Medical Properties Trust, Inc. (MPW - Free Report) , also known as MPT, announced that it has entered into definitive agreement with One Equity Partners (“OEP”), per which the company will sell its equity stake in Ernest Health, Inc.
Further, certain members of Ernest management have agreed to sell interests in Ernest to OEP. Upon closing MPT expects its sale proceeds to be $175 million. This will result in nearly 13% unlevered internal rate of return (IRR) on its original $96-million investment.
Notably, MPT will continue to own the real estate interests in 25 post-acute hospitals operated by Ernest. This represents an aggregate investment of around $500 million, including mortgage loans, totaling $115 million, secured by four hospitals.
Per the agreement, MPT has provided Ernest an option to prepay the mortgage debt without any penalty. In exchange, MPT has been granted some preferential rights pertaining to future real estate acquisitions.
The transaction, which is subject to certain customary closing conditions, including government approvals, is expected to close in the second half of 2018. Furthermore, proceeds from the sale will be used to reduce borrowings under MPT’s revolving credit facility. This is likely to boost the company’s financial flexibility and result in interest cost savings.
Per management, One Equity’s focus on Ernest reaffirms the accretive investment made by MPT in 2012. In fact, the significant IRR realized from the investment highlights profitability of the investment. Additionally, this equity investment also enabled the company to create a real estate portfolio of post-acute hospitals that generates impressive returns. Hence, the investment has created significant share value for MPT.
Per Equity One’s management, through this acquisition, it will leverage on Ernest’s positive clinical and patient outcomes to accelerate its growth momentum.
Shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to, in the past year. The stock has rallied 10.8%, while the industry recorded gain of 1% during this time frame.
Stocks Worth a Look
A few better-ranked stocks from the same space are Arbor Realty Trust (ABR - Free Report) , Chatham Lodging Trust (CLDT - Free Report) and Prologis, Inc. (PLD - Free Report) . While Arbor Realty sports a Zacks Rank of 1 (Strong Buy), Chatham Lodging Trust and Prologis carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share has risen 14.4% to $1.03 in a month’s time. Its shares have returned 27.9% over the past year.
Chatham Lodging’s FFO per share estimates for the current year have moved 1% north to $1.93 in the past month. Its shares have gained 11.1% in a year’s time.
Prologis’ FFO per share estimates for 2018 have moved up 0.7% to $2.98 over the past month. Its shares have appreciated 19.3% over the past year.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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