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Healthpeak Properties (PEAK) and Physicians Realty Trust (DOC) to Combine in an All-Stock Merger of Equals

October 30, 2023 6:59 AM EDT

Healthpeak Properties, Inc. (NYSE: PEAK) (“Healthpeak” or “PEAK”) and Physicians Realty Trust (NYSE: DOC) (“Physicians Realty Trust” or “DOC”) today announced they have entered into a definitive agreement to combine in an all-stock merger of equals valued at approximately $21 billion. Under the terms of the agreement, each Physicians Realty Trust common share will be converted into 0.674 of a newly issued Healthpeak common share.

The combined company will be the leading real estate platform dedicated to healthcare discovery and delivery with a 52 million square foot portfolio, including 40 million square feet of outpatient medical properties concentrated in high-growth markets such as Dallas, Houston, Nashville, Phoenix, and Denver. The combined company also will benefit from both companies’ extensive relationships with the nation’s leading health systems.

“This combination joins two leading platforms, bringing them to the next level to create a company uniquely focused on healthcare discovery and delivery, a large and attractive playing field with strong secular growth,” said Scott Brinker, President and Chief Executive Officer of Healthpeak. “Physicians Realty Trust brings complementary strengths to Healthpeak, including its internal property management platform and established industry relationships. With a broader footprint in strategically important markets and a high-quality portfolio, we will be able to better serve the real estate needs of leading health system, physician, and biopharma tenants, which we believe is a competitive advantage that should lead to more opportunities for growth and enhanced value creation for shareholders. We expect the transaction to be immediately accretive to each company’s shareholders, augment our strong balance sheet, and position the combined company for offense.”

John T. Thomas, President and Chief Executive Officer of Physicians Realty Trust, added, “The Physicians Realty Trust team is excited to join with Healthpeak and continue our growth, success, and sustainable value creation as a combined company with increased scale and diversification, including Healthpeak’s best-in-class lab portfolio. I’ve known Scott for many years and believe that together, we will be able to leverage the power of both our platforms and people to support the growth of our health system partners and help shape the future of health care delivery. We are confident in our strategic vision to capitalize on our increased scale, complementary platforms, and deep relationships to create immediate and future value for both shareholders and tenants.”

The merger is expected to generate run-rate synergies of at least $40 million by the end of year one and up to $60 million by the end of year two. Given the synergy profile, the transaction is expected to be accretive to run-rate AFFO per share and FFO per share (subject to final merger accounting adjustments) for both Healthpeak and Physicians Realty Trust shareholders.

KEY BENEFITS OF THE MERGER

The merger of Healthpeak and Physicians Realty Trust is expected to create meaningful strategic, operational, and financial benefits, including:

  • Transformative Scale: Creates a differentiated company that benefits from the secular growth in healthcare discovery and delivery with a 52 million square foot portfolio including one of the largest outpatient medical portfolios comprising 40 million square feet, concentrated in high-growth markets and affiliated with leading hospitals and health systems
  • Complementary Expertise: Expands industry-leading relationships across health system, biopharma, and physician tenants; leverages the competitive strengths and complementary capabilities of both platforms to drive growth from implementing best-practices in property management, leasing, asset management, and technology to establish the leading integrated healthcare discovery and delivery platform
  • Broader and Deeper Relationships with Increased Diversification: Overlapping real estate footprint in more than 30 markets increases the combined platform’s competitive advantage, broadens and deepens relationships with top health systems creating outsized internal and external growth opportunities; combined diversified tenant roster is comprised of the world’s leading health system, biopharma, and physician tenants; top 10 tenants represent 21% of combined annualized base rent with 7 out of the top 10 investment-grade rated
  • Accretive Financial Impact: Expected to be accretive to both Physicians Realty Trust’s and Healthpeak’s standalone AFFO and FFO (subject to final merger accounting adjustments) and augments Healthpeak’s strong balance sheet with pro forma leverage in the low 5x net debt to EBITDAre range; expected to generate run-rate synergies of at least $40 million by the end of year one and up to $60 million by the end of year two, with the potential for additional incremental revenue growth and cost savings from implementing best practices across both platforms; a more efficient G&A cost structure and increased liquidity is expected to improve the cost of capital for the combined company and increases accretion from external growth

LEADERSHIP AND ORGANIZATION

The combined company will be led by Scott Brinker as President and Chief Executive Officer, Peter Scott as Chief Financial Officer, and John Thomas as Vice Chair of the Board who will have an active role in strategy, relationships, and business development.

The board of directors of the combined company will be comprised of eight existing Healthpeak directors and five existing Physicians Realty Trust directors, including John Thomas and former Secretary of the U.S. Health and Human Services, Governor Tommy G. Thompson. The highly qualified and diverse board will be led by Katherine Sandstrom, who is Healthpeak’s current Board Chair.

“This strategic combination of leading platforms offers both near-term and future benefits for both companies,” said Katherine Sandstrom, Chair of Healthpeak. “Together, we will be well-positioned to create significant value from our real estate, relationships, and platform while benefitting from the secular growth in demand from the universal desire for improved health.”

Governor Tommy Thompson, Chair of Physicians Realty Trust added, "This transaction brings together the complementary portfolios and capabilities of two premier real estate companies and we are confident this combination provides all shareholders an unmatched opportunity to benefit from growth and upside in our combined portfolio and platform.”

Upon completion of the merger, the combined company will operate with the Healthpeak Properties, Inc. name and is expected to trade under the ticker symbol “DOC” on the New York Stock Exchange. The headquarters of the combined company will be in Denver and it will maintain other existing offices.

TRANSACTION DETAILS

Under the terms of the agreement, each Physicians Realty Trust common share will be converted into 0.674 of a newly issued Healthpeak common share. Pro forma for the transaction, Healthpeak and Physicians Realty Trust shareholders will own approximately 77% and 23% of the combined company, respectively.

The all-stock merger is intended to be a tax-free transaction and is expected to close in the first half of 2024, subject to customary closing conditions, including the approval of both Healthpeak and Physicians Realty Trust shareholders. The respective boards of directors for Healthpeak and Physicians Realty Trust have unanimously approved the transaction.

DIVIDEND

Following the closing of the merger, the combined company is expected to pay an annualized dividend of $1.20 per share, consistent with Healthpeak’s current dividend level and representing a pro forma AFFO payout ratio of 80% or below.

DEBT FINANCING

Healthpeak expects to assume Physicians Realty Trust’s existing senior unsecured notes and term loan and to enter into a new five-year, $500 million term loan at a rate of SOFR plus 85 basis points. Proceeds from the term loan will be used for general corporate purposes including repayment of borrowings under Healthpeak’s commercial paper program.

Pro forma net debt to EBITDAre is expected to be in the low 5x range.

ADVISORS

Barclays and Morgan Stanley & Co. LLC are serving as lead financial advisors, J.P. Morgan, Mizuho Securities USA LLC, RBC Capital Markets, and Wells Fargo are serving as additional financial advisors, and Latham & Watkins LLP is acting as legal advisor to Healthpeak.

BofA Securities and KeyBanc Capital Markets Inc. are serving as lead financial advisors, BMO Capital Markets Corp. is serving as financial advisor, and Baker McKenzie is acting as legal advisor to Physicians Realty Trust. BofA Securities provided a fairness opinion to Physicians Realty Trust in connection with the proposed transaction.

Barclays, BofA Securities, KeyBanc Capital Markets Inc., Morgan Stanley Senior Funding, Inc., J.P. Morgan, Mizuho Bank, Ltd., RBC Capital Markets, and Wells Fargo provided term loan commitments to Healthpeak.

PRESENTATION AND CONFERENCE CALL

Healthpeak and Physicians Realty Trust will host a joint-conference call and webcast on October 30, 2023, at 8:30 a.m. Eastern Time to discuss the transaction.

The conference call can be accessed in the following ways:

  • Healthpeak’s website: https://ir.healthpeak.com/news-events/default.aspx
  • Physicians Realty Trust’s website: https://investors.docreit.com
  • Webcast: https://events.q4inc.com/attendee/248022751. Joining via webcast is recommended for those who will not be asking questions.
  • Telephone: The participant dial-in number is (888) 330-2513 or (240) 789-2726 (international). The conference ID number is 58822.

An archive of the webcast will be available and a telephonic replay can be accessed through November 6, 2023, by dialing (800) 770-2030 or (647) 362-9199 (international) and entering conference ID number 58822.

A presentation providing additional details about the transaction will be posted on the respective companies’ websites under the Investor Relations sections.



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