REITs are on the move in the healthcare services sectors, and rehabilitation hospitals are following the trend we’ve noted in the Hospital sector. Through December 1, REITs have made five acquisitions targeting rehabilitation hospitals, compared with two such deals announced in 2015, and two in 2014.
The most recent announcement came from Global Medical REIT Inc. (NYSE: GMRE), which went public on June 29, 2016. Using proceeds from that IPO, the company acquired three rehab hospitals from affiliates of Healthcare Realty Trust Inc. (NYSE: HR), for a total of approximately $68 million. HealthSouth Corp. (NYSE: HLS) is the tenant in all three hospitals, which are located in Mesa, Arizona, and in Altoona and Mechanicsburg, Pennsylvania.
The largest facility, at 80,000 square feet, is HealthSouth Rehab Hospital of Mechanicsburg. It contains 75 beds in two private suites and 35 semi-private rooms. The price of $24,198,000 works out to $322,640 per bed. (not the highest average among the properties).
The hospital specializes in services to promote rehabilitation from conditions such as joint replacements, stroke, Parkinson’s disease, spinal cord injuries and traumatic brain injury. The property is leased to HealthSouth Corporation under a triple-net lease agreement that Global Medical will assume at closing with a remaining term of approximately 4.5 years, subject to two five-year renewal options. The annual CPI-based rent is currently $1,836,886, subject to annual rent escalators not greater than 4% nor less than 2%.
At 64,000 square feet, the HealthSouth hospital in Altoona is the second-largest facility, with 80 beds. The price of $21,545,000 works out to $269,313 per bed. Like the Mechanicsburg hospital, the remaining term on the lease is approximately 4.5 years. Annual CPI-based rent is currently $1,635,773.
The Arizona property, HealthSouth East Valley Rehabilitation Hospital, is the smallest of the three, with 52,000 square feet and 60 beds. It opened in 2009. The price of $22,350,000 works out to $372,500 per bed, but the fact that it is a relatively new facility may justify the higher price.
Back in July 2016, The Sanders Trust paid $111.5 million for three rehab hospitals leased to HealthSouth and located in Austin, Dallas and Houston, Texas. The combined square footage of the hospitals is 191,000 square feet, housing a combined total of 185 beds (at $602,703 per bed). Medical Properties Trust (NYSE: MPW) and its affiliates were the sellers.
Carter Validus Mission Critical REIT II, Inc., a public, non-traded company, bought Vibra Rehabilitation Hospital of Rancho Mirage (California) in June 2016, for $37,093,787. At the time, the facility was under construction to become a 40,688-square foot inpatient rehabilitation hospital with 50 beds (at $741,876 per bed).
The facility is 100% leased to Vibra Rehabilitation Hospital of Rancho Mirage, LLC for a 16-year term beginning 30 days from the earlier of certificate of occupancy or September 15, 2017. Construction is expected to be completed in the summer of 2017 and, once opened, the facility will offer inpatient rehabilitation services. The lease is guaranteed by the tenant’s ultimate parent company, Vibra Healthcare LLC and its affiliate Vibra Healthcare II, LLC.