When Edward K. Aldag, Jr., MPT’s chairman, president and CEO, learned about a new opportunity for MPT in Switzerland that required swift action, he didn’t hesitate. “Call the owner of the company and tell him I’ll be in Switzerland tomorrow,” he said.
Within 24 hours, Aldag was on the ground in Europe, ready to assess the opportunity for the company he founded to acquire a share in a Swiss healthcare real estate company, Infracore SA. Infracore owns a network of state-of-the-art hospitals across Switzerland operated by the country’s second largest private operator, Swiss Medical Network―a subsidiary of Aevis Victoria SA, also an investor in Infracore.
Just three days later, Aldag got to know the Infracore management team face to face and hashed out initial plans for the transaction. On his return trip to the U.S., he asked MPT’s executive vice president and chief financial officer, Steve Hamner, who was already flying over, to handle the contract details and alert the underwriting team. “Steve and I passed in the night,” Aldag recalls, “and we closed the deal in 30 days.”
The result of such agility? MPT is now the largest shareholder in a $900 million Swiss portfolio that includes 13 stellar acute care properties. MPT also made a 4.9% equity investment in Aevis, giving it an indirect ownership stake in the network and positioning MPT for longer-term opportunities.
On his initial visit to Switzerland, Aldag immediately recognized the excellent quality of the facilities under review, and he’s proud of MPT’s ability to quickly act on the opportunity. “We look for high-quality facilities every time we make an investment decision, and we’re glad to have a presence now in Switzerland,” he says.
MPT can make such moves and quickly judge the viability of opportunities because of 16 years’ worth of experience and depth of expertise in the acute care hospital sector. If anyone can assess an opportunity, it’s Aldag and the leaders who work under him, as many have backgrounds directly in the healthcare industry.
“Anybody can find money and put it together and invest in real estate,” Hamner says. “Hospital operators that do business with MPT know that we understand their business.”
That combination―ready capital and expertise in hospital healthcare―sets MPT apart in the U.S. and internationally. When it came to the blockbuster Swiss transaction, it’s how MPT made the transaction happen so quickly. Investors had already lined up in Europe for the opportunity to acquire the Aevis shares of Infracore by the time Aldag met with Infracore, which was looking to close the transaction within 30 days. Aldag directed his team to make it happen. With the average lease remaining set at 23 years, the Infracore relationship will be ongoing.
Luke Savage, MPT vice president, International Acquisitions, says it’s rare that someone in Switzerland would build such a network of high-quality hospitals and want to sell. He’s proud that the company tapped MPT. After all, he says, quality and precision are Swiss hallmarks, from watches to tennis players. And those traits are what the Swiss look for in business partners. As excellent as the Swiss facilities are, MPT’s No. 1 interest when generating new deals is finding quality assets in attractive markets and skilled people to align with. “It’s a bonus to have awesome buildings,” Savage says.
Regarding personal relationships and trusted finance and healthcare industry acumen, MPT tops the list of potential landlords. And now the company’s presence in Switzerland sets it up for other business there and across Europe, where MPT has grown its holdings to more than 150 hospitals. “It’s an honor when groups in Switzerland want to partner with you,” Savage says. “For [the Swiss] to know MPT knows hospitals and that we can do the deal quickly, that carries us forward to the future.”
From his MPT office in Luxembourg, Savage has a chance to get to know the cultures and ways of doing business in each European country, and he and his team adapt to international styles as they interact with industry players and potential investors. “Once you recognize other cultures’ personalities, it’s important to adjust,” Savage says, noting flexibility is required for the financial side of things, too. “You’ve got to have creativity and flexibility with the way to fund and structure deals. Every country is different, and the EU has 27 countries and there are others not in the EU. There are different ways of thinking.”
He views his team as a front line, maintaining existing relationships in Europe and looking out for potential new opportunities for MPT. And the company’s philosophy is simple, no matter where in the world MPT does research and underwriting. “We’re open to finding good people who run good hospitals in communities where they’re truly needed,” Savage says.
Shortly after the Swiss transaction was announced in May 2019, the company completed a deal further east—in Australia. The transaction culminated last June after more than a decade of exploration there. “That’s what I would call the highlight of the year,” says COO Emmett E. McLean, touting the $0.9 billion investment in 11 hospitals operated by Healthscope, Ltd.
Long eyeing the Australian market, MPT had become knowledgeable about the Australian hospital economy. So after preliminary discussions in 2018, circumstances converged in 2019 and MPT completed the deal by June, securing valuable relationships with Healthscope, the second largest private hospital operator in Australia, and Brookfield Business Partners, L.P., one of the largest asset management companies in the world. The relationships with these companies will help MPT establish itself in a new part of the globe.
The Healthscope purchase and lease-back arrangement solidifies a long-term presence in the country and the “Australasia” region. Furthermore, MPT announced plans to open a new office in Sydney, a very public statement that MPT is officially open for business and open to new opportunities in Australia and in other countries in the region.
As MPT increased its geographic footprint and diversity, it also improved operator diversification. One of the company’s largest operators, Steward Health Care LLC, now takes up a less dominant space in the overall portfolio.
Longtime Birmingham, Alabama-area commercial real estate professional Bob McLean joined MPT last fall and will move to Sydney in 2020 to man the new office there. “We’ve had a relationship with Bob for years, and his experience will serve us well in Australia,” Aldag says.
In addition to furthering relations with Brookfield and Healthscope, McLean will be working to strengthen ties with other hospital operators in Australia. “We feel like this initial acquisition is just the tip of the iceberg,” McLean says. “Australia is a huge country with lots of potential, and we believe MPT can have a positive impact on the country and the healthcare system. We want to share our resources and expertise to make healthcare in Australia even better.”
Savage explains that as part of the lease arrangements in the Healthscope deal, MPT also committed up to $350 million in development and expansion funds for the 11 Australian hospitals. One of them, The Geelong Clinic outside of Melbourne, has already claimed $20 million to add services and physician suites. “We’re using MPT funds to help upgrade these facilities, which ultimately helps our shareholders by increasing returns on investment and demonstrating our commitment to Healthscope,” Savage says.
He compares the Australian deal to the acquisitions MPT made seven years ago in Germany, where MPT started with 11 hospitals and now has 81. “The Australia move gives us a presence in a whole other part of the world. It’s exciting,” Savage says, “and people are going to know who MPT is.”
The Swiss and Australian deals symbolize the larger expansion of MPT as a company set for even greater global growth and expansion. In 2019, investors and shareholders alike saw more evidence than ever that the company can do business on a global scale with alacrity, ingenuity and street smarts that come from 16 years of recognizing great investment opportunities.
The headlines sounded impressive. MPT closed on a $700 million acquisition of 10 U.S. hospitals involving top players in the healthcare industry and in the world of investment finance. Yet when MPT acquired the group of hospitals from LifePoint Health, Inc., one of the largest hospital operators in the U.S., and worked with esteemed private equity firm Apollo Global Management, Inc., to do it, the transaction felt more like a natural progression. It stemmed from years of MPT’s solid business dealings with each company, making this impressive transaction almost expected, even inevitable.
“It’s really a relationship story to the fullest,” says Edward K. Aldag, Jr., chairman, president and CEO of MPT. Aldag has been well acquainted with Marty Rash, a longtime CEO of healthcare operators and a current LifePoint board member, and MPT CFO Steve Hamner has forged strong relationships with leading executives at Apollo. The LifePoint transaction contributed to an unprecedented year of 64% growth for MPT, all resulting from previous endeavors and relationship-building.
MPT’s emphasis on personalizing business relations helped produce the head-turning results in 2019, including the fourth quarter LifePoint acquisition. The 10-hospital purchase reflected the spirit of collaboration in the company that extends from the top executives down through the underwriting and asset management teams. “We got the hospitals we wanted, they got the financial resources they wanted, and we’re dealing with people we’ve known for years,” says Aldag.
When Apollo was interested in generating capital with the sale of LifePoint real estate, Aldag says it called one entity: MPT.
“We have a tremendous relationship with Apollo because we have always been straightforward with them,” he adds. “We were able to do this transaction with them as a ‘hey, let’s work this out,’ friendly type of deal.”
Yet friendly relations didn’t mean MPT let up on the extensive underwriting process it uses to assess potential properties, and LifePoint and Apollo wouldn’t have it any other way. The due diligence MPT is known for is one reason why there’s mutual respect among this trio of companies.
MPT selected and purchased the 10 facilities in six states, leasing them back to LifePoint under long-term agreements. “We visited a number of facilities to determine which best fit with our existing LifePoint assets,” says Matt Lyden, director, Asset Management and Underwriting at MPT.
With existing relationships with each company, MPT knows LifePoint is a high-quality operator backed by a high-quality equity group. “We’re very comfortable and confident in that long-term relationship and that LifePoint will do a great job managing and operating these facilities,” says Scott Heald, director, Asset Management and Underwriting of MPT.
MPT and Apollo first collaborated in 2016, when the MPT-owned real estate holdings of Capella Healthcare, Inc., and the operator itself merged with Apollo-affiliated RegionalCare Hospital Partners. The newly formed company moved forward as RCCH, and then in November 2018, RCCH merged with LifePoint. MPT maintained close relations with the changing management through all those transitions.
“It’s rewarding to look back at the history, how our relationship goes back and how it’s grown,” says Lyden. “We’ve always been able to transition in a way that I hope feels seamless, and that’s the feedback we’ve always gotten. If that weren’t the case, they wouldn’t continue to look to us to finance and build on the relationship.”
Through its sale-and-leaseback arrangements, MPT helps hospitals explore better ways of providing service. They enjoy cash infusions that allow them to hire more staff, recruit skilled physicians, invest in renovations and new technology, expand service lines and more.
Building on the existing relationship with healthcare operators is always an ultimate goal, but asset managers must create the relationship first. With LifePoint, it’s been a natural fit. “LifePoint has a strategic and execution-oriented culture on their end. I think what they’ve found is that we are the same,” says Scott Heald, director, Asset Management and Underwriting at MPT.
That’s possible, in part, because so many at MPT have healthcare-related backgrounds. Heald, for instance, worked in healthcare finance, including healthcare mergers and acquisitions, prior to joining MPT. A certified public accountant, he finds it satisfying to continue working in a health-related sphere. Similarly, Heald’s colleague, Lyden, can offer LifePoint more than a typical asset manager does because he is a former hospital CEO armed with an understanding about an operator’s literal day-to-day needs.
Heald’s and Lyden’s expertise helps them assess properties during the underwriting process. Sometimes the hard questions that they know to ask the operators actually help operators fine-tune their business plans. “We’re not just a company that owns a bunch of real estate,” says Heald. “We work very hard to understand what our tenants are doing operationally and what they’re doing from a healthcare perspective. We can talk the same language.” Lyden agrees, adding, “There’s mutual respect between MPT and LifePoint. That’s what we’re hoping to accomplish with all of the operators we serve.”
MPT pursues close relationships with operators who typically sign 20- to 30-year leases because the company understands that personal connections can help weather any rough patches during these long-term commitments.
The LifePoint transaction makes a great case study about how interconnected the healthcare world has become with the finance sector and how private equity firms are taking notice. “This $700 million transaction potentially opens up opportunities with others in the sector who see how that triangle between the private equity, the healthcare operator and the real estate owner has worked very well,” Heald says.
In East Los Angeles, there’s a hospital that stands as more than a healthcare facility. It represents a safe harbor for medical needs and is a trusted resource for preventive medicine, with proactive healthcare programming and services. It’s a strong, quality hospital vital to this underserved section of L.A.
Run by Prospect Medical Holdings, Inc., it is also one of a collection of 14 U.S. hospitals and two behavioral health hospital properties that MPT acquired in 2019 as part of a significant $1.55 billion acquisition and then leased back to the operator. “Prospect is a new operator for us, and we like the role its hospitals play in their communities,” says Rosa Hooper, vice president and managing director, Asset Management and Underwriting at MPT. “We look at diversification in a number of ways, including operator diversification and geographic diversification. We also look at how hospitals strengthen communities.”
Prospect’s intriguing business model touts “Coordinated-Regional-Care,” which it says “prefigures the objectives of healthcare reform—to improve quality, reduce cost and enhance overall patient care.”
“Prospect has developed a business plan that includes successful and profitable treatment of patients whose treatment costs are reimbursed by state-based and other sources that many other hospitals are less equipped to handle,” explains Steve Hamner, MPT chief financial officer. “This specialized expertise is critical to the long-term success of the U.S. hospital system because we expect the proportion of these patients will continue to increase in future years.”
Prospect provides dignified, quality care and also maintains a healthy profit margin. “Prospect found a way to consistently and sustainably treat those patients over the long term,” Hamner says. “And those patients get excellent treatment. We actually expect to see additional hospital systems implement the systems, synergies and efficiencies necessary to profitably treat these patients, looking to Prospect for examples.”
It’s treatment that MPT finds rewarding to facilitate via the company’s financing capability. “People have healthcare because we made a difference,” MPT Chairman, President and CEO Edward K. Aldag, Jr., says. “We’re very proud of that.”
The Prospect hospitals that MPT acquired are clustered in a handful of markets, including Southern California in the West and Delaware County, Pennsylvania, in the East. The underwriting and asset management team examined every property purchased and is now charged with day-to-day matters related to the lease. “Through regular calls with CFOs and CEOs, we know what’s going on at each hospital. They have the autonomy to operate, but we are very in tune with them,” Hooper says, noting how diligently MPT reviews financial and operating data supplied by its tenants. “We will get on their last, good nerve,” she adds, laughing.
The California regional Prospect hospitals operate as a system, with a group that includes a 453-bed hospital in Culver City on one end of the spectrum and the 50-bed hospital in East L.A. on the other. They leverage referrals to one another, along with physician group relationships, as they operate under managed-care contracts. “It’s the system in which they operate and the unique leverage among each other that have made them a success,” says Lou Cohen, director, Asset Management and Underwriting, adding that value-based purchasing helps make the budget work and keeps the operator profitable. “Prospect’s model in the East L.A. facility is set up so they have a low-cost infrastructure, just taking care of essential medical needs of that population. They can refer patients to sister hospitals with more capabilities, as needed.”
Prospect takes a proactive stance on improving the health and wellness of area residents. Through prevention tips and health screenings, it’s making a difference in a community that struggles with diabetes, hypertension and other chronic diseases. “If your incentive is to keep the population healthy, you’re going to provide those types of services to the community,” Cohen explains, noting the goal is to prevent hospital visits in the first place and to address the behavioral health needs the hospital sees among its patients. And Prospect facilities help fill a gap in hospital care. “The larger, academic medical centers don’t necessarily want to serve mental health needs, for instance, and they don’t want the acute care clogging their ERs,” he says. “Prospect will deliver those services. They have chosen to provide them.”
In Delaware County, Pennsylvania, four Prospect hospitals play just as vital a role in their communities. From a large, 400-bed hospital to three smaller ones, the group has the highest market share. “They’re a close-knit group that creates a system in that market,” Cohen says.
Prospect’s successful strategy is a promising model for other hospital systems in the U.S., says Hamner, who adds that even more of these types of facilities are needed in America. “We’ve made a $1 billion-plus investment in Prospect for good reason,” Hamner says. “MPT believes we need more operators like Prospect. Otherwise, our larger healthcare system would face demands it is unequipped to satisfy.”
Prospect provides much-needed, convenient, quality care, and MPT prides itself on offering a long-term financing arrangement that will keep Prospect facilities operating for years to come. It goes back to what MPT looks for in any transaction: that a hospital is serving local needs. And MPT saw it in Prospect facilities.