Shares of Medical Properties Trust(NYSE: MPW) were down 4.4% as of 11:55 a.m. ET Tuesday after having been down by as much as 8% earlier in the session. Those declines came after the Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) rose 0.3% month over month in January -- a larger increase than expected.
Why did Medical Properties Trust stock decline on this news? Investors are concerned that the Federal Reserve could delay making highly anticipated interest rate cuts.
Why do inflation and interest rates matter for Medical Properties Trust?
Tuesday's BLS report doesn't just affect Medical Properties Trust. However, because it is a real estate investment trust (REIT), it's impacted by interest rates more than many companies are. REITs depend heavily on borrowing to fund their purchases of new properties to lease. When interest rates are higher, their borrowing costs rise and profitability falls.
On the other hand, inflation is less of a concern for MPT than it might be for many companies. The healthcare REIT's leases are typically structured to include annual inflation-based rent escalators.
Is Medical Properties Trust stock one to buy on the dip?
The good news for MPT and other REITs is that the Fed still seems likely to cut the benchmark federal funds rate this year despite hotter-than-expected inflation numbers for January. However, higher interest rates are only one of the challenges that the company faces.
Several of MPT's hospital operator tenants continue to face significant financial headwinds. Last month, MPT revealed that its largest tenant, Steward Health Care System, had accumulated unpaid rent of around $50 million as of Dec. 31.
Because of these ongoing issues, risk-averse investors will be better off avoiding MPT. More aggressive investors with a lot of patience who are looking for turnaround plays, though, might be intrigued by the beaten-down stock. Interest rate cuts later in 2024 could provide a nice catalyst for MPT. In the meantime, the REIT's forward dividend yield is a mouth-watering 17.2%.
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Keith Speights has positions in Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
