This Troubled High-Yield Dividend Stock Could be Due for a Positive Turnaround

This Troubled High-Yield Dividend Stock Could be Due for a Positive Turnaround

Medical Properties Trust (NYSE:MPW) has fallen on hard times in recent years. Shares of the hospital-focused real estate investment trust (REIT) have lost more than 80% of their value since peaking in early 2022. The decline has pushed its dividend yield into double digits. A significant factor was the financial problems of its two main tenants, who were unable to make full payment of their rent.

THE Healthcare REIT might be about to get some relief from one of its tenants. The main tenant, Steward Health Care, has agreed to sell its managed care business to a subsidiary of UnitedHealth (NYSE:UNH). Here’s a look at the proposed transaction and what else needs to happen to put the REIT on the path to recovery.

A potential catalyst for reimbursement

Steward Health Care has agreed to sell its managed care business, Stewardship Health, to Collaborative Care Holdings, a subsidiary of UnitedHealth’s Optum unit, according to multiple media outlets. This company employs primary care physicians and other clinicians in nine states, including Massachusetts. The sale, for an undisclosed amount, would allow the company to shore up its financial position so it can repay some of what it owes to Medical Properties Trust and other creditors. Reports also indicate that the company wants to sell some of its hospital operations in Massachusetts.

A sale of Stewardship would benefit Medical Properties Trust. The REIT’s management team noted on its fourth quarter call that the monetization of Stewardship was one of two catalysts that would allow Steward to resume paying full rent by the middle of this year. Although the REIT does not have a direct financial stake in that entity, it funded a $60 million bridge loan to Steward last year, which gave it a second lien on Stewardship’s business. This entitles him to the proceeds that Steward will receive from the sale of this business. The Medical Properties Trust management team believed that the sale could enable Steward to repay all of its outstanding obligations (including deferred rent) that it currently owes to the company.

However, there is no guarantee that the transaction will be completed or that it will be of sufficient value to cover what Steward owns in Medical Properties Trust. The proposed transaction has already received pushback from Massachusetts Senators Elizabeth Warren and Ed Markey, who do not believe the sale will benefit patients or health care workers. Additionally, it would give Optum an even greater market share, given that it already employs 10% of the country’s doctors. If Steward can’t sell the business to UnitedHealth, he may have to accept a lower price to sell it to another buyer, which may not be enough to cover his obligations to Medical Properties Trust.

Pursue multiple options

The sale of Stewardship is one of several avenues that Medical Properties and its major tenants are pursuing to jointly improve their financial profiles. The REIT announced earlier this year that it had accelerated its divestment strategy, signing agreements to provide more than $480 million in liquidity. It was part of a plan to raise at least $2 billion in additional cash this year. The sales will give the company the cash needed to repay its debt as it comes due over the next two years.

This figure does not include the sale of three Connecticut hospitals currently leased to Prospect Medical Holdings that it has agreed to sell to Yale New Haven in 2022. The sale, which would include Yale’s acquisition of Prospect’s hospital operations, n has not yet received regulatory approval. The REIT would receive $457 million from the sale, including $355 million in cash and $103 million in equity in Prospect’s managed care business. Prospect is also working to monetize its managed care business, which would allow Medical Properties Trust to recoup the value of some of its properties and deferred rent.

Additionally, the REIT is working with Steward to sell or re-lease some of the hospitals it leases. The sale of the facilities would provide Medical Properties Trust with additional liquidity, while a change in tenant would allow the properties to resume their contribution to the REIT’s profits.

Trying to get on the road to recovery

Selling Stewardship would allow Steward to consolidate its financial position so it can catch up on its bills, including what it owes to Medical Properties Trust. That’s why the potential deal with UnitedHealth could be a game-changer for both companies. However, this is not the only option the REIT is pursuing as it restores the health of its portfolio and financial profile. Although it still has a long way to go, the REIT appears to be heading in the right direction.

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Matt DiLallo holds positions within Medical Properties Trust. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.

This struggling ultra-high-yielding dividend stock could soon get some much-needed relief was originally published by The Motley Fool

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