More Problems at Medical Properties Trust (MPW)
Medical Properties Trust (NYSE: MPW — $6.83 billion) is a Birmingham-based REIT that owns hospitals typically in long-term sale-leaseback transactions. The company has come under scrutiny following a critical Wall Street Journal report and prolific criticism from Hedgeye Research. Today’s investigation by The Bear Cave uncovers a haphazard assortment of issues including distressed tenants, dubious representations, excessive spending, potential auditor independence issues, and a perplexing undisclosed entity for property management.
The Bear Cave first published on Medical Properties Trust in June 2021 and wrote,
“Medical Properties Trust’s assets are concentrated with a few operators, usually private equity firms. Unknown to many investors, Medical Properties Trust’s largest tenants are in financial distress or propped up by related-party deals.”
Today, the situation looks much worse.
One example of the problems at Medical Properties Trust is Pipeline Health, a for-profit hospital operator that did a 20-year $215 million sale-leaseback transaction with Medical Properties Trust in July 2021.
In its 2021 Q2 earnings call, Medical Properties Trust’s CFO said,
“Pipeline Health has developed a strategy and operational abilities over the last several years that can operate and has operated these hospitals very, very profitably. So we think the downside to these types of investments is very, very limited…”
On Monday, Pipeline Health declared bankruptcy.
Skeptics will argue that bankruptcy proceedings show the rents Medical Properties Trust charges are unsustainable in the long run, and any cuts to rent will have an exaggerated effect on the Medical Properties Trust’s bottom line given its leverage. Moreover, because Medical Properties Trust leases are generally “triple-net” its tenants are responsible for the maintenance and upkeep of the medical facilities. If tenants (like Pipeline Health) declare bankruptcy after underinvesting in the properties Medical Properties Trust leases to them, then Medical Properties Trust could be left with substandard hospitals that will be difficult to re-lease.
For example, at the Memorial Hospital of Gardena, one of the hospitals in Medical Properties Trust’s sale-leaseback with Pipeline Health, a security guard alleged that she had to “physically handle the decomposing bodies of COVID-19 patients that had thawed because of too warm temperatures in the morgue and outdoor freezers. [The guard] reported the faulty freezers and decomposing bodies to her superiors ‘over 10 times’ between early November and late December.”