Shares of Medical Properties Belief (NYSE: MPW) slumped 19.6% in 2024, in accordance with information from S&P Global Market Intelligence. That woefully underperformed the broader market, because the S&P 500 rallied 23.3% final yr.
Tenant points have been the principle issue weighing on the healthcare REIT. Here is a take a look at final yr and whether or not the REIT can get better in 2025.
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Coping with sickly tenants
Medical Properties Belief bought off to a tough begin final yr. The hospital proprietor revealed in early January that its prime tenant on the time, Steward Well being Care, continued to face challenges, making it tough for the healthcare firm to satisfy its monetary obligations, together with paying hire to the REIT. Steward filed for chapter safety a couple of months later.
That course of ultimately enabled the REIT to take again management of its actual property from Steward. By November, Medical Properties Belief was capable of transition 17 former Steward Hospitals to 5 new operators. Below the phrases of these agreements, the brand new tenants will begin paying partial hire this yr, with the charges slowly escalating via the top of subsequent yr, when they may stabilize at about 95% of the rental charges Steward had been paying on the properties.
Medical Properties Belief additionally skilled a setback with one other prime tenant, Prospect Medical, which stopped paying hire on properties leased to the REIT in California, once more through the third quarter due to continued liquidity points. Nonetheless, that firm anticipated to obtain $100 million in high quality assurance fund funds within the first quarter of this yr. As well as, Prospect agreed to promote the vast majority of its managed-care platform for $745 million. Medical Properties had an curiosity in that entity and will obtain about $200 million in proceeds.
Due to its tenant points, Medical Properties Belief took a number of steps to shore up its liquidity final yr. It lower its dividend once more, refinanced a mortgage securing a few of its UK properties, and bought a number of hospital properties final yr. These strikes enabled the REIT to spice up its liquidity by about $3 billion, which exceeded its $2 billion goal. That enabled it to repay debt and bolster its means to handle future maturities.
Lastly on the highway to restoration
Medical Properties Belief enters 2025 in a significantly better place than it started final yr. It has changed Steward with 5 financially stronger tenants, whereas Prospect’s liquidity scenario ought to enhance this yr. These components drive the REIT’s perception that its portfolio ought to begin producing sturdy and rising money flows. That ought to allow it to pay its dividend, deal with upcoming debt maturities, and start rebuilding its portfolio by making new property investments.
The continued money movement and steadiness sheet enhancements might additionally permit the REIT to begin rebuilding its dividend following two deep cuts in recent times. Medical Properties’ dividend presently yields over 8%, and the mixture of revenue, earnings progress, and additional steadiness sheet enhancements might allow the REIT to supply wholesome whole returns in 2025 and past as its inventory worth begins to get better.
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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.
