Medical Properties Vs. Healthcare Realty: One Has A 14.3% Yield That I’m Buying (MPW)

Healthcare spending is about for materials development with the US alone set to see healthcare spending rise by 8% of GDP from 2018 by means of 2040. Each Medical Properties Belief (NYSE:MPW) and Healthcare Realty Belief (NYSE:HR) kind two REITs within the house that while having some similarities provide buyers extremely divergent whole return profiles as we see by means of the top of the present financial tightening cycle. Medical Properties final declared a quarterly money dividend payout of $0.29 per share, in step with its prior payout and a 14.3% ahead yield. Healthcare Realty’s final quarterly dividend cost was $0.31 per share, additionally in step with its prior cost and meant a 6.4% ahead dividend yield.

Crucially, the 790 foundation factors dividend distinction has been constructed on what’s been a marked discombobulation of Medical Properties over the years because the pandemic with tenant points aggregated with the speedy rise within the Fed funds charge and back-to-back quick studies. Healthcare Realty sports activities a brief curiosity of three.72% with its commons down 27% during the last yr following its merger with Healthcare Belief of America. The $7.4 billion REIT has struggled to appreciate the synergies from its merger and final reported fiscal 2022 fourth-quarter earnings which noticed twin misses.

Medical Properties has a brief curiosity that is 5.6x bigger at 20.73% with a market cap of $4.85 billion, down 62% during the last yr. This has come in opposition to a dividend payout schedule that is been broadly secure and has grown by a 3.71% 3-year compound annual development charge. That is versus a 3-year CAGR of 0.83% for its peer group. Healthcare Realty’s quarterly cost has been broadly flat over the identical time-frame, albeit with disruptions to the timing of payout on the again of the merger which skewed its payout trendline. The REIT’s one-time particular dividend cost of $4.82 following the completion of its merger has once more skewed its dividend CAGR numbers however its quarterly payout was $0.315 per share within the first quarter of 2020.

Property Portfolios

Medical Properties has grown its dividend by a better quantity by means of the pandemic years and the Birmingham, Alabama-based REIT essentially represents a definite paradigm of threat past what’s supplied by Healthcare Realty. To be clear right here, Medical Properties confronted a current quick name that stipulated that its truthful worth is $3 per share. This may suggest a 63% fall from the present degree. It is presently pursuing litigation in opposition to these claims with each different week seemingly seeing extra bears spring up. This is not a sleep-well-at-night REIT and Healthcare Realty is the plain selection in regard to stability.

Nashville, Tennessee-based Healthcare Realty went public in 1993 and primarily owns medical workplace buildings adjoining to hospitals. This REIT owned 721 properties in 35 states totaling roughly 42 million sq. ft as of the top of its fiscal 2022 fourth quarter. Healthcare Realty differs from Medical Properties in that it has refined its portfolio predominantly in the direction of multi-tenant, on-campus medical workplace buildings. It additionally has a US-only focus with Dallas, Seattle, and Los Angeles forming its three largest markets with a mixed 20.2% of its medical workplace constructing portfolio.

Medical Properties focuses on acute care services let loose on triple web leases. This REIT held 444 properties throughout ten international locations with 44,000 licensed beds as of the top of its fourth quarter. The US and UK fashioned the 2 largest markets at a mixed 81.9% of whole belongings with Australia, Switzerland, and Germany forming the subsequent three largest geographies. Nonetheless, the REIT has not too long ago divested $803 million price of property in Australia.

Medical Properties’ two largest tenants Steward and Prospect Medical are presently amidst a degree of monetary misery with Customary & Poor not too long ago downgrading Medical Properties’ credit standing to junk at BB, round two ranges beneath funding grade on the again of Steward’s headwinds. Nonetheless, and maybe one of many key errors buyers make when shopping for REITs, Medical Properties is just not a personal fairness fund. Therefore, its tenants merely have to satisfy the total phrases of their lease while remaining a going concern. Earnings of underlying tenants going through volatility are irrelevant if they will proceed to satisfy rents. The inventory market will in fact low cost REITs with a broadly unstable tenant base but it surely’s the revenue that issues right here.

E-book Worth, FFO, And Payout Ratio

Medical Properties’ dividend has been on an upward development because the first and final minimize made in the course of the 2008 monetary disaster. That is almost 15 years of secure and uninterrupted dividends, a powerful document that is misplaced on the bears and will very effectively be maintained regardless of the Steward points. The REIT might very effectively minimize its presently massive payout however even a $0.08 per share discount within the payout would nonetheless see its dividend yield maintained at double digits.

Healthcare Realty’s e-book worth stood at $7.49 billion as of the top of its fiscal 2022 fourth quarter. This was round $19.89 per share and was down sequentially from $20.30 per share within the third quarter however grew from $14.52 per share within the year-ago comp. The REIT reported income of $338.06 million for its fourth quarter, this was up 72.7% over the year-ago interval and was a miss by $5.94 million on consensus estimates. FFO got here in at $0.42, a beat by $0.02 on consensus estimates and elevated by 7.7% sequentially from $0.39 within the third quarter. Critically, Healthcare Realty is basically buying and selling close to parity with its e-book worth with its commons presently swapping arms for $19.37 per share.

Medical Properties’ e-book worth as of the top of the fourth quarter was $8.6 billion, round $14.38 per share. This was down sequentially from $14.74 per share within the third quarter however was a development of 1.7% from $14.14 per share the year-ago comp. Therefore, Medical Properties is buying and selling at a cloth low cost to its e-book worth with its inventory value presently at $8.10 per share. This low cost nonetheless stands at 34.5% utilizing the decrease tangible e-book worth (“TBV”) per share of $12.36 which strips out intangibles. TBV shall be extra related right here with the REIT set to report a $300 million write-down of intangible belongings tied to a deal to lease 5 Utah hospitals presently let to Steward to a better credit score high quality tenant. This shall be a non-cash expense so could have no impression on the FFO.

Medical Properties final reported fourth-quarter income of $380.48 million, a 7% decline from the year-ago quarter however a beat by $7.49 million on consensus estimates. FFO per share in the course of the fourth quarter was $0.43, in step with consensus however down from $0.45 within the third quarter and a $0.04 per share fall from $0.47 within the year-ago interval. The REIT supplied steerage for FFO per share to be between $1.50 to $1.65 for 2023, decrease than analyst consensus of $1.75 however sufficient to cowl what can be whole dividends of $1.16 by means of 2023.

Healthcare Realty’s final declared quarterly dividend fashioned a wholesome 73.8% payout ratio in opposition to its FFO for the fourth quarter. This compares to a 67.4% payout ratio for Medical Properties. Therefore, I am in Medical Properties Belief at round $8 per share and can doubtless improve this place by at the very least 2x within the coming months. The intention of this place wasn’t to get entangled in one of the vital contentious battleground REITs because the pandemic however so as to add healthcare publicity to my fledging revenue portfolio that is primarily focused on residence REITs and distressed most well-liked inventory. There shall be extra volatility forward for Medical Properties on the again of its fiscal 2023 first-quarter earnings, however its dividend historical past needs to be recommended right here and will very effectively be maintained.