Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2018

Effective January 1, 2018, with our adoption of ASU 2017-01, transaction costs incurred for asset acquisitions are capitalized as a component of purchase price and all other non-capitalizable costs are reflected in “General and Administrative Expenses” on our consolidated statements of income. Certain acquisitions that occurred prior to January 1, 2018 were accounted for as business combinations.

During 2018, the Company completed the acquisition of 4 operating healthcare properties and 1 land parcel located in 5 states, for an aggregate purchase price of approximately $252.8 million. In addition, the Company completed $11.8 million of loan investments, and a $6.4 million noncontrolling interest buyout, resulting in total investment activity of approximately $271.0 million. The Company also acquired 2 properties and an adjacent land parcel through the conversion and satisfaction of a previously outstanding construction loan, valued at an aggregate $18.8 million. Additionally, the Company acquired 2 parcels of land, which it had previously leased, as the result of a lease restructuring arrangement and equity recapitalization.

Investment activity for the year ending December 31, 2018 is summarized below:



Property		Location	Acquisition Date	Purchase Price (in thousands)
Hazelwood Medical Commons	(1)	Maplewood, MN	January 9, 2018	$	70,702
Lee's Hill Medical Plaza		Fredericksburg, VA	January 23, 2018	28,000
Scottsdale, Arizona Land	(2)	Scottsdale, AZ	February 16, 2018	700
Noncontrolling Interest Buyout - Minnesota portfolio	(3)		March 1, 2018	6,406
HMG Medical Plaza		Kingsport, TN	April 3, 2018	71,295
Northside Medical Midtown MOB		Atlanta, GA	September 14, 2018	82,147
Loan Investments	(4)	Various	Various	11,750
				$	271,000


(1)	The Company partially funded the purchase price of this acquisition by issuing a total of 104,172 Series A Preferred Units valued at approximately $22.7 million on the date of issuance.


(2)	The Company acquired the land beneath a previously acquired facility.


(3)	The Company acquired an additional 4.2% interest in the Minnesota portfolio joint venture, increasing the Company’s total interest in the joint venture to 99.6%.


(4)	The Company’s loan investments include 4 separate transactions at a weighted average interest rate of 8.4%.

During 2018, the Company recorded revenues and net income of $14.7 million and $5.4 million, respectively, from its 2018 acquisitions.

During 2017, the Company completed acquisitions of 40 properties, 2 condominium units, and 1 parking deck located in 15 states, for an aggregate purchase price of approximately $1.37 billion. In addition, the Company completed $39.1 million of loan investments, $1.1 million of redeemable noncontrolling interest buyouts, and $2.8 million of noncontrolling interest buyouts, resulting in total investment activity of approximately $1.41 billion.

Investment activity for the year ending December 31, 2017 is summarized below:



Property (1)			Location	Acquisition Date	Purchase Price (in thousands)
Orthopedic Associates	(2)		Flower Mound, TX	January 5, 2017	$	18,750
Medical Arts Center at Hartford	(2)		Plainville, CT	January 11, 2017	30,250
Noncontrolling Interest Buyout - New Albany	(3)		New Albany, OH	January 31, 2017	2,824
CareMount - Lake Katrine MOB	(2)	(4)	Lake Katrine, NY	February 14, 2017	41,791
CareMount - Rhinebeck MOB	(2)		Rhinebeck, NY	February 14, 2017	18,639
Syracuse Condos	(2)		Fayetteville & Liverpool, NY	February 27, 2017	2,659
Monterey Medical Center - MOB	(2)		Stuart, FL	March 7, 2017	18,979
Creighton University Medical Center	(5)		Omaha, NE	March 28, 2017	33,420
Strictly Pediatrics Specialty Center	(2)	(6)	Austin, TX	March 31, 2017	78,628
MedStar Stephen's Crossing	(2)		Brandywine, MD	June 16, 2017	20,900
2017 CHI Portfolio - Tranche 1 (8 MOBs)	(5)		AR, MN, ND, NE, TN, TX	June 29, 2017	124,181
St. Vincent Portfolio (2 MOBs)	(2)		Carmel & Fishers, IN	June 29, 2017	93,880
Baylor Charles A. Sammons Cancer Center	(2)		Dallas, TX	June 30, 2017	290,000
Orthopedic & Sports Institute of the Fox Valley	(7)		Appleton, WI	June 30, 2017	27,900
Peachtree Dunwoody Medical Center - Parking Deck	(7)		Atlanta, GA	June 30, 2017	25,000
Clearview Cancer Institute	(2)		Huntsville, AL	August 4, 2017	53,250
Northside Cherokee/Town Lake MOB	(2)		Atlanta, GA	August 15, 2017	37,127
HonorHealth Mesa MOB	(2)		Mesa, AZ	August 15, 2017	4,800
2017 CHI Portfolio - Tranche 2 (5 MOBs)	(5)		AR, MN, NE, TX	August 24, 2017 & August 31, 2017	33,694
Noncontrolling Interest Buyout - Great Falls Clinic	(8)		Great Falls, MT	September 21, 2017	1,061
Legends Park MOB & ASC	(2)		Midland, TX	September 27, 2017	30,000
Franklin MOB & ASC	(2)		Franklin, TN	October 12, 2017	9,950
Eagle Point MOB	(2)		Lake Elmo, MN	October 31, 2017	10,949
Edina East MOB	(2)		Edina, MN	October 31, 2017	7,800
Northside MOB - Center Pointe	(2)		Atlanta, GA	November 10, 2017	155,986
Gwinnett 500 Building	(2)		Lawrenceville, GA	November 17, 2017	25,297
Hudgens Professional Building	(2)		Duluth, GA	November 17, 2017	23,696
St. Vincent Building	(2)		Indianapolis, IN	November 17, 2017	60,124
Gwinnett Physicians Center	(2)	(9)	Lawrenceville, GA	December 1, 2017	51,721
Apple Valley Medical Center	(2)		Apple Valley, MN	December 18, 2017	21,500
Desert Cove MOB	(2)	(10)	Scottsdale, AZ	December 18, 2017	4,560
Westgate MOB	(2)		Glendale, AZ	December 21, 2017	15,800
Loan Investments	(11)		Various	Various	39,063
					$	1,414,179


(1)	“MOB” means medical office building. “ASC” means ambulatory surgical center.


(2)	The Company accounted for these acquisitions as business combinations pursuant to the acquisition method and expensed total acquisition costs of $16.6 million.


(3)	The Company acquired the previously outstanding interest in the New Albany MOB from the predecessor owner. As consideration, the Operating Partnership paid approximately $2.1 million in cash and issued 38,641 OP Units, representing approximately $2.8 million in aggregate.


(4)	The Company partially funded this acquisition through the assumption of an existing mortgage valued at approximately $26.4 million.

(5)

These acquisitions are part of the CHI portfolio. The Company accounted for nine of these facilities, consisting of an aggregate purchase price of $143.0 million, as asset acquisitions and capitalized total acquisition costs of $0.4 million. The remaining six facilities, consisting of an aggregate purchase price of $48.3 million, were accounted for as business combinations pursuant to the acquisition method, with acquisition expense totaling $0.1 million.


(6)	The Company partially funded the purchase price of this acquisition by issuing a total of 2,247,817 OP Units valued at approximately $44.3 million on the date of issuance.


(7)	The Company accounted for these acquisitions as asset acquisitions and capitalized total acquisition costs of $0.5 million.


(8)	The Company acquired an additional 3.2% interest in the Great Falls Clinic joint venture from the predecessor owner, increasing the Company’s total interest to 85.0%.


(9)	As part of this acquisition, the Company assumed a $17.6 million mortgage on the facility.


(10)	The Company acquired an additional 57.0% ownership interest in Desert Cove MOB, LLC increasing the Company’s total interest to 100.0%.


(11)	The Company’s loan investments include 8 separate transactions at a weighted average interest rate of 8.1%.

For 2017, the Company recorded revenues and net income of $49.6 million and $8.6 million, respectively, from its 2017 acquisitions.

The following table summarizes the preliminary purchase price allocations of the assets acquired and the liabilities assumed, which the Company determined using Level 2 and Level 3 inputs (in thousands):



	December 31, 2018			December 31, 2017
Land	$	17,316		$	38,358
Building and improvements	217,916			1,168,741
In-place lease intangible	34,358			128,370
Above market in-place lease intangible	1,090			18,967
Below market in-place lease intangible	(959		)	(4,270		)
Above market in-place ground lease	—			(4,620		)
Below market in-place ground lease	5,329			17,683
Contingent consideration	—			(765		)
Receivable	—			434
Debt assumed	—			(43,989		)
Issuance of OP Units	—			(44,978		)
Investment in unconsolidated entity	—			(2,871		)
Mortgage escrow	3,790			—
Prepaid expenses	(2,628		)	—
Issuance of Series A Preferred Units	(22,651		)	—
Net assets acquired	$	253,561		$	1,271,060

Dispositions

On February 16, 2018, the Company sold 1 medical office building located in Florida for approximately $1.4 million and recognized a net loss on the sale of approximately $0.1 million. On March 30, 2018, the Company sold 1 medical office building located in Michigan for approximately $1.1 million and recognized a net gain on the sale of approximately $0.1 million. On June 28, 2018, the Company sold 15 medical office buildings located in 3 states for approximately $90.7 million and recognized a net loss on the sale of approximately $2.6 million. On July 27, 2018, the Company sold 17 medical office buildings located in 7 states for approximately $127.2 million and recognized a net gain on the sale of approximately $14.2 million.

The following table summarizes revenues and net income related to the 2018 disposition properties for the periods presented (in thousands):



	Year Ended December 31,
	2018		2017		2016
Revenue	$	12,287	$	23,960	$	24,090

Income before gain on sale of investment properties, net	$	5,027	$	5,765	$	7,142
Gain on sale of investment properties, net	11,664		—		—
Net income	$	16,691	$	5,765	$	7,142

The following table summarizes revenues and net income related to the 2017 disposition properties for the periods presented (in thousands):



	Year Ended December 31,
	2018		2017		2016
Revenue	$	—	$	823	$	1,967

Income before gain on sale of investment properties, net	$	—	$	108	$	433
Gain on sale of investment properties, net	—		5,870		—
Net income	$	—	$	5,978	$	433