Recovery Roadmap: Medical Properties Trust Takes Two Steps Forward, One Step Back
Medical Properties Trust (NYSE: MPW) has made significant strides in its recovery plan this year, raising $2.9 billion in liquidity and severing ties with its troubled former top tenant, Steward Health Care. These moves have put the healthcare real estate investment trust (REIT) on firmer ground.
A Stronger Portfolio and Balance Sheet
The REIT’s portfolio now consists of 402 properties leased to or mortgaged by 55 hospital-operating companies, with most tenants paying rent on time. The company has also strengthened its balance sheet by repaying and refinancing debt.
Prospect Medical: A Persistent Problem
However, issues with another troubled tenant, Prospect Medical, continue to plague Medical Properties Trust. Despite intervening to provide financial support, Prospect stopped making rent payments on six California properties during the third quarter. While underlying operations at those properties have improved, Prospect’s East Coast markets have struggled, impacting its liquidity.
Catalysts for Recovery
Several catalysts are expected to enable Prospect to resume paying rent in the coming months, including improved profitability and $100 million in quality-assurance fund payments next year. Additionally, Medical Properties Trust has diversified its rent roll and enhanced tenant quality through agreements with five new operators.
Liquidity Transactions
The REIT has completed several liquidity transactions, including the sale of 18 free-standing emergency department facilities, a hospital in California, and two FSED properties in Texas. These transactions have raised $2.9 billion, exceeding the company’s initial target.
Cash Flow Takes a Hit
While Medical Properties Trust’s actions have strengthened its balance sheet, they have also shrunk its cash flow. Normalized funds from operations (FFO) were $94 million, or $0.16 per share, in Q3, down from $226 million, or $0.38 per share, in the year-ago period.
Looking Ahead
Despite the setback with Prospect Medical, Medical Properties Trust is on the path to recovery. As Prospect and new tenants begin paying rent, FFO should rise over the next two years, potentially enabling the REIT to rebuild its dividend.
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