This Healthcare REIT On Way To A Rebound

chart01At a 7 percent dividend yield, Medical Properties Trust seems like one of the most attractive investments among healthcare REITs, so much so that some investors have wondered whether it is even capable of covering its dividends. However, there are reasons to believe that the healthcare REIT will have no problems doing so, which in turn, suggests that its shares might be undervalued.

Before explaining why shares of Medical Properties Trust might be undervalued, it is important to explain how it has come to its present state. In short, REITs have to issue either debt or equity if they want to speed up their expansion because they are obligated to pay most of their taxable income to their investors in the form of dividends. This means that Medical Properties Trust was not doing anything unusual when it chose to issue 43.8 million common shares in order to fund its purchase of additional healthcare properties.

Unfortunately, it chose to do so right before the mass sell-off in 2015, which forced it to scale down its plans from 43.8 million to 25 million common shares. Combined with the general lack of demand, this caused Medical Properties Trust’s share price to fall 20 percent in a single month, though it still managed to purchase seven hospitals in exchange for $900 million raised through the issuance of equity and debt.

In response to the fall in its share price, Medical Properties Trust has been taking some steps to fix the problem. For example, it has switched over from lines of credit to fixed debt, which should result in controlled costs over the long run. Furthermore, it is raising $550 million by merging an owned operator with a healthcare operating company called RegionalCare (linked to Apollo Global Management, LLC), which will put it in a much better position to satisfy its outstanding debt. Something that should improve its net debt to pro forma EBITDA, which is estimated to go below 6 times over.

Based on these facts, it is no wonder that Medical Properties Trust is projecting FFO growth of 4 percent in 2016 in spite of its difficulties with expansion because of its low share price. As a result, REIT investors might want to take a second look at the healthcare REIT, which could be on its way to a rebound in its share price.

Source:Medical Properties Trust Inc.(NYSE:MPW)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Medical Properties Trust: The Opportunity Remains

chart01We tend to favor REITs whose rapid growth translates into cash flow growth on a per share basis. Speaking of one such REIT, Medical Properties Trust has been on our watch list in the healthcare segment. The company’s portfolio has enjoyed a strong expansion over the past year increasing from 134 to 187 properties. The annual adjusted EBITDA for the 2015 fiscal year is projected to increase 69 percent over the 2014 figure. In addition, Medical Properties continued to post strong figures in Q3. On a year over year basis, revenues grew 42 percent and normalized funds from operations (FFO) per share went up 19 percent.

chart02In August the company tested the boundaries of their acquisition based model by issuing equity in a bad moment. In a matter of days they reduced a public offering of 43.8 million common shares to 26.0 million. The demand was simply not there, and not long after the market in general suffered from a major selloff. This most definitely negatively affected Medical Properties’ ability to fund new acquisitions.

Company Chairman, President, and CEO Edward Aldag announced, in his third quarter conference call, that the company would slow down their acquisition pace over the next few quarters. He stated,

“if you look at where we’ve been over the last two years with doing over $1 billion in the last two years, and $1 billion this past quarter, we certainly do expect that you won’t see that type of investment in the near future.”

chart03The last time we featured Medical Properties Trust was in early October. At that time the company demonstrated good valuation opportunities. Their dividend yield was above the median sector and price-to-FFO was below it. According to the November 30 figures, Medical Properties dividend yield is at 7.3 percent versus the 5.8 percent for the healthcare segment, and the price-to-FFO is at 10x; which is lower than the industry average of 12x. This proves that the opportunity remains.

Source: Medical Properties Trust (NYSE:MPW), Seeking Alpha

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. REITs – Will Share Price Decline Stop Medical Properties Trust?

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Medical Properties Trust (NYSE:MPW) is in the upper echelon of healthcare REITs. The company has enjoyed relatively strong growth results, when measured against 2014 metrics, especially the funds from operations (FFO) per share, and projected FFO for the 2015 fiscal year. In addition, their current dividend yield of eight percent is above the sector median and price-to-FFO of 9.4x is below the sector median.

Medical Properties began distributing dividends in 2005. The company has yet to miss a quarterly dividend, and has always either increased or maintained the dividend payouts with the exception of 2008. At that time, Medical Properties decreased the dividends from $0.27 down to $0.20. After a long hiatus with zero dividend increases, the company has resumed dividend growth over the past two years. In March of this year, they increased dividends by five percent up to $0.22.

The majority of Medical Properties investments have been in net-lease healthcare facilities, particularly focusing on acute care and rehabilitation hospitals. The company is also in the mortgage business, providing both mortgages and other type of loans to their tenants. This book of business comprises approximately eleven percent of their assets. Medical Properties owns real estate in the US, and internationally as well. They have a large presence in California and Texas, and close to twenty percent of their investments are in Germany and the United Kingdom.

A main contributor to Medical Properties growth is their continued acquisition and development program. This has led them to grow their Adjusted FFO by forty percent in the second quarter of 2015, compared to the same period in 2014. To fuel this growth, Medical Properties has issued equity and debt over the past year. Last December, Medical Properties received an investment grade rating of BBB- on their unsecured debt from Standard & Poor’s.

More recently industry share prices have decreased, including theirs. This factor makes it hard to accurately determine how it has affected the company’s funding. This August the company announced a public offering of common shares to fund acquisition activity. Regarding debt, the company’s total debt to total capitalization has tended to be on the high side, reaching a high level when compared to other healthcare REITs.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.