Reliance on medical properties (NYSE: MPW) has faced a barrage of headwinds in recent years. Financial problems with some of the best tenants and balance sheet problems have weighed heavily on the stock. That caused short-selling hedge funds to pile in, making some accusations that the Real Estate Investment Trust (REIT) was engaging in improper activities.
The Healthcare REITs The board of directors took these allegations seriously and engaged an external consultancy firm dig in the case. After more than a year of investigation, they found no evidence that the company’s management team did anything wrong, giving the board full confidence in the REIT’s leadership team.
Diagnose the problems
Short selling hedge fund Viceroy Research and others have created some serious allegations against Medical Properties Trust in recent years. In response, the REIT’s board of directors has hired Wachtell, Lipton, Rosen & Katz, a leading global consulting firm, to assist in a financial forensic audit of its operations. The board placed no restrictions on their ability to investigate the claims against the company.
The board announced its findings after some media outlets recently published stories that resurfaced many accusations against the company. They found absolute no evidence of any misconduct on the part of Medical Properties Trust’s management team.
For example, there was a claim that the REIT had significantly overpaid for the hospital properties it acquired, particularly from former top tenant Steward Health Care. However, the company found no evidence of this. On the contrary, hospital sales and re-lease transactions in recent years have proven the guaranteed value of the properties the REIT has acquired.
Medical Properties Trust recently took back 23 properties from Steward after it filed for bankruptcy and then leased 15 of those properties to four new tenants at rates that represent 95% of what Steward would have paid for those facilities, making the $2 billion investment in that property was retained.
The board has also found no evidence of the short-seller’s other claims, including that the REIT owned properties in Malta or manipulated takeovers to meet compensation targets. The investigation also showed that there are no concerns about the integrity of the management team. Instead, they took great care to preserve jobs, patient care and shareholder value during Steward’s bankruptcy process. With Steward out of the picture, the REIT can move forward with a more resilient and diversified hospital real estate portfolio.
A look at what Actually went wrong (and the lessons we learned)
While Medical Properties Trust hasn’t done anything inappropriate, they have made some mistakes over the years. A big wash over-concentration of the portfolio on its own activities largest tenantsseveral of which ran into financial difficulties after the pandemic. Two of its top tenants have struggled to pay rent in recent years, at a time when the REIT has had to refinance debt it incurred to acquire properties.
Due to rising interest rates, given the problems with tenants, it was unable to refinance maturing debts. That prompted it to sell properties attached to it stronger operators to repay debts, further increasing the concentration on weaker tenants. These problems also forced the REIT to cut its dividend a few time.
However, the country has learned from those mistakes. It has now completely severed its relationship with Steward and replaced it with several other quality tenants. The company is also working to reduce its exposure to another financially weaker tenant. As a result, the company now has a much stronger tenant base.
It has also taken several steps to strengthen its financial base by selling hospitals and refinancing some debt to boost liquidity. That’s why it’s inside a good position to address upcoming debt maturities. Meanwhile with the interest starts to fallit should be easier to address future debt maturities.
Now his portfolio and balance sheet are a lot strongerthe REIT’s high-yield dividend (recently around 7%) becomes more sustainable. It should be so in a position to rebuild that payout over the next year since the most recent reduction was due to Steward’s bankruptcy. With Steward now could fall out of the picture, the REIT could increase its payout as those new operators start making rental payments.
Confidence is being restored
Viceroy and others made serious allegations against the management team of Medical Properties Trust. After a lengthy investigation, an external consultant found no truth in the claims. That should help restore investor confidence in the REIT’s management team.
Although they have made some mistakes along the way, they are fixing these issues. The REIT’s balance sheet and portfolio are strengthening, putting the REIT in a better position to pay its high-yield dividend, which it should be able to do eventually. start to rise.
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Matt DiLallo holds positions in Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
After a thorough investigation, this high-yield dividend stock deserves a clean bill of health, originally published by The Motley Fool
