Last week, Medical Properties Trust Inc. revealed that it has entered into a definitive agreement with affiliates of LifePoint Health Inc., one of the largest acute care operators in the United States, under which MPT will acquire the real estate assets of 10 acute care hospitals in six U.S. states for an aggregate purchase price of $700 million and will lease the facilities back to LifePoint.
According to a prepared release, LifePoint is a portfolio company of certain funds managed by affiliates of Apollo Global Management, Inc., a leading global alternative investment manager. In the release, Edward Aldar Jr., MPT’s chairman, president and CEO, stated that this deal “immediately and strongly accretive acquisition of well-run facilities from sophisticated operators and owners demonstrates the expanding market for hospital real estate.” Importantly, he added, “the transaction further solidifies our relationship with LifePoint and Apollo and is a strong indicator that interest in MPT’s sale and leaseback structure continues to grow not only in the U.S. but globally.”
The properties will be leased under a master lease agreement with an initial term of 20 years with two five-year extension options. The transaction is expected to achieve highly attractive cash and GAAP lease rates, well within the range that MPT has achieved for recent U.S. acquisitions taking into account annual CPI-based rent escalations subject to a 2% floor.
According to the release, these return yields, when considered with MPT’s blended cost of debt and equity capital, are expected to produce investment spreads of between 3.0% and 4.0%. The company expects the transaction to close in the fourth quarter of 2019 or the first quarter of 2020, subject to customary closing conditions.
The company intends to finance the acquisition through a new equity issuance, if market conditions warrant, cash balances, and borrowings under its credit facility. Subsequent to completion of permanent financing, MPT’s net debt to EBITDA ratio on a pro forma basis is expected to range between 5.0 and 5.5 times.
“LifePoint is a proven operator, which we are very well acquainted with and respect for their expertise in operating hospitals in mid-sized markets. The 10 acute care hospitals that MPT is acquiring are critical to the populations they serve and have dominant market leadership positions,” commented Aldag. “This investment improves our overall diversification by reducing the concentration of our largest operator relationship to 28% and our largest single facility to 2.7%, while increasing the number of U.S. states in our portfolio to 34. Even considering this large acquisition close to year-end, we are continuing to negotiate additional transactions in the U.S. and globally. Our pipeline remains robust and while there is no certainty that we will announce additional agreements during 2019, we remain confident that our near-term growth will continue.”
Upon closing of this transaction, MPT’s portfolio will include pro forma total gross assets of almost $14 billion representing approximately 40,000 beds in 34 U.S. states and in Germany, the United Kingdom, Switzerland, Italy, Spain and Australia.