MPT Agrees To Run Bankrupt Steward Hospitals, Wipe Out Billions In Rent

Medical Properties Trust has agreed to take over the operations of several Steward Health Care hospitals it owns as part of a deal to allow the healthcare operator to sell off its holdings and exit Chapter 11 bankruptcy.

Operations at hospitals governed by MPT’s master lease with Steward would be transferred to the publicly traded REIT as part of the agreement. MPT has agreed to pay all the costs to keep the hospitals running and to wipe out billions in back rent it is owed while Steward looks to sell its assets to repay its debts.  

The plan has been approved by Steward’s main secured and unsecured creditors, and Steward plans to seek a bankruptcy judge's approval at its next hearing on Sept. 10.

“This is a crucial and positive development today in our ongoing effort to transition Steward hospitals to new operators, pay Steward's debts, and support our patients, employees, and the communities we have had the privilege of serving for many years,” Steward CEO Ralph de la Torre said in a statement.

The deal appears to resolve the biggest sticking point in the bankruptcy: the unpaid rent MPT is entitled to. Steward sued MPT last month in the Houston bankruptcy court overseeing its case, alleging that the REIT had been interfering in sales negotiations to funnel cash towards MPT-controlled assets.

In announcing the deal Friday, Steward and MPT said the REIT “will become fully responsible for all related operational expenses” for Steward properties under a master lease agreement. The number of facilities MPT will take over wasn't disclosed. 

Steward has previously agreed to try to sell its roughly 30 hospitals in Florida, Massachusetts, Texas and other states as part of the bankruptcy proceedings.

One day before the deal was announced, Steward disclosed that it had “definitive agreements” to sell four of its troubled Massachusetts hospitals. On Friday it announced deals for two other hospitals, including one that would see Gov. Maura Healey's administration take over a hospital in Brighton using eminent domain. 

Steward has also found a buyer for three Central Florida hospitals, although the bidding deadline for the properties has been extended at least once, the Miami Herald reported. 

The new agreement between MPT and Steward would see the proceeds of those sales go to lenders and creditors. MPT’s stock was trading up roughly 2 percentage points Tuesday, with the deal being disclosed after markets closed Friday. 

MPT has faced criticism from public officials that its business model of buying the land on which hospitals sit and leasing back the buildings to the operators has  negatively impacted the quality of care at Steward-run properties. 

In April, Massachusetts Sens. Elizabeth Warren and Ed Markey sent a letter urging MPT to cut Steward’s rent payments and allow it to terminate its leases. 

MPT loaned Steward millions of dollars to help the medical provider pay down debts, which the REIT has defended as a way to protect the underlying value of Steward’s properties. Warren and Markey, however, said the investments have the "appearance of a Ponzi scheme that continues to harm Steward-owned hospitals."

MPT and Steward didn’t respond to Bisnow’s request for comment. 

In its lawsuit against MPT, Steward alleged that MPT spoke with bidders privately and without notifying Steward in violation of the bankruptcy order, saying it has engaged in a “calculated efforts to undermine the debtors’ sales process by attempting to siphon all value from the debtors’ estates and hospitals into its own coffers.”

MPT has objected to the accusations, defending its right to negotiate with buyers for assets it owns and countering that Steward has blocked sales because it was attempting to extract value out of the REIT’s assets. 

Steward CEO de la Torre is also facing new criticism Tuesday after a Boston Globe investigation found that, while the firm was foundering, he had used its funds to donate $10M to his son’s school outside Dallas. 

The Globe found evidence that de la Torre used company funds for a multimillion-dollar apartment and corporate jet travel to vacation destinations. He’s also been accused of channeling Steward funds into contracts with companies he controlled.