Birmingham, Alabama-based Medical Properties Trust Inc. (MPT) (NYSE: MPW) said it agreed to acquire the real estate interests of nine acute care hospitals operated by Boston-based Steward Health Care System LLC, in a deal valued at $1.25 billion. The deal includes a $1.2 billion investment in hospital real estate through a sale-leaseback transaction, and a $50 million equity investment in Steward.
Privately-held Steward, is the largest fully integrated health care services organization and community hospital network in New England. The investment by MPT sets the stage for Steward to expand nationally, and return the original investment made by private equity firm Cerberus Capital Management LP almost six years ago.
A Cerberus affiliate has agreed to invest $150 million in MPW’s common stock in a private placement transaction concurrent with or soon after closing.
New York-based Cerberus, founded in 1992, is one of the world’s leading private equity firms, with more than $30 billion in assets under management. The firm is led by Stephen A. Feinberg, co-founder and CEO. Former U.S. Vice President Dan Quayle serves as chairman of Cerberus Global Investments, and former U.S. Secretary of the Treasury John W. Snow, serves as the firm’s chairman.
The deal unlocks the value of Steward’s real estate assets, pays off corporate debt, strengthens the company financially, broadens its ownership base, and provides fresh capital to fund expansion. The deal also includes a commitment by MPT to participate in up to the next $1 billion of Steward’s hospital acquisitions.
Medical Properties Trust is a self-advised real estate investment trust formed to capitalize on the changing trends in healthcare delivery by acquiring and developing net-leased healthcare facilities.
MPT’s financing model allows hospitals and other healthcare facilities to unlock the value of their underlying real estate in order to fund facility improvements, technology upgrades, staff additions and new construction. Facilities include acute care hospitals, inpatient rehabilitation hospitals, long-term acute care hospitals, and other medical and surgical facilities.
“This investment, along with Cerberus’ continued commitment sets the stage for Steward’s future,” said Steward founder, chairman and CEO, Dr. Ralph de la Torre. “The Medical Properties Trust investment will provide Steward a second source of capital funding. This ensures Steward will continue to provide high quality health care at an affordable cost in New England, and enables us to grow our proven quality model nationally.”
In 2010, Cerberus acquired Caritas Christi Health Care, a non-profit Roman Catholic healthcare system founded in 1985, which was the second largest healthcare system in New England. Following the buyout, Cerberus converted it to a for-profit company and renamed it Steward Health Care System.
Steward is now one of the largest employers in Massachusetts with more than 17,000 employees and estimated $2.3 billion in revenue in 2016. It is the largest for-profit health care provider in Massachusetts, and one of the largest taxpayers at the state and local levels.
Since its founding, Steward has invested more than $800 million in infrastructure, technology, facilities and services. Over this same period, Steward fully funded its legacy pension plan with a total cash contribution exceeding $300 million, while agreeing to a $15 per hour living wage for its employees in Greater Boston.
In 2015, Steward posted an operating profit of $131 million with revenue of $2.2 billion. Over the last two years, Steward’s total medical expenses increased at a rate below Massachusetts’ target benchmark of 3.6 percent.
“We are delighted to establish a relationship with one the most forward-thinking healthcare providers in the country,” said Edward K. Aldag, Jr., chairman, president and CEO of Medical Properties Trust. “Dr. de la Torre and his physician leadership team at Steward have been highly innovative in delivering healthcare to the markets they serve.”
Steward’s integrated accountable care organization (ACO) model has enabled quality and cost containment achievements, and in-patient quality improvements. Observed versus expected mortality rates reportedly plummeted from 1.10 to 0.74 from 2012-2015.
In 2014, all of Steward’s hospitals received the prestigious Leapfrog A rating which exemplifies the highest quality in patient care. Steward has seen dramatic reductions in hospital acquired infections and has shown outstanding compliance with evidence-based care, achieving a 98% rate of compliance with care measures pertaining to patients with heart attacks, congestive heart failure, pneumonia, and surgical procedures.
The investment secures long-term participation from Steward’s management team by affording them a greater equity stake in the company. It also provides over $100 million in additional funding designated for capital improvements at existing facilities. Steward will continue to manage all hospital properties and other facilities.
Photo: Dr. Ralph de la Torre, Founder, Chairman and CEO of Steward Health Care.