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Key Factors to Impact Medical Properties' (MPW) Q4 Earnings

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Medical Properties Trust, Inc.  (MPW - Free Report) — also known as MPT — is scheduled to report fourth-quarter and full-year 2019 results on Feb 6, before the market opens. The company’s quarterly performance will likely display year-over-year growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this self-advised real estate investment trust (REIT), which acquires and develops net-leased healthcare facilities, posted normalized funds from operations (NFFO) per share of 33 cents, surpassing the Zacks Consensus Estimate.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on one occasion, missed in another and met in the other two.This is depicted in the graph below:

Medical Properties Trust, Inc. Price and EPS Surprise

Let’s see how things are shaping up prior to this announcement.

The transactional market for hospital real estate remained compelling in fourth-quarter 2019 as operators took advantage of access to low-cost capital and prudently used their real estate assets.

As for MPT, the company has been banking on its large scale to fund transactions globally. Further, easily-available and attractive cost of capital has enabled the company to enjoy decent net investment yields and register growth.  

In November, the company announced an agreement with LifePoint Health, Inc. to acquire 10 acute care hospitals in the United States for $700 million and will lease the facilities back to LifePoint. These properties will be leased back to LifePoint under a master lease agreement, with a 20-year lease term and two five-year extension options. The company announced a public offering of 50 million shares of its common stock to fund this buyout.

The acquisition will generate investment spreads of 3-4%, considering MPT’s blended cost of debt and equity capital. The LifePoint acquisition and share offering demonstrate the company’s efforts to drive bottom-line growth on accretive investments.

MPT’s operating lease revenues, including rent billed and straight-line rent, are expected to have improved sequentially in fourth-quarter 2019. Specifically, rent billed is estimated to be $135 million, improving 8.9%, while straight-line rent is estimated to be $34.81 million, suggesting 12.2% growth. Incremental revenues from acquisitions and developments Aare anticipated to have boosted lease revenue growth.  

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $251.1 million. This represents a 39% year-over-year surge from the year-earlier quarter’s reported tally.

The company also issued senior sterling-denominated notes in November. It will use £367 million ($0.5 billion) of the proceeds to pay down outstanding balance under the revolving credit facility. Remaining net proceeds will be used for general corporate purposes, including working capital, capital expenditures, as well as for future acquisition pursuits. This debt issuance is likely to have escalated interest expense in the fourth quarter.

Lastly, prior to the fourth-quarter earnings release, the company has been witnessing downward estimate revisions, indicating bearish analyst sentiments. As such, the Zacks Consensus Estimate of FFO per share for the quarter under review has been revised 5.3% south to 36 cents over the past month. Nonetheless, it represents year-over-year growth of 16.1%.

Earnings Whispers

Our proven model does not conclusively show that MPT is likely to beat estimates in terms of FFO per share this quarter. A positive Earnings ESP is a meaningful and leading indicator of a likely beat. This, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), makes us reasonably confident of a positive surprise.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: MPT’s Earnings ESP is -0.79%.

Zacks Rank: The company currently carries a Zacks Rank of 2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthpeak Properties, Inc. PEAK, slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present.

Equinix, Inc. EQIX, set to report quarterly numbers on Feb 12, has an Earnings ESP of +0.53% and carries a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. HST, scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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