Everyone Is Talking About Medical Properties Trust: A Risky Investment or a Long-Term Opportunity?

CEO Khai Intela
Healthcare real estate investment trust (REIT), Medical Properties Trust (MPW 0.63%), has been making headlines lately. While the stock's dividend has attracted investors, it faced a significant cut last September. With shares at an all-time...

Healthcare real estate investment trust (REIT), Medical Properties Trust (MPW 0.63%), has been making headlines lately. While the stock's dividend has attracted investors, it faced a significant cut last September. With shares at an all-time low, the question arises: Can we trust this stock or are we in for more trouble?

What Happened to Medical Properties?

Medical Properties Trust is a major player in the healthcare sector, with a portfolio of over 441 properties and more than 44,000 beds across the United States, United Kingdom, Europe, and Australia. As a REIT, it offers investors an opportunity to own shares in a diversified real estate portfolio without having to directly own properties.

However, the company's largest tenant, Steward Health Care, has been facing financial difficulties. Steward contributes approximately 20% of Medical Properties' revenue, and its inability to pay rent resulted in a dividend cut from $0.29 to $0.15 per share in August. Recently, Medical Properties announced plans to reduce its exposure to Steward Health Care, indicating that cutting losses might be a wiser move than riding out the situation.

Assessing the Damage

According to a January update from management, Steward Health Care owes Medical Properties around $50 million. Losing such a substantial tenant will undoubtedly have a significant impact. The struggles with Steward caused Medical Properties' dividend payout ratio to soar and profits to plummet.

MPW FFO Per Share (TTM) Chart MPW FFO Per Share (TTM) data by YCharts

The rapid decline in the stock's value puts investors in a challenging position. While market panic can often drive shares lower than they deserve, extracting money from Steward Health Care might involve lengthy and expensive lawsuits. Furthermore, once the facilities become available, Medical Properties would need to find new tenants to fill the vacancies.

Even with the recent dividend cut, the stock still offers a yield of 13%, indicating that Wall Street lacks confidence in the company. Another dividend reduction could push the stock even lower, punishing those who prematurely try to call a bottom.

What Should Investors Do?

While there is a possibility of Medical Properties Trust rebuilding its business over time, rushing to buy the stock may not be wise. Management will continue to cut dividends as necessary to maintain cash flow and keep the business afloat. Additionally, the company faces the challenge of refinancing over 40% of its outstanding debt in the next few years, potentially at higher rates.

Investing in Medical Properties should be approached with caution. It is advisable to keep it as a small percentage of your portfolio, given the risks involved. Consider dollar-cost averaging, gradually buying shares to mitigate the impact of any negative news that may arise.

In conclusion, Medical Properties Trust presents both risks and opportunities. While it could potentially thrive in the future, overcoming its challenges with Steward Health Care and rebuilding the business will take time. The extent of the damage remains uncertain. Exercise prudence and careful consideration when deciding to invest in this stock.

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