Why Medical Properties Trust Popped This Week

Shares of hospital actual property funding belief (REIT) Medical Properties Belief (NYSE: MPW) rallied this week, appreciating 15.1% by 12:46 p.m. ET Thursday, in response to information from S&P International Market Intelligence.

Medical Properties has had a really tough yr, as larger rates of interest and a outstanding delinquent tenant pressured the corporate to chop its dividend in half final August. And on condition that Medical Properties’ dividend yield has already skyrocketed to 12.8% by advantage of its falling inventory worth, it seems buyers assume yet one more minimize could also be within the offing.

But this week, the beaten-down REIT received a bit of excellent information on that delinquent tenant, lifting shares. Nevertheless, the inventory is not at all out of the woods simply but.

Steward Care sells a division, and will pay up

The big tenant that had been delinquent on its hire was Steward Care, which at one level had beforehand accounted for 20% of Medical Properties’ income. On Wednesday of this week, The Boston Globe reported that the troubled hospital community had struck a deal to promote its managed care enterprise, Stewardship Well being, to the Optum division of insurance coverage big United Well being. Collaborative Care Holdings, a division of Optum, disclosed the pending sale to the Massachusetts Well being Coverage Fee late Tuesday.

The sale might release money for Steward, whose predominant enterprise is operating its nationwide community of 33 hospitals. And that money would doubtless discover its method to Medical Properties. Earlier this yr, Medical Properties administration stated {that a} sale of the division would enable Steward to repay all its excellent obligations. Clearly, getting that money would assist fill the opening left by Steward’s again hire in Medical Properties’ financials, which ought to assist the inventory get well.

However do not escape the champagne simply but

It must be famous that despite the fact that Medical Properties spiked this week, the inventory stays greater than 50% beneath its 52-week highs.

Whereas the sale of Steward’s managed care enterprise would little question be a optimistic, it’s only a one-time occasion. Going ahead, there may be prone to be extra skepticism as to the sustainability of Medical Properties Belief’s income stream, as Steward and all its different shoppers will want to have the ability to pay hire on an ongoing foundation and may not at all times have extra property to promote. This episode has additionally highlighted the danger of buyer focus for Medical Properties, so that will hurt valuation going ahead.

Moreover, even Collaborative Care Holdings’ disclosure did not specify a worth for the deal, nor the timing of when it might shut. If Steward is distressed, the division’s sale worth could also be nicely beneath truthful market worth for that sort of asset. And the deal nonetheless must get the blessing of the Massachusetts HPC as nicely.

So general, whereas this was a optimistic week for Medical Properties, buyers should not essentially count on a full restoration. It should take extra time and earned belief from Medical’s shoppers for that to occur, even when this sale goes by.

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Billy Duberstein has no place in any of the shares talked about. His shoppers might personal shares of the businesses talked about. The Motley Idiot recommends UnitedHealth Group. The Motley Idiot has a disclosure coverage.

Why Medical Properties Belief Popped This Week was initially printed by The Motley Idiot

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