The inventory of Medical Properties Belief (NYSE: MPW) simply can not seem to cease falling. After dropping 53% in 2022, it did even worse in 2023 when it dived by 56%. And to this point in 2024, it is down round 18% — and if not for a latest rally, its decline could be much more important.
Traders are proper to be bearish on the enterprise. Medical Properties Belief hasn’t been in good monetary form. It reduce its dividend final 12 months, it has run into issues with tenants, and rising rates of interest have not made actual property funding trusts (REITs) standard investments in recent times, both.
However with the inventory’s losses easing of late, and the REIT seemingly getting quite a lot of dangerous information out of the best way already, is now lastly the time to take an opportunity on this badly beaten-down inventory?
Why Medical Properties may flip issues round
The previous few years have been difficult for Medical Properties Belief. Not solely did COVID damage healthcare amenities and hospitals, however rising rates of interest then made borrowing prices costlier. Plus, price hikes gave traders a motive to get out of shares and into safer funding choices corresponding to bonds, which develop into extra engaging as rates of interest improve.
The REIT’s share worth hasn’t been this low since 2009. And traders simply aren’t feeling all that optimistic that the healthcare inventory can flip issues round. However to its credit score, administration is making an effort to scrub up its stability sheet. It is trying to unload property to spice up liquidity and put itself in a greater place for the longer term.
One of the crucial promising updates within the firm’s latest earnings launch was that the issues regarding Steward, which has been certainly one of Medical Properties Belief’s worst complications to this point, may very well be coming to a decision.
CEO Edward Ok. Aldag Jr. said within the press launch that, “With regard to Steward, we’re inspired by the quantity of curiosity acquired up to now from different hospital operators for these mission-critical amenities, and we anticipate this actual property portfolio will both resume its contributions to earnings or develop into extra sources of liquidity because the 12 months progresses.”
Both manner, whether or not it is via an acquisition or an enchancment in its operations, there’s hope that the issues and issues regarding Steward won’t drag the inventory down for for much longer. This 12 months, the REIT additionally expects to generate $2 billion in extra liquidity via asset gross sales.
There’s nonetheless loads of threat forward
Finally, so much depends upon how its asset gross sales go, and what worth it could actually fetch for them. Then there’s additionally the problem of how a lot smaller its portfolio would possibly look, and what sort of development prospects traders can anticipate from the enterprise when all these transactions are accomplished.
There’s the potential that although its quarterly dividend of $0.15 per share is way smaller than what it was paying out final 12 months ($0.29), it may nonetheless show to be too excessive if, when all of the mud settles and the transactions are accomplished, the corporate is not producing sufficient in funds from operations (FFO) to cowl the dividend.
Final 12 months, the corporate incurred a web lack of $556.5 million, however impairment prices and write-offs closely impacted its earnings, significantly within the fourth quarter. And with asset gross sales anticipated this 12 months, traders ought to take these newest outcomes with a grain of salt, as Medical Properties Belief’s financials are prone to look drastically completely different in a 12 months or two.
However that is the large unknown: How a lot income will Medical Properties Belief generate, how excessive will its FFO be, and can its rent-collection points be resolved? Till there’s some readability round these points, that is going to be stay a extremely dangerous inventory.
Is Medical Properties Belief price taking an opportunity on?
This isn’t a inventory that is appropriate for risk-averse traders. Though its share worth has fallen sharply over the previous few years, issues can all the time worsen. Traders should not assume the underside has been reached simply but.
If, nonetheless, you are comfy with the chance, Medical Properties Belief has the potential to be a contrarian play. It does have a various mixture of property that span a number of nations. And if rates of interest come down, REITs are positive to be extra engaging choices for traders.
However until you possibly can abdomen all the chance and uncertainty surrounding Medical Properties Belief inventory, you are higher off avoiding it. And though it reduce its dividend final 12 months, traders should not assume that the present payout is protected.
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David Jagielski has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.
Is Medical Properties Belief Inventory a Purchase? was initially revealed by The Motley Idiot