What happened
Shares of Medical Properties Trust (MPW -1.10%) fell 5.3% on Friday after a closely watched measure of inflation came in higher than expected.
So what
The Personal Consumption Expenditures (PCE) price index (which excludes food and energy costs) rose 0.6% in January and 4.7% year over year, according to the Department of Commerce. That was a larger increase than Wall Street projected.
The unwelcome news raises the probability that the Federal Reserve will need to continue to raise interest rates to slow the relentless rise in the prices of goods and services.
Higher rates would likely make it more difficult for Medical Properties Trust, a real estate investment trust (REIT), to find value-creating investment opportunities.
"We have a great pipeline, but until we get a new norm for where interest rates are around the world, there's not going to be a whole lot of acquisitions from us," CEO Ed Aldag said during the company's fourth-quarter earnings call on Thursday.
Now what
As a healthcare-focused REIT, Medical Properties Trust is tasked with identifying attractive properties, leasing them to well-qualified tenants, and passing the profits on to its shareholders. Rising interest rates can make this otherwise simple formula quite challenging by increasing the company's financing costs and reducing profits for investors.
Yet the potential impact of higher rates is arguably already reflected in the share price of Medical Properties Trust. Its stock now trades for less than 6 times its normalized funds from operations in 2022. That's quite a bargain for a high-quality REIT.
