Medical Properties Belief (NYSE: MPW) has been crushed over the previous few years. The hospital-focused actual property funding belief (REIT) has misplaced practically 85% of its worth from its peak in early 2022.
That sell-off has pushed its dividend yield as much as 17%, even after a virtually 50% lower final yr. Tenant troubles and better rates of interest have weighed closely on the corporate.
After a really tough patch, the healthcare REIT lastly had some excellent news to share with buyers. It accelerated its technique to spice up its liquidity. On prime of that, the hospital proprietor believes will probably be capable of finding options to its tenant points this yr.
Rebuilding its liquidity
Medical Properties Belief has spent a lot of the previous yr engaged on shoring up its stability sheet whereas aiding with two financially challenged tenants. Within the firm’s fourth-quarter earnings press launch, CEO Edward Aldag mentioned the corporate’s “main focus is on accelerating our capital allocation technique by pursuing transactions anticipated to generate no less than $2 billion of incremental liquidity in 2024.” It made vital progress towards that purpose over the primary few weeks of this yr.
In February, the REIT agreed to promote 5 hospitals again to Prime Healthcare for $350 million. The implied 7.4% financial cap charge is “effectively above our historic price and considerably higher than estimates of our implied market capitalization charge,” Aldag mentioned. The corporate will report a couple of $50 million achieve on these properties.
On prime of that, Prime signed a brand new 20-year lease for 4 different properties that it at the moment leases from Medical Properties Belief (three of which had leases expiring early subsequent yr). The brand new lease contains a robust double-digit money rental yield with inflation-based annual hire escalators collared between 2% and 4%. Prime has the choice to repurchase the 4 services at any time for no less than $260 million, implying a achieve of about $95 million.
Medical Properties Belief additionally agreed to promote its remaining noncontrolling curiosity in a tenant and two leased hospitals in South Carolina for $17 million this month. As well as, it bought its syndicated term-loan funding in Median for $115 million final month.
These transactions will elevate $480 million of liquidity that the REIT can use to strengthen its stability sheet. In the meantime, the brand new lease with Prime for the remaining properties will present it with extra visibility into the long run money flows of these hospitals.
Optimism concerning the consequence
Medical Properties Belief’s improved liquidity will give it extra respiratory room as it really works on motion plans for Steward Healthcare. The REIT revealed last month that the hospital operator was having added liquidity challenges. Because of this, Steward hasn’t been capable of make its full rental funds.
The REIT and sure lenders are working to offer Steward with a brand new bridge-loan facility the place every social gathering will fund an preliminary $37.5 million. Medical Properties Belief has already funded $20 million of that quantity because it supplies added help to Steward to strengthen its liquidity and restore its stability sheet in order that the REIT can recoup its funding.
Medical Properties Belief is finally seeking to cut back its publicity to Steward by promoting or getting new tenants for among the hospitals at the moment leased to that firm. Aldag mentioned that the corporate is “inspired by the quantity of curiosity obtained so far from different hospital operators for these mission-critical services, and we count on this actual property portfolio will both resume its contributions to earnings or turn out to be extra sources of liquidity because the yr progresses.”
In the meantime, the corporate’s different troubled tenant, Prospect Medical, is present on all hire and curiosity due via the tip of 2023 on the California properties it leases from the REIT. The healthcare firm’s monetary outcomes are additionally beginning to enhance as a result of greater admissions, elevated reimbursement charges, and decrease prices.
Medical Properties Belief can also be working to chop its publicity to Prospect by finally cashing in on its stake in that firm’s managed care enterprise. That eventual sale would enable it to recoup the worth of its funding in Prospect.
Issues would possibly lastly be wanting up for this REIT
Medical Properties Belief has gone via a difficult interval over the previous few years, however issues are beginning to search for this yr. It was capable of promote a number of hospitals to spice up its liquidity and signed a brand new lease to enhance the long-term visibility of its money circulation.
On prime of that, it is optimistic it may well safe a optimistic consequence as it really works to resolve points with two troubled tenants. Whereas it has a lot of work left to do, it is likely to be getting near lastly turning the nook.
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Matt DiLallo has positions in Medical Properties Belief. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
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