01/07/23 06:58 PM EST

THE (DIS)TRUST SERIES | VOL. XXXVIII | ADD'L STEWARD VENDOR COMPLAINTS | 1.7.23 (MPW)

Rob Simone, CFA

Takeaway: More instances of not paying vendors, but we're sure everything is fine...

Hedgeye Cartoon of the Day: Dumpster Fire

It is 1.7.23, and Active Short MPW is overvalued by approximately... whatever the current share price is. Again, so long as Steward cannot stand on its own merits and without support from MPW, there is no price you should be willing to pay for MPW's equity. The relationship MUST first be restructured.

Ticker: MPW

Company Name: Active Short Medical Properties (Dis)Trust

Subsector: NNN Hospitals (just MPW standing alone)

Headline: Steward (~25-30% of MPW's revenue) continues to "stiff" its vendors

Recall we first wrote in late-July 2022 regarding Steward's systemic non-payment of vendors. It is our belief that Steward, as an effectively or actually insolvent entity, selects which invoices to pay/not pay so as to maintain enough liquidity to remain current on MPW's rent.
We also wrote here about the Wadley Regional Texarkana situation, which is interesting for other reasons as well, but where vendors have filed mechanics' liens against Steward for non-payment for what little work has been performed there.
The following additional complaints from vendors against Steward were filed around or after Steward had its ABL facility extended on 12.22.22 for just one year through December 2023. On our count these claims total an additional ~$1.5 million of unpaid vendor bills before penalties, interest, legal fees, etc.
Advanced Clinical Experts ("Ace"), PLLC v. Odessa Regional Hospital, L.P. & Steward Health Care Network, Inc.:

Case #: DC-22-17919
Filed: 12.30.22
Background & Allegations:

Ace (Plaintiff) is a healthcare staffing company providing professionals to healthcare providers on an as-needed basis. Ace and Odessa Regional/Steward (Defendants; hospital operated by Steward and owned by MPW) entered into a staffing agreement on or about 9.29.21, which provides 60 days to pay invoices for Ace's services.
Alleges that for the last several months Odessa/Steward have failed to pay the invoices on a timely basis and in breach of the agreement.
On or about 11.23.22 counsel for Plaintiff sent correspondence to Defendants (1) providing notice of breach, (2) providing an accounting of amounts owed totaling $532,464, and (3) offering a payment plan.
After receiving no response, counsel for Plaintiff sent additional correspondence on 12.6.22 again demanding payment, but also warning that Ace would remove staff from Odessa unless Defendants remitted payments for overdue amounts. In response Defendants sent a payment in the amount of $134,096.78 which was received on 12.13.22. Defendants also claimed a similar payment would be coming within one week, and that a ~$200k payment would be sent the first week of January 2023.
The second payment was never received, again prompting additional warnings from Plaintiff's counsel.
Steward sent a second payment for $142,509.25 to Ace on 12.28.22, more than two weeks after the initial payment. Defendants still owned Ace more than $400k in unpaid and overdue invoices.
Plaintiff opted to pull its staff from Odessa Regional on 12.29.22. Steward responded by saying that no additional payments would be coming in the immediate future, despite previously stating that a payment of $310k was approved on 12.28.22 and would be sent on 12.29.22.
Defendant alleges that Plaintiffs have more than ~$700k in open invoices currently, more than half of which (~$409k) are overdue with some overdue by >80 days. And again, this is just from one hospital.
Ace was forced to factor its accounts so that it could make payroll for its staff Odessa Regional and elsewhere. Ace alleges that it has lost $114,982.47 from related fees and expenses from factoring, due to Defendants' breach.
Ace also alleges that Odessa/Steward hired an Ace employee without a conversion fee, in breach of Section 8 of the staffing agreement.

Total Damages Sought: $905,871 + interest + reasonable attorney's fees and expenses TBD.

KONE, Inc. ("KONE") v. MPT of Brighton-Steward, LLC / Steward Health Care System / St. Elizabeth's Medical Center ("SEMC"):

Case #: SC-22-2875
Filed: 12.15.22
Background & Allegations:

On or about 3.9.15 Advanced Elevator Technologies ("Advanced") assigned to KONE (Plaintiff) a maintenance agreement between Advanced and SEMC/Steward (Defendants) to perform maintenance, repairs and service on the elevators at SEMC.
Between 5.5.21 and 6.1.22 KONE invoiced SEMC 27 times for services rendered under the services agreement, including $165,620.64 for monthly maintenance, $26,669.94 for repairs and $16,598.49 for on-call services.
SEMC owes full the balance of $208,889.64. SEMC's failure to pay any sum due under the agreement within 30 days constitutes a breach. Interest accrues at 1.5% per month on all delinquent payments.
Plaintiff claimed a mechanics' lien on the real estate and buildings to secure the unpaid balance plus interest.

Lien Affidavit for Vitatech Electromagnetics LLC ("Vitatech"):

Case #: RP-2022-604452
Filed: 12.29.22
Background & Allegations:

Vitatech claims that $112,500 remains unpaid related to the design, fabrication and installation of a shielding system in a mammography lab at St. Jospeh Medical Center in Houston, TX, which is operated by Steward.
Claimant sought a constitutional lien pursuant to the Texas Constitution.

Homeostasis, LLC ("Homeostasis") v. Steward Health Care System, LLC:

Case #: DC-22-15954
Filed: 11.17.22
Background & Allegations:

Homeostasis (Plaintiff) seeks monetary relief of $250,000 or less, including damages of any kind, penalty interest, cost and expenses.
Homeostasis entered into a contract with Steward (Defendant) to provide Steward with medical goods and supplies. Pursuant to the contract Homeostasis invoiced Steward for $163,860, which is due and remains unpaid from Steward.
Homeostasis alleges that, despite repeated requests, Steward has failed and continues to refuse to pay the amounts owed.

ERISA Recovery Group, LLC ("ERISA") v. Steward Health Care System, LLC:

Case #: DC-22-17626 in Dallas, TX
Filed: 12.28.22
Background & Allegations:

ERISA (Plaintiff) is a third-party medical billing service that specializes in the field of recovering revenue from aged commercial claims on behalf of hospitals and other medical providers.
On 5.21.2020 ERISA and Steward (Defendant) entered into a services agreement, under which ERISA invoices Steward once funds are recovered with payment due within thirty days from the date of each invoice.
On 8.10.22 ERISA provided Steward with written notification of termination, and accordingly the agreement terminated effective on 10.10.22. However, under terms of the agreement ERISA remains entitled to its percentage of fees on all recovered amounts through 10.9.23.
Since termination, Steward has failed to make complete payment of its fees owed to ERISA. The total amount charged by ERISA to Steward that remains due and unpaid/owing is $392,673.97.

But we thought we were told that Steward would be cash flowing by year-end? Does that still hold? Is Steward actually still bleeding cash like we think? Was it taking any step possible to spruce up its balance sheet heading into year-end 2022 while negotiating with its lenders?
Don't take our word for it that Steward is hosed, just ask their vendors who continue to stack up unpaid bills.
Again, everything looks fine....