Medical Properties Trust reports plan to recover uncollected rents from Steward

Medical Properties Trust announced plans to accelerate its efforts to recover uncollected rents and outstanding loan obligations from Steward Health Care System and related processes designed to significantly reduce its exposure to Steward. As disclosed in the Company’s third quarter 2023 Form 10-Q, Steward delayed paying a portion of its September and October rent to MPT. Despite its obtaining additional working capital financing and selling its non-core laboratory business in the fourth quarter of 2023, Steward recently informed MPT that its liquidity has been negatively impacted by significant changes to vendors’ payment terms. As a result, Steward has continued to make partial monthly rent payments, and total unpaid rent under its consolidated master lease with MPT is approximately $50M as of December 31, 2023. As part of this plan, Steward is pursuing several strategic transactions, including the potential sale or re-tenanting of certain hospital operations as well as the divestiture of non-core operations. Further, Steward has committed to seeking a third-party capital partner for its managed care business, net proceeds from which will be used in part to repay all outstanding obligations to MPT. Steward has also intensified measures to improve collections and overall governance, including establishment of a transformation committee comprised of newly appointed independent directors and submission of periodic cash activity and asset sale progress reports to MPT and its ABL lenders. To protect the value of MPT’s assets and hospital operations while Steward executes on its strategic plan, MPT has agreed to fund a new $60M bridge loan secured by all MPT’s existing collateral plus new second liens on Steward’s managed care business, subordinate only to Steward’s ABL lenders. A portion of MPT’s existing approximately $215M of transaction-specific and working capital loans to Steward will now also be secured by these same second liens on the managed care platform. The company has also consented to the deferral of unpaid rent under the consolidated master lease as of December 31, 2023, as well as a limited and tapering deferral of approximately $55M of 2024 rents, until the earlier of June 30 or the completion of anticipated asset sales. Partial cash rent payments are expected to recommence in February, including approximately $9M in the first quarter and approximately $44M in the second quarter of 2024. There can be no assurance that Steward will successfully execute its plans or that the company will recover all of its deferred rent and loans outstanding to Steward. As a result, MPT cannot be assured that Steward will make all scheduled lease payments throughout the remaining approximate 22-year fully extended term of its master lease. Accordingly, pursuant to generally accepted accounting principles, the company expects to record a non-cash charge in the fourth quarter of 2023 to write off consolidated straight-line rent receivables of approximately $225M, its approximately $25M share of straight-line rent receivables related to the unconsolidated Massachusetts partnership and consolidated unpaid rent receivables of approximately $100M. Furthermore, MPT routinely evaluates for indications of impairments to its real estate and other investments, including those related to Steward. Such evaluations are ongoing as of December 31, 2023, and no assurances can be provided that further impairment of real estate and non-real estate assets will not be taken with MPT’s fourth quarter 2023 reporting. Importantly, MPT’s non-Steward portfolio continues to generate robust revenue as demonstrated in the table below, which separates Steward’s third quarter 2023 GAAP revenue from the remainder of the company’s portfolio: