Medical Properties Trust (MPW), the largest owner of hospital real estate in the United States, saw its stock price plunge over 30% on January 3rd, 2023 after the company announced that its largest tenant, Steward Health Care, had fallen behind on rent payments. Steward owes MPW approximately $50 million in past due rent, prompting investors to sell off MPW shares in droves over concerns about the REIT’s financial health.
Steward’s Financial Struggles Put MPW In Precarious Position
Steward Health Care is a large for-profit hospital system operating 36 hospitals across the U.S. and serving over 12 million patients annually. Over the years, MPW has provided significant financial backing to Steward to acquire and upgrade hospitals, making Steward their largest tenant by far.
However, Steward has struggled financially for years, even before the COVID-19 pandemic. The pandemic only exacerbated these issues, with some analysts estimating Steward lost over $1 billion in the early months of the crisis.
MPW has already helped restructure over $1 billion in loans for Steward over the past two years. But with Steward missing their December rent payment, investors are rightfully concerned about MPW’s future if their largest tenant continues spiraling downwards.
MPW Provides $60 Million Bridge Loan To Steward As Rent Recovery Efforts Ramp Up
Shortly after announcing Steward’s missed December rent payment and $50 million total balance owed, MPW provided Steward with a $60 million short-term bridge loan. The loan comes with a 6-month term, 9.5% interest rate, and is secured by the accounts receivable from St. Vincent Hospital in Worcester, MA.
MPW management emphasized this bridge loan will provide Steward with desperately needed liquidity as they undergo an operational turnaround plan. MPW also noted they’ve assigned additional personnel specifically to expedite rent recovery from Steward and avoid further non-payment issues.
|Steward Health Care Vital Statistics
|Number of Hospitals
|Patients Served Annually
|Total Back Rent Owed to MPW
|MPW’s Bridge Loan Details
Meanwhile, analysts remain cautious about Steward’s underlying business issues. Steward lost over $500 million just in the first 9 months of 2022, with their cash reserves dwindling quickly. Until Steward rights the ship on operations, their ability to repay rent still remains uncertain regardless of MPW’s bridge loan.
Unpaid Rents From Largest Tenant Creates Financial Risks For Medical Properties Trust
With nearly 20% of MPW’s assets leased to the struggling Steward Health Care hospital system, investors are understandably spooked by the unpaid rents. MPW’s stock price now sits at levels not seen since 2009 as a result.
If Steward’s hospitals were to close or enter bankruptcy, MPW could have issues re-leasing such specialized hospital properties easily. And even if the properties were re-leased, it’s unlikely MPW could achieve the same favorable lease terms granted to Steward over the years.
Analysts have slashed MPW’s stock price targets in reaction to the Steward rent drama, though some do see a potential upside if Steward stabilizes. However, that upside hinges almost entirely on Steward’s murky turnaround plans actually succeeding. If not, MPW faces substantial risk from writing off chunks of unpaid rent to avoid mass hospital vacancy.
Uncertainty Reigns On Steward’s Eventual Rent Repayment
At this point, uncertainty continues to reign regarding Steward’s ability to repay Medical Properties Trust and stabilize their underlying operations. Despite MPW’s $60 million band-aid bridge loan and promises of expedited rent recovery efforts, Steward owes nearly 50% more in unpaid back rent.
Steward ended Q3 2022 with just around $150 million in cash on hand, putting their financial viability in serious doubt if operational improvements don’t materialize quickly. Even in an optimistic scenario, analysts expect the rent repayment process to MPW to span several years.
MPW bulls point to Steward’s high hospital occupancy rates and the secured nature of the bridge loan as reasons for optimism. But with cracks showing in Steward’s financials even pre-pandemic, investors are understandably dubious on Steward’s turnaround chances.
Until Steward shows real progress on repaying rents and shoring up profitability, Medical Properties Trust remains vulnerable to further stock declines or even dividend cuts if more rents go unpaid. For these reasons, analysts uniformly agree MPW is firmly in the “avoid” or “sell” category for now.
Conclusion: Uncertainty Reigns On Medical Properties Trust’s Future With So Much Tied To Struggling Tenant
Medical Properties Trust took a substantial risk by tying nearly 20% of their business to the shaky Steward Health Care hospital system over the past decade. With over $50 million in unpaid back rent now owed, those risks are being fully realized, evidenced by MPW stock declining 30%+ to 14-year lows.
MPW has provided Steward some short-term liquidity via a high-interest bridge loan in hopes of recovering unpaid rent quickly. However, substantial uncertainty remains in Steward’s ability to repay rents and stabilize their overall profitability.
Until the dark clouds clear regarding Steward’s financial health, analysts caution investors to avoid MPW stock due to the oversized risks relative to potential reward. Stabilizing Steward and resuming full rent payments remains the primary focus, but that road looks to be a long and bumpy one even in the best case scenario.
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