Healthpeak Properties (NYSE:PEAK) and Physicians Realty (NYSE:DOC) Trust recently held an earnings call to discuss their upcoming merger and third-quarter earnings. The merger, slated for closure in the first half of 2024, is expected to create a leading real estate platform for healthcare discovery and delivery. Both companies reported strong earnings for the quarter, with the merger anticipated to be accretive to both companies and create immediate value.
Key takeaways from the call:
- The merger is a 100% stock merger, with each Physicians Realty share being converted into 0.674 shares of Healthpeak stock.
- The combined company will benefit from increased scale, broader relationships, improved tenant diversification, and a larger and more liquid balance sheet.
- The merger will allow both companies to gain access to a larger market cap, accelerate the integration of medical and lab operations, and benefit from a more liquid balance sheet.
- The combined company will be well-positioned to capitalize on the growing demand for outpatient medical facilities.
- The merger is expected to be accretive to AFFO and FFO per share and will generate synergies of $40-60 million.
- The merger will result in a combined company listed on the New York Stock Exchange under the symbol DOC.
During the call, executives emphasized the complementary nature of the portfolios and the strategy to serve health systems both on and off-campus. The merger is seen as an opportunity to invest better and is expected to generate accretion of $40 million to $60 million, primarily through compensation savings, redundancies, and increased net operating income (NOI) from internalizing property management.
The executives expressed optimism about the growth rate in outpatient medical, citing increased demand and rental rate growth. They highlighted the benefits of internal property management, stating that it would improve relationships, local market knowledge, and margins. They also acknowledged that the merger would dilute earnings in the absence of synergies but expressed confidence in the strategic and financial benefits of the merger and their ability to convince shareholders of its value.
The executives also discussed the company's improved position to capitalize on opportunities in the next 12 to 24 months due to the recent deal that strengthened their balance sheet, G&A, and liquidity. They mentioned the potential for distress in the medical sector due to refinancing risks, but also highlighted opportunities in the private market for refinancing.
Updates on the Oyster Point property were also provided, stating that 70% of the 940,000 square foot campus has been leased, and two additional buildings will be redeveloped and available for lease by 2025. The management team also discussed the decision to pursue the merger, stating that other asset sales were considered, but this merger offered compelling strategic and financial benefits. The team addressed accounting adjustments that will need to be made and mentioned that the merger is expected to close in the first half of 2024.
The call concluded with closing remarks and an invitation to a conference in mid-November. The anticipated closing of the deal would occur in the first half of the following year, with a preference for the earlier part of that period. The guidance given was the first half of 2024. In response to a question about synergies, it was clarified that the $40 million to $60 million mentioned primarily represents cash savings, with some non-cash components.
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