Medical Properties Trust Stock Soared in Q1 While the S&P 500 Struggled. Here's Why.

Shares of Medical Properties Trust (NYSE: MPW) rocketed 52.5% in the first quarter of 2025, according to data provided by S&P Global Market Intelligence. What made that performance even more notable was that it came during a period when the S&P 500 struggled. That broader market index fell 4.6% during the quarter, its biggest decline since the second quarter of 2022.

Here's a look at why the real estate investment trust (REIT) rallied during the market's rough patch.

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Fading headwinds

Medical Properties Trust has battled two fierce headwinds in recent years: rising interest rates and financially troubled tenants. Both issues started to wane a bit last month.

The 10-year U.S. Treasury yield, a key benchmark for the REIT sector, declined over the past quarter. It started the year at over 4.5% and ended the quarter at just above 4.2%. A falling Treasury yield helped boost the value of commercial real estate. It also lowered borrowing costs for real estate companies. This improvement in interest rates helped take some of the pressure off Medical Properties Trust's stock price.

Falling interest rates enabled Medical Properties Trust to issue new debt in the quarter to refinance some of its upcoming debt maturities. The REIT sold $1.5 billion of 8.5% senior secured notes due in 2032 and another 1 billion euros (about $1 billion) of 7% senior secured notes due in 2032. It will use those proceeds to redeem 3.325% notes due this year, and notes yielding 2.5% and 5.25% that mature in 2026. While the REIT is paying a much higher rate on the new debt (7.9% blended yield), it has extended its debt maturities out by several years, giving it more flexibility. It also raised some additional capital (about $800 million) to bolster its liquidity.

The REIT's tenant base has also been getting healthier. Although one of its largest tenants filed for bankruptcy in January, this process should enable that tenant to sell some of its other operations. As a result, it should emerge as a financially stronger company. Meanwhile, the REIT replaced another top tenant that went bankrupt last year with five new financially stronger companies. They have all reported improving volumes, increasing patient satisfaction, and stabilization in their staffing and supplies.

That new tenant group has also started paying rent on those properties this year. The rental rates will ramp up over the next two years, reaching the fully stabilized rate at the end of 2026. As a result, the REIT's rental income should start to rise over the next two years.

More room to run

While Medical Properties Trust stock soared during the first quarter, it's still down more than 75% from its peak a few years ago. That's why it has a high dividend yield (over 5%) despite two deep cuts in recent years. With its cash flow just starting to recover, the stock price could continue heading higher, especially if interest rates keep falling. Because of that, it could continue producing market-beating total returns.

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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.