Capella Healthcare to Merge with RegionalCare, Creating One of the U.S.'s Largest Hospital Operating Companies

Medical Properties Trust, Inc. (NYSE: MPW) has agreed to merge Capella Healthcare, Inc. into RegionalCare Hospital Partners, an affiliate of Apollo Global Management, LLC (NYSE: APO), to create one of the largest healthcare operating companies in the United States. 

Capella and RegionalCare currently operate 18 hospitals across 12 states, with no overlap, generating annual revenues of $1.7 billion.

The merger was made possible by MPT’s agreement to sell its equity interest in Capella’s operations, which it had acquired in August 2015 as part of a larger agreement to purchase the real estate assets of seven Capella facilities.

“This announced merger between Capella and RegionalCare demonstrates the significant value of MPT’s assets as well as the power of our underwriting process,” said Edward K. Aldag, Jr., Chairman, President and CEO of Medical Properties Trust. “It also underscores MPT’s commitment to further strengthen our balance sheet in accordance with our corporate targets.”

Under terms of the agreement, MPT will receive $390 million for its equity investment and loans made as part of MPT’s August 2015 transactions with Capella, as well as $210 million in prepayment of two mortgage loans for hospitals in Russellville, AR, and Lawton, OK, that were part of the August transactions.  MPT will retain an approximate $100 million loan for a hospital property in Olympia, WA, that is expected to be converted to a sale/leaseback arrangement following regulatory approval.

In addition, both Medical Properties Trust and an Apollo affiliate will invest up to $50 million each in unsecured notes to be issued by RegionalCare.

Net proceeds to MPT of more than $550 million will be used to reduce the company’s debt to approximately 5.6 times pro forma annualized EBITDA and 49 percent of total gross assets.

 “The transaction brings added focus to MPT’s outstanding real estate properties, resulting in our real estate assets being leased to RegionalCare/Capella – a larger, stronger healthcare enterprise – with substantial equity capitalization provided by RegionalCare and Apollo Funds.”

“The relationship with Capella remains very important to us,” Aldag added, “and we are pleased that we will continue to have Capella as one of our tenants.” 

“We wish CEO Mike Wiechart and his team the greatest success as part of the RegionalCare/Capella operating team.

Shareholder benefits in addition to MPT’s improved debt profile include the following:

• MPT will maintain its ownership of five Capella Hospitals (in Hot Springs, AR; Camden, SC; Hartsville, SC; Muskogee, OK; and McMinnville, OR);

• MPT will retain the right to purchase Capella’s acute care hospital in Olympia, WA, following regulatory approval;

• The six Capella hospitals previously acquired and leased back by MPT, including the pending Olympia, WA sale/leaseback, will be leased to Apollo’s strongly capitalized RegionalCare/Capella affiliates, which have announced aggressive growth plans; and,

• MPT and the newly combined RegionalCare/Capella operating entity have entered into a strategic agreement under which MPT is expected to provide future sale/leaseback funding to the new entity for the acquisition of additional hospital properties.