BUSINESS MODEL DESIGNED FOR INFLATION
BUSINESS MODEL DESIGNED FOR INFLATION
CASE STUDY: 2017 REAL ESTATE INVESTMENTS
CPI-BASED RENT ESCALATORS PROTECT INVESTMENT SPREADS, BY DESIGN
2017 Real Estate Investment Summary
➤ $2.1 bn invested at 7.6% blended initial cash yield (U.S. hospitals in 9 states with 3 operators, German IRFs)¹
➤ Investments coincided with issuance of €500 mm 3.325% Notes Due 2025 and $1.4 bn 5.0% Notes Due 2027 (~4.5% blended rate)²
➤ Initial cash cap rate, less cost of debt, represents a~310bps spread
➤ Cash yield-on-cost has since escalated to ~8.75% for 2023
Scenario
Assumed
2023-2027
Assumed '25 €
Assumed '27 $
Refinancing
Refinancing
2027 Cash
Yield-on-Cost
Refinanced
Cost of Debt
Rent CAGR³
Rate
Rate
Spread to
Refinanced
Cost of Debt
Low Inflation
2.3%
5.0%
6.0%
9.6%
5.7%
390bps
Moderate Inflation
3.5%
6.5%
7.5%
10.0%
7.2%
280bps
High Inflation
5.0%
8.0%
9.0%
10.6%
8.7%
190bps
~$40 to 65 mm increase in annual cash rents from 2017 to 2027
➤ Major implications for portfolio value (~$600 mm to $1 bn at 6.5% cap rate)
Achieves intended offset to inflation-driven increases in debt cost
1 Excludes $100 mm investment in Steward equity and development deliveries
2 Investments presented as entirely debt-funded for illustration purposes; MPT also completed ~$1 bn in follow-on offering and private placement of common stock in September of 2016 and raised
~$570 mm in a subsequent follow-on offering in April of 2017
3 Reflects 3% fixed escalator on Utah properties now operated by CommonSpirit, includes additional amounts paid related to Utah via Steward master lease and escalates German rents at 70% of CPI
MPT
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