Shares of Medical Properties Trust (MPW -2.05%) slumped 19.6% in 2024, according to data from S&P Global Market Intelligence. That woefully underperformed the broader market, as the S&P 500 rallied 23.3% last year.

Tenant issues were the main factor weighing on the healthcare REIT. Here's a look at last year and whether the REIT can recover in 2025.

Dealing with sickly tenants

Medical Properties Trust got off to a rough start last year. The hospital owner revealed in early January that its top tenant at the time, Steward Health Care, continued to face challenges, making it difficult for the healthcare company to meet its financial obligations, including paying rent to the REIT. Steward filed for bankruptcy protection a few months later.

That process eventually enabled the REIT to take back control of its real estate from Steward. By November, Medical Properties Trust was able to transition 17 former Steward Hospitals to five new operators. Under the terms of those agreements, the new tenants will start paying partial rent this year, with the rates slowly escalating through the end of next year, when they will stabilize at about 95% of the rental rates Steward had been paying on the properties.

Medical Properties Trust also experienced a setback with another top tenant, Prospect Medical, which stopped paying rent on properties leased to the REIT in California, again during the third quarter because of continued liquidity issues. However, that company expected to receive $100 million in quality assurance fund payments in the first quarter of this year. In addition, Prospect agreed to sell the majority of its managed-care platform for $745 million. Medical Properties had an interest in that entity and should receive about $200 million in proceeds.

Because of its tenant issues, Medical Properties Trust took several steps to shore up its liquidity last year. It cut its dividend again, refinanced a loan securing some of its UK properties, and sold several hospital properties last year. These moves enabled the REIT to boost its liquidity by about $3 billion, which exceeded its $2 billion target. That enabled it to repay debt and bolster its ability to address future maturities.

Finally on the road to recovery

Medical Properties Trust enters 2025 in a much better position than it began last year. It has replaced Steward with five financially stronger tenants, while Prospect's liquidity situation should improve this year. Those factors drive the REIT's belief that its portfolio should start producing durable and growing cash flows. That should enable it to pay its dividend, address upcoming debt maturities, and begin rebuilding its portfolio by making new property investments.

The continued cash flow and balance sheet improvements could also allow the REIT to start rebuilding its dividend following two deep cuts in recent years. Medical Properties' dividend currently yields over 8%, and the combination of income, earnings growth, and further balance sheet improvements could enable the REIT to produce healthy total returns in 2025 and beyond as its stock price starts to recover.