September 24, 2018
John B. Mugford

REITS, including DOC, are disposing of assets so far in 2018

The country’s largest, publicly traded REITs have long been the MOB sector’s steadiest, most prolific buyers of MOBs.

Even the REITs, however, need to cull their portfolios at times, disposing of assets for a variety of reasons that can include exiting a certain market where they do not have a big of presence to provide economies of scale and selling assets that are not “core” to their strategy.

And what better time to do so than the current environment, when cap rates are still near historic lows – though they might be easing as interest rates inch upwards — and pricing is still near historic highs?

This year, 2018, has seen a number of large REIT dispositions, as well as numerous smaller ones. Ventas (NYSE:VTR) has sold a few MOBs, as has Healthcare Realty Trust (NYSE: HR), which according to Revista data sold a small portfolio in April for $46.2 million to Hospital Corporation of America (HCA).

A number of REIT dispositions, however, have been much larger, For example, in January Welltower (NYSE: WELL) sold 18 MOBs for $433 million to Milwaukee-based Aurora Health Care. The REIT also sold an MOB to another Wisconsin-based health system, Froedtert, for $30.6 million

In August, Scottsdale, Ariz.-based Healthcare Trust of America (NYSE: HTA) announced a pending deal to sell 16 MOBs with a total of 856,000 square feet for $285 million to Greenville, S.C.-based Greenville Health System.

HTA’s Robert Milligan, the CFO, explained the reason for the disposition: “This transaction allows us to accretively redeploy capital and resources into key markets where we can gain significant scale and utilize and expand our differentiated property management and leasing platform to create additional value for the long term.”

Perhaps the biggest seller among the REITs of late has been Milwaukee-based Physicians Realty Trust (NYSE: DOC), one of the sector’s most prolific buyers in recent years. Since its founding in 2013, DOC has accumulated a portfolio of gross MOB assets topping $4 billion, according to its most recent investment presentation.

But even DOC needs to dispose of assets at times. In separate dispositions that took place in June and August, DOC sold two large portfolios for a combined $217.8 million.

DOC’s John Thomas, the CEO and president, told analysts during an August earnings call that the sales were “consistent with our plans for 2018, announced earlier this year” to “improve” the REIT’s portfolio.

The June disposition saw DOC sell 15 MOBs for $90.7 million to Chicago-based MB Real Estate. Revista data shows that the facilities have a total of 560,234 square feet of space.

The second disposition had DOC selling 17 healthcare properties with 462,714 square feet of space for $127.1 million to  Pensacola, Fla.-based Catalyst Healthcare Real Estate.

In answering a question from an analyst concerning the dispositions during the August call, Mr. Thomas described the properties as “non-core, smaller assets that, again, we bought at favorable cap rates at the beginning of the company and just had the opportunity to kind of trim the portfolio and look for better uses of that capital going forward.”