Actions of Medical Properties Trust (NYSE:MPW) fell Monday, down 7.7% as of 1:39 p.m. ET.
THE medical property real estate investment trust (REIT) has been up and down this year after a disastrous 2023 in which long-term interest rates rose and its largest tenant encountered serious financial problems that caused it to stop paying rent.
However, after hope appeared in late March, the tenant filed for bankruptcy.
Steward files for bankruptcy as Medical Properties lends even more
Today, Steward Health Care System officially filed for bankruptcy. Steward was Medical Properties’ largest tenant, at one point accounting for about 20 percent of its revenue.
In late March, shares of Medical Properties jumped following news that Steward would sell its managed care business to infuse it with cash and potentially stave off the inevitable. However, it appears that the delay in completing the transaction, and perhaps the price of the sale, did not allow Steward to escape in time. In a statement, the private owner of 30 hospitals cited higher costs and lower government reimbursements as reasons for filing for bankruptcy.
As part of the deal, Medical Properties announced it would provide a $75 million debtor-in-possession (DIP) loan and an additional loan of up to $225 million to fund operations and keep open Steward hospitals. And these will be in addition to the $60 million bridge loan and rent deferrals that Medical Properties loaned to Steward in January.
Medical Properties’ investors may not have expected the company to lend additional money to Steward, but rather to seize Steward’s assets and sell them. When releasing its fourth quarter results, the company said: “With respect to Steward, we are encouraged by the amount of interest received to date from other hospital operators for these critical facilities, and we expect this real estate portfolio to resume operations. its contributions to results or become additional sources of liquidity throughout the year.
Although the interim DIP loan may only be a temporary measure before a sale, it is nonetheless an unwelcome development.
Medical Properties is too complicated a story
Some might be tempted to bargain for Medical Properties, as the stock is now yielding 13.3% even with the reduced dividend the company cut last year.
However, even though Medical Properties could sell Steward’s assets and turn itself around, there really is a lot of uncertainty here. Medical Properties is also selling other assets besides Steward as it attempts to reduce its debt load amid higher interest rates. Additionally, as Steward’s issues highlighted, hospital operating costs and less help from government reimbursements are issues that other medical facilities could face as well. Medical Properties remains a risky bet.
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Billy Duberstein has no position in any of the stocks mentioned. Its clients may hold shares of the companies mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
Why Medical Properties Trust Plunged Today was originally published by The Motley Fool
