Even More Problems at Medical Properties Trust (MPT)
Medical Properties Trust (NYSE: MPT — $2.87 billion) is a Birmingham-based REIT that owns hospitals, often in long-term sale-leaseback transactions with operators that need extra cash.
In June 2021, The Bear Cave first highlighted problems at Medical Properties Trust and wrote:
“Unknown to many investors, Medical Properties Trust’s largest tenants are in financial distress or propped up by related-party deals.”
In a follow-up investigation, The Bear Cave found “a haphazard assortment of issues including distressed tenants, dubious representations, excessive spending, potential auditor independence issues, and a perplexing undisclosed entity for property management.”
Since then, the stock has fallen about 70% and several media outlets have raised additional allegations of misconduct:
“How a Small Alabama Company Fueled Private Equity’s Push Into Hospitals” (WSJ)
“House of cards: How a real estate firm and Steward Health Care grew in tandem, in part by keeping Steward’s shaky finances secret” (Boston Globe)
“Let Them Eat Invoices” (American Prospect)
“A Hospital Empire Is Closing Its Doors—but the Stock Is on a Tear” (American Prospect)
Beginning in January 2023, activist short group Viceroy Research independently published 21 reports alleging various schemes by Medical Properties Trust to “round trip” revenue through spurious investments and loans to struggling tenants. Medical Properties Trust sued Viceroy for defamation and later settled the lawsuit under confidential terms.
In addition, several anonymous accounts on X, including @AmaralPartners, @BigRiverCapita1, and @CapitolistPig, have raised concerns about the financial distress of its tenants, the harms caused by its business practices in the healthcare field, and its alleged use of aggressive accounting.
After reviewing media reporting, court records, publicly available allegations, and the company’s SEC disclosures, The Bear Cave believes Medical Properties Trust and some of its tenants are under financial strain and its management has impaired credibility.
On its most recent February 19 earnings call, Medical Properties Trust commented on the health of one of its largest tenants, operator Healthcare Systems of America (HSA). HSA had taken over operations for many hospitals owned by Steward Healthcare, formerly the largest Medical Properties Trust tenant, which declared bankruptcy in May 2024.
In the earnings call, Medical Properties Trust CEO and Chairman, Mr. Ed Aldag Jr. said, in part,
“HSA showed measured progress in Q4 with modest improvements in collections across its markets.”
“The cash collections are not where any of us would like to see them. However, if you look at this from where they came from, not just as a typical start-up, they actually started out in the whole picking up the Steward properties. We’re very pleased with where they are. We obviously want them to be much better… Where they [HSA] are right now is still continuing to be at 1x full rent coverage.”
In its 10-K filed on February 26, Medical Properties Trust explained that HSA was paying a discounted rent that would ramp up by the end of the year:
“These facilities were leased to and operated by Steward Healthcare prior to their bankruptcy, as discussed below, and we re-leased them to HSA in September 2024 when HSA took over operating these facilities… To assist HSA during this transition and minimize disruptions to patient care, we did the following:
a) agreed to a ramp up of cash rents starting at lease commencement. HSA is currently paying 50% of full contractual rents, and cash rents are scheduled to increase to 100% in the 2026 fourth quarter, and
b) advanced a loan to HSA (similar to other new operators), secured by accounts receivable.”
The bull case for Medical Properties Trust relies in part on the expectation that HSA will soon begin paying materially higher rent.
On February 27, one day after filing its 10-K, Medical Properties Trust sent HSA a notice of default, shown below.