Medical Properties Trust Shaves Its Dividend By 47%: What Investors Need To Know Now

Investors searching for high yields may have had Medical Properties Trust, also known as MPT MPW, on their watchlists. That may have shifted after the company announced a major chop to its quarterly dividend, cutting it from $0.15 to $0.08, a cut of 47%. The dividend was $0.29 at the start of 2023, representing a 73% drop. A dividend drop is often a negative signal that a company is having trouble satisfying its obligations and that its income is falling. The market reacted to the news by sending the stock price down. Those holding the stock will want to know if leadership can get things back on track.

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MPT is a real estate investment trust (REIT) that acquires and develops net-leased hospital facilities. Despite recent sales, it is still one of the largest hospital owners with 435 facilities as of June 30, 2024. Those recent sales might be one reason to stick with the company. It is freeing up as much capital as possible to satisfy debt. 

Big Sales To Pay Off Debt

Earlier this month, it sold 11 free-standing emergency department, primary care, imaging and urgent care facilities in Colorado to University of Colorado Health (UCHealth) for $86 million. Construction of the eleven facilities was funded by MPT for Adeptus Health between 2015 and 2017 for $64 million. Adeptus filed for Chapter 11 bankruptcy protection in 2017, and UChealth has leased the facilities from MPT ever since. 

In July, it sold the 50-bed Arizona General Hospital in Mesa, AZ, and seven free-standing emergency department facilities in the Phoenix metropolitan area to Dignity Health for $160 million. The sale price and current cash rents imply a capitalization rate of less than 7.5%. MPT also funded these facilities for Adeptus Health at an initial cost of $92 million. Dignity Health rented the facilities after Adeptus declared bankruptcy. 

April brought more significant transactions. MPT sold its interests in five Utah hospitals for $1.1 billion in immediate cash proceeds. During April, it also completed a previously announced sale of five facilities in California and New Jersey to Prime Healthcare for $350 million, $250 million in cash and a $100 million interest-bearing mortgage note due to MPT in nine months.

Together, these transactions have brought a lot of cash into MPT, but that hasn't been enough to boost the market's confidence in the company. Short interest is over 50%, and the stock price has fallen by over 75% in the last five years. The stock is still a consensus Hold but has had two downgrades within several months. 

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Even more telling is that in May, S&P Global lowered its issuer credit rating on Medical Properties Trust to ‘B–’ from ‘B+.’ The company cited MPT’s struggling tenants, looming debt maturities and limited access to capital as reasons for the shift. It also lowered the issue-level rating on MPT’s senior unsecured notes to ‘B’ from ‘BB—.’ In December, Moody downgraded MPT’s Corporate Family Rating to Ba2 from Ba1, citing similar concerns.

A company in trouble can sometimes be an attractive investment, and MPT is taking steps to right the ship even as it deals with the fallout from the bankruptcy of one of its major tenants, Steward Healthcare. At this point, it will take a lot of effort and possibly more sales for MPT to get to a place where it can raise its dividend. Those looking for a return to higher yields will have a long wait ahead. On the second-quarter earnings call, CEO Edward Aldag told analysts that the company has generated $2.5 billion in total liquidity and repaid all debt scheduled to mature in 2024. “We remain focused on accelerating debt paydown and have several available levers to create additional liquidity, comfortably satisfying our expected maturities in 2025 and beyond,” said Aldag. 

Better Yields Than Some REITs?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through REITs.

Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

As long-term rates go down and short-term rates stay high, there’s a unique chance to invest in fix & flip loans before yields drop. Check out Benzinga's favorite high-yield offerings.