The stock of Medical Properties Trust (MPW +0.94%) just can't seem to stop falling. After dropping 53% in 2022, it did even worse in 2023 when it dived by 56%. And thus far in 2024, it's down around 18% -- and if not for a recent rally, its decline would be even more significant.
Investors are right to be bearish on the business. Medical Properties Trust hasn't been in good financial shape. It cut its dividend last year, it has run into problems with tenants, and rising interest rates haven't made real estate investment trusts (REITs) popular investments in recent years, either.
But with the stock's losses easing of late, and the REIT seemingly getting a lot of bad news out of the way already, is now finally the time to take a chance on this badly beaten-down stock?
NYSE: MPW
Key Data Points
Why Medical Properties could turn things around
The past few years have been challenging for Medical Properties Trust. Not only did COVID hurt healthcare facilities and hospitals, but rising interest rates then made borrowing costs more expensive. Plus, rate hikes gave investors a reason to get out of stocks and into safer investment options such as bonds, which become more attractive as interest rates increase.
The REIT's share price hasn't been this low since 2009. And investors just aren't feeling all that optimistic that the healthcare stock can turn things around. But to its credit, management is making an effort to clean up its balance sheet. It's looking to sell off assets to boost liquidity and put itself in a better position for the future.
One of the most promising updates in the company's recent earnings release was that the problems relating to Steward, which has been one of Medical Properties Trust's worst headaches thus far, could be coming to a resolution.
CEO Edward K. Aldag Jr. stated in the press release that, "With regard to Steward, we are encouraged by the amount of interest received to date from other hospital operators for these mission-critical facilities, and we expect this real estate portfolio will either resume its contributions to earnings or become additional sources of liquidity as the year progresses."
Either way, whether it's through an acquisition or an improvement in its operations, there's hope that the problems and concerns relating to Steward might not drag the stock down for much longer. This year, the REIT also expects to generate $2 billion in additional liquidity through asset sales.
There's still plenty of risk ahead
Ultimately, a lot depends on how its asset sales go, and what price it can fetch for them. Then there's also the issue of how much smaller its portfolio might look, and what kind of growth prospects investors can expect from the business when all these transactions are completed.
There's the potential that even though its quarterly dividend of $0.15 per share is much smaller than what it was paying out last year ($0.29), it could still prove to be too high if, when all the dust settles and the transactions are completed, the company isn't generating enough in funds from operations (FFO) to cover the dividend.
Last year, the company incurred a net loss of $556.5 million, but impairment charges and write-offs heavily impacted its earnings, particularly in the fourth quarter. And with asset sales expected this year, investors should take these latest results with a grain of salt, as Medical Properties Trust's financials are likely to look drastically different in a year or two.
But that's the big unknown: How much revenue will Medical Properties Trust generate, how high will its FFO be, and will its rent-collection issues be resolved? Until there is some clarity around those issues, this is going to be remain a highly risky stock.
Is Medical Properties Trust worth taking a chance on?
This is not a stock that's suitable for risk-averse investors. Although its share price has fallen sharply over the past few years, things can always get worse. Investors shouldn't assume the bottom has been reached just yet.
If, however, you're comfortable with the risk, Medical Properties Trust has the potential to be a contrarian play. It does have a diverse mix of assets that span multiple countries. And if interest rates come down, REITs are sure to be more attractive options for investors.
But unless you can stomach all the risk and uncertainty surrounding Medical Properties Trust stock, you're better off avoiding it. And although it cut its dividend last year, investors shouldn't assume that the current payout is safe.
