Medical Properties Trust Stock: where’s the recipe? (NYSE:MPW)


After a long period, REITs have become a very “interesting” investment, as the speed and magnitude of interest rate movements have created concerns in some parts of the sector. One of these sold names includes Medical Property Trust (NYSE: MPW) as this REIT sold 60% of highs around $25 earlier this year.

Hospital real estate

Medical Properties Trust is a REIT that claims to be the only vehicle on the market to invest solely in hospital real estate in developed markets like the United States, Europe and, to a lesser extent, Australia.

The company has grown very rapidly, with total assets growing from around $6 billion in 2016 to around $20 billion in 2021. In February this year, the company released its results for the year 2021. The company is something of a proprietary asset, as it also provides finance leases and sometimes collaborates and even invests in other financing vehicles.

That’s exactly the point, which is a warning sign, as the REIT is mandated to provide flexible solutions, which may allow problems to be hidden for longer than would be the case in normal REITs. Moreover, the company also presents higher risks, especially if additional financing is provided or if equity investments in tenants are also made.

The company ended 2021 with total assets of $20.5 billion, the vast majority related to actual real estate investments and, to a lesser extent, receivables, finance lease investments and investments. in shares. This is funded by approximately $8 billion in equity and the rest in debt.

Total revenue was approximately $1.5 billion, of which just over $1.1 billion was rental income and the remainder was financial lease income and interest income. Expenses were nearly $900 million, primarily due to interest expense and amortization expense, as well as selling, general and administrative expenses to a lesser extent. To be more specific, interest expense of $368 million was about 3% on a weighted ratio to total liabilities, or a bit more when looking at actual actual debt.

With 590 million shares outstanding and net income of $656 million, earnings were $1.12 per share. With asset purchases and related dilution responsible for much of the growth, actual earnings per share were up only four cents from 2020.

The company has guided 2022 earnings between $1.16 and $1.20 per share and after adding $0.65 per share in amortization expense, normalized operating funds are approximately $1.81. at $1.85 per share.

2022 – Hard Times

After shares still traded at $25 in January, at just over 20 times earnings, shares fell to $20 as the war in Ukraine had already driven interest rates higher. In mid-March, the company reached an agreement with Macquarie in which it sold assets, freeing up $1.3 billion to reduce debt. This was important because it could reduce debt by about 10%, which was necessary because the company held more debt than equity, leading to high debt ratios.

This sale was partially offset by continued investment, but by mid-2022 it was a total balance sheet that had fallen from $20.5 billion at the end of 2021 to $19.7 billion. dollars. Total liabilities fell to $10.9 billion, with shareholders’ equity reaching $8.9 billion. This was quite comforting, as interest charges were actually largely flat. It’s only a matter of time, as its fixed rate debt will also carry much higher rates over time.

Although that seems fairly stable, investors have had to digest a painful drop in the share price to $15 earlier this summer and to just $10 now. Investors fear the opacity of real estate, the fact that its largest tenant Steward would be in financial difficulty and that the company may not be fully recession-proof, as the pandemic has hurt some operators enough. With its bonds effectively yielding around 10% and insider trading giving no confidence or cause for optimism, it’s easy to get scared here as stocks have gone from $15 to $10 over the past last two weeks.

To address some of these challenges, MPT sold 9 acute care hospitals and related medical buildings for $360 million, providing more cash and deleveraging the company. On Oct. 6, at the height of investor concerns lately, the company sold three Connecticut hospitals in a $457 million deal.

To scare off short sellers, the company announced a $500 million stock authorization, which should not be confused with the expectation that these stock buybacks will be executed shortly, or at least not necessarily. Additionally, the company has the potential to engage in buyouts, or also pay down some costly debts, to reduce leverage ratios.

And now?

It’s heartening to see the company delivering $800 million in sell-side trades in recent weeks to provide plenty of liquidity. While that’s a good thing, there are also quite a few caveats, including the fact that some tenants are quite concentrated, as we have risks related to the opacity of the property state.

This is all remarkable, and I don’t even want to get into the discussion of whether there’s more at stake here. Many REITs have sold off in this environment and while MPT’s declines are outsized, there are objective reasons for the concerns, as the potential is certainly there too.

You don’t have to be a hero as many names have sold off a bit lately, including high-quality REITs that are less leveraged, have greater tenant diversification, and operate a pure owner model. , probably offering a better risk. -reward here.