NEWPORT BEACH, CA – February 25, 2008 – Nationwide Health Properties, Inc., (NYSE: NHP) announced today that it has signed a definitive agreement, providing NHP an MOB platform, subject to confirmatory due diligence, with Pacific Medical Buildings (PMB), a fully integrated medical office building company based in San Diego, California.
“Our transaction with PMB, the largest and most highly regarded MOB developer on the West Coast, is truly a transformational event for NHP. PMB provides NHP with an exceptional MOB platform, comprising an outstanding portfolio of Class A assets, a robust development pipeline with an experienced development team and a well-regarded, service-oriented property management company. This transaction complements our leadership position in senior housing and long-term care by providing us a major presence in the medical office sector. The multi-year structure greatly facilitates our near and long-term earnings and dividend growth goals and diversification strategy,” said Douglas Pasquale, NHP’s President and Chief Executive Officer.
Mr. Pasquale stated he is very pleased to announce that Dr. Jeffrey Rush, PMB’s Chairman and largest shareholder, will join NHP’ s board of directors in tandem with the of this transaction.
“This transaction is accretive to NHP and should add approximately $0.01 to $0.02 to FFO per share in 2008 and is included in our 2008 guidance. Additionally, it provides great strategic value and diversification with our portfolio moving toward 30% MOB, 50% senior housing and 20% long-term care facilities,” noted Abdo Khoury, NHP’s Chief Financial and Portfolio officer.
• Up to $2 billion multi-year transaction with 2008 acquisition financing already in place
• Adds two million square feet of medical office space to NHP portfolio by 2010
• Provides tenant and asset diversification to growing portfolio of over 500 assets
• Exclusive right over 7 years to acquire additional $1 billion of medical office buildings (MOBs) through profit-sharing development agreement
• Equal ownership of property management service provider
NHP anticipates closing 16 Class A buildings in 2008 for a purchase price of $485 million. Financing for the 2008 acquisitions is already in place. In 2009, NHP has committed to purchase three buildings, all currently at least 90% preleased, for a purchase price of $180 million. Two additional MOBs will be acquired in 2010 for $140 million, providing the occupancy has stabilized at 95%. The acquisition portfolio also includes seven medical office buildings located in the state of Washington that were acquired in the fourth quarter of 2007 for $120 million. The acquisition of these 28 modern buildings comprises over two million square feet, with 70% of the NOI derived from assets in high barrier-to-entry California markets, 23 located on a hospital campus and 15 located in California. This $925 million Class A portfolio provides NHP valuable access to more than a dozen premier hospital systems. The average age of the portfolio is seven years and the current occupancy is approximately 94%. The blended portfolio NOI cap rate for the existing $925 million portfolio is 6.1%.
Financing of Acquisition Portfolio
The acquisition portfolio will be financed with approximately 30% assumed debt at an attractive, ali-in rate of 5.9%, a minimum of 20% DownREIT units convertible to.NHP stock after a twelve-month lockout period, and the balance from proceeds derived from the sale ofNHP’s Emeritus portfolio (described in a recent 8-K filing, February 11, 2008) at a 6.1% cap rate on 2008 in-place rent. The blended 5.9% rate on assumed debt is substantially below NHP’s current unsecured borrowing cost and the fact that this debt is already in place and assumable mitigates financing risk in a difficult credit environment and provides additional economic value to NHP.
“As PMB’s largest shareholder and having been in the MOB business for over thirty years, I am impressed by NHP’ s track record of growth and stability. NHP has a strong history of delivering year-over-year growth, driven by their strong customer orientation. The fact that we are receiving a significant portion of our consideration in NHP operating partnership units evidences our confidence in NHP’s ongoing success and alignment of interests between our two organizations,” Dr. Jeffrey Rush noted.
Development Pipeline Agreement
NHP has the exclusive right over 7 years, but not the obligation, to acquire an additional $1 billion ofMOBs through a profit sharing development agreement. P:MB already has one million square feet in development project commitments through their existing hospital relationships, representing asset values of over $475 million. NHP will share in the development profits on a sliding scale by receiving 20% to 50% of the total development profits, and assuming NHP exercises its option to acquire any of these assets, the profit participation effectively reduces the purchase price on new development to below fair market value.
The development pipeline represents a unique opportunity for NHP not only to substantially grow and enhance its portfolio with brand new buildings, but also to expand its relationships with current and future health care providers.
NHP expects the value of the profit-sharing arrangement for the $1 billion development pipeline to reach up to $160 million over the exclusive 7 year arrangement. The calculation outlining the potential value in this profit-sharing agreement is provided in the analyst supplemental information presentation attached as an exhibit to this announcement or on NHP’s website (www. nhp-reit.com).
“MOBs represent one ofthe largest segments ofhealthcare real estate, and owning them enables NHP to catch the front of the baby boomer wave. As with longterm care and senior housing, we view the services provided in MOBs as primarily needs driven and therefore relatively recession resistant. With the PMB transaction, NHP will realize enhanced value resulting from the profit-sharing arrangement on future developments,” commented Don Bradley, NHP’s Chief Investment Officer.
“This is a true partnership that will promote our growth and enhance our relationship with our hospital clients. NHP will not only share in PMB’ s portfolio of existing properties but will also participate in our future projects for seven years. Furthermore, NHP will own 50% of our property management company and our chairman, Dr. Jeffrey Rush will join NHP’s board of directors. This relationship provides us with ready capital that will help us-expand our activities and help our hospital clients monetize their real estate assets,” stated Mark Toothacre, PMB’s President.
Bob Rosenthal, PMB’s Executive Chairman and Company founder said, “We spent almost a year conducting a national search for a suitable REIT and eventually selected Nationwide Health Properties. We selected NHP because its commitment to quality coincides with PMB’s philosophy. As a long-term holder ofhealthcare real estate, NHP’s strategic focus is on tenant retention and property improvement.”
Management Company Agreement
NHP will add property management to its MOB platform through joint ownership and control ofPMB Real Estate Services (PMBRES), PMB’ s well-regarded property management service provider. NHP is acquiring a 50% stake in PMBRES for $1 million. Joint ownership of the property management company is of strategic interest to NHP and an important part of NHP’s ability to positively influence the ongoing success of managing the PMB medical office portfolio.
J.P. Morgan Securities Inc. and Shattuck Hammond Partners LLC were investment banking advisers to NHP. Skadden, Arps, Slater, Meagher & Flom, LLP and Sherry, Meyerhoff, Hanson & Crance LLP served as legal counsel to NHP, while Latham & Watkins, LLP represented Pacific Medical Buildings in the transaction.
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