Very bad news for Medical Properties stock as outlook darkens

Medical Properties Trust (MPW) stock price resumed its downward trend on Thursday after the company published its quarterly results and slashed its dividend. It was down by over 4%, bringing the year-to-date losses to almost 12%. 

MPW earnings

Medical Properties Trust, the biggest hospital landlord in the US, has been under intense pressure in the past few years. As a result, its stock has tumbled by more than 76% from its highest point in 2022, erasing billions of dollars in value. 

Most of its challenge was because of two key clients: Steward Health and Prospect, which struggled to pay their debt. Steward, which Medical Properties Trust invested in, filed for bankruptcy earlier this year. 

As a result, the company’s finances have not been good, as evidenced by its numbers on Thursday. Its total revenue dropped from over $337 million in the second quarter of 2023 to over $266 million.

Rent billed during the quarter dropped to $183 million while its straight-line rent rose to over $38 million. 

Most importantly, its total net loss jumped to more than $320 million during the quarter, a big increase from the $42 million it made a year earlier.

For the first half of the year, the company’s revenue dropped from over $687 million in 2023 to $537 million this year while the net loss came in at $1.1 billion.

Medical Properties Trust has worked hard to preserve its cash and improve its business. It has sold off some of its properties to raise cash. Most recently, it sold five of its facilities to Prime Healthcare in a $350 million deal and completed a $800 million secured financing of 27 UK hospitals. 

In July, MPW sold eight Arizona facilities for $180 million and a seven freestandinf emergency department facility for $160 million. These asset sales have helped the company pay back some of its debt. It has paid $1.5 billion of all its maturities for this year. 

Challenges remain

Medical Properties Trust has done a lot of work to turn around its business hut it faces substantial risks ahead. In the first place, the company has a mountain of debt. Its most recent results shows that it has over $9.3 billion in debt, which is substantial for a company valued at $2.75 billon. 

The company faces some substantial maturities in the coming years. According to its annual report, it has some maturities due in 2025 worth $1.4 billion followed by $3.2 billion in the following. The next top maturity will be $1.6 billion in 2027.

Fortunately, MPT has over $16.2 billion in assets, made up of general acute facilities, behavioural health facilities, and post-acute facilities. 

Therefore, the company will likely come under pressure to make these payments, especially if business conditions worsen. 

For investors, there is a risk that they will receive less dividend payouts. Indeed, in a statement, the management decided to limit the cash part of its dividend to no more than $0.08 per share. 

For a company like Medical Properties Trust, cutting a dividend is a big issue since many of its investors are only interested in its dividend payouts. I believe that another dividend cut is possible.

Still, there are some potential catalysts that will push its stock higher in the long term. For one, while Steward’s bankruptcy led to a writedown of its equity investment, it means that Steward will likely be sold to a financially stable operator. 

Analysts are relatively pessimistic about the company. Those at BNP Paribas recently downgraded it from outperform to neutral while those at RBC Capital slashed from outperform to sector perform. 

Medical Properties stock price analysis

MPW chart by TradingView

The weekly chart shows that the MPW share price peaked at $18.7 in January 2022. At the time, the company was firing on all cylinders as the Covid-19 pandemic ended and as its dividend payouts remained steady. 

All these gains were undone when the problems with its Prospect and Steward emerged. These challenges accelerated in January 2023 when Viceroy Research, a short seller company, published a lengthy report predicting the company had major challenges and that it would slash its dividends. In a recent note, Viceroy said:

“It’s clear that MPW’s entire book must be impairment tested and is grossly overvalued. We believe the only reason the company appears to be refusing to offer rent concessions or discounts is that it would trigger a disastrous revaluation.”

On the weekly chart, the stock has formed a descending channel, which is shown in green. It has also formed a series of lower lows and lower highs. Most importantly, the upper sides of that level have been supported by the 50-week Exponential Moving Average (EMA).

The stock has also formed a bearish flag pattern, which is shown in black. In most periods, this is one of the most bearish patterns. Therefore, the stock will likely have a bearish breakout as sellers target the next key support at $2.77, its lowest level in January. On the flip side, a move above the key resistance at $5.20 will invalidate the bearish view.