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- MPW: My Idea of a Good Time
Disclosure: The author owns shares in the referenced company. This is not financial advice or a recommendation, and not a substitute for due diligence.
Originally tweeted on May 9, 2024
NYSE:MPW (Medical Properties Trust, Inc.)... My attraction to this company is probably a hint at why I'm unmarried and over 40. I clearly am a glutton for complex situationships.
Before I begin, a disclaimer: MPW Is NOT for the faint of heart. The bears could end up being right. It has traded down significantly. Still, there's only 1 question for investors.
Is $2.3b the right number for $7b in Book Value?
Other than the fact that most governments can't let all hospitals shutter, MPW is no different from any other type of real estate where you're dealing with deadbeat tenants. If you've never dealt with real estate, deadbeat tenants, and/or both, then I'd watch from the sidelines versus doing more due diligence on this.
In fairness, this doesn't look as bad to me as the trade-down implies. The call between management & investors was as awkward as sitting in on someone else's divorce hearing. As such, I can not reiterate enough that I own this in the speculative part of my portfolio only, which has stuff that can go to zero. Here's what I'm seeing/hearing:
Is it all sorted after this? Nope.
But this one of the bigger known events, aka the bankruptcy of Steward is announced and mostly dealt with given today’s news.
Image 1 (above): The Steward Bankruptcy is a $773m charge. This leaves about $7B of book value (total assets- total liabilities) on $2.3b market cap. Also, cosmetically, the income statement looks awful.
Next Step? How much rent are they going to ultimately collect from deadbeat tenants?
The voiceover in the earnings call is they will be able to get rent out of these bankrupt hospitals at or close to the contractual levels. I kind of believe them given the turn I'm seeing in hospitals as a sector. That said, they haven't collect April and May since Steward started filing. That is still due, and we shall see the truth of this in the next quarterly report.
Image 2 (Above): Some were worried in the balance sheet above that there were liens from other assets against the Steward properties. Also, in general, REIT debt often has some covenants related to how many tenants can be in bankruptcy. That said, they are saying on the earnings call that this has already been negotiated to have minimal impact.
The stuff in Red in Image 2 is where all the questions are to try to assess the stuff in Green. Steward’s impact looks largely done by the way. On the voiceover, they are saying that all that space will be occupied by someone else. The timing of this is to come (see image 3). MPW is providing the financing for the transition.
Another great question on the earnings call related to whether the Steward Bankruptcy resulted in any liens against other non-Steward Properties. The good news is they didn't pledge any of the assets in this way. The bears think this is a lie. Thier documentation makes it unclear if the liens are just connecting the Steward properties or something else. For me, if management is telling the truth then at this point your loss is taken and it’s just about whether you can get any back rent and how long it takes to get a new tenant in place.
Image 3 (Above): I've circled the financing impact of providing for tenant transition. Similarly, news other than Steward does show more asset sales (TX, CA, NJ) to raise capital, and recoveries from some of their deadbeat tenants. In fairness, it's only in the last 3 quarters that you've seen this part of medical recovery and it's done pretty well in the US.
Image 4 (above): Because of the US debt issues, the US still does have medicare recovery concerns in our market even with improvement in this area of the Health Care Sector. Also notable given Steward has international exposure is that there is also stabilization of this sector overseas.
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