Ed Aldag and his team at Medical Properties Trust created a new niche in real estate investment trusts by focusing solely on hospitals. The result has been one healthy Birmingham success story.
Aldag and the man who would serve as his chief financial officer were wrapping up the effort. They were at the last destination of an extended trip of meeting with portfolio and financial managers for 45 minutes to an hour at a time in the world’s financial capitals, explaining their concept for a new kind of real estate investment trust (REIT) that would focus on investing in hospital real estate. They had flown into Washington D.C. from London and were in their last meeting. “We were sitting in a room like this with a bank of clear windows onto the corridor. My CFO was pulled out of the meeting and I could see him there through the glass on the phone. While I was watching, he bent over and put his hand to his head,” Aldag remembers.
“I’m talking to the investor and thinking, ‘Oh my gosh, it is over. It is over. American Express is going to be looking for me for the rest of my life.’ I had put everything I had—everything my family had—into this company. He came back into the room and I asked what was wrong and he said, ‘Well, we have subscriptions for $900 million and we have to decide how much of it to take.’ We didn’t take the $900 million because I told the investors I could put the money to work and go public within a year. So we took $250 million and in July of 2005, we went public,” Aldag says.
The rest, as they say, is history, although the young company had one more frightening episode just before going public. “We were in San Francisco on a stop before flying to New York to see the stock listed on the exchange. I called my wife late that night and said, ‘Melinda, we are finished. We have it done and the only thing that could stop us now would be a terrorist attack or something like that.’ Literally three hours later she called me and said, ‘You need to turn the TV on.’ It was the day of the London train terror bombings, July 7, 2005. So we lost all of our London orders, but we didn’t lose any others and were still able to get listed the next day,” Aldag says.
Going public with Medical Properties Trust was the culmination of a journey that began with Aldag in the 1980s working for a real estate syndication firm in Montgomery, freshly armed with a degree from the University of Alabama. “The 1986 tax reform act had everyone in the business preoccupied, so they gave me a project working with a company out of Harrisburg, Pennsylvania, that wanted to build a rehab hospital,” he explains. He worked putting together deals for that company until the Clinton Administration’s first attempt at health care reform brought health-related transactions to a screeching halt. “So I worked for a company that was putting together equity funds for low income housing tax credits and historic tax credits. Made good money, but it wasn’t really what I loved. I always wanted to get back into health care,”Aldag says. “In early 2001, I sold my interest in the company I was working for then and had enough money where I could sit around for a while and figure out what I wanted to do. I always wanted to find a way back into health care.”
The way back in was to develop a REIT that provided hospital financing. At the time, there were more than a dozen REITs that financed nursing homes, medical office buildings, and the like, but none that specialized in hospitals. “My concept was to put together a group of people who came out of owning and operating hospitals, not real estate people or finance people, but people who understand hospitals,”Aldag says. “It really is simple. But it is like most things—if you know and understand it, it is simple. If you are looking at it from the outside, it is not so simple. Hospitals seem complicated because of all of the regulations. But our model is very simple. It is the same model that the retail stores learned a long time ago—they can make money and improve profit margins by having their money invested in operations. Real estate investors around the world require a much lower return. So we are their real estate investors and do a sale/ leaseback with them. They are able to take the capital that was tied up in real estate and put it back in operations, where they can earn more profits.
“That means more charitable care, better care,” he continues. “Hospitals with higher profit margin are able to provide better patient satisfaction and better patient outcomes. It is just a win-win.”
It wasn’t an easy road and it required a real effort at educating the industry to the potential. Despite its ultimately successful launch, they heard plenty of “No”s. Health care is among the most regulated, headline-creating industries imaginable. Aldag lives comfortably within that seeming volatility. “About four years ago, I finally figured out the right way to explain it to people,” he says. “You cannot even imagine a time where we would not have hospitals in this country. Are hospital reimbursements going to change or the way people are treated in hospitals going to change? Absolutely, but hospitals are not going to go away. So if you have operators who can adjust to change, you can manage the business.
“Our management team came out of owning and operating hospitals. I have an entire department that analyzes what the future is going to bring so that we can stay one step ahead,” he explains. “We try and help our tenants to make sure they are doing the same thing. So just like anything else, if you do your homework and stay involved in it, then it is not a complicated issue, though it looks that way from the outside.”
With holdings across the United States, as well as in Western Europe (Germany, Spain, Italy, and the UK), Medical Properties Trust has grown its assets to nearly $6 billion in a little more than a decade. And the company’s prospects for continued growth and diversification remain strong. It is easily one of the biggest recent success stories to rise out of the Birmingham business community.
When Aldag started the company, he was based in Montgomery, which he knew was not a long-term location. He investigated Atlanta, Nashville, and Birmingham before settling here.
“I can’t say enough nice things about Birmingham,” he says. “This has been a tremendous place to grow a company, a tremendous place to recruit people to. The people of Birmingham have been so welcoming to us, and it is a great place to raise families. I hope we have done enough in trying to give back to the community because I think that is very important. We usually do it quietly so as not to draw a whole lot of attention to ourselves. But Birmingham is a great hidden gem of the South, and I just want everyone to know that.”