In an email to MPT CEO Edward Aldag, a senior executive at the trust said he talked with Prospect and believed they wanted Leonard Green to “take his money and go away” and for MPT not to impose any restrictions on the company, so that it could “cleanup its balance sheet” which the executive confirmed.
Aldag and other senior executives did not respond to questions from OCCRP.
Like the Steward deal, the Prospect sale put MPT in the driver’s seat, making Prospect heavily reliant on its new landlord — and largest debt holder.
“Had MPT paid a price that made more sense for a distressed and insolvent Prospect, almost by definition all the values ascribed would have been lower,” said Simone, who publicly shared analysis of the deal at the time. “Our view was that MPT management wanted three things primarily: to dilute their exposure to a failing Steward, to appear to be paid higher rents, and to prop up their stock with artificial earnings growth.”
And with the deal they did exactly that, documents show. But as with Steward, problems were coming fast. Prospect, too, was about to enter a death spiral
A Quiet $100-Million Loan
When MPT became its landlord, Prospect was already in poor shape from years under Leonard Green’s management. In addition to its debt, almost all of Prospect’s hospitals were ranked among the worst in the U.S. for quality of care, according to the Centers for Medicare & Medicaid Services (CMS), the government agency that provides healthcare coverage to more than 160 million Americans on Medicaid and Medicare. “All but one of [Prospect’s] hospitals were ranked in the bottom 17 percent of CMS’ quality of care rankings” in 2020, the Grassley report states.
Meanwhile, MPT was reaping significant rewards from its deals. Steward and Prospect accounted for two of its top three income sources. Between 2016 and 2022, its stock price more than doubled, reaching an all-time high of over $24 per share in January 2022. Over the same period, the company’s management issued an estimated $3.2 billion in dividends to itself and its shareholders.
But MPT’s practice of lending large amounts of debt to risky companies was beginning to catch up with it. By then, 72 percent of its holdings were general acute care hospitals like those run by Steward and Prospect. Those hospitals increasingly resembled high-risk, inflated financial assets propped up by MPT’s cash, rather than robust sources of rent. MPT’s own disclosures to the Securities and Exchange Commission (SEC) show that even in the year of its peak share price, the company was losing a lot of money.
By 2022, Prospect was insolvent. Despite the inflow of cash following MPT’s deal, annual reports starting from 2019 show the firm had hundreds of millions in unpaid bills to vendors, staff, and for taxes, and negative equity capital. Its total liabilities exceeded its assets by more than 75 percent. By the middle of 2022, Prospect began deferring rent payments, and bankruptcy appeared a real possibility.
But instead of Prospect facing bankruptcy, MPT moved to prop up its tenant with a $100-million loan.
An official property deed document filed in Orange County, California, shows MPT loaned $100 million to Prospect in two advances in May 2022. Just a few months later, on an August 2022 earnings call, CFO Steven Hamner publicly denied any plans to lend money to Prospect. He failed to mention that the company had already provided a significant loan. The so-called “mortgage” loan was disclosed just days later in a quarterly financial disclosure form filed with the SEC. The Orange County deed, which was signed by Hamner, showed he had personally confirmed it.
The $100 million was loaned as a mortgage to Foothill Regional Medical Center, one of Prospect’s facilities in Southern California. According to internal documents, that brought the total amount of mortgage loans on that single piece of real estate to $151 million. This huge figure dwarfed the $15 million Prospect had paid for the facility, and its operations, in 2014.
The discrepancy is even more apparent today. Prospect’s bankruptcy data shows Foothill’s real estate and operations were recently sold to the U.S.-based health provider Astrana Health for just $18.6 million, a transaction that highlights the extent to which MPT artificially inflated its property values.
The Pennsylvania Hospitals
MPT’s internal communications showed the company’s executives were fully aware they were overpaying for real estate.
As part of the 2019 sale-leaseback deal, MPT bought four Prospect medical properties in Pennsylvania for $420 million — a price that struck experts as seriously off. The same four properties had been purchased for just $153 million three years earlier.
The leaked documents show a Wall Street Journal reporter questioned MPT about why it valued the hospitals at triple the price Prospect had paid for them in 2016. The question led to a behind-the-scenes discussion among MPT managers.
In an email to Hammer and Aldag, a senior adviser to Aldag wrote: “The transaction was a sale-leaseback financing transaction and the real estate is collateral. The dollar figure is not an indication of the value of that real property collateral.”
The statement essentially acknowledged that MPTs valuation was not based on market values. In another email, the adviser advocated against discussing real estate valuations publicly, saying MPT “certainly cannot say that the dollar figure is not an indication of RE [real estate] value.”
End Game
Burdened by unsustainable rents, the Pennsylvania hospitals soon ran into trouble. By 2022, MPT lowered their book value from $420 million to $250 million and wrote off $112 million in overdue rent. Meanwhile, questions from the media and analysts about the Pennsylvania hospital valuations and growing scrutiny of Steward were raising serious concerns about the quality of MPT’s earnings.
MPT believed it needed a new asset to replace the fast-dropping value of the four hospitals. It hired Barclays to assess whether one of Prospect’s affiliated value-care businesses, Prospect Health Plan (PHP), could fill that role. Prospect, now deeply in debt, agreed to a deal to give PHP to MPT to offset some of its debt.
According to a leaked copy of Barclays’ report from April 2023, PHP could be used to “recoup” $420 million from the Pennsylvania hospitals over time if the business was well run.