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Medical Properties Trust: Not As Bad As It Seems

Medical Properties Trust's recent dividend cut and separation from Steward Health Care enhance its sustainability and restructuring potential, despite reducing passive income appeal.The trust's asset

Medical Properties Trust: Not As Bad As It Seems

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(<span>NYSE:MPW</span>) </strong>is moving on with its hospital lease business without its biggest previous tenant, Steward Health Care. The real estate investment trust officially severed the relationship with its former biggest operator and, as a consequence, Medical Properties Trust<span> also cut its dividend again. It was second dividend cut for Medical Properties Trust in a year, but the new dividend should prove to be highly sustainable.</span></p> <p>In my view, Medical Properties Trust remains a compelling REIT investment even with the dividend receiving another haircut because the trust has considerable reorganization and restructuring potential.</p> <p>Medical Properties Trust is disposing of unwanted assets which should aid the reduction of the trust’s substantial debt. Though Medical Properties Trust is no longer a viable passive income vehicle, I think the trust does have moderate upside.</p> <h2><strong>My Rating History</strong></h2> <p>My last stock classification for Medical Properties Trust was Hold which followed from growing dividend concerns and ongoing performance issues in the portfolio, particularly with regard to Steward Health Care.</p> <p>With that said, though, the dividend cut to $0.08 per share per quarter lowers Medical Properties Trust dividend pay-out ratio which should render the new dividend reasonably safe.</p> <h2><strong>Moving On From Steward Health Care</strong></h2> <p>Medical Properties Trust came to an agreement with Steward Health Care in September that allowed for the transfer of SHC facilities to other operators. In total, the hospital real estate investment trust agreed to take control of 23 hospitals, 15 of which have been leased to four replacements tenants. This leaves another 8 hospitals that are presently going through the process of being released to new tenants.</p> <p>The agreement is a big opportunity for Medical Properties Trust to move on from its struggling anchor tenant which until recently was the main operator in the trust’s portfolio.</p> <p><figure contenteditable=\"false\"><span><img contenteditable=\"false\" height=\"123\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/9/29/54097509-1727614271868402.png\" width=\"640\"/></span><figcaption><p>Operator Transitions <span>(Medical Properties Trust)</span></p></figcaption></figure></p> <p>Medical Properties Trust is selling assets and repaying debt which are really emergency measures to stabilize the trust after it went through a couple of payment hiccups with its operators. As a consequence, Medical Properties Trust’s portfolio is shrinking as it is selling hospitals in order to generate liquidity to throw at its debt.</p> <p>As of June 30, 2024, Medical Properties Trust still owed a staggering $9.45 billion in long-term debt. A lot of this debt is coming due in 2026, reflecting a total of 25% of the trust’s debt balance. Though I am not concerned about Medical Properties Trust’s ability to push out debt maturities, refinance existing debt or repay some maturities early, the big amount of debt needs to be tackled as soon as possible and the trust has had some success in this regard lately.</p> <p>In August, the trust sold 11 facilities, including emergency departments (free-standing) and other urgent care facilities to the University of Colorado Health for a total consideration of $86 million. The proceeds from the block asset disposition are anticipated to be used to repay Medical Properties Trust’s financial debt. YTD, Medical Properties sold $2.5 billion of assets and with more asset dispositions in the cards for the remainder of 2024, I anticipate the trust to gradually reduce its debt balance.</p> <p><figure contenteditable=\"false\"><span><img contenteditable=\"false\" height=\"269\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/9/29/54097509-1727614352563999.png\" width=\"640\"/></span><figcaption><p>Debt Maturities <span>(Medical Properties Trust)</span></p></figcaption></figure></p> <h2><strong>Technical Profile</strong></h2> <p>Medical Properties Trust has seen a nice surge in the stock price after the real estate investment trust closed the Steward Health Care chapter earlier in September. Since this announcement, the trust’s stock has enjoyed a breakout, with MPW rising above the 20-day and 50-day moving average lines.</p> <p>This upside breakout substantially enhances the bullish profile of Medical Properties Trust and could possibly drive the stock price higher in the short-term. This upside at least in part comes from the fact that MPW is highly shorted: According to Seeking Alpha’s short interest data, Medical Properties has a short interest ratio (float) of 38.82%.</p> <p>Put simply, the trust is potentially vulnerable to an upsurge in the stock price in case short investors were to clamor for a quick unwinding of their short positions.</p> <p><figure contenteditable=\"false\"><span><img contenteditable=\"false\" height=\"429\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/9/29/54097509-17276145544147272.png\" width=\"640\"/></span><figcaption><p>Stock Price <span>(Stockcharts.com)</span></p></figcaption></figure></p> <h2><strong>Dividend Cut Implies Stronger Forward Pay-Out Metrics</strong></h2> <p>In my last piece on Medical Properties Trust I pointed to a low dividend pay-out ratio, based on normalized funds from operations, as having appeal to passive income investors. With the dividend getting cut again by about half, the new dividend is going to have a much higher margin of safety.</p> <p>Based on 2Q24 run-rate normalized funds from operations of $0.23 per share, Medical Properties is poised to pay about just about one-third of its normalized FFO.</p> <p>The trust is going to see a reduction in its FFO, however, as it is disposing of assets to assist its balance sheet restructuring. With that said, the new dividend should be highly sustainable.</p> <p><figure contenteditable=\"false\"><span><img contenteditable=\"false\" height=\"445\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/9/29/54097509-1727614623799027.png\" width=\"640\"/></span><figcaption><p>Normalized Funds From Operations <span>(Medical Properties Trust)</span></p></figcaption></figure></p> <p>For convenience purposes, I am copying my pay-out metric table from my last piece on the hospital real estate investment trust. What you’ll see is that MPW paid out just about half of its normalized funds from operations, on a LTM basis, in the last year. These pay-out metrics are poised to improve as the new dividend cut takes effect.</p> <p><figure contenteditable=\"false\"><span><img contenteditable=\"false\" height=\"207\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/9/29/54097509-1727614672920774.png\" width=\"640\"/></span><figcaption><p>Normalized Funds From Operations <span>(Author Created Table Using Trust Information)</span></p></figcaption></figure></p> <h2><strong>Big Discount To Book Value</strong></h2> <p>Medical Properties Trust’s book value is poised to decline as the trust disposes more assets. Presently, the real estate investment trust has a book value of $10.32 compared to a stock price of $5.91 which reflects back to us a 43% discount to book value. This seems a bit extreme considering that the trust’s assets produce recurring income and that we are seeing clear progress in terms of asset dispositions.</p> <p>If Medical Properties Trust restructures/repays/extends its near-term maturities, the trust could clear the path for a higher valuation and possible rerate to book value once asset dispositions are complete.</p> <p>I think that investors are still overly pessimistic about MPW, but since the trust’s strategy to right-size its portfolio and deal with insolvent operators is working, the risk/reward relationship is promising.</p> <p><figure><img height=\"366\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/9/29/saupload_38c375392c62e47f6523fc2113aee5a2.png\" width=\"635\"/><figcaption>Data by YCharts</figcaption></figure></p> <h2><strong>Why The Investment Thesis Might Be Faulty</strong></h2> <p>Medical Properties Trust’s dividend coverage is now much less of a concern for investors, as the dividend has been realigned with lower normalized funds from operations expectations.</p> <p>I would make the argument that Medical Properties Trust may be better off in the long-run preserving cash and focusing on the profitable leasing of its hospital properties while simultaneously repaying its long-term debt.</p> <p>Medical Properties Trust still owns a big chunk of debt here, which is the most pressing issue. Failure to do so would probably severely limit Medical Properties Trust’s recovery upside and raise doubts about its turnaround potential.</p> <h2><strong>My Conclusion</strong></h2> <p>As Medical Properties Trust has rid itself of the problems related to the SHC bankruptcy, I think that the trust’s stock does have potential.</p> <p>Medical Properties Trust is finally closing the Steward Health Care chapter, and I think this will ultimately only benefit the hospital trust, particularly if the amount of debt gets dialed back and the portfolio shrinks to a more sustainable level.</p> <p>The declaration of a $0.08 per share per quarter dividend substantially realigns Medical Properties Trust’s dividend with its lower anticipated amount of funds from operations, and passive income investors should see a much higher margin of safety moving forward.</p> <div></div> <p>Though Medical Properties Trust needs more time to pivot its business (in terms of its portfolio and balance sheet), I think MPW is worth holding on.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; 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height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMedical Properties Trust: Not As Bad As It Seems\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-02 09:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4724537-medical-properties-trust-stock-potential-higher-valuation-restructuring-progresses><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Medical Properties Trust's recent dividend cut and separation from Steward Health Care enhance its sustainability and restructuring potential, despite reducing passive income appeal.The trust's asset ...</p>\n\n<a href=\"https://seekingalpha.com/article/4724537-medical-properties-trust-stock-potential-higher-valuation-restructuring-progresses\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2060125789/image_2060125789.jpg","relate_stocks":{"BK4225":"医疗保健房地产信托","MPW":"Medical Properties Trust","BK4585":"ETF&股票定投概念","BK4203":"医疗保健房地产投资信托","BK4588":"碎股"},"source_url":"https://seekingalpha.com/article/4724537-medical-properties-trust-stock-potential-higher-valuation-restructuring-progresses","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2472554917","content_text":"Medical Properties Trust's recent dividend cut and separation from Steward Health Care enhance its sustainability and restructuring potential, despite reducing passive income appeal.The trust's asset disposals and debt repayments are stabilizing measures, with $2.5 billion in assets sold YTD, aiming to reduce its $9.45 billion debt.MPW's stock has surged post-Steward Health Care exit, with a bullish technical profile and potential short squeeze driving short-term price increases.A 43% discount to book value and improved dividend coverage metrics suggest undervaluation, with potential for higher valuation as restructuring progresses.   Franck-Boston Medical Properties Trust, Inc. (NYSE:MPW) is moving on with its hospital lease business without its biggest previous tenant, Steward Health Care. The real estate investment trust officially severed the relationship with its former biggest operator and, as a consequence, Medical Properties Trust also cut its dividend again. It was second dividend cut for Medical Properties Trust in a year, but the new dividend should prove to be highly sustainable. In my view, Medical Properties Trust remains a compelling REIT investment even with the dividend receiving another haircut because the trust has considerable reorganization and restructuring potential. Medical Properties Trust is disposing of unwanted assets which should aid the reduction of the trust’s substantial debt. Though Medical Properties Trust is no longer a viable passive income vehicle, I think the trust does have moderate upside. My Rating History My last stock classification for Medical Properties Trust was Hold which followed from growing dividend concerns and ongoing performance issues in the portfolio, particularly with regard to Steward Health Care. With that said, though, the dividend cut to $0.08 per share per quarter lowers Medical Properties Trust dividend pay-out ratio which should render the new dividend reasonably safe. Moving On From Steward Health Care Medical Properties Trust came to an agreement with Steward Health Care in September that allowed for the transfer of SHC facilities to other operators. In total, the hospital real estate investment trust agreed to take control of 23 hospitals, 15 of which have been leased to four replacements tenants. This leaves another 8 hospitals that are presently going through the process of being released to new tenants. The agreement is a big opportunity for Medical Properties Trust to move on from its struggling anchor tenant which until recently was the main operator in the trust’s portfolio. Operator Transitions (Medical Properties Trust) Medical Properties Trust is selling assets and repaying debt which are really emergency measures to stabilize the trust after it went through a couple of payment hiccups with its operators. As a consequence, Medical Properties Trust’s portfolio is shrinking as it is selling hospitals in order to generate liquidity to throw at its debt. As of June 30, 2024, Medical Properties Trust still owed a staggering $9.45 billion in long-term debt. A lot of this debt is coming due in 2026, reflecting a total of 25% of the trust’s debt balance. Though I am not concerned about Medical Properties Trust’s ability to push out debt maturities, refinance existing debt or repay some maturities early, the big amount of debt needs to be tackled as soon as possible and the trust has had some success in this regard lately. In August, the trust sold 11 facilities, including emergency departments (free-standing) and other urgent care facilities to the University of Colorado Health for a total consideration of $86 million. The proceeds from the block asset disposition are anticipated to be used to repay Medical Properties Trust’s financial debt. YTD, Medical Properties sold $2.5 billion of assets and with more asset dispositions in the cards for the remainder of 2024, I anticipate the trust to gradually reduce its debt balance. Debt Maturities (Medical Properties Trust) Technical Profile Medical Properties Trust has seen a nice surge in the stock price after the real estate investment trust closed the Steward Health Care chapter earlier in September. Since this announcement, the trust’s stock has enjoyed a breakout, with MPW rising above the 20-day and 50-day moving average lines. This upside breakout substantially enhances the bullish profile of Medical Properties Trust and could possibly drive the stock price higher in the short-term. This upside at least in part comes from the fact that MPW is highly shorted: According to Seeking Alpha’s short interest data, Medical Properties has a short interest ratio (float) of 38.82%. Put simply, the trust is potentially vulnerable to an upsurge in the stock price in case short investors were to clamor for a quick unwinding of their short positions. Stock Price (Stockcharts.com) Dividend Cut Implies Stronger Forward Pay-Out Metrics In my last piece on Medical Properties Trust I pointed to a low dividend pay-out ratio, based on normalized funds from operations, as having appeal to passive income investors. With the dividend getting cut again by about half, the new dividend is going to have a much higher margin of safety. Based on 2Q24 run-rate normalized funds from operations of $0.23 per share, Medical Properties is poised to pay about just about one-third of its normalized FFO. The trust is going to see a reduction in its FFO, however, as it is disposing of assets to assist its balance sheet restructuring. With that said, the new dividend should be highly sustainable. Normalized Funds From Operations (Medical Properties Trust) For convenience purposes, I am copying my pay-out metric table from my last piece on the hospital real estate investment trust. What you’ll see is that MPW paid out just about half of its normalized funds from operations, on a LTM basis, in the last year. These pay-out metrics are poised to improve as the new dividend cut takes effect. Normalized Funds From Operations (Author Created Table Using Trust Information) Big Discount To Book Value Medical Properties Trust’s book value is poised to decline as the trust disposes more assets. Presently, the real estate investment trust has a book value of $10.32 compared to a stock price of $5.91 which reflects back to us a 43% discount to book value. This seems a bit extreme considering that the trust’s assets produce recurring income and that we are seeing clear progress in terms of asset dispositions. If Medical Properties Trust restructures/repays/extends its near-term maturities, the trust could clear the path for a higher valuation and possible rerate to book value once asset dispositions are complete. I think that investors are still overly pessimistic about MPW, but since the trust’s strategy to right-size its portfolio and deal with insolvent operators is working, the risk/reward relationship is promising. Data by YCharts Why The Investment Thesis Might Be Faulty Medical Properties Trust’s dividend coverage is now much less of a concern for investors, as the dividend has been realigned with lower normalized funds from operations expectations. I would make the argument that Medical Properties Trust may be better off in the long-run preserving cash and focusing on the profitable leasing of its hospital properties while simultaneously repaying its long-term debt. Medical Properties Trust still owns a big chunk of debt here, which is the most pressing issue. Failure to do so would probably severely limit Medical Properties Trust’s recovery upside and raise doubts about its turnaround potential. My Conclusion As Medical Properties Trust has rid itself of the problems related to the SHC bankruptcy, I think that the trust’s stock does have potential. Medical Properties Trust is finally closing the Steward Health Care chapter, and I think this will ultimately only benefit the hospital trust, particularly if the amount of debt gets dialed back and the portfolio shrinks to a more sustainable level. The declaration of a $0.08 per share per quarter dividend substantially realigns Medical Properties Trust’s dividend with its lower anticipated amount of funds from operations, and passive income investors should see a much higher margin of safety moving forward.  Though Medical Properties Trust needs more time to pivot its business (in terms of its portfolio and balance sheet), I think MPW is worth holding on.","news_type":1},"isVote":1,"tweetType":1,"viewCount":172,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":22,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}