Medical Properties Belief‘s (NYSE: MPW) has skilled ailing monetary well being in recent times. The chapter of two of its high tenants and rising rates of interest put a whole lot of stress on the true property funding belief’s (REIT) money movement and steadiness sheet. It pressured the hospital proprietor to take a number of actions to nurse its monetary profile again to full energy.
Whereas the healthcare REIT is not there but, it is now in a a lot more healthy place than it had been after finishing $5.5 billion of transactions up to now 12 months. This implies its 6.7%-yielding dividend is wanting rather more sustainable.
Medical Properties Belief entered final 12 months with a aim of elevating no less than $2 billion of incremental liquidity to handle upcoming debt maturities. On the time, the REIT could not refinance this debt at acceptable phrases resulting from monetary troubles with its two largest tenants and far larger rates of interest.
That led the corporate to initially concentrate on monetizing properties leased to financially stronger tenants. For instance, it offered 5 properties again to Prime Healthcare for $350 million final February. It adopted that up by promoting a 75% stake in a portfolio of hospitals in Utah to a three way partnership associate in April in a deal that raised $1.1 billion. Medical Properties used the proceeds from these gross sales to repay maturing debt.
These and different gross sales helped take among the stress off the REIT’s steadiness sheet, permitting it to refinance different maturing debt. In Could, Medical Properties closed an $800 million 10-year mortgage secured by 27 of its 36 U.Okay. hospitals. The mortgage enabled the REIT to refinance debt maturing in late 2024 and early 2025 at an affordable 6.9% mounted rate of interest.
The corporate adopted that up by closing a $1.5 billion senior secured be aware providing due in 2032 at an 8.5% charge, and a 1 billion euro (about $1 billion) senior secured be aware providing with the identical maturity, however a decrease 7% charge. These new notes will enable the corporate to repay debt maturing by 2026.
In whole, Medical Properties Belief has secured $5.5 billion of further liquidity. That may enable it to repay all the debt it has maturing by subsequent 12 months. As well as, it has $1.4 billion of money and credit score line availability, giving it further liquidity.
Medical Properties Belief has needed to have a twin focus over the previous 12 months. It wanted to work on shoring up its steadiness sheet whereas also coping with tenant points after two of its largest tenants (Steward and Prospect) filed for chapter over the previous 12 months.
The REIT has since fully changed Steward as a tenant. It has introduced in 5 new operators at 17 of these properties. These new tenants are reporting bettering volumes, growing affected person satisfaction, and stabilizing staffing and provide prices since they took over operations. They’ve additionally began paying hire on these services. The speed will slowly escalate over the subsequent two years, reaching the absolutely stabilized charge on the finish of 2026 at about 95% of the speed Steward was paying on the properties.
In the meantime, Prospect filed for chapter earlier this 12 months. Medical Properties signed a time period sheet this month for a settlement permitting that firm to promote its hospitals and associated actual property. As soon as the chapter court docket approves that deal, Medical Properties can put its tenant points behind it.
The remainder of the REIT’s world hospital portfolio is performing effectively. Its hospitals in Europe are benefiting from robust reimbursement tendencies and rising occupancy. In the meantime, these within the U.S. are seeing growing admissions and rising surgical volumes. Due to that, its tenants are making greater than sufficient cash to cowl their hire.
Medical Properties Belief has come a good distance over the previous 12 months. It now has a a lot more healthy portfolio with a extra diversified base of financially robust tenants. It has additionally addressed all its debt maturities by subsequent 12 months. Due to that, it is within the place to pursue a spread of alternatives to develop shareholder worth this 12 months, which might embrace rebuilding its portfolio by making new investments, repurchasing a few of its beaten-down shares, and constructing again its dividend following two deep cuts.
These initiatives might allow the REIT to ship robust whole returns in 2025 and past because it will get again to full well being.
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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.
