Medical Properties Trust Reports $800M Loss As Another Struggling Tenant Is Sold
The largest U.S. hospital landlord is trying to stay afloat as it continues to take more losses and deal with financially distressed tenants.
Medical Properties Trust reported a third-quarter net loss of $801M this week as it continues to feel the ripple effects of bankrupt Steward Health Care. It also facilitated the sale of another major tenant, Prospect Medical Holdings. Both tenants have owed the REIT millions of dollars in unpaid rent and have struggled to maintain operations at the hospitals in MPT's portfolio.
On Friday, Prospect announced it entered into an agreement with Astrana Health to sell the operator's businesses and assets for $745M, The Wall Street Journal reported.
MPT will receive roughly $200M in proceeds from the Astrana acquisition, with most of the funds coming in the first half of 2025 and another $50M expected by 2027, according to the REIT. MPT also said that Astrana would take on certain liabilities but didn't go into detail about them.
The sale, which still needs to go through regulatory approval, is expected to close by the middle of next year.
"This strategic transaction will significantly expand our provider network and enhance our ability to offer increased access, quality, and value for our members," Astrana CEO Brandon Sim said in a statement.
MPT's third-quarter net loss included $608M in impairment charges, $425M of which from Steward's working capital loans plus $180M in impairments from Steward's "Space Coast" facilities in Florida that sold in September, according to its earnings release. The company also reported a $134M reduction in value for its investment in Prospect Medical Holdings.
Those losses were partially offset by $130M in real estate gains from asset sales.
The REIT saw its stock drop 7.4% in pre-market trading after it released its quarterly earnings, Seeking Alpha reported. The company's $225.8M in revenue came in below the average analyst estimate of $239.7M.
"At various intervals over the past few years, hospitals have been forced to navigate lagging reimbursement rates, declining patient volumes, heightened operating expenses, rising interest rates, revenue cycle management challenges and cybersecurity incidents," MPT CEO Edward Aldag Jr. said on a Thursday earnings call.
“While we are pleased that many of these trends appear to be reversing, it is important to remember that access to a broad array of potential capital solutions is critical to help to ensure a flourishing healthcare sector over the long term,” he added.
Prior to reaching this sale agreement, Prospect has been struggling for years with missed rent payments and a slow-moving sale in Connecticut in an effort to pay down its debts to MPT.
Prospect missed payments in Q3 related to six California properties it leases from MPT. The tenant is also attempting to exit multiple East Coast markets, including Pennsylvania and Rhode Island.
"Despite improved coverage trends across the six California properties, Prospect's overall liquidity continues to be impacted by ongoing sales processes in various East Coast markets," MPT Senior Vice President of Operations Rosa Hooper said on the call.
"While it's our understanding that Prospect continues to work with regulators and potential buyers in each of these markets, they have been unable to pay rent in a timely fashion over the past few months," she added.
Prospect has been trying to sell a portfolio of Connecticut hospitals to Yale New Haven Heath for a proposed $435M since 2022, CT Mirror reported. From that deal, MPT is expected to receive $355M from the sale for missed rent payments.
The system also sold off two Philadelphia hospitals to avert litigation from Pennsylvania's attorney general, Bisnow previously reported. The hospitals were bringing in $35M annually to MPT.
Prospect was also sued by The Foundation for Delaware Country in 2022 after the healthcare system closed the Delaware Country Memorial Hospital, alleging that the system violated its 2016 purchase agreement, the Philadelphia Business Journal reported. The hospital was supposed to remain open for acute care until 2026 or receive approval from the foundation before its closure.
Prospect's relationship with MPT started in 2019 when it sold 16 hospitals in Connecticut, California and Pennsylvania to the REIT for $1.4B and then leased them back. The deal helped Prospect pay off a $1.1B loan the healthcare system took out to fund dividends for its executives and investors, CT Mirror reported.
Prospect's woes are far from the only ones MPT has dealt with this year.
Since Steward filed Chapter 11 bankruptcy in May, the REIT has been able to find new operators to replace the tenant in 17 of the 33 hospitals it operated in.
"With the successful re-tenanting of these 17 properties, which collectively carry a lease base of approximately $2.1B, we expect to gradually resume receipt of cash rent on this portfolio in the first quarter of 2025," Aldag Jr. said.
In September, MPT and Steward Health Care signed a settlement agreement that would let MPT keep nearly two dozen hospitals and turn operations over to new managers. The settlement also called for Steward and creditors to drop claims against MPT in exchange for the bankrupt tenant's release from $2B in lease obligations.
MPT reached agreements with Healthcare Systems of America, HonorHealth, Quorum Health, Insight Health and College Health to operate the 17 facilities. The landlord also received $10M in rent from Steward in Q3.
In the same month, Steward CEO Ralph de la Torre resigned after failing to appear before a Massachusetts Senate panel for a hearing about the company's negative impact on the state's healthcare system.
