Medical Properties Trust's (MPW +0.00%) stock price has cratered over the past year, falling more than 60% from its peak. That sell-off has pushed the real estate investment trust's (REIT) dividend yield into the double digits, even after it slashed its payout by nearly 50% in August. Concerns about the hospital owner's balance sheet have weighed heavily on its shares.
The healthcare REIT has been taking steps to calm the market's fears about its financials by selling assets and cutting its dividend. It now plans to be even more aggressive in repairing its financial foundation. Here's a look at what the REIT intends to do to improve its balance sheet.
NYSE: MPW
Key Data Points
Accelerating its return to financial health
Medical Properties Trust recently released its third-quarter results. That report showed the underlying strength of its hospital real estate portfolio and the actions it's taking to shore up its financial profile.
The company has already taken several steps to improve its finances over the past few months. It sold three hospitals to Prime Healthcare in July for $100 million. In October, it closed the sale of its remaining facilities in Australia for about $305 million. It used some of that money to buy back debt in open market transactions earlier this month. Finally, the REIT slashed its dividend to $0.15 per share. That reduced its dividend payout ratio to 50% in the third quarter, allowing it to retain more cash to strengthen its balance sheet.
In its third-quarter report, the healthcare REIT detailed a few more steps it plans to take to improve its financial health. The company revealed that it has agreed to sell seven facilities back to a tenant, comprising about 1% of its total assets. It anticipates completing that sale in the first half of next year. The deal will end that relationship and make the REIT whole for its investment and deferred rent.
The company's recent moves have significantly increased its liquidity and financial flexibility to manage its near-term debt maturities (through 2024). However, given the continued concerns surrounding its medium-term maturities (2025-2027), the company plans to take additional steps to expedite repaying that debt.
The REIT is evaluating asset sales and joint venture opportunities. It's also exploring secured debt financing options. Overall, Medical Properties Trusts expects to raise $2 billion in liquidity over the next 12 months to address its medium-term debt maturities.
A strong and improving portfolio
Medical Properties Trust also highlighted the underlying strength of its hospital real estate portfolio. CEO Edward Aldag commented in the earnings release that "our business model remains strong and stable."
The company noted that PureHealth recently acquired its tenant in the U.K. (Circle Health), showcasing the country's strong demand for private hospitals. Meanwhile, another tenant, the Swiss Medical Network, added a new investor, boosting the value of that platform.
The company noted that Steward Health Care System, one of its top U.S. tenants, is navigating its issues. Steward's strong rent coverage leads the REIT to believe its tenant can satisfy its rental obligations for the full lease term.
Finally, it noted that another troubled tenant, Prospect Medical, resumed making partial rental payments in September. That should continue through February when it will begin making full rental payments on the California hospitals it leases. Prospect is also paying cash interest on a loan Medical Properties Trust provided to the company.
Further, Medical Properties Trust completed construction on a $22 million post-acute facility operated by Ernest. That tenant started paying rent on the newly built facility in July.
Overall, the REIT's global hospital real estate portfolio is performing well. Most of its tenants continue to pay rent in full, while Prospect has finally started paying partial rent. Because of that, the company continues to generate solid cash flow, enabling it to retain meaningful excess cash after paying its reset dividend. That's giving it more money to repay debt.
Making progress
Medical Properties Trust is accelerating its plans to repay debt over the coming year by selling additional assets. That should help take some of the weight off its stock. Meanwhile, the performance of its portfolio is improving. While the REIT still has more work to do, it looks like it's heading in the right direction. However, given what remains, income-focused investors should wait before buying shares to ensure the company can deliver on its accelerated deleveraging plan.
