The REIT should soon be in a position where it can start rebuilding its dividend.
The past few years have been rough for Medical Properties Trust (NYSE: MPW) and its investors. The hospital-focused real estate investment trust (REIT) has battled tenant issues and higher interest rates. These headwinds forced it to slash its dividend twice.
However, the company appears to have finally turned the page on its problems, and I predict that the REIT will start increasing its dividend by the end of this year. That would add to its already attractive 7% yield.
Medical Properties Trust has had two top tenants declare bankruptcy in the past two years. Their financial issues affected their ability to pay rent, causing cash flow issues for the REIT. That came when interest rates surged, making it more difficult for the hospital landlord to refinance debt as it matured.
The healthcare REIT took several actions to help it get through this rough patch. In addition to cutting its dividend two times, it sold hospitals to repay debt. These steps helped take the pressure off its balance sheet. That has enabled the REIT to refinance some of its other debt, giving it more breathing room. Last May, it closed an $800 million 10-year loan secured by several of its U.K. hospital properties. Meanwhile, it completed a $2.5 billion senior secured notes offering this year, enabling it to repay all its maturing debt through 2026.
Medical Properties Trust has also worked through its largest tenant bankruptcy, which ultimately enabled it to regain control over many of the properties formerly leased to that tenant. It has since found new operators for most of those properties.
Property sales and tenant bankruptcies have caused Medical Properties Trust's rental income to decline over the past few years. However, with its balance sheet repositioning complete and its largest tenant bankruptcy addressed, its rental income has stabilized and should begin to rise.
During the first quarter, rent commenced on most of the properties previously leased to its bankrupt former top tenant. The company collected $4 million in the period. The rental rates on these properties will slowly escalate before reaching the fully stabilized rate at the end of next year. By the fourth quarter of this year, it expects to receive $23 million, which is a $90 million annualized level. Rents should grow to the $160 million stabilized annualized rate in October 2026.