Why Medical Properties Trust came together today

Actions of Medical Property Trust (MPW 17.84%) were up 16.8% in Thursday trading as of 12:45 a.m. ET.

The medical real estate investment trust (REIT) has a depressed share price as rising interest rates and problems with its biggest tenant, Steward Health Care, forced the company to cut its dividend by nearly half over the summer — the second with 50% reduced dividends in one year.

But with the stock taking a beating, news of a final legal settlement with Steward sent the stock rallying today.

New operators take over for Steward

The most important part of the settlement agreement for shareholders was MPT entering into new leases with four hospital operators that will take over 15 of Steward’s 23 troubled locations.

MPT will not collect rent from new occupiers this year, but will begin receiving lease payments in Q1 2025, then ramp up to a fully stabilized rent of $160 million annually by Q4 2026. Of note, MPT said this would amount to 95% of what it would have received from Steward in 2026 under the original escalator lease.

Management also noted that it is in active discussions with other parties regarding two hospitals under construction and six other closed or damaged hospitals. MPT agreed to sell three of its troubled Florida hospitals, with most of the proceeds going to Steward. But thereafter, Steward will waive all rights to claims to any value from the other facilities. Steward sued MPT in August, accusing it of blocking Steward’s attempted sale of the hospitals. Of note, MPT actually owns the land for most of these facilities, while Steward owned the facilities themselves.

A relief rally

Hopefully these new operators will be superior to Steward, which ran into trouble after its former private equity owner saddled it with debt and heavy lease obligations.

At the current low dividend, Medical Properties shares are yielding about 5.8% after today’s rally. But as the company moves closer to shedding the Steward Health fiasco and the new operators prepare to pay off their leases next year, hopefully there will be no more reductions in payments.