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BioMed Realty bulks up on biotech real estate

by Thomas Zadvydas | Published March 28, 2013 at 9:38 AM

San Diego life sciences REIT BioMed Realty Trust Inc. announced Tuesday, March 26, that it will acquire biotech real estate development company Wexford Science & Technology LLC from Wexford Equities LLC for about $640 million.

Terms of the deal include the assumption of $169 million in debt and $133 million of BioMed equity, $125 million of which may be payable in cash or common stock at BioMed Realty's election, with the remaining $338 million balance payable in cash.

About $551 million of the total purchase price is for Wexford Science's operating portfolio, which includes about 1.6 million in rentable square feet of recently developed research facilities on or near academic, medical systems or science center campuses. Properties in the operating portfolio were developed between 2005 and 2011, and are 86% leased. About two-thirds of the annualized base rents have an average lease term of 13 years.

Tenants include University of Pennsylvania Health System, the University of Maryland, Old Dominion University, the Illinois Institute of Technology and Penn State University.

The remaining $89 million of the deal price is for projects under development. Wexford Science has approximately 935,000 square feet of rentable space under construction in three projects that are, collectively, approximately 68% pre-leased, anchored by the University of Pennsylvania Health System, Wake Forest University and Washington University in St. Louis.

"Transactions in the lab space sector are relatively sparse compared to transactions in the traditional office or residential areas," Green Street Advisors Inc. real estate analyst Jeff Theiler said Wednesday. "When you see a big deal like this, it raises the question as to whether property values are going up."

The deal should close in the third quarter. The final price is subject to working capital adjustments and development costs incurred prior to closing. Wexford Science will operate as a subsidiary of BioMed Realty. The deal carries a $2 million termination fee.

"Beyond the opportunity to add the high-quality assets of the operating portfolio and the attractive development pipeline, we are particularly excited about the strategic opportunity to further penetrate the university segment," BioMed president and COO Kent Griffin said in a Tuesday statement.

Wexford Science, of Baltimore, also owns parking garages in Philadelphia and Baltimore with 419 and 638 stalls, respectively.

Theiler said the assets gained from Wexford are "off the beaten track," and believes BioMed will use them as a jumping off point for further deals in lesser-known lab markets.

"The interesting thing about this deal is that the acquired assets are outside traditional cluster markets, the primary locations for lab space," Theiler said. "The cluster markets are Cambridge, Mass., San Francisco, San Diego. "

The combined company will have annualized base rents of about $497 million and a total property portfolio of 15.9 million square feet upon completion of active developments. Property development will expand from 53,000 square feet to approximately 988,000 square feet.

Wexford Science and Wexford Equities didn't return calls Wednesday. BioMed Realty declined comment.

Stifel, Nicolaus & Co. advised Wexford Science, while Goldman, Sachs & Co. advised Wexford Equities.

Morgan Stanley advised BioMed Realty. Craig M. Garner at Latham & Watkins LLP was counsel to BioMed Realty, while Thomas D. Washburne Jr. at Venable LLP and Stephen M. Sharkey at DLA Piper were counsel to the sellers.

BioMed Realty shares were down 7 cents, to $21.77, on Wednesday afternoon.

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