KKR, Healthcare Realty Trust Launch Strategic JV

May 7, 2024

The REIT will contribute a seed portfolio worth about $383 million, while its partner will commit as much as $600 million in capital.

Healthcare Realty Trust Inc. has entered into a strategic joint venture relationship with KKR to jointly own and invest in medical outpatient buildings.

Todd Meredith, President & CEO, Healthcare Realty Trust. *Image courtesy of Healthcare Realty Trust*

Healthcare Realty expects to receive about $300 million for the contribution of a seed portfolio to the joint venture and will partner with KKR to explore additional acquisitions, including the potential contribution of more Healthcare Realty assets.

Under the terms of the current agreement, Healthcare Realty will contribute to the joint venture 12 properties valued at $382.5 million, representing a cap rate of about 6.6 percent. For its part, KKR will make an equity contribution to the joint venture equal to 80 percent of the assets’ aggregate value.

Healthcare Realty will retain a 20 percent interest and will both manage the joint venture and continue to oversee day-to-day operations and leasing of the properties.

KKR has also committed up to $600 million to the joint venture to pursue additional acquisitions or contributions of stabilized assets that are a match for the partnership’s long-term capital base.

Healthcare Realty, led by President & CEO Todd Meredith, stated that in the near term the firm’s capital allocation priority is to repurchase stock on a leverage neutral basis. In the future, the company may contribute additional Healthcare Realty properties to the joint venture or pursue acquisitions, depending on market conditions.

The 12 properties to be contributed include medical outpatient buildings in seven markets, located predominantly on or near leading hospital campuses. The assets total 762,399 square feet and are 98 percent occupied.

Eastdil Secured LLC and BlackBirch Capital were Healthcare Realty’s financial advisors and Latham & Watkins LLP its legal advisor.

Newmark’s Healthcare Capital Markets Group served as financial advisor, and Simpson Thacher & Barlett LLP served as legal advisor to KKR.

Outpatient growth

The ongoing shift from inpatient to outpatient care is one of five trends driving the health-care industry in 2024, according to a January report from JLL.

Part of this is the increasing amount of vertical integration in health care. According to JLL, “systems, payors and pharmacies are vertically integrating through mergers to better control costs and receive revenue from the same patients across the spectrum of care. Hospital systems are acquiring outpatient operators or primary care practices, enabling them to benefit from the shift from inpatient to outpatient care.”