Key Points

Medical Properties Trust's first-quarter results showcased the stabilization of its portfolio. The REIT has also completed the necessary repairs on its balance sheet. It can now shift its focus back to growing shareholder value, including potentially increasing its dividend.

Medical Properties Trust (NYSE: MPW) has battled two ailments over the past couple of years. The real estate investment trust's (REIT) top two tenants ran into severe financial issues, forcing both to ultimately file for bankruptcy. That issue and higher interest rates made it hard for the hospital landlord to refinance debt as it matured.

After two years of hard work, the healthcare REIT is finally healthy again. As a result, its 6%-yielding dividend, which it cut twice during that period, could start growing again. That makes the REIT a potentially enticing option for those seeking an attractive income stream.

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On the road to recovery

Medical Properties Trust spent the past couple of years simultaneously working with two major tenants as they addressed their financial issues while also trying to shore up its balance sheet situation. The company took several steps to address the problem, including replacing one tenant with several new ones, selling properties to repay debt, and cutting its dividend twice.

The REIT finally started to see the fruits of its labor during the first quarter. Replacement tenants began paying rent on properties formerly operated by one of its bankrupt tenants during the quarter. Rental rates on those properties will steadily escalate over the next two years, reaching the fully stabilized rate at the end of 2026 (at about 95% of the former tenant's rate). That incremental rental income enabled the REIT to generate $0.14 per share of normalized funds from operations (FFO) in the period, easily covering its $0.08-per-share quarterly dividend.

The stabilization of these properties and its efforts to repay debt in recent years finally put the company in a position where it could refinance existing debt at an acceptable rate. Medical Properties Trust issued over $2.5 billion of senior secured notes due in 2032 at a blended rate of 7.885%. That significantly extended its debt maturities.

The company also amended its credit facility to $1.3 billion, which now matures in mid-2027. As a result, the REIT has a lot more financial flexibility.

In commenting on the quarter, CEO Edward Aldag stated in the earnings press release, "Our first-quarter transactions and results are the culmination of two years of successful efforts to reduce debt, extend maturities, capture unrealized value, and retenant hospital real estate at attractive and sustainable rents."

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Shifting its focus back to growing shareholder value

Medical Properties Trust has spent the past couple of years shrinking its portfolio and dividend to strengthen its financial situation. With its balance sheet back on solid ground, the REIT can now shift its focus back to growing shareholder value.

Aldag stated in the earnings press release that the company "is well positioned to grow earnings from our existing in-place real estate portfolio, access capital for accretive growth in a uniquely attractive market, and deliver growing dividends and other returns to our shareholders."

The REIT will benefit from escalating rents from new tenants through the end of next year. Meanwhile, legacy properties feature inflation-based rental escalation clauses, which drove a 2.3% increase in its rental rate across stabilized properties this year. As a result, its portfolio should deliver stable and rising rental income in the future.

On top of that, Medical Properties Trust now has the financial flexibility to invest in expanding its portfolio. In April, the company agreed to fund its share of a modest new investment made by its Swiss joint venture. It can make additional new investments as opportunities arise.

The company can invest in growth while also returning more cash to shareholders. Given its current low payout ratio, it has plenty of room to increase its dividend. Meanwhile, the REIT could use some of its financial flexibility to repurchase its beaten-down shares (the stock price currently sits nearly 80% below its all-time high from a few years ago).

A healthier dividend

After a couple of challenging years, Medical Properties Trust has finally turned the corner. The REIT's income should steadily rise in the coming years as rents escalate across its existing portfolio and it adds new properties into the fold. That should enable the company to start rebuilding its dividend following two deep cuts. It makes the REIT an enticing option for investors seeking a big-time income stream and significant upside potential as its share price starts to recover from its deep slide over the past couple of years.

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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.

This 6%-Yielding Dividend Stock Is Finally Healthy and Could Start Growing Again was originally published by The Motley Fool

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