Despite a string of setbacks, this ultra-high-yielding dividend stock sees better days ahead

Medical Property Trust (NYSE: MPW) continues to face obstacles on his road to recovery. The hospital-focused real estate investment trust (REIT) has struggled with headwinds from rising interest rates and financially challenged tenants. It worked to overcome these problems by selling the hospital’s properties to repay the debt while providing additional assistance to its troubled tenants. It has also cut its dividend twice, with the most recent cut pushing up its yield down at about 7%.

The biggest challenge for Healthcare REIT these days it is bankruptcy top tenant Steward Health Care. That company experienced some setbacks in transitioning hospital operations to new operators. Despite these issues, Medical Properties Trust believes it will ultimately recover most of the value of its investment in Steward.

Another unexpected problem

Medical Properties Trust’s management team provided an update on Steward’s bankruptcy proceedings second quarter call. CEO Ed Aldag commented, “This is understandably a complicated restructuring process involving multiple stakeholders with competing priorities.” In particular, he pointed out that problems in the Massachusetts market have “slowed down sales processes in other important markets, where Steward’s ownership transition is expected to be smoother.”

Aldag noted that it has eight Steward-operated properties in Massachusetts that are part of a 50 percent joint venture with Macquarie Infrastructure Partners. The REIT, Macquarie, Steward and Massachusetts had been working on a solution for these facilities long before Steward filed for bankruptcy. The hospitals initially received a lot of interest from other operators who believed they could profitably manage the facilities. Medical Properties and Macquarie were willing to be part of this solution, offering rent concessions to reach an agreement.

However, negative press and Massachusetts’ apparent desire for a state-owned, not-for-profit operator to assume control of these hospitals forced the REIT and its joint venture partner to divest themselves of their ownership interest in the property. They believe this is the best way forward for these facilities.

Working towards a better future

While Massachusetts was an unexpected stumbling block, Medical Properties Trust believes it will have more success finding new operators for its other properties. The company’s CEO said on the call: “Subject to court approval, we expect positive results in Steward’s remaining markets based on the real estate agreements we have negotiated with new operators. as well as others that are close to completion.” Positive developments would certainly be good news for the REIT and its investors.

The story continues

Medical Properties Trust expects to sell or transition all remaining Steward properties to new tenants in the coming months. For this reason, the company is optimistic about the eventual financial result. Chief Accounting Officer Kevin Hanna said on the call: “We currently have approximately $440 million of guaranteed non-real estate investments in Steward and $2.3 billion in real estate. that it is expect to be rehired or sold as part of the ongoing bankruptcy process. We believe these investments are fully recoverable at this point.”

Ending the relationship with Steward will put the REIT on a much more sustainable footing in the long term. CFO Steve Hamner said on the call, “Looking by calendar in 2025 and 2026, our expectation is that we will have a stable portfolio of hospital properties leased to key operators in their respective markets with no exposure to Steward.” Having a the stable portfolio will make it easier for the REIT to meet future debt maturities. She will likely be able to refinance the debt instead of having to sell assets to pay it off because of the higher borrowing costs she would incur due to her current situation. It has already seen some of the fruits of its labor this year by taking out an $800 million 10-year loan secured by some of its UK properties. His recent progress and visibility of positive results with Steward gives him a lot of confidence in its ability to navigate future debt maturities.

A light at the end of a dark tunnel

Medical Properties Trust has suffered a lot of setbacks over the past few years, many of which are related to its relationship with Steward. The company is working to end that relationship by finding new operators for those properties. This would allow the company to move forward with a stable portfolio that should allow it to pay a sustainable dividend. He can then increase his portfolio and payouts from his stable base. Although it will take some time to get through the current situation, he is getting closer to a brighter future with every step he takes.

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Matt DiLallo has positions in Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Despite a string of setbacks, this ultra-high-yielding dividend stock sees better days ahead was originally published by The Motley Fool