Medical Properties Trust (MPW) to Invest $1.25B in Steward Health Care System

September 26, 2016 4:50 PM EDT

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Steward Health Care System announced today that Medical Properties Trust, Inc. (NYSE: MPW) will invest $1.25 billion in Steward through a real estate sale-leaseback transaction and acquisition of a limited equity stake in the company. The $1.25 billion total value of the transaction includes a $1.2 billion investment in hospital real estate and a $50 million equity investment in Steward.

The investment by MPT sets the stage for Steward, a privately owned health care company headquartered in Boston, Massachusetts, to expand nationally, continue to provide high quality, affordable community based health care services, and return the original investment Cerberus made in Steward almost 6 years ago. The agreement also includes a commitment by MPT to participate in up to the next $1.0 billion of Steward's hospital acquisitions.

"This investment, along with Cerberus' continued commitment sets the stage for Steward's future," said Ralph de la Torre, Founder, Chairman and CEO of Steward Health Care System. "The Medical Properties Trust investment will provide Steward a second source of capital funding. This ensures Steward will continue to provide high quality health care at an affordable cost in New England, and enables us to grow our proven quality model nationally," he added. "We believe this investment is a strong validation of our business model and an endorsement of our ability to scale nationally."

Steward's nationally recognized ACO model has enabled dramatic quality and cost containment achievements in the communities it serves. Steward has not only been successful in wellness but has had dramatic improvements in in-patient quality. Observed versus expected mortality rates plummeted from 1.10 to 0.74 from 2012-2015. In 2014, all of Steward's hospitals received the prestigious Leapfrog A rating which exemplifies the highest quality in patient care. Steward has seen dramatic reductions in hospital acquired infections and has shown outstanding compliance with evidence based care, achieving a 98% compliance for care measures in the case of patients with heart attacks, congestive heart failure, pneumonia, and patients undergoing surgery.

The investment also secures long-term participation from Steward's world-class management team by affording them a greater equity stake in the company. It also provides over $100 million in additional funding designated for capital improvements at existing Steward facilities. Steward will continue to manage all hospital properties and other facilities.

The deal unlocks the value of Steward's real estate assets, pays off corporate debt, strengthens the company financially, broadens its ownership base, and will provide fresh capital to fund expansion into regions of the country comfortable with the integrated Accountable Care Organization (ACO) model honed by Steward.

Founded in November 2010 with investment from Cerberus, Steward built an integrated portfolio of inpatient and outpatient services in the communities it serves. Steward is one of the largest employers in Massachusetts with more than 17,000 employees and estimated $2.3 billion in revenue in 2016. Steward is the largest for-profit health care provider in Massachusetts and counts itself amongst the largest taxpayers at the state and local levels.

Since its founding, Steward has invested more than $800 million in infrastructure, technology, facilities and services to benefit its patients and their communities. Over this same period, Steward fully funded its legacy pension plan with a total cash and market contribution exceeding $300 million (transferring the pension into an insured multi-employer joint governance plan), all the while agreeing to a $15 per hour living wage for its employees in Greater Boston. In 2015, Steward posted an operating profit of $131 million with revenue growing to $2.2 billion. Additionally, over the last two years, Steward's total medical expenses increased at a rate below Massachusetts' target benchmark of 3.6 percent.

"We are delighted to establish a relationship with one the most forward-thinking healthcare providers in the country," said Edward K. Aldag, Jr., Chairman, President and CEO of Medical Properties Trust. "Dr. de la Torre and his physician leadership team at Steward have been highly innovative in delivering healthcare to the markets they serve. Like MPT, Steward believes in reinvesting in their facilities, not only in the physical plant, but also technology, equipment and new services. This mindset will prove very beneficial to the people of Massachusetts that they serve, and we look forward to expanding our relationship with Steward in the in the years ahead."


The transaction is subject to customary closing conditions including the Hart-Scott-Rodino Premerger Notification Program and is expected to close during the fourth quarter of 2016.

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