A new investigation based on leaked internal documents reveals how Medical Properties Trust (MPT), a real estate investment firm, engaged in financial arrangements that contributed to the collapse of two major U.S. hospital operators, Steward Health Care and Prospect Medical Holdings. The strategy involved purchasing hospital properties at inflated prices and leasing them back at high rates, a practice that ultimately burdened the healthcare providers with unsustainable debt.
While MPT's stock price and dividends soared for years, the hospital chains it partnered with spiraled toward insolvency, raising questions about the legality of the transactions and their impact on patient care.
Key Takeaways
- Medical Properties Trust (MPT) used sale-leaseback deals, buying hospital properties for inflated sums and charging high rent.
- This strategy loaded hospital operators like Steward Health Care and Prospect Medical Holdings with massive debt.
- Leaked documents show MPT knew its tenants were financially unstable but proceeded with the deals to boost its own earnings.
- Prospect Medical Holdings filed for bankruptcy in January 2025 with at least $2.3 billion in debt, following Steward Health Care's 2024 collapse.
- The transactions are under scrutiny for potentially violating U.S. laws governing Real Estate Investment Trusts (REITs).
A Pattern of High-Stakes Real Estate Deals
The financial troubles of Steward Health Care, which collapsed in 2024, first brought attention to the business practices of its landlord, Medical Properties Trust. An investigation has now uncovered that MPT applied a similar financial model to another hospital company, Prospect Medical Holdings, with comparable results.
Leaked emails and internal reports show that MPT was aware of Prospect's severe financial distress and heavy debt load. Despite this knowledge, MPT purchased Prospect's real estate for sums far exceeding their market value and then charged rent payments that the hospital operator could not afford long-term.
This arrangement created a stream of income for MPT, allowing it to report strong profits and maintain a high stock price. Between 2016 and 2022, the company paid out an estimated $3.2 billion in dividends to its owners. During this same period, Prospect moved closer to bankruptcy under the weight of its new financial obligations.
Understanding Sale-Leasebacks
A sale-leaseback is a financial transaction where a company sells an asset, such as a building, and then leases it back from the new owner. This allows the original owner to receive a large sum of cash while continuing to use the asset. While common in business, experts argue this model is risky for hospitals, which do not generate high profits and rely on their property as a key asset for securing traditional loans.
The Prospect Medical Holdings Transaction
Founded in 1996, Prospect Medical Holdings expanded significantly after a 2010 leveraged buyout by private equity firm Leonard Green & Partners. This type of buyout uses borrowed money, which placed substantial debt on Prospect from the start.
By 2018, Prospect's debt reached $1.1 billion. A significant portion of this debt was created to fund a $457 million dividend payment to Leonard Green & Partners and other shareholders. According to a Rhode Island attorney general's report, this practice, known as a leveraged dividend recapitalization, left Prospect with only one day's worth of cash on hand.
Facing financial ruin, Prospect entered into a sale-leaseback deal with MPT in August 2019. MPT agreed to pay $1.55 billion for 16 properties that Prospect's own analysis valued at just $533 million. The annual rent was set at $116 million, a figure tied directly to the inflated purchase price, not market rates.
By the Numbers: The Prospect Deal
- Purchase Price: $1.55 billion
- Property Valuation by Prospect: $533 million
- Initial Annual Rent: $116 million
- Prospect's Debt in 2018: $1.1 billion
- Dividend Paid to Prior Owners: $457 million
Internal Documents Reveal MPT's Strategy
An internal MPT underwriting evaluation, codenamed "Project Prince," provides insight into the company's motivations. The documents show that MPT viewed the transaction less as a real estate purchase and more as a way to recapitalize Prospect. This approach allowed Prospect to use the funds to pay off existing debts, particularly those incurred under its private equity ownership.
The $1.55 billion payment from MPT was allocated to cover various financial obligations, with $1.11 billion designated to pay off a single loan. This structure raises legal questions, as U.S. law for Real Estate Investment Trusts (REITs) like MPT restricts them from making loans to finance a tenant's operations. By embedding debt repayment into the property sale price and collecting it as rent, MPT may have been generating income from a de facto loan.
"Private equity firms view healthcare organizations as ‘financial assets’ to be bought and sold — completely divorced from the human care mission of healthcare organizations."
<
The "Project Prince" report also revealed another strategic goal: diluting MPT's financial exposure to Steward Health Care. At the time, Steward was MPT's largest tenant and already showing signs of insolvency. The Prospect acquisition reduced Steward's share of MPT's portfolio from 34.5 percent to 27.2 percent.
The Inevitable Decline
The cash infusion from MPT did not solve Prospect's underlying financial problems. Saddled with over $100 million in new annual rent, the company's liabilities continued to grow, reaching $2.8 billion by the end of fiscal year 2019.
As Prospect's financial condition worsened, it began deferring rent payments in mid-2022. Instead of allowing the company to face bankruptcy, MPT provided further financial support. In May 2022, MPT loaned Prospect $100 million, a fact that was not immediately disclosed to shareholders. Just months later, on an earnings call, MPT's CFO publicly denied any plans to lend money to Prospect.
This pattern of propping up a failing tenant mirrored MPT's actions with Steward. The strategy prolonged the appearance of financial health for both MPT and its tenants, but the mounting debts were unsustainable.
Rob Simone, a REIT analyst formerly with Hedgeye, commented on the situation. "The issue here was that MPT was effectively financing another exit by a [private equity] firm ... and knowingly increasing Prospect's leverage to a suicidal level with unaffordable rents, thereby dooming Prospect," he said.
Bankruptcy and Lingering Consequences
Prospect Medical Holdings officially filed for Chapter 11 bankruptcy in January 2025. The filing listed debts of at least $2.3 billion owed to more than 100,000 creditors. By May 2025, four of its Pennsylvania hospitals, which MPT had purchased for $420 million in 2019, were closed after Prospect failed to find a buyer.
The fallout has been severe for all involved. MPT's stock price, which peaked at over $24 per share in early 2022, has since fallen to below $5. The company has reported consistent losses, and it is expected that much of the billions owed by Steward and Prospect will be written off in bankruptcy proceedings.
In response to inquiries, MPT stated that it "categorically rejects the false and misleading premise of this story" and asserted that rent under its leases is "virtually never the primary cause of financial stress for hospitals." Prospect did not respond to requests for comment.
