Shares of Medical Properties Trust (NYSE: MPW) fell in Monday trading, down 7.7% as of 1:39 p.m. ET.
The medical property real estate investment trust (REIT) has been see-sawing this year after a disastrous 2023 in which long-term interest rates rose and its largest tenant encountered severe financial problems that caused it to stop paying rent.
After hope emerged in late March, however, that tenant is now filing 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 roughly 20% of its revenue.
In late March, Medical Properties’ stock jumped on the news that Steward would be selling off its managed care business to give it a liquidity injection to potentially stave off the inevitable. However, it appears the delay in being able to close the deal, and perhaps a distressed price for the sale, didn’t allow Steward to save itself in time. In a statement, the private owner of 30 hospitals pointed to higher costs and lower government reimbursement as reasons for the bankruptcy filing.
As part of the deal, Medical Properties said it will provide a $75 million debtor-in-possession (DIP) loan, and an additional loan of up to $225 million in order to fund operations and keep Steward’s hospitals open. And these will be on top of the $60 million bridge loan and rent deferrals Medical Properties lent Steward back in January.
Medical Properties investors may not have expected the company to lend Steward additional money, but rather seize Steward’s assets and sell them off. On its fourth-quarter earnings release, the company said, “With regard to Steward, we are encouraged by the amount of interest received to date from other hospital operators for these mission-critical facilities, and we expect this real estate portfolio will either resume its contributions to earnings or become additional sources of liquidity as the year progresses.
While the interim DIP loan may just be a temporary measure before a sale, it’s still an unwelcome development.
Medical Properties is too messy of a story
Some may be tempted to bargain-hunt in Medical Properties, as the stock is now yielding 13.3% even at the reduced dividend the company cut last year.
However, while Medical Properties could sell off Steward’s assets and turn itself around, there is really a lot of uncertainty here. Medical Properties is also selling off other assets besides Steward as it attempts to de-lever amid higher interest rates. Furthermore, as Steward’s problems have highlighted, the costs to run hospitals and less help from government reimbursements are problems 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. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Medical Properties Trust Plunged Today was originally published by The Motley Fool
