Q4 2024 Medical Properties Trust Inc Earnings Call
Good morning everyone and welcome to the Q4 2024 Medical Properties Trust Earnings Conference Call.
All participants will be in a listen-only mode. Should you need assistance, signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones. To withdraw your questions, you may press star and two.
Please note that today's 16-minute event is being recorded.
Speaker Change: At this time, I'd like to turn the conference call over to Charles Lambert, Senior Vice President. Please go ahead.
Thanks for watching!
Charles Lambert: Thank you and good morning. Welcome to the Medical Properties Trust conference call to discuss our fourth quarter and full year 2024 financial results.
Charles Lambert: With me today are Edward K. Aldag, Jr., Chairman, President, and Chief Executive Officer of the company, Stephen Hamner, Executive Vice President and Chief Financial Officer, Kevin Hanna, Senior Vice President and Controller, and Chief Accounting Officer.
Charles Lambert: Rosa Hooper, Senior Vice President of Operations and Secretary, and Jason Frapp, Managing Director, Asset Management and Underwriting.
Charles Lambert: Our press release was distributed this morning and furnished on Form 8K with the Securities and Exchange Commission.
Charles Lambert: If you did not receive a copy, it is available on our website.
at medicalpropertiestrust.com in the investor relations section.
Charles Lambert: Additionally, we're hosting a live webcast of today's call, which you can access in that same section.
Charles Lambert: 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.
Charles Lambert: 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.
Charles Lambert: We refer you to the company's reports filed with the Securities and Exchange Commission for discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call.
Charles Lambert: 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
Charles Lambert: 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.
Charles Lambert: 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.
Charles Lambert: You can refer to our website, medicalpropertiestrust.com, for the most directly comparable financial measures and related reconciliations.
Thank you for watching!
Charles Lambert: 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 fourth quarter 2024 earnings call. I'm pleased to be joined again today by Steve, Kevin, Rosa, and Jason.
Charles Lambert: Before you hear from the rest of the team, I'll spend a few minutes covering a few important recent strategic updates.
Charles Lambert: We entered 2024 with a plan to execute $2 billion in liquidity transactions.
Charles Lambert: We significantly outperformed that target by executing approximately $3 billion in liquidity transactions during the year. Sales that repeatedly provided third-party validation of our real estate underwriting.
Charles Lambert: In early 2025, we were able to further strengthen our liquidity, issuing more than $2.5 billion of seven-year secured bonds at a blended coupon of $7.88.
Charles Lambert: With this successful offering, we now have more than enough liquidity to cover all upcoming debt maturities through 2026.
Charles Lambert: Taken together, these actions clearly showcase the resilience of our business model and demonstrate that our diverse global portfolio of hospital real estate remains very attractive to both real estate investors and operators.
Charles Lambert: Last quarter, we discussed Prospect Medical Group's liquidity challenges, primarily resulting from stalled sales process across various East Coast markets.
Charles Lambert: In January, Prospect commenced Chapter 11 bankruptcy proceedings, citing a confluence of factors leading up to this decision, ranging from the impacts of COVID-19 and labor cost inflation to reimbursement challenges to pension obligations.
Charles Lambert: This has been a very different process from steward bankruptcy since the beginning.
Charles Lambert: We've been working collaboratively with all other stakeholders, including quickly engaging with prospects' advisors to reach a consensual resolution of various issues.
Charles Lambert: In a short time, we reached a global settlement agreement that will allow Prospect to more effectively market and sell its hospitals along with the related real estate and avoid the delays, uncertainty, and cost of a prolonged litigation.
Charles Lambert: The proceeds from these asset sales will be allocated primarily to MPT and Prospect's other creditors.
Charles Lambert: We've also agreed to provide $25 million in funding to supplement the new outside debtor-in-possession funding that Prospect obtained at the outset of the bankruptcy process.
Charles Lambert: While this agreement remains subject to court approval, with this settlement in place, all parties should be moving forward with the same objectives and we believe this restructuring process will position us for enhanced recoveries.
Charles Lambert: MBT has more than a 20-year track record of successfully deploying capital into critically healthcare structures.
Charles Lambert: A cornerstone to our underwriting process is to ensure that each facility is needed in their community, functioning like an infrastructure asset.
Charles Lambert: Over the years, MBT has bought over 500 hospitals during our history, and virtually all of those hospitals remain hospitals to this day.
Charles Lambert: There is no better validation of our underwriting than the fact that we buy hospitals and the facilities stay open providing essential health care services to their respective communities.
Charles Lambert: While 2024 was a challenging year in many respects, we are proud of our ability to remain relentlessly focused on delivering on our objectives.
Charles Lambert: As a result of our team's extraordinary efforts throughout the year, we now have a stronger balance sheet and a more diverse operator mix.
Charles Lambert: Global healthcare expenditures continue to grow, hospital buildings are expensive, and one thing that's clear is hospitals need access to affordable capital to continue to innovate and serve patients in their communities.
Charles Lambert: As such, we believe our business model is more important than ever.
Charles Lambert: In recent days, there has been very much focus in Washington on budget savings that may be possible through changes to Medicaid. We actually applaud and encourage this.
Charles Lambert: First, and I make this point only because we have a number of new investors who may not be fully familiar with our business model.
MPT gets zero revenue from Medicaid.
Charles Lambert: Certainly, some of our lessees do, but even that is a relatively small portion of total net revenue, and moreover, it's not very profitable, so it contributes little to our tenants EBITDARM results.
Charles Lambert: Second, an enormous amount of the cost to the government of Medicaid goes to programs that have nothing to do with hospitals and other true medical costs.
Charles Lambert: And we believe that savings from potential Medicaid restructuring may be directed into actually providing acute health care to beneficiaries.
Charles Lambert: We are entering 2025 with a great deal of confidence in our ability to continue to execute our strategy.
Charles Lambert: The vast majority of our portfolio continues to generate predictable rent payments, and as we said last quarter, assuming no additional changes to our portfolio, and inclusive of our share of real estate joint ventures.
Charles Lambert: We expect total annualized cash rent of more than $1 billion once our new tenants are fully wrapped.
Charles Lambert: With our debt and maturities covered through 2026, the road is clear for the rebound to take shape.
Charles Lambert: The future is bright for NPT and we look forward to the year ahead. With that, I'll turn it over to Rosa.
Rosa: Thank you, Ed. Turning now to some of the highlights across our portfolio, we've seen a continuation of many of the same trends discussed last quarter.
Rosa: Hospital fundamentals are clearly strengthening with admissions and surgical volumes growing and against that backdrop all asset types in our portfolio reported continued improvement in coverages on both a sequential and year-over-year basis.
Rosa: I'd like to begin today with what we see at the six new operators recently added to our portfolio.
Rosa: As we disclosed last year when we announced our new leases with these operators, contractual cash rent ramps up between January 2025 and October 2026.
to an aggregate quarterly run rate of about $40 million.
Rosa: Only one of the tenants has been obligated to commence cash rent payments and has done so. The largest tenant is scheduled to commence cash rent payments on March 1 and recently fully paid that rent early.
Rosa: Honor Health now operates three MPT owned hospitals in the Phoenix metro area representing approximately 300 of Honors roughly 1,400 licensed beds in the area.
Rosa: Patient satisfaction scores are increasing and Honor is focused on physician alignment and upgrading facilities as they continue to progress towards volume recovery. Honor has also embarked on an impressive technology transformation effort at these facilities.
Rosa: HSA took over operations at eight hospitals in South Florida, Texas, and Louisiana.
Rosa: Notably, the first thing the HSA team did was stabilize the supply chain serving these hospitals. This helped to clear a key hurdle to recruiting back many of the excellent surgeons that had previously left.
Rosa: Through extensive community outreach and improved relationships with EMS, HSA has also quickly increased both emergency department volumes and discharges across the portfolio.
Rosa: Weekly cash collections are improving, and we are encouraged by several cost-saving initiatives being implemented.
Quorum Health assumed operations for two facilities in West Texas.
Rosa: Staff levels are increasing and Quorum is reporting a high level of excitement and support from the local team.
Rosa: Supplies are readily available again, meaning patients no longer need to be diverted to other hospitals in the area, and fourth quarter inpatient volumes were up 35% versus 2023.
Rosa: Insight Health operates the Hillside and Trumbull facilities in Ohio where staff levels have stabilized and supplies have been readily available since they took over operations.
Rosa: At Trumbull, Insight plans to continue the surgical residency program, expand the cardiac services department, and open a neuroscience center.
Speaker Change: College Health, which specializes in psychiatric care, is now operating one MPT behavioral health facility in Phoenix. In December, the facility received a limited license to open one of its 22 bed units and they are already at full capacity.
Speaker Change: College Health anticipates receiving the license to open the remainder of the facility during the first quarter.
Speaker Change: Finally, a few weeks ago, in close collaboration with the Pennsylvania Attorney General, we reached an agreement for TenorHealth to take over operations at Sharon Hospital in Pennsylvania.
Speaker Change: Tenors team impressed MPT, local officials, and the Attorney General with their plan to turn around profitability at Sharon.
Speaker Change: by implementing superior clinical protocols, expanding service lines with a focus on primary care and outpatient services, and implementing acuity-based staffing models.
Speaker Change: In short, we are confident that all of these facilities are in better hands today and well positioned to deliver quality care to their local communities.
For more information visit www.FEMA.gov
Speaker Change: The new operators are taking the right steps to ramp operations and resume partial monthly rent payments this year.
Speaker Change: Turning to our more established portfolio of operations, we'll begin as we always do in Europe with the UK, where private medical insurance utilization has hit an all-time high.
Speaker Change: Circle Health is a clear beneficiary of this trend, reporting consistent growth in private medical insurance volumes.
Speaker Change: As mentioned last quarter, surplus performance also continues to benefit from improved patient acuity mix as more complex cases are now being addressed in the private sector.
Speaker Change: Circle continues to focus on being the UK's most innovative and technologically advanced hospital provider with significant investments in robotics, AI, fully digital pathways, and online booking.
Speaker Change: Priory, the largest independent mental health care provider in the UK, has continued to report steady performance with increased acuity mix driving strong reimbursement trends.
Speaker Change: Revenue and EBITDA performance are both up by double-digit percentages year-over-year.
Speaker Change: Behavioral health referral patterns from the NHS are expected to normalize in 2025, following minor disruption from the change in the UK government ruling party in 2024.
Speaker Change: Turning to Priory's parent company, Median in Germany has continued to deliver solid performance through the third quarter, with year-to-date revenues outpacing prior year, driven by increased occupancy and an improving reimbursement rate environment.
Speaker Change: Swiss Medical Network reported an EBITDAR increase of more than 11% during the third quarter driven by revenue growth and cost optimization efforts.
Speaker Change: Following September's opening of the Janelier Innovation Hub, we received our first rental payments during the second half of the year.
Turning to the U.S.
Speaker Change: Ernest Health's consolidated EBITDARM coverage remains excellent at 2.1x, with Ernest's legacy IRFs continuing to deliver coverages above 2.5x.
Speaker Change: As discussed last quarter, given the success of its first inpatient rehab unit at the Provo LTAC, Ernest is progressing plans to implement this model at LTACs in other markets during 2025.
Speaker Change: Life Point Health continues to deliver strong, top-line growth driven by increased admission.
Speaker Change: Kahneman Memorial has been the most significant driver of this, with discrete quarter admissions up 23% year over year.
Speaker Change: Further, LifePoint reported significant year-over-year EBITDARM increases in October and November driven by increased admissions, improved reimbursement rates, and benefits from supplemental funding programs.
Speaker Change: Life Point Behavioral's consistent year-over-year admissions growth and strong labor cost management led to another quarter of improved operating performance.
Speaker Change: To further increase revenues looking ahead, Lifepoint Behavioral is particularly focused on increasing outpatient volumes.
Speaker Change: Scion helps revenues increase by high single digits year-over-year, driven by higher admission volumes and patient days at its general acute facilities.
Speaker Change: Coupled with continued contract labor declines, trailing 12-month EBITDARM at Scion's General Acute Facilities continues to increase sequentially and year-over-year.
Speaker Change: In closing, we are pleased with the continuation of strong performance trends across our portfolio this quarter.
Speaker Change: Our portfolio is better diversified than ever before, and we are confident in the ability of these operators to generate sustainable cash flows for MPT over the near and long term.
Speaker Change: Thank you, Rosa. This morning we reported a gap net loss of $413 million and normalized FFO of $0.18 per share for the fourth quarter of 2024.
Speaker Change: and a gap net loss of $2.4 billion and normalized FFO of $0.80 per share for the full year period.
As we previewed in the January 29th 8K filing,
Speaker Change: which accompanied our January senior secured notes offering, impairments and other adjustments related to prospects, Chapter 11 bankruptcy process, impacted our GAAP results, and resulted in adjustments to normalized FFO in the quarter by approximately $415 million.
Speaker Change: This impairment, along with a negative fair value adjustment related to PHB holdings, even though this entity is not part of the bankruptcy, approximated roughly one-third of the previous investment.
Speaker Change: and Prospect. These adjustments to our various investments related to Prospect were made according to third party appraisals and proposed restructuring terms which remain subject to court approval.
Speaker Change: Actual recoveries related to any specific prospect-related investment or as a whole may ultimately differ from those adjusted book values.
Speaker Change: Further, we impaired our mortgage investments in Columbia by approximately $19 million as the government continues to limit reimbursement to hospitals.
Speaker Change: We did receive $10 million in the quarter as a rent catch-up payment for a small tenant subject to cash-based accounting. This $10 million is reflected as revenue in the quarter and included in normalized FFO.
Speaker Change: With that, I will hand the call over to Steve to discuss our recent capital market activities and strategies going forward.
Thank you, Kevin.
Speaker Change: Earlier this month we completed the two senior secured notes offerings that Ed mentioned, aggregating more than two and a half billion dollars at a blended coupon of less than eight percent.
Speaker Change: The offering was more than five times oversubscribed and the collateral of highly diversified real estate assets was underwritten at a 65% loan to value reflecting the quality of the collateral pool
Speaker Change: The level of investor demand, the attractive coupon, and the valuation of the collateral, along with other considerations, validate, yet again, the quality of our healthcare real estate.
Speaker Change: That portfolio quality remains even after our aggregate $4 billion in sales, loan repayments, and secured financings over the last two years.
Speaker Change: The secured notes offerings cap off two years of transactions aggregating six and a half billion dollars in dozens of diverse assets that have individually and in the aggregate proved the deep market for sophisticated global private capital that remains attracted to healthcare real asset infrastructure.
Speaker Change: Importantly, these market transactions have proved that our real estate investments have maintained, in fact increased, their values through five years of a once-in-a-century pandemic that saw virtually all hospitals closed.
Industry-wide disruption to staffing and cost of critical employees.
Speaker Change: Generationally high levels of inflation, worldwide constraints to credit markets, and steep spikes in interest rates.
With the recent Secured Notes transactions, we pivoted.
to a longer term and more comprehensive horizon.
Speaker Change: and in the cliche words of some, ripped the Band-Aid off and cleared the runway and fully addressed maturities for the next two years at once, rather than continue, however successfully, to execute on a quarterly basis.
Speaker Change: Simultaneously with the notes issuances, we amended our bank credit facility so that it now shares in the same collateral pool as the secured notes.
Speaker Change: This amendment, with virtually 100% participation and the strong endorsement of our longstanding relationship banks, maintained the full credit facility commitment of about $1.5 billion.
effectively extended its maturity to June of 2027.
Speaker Change: increased to 40% our ability to secure unencumbered assets and actually reduce the cost of the facility.
Speaker Change: With about $1.4 billion in cash and undrawn revolver liquidity, the credit agreement and indenture covenants provide flexibility for continued execution of balance sheet strategies. And we are, and expect to remain, in compliance with all of these covenants.
Thank you for watching!
Speaker Change: All of that is to point out that after completing the secured notes transactions, the runway provided by addressing almost three years of debt maturities in this single offering allows thoughtful considerations of next steps.
Speaker Change: steps that we believe will further improve our FFO, lower our leverage calculations, and drive equity value.
Speaker Change: These next steps overcoming quarters may include additional asset sales or joint ventures, other potential portfolio repositioning and rationalization transactions.
Speaker Change: benefiting from the contractual rent ramp-up of the recently re-led hospitals primarily in the Florida, Texas, and Arizona markets.
Three years of contractual rental escalations on our global portfolio.
and potentially macroeconomic and credit market improvements globally.
Speaker Change: That's not to mention the potential impacts of our expected resolution of the prospect bankruptcy or the two hospitals under construction in Massachusetts and Texas.
Speaker Change: The blended secured notes rate of 7.88% is of course higher than the debt it repays.
Speaker Change: That's the case with almost any borrower, regardless of credit rating, that today is refinancing debt issued during the long period of extraordinarily low rates in the years following the financial crisis.
Speaker Change: And we, of course, recognize that some of the increased coupon for MPT is related to company-specific recent history.
But there are a few points to highlight.
Speaker Change: First, it is not a surprise that market rates may increase over the terms of our leases.
That's why we require inflation-referenced annual rent escalators.
Speaker Change: The scheduled annual increases in our cash rents, often at rates higher than the increases in market interest rates, are designed to effectively maintain the net spread over our cost of debt capital.
Speaker Change: In return for accepting this rate dilution, we now have the flexibility and time to carefully execute the available balance sheet strategies I just mentioned.
Speaker Change: including continued reestablishing cash rents from facilities we transitioned to new operators late last year.
Finally, while the new secured notes have a seven-year term,
Speaker Change: We also have certain early redemption options that, depending on future market rates and our execution of further balance sheet strategies, will allow us to take advantage of lower rates when appropriate.
Speaker Change: Meanwhile, as we continue with the potential transactions over coming quarters, we have a platform from which we expect to grow earnings even without additional capital.
Speaker Change: Starting with the fourth quarter reported 18 cent normalized FFO as a baseline, we would point out a few considerations.
Speaker Change: The incremental interest expense related to the secured bond offerings will be on a pro forma quarterly basis about $26 million, or $0.04 per share.
Thank you for watching!
Speaker Change: Prospect, the rent and interest for which we have recognized only as cash is received since the start of 2023, made no payments in the fourth quarter.
Speaker Change: So any future income or expense reductions resulting from the resolution of prospect will be on its own additive to results from operations
Speaker Change: Similarly, as part of the global settlement we discussed last quarter,
Speaker Change: In the third and fourth quarters, we re-tenanted facilities with an aggregate lease base of approximately $2.1 billion, but received no cash rents and recognized only limited straight-line rent accruals in the fourth quarter.
Speaker Change: Again, as rent pursuant to these new leases is received and recognized over the next eight quarters, this revenue will be additive to operating results.
Speaker Change: Based on these contractual requirements, and as we previously reported, contractual cash rent from these facilities is scheduled to ramp up to about $40 million per quarter, or an incremental $0.06 per share, by October 2026.
Speaker Change: To reiterate Rosa's earlier comment, one of the leases required cash payments starting in January, and that was paid timely.
Speaker Change: And the master lease for more than half of the $2.1 billion, covering hospitals in Florida, Texas, and Louisiana, actually paid early the rent that commences in March.
Speaker Change: In recent years, we commenced construction of a handful of new hospitals and capital improvements for certain of our long-time tenants. These are detailed on page 15 of the fourth quarter supplemental.
Speaker Change: We posted that to our website this morning. When completed, we will earn market lease rates on these investments. Additional revenue that we estimate will total about $10 million annually obviously is not included in this morning's reported fourth quarter 18 cents.
Speaker Change: We are also prudently completing construction of two hospitals that we started before stewards declined in distress and bankruptcy, what we call Norwood and Wadley.
Speaker Change: As we progress with construction, we are simultaneously marketing both facilities for sale or lease and have reason to be confident that both will be attractive to hospital operators.
Speaker Change: Until we have more assurance about the timing of any agreements to sell or lease these hospitals, we intend to limit construction to a stage of protective weatherization of the buildings.
Speaker Change: We estimate the remaining cost to progress to this stage aggregates approximately $30 million.
Speaker Change: Depending on the terms of any future negotiations with prospective lessees, we may agree to fund additional costs to fully complete construction.
Speaker Change: The impact of any prospective revenue and interest expense savings will be somewhat offset by an additional interest expense or cost to complete.
Speaker Change: So, looking forward over the next several quarters, subsequent to the use of proceeds from this month's secured note offerings, we start 2025 with liquidity sufficient to satisfy debt obligations up to October 2027.
Speaker Change: A portfolio of highly attractive and unencumbered health care real assets, multiple options to continue to improve the balance sheet in coming quarters, and near-term operations that we expect to continue to generate strong and growing FFO in returns to our shareholders.
Speaker Change: With that I will turn the call back to the operators to queue up any questions.
Speaker Change: Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and then 1 on your touch-tone telephones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys.
To withdraw your questions, you may press star and two.
Speaker Change: We also do ask that you please limit yourselves to one question and a single follow-up.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Thank you for watching!
Speaker Change: Our first question today comes from Austin Warschmidt from KeyBank Capital Markets. Please go ahead with your question.
Thank you for watching!
Speaker Change: Hi, this is Vikram Garwal on for Austin. Thanks for taking our questions. Was hoping you could provide some additional color on Prospect. Specifically, is the plan to sell all the real estate previously leased to Prospect or is it possible that you would keep and release some of the facilities like what you own in California?
Thanks for watching!
Speaker Change: Thank you, Vikram. The settlement agreement is fully described in the bankruptcy court filings as are the benefits to MPT and the debtor entering this agreement. It is of course subject to court approval. In general though, MPT is now treated as a secured creditor, generally behind only the senior debt lender.
Speaker Change: Prospects Advisors will now seek resolutions that provide the best financial results to the creditors, which is mainly us.
Speaker Change: This may include sales of hospital real estate and operations together, sales of operations and real estate separately.
Speaker Change: Sales of Operations and a New MPT Lease. Some combination of these.
Speaker Change: The financial statements we posted this morning reflect the best information we have about the ultimate realization in the aggregate of our prospect investments.
So the somewhat long-winded answer to your question is it's
Speaker Change: simply uncertain right now. There are several buckets of assets, including Philadelphia, Connecticut, Rhode Island, and very importantly, California. These will likely resolve separately.
Speaker Change: These will almost certainly resolve separately and perhaps in different manners. And so it's just simply, you know, not possible to predict how each one resolves.
Speaker Change: Okay, understood. And beyond prospect, are there any other asset sales that you're currently evaluating at this time?
No, we haven't announced any other pending sales.
Speaker Change: Let me take that back, I think maybe last quarter we announced some small sales and there's a couple of those still pending that certainly well under an aggregate of $100 million.
Understood. Thank you.
Speaker Change: Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead with your question.
Michael Carroll: Yeah, thanks. Rosa, I wanted to touch on your comments regarding the new tenants taking over the former steward assets. I mean, can you remind us, has enough time passed for these tenants to be cash flow positive before rent? I know there's always a delay between billing and collecting.
Michael Carroll: Patients Revenues. So has enough time passed where they're actually cash flow positive now, like excluding your rent?
Yes, so most of these operators went in in September.
Michael Carroll: It varies greatly the timing that it takes for Medicare to do their thing, particularly as one of the large payers.
Michael Carroll: But, yes, cash collections are coming in, certainly they are ramping up still, which is the reason that we provided the ramp up in rental payments.
Michael Carroll: But to answer your question, Doug, certainly the vast majority of them are cash flow positive at this point.
Doug: Okay, and then how should we think about the ramp-up in rent? I mean, I know the $90 million annualized target in 4Q24, I mean, so will they pay a quarter of that $90 million because it's an annualized run rate? And then the expectations for the ABLs to be paid back, is that by the end of this year?
For more information visit www.FEMA.gov
Doug: So the answer to that second question is yes, certainly by the end of this year and we think we think
Doug: well within that period. It's not a ratable ramp-up. There are, what, six different lessees involved here, and each of them have different terms and timing of their ramp-up. So it's not ratable. You can't simply take 25 percent of the $90 million.
in quarter one and expect that to be the rent.
Speaker Change: Okay, and then just last one for me. I guess, James, you made a comment about a catch-up payment of $10 million in the quarter from a smaller tenant. Is that the 1% tenant that you previously mentioned, and should we expect that that tenant will continue to pay rent going forward?
Speaker Change: That is the 1%. It may not be the full $10 million every quarter, but there will be continued payments. And they have made payments in January, February, and March already.
Speaker Change: Okay, so are they current on their rent right now? They are.
Okay, great. Thank you.
Speaker Change: Our next question comes from Jordan Dinko from Mizzou Hope. Please go ahead with your question.
Speaker Change: Hey, this is Giorgi from Vikram. I just wanted to touch base. We noticed one of the tenants' cordian health services coverage went from 0.9 times to 0.7 this quarter. Can you just provide more color on what led to the decline and if there is anything there we should be worried about?
Thank you for watching!
Speaker Change: So, that tenet is our Colombian asset, and as we've mentioned publicly, that country continues to struggle with...
Speaker Change: the leadership as they try to navigate through some health care reform. So, the facilities that we have are continuing to see
Speaker Change: at capacity. And so it's not a product of operations, it's more a product of the health care reform going on in the country. And, Georgie, this isn't just our facilities. We actually have two sets of facilities operated by different operators, but it's countrywide. So right now the government is paying a lot of their fees and IOUs. We have the utmost confidence that they will catch up.
Speaker Change: Thank you. That's helpful. I just have a follow-up on the dispositions, the 100 million of sales that you mentioned. What was the cap rate on those and then just going forward if you need to dispose any assets, do you see more opportunities domestically or in the international markets?
Speaker Change: So let me just be clear. I used a very broad range there. I don't think it's really close to 100 million. I said it's well less than 100 million. I think it totals probably about 50 million. Those are all U.S. assets there. It's a aggregate of several small ones. But to answer your bigger question then,
Speaker Change: As we've demonstrated, as I mentioned in my remark over the last two years, we've sold dozens of facilities, $6.5 million either sold or refinanced.
Speaker Change: that covers UK, Europe, the US, Australia, every type of asset that we have, whether it be general acute or behavioral or post-acute.
Speaker Change: There's nothing, as I mentioned earlier, that is pending that we've announced, but that remains, as you point out, asset sales remain an opportunity, a lever for us to pull as we go forward to access additional liquidity and equity.
Thank you for watching!
Great, thank you.
Speaker Change: Our next question comes from Mike Mueller from J.P. Morgan. Please go ahead with your question.
Mike Mueller: Yeah, hi, I guess with with the mentality of let's rip the band-aid off and given the demand that you talked about with the Offering why not upsize it even more just to completely take care of all of 26 maturities You know outside of the stuff coming due in October
Mike Mueller: Well, it was certainly available to us, as you might imagine, with the five-and-a-half times oversubscribed book and the very attractive coupon we got. But we were driving coupon, I mean, to be very frank. We were driving coupon, number one. Secondly, we don't need it.
Speaker Change: Thirdly, why not upsizing it further than the $2.5 billion, plus or minus?
Speaker Change: We retain flexibility for the various strategies that I mentioned, including further asset sales. We have the capacity, clearly, to do additional secured financings. That's not on the table, you know, at present.
Speaker Change: But it generally, by not upsizing, gave us the coupon we wanted. We are able to address everything in 2025 and 2026, and we retain the flexibility.
Speaker Change: Frankly, we think to come back for even better terms in different structures.
Okay, thank you.
Speaker Change: Our next question comes from John Klitschkowski from Wells Fargo. Please go ahead with your question.
Good morning, thank you.
Speaker Change: Maybe just kind of following up on all the capital markets activity in the quarter, I just have a question on sort of, you know, were there any amendments to the credit agreement? And I believe last time we spoke there was a discussion about covenants were waived up until September of 25. Would you expect to be in breach of any covenants, I mean, from now through that point?
Speaker Change: So, specifically with respect to the amendment we negotiated in the third quarter, I think the third quarter of last year, all of that went away.
Um...
Speaker Change: And in fact, we reverted to, as I mentioned earlier, we reverted from a 25% to a 40% ability to secure unencumbered properties. The rate actually went down.
Speaker Change: And again, I probably couldn't remember the various components of that amendment that was going to be effective through September of 2025, but that's totally gone now.
Speaker Change: Okay, very helpful. And then, I guess, is there any expectation about collecting rent from any of the co-op payments expected to happen this quarter?
Speaker Change: There's nothing new on that. The most significant exposure to QOF is, as you may know, the prospect, California, which I think now it's scheduled to come in in March and April.
Thank you.
Got it. Thank you.
Speaker Change: Our next question comes from Farrell Grenoth from Bank of America. Please go ahead with your question.
Thank you.
Could you repeat that, Carol?
Speaker Change: Oh, sorry. I was curious about the encumbered versus unencumbered assets, their general percentage.
Well, the...
Speaker Change: The bond offerings along with the credit facility security totals about a little over $6 billion is encumbered, the remainder unencumbered.
OK.
Speaker Change: Thank you for that. I guess also I appreciate the comments in the beginning in terms of the possible Medicaid cuts that could be expected. I was curious if you give us a little bit more comment on
Speaker Change: Maybe thoughts of worst case versus best case scenario and if there would be any other pressures beyond Medicaid even if it comes in the form of Medicare that you would see affecting your tenants.
Speaker Change: So it'd be kind of hard to give you a color on that hypothetical of a question.
Speaker Change: I think what we said in the prepared remarks is that we believe there is room in Medicaid, even in Medicare, for items that don't affect hospitals.
that could take care of some...
Speaker Change: I don't want to call it abuse, but places where they can make changes in both of those. We think that at this particular point that both parties believe that health care is important and we believe that it will continue to be essentially where it is today.
Okay, thank you. I appreciate it.
Speaker Change: And our next question comes from Umetayo Okasanya from Deutsche Bank. Please go ahead with your question.
Umetayo Okasanya: Yes, good morning everyone. Congrats on all the progress. I just wanted to follow up on the prior question about the covenant.
Speaker Change: In the kind of new secured credit agreement, any kind of covenants around kind of being able to fully access?
Speaker Change: the capacity of the line or anything like that in the new arrangement that we should be aware of?
Thank you for watching!
Speaker Change: No, we have full access to the line and when I mentioned a little earlier that our total commitment remains.
Speaker Change: was unaffected, remains at 1.5 billion. 1.3 billion of that is the revolver, and as of recent days, we have probably around 100 million Euro drawn on that, no more than that.
That's super helpful.
Speaker Change: And then also on the other prior question around the encumbered versus the unencumbered asset.
Speaker Change: Is there a way to get a better sense of the 167 assets that are encumbered?
Thank you for watching!
Speaker Change: Yeah, so right now, I'll tell you again to repeat myself.
Speaker Change: We have the ability to encumber up to 40% of our assets. Today, after the bond deals, we're at about a little more than half of that.
Speaker Change: I answered, I think Farrell's question earlier, if you convert that to nominal dollars we're about at a six-ish billion dollar encumbrance and maybe another, after adjustments, you know, maybe another five or six billion unencumbered now.
Speaker Change: So that's what's available to us under the current governance. That's speaking, as you point out, very high level, very general.
Speaker Change: And, again, that's part of what gives us the flexibility, the cushion to execute, you know, these various strategies that we've been talking about.
Speaker Change: Can I ask, is the unencumbered pool more U.S. assets at this point versus European assets?
Speaker Change: Without looking at it, and I certainly couldn't get back to you, but maybe it's a little bit more weighted toward U.S. Okay, that's helpful. Thanks again.
Thank you for watching!
Speaker Change: And ladies and gentlemen at this time we'll be concluding today's question and answer session. I'd like to turn the floor back over to Ed Aldag for closing remarks.
Thank you for watching!
Ed Aldag: Thank you, Jamie. And as always, if anybody has any additional questions, please reach out to Drew or Tim and we'll get back with you quickly. Thank you again for your time.
I'm out. Bye. Bye. Bye.
Speaker Change: And ladies and gentlemen, with that we will conclude today's presentation. We do thank you for joining. You may now disconnect your lines.
Thank you for watching!
Thank you for watching. We'll see you next time.