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Medical Properties to Buy 30-Hospital Real Estate Portfolio

Zacks Equity Research

Expanding its footprint in the United Kingdom, Medical Properties Trust, Inc. MPW, also known as MPT, recently announced definitive agreements to purchase real estate of 30 acute care hospital facilities. The company will shell out around £1.5 billion ($2 billion) for this deal.

The U.K. market is witnessing growing demand for healthcare properties amid attractive demographics as well as diligent efforts by the government to provide healthcare to the citizens. Given these favorable factors, MPT’s latest acquisition is a strategic fit.

The properties are leased under long-term net leases to affiliates of BMI Healthcare, a renowned private operator of acute hospitals. Additionally, in a related transaction, BMI will be acquired by the affiliates of Circle Health, post which, the latter will assume operations of BMI’s 52 facilities in the United Kingdom. In fact, Circle is also a tenant of MPT, and will heavily invest in facility infrastructure, technology and people.

The hospitals will then be leased under a master lease structure that will be guaranteed by Circle. The lease will be for an initial fixed term of 30 years, and can be extended by 10 years through two five-year extension options. Further, it will carry annual rent escalators linked to UK CPI.

The lease arrangement is anticipated to provide a yield of 8.9% on a GAAP basis. The acquisition is aimed at providing MPT an initial lease payment coverage ratio of nearly two times the recent EBITDAR. Further, Circle’s strategic and operational initiatives are likely to expand coverage.

The deal is anticipated to close in first-quarter 2020 subject to customary closing norms. The company plans to fund the buyout with cash on hand, including capital raised from the recent U.S. dollar equity and sterling-denominated bond offerings and amounts borrowed under an unsecured sterling-denominated term loan facility.

The transaction will also be immediately accretive, providing improvement in funds from operation (FFO) per share. In fact, based on year-to-date transactions in 2019 and MPT’s attractive capital structure, the company expects an annual run-rate of $1.24-$1.27 for net income per share and $1.65-$1.68 for normalized FFO per share.

Shares of this Zacks Rank #3 (Hold) company have gained 4.9% in the past three months against the industry’s decline of 1.6%.

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Prologis, Inc. PLD currently sports a Zacks Rank of 1 (Strong Buy). The company’s FFO per share estimate for 2019 has been revised 0.3% upward to $3.31 in two months’ time. Shares of the company have rallied 10.7% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Duke Realty's DRE Zacks Consensus Estimate for the current-year FFO per share has moved north to $1.44 in the past two months. This Zacks Rank #2 (Buy) company’s shares have gained 9.2% over the past six months.

Cousins Properties Incorporated’s CUZ Zacks Consensus Estimate for the ongoing-year FFO per share has moved 2.1% north to $2.96 over the past two months. Shares of this Zacks Rank #2 company have gained 12.8% in six months’ time.

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Click to get this free report Cousins Properties Incorporated (CUZ) : Free Stock Analysis Report Duke Realty Corporation (DRE) : Free Stock Analysis Report Prologis, Inc. (PLD) : Free Stock Analysis Report Medical Properties Trust, Inc. (MPW) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research