Shares of Medical Properties Trust (MPW 7.42%) slumped 15.3% in August, according to data provided by S&P Global Market Intelligence. Several factors weighed on the real estate investment trust (REIT), including rising interest rates, its second-quarter results, and an analyst downgrade.
The Federal Reserve has been hiking interest rates this year to combat surging inflation. Higher rates impact REITs in two ways. First, it makes it more expensive for them to borrow money, which can affect their ability to access the capital they need to fund expansion. Higher rates also make other yield-focused investments like bonds more attractive. Because of that, REIT dividend yields need to rise to offset their higher risk profile compared with bonds, which pushes their stock prices lower.
Another factor weighing on Medical Properties Trust last month was its second-quarter results. While the REIT delivered solid earnings as normalized funds from operations grew by 7% per share, the company maintained its full-year forecast. That didn't sit well with investors who'd hoped it would boost its forecast.
The REIT didn't increase its outlook because it hasn't made as many acquisitions this year due to higher rates and its falling stock price. The company made a few small deals in the second quarter, including entering Spain by acquiring three radiotherapy facilities and agreeing to develop three other facilities. The company also enhanced its relationship with Springstone, agreeing to develop a behavioral healthcare facility for that company for $35 million. Meanwhile, Springstone's management team sold its majority stake in the company to LifePoint Health, which also paid off a $200 million loan with Medical Properties Trust. The REIT still owns a minority stake in that company. The deal showcased the value of its operating company portfolio.
These factors led Barclays analyst Steve Valiquette to lower the bank's price target on Medical Properties stock from $27 per share to $23 per share. On a more positive note, the analyst maintained his overweight stock rating following the company's second-quarter report.
Higher interest rates have hindered Medical Properties' ability to expand this year. The REIT had expected to acquire between $1 billion to $3 billion of hospital real estate this year but now expects volume to be at the low end of its range. However, while it won't grow as fast as investors had hoped, it offers a very generous dividend yield approaching 8% following this year's slide in its stock price. That makes it highly attractive to income-focused investors.