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Healthpeak Properties Inc. (NYSE: PEAK), a Denver-based real estate investment trust, is buying a Milwaukee-based competitor in a deal valued at $21 billion and creating a health care property ownership giant with locations in growing US. metro areas, including Houston.
The Denver REIT and Physicians Realty Trust (NYSE: DOC) on Oct. 30 announced the all-stock deal to combine the businesses, which will bring 52 million square feet of health care-focused real estate together under management led by Healthpeak CEO and President Scott Brinker. Healthpeak CFO Peter Scott will remain in that position for the post-merger business.
The deal will add two portfolios and staff “already operating at a high level,” Brinker said on a conference call about the deal Oct. 30.
“This is not a sale for either company,” he said. "We just thought this was highly compelling both strategically and financially."
The deal is expected to close in the first half of 2024. The business will be based from Healthpeak’s headquarters in Denver and assume the Healthpeak name and stock ticker symbol.
Healthpeak plans to issue shares to exchange for Physicians Realty stock, offering to swap 0.674 of a Healthpeak share for each share of Physicians Realty.
Healthpeak investors will own 77% of the combined company, and Physicians Realty Trust's will own the other 23%.
The company’s board will be made of eight existing Healthpeak directors and five existing Physicians Realty Trust directors, including John Thomas and Tommy Thompson, former Wisconsin governor and ex-secretary of U.S. Health and Human Services.
Katherine Sandstrom, Healthpeak’s current board chairwoman, will lead the company’s board.
The combined company's portfolio
The real estate investment trust property portfolio will include 40 million square feet of outpatient medical properties in 30 metropolitan areas with properties concentrated in high-growth markets including Denver, Dallas, Houston, Nashville and Phoenix, the companies said.
Currently, Physicians Realty Trust owns five Houston-area facilities — two in the Katy area, one in Pasadena, one in The Woodlands, and one in City Place, the master-planned community formerly known as Springwoods Village.
However, Healthpeak owns 40 Houston-area facilities across the area.
The combined company will benefit from the extensive relationships Healthpeak and Physicians Realty Trust have with leading U.S. health systems, the companies said. Houston-area tenants include Memorial Hermann Health System, HCA Houston Healthcare and St. Luke's Health.
The merger is expected to create operational savings when redundant corporate-level positions are eliminated at the combined company. The companies predict $100 million in financial synergies from the merger in the two years after it closes.
Adding Physicians Realty Trust will give Healthpeak more properties and exposure to the growing medical office niche off hospital campuses, Brinker said.
Healthpeak also owns Class A medical labs in markets including Cambridge, Massachusetts, and South San Francisco, two epicenters of medical research.
It’s believed the expanded geographic reach of the post-merger business will help create growth opportunities, particularly when opportunities arise for re-leasing and redevelopment of properties.
“This brings us closer to our buildings and closer to our tenants,” Brinker said, noting the merged company will be able to manage more properties itself instead of relying upon third-party property management companies used in parts of Healthpeak’s portfolio.
Medical property has been a particularly attractive niche of commercial real estate to investors because it has not suffered the vacancy and leasing declines that office properties have in the post-Covid 19 return-to-work era.
“Medical and lab remain attractive, and no company will be better positioned to capitalize” on its position in the sector, Brinker said.
Healthpeak Properties moved its headquarters to Denver from Irvine, California, in late 2020, saying it would create 166 jobs in Denver paying an average of $425,213 annually.
Olivia Pulsinelli with the Houston Business Journal contributed reporting.