Prospect Medical Holdings might not sell Crozer, Medical Properties Trust says
Prospect Medical Holdings Inc. is no longer as keen as it once was on selling Crozer Health in Delaware County, an executive with Prospect’s landlord told investors Wednesday.
Asked during an earnings conference call whether executives at Prospect, which is based in Los Angeles, still expect to sell the company’s hospitals in Pennsylvania and Connecticut, Edward K. Aldag Jr., chairman and CEO of the Medical Properties Trust Inc., said:
“Certainly for Connecticut that is their expectation. I’m not sure that Prospect feels that way about Pennsylvania anymore,” said Aldag, whose Birmingham, Ala., company paid $1.55 billion for Prospect real estate in three states in a 2019 sale-leaseback deal that saddled Crozer with high rent.
“They’re extremely bullish on where they are in Pennsylvania,” Aldag said, referring to Prospect management, adding that negotiations on the sale of two Prospect hospitals in Connecticut are further along than those in Pennsylvania.
In February, Prospect announced a preliminary agreement to sell Crozer, which owns four hospitals in Delaware County, to ChristianaCare, a nonprofit that is Delaware’s largest health system. ChristianaCare said at the time that it expected to reach a final agreement by June, but that didn’t happen.
“Our discussions with ChristianaCare are ongoing, and we look forward to their continuation,” a Crozer spokesperson said in an email.
ChristianaCare said Wednesday evening: “Our due diligence process is ongoing. We have no news to share at this time.”
Crozer and ChristianaCare have not begun talking to Medical Properties Trust about a new deal on the real estate, according to Aldag. The Crozer properties would have to be carved out of a lease covering properties in other states.
The real estate sale left Prospect’s hospitals on the hook for millions in annual rent payments under long-term leases that were effectively the same as debt, but with no prospect of owning the buildings. Crozer has been paying $30 million to $35 million annually on real estate that was valued at $400 million in the Medical Properties Trust deal.
Philadelphia-area health-care experts have said it’s unlikely that any potential buyer of Crozer would be willing to take on the current leases and would demand instead a break on the rent or a chance to buy out Medical Properties Trust for less than the real estate investment trust paid.
John Pawlowski, a Green Street stock analyst, expressed doubt that Medical Properties Trust would be able to find new operators for the Prospect hospitals it owns without making concessions. “I just don’t see a scenario where a next operator can come in and cover rent,” he said.
Medical Properties Trust’s chief financial officer, R. Steven Hamner, disagreed with Pawlowski’s suggestion that Medical Properties Trust, or MPT, might have to lend Prospect money to help it sustain operations.
“We are aware of conversations and potential transactions that we can’t speak to in a public environment, but we have reason to think that Prospect is not going to result in any material impairment or loss to MPT,” Hamner said.
Crozer’s four hospitals are Crozer-Chester Medical Center in Upland, Delaware County Memorial Hospital in Drexel Hill, Springfield Hospital in Springfield, and Taylor Hospital in Ridley Park, but Prospect has sharply curtailed services at some of them. Crozer is among Delaware County’s largest employers.