The past several years have been very challenging for Medical Properties Trust (MPW -0.80%). Tenant issues and higher interest rates have put pressure on its financials. That has weighed heavily on its stock, which has lost more than 80% of its value from the peak a few years ago.

However, the hospital-focused real estate investment trust (REIT) has worked hard to address its problems. It has reshaped its portfolio, tenant base, and balance sheet to put itself on a much more sustainable foundation for the future. Here's a look at the healthcare REIT and what it means for its high-yielding dividend.

The end of an era

Medical Properties Trust's management team discussed the company's transformation on its third-quarter conference call. CEO Edward Aldag started by proclaiming, "The big news during the quarter was our global settlement with Steward and its creditors that enabled us to take back control of our real estate and sever our relationship with Steward."

He noted on that call that in 2016, the REIT had invested roughly $5.3 billion into real estate leased or mortgaged to Steward. It has recovered 45% of that value through asset sales and other transactions involving this portfolio.

Meanwhile, it has collected about $1.9 billion in rent and mortgages over the years. Today, it holds about $2.3 billion of properties formerly tied to Steward, excluding development projects.

Medical Properties Trust has since taken control of most of the remaining properties it leased to Steward and re-tenanted more than 90% of those locations (17 hospitals to five new tenants). The new tenants will start paying partial rent next year.

Rental payments will steadily rise, reaching 50% of the stabilized rate by the end of 2025 and 100% by the end of 2026. Those properties will generate about $160 million in annualized rent at the end of 2026.

Add that to the rest of its portfolio, and it should produce over $1 billion in annual rent by 2027. This rent will come from a much more diversified and financially stronger tenant base. That number doesn't include the rental potential of four other former Steward properties (valued at $170 million) and two other development properties. It's in active discussions with potential tenants regarding those properties.

Repairing the financial foundation

The REIT has also significantly enhanced its liquidity this year through a series of strategic transactions. CFO Steve Hamner stated on the call, "Year to date, we have executed more than $2.9 billion in profitable asset sales and other monetization transactions, including the approximately $350 million during the third quarter." Recent transactions included selling 18 freestanding emergency rooms and a general acute hospital for $246 million and receiving a $100 million mortgage loan repayment.

Those and other transactions have enabled Medical Properties Trust to strengthen its balance sheet. Hamner stated on the call, "Since the beginning of 2023, we have repaid $2.2 billion in debt." Meanwhile, it ended the third quarter with $275 million in cash and $880 million available on its revolving credit facility. That puts it in a strong position to address future debt maturities, which include $1.2 billion in 2025.

Meanwhile, the REIT expects more cash to come in the door over the next few quarters. It recently closed the sale of some former Steward hospitals in Florida, resulting in about $45 million in cash proceeds. It also sold a hospital in California for $45 million and two freestanding emergency departments for $5 million.

In addition, Hamner stated on the call: "And we have signed nonbinding LOIs [letters of intent] and offer sheets for profitable sales that would generate additional cash proceeds. The aggregate of these transactions approximates another $400 million."

While he didn't specify what assets it was working to sell, the company subsequently announced that Astrana Health agreed to purchase the majority of Prospect Medical Holding's managed care business for $745 million. The REIT will receive $200 million from this sale ($150 million in the first half of next year and $50 million by 2027). That additional liquidity will further enhance its financial foundation.

On the road to recovery

Due to tenant and balance-sheet issues, Medical Properties Trust had to cut its dividend twice over the past couple of years. However, it has now addressed most of its problems. It has a more stabilized portfolio and a stronger balance sheet. Because of that, its dividend (which yields over 7%, even after the deep cuts) looks sustainable.

The REIT should be able to start rebuilding its dividend over the next two years as it begins receiving rent from the former Steward facilities. That makes it an enticing option for income-seeking investors. While it's a higher risk than other REITs, it has a very high reward potential from the dividend income and the prospect for a recovery in its stock price.