Unfolding Saga of Medical Properties Trust
I started scrutinizing the Medical Properties Trust, Inc. (NYSE:MPW) stock on Seeking Alpha back in November 2022. Despite bullish sentiments about its potential, I exhibited a guarded stance in assessing the attractiveness of investing in this company.
The latest trigger for commentary on MPW follows the recent news of the company ramping up efforts to recover uncollected rents from its major tenant, Steward Health Care System. Not surprisingly, the stock is plummeting by 30% in reaction.
This turn of events is a seismic occurrence that warrants a closer examination. Indeed, it provokes an urgent question – is this a golden buying opportunity for astute investors or a sign of an irreparable disaster unfolding?
Dire Straits: Reasons to Steer Clear of MPW Stock
Let’s delve into the crux of the matter causing MPW to nosedive and shed 16% within mere hours before the market’s opening.
In summary, MPW is escalating its pursuit to recover unpaid rent and unpaid loans from Steward Health Care System, its largest tenant. Steward’s financial struggles, as a result of changes in vendor payment terms, led to around $50M in unpaid rent by December 31, 2023. To tackle this issue, Steward is actively seeking strategic transactions and a capital partner, while MPW is extending a $60 million bridge loan backed by collateral and new liens on Steward’s managed care business. Additionally, MPW consented to defer unpaid rent and taper 2024 rents.
These challenges compel MPW to anticipate a non-cash charge of approximately $225 million in the fourth quarter of 2023. The company also signals concerns about potential further impairments to its assets in the upcoming financial reports.
Could Steward be on the brink of Chapter 11 bankruptcy? The signs from their current financial woes and the urgency for securing a bridge loan certainly suggest so. Furthermore, the act of lending money to a tenant with pre-existing debt issues appears inappropriate on the part of MPW management – a stark contradiction to their previous earnings calls.
John Pawlowski
Okay. And then turning to storage.
Could you just confirm for me, there was another roughly $25 million in loans provided late last year to Steward. And then do you expect additional cash to go to Stuart this year outside of the, I guess, the insurance recoveries, prepayment.
Steven Hamner
Yes. The last question is no.
We do not expect any further again, alternate operating support, liquidity support for Stewart other than what you just described in redeveloping the cost. On the late 2022, there was another $28 million that we advanced.
Source: Medical Properties Trust, Q1 2023 Earnings Call Transcript.
Adding to the dilemma, the current dividend yield easily exceeds 25%. However, projecting this yield 2-3 years ahead, especially with anticipated severe cuts in payouts, paints an ominous picture. MPW’s debt burden has reached unprecedented levels, with a debt-to-equity ratio soaring from less than 1 to over 3 within three years.
The company’s repayments are poised to more than triple in 2025 compared to 2023 and 2024. Even if interest rates fall, MPW faces the onerous task of refinancing its debt, likely at a steep double-digit interest rate.
Tenants’ liquidity troubles may already be factored into the sharp stock decline, but it is likely that MPW will continue to teeter sensitively in response to any further negative news. Earning back the market’s trust will be an arduous journey with an uncertain endpoint.
The Final Verdict
Medical Properties Trust is undervalued by virtually every conceivable valuation multiple. While this might seem to present an enticing buying opportunity post the 30% plunge, investing in MPW raises pertinent questions. Is acquiring a stake in a company marred by management contradictions, liquidity concerns, debt refinancing challenges, and potential legal issues wise? In my view, Medical Properties Trust, Inc. stock should remain off your radar, despite the current dramatic fall. Let prudence, not greed, guide your investment decisions.
Thanks for reading!
