Shares of Medical Properties Trust (MPW Quick QuoteMPW - Free Report) — also known as MPT — have been on a remarkable run, with its shares climbing 33.9% over the past month. The REIT, engaged in the acquisition and development of healthcare facilities, has significantly outperformed the Zacks REIT and Equity Trust - Other industry’s growth of 3.1% and the S&P 500 composite’s rise of 1.2% over the same time frame.

This healthcare real estate investment trust (REIT) stock has also left its peers like Sabra Healthcare REIT (SBRA Quick QuoteSBRA - Free Report) and Healthpeak Properties (DOC Quick QuoteDOC - Free Report) in the dust, with these stocks only gaining 11.8% and 2.3%, respectively, in the same period.

One-Month Price Performance

Image Source: Zacks Investment Research

With this Birmingham, AL-based healthcare REIT riding high, individuals may rush to add it to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects, as well as risks of investing in the same. The idea is to help investors make a more insightful decision.

What’s Behind Medical Properties’ Recent Rally?

The latest interest rate cut in the September FOMC meeting has been played a catalyst for this healthcare REIT. Lower interest rates are likely to boost REIT stock prices, including MPW, for two main reasons. Firstly, the companies can borrow at lower costs, which enhances the ability to purchase or develop real estate. Secondly, yields on fixed-income and money market accounts become less attractive, prompting investors to redirect their money towards REITs.

The increased investor optimism in the stock can also be attributed to its recent announcement of reaching an agreement with Steward Health Care System, its secured lenders and the Unsecured Creditors Committee. This agreement reinstates MPW’s control over its real estate, terminates its relationship with Steward and also enables the immediate transition of operations at 15 hospitals in the country.

The replacement of Steward enhances the company’s ability to safeguard the essential operations of these facilities, thereby aiding their communities and preserving the value of its real estate for the benefit of shareholders.

Apart from these, what draws investors’ attention is Medical Properties’ successful execution of more than $2.5 billion in liquidity transactions from the beginning of the year through Aug. 6, 2024, which strengthens its balance sheet position and places it well to fund its short-term liquidity requirements. As a result, it has also substantially cleared debt maturities scheduled to mature in 2024. Moreover, the better-than-expected second-quarter 2024 results demonstrated strong performance across the majority of its portfolio.

Will the Trend Last for MPW?

Going forward, the national healthcare expenditure is expected to rise. Also, senior citizens constitute the major customer base of healthcare services as they end up spending more on healthcare services compared to the average population. Hence, with an expected rise in senior citizens’ population in the years ahead, we believe Medical Properties has a strong upside potential.

MPT follows a disciplined capital-recycling strategy, through which it disposes of non-core assets and redeploys the proceeds in premium asset acquisitions and accretive development projects. In August 2024, the company concluded the disposition of 11 freestanding emergency department, primary care, imaging and urgent care facilities in Colorado to the University of Colorado Health for $86 million. Such match-funding initiatives indicate the company’s prudent capital-management practices and relieve pressure from its balance sheet over long run.

However, Medical Properties faces operator concentration risk with respect to total assets held and revenues. In case of no lease renewal, change in lease agreements, or any adverse development with respect to these operators, Medical Properties’ financial condition and results will likely be impacted.

Solid dividend payouts remain the biggest attraction for REIT investors. However, to better align with the company’s cash flow profile following asset divestitures, In August 2024, Medical Properties announced a quarterly cash dividend of 8 cents per share, reflecting a reduction of 46.7% from the prior payout. The dividend will be paid out on Oct. 10 to shareholders on record as of Sept. 9, 2024.

Analysts seem to have a bearish outlook, with the Zacks Consensus Estimate for Medical Properties’ 2024 and 2025 FFO per share being revised downward in the past week.

Image Source: Zacks Investment Research

From a valuation perspective, we note that with the recent rally, MPW is trading at a forward 12-month price-to-FFO, which is a commonly used multiple for valuing healthcare REITs, of 6.63X. It is at a discount to the industry average of 17.28X but ahead of its one-year median of 3.64X and close to its high of 6.85X. This implies that the market has recognized or priced the company’s growth prospects or earnings potential.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

Image Source: Zacks Investment Research

Should You Buy MPW Now or Wait?

Considering the pros and cons of MPW, as well as the latest estimate revision trends and valuation, we conclude that investors interested in buying this stock should wait for a more visible improvement from its latest efforts and hang on for a better entry point.

However, those who already own this stock may stay invested as the company's reinstatement of control over its real estate from Steward, as well as balance-sheet strengthening efforts, augur well for growth. The stock’s Zacks Rank #3 (Hold) supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.