Medical Properties Trust Inc. has entered into definitive agreements with affiliates of One Equity Partners to sell its interest in Ernest Health Inc. Certain members of Ernest management also agreed to sell the remaining Ernest interests to OEP.
According to a prepared statement, upon closing MPT expects its portion of proceeds to be $175 million and to generate an approximate 13% unlevered internal rate of return on its original $96 million investment.
“One Equity’s investment in and commitment to Ernest validates the investment in Ernest we made more than six years ago,” says Edward K. Aldag, Jr., MPT’s Chairman, President, and Chief Executive Officer. “In addition to the high IRR from our equity investment, we have created for our shareholders an outstanding real estate portfolio of post-acute hospitals that will continue to generate strong returns. Our investment truly could not have worked out better for our shareholders.”
MPT will continue to own the real estate interests of 25 post-acute hospitals operated by Ernest with an aggregate investment of approximately $500 million, including mortgage loans aggregating $115 million secured by four hospitals. As part of the agreements, MPT has granted Ernest an option to prepay the mortgage debt without penalty, and Ernest has granted to MPT certain preferential rights to future real estate acquisitions.
“We’re excited to be investing in Ernest Health. This transaction is the result of years of work in the post-acute healthcare services market including prior opportunities in long term acute care and inpatient rehabilitation facilities,” said Greg Belinfanti, Senior Managing Director at OEP. “The existing Ernest management team, with MPT’s support, has built a tremendous company driven by a commitment to clinical excellence and demonstrated positive patient outcomes. We plan to build on this foundation and look forward to working with Ernest and MPT leadership to accelerate Ernest’s already strong momentum.”
“Consistent with OEP’s investment strategy, we intend to support Ernest with capital to pursue further acquisition, growth and development opportunities,” said Brad Coppens, Managing Director at OEP. “Ernest has spent over 14 years building a reputation for clinical excellence and we hope to extend that reputation in partnership with health systems across the U.S.”
Proceeds will be used to reduce borrowings under MPT’s revolving credit facility. Closing of the transaction is subject to customary conditions, including certain government approvals, and is expected during the second half of 2018.