Why Medical Properties Trust Stock Skyrocketed 30% in September

Shares of Medical Properties Trust (NYSE: MPW) leaped 30% in September, according to data provided by S&P Global Market Intelligence. The catalyst was a deal to take control of its real estate from its troubled leading tenant, Steward Health Care. The arrangement enabled the real estate investment trust (REIT) to lease several of those properties to new tenants.

Putting its relationship with Steward in the past

Medical Properties Trust reached a global settlement agreement with bankrupt tenant Steward last month. The deal enabled the healthcare REIT to take control of 23 hospitals previously operated by Steward, severing its relationship with the company. The agreement allowed Medical Properties Trust to immediately transition the operations of 15 of those properties to four new tenants.

The REIT won't collect any rent on those facilities this year, giving the new tenants time to ramp up their operations. Rents will commence in the first quarter of next year, reach 50% of the contract rate by year-end, and continue gradually escalating until the fourth quarter of 2026 when they'll fully stabilize.

At that time, the REIT will collect about 95% of the rent Steward would have owed on those properties. That gives Medical Properties Trust clear visibility into its future rental income on those properties for nearly two decades (it signed leases with an average term of 18 years).

Medical Properties Trust also got back six other properties from Steward and two projects currently under construction. Four hospitals closed before Steward's bankruptcy, while the other two closed due to that event. The REIT is in discussions on potential solutions for these properties, which could include their sale or lease with a new operator.

This transaction paves the way for Medical Properties Trust to finally put its troubled relationship with Steward in the past and focus on rebuilding its portfolio and balance sheet. The REIT has had to sell several properties in recent years to repay debt it couldn't refinance due to rising interest rates and tenant troubles.

With those headwinds fading, Medical Properties Trust should be able to refinance future debt maturities and access capital again to fund new acquisitions of properties with financially stronger operators. It should also be able to increase its dividend in the next year after recently cutting it again due to Steward's issues.

On the road to recovery

Severing its relationship with Steward will finally enable Medical Properties Trust to get on the road to recovery. While it still has some work to do, including finding solutions for the other eight former Steward facilities, it has done much of the heavy lifting.

With more visibility into its future rental income, the REIT should be able to access outside financing again at better terms, improving its ability to refinance debt and fund its growth. While the REIT still has a high-risk profile, it has high upside potential as it starts to recover.

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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.