Medical Properties Trust, Inc. (MPT) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to Medical Properties Trust Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Charles Lambert, Senior Vice President. Charles, please go ahead.

Good morning. Welcome to the MPT conference call to discuss our second quarter 2026 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the company; Steven Hamner, Executive Vice President and Chief Financial Officer; Kevin Hanna, Senior Vice President, Controller and Chief Accounting Officer; Rosa Williams, Senior Vice President of Operations and Secretary; and Jason Frey, Managing Director, Asset Management and Underwriting. Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at mpt.com in the Investor Relations section. Additionally, we're hosting a live webcast of today's call, which you can access in that same section. During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust is reconciled on non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at mpt.com for the most directly comparable financial results and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Charles, and thanks to all of you for joining us this morning on our second quarter 2026 earnings call. Before I begin today, we'd like to extend our thoughts and prayers to the people of Colombia after this morning's earthquake. Now let me begin with the most significant update. Today, we announced a comprehensive refinancing transaction that extends $2.4 billion of debt maturities to 2032 significantly reducing near-term maturities and positioning us well to pursue a balanced capital allocation strategy moving forward. Steve will discuss this transaction in more detail shortly. Turning to our performance highlights. Total portfolio EBITDARM coverage remained steady as we continue to see robust demand for rehabilitation services around the world, our post-acute operators again delivered the strongest growth in the portfolio with EBITDARM increasing more than $70 million year-over-year led by a 24% increase in Median and a 13% increase in Ernest Health. General acute performance was stable. Behavioral Health remains a source of pressure on the overall portfolio despite the increased importance and demand for these services, we continue to see around the world. In the U.K. market, especially, revenue continues to be impacted by funding pressures at the NHS as the new administration in the U.K. works to rebalance it's entire budget. I spent last week in the U.K. spending time with many of our operators there. I walked away from those meetings impressed with the level of activity across those facilities, confident in the opportunities for high-quality general acute providers and encouraged that behavioral market remains a compelling long-term investment. As most of you know, our Swiss joint venture went public this summer and is now listed on the SIX Exchange. Infracore continues to see attractive opportunities for growth, and the company was able to access capital for further growth. We retain a significant ownership position in Infracore and remain bullish on Switzerland and look forward to seeing our overall investments grow there. Finally, to further strengthen our portfolio, we consolidated all of our ScionHealth, general acute hospitals and LifePoint leases into one LifePoint master lease. As a part of this conversion, Scion transitioned certain MPT-owned acute hospitals to LifePoint, and we are pleased with the resulting single lease relationship with a mature operator with an enhanced credit profile. With the strong trends we continue to see across our diverse portfolio of operators, the proving enduring value of our assets and a plan to clear the runway of debt maturities until late 2028. We are well positioned to achieve our goal of over $1 billion annualized cash rent by the end of the year and to create value for the shareholders moving forward. Rosa?

Thank you, Ed. As usual, I will walk through the trends we are seeing the continued progress of our recently transitioned operators and the steps tenants are taking to enhance performance. Across our core portfolio, performance trends remain broadly stable. General acute operators still comprise the majority of the portfolio and reported aggregate EBITDARM coverage of 2.8x during the quarter. As Ed mentioned, our post-acute portfolio delivered another really strong performance with coverage of 2.4x. Finally, our behavioral portfolio coverage was down slightly to 1.4x, reflecting the discrete headwinds in the U.K. and U.S. markets that we have discussed all year. For individual operator coverage details, we would encourage you to review the supplemental published on the Investor Relations page of our website. Our international portfolio continues to provide meaningful stability with Medical Network, Median and Circle continue to produce strong, stable earnings, executing on their respective growth and innovation strategies. Swiss Medical Network is advancing its integrated care strategy with revenue growth supported by recent acquisitions and an ongoing shift toward higher-value outpatient and primary care. In Germany, Median continues to build on its momentum with year-to-date EBITDA running ahead of budget. At Priory, proactive measures are being taken to address challenges related to the previously discussed shift in NHS referral patterns. With the ongoing budget constraints in the U.K., management is focused on implementing even more disciplined cost control measures and optimizing services to better align with demand. Turning to the U.S. NOR continues to produce strong results. NOR began paying 50% contractual rent in June. Operationally, NOR delivered encouraging momentum with admissions emergency department visits and surgeries, all higher year-over-year, reflecting volume recovery across the platform. The emergency department project at Culver City is progressing and remains scheduled to open in the fourth quarter of 2027. HSA which operates hospitals in Florida, Louisiana and Texas saw mixed results in the second quarter due to certain disruptions that caused lower cash collections and volume declines in some markets. First, the MEDITECH EMR conversion caused a temporary inability to bill and collect cash for a period during the month of May, resulting in lower collections in May and June. Additionally, prior to the conversion, HSA transitioned its revenue cycle management to an outsourced firm. And because HSA operates in markets where they serve an above-average number of [indiscernible] patients, reliance on supplemental payments from federal and state agencies is necessary. These payments are not always predictable and can therefore be a strain on cash flows. That was evident when the Florida supplemental funding that was due in April was delayed until August which caused further short-term pressure on HSA's liquidity. With the MEDITECH conversion largely behind them, HSA has brought revenue cycle management back in-house and expects to improve revenue cycle and operational efficiency in the coming months. While cash collections are still lagging, HSA has received significant payments from the Florida supplemental funding program in August, enabling them to begin repayment of the working capital advances we made during the quarter. While trailing 12-month EBITDARM to cash rent coverage of 2x, we remain cautiously optimistic about the trajectory of HSA and we'll continue carefully monitoring their operations. Our U.S. post-acute portfolio remains an area of strength. Ernest helps us as stand out, and we're excited to see Ernest continue to grow with this acquisition of Reunion Rehabilitation Hospital adding 7 hospitals with closing expected this summer. Finally, we remain confident in the long-term earnings power of these assets and in our path towards normalized rent across the portfolio. With that, I'll turn it over to Kevin.

Thank you, Rosa. Today, we reported normalized FFO of $0.15 per share for the second quarter of 2026, which was in line with our expectations as last quarter's results were $0.14 per share, and we expect that the rent from HSA and NOR continue to increase in accordance with our lease agreements. As a reminder, HSA is currently paying 75% of their contractual rent, increases to 100% in mid-September. While NOR started paying rent in mid-June equal to 50% of contractual rents increases to 100% in mid-December. As Ed noted in his remarks, we have combined the LifePoint and LifePoint Behavioral and all but one Scion post-acute property into a combined single master lease. Cash rent from this combined lease will be basically the same as it was previously. G&A expense for the quarter was higher year-over-year, primarily driven by stock compensation expense due to the change in fair market value of certain cash total stock awards and the increase in depreciation expense at the corporate headquarters building that was placed into service during the first quarter of this year. Finally, during the quarter, we impaired approximately $17 million in working capital loans, primarily related to the 2 Steward replacement tenants in the Midwest. Steve?

Thank you, Kevin. As Ed mentioned, this morning, we announced a 2-step process to fully satisfy our 2026 and 2027 debt maturities, totaling about $2.7 billion along with an additional approximately $1.2 billion of longer-dated unsecured notes. Step 1, which we expect to complete later today, is the issuance of $2.4 billion in secured notes, the proceeds of which will be used as follows: first, to fully redeem the upcoming maturity of our EUR 500 million in unsecured notes and approximately $738 million or about 53% and of our unsecured notes due in 2027. We will also exchange at a discount, another approximately $1.2 billion of longer-dated unsecured notes, reducing gross debt by about $123 million. Step 2, which we have commenced and expect to complete in coming weeks, we'll repay the remainder of the 2027 unsecured notes, complete a new multiyear bank revolver and repay our $200 million term loan due in June 2027. MPT will then have no debt maturing in 2026 or 2027. In fact, our sole maturity over the next 3 years will be a modest balance of about $600 million of notes due in June 2028. Moreover, with $1.1 billion of expected liquidity based on recent and expected near-term asset sales, we will have substantial flexibility for further delevering in the near term. Also importantly, our single bond maintenance covenants that requires 150% of unencumbered assets over unsecured debt will be substantially improved, up to almost 300% depending on how we deploy our liquidity. The new notes have a coupon of 9.25%, a 5.5-year term that becomes prepayable after 2 years and other customary REIT-type provisions, all of which we describe and qualify by reference to the descriptions and documents included in a 2b filed current report on Form 8-K. I'll make a few additional observations about our overall financial position. Once again, and in several ways, sophisticated third-party investors have affirmed that market values of our hospital assets exceed their book values. First, some of the most sophisticated global fixed income investors underwrote the value of the assets that secure the $2.4 billion of notes we just discussed. Moreover, recent transactions, including the IPO of Infracore in Switzerland have established market values of our hospital assets above our original investment. In another pending sale that will close imminently, we will receive about $172 million in after debt cash proceeds, reflecting a 60% increase over our original investment and an IRR of about 34%. In addition to these recently completed transactions, we are in discussions with potential buyers of additional assets that if completed, will generate hundreds of millions of dollars more in sale proceeds at pricing well above our original investments. There's no assurance that these transactions will be completed but the fact that sophisticated parties are even initially offering this level of pricing is encouraging validation of our overall asset values. Upon completion of these refinancings, we will retain significant additional collateral value and flexibility for future delivery. Just to reiterate, no debt maturities until June of 2028 and then a modest $600 million, up to $1.1 billion in liquidity dependent only on completion of certain asset sales that are already in process of being negotiated. And substantial cushion in our UA UD bond covenant that opens up opportunities for certain additional delevering strategies. In closing, our business model remains attractive and growth opportunities continue to present themselves in our markets. with our assets continuing to demonstrate attractive market value and with significant liquidity on hand, we are well positioned to continue to focus on reducing debt while capitalizing on strategic growth opportunities. With that, we will open up the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Mike Mueller with JPMorgan.

So I guess for the balance of the 2027 notes that you're looking to pay off, is that just going on basically a new credit line that's going to be the near-term mechanism? And what's going to be the rate on that facility?

No, that's not the expectation, Mike. In fact, Phase II or step 2, as we call it, will include, as I noted, the repayment of the 2027 notes. But it will not be just based on using the credit line.

Okay. Will it be all from asset sales?

No. We have a number of options that we've always had including asset sales, including liquidity that we have and including additional secured debt opportunities.

Your next question comes from the line of John Kilichowski with Wells Fargo.

Just to clarify, as I'm looking at the press release, we talked through in the opening remarks about '26 and '27, but this also talks about refinancing the '27 through 21 -- or excuse me, 2031 notes. Could you just kind of clarify that timing and when this goes into place and then the pro forma cash interest from this move?

John, we're having a lot of trouble getting your question here.

John, maybe you can try speaking up a little bit. Your's was very, very soft.

Apologies. Can you hear me better now?

Much better now.

All right. The opening remarks focused mostly on the '26 and '27 maturities, but I'm also seeing commentary in the press release about the '27 through 2031 notes. Could you just talk through the timing and clarify, is all of that being refied now as well and the pro forma cash interest number following this move?

No. It comes in 2 steps. Step 1 is the $2.4 billion that we announced this morning. That will fully prepay -- repay the '26s and cash and exchange combined of about $740 million of the '27. And then step next, which we expect to complete in the coming weeks will satisfy the remainder of the '27s. And in addition, as we mentioned during step 1, we'll also exchange about $1.5 billion of the longer-dated notes.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Can you guys provide some more color on the HSA situation? I mean how confident are you that Conifer can push cash collections and where they need to be? I mean I believe you indicated last quarter that they were up to 82% from 78%. But it needs to be in the 90-plus percent range, and it sounds like it dipped in May and June just due to some of the transfers that you're talking about?

Yes, Mike, it's been a lot slower than we hoped it would be. It's still in the 80s. The -- if you look from an operational -- the good news from an operational standpoint, as Rosa pointed out, they're generating 2x coverage. But that doesn't do you any good if you're not collecting the cash. And then you had the late payments from Florida. If you add all of that in together, we're cautiously optimistic, but they still got to improve the cash collections greatly.

So what gives you confidence that they're able to do that? And they already receive the Florida DPP payments, and that's how the first $20 million got paid back. And can you talk about how and when you expect the next $20 million will be paid. And it was unclear in the press release. I mean, is $10 million of that is just going to be outstanding? Or will that be repaid soon, too?

So they have received approximately half of the DPP money from Florida. The other could come in as early as today, but certainly, in the next week or so. And with that money, they'll pay back the additional $20 million. And then they will have the additional $10 million -- or the remaining $10 million repaid sometime in the next quarter.

Okay. And then just lastly for me. I know NOR was supposed to start paying rent in June. Did they pay that rent? And are they current right now to?

Yes. NOR did pay the rent, and NOR is doing well. Remember, those are 2 different entities, NOR and HSA. NOR's operations are doing very well.

Your next question comes from the line of Michael Diana with Maxim Group.

I wanted to ask about asset sales. Could you just -- obviously, a lot of moving parts. Could you review for us the asset sales you know you're going to make the asset sales that you're probably going to make and the calculus that you're using when you're determining whether or not to sell an asset?

So what we know has -- was that it, Mike?