NASHVILLE, TENN. AND SCOTTSDALE, ARIZ. — Healthcare Realty Trust Inc. (NYSE: HR) and Healthcare Trust of America Inc. (NYSE: HTA), two of the larger owners of medical office buildings in the country, have agreed to merge. Upon closing, the combined company will operate under the Healthcare Realty name and use the same stock exchange ticker symbol of “HR,” as well as keep its headquarters in Nashville with offices in Charleston and HTA’s current headquarters of Scottsdale.
The combined company is expected to have a pro forma equity market capitalization of approximately $11.6 billion upon the close of the transaction, which is expected to occur in the third quarter pending approval from the shareholders of both companies. The boards of directors of both Healthcare Realty and HTA unanimously approved the merger.
With 727 properties totaling 44 million square feet, the new company will be the largest “pure-play” real estate investment trust specializing in medical office buildings (MOB), with nearly double the square footage of the next-largest MOB portfolio. The company will own the largest portfolio of on-campus or adjacent to hospital campus properties comprising 28.2 million square feet. Additionally, 94 percent of the portfolio will be concentrated in the top 100 MSAs.
The new company will also have a development pipeline in excess of $2 billion, concentrated in high-growth markets such as Seattle, Houston, Denver, Dallas and Raleigh.
Several media outlets report that HTA has been exploring a sale in the months since Elliott Investment Management, one of the REIT’s largest shareholders, sent an open letter to HTA’s board of directors urging a sale due to years of underperforming compared to its peers.
“This transaction is the culmination of a thorough strategic review process, and we are pleased with the result for our shareholders, employees and tenants. We are confident this is the best path forward for HTA,” says Brad Blair, chairman of the HTA board of directors.
The new company will be led by the current Healthcare Realty management team, with Todd Meredith as president and CEO and Kris Douglas as executive vice president and chief financial officer.
“This represents a rare opportunity to create a sector-leading REIT in terms of both size and quality. We believe all shareholders will benefit from the company’s expanded national footprint from Healthcare Realty’s Seattle portfolio to HTA’s Boston portfolio,” says Meredith. “The company will have unmatched market scale in concentrated clusters, meaningful corporate and operational synergies and a larger development pipeline. It will also strengthen the combined balance sheet, enhance liquidity and improve access to capital.”
The combined company’s board of directors will comprise nine existing directors of Healthcare Realty, three members of HTA’s board and one new member to be mutually agreed upon by the existing Healthcare Realty and HTA directors and appointed prior to closing of the transaction. Knox Singleton, chairman of the Healthcare Realty board, will be chairman of the new company, and Blair will be appointed vice chairman.
As part of the agreement, HTA shareholders will receive a total implied value of $35.08 per share, which is an 18.2 percent premium over the company’s share price on Feb. 24. The deal values HTA at $7.75 billion, according to Reuters.
The deal comprises a special cash dividend of $4.82 per share (or $1.1 billion, which will be financed through asset sales and joint venture transactions) and a transaction exchange ratio of 1-to-1 based on Healthcare Realty’s unaffected price of $30.26 per share on Feb. 24.
“HTA shareholders will realize an attractive premium while being able to fully participate in the future growth prospects of a powerful, sector-leading MOB REIT, led by a seasoned, well-respected management team,” says Blair.
Within 12 months of closing, the new company expects to realize annual run rate cost synergies of $33 million to $36 million from the elimination of duplicative corporate and public company costs.
The combined company is projected to have a total enterprise value of $17.6 billion based on the implied values at market close on Feb. 24. JPMorgan Chase Bank NA provided a commitment letter to HTA for a $1.7 billion debt financing for the deal.
Citigroup Global Markets Inc. is serving as HR’s lead financial advisor, Scotiabank is serving as its financial advisor and Hunton Andrews Kurth LLP is acting as its legal advisor. J.P. Morgan Securities LLC is acting as exclusive financial advisor to HTA, and McDermott Will & Emery LLP is acting as its legal advisor.
Healthcare Realty’s stock price closed on Monday, Feb. 28 at $26.08 per share, down from $29.38 a year ago and $31.85 five years ago.
HTA’s stock price closed on Monday at $29.39 per share, up from $27.04 a year ago but down from $31.77 five years prior.
— John Nelson