Medical Properties Trust: Dividend Declared, 13.6% Yield, Undervalued At 3x FFO (Rating Upgrade)

seekingalpha04-23

Medical Properties Trust has finally declared its delayed dividend distribution, offering a substantial 13.6% dividend yield.MPW's dividend yield is 180% higher than its peer group median, with the ...

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The prior absence of a first-quarter distribution had formed a point of angst for some shareholders and was the focal point of my last article on the ticker. MPW's dividend annualized at $0.60 per share means a substantial 13.6% dividend yield, a near-historic high, even as the REIT continues to make significant progress in enhancing its liquidity base to increase balance sheet depth and address upcoming debt maturities. MPW at its current price of $4.42 per share is a buy.     MPW   Market capitalization $2.68 billion   Annual dividend  $0.60 per share   Dividend yield  13.6%   Dividend coverage (Annualized 2023 fourth quarter FFO) 240% ($1.44 per share)   Price to annualized 2023 fourth quarter FFO  3.07x   Credit rating  \"B+\"   Geographic spread  US, UK, Germany, Finland, Italy, Spain, Portugal, Switzerland, Colombia   1-year return  -48%   Click to enlarge MPW's yield is roughly 180% higher than its peer group median, even as the fundamental headwinds posed to the REIT's financials from Steward Health Care (\"SHC\") look to begin moderating. SHC is moving to sell its physician network to UnitedHealth (UNH), a deal that would enable the repayment of its outstanding debt to MPW. However, there is some uncertainty around the timeline of the deal closing following objections by several Massachusetts lawmakers. MPW also sold a majority 75% interest in five Utah hospitals for $886 million to a joint venture formed with an unnamed multi-billion dollar institutional asset manager. The REIT will keep the remaining 25% interest, with the deal also set to provide $190 million in non-recourse secured financing to MPW. Hence, MPW in the space of four months, has raised $1.6 billion, around 80% of its initially communicated target to realize $2 billion of additional liquidity in 2024. Book Value, Dividend Coverage, FFO Multiple, And The Fed Data by YChartsI'm now buying MPW on the stickiness of the current material discount to book value. This discount is even more staggering against its recent liquidity transactions, which have fundamentally formed a critical backstop for the value of its assets as recorded on its balance sheet. Book value at $7.6 billion at the end of the fourth quarter is roughly $5 billion ahead of the current market cap. That the REIT was able to dispose of five hospitals for $886 million, roughly 31% of its current market cap, against a $18.3 billion portfolio of 439 properties and 43,000 licensed beds underscores the upside here.   CME FedWatch ToolMPW is admittedly stuck in a bearish zeitgeist that has aggregated with tepid investor enthusiasm for REITs with inflation remaining stubborn and the Fed signaling that it might now actually only cut rates towards the end of the year. The CME FedWatch Tool has placed the most likely base interest rate outcome exiting 2024, with a 34.84% probability, at just one rate cut of 25 basis points. Critically, MPW at its $2.68 billion market cap is ridiculously cheap, changing hands at just a 3.07x multiple even as market concerns around the solvency of one of its largest tenants should begin to wilt with overall balance sheet exposure to SHC set to be reduced. Fourth-quarter FFO at $0.36 per share dipped by $0.02 sequentially from $0.43 per share in the year-ago period. Data by YChartsThe dichotomy between MPW and its peers is quite stark against MPW's substantial dividend coverage built on the back of a recent 48% dividend cut. The recent liquidity events further bolster the case for the future safety of the current distribution. However, this remains a high-risk ticker, as sticky inflation and a return of the higher for longer mantra could derail any hopes for a substantial near-term recovery of MPW's commons. The REIT's FFO at $0.36 per share also means it is covering its reduced $0.15 per share dividend by a substantial 240%. While bears would highlight that recent asset sales will slim the size of the REIT and limit FFO in the future, MPW is paying down debt and the liquidity from asset sales is set to form a critical backdrop for the continued payment of the dividends.   My target FFO multiple for MPW would be 6x to 8x, especially once the SHC deal with UnitedHealth is completed. This combined with a dividend that's secured against FFO and MPW's liquidity backdrop should support a strong near-term performance for the commons. What's the downside here? A regulatory delay to the SHC deal combined with a potential resurgence of inflation, cratering already tepid expectations for interest rate cuts. However, I can't get over the cheap 3x multiple against liquidity transactions that validate the value of the REIT's portfolio. The risk-to-reward paradigm has switched solidly to the reward side, with MPW likely set for outperformance from here.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2429010169"}