Avoid buying this ultra-high yielding dividend stock until after this catalyst

Medical Property Trust (MPW -2.88%) recently declared its last dividend payment. On the one hand, the $0.08 per share payout puts its dividend yield at over 7%. However, that payout was nearly 50% below last quarter’s level and more than 70% below last year’s midpoint.

The determining factor of Healthcare REIT the most recent reduction is the impact of the bankruptcy of its main tenant, Steward Health Care. She is currently working to get out of that troubled relationship. It will probably take a while, reason why Income-focused investors should avoid this REIT until it puts Steward in the rearview mirror.

The troubles continue

Medical Properties Trust has been working with Steward for years to help strengthen its financial position. Unfortunately, that was not enough to prevent the hospital operator from filing for bankruptcy. Steward’s financial situation is so dire that the company plans to sell its 31-hospital operations to repay creditors, including Medical Properties Trust.

The REIT hoped this would be a relatively quick process and that the new operators would assume Steward’s leases on its hospital properties. That was not the case. They ran into trouble in Massachusetts, where Medical Properties owns eight properties as part of a joint venture. This has slowed sales processes in other markets.

Things got so contentious that Steward recently sued Medical Properties Trust. The hospital operator believes the REIT is trying to extract all the value of these sales for itself, which won’t leave much for other creditors.

Medical Properties Trust currently has $440 million of guaranteed non-real estate investments in Steward and another $2.3 billion of real estate investments. The REIT believes it will eventually be able to recoup all of that value either by releasing the hospitals to new operators or by selling those facilities as part of Steward’s bankruptcy process. However, it will probably take some time and it it could be a bumpy road to retrieve that value.

Positioning for a better post-steward future

The REIT’s tenant problems forced it to sell other properties to boost its liquidity to be able to repay the debt. The company raised more than $2.5 billion this year, which allowed it to repay $1.5 billion in debt, including all maturities in 2024. It also has the liquidity to address all of its maturities in 2025 .

While Medical Properties Trust has taken steps to strengthen its financial position, Steward’s bankruptcy continues to limit its flexibility. For example, the REIT had to amend its credit facility due to Steward’s bankruptcy. Its banks have reduced their lending capacity by more than $100 million to about $1.3 billion. I am too capping the cash component of its quarterly dividend at $0.08 per share for the coming year (or sooner if Steward rapidly transitions its facilities to new operators).

REITs work towards a future where will he have a stronger portfolio and financial profile. CFO Steve Hamner gave a preview of what the company sees going forward second quarter conference call. He stated, “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.”

It is also expected to have multiple options to meet future debt maturities, including refinancing, asset sales, and other strategies. With a stable portfolio and the ability to address debt maturities, Medical Properties could pay a much more sustainable dividend, likely at a much higher level than it will in the next year due to the limitations of its credit facility. However, he must reach that point, which has proved elusive.

Wait until the Steward is no longer in image

Medical Properties Trust is working to eliminate its exposure to Steward, which continues to cut its dividend. This will take some time. For this reason, income-focused investors should avoid this REIT until it puts Steward in the rearview mirror. Once he does, he should have one much more stable portfolio and financial profile. This should allow it to pay a more sustainable dividend.