US REIT in $900m takeover of leading German healthcare provider

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Medical Properties Trust Inc, (MPT) the Alabama-headquartered healthcare REIT, took a major further step in its European expansion when it committed to buy and lease back nearly all the real estate assets of the Dutch MEDIAN Kliniken Group, the largest provider of post-acute and acute rehabilitation services in Germany. The price being paid is €770m, or nearly $900m. The deal is the largest foreign investment in European healthcare property to date.

In a complex deal involving Netherlands-based Waterland Private Equity, the new majority owner of MEDIAN Kliniken, MPT will buy and lease back to MEDIAN the real estate assets of 38 rehabilitation and two acute care hospitals throughout Germany, under a 27-year master lease. MEDIAN has approximately 9,400 beds throughout Germany, so the new deal will bring MPT’s total number of beds to 11,280 across the country.

The REIT will process the transaction by working with an affiliate of Waterland, which is buying a 94.9% equity interest in MEDIAN Kliniken. MPT will acquire the remaining 5.9 percent stake and will provide loans to Waterland and MEDIAN for up to the purchase price of the sale/leaseback real estate. The loans will be offset against the purchase prices of each real estate acquisition.

Last year MPT made its first foray into the German healthcare market (reported on in these pages) when it bought eleven clinics leased to RHM Kliniken, itself also a subsidiary of Waterland, for €184m.

According to Edward Aldag Jr, the chairman, president and CEO of MPT, “This is an important transaction because it significantly increases our asset base to approximately $4.5 billion, and builds on our recent entry into the attractive Western European market. The acquisition of the MEDIAN real estate is a very compelling and unique opportunity for MPT and is fully aligned with our strategy to diversify our market-leading hospital portfolio across geography, operator and facility type.”

MPT said  that, under the terms of the agreement, it would earn an initial lease rate well within MPT’s 8.0% to 11.0% target range, with annual escalators at the greater of 1% or 70% of German CPI. Aggregate earnings before interest, taxes, depreciation, amortization and rent for the 40 hospitals are also expected to approximate MPT’s historical underwriting targets for post-acute hospitals.

REFIRE: MPT highlight the particularities of the German market as making it so attractive for its European expansion. In particular, the fact that German law (at least nominally) guarantees healthcare access, coverage and a high standard of care for everyone. Specifically, German citizens ‘right’ to rehabilitation – along with a much broader definition of rehabilitation than the US, to include prevention of disabilities and the avoidance of physical and mental restrictions – has the goal of maximising functional abilities to prevent early retirement or long-term care.

For MPT this is important, as the company’s business model makes it the sole US healthcare REIT focused on hospitals and other facilities where patients are admitted only by doctors. In Germany, 70% of rehabilitation insurance is covered by German public pension funds and statutory health insurance. With rehab spending in Germany rising at more than 2.7% annually, an aging population and an increase in the number of single households, the average length of stay in acute care hospitals is actually declining, which leads to higher conversions and revenue. With market consolidation, the number of rehab facilities in Germany is decreasing, dealing a stronger hand to the better-capitalised companies such as MEDIAN. With MPT’s recent entrance into the UK market with its acquisition of CircleBath hospital for $50m, the company is clearly committing resources to building out its European and German platform.