Medical Properties Belief(NYSE: MPW) has battled a seemingly unending barrage of headwinds lately. Tenant troubles and stability sheet points have weighed closely on the actual property funding belief’s (REIT) inventory worth. Shares at present sit greater than 80% under their peak in 2020, when the pandemic began inflicting hassle for its hospital tenants.
The healthcare REIT has battled again in opposition to its points. It has changed troubled tenants with financially stronger ones and bought a number of property to shore up its monetary place. Due to that, it is getting more healthy.
That is why I just lately purchased extra shares of the high-yielding REIT. I imagine it is about to start out recovering, which is able to put its high-yielding dividend on a extra sustainable basis.
The majority of Medical Properties Belief’s points stem from its overexposure to 2 tenants: Steward Well being Care and Prospect Medical Holdings. On the finish of 2022, greater than 35% of its income got here from these two tenants. That grew to become extremely problematic once they could not pay their lease.
At first, Medical Properties Belief tried to work with these troubled tenants by offering extra monetary help and restructuring its funding. Nevertheless, their monetary issues solely grew worse, with Steward finally submitting for chapter.
The REIT was in a position to sever its relationship with Steward earlier this yr, which allowed it to lease most of the properties tied to that tenant to new operators. It has additionally been working to scale back its publicity to Prospect. The corporate just lately agreed to promote its curiosity in its managed care enterprise in a deal that can usher in $200 million in money. It additionally just lately made a transfer to take again management of three healthcare entities in Southern California by looking for to exchange board members with these designated by the REIT after Prospect defaulted on its debt and stopped paying lease on its properties once more.
Its lingering points with Prospect apart, Medical Properties Belief has considerably enhanced its portfolio and stability sheet over the previous couple of years. It has raised roughly $3 billion of liquidity this yr through asset gross sales and debt refinancing (and has repaid $2.2 billion in debt because the begin of 2023). In the meantime, it has diversified and enhanced its tenant base by re-tenanting 17 former Steward services with 5 financially stronger operators.
Because of this, the corporate anticipates that its “portfolio is well-positioned to generate sturdy money flows for MPT and our shareholders over each the close to and long run,” acknowledged senior vice chairman of operations Rosa Hooper on the REIT’s third-quarter convention name. It additionally has the liquidity and different choices at its disposal to handle its debt maturities in 2025 ($1.2 billion) and past. Due to that, the REIT believes higher days lie forward.
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Medical Properties Belief nonetheless generated $0.16 per share of normalized funds from operations (FFO) throughout the third quarter, regardless of all its points. That was double its present dividend fee ($0.08 per share every quarter after two deep cuts lately), which supplies its inventory a greater than 8% yield on the latest worth. Given its much-improved liquidity and tenant state of affairs, the corporate should not have any hassle sustaining its present dividend stage.
Dividend sustainability ought to enhance considerably over the subsequent two years. That is as a result of the tenants that changed Steward aren’t at present paying lease (and neither is Prospect). Nevertheless, that can change beginning subsequent yr. Prospect just lately bought its managed care enterprise and may obtain $100 million of high quality assurance fund funds in early 2025, which ought to put it in a stronger monetary place in order that it will possibly resume making rental funds to Medical Properties Belief.
In the meantime, the REIT agreed to forgo lease on the previous Steward properties till the top of 2024 to provide the brand new tenants time to ramp up their operations. Partial rental funds will start subsequent yr and slowly escalate. They will attain 50% of the stabilized price by the top of subsequent yr and hit the totally stabilized price on the finish of 2026. As well as, the REIT has just a few different former Steward properties it is working to resolve over the subsequent few quarters by promoting them or securing new tenants to function the services.
As a result, the REIT’s money move ought to steadily rise over the subsequent two years. It could actually use that more money to additional improve its stability sheet, make new investments, or return more money to buyers through the next dividend or share repurchases. Any of these choices ought to assist develop shareholder worth by boosting the corporate’s beleaguered inventory worth.
Medical Properties Belief appears to have lastly sorted out most of its points. Due to that, it ought to start its restoration subsequent yr as new and current tenants begin paying lease. That ought to improve the sustainability of its high-yielding dividend. I believe the REIT might produce sturdy whole returns from right here, which is why I just lately purchased extra shares, one thing I anticipate to proceed doing as its restoration takes maintain.
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Matt DiLallo has positions in Medical Properties Belief and has the next choices: brief March 2025 $4 places on Medical Properties Belief. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.
Why I Lately Purchased Extra Shares of This Crushed Down 8%-Yielding Dividend Inventory was initially revealed by The Motley Idiot
