Biggest US Hospital Land Owner Medical Properties Trust's Prospect Medical Deal On Hold - What It Means For Investors?

Friday, Medical Properties Trust Inc MPW issued a statement to clarify issues in a Wall Street Journal story published earlier that day.

The WSJ report stated that a California state regulator on July 20 ordered the transaction between Medical Properties Trust and Prospect Medical Holdings to be put on hold, according to the order the regulator sent to Prospect. 

Medical Properties Trust didn't disclose the regulator's order when it reported second-quarter results or its quarterly report filed with the Securities and Exchange Commission.

Citing a Medical Properties Trust spokesman, Drew Babin, the report added, "Information is being provided to the relevant agencies, and MPT continues to expect to complete the transactions."

In May, Medical Properties Trust announced that Prospect Medical completed $375 million in new financings from third-party lenders, the proceeds of which will be used to provide Prospect's hospital operations with liquidity and capitalize its managed care business.

Medical Properties Trust called the regulatory hold on Prospect Medical's PHP subsidiary refinancing transaction "a standard, expected, and non-controversial part of the approval process for this transaction."

The hold indicated that "certain additional information is required before issuing final approval from the DMHC (California Department of Management Health Care), which the Company fully expects to obtain in due course."

In addition, MPW said it was advised that it's highly unlikely that the regulators won't approve the transaction once they get the required information. 

Today, the company shifted its capital allocation strategy to preserve capital. It slashed its quarterly dividend by 49% to $0.15 per share, which will be paid on October 12 to shareholders of record as of September 14.

MPT will continue exploring refinancing, sales, and joint-venture opportunities that enable repayment of debt, while maintaining a diversified portfolio in terms of geography, asset type, and tenant mix. In addition, the company has identified certain non-leased and non-real estate assets to be sold.

MPT said it plans to scale back discretionary operating expenses.

Until the transaction is approved, Medical Properties' investment in PHP Holdings would remain a convertible note with identical economics to equity ownership.

"As a result, DMHC's request was deemed immaterial to MPT's financials and thus did not require disclosure," the company said.

It also noted that recording its $68M equity investment in PHP as revenue in Q2 "was fully consistent with accounting requirements and was entirely unrelated to the DMHC approval process." The WSJ reporter's "attempt to conflate the two matters has no basis in fact," Medical Properties.

Price Action: MPW shares are up 0.97% at $6.99 on the last check Monday.