Medical Properties Trust to Sell Hospitals to Prospect Medical Holdings for $457M

Medical Properties Trust, a REIT that focuses on hospital facilities and which claims to be the second largest owner of hospital beds in the U.S. at 46,000, announced a complex sale of three hospitals in Connecticut.

MPT purchased the Connecticut hospitals for approximately $457 million. That’s the amount that Prospect Medical Holdings will pay for the trio of hospitals. Prospect currently has 18,000 employees at 16 hospitals with 11,000 affiliated physicians and 600,000 members.

And then Yale New Haven Health will buy the hospital operations from Prospect.

The story starts in 2019 when MPT agreed to a sale-leaseback deal with Prospect Medical Holdings. The latter sold its real estate assets in California, Connecticut, and Pennsylvania for $1.55 billion, keeping other properties in Rhode Island, New Jersey, and Texas. Prospect leased back the properties and continued operating its facilities there, using the proceeds to pay off existing debt.

At the time, Prospect was owned by private equity firm Leonard Green & Partners. According to the site Private Equity Stakeholder Project, Prospect ran hospitals as for-profits. “Over the course of their ownership, Leonard Green and other owners have collected at least $658 million in fees and dividends from Prospect despite operating challenges, substantially underfunded pensions, and regulatory scrutiny,” the site reported.

In 2021, Prospect bought back the Leonard Green stake, as Axios reported, and then looked to sell assets on the East and West Coasts. Given growing value of medical facilities and office after the pandemic onset, the timing would be good for a sale.

For Yale New Haven to buy the Connecticut hospitals, letting Prospect exit the state, the latter had to own them, which required the repurchase from MPT.

Why sell back for the original cost? Because it enabled the deal. MPT had made $104 million in rent payments from Prospect during the roughly three years it owned the Connecticut buildings, or approximately a 22.8% return on its investment—an average of 7.6% return per year.

MPT will use the cash “to reduce debt and fund select acquisition and other investment opportunities.” With a nearly $400 million from a recent asset sale and loan repayment proceeds, and after reducing hundreds of millions in debt, MPT will have $1 billion of immediately available liquidity.