Medical Properties Trust Crashes as Collections Woes Continue

Medical Properties Trust, Inc. (MPT) stock experienced a sharp decline of 30.0% and is currently trading at $3.5 per share, following the company's announcement regarding its efforts to recover uncollected rents and outstanding loan obligations from Steward Health Care System.

MPT revealed that despite Steward obtaining additional working capital financing and selling its non-core laboratory business in the fourth quarter of 2023, it has faced liquidity challenges due to significant changes to vendors' payment terms. Consequently, Steward has continued to make partial monthly rent payments, resulting in approximately $50 million in unpaid rent under its consolidated master lease with MPT as of December 31, 2023.

To address this issue, MPT has engaged Alvarez & Marsal Securities, LLC as its financial advisor and legal advisors to explore options for recovering uncollected rent and outstanding loans. The company's management team and advisors have collaborated with Steward to develop an action plan designed to strengthen Steward's liquidity, restore its balance sheet, optimize MPT's ability to recover unpaid rent, and ultimately reduce MPT's exposure to Steward.

As part of the plan, Steward is pursuing strategic transactions, including the potential sale or re-tenanting of certain hospital operations and the divestiture of non-core operations. Steward also intends to seek a third-party capital partner for its managed care business, with net proceeds intended to repay all outstanding obligations to MPT.

To support Steward's strategic plan, MPT has agreed to fund a new $60 million bridge loan secured by its existing collateral and new second liens on Steward's managed care business. Additionally, a portion of MPT's existing approximately $215 million of transaction-specific and working capital loans to Steward will now be secured by the same second liens on the managed care platform. MPT has also consented to the deferral of unpaid rent under the consolidated master lease as of December 31, 2023, as well as a limited and tapering deferral of approximately $55 million of 2024 rents.

However, the company cautioned that there can be no assurance that Steward will successfully execute its plans or that MPT will recover all of its deferred rent and loans outstanding to Steward. Consequently, MPT expects to record a non-cash charge in the fourth quarter of 2023 to write off consolidated straight-line rent receivables of approximately $225 million.

Despite the challenges posed by Steward, MPT highlighted the robust revenue generated by its non-Steward portfolio, emphasizing its continued ability to generate revenue.

Medical Properties Trust, Inc. is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities. As of September 30, 2023, the company owned 441 facilities and approximately 44,000 licensed beds. Since then, the company has sold four facilities and now owns approximately 43,000 licensed beds in nine countries across three continents.

The company's full 8-K submission is available here.

2018 2019 2020 2021 2022 2023
Revenue (MM) $785 $854 $1,249 $1,545 $1,543 $1,375
Revenue Growth n/a 8.88% 46.25% 23.65% -0.12% -10.9%
Operating Margins 130% 44% 37% 47% 62% -11%
Net Margins 130% 44% 35% 42% 59% -2%
Net Income (MM) $1,017 $375 $431 $656 $903 -$33
Net Interest Expense (MM) $223 $238 $329 $367 $359 $401
Depreciation & Amort. (MM) $133 $152 $264 $321 $333 $608
Earnings Per Share $2.76 $0.87 $529239 $588817 $1.5 -$0.07
Diluted Shares (MM) 368 495 530 590 599 599
Free Cash Flow (MM) $449 $494 $618 $812 $739 $551
Total Debt (MM) $4,037 $7,024 $8,865 $11,283 $10,268 $10,157
Net Debt / EBITDA 2.79 10.57 11.43 10.29 7.76 21.56

Medical Properties Trust has growing revenues and no capital expenditures, decent operating margins with a negative growth trend, and irregular cash flows. However, the firm has a highly leveraged balance sheet. Finally, we note that Medical Properties Trust has positive expected EPS Growth.

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