MEDICAL PROPERTIES TRUST INC Q2 FY2025 earnings call

• U.S. Congress passed the One Big Beautiful bill Act with Medicaid funding changes and work requirements for ACA, expected to be phased in over a decade.
• New tenants' portfolio has increasing rental income: $3.4M in Q1 2025, $11M in Q2 2025, expected $17M in Q3 2025, with 3 new operators at full monthly contractual amounts.
• European portfolio: Joint venture in Germany had a successful EUR 702 million refinancing at 5.1% fixed rate.
• Portfolio operators across the world have growing admissions and surgical volumes, with increasing EBITDARM coverage ratios across asset types year-over-year.
• Liquidity and capital strategy: Second quarter interest expense offset by growing rental income; balance sheet shows substantial refinancing transactions, assets retaining and increasing value, strong valuations attracting investors, and options for monetization and further debt refinancing.

The segment performance includes various portfolios. Internationally, Circle in the U.K. has increasing trailing 12-month EBITDARM coverage. Priory, the largest independent mental health care provider in the U.K., has steady performance with top line growth and EBITDARM coverage around 2.3x. In Continental Europe, Median in Germany has delivered excellent year-over-year improvements in revenue and earnings. Swiss Medical Network had 21% year-over-year revenue growth in Q1 2025. In the U.S., Earnest Health's EBITDARM coverage increased to 2.3x, Legacy IRFs have impressive results, LifePoint Health reports strong top line revenue growth, Surgery Partners has EBITDARM coverage of approximately 7x, HSA in South Florida has volume improvement, Glenwood in Louisiana has increased discharges, HonorHealth in Phoenix has had increased requests for medical staff applications, Quorum Health is current on rent and focusing on ramping up OB services. Cash revenue from new tenants increased from ~$3.4M in Q1 2025 to $11M in Q2 2025 and is expected to reach ~$17M in Q3 2025.

• Expect to reach total annualized cash rent of more than $1 billion by year-end 2026.
• Cash rents from new tenants are increasing as planned: $3.4M in Q1 2025, $11M in Q2 2025, expected $17M in Q3 2025.
• Beginning in October 2026, expected to collect 100% of fully ramped rent totaling about $160 million annualized.

• Forward-looking statements subject to known and unknown risks, uncertainties, and other factors that may cause financial results and future events to differ materially.
• Resolution of matters pending in the Prospect bankruptcy may vary materially from current results.
• Issues with certain facilities like in Ohio where operators have issues with Steward, and a facility in Sharon, Pennsylvania with slow progress.
• Potential differences in reimbursement and other market factors affecting tenants' performance.

Q: Can you guys provide some color on HSA's performance? And how confident are you that rent ramp will occur as expected? I guess, when -- or have they already started paying cash rents? I guess, when does that specifically commence in your lease agreement with them?

A: Rosa went over in great detail, the improvements that they've made in all of the hospitals that they've taken over, and they have been paying rent and they're current on their rent now. Yes. We are very impressed with what they've done with the hospitals, the way they brought doctors that were previously operating at Steward that left during the bankruptcy have come back, and we believe they're doing a good job.

Q: I jumped on late, too. So I have a feeling a lot of what I was going to ask has already been covered. But just in terms of the asset sales that you mentioned, I think you mentioned about $100 million. Is that still expected to close this year? Can you talk a little bit about the, I guess, the product type and geographies? And then as a follow-up on the -- I guess, the Swiss investment. I guess, what's the thought process there in terms of deciding to allocate new capital for investment as opposed to sitting on the sidelines?

A: On the properties that we expect to close on the sale, they do expect to close before year-end. And they are essentially either leftover Steward properties or other orphan type properties. On the Swiss Medical, as we have stated previously, one of the avenues that we've been trying to explore a long time with Swiss Medical and Infracore is to get inroads into the public hospitals. This was an opportunity, we believe, for Infracore to make a strong inroad into that market to allow them other avenues for buying properties outside of the private sector and into that public sector. It's a relatively small investment, and we think strategically, it was the right thing to do.

Q: A question for me on just the legacy Steward asset ramp-up here. Just based on the update that you've given us and the expected $17 million in 3Q, are you still on pace to hit that [ $160 ] million annualized run rate by October '26? Or do you think you're running ahead at this point?

A: Well, I think the operators are running ahead, whether any of them will agree to ramp up their rent from their required portion, I kind of doubt it. But clearly, the operations is ahead where we thought it would be.

Q: Steve, I just wanted to confirm, I think, a point you made earlier on with Prospect. The California asset, you talked about a stalking horse on that. Is that going to be sold? I thought there was an opportunity to possibly retenant it instead.

A: Tayo, you broke up there at the end, but I think you're asking about the potential stalking horse on the California properties. There are people that are -- they are looking -- there are people that are looking to lease the facilities and entities that are looking to purchase the facilities. And I think within the next couple of weeks or so, the stalking horse will be made public and then we'll go to an auction.

Q: Steve, I just wanted to confirm, I think, a point you made earlier on with Prospect. The California asset, you talked about a stalking horse on that. Is that going to be sold? I thought there was an opportunity to possibly retenant it instead.

A: Tayo, you broke up there at the end, but I think you're asking about the potential stalking horse on the California properties. There are people that are -- they are looking -- there are people that are looking to lease the facilities and entities that are looking to purchase the facilities. And I think within the next couple of weeks or so, the stalking horse will be made public and then we'll go to an auction.

Q: I was hoping that you could add a little bit more color on the CMS proposed elimination of the inpatient-only list. I know you just made some comments about the Big Beautiful Bill, but I was curious if there's been any conversations on that, how that would impact the operations on your tenant level?

A: Yes. Farrell, I think what you're referring to is that it just goes from an inpatient to an outpatient and none of our operators have expressed any concern over that.

Q: I just wanted to confirm, I think, a point you made earlier on with Prospect. The California asset, you talked about a stalking horse on that. Is that going to be sold? I thought there was an opportunity to possibly retenant it instead.

A: Tayo, you broke up there at the end, but I think you're asking about the potential stalking horse on the California properties. There are people that are -- they are looking -- there are people that are looking to lease the facilities and entities that are looking to purchase the facilities. And I think within the next couple of weeks or so, the stalking horse will be made public and then we'll go to an auction.

Q: This is Georgi on for Vikram. And my apologies if I missed that, I just joined a little bit later. But have you provided any additional loans to the HSA? And does the HSA EBITDA cover the cash rent they're paying right now?

A: The answer is yes and no. We did loan an additional $5 million in May. That was, again, part of the issues that where they were having -- very public issues that they were having with Steward and their TSA agreement. Those have been resolved and they are not covering full cash rent at this point.

Q: Just on the one tenant that is below 1 coverage. I think those are the Columbia assets. What's the latest there? Any update on where do you see coverage trending? And are you -- is that like a potential risk you're monitoring?

A: So interestingly, those hospitals are performing exceptionally well. They are extremely full. The problem is they aren't being reimbursed from the system down there. It's not just our hospitals, it's countrywide. So hopefully, it will be resolved over the next 6 months, but the administration, the new election is in May of 2026. And we certainly believe it will be resolved by that point. But it's not an issue of whether or not the facilities are generating the revenue. They just aren't collecting the cash.