Hospital REITs have had a rough go of it of late and Medical Properties Trust (NYSE:MPW) is no exception as its share price and dividend were both slashed in recent years but a U-turn in fortune is on the horizon so what does it mean for the dividend?
What Changed at Medical Properties Trust?
Debt reduction has been a central priority at MPW over the last year. Management has been able to reduce net debts from $10.1 billion at the end of 2023 to $8.8 billion as of the end of 2024. Much of the progress was due to property sales, including two that were finalized and one that was agreed on in the fourth quarter.
Debt maturities still on the books have also been pushed out and so provided some financial breathing room and the ability to begin investing for growth again.
In Q4 last year, the team chose to issue $2.5 billion in senior secured notes to pay off its debt obligations through next year. Those notes won’t come due until 2032, and MPW had already taken steps to push out its debts maturing in 2024 and 2025.
With the immediate debt concerns alleviated, the hospital REIT is in a much more financially stable position. The debt sale resulted in combined cash and line of credit availability of $1.4 billion for the company to use elsewhere. By the close of business last year, MPW’s total reserve of cash and cash equivalents totaled about $332 million.
Not all of the developments at Medical Properties Trust over the last year have come in the form of damage control, though. In Q4, for instance, the company commenced rent on a facility in Idaho. In September, MPW also transferred 15 hospitals to new operators. These hospitals were previously leased by Steward Health Care, a company whose financial distress and later bankruptcy negatively impacted MPW’s cash flows. With these facilities leased to new operators, the company can again begin generating reliable rents from several of its properties.
Is MPW Stock Dividend Safe?
Thanks to financial engineering over the past year or so alongside cuts, Medical Properties Trust has finally achieved a measure of dividend security.
With cash flows resuming from several of its hospitals, management expects to be able to maintain its dividend. In 2024, the company generated normalized funds from operations of $0.80 per share. Given that the dividend has been cut to $0.32 annually the dividend coverage is more than ample.
At one time, Medical Properties Trust was generating double-digit yields for its shareholders. They exceeded 18% in 2023 as MPW continued to pay its exceptionally high dividend amid growing financial concerns. After multiple rounds of cuts, though, MPW is down to paying a high but much more sustainable 5.3%.
Is MPW Still Risky?
Over the last year, there’s little doubt that Medical Properties Trust has done a great deal to shore up its business. With that said, the stock could still be fairly risky. To begin with, it’s still carrying quite a lot of debt. Even though the liabilities have been pushed out, Medical Properties Trust will still have to pay blended rates of nearly 8% over several years on its new notes.
Given the transitioning properties to new operators, there also isn’t a proven stream of cash flow being generated from parts of its portfolio as of yet. Management must claw back money owed from previous tenants who faced bankruptcy.
The risk profile still appears to be worrying institutional investors. In the last six months, institutions have sold over $6 billion worth of the stock and bought just over $900 million. While the rates of selling and buying have narrowed since the beginning of the year, it still appears that Wall Street is holding off on MPW to some degree.
Analysts are similarly skeptical and have 0 buy ratings, 7 hold ratings and 1 sell rating. Price targets also still suggest downside in the stock, as the average price forecast over the next 12 months is $4.56. This would result in further losses of nearly 20% from the current price.
With all of this said, MPW was able to significantly oversubscribe its note offering in Q4. This demonstrates that there was substantial appetite for the debt being issued by the company in spite of its possible risks. As MPW management has noted, the majority of the portfolio is still performing reliably, giving the company a good foundation for its turnaround efforts.
Is MPW a Buy Now?
With its debts on a manageable schedule and parts of its portfolio functioning again after its tenant difficulties, Medical Properties Trust looks better right now than it has in quite a while. While its dividend may be lower, quarterly distributions can now sustainably be made without needing to slash and burn the payout anytime soon.
The former high-flying hospital REIT is still in the early stages of a turnaround and chockful of unknowns so while it’s a Hold for the most part, uncertainties abound still.
If you don’t already hold shares, you may want to wait for the proof in the pudding before getting too enthusiastic and jumping into the deep end of this formerly fraught-with-danger pool.
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