This ultra-high-yielding dividend act takes matters into its own hands to solve a key pain point

Medical Property Trust (MPW 1.58%) he fought a dam of the problems of recent years. Chief among them were the financial challenges of its top tenant, Steward Health Care, which filed for bankruptcy protection earlier this year. Those issues have forced the hospital-focused real estate investment trust (REIT) to cut its dividend twice in the past year, with the most recent cut reducing its dividend yield. down at about 7%.

The Healthcare REIT worked with Steward to find new operators to take over its facilities. Although they have encountered obstacles in those efforts, the companies recently agreed to transfer all Steward-operated hospitals to new ownership, with Medical Properties Trust taking the reins at most of the facilities.

An innovative agreement

Medical Properties Trust and Steward have been fighting over value, with Steward recently suing its landlord to protect the value of the hospital’s operations. However, they recently agreed in principle to set aside their differences to allow the transfer of all Steward-operated hospitals to new owners. The agreement has three basic Features:

• hospitals in Massachusetts: Steward will transition six of its Massachusetts hospital operations to new operators. Medical Properties Trust and its joint venture partner, Macquarie Infrastructure Partners, previously agreed to surrender these facilities to their secured lender.
• “Space Coast” Hospitals.: Steward shall withhold the proceeds from the sale of his “Space Coast” hospitals in Florida to pay creditors and creditors.
• All other Steward leased facilities: Hospitals governed by Medical Properties Trust’s master lease with Steward will be transferred to new intermediary operators. Medical Properties Trust will fund all ongoing operating expenses for these locations. Steward and Medical Properties Trust have agreed to release all claims regarding guaranteed lease obligations for these facilities.

In a way, Medical Properties Trust will assume most of Steward’s hospital operations. It will fund the operating costs for these facilities, although other hospital companies will operate the facilities for REIT meanwhile. This will give the Medical Property Trust control over the relocation of those units. He will have more time to find correct permanent operators for those hospitals that could either lease the properties from the REIT or buy the underlying operations and real estate.

A major step forward

Medical properties” objective throughout the bankruptcy process was to leave the relationship with Steward. This agreement would pave the way for achieving this goal. Steward will no longer operate any facilities owned by the REIT.

However, while this agreement will serve an important purpose, it is not complete address the situation. Medical Properties Trust will now operate these facilities with the help of interim operators instead of leasing them, so it will be on the hook for the costs of operating these facilities until it transitions them to permanent operators. That could take time.

Additionally, while operations should generate some income for the REIT in the meantime, those earnings won’t be as steady as rental income. Some of operations could also lose money, which has been a problem for some of Steward’s facilities.

Those potential issues aside, the deal is a important step to take Steward out of the picture. It will enable the REIT to find more suitable permanent operators for these facilities. It can also wait until the dust settles from bankruptcy proceedings and get more value in the future from an eventual sale of operations or real estate to new operators.

A possible win-win solution

Medical Properties Trust and Steward have agreed to transition all hospitals operated by Steward to new owners. The REIT will take control of several facilities and finance their operations until it can find permanent operators. Although it might take some time to get to that point, that now has a path to that goal, putting the REIT one big step closer to being in one place where does he have a sustainable portfolio, financial foundation and dividends.