Bankrupt Steward Health Care Drags Medical Properties Trust To Massive Loss
Medical Properties Trust, the largest U.S. hospital landlord, missed its revenue projections last quarter and reported worsening losses as it works to mitigate the fallout from its biggest tenant filing for bankruptcy.
The hospital landlord on Thursday reported a net loss of $736M for the first quarter, primarily linked to beleaguered tenant Steward Health Care. The report shows a worsening from Q4, when MPT reported a loss of $664M, and it comes one year after it reported a net profit of $33M during Q1 2023.
MPT's first-quarter revenue of $271.3M was below the average analyst estimate of $283.7M, according to Seeking Alpha. MPT's stock price has dropped by 8% over the last week.
Last quarter's losses were driven by $639M in impairment charges, including the loss of $360M that MPT lent to Steward in 2021. But the landlord is still lending more money to keep the hospitals operating after Steward filed for Chapter 11 bankruptcy Monday.
"We believe that bankruptcy will facilitate the retenanting or sale of Steward hospitals in an orderly and timely fashion," MPT CEO Edward Aldag Jr. said on the company's earnings call Thursday. "We firmly believe that an orderly transition of Steward's hospitals to new operators is in the best interests of everyone, and we're committed to providing $75M in debt financing to help achieve that."
A judge approved MPT's $75M debtor-in-possession loan to Steward to ensure operations would continue as the company looks to sell hospitals and navigate bankruptcy. Steward hopes to address its $9B in liabilities, including $6.6B in unpaid rent, and its executives said this week it has put all of its 31 hospitals up for sale.
Steward said when it filed for bankruptcy Monday that MPT could provide it with up to $225M, but Aldag said it hasn't committed to giving more than the initial DIP loan.
"We expect Steward to use this financing to ensure continuity and patient care while accelerating the retenanting of its hospitals," Aldag said. "To be clear, we have not committed to providing any additional funding beyond this initial $75M."
Dallas-based Steward has facilities in Arizona, Arkansas, Florida, Louisiana, Massachusetts, Ohio, Pennsylvania and Texas.
Steward has faced immense pressure from government leaders, including in Massachusetts, where it closed one of its nine hospitals. In April, Sens. Elizabeth Warren and Ed Markey sent a letter to MPT and Macquarie Infrastructure Partners, both landlords of Steward hospitals.
Warren and Markey said MPT's investments in Steward have the "appearance of a Ponzi scheme that continues to harm Steward-owned hospitals."
When asked if MPT has been in negotiations with interested operators looking to fill in for Steward or any potential changes to rent terms moving forward, MPT Chief Financial Officer Steven Hamner said he believes these hospitals can continue to pay rent at "a contractual level under new operators."
"There's obviously a lot that goes into negotiation, and with bankruptcy, there's more scrutiny, but that's a long-winded way of saying we anticipate, across the portfolio, to continue to get at or near the amount of rent that the current lease agreements call for," Hamner said.
MPT also reported that another of its tenants, Prospect Medical Holdings, hasn't paid rent to the company for April and May. MPT executives said they expect payments in the coming months.
The California-based hospital operator has run into its own issues, most recently being sued by Yale New Haven Health System for its alleged mismanagement and irresponsible financial practices, Yale Daily News reported. Yale was in talks to buy three hospitals from the operator for $435M, but the network is reportedly trying to get out of the deal.
MPT executives declined to comment when analysts on the earnings call asked about any cash pressures Prospect could have that would make its position tighter and if there is another plan if Prospect can't sell the three hospitals.
MPT also completed several sales last quarter in its effort to shore up capital and reach its $2B liquidity target. The firm reported it has reached 80%, or $1.6B, of the goal and believes it will exceed the initial target.
In April, the company completed the sale of five hospitals in California and New Jersey to Prime Healthcare for $350M. The same month, MPT sold 75% of its stake in five Utah hospitals operated by CommonSpirit Health, which the company said would result in roughly $1.1B in proceeds.
"Those transactions were executed during a particularly volatile period in terms of inflation and interest rates," Hamner said. "Based on those early successes, we believe we will exceed our $2B target for 2024 with additional transactions at attractive valuations and capitalization rates."
