Medical Properties Trust (NYSE: MPW) is a global leader in hospital real estate. The healthcare REIT, or real estate investment trust, owns 390 properties in nine countries leased to 45 hospital operating companies. Because of that, it has its fingers firmly on the pulse of the global healthcare industry.
While Medical Properties Trust is a major player in the global hospital real estate market, it's not well-known by investors. I recently had the opportunity to speak with someone at the company to learn more about its story. What follows are three recurring themes from that conversation on what investors should know about the company.
Hospitals are crucial infrastructure
One of the most important takeaways from my conversation with Medical Properties Trust was the vital role hospitals play in the healthcare system. That's become abundantly clear during the current pandemic, as one of the critical statistics gauging the virus's current trajectory is hospitalizations. Hospitals are playing a crucial role in waging war against the virus by treating the patients who've become severely ill.
Because of that, hospitals are proving their necessity to the community and essential social infrastructure. If anything, the pandemic has demonstrated that the healthcare system needs to invest more money to expand hospital capacity to fight future outbreaks.
Hospitals systems should invest in themselves, not real estate
While hospitals are essential, healthcare systems don't need to own their real estate. That's where Medical Properties Trust comes into play. The company's primary role is to free up the capital a hospital operator has in its real estate via either a sale-leaseback transaction or providing debt financing like a mortgage or construction loan. This gives the operator the financial flexibility to reinvest in its system so it can, for example, upgrade its technology or expand its operations.
Meanwhile, the leases aren't too burdensome to the operator. A typical absolute net lease with Medical Properties Trust is only around 5% of a hospital's revenue. Because of that, Medical Properties Trust usually has excellent lease coverage of at least 2.5 times the property's EBITDARM (earnings before interest, taxes, depreciation, amortization, rent, and management fees).
Medical Properties Trust has lots of room to grow
Because hospitals don't need to own their real estate to be successful, Medical Properties Trust believes it has ample opportunity to continue growing by purchasing additional operator-owned properties. While it's already the second-largest owner of hospital beds in the U.S., its current portfolio of 224 hospitals in the country is a small fraction of the nation's total of more than 5,000 community hospitals.
Meanwhile, at 164 international properties, it has an even smaller fraction of the global total of more than 20,000 hospitals. In its estimation, there are $500 billion to $750 billion of operator-owned hospital real estate in the U.S., which is a massive opportunity set for the REIT, considering it currently owns $17.3 billion of assets.
The company sees several future growth drivers, including:
- More international expansion: Medical Properties Trust envisions a future where its portfolio has a 60/40 mix of U.S. and international properties. That implies more international growth ahead, considering its current 67/33 mix.
- Increased consolidation in the post-pandemic world: The REIT expects more hospital operators will look to monetize their real estate so they're more prepared for the next pandemic.
- Not-for-profit: It sees a significant opportunity in the not-for-profit hospital sector to acquire properties or provide financing to support future expansion by these operators.
Given the massive opportunity in hospital real estate, Medical Properties Trust doesn't anticipate deviating from its current strategy focused on these facilities. That's good news for investors, given the company's continued success at creating value by acquiring hospital real estate.
Medical Properties Trust has expanded its asset base at a 30% compound annual rate over the last decade while growing its normalized FFO at an 8% compound annual rate. That's helped it produce market-beating total returns throughout its history.
An excellent niche in the real estate market
Hospitals are a vital part of the healthcare system. However, hospital operators aren't always the ideal owners of these facilities, as they could better spend their capital on enhancing their networks. That's where Medical Properties Trust steps in, as it can work with operators to monetize their properties. These win-win relationships have created significant value for its shareholders over the years, which is why real estate investors won't want to miss this REIT's compelling story.