Medical Properties Trust (MPW +2.28%) has been under significant pressure over the past few years. The real estate investment trust (REIT) has had to navigate the bankruptcy of two top tenants and surging interest rates. Those issues have made it much more difficult to refinance debt as it matures.
However, the REIT has made meaningful progress in addressing its tenant and balance-sheet issues over the past year. Because of that, it was recently able to refinance a significant portion of its near-term debt maturities. That's giving the company some more breathing room and putting its high-yielding dividend (recently around 6.8%) on a much firmer financial foundation.
NYSE: MPW
Key Data Points
Securing more financing
Medical Properties Trust recently closed a private offering of senior secured notes due in 2032. The company issued $1.5 billion of notes priced at 8.5% and 1 billion euros (about $1 billion) notes priced at 7%, which raised about $2.5 billion of debt capital at a blended rate of 7.885%.
That's a slight revision from its initial plans to raise $2 billion of U.S. dollar notes and 500 million euros-priced notes. By raising additional euro notes, the healthcare REIT was able to lock in a lower blended interest rate.
The REIT plans to use some of that money to fully redeem:
- 3.325% senior notes due in 2025 (500 million euros or about $500 million)
- 2.5% senior notes due in 2026 (500 million Great British pounds or around $620 million)
- 5.25% senior notes due in 2026 ($500 million)
That represents a significant percentage of its near-term debt maturities. While the REIT is paying a much higher interest rate on the new debt, it extended its debt maturities by seven years. Meanwhile, after redeeming those three tranches of debt, it will have about $800 million of remaining proceeds that it can use to repay other debt (including its credit facility), fund capital projects, or pay for potential future acquisitions.
It's also worth pointing out that Medical Properties Trust is issuing secured debt. It's backing the notes with a portfolio of 167 properties leased to 19 operators across the U.S., U.K., and Germany. By using collateral to secure these notes, the REIT was able to lock in a lower interest rate. However, this does reduce its future flexibility.
Medical Properties used a similar secured debt strategy last year to refinance some existing debt in the U.K. It issued about $800 million of 10-year financing backed by a portfolio of 27 of its 36 U.K. properties at a 6.9% rate. It used that money to repay a term loan that matured in December and another one set to mature early this year.
Progress on most fronts
This new funding adds to the significant amount of capital the REIT raised last year to shore up its financial situation. The company had raised $2.9 billion in liquidity by the end of the third quarter via asset sales and the U.K.-secured funding. That's helped it repay $2.2 billion of debt since the beginning of 2023 while extending the maturity of other borrowings.
Medical Properties Trust has since raised another $200 million in announced asset sales after one of its top tenants (Prospect Medical) agreed to sell a majority of its managed-care business (which it has an interest in). The REIT will get a portion of those proceeds (about $150 million in the first half of this year and another $50 million by 2027) that it can use to further strengthen its financial foundation.
Meanwhile, the REIT has replaced its bankrupt former top tenant (Steward Health Care) with five new financially stronger tenants. Those hospital-operating companies were to start paying partial rent on those properties this year, with the rental rate steadily escalating until it reaches the fully stabilized rate at the end of next year. That growing cash flow will provide the REIT with more money to repay debt or fund new income-generating investments.
However, Medical Properties Trust did experience a setback in its turnaround plan this year after Prospect Medical filed for bankruptcy last month. The REIT's priority during this restructuring process is to protect the value of its California hospitals. It also expects the proceedings will enable Prospect to finally close the sale of its Connecticut facilities, paving the way for the REIT to sell the real estate to the new operator.
The slow recovery continues
Medical Properties Trust continues to make strides to shore up its portfolio and balance sheet. It's finally in a position where it can refinance some debt instead of having no alternatives other than selling assets and repaying debt as it matures. While it has to pay a higher rate (and use a portion of its hospital properties as collateral), it now has a lot more breathing room.
Because of that, the REIT should soon be able to focus on rebuilding its portfolio by acquiring new hospital properties leased to financially strong tenants. That would enhance the sustainability of its high-yielding dividend, potentially putting it in the position to start rebuilding that payout following two deep cuts in recent years.
