MPT Reaches Settlement With Bankrupt Tenant, Clearing Path For Hospital Sales
Hospital REIT Medical Properties Trust has reached a settlement agreement with one of its largest tenants that filed for bankruptcy last month.
The agreement with Prospect Medical Holdings, revealed in MPT's fourth-quarter earnings release Thursday morning, paves the way for the sale of the operations and potentially the real estate of 11 hospitals across three states.
Prospect filed for Chapter 11 bankruptcy last month due to several financial and legal situations that have left it struggling to pay rent and maintain its hospitals.
In addition to reaching the settlement, MPT issued new debt to pay off maturing loans, giving its executives confidence in its long-term financial health.
"With our debt maturities covered through 2026, the road is clear for the rebound to take shape," MPT CEO Edward Aldag Jr. said on its Thursday morning earnings call.
The nation's largest hospital REIT recorded a net loss of $413M in the fourth quarter, which it attributed to $415M in impairments and value adjustments related to tenants Prospect Medical Holdings and PHP Holdings, according to its earnings release.
MPT said it has completed $5.5B in asset monetization deals over the last year, including this month's $2.5B debt issuance.
Following its January bankruptcy filing, Prospect and MPT agreed on a settlement this month that would enable Prospect to more effectively market and sell its hospitals to pay off MPT and other creditors, MPT said in its earnings release.
Aldag said on the earnings call that it is not yet certain what form the sales will take. Prospect could sell its operations to another tenant that signs a lease with MPT, or it could sell the operations along with the hospital real estate.
The CEO said he is hopeful that the sales would be a step in the right direction for both parties and ensure that the issue is dealt with in a faster fashion than what happened with Steward Healthcare, MPT's previous tenant that went bankrupt last year.
"This has been a very different process from Steward's bankruptcy process since the beginning," Aldag said. "We've been working collaboratively with all other stakeholders, including quickly engaging Prospect's advisers to reach a consensual resolution of various issues."
The landlord also gave Prospect $25M to supplement the new outside debtor funding obtained through the bankruptcy. The settlement still needs to be approved by a bankruptcy judge.
Prospect filed for bankruptcy after financial and legal hurdles primarily surrounding the sales of several hospitals in its portfolio.
The healthcare operator had been looking to sell a portfolio of hospitals in Connecticut to Yale New Haven Health for $435M since 2022. Yale backed out of the agreement, arguing that it didn't have to abide due to declining property values for three of the hospitals.
Prospect also tried to exit Pennsylvania and Rhode Island, where it holds several hospitals, due to ongoing litigation with the attorneys general in the states over hospital conditions.
MPT owns 11 hospitals operated by Prospect, according to the REIT's website.
Four of those hospitals are in California, including the Southern California Hospital in Hollywood, the Los Angeles Community Hospital in LA and others in Culver City and Norwalk. Four of the hospitals are in Pennsylvania in Upland, Drexel Hill, Springfield and Ridley Park. The other three are in Connecticut in Manchester, Vernon and Waterbury.
Prospect's bankruptcy comes after MPT's largest tenant, Steward Health Care, went through a similar one last year. Steward went through a lengthy legal process that led to two hospital closures and the operator's exit from Massachusetts.
MPT executives said they are still confident in the company's long-term financials as it recovers from the effects of these bankruptcies.
Its fourth-quarter revenue of $231.8M beat analyst expectations by more than $10M, leading its stock price to rise Thursday, Seeking Alpha reported. Its stock price ended Thursday 16.9% above the prior day's close.
The REIT earlier this month secured $2.5B in senior note offerings through a new debt issuance after Prospect's bankruptcy filing. MPT Chief Financial Officer Steven Hamner said that the new debt, which matures in 2032, has helped the company address all of its debt maturities until June 2027.
"With the recent secured notes transactions, we’ve pivoted to a longer-term and more comprehensive horizon, and in the cliche words of some, ripped the bandaid off and cleared the runway and fully addressed maturities for the next two years at once,” Hamner said.
The company said it also secured new tenants for a majority of former Steward properties, with rents already being paid and the majority of the tenants seeing positive cash flow. Aldag said that the company expects its total annualized rent to hit $1B once the new tenants have fully ramped up their rents.
