Medical Properties Trust: 5.5% return, oversold and undervalued (NYSE: MPW)

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With America’s aging comes rising health care costs, which have risen further in 2020 due to the pandemic. U.S. hospital spending grew 6.4% in 2020, reaching $1.3 trillion, while physician and clinical services spending was $809.5 billion in 2020, up 5 .4%. National personal health care spending was $4.1 trillion. (CMS.gov website)

Medical Properties Trust (MPW) is a REIT established in 2003 to acquire and develop net-lease hospital facilities. Since its founding in 2003 in Birmingham, Alabama, the company has become the world’s second-largest non-governmental owner of hospitals, with 438 properties and 46,000 licensed beds in 32 US states in its $22.3 billion portfolio. dollars.

MPW mainly works with long-term net leases of 10 to 20 years, 95% of which are head leases, which are in cross default. Its leases have annual inflation-based or fixed rent escalations, which protects it from inflation.

In 2013, MPW acquired 11 properties in Germany from RHM Klinik for $245 million, representing the first hospital transaction outside the United States by a US REIT.

The United States represents 60% of MPW’s assets, with 20% in the United Kingdom, 5.8% in Switzerland, 5.6% in Germany, 4.7% in Australia and 1.2% in Spain being its main regional exhibitions.

Texas is MPW’s largest exposure in the United States, with 9.7%, followed by California, Florida, Utah and Massachusetts:

Pro forma MPW gross assets by country

MPW website

us map

MPW website

Hospitals make up the lion’s share of MPW’s portfolio, accounting for approximately 93% of it, with general acute care hospitals at 72.5%, followed by behavioral health facilities at 11.5%, and hospitals inpatient rehabilitation at 9.2%:

Types of MPW Assets

MPW website

Performance:

MPW iPod in 2005 at $10.50/share. Since hitting an all-time high of over $24 in January 2022, it has nosedived, falling back to ~$20.50. It looks very oversold on its Slow Stochastic chart:

long term MPW chart

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MPW has underperformed the hospital stocks sector, the broader healthcare sector and the S&P 500 over the past month, quarter, year and so far in 2022:

MPW Performance Chart

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Earnings:

Although its price/share performance was very poor, you can’t blame it on MPW’s earnings. The fourth quarter of 2021 saw continued strong earnings performance, with double-digit growth across the board. The number of shares increased by 11.25% in 2021.

MPW results ttm 2021

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Orientation 2022:

“Based on year-to-date transactions, as well as an assumed pro forma capital structure for the completion of the partnership with Macquarie and other additional debt or equity transactions (resulting in a ratio net debt to EBITDA of approximately 6.0 times), MPT expects an annual rate of $1.16 to $1.20 per diluted share for net income and $1.81 to $1.85 per diluted share for NFFO.” (MPW Q4 ’21 version)

The range of $1.81 to $1.85 for 2022 Normalized Operating Funds, NFFO, represents modest growth of ~3 to ~6% from 2021.

New developments:

MPW acquired in early December the 50% stake previously held by its joint venture partner in an acute general hospital operated by IMED Hospitales in Valencia, Spain, for an additional investment of approximately 46 million euros.

The previously announced $135 million sale of Capital Medical Center in Olympia, WA, along with $46 million of other property disposals, was completed in December, for a total real estate gain of nearly $44 million.

MPW has begun construction of a replacement hospital for Steward Health Care System’s (“Steward”) Wadley Regional Medical Center in Texarkana, Texas, for a total planned investment of approximately $169 million in the fourth quarter.

In February, management agreed to sell a 99-bed acute care general hospital in Dodge City, Kansas, for $63 million.

MPW’s previously announced partnership transaction with Macquarie Infrastructure Partners V involving eight Steward-operated hospitals in Massachusetts is expected to close by the end of the first quarter of 2022.

The previously announced lease agreement with HCA Healthcare for five Utah hospitals currently operated by Steward is expected to close in the first half of 2022.

Dividends:

Although MPW’s dividend yield isn’t as high as some of the other dividend-paying stocks we cover in our articles, MPW has an attractive yield of 5.47%, which is above the average for its industry. Its five-year dividend growth rate is a modest 3.43%. It pays $0.28/quarter and is expected to be ex-dividend on 3/17/22.

MPW Dividend Schedule

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MPW’s AFFO dividend payout ratio remained stable in 2021, ending the year at 78.53%:

MPW dividend coverage

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Taxes:

~71% of MPW’s distributions in 2021 are considered ordinary income (further referred to as Section 199A dividends), with ~17% as return of capital and 15% as capital gains.

2021 MPW Dividend Taxes

MPW website

Estimates:

MPW looks undervalued relative to industry averages for hospital stocks on several bases, including P/FFO, where its valuation of 11.91X is 28% below the industry average. Its Price/Book is 24% lower than the average, and its EV/EBITDA of 8.81X is less than half the industry average. Meanwhile, its dividend yield of 5.47% is above the industry average of 5.02%.

MPW Valuations

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Course Goals and Analyst Upgrades:

Credit Suisse initiated a hedge on MPW on February 1, 2022, with an outperformance rating. MPW has been added to CS’s “Top of the Crop” list, which includes “the most compelling outperformance ideas where CS analysts’ estimates and price targets are above consensus and the consensus is not too bullish”.

Market analysts are much more positive about MPW than Mr. Market. At $20.49, MPW is about 11% below analysts’ low price target of $23.00 and 18.5% below consensus price target of $25.15 .

MPW Price Targets

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Profitability and leverage:

MPW’s net debt increased by 27% in 2021 as management took on more debt to help fund asset growth – total assets increased by 22% as net investment in real estate assets increased by 21.5%. MPW made a more than $1 billion investment in the UK’s leading behavioral health provider, The Priory Group, in early 2021. It also made a $950 million acquisition of 18 hospitals in additional inpatient behavioral health, as well as a stake in the operating entity of Springstone LLC in October 2021, and a $900 million acquisition of five general acute care hospitals in South Florida from Tenet Healthcare.

MPW’s ROA and ROE both increased in 2021 and continued to exceed hospital industry averages, while the EBITDA margin was lower, at 91.90%, but still well above average.

Net Debt/EBITDA fell from 5.81X to 7.95X in 2021. However, leverage is expected to decline a bit upon closing of the MacQuarie deal by the end of Q1 2022, which is expected report a net MPW of approximately $1.3 billion.

ROE MPW

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Debt:

There are two maturities coming in 2022 – an interim loan of $650m and $579m in 4% Remarks. Neverthelessthe $1.3 billion agreement with Macquarie will repay its outstanding interim credit facilities, with immediately available liquidity exceeding $1 billion in cash and revolving resources.

MPW has wide access to capital markets – it launched an unsecured €500 million note offering with a coupon of less than 1% in 2021.

MPW Debt Scale

MPW website

Parting Thoughts:

Since its IPO, MPW’s price/share has ~doubled, with a $10,000 investment growing more than 6x, due to dividends. Like other industries, healthcare comes and goes, but is anyone here getting any younger?

We view MPW as a long-term buy based on its low valuations, strong positioning within its industry, attractive yield and experienced management.

Start of total return MPW

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All charts are provided by Hidden Dividend Stocks Plus unless otherwise stated.

About Meredith Campagna

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