For-profit system Prime Healthcare has bought the real estate of five hospitals it runs from healthcare Medical Properties Trust for $350 million, the real estate firm announced Tuesday.
The deal, which had been announced in February alongside Medical Properties Trust’s fourth-quarter earnings, includes the real estate of St. Francis Medical Center in California and Saint Clare’s Health, which includes acute and behavioral facilities, in New Jersey.
Prime Healthcare bought the locations with $250 million in cash and a $100 million interest-bearing mortgage note due to the real estate firm in nine months, per the announcement.
The sale reflects a 7.4% economic cap rate and brings a roughly $50 million gain for Medical Properties Trust, the company told investors in February. CEO Edward Aldag said the deal was part of the company’s aim to strengthen its balance sheet by generating at least $2 billion of incremental liquidity through 2024.
Medical Properties Trust has seen its market cap plummet from more than $24 billion in early 2022 to about $4 billion in recent months due to a combination of higher interest rates difficulties among major tenants like Steward Health Care.
“These are all attractive hospitals, and in our view, [Prime Healthcare President and CEO] Dr. Prem Reddy and his management team are among the most reliable and capable operators of acute hospitals in the country,” Steven Hamner, chief financial officer of Medical Properties Trust, told investors in February.
“But the geographic location of these hospitals are not necessarily the best in our portfolio, and yet they traded at a 7.4% economic capitalization rate. This speaks very strongly of continued investor interest and confidence in well-underwritten hospitals that are necessary to a community's overall healthcare infrastructure,” he said.
Accompanying the purchase agreement was a new 20-year master lease for the four remaining hospitals Medical Properties Trust is leasing to Prime Healthcare. Three of those hospitals’ leases were set to expire in 2025.
The arrangement, which was also announced in February, includes a $238 million purchase option for Prime Healthcare should it look to buy by Aug. 26, 2028, after which the option price will shift to $260 million.
Ontario, California-based Prime Healthcare is the country’s fifth largest for-profit health system with 44 hospitals in 14 states, according to its website. It also has more than 300 outpatient locations and nearly 45,000 employees and affiliated physicians.
In 2022, the company repurchased nine of its general acute care hospitals and two related medical office buildings in four states from Medical Properties Trust for about $460 million. It had entered a sale leaseback transaction for those locations in 2012.