Why Medical Property Trust’s stock plunged 55% in 2023

stock Medical Property Trust (MPW -2.83%) According to 2023 data, it plummeted 55.9%. S&P Global Market Intelligence. Real estate investment trusts (REITs) faced several headwinds last year, including tenants experiencing financial difficulties and rising interest rates. These problems led the hospital’s owners to cut its dividend.

unfortunately, Healthcare REITs The headwinds have not gone away this year, putting additional pressure on the stock.

Fighting against numerous problems

Two of Medical Properties Trust’s top tenants – Steward Health Care and Prospect Medical Holdings – are experiencing financial difficulties. Because of this, they were unable to pay the full rent due under the contract. This prompted Healthcare REIT to step in by seeking to reduce its exposure to both companies while providing additional financial support.

The REIT restructured its relationship with Prospect last May, exchanging stakes and loans in some of its hospitals for stakes in the company’s valuable managed care business. The move allows Prospect to resume partial rent payments for the six California hospitals it leases from the REIT in September, with full cash rent payments expected to resume in March. Medical Properties Trust hopes to eventually cash out its stake in Prospect’s managed care business and close the pending sale of its Connecticut properties to recoup asset value and deferred rent.

Medical Properties Trust’s tenant problems and rising interest rates have strained its cash flow and balance sheet. This led to the sale of some hospital assets to pay off maturing debt that could not be refinanced at reasonable rates, which further strained cash flow. As a result, the REIT cut its dividend by nearly 50% last year. This move bought time. This is because we now have sufficient liquidity to repay our debt maturities by the end of this year.

Prospect began paying partial rent at some of its hospitals last fall, but Steward had to delay paying part of the rent in September. The company had hoped to resume rent payments after selling its non-core laboratory business and obtaining additional working capital financing (which Medical Properties Trust helped provide). However, significant changes in vendor terms led to a liquidity crisis. that much REIT disclosed in early January We plan to take additional steps to help Steward resolve this issue while reducing our exposure to the company in the future. We are working with Steward to defer significant rent payments until the second quarter to potentially replace them as tenants in certain hospital assets.

Is Medical Properties Trust a buy after last year’s plunge?

It seemed like Medical Properties Trust’s tenant problems were finally starting to become a thing of the past after Prospect resumed partial lease payments last fall. However, pressure on the REIT stock price has continued this year as Steward is now unable to pay the full rent.

On the one hand, Medical Properties Trust has significant upside potential if the REIT can eventually recoup lost rents and reduce its exposure to its tenants. But the road to recovery hit another speed bump as Steward’s problems worsened. Therefore, only investors with a high risk tolerance should consider purchasing seriously distressed REITs.