This 6.7%-Yielding Dividend Stock Is Now Much Healthier After Completing $5.5 Billion of Transactions
February 28, 2025
0 4 minutes read
Medical Properties Trust‘s (NYSE: MPW) has experienced ailing financial health in recent years. The bankruptcy of two of its top tenants and rising interest rates put a lot of pressure on the real estate investment trust’s (REIT) cash flow and balance sheet. It forced the hospital owner to take several actions to nurse its financial profile back to full strength.
While the healthcare REIT isn’t there yet, it’s now in a much healthier position than it had been after completing $5.5 billion of transactions in the past year. This means its 6.7%-yielding dividend is looking much more sustainable.
Medical Properties Trust entered last year with a goal of raising at least $2 billion of incremental liquidity to address upcoming debt maturities. At the time, the REIT couldn’t refinance this debt at acceptable terms due to financial troubles with its two largest tenants and much higher interest rates.
That led the company to initially focus on monetizing properties leased to financially stronger tenants. For example, it sold five properties back to Prime Healthcare for $350 million last February. It followed that up by selling a 75% stake in a portfolio of hospitals in Utah to a joint venture partner in April in a deal that raised $1.1 billion. Medical Properties used the proceeds from these sales to repay maturing debt.
These and other sales helped take some of the pressure off the REIT’s balance sheet, allowing it to refinance other maturing debt. In May, Medical Properties closed an $800 million 10-year loan secured by 27 of its 36 U.K. hospitals. The loan enabled the REIT to refinance debt maturing in late 2024 and early 2025 at a reasonable 6.9% fixed interest rate.
The company followed that up by closing a $1.5 billion senior secured note offering due in 2032 at an 8.5% rate, and a 1 billion euro (about $1 billion) senior secured note offering with the same maturity, but a lower 7% rate. Those new notes will allow the company to repay debt maturing through 2026.
In total, Medical Properties Trust has secured $5.5 billion of additional liquidity. That will allow it to repay all the debt it has maturing through next year. In addition, it has $1.4 billion of cash and credit line availability, giving it additional liquidity.
Medical Properties Trust has had to have a dual focus over the past year. It needed to work on shoring up its balance sheet while also dealing with tenant issues after two of its largest tenants (Steward and Prospect) filed for bankruptcy over the past year.
The REIT has since completely replaced Steward as a tenant. It has brought in five new operators at 17 of those properties. Those new tenants are reporting improving volumes, increasing patient satisfaction, and stabilizing staffing and supply costs since they took over operations. They have also started paying rent on those facilities. The rate will slowly escalate over the next two years, reaching the fully stabilized rate at the end of 2026 at about 95% of the rate Steward was paying on the properties.
Meanwhile, Prospect filed for bankruptcy earlier this year. Medical Properties signed a term sheet this month for a settlement allowing that company to sell its hospitals and related real estate. Once the bankruptcy court approves that deal, Medical Properties can put its tenant issues behind it.
The rest of the REIT’s global hospital portfolio is performing well. Its hospitals in Europe are benefiting from strong reimbursement trends and growing occupancy. Meanwhile, those in the U.S. are seeing increasing admissions and growing surgical volumes. Because of that, its tenants are making more than enough money to cover their rent.
Medical Properties Trust has come a long way over the past year. It now has a much healthier portfolio with a more diversified base of financially strong tenants. It has also addressed all its debt maturities through next year. Because of that, it’s in the position to pursue a range of opportunities to grow shareholder value this year, which could include rebuilding its portfolio by making new investments, repurchasing some of its beaten-down shares, and building back its dividend following two deep cuts.
These initiatives could enable the REIT to deliver strong total returns in 2025 and beyond as it gets back to full health.
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Matt DiLallo has positions in Medical Properties Trust and has the following options: short March 2025 $4 puts on Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
