What happened
Shares of Medical Properties Trust (MPW -2.15%) fell another 20.2% in March, according to data provided by S&P Global Market Intelligence. With that sell-off, shares of the healthcare real estate investment trust (REIT) are now down over 60% in the past year.
A couple of analysts downgraded shares of the hospital owner last month, which weighed down the stock price. However, it also made moves toward the end of March aimed at helping address some issues.
So what
Analysts from BofA and Truist downgraded their view on Medical Properties Trust last month. BofA analyst Joshua Dennerlein cut his rating on the stock from buy to neutral while slashing the price target from $13 to $10 per share. The analyst called the REIT's valuation "compelling," but he said the stock has become a "show-me story." Medical Properties needs to resolve the situation with one of its tenants, Prospect Medical, which is facing financial hardship. It must also improve its debt costs and avoid dilutive refinancings and asset sales.
Meanwhile, Truist analyst Michael Lewis slashed his price target from $14 to $8 last month while maintaining a hold rating. The analysts see lots of uncertainty on rent reductions, new investments, cost of capital, de-leveraging activity, and a potential dividend cut.
The REIT took a big step toward shoring up its balance sheet at the end of the month by agreeing to sell its hospital properties in Australia. It's selling the portfolio for 1.2 billion Australian dollars ($810 million), which is enough to repay the term loan it took out on the portfolio in 2019 that matures next year. The move will reduce leverage and eliminate a large near-term debt maturity, giving it more flexibility. The sale announcement led Truist to bump its price target from $8 to $9 per share.
Medical Properties Trust also filed a lawsuit against short-seller Viceroy Research. The REIT believes Viceroy made misleading claims against the company to profit from the subsequent decline in its share price. It also published a letter to investors directly addressing those claims.
Now what
Medical Properties Trust is facing several challenges, including the impact of significantly higher interest rates and tenant-related issues. That's putting pressure on its cash flow and balance sheet.
The company is working hard to improve its financial situation by selling assets. That still might not be enough to save the dividend, which Truist believes the company will eventually reduce by 31%. Given that risk, income-focused investors need to brace themselves for the possibility of a dividend reduction in the coming quarters.
However, shares could have a lot of upside potential as the current headwinds fade. That makes it a potentially high-reward investment opportunity for investors willing to take on the risk.
