05/03/22 07:20 AM EDT

REITS DAILY BRIEF | 5.3.22 | (HR, HTA)

Rob Simone, CFA

@HedgeyeREITs

Takeaway: HTA S-4 filing discloses recent takeover bid

Hedgeye Cartoon of the Day: Spring Fling

Ticker: HR

Subsector: Healthcare REITs / MOBs

Headline: Fascinating developments in HTA merger process, staying long here

Yesterday Best Idea Long Healthcare Realty Trust (HR) released a press release with an update to the HTA merger process, but more importantly HTA disclosed several important items in a related S-4 filing.
Apparently, on 3/28 HTA received an unsolicited all-cash takeover bid at ~$31.75/share from a "Party F," which was described as a "large public REIT." Party F offered to also cover the ~$163 million termination fee owed to HR as part of its assumed transaction costs, which was agreed to as part of the planned HTA merger. While we cannot verify this 100%, in making the rounds we believe "Party F" could potentially be Welltower, Inc. (WELL). We have also heard thoughts Party F could be ARE, but we find that less likely. HTA disclosed that HR's Board rejected the offer, which we believe significantly raises the probability of activist involvement here given (1) the negative share price reaction immediately following the HR/HTA announcement, and (2) the fact that HR needs a 2/3 vote from shareholders to approve the deal and holders are clearly not pleased.
We are staying long HR here, as it (1) stands to benefit from ~$2/share under a break-up scenario, (2) would likely re-price out the expected dilution (which we think was assumed to be too high, but neither here nor there), (3) is probably worth mid-$30/share under a combination with HTA and inclusive of asset sales + synergies, and (4) should work well in Quad 4 given MOB exposure.
As a reminder, we added HR to the Best Idea Long list on 2/28 at ~$26/share, and subsequently revised down our upside assumptions to the mid-$30/share range post-close with HTA.
A few other notes from the S-4 regarding the HTA marketing process: (1) "Party C" which was another "publicly traded healthcare REIT" in September 2021 submitted a potential merger-of-equals bid for HTA, (2) "Party D" another "large diversified public healthcare REIT" reached out to HTA with interest but did not sign an NDA, and (3) Party F also offered to help finance an acquisition of HTA by "Party G." So clearly lots of interest in HTA from the public REITs, but just a question of price.

A SPECIAL NOTE: We will be at Hedgeye Live – our first annual subscriber conference. It’s from 5/12-15 at the Hyatt Regency in Greenwich, CT. In addition to all the other Hedgeye Live events, I’m hosting an exclusive “idea dinner” with attendees (capacity capped at 18), as well as a deep-dive breakout session Saturday morning If you’re interested in learning more/joining me at Hedgeye Live, contact support@hedgeye.com

Prior Notes:

5.1.22 - SUNDAY NIGHT REIT READ | 5.1.22 | (AMH, MPW)

4.29.22 - MPW HEARING FOOTSTEPS? | 4.29.22 | (MPW)

4.28.22 - AVB 1Q22 RESULTS | BIG BEAT DIDN'T HAPPEN, BUT FY22 OUTLOOK RAISED | 4.28.22 | (AVB)

4.27.22 - INVH 1Q22 RESULTS | ROC ROLLING OVER EVERYWHERE | 4.27.22 | (INVH, AMH)

4.26.22 - EQR 1Q22 RESULTS | DISAPPOINTING QUARTER | 4.26.22 | (EQR)

4.26.22 - REITS DAILY BRIEF | 4.26.22 | (AVB 1Q22 PREVIEW)

4.25.22 - REITS DAILY BRIEF | 4.25.22 | (EQR 1Q22 PREVIEW)

4.24.22 - SUNDAY NIGHT REIT READ | 4.24.22 | (AMH, INVH, TCN)

4.22.22 - EVENT REPLAY: MPW BEST IDEA SHORT BLACK BOOK (MPW)

4.21.22 - REITS DAILY BRIEF - LATE EDITION | 4.21.22 | (MPW)

4.19.22 - REITS DAILY BRIEF | 4.19.22 | (PLD 1Q22 RESULTS)