EFTA01389038.pdf

Deutsche Bank Markets Research Rating (111 11 112 2 November 2016 Buy Medical Properties Trust Alert Forecast Change North America United States EN:Dengo re,ket Price at 1 Nov 2016 (USO) 13 08 Financial MPW.N MPW UN NYS MPW Price Target 15.00 REITs 52-week range 15.80 9.66 Weak 3Q print at a top tenant drives Vol ( CIA Research Analyst MPW sell-off ADPT's weak :1O /:pc.,.->es several key issues related to the overall business Adeptus Health Inc (ADPT: DB not rated), MPW's 6th largest tenant at -5% of Vlad Fludnyl,kv revenue (pro-forma for post 2Q acquisitions) postponed yesterday morning's hA • planned earnings release to aftermarket hours, driving an 11% sell-off in the stock and likely the major contributor to MPW's -6.2% decline (RMZ -2.2%). Once the results were out, the shares dropped another -50% in after hours trading as ADPT reported weak 3O results with several significant issues affecting the company, and announced an emergency infusion of capital by „..„, „ in insiders. While some of the significant decline in EBITDA was tied to the transitional nature of ADPT's recent strategic shift, we were surprised by the Target Price 17.00 to 15.00 41.8% weakened balance sheet as well as the liquidity issues caused by significant sorer on eta mismanagement of bill collections and the capital intensive nature of recent hospital openings. ADPT also cut their adjusted EBITDA guidance by -34% at Stock & option liquidity data the midpoint on lower-than-expected patient volumes in non-hospital Market cap 1USOrn) 4,037.5 outpatient markets, higher-than-expected cash outlays for its three recent hospital openings, and a substantial increase in days sales outstanding. Shares outstanding (ml 308.7 Worst case scenario 5.:t8;ciest cio,,c013840 Li; 2017 FAD. dividend covered Free float C%1 100 Assuming a worst case scenario in which Adeptus ceases to exist, we estimate Volume (1 Nov 2016) 2.066.734 a roughly 11% hit (-14c) to our current 2017 FAD estimate. Our downside Option volume fund. shut., 1M estimate assumes a total loss of all in-place ADPT revenue ($8.2MM in 2O) and avg) the elimination of all developments tied to ADPT. Importantly, the FAD payout ratio would still be a manageable 80%. We think a total loss of ADPT income is Rare Canny en extremely bearish given healthy rent coverage of 2.85x and MPW's geographic K.•.r. exposure within the ADPT portfolio which is skewed toward Dallas, Houston, and Colorado, whereas the weakest volumes for ADPT appear to have been in FYE 12/31 2015A 2016E 2017E the San Antonio and Austin markets where MPW has 7 assets in development. 10 FF0 0.28 0.35A Disk:reward remains attractive despite significant headline 20 FF0 0.30 0.32A We have been assuming about a 3.5x FAD multiple discount to MPW's small 30 FFO 0.32 0.30 cap healthcare REIT peers to account for heightened risks associated with the 40 FFO 0.35 0.32 hospital industry, equating to a 12.3x multiple. Should a worst case scenario FY FFO (USD) 1.25 1.29 1.39 for ADPT unfold we could easily see MPW trade even lower in the near term. P/FFO (x) 10.5 10.1 94 We think another 1.5x haircut to our 12.3x baseline multiple could be reasonable in such a scenario equating to a 1 standard deviation drop to our Sage. On.,. 6.A. baseline. 10.8x on our worst case 2017 FAD estimate of $1.15 would equate to $12.42/sh or another 5% decline in the stock. Contrast this with our new target price of $15/sh and we continue to believe the risk/reward is favorable for MPW despite obvious and serious headline risks. 1.0vv,‘JiEng IP to reflect heightened ADM' risk. Inaintain Buy To reflect the heightened risks tied to Adeptus, we are increasing our FAD discount to peers by 0.5x to 4.0x, which combined with the recent REIT sell-off equates to 11.8x our 2017 FAD estimate & moves our TP for MPW to $15 from $17. Key risks include the ongoing DoJ investigation of top tenant Prime Healthcare, continued pressure on Adeptus, above-avg government reimbursement risk, and rate sensitivity. Deutsche Bank Securities Inc. Distributed on: 02/11/2016 05:45:50 GMT The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.corn/ger/disclosure/Disclosure.easr≥ricCode=MPVV.N MCI (P) 057/04/2016. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0093199 CONFIDENTIAL SDNY_GM_00239383 EFTA01389038