Seeking to Tap Low-Cost Capital For Expansion, IASIS Sells 3-Hospital Portfolio to Medical Office REIT
In one of the largest sale-leaseback transactions involving medical office property in recent years, acute-care owner and operator IASIS Healthcare LLC will sell three hospitals in Louisiana, Arizona and Texas to Medical Properties Trust Inc. (NYSE: MPW
) for $283.3 million.
Medical Properties will buy the real estate assets of Mountain Vista Medical Center, a 178-bed acute care facility in Mesa, AZ; the 268-bed Glenwood Regional Medical Center in West Monroe, LA; and the 224-bed Medical Center of Southeast Texas in Port Arthur, TX.
IASIS, which will lease each of the properties from the Birmingham, AL-based REIT for 15-year terms, plans to use the proceeds to grow in existing markets and expand into new markets, among other strategic initiatives. Franklin, TN-based IASIS said it will continue to own and operate the business of the three hospitals but will lease the land and the buildings at attractive, long-term lease rates. The acquisition is expected to close in the third quarter.
"The access to capital and low interest rates available currently to companies like ours is somewhat unprecedented and has created an exceptionally attractive financing opportunity that will allow us to transition capital currently locked up in our real estate to cash on hand," said IASIS Healthcare President and CEO Carl Whitmer.
Medical Properties Chairman, President and CEO Edward K. Aldag, Jr. said the transaction "demonstrates the opportunities inherent in a sale and leaseback structure for sophisticated employers of capital like IASIS that seek low-cost capital while retaining control of its facilities."
Under the agreement, IASIS and Medical Properties Trust have agreed to adjust the rental rate, add $2 million of improvements funded by Medical Properties and to extend the 2019 maturity of the REIT’s existing lease of the Pioneer Valley Hospital in West Valley City, UT, through 2028. Both parties expect future expansion opportunities at each of the facilities.
A right-of-first refusal clause gives IASIS the opportunity to repurchase the assets should MPT decide to sell.
IASIS owns and operates 19 acute care hospitals, a behavioral health hospital, several outpatient service facilities and more than 160 physician clinics, and Medicaid and Medicare managed health plans in Arizona and Utah that serve more than 176,000 members.
Medical Properties Trust’s core business is acquiring and developing net-leased health care facilities. These facilities include inpatient rehabilitation hospitals, long-term acute care hospitals, regional acute care hospitals, ambulatory surgery centers and other single-discipline healthcare facilities.
Mark Alexander, CCIM, national chair for Sperry Van Ness’s medical office practice based in Fort Myers, FL, called the transaction a good example of the strength of the current MOB investment market and the desire of hospitals and doctor’s group to monetize their assets through both sales and mergers and consolidation to prepare for the economic realities of health-care legislation rolling out over the next several years.
"With millions more Americans due to be added to the ranks of medically insured in this country, the growing future demand for medical care is a given," Alexander said. "This creates incredibly strong underlying business fundamentals for investors buying triple-net leased MOBs."
The flip side of the equation is that Obamacare also calls for smaller reimbursements, which has in turn created a need by hospitals and doctors to seek stronger bottom lines, Alexander said.
"Since a sale/leaseback is essentially a self-financing tool where sellers get to pick their own rent, medical groups can better customize their future financial needs while lowering their liability, since lease guarantees as a tenant are much less onerous than mortgage guarantees as an owner," said Alexander, who has sold 83 medical office sale/leaseback transactions in six states over 20 years in the niche. "I have more MOB transaction value under contract right now than at any other time in the last 20 years."
Among the deals are two MOB sale/leasebacks under contract that are expected to close in September, including a 36,500-square-foot building housing eight orthopedic surgeons across the street from Lee Memorial Hospital in Fort Myers, and another building in the market being sold and leased back by a cancer treatment center.
The IASIS transaction is part of MPW's current capital deployment of more than $400 million for acquisitions this year and another $150 million for development. The company's strong pipeline should likely drive considerable income growth going forward, according to Peter Martin, analyst for JMP Securities.
In other recent sale/leasebacks, Medical Properties acquired two Kansas City general acute care hospitals in June for $75 million and leased back to affiliates of Prime Healthcare Services Inc. An inpatient rehabilitation hospital in Corpus Christi, TX, was acquired for $15.8 million in July and leased to Ernest Health Inc.