AEI Healthcare Portfolio VII DST

Overview

Three purpose-built, single-tenant outpatient medical office assets held debt-free in a DST: HonorHealth Complete Care (12,000 SF, Surprise AZ, Phoenix MSA, lease to 2042), Texas Children's Pavilion for Women (12,642 SF, Cedar Park/Austin TX, co-located one block from the tenant's own hospital campus, lease to 2038), and a United Healthcare/ProHealth Physicians clinic (26,547 SF on 6.40 ac, Bristol CT, lease to 2037). Submarkets are infill/Sun Belt growth corridors with strong daytime traffic and household incomes ($78k-$125k) and constrained MOB supply (~6.9% national availability). Thesis is durable, escalating net-lease income from investment-grade-equivalent healthcare credit, underpinned by secular outpatient-care migration and aging demographics. Operating strategy is passive triple-net ownership through an affiliated master tenant, with insurance fully tenant-reimbursed and de minimis trust-level expense; income growth is driven entirely by contractual 2.0%-2.5% escalators.

Investment highlights

• The portfolio exhibits a credit barbell. Texas Children's Hospital (AA-/Fitch) and the UnitedHealth Group parent (AA-/Fitch, A/AM Best) supply investment-grade-equivalent corporate backing, while HonorHealth (A+/Fitch) is a single-state Arizona nonprofit system. Income is disproportionately weighted to Bristol, whose ~$1.15M gross rent is roughly 44% of in-place rent, concentrating cash flow in a single asset and a single tenant whose parent's Fitch outlook was revised to negative in July 2025 - a trajectory the static AA- marketing presentation omits.
• Weighted average remaining lease term is 13.62 years across staggered expirations (Surprise 2042, Austin 2038, Bristol 2037). Duration is asymmetric: the long-dated HonorHealth lease carries the lowest escalator (2.0%), while the largest asset (Bristol) escalates 2.5% only through year 9 and then steps flat, capping income growth on the portfolio's biggest rent stream precisely as the projected disposition window approaches.
• Real estate quality is high and recently delivered (2022-2024 vintage), purpose-built for outpatient use. The Austin asset's co-location one block from Texas Children's own hospital campus creates a mission-critical referral linkage that raises renewal probability and tenant switching costs; the Surprise asset is the sole urgent care within a 3.5-mile radius in a high-traffic retail corridor (71,024 VPD). These siting characteristics function as soft barriers to entry that support re-leasing economics.
• The debt-free capital structure removes refinancing, maturity, rate-cap, and foreclosure risk entirely, and eliminates the equal-or-greater-debt replacement requirement for 1031 investors averse to boot-offsetting leverage. The structural cost is the absence of positive financial leverage, which mechanically caps levered IRR and is the primary reason the 5.00% going-in distribution sits below comparable leveraged net-lease DSTs.
• The triple-net structure with tenant-reimbursed insurance and ~$1,400/year trust-level property expense insulates distributable cash from operating inflation. The qualifier is capital responsibility: the Trust retains certain capex obligations funded only from a modest reserve that declines from $371,000 to ~$67,764 by 2035, drawn down immediately by a $221,000 Connecticut transfer-tax charge in year 1, leaving limited capacity for unbudgeted tenant improvements and condition-assessment items.

Sponsor

This offering is sponsored by AEI Capital Corporation. Baker 1031 Investments is independent of the sponsor and provides advisory and brokerage services to accredited investors.