Steward’s landlord has already paid dearly
it was 2018, and Ed Aldag Jr. had a problem. it was his biggest tenant, steward Health care, long before it was clear to the wider world that the health system was being run into the ground.
Aldag’s company, Medical properties Trust, was the nation’s leading landlord for hospitals, a real estate niche that Aldag himself created. But some investors were concerned that the Alabama real estate investment trust was too dependent on steward, whose hospitals at the time accounted for 38 percent of its assets. (such trusts distribute most of their profits as shareholder dividends.)
Not to worry, Aldag, MpT’s chairman, said on a conference call with analysts in November of that year, citing “significant progress” steward had
‘steward is really six different operations, six totally different markets...’
ED ALDAg Jr.
Medical Properties Trust’s chairman, trying to reassure investors in 2018
made as it digested two big acquisitions. chief Financial Officer steve Hamner explained why MpT was comfortable with its tenant.
“steward is really six different operations, six totally different markets, six different local management teams, the largest of which is Massachusetts at about 14 percent,” Hamner said. “None of those six markets are dependent upon any of the other markets or dependent upon headquarters to continue to operate.”
in other words, it was big but diversified, an ideal tenant you could count on to pay the rent.
steward’s bankruptcy filing, made in the wee hours of Monday morning, put the lie to MpT’s assessment. steward was a toxic tenant — so buried in debt by cEO ralph de la Torre that it couldn’t afford to pay for the staff, equipment, and services it needed to provide care.
The meltdown also raises a question that has yet to be answered: is MpT a victim of de la Torre’s recklessness — some would say malfeasance — or an enabler?
An MPt spokesperson didn’t respond to an email seeking comment.
Steward isn’t MPt’s first big tenant to hit a wall.
in 2017, Adeptus Health, which operated nearly 100 standalone emergency rooms, filed for bankruptcy. Private equity firm deerfield Management, an Adeptus investor, took over the company and honored its MPt leases, including back rent.
but Adeptus continued to struggle. MPt eventually took
$46 million in writedowns on the value of the eR centers, brought in different tenants, and sold some of the sites.
MPt is in much deeper with Steward.
it carried $793 million in loans to the dallas company on its books at the end of last year. this year, as Steward’s financial condition grew more desperate, MPt provided another $97.5 million in short-term “bridge” loans. And on Monday, it agreed to $75 million more in “debtorin-possession” financing as part of the bankruptcy.
that’s a total of $965.5 million. on top of that, Steward disclosed during a bankruptcy hearing on tuesday that it still has $6.6 billion in lease obligations to MPt through 2041.
How much MPt gets back will be determined in bankruptcy court. but it has already paid a steep price to keep Steward afloat.
last year it recorded about $700 million of impairment and other charges related to Steward. that included a writedown of its 9.9 percent stake in the company to $36 million from an original cost of $150 million.
MPt did make one well timed move. in March 2022, it sold Steward’s Massachusetts hospitals to a 50-50 joint venture it formed with Australia’s Macquarie Asset Management. it received $1.3 billion in proceeds, including from the sale of secured debt by the joint venture. Steward-run hospitals today account for 19 percent of MPt’s portfolio.
back in 2018, investors seemed mollified by Aldag’s and Hamner’s assurances. the stock continued to climb through the end of 2021.
but the shares have since taken a beating amid higher interest rates, which began to rise in 2022, MPt’s Steward exposure, and the decision last summer to cut its dividend. After peaking at $23.63 on dec. 31, 2021, MPt lost 82 percent of its value, almost four times the decline of health care real estate investment trusts overall.
that’s $11.5 billion in lost market value.