Medical Properties Belief (MPW 1.85%) has battled two illnesses over the previous couple of years. The actual property funding belief’s (REIT) high two tenants bumped into extreme monetary points, forcing each to finally file for chapter. That concern and better rates of interest made it exhausting for the hospital landlord to refinance debt because it matured.
After two years of exhausting work, the healthcare REIT is lastly wholesome once more. In consequence, its 6%-yielding dividend, which it lower twice throughout that interval, might begin rising once more. That makes the REIT a doubtlessly engaging choice for these looking for a lovely revenue stream.
On the highway to restoration
Medical Properties Belief spent the previous couple of years concurrently working with two main tenants as they addressed their monetary points whereas additionally making an attempt to shore up its stability sheet scenario. The corporate took a number of steps to handle the issue, together with changing one tenant with a number of new ones, promoting properties to repay debt, and chopping its dividend twice.
The REIT lastly began to see the fruits of its labor in the course of the first quarter. Substitute tenants started paying hire on properties previously operated by one among its bankrupt tenants in the course of the quarter. Rental charges on these properties will steadily escalate over the following two years, reaching the absolutely stabilized price on the finish of 2026 (at about 95% of the previous tenant’s price). That incremental rental revenue enabled the REIT to generate $0.14 per share of normalized funds from operations (FFO) within the interval, simply protecting its $0.08-per-share quarterly dividend.
The stabilization of those properties and its efforts to repay debt in recent times lastly put the corporate ready the place it might refinance present debt at a suitable price. Medical Properties Belief issued over $2.5 billion of senior secured notes due in 2032 at a blended price of seven.885%. That considerably prolonged its debt maturities.
The corporate additionally amended its credit score facility to $1.3 billion, which now matures in mid-2027. In consequence, the REIT has much more monetary flexibility.
In commenting on the quarter, CEO Edward Aldag acknowledged within the earnings press launch, “Our first-quarter transactions and outcomes are the end result of two years of profitable efforts to cut back debt, prolong maturities, seize unrealized worth, and retenant hospital actual property at enticing and sustainable rents.”
Shifting its focus again to rising shareholder worth
Medical Properties Belief has spent the previous couple of years shrinking its portfolio and dividend to strengthen its monetary scenario. With its stability sheet again on strong floor, the REIT can now shift its focus again to rising shareholder worth.
Aldag acknowledged within the earnings press launch that the corporate “is effectively positioned to develop earnings from our present in-place actual property portfolio, entry capital for accretive development in a uniquely enticing market, and ship rising dividends and different returns to our shareholders.”
The REIT will profit from escalating rents from new tenants by way of the top of subsequent yr. In the meantime, legacy properties characteristic inflation-based rental escalation clauses, which drove a 2.3% enhance in its rental price throughout stabilized properties this yr. In consequence, its portfolio ought to ship secure and rising rental revenue sooner or later.
On high of that, Medical Properties Belief now has the monetary flexibility to spend money on increasing its portfolio. In April, the corporate agreed to fund its share of a modest new funding made by its Swiss three way partnership. It could actually make further new investments as alternatives come up.
The corporate can spend money on development whereas additionally returning more money to shareholders. Given its present low payout ratio, it has loads of room to extend its dividend. In the meantime, the REIT might use a few of its monetary flexibility to repurchase its beaten-down shares (the inventory worth at the moment sits practically 80% under its all-time excessive from just a few years in the past).
A more healthy dividend
After a few difficult years, Medical Properties Belief has lastly turned the nook. The REIT’s revenue ought to steadily rise within the coming years as rents escalate throughout its present portfolio and it provides new properties into the fold. That ought to allow the corporate to begin rebuilding its dividend following two deep cuts. It makes the REIT an attractive choice for buyers looking for a big-time revenue stream and vital upside potential as its share worth begins to get better from its deep slide over the previous couple of years.
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 coverage.
