Shares of Medical Properties Trust (MPW -1.10%) plummeted 55.9% in 2023, according to data from S&P Global Market Intelligence. The real estate investment trust (REIT) battled several headwinds last year, including financially challenged tenants and rising interest rates. Those issues forced the hospital owner to slash its dividend.
Unfortunately, the healthcare REIT's headwinds haven't gone away this year, which has put additional pressure on its stock price.
Battling a barrage of issues
Two of Medical Properties Trust's top tenants (Steward Health Care and Prospect Medical Holdings) are experiencing financial challenges. Because of that, they've been unable to make their full contractual rental payments. That led the healthcare REIT to intervene by providing them with additional financial assistance while also working to reduce its exposure to both companies.
The REIT restructured its relationship with Prospect last May, exchanging its interest in some hospitals and loans for a stake in that company's valuable managed care business. Those moves allowed Prospect to resume partial rental payments on the six California hospitals it leases from the REIT in September, with full cash rental payments expected to resume in March. Medical Properties Trust hopes to eventually monetize its stake in Prospect's managed care business and close the pending sale of its Connecticut properties to recoup the value of its assets and deferred rent.
Medical Properties Trust's tenant problems and rising interest rates weighed on its cash flow and balance sheet. That led it to sell some hospital properties to repay maturing debt that it couldn't refinance at a reasonable rate, which weighed further on its cash flow. As a result, the REIT cut its dividend by nearly 50% last year. These moves bought it time, as it now has enough liquidity to repay its debt maturities through the end of this year.
While Prospect started making partial rent payments on some hospitals last fall, Steward had to delay paying a portion of its rent in September. The company had hoped to resume paying rent after selling its noncore laboratory business and obtaining additional working capital financing (which Medical Properties Trust helped provide). However, significant changes in vendor terms caused a liquidity crunch. The REIT revealed in early January that it's taking additional steps to help Steward through this challenge while also planning to reduce its exposure to that company in the future. It's deferring significant rent through the second quarter while working with Steward to potentially replace it as a tenant in certain hospital properties.
Is Medical Properties Trust a buy after last year's plunge?
It looked like Medical Properties Trust's tenant issues were finally starting to become a thing of the past once Prospect resumed partial rental payments last fall. However, with Steward now unable to make full rental payments, the pressure on the REIT's stock price has continued this year.
On the one hand, Medical Properties Trust has significant upside potential if the REIT can eventually recoup its lost rent and reduce its exposure to those tenants. However, its road to recovery hit another speed bump, with Steward's issues worsening. Because of that, only investors with a high risk tolerance should consider buying this severely beaten-down REIT.
