This Ultra-High-Yielding Dividend Stock Solved a Key Pain Point

Medical Properties Trust (MPW) has battled a barrage of issues. Financially strapped tenants have struggled to pay rent while rising interest rates have increased its borrowing costs. Those two factors have made it difficult to refinance existing debt as it matures.

However, the healthcare REIT has been working with its tenants to address their issues. It has also sold some hospital properties to repay debt and boost liquidity. Because of that, it’s starting to get easier to refinance maturing debt. This progress is finally beginning to lift the weight from its stock price, which is still down nearly 80% from its peak in 2022. That sell-off is why the REIT currently yields more than 10% even though it cut its dividend last year.

On a selling spree to repay debt

Medical Properties Trust has sold several hospital properties over the past couple of years to repay maturing debt. It has paid off about $1.6 billion of debt over the past year. The REIT couldn’t refinance that debt due to soaring interest rates and the financial issues facing some of its top tenants.

However, it has more debt maturing, including roughly a $130 million U.K. term loan and a $300 million Australian term loan later this year. The REIT has been working to get ahead of these debt maturities by selling additional assets.

Medical Properties Trust initially targeted to generate $2 billion of additional liquidity this year. It’s already 80% of the way there, raising $1.6 billion through asset sales, joint ventures, and other means. The biggest deal was a joint venture to sell a 75% interest in hospitals in Utah, which raised $1.1 billion.

The company plans to use this money to reduce debt, including repaying the $300 million Australian term loan and some borrowings under its revolving credit facility. The REIT’s progress to date leads it to believe it will exceed its initial target, which will give it lots of liquidity heading into 2025.

Getting some more breathing room

Medical Properties Trust has more debt maturing next year. It has an even larger U.K. term loan ($883.6 million) and Euro-denominated notes (about $539.5 million). It has been exploring various ways to address these debt maturities. While its progress in selling assets should give it the liquidity to repay this debt as it matures, the REIT is exploring other alternatives.

It recently closed on an alternative solution. Medical Properties Trust secured an $800 million, 10-year loan at a 6.9% fixed interest rate backed by 27 of its 36 U.K. hospital properties. That refinancing with a group of financial institutions will significantly extend its debt maturity. That will solve a key pain point by giving the REIT more financial flexibility. It can repay its 2024 U.K. term loan, a portion of the U.K. term loan maturing next year, and some of its credit facility.

With most of its near-term debt maturities addressed, the REIT can continue focusing on paying down its revolving credit facility, which matures in 2026. The REIT had borrowed $1.6 billion against that $1.8 billion facility at the end of the first quarter. However, that didn’t include repayments after closing assets sales in April. It has since amended that facility and reduced its borrowing base to $1.4 billion. Continuing to pay down that facility would reduce its interest expenses and make it easier to extend its maturity and at better terms. That would give it even more breathing room to address future debt maturities.

Making progress one step at a time

Medical Properties Trust has had to battle tenant issues and tight credit market conditions, which have made refinancing its existing debt more challenging. These issues forced the company to sell hospitals to repay debt as it matures. However, with its financial profile improving, the REIT has been able to refinance some of its debt at a very attractive term, which will give it more financial flexibility. While it has more work to do, its financial situation is improving with each step, reducing the risk that it will need to cut its dividend again.