EFTA Document EFTA01389038

Deutsche Bank Markets Research Rating Buy North America United States Financial REITs (111 11 112 Medical Properties Trust Alert EN:Dengo re,ket MPW.N MPW UN NYS MPW Weak 3Q print at a top tenant drives MPW sell-off 2 November 2016 Forecast Change Price at 1 Nov 2016 (USO) Price Target 52-week range Vol ( CIA Research Analyst 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 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 planned earnings release to aftermarket hours, driving an 11% sell-off in the trading as ADPT reported weak 3O results with several significant issues affecting the company, and announced an emergency infusion of capital by 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 weakened balance sheet as well as the liquidity issues caused by significant mismanagement of bill collections and the capital intensive nature of recent hospital openings. ADPT also cut their adjusted EBITDA guidance by -34% at the midpoint on lower-than-expected patient volumes in non-hospital outpatient markets, higher-than-expected cash outlays for its three recent hospital openings, and a substantial increase in days sales outstanding. Worst case scenario 5.:t8;ciest cio,,c013840 Li; 2017 FAD. dividend covered Assuming a worst case scenario in which Adeptus ceases to exist, we estimate a roughly 11% hit (-14c) to our current 2017 FAD estimate. Our downside estimate assumes a total loss of all in-place ADPT revenue ($8.2MM in 2O) and 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 extremely bearish given healthy rent coverage of 2.85x and MPW's geographic exposure within the ADPT portfolio which is skewed toward Dallas, Houston, and Colorado, whereas the weakest volumes for ADPT appear to have been in the San Antonio and Austin markets where MPW has 7 assets in development. Disk:reward remains attractive despite significant headline We have been assuming about a 3.5x FAD multiple discount to MPW's small cap healthcare REIT peers to account for heightened risks associated with the hospital industry, equating to a 12.3x multiple. Should a worst case scenario for ADPT unfold we could easily see MPW trade even lower in the near term. 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 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. 13 08 15.00 15.80 9.66 • h A „..„, „ in Target Price 17.00 to 15.00 sorer on eta 41.8% Stock & option liquidity data Market cap 1USOrn) 4,037.5 Shares outstanding (ml 308.7 Free float C%1 100 Volume (1 Nov 2016) 2.066.734 Option volume fund. shut., 1M avg) Rare Canny en K.•.r. FYE 12/31 2015A 2016E 2017E 10 FF0 0.28 0.35A 20 FF0 0.30 0.32A 30 FFO 0.32 0.30 40 FFO 0.35 0.32 FY FFO (USD) 1.25 1.29 1.39 P/FFO (x) 10.5 10.1 94 Sage. On.,. 6.A. 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) CONFIDENTIAL DB-SDNY-0093199 SDNY_GM_00239383 EFTA01389038