M
edical Properties Trust, Inc. (MPW), commonly referred to as MPT, has recently entered into a significant agreement with Steward Health Care System, its secured lenders, and the Unsecured Creditors Committee. This agreement reinstates MPT's control over its real estate assets and terminates its relationship with Steward. It also facilitates a smooth transition of operations at 15 hospitals across the country. The settlement includes 23 hospitals previously managed by Steward.
To ensure the continuity of care for patients and protect jobs, MPT has collaborated with state regulators to establish structured transition plans. This move is aimed at preventing hospital closures and maintaining stability in the healthcare sector.
Under the new lease agreements, Healthcare Systems of America will manage five hospitals in Southeast Florida, two in East Texas, and one in Louisiana. Honor Health will take over operations in Arizona, while Quorum Health will manage two hospitals in West Texas, and Insight Health will operate two hospitals in Ohio. These replacement tenants will assume responsibility for the hospitals' expenses on an interim basis until final purchase agreements can be made with Steward.
Starting from September 11, 2024, these tenants will be entitled to operating revenue and will bear the responsibility for the expenses of the hospitals they manage. Based on the new lease agreements, MPT expects to receive nearly $160 million in total annualized cash rental payments on this portfolio's approximate lease base of $2 billion upon reaching stabilization in the fourth quarter of 2026. This represents approximately 95% of the cash rent Steward would have owed for the same assets during that period. The weighted average initial lease term is approximately 18 years.
To expedite the re-tenanting process and minimize disruption to patient care, MPT will waive cash rent payments for all 15 properties for the remainder of 2024. Cash rent payments are expected to start in the first quarter of 2025, reaching approximately 50% of the total fully stabilized rent by the end of 2025 and achieving complete stabilization by the fourth quarter of 2026.
In accordance with the terms of the settlement, MPT agreed to sell three Florida hospitals to Orlando Health. A significant portion of the proceeds from that sale will be transferred to Steward. As a result, Steward and its stakeholders have relinquished all rights to any proceeds from future transactions related to any other hospitals in the portfolio as of September 11, 2024.
The Bankruptcy Court has set a hearing date on September 17 to review and approve a final order confirming the settlement. The agreement is subject to the successful completion of Steward's sales to the new operators and the necessary approvals from applicable state and local regulatory bodies.
The replacement of Steward enhances MPT's ability to safeguard the essential operations of these facilities, benefiting their communities and preserving the value of its real estate for the benefit of shareholders. Over the past six months, shares of this Zacks Rank #3 company have gained 23.1% compared to the industry's growth of 13.3%.
Some better-ranked stocks from the healthcare REIT sector include CareTrust REIT (CTRE) and Sabra Healthcare REIT (SBRA), each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. The Zacks Consensus Estimate for CareTrust's 2024 FFO per share stands at $1.48, indicating a 5% increase from the year-ago reported figure. The Zacks Consensus Estimate for Sabra's 2024 FFO per share is pinned at $1.41, suggesting a 6% year-over-year growth. Note: Any earnings-related information presented in this write-up refers to funds from operations (FFO), a widely used metric to gauge the performance of REITs.
