Final August, Medical Properties Belief (NYSE: MPW) adjusted its quarterly dividend. It minimize its cost from $0.29 to $0.15 per share every quarter to raised align it with its money stream profile. The hospital-focused actual property funding belief (REIT) wanted to reset its dividend due to headwinds from tenant points and better rates of interest, which put strain on its stability sheet.
Regardless of that deep minimize, the healthcare REIT presently provides a dividend yield above 15%. That means buyers imagine one other one is forthcoming. The healthcare REIT’s administration workforce mentioned that chance on its current fourth-quarter convention name.
All the time evaluating
Medical Properties Belief’s CEO, Ed Aldag, introduced up the corporate’s dividend on the decision. He said:
The board will meet later this quarter to debate the dividend. The board’s coverage on the dividend stays unchanged. As has at all times been the case, the board will evaluation all elements of the corporate, together with gadgets corresponding to FFO payout ratios, REIT necessities, and liquidity.
The corporate’s board routinely meets to debate its dividend based mostly on its present coverage. Whereas that coverage hasn’t modified, that does not imply the payout stage will not change.
When Medical Properties Belief reset its dividend final 12 months, it initially focused a dividend payout ratio of lower than 60% of its adjusted funds from operations (FFO). That decrease payout ratio would allow the REIT to retain more money stream to repay debt.
Quite a bit has occurred since that point. The most important change is that its prime tenant, Steward Well being Care, does not have the cash to make full rental funds. That is an enormous hit. The corporate estimates that the total removing of Steward’s hire would have elevated its dividend payout ratio from 50% within the third quarter to the excessive 70% vary. On a constructive word, Steward is paying partial hire (25% in the course of the fourth quarter) and may return to 100% by June. Along with its points with Steward, the corporate has additionally agreed to promote extra property, which is able to impression its money stream.
What might trigger one other dividend minimize?
These adjustments led an analyst on the decision to ask the place the dividend was going and whether or not a suspension could be helpful. Aldag answered: “The dividend shouldn’t be depending on Steward’s hire. It is extra depending on our capacity to shut a few of these liquidity transactions.”
The REIT is focusing on to generate $2 billion in incremental liquidity this 12 months by promoting property. It has gotten off to a robust begin by securing over $480 million in liquidity. In January, it offered its syndicated time period mortgage funding in MEDIAN for $115 million. It adopted that up by agreeing to promote 5 hospitals to Prime Healthcare for $350 million in February. It additionally offered its remaining noncontrolling curiosity in a tenant and two under-leased hospitals in South Carolina for $17 million this month.
Aldag said on the decision, “We’re actively engaged on a number of further asset sale alternatives, in addition to different transactions that we imagine will validate underwritten asset values.” It has already acquired robust curiosity within the properties it is trying to promote. Among the many alternatives it is engaged on is promoting or retenanting properties presently leased to Steward. These gross sales will increase the REIT’s liquidity so it will probably “fulfill our debt maturities for a number of years into the long run,” said Aldag on the decision. It has two maturities this 12 months ($300 million in Could and $130 million in December). In the meantime, it has about $900 million in financial institution debt and $550 million of unsecured notes maturing subsequent 12 months.
If the REIT can execute its asset sale technique, it might keep its present dividend stage, assuming Steward does not cease paying hire. Nonetheless, although the REIT can keep its dividend stage, that does not imply it is going to or ought to. Suspending its cost would allow it to retain more money to boost liquidity and doubtlessly put money into new properties leased to financially stronger tenants. Constructing again its stability sheet and portfolio would enable the REIT to pay a extra sustainable and rising dividend sooner or later.
One other minimize would not be a shock
Medical Properties Belief routinely evaluates its dividend stage based mostly on its money stream and liquidity. Whereas its money stream has been beneath strain due to points with its prime tenant, it has made good progress in boosting its liquidity. So it does not seem that the REIT might want to minimize its dividend so long as it continues executing its liquidity technique. Nonetheless, given its excessive yield and want for liquidity, reducing the payout once more would nonetheless make sense. That is why it would not be stunning to see one other discount or perhaps a suspension because the REIT works by way of its points.
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Matt DiLallo has positions in Medical Properties Belief. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.
This Extremely-Excessive-Yielding Dividend Might Be on the Chopping Block Once more was initially printed by The Motley Idiot
