Medical Properties Trust cut to Neutral at BofA, awaiting Prospect resolution

Medical Properties Trust (NYSE:MPW) stock dropped 1.8% in Thursday premarket trading after BofA Securities analyst Joshua Dennerlein downgraded the hospital REIT to Neutral as he sees the stock as a "show me" story.

"Valuation is compelling but we need to see a positive resolution to Prospect & improvements in debt costs to avoid dilutive refinancing or asset sales," the analyst wrote in a note to clients.

In February, Medical Properties (MPW) issued conservative guidance as it worked through issues with tenants Prospect Medical Holdings and Pipeline Health.

"Our discussions with MPW have indicated there is a path forward that allows MPW to recover their basis in their Pennsylvania Prospect investments and re-invest the proceeds," Dennerlein wrote. "However, timing is uncertain."

BofA increased its estimate of MPW's debt costs as new long-term debt may be in the 10%-11% range compared with an average in place debt of 3.5%. "We will be watching developments on this front closely given the potential dilution that may occur going forward from refinancing," he said.

Dennerlein also will closely watch Medical Properties' (MPW) Australian term loan. It should get $655M monetization in 2023, the analyst said. "The key risk is their 2024 AUD term loan facility ($817M) which comes due in 2Q24," he said. "Press reports have indicated that MPW is looking to monetize its Australian assets but there is execution and pricing risk."

The Hold rating agrees with the SA Quant rating and is more cautious than the average SA Author rating of Buy.

SA contributor On the Pulse makes the case for acquiring MPW aggressively