Medical Properties Trust talks plans for tenant with troubled Pennsylvania hospitals

Prospect Medical Holdings, a for-profit hospital operator, has been the subject of much scrutiny since it was announced that Medical Properties Trust would be providing $1.6 billion in financing for the company.

Medical Properties Trust talks plans for tenant with troubled Pennsylvania hospitals

Medical Properties Trust outlined plans to work with a tenant at several Pennsylvania hospitals, which is the subject of a lawsuit brought against the Birmingham-based firm.

Fiyyaz Pirani, trustee of Imperium Irrevocable Trust has filed a lawsuit for a class action against Medical Properties Trust Inc. The suit alleges that the company committed fraud, and misled investors regarding the status of several hospital properties.

Prospect Medical Holdings Inc., one of MPT’s tenants is named in the suit.

According to Medical Properties Trust’s annual report 2022, the trust 'Recorded an impairment charge of $283 million related to our tenant Prospect. This included $171 million on Pennsylvania real estate, and a reserve of $112 million on non-cash rental. Rent on Prospect leases will be recorded on a cash-only basis in the near future.

Pirani's lawsuit cites Viceroy Research LLC's report on MPT's finances, which the company has now sued Viceroy for. The report states that MPT engaged in billions in uncommercial transactions to mask a widespread revenue round-robin and/or theft.

MPT stated in its earnings release that Fraser Perring has publicly acknowledged his involvement in the suit filed by MPT against Viceroy Research LLC. Viceroy Research LLC published several reports accusing MPT, in relation to its Prospect properties of fraud. Fraser Perring has not appeared in court and has instead filed motions for dismissal before MPT can reach a trial.

The company stated that it was looking forward to proving their claims and obtaining the documents, communications and other discoveries to which they are entitled under the law.

Financial transaction plans for larger transactions

Medical Properties Trust Inc., (NYSE: MPW), focused its earnings call for the first quarter last week on Prospect Medical Holdings Inc. MPT, among other Prospect properties owned by MPT, owns several Pennsylvania properties that had operational problems last year. CBS News reported that the emergency department at Delaware County Memorial Hospital and all services at Springfield Hospital were closed last year. The hospice unit at Taylor Hospital in Pennsylvania, which is another hospital, was also reported to have closed this year.

According to a press release, "as part of an anticipated series of Prospect Medical Holdings ('Prospect’) future strategic transaction," MPT provided $50,000,000 in a loan tool that was converted into equity for Prospect managed care entity. This deal was made in anticipation of an even larger Prospect financing agreement.

A release states that 'After quarter-end, Prospect has received a binding agreement from a third party lender. This will provide significant liquidity to Prospect's managed care and hospital businesses. It will also facilitate MPT in converting certain existing and future Real Estate obligations of Prospect into managed care equity.

Kevin Hamner, CFO at Prospect, says that the additional funding will put Prospect on a stronger footing.

He said that a portion will be used to repay Prospect's receivables backed loan agreement, which means the company will not have any debt maturities in the near future.

Hamner said MPT and Prospect have agreed to several future transactions.

MPT will invest in Prosper after the close of these deals. This includes a master lease for six California hospitals, which MPT acquired in 2019 for approximately $500 million. It also includes a first lien on Prospect’s Pennsylvania properties and up to $75,000,000 in a loan secured with first liens against Prospect’s receivables.

Hamner, a representative of six California hospitals, said that they expect to resume collection of a part of the monthly contractual rent in September this year.

Earnings and upcoming acquisitions

Medical Properties Trust reported normalized operating funds of $222 millions in the first quarter of this year. In the first quarter of last year, they were $282 millions.

MPT's revenue for the first three months was $350 million. In the first quarter of last year, revenues were $410 millions. Its net income in the first three months was only $33 million, as opposed to $632 millions in the same period last year. This is due to a particular category. MPT earned $62,000 from the sale of real property in the first quarter. This compares to $452 millions a year ago, when the company announced a large sale. MPT had to pay $90 million for real estate and other impairments in the first quarter of this year. This compares with just $5 million last year.

The company plans to add five behavioral hospitals to its portfolio in England through a sale-leaseback agreement, as well as three post-acute care facilities in Germany via a second sale-leaseback arrangement. The company plans to complete these acquisitions, which will total approximately $150 million in value, during the first half this year.

MPT reported a net profit per diluted shares of $0.05 and normalized funds of operations per diluted shares of $0.37 in the first three months of this year. In the first quarter of last year, they were $1.05 per share and $0.47.

Hamner stated that Prospect did not generate any rent or interest. As we reported in the last quarter, Prospect is only recognizing rental income as cash received. Prospect did not pay rent or interest for this quarter.