Steward landlord denies its rents are excessive

US. Sen. Edward Markey chairs a subcommittee hearing on private equity in health care held in the State House's Gardner Auditorium, accompanied by US Sen. Elizabeth Warren (right) on Wednesday, April 3, 2024. (Photo by Sam Doran of State House News Service)

Steward Health Care’s primary landlord, Medical Properties Trust, fought back on Thursday against the running narrative in Massachusetts that the two companies engaged in a coordinated effort to strip Steward hospitals of value.

Edward Aldag Jr., the chairman and CEO of Medical Properties Trust, and other members of the firm’s leadership group told financial analysts that the rents the Alabama-based company is charging Steward for its hospitals are not excessive and that they fully expect those rents to remain at or near current levels when the hospitals are sold to “better qualified operators” over the next several months.

Aldag noted that the initial bankruptcy filing of Steward did not mention rent as a contributor to the company’s financial distress. He also said the rents the company charges are a small percentage of hospital revenue, usually in the single digits, and added that a hospital not making rental payments would face other costs for maintaining a hospital property. “Buildings are not free,” he said.

Aldag’s comments represent a sharp departure from what has become the running narrative in Massachusetts, where Steward and Medical Properties Trust have repeatedly been described as co-conspirators in what amounts to a Ponzi scheme.

U.S. Sens. Elizabeth Warren and Ed Markey sent a letter to Aldag on April 15 specifically raising the Ponzi analogy and suggesting Medical Properties Trust has a responsibility to pare back its “huge rents” to make it possible for new operators to purchase the hospital properties.

“MPT has – along with Steward – plundered these hospitals,” the letter from the senators said. “Your companies also have an important opportunity to help Steward’s Massachusetts hospitals overcome this crisis by offering long-term reductions in lease payments or early termination of leases to make it financially feasible for new operators to take over these hospitals.”

Medical Properties Trust released its first-quarter earnings report on Thursday, reporting a $735.6 million net loss compared to a gain of $33 million in the same quarter the year before. The net loss included $693 million in impairments, basically a write-down in value, of an international venture with Steward.

Company management answered questions from analysts and also released a correcting the record statement on its dealings with hospital operators in general and with Steward specifically.

What was surprising was Aldag’s confidence that Steward’s hospitals in Massachusetts and elsewhere would be sold, and sold fairly quickly without adjusting rents downward much, if at all.

“We believe that these hospitals can continue to pay rent at the contractual levels,” Aldag said, acknowledging the bankruptcy process is uncertain “We anticipate across the portfolio to continue to get at or near the amount of rent that the current lease agreements call for.”

Aldag said he expected a significant number of Steward hospitals to be transferred to new operators by the end of September. One analyst asked what percentage of the hospitals would be transferred to new operators by the end of Steward’s bankruptcy. Aldag responded: “I would guess close to 100 percent.”

One analyst expressed surprise at his projection on the speed of sales, but Aldag said his company began sales negotiations long before Steward’s bankruptcy filing. “It’s been going on for almost five months now,” Aldag said. “We’re way down the road with many different people.”

In one of its initial bankruptcy filings, Steward said it had received “indications of interest” from  multiple potential buyers for its southern Massachusetts, Arizona, and Texas hospital operations and added that it “is in discussions with various third parties” interested in Steward hospitals in northern Massachusetts.

In a press release accompanying its bankruptcy filing on May 6, Steward said it was finalizing $75 million in funding from Medical Properties Trust and up to an additional $225 million more. Aldag said Medical Properties Trust has only pledged $75 million to keep the hospitals operating until new owners can be found.

“To be clear,” he said, “we have not committed to providing additional funding beyond this initial $75 million.”

This article first appeared on CommonWealth Beacon and is republished here under a Creative Commons license.

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