Medical Properties Trust Announces Restructuring of Adeptus Health Leases

Months after fielding an onslaught of questions from analysts on the topic, Medical Properties Trust, Inc. (NYSE: MPW) has announced plans to restructure its leases with troubled freestanding emergency room operator Adeptus Health Inc. (NYSE: ADPT).

Specifically, the operating partnership of the Birmingham, Alabama-based self-advised real estate investment trust (REIT)—MPT Operating Partnership, L.P.—on behalf of itself and some of its affiliates, has agreed in principle with Deerfield Management Company, L.P., on behalf of itself and some of its affiliates, to the restructuring in bankruptcy of Adeptus, including the assumption of MPT’s master leases of facilities in Ohio, Texas, Arizona and Colorado.

Deerfield, a health care-only investment company, has bought Adeptus’ outstanding bank debt and plans to provide additional financing, operational support and managerial support to Adeptus, pursuant to an expected Chapter 11 bankruptcy process. The deal between Deerfield and MPT provides for the pre-bankruptcy payment of 100% of April rent, the re-leasing of about 5% of the facilities to the former Louisiana venture partner,  the assumption of about 80% of the master-leased facilities at current rental rates, and the re-leasing or sale of specific Texas facilities to new operators.

MPT, meanwhile, will provide a one-time rental credit of about $3.1 million within the 12 months commencing upon bankruptcy exit, according to a press release.

“We are very pleased, but not surprised, at the number of sophisticated and well capitalized investors and operators that have been attracted to our market-dominant portfolio of free-standing emergency facilities,” MPT Chairman, President and CEO Edward K. Aldag, Jr. said in the press release. “These investors, and particularly the Deerfield team, recognize the improvements to patient care and outcomes and the lower overall costs that free standing emergency facilities provide to market-dominant hospital systems. Our unique master lease structure, specialized underwriting knowledge and industry foresight equipped MPT to achieve the outstanding results that we expect from this agreement: we will fully receive our April rent; during the restructuring we will continue to be fully paid our contractual rent for all facilities; and upon completion of the restructuring there will be no further rental or other concessions on the leases assumed.”

Additionally, MPT’s free-standing emergency facilities in Louisiana have been re-leased to the Louisiana-based Ochsner Clinic Foundation. The Ochsner leases provide for 15-year initial terms with a 9.2% average minimum lease rate based on MPT’s total construction and development cost. Ochsner maintains specific purchase options during the lease term, which are based generally on the greater of MPT’s total development cost and fair value.

MPT also plans to sell or re-lease specific Texas facilities representing about 15% of the total existing Adeptus master lease value. These transitions are scheduled to be completed by the fourth quarter of 2018, and Adeptus will continue to pay contractual rent until an agreed upon future date is reached or a transition to a new operator is complete—whichever comes first. The agreed future date for approximately 60% of the transitional facilities is one year following bankruptcy exit, while the rest of the transitional facilities have agreed future dates of 90 days post-bankruptcy exit.

Written by Mary Kate Nelson