A Healthcare REIT on the Mend
Medical Properties Trust (NYSE: MPW) has faced a perfect storm of challenges in recent years, with tenant troubles and balance sheet issues taking a toll on its stock price. However, the healthcare REIT has made significant strides in addressing these problems, and its efforts are starting to pay off.
Tenant Troubles
The bulk of Medical Properties Trust’s issues stem from its overexposure to two tenants: Steward Health Care and Prospect Medical Holdings. At the end of 2022, more than 35% of its revenue came from these two tenants, which became highly problematic when they couldn’t pay their rent.
Turning the Corner
However, Medical Properties Trust has taken decisive action to address these issues. It has replaced troubled tenants with financially stronger ones, sold several assets to shore up its financial position, and diversified its tenant base. The company has also raised roughly $3 billion of liquidity this year via asset sales and debt refinancing, repaying $2.2 billion in debt since the start of 2023.
A Brighter Future Ahead
As a result of these efforts, Medical Properties Trust expects its portfolio to generate robust cash flows for the company and its shareholders over both the near and long term. The REIT believes it has the liquidity and options to manage its debt maturities in 2025 and beyond, paving the way for better days ahead.
A High-Yielding Dividend
Despite its challenges, Medical Properties Trust still generated $0.16 per share of normalized funds from operations (FFO) during the third quarter, double its current dividend payment. This gives its stock a more than 8% yield at the recent price. With its improved liquidity and tenant situation, the company should have no trouble maintaining its current dividend level, and dividend sustainability is expected to improve significantly over the next two years.
A Recovery in Sight
As new and existing tenants start paying rent, Medical Properties Trust’s cash flow should steadily rise over the next two years. This will enable the company to further enhance its balance sheet, make new investments, or return more cash to investors via a higher dividend or share repurchases. Any of these options should help grow shareholder value by boosting the company’s beleaguered stock price.
A Compelling Investment Opportunity
Given its much-improved prospects, I recently bought more shares of Medical Properties Trust, and I expect to continue doing so as its recovery takes hold. With its high-yielding dividend and potential for strong total returns, this healthcare REIT could be an attractive addition to any income-focused portfolio.
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