Medical Properties Belief (NYSE: MPW) obtained off to a difficult begin final 12 months. In January, the actual property funding belief (REIT) revealed that its prime tenant on the time, Steward Well being Care, was experiencing liquidity points, which impacted its capability to pay lease.
Steward filed for chapter a number of months later. The 12 months ended extra positively because the REIT was capable of take management of its actual property from Steward and lease most of these properties to 5 higher-quality substitute operators.
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With Steward now not within the image, the healthcare REIT thought it had lastly closed the door on its tenant points final 12 months. Sadly, that wasn’t the case. It lately revealed that one other main tenant, Prospect Medical Group, has filed for bankruptcy.
New 12 months, similar concern
Prospect Medical Group filed for chapter in early January. The healthcare firm has been experiencing liquidity points, due partly to the stalled gross sales processes throughout a number of East Coast markets (Rhode Island, Connecticut, and Pennsylvania). The REIT has investments linked to Prospect in two of these states (Connecticut and Pennsylvania). It additionally has investments in California.
Medical Properties Belief had beforehand recapitalized its $1.6 billion funding with Prospect in Could 2023, which included:
- California: The REIT had a $513 million funding in six leased California hospitals. Prospect was to renew making partial lease funds on these properties in September of that 12 months and full funds in March of 2024.
- Connecticut: Medical Properties Belief has a $457 million actual property funding that it agreed to promote as a part of Yale New Haven Well being’s acquisition of Prospect’s operations within the state. The REIT anticipated to recoup its funding through that sale (which nonetheless hasn’t closed) and the sale of its curiosity in Prospect’s managed-care enterprise (valued at $103 million).
- Pennsylvania: The REIT transferred its Pennsylvania actual property to Prospect in change for a $150 million mortgage mortgage and $100 million of fairness in Prospect’s managed-care enterprise.
- Different: The REIT had one other $264 million of loans, $56 million of accrued lease and curiosity, and a $50 million convertible mortgage to the managed-care enterprise, all of which it anticipated to recuperate by means of the sale of Prospect’s managed-care enterprise.
Because of its liquidity points, Prospect hasn’t paid any lease to Medical Properties Belief on the California hospital since final June, despite the fact that these amenities reported quantity development and improved protection traits final 12 months. In the meantime, it has solely made minimal funds associated to leases and mortgages in Connecticut and Pennsylvania over the previous two years.
Working to protect and recuperate worth
Medical Properties Belief obtained some optimistic information concerning its funding in Prospect late final 12 months. The corporate introduced that Astrana Well being had agreed to purchase a majority of Prospect’s managed-care platform for $745 million plus the belief of some liabilities in November. Because of this, Medical Properties Belief expects to obtain about $200 million, with most of that money anticipated within the first half of this 12 months (it is going to additionally obtain a $50 million cost by 2027).
Nevertheless, with Prospect submitting for chapter, the REIT’s focus is now on defending its California hospital funding. Medical Properties Belief additionally anticipates that the method will allow Prospect to efficiently full the sale of its Connecticut amenities. This final result would allow it to recoup a number of the worth of its Connecticut properties whereas resuming lease assortment in California.
On condition that the REIT at the moment is not amassing any earnings from these properties proper now, the chapter probably will not have any affect on its dividend (which at the moment yields 7.7%). As an alternative, its rental earnings is on observe to rise this 12 months as the brand new tenants at its former Steward amenities begin making rental funds.
These funds will steadily escalate over the subsequent two years, reaching their absolutely stabilized charge on the finish of 2026 (about 95% of Steward’s lease charge). That rising earnings stream might allow Medical Properties Belief to rebuild its dividend following two deep cuts in recent times.
Two steps ahead and one other again
Medical Properties Belief continues to battle tenant-related headwinds. Whereas it has lastly severed its relationship with Steward, Prospect has change into a supply of hassle once more.
Nevertheless, its chapter might allow Prospect to lastly dump its troubled East Coast operations in order that it will probably concentrate on California, which might profit Medical Properties Belief. The hope is that it’s going to shortly reemerge from chapter, which might lastly allow Medical Properties Belief to place its tenant points previously. That might permit the corporate to concentrate on rebuilding its portfolio, dividend, and shareholder worth.
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Matt DiLallo has positions in Medical Properties Belief and has the next choices: brief March 2025 $4 places on Medical Properties Belief. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
