Sophonnawit Inkaew
We previously covered Medical Properties Trust, Inc. (NYSE:MPW) in November 2023, discussing its penny stock status, with its prospects unlikely to lift in the near term as the management cut dividends to preserve cash and divested its assets to generate liquidity.
We believed that its dividends per share growth might be stagnant over the next few years, as the management had to navigate an extremely challenging period of elevated interest rate environment, further destabilizing its dividend investment thesis.
In this article, we shall discuss why MPW remains a Hold despite the stock’s recent recovery from the January 2024 bottom and the excellent profitability of the REIT’s core portfolios.
With the stock still highly shorted as the management records multiple Steward related charges/ impairments in FQ4’23, we believe that it may be more prudent to wait for more clarity on the REIT’s troubled portfolio along with the uncertain disbursement of the FQ1’24 dividends.
The MPW Investment Thesis Remains Speculative In The Near-Term
MPW’s FQ4’23 Financial Results
MPW
For now, as MPW continues to report Steward headwinds, it is unsurprising that the management has opted to update its financial results according to their troubled tenants, Steward and Prospect included.
With Steward comprising 26.1% of the REIT’s FQ4’22 revenues (pre-cash flow issues), it is apparent that the uncollected rents from the troubled tenant is highly impactful, triggering the negative total revenues of -$122.38M (-139.9% QoQ/ -132.1% YoY) and NFFO per share of $0.36 (-5.2% QoQ/ -16.2% YoY) in FQ4’23.
Otherwise, MPW also reported underwhelming FY2023 numbers of $871.79M (-43.4% YoY) and $1.59 (-12.6% YoY), respectively, further underscoring why it is important for REITs to diversify their tenant profiles and rental portfolios.
The first silver lining to the REIT’s investment thesis is that its core portfolio, aside from Steward and Prospect, remains healthy, with it generating robust revenues of $252M.
This is especially since the worst outcome being a re-tenanting or sale of the Steward facilities, both of which are acceptable depending on the eventual cap rates and terms.
However, with June 2024 being the deadline for the MPW management to come to a meaningful resolution with Steward, it appears that the next few months may bring forth more volatility indeed.
The Consensus Forward Estimates
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With the management refraining from offering an FY2024 guidance, it is unsurprising that the consensus have moderately downgraded MPW’s forward estimates, with the REIT expected to report impacted top/ bottom lines through FY2026. This is compared to FY2022 revenues of $1.54B and FFO of $1.08B.
The second silver lining here is that the management has yet to commence on dilutive capital raises despite their tenant issues, with its share count still stable over the past few years.
MPW’s Debt Maturity
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Then again, readers must also note that MPW face $1.05B of debt/ contractual commitments in 2024, $1.84B in 2025, and $3.55B in 2026, with the management’s plan to raise “at least $2B of additional liquidity” in 2024 unlikely to be sufficient.
This is worsened by the elevated net-debt-to-EBITDA Ratio of 6.9x in FQ4’23, compared to 6.7x in FQ3’23, 6.4x in FQ4’22, 6x in FQ4’19, and the healthcare REIT sector median of 6.13x.
MPW Valuations
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As a result of its impacted top/ bottom lines, bloated leverage, and near-term tenant uncertainties, we can understand why the market has temporarily discounted MPW’s valuations, with FWD Price/ Rental Revenues of 3.77x and FWD Price/ FFO of 3.65x.
This is compared to 2021 mean of 14.34x/ 11.98x (pre-Steward/ Pipeline issues in 2022) and the sector median of 5.30x/ 12.47x, implying that the hospital REIT is inherently oversold here.
If anything, the same is observed with the MPW stock trading well below its book value per share of $12.74 (-7.9% QoQ/ -11.4% YoY/ -6.1% from 2019 levels of $13.58) and tangible book value per share of $11.31 (-18.2% QoQ/ -8.4% YoY/ -9.5% from 2019 levels of $12.51) in FQ4’23.
So, Is MPW Stock A Buy, Sell, or Hold?
MPW 18Y Stock Price
Trading View
On the one hand, with MPW already successfully bouncing off the January 2024 bottom of $3s as the stock slowly climbs to its previous support levels of $4s, it appears that bullish support are starting to materialize.
We believe that MPW may be eventually re-rated nearer to its historical means and the sector medians, once the headwinds fully lift and all of its tenants record healthy cash flows. This prospect demonstrates that the stock’s extremely discounted valuations may be a gift for opportunistic investors looking to ride the great upside.
This is especially since the Fed has signaled that three rate cuts are possible in 2024, with the macroeconomic outlook likely to normalize over the next few years.
Based on MPW’s 2021 Price/ FFO mean of 11.98x and the consensus FY2026 FFO per share estimates of $1.20, there appears to be an excellent upside potential of +235.60% to our aggressive long-term price target of $14.30, bringing the stock back to its 2022 trading ranges.
On the other hand, we are not bullish enough to re-rate MPW as a Buy, due to the stock’s elevated short interest of over ~33%, with the volatility from the aggressive short sellers potentially negating the potential upside from these bottom levels.
At the same time, we expect to see multiple adjustments and write-downs in its rental portfolios and financial performance as the REIT navigates the challenging few quarters ahead, potential triggering further uncertainties in its prospects and fluctuations in its balance sheet health.
Most importantly, with the MPW management yet to announce any FQ1’24 dividends, it remains to be seen if the REIT may pay out dividends during this transitionary period.
As a result of the near-term headwinds, we believe that it may be more prudent to maintain our previous Hold (Neutral) rating here, while observing its execution for the next few quarters.
Patience for now.
Medical Properties Trust’s Weakest Link May Be Greatest Asset Ahead (MPW)
