Medical Properties Trust (MPW 5.99%) has been battling a couple of very stiff headwinds over the past few years. The hospital owner's top two tenants have faced significant financial pressures, preventing them from making full monthly rental payments.
On top of that, surging interest rates have made it a lot more expensive for the real estate investment trust (REIT) to borrow money to refinance debt as it matures and fund new investments. These headwinds have weighed on its stock price, pushing its dividend yield up to more than 12%.
However, the healthcare REIT's prognosis is improving. It has taken significant steps to boost its liquidity this year. Because of that, the REIT was recently able to declare its next dividend payment. While Medical Properties Trust is still facing a long road to recovery, it appears to be making meaningful progress toward shoring up its financial situation.
Making meaningful progress
Medical Properties Trust recently revealed that it agreed to sell its interest in five Utah hospitals to a newly formed joint venture (JV) with an investment fund. The REIT sold the fund a 75% stake in the hospitals for $886 million while retaining a 25% interest.
The REIT received $190 million in additional cash after the JV placed new non-recourse secured financing on the facilities, bringing the total cash received in the transaction to nearly $1.1 billion. The company plans to use that money to reduce its outstanding debt, including paying off the remaining $300 million Australian term loan due this year and a portion of its revolving credit facility.
The REIT also recently closed the sale of five facilities in California and New Jersey to Prime Healthcare for $350 million. It received $250 million in cash and a $100 million interest-bearing mortgage note due to the company in nine months.
As a result, the REIT has secured about $1.6 billion of additional liquidity this year. That's 80% of its initial 2024 target of $2 billion.
Increasing visibility toward making additional progress
Medical Properties Trust is now confident it will exceed its initial liquidity target of $2 billion this year. Driving that view is its progress to date and the terms it's currently negotiating on additional transactions. Boosting its liquidity is crucial to the company because it will give the REIT the cash to repay debt as it matures in the coming years. That will lessen the likelihood that it would need to cut its dividend again to retain additional earnings for debt reduction.
Meanwhile, the company has recently received some positive news on the tenant front. While it disclosed earlier this year that top tenant Steward Health Care couldn't resume making full rental payments due to a liquidity crunch, that company has had a potentially positive recent development.
It agreed to sell its physicians' network to an affiliate of UnitedHealth. The REIT has previously said that a sale of Steward's managed care business would provide it with enough liquidity to repay the loans and deferred rent it owes the REIT. While there is some opposition to the deal, closing the transaction would be a big win for Steward and Medical Properties Trust.
Additionally, its other top tenant, Prospect Medical Holdings, resumed paying partial rent on properties leased in California late last year. It was current on all rent and interest at the end of last year. Meanwhile, improved admissions and reimbursement rates, along with lower costs, had boosted its profitability. So, the company should resume paying its full contracted rental rate this year. Prospect is also seeking to sell its managed care business, which would benefit Medical Properties Trust because it owns an interest in that entity.
Off to a great start
Medical Properties Trust has already achieved 80% of its liquidity target for this year. It is also increasingly confident that it will exceed that goal, with potential meaningful upside if Steward and Prospect sell their managed care businesses. On top of that, those tenants are ramping up their rental payments.
These catalysts could drive a significant recovery in the REIT's stock price while putting its big-time dividend on a much safer foundation. While the REIT still has lots of work to do, it's making significant progress on its plan to shore up its financial profile and enhance value for shareholders.
