Q3 2023 Medical Properties Trust Inc Earnings Call
Good morning, and welcome to the medical properties Trust third quarter 2023 earnings Conference call.
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I'd now like to turn the conference over to Charles Lambert Vice President. Please go ahead.
Good morning, and welcome to the medical properties Trust conference call to discuss our third quarter 2023 financial results.
With me today are Edward K, I'll Beg Junior Chairman, President and Chief Executive Officer of the company and Steven Hamner Executive Vice President and Chief Financial Officer.
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 medical properties Trust Dot com in the Investor Relations section.
Additionally, we're hosting a live webcast of todays 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.
<unk> 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.
<unk> 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 this 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 has reconciled all 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 medical properties Trust Dot com for the most directly comparable financial measures and related reconciliations.
I'll now turn the call over to our Chief Executive Officer, and Al DAC. Thank you Charles and thanks to all of you for joining US. This morning on our third quarter 2023 earnings call Steve.
Steve and I are pleased to be joined for today's discussion by two of our esteemed colleagues Rosa Hooper and Kevin Hana Road has been with M. P. T for 14 years, beginning as director and our asset management and underwriting group in 2016 Rose who took over full responsibility for that group of some 30 people.
Paul.
Just started her career in public accounting at among other rose served as Chief Financial Officer of Birmingham based hospital.
As our current senior Vice President of operations Rose is the perfect person to provide a detailed look at the strength and diverse nature of our portfolio and the reasons underpinning mpt's confidence in future cash rents.
Kevin joined M. P. T. In 2008, he started his career at Ernst and young and has nearly 30 years of public accounting experience before M. P. T. Kevin served as controller for fruit of the loom, a Berkshire Hathaway subsidiary.
Kevin currently serves as our senior Vice President Controller, and Chief Accounting Officer, and we felt his perspective would be valuable. In addition, two hours during the Q&A discussion today.
I want to begin by reiterating our conviction in the underlying strength of our core business for more than 20 years. Our business model is centered on profitable long term investments in hospital real estate. This business model has not changed our primary focus is on executing our current primary folk.
Because it wasn't executing a capital allocation strategy that will provide the liquidity to satisfy our debt maturities even dead it doesn't mature for several years.
Ultimately, we expect this strategy to enhance the available liquidity address our debt maturities and solidify our portfolio so for sustained long term value creation.
Upon successful execution will be well positioned for a return to growth.
In establishing this refresh capital allocation approach our board carefully considered the cash profitability of our current portfolio, particularly the cash flow impact of the recent and pending transactions.
We note that MPT has executed nearly $3 billion worth of asset sales over the past 18 months.
While these cells have generally been quite profitable they've also had a dilutive effect on a F F O that I'd like to address.
The net cash impact of all acquisitions and divestitures since the end of 'twenty 'twenty. One has been an adjustment to a F. F O of approximately a negative <unk> 21 per share.
And our previous dividend level that means asset dispositions alone would have increased our a M. Best boat payout ratio to the mid 80% range after considering cash interest savings.
And also considering the negative 16 cents per share impact of the prospect recapitalization transactions announced earlier this year.
Oh payout ratio would've approached 100%.
But right sizing the dividend level to a near term a F. F O payout ratio below 60%, we expect to preserve approximately $335 million of cash per year.
Notably our new dividend has been set to a comfortable level to absorb the dilutive effect of additional near term asset sales, which will obviously also be offset by some interest savings.
Importantly, since announcing this update strategy, we've already made significant progress through a series of open market transactions, we repurchased approximately 50 million pounds of notes due in December of this year.
And a few weeks ago, we closed on the sale of our four remaining Australian facilities for approximately $305 million or five 7% cap rate.
We are actively contemplating additional cells and sophisticated real estate health care and infrastructure investors.
Turning to express appetite for our assets on several occasions. This year that has already manifested in unsolicited offers for various assets we.
We recently engaged a leading financial adviser to help evaluate these offers and explore the sale of various assets around the world.
We will only execute transactions, if we can realize attractive prices that confirm underwritten asset values.
I'll now turn it to Rosa to update you on the performance of our portfolio during the past quarter.
Thank you and it's great to be able to participate in today's discussion for those of you that I haven't met outstanding essentially my entire career in health care and I've been with M E T for over 14 years.
Today I have overall responsibility for our business operations, including asset management and underwriting.
And this capacity I maintain regular contact with our tenants and I'm encouraged by what I've repeatedly heard from operators about the continued normalization of hospital utilization and cost trends in 2023.
As you will see in our supplemental information filed this morning, our tenants' operational performance, which as a reminder is reported one quarter in arrears.
Remain strong with trailing 12 month total portfolio EBIT dorm coverage of 2.4 times.
Let's go through some highlights across the portfolio beginning with our UK operations and circle health.
In late August Centene signed a definitive agreement to sell surplus out there right operations to peer out for $1.2 billion.
The transaction is expected to close in the first quarter of 2024 and no changes are expected to circle the operations or leadership from this sale.
That's private insurance coverage continues to expand in the U K. It's clear that investors are increasingly attracted to opportunities involving independent U K hospitals, which is of course, great news for the value of our real estate.
This is also reflected in the recent outstanding financial performance of M. A taste portfolio, let's circle facilities with revenues up 11% and EBIT dorm up 12% on a trailing 12 month basis year over year.
Shifting to prior rate, which has cemented itself as the largest independent mental health care provider in the U K by number of beds.
P T leases 37, behavioral health facilities to a priori.
These properties have maintained EBITDAR coverage of approximately two times since acquisition.
Kevin behavioral health trends across the globe, Paris pandemic occupancy rate and recent improvements that priory has made to staff recruitment and retention practices. We believe that can continue to deliver strong financial performance.
Priority is managed by one of the M. P. Tastes long term operators median which is based in Germany maybe.
Median has been a model tenet for roughly 10 years and is the leading player in the German private inpatient rehab market today. Our portfolio consists of 81 inpatient rehab facilities and our rents on these properties have steadily increased and now offer a cash yield approach.
<unk> double digit with EBIT dorm coverage reliably and the one and a half to two times range over the last decade.
Together primary and median or among Europe's leading full service rehab and mental health providers and we continue to be pleased with and confident about their role in our portfolio moving forward.
Sticking with Europe for a moment Swiss medical network continues to deliver strong performance with margins improving year over year.
With medical continues to advance development of the <unk> innovation hub, a new state of the art multi tenant lab training simulation platform and office space attached to their flagship acute care hospital.
Notably the Sana health, one of the leading health and accident insurers in Switzerland recently purchased an ownership stake and Swiss medical and a valuation well in excess of M. P tastes cost basis in the company.
Moving to our U S portfolio in September common spirit launched a new services platform focused on expanding access to equitable care or health analytics network management and care coordination.
We've been extremely placed with common spirit strong property level performance and excellent liquidity profile since taking over stewards, Utah properties in may.
Prime remains a coverage later in the portfolio with trailing 12 month EBITDAR coverage of four times.
Importantly, promise has been able to maintain the strong coverage in the face of unprecedented nursing shortages over the past two years because of their exceptional expense management discipline.
Ernest Health latest 29 properties from us, including both inpatient rehab and long term acute care hospitals and the aggregate Ernest has maintained steady EBITDAR coverage of greater than two times this year.
During the third quarter M. P. T commensurate rent collection from Ernest latest state of the art inpatient rehab facility in Lexington, South Carolina, which closely follows completion of their Stockton, California development the prior quarter.
Over time, we expect these new facilities to further strengthen ernest ability to drive revenue and cash flow.
Over the last few years of life point health has grown and evolved to become one of the more diversified health care delivery networks in the country.
Good day life point health operates not only acute care hospitals, but also behavioral health and rehabilitation facilities.
They recently had a successful debt offering that was oversubscribed, confirming lender and investor confidence and life point health promising growth trajectory.
Specific to <unk> portfolio of light points acute care business, we are beginning to see contract labor expense reductions related to their execution of strategic initiatives around nurse retention and physician recruitment efforts. Additionally, our life point acute care portfolio is reporting favorable.
Both surgical trends.
And notably since our acquisition of the life point behavioral portfolio in the fourth quarter of 2021. They have delivered sequential improvements in EBIT dorm coverage driven by strong admission trends and an increased focus on cost efficiencies across several areas.
I will now turn our discussion to two operators that have recently received considerable attention from investors as well as the M. P T team.
Before doing so it's important to note that my remarks, so far have encompass most of the top operators and the remaining 70% of our real estate portfolio.
Beginning with prospect recall that only their California hospitals will be a part of our portfolio going forward as expected prospect has resumed paying M. P. T cash rents for the sixth California properties.
These payments were received downtime in both September and October.
Turning to Stuart their hospital operations continued to perform well as evidenced by strong trailing 12 month EBITDAR coverage of two seven times.
In addition to cutting run rate expenses by nearly 600 million in the last 16 months more than 150 million in the last quarter alone in part due to a 90% reduction in contract labor utilization Steward believes it's making progress on its revenue cycle management and.
<unk> payable backlog.
With new technology, and dedicated resources focused on enhancing claims quality.
Reducing initial denials and resolving denials more quickly Stuart is reporting improved efficiency of collections.
Stuart expects these improvements will result in an incremental $50 million of cash annually based on current volumes.
And the third quarter Steward was also able to successfully upsides there new ABL of about $30 million. Further it is resuming a noncore asset sale program that Mackenzie recommended prior to the global pandemic, which is expected to provide significantly.
Significant liquidity to Stuart's balance sheet. So in summary, before I turn it to Steve we strongly believe M. P. T has constructed a unique portfolio of assets that is highly diversified by facility type.
Geography, and operator mix the vast majority of this portfolio is performing exceptionally well and is poised to capitalize on increasing global demand for health care services. Our leases are long term and Bob certain operators may hit some bumps in the road over the life.
Standard. These leases are portfolio is sufficiently diversified to ensure M. P. <unk> long term success state.
Thank you rose in.
This morning, we reported a GAAP net income of 19 cents and normalized F O with 38 cents per diluted share for the third quarter of 2023 there.
There are a few components of these reported results that I will point out and we will of course take questions in a few minutes.
First as expected and as Rosa already mentioned prospect commence cash rent payments of about $3 $3 million monthly on its California properties in September.
And as required to begin paying full rent in March on this $513 million portfolio at a mid 8% cash rental yield second similar.
Similar to our second quarter results, we recognized about $13 million or <unk> <unk> per share in noncash prospect rent and interest as a reminder, this is an accounting requirement, resulting from the recapitalization transactions that we announced in May of this year, which included Mpt's.
<unk> of certain real estate and other assets for interest in prospect managed care business PHP Holdings LLC.
This noncash and nonrecurring $13 million recognized as a portion of the rent and interest that would have been collected in 2020 Three's third quarter.
Moving forward, we do not expect to be required to book any additional rent and interest in connection with the May recapitalization.
Just to be clear our year to date statement of cash flows will not reflect either this or the $68 million recognized last quarter.
Third.
The approximate $47 million in noncash fair value adjustment is primarily comprised of about a 20 million dollar adjustment to our investment as with medical and about a $30 million adjustment to our interest in PHP holdings offset by some minor items to be clear the PHP fair.
Value adjustment is separate from the $13 million that I just described.
Finally, we have reached agreement in principle with a tenant group to exit our relationship that will result in our expected collection of approximately $17 million in previously deferred rent during the first half of 2024. There is also approximately $32 million of Unbilled straight line rent.
That was scheduled to be billed over the remaining term of the leases accounting.
Accounting rules require us to write off these amount even though we continue to expect collection of the deferred amount. These.
These adjustments are included in normalized <unk>.
Tenet is not among our top 10 in terms of investment actually only about 1% of gross assets.
Rental revenue or number of facilities.
Turning to operating expenses on a normalized basis adjusting for stock based compensation and the net tax impact of recent transactions such as the sale of our Australia properties. The UK reorganization as a REIT and certain other initiatives. We have successfully reduced total annualized operating expenses by approximately.
<unk> $19 million since the first quarter, we expect further sequential declines in the fourth quarter and going into 2024, our G&A and other operating costs and expenses are expected to be well below comparable full year 2022 levels.
As Ed discussed our near term strategy is focused on increasing our liquidity and demonstrating that we are well positioned to satisfy our debt maturities in coming years.
I'd now like to pick up on that discussion by sharing some additional detail on how we envision this strategy playing out over the next several quarters.
We continue to evaluate the potential sale of certain assets, including through joint venture structures.
<unk> secured financing of assets and possible amendment and extension of certain bank loans.
While we will not presently specify any particular assets that we're considering monetizing or the specific timing a possible transaction I can say that we are targeting approximately $2 billion of liquidity transactions over the next three to four quarters.
In the current credit market the prices offered by some property investors may be constrained, although there are buyers, who do not use leverage nonetheless in order to retain shareholder value with respect to properties that have strong coverage and ever increasing cash rent, we may elect to access liquidity.
Through prudently underwritten temporary and limited secured financing instead of permanently relinquishing value by selling assets into a higher rate environment.
And even in such an environment when the estimated current values of some of our hospitals are compared to our initial investment values. We are encouraged by the marketability for sale of those assets just a couple of examples.
<unk> mentioned, a few minutes ago the announcement during the quarter of the acquisition of circle by pure health, which is expected to close during the first quarter of 2020 for many of you will remember that we completed the acquisition of about 30 circle hospitals for $1 5 billion pounds in 2020.
The pure health acquisition places a value on circle operations of about three times higher than when we underwrote the 2020 transaction.
Second you will remember that last year prime repurchased at a very attractive IRR to MPT a portfolio of hospitals, including a facility near San Diego called Alberta, which MPT had owned for more than 12 years.
Merely as a point of reference for value indications and even though this fast but it was not strongly profitable it's.
It's virtually irreplaceable infrastructure characteristics yielded a roughly $200 million purchase price when prime recently agreed to sell the real estate and operations.
And as a reminder, unlike this 12 year old agreement that allowed prime a fixed price purchase option in return for above market rents during the lease virtually none of our remaining leases include such a fixed option price.
In other words, we would benefit from 100% of the real estate fair value increase.
Proceeds from such monetization transactions might first be used to reduce our revolver balances on which we most recently have paid interest at about six 9%.
As we recently deployed the Australian dollar $470 million of Australia sale proceeds toward.
Beyond that we believe successful execution of this strategy will afford us a number of attractive balance sheet options, including possibly tendering for discounted unsecured notes or simply reducing our revolver balances and holding cash against out year maturity of low coupon unsecured note.
To put a bit more specificity around anticipated debt reduction activities in December we expect to repay from on hand liquidity. The remaining 350 million pounds of maturing unsecured note.
The same note that we'd already repurchased 50 million pounds of at a discount during and after the third quarter.
Maturities in 2024 have an aggregate balance at current exchange rate of about $430 million we.
We expect to have access to ample resources to satisfy those 2024 maturities before even considering any expected proceeds from the sale of our Connecticut hospitals to Yale New Haven health, which we remain optimistic about.
Meanwhile, as Rosa discussed we continue to effectively execute our core business of collecting annually escalating cash rents from the vast majority of our tenants that likewise represent the vast majority of our cash flows.
Beginning with our interest in prospect managed care affiliate BHP Holdings, LLC I'll summarize a few key points.
HP continues to respond to questions from the California Department of managed health care and it remains php's and our expectations that the department will approve the reorganization.
However, our agreement with prospect basically provides that we will have.
A convertible note preferred equity or some combination of those whatever it is the economies are identical to us.
We account for our investment in PHP, either convertible debt or preferred equity on the fair value method as I mentioned, a few minutes ago, the fair value adjustment to PHP as of the end of the third quarter was about $30 million of course. This is an estimate of fair value and there is no assurance that any such estimate we will owe.
Timidly be realized.
Prospect expects to begin marketing the company soon and we continue to expect a transaction in 2024.
Meanwhile, we do not include any fair value adjustments in our normalized <unk> and <unk> metrics and we have not anticipated any transactions in connection with managing the out year debt maturities I just discussed.
That is no recovery from PHP is included in our $2 billion monetization target.
Turning to steward. This morning, we posted to our website some incremental supplemental information about our steward investments.
Steward strong facility level operations, we remain confident in the real estate platforms long term profit potential despite the near term cash flow headwind mentioned in the press release this morning.
The core reasons underpinning that confidence are the facilities continue to generate strong EBITDAR coverage of more than two times fixed rent payments. This is indicative of strong underlying patient flows that Stuart simply would not receive if not for its operating competence.
In both of stewards major market, the Boston area in South Florida.
Which when we include 100% of Massachusetts comprise about two thirds of the total steward.
These physical facilities are critical to the health care of the surrounding communities.
Absent some unexpected series of events, we expect that our real estate will remain fully occupied and operating as hospitals into the foreseeable future.
Importantly, the supplemental information posted this morning provide some more details regarding the temporary and limited working capital support MPT is occasionally extended to steward in the past.
With that we have time for a few questions and I'll turn the call back over to the operator.
Yeah.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
And our first question will come from Michael Carroll of RBC capital markets. Please go ahead.
Yeah. Thanks, Steve Alrosa could you provide some additional color on Stuart's working capital problems right. Now that you mentioned I know that you highlight there has been some improvement, but does stewart need to make additional improvements to kind of narrow the differences between the cash and GAAP results.
Yes, we expect to do and we'll continue to make improvements both on its operations and its revenue cycle management and by that of course, just to reiterate we we mean collecting more of their of their billings earlier than what has happened in the past and and so we absolutely expect.
A further improvement in that.
And could you talk about some of the issues right now with those receivables I mean are there concerns that they have receivables on the books that that can't be collected are gonna be collected that at a lower rate.
That's currently out there.
Sure Michael So the there is no concern at this time that they will not be collected there has been there have been system changes.
And so the technology is in place now are they have the people that they need and so there is no concern that it will that will have to be write offs surrounding the accounts receivable are they are working denials their denials have been higher than then.
Then they have wanted them today are higher than they should be and they are putting procedures in place to address that but no. There is no concern that that will not be ultimately collectible Mike a few years ago. They actually outsource. This this whole process, which isn't terribly uncommon, but it has always been everyone.
<unk> experienced or most likely been everyone's experience that's better handled in house and they brought it all back in house and they've made tremendous improvement in not only their cash collections, but the lack of initial denials now initial denials merely means could mean from an insurance company that are proper.
For more or something from the Doctor wasn't filed properly so although those have been great improvements.
And Michael I'll, just say I'll just add to that.
That the denial issue is not a stealer until insurance companies.
Have gotten more and more difficult from that perspective, and denials across the industry have increased.
You may have seen the ruling that CMS came out with recently that made it much easier for hospitals and doctors to admit patients under the Medicare advantage plan, that's exactly the type of thing.
Where insurance companies can't second guess the doctor's orders.
Okay, Great and then just last one for me I mean, how are these receivables accounted for in your GAAP coverage ratios I mean are they accounted for at the billable amount or is it being recognized at some lower more likely collectible type level.
No. It isn't net revenue that you know it's typical in health care.
But Michael on the receivables are collecting even even some that are more than 120 days, though there aren't there haven't been any discounts.
Okay, Alright, great. Thank you.
The next question comes from Vikram Malhotra of Mizuho. Please go ahead.
Thanks for taking the question. So just maybe following up on on Stewart.
I just wanted to understand from here on one if you is there a way you could give us sort of a what's the size of the of the receivables issue.
And perhaps you know are there any I'm, assuming they've also took back too.
Improved cash so perhaps there's they've also deferred some payables as well.
But just like magnitude wise, what's the size of the well.
Oh the.
The receivables issue in any payables and then this is dale.
Are you having in the future to provide perhaps another short term.
Credit to them.
Well first and foremost victim that is that is not the anticipation the plan the desire and we don't think it's necessary.
On the payables clear clearly the legacy payables that is the old payables continues to demand a lot of the profitability the profitable cash flow coming out of operations Ah Stewart is working that along at the same time is working on increasing the collections.
The third the third leg to that stool is Rosa mentioned in her prepared remarks, the very significant efficiency.
<unk> initiatives.
Cutting out $600 million plus of annual operations annual cash expenses going into 2024, all of that comes together to bring cash flow such that clearly theres still some old payables.
Steward continues to chip away at those and then the next step in again, we referred to this a very briefly the next step is working on the balance sheet.
Before the pandemic Stuart had a pending plans in place to <unk>.
To rationalize its overall operations.
Selling certain pieces of non hospital operations that is now being accelerated and is expected to provide a fairly significant amount of liquidity.
In the coming quarters, all of which is to say, we're where we're satisfied.
With steward effort and the success they've had a tangible success they've had in all of these initiatives and again just to repeat work working on the payables.
Paying that down out of increased cash flow that comes from our significantly reduced expenses and elevated improvements to two collections.
Okay, and just to clarify the question previously on the coverage reported.
The public sort of a pro forma cash flow number over the rent pro forma for all the changes that you've just described.
Oh no.
The GAAP number and no number yet nobody goes to a hospital any hospital and pays when they leave so that includes the insurance companies. So there is a delay in payment for everyone and this is done the same thing for every one of our coverages.
Okay. No I just thought it was it was mid acute over here. So I was wondering if there were any adjustment, but that's helpful.
Just one more so.
Laid out some of this aggressive plan and you also called out the rate environment, perhaps limiting that or maybe you change to more secured financing in the near term, but just can you give us a bit more color on how you're thinking that 2 billion shakes out.
<unk> plus is non U S any color even qualitatively.
What type of buyers exists today for the.
Yeah, given the rate environment for a hospital type assets.
So all very good questions.
The buyers.
Today, even in this rate environment include operators for example.
And again, you've seen even even in the last year, we've sold our facilities back to Prime for example, and and others.
Sovereigns, who remain interested probably weighted more towards Europe.
And higher acuity.
And then in the U S. At this time, but in the U S. In particular infra funds are.
And other managed assets that.
Again as I as I alluded to earlier arent IRR determined so by that I mean in order to make an attractive investment based on their return requirements. They don't need to load up on on high rate secured debt right. Now so those are the buyers and when combined.
With with that level of demand with real estate asset that I mean is this is this is not like office or retail that has really structural some would say even existential issues about keeping occupancy and rate hospital assets are long term.
Well cupboard absolute net leased with inflation protection and is drawing a significant amount of attention. So so even in this rate environment.
We're not seeing the kind of discount demands or lack of a market even that other types of real estate are having.
Okay. That's helpful. And then just one last if I may.
Given you had.
Barring the last year or so you've had a multi year period of growth external growth and now you're sort of.
Witching more more dispositions, reducing the batting average from a from a incentive to you know I guess senior management or leadership.
You envision or how you'd perhaps maybe the hurdles for out there or just other incentives may change as the strategy is changing going forward.
Well it does change.
It has changed and and of course, when when we filed the proxy you know in coming months Youll see that even in 2023.
There there were meaningful changes in.
And what the board is.
Is incentivizing management to do that.
There is.
No longer aggressive accretive growth that we successfully executed in earlier years, that's certainly not going to be what you see in the in the proxy that describes the 2023 plan and.
And I doubt very seriously that when the compensation Committee gets together to look at 2020 for you you'll see a continued evolution.
Towards fixing.
Assuring a good strong balance sheet and a return to access to affordable capital because the market we're in.
Remains in our view very very attractive.
The the the attraction to all of the buyers that I, just described whether its operators or sovereigns or our infra funds or pension funds.
<unk> continues to be drawn to these types of assets and part of the reason for that is their continued performance visa. The other types of real estate. When when you consider if you consider and you have to believe this that these truly are critical community assets that will remain occupied and operated by competent.
Hospital operators there.
We are eager to see a return to affordable capital. So we can continue to participate in that and as Ed mentioned earlier actually restart growth at at the appropriate time.
Great. Thank you.
The next question comes from Jonathan Hughes of Raymond James. Please go ahead.
Hi, there good morning.
Just unclear or do you still expect to file the financials.
For last year and if so when do you think you might have an expected timeline you can share.
We do when we receive the financials the audited financials with with Auditor consents are it's our expectation that we will file them.
So you see a desk.
Okay, I just want to make sure that was still the case.
And then maybe turning to the the the seven facilities that are being sold back to the tenant.
In the first half of next year.
I understand the operator's decision to buy them in the current higher cost of capital environment, where those subjects.
Our purchase option and it was and now or never.
And then maybe when.
When did those discussions beginning can you share your expected yield on that sale.
So I can give you some of those answers Jonathan so the properties that we have with his tenet actually performed fairly well. The coverages are good strong coverage is in the middle of our range.
Our range for those particular types of facilities they have issues with other facilities that other people own that we don't have anything to do with so from a corporate standpoint, that's where that's where their issues have come from.
Knowing the value of our properties have pushed them to fix their issues and they came back with hey, it may take longer than you're willing to do or you may take longer than you want what do we just buy them by these particular ones back from you.
And we said sure. If you can if you can make as whole we will do that so that that's where that came from.
Okay.
And then just are you able to share like again, the expected kind of yield on that or is that still under negotiation.
No I've got it under negotiation, but we generally as you know don't disclose those but it but it's a good good strong yield in today's market.
Okay.
And then maybe switching to another part of the portfolio I realize it's like it's not very big but just the outlook. If you could share kind of your views on the outlook for the long term acute care coverage there.
We need to understand a little bit lower while the other asset types of stabilized or even improved.
It's b potential divestiture opportunities within that expected $2 billion of liquidity over the next 12 months.
At least at least coverages.
We don't expect to see any further decline in those.
I'll also point out Jonathan most of them are part of larger portfolios that are master leased and it's not just <unk> and those portfolios folks.
So they're well covered at a master lease level.
Okay.
Last one for me and this is kind of going back to the the updated capital allocation strategy announcement from August.
And that was the discussion of kind of expected cost reductions are you able to share.
Like magnitude or timing you know what line items are being reviewed there we were.
Ex the litigation expenses, we noticed that your G&A is already down kind of mid teens year to date already so there's been good progress there, but just curious how much more savings we can expect over the next 12 months or so.
Well, yes to the extent we commented in our prepared remarks that continued.
Sequential but by that we mean in the fourth quarter, we expect to see further reduction.
Virtually are virtually every line item of course, we're looking at and Youre seeing those reductions so that going into 2024 and of course, we have we haven't announced any guidance yet but.
But compared to 2022, we.
We expect to see double digit annualized reduction in.
And in those costs.
And the reason the comparison as 2022. It goes obviously 2023 has been a very transitional year already.
Yes.
Alright. Thank you for the time I appreciate it thank you.
The next question comes from Mike Mueller of Jpmorgan. Please go ahead.
Yeah, Hi, I guess first given the comments about having ample liquidity to address near term maturities just curious why you're considering tapping new secured debt.
Well the reason would be because of the credit environment that we're in now and that translates into for a lot of buyers not all of them, but for a lot of buyers that rely on that it drives the purchase price down now and to the extent you believe that maybe this environment. We're in now.
How is is is not long lasting or not permanent it's.
It's better for us all else equal to borrow against those assets rather than permanently give a value by virtue of selling them and again to be to be clear and to reiterate.
I wouldn't expect that.
We would do all $2 billion under secured debt it would be limited temporary and.
And frankly, not that dilutive given where we're paying interest right now in any case.
Okay, and then I guess you kind of touched on the next question for the $2 billion of new liquidity should we think of that as largely coming from asset sales with only a minor portion of that coming from this secured debt or.
Any kind of ballpark guidance on on a mix of those two yeah I just don't know about the timing.
The pricing the cost and in the character so.
Other than to repeat you know it would be limited secured debt then that's probably as far as I'd be able to predict.
Okay, maybe last one here if I could sneak one more in any high level commentary on.
What your what Youre seeing expecting thinking about.
Cap rates on an asset sales given the current environment.
Youre evaluating.
Well nothing specific other than to absolutely acknowledge that cap rates are are elevated vis vis where they were even six months ago as you can imagine and that again.
Is why we may not you know under certain circumstances, we may not be willing to take those cap rate. We may prefer because we know our rent on those assets will continue to increase at at least inflationary levels. Then we may prefer to monetize on a temporary basis versus selling into a high cap.
Got it okay. Thank you.
The next question comes from Connor Silver <unk> of Wells Fargo. Please go ahead.
Hi, everybody. Thanks for having me on the call.
Just another one on Stuart looking at the rent coverage, but the figures represented hope to be at the facility level I'm, just trying to get any indication of what those numbers could look like coverage at the corporate level.
Well.
If you look at their corporate level remember that it includes a lot of other things than just the hospitals. So when you look at it.
If you try to take what the actual M would be on the facility levels.
If you reduce that Jeff.
Just by that amount coverage goes down to just over two times.
Okay. Okay understood and then just one more on the secured debt question for Steve.
I can't ask for individual properties, but is $2 billion. The maximum amount of gross assets that you would use to collateral collateralized such an instrument.
We I mean, we.
We don't have anything we're looking at that that.
But thats not what the $2 billion would meant to imply the $2 billion I meant to imply liquidity of $2 billion, so and again without being able to even to predict.
The answers to Mike's earlier question, how much is secured debt how much is sale. It is you should not look at that $2 billion as being a collateral value.
Okay understood and then just last one jumping back to Stuart.
On the ABL I know there were some transactions MPW selling off a piece of.
The exposure, but any indication of what the total draw is on that ABL right now.
No I think I think that's.
First of all I don't know and secondly, I think thats more for Stuart but yeah.
Yeah.
Okay understood. Thank you for the time.
Thank you.
The next question comes from.
<unk> of Deutsche Bank. Please go ahead.
Okay.
Yeah.
Hey, good morning, everyone.
I'll come back I'll come back to US we missed you guys I appreciate it.
Right.
Next question.
Yeah.
Yeah recap on this idea of kind of $2 billion.
Net sales.
And unsecured debt.
Curious when you think about asset sales.
And just the overall structure of the company at this point.
Opportunity do you think you may have potentially sell assets that may be the street does not give you guys a lot of value for us.
You know I asked about things like I've gotten a lot of investors.
Thank you operator.
And investments you may have in the market.
The average investor may not be.
Knowledgeable about that might get like Colombia or.
Spain or somewhere like that.
Okay.
We actually have interest in every single one of the things you just said with maybe maybe not as much excitement about the old tech portfolio, but certainly from an acute care of the earth. The behavioral and every every geographic location that we have obviously, it's not the same buyers for each one of one of those areas.
I think the biggest thing that the street doesn't give us credit for that is there which is that we will we will have we have tremendous interest for these assets at a greater than our net book value.
Gotcha, but do you see value and maybe again focusing on selling some of those things you don't get credit for that but the story become simpler.
We are in many ways when investors too.
Kind of calculate what you're asking.
Value is.
So we understand that and we understand we don't get credit for that we do actually have some investors that are interested in that but keep in mind, it's a very small number.
Gotcha Okay.
Helpful.
And then just.
Another quick question just around steward.
Well I think you did mention that you'd be filing the financials and and they kind of have this whole planning anything else happening there in regards to I know they have a bunch of them that is unchanged.
You know earlier on at the beginning of this year have those positions filled and kind of from a strategy perspective as the company kind of.
Well have a well rounded management team again.
Yes, we are.
Very comfortable with their management team and I suppose the two that you're referring to the first one is Sanjay who was the president of the company for a little while he left are under very good circumstances. These state of the company and his and stewards request for a fairly long time after you announced that he.
Was going to a managed care company still maintain a very good relationship with them.
And then the other one primarily I think you're referring to would have been the chief financial officer that was there for a very short period of time that was replaced with a former chief financial officer. So yes, we are very comfortable with the management team.
Great. Thank you.
Our last question comes from Josh <unk> of Bank of America Merrill Lynch. Please go ahead.
Yeah, Hey, guys.
Josh.
One follow up on the secured financing I guess, how should we think about the rates that you could potentially achieve unsecured financing Bruce maybe just like the unsecured market right now.
Well I don't think the unsecured markets available to US right now so much probably are at best an apples and oranges comparison.
Okay, but what about the rate on unsecured note today.
Yeah, I think as you probably know better than than we even it will depend on the.
On the asset type on the coverage are on on the quality of the asset on the term and other other less direct.
Components like <unk>.
Who and if there's a guarantor and so on and so forth, but you.
We we probably Wouldnt publicly announced what we think we would take.
Other than to maybe say way below what the implied rate.
Secure yeah, yeah that makes yes exactly.
Okay. That's helpful and then.
Seven facilities that you're I guess, you're going to sell back to the tenet.
Sorry, if I missed it but did you say like what the cash proceeds would be from those sales I think I heard you get $17 million of deferred rent back just not though so I said I said that we would not only get the deferred rent back, but we would also be made whole on our investment.
Okay.
We did we did say it's about 1% of total so you could probably do that arithmetic.
Okay, Okay, Sir alright, thanks, guys.
Thanks very much all.
This concludes our question and answer session I would like to turn the conference back over to Albert <unk> for any closing remarks.
Again, thank you all for listening in today and as always if you have any additional questions. Please reach out to drew or to them and they'll get the right person with you. Thank.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Yeah.
Yes.
Yeah.
Yeah.