Members of private equity-backed radiology group sell imaging center at a 1,300% profit
Members of an east coast radiology practice, which recently partnered with private equity, are now also selling one of its imaging center properties in a leaseback deal valued at nearly $5.8 million. However, US Radiology Specialists had nothing to do with the transaction.
Physician investors at South Jersey Radiology Associates in May sold the 20,000 square-foot facility in Turnersville, a suburb of Philadelphia with a population of about 3,000. The buyer is Port Washington, Pennsylvania-based Mediplex Property Group, which is now leasing the center back to South Jersey Radiology.
“The site is strategically located just off the Atlantic City Expressway and NJ Route 42, 5 miles from NJ Route 55,” Mediplex said in a June 6 announcement. “Servicing one of the highest diagnostic outpatient volumes in New Jersey, it is the only imaging center in the region honored with the prestigious ‘Diagnostic Imaging Center of Excellence’ by the American College of Radiology,” the company added later.
The single-tenant medical facility has been home to South Jersey Radiology for over 20 years. According to Gloucester County records, the practice bought the parcel in 1999 for $410,000 with the new sale price representing a 1,300% profit. SJRA is a member of US Radiology Specialists, which employs 400 physicians facilitating upward of 8 million radiological scans each year. The Welsh, Carson, Anderson & Stowe-supported practice altogether services 80 hospitals and 178 outpatient centers in 13 states.
Physicians at Buffalo, New York-area Windsong Radiology—also a member of USRS—sold two of the practice's properties in a 2022 leaseback deal. The group of investors made a 77% profit on the transaction, collecting $28.75 million, Radiology Business reported previously.
“It is quite common to see [real estate investment trusts] go after medical properties,” David Mingoia, Amherst Industrial Development Agency executive director and CEO, said at the time. “Medical properties like Windsong are good, stable tenants.”
A US Radiology Specialists spokesman emphasized that the building was owned by South Jersey Radiology Associates physicians as individuals (not an asset of the practice), who sold it to a third party not connected with SJRA nor US Radiology. This was also the case with the Buffalo-area deal, with individual physician investors—and not USRS nor Windsong—benefiting.
"US Radiology is aware that an LLC comprised of physicians from South Jersey Radiology Associates chose to sell their investment in the real estate at the Turnersville, N.J. location," the spokesman said by email. "US Radiology was not part of the decision to make this sale and did not participate in the proceeds of the sale directly or indirectly."
Sale-leasebacks criticized
Private equity firms have faced criticism for the use of sale-leaseback arrangements, also referred to as “asset stripping.” While they can offer a quick cash infusion to the property owner, such transactions also saddle provider groups with additional costs and fees they did not pay previously. Cerberus Capital Management executed such an arrangement with the Steward hospital system, which is now in bankruptcy court. And a sale-leaseback was used to finance Golden Gate Capital’s acquisition of seafood chain Red Lobster. Premium real estate underneath 500 of its stores was unloaded to generate some $1.5 billion, with the San Francisco PE group paying $2.1 billion for the purchase. Red Lobster, too, is now in Chapter 11.
New Jersey Attorney General Matthew J. Platkin was among a dozen AGs criticizing PE’s use of sale-leasebacks in a recent comment letter to the Biden administration.
“Where private equity uses debt leveraged on to its portfolio companies to acquire them, it adds to the financial burdens on those companies,” Platkin and colleagues wrote June 5. “Management fees, transaction fees, and forced sale of assets with leasebacks, all exacerbate these burdens. In contrast, most public companies, nonprofits, and owner-operated practices are focused on maintaining their status as a going concern and will not incur substantial debts without a clear path to servicing them.”
USRS acquired the practice in 2022, taking on $450 million in debt to buy SJRA and Hainesport, New Jersey-based Larchmont Imaging Associates. Physicians founded South Jersey Radiology Associates in 1938, and it has since become one of the “leading” imaging providers in South Jersey’s Camden and Gloucester counties. The group employed 41 board-certified specialists, interpreting across 11 clinical locations, as of 2022.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.