What is Medical Properties Trust (MPW)?
Medical Properties Trust is a REIT (Real Estate Investment Trust) that owns over 400 properties. Most of these properties are based in the United States; however, it does own properties in Europe and Australia. One of their most recent purchases were hospitals located in Finland. Steward Health Care is one of it’s biggest tenants, which we will get into the importance of later.
DISCLAIMER: I do not own this stock; however, I did at one point in the past. I believe I held it for two years and got out with a pretty decent profit. The year escapes me, but I think I sold out in 2019.
I originally thought that the stock was starting to look undervalued. However, the deeper I dive, the more I feel it’s an avoid, at least until more information comes to light.
Why I don’t like Medical Properties Trust stock
- Consistent decrease in Annual Dividend Annual Growth rate.
- Major Tenant susceptible to non-payment
- Declining Hospital Margins
- Hospital Labor market forever changed?
- High Debt levels vs. Cash on Hand
- Decreasing Revenue Growth
Medical Properties Trust Dividend Growth
One of the main reasons this stock is an avoid for me is the annual dividend growth has consistently declined since 2013. Here are the numbers. Granted, some of these are off by a few months due to inconsistent months where MPW raised their dividend (Most of the time MPW increased its dividend in March, but there are a few years they increased in June or September). Regardless, the table still yields the complete picture:
|Years||Annual Dividend Growth Rate|
As you can see, this isn’t a trend you want. The annual dividend increases have been dropping for TEN YEARS.
At some point, you wonder, five years from now, is my dividend only going to grow at 2%?
I think MPW is in a game of appeasing shareholders, so they raise the dividend a cent each year to keep them happy. Yet, is this something shareholders should be pleased with?
Your dividend raises aren’t keeping up with inflation, the share price is down over 30% YTD, and no stimulus for this to change.
It’s worth repeating again-Dividend Investors need to be careful when they rush into high yield stocks. Think about the future and not the present only. There may be a good reason the dividend yield is high. Is there ANYTHING in the table above that makes you think MPW’s dividend is headed in the right direction?
Current Challenges to Hospitals
In the recent Kaufman Hall report, they reported hospitals have now had FOUR straight months of negative median margins. Source:
What’s the cause of the negative margins?
- Patient volumes are down even though COVID cases ticked up a bit.
- The amount of time patients spent in hospitals went down.
- Both surgeries and emergency room visits were down from March.
- Expenses-supply chain and labor shortages
Due to the drop in volume and the decrease in patient time, this has caused revenues to fall. Expenses are causing margins to fall.
Another thing the report brings to our attention is that people are going to urgent care centers or choosing telemedicine instead of heading to the local hospital for everything.
As it should be, unless it’s serious!
Hospital Labor Market
Another reason I don’t want to invest in the hospital business is due to a changing labor market. The hospital industry is dealing with a serious labor shortage. I think the pandemic permanently changed the landscape for the hospital job market. Many hospitals are having trouble finding LOCAL talent to fill roles.
Now you have traveling nurses, doctors, etc. These people are commanding more money. Some of the local talent is going elsewhere and not accepting the lower pay. I don’t see this changing; I think hospitals will continue to have trouble attracting employees and in order to do so will have to fork out more money. Leading to lower margins.
Issues with Steward
The hit articles I’ve seen against MPW use Steward’s internal financial issues as their main ammo against MPW. The most notable recent article was Steward Help from MPW
This is where the insiders are at an advantage; they are in the know. You and I can’t be because Steward is a private entity, it’s not required to publish financial documents for the public.
So, you are getting things after the fact, some of which may be hearsay. On the other hand, this stuff is less important to me because I don’t make it this far. However, let’s entertain it for a bit:
In 2020, Steward was 30% of MPW’s revenues. So, there were rightful concerns about MPW’s revenues being smacked if something happened to Steward. It doesn’t take much internet searching to see Steward has a history of racking up losses. In 2020 Steward lost more than $400 million. This is only one of the many years of losses: After doing some digging, I was honestly shocked by the numbers.
From the article above, you can see the major concern is the making of deals between MPW and Steward. It smells of a backdoor bailout.
A quick summary: Steward sold some of the properties to MPW, who looks like it overpaid for them on purpose, and then leased those properties back to Steward. Smelling a bit fishy for you?
I can’t say that this makes me want to run out and buy MPW either. I don’t have a desire to get into it more because, as I said, there doesn’t exist a way to 100% know the truth and details. Just keep it at the back of your mind.
Most REITs are packed to the gills with debt, and MPW is no exception. Currently they have a long-term debt of 10.12B, but only .25B of cash on hand.
From Macrotrends.net. The debt to equity level is 1.13, it HAS been higher in the past, for example, back in 2015. They got through it then, maybe they will get through it now. I just think the headwinds are different now. The sooner they start knocking out some of this debt, the better off they are going to be. I’d have to see the cash on hand get built back up and lower debt levels to want to buy back in.
Lastly, I’d feel better about this debt business IF the revenues weren’t decreasing. Sure, they are positive YOY, but as with the dividend growth pay attention to the TREND. You see the peak in 2020 and ever since then revenue growth has slowed.
In closing, I just want to reiterate that MPW is NOT a buy for me any more. I won’t say I never have plans to purchase it, but I’d need to see more positive things. Right now I think there exists some headwinds for the hospital industry that didn’t exist in 2015 when their debt levels were higher. As always-do your own research when making a decision about buying stocks.
Please feel free to leave a comment. I’d love to hear from you.