What happened
Shares of Medical Properties Trust (MPW -1.10%) tumbled 28.4% in August, according to data provided by S&P Global Market Intelligence. That sell-off pushed the hospital-focused real estate investment trust's (REIT) share price down by more than a third this year and nearly 70% off its all-time high.
Several factors weighed on the healthcare REIT last month, including its second-quarter results, a report that an important deal with a key tenant was on hold, and a long-expected dividend cut.
So what
Medical Properties Trust's sell-off began shortly after the company reported its second-quarter results. Investors didn't like the news that the healthcare REIT had agreed to participate as a lender in an asset-backed credit facility with top tenant Steward. It opted to invest up to $140 million into the facility, or less than 25% of the total. Investors saw that as a high-risk deal since private credit providers and not banks backed the facility. Further, it increased the company's exposure to that financially challenged tenant. Investors also didn't like what they heard on the company's second-quarter conference call, including that the dividend could be on the chopping block.
The REIT quickly flipped $105 million of its interest in the Steward credit facility to a leading global asset manager later in the month. While that eased some concerns, they quickly shifted to another large, financially challenged tenant. That's after The Wall Street Journal reported that the REIT's deal to acquire a significant interest in Prospect Medical's managed care business was on hold. The healthcare REIT had failed to disclose any issues with the deal when it reported its second-quarter results. While it believes the deal will go through, the news added to the company's financial uncertainty.
The issues facing Medical Properties tenants and the impact of rising interest rates on its balance sheet drove the REIT to reset its dividend in late August. It cut the payout by nearly 50%. That will allow it to retain some cash to deleverage its balance sheet. The REIT also said it plans to sell additional assets, including some non-leased and non-real estate assets, to shore up its financial foundation.
Now what
Medical Properties Trust faces a long road to recovery. The REIT must repay debt, enhance its portfolio, and earn back investors' trust.
However, it trades at a very compelling valuation following its sell-off, including a more than 8% dividend yield even after its payout reduction. Because of that, it could be an attractive opportunity for value-hunting investors who have the patience to wait for its recovery.
