Medical Properties Trust (MPW) came down a little after earnings, but everything I read says the stock is a BUY rating. And the outlook for a continued dividend is strong. With the stock below $12 this morning I bought another 100 shares. My average price is $11.63 and the dividend I will receive on 4/13/23 is at a rate of 9.97% on a yearly basis. I will probably buy more before the Ex-Date of 3/15/23.
Buy 100 Shares MPW @ $10.90
I know it might sound crazy but I hope the stock stays down a bit until the dividend. If this happens I’ll buy more shares at a lower price which will raise my dividend percentage. Plus, when I receive my dividend shares, the lower the stock price the more shares I’ll receive. See Current Positions
Successful trading,
Steve
The Options Coach
Hello Coach Steve.
I thought I would provide some additional information on MPW that I got from a paid service on Seeking Alpha. It was written on 02/23/23.
3) MPW – Covering its Dividend Even in a “Worst-Case” Scenario
Medical Properties Trust (MPW) reported NFFO (normalized FFO) of $1.82 and AFFO (adjusted FFO) of $1.42. Both are up about 4% year-over-year. The focus of the market is completely on guidance which came in at $1.50-$1.65 NFFO. While management did not provide AFFO guidance, they did disclose in the earnings call that at the low-end, $1.50 NFFO, AFFO would be approximately $1.29.
We’ve discussed previously how we consider AFFO a superior metric to measure dividend safety, as AFFO excludes “straight-lined” rent, which is non-cash. At $1.29, AFFO would cover the current dividend by 110%. The low-end of guidance is a “worst-case scenario” estimate from management, so it is very comforting that the dividend is covered even in the worst-case scenario.
Management spent a very significant portion of the earnings call discussing the moving parts in guidance. Let’s talk about what is impacting guidance. From the Q4 run-rate NFFO of $1.71/year, MPW expects positive impacts of +$0.05 from rent escalators and +$0.03 from already announced transactions, including the Steward transaction.
You might have read some articles speculating about rent reduction as the operations of Steward’s Utah properties are acquired by Common Spirit Health, an investment-grade rated company. The new lease is at a lower rate at 7.8% of MPW’s $1.2 billion cost basis and has a different rent escalator that will be at 3% flat, as opposed to Steward’s CPI-based escalator. The rent difference will be $6 million on a cash basis or $0.01/share per year. MPW also disclosed that a portion of that $6 million would be reallocated to other Steward properties under the master lease. In short, the negative impact is less than one penny compared to 2022 rent, a small price to get exposure to Steward below 20% of their portfolio.
The main culprit behind the reduced guidance has nothing to do with Steward. It is Prospect – a company that MPW has $1.5 billion in gross assets and accounts for 11.5% of MPWs revenues as of Q4 2022.
You might remember Prospect from last quarter’s earnings calls. MPW owns properties leased to Prospect in Connecticut, Pennsylvania, and California. MPW identified that Prospect’s Pennsylvania and Connecticut properties were underperforming. The Connecticut properties are under contract to be sold to Yale University for $457 million, expected to close mid-year.
The company is clearly struggling, failing to recover after COVID, and MPW is in negotiations with Prospect and several third parties, which could lead to partial or full rent deferral. Due to the uncertainty of negotiations, MPW has put Prospect on a cash basis.
The low end of management’s guidance $1.50, assumes that Prospect will pay no rent at all in 2023 and that no proceeds from any sales or repayment of loans will be received in 2023. In other words, the low end assumes Prospect is a big fat $0.
The high-end of guidance assumes that rent is paid on the Connecticut and California properties but that no rent is collected on the Philadelphia properties. It does not include any assumption for reinvesting the proceeds of the Connecticut sale.
Management said numerous times that they expect a full recovery of their initial investment and possibly even a gain. The $457 million from the sale of the Connecticut properties should come relatively quickly. The rest they expect to recover in 12-18 months, likely through the sale of Prospect’s managed care business and possibly through a restructuring of Prospect itself which is currently being negotiated among MPW, Prospect, and Prospect’s other creditors. Management stated that the finances of the Pennsylvania properties were improving in Q4, but that a few months does not make a trend.
We recently saw a similar situation with Pipeline Health, a much smaller tenant that filed bankruptcy last year due to an Illinois property that was underperforming. MPW’s lease was accepted and full rent was paid.
The bottom line is that being a landlord provides significant leverage in these situations. Any rent deferrals will come with hooks designed to maximize MPW’s recovery.
With guidance, management is being conservative. Assuming that they don’t receive a penny. They can’t receive less than $0 rent. Yet even with that outlook, MPW is still covering its dividend with a reasonable margin of safety. We’re very happy to collect our dividend while we wait for the situation to be resolved, and management will have the option to use the proceeds from Prospect’s properties to reduce leverage or reinvest depending on economic conditions.
Note there are some short activists that are heavily invested in shorting MPW. They have been publishing “reports” decrying the end of the world. These reports routinely use a grain of truth combined with outlandish assumptions, conspiracy theories, and scare tactics. Until these shorts close their positions, we can expect MPW’s price action to be much more volatile than you would otherwise expect. We are happy to collect our dividend while we wait for them to do so.
Best Regards,
Devan
Devan, thank you so much, very useful info. Much I knew and some I didn’t. Keep it coming. I will also be happy collecting dividends while things are a little volatile. I think there will be some nice buying opportunities.
Thanks again,
Steve