Medical Properties Trust, Inc. Q4 FY2025 earnings call

• Completed a restructuring transaction with Vibra in the fourth quarter, resulting in a new master lease agreement and collection of approximately $18 million in onetime rent payment for past obligations. - Entered into a new 20 - year master lease agreement with Vibra. - Acquired a high - performing post - acute facility in California for approximately $32 million with a strong cap rate and a new post - acute care facility in Europe for EUR 23 million. - Sold 6 smaller properties during the quarter. - 2025 marked 20th anniversary as a publicly traded company, with core principles of providing capital solutions to hospital operators, acquiring high - value real estate and supporting communities. - Unveiled an updated brand identity and acquired MPT as stock ticker. - In Germany, Median recorded strongest quarter since entering portfolio with quarterly EBITDARM increasing more than 20% year - over - year and occupancy at 90%. - In the U.K., general acute operators like Circle Health sustained strong performance. Priory in U.K. behavioral health market focused on adjusting to referral patterns and modifying service lines. - Swiss Medical Network in Continental Europe reported solid year - over - year growth in hospital EBITDARM, with new clinical collaboration with Mayo Clinic. - Ernest Health delivered double - digit growth in EBITDARM year - over - year, refinanced their 2026 term loan and revolver in Q4. - LifePoint Behavioral new leadership implementing program enhancements. - Entered into new 15 - year lease agreement with NOR Health Systems in California, expected to reach stabilized annual cash rent of $45 million in December. - HSA showed measured progress in Q4 with modest improvements in collections, upcoming supplemental receipts and expected implementation of MEDITECH EMR system in Q2.

Total portfolio EBITDARM coverage increased year - over - year to 2.6x. General acute operators delivered more than $130 million EBITDARM increase versus the same quarter last year. Post - acute care operators reported a $50 million EBITDARM increase year - over - year for the second consecutive quarter, with a 15% improvement at Ernest Health, a 28% improvement at Vibra and an 8% increase at Median. The behavioral health portfolio was down slightly year - over - year, driven by certain volume headwinds in the U.K. market and labor cost pressures in the U.S.

• Confident in reaching goal of over $1 billion in annualized cash rent by year - end 2025. - Expect 2026 to be a year of continued stabilization and increasing cash rents as tenants capitalize on service line enhancements, reimbursement tailwinds, EMR modernization and operating efficiencies gained throughout 2025.

Q: I'd like to talk a little about your facility recycling during the quarter. I think you mentioned you sold 6 small properties and a surprise to me anyway, bought 2 properties. So maybe you could talk about those 8 properties, but also just more in general, what your view is on the recycling.

A: Sure, Michael. But let me first take the opportunity to thank you for picking up coverage on us and the time you spent with us to fully understand the company and our business model, and we certainly look forward to working with you. So the 6 properties that we sold were smaller properties. They were properties that were underperforming for the rest of the portfolio. We will continue to look at opportunities like that going forward. But also, we're in a position now where we can go back into the acquisition mode. We'll do it very selectively. We believe that the 2 properties that we acquired are very good investment and the opportunity for us to continue to support our existing tenants.

Q: Maybe if we could just start on the Prospect sales. If you could just kind of help me source of uses. I think you gave some helpful color in the opening remarks, but maybe just to tie it all together. Could you talk about the sales proceeds from the assets that have closed, the expectations of the asset under contract and then maybe what's going to be above and beyond the DIP financing and where those proceeds will go?

A: So the only remaining transaction that's pending is the binding contract to acquire the Waterbury facility in Connecticut, and we expect that to close in this quarter. That will significantly finalize the major components of the Prospect bankruptcy. We expect proceeds that will come from that sale, along with collecting of the receivables that will probably take over the next 60 to 90 days, will fully pay the DIP financing. And as we announced previously, probably going back as many as 2 quarters, we've committed to a super secured DIP commitment that we may fund going forward that the proceeds from causes of action that is litigation that's being pursued by the litigation trust, we have first claim on those proceeds, and we remain highly confident, frankly, that the super secured DIP financing will be repaid from those proceeds.

Q: This is Vikram Garewal on for Austin. Just one for me. Can you provide us with some additional color on the Vibra restructuring? Specifically, what was previous and what is the new cash rent expected from Vibra?

A: No, we haven't detailed that out. I'll remind you for the last couple of years, we've referred to this tenant kind of vaguely as the 1% tenant that we've been restructuring. That was consummated in the fourth quarter, and therefore, the collection of $18 million of rent that was due, although not paid pending restructuring. And going forward, Vibra is a significantly stronger tenant for us. And I'll just again reiterate based on your question that there's no impact on previous rental revenue because we haven't been recognizing it because Vibra has been on the cash basis. I don't know if that addressed your question. As a part of answering that question, Vibra refinanced all of their debt. So as Steve said, they're in a much better position today than they have previously been. A couple of their properties are actually now leased to Select Medical and rather than Vibra from our standpoint.

Q: I wanted to stay on the Vibra transaction. I just wanted to confirm, in the press release, it sounded like the $32 million acquisition was leased to Vibra. I mean, did you buy that from Vibra? And if so, why was that included in this transaction?

A: We did buy it from Vibra, and it is a great facility that we feel very good about and glad to have had the opportunity to acquire. Correct. And also, Mike, Just to clarify a little bit, the $18 million, we've actually had on our books, a significant portion of that since this time last year when Vibra made a deposit of $20 million. And of that, about half of it we held in reserve to apply to rent. So your point is well taken. Yes, we provided proceeds by virtue of acquiring this asset. But Vibra itself has put in probably upwards of $70 million over the course of this restructuring. Vibra actually used the proceeds from this sale to pay off debt that they had.

Q: A couple of questions. I guess on the first one, for this acquisition and the other acquisition, can you talk about pricing, I guess, the cap rates and coverages? And then for the second question, maybe just a little bit bigger picture. I know you bought some stock back in the quarter, but you also went through all the debt maturities coming due over the next couple of years. How are you thinking about today kind of buybacks versus delevering?

A: So let me answer the first part of that, Mike. The coverage on both of these were very strong. The cap rates are also very attractive. As you know, it's not our policy -- it is our policy not to go and disclose each individuals on the various properties, but these are very strong both on the coverage and from our standpoint on the cap rate. Going forward, Mike, on the balance sheet, we invested what, roughly $25 million in our own stock over the quarter, relatively modest amount. We'll continue to evaluate when it's appropriate to be in the market with the stock. We have multiple opportunities that I tried to summarize very briefly in my prepared remarks to address the upcoming maturities and have a high level of confidence that we'll have some attractive options for addressing that, obviously, beginning this year as we have the very, very low rate euro issuance coming due in October.

Q: I guess two ones. One, just bigger picture. You mentioned the acquisitions. I'm just wondering sort of as the portfolio stands today, whether it's just noncore or international, can you just talk about potential sales and give us an update on like how the buyer pool has shaped up? What sort of capital is still interested in owning hospital real estate? And then I guess just on that acquisition point, just looking at the different, I guess, sub - asset classes, behavioral, leaving hospital aside, I'm wondering sort of the opportunity set when you look at post - acute and behavior. Are there any specific focus areas, any types of assets? Just -- and I'm wondering just if you look to sort of maybe -- I don't want to call it expand, but maybe shift the focus in terms of types of health care/hospital settings in terms of acquisitions?

A: So Vikram, if I understood your question correctly, there still continues to be a very strong market for people interested in acquiring our properties. We get calls often. But where we are today, we are much more likely to be in an acquisition mode than a disposition mode. We'll do dispositions as we review various items and think it's appropriate for us. But we are more in an acquisition mode. Our focus will continue to be general acute care, which it has been through the vast majority of the life of medical properties. But we will continue to look at post - acute, but that's primarily almost exclusively in the rehab sector, which we've been very strong on since the inception of the company. We're still big believers in behavioral. In the U.S., behavioral softness has not come from lack of demand, but lack of ability to have nurses and staff at each of the facilities. In the U.K., it's much more of a funding issue with NHS. If you follow the U.K., you'll know that the need is there. The desire is there. It's just more of a political funding standpoint. Still believers in both sectors, but probably the biggest acquisitions we'll make today will be in general acute care, followed by post - acute care being rehab.

Q: This is Farrell Granath. I just wanted to also dig in a little bit more on your acquisitions. Just when thinking about Europe versus the U.S., especially now that we've seen some pressures just on public pay with headlines and reimbursement rates. Does that weigh in on how you're evaluating your pipeline? Or can you give a quantifiable qualitative of how you think about your pipeline in both regions? And I guess also on that, when thinking about the people who are selling, are these in the properties that you're acquiring, are these marketed deals? Are you having reverse inquiries? Are these also just operators that you have past business with? Just curious how that pipeline is building out.

A: That's a good question, Farrell. And as you know, we're roughly 50 - 50 now, 50% of the United States and 50% outside of the United States. Still believe that the United States has the best health care in the world, and we obviously will continue to focus here, but it is less political outside of the United States. And so we like our investments outside of the United States very strongly. We're in 9 different countries. We'll continue to invest in the countries that we're in, and we'll continue to look for expansion in places in Europe and places where we are not. We still feel very good about where health care in general is in the United States and feel very good that -- we feel very strong that there'll continue to be small ups and downs, but we don't think there'll be any big ups and downs in the reimbursement in the United States. Yes, it's probably 50% or slightly more of people that we've already done business with, our existing tenants or tenants that had formally been our tenants. There's still a very strong pipeline of people who know who we are, that are looking to make acquisitions and to use our type of funding for those acquisitions. I would say most of the deals that come to us outside of our existing tenants are marketed transactions. Farrell, I'll just point out in addition, just a little bit, we did a pretty limited amount, $60 million in total. That's a result of actually many quarters of negotiation and exploration. So it's not just something that generates just in the quarter. We're able to be and we are being very selective. Right now, again, we still want to see our cost of capital improve. And the point I think we want to make is as that happens, there is a pretty vibrant market. The fact that we did only $60 million in 2 transactions is not indicative of the size and vibrancy of the market. We could have -- I'll put it this way, there were available many more transactions that we could have done that we evaluate. But again, we're being very selective.

Q: I guess, Ed or Rosa, I wanted to follow up and circle back on the comments related to HSA. Can you remind us, is that operator cash flow positive today with the rent fully ramped? I know that you indicated that last quarter that their coverage was above 1 on the fully rent ramps, but obviously, it takes time for cash collections to pick up to equal that. And then just last one for me. I mean, does HSA or NOR need to be -- does MPW needing to provide them working capital loans still? Or have they weaned off of those specific loans and are able to work with what they have on their own balance sheets?

A: Yes. The cash collections, as Rosa pointed out, are not where any of us would like to see them. However, if you look at this from where they came from, not just as a typical start - up, they actually started out in the whole picking up the Steward properties. We're very pleased with where they are. We obviously want them to be much better. We talked about there being able to -- in the second quarter that we believe that they'll be totally independent acquiring the MEDITECH license and all that goes along with that, taking great steps in the cash collections and we hope and feel good about their ability to do better than that. Where they are right now is still continuing to be at 1x full rent coverage. Yes. We have not provided any additional working capital loans for either one of those entities. We have provided HSA with funding to help them acquire the MEDITECH license and with NOR, the last fundings that we were participating in those were left over Prospect bills.