianapolis occupied by administrative offices of Wellpoint Inc., (NYSE: WLP) the nation’s largest health insurer. (For more information on those transactions, please see “Triple Net hunts another breed of MOB” in the August 2006 edition of Healthcare Real Estate Insights^™.)

Community Health

negotiating to buy

Ohio system

BRENTWOOD, Tenn. – For-profit Community Health Systems (NYSE: CYH) has signed a non-binding letter of intent to buy not-for-profit Forum Health of Youngstown, Ohio. Terms were not disclosed.

Forum Health operates two acute-care hospitals, a children’s hospital and a rehabilitation hospital in the Youngstown area. While the system’s financial situation was not disclosed, earlier in 2006 it brought in a turnaround firm, Wellspring Partners, and hired a new interim president and CEO, Keith Ghezzi.

In a memo to Forum Health employees, Mr. Ghezzi stated that Community Health promised to “provide substantial resources and the investment capital necessary to upgrade Forum’s facilities, enhance services and preserve quality healthcare and choices for this community.”

In addition, Community Health has entered a non-binding letter of intent to buy the 124-bed Lincoln General Hospital in Ruston, La. The terms of the pending deal were not disclosed.

Lincoln General is owned by a partnership of three Louisiana hospitals (40 percent) and the Lincoln Health Foundation (60 percent). One of the three hospitals involved in the ownership, Glenwood Regional Medical Center of West Monroe, La., is under contract to be sold to for-profit IASIS Healthcare Corp. of Franklin, Tenn. The pending sale price in that transaction is $82.5 million and an adjustment for working capital.

Community Health officials say the company does not comment on letters of intent. The for-profit system operates 76 hospitals in 22 states. It earned $167.5 million on operating revenue of $3.73 billion in 2005.

HealthSouth looks

to sell, spin off

three divisions

BIRMINGHAM, Ala. – Officials with HealthSouth Corp. (OTC: HLSH) of Birmingham, Ala., announced that they plan to evaluate ways to reposition the health system in the post-acute sector.

The repositioning could include the possible spin-off or sale of three divisions: surgery centers, outpatient rehabilitation and diagnostic services.

“These divisions compete in sectors with good growth potential,” said Jay Grinney, HealthSouth’s chief executive officer, in a news release. “However, we have concluded there are very few strategic or financial synergies in operating these divisions as one company.”

The company would retain its fourth division: inpatient rehab.

HealthSouth officials say the inpatient rehab division, with 202 locations, accounted for 57.9 percent of company revenues and 86 percent of operating earnings in the second quarter. The company’s second largest division, surgery centers, with 153 facilities, generated 24.5 percent of revenues and 18.1 percent of operating earnings.

Officials say they considered changing the name of the company after the restructuring, but have decided to stick with HealthSouth. Deciding whether to sell or spin off the three divisions should take about six months, according to officials. It would then take an additional six months or so to complete a deal, they say.

HealthSouth also reported its second-quarter results: a net loss of $42.4 million, down from a net loss of $62.4 million in the same quarter of 2005. Revenue fell 3.8 percent to $787.5 million. Officials say they were encouraged by the improved operating results: a pretax loss of $28.9 million, compared with a pretax loss of $45.9 million in the same quarter last year.

Officials say they company has been hurt by Medicare’s 75 percent  rule for rehab facilities; declining prices in the inpatient division; facility closures; and an accounting change affecting three of its surgery centers.

HealthSouth has been recovering from a multibillion-dollar accounting scandal that became public in 2003. The company said it has been cleared to submit an application to list its common stock on the New York Stock Exchange. Officials say they anticipate beginning trading under the symbol HLS by the end of October. The company had been de-listed from the New York Stock Exchange in March 2003.

Vanguard to sell

3 Calif. hospitals

to Prime Health

NASHVILLE, Tenn. – Vanguard Health Systems Inc. of Nashville recently announced that it has agreed to sell its three hospitals in California to privately held Prime Healthcare Services of Victorville, Calif. Terms of the sale were not disclosed.

Vanguard officials say the pending sale, which is expected to close in the next month or so, will allow the company to focus its investments and resources on the 15 hospitals it owns in its core markets: Arizona, Illinois, Massachusetts and Texas.

Prime Healthcare was founded in 2001 and owns and operates four hospitals in Southern California.

The Vanguard hospitals involved in the pending transaction are 102-bed Huntington Beach Hospital, 141-bed La Palma Intercommunity Hospital, and 219-bed West Anaheim Medical Center.

For the record

Altera Development Co. of Dallas recently purchased Deaconess Hospital’s two three-story MOBs totaling about 113,000 square feet in northwest Oklahoma City for $9.8 million. The company plans to start work this fall on a vertical expansion. Construction services will be provided by the Oklahoma City office of Flintco Inc. The Dallas office of Holliday Fenoglio Fowler LP arranged financing for the acquisition and expansion… Medical Properties Trust Inc. (NYSE: MPW) of Birmingham, Ala., has acquired the real estate assets of the 102-bed Montclair Hospital Medical Center in San Bernardino County, Calif., for $25 million. The price includes $20 million for the initial acquisition and $5 million for future renovations. Montclair was acquired from and simultaneously leased to a wholly owned subsidiary of Prime Healthcare Systems under a long-term net lease. Prime is the tenant and operator of three additional southern California facilities owned by MPT. In 2006, MPT has made total real estate investments of $90 million, according to company officials… Tacoma, Wash.-based Multi-Care Health System acquired 201-bed Good Samaritan Community Healthcare of Puyallup, Wash., for undisclosed terms. Good Samaritan will retain its name but president and CEO Thomas Grimes will retire Oct. 1. q