Crozer’s landlord takes $171M loss on Delaware County hospitals, wants to sell the real estate

Crozer Health’s landlord, Medical Properties Trust, said Thursday that it had written off $171 million, or 40%, of the $420 million it had invested in the real estate occupied by Crozer’s four Delaware County hospitals.

Medical Properties Trust, based in Birmingham, Ala., also said it didn’t expect Prospect Medical Holdings Inc, which owns the Crozer business, to pay rent this year. That annual rent on Crozer’s properties is about $35 million.

Nevertheless, the landlord, known as MPT, said it expected the hospitals to become an attractive acquisition target as financial conditions in the overall hospital sector improve.

“Those hospitals aren’t going away, as can be seen in the political fight about potential closures of any particular parts of hospitals,” Edward K. Aldag Jr., MPT’s chairman and chief executive told analysts during the company’s quarterly earnings call. “People want those hospitals. Politicians want those hospitals all to stay open.”

Prospect put Crozer up for sale in the fall of 2021, about five years after acquiring it from the nonprofit Crozer-Keystone Health System for $300 million. That led to a preliminary sale agreement a year ago with ChristianaCare. Under that scenario, MPT was ready to retain the Crozer real estate and lease it to the new owner. Negotiations on that potential deal ended last August.

MPT on Thursday, however, made it clear that it now wants to sell the Crozer real estate acquired in 2019 as part of a $1.55 billion sale-leaseback deal for 14 hospitals and two psychiatric facilities in three states. Much of the money from that 2019 sale was used to repay debt taken on to pay, among other things, a $457 million dividend to a private equity firm that used to own Prospect.

Going back to its days as a nonprofit, Crozer — anchored by Crozer-Keystone Medicial Center near Chester — has not been easy to sell. The system has long struggled financially because a large portion of it’s patients have Medicaid and Medicare insurance, which don’t cover all of a hospital’s costs.

A month after negotiations with ChristianaCare ended, Prospect announced a plan to restructure is services, including replacing acute-care services at Delaware County Memorial Hospital, which is in Drexel Hill, with inpatient behavioral-health and addiction-treatment services.

That change got tied up in litigation after the Foundation for Delaware County, the legal successor to Crozer-Keystone, sued, pointing to Prospect’s 2016 agreement not to close any of the Crozer hospitals for 10 years unless the foundation agreed. The Pennsylvania Department of Health order the hospital to close in early November because it was understaffed. It remains closed.

The legal fight is now in Commonwealth Court, with a hearing scheduled for March 6.

Aldag told investors that Prospect’s plan to change the mix of services at the Crozer facilities made sense given that Crozer’s facilities were close to each other and had overlapping services.

“What I guess none of us took into account was the political fallout that that would cause, various politicians saying, don’t take my hospital away,” he said. “That’s been much harder than any of us realized. As Prospect has gone through this, the politicians have been much easier to work with as of late.”

State Rep. Mike Zabel, a Democrat who represents the area around Delaware County Memorial and has been outspoken on the fate of the hospital, did not respond to an e-mailed request for comment on Aldag’s remark.

Part of Prospect’s plan for Crozer was to turn it back into a nonprofit. It filed the IRS application in early January. It’s not clear how that potential change fits into MPT’s plans to sell the real estate.

Crozer spokesperson Lori Bookbinder did not respond to a request for more information.