Medical Properties Trust Q3 Earnings Call Highlights

Key Points

• Cash revenue exceeded expectations: Medical Properties Trust collected more than $750 million year to date and still expects portfolio cash rents to surpass $1 billion in 2027, despite selling nine properties for about $600 million.
• HSA remains a key risk but is showing operational improvement: HSA hospital volumes rose 14%, surgeries increased 33% and cash collections grew 24%, though the tenant has not resumed rent payments and MPT has approximately $150 million in HSA loans. Ovation Healthcare was brought in to manage operations and revenue-cycle issues.
• Deleveraging and refinancing are progressing: MPT completed a $2.4 billion secured-notes transaction and plans to refinance additional 2027 debt, targeting no maturities until June 2028. The company also reduced Priory’s rent by about 18% because of U.K. healthcare funding constraints, while gaining variable-rent potential and a lease extension option.

Medical Properties Trust NYSE: MPT said it has collected more than $750 million in cash revenue year to date, a pace that annualizes above the company’s prior target of at least $1 billion in annualized cash rental revenue by the end of 2026. The healthcare real estate investment trust said it still expects portfolio cash rents to exceed $1 billion in 2027 despite selling nine properties during the year for approximately $600 million in cash proceeds.

The company reported normalized funds from operations of $0.11 per share for the third quarter, which Senior Vice President, Controller and Chief Accounting Officer Kevin Hanna said was in line with expectations except for the nonpayment of September rent from HSA.

HSA Adds New Tenant Structure and Management Partner

Chief Executive Officer Edward Aldag said HSA’s two principals had been involved in a legal dispute that distracted from hospital operations. Following the resolution of that matter and the departure of one principal, Medical Properties Trust has a new tenant called Adonis, while the hospitals will continue operating under the HSA name.

Aldag said HSA’s main issue remains revenue-cycle management, including billing and collections, rather than hospital operations. HSA has engaged Nashville-based Ovation Healthcare to manage operations across the portfolio, including revenue cycle, information technology, staffing and supply chain functions. Ovation manages more than 500 hospitals in the United States, according to Aldag.

During the question-and-answer session, Aldag said HSA hospital volumes had increased 14% since September and surgeries were up 33%. He also said cash collections at HSA had risen 24% since August. The company did not provide a timetable for HSA to resume rent payments.

Medical Properties Trust has approximately $150 million in loans to HSA, Aldag and Chief Financial Officer Steven Hamner said. Aldag said the company would consider more significant changes to the portfolio if hospital operations were declining or continued to decline.

Priory Rent Reduced Amid U.K. Funding Constraints

Medical Properties Trust and behavioral health operator Priory agreed to reduce Priory’s annual rent obligations by approximately 18%, or about £11 million annually, as budget constraints at the U.K.’s National Health Service have limited funding for behavioral health patients.

The revised agreement includes a variable rent component that could allow Medical Properties Trust to recover some or all of the reduced rent if Priory meets specified revenue hurdles. The company also obtained an option to extend Priory’s lease through 2055, a 10-year effective extension.

Aldag said Priory’s challenges reflect NHS budget limitations rather than demand or operating capability. Hamner added that the company enhanced its credit protections with Priory and its parent company, and said management has recently seen improving revenue and operations at Priory.

Portfolio Performance and Asset Sales

Senior Vice President of Operations Rosa Williams said post-acute care remains a source of momentum, general acute care performance is broadly stable, and behavioral health operators are taking steps to improve staffing, service mix and referral alignment.

• MEDIAN reported solid performance supported by occupancy and cost management.
• Circle Health delivered increased revenue, consistent volumes and robust margins.
• Swiss Medical Network reported year-over-year hospital revenue growth and coverage above two times following Infracore’s July initial public offering.
• Spain-based IMED recorded surgery growth of more than 11% year over year, including nearly 40% growth at IMED Colón in Valencia.
• Ernest Health maintained 2.5-times coverage, while NOR reported 2.4-times coverage on full contractual rent and is scheduled to increase its rent payments from 50% to 100% of contractual rent in December.

The company recorded $158 million of gains from asset monetizations during the quarter. Hamner said $600 million of third-quarter proceeds included about $140 million from Infracore, $170 million from the sale of a minority interest in a U.S. joint venture and $370 million from the sale of two Idaho facilities. The U.S. portfolio transactions occurred at capitalization rates below 7%, he said.

Refinancing Efforts Continue

Medical Properties Trust completed a $2.4 billion secured-notes transaction in August that redeemed €500 million of notes due in 2026, redeemed roughly $735 million of notes due in October 2027 and exchanged about $1 billion of longer-dated notes. The transaction generated approximately $123 million in net discount, of which $70 million was recognized as a gain during the quarter.

Hamner said the company’s next refinancing step includes extending its bank revolver, permanently repaying a $200 million term loan due in June 2027 and refinancing the remaining $665 million of 2027 notes. The company expects to complete a new multi-year revolver in the coming weeks and said it expects the refinancing actions to result in no debt maturities until June 2028.

The company also recorded approximately $24 million of impairment charges during the quarter, primarily tied to its Colombian investments following an August earthquake, Hanna said.

About Medical Properties Trust (NYSE:MPT)

Medical Properties Trust, Inc is a healthcare-focused real estate investment trust (REIT) that owns and invests in healthcare facilities. Its portfolio has historically included hospitals, inpatient rehabilitation facilities, long-term acute-care hospitals, behavioral health facilities and other properties used by healthcare providers.

Founded in 2003 and headquartered in Birmingham, Alabama, the company primarily generates income by leasing properties to healthcare operators under long-term agreements.

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