Expanding its footprint in the United Kingdom, Medical Properties Trust, Inc. MPW, also known as MPT, recently announced definitive agreements to purchase real estate of 30 acute care hospital facilities. The company will shell out around £1.5 billion ($2 billion) for this deal.
The U.K. market is witnessing growing demand for healthcare properties amid attractive demographics as well as diligent efforts by the government to provide healthcare to the citizens. Given these favorable factors, MPT’s latest acquisition is a strategic fit.
The properties are leased under long-term net leases to affiliates of BMI Healthcare, a renowned private operator of acute hospitals. Additionally, in a related transaction, BMI will be acquired by the affiliates of Circle Health, post which, the latter will assume operations of BMI’s 52 facilities in the United Kingdom. In fact, Circle is also a tenant of MPT, and will heavily invest in facility infrastructure, technology and people.
The hospitals will then be leased under a master lease structure that will be guaranteed by Circle. The lease will be for an initial fixed term of 30 years, and can be extended by 10 years through two five-year extension options. Further, it will carry annual rent escalators linked to UK CPI.
The lease arrangement is anticipated to provide a yield of 8.9% on a GAAP basis. The acquisition is aimed at providing MPT an initial lease payment coverage ratio of nearly two times the recent EBITDAR. Further, Circle’s strategic and operational initiatives are likely to expand coverage.
The deal is anticipated to close in first-quarter 2020 subject to customary closing norms. The company plans to fund the buyout with cash on hand, including capital raised from the recent U.S. dollar equity and sterling-denominated bond offerings and amounts borrowed under an unsecured sterling-denominated term loan facility.
The transaction will also be immediately accretive, providing improvement in funds from operation (FFO) per share. In fact, based on year-to-date transactions in 2019 and MPT’s attractive capital structure, the company expects an annual run-rate of $1.24-$1.27 for net income per share and $1.65-$1.68 for normalized FFO per share.
Shares of this Zacks Rank #3 (Hold) company have gained 4.9% in the past three months against the industry’s decline of 1.6%.
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