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July 25, 2024

Medical Properties Trust Stock Plummets 31% as Largest Tenant Struggles to Pay Rent

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Jan 6, 2024

Medical Properties Trust (MPW), the largest owner of hospital properties in the United States, saw its stock price plunge over 30% on January 3rd, 2023 after the company announced that its largest tenant, Steward Health Care, had fallen behind on rent payments. Steward owes MPW approximately $50 million in past due rent and the situation raises concerns about MPW’s financial health going forward.

Background on Medical Properties Trust and Steward Health Care Relationship

Medical Properties Trust is a real estate investment trust (REIT) that owns over 390 hospital facilities and properties across the United States and Europe. MPW leases these facilities to hospital operators and relies on the rent payments from these operators as its primary source of revenue.

Steward Health Care is MPW’s largest tenant, leasing 36 facilities from MPW across the U.S. In total, Steward accounts for nearly 30% of MPW’s rental income. The two companies have had a business relationship since 2005 when MPW acquired some of Steward’s hospital properties and leased them back to Steward under a master lease agreement.

This master lease agreement requires Steward to pay rent on the first of each month. However, on January 1st, 2023, Steward failed to make its monthly rent payment of approximately $50 million owed to MPW.

Steward Struggles Lead to Unpaid Rent and MPW Stock Price Plunge

Steward has apparently been struggling financially for some time now. The hospital operator lost $175 million in the first 9 months of 2022 and recently had its credit rating downgraded by S&P. Steward was also forced to sell one of its hospitals in Utah last October to generate some much needed cash.

The failure of Steward to pay its January rent to MPW seems to indicate these financial troubles are continuing to worsen. After Steward missed its January 1st payment, MPW’s stock price plunged 31% to $8.51 per share on January 3rd – its lowest level since 2009. The stock is now down over 60% from its 52 week high.

MPW shareholders are rightfully concerned about this unraveling situation with the REIT’s largest source of revenue. Some analysts have speculated MPW may need to terminate its master lease with Steward if the non-payments continue. However, finding a new operator to lease all 36 hospital properties in the near term is highly unlikely.

MPW Provides Update and Bridge Loan to Steward to Recover Unpaid Rents

Recognizing the dire situation, MPW acted quickly to provide a business update and outline the action being taken to recover the unpaid rents from Steward.

On January 4th, MPW announced that it is working closely with Steward management on an expedited rent recovery program:

  • MPW is advancing up to $60 million to Steward in the form of a short term bridge loan. This loan will provide Steward some immediate financial relief as it works on longer term financing options.

  • Steward management reiterated its commitment to fulfilling unpaid rents owed to MPW. The company says it expects an imminent payment of up to $25 million towards its past due balance.

  • MPW has received updated financial information from Steward and both parties are evaluating options for restructuring the master lease agreement in a mutually beneficial way.

While certainly a serious issue for both companies, the update from MPW provides a bit of encouragement that Steward intends to make good on its financial obligations.

The bridge loan in particular demonstrates MPW’s desire for Steward to survive this cash crunch rather than a prolonged legal dispute over unpaid rents. That bridge loan did come with some strings attached however:

  • MPW will charge a higher than normal interest rate on the loan.
  • MPW receives a priority lien on certain Steward hospital assets.
  • Steward must provide weekly cash flow reports and statements to MPW for increased financial transparency while struggling.

Essentially MPW wanted to help keep Steward viable in the near term but have that $60 million bridge loan be secured by those hospital assets should this situation continue to worsen.

What Analysts Are Saying About MPW Stock

Multiple analysts weighed in on the shocking MPW situation as news unfolded this week:

TipRanks reiterated its buy rating for MPW but lowered its price target for the stock from $14/share to $13/share. Even with that $1 reduction, the target price still represents over 50% upside from current levels. Their analyst comments:

“The expedited rent recovery and earnings update gives confidence that the risk from Steward has been appropriately calculated by management and priced into shares given the extreme pull back.”

JP Morgan maintained its underweight rating for MPW but slashed its price target from $15 to $11 per share. They view this Steward situation as a material risk for MPW that isn’t going away quickly:

“Steward has been struggling fundamentally for a while now and this update is a negative sign in our view and leaves MPW shares as uninvestable until there is clear fundamental stabilization at Steward.”

What Could Happen Next With MPW Stock

While a possible Steward bankruptcy would be the ultimate worst case scenario, most analysts think that is unlikely in the near term.

However, if rent recoveries remain well below the contracted amounts owed, MPW may be forced terminate that master lease agreement. Losing 30% of its rental income overnight would be hugely detrimental to financial projections.

MPW would likely then need to restructure some of its outstanding debt obligations which currently total $8 billion across the entire property portfolio. The dividend, which currently provides a nearly 9% yield, could also be at risk if cash flow tightens considerably.

However, should Steward receive a cash infusion through new financing or get back on track with its contracted rental obligations, MPW stock could bounce back quickly. There is clearly long term value in MPW’s hospital property portfolio – especially if that revenue stream stabilizes.

In the short term, expect continued extreme volatility with MPW as updates roll in regarding Steward’s financial health and the status of the unpaid rents. MPW reports Q4 2022 earnings in late February which could be critical to understanding total damage from this Steward situation so far as well as management’s strategic outlook for 2023.

Buckle up MPW shareholders – this saga appears far from over with many twists and turns likely still ahead.

Key Stats on Medical Properties Trust (MPW) Stock Situation

Statistic Value
Current MPW Share Price $8.51
52 Week High $21.63
52 Week Low $8.51
Market Cap $5.1 Billion
Dividend Yield 8.81%
Steward % of MPW Rent 30%
Amount Steward Owes MPW Currently ~$50 Million
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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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