Nationwide, Pacific Strike $2B Deal

The two firms already have the wheels in motion on the existing properties, with Nationwide having acquired seven properties from Pacific for $120 million in the fourth quarter. Nationwide will spend the remaining $795 million of the initial $915 million on 16 properties to be acquired this year for $485 million, three in 2009 for $180 million and two in 2010 for $130 million.

Nationwide, which has already lined up $485 million in financing for the 16 properties that will close in 2008, will add two million sf of medical office space to its portfolio through the agreement with Pacific Medical. In addition to the properties it is buying, Nationwide will acquire a 50% interest in Pacific's full-service property management company, called PMB Real Estate Services LLC, and an opportunity to participate with PMB in future medical office development.

Douglas M. Pasquale, NHP's president and CEO, notes that PMB is the largest medical office building developer on the West Coast, with a portfolio of class A assets plus a substantial development pipeline. As part of the deal, Jeffrey Rush, PMB's chairman and largest shareholder, is expected to join NHP's board of directors.

Approximately 90% of the space that NHP will acquire is situated on hospital campuses, and 55% is located in California. In addition, approximately 70% of the portfolio's expected stabilized NOI will be derived from properties situated in high barrier-to-entry markets. The average age of the portfolio is seven years, with occupancy of approximately 94%.

NHP expects to finance the $485-million acquisition of the 16 properties closing in 2008 with a combination of $201 million in assumed debt bearing an average interest rate of 5.9%, at least $100 million in partnership units that are each convertible into a share of common stock and the remaining balance from proceeds derived from the $305-million sale of NHP's Emeritus portfolio.

The development pipeline agreement grants NHP the right, but not the obligation, to acquire the additional $1 billion of buildings from PMB over seven years at a discount to fair market value. PMB already has one million sf with a potential future value of $475 million in its development pipeline.

Don Bradley, NHP's chief investment officer, points out that medical office buildings represent one of the largest segments of healthcare real estate and that owning them "enables NHP to catch the front of the Baby Boomer wave." He calls the medical office buildings "primarily need driven and, therefore, recession resistant," like long-term care and senior housing facilities.

Nationwide disclosed the deal Monday during the company's quarterly conference call with financial analysts. The locally based REIT reported a 12.5% increase in fourth-quarter 2007 diluted FFO per share to 54 cents. For the full year, its FFO per share rose 7.8% to $2.08.