Despite a Series of Setbacks, This Ultra-High-Yield Dividend Stock Sees Better Days Ahead

Medical Properties Trust (NYSE: MPW) continues to face obstacles in its road to recovery. The hospital-focused real estate investment trust (REIT) has battled headwinds from surging interest rates and financially challenged tenants. It has been working to overcome these issues by selling off hospital properties to repay debt while providing additional assistance to its troubled tenants. It has also cut its dividend twice, with the most recent reduction pushing its yield down to around 7%.

The biggest challenge for the healthcare REIT these days is the bankruptcy of top tenant Steward Health Care. That company has faced some setbacks in transitioning its hospital operations to new operators. Despite those issues, Medical Properties Trust believes it will ultimately recoup most of the value of its investments in Steward.

Another unexpected issue

Medical Properties Trust's management team provided an update on Steward's bankruptcy proceedings on its second-quarter call . CEO Ed Aldag commented, "This is understandably a complicated restructuring process involving several interested stakeholders with competing priorities." In particular, he highlighted that issues in the Massachusetts market have "slowed down sales processes in other important markets, where transitioning Steward's ownership is expected to be more straightforward."

Aldag noted that it has eight properties operated by Steward in Massachusetts that are part of a 50% joint venture with Macquarie Infrastructure Partners. The REIT, Macquarie, Steward, and Massachusetts have been working on a solution to these facilities well before Steward filed for bankruptcy. The hospitals initially received lots of interest from other operators who believed they could profitably run the facilities. Medical Properties and Macquarie were willing to be part of that solution by offering rent concessions to get a deal done.

However, negative press and Massachusetts' apparent desire for an in-state, not-for-profit operator to assume control over these hospitals forced the REIT and its joint venture partner to give up their ownership interest in the real estate. They believe this is the best path forward for these facilities.

Working toward a better future

While Massachusetts has been an unexpected stumbling block, Medical Properties Trust believes it will have more success in finding new operators for its other properties. The company's CEO stated on the call, "Subject to court approval, we expect positive results in Steward's remaining markets based on the real estate agreements we have negotiated with new operators as well as others that are close to being finalized." Positive developments would certainly be good news for the REIT and its investors.

Medical Properties Trust believes it will sell or transition all the remaining Steward properties to new tenants in the coming months. Because of that, the company is optimistic about its eventual financial outcome. Chief Accounting Officer Kevin Hanna stated on the call: "We currently have approximately $440 million of secured non-real estate investments in Steward and $2.3 billion in real estate that is expected to be re-leased or sold as part of the ongoing bankruptcy process. We believe these investments are fully recoverable at this time."

Exiting its relationship with Steward will put the REIT on a much more sustainable long-term foundation. CFO Steve Hamner stated on the call, " Looking through the calendar into 2025 and 2026 , our expectation is that we will have a stable portfolio of hospital real estate leased to key operators in their respective markets with no exposure to Steward." Having a stable portfolio will make it easier for the REIT to satisfy upcoming debt maturities. It will likely be able to refinance debt instead of having to sell assets to pay it off due to the higher borrowing costs it would incur because of its current situation. It has already seen some of the fruits of its labors this year by closing an $800 million 10-year loan secured by some of its properties in the UK. Its recent progress and visibility into positive outcomes with Steward give it a lot of confidence in its ability to navigate future debt maturities.

A light at the end of a dark tunnel

Medical Properties Trust has endured a lot of setbacks over the past few years, many of which relate to its relationship with Steward. The company is working to end that relationship by finding new operators for those properties. That would enable the company to move forward with a stable portfolio that should allow it to pay a sustainable dividend. It can then grow its portfolio and payout from its stable base. While it will take some time to get through its current situation, it's getting closer to a brighter future with each step it takes.

Matt DiLallo has positions in Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .