MPT Loses Another $321M As It Hands Back 8 Hospitals To Lenders
Medical Properties Trust is relinquishing control of eight Massachusetts hospitals operated by bankrupt Steward Health Care to its lenders, it announced as it reported second-quarter earnings that showed its deteriorating financial position.
The REIT suffered a net loss of $321M in the second quarter, bringing its year-to-date losses to more than $1B after an even worse first quarter, it reported Thursday morning.
The firm's quarterly loss was softened by $400M in gains it recorded from selling a series of properties, but that was more than offset by $700M in impairments and negative value adjustments, with the majority coming from its Massachusetts portfolio.
"We believe exiting these eight properties and allowing Steward and the Commonwealth to determine the most appropriate outcome is in the best interest of all stakeholders," MPT CEO Edward Aldag Jr. said during the company's earnings call on Thursday.
As it seeks to shore up its balance sheet, MPT limited its quarterly dividends to no more than $0.08 per share, down from its prior $0.15 per share dividend, according to Seeking Alpha.
MPT had previously revealed its plans to give back the eight Massachusetts hospitals to lender Apollo Global Management in a court filing as part of Steward's bankruptcy case, The Boston Globe reported on Tuesday. MPT owns a 50% interest in these properties with Macquarie Infrastructure Partners.
Steward has been working to hand over its leases and operations of the hospitals as part of the bankruptcy case. A judge last week allowed it to nullify the master lease on the properties that had required Steward to pay MPT more than $100M in rent through 2040, giving new operators the opportunity to negotiate rents.
The hospital system has received qualified bids for five of the assets in the Massachusetts portfolio: St. Elizabeth’s Medical Center in Brighton, Holy Family Hospital in Methuen and Haverhill, Good Samaritan Medical Center in Brockton, Morton Hospital in Taunton and St. Anne’s Hospital in Fall River.
However, Steward said it didn't receive qualified bids for its Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, which the judge approved to be closed at the end of August.
Aldag said that the hospitals in Massachusetts are an outlier in Steward's portfolio because they are under a separate master lease made from its joint venture with MIP. He said the REIT worked with state officials to make a deal materialize for the eight hospitals, but due to their strict regulations, deals fell through.
"We believe there were several viable paths to keeping all eight of these hospitals open," Aldag said. "Unfortunately, the considerable volume of inaccurate, negative commentary scared away or discouraged many for-profit and out-of-state operators from participating in the process."
Sens. Elizabeth Warren and Ed Markey have pressed Apollo to finalize sales for the remaining six hospitals by the end of the week, the Globe reported. These deals are needed to unlock $30M in state funding that would keep the hospitals running as the healthcare system is rapidly running low on capital.
Aldag said that he is optimistic the REIT can conduct sales with the rest of Steward's portfolio outside of Massachusetts — it has 23 other hospitals up for sale as part of the bankruptcy proceedings. MPT said it owns $2.3B of Steward-leased real estate that it expects the operator to release or sell as part of its bankruptcy process.
"We are obviously disappointed with the outcome in Massachusetts, but subject to court approval, we expect positive results in Steward's remaining markets based on the real estate agreements we have negotiated with new operators as well as others that are close to being finalized," he said.
The REIT has roughly $440M in secure, non-real estate investments tied to Steward, with an additional $2.3B in real estate that it expects to be released or sold as part of the bankruptcy proceedings.
"We believe these investments are fully recoverable at this time. However, new assurances can be given that we will not have any additional impairments in future periods," Hanna said.
MPT said Steward paid May and June rent totaling roughly $19M. Another troubled tenant, Prospect Medical Holdings, paid its $18M in full rent for the first and second quarters and $4M in interest.
The REIT exceeded its goal of generating $2B in liquidity, reaching roughly $2.5B, which it used to pay off a chunk of its outstanding debt, including all of its 2024 maturities.
This capital infusion came from sales, including the majority of its stake in five hospitals in Utah, which generated over $1B in immediate cash proceeds, and another five hospitals in California and New Jersey to Prime Healthcare for $350M.
"We are confident the steadily improving volume and cost trends we are seeing will continue to drive solid financial performance for the vast majority of the operators in our portfolio, and in turn, generate meaningful cash flows for MPT over the long term," said Rosa Hooper, senior vice president of operations for the REIT.
