REITs Partner With PE on Healthcare Properties

REITs are increasingly eyeing the healthcare space, as a recent deal between Medical Properties Trust and healthcare-focused PE firm GTCR illustrates.

In an example of two sectors—healthcare and real estate—coming together into one private equity deal, Chicago-based firm GTCR announced it has agreed to sell portfolio company Capella Healthcare to Medical Properties Trust, a real estate investment trust (REIT). The transaction, valued at $900M in cash, is expected to close before the end of this year.

REITs have become increasingly aggressive in the last six to eight months in buying up hospital companies, explains Josh Earl, a principal at GTCR. What’s more, there is a scarcity of assets, he says. Medical Properties Trust made an attractive offer for Capella Healthcare, a provider of healthcare services, that GTCR could not pass up.

“This is an attractive time in the market” says Earl.

Medical Properties Trust, headquartered in Birmingham, Ala., focuses entirely on acquiring licensed hospitals, claiming it is the only such investment vehicle to have that strategy. The company has approximately $5.5B in assets, including acute-care hospitals, inpatient rehabilitation hospitals, long-term acute-care hospitals, and other medical and surgical facilities.

GTCR teamed up with the founders of Capella in 2005 to create the portfolio company. Today, Capella is one of the largest for-profit hospital companies in the United States, according to GTCR.

“We built this company from scratch,” Earl explains.

Capella, based in Franklin, Tenn., owns or operates acute-care and specialty hospital facilities in six states. By executing an acquisition model to foster growth, Capella and GTCR focused on buying undermanaged assets and smaller parts of larger hospitals. Since 2005, the two entities acquired 17 hospitals as part of a buy-and-build strategy. With this deal, GTCR and Capella have sold the company’s entire portfolio of seven hospitals to Medical Properties Trust.

Upon completion of the transaction, Capella’s management team will remain on board, according to the announcement. Michael Wiechart, president and chief executive officer of Capella, will continue to run the day–to–day operations of the company.

GTCR is leaving the Capella investment during a growth stage. Investments in the portfolio company have positioned it for further expansion, including four additional hospitals that have chosen to partner with Capella. Due diligence is currently in process for those deals.

GTCR invests in a broad spectrum of opportunities in the healthcare space. Hospitals, in particular, remain an interesting investment proposition for the firm.

“The hospital market continues to be attractive at certain entry points,” says Earl.