Abraham Lincoln once said, “Don’t believe everything you read on the internet.”
At least, that’s what Google will tell you.
(Source: Google Search Engine)
Of course, having been assassinated in 1865, Lincoln was long gone before the internet came around in 1983.
Now, I don’t think this meme is nefarious. But sadly, some will read this clever reminder to “trust but verify” and believe it to be serious.
And something that disturbs me even more is that there are quite a few bad actors currently taking advantage of investors who do not do their homework to damage and profit from companies that do.
Here at Intelligent Income Daily, trust has to be earned through extensive vetting and research of each company we cover. Our goal is protecting and growing your income by giving you the accurate facts you need to make solid investment decisions.
And with bad actors’ impressive ability to generate and spread falsehoods on the internet, it takes time and talent to sort through it all.
So today, I am going to do two things: I will present the facts of the matter regarding the “short and distort” campaign against a prominent medical real estate investment trust (REIT)… And I will suggest a pathway forward to the CEO to combat these lies in my suggestivist “Dear CEO” series format.
The following is a lesson in not believing everything you read on the internet. And I hope it’ll serve as a reminder to dig beneath the surface before investing your money anywhere.
The Facts Matter
The REIT I’m referring to is Medical Properties Trust (MPW).
It owns a portfolio of 444 healthcare properties that contain approximately 44,000 licensed beds in 31 U.S. states, 7 European countries, Australia, and South America.
It is an internally managed REIT that acquires and develops net-leased healthcare facilities. Thus, its business model and investment thesis revolve around “mission critical” real estate.
However, Medical Properties’ shares are down over 27% since the start of the year and over 62% in the last 12 months.
The company has been under a siege of short attacks for months. This is due to research firms, such as Hedgeye Risk Management and Viceroy Research making numerous allegations against Medical Properties.
They include excessive spending on corporate planes, management resignations (its COO did not resign, he retired), shady accounting practices, overpaying for properties to assist the tenant’s ability to make rent, and issuing loans to tenants so they can make rent.
Now, some of these accusations have more merit than others.
For example, it’s true that Medical Properties has several corporate jets. But it also has properties all around the world, so it really comes down to whether the planes should have been leased or purchased.
But Medical Properties continues to collect interest on its loans, is transparent in its dealings, and is making smart decisions to streamline its business.
That’s why in light of this short attack and its negative impact on the company’s stock, Medical Properties finally started to fight back yesterday in the form of a lawsuit.
(Source: Twitter: @rbradthomas)
Which brings us to my letter to Medical Properties’ CEO and founder, Edward Aldag.
Dear CEO Series
Dear Mr. Aldag,
I’m glad to see that the company is pursuing the “short and distort” manipulators, as there should be consequences for web-based writers who publish false and misleading content.
As the most-followed analyst on Seeking Alpha and a web-based financial influencer myself with over 109,000 followers, I’ve witnessed firsthand over the years the impact (good and bad) of content published across various social media platforms.
Over the past few months, I’ve become increasingly irritated with the short-sellers who have attacked your company with false and misleading content.
As you know, there’s nothing wrong with shorting stocks. In fact, it can be beneficial in helping identify overvalued shares.
But doing so under false pretenses is despicable.
I, like many analysts and managers, view short-selling like this as spreading false rumors and preying on the negative sentiment surrounding struggling companies to make a quick profit.
As a longtime shareholder of MPW, I share your frustrations and was delighted to see the company take legal action yesterday against the short-sellers.
Your response to these short sellers matters. And I am certain it will go a long way in reassuring shareholders and bringing stability back to your company.
While I think your lawsuit is the best step forward, I have a two other “suggestivist” ideas I would encourage you and your team to consider.
Taking these actions would squash the momentum of these short-sellers and eliminate the air from their accusation fire.
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Buy back shares
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Lease the planes
Staring with number one, I am happy to see your recent announcement to sell the Australian real estate investments operated by Healthscope to affiliates of HMC Capital. I understand you plan to pay down the $1.2 billion term loan that matures in 2024.
Another action that would make this move even stronger would be for MPW to buy back shares.
The company’s payout ratio, according to our calculations, is around 91% (based on adjusted funds from operation (AFFO)) and the current yield is around 14.4%.
I don’t suggest this lightly, but it would seem reasonable for MPW to cut the dividend, so you can use free cash flow to buy back more shares.
A few years ago, Farmland Partners (FPI) was involved in a similar “short and distort” campaign. And the company took the necessary legal steps to pursue the manipulators. It also cut its dividend.
After two years, Farmland was able to recover and return to its normal valuation levels. It was painful at the time, but management used the money to go after the hedge fund that paid for hit pieces, won the legal battle, and came out stronger on the other side.
I think MPW can do the same.
Secondly, in response to the accusation about excessive spending on corporate planes, I think it would be wise for MPW to lease its airplanes (as I mentioned when I was last in Birmingham).
As MPW is a sale-leaseback provider, you are aware firsthand that leasing can be more efficient than owning. This would also help squash any future criticism on this point and help the average investor see that you have the best interests of MPW in mind.
I know you have considerable “skin in the game” with over 4.3 million shares worth around $32 million. So it’s obvious that our interests are aligned as we both want to see valuation levels return to “normal” levels.
Thank you for taking the time to read my suggestions.
Our team will be watching the battle closely.
I wish you all the best.
Sincerely,
Brad Thomas
Editor, Wide Moat Research
P.S. At Wide Moat Research, we want to know what topics interest you most within our area of expertise. That way, we can provide you with the facts you need to make the best investment decisions for your portfolio.
So if today’s essay has brought up questions you have about other companies or recent events I have covered, please feel free to reach out with questions here.