Medical property trust faces earnings dilution risk despite new leases, analyst says

Colliers Securities upgraded Medical Properties Trust, Inc. (NYSE:MPW) stock to a Buy rating and announced a $6.5 price target.

Also, Truist Securities analyst Michael Lewis raised his price target from $5 to $6, while maintaining a Hold rating.

On Wednesday, the medical REIT unveiled a global agreement with the tenant Steward the Health Systemits secured creditors and the Committee of Unsecured Creditors.

The settlement covers 23 hospitals previously operated by Steward, with 15 hospitals in Arizona, Florida, Louisiana, Ohio and Texas already leased to new tenants.

Medical Properties Trust anticipates receiving annual cash rental payments of approximately $160 million from the new leases, based on a rental base of $2 billion, upon stabilization in the fourth quarter of 2026.

The analyst writes that they are adjusting FFO estimates and price targets and affirming a Hold rating due to the dilution of anticipated earnings from refinancing activities over the next several years.

Medical Properties Trust has agreed to sell three Space Coast hospitals, with a significant portion of the proceeds going to Steward. Lewis says those hospitals, combined with the nine in Massachusetts where Medical Properties Trust is recovering nothing, suggest a recovery rate of 75 percent of the $3.2 billion in assets reported in Medical Properties Trust’s first-quarter supplemental package .

That estimate assumes Medical Properties Trust recovers $300 million from the six closed hospitals, $100 million from the two under construction and $2 billion from the 15 in transition, the analyst adds.

Lewis writes that while this aligns with their previous models, there is some risk due to uncertainties about non-operating asset values ​​and new entrant success rates.

The analyst revised the 2025 FFO estimate to $1.01 per share from $1.02 per share, still above the $0.92 consensus. Estimates point to a 39.9% year-over-year decline in normalized FFO per share in 2024, followed by a 6.0% increase in 2025.

The analyst expects FFO per share to decline each subsequent year through 2029 due to dilutive debt refinancing.

Also read: European Central Bank cuts key interest rates as inflation cools

Price action: Shares of MPW were up 12.4% at $6.295 at last check on Friday.

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