The Top 5 REITs According to Experts

Inflation doesn’t have to be a bad thing.

When prices go up, so do rents.

That can make Real Estate Investment Trust (REIT) dividends even juicier.

According to our TrackStar data, one particular ticker is receiving a lot of attention from financial pros: Medical Properties Trust (MPW).

The company has come under serious scrutiny as its largest tenant, Steward Health Care System, faces serious financial problems.

Its 13.5% dividend looks pretty juicy. But is it sustainable?

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Medical Properties Trust’s Business

Medical Properties Trust has been quietly amassing a global empire, emerging as the world’s largest owner of hospital real estate.

As of December 31, 2023, the company owned a staggering 439 facilities in nine countries and approximately 43,000 licensed beds. 

Source: MPW Investor Relations

To better understand MPT’s business, it’s helpful to examine the company’s two primary portfolio segments:

• Stabilized / Accrual Method Portfolio (60% of total assets) – This slice of the business includes properties in Europe and the Americas, where operators are enjoying a trifecta of improving occupancy rates, growing reimbursement revenue, and normalizing labor costs.
• Cash Basis Portfolio (40% of total assets) – Here, you’ll find investments in Steward Health Care System, Prospect Medical Holdings, and a handful of smaller operators. As of January 1, 2024, MPT will only recognize rent and interest from these investments when cash is actually received.

While MPT reported a net loss of ($1.11) per share in the fourth quarter of 2023, the company’s Normalized Funds from Operations (NFFO) came in at a respectable $0.36 per share. 

February 2024 saw MPT making moves, inking a deal to sell five hospitals to Prime Healthcare at a 7.4% economic cap rate for $350 million. 

The company also bid farewell to its remaining noncontrolling interest in a tenant and two under-leased South Carolina hospitals, netting combined proceeds of roughly $17 million.

Looking ahead, MPT is laser-focused on accelerating its capital allocation strategy in 2024, targeting transactions expected to generate no less than $2 billion in additional liquidity. 

Early signs are promising, with the Prime Healthcare agreement and the January 2024 sale of MPT’s syndicated term loan investment in MEDIAN, parent company of Priory Group, for a tidy sum of $115 million.

Financials

Source: Stock Analysis

By law, REITs are required to give at least 90% of their taxable income to shareholders as dividends, creating lumpy but heavy payouts.

In 2023, revenues slid as MPW’s largest tenant, Steward Health Care System, faced severe financial and operational difficulties.

To manage the situation, MPW plans to reposition assets, transition some hospitals to new tenants, and potentially sell Steward’s managed care business.

However, it’s unclear whether the current dividend is sustainable. But, it is notably reduced from prior payouts.

Valuation

Source: Seeking Alpha

MPW’s cheap valuation reflects the risks associated with its current situation.

Other REITs like American Tower (AMT) trade at higher multiples given their stability.

Even REITs like Realty Income (O), with exposure to commercial real estate, aren’t priced as cheaply as MPW.

Growth

Source: Seeking Alpha

The negative growth for MPW stands in stark contrast to its peers and the specific issues it faces.

American Tower, which owns cell towers, is the lowest growth REIT on this list. And even they manage to pull in positive numbers year over year.

But to be fair, MPW isn’t expecting much more downside on the revenue front.

Profitability

Source: Seeking Alpha

MPW’s troubles make its margins somewhat meaningless.

What is interesting is the $505 million in cash from operations is the smallest on this list.

Our Opinion 4/10

While Medical Properties Trust’s dividend is probably not going much lower, there is too much uncertainty around the company to recommend it.

Once they put the Steward Healthcare problems behind them, then we’d reconsider.

But for now, even a 13.5% dividend isn’t enough to attract us.

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