Short-seller targets the Priory landlord over property deals

Priory Group’s finances have come under scrutiny from a short-seller targeting the healthcare chain’s landlord for sale-and-leaseback deals allegedly agreed at inflated prices.
Viceroy Research has questioned the strength of the balance sheet of the UK’s largest mental healthcare group in a report outlining its concerns about the practices of the chain’s landlord Medical Properties Trust, which is listed in the US.
The report alleges that Priory Group is presented to its landlord’s investors as “a well capitalised and profitable machine” despite accumulating losses while under private equity ownership.
Priory Group went deeper into the red last year, as its loss before tax climbed sharply to £72.4 million from £16.9 million. The business has access to financial support from within the group but it reported a negative equity value of £203 million, according to its most recent accounts.
The healthcare operator is part of a wider European operation, Median Group, which is owned by Waterland Private Equity, the Dutch firm. The UK chain has 290 sites and more than 28,000 patients and residents. It runs private healthcare and adult social care services, with most of its revenues derived from the NHS, which accounted for 63 per cent of the group’s £767.6 million turnover in 2023.
Viceroy, which previously published concerns about the troubled housing group Home Reit, took out a short position in the Priory Group’s landlord Medical Properties Trust in February 2023. The short-seller has now accused the landlord of marking-up the value of the assets it buys from tenants “in order to finance tenants’ loss-making operations”.
In its report, Viceroy said: “Priory Group has been operationally loss-making for years and relies on the proceeds of sale-leaseback transactions to remain solvent.
“Medical Properties Trust’s assertions about the solvency of its tenants are fairytales told to shareholders and analysts. Medical Properties Trust’s rent roll is almost exclusively distressed, and management continues to portray these tenants as not only a going concern, but a sound investment.”
In the case of Priory Group, the assets sold to MPT were reported to have a carrying value of £26.7 million, and generated proceeds of £43.7 million. A spokesman for Priory Group said the majority of these funds were transferred to another entity within the wider Median Group. He added that the deal did not show that the Priory was in “danger of running out of cash” and that the funding could be returned to the UK if required.
The spokesman said the short-seller had issued “a misleading and inaccurate report that, by its own admission, consists of the authors’ opinions and not statements of fact”.
The spokesman added: “The Priory in the UK is part of the larger European Median Group, a leading provider of mental health, rehabilitation and social care services, which manages funds on a pooled basis. As a result, Priory’s financial position cannot be assessed in isolation and must be considered within the broader context of the group’s operations.
“The Median Group as a whole currently has substantial cash reserves and access to additional borrowing facilities, if needed, to support operations across various country jurisdictions. The Priory generates sufficient free cash from operations to cover rent, annual capex [capital expenditure] requirements and interest expenses.”
Medical Properties Trust did not respond to a request for comment.