Shares of Medical Properties Trust (NYSE: MPW) have defied the market downdraft this year. The real estate investment trust (REIT) has rallied about 35%, significantly outperforming the roughly 10% decline in the S&P 500. That’s a welcome turn for investors, given the stock’s struggles in recent years.
Even with that big rally, shares of the healthcare REIT still offer a compelling dividend yield of more than 6%. Here’s a look at whether it still has more upside ahead.
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The past few years have been very challenging for Medical Properties Trust. The REIT has battled tenant issues and higher interest rates. Those headwinds made it difficult for the company to refinance debt as it matured.
Medical Properties Trust has worked hard to address its tenant and balance sheet issues. It has sold several properties, which provided it with cash to repay debt as it matured. Meanwhile, even though two of its top tenants have filed for bankruptcy protection over the past year, the REIT has been working through those events to preserve the value of its real estate. It regained control of most of its real estate from one tenant last year, enabling it to sign leases with five new financially stronger operators.
Those new tenants have started paying rent this year. The rental rate will slowly escalate over the next two years, reaching the fully stabilized rate at the end of 2026 at about 95% of what that former tenant was paying on the properties. Meanwhile, its improving financial situation enabled it to capitalize on lower interest rates earlier this year to refinance about $2.5 billion of debt set to mature over the next two years, giving it more financial breathing room. That has taken some pressure off its balance sheet and stock price.
While shares of the REIT are up more than 30% this year, they’re still down almost 80% from their peak a few years ago. That decline in its market value, along with asset sales and debt repayments, have driven down Medical Properties Trust’s enterprise value from its peak of more than $24 billion to less than $12 billion.
That market valuation is worth noting because it’s much lower than the underlying value of the REIT’s real estate portfolio. Medical Properties Trust ended last year with $14.3 billion of total real estate assets. The value of its portfolio has held up relatively well because its facilities are crucial to providing care to their local communities. That has enabled the company to sell properties at strong valuations to repay debt in recent years. This valuation disconnect alone suggests that the stock has additional upside potential.
