Healthcare spending is ready for materials progress with the US alone set to see healthcare spending rise by 8% of GDP from 2018 by way 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 way of the tip of the present financial tightening cycle. Medical Properties final declared a quarterly money dividend payout of $0.29 per share, according to its prior payout and a 14.3% ahead yield. Healthcare Realty’s final quarterly dividend fee was $0.31 per share, additionally according to its prior fee 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 for the reason that pandemic with tenant points aggregated with the speedy rise within the Fed funds fee and back-to-back brief reviews. Healthcare Realty sports activities a brief curiosity of three.72% with its commons down 27% over the past 12 months following its merger with Healthcare Belief of America. The $7.4 billion REIT has struggled to understand 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% over the past 12 months. 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 progress fee. That is versus a 3-year CAGR of 0.83% for its peer group. Healthcare Realty’s quarterly fee has been broadly flat over the identical timeframe, 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 fee 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.
Medical Properties has grown its dividend by a higher quantity by way of the pandemic years and the Birmingham, Alabama-based REIT basically represents a definite paradigm of threat past what’s supplied by Healthcare Realty. To be clear right here, Medical Properties confronted a current brief name that stipulated that its honest worth is $3 per share. This could indicate a 63% fall from the present degree. It is at present 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 apparent 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. toes as of the tip of its fiscal 2022 fourth quarter. Healthcare Realty differs from Medical Properties in that it has refined its portfolio predominantly in 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 nations with 44,000 licensed beds as of the tip of its fourth quarter. The US and UK shaped the 2 largest markets at a mixed 81.9% of whole property with Australia, Switzerland, and Germany forming the subsequent three largest geographies. Nonetheless, the REIT has not too long ago divested $803 million value of property in Australia.
Medical Properties’ two largest tenants Steward and Prospect Medical are at present 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 will not be a non-public fairness fund. Therefore, its tenants merely have to fulfill the total phrases of their lease while remaining a going concern. Earnings of underlying tenants going through volatility are irrelevant if they’ll proceed to fulfill 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.
Ebook Worth, FFO, And Payout Ratio
Medical Properties’ dividend has been on an upward pattern for the reason that first and final lower made throughout the 2008 monetary disaster. That is almost 15 years of secure and uninterrupted dividends, a formidable document that is misplaced on the bears and will very effectively be maintained regardless of the Steward points. The REIT may very effectively lower its at present 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 tip 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 at present swapping palms for $19.37 per share.
Medical Properties’ e-book worth as of the tip 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 progress 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 worth at present 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 will likely be extra related right here with the REIT set to report a $300 million write-down of intangible property tied to a deal to lease 5 Utah hospitals at present let to Steward to the next credit score high quality tenant. This will likely be a non-cash expense so may 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 throughout the fourth quarter was $0.43, according to 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 offered steering 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 way of 2023.
Healthcare Realty’s final declared quarterly dividend shaped 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 possible enhance this place by at the very least 2x within the coming months. The intention of this place wasn’t to get entangled in probably the most contentious battleground REITs for the reason that pandemic however so as to add healthcare publicity to my fledging revenue portfolio that is primarily targeting condominium REITs and distressed most well-liked inventory. There will likely 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 counseled right here and will very effectively be maintained.