For years, Medical Properties Trust (NYSE: MPW) dealt with a great deal of uncertainty concerning one of its operators, Steward Health. The operator’s financial difficulties even led to the real estate investment trust (REIT) cutting its dividend payment multiple times as rent collection issues weighed on its results. When Steward Health filed for Chapter 11 bankruptcy protection earlier this year, that was the exclamation mark on the REIT’s troubles.
Medical Properties Trust (MPT) now says it is moving away from Steward, and that it has effectively severed its relationship with the troubled operator. Share prices of the REIT rose on the news but is it really safe to own shares of this struggling company again?
Medical Properties reaches an agreement with Steward
On Sept. 11, Medical Properties Trust (MPT) announced that it reached an agreement with Steward where it would bring about “the immediate transition of operations to quality replacement operators at 15 hospitals around the country.” It believes that replacing Steward as the operator of those facilities will benefit MPT shareholders and put the REIT in a much better position to succeed.
As part of the agreement, MPT will sell three Florida-based hospitals, with a “substantial portion of the proceeds” going to Steward. In return, however, Steward will relinquish “all rights to any further allocation of value from transactions related to any other hospital remaining in the portfolio as of September 11, 2024.”
Medical Properties Trust will incur about $430 million in impairment charges during the third quarter, largely due to loans it advanced to Steward.
The REIT has been struggling in recent quarters
Moving away from Steward should help MPT restore some stability in its operations. Its financials have been volatile, unprofitable, and difficult to forecast. And those are the reasons why this has been an incredibly risky dividend stock to own; it’s hard to determine just how viable the company’s payout is.
In its most recent quarter, which ended on June 30, MPT incurred a net loss totaling $321 million, which was far deeper than the $42 million loss it incurred in the prior-year period. This was largely due to impairment charges related to its partnership with Steward. The REIT’s struggles have, unfortunately, been going on for some time.
The hope is, now that MPT is moving away from Steward, its financials should improve. And now that it has cut its dividend for a second time in just over a year, the $0.08 quarterly per-share payout may be safer and more manageable than the $0.29 per share it was paying shareholders per quarter in the first half of 2023.
But for investors, there are a lot of moving parts to consider, such as how financially viable the new operators will be. MPT also didn’t provide guidance as to how its financials might look once the dust settles from this agreement with Steward. That can make it difficult to assess not only the safety of its dividend but also what its earnings will look like, which can be key in determining if the stock is cheap or simply a value trap. The stock is currently trading at 0.6 times its book value and less than 7 times its future profits — but those are based on analyst estimates.
Should you invest in Medical Properties Trust?
The recent agreement with Steward has boosted MPT’s share price and, on a year-to-date basis, the stock is up more than 17%. But that’s little comfort to longer-term investors, as shares of Steward are still down more than 70% when looking at the past three years.
There’s still a lot of uncertainty around how the REIT’s financials will look and how much better the new operators will be. It may be tempting to think that MPT’s stock may have finally bottomed out, with the second dividend cut now in place and the drama with Steward potentially over. But there’s no guarantee of that. Investors should tread carefully with the stock. While its yield remains high at 5.6%, there are many safer options for dividend investors to consider.
The safest option would be to see how MPT performs in upcoming quarters. I wouldn’t seriously consider investing in Medical Properties Trust stock until the REIT can demonstrate some stability in its operations. For now, this remains an extremely risky investment that is going to be primarily suitable for contrarian investors who have a high risk tolerance.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Medical Properties Trust Dumps Steward Health. Is It Safe to Buy the Stock Again? was originally published by The Motley Fool
