In a sea of red that was the Friday, October 19th close, only one name on my watchlist stood basking in all its green glory. That company was Medical Properties Trust, Inc. For the last six months I've been patiently watching, waiting to buy in since the mid $8 range (52-wk low). With a 10/19 close of $11.53 it looks as though I've missed a lot of the upside. But have we all missed the boat?
Medical Properties Trust, Inc (MPW) is a Birmingham, Alabama based healthcare Real Estate Investment Trust (REIT) focusing on acute care facilities around the US. Their primary business strategy, as listed in their last 10-Q, is to "acquire and develop real estate and improvements, primarily for long-term lease to providers of healthcare services such as operators of general acute care hospitals, inpatient physical rehabilitation hospitals, long-term acute care hospitals, surgery centers, centers for treatment of specific conditions such as cardiac, pulmonary, cancer, and neurological hospitals, and other healthcare-oriented facilities."
MPW currently owns, provides funding for or operates 79 healthcare facilities in 23 states, with its three highest concentration markets being the NY/NJ metro area, Texas and Southern California. The beauty of this sector is the stability of hospitals and acute care facilities. There are currently around 5,000 hospitals in the US, of which less than 1% close each year. Most hospitals have been around for decades and have become highly valued institutions in their communities making closure or relocation unlikely. With a market capitalization of $1.56 billion MPW is smaller than many of its competitors such as Health Care REIT, Inc (HCN), but has a much higher growth rate. MPW also does not fund or own any medical office buildings, outpatient or assisted living facilities which has traditionally been the cornerstones of healthcare REITs.
Social and Health Forecasts
I'm bullish on the health care industry. And who wouldn't be looking at the facts: The American population is aging and with this increase in the 60+ year old population comes a slew of health care needs and spending. According to the Department of Health and Human Services, as a percent of the total population the group age 65 and older will increase from 13.0% in 2010 to 16.1% in 2020. This is projected to be the largest 10 year jump in US history. Sadly as "Baby Boomers" age, 60% are expected to have at least one chronic disease. It is an unfortunate inevitability, but the next 20 years will see healthcare spending surge.
In August MPW reported their Q2 Adjusted Funds from Operations (AFFO) grew to $29.7 million or $0.22 per share, up from $0.16 a year earlier. Net income applicable to shareholders jumped from $2.64 million to $19.32 million. With a current dividend of $0.20/share the payout ratio sits 91%, though it has been reduced from its high, and targets for 2013 are projected to be in the more desirable 75% range. Normalized FFO in 2013 is estimated to be $1.06/share, up from what is projected to be $0.85/share by year end 2012. This summer MPW announced that it restructured and extended its leases on three properties operated by Prime Healthcare Services, one of their strongest affiliates, valued at approximately $250 million.
Medical Properties Trust has many of the ingredients I look for in an investment: focused and consistent management, strong growth, few comparable competitors and an industry set to see unprecedented expenditures. Couple these items with a 7% yield and you have the makings of an excellent addition to your portfolio. Keep your eye on the macroeconomics and perhaps you'll find an entry point somewhere below its 52-week high, where it's currently trading. Just don't wait as long as I did.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MPW over the next 72 hours.