Medical Properties Trust (NYSE:MPW) is a REIT that focuses on hospitals and other medical facilities. The company has been through an extremely trying couple of years, resulting in both dividend cuts and deteriorating share prices.
Now, however, things seem to finally be improving at Medical Properties Trust. Is MPW a buy as the business turns itself around, or does the company still have more work to do?
What Has Changed at Medical Properties Trust?
Debt reduction has been a central priority at MPW over the last year. The company has been able to reduce its net debts from $10.1 billion at the end of 2023 to $8.8 billion as of the end of 2024. Much of this was achieved by property sales, including two that were finalized and one that was agreed on in the fourth quarter.
MPW has also managed to push its remaining debt maturities out, giving it a great deal of breathing room and the ability to begin investing for growth again. In Q4 2024, the company issued $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, MPW is in a much more stable position where its finances are concerned. The debt sale also 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 may finally have 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 (NFFO) of $0.80 per share. Given that the dividend has been cut to $0.32 annually, this gives MPW decent coverage for its dividend.
At one time, Medical Properties Trust was generating double-digit yields for its shareholders. Yields exceeded 18 percent 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 percent.
Additionally, the company will have the opportunity to increase value for shareholders going forward, an effort that could involve growing the dividend again as business returns to normal. If the company can fully regain its footing, MPW’s dividend could rise at a fairly brisk pace in the years to come.
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.
With the company still 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. MPW will also have to attempt to recover money owed to it from previous tenants that faced bankruptcy proceedings, a process with an uncertain outcome that could take quite some time.
The company’s 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 of MPW, with the stock currently having 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, it seems that the company is finally at a point where it can make quarterly distributions sustainably without needing to cut them again anytime in the near future.
However, MPW is still in the early stages of its turnaround. As such, there are still unknowns associated with the company that could concern investors. Right now, MPW is likely a decent stock to hold, especially considering the strong dividend income it could potentially produce. Investors who don’t already own shares, though, may want to wait for proof of improved performance in the future given the rocky road Medical Properties Trust has been on over the past few years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
