Reliance on medical properties (NYSE: MPW) has received stock beaten up In recent years. The shares are down almost 80% from their 2022 peak. That has pushed the dividend yield to over 10%, even after the payout was cut by almost half last year.
The largest The main focus on the shares was the financial problems of top tenant Steward Health Care, which recently filed for bankruptcy. however, the Healthcare REITs The relationship with Steward would soon go from headwind to one important tailwinds as new operators take over most of these facilities. This shift could act as a major catalyst for the stock and ultimately give investors more clarity about the long-term prospects of the dividend.
Rent prices are not the problem that these people suffer from characteristics
Steward’s recent bankruptcy was a major topic of discussion at Medical Properties Trust conference call about the first quarter earnings figures. The REIT’s management team made two important comments on the call filing. First, CEO Ed Aldag emphasized that “no reporting is done was made of the rent as a contributor to Steward’s distress” in the bankruptcy filing. He said rentwhich “represents only a small portion of a hospital’s total revenues is almost never the primary cause of financial stress for hospitals.” Steward’s stress stems from other factors, such as rising labor costs, escalating costs and reimbursement rates. He further noted whether Steward or another hospital operator was not When they paid rent, they paid interest and principal on their hospitals because “buildings are not free.”
The other key takeaway is that “we believe bankruptcy will facilitate the releasing or sale of Steward Hospitals in an orderly and timely manner,” Aldag said on the call. He noted that the company is pleased with the progress it is making with those interested in Steward’s hospitals. The CEO estimates that by the end of Steward’s bankruptcy, almost 100% of the properties it currently leases to tenants will be owned by other operators. While the company could not provide a clear timeline for this process, it expects to replace Steward with better qualified operators at many of its hospitals by the end of September. That time frame coincides with when the REIT should get another waiver on its credit facility.
Two ways to increase value
Because of its financial problems, Steward has made only partial rent payments for the hospitals it leases from Medical Properties Trust. That has impacted the REIT’s cash flow, raising concerns about the REIT’s ability to maintain its debt and pay dividends.
However, this weight should decrease in the coming months. Medical Properties Trust expects to find financially stronger operators for Steward’s hospitals. It believes these new operators will assume or sign new leases at rates consistent with what Steward historically paid for those properties. These lease payments will increase the REIT’s cash flow, increasing its ability to pay interest on its debt and dividends.
Another possible outcome is that the new operators will do the same Also acquire the associated real estate from Medical Properties Trust. A sale to a new operator would raise cash for the REIT, which it can use to strengthen its financial base. A related outcome would be that Medical Properties Trust would later sell a property that is re-rented to a financial investor. For example, CommonSpirit Health last year bought Steward’s hospital operations in Utah, which it wanted to lease from Medical Properties Trust. The REIT recently sold a 75% stake in these hospital properties to an institutional asset manager for $1.1 billion. The REIT used these proceeds to repay debt and strengthen its financial flexibility. In the meantime, it will retain the income and benefit from the 25% stake it still owns.
The sale of Steward Hospitals would add to the REIT’s growing liquidity. Medical Properties Trust initially wanted to raise $2 billion through asset sales this year. The company achieved 80% of that goal in early April and now expects to exceed its goal based on its current understanding of future sales. That would provide the country with a lot of liquidity in the run-up to 2025 to address future debt maturities.
A big the weight will increase quickly
Steward’s bankruptcy should facilitate an orderly transfer of its hospitals to financially stronger operators. Those new operators will either start paying full rental rates for the facilities or buy them back from the REIT, increasing cash flow and liquidity. This process should possibly enable the REIT to build a stabilized core portfolio of revenue-generating hospitals while strengthening its financial base. That will finally give investors more longer-term clarity on the dividend rate, which should boost the share price.
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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.
This Ultra-High-Yield Dividend Stock’s Biggest Headwind Is About to Become a Huge Headwind Originally published by The Motley Fool
