What happened
Medical Properties Trust's (MPW -1.10%) stock jumped 12.2% in June, according to data provided by S&P Global Market Intelligence. Despite that rebound, shares of the healthcare real estate investment trust (REIT) are still down about 15% so far this year and sit roughly 45% below their 52-week high.
After a very active start to the year, June was a relatively quiet month for the REIT on the news front. Instead, the main catalyst for last month's rally was a presentation the company's management team made at an industry conference. It helped address investors' concerns, taking some pressure off the stock price.
So what
Medical Properties Trust joined other REITs in presenting at Nareit's annual REITweek Investor Conference. The company published a new investor presentation on its website in connection with that event. The briefing detailed its business model, addressed short-seller critiques, laid out its financial situation, and projected its ability to continue paying dividends.
A key concern among investors over the past year is how Medical Properties Trust would address its upcoming debt maturities given the significant rise in interest rates and some tenant-related issues. Its presentation included the following slide on its debt maturities:
Image source: Medical Properties Trust.
As that slide shows, Medical Properties Trust has lined up $1.4 billion of transactions (including hospital sales and loan repayments). That's enough money to cover its 2023 and 2024 debt maturities. While the REIT has more debt due in 2025 and beyond, it has multiple potential financing strategies to address those maturities, including extending loans, refinancing debt, and selling additional properties.
Many investors are worried that even if the REIT can refinance its debt, it would pay a much higher rate. That could impact its ability to maintain its dividend.
However, Medical Properties Trust has stress-tested its projected cash flows based on several scenarios:
Image source: Medical Properties Trust.
As the slide indicates, it should generate enough rental income under each scenario to cover its interest expenses and current dividend rate with some excess. One factor driving that view is that its rents rise with inflation, which should help offset higher interest rates.
However, that assumes the REIT receives all its rental payments, which hasn't been the case in the recent past. One of its largest tenants isn't currently paying rent. It expects to start paying partial rent this September and resume full rent payments next March.
Now what
Medical Properties Trust's new investor presentation gives investors more insight into its finances and future cash flows. It supports the company's belief that it can maintain its dividend, which currently yields an eye-popping 12.2%.
However, given its tight financial profile and tenant issues, the REIT doesn't have much room for error. As a result, a dividend cut could still be forthcoming. That's why income-focused investors should hold off on buying the stock until Medical Properties Trust makes enough progress on its improvement initiatives to put its dividend on a much firmer foundation.
