Medical Property Trust (MPW) owns real estate and hospital buildings in 9 countries primarily in the US and Europe. It has 435 properties, 42,000 licensed beds, and operated by 53 different operating tenants.
MPW allowed the unethical Steward Health Care to become its largest tenant, currently at 17% of MPW’s assets and 7.5% of revenue. Steward would purchase a hospital, sell the real estate to MPW with a long term lease and the pay a dividend to Steward’s owners. The remaining debt-laden Steward had difficulty making rent payments and recently filed for bankruptcy.
Now MPW is stuck awaiting bankruptcy auction results to determine if viable hospital operators will buy Steward’s assets and continue operating MPW hospitals or if MPW will kick Steward out and retenant.
Renting real estate to a bankrupt tenant results in deferred maintenance and asset write downs. MPW tumbled from a peak of $24 in 2021 to a low of $3 in January 2024 before stabilizing between $4 and $5 this summer.
There are 3 bull cases for MPW: Tangible book value after write downs. Normalized cashflow will support a high dividend. HIGH short interest that are trapped at a loss.
- Tangible book value is (Assets – Liabilities)/ Share Count. There are two tenants that are financially stressed. Steward is in bankruptcy and Prospect is paying on time, but has poor financials. The images below show MPW’s assets and debt.
If there are no further write downs, NAV is $11.25. If Steward and Prospect have a 50% write down, NAV is $8.02. If Steward and Prospect are completely written off ($3.87B), NAV is $4.89. That’s my high medium low scenario. Personally, I invest assuming the middle scenario. With a small discount to NAV, I think MDW trades at $7.50 next year. I’m generally conservative with my estimates. I anticipate when there is more clarity on the Steward bankruptcy proceedings, the stock will quickly move to $7.
MPW has recently proved there is value in the assets on the balance sheet. They raised $800 million on a 10 year 6.9% loan securing the loan at a valuation that implies the assets are worth 20% above book value. Then they sold 8 facilities for $160 million, 74% more than they paid. They used the proceeds to firm up their balance sheet.
2. Normalized Cash Flow. MPW plans to cut its dividend to no more than $0.08 per quarter, a 6.8% yield. They have the cash flow to support a $0.60 annual dividend, but are choosing to keep the balance sheet strong until the Steward bankruptcy is resolved. Steward is 17.5% of assets, but only 7.5% of revenue. Imagine the opportunity to kick a deadbeat tenant out of your rental property and replace with someone who pays on time. I anticipate after retenanting the cash flow will increase and exceed the ability to pay a $0.60 dividend. At a 7% yield, the dividend would support a $8.50 share price.
3. 218 million shares are sold short. There are only 600 million shares outstanding. It’s 37% of the float and 13 days to cover. As the price dropped to $3 in January, shares short increased 55 million to 205 million. At today’s short interest, I estimate there’s a minimum of 68 million shorts that have large losses. I suspect it’s much higher as there was high volume in January. Long term shorts covered at a profit and new shorts piled in. If news is released that firms up at least $8 tangible book value and cash flow to support a high dividend yield, I anticipate my fundamental price targets will be blown past as technicals take over. A short covering rally will be swift and severe.