Medical Properties Trust Completes $350 Million Sale of Facilities to Prime Healthcare

Rhea-AI Summary

Medical Properties Trust, Inc. (MPW) completed the sale of five facilities to Prime Healthcare for $350 million, with $250 million in cash and a $100 million mortgage note. The companies agreed on a 20-year master lease for four hospitals with a $260 million purchase option. Prime has until August 26, 2028, to exercise the purchase option at $238 million.

Insights

Financial Analyst

The transaction between Medical Properties Trust, Inc. and Prime Healthcare involves a significant exchange of assets and financial instruments that can influence the liquidity and earnings profile of MPT. The immediate cash inflow of $250 million enhances MPT's cash position, which could be directed toward debt reduction, new property acquisitions, or other strategic investments. The structured deal with a $100 million mortgage note due in nine months offers MPT a future cash inflow, albeit with credit risk exposure to Prime Healthcare's ability to fulfill this obligation.

The new 20-year master lease agreement for the four hospitals carries implications for long-term revenue stability. The lease terms, including the early purchase option at a reduced price, indicate a strategic move by MPT to incentivize asset divestiture. This could potentially streamline MPT's portfolio and reduce operational complexities associated with property management. However, the reliance on a single tenant, Prime Healthcare, introduces concentration risk, which could be a concern for investors if Prime faces financial difficulties in the future.

Real Estate Investment Trust (REIT) Analyst

Medical Properties Trust operates as a REIT, which means its ability to generate stable rental income is important for maintaining its dividend payouts—a key metric for REIT investors. The sale of the five facilities and the revised lease agreement with Prime Healthcare must be evaluated in the context of MPT's overall portfolio performance and strategy. The sale proceeds and the lease restructure could signal a strategic shift in MPT's asset allocation or a response to market-specific conditions in California and New Jersey.

Investors should note the $260 million purchase option in the lease, which offers insight into the valuation of the properties. The pre-agreed purchase price creates a predictable exit strategy for MPT, but also caps the potential upside from property appreciation. Additionally, the lease's annual escalations are a safeguard against inflationary pressures, ensuring that MPT's income stream maintains its purchasing power over time.

Healthcare Industry Analyst

The healthcare real estate market is highly sensitive to regulatory changes, demographic shifts and technological advancements. MPT's sale and leaseback transaction with Prime Healthcare reflects broader industry trends where healthcare providers are seeking to unlock capital tied up in real estate assets. This capital can then be redeployed into core operational areas such as patient care, technology upgrades and expansion of services.

The long-term lease agreement suggests confidence in the healthcare sector's stability and growth, especially considering the 20-year term. However, the specific terms of the lease and the sale indicate that both MPT and Prime are hedging against future uncertainties by setting an early purchase option date. This strategic flexibility allows Prime to potentially reduce long-term leasing costs while providing MPT with a clear timeline for asset disposition, aligning with industry practices of maintaining operational agility.

BIRMINGHAM, Ala.--(BUSINESS WIRE)-- Medical Properties Trust, Inc. (the “Company” or “MPT”) (NYSE: MPW) today announced that it completed its previously announced sale of five facilities in California and New Jersey to Prime Healthcare (“Prime”) for aggregate consideration of $350 million. The total consideration consists of $250 million paid in immediate cash and a $100 million interest-bearing mortgage note due to MPT in nine months.

Also, as previously reported, Prime and MPT agreed to a new 20-year master lease for the remaining four hospitals leased to Prime, including a $260 million purchase option. To encourage Prime to exercise its purchase option early in the new lease term, the parties have agreed that the properties may be purchased at the $238 million lease base on or prior to August 26, 2028. After August 26, 2028 the option price reverts to $260 million (subject to annual escalations).

About Medical Properties Trust, Inc.

Medical Properties Trust, Inc. is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities. From its inception in Birmingham, Alabama, the Company has grown to become one of the world’s largest owners of hospital real estate with 439 facilities and approximately 43,000 licensed beds in nine countries and across three continents as of December 31, 2023. MPT’s financing model facilitates acquisitions and recapitalizations and allows operators of hospitals to unlock the value of their real estate assets to fund facility improvements, technology upgrades and other investments in operations. For more information, please visit the Company’s website at www.medicalpropertiestrust.com.

This press release includes 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. Forward-looking statements can generally be identified by the use of forward-looking words such as “may”, “will”, “would”, “could”, “expect”, “intend”, “plan”, “estimate”, “target”, “anticipate”, “believe”, “objectives”, “outlook”, “guidance” or other similar words, and include statements regarding our strategies, objectives, future expansion and development activities, asset sales and other liquidity transactions, expected returns on investments and expected financial performance. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results or future events to differ materially from those expressed in or underlying such forward-looking statements, including, but not limited to: (i) macroeconomic conditions, including due to geopolitical conditions and instability, which may lead to a disruption of or lack of access to the capital markets, disruptions and instability in the banking and financial services industries, rising inflation and movements in currency exchange rates; (ii) the risk that MPT is not able to recover deferred rent or its other investments in Steward at full value, within a reasonable time period or at all; (iii) the risk that previously announced or contemplated property sales, loan repayments, and other capital recycling transactions do not occur as anticipated or at all; (iv) the risk that MPT is not able to attain its leverage, liquidity and cost of capital objectives within a reasonable time period or at all; (v) MPT’s ability to obtain debt financing on attractive terms or at all, as a result of changes in interest rates and other factors, which may adversely impact its ability to pay down, refinance, restructure or extend its indebtedness as it becomes due, or pursue acquisition and development opportunities; (vi) the ability of our tenants, operators and borrowers to satisfy their obligations under their respective contractual arrangements with us; (vii) the economic, political and social impact of, and uncertainty relating to, the potential impact from health crises (like COVID-19), which may adversely affect MPT’s and its tenants’ business, financial condition, results of operations and liquidity; (viii) our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate acquisitions and investments; (ix) the nature and extent of our current and future competition; (x) international, national and local economic, real estate and other market conditions, which may negatively impact, among other things, the financial condition of our tenants, lenders and institutions that hold our cash balances, and may expose us to increased risks of default by these parties; (xi) factors affecting the real estate industry generally or the healthcare real estate industry in particular; (xii) our ability to maintain our status as a REIT for income tax purposes in the U.S. and U.K.; (xiii) federal and state healthcare and other regulatory requirements, as well as those in the foreign jurisdictions where we own properties; (xiv) the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain equity or debt financing secured by our properties or on an unsecured basis; (xv) the ability of our tenants and operators to operate profitably and generate positive cash flow, remain solvent, comply with applicable laws, rules and regulations in the operation of our properties, to deliver high-quality services, to attract and retain qualified personnel and to attract patients; (xvi) potential environmental contingencies and other liabilities; (xvii) the risk that the expected sale of three Connecticut hospitals currently leased to Prospect does not occur; (xviii) the risk that MPT is unable to monetize its investment in PHP at full value within a reasonable time period or at all; and (xix) the risks and uncertainties of litigation or other regulatory proceedings.

The risks described above are not exhaustive and additional factors could adversely affect our business and financial performance, including the risk factors discussed under the section captioned “Risk Factors” in our most recent Annual Report on Form 10-K, as may be updated in our other filings with the SEC. Forward-looking statements are inherently uncertain and actual performance or outcomes may vary materially from any forward-looking statements and the assumptions on which those statements are based. Readers are cautioned to not place undue reliance on forward-looking statements as predictions of future events. We disclaim any responsibility to update such forward-looking statements, which speak only as of the date on which they were made.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240409437296/en/

Drew Babin, CFA, CMA

Senior Managing Director of Corporate Communications

Medical Properties Trust, Inc.

(646) 884-9809

dbabin@medicalpropertiestrust.com

Source: Medical Properties Trust, Inc.

FAQ

What facilities did Medical Properties Trust, Inc. (MPW) sell to Prime Healthcare?

Medical Properties Trust, Inc. (MPW) sold five facilities in California and New Jersey to Prime Healthcare.

How much was the total consideration for the sale of facilities by Medical Properties Trust, Inc. (MPW) to Prime Healthcare?

The total consideration for the sale of facilities by Medical Properties Trust, Inc. (MPW) to Prime Healthcare was $350 million.

What is the purchase option price for the hospitals leased to Prime Healthcare by Medical Properties Trust, Inc. (MPW) before August 26, 2028?

The purchase option price for the hospitals leased to Prime Healthcare by Medical Properties Trust, Inc. (MPW) before August 26, 2028, is $238 million.

How long is the master lease agreement between Medical Properties Trust, Inc. (MPW) and Prime Healthcare for the remaining four hospitals?

The master lease agreement between Medical Properties Trust, Inc. (MPW) and Prime Healthcare for the remaining four hospitals is for 20 years.

When does Prime Healthcare have to exercise the purchase option for the hospitals leased from Medical Properties Trust, Inc. (MPW) to get the $238 million price?

Prime Healthcare has until August 26, 2028, to exercise the purchase option for the hospitals leased from Medical Properties Trust, Inc. (MPW) to get the $238 million price.