Medical Properties Trust Comments on Prospect Restructuring

Rhea-AI Summary

Medical Properties Trust (MPW) has issued a statement regarding Prospect Medical Group's Chapter 11 bankruptcy filing. While Prospect's California facilities have shown volume growth and improved coverage trends in 2024, their overall liquidity has been negatively affected by stalled sales processes in East Coast markets.

Prospect has defaulted on rent payments to MPT since June 2024, with Connecticut and Pennsylvania facilities making minimal payments over the past two years. MPT has been using cash basis accounting for all Prospect revenues since 2023. The company's main focus during the restructuring process will be protecting its investment in Prospect's California hospitals and supporting Prospect's efforts to sell its Connecticut facilities through the Chapter 11 process.

Positive

• California facilities showing volume growth and improved coverage trends in 2024

Negative

• Prospect has not paid rent since June 2024
• Connecticut and Pennsylvania facilities made minimal payments over past two years
• Tenant bankruptcy filing through Chapter 11
• Stalled sales processes across East Coast markets affecting tenant liquidity

Insights

Financial Restructuring Expert

The bankruptcy filing by Prospect Medical Group marks a critical development for Medical Properties Trust, impacting roughly $457 million in real estate investments. The shift to cash basis accounting in 2023 was an early warning signal and the complete cessation of rent payments since June 2024 has severely impacted MPT's cash flow. While California facilities show operational improvements, the stalled East Coast divestitures have created a significant liquidity crisis.

The Chapter 11 filing presents both risks and opportunities. For MPT shareholders, this restructuring could lead to: 1) potential write-downs of asset values, 2) renegotiated lease terms with lower rates and 3) extended periods of uncertain cash flows. However, the bankruptcy process might facilitate faster asset sales in Connecticut and create a more sustainable operator structure in California.

The strategic focus on protecting California investments while supporting Connecticut facility sales indicates a pragmatic approach to salvaging value from this distressed situation. This restructuring adds to MPT's broader tenant concentration risks, which have been a persistent concern for investors.

Healthcare Real Estate Analyst

The Prospect situation exemplifies the broader challenges facing healthcare REITs with concentrated tenant exposure. The bifurcated performance between California (improving) and East Coast operations (struggling) highlights the importance of regional market dynamics in healthcare real estate valuations. The extended period of minimal or no rent payments from various Prospect entities has created a significant drag on MPT's portfolio performance.

For context, hospital real estate typically maintains value even through operator bankruptcies due to the essential nature of healthcare infrastructure. However, the protracted nature of this distress and the complex multi-state operations complicate the recovery process. The California assets' improved operational metrics provide a potential bright spot, but the restructuring process could take 12-18 months to resolve, during which MPT's income from these properties will remain uncertain.

BIRMINGHAM, Ala.--(BUSINESS WIRE)-- Medical Properties Trust, Inc. (the “Company” or “MPT”) (NYSE: MPW) today issued the below statement in response to Prospect Medical Group’s (“Prospect”) decision to commence an in-court restructuring process under Chapter 11 of the U.S. Bankruptcy Code.

As discussed during MPT’s third quarter 2024 earnings, while Prospect’s California facilities have reported volume growth and improved coverage trends in 2024, its overall liquidity has been adversely impacted by stalled sales processes across various East Coast markets, including Rhode Island where MPT has no interest in the real estate. Prospect has not paid any rent to MPT since June 2024, its Connecticut and Pennsylvania lessees and mortgagors have made only minimal payments over the past two years, and MPT has been recognizing all revenues from Prospect using cash basis accounting since 2023.

The Company’s priority during the restructuring process is to protect MPT’s investment in Prospect’s California hospitals. MPT also expects to support efforts by Prospect to use the Chapter 11 process to complete a successful sale of Prospect’s Connecticut facilities.

About Medical Properties Trust, Inc.

Medical Properties Trust, Inc. is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities. From its inception in Birmingham, Alabama, the Company has grown to become one of the world’s largest owners of hospital real estate with 402 facilities and approximately 40,000 licensed beds in nine countries and across three continents as of September 30, 2024. MPT’s financing model facilitates acquisitions and recapitalizations and allows operators of hospitals to unlock the value of their real estate assets to fund facility improvements, technology upgrades and other investments in operations. For more information, please visit the Company’s website at www.medicalpropertiestrust.com.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can generally be identified by the use of forward-looking words such as “may”, “will”, “would”, “could”, “expect”, “intend”, “plan”, “estimate”, “target”, “anticipate”, “believe”, “objectives”, “outlook”, “guidance” or other similar words, and include statements regarding our strategies, objectives, asset sales and other liquidity transactions (including the use of proceeds thereof), expected re-tenanting of vacant facilities and any related regulatory approvals, and expected outcomes from Prospect’s Chapter 11 restructuring process. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results or future events to differ materially from those expressed in or underlying such forward-looking statements, including, but not limited to: (i) the risk that the outcome and terms of the bankruptcy restructuring of Prospect will not be consistent with those anticipated by the Company; (ii) the risk that previously announced or contemplated property sales, loan repayments, and other capital recycling transactions do not occur as anticipated or at all; (iii) the risk that MPT is not able to attain its leverage, liquidity and cost of capital objectives within a reasonable time period or at all; (iv) MPT’s ability to obtain debt financing on attractive terms or at all, as a result of changes in interest rates and other factors, which may adversely impact its ability to pay down, refinance, restructure or extend its indebtedness as it becomes due, or pursue acquisition and development opportunities; (v) the ability of our tenants, operators and borrowers to satisfy their obligations under their respective contractual arrangements with us; (vi) the ability of our tenants and operators to operate profitably and generate positive cash flow, remain solvent, comply with applicable laws, rules and regulations in the operation of our properties, to deliver high-quality services, to attract and retain qualified personnel and to attract patients; (vii) the risk that we are unable to monetize our investments in certain tenants at full value within a reasonable time period or at all, (viii) our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate acquisitions and investments; and (ix) the risks and uncertainties of litigation or other regulatory proceedings.

The risks described above are not exhaustive and additional factors could adversely affect our business and financial performance, including the risk factors discussed under the section captioned “Risk Factors” in our most recent Annual Report on Form 10-K and our Form 10-Q, and as may be updated in our other filings with the SEC. Forward-looking statements are inherently uncertain and actual performance or outcomes may vary materially from any forward-looking statements and the assumptions on which those statements are based. Readers are cautioned to not place undue reliance on forward-looking statements as predictions of future events. We disclaim any responsibility to update such forward-looking statements, which speak only as of the date on which they were made.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250112433435/en/

Drew Babin, CFA, CMA

Head of Financial Strategy and Investor Relations

Medical Properties Trust, Inc.

(646) 884-9809

dbabin@medicalpropertiestrust.com

Source: Medical Properties Trust, Inc.

FAQ

How has Prospect's bankruptcy filing affected MPW's rent collection?

Prospect has not paid any rent to MPW since June 2024, and its Connecticut and Pennsylvania facilities have made only minimal payments over the past two years.

What is MPW's accounting treatment for Prospect's revenues?

MPW has been recognizing all revenues from Prospect using cash basis accounting since 2023.

What is MPW's strategy during Prospect's Chapter 11 restructuring?

MPW's priority is to protect its investment in Prospect's California hospitals and support efforts to complete a successful sale of Prospect's Connecticut facilities.

How are Prospect's California facilities performing according to MPW?

According to MPW, Prospect's California facilities have reported volume growth and improved coverage trends in 2024.