How Healthcare Providers Can Benefit from ROFOs and ROFRs

Rights of first offer (ROFOs) and rights of first refusal (ROFRs) have become a hot topic in healthcare real estate circles recently. Although ROFOs and ROFRs are nothing new, astute health system executives have been exercising those rights with increasing frequency in the past year.

Perhaps no investor has helped its healthcare provider partners make better use of ROFOs and ROFRs during that period than Physicians Realty Trust (NYSE: DOC). Since June 2017, the Milwaukee-based healthcare real estate investment trust (REIT) has leveraged its provider relationships and related real estate acumen to use ROFOs and ROFRs to acquire 8 medical office buildings (MOBs) totaling more than 1.3 million square feet. In doing so, it has reassured its provider-tenants about the long-term stability and ownership of those assets while, in some cases, producing an unexpected cash windfall for the health systems involved.

Now DOC executives have begun sharing their unparalleled level of experience with ROFOs and ROFRs – first in a panel discussion at the nation’s largest healthcare real estate conference, and now in a comprehensive new white paper. (Please read on for details on how to obtain a copy of the white paper.)

BOMA message: Be a true partner with providers

The rise in prominence of ROFOs and ROFRs was a major topic during an educational breakout session at the 2018 Building Owners and Managers Association (BOMA) International Medical Office Building (MOB) + Healthcare Real Estate Conference May 10 in Houston. This year’s conference attracted more than 1,300 attendees – a record.

The BOMA MOB conference session, titled “The New Era of Third-Party Capital Partnerships,” featured Deeni Taylor, Executive Vice President, Chief Investment Officer with Physicians Realty Trust, and four other expert panelists.

The panelists agreed that third-party capital partnerships in the healthcare real estate sector have changed over the years and hospitals and their healthcare provider partners face many new, evolving challenges. But the panelists also noted that sometimes previously overlooked opportunities – such as making better use of ROFOs and ROFRs – can help to effectively overcome those challenges.

“I talked to a healthcare real estate attorney recently who told me that ROFOs and ROFRs have always been in leases but that many people never read those sections,” Mr. Taylor told the BOMA MOB conference audience.

“We were contacted by several hospitals in the last year about this. I think this is based on more hospitals wanting to know who their potential landlord will be. They realize that they now have a real decision to make and are seriously trying to determine whether they should exercise those rights to buy the building and if not, whether they should bring another party into the discussion.”

Thanks to long-established relationships with numerous hospital and health systems nationwide, Mr. Taylor and his DOC colleagues had the opportunity to partner with several provider-tenants who exercised their ROFO or ROFR rights during the past year. In doing so, DOC was able to acquire:

  • Baylor Charles A. Sammons Cancer Center, a 458,396 square foot facility on the campus of Baylor University Medical Center in Dallas;
  • Northside Cherokee Towne Lake, a 102,977 square foot MOB in Atlanta affiliated with Northside Hospital;
  • St. Vincent Carmel Women’s Clinic, an 85,847 square foot facility in Carmel, Ind.;
  • St. Vincent Fishers Medical Center, a 120,158 square foot MOB in Fishers, Ind.;
  • Northside Center Pointe I and II, a two-building, 363,174 square foot MOB complex in Atlanta that houses several hospital and health system tenants; and, most recently,
  • Gwinnett 500 Building, Gwinnett Hudgens Professional Building and Gwinnett Physicians Center, three MOBs totaling 269,393 square feet that are affiliated with Gwinnett Medical Center in suburban Atlanta.

The BOMA MOB conference panelists agreed that hospitals exercising their ROFO/ROFR rights is a growing trend. One panelist from a healthcare system noted that in the past when they received a letter about someone who was considering buying their building, they didn’t have the important discussions they needed to have. Now they understand they need to be more proactive and strategic in determining how they use the space, if there are opportunities to renegotiate rental rates and common area improvements, and other issues.

“This is a real challenge for hospitals and, for the first time, hospitals realize they have a say in this and will go to the market to see if someone else is interested in buying the property,” Mr. Taylor said. “Fortunately for us, many times we were able to see if there was a way to work it out and acquire some good properties and develop good relationships with the hospital executives.

“It’s not enough to compete on price; you’ve already been there and sometimes those numbers don’t make sense. It has to be something bigger. Hospitals are now looking for long-term holders of real estate.”

Mr. Taylor added, “I’ve seen at least one system go through in five years two owners, two property managers and two changes to who leases the building. There’s no hospital administrator who wants to go through that.

“Fortunately for us, it’s not just a matter of matching price. What it comes down to is what else can the potential buyer work through to improve the leases, ground lease rights, future development and other issues that the ‘winner’ of the bid was not willing to do. It means being creative.”

Mr. Taylor also noted: “It’s really important to be a true partner with the hospital rather than merely a capital provider.

“One example is when we acquired an MOB that didn’t have as much tenancy as the hospital wanted. The hospital identified physicians that they wanted in the space and we were able to buy out their lease from another location and move them into the building. The hospital would never have been able to do that from a legal and financial standpoint. We were creative in a positive way with the hospital when they needed it. We addressed the legal issues, physician needs and all issues. That’s what a partnership is.”

New white paper: ‘Know Your Rights’

In addition to Mr. Taylor’s BOMA appearance, DOC is spreading the word about ROFOs and ROFRs through a newly released white paper that discusses best practices and documents how its healthcare provider partners have benefitted from the strategic use of their real estate rights. The comprehensive new white paper, which was written by Mr. Taylor and his DOC colleague Dan Klein, Senior Vice President and Deputy Chief Investment Officer, is titled “Know Your Rights: Maximizing the Value of Your Real Estate ROFOs and ROFRs,” and is available by request.

To obtain a copy of Mr. Taylor’s and Mr. Klein’s complete white paper, which includes compelling, real life examples, please contact Libby Langenderfer at

About Physicians Realty Trust

Physicians Realty Trust is a self-managed healthcare real estate company organized to acquire, selectively develop, own and manage healthcare properties that are leased to physicians, hospitals and healthcare delivery systems. The Company invests in real estate that is integral to providing high quality healthcare. The Company conducts its business through an UPREIT structure in which its properties are owned by Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through limited partnerships, limited liability companies or other subsidiaries. The Company is the sole general partner of the operating partnership and, as of March 31, 2018, owned approximately 97.1% of the partnership interests in our operating partnership (“OP Units”).

Forward-Looking Statements

This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, “continue”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward looking statements may include statements regarding the Company’s strategic and operational plans, the Company’s ability to generate internal and external growth, the future outlook, anticipated cash returns, cap rates or yields on properties, anticipated closing of property acquisitions, and ability to execute its business plan. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Forward looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements. These forward-looking statements are subject to various risks and uncertainties, not all of which are known to the Company and many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company’s filings with the Securities and Exchange Commission (the “Commission”), including, without limitation, the Company’s annual and periodic reports and other documents filed with the Commission. Unless legally required, the Company disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events or otherwise. For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed by the Company with the Commission on March 1, 2018.


Physicians Realty Trust
John T. Thomas
President and CEO
(214) 549-6611
Jeffrey N. Theiler
Executive Vice President and CFO
(414) 367-5610

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