Shares of Medical Properties Trust (MPW -0.42%) have been under a lot of pressure this year. The real estate investment trust's (REIT) stock has lost a third of its value due in part to rising interest rates. Those higher rates make it more expensive for the company to borrow money to fund real estate deals. Meanwhile, its falling stock price makes issuing new shares to finance growth less attractive. That slumping stock price has driven the REIT's dividend yield up to 7.7%.
While the market has concerns about the REIT's ability to continue growing its portfolio and dividend, it recently took a big step to address those worries. The REIT has announced a series of deals that will boost its liquidity by about $600 million. That will give it the funds to continue making accretive acquisitions, which should enable Medical Properties Trust to keep growing the dividend.
Enhancing liquidity
Medical Properties Trust has revealed a series of recent transactions to enhance its liquidity. The healthcare REIT announced that it successfully released the Watsonville Community Hospital in California to Pajaro Valley Health Care District Corporation, a recently created local not-for-profit organization. That group acquired the operations of the hospital after a short bankruptcy process. As part of the deal, the group repaid more than $30 million in financing Medical Properties Trust provided to allow the hospital to remain open. This deal showcases the value of its hospitals as essential infrastructure that appeals to many operators.
The company also revealed that it sold nine hospitals and two related medical office buildings to Prime, which had the right to repurchase the facilities it leased from Medical Properties Trust. The REIT received about $360 million of net proceeds.
These transactions follow the recent news that LifePoint Health will repay a roughly $200 million loan when it acquires a majority interest in Springstone. These moves bring the total to about $600 million of near-term liquidity that the company can use to reduce leverage and make additional accretive acquisitions.
Adding a new funding lever for acquisitions
REITs traditionally finance acquisitions by selling stock and borrowing money. However, with those funding sources becoming more expensive, the company has turned to another method to raise funds for new acquisitions: capital recycling. That strategy involves selling assets and reinvesting the proceeds into higher returning opportunities.
Medical Properties Trust has used the strategy more over the past year. In addition to these recent deals, the company unveiled a joint venture with investment firm Macquarie Asset Management last September. It sold a 50% interest in eight Massachusetts-based hospitals to a fund managed by Macquarie, valuing them at $1.7 billion. That represented a 47% gain and provided the company with $1.3 billion of cash proceeds that it initially used to repay debt. This transaction gave it the additional financial flexibility to continue making accretive hospital acquisitions. Medical Properties Trust made $3.9 billion of investments last year, which helped grow its adjusted funds from operations at a double-digit per share rate.
The company had hoped to continue investing heavily this year. However, more challenging capital market conditions forced it to pull back on its forecast. On the company's most recent conference call, CFO Steve Hamner stated: "We previously predicted that our 2022 acquisitions volume will be in the $1 billion to $3 billion range. And given the rapid and dramatic development in the capital markets and the global economic environment, even since our last earnings call, acquisitions will very likely be on the low end of that range."
He also noted that the company doesn't have any large deals in its pipeline. However, the CFO pointed out that there are several potential transactions in the market, and sellers are starting to adjust their expectations to line up with changes in real estate capital costs. The company should therefore be able to find accretive deals to put its enhanced liquidity to work.
The funds to keep growing the dividend
Medical Properties Trust has increased its quarterly dividend for eight straight years. It has grown the payout by 12% since the pandemic started, an impressive rate considering that six other healthcare REITs have reduced theirs by an average of 31%. With recent moves enhancing its liquidity by $600 million, the REIT has the funds to continue expanding its portfolio and dividend even though market conditions are deteriorating. That makes it a great REIT for investors seeking an attractive and growing passive income stream.