In a recent SEC 8-K filing, Medical Properties (NYSE:MPW) Trust Inc. announced the termination of a significant lease agreement with Steward Health Care System LLC following Steward's Chapter 11 bankruptcy filing earlier this year. The Alabama-based real estate investment trust (REIT), which specializes in hospital properties, disclosed on Tuesday that a global settlement had been reached, approved by the Bankruptcy Court on an interim basis, effectively ending Master Lease I with Steward.
The settlement, dated September 11, 2024, led to the transition of management for 15 hospitals previously leased to Steward to new interim managers appointed by Medical Properties Trust.
The new arrangements are expected to become permanent by October 1, 2024, with the new operators assuming operational costs and the REIT providing secured loans of up to $80 million.
The agreement also stipulates that cash rent payments for the 15 properties will be waived for the remainder of 2024 to ensure continuity of patient care during the transition. The re-tenanting process excludes certain facilities expected to be sold or transferred to Medical Properties Trust on an "as-is, where-is" basis.
In light of these developments, Medical Properties Trust anticipates recording an additional impairment charge of approximately $430 million in the third quarter of 2024. This includes the loss on working capital and secured loans to Steward, alongside a potential real estate impairment charge related to facilities not part of the operational transfer. Additionally, the REIT will recognize around $120 million in amortization expense related to the terminated lease.
The REIT had already accounted for significant impairment charges in 2023 and the first half of 2024 due to Steward's financial struggles. The total impairments include the full reservation of the value of Medical Properties Trust's equity investment in Steward and loans to Steward affiliates.
The filing further mentions that the settlement agreement, which is expected to receive final court approval on September 17, 2024, will effectively conclude the REIT's business relationship with Steward. The agreement also includes mutual release of claims and forfeiture of rights by Steward's secured lenders to certain bridge loans.
In other recent news, Medical Properties Trust has been making significant strides in its operations and financial performance. The company recently sold 11 healthcare facilities in Colorado to University of Colorado Health for a total of $86 million, with the proceeds earmarked for debt reduction and other corporate purposes.
The company also surpassed its liquidity target by generating $2.5 billion and successfully repaying all due debt in 2024. Despite a GAAP net loss of $0.54 per share, the company reported positive trends across its global portfolio.
Furthermore, Medical Properties Trust has reached a settlement with Steward Health Care System and its creditors, reestablishing control over its real estate assets and initiating the transfer of 15 hospitals to new operators. Truist Securities and Mizuho have maintained their respective Hold and Neutral ratings on the company's stock, with Truist Securities increasing its price target to $6.00.
In addition, the company announced a joint venture involving eight hospitals in Salt Lake City and revealed plans to have no exposure to Steward by 2026, intending to re-lease or sell $2.3 billion in real estate as part of Steward's bankruptcy process.
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