Massachusetts Tries to Get REITs Out of the Hospital Business
The move has been triggered by the Steward Health Care bankruptcy.
The Steward Health Care bankruptcy has shaken up the healthcare industry. The largest privately owned, for-profit health system in the U.S., announced after filing for bankruptcy last month that it would sell all of its 31 hospitals in auction sales.
Eight of those hospitals are in Massachusetts. The situation has set the state’s government to seek ways to prevent REITs from performing future sales leasebacks, in which they purchase a hospital’s campus and then lease the property back to them.
The Steward situation caused significant caused a scathing response from Governor Maura Healey. “I do not want to lose sight of the fact that the situation stems from and is rooted in greed, mismanagement, and lack of transparency on the part of Steward leadership in Dallas, Texas,” she said. “I have been clear about that, and I will continue to be clear about that. It is a situation that should never have happened, and we will be working together to ensure that there are steps taken to make sure that this does not happen again.”
A bill out of the Massachusetts House of Representatives has a provision that would lock REITs out of future hospital ownership. REITs could keep existing properties and other types of landlords could own such properties and lease them to the hospitals.
“The moves are in response to Steward’s May bankruptcy filing, which cast doubt on the future of its eight hospitals in Massachusetts and drew widespread political outrage over the hospital chain’s various financial maneuvers,” Bloomberg wrote. “This includes the 2016 sale of Steward’s hospital properties to a REIT called Medical Properties Trust Inc. Private equity firm Cerberus Capital Management owned a majority stake in Steward at the time; it exited its position in 2020.”
The lawmakers say they are trying to end the dealmaking that can result in overly high rents that can put hospitals into financial danger. But as Michael Lewis, an analyst at Truist Securities, told Bloomberg, banning only REITs from the sale leaseback practice is unlikely to do much good.
“If a hospital has a poor operating model, that is a much riskier problem than the fact that it owes rent to a REIT every year,” Jacques Gordon, a lecturer at the Massachusetts Institute of Technology’s Center for Real Estate, told Bloomberg.
And if REITs cannot do such deals, other types investors might.