Core Viewpoint - Select Medical Holdings Corporation (SEM) has experienced significant underperformance in 2025, with shares down 33.4% year to date, compared to the industry's 29.7% gain and the S&P 500's 14.2% growth. The stock is currently trading at $12.55, which is 69.4% below its 52-week high of $40.98 [1]. Group 1: Challenges Facing SEM - The Critical Illness Recovery Hospital unit has shown weakness, with admissions declining by 1% in 2023, 1.2% in 2024, and 0.5% in the first half of 2025. This has led to lower patient days and revenue per patient day, resulting in a 28% year-over-year decrease in operating income [3]. - Rising costs are a concern, with expenses increasing by 7.9% in 2024 and 3.4% in the first half of 2025, with no signs of slowing down. Additionally, uncertainty regarding future government medical aid adds pressure [4]. - SEM's trailing 12-month return on equity is 8.9%, significantly below the industry average of 21.1%, indicating weak capital efficiency [4]. - The company's net debt-to-capital ratio is high at 47.2%, with long-term debt at $1.8 billion and only $52.3 million in cash as of June 30, 2025 [5]. Group 2: Financial Projections - The Zacks Consensus Estimate projects SEM's 2025 revenues at $5.37 billion, reflecting an 18.9% year-over-year decline, followed by a 4.9% recovery in 2026. EPS is expected to be $1.17 in 2025, up 24.5%, with an additional 14.3% increase in 2026 [6][7]. Group 3: Positive Aspects - The Rehabilitation Hospital segment is performing well, with occupancy at 82% in the first half of 2025. Admissions and patient days increased by 8.1% and 6.4%, respectively, while operating income rose by 12.1% in 2024 and 16.1% in the first half of 2025, maintaining margins above 20% [8]. - Operating cash flow was strong, at $517.9 million in 2024 and $106.8 million in the first half of 2025. The company plans to add 412 more beds between 2025 and mid-2027, which could enhance growth [9]. - SEM's valuation appears attractive, trading at a forward P/E of 9.69X, below its five-year median of 12.75X and the industry average of 13.55X, suggesting potential for a rebound as fundamentals stabilize. The company currently holds a Value Score of A [10]. Group 4: Overall Assessment - SEM is facing significant challenges, including poor performance in its Critical Illness Recovery Hospitals, rising costs, high leverage, and lower returns compared to peers. However, the Rehabilitation Hospital segment shows promise with healthy occupancy and cash generation. The company's undervalued trading multiples indicate potential upside if execution improves. The stock is rated Zacks Rank 3 (Hold), suggesting that investors may consider maintaining their current positions [11].

Core Viewpoint - Real estate investment trusts (REITs) are popular among income-seeking investors due to their requirement to distribute most earnings as dividends, but they face challenges that can threaten dividend payouts [1] Group 1: Innovative Industrial Properties (IIP) - IIP focuses on the medical cannabis industry by purchasing real estate from marijuana growers and leasing it back to them [2] - The cannabis industry has faced difficulties, impacting IIP's operations, including declining revenue and earnings, and a significant tenant, PharmaCann, defaulting on rent obligations, which accounted for about 17% of IIP's rental revenue [4] - A deal was reached with PharmaCann for repayment of owed rent and a new lease agreement, while IIP continues to own 109 properties across 19 states, with medical cannabis legal in 38 states [5] - IIP has maintained its dividend despite recent challenges, appealing to investors looking for resilient dividend options [6] Group 2: Medical Properties Trust (MPT) - MPT operates medical facilities and has faced issues with two tenants declaring bankruptcy, leading to financial difficulties and reduced payouts [7] - MPT has begun addressing these challenges by securing new tenants for facilities previously occupied by Steward Health Care, with average lease terms of about 18 years [8] - MPT has 396 medical properties across the U.S. and Europe, and despite recent challenges, it is expected to benefit from long-term trends in the healthcare sector, such as an aging population [9] Group 3: Investment Comparison - IIP generates higher funds from operations and has a significantly higher annual dividend per share and trailing-12-month dividend yield compared to MPT [11] - MPT operates in the medical industry, which has strong long-term prospects, while the future of the cannabis sector remains uncertain [12] - The uncertainty surrounding the cannabis industry raises questions about IIP's future performance, while MPT is expected to gradually return to stable financial results and increase dividends [13] - The choice between IIP and MPT depends on investor preferences, with bullish investors on cannabis favoring IIP and risk-averse investors opting for MPT [14]