Ontario, Calif.-based Prime Healthcare has bought the real estate of four facilities that comprise Saint Clare's Health in Denville, N.J., and St. Francis Medical Center in Lynwood, Calif., from Medical Properties Trust for $350 million.
Seven things to know:
1. The transaction, funded with $250 million of cash on hand and a $100 million promissory note carried by MPT, results in a $215 million reduction in Prime's debt obligations to MPT related to these assets.
2. MPT previously owned the real estate of Saint Clare's and St. Francis since Prime's acquisition of the respective facility operations in 2015 and 2020.
3. Prime's acquisition of the real estate is significant as the hospital real estate was under fixed lease agreement with MPT that included a lease maturity date of August 2035 and effective lease rates that would have approximated 14.25% and 11.25% for the respective properties at the end of lease.
4. However, due to market conditions, Prime was able to negotiate an early buyout of the assets for $350 million resulting in a nominal increase over the initial lease base of the assets resulting in material annual cash flow savings.
5. Prime, a 44-hospital system, also negotiated purchase options for the remaining real estate still under lease with MPT related to the operations at Lake Huron Medical Center in Port Huron, Mich., Saint Michael's Medical Center in Newark, N.J., St. Mary's Medical Center in Blue Springs, Mo., and St. Joseph Medical Center in Kansas City. The real estate purchase options for the four remaining facilities can be exercised by Prime at any time per its discretion with no prepayment penalty.
6. Over the last four years, Prime has re-invested more than $872 million back into the company through hospital real estate acquisitions, CFO Steve Aleman said in an April 15 news release. These transactions have solidified the health systems "quality-focused mission while unencumbering the facilities from debt," he said.
7. Prime aims to acquire the real estate for all its operations and reduce the debt level associated with the facilities. The company said it either owns and/or has a defined purchase option for all the real estate assets related to its 30 hospital locations. Prime Healthcare Foundation owns and operates another 14 nonprofit facilities in six states.