08/14/22 07:38 PM EDT

SUNDAY NIGHT REIT READ | WHY ARE MPW's COVERAGES SERIALLY REVISED DOWN? | 8.14.22 (MPW)

Rob Simone, CFA

Takeaway: Hope everyone had a great weekend!

Hedgeye Cartoon of the Day: Pinocchio

It is 8.14.22, and Active Short MPW is (still) overvalued by approximately ~$16.72/share. We ran some math this past Friday, and as of 2Q22 MPW has now extended ~6% of its total assets in the form of loans + equity investments to non-real estate activities to 3 of its 5 largest tenants. Let that sink in. Is this actually a REIT, or a mix of a REIT and an OpCo? Also, we just have to reiterate that management's handling of the Prospect loan question on the CC was pretty shocking. Our understanding is that the $100 million accordion on an existing mortgage to a CA hospital (now levered just under $1mm / bed) was originated in two tranches back in May, meaning it had closed well-before end of quarter and the conference call. When questioned if there would be a need to lend to a clearly struggling Prospect, the CFO responded three times "No," despite this loan already being made and not disclosed anywhere else. It was later disclosed in a footnote in the 10-Q. Pretty wild. That's $250 million loaned to Steward + Prospect just this past quarter.

Ticker: MPW

Company: Active Short Medical Properties Trust

Subsector: NNN Hospitals (just MPW)

Headline: Really interesting and hard to explain backward revisions to TTM EBITDARM coverage

See if you can follow along on this one as it relates to Figure 1 below. For each period going back to 2Q18 (excluding 2Q21, 4Q21 and 1Q22 for which we do not yet have final coverages), MPW reports an original TTM EBITDARM coverage metric for the combined portfolio for that period, but then retroactively reports lower coverage for that period in later quarters.

Read bottom-to-top for each column, representing a specific period.
For example in 2Q21 MPW reported 3.0x coverage on a 1-quarter lag for 1Q21, which by 2Q22 is retroactively reported lower at 2.4x. This happens in every single period going back to 2Q18 to different degrees and has several effects.
First, it makes no sense to us, because MPW's portfolio composition is not changing that much period-to-period relative to the entire pie, and only HCA (a small operator to MPW) has returned CARES Act grants. All the vertical numbers should be identical or have very little variation.
This has the impact of making it look optically that coverage improves in the most recently reported quarter, when in reality it does not versus the originally reported metric. Taking that same period from above (1Q21), most recently MPW reported 1Q22 TTM EBITDARM coverage of 2.4x which was flat to the revised down 1Q21, but was down 0.6x turns from the originally reported 3.0x. So which one is it, and what is driving these revisions?
We would encourage investors to query IR about this, as it makes no sense and looks like cherry picking to us. In general it calls into question all the numbers, including the ~$800 million of supposed run-rate EBITDAR thrown out for Steward recently which makes no sense.