“What am I getting excited for? We got a million bulls out there, everybody’s watching us, and you go and get a f***ing car?!? What’s the matter with you? What did I tell you?”
– Jimmy Conway, Goodfellas
Remember the Christmas party scene from Goodfellas?
Jimmy’s crew had just pulled off the now infamous ~$6 million Lufthansa Airlines heist at JFK terminal, and Jimmy told Henry Hill and the guys not to go out and spend like crazy so as to not attract a lot of unwanted heat. Everyone was celebrating the massive haul, and in walks Johnny “Roast Beef” (Louis “Roast Beef” Cafora in real life) and his wife, who proceed to show off their brand new pink Cadillac coup.
“Isn’t she gorgeous, I bought it for my wife, it’s a coup. I love that car,” Johnny says.
“What did I tell you, I talked to you before didn’t I? What did I tell you?” Jimmy was obviously not pleased.
Johnny, his wife and the car all weren’t long for the film.
Back to the REITS Grind…
In March 2012 it was reported that our favorite REITs short idea Medical Properties Trust (MPW) was building a new hangar at its hometown Birmingham-Shuttlesworth International Airport and leasing a corporate aircraft. MPW had just closed the Ernest deal and surpassed ~$2 billion of assets, and argued it needed to be “nimble” to source additional acquisitions.
Remember, all MPW does is collect rent checks. There is no operating business in the traditional sense. Interestingly, MPW noted it was also seeking hospital operating companies as targets, which obviously we have argued a triple-net REIT should not do.
Fast forward to today. MPW’s gross book value is over ~$20 billion, and each of the three primary corporate officers (CEO Ed Aldag, CFO Steve Hamner and COO Emmett McLean) have access to three corporate Gulfstream jets from the same hangar.
Ed Aldag has used planes over 140 times to fly from Birmingham to Fairholpe, Alabama, where he owns a summer home on Mobile Bay.
“What did I tell you?”
In January 2021 MPW financed the entire ~$1.4 billion acquisition of Priory Group by Waterland Private Equity Fund. It funded a ~$600 million sale-leaseback for the real estate plus an ~$800 million acquisition “bridge” loan, a portion of which was later converted into equity in Waterland. Perhaps more importantly, MPW struck a 25-year lease term with two 10-year tenant extension options.
MPW today aggressively books GAAP straight-line rent assuming the options are exercised, i.e. increases the amount of straight-line rent recognized in each quarter. Management cash bonuses are paid based on FFO performance, which receives the benefit of straight-line rent but bears no semblance to actual cash flow.
Meanwhile, CEO Ed Aldag has sold nearly 96% of his vested LTIP units over the last five years, and none of the Section 16 officers have executed any insider buys YTD despite the stock price drop.
“What did I tell you?”
On January 8, 2021 MPW made a ~$335 million loan to Steward Health’s CEO, Ralph de la Torre, and other management members, who used the proceeds to buy out prior owner Cerberus. Triple-net REITs should not lend to large tenants, and should NEVER lend to individuals.
Steward is by far MPW’s largest tenant at nearly ~30% of annual revenue. Not only did MPW fail to disclose that this loan was made until 4 months later along with 1Q21 earnings, but it waited until August 9, 2021 to alert investors that it was made to Steward’s management and not Steward the company.
In May 2021, just four months after the loan was funded, Ralph de la Torre purchased the 190-foot AMARAL yacht for ~$40 million. It doesn’t appear that he needed the capital from MPW.
“What did I tell you? What’s the matter with you?”
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 3.31-3.80% (bullish)
UST 2yr Yield 3.62-4.24% (bullish)
High Yield (HYG) 72.41-74.90 (bearish)
SPX 3 (bearish)
NASDAQ 10,812-11,808 (bearish)
RUT 1 (bearish)
Tech (XLK) 121-132 (bearish)
Utilities (XLU) 71.33-75.64 (bearish)
Energy (XLE) 74.04-79.33 (bearish)
VIX 24.39-30.73 (bullish)
USD 109.11-111.41 (bullish)
Bitcoin 17,905-20,718 (bearish)
Have a great weekend,
Rob Simone, CFA
MPW Claims its Yields are 7-8%...
