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Medical Properties Trust Q4 2022 Earnings Preview: A Great Prospect Ahead Of Earnings

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Doctors assisting patients astatine nan hospital

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As those who travel maine intimately know, I tally a very concentrated portfolio. Today, my portfolio consists of only 10 holdings. One of them, representing 9.2% of my holdings today, is simply a REIT called Medical Properties Trust (NYSE:MPW). Although REITs are often appreciated because of their unchangeable rate flows and wide stability, this peculiar subordinate has been lacking successful nan latter. Concerns astir nan basal information of its tenants, peculiarly its largest tenant, person resulted successful shares of nan institution coming nether unit successful caller months. But conscionable astir nan area is an opportunity for nan institution to update investors arsenic to its wide health. This is because, connected February 23rd, earlier nan marketplace opens, nan guidance squad astatine nan patient is slated to study financial results covering nan last 4th of nan company's 2022 fiscal year. Leading up to that time, it's important to statement that analysts don't person each that rosy an outlook for nan company. But each nan information that has been made disposable up to this constituent suggests that nan institution is successful good wellness and that shares stay meaningfully underpriced. All things considered, I do judge that MPW banal still represents a ‘strong buy’ opportunity for long-term, value-oriented investors.

Analysts person a antagonistic outlook

As I mentioned already, Medical Properties Trust is getting adjacent to announcing financial results covering nan last 4th of nan company's 2022 fiscal year. Leading up to that time, analysts person a alternatively antagonistic outlook for nan company. For instance, nan existent expectation is that gross will travel successful astatine $372.99 million. If this comes to fruition, it would construe to an 8.9% diminution compared to nan $409.33 cardinal nan institution generated nan aforesaid clip 1 twelvemonth earlier. At first glance, it whitethorn look overseas for a REIT to study declining sales. But this wouldn't beryllium nan first clip nan institution reported a driblet successful revenue.

Estimates

Author - SEC EDGAR Data

In nan 3rd 4th of 2022, income came successful astatine $352.3 million. That compared to nan $390.8 cardinal reported successful nan third quarter of 2021. In summation to seeing income drop, nan institution missed analysts' expectations by $36.7 million. This alteration successful gross was driven wholly by operating lease gross charged by nan institution plunging $47.9 cardinal twelvemonth complete year. The biggest information of this came from straight-line rent, which dropped 58.9% from $64.6 cardinal to $26.6 million. Management attributed this diminution really to a $72.7 cardinal alteration caused by plus disposals. It would not beryllium surprising, then, to spot this inclination continue.

Although analysts whitethorn attraction to immoderate grade connected net per share, that's a metric that's not each that important erstwhile it comes to REITs. More important will beryllium nan normalized FFO, aliases costs from operations, that guidance reports. The existent forecast is for this to travel successful astatine $0.27 per share. That would people a important diminution compared to nan 47 sons per stock reported nan aforesaid clip past year. Truth beryllium told, I find this telephone by analysts to beryllium peculiar. After all, during nan 3rd 4th net release, guidance forecasted normalized FFO per stock for 2022 of betwixt $1.80 and $1.82. At nan midpoint, that would construe to a reference successful nan 4th fourth of $0.43 per share.

It is ever imaginable that nan institution could travel successful beneath expectations. After all, erstwhile it reported for nan 3rd quarter, it did miss expectations by $0.03 per stock erstwhile it came to normalized FFO. However, there's a large quality betwixt a miss and a script wherever nan institution looks to beryllium successful bad shape. And I would for illustration to deliberation that location would beryllium signs of problem up of time. But this doesn't look to beryllium nan case. The biggest interest that investors person had involves nan company's vulnerability to Steward Health Care System. As of nan extremity of nan 3rd quarter, astir 29.5% of nan company’s gross is tied to Steward. There person been galore who person expressed interest astir nan expertise of Steward to past successful nan existent environment. Naturally, having its largest operator, which is responsible for specified a ample information of revenue, spell bankrupt could beryllium painful. But arsenic I elaborate successful an article past year, nan image location looks obscurity adjacent arsenic bad arsenic galore suggest.

One really awesome development for Medical Properties Trust came astir connected February 15th erstwhile nan institution announced that it agreed to lease its Utah infirmary portfolio to Catholic Health Initiatives Colorado. That endeavor is simply a wholly-owned subsidiary of CommonSpirit Health, which agreed to get nan Utah infirmary business that has been operated by Steward Health Care System. This is noteworthy because Medical Properties Trust’s vulnerability to Steward has agelong been a cardinal contributor to nan stock’s debased trading aggregate since nan wellness of Steward has, aggregate times, been called into question.

This move will trim Medical Properties Trust’s gross plus vulnerability to Steward from 26% to astir 20% based connected information from Medical Properties Trust’s third-quarter filing. The move will bring pinch it a 15-year first lease term, pinch payments adjacent to 7.8% of nan firm’s gross finance successful nan properties. Each twelvemonth moving forward, those payments are expected to emergence by 3%. At nan 5, 10, and 15 points from nan day of closing, CommonSpirit Health will person nan expertise to get nan properties from Medical Properties Trust astatine nan greater of nan asset’s adjacent marketplace worth aliases Medical Properties Trust’s gross finance successful nan properties. Further vulnerability simplification is besides expected, pinch Steward electing to usage astatine slightest immoderate of nan proceeds to prepay loans extended to it by Medical Properties Trust during nan 2nd 4th of nan 2022 fiscal year. This should full $150 cardinal successful all. Hopefully, guidance tin reallocate that superior to other, safer, and still-productive means.

In summation to nan image pinch Steward looking fine, location are different affirmative developments to return into consideration. For instance, connected January 13th, news broke that nan maestro lease of 4 area hospitals and 2 aesculapian agency buildings nether Pipeline Health had been approved arsenic portion of Pipeline’s successful confirmation of its scheme of reorganization aft Pipeline entered into bankruptcy. All aspects of nan lease are identical to what they were anterior to that patient entering bankruptcy. In addition, arsenic portion of nan agreement, Medical Properties Trust authorities that it will beryllium paid each rent that accrued during nan first half of January of this twelvemonth but that it will defer $5.6 cardinal of rate tally into 2024 that would yet beryllium collected pinch interest. And connected apical of each of that, nan institution besides announced that nan pre-bankruptcy plans for Pipeline impact Medical Properties Trust adding a behavioral installation wrong Coast Plaza Hospital that will yet bring it further rent. Not only does this region different symptom from Medical Properties Trust, it's besides a motion of what could hap successful nan arena that a ample usability ends up going under. Separate from this, but besides connected a affirmative note, is nan truth that Medical Properties Trust announced a $500 cardinal stock buyback programme precocious past year. From nan commencement of nan programme done November 4th, nan institution repurchased 1.3 cardinal shares for $14 million. It's highly irregular for a institution that's troubled to commencement specified an eager plan. Though I do deliberation it would beryllium a amended thought for nan institution to usage that superior to salary down debt.

Trading Multiples

Author - SEC EDGAR Data

If we presume that guidance will travel done connected nan guidance that they group successful nan 3rd quarter, past full normalized FFO for nan institution should travel successful astatine astir $1.09 cardinal for nan year. No guidance was fixed erstwhile it came to different profitability metrics. But if we presume that they will summation astatine nan aforesaid complaint that normalized FFO should, past we should expect operating rate travel of $850.9 cardinal and EBITDA of $1.72 billion. Based connected these numbers, nan institution should beryllium trading astatine a value to operating rate travel aggregate of 9, astatine a value to normalized FFO aggregate of 7, and astatine an EV to EBITDA aggregate of 9.8. By comparison, if we were to usage nan information from 2021, these multiples would beryllium 9.4, 7.4, and 10.2, respectively.

As portion of my analysis, I decided to comparison Medical Properties Trust to 5 akin firms. On a value to FFO approach, these companies ranged from a debased of 8.9 to a precocious of 14.9. And erstwhile it comes to nan EV to EBITDA approach, nan scope was from 12.3 to 26.5. In some of these cases, Medical Properties Trust was nan cheapest of nan group. Meanwhile, utilizing nan value to operating rate travel approach, nan scope was from 8.9 to 21.7. In this case, only 1 of nan 5 firms was cheaper than our target. In bid to spot what benignant of upside nan institution mightiness offer, I decided to look astatine 2 different scenarios. The first script weighted nan institution arsenic though it were worthy what nan lowest of its 5 peers was worthy utilizing each 3 valuation approaches. The 2nd script compared Medical Properties Trust to nan mean of nan 5 from a valuation perspective.

Company Price / FFO Price / Operating Cash Flow EV / EBITDA
Medical Properties Trust 7.0 9.0 9.8
Healthcare Realty Trust (HR) 12.7 21.7 26.5
Omega Healthcare Investors (OHI) 9.6 11.4 12.3
Physicians Realty Trust (DOC) 14.9 13.0 14.6
Sabra Health Care REIT (SBRA) 8.9 8.9 20.4
National Health Investors (NHI) 12.9 13.6 19.4

In nan first scenario, you tin spot that, erstwhile it comes to nan value to FFO approach, implied upside for investors is 27.1%. If we usage nan value to operating rate travel approach, it mightiness really beryllium overvalued by 1.1%. Though it's worthy noting that if we disregard nan cheapest competitor, upside would beryllium 26.7%. And erstwhile it comes to nan EV to EBITDA approach, upside would beryllium 57.2%. Using, instead, nan mean approach, we would get upside of betwixt 52.2% and 79.2%, depending connected which valuation method we utilize.

Valuation

Author - SEC EDGAR Data

Takeaway

Since I created my caller portfolio backmost successful March of past year, nan marketplace has knowledgeable a awesome woody of pain. Although nan S&P 500 has shown a bully betterment successful caller months, it's still down 8.4% since then. Fortunately, I'm still up, pinch returns of 14%. Sad arsenic it is to admit, Medical Properties Trust is 1 of nan 2 companies successful my portfolio that's been giving maine a difficult time. At present, that peculiar holding is down 20.6%, making it my worst play to date. With each that said though, I person a tremendous magnitude of religion successful nan institution and its expertise to execute good moving forward. Naturally, that image could alteration based connected what ends up being reported by management. And because of that, investors should salary observant attraction erstwhile nan institution does study its net later this month. But fixed really inexpensive nan institution is, some connected an absolute ground and comparative to akin firms, and fixed nan different signs that we person seen that propose guidance is astatine slightest bullish astir nan firm, I still support that it makes for an fantabulous ‘strong buy’ campaigner moving forward.

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Editor: Naga



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