Q2 2025 Medical Properties Trust Inc Earnings Call
Thank you for standing by my name is John and I will be your conference operator today at this time I would like to welcome everyone to the medical properties Trust second quarter 2005 earnings Conference call.
So that we can be a different bet any background noise. During the 60 minute call. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time take the breasts are followed by the number one on your telephone keypad. If you feel like or withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Charles Lambert.
Senior Vice President. Please go ahead.
Charles Lambert: Thank you and good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2025 financial results. With me today are Edward K. Aldag Jr., Chairman, President, and Chief Executive Officer at the company; Stephen Hamner, Executive Vice President and Chief Financial Officer; Kevin Hanna, Senior Vice President, Controller, and Chief Accounting Officer; Rosa Hooper, Senior Vice President of Operations and Secretary; and Jason Fry, Managing Director, Asset Management and Underwriting. Our press release was distributed this morning and furnished on Form 8K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at medicalpropertiestrust.com in the Investor Relations section. Additionally, we're hosting a live webcast of today's call, which you can access in that same section.
Thank you and good morning.
Welcome to the medical properties Trust conference call to discuss our second quarter 2025 financial results.
With me today are Edward K, how that junior Chairman, President and Chief Executive Officer of the company.
Steven Hamner Executive Vice President and Chief Financial Officer.
Kevin Hannah Senior Vice President controller, and Chief Accounting Officer.
Rosa Hooper senior Vice President of operations, and Secretary and Jason Fry, managing director of asset management and underwriting.
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 are hosting a live webcast of todays 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. 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. 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. 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.
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 $19 95 days.
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.
We refer you to the Companys 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 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. 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 medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.
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.
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 will now turn the call over to our Chief Executive Officer, Ed <unk>.
Edward Aldag: Thank you, Charles, and thanks to all of you for joining us this morning on our second quarter 2025 earnings call. Before you hear from the rest of the team, I'll spend a few minutes discussing the state of the healthcare market and a few recent strategic updates. In early July, the US Congress passed the One Big Beautiful Bill Act introducing Medicaid funding changes and work requirements for the Affordable Care Act. These changes are expected to be phased in over the next decade to allow ample time for hospital operators to adjust their businesses as necessary. And as providers digest this impact, we expect they will increasingly explore innovative capital solutions, creating greater need for MPT's business model to enhance financial flexibility and operational agility. MPT's objective has always been to offer hospitals permanent capital solutions that facilitate greater focus on patient care.
Thank you Charles and thanks to all of you for joining US. This morning on our second quarter 2025 earnings call.
Before you hear from the rest of the team I'll spend a few minutes discussing the state of the health care market and a few recent strategic updates.
In early July in the U S Congress passed the one big beautiful Bill lag introducing Medicaid funding changes and work requirements for the Affordable Care Act.
These changes are expected to be phased in over the next decade to allow ample time for hospital operators to adjust their businesses as necessary and as providers Digest. This impact we expect they will increasingly explore innovative capital solutions, creating greater need for MPD business model too.
<unk> financial flexibility and operational agility.
<unk> objective has always been to offer hospitals permanent capital solutions that facilitate greater focus on patient care and we are committed to today as ever to doing our part to ensure hospitals can continue serving the communities that they rely on.
Edward Aldag: And we are committed today, as ever, to doing our part to ensure hospitals can continue serving the communities that they rely on. Shifting to a few important updates from the quarter, as Rosa will discuss in detail shortly, our portfolio of new tenants continues to report encouraging performance trends, and rental income associated with these facilities is increasing rapidly as planned. Whereas in the first quarter of this year, we reported approximately $3.4 million in cash revenue from these properties, that has increased to $11 million this quarter. We expect it to reach approximately $17 million by the third quarter. In fact, three of these new operators have already ramped up to fully owed monthly contractual amounts. The new operators have done an impressive job to enhance operations, upgrade facilities, and attract top doctors and patients. And we look forward to continuing to partner with them moving forward.
Shifting to a few important updates from the quarter as Roger will discuss in detail. Shortly our portfolio of new tenants continues to report encouraging performance trends and rental income associated with these facilities is increasing rapidly as planned whereas in the first quarter of this year, we reported approach.
$23 4 million in cash revenue from these properties.
It increased to $11 million this quarter, we expected to reach approximately $17 million by the third quarter. In fact, three of these new operators have already ramped up to fully.
<unk> monthly contractual amounts the.
The new operators have done an impressive job to enhance operations upgrade facilities and attract top doctors and patients and we look forward to continuing to partner with them moving forward.
Edward Aldag: Turning to our European portfolio, in June, our joint venture in Germany announced a successful €702 million euro refinancing transaction at a 5.1% fixed rate. Steve will discuss this transaction in more detail, as it's an important demonstration of investor appetite for high-quality healthcare infrastructure in Europe and further validation of our ability to access low-cost capital. With steady contributions from our stabilized portfolio and a rapidly ramping portfolio of new operators, we remain confident in our ability to reach total annualized cash rent of more than $1 billion by year-end 2026. Rosa?
Turning to our European portfolio in June our joint venture with in Germany announced a successful 702 million Euro refinancing transaction at a five 1% fixed rate.
Steve will discuss this transaction in more detail.
An important demonstration of investor appetite for high quality health care infrastructure in Europe, and further validation of our ability to access low cost capital with steady contributions from our stabilized portfolio and are rapidly ramping portfolio view operators, we remain confident in our ability.
To reach total annualized cash rent of more than $1 billion by.
By year end 2026.
Rosa.
Rosa Hooper: Thank you, Ed. Turning now to some highlights from across our diverse portfolio of operators around the world. Overall, our tenants continue to report growing admissions and surgical volumes, translating to increasing EBIT/DARM coverage ratios across asset types year over year. I will begin with our international portfolio. Circle remains focused on being the UK's most innovative and technologically advanced hospital provider, with significant investments in robotics and AI. Circle's trailing 12-month EBIT/DARM coverage continued to increase in the second quarter, year over year. Priori, the largest independent mental healthcare provider in the UK, has maintained steady performance with top-line growth driven primarily by increased patient acuity and EBIT/DARM coverage of around 2.3 times. Priori expects that NHS England's recently announced 10-year health plan, which includes commitments for mental health services, will result in a more integrated, inclusive, and resilient health system that they are uniquely positioned to support.
Thank you Ed turning now to some highlights from across our diverse portfolio of operators around the world overall, our tenants continued to report growing admissions in surgical volumes translating to increasing EBIT darn coverage ratios.
<unk> asset type here over year, I'll begin with our international portfolio.
<unk> remains focused on being the UK innovative and technologically advanced hospital provider with significant investments in robotics and AI.
<unk> trailing 12 month EBIT darn coverage continued to increase in the second quarter year over year.
Primary <unk>, the largest independent mental health care provider in the U K has maintained steady performance with top line growth driven primarily by increased patient acuity and EBIT darn coverage of around two three times.
<unk> expects that NHS, England recently announced 10 year Health plan, which includes commitments for mental health services will result in a more integrated and places and resilient health system that they are uniquely positioned to support.
Rosa Hooper: Shifting to continental Europe, in Germany, Median has delivered excellent year-over-year improvements in revenue and earnings, driven by strong occupancy trends and increasing reimbursement rates. This performance drove a competitive and successful refinancing that Steve will review in more detail shortly. During the quarter, MPT increased its equity investment in the Infracore joint venture by approximately 50 million Swiss francs, inclusive of a 25 million Swiss francs short-term loan to facilitate the acquisition of a general acute facility in Switzerland and pay down debt. In June 2025, Evis, the parent company of Swiss Medical Network, held its first Capital Markets Day in the newly opened Genolie Innovation Hub event space. This event highlighted Swiss Medical's stellar performance with 21% year-over-year revenue growth in the first quarter of 2025, driven by significant expansion of its outpatient network and integration of new sites.
Shifting to Continental Europe in Germany median has delivered excellent year over year improvements in revenue and earnings driven by strong occupancy trends and increasing reimbursement rates.
This performance drove a competitive and successful refinancing that Steve will review in more detail shortly.
During the quarter MPT increased its equity investment in the end for core joint venture by approximately 50 million Swiss francs inclusive of a 25 million Swiss franc short term loan to facilitate the acquisition of a general acute facility in Switzerland and.
Pay down debt.
In June 2025, <unk>, the parent company of Swiss Medical network held its first capital markets day, and the newly opened generally a innovation hub event space.
Event highlighted Swiss medical stellar performance with 21% year over year revenue growth in the first quarter of 2025% driven by a significant expansion of outpatient network and integration of new sites.
Rosa Hooper: Turning to the US, Ernest Health's EBIT/DARM coverage increased to 2.3 times, sustaining a trend of sequential quarterly increases over the past year as new developments ramp. Legacy Earth are delivering impressive results with May 2025 trailing 12-month coverage exceeding 2.8 times. As discussed in previous quarters, Ernest continues to execute an action plan geared towards becoming more rehab-focused by establishing inpatient rehab units within its LTACs following the success of its first inpatient rehab unit at the Provo LTAC. LifePoint Health again reports strong top-line revenue growth driven by increased admissions, particularly at Conemaugh Memorial, where trailing 12-month admissions increased 18% year over year. As a result, LifePoint's EBIT/DARM coverage increased significantly year over year. LifePoint Behavioral reported higher admissions growth year over year. Surgery Partners delivered another quarter of excellent performance with EBIT/DARM coverage of approximately seven times.
Turning to the U S. Ernest Health EBIT darn coverage increased to two three times sustaining a trend of sequential quarterly increase increases over the past year as new developments ramp legacy or are delivering impressive results with may 'twenty.
25% trailing 12 month coverage exceeding two eight times.
As discussed in previous quarters, <unk> continues to execute an action plan geared towards becoming more rehab focused by establishing inpatient rehab units within its L tax following the success of its first inpatient rehab unit at the <unk>.
Life <unk> Health again report strong topline revenue growth driven by increased admission, particularly economy memorial were trailing 12 month admissions increased 18% year over year as a result live EBITDAR coverage.
Increased significantly year over year.
Slide point behavioral reported higher admissions growth year over year.
Surgery partners delivered another quarter of excellent performance with EBIT darn coverage of approximately seven times.
Rosa Hooper: In the South Florida market, HSA reports volume improvement coupled with successful implementation of several cost-saving initiatives. Discharges for the first six months of 2025 are almost 7% higher than the same period in 2024, and successful physician recruitment efforts have led to recoupment of lost surgical volumes, which are outpacing 2024 volumes. In Louisiana, Glenwood's discharges in the first half of 2025 are almost 11% higher than the same period in 2024, and the local team is focused on opening additional beds as the volume demands. And at St. Joseph Hospital in Texas, HSA's effective physician recruitment efforts have resulted in discharges that are back in line with 2024, while surgical volumes are 3% ahead of 2024. HonorHealth in the Phoenix metro area has been focused on executing its self-funded CapEx strategy and upgrading facilities ahead of anticipated volume recovery.
In the South Florida market HSA report volume improvement coupled with successful implementation of several cost saving initiatives.
This charges for the first six months of 2025 or almost 7% higher than the same period in 2024.
And successful physician recruitment efforts have led to recruitment of lost surgical volumes, which are outpacing 2020 for volumes and.
In Louisiana, Glenwood's discharging in the first half of 2025 or almost 11% higher than the same period in 2024 and the local team is focused on opening additional bad as the volume demand.
And at St. Joseph Hospital in Texas, HSA effective physician recruitment efforts have resulted in discharges that are back end line with 2024, while surgical volumes are 3% ahead of 2024.
On our health in the Phoenix Metro area has been focused on executing its self funded capex strategy and upgrading facilities ahead of anticipated volume recovery incur.
Rosa Hooper: Encouragingly, requests for applications to join the medical staff have been up approximately 20% since HonorHealth took over operations. Quorum Health is now paying 100% of its monthly rent, on which they are fully current. In Odessa, admissions and surgical volumes have been stronger than expected. Importantly, the Quorum team is focused on ramping up OB services, including the neonatal intensive care unit, which is a vital service line in the Odessa community. In summary, our transitional portfolio is quickly ramping performance and rent payments as expected, and our other tenants from around the world are delivering consistent performance driven by healthy volume and cost trends. Put simply, MPT's portfolio is well positioned to continue to generate significant cash flow and create value for shareholders moving forward. Kevin?
Encouragingly request for applications to join the medical staff have been up approximately 20% since honor health took over operations.
<unk> health is now paying 100% of its monthly ramp on which they are fully current.
SaaS admissions in surgical volumes have been stronger than expected.
Importantly, the core obtained its focused on ramping up <unk> services, including the neonatal intensive care unit, which is a vital service line in the Odessa community.
In summary, our transitional portfolio is quickly ramping performance and rent payments as expected and our other tenants from around the world are delivering consistent performance driven by healthy volume and cost trends put simply mpt's portfolio is well.
<unk> to continue to generate significant cash flow and create value for shareholders moving forward Kevin.
Kevin Hanna: Thank you, Rosa. This morning, we reported a normalized FFO of 14 cents per share for the second quarter of 2025. The normalized FFO result is notable because the quarter was fully loaded with the incremental quarterly interest related to the $2.5 billion in refinanced debt we completed earlier this year, the cost of which was substantially offset by the substantial increase as scheduled in cash rents from tenants that last year replaced Stewart. Similarly, additional unconsolidated interest expense related to our German JV refinancing will fully impact Q3 results. Lower G&A expense also impacted GAAP results, primarily driven by reduced stock compensation expense. This decreased stock compensation expense results from a change in the fair market value of 2024 performance-based equity compensation, of which no shares have vested.
Thank you Rosa this morning, we reported normalized <unk> of <unk> 14.
Per share for the second quarter of 2025. The normalized <unk> result is notable because the quarter was fully loaded with the incremental quarterly interest related to the $2 $5 billion and refinance debt. We completed earlier this year the cost of which was substantially offset by the substantial increase as scheduled and cash rents from tenants that lag.
To replace Stuart Similarly, additional unconsolidated interest expense related to our German JV refinancing will fully impact Q3 results.
Lower G&A expense also impacted GAAP results.
Primarily driven by reduced stock compensation expense. This did this decreased stock compensation expense, resulting from a change in the fair value fair market value of 2020 for performance based equity compensation of which no shares that vested and to remind you no shares are even eligible for vesting unless the share value.
Kevin Hanna: And to remind you, no shares are even eligible for vesting unless the share value equals at least $7 by December 31st, 2027. As in our historical practice, we reversed the impact of this favorable adjustment in our normalized results. We recorded approximately $111 million in net impairments and fair market value adjustments, primarily related to our investment in PHP based on a closed sell to Astrana that was previously reported. There were other immaterial adjustments to carrying values, including routine adjustments to marketable securities that also included in the aggregate of net impairments and fair market value adjustments. The carrying values of certain assets related to Prospect are subject to resolution of matters pending in the Prospect bankruptcy, including whether the court will approve certain changes to the debtor and possession arrangements.
At least $7 by December 31, 2027.
And then as is our historical practice, we reverse the impact of this favorable adjustment in our normalized results.
We recorded approximately $111 million and net impairments in fair market value adjustments, primarily related to our investment in PHP based on the closed cell to Strana that was previously reported there are other immaterial adjustments to carrying values, including routine adjustments to marketable securities.
Also included in the aggregate of net impairments in fair market value adjustments, the carrying values of certain assets related prospects are subject to resolution of matters pending in the prostate bankruptcy, including whether the court will approve certain changes to the debtor and possession arrangements to the extent. These matters are resolved prior to the companys filing of its 10-Q.
Kevin Hanna: To the extent these matters are resolved prior to the company's filing of its 10-Q, the impact of such resolutions may need to be reflected in the 10-Q and may vary possibly materially from the results we present today. I will now hand the call over to Steve to discuss our liquidity and capital strategy moving forward. Steve.
The impact of such resolutions may need to be reflected in the 10-Q and may vary possibly materially from the results. We present today I will now hand, the call over to Steve to discuss our liquidity and capital strategy moving forward Steve.
Steven Hamner: Thank you, Kevin. I just have a couple of points to highlight about our earnings report. First, the hospital real estate we re-tenanted late last year continues to generate the cash rents as expected. There was virtually no cash rent from those operators in last year's fourth quarter, a little less than $4 million in the first quarter, $11 million during the second quarter, and that is scheduled to continue to increase to $17 million next quarter. Rosa already spoke about the strong operations reported by these tenants, all of which validates the hospital real estate business model in general and our historical underwriting of these facilities in particular. To remind you, beginning in October 2026, we expect to be collecting 100% of fully ramped rent, totaling about $160 million on an annualized basis.
Thank you Kevin.
I just have a couple of points to highlight about our earnings report first the hospital real estate, we re tenanted late last year continues to generate the cash rents as expected there.
There was virtually no cash rent from those operators in last year's fourth quarter, a little less than $4 million in the first quarter $11 million during the second quarter and that is scheduled to continue to increase to $17 million next quarter.
Rosa already spoke about the strong operations reported by these tenants all of which validates the hospital real estate business model in general and our historical underwriting of these facilities in particular.
To remind you beginning in October 2026, we expect to be collecting 100% of fully ramped rent totaling about $160 million on an annualized basis.
Steven Hamner: In fact, as of the start of 2025's third quarter, contracted annualized cash rent represents more than $60 million, or almost 40% of the fully ramped-up rent. And we have collected all but 3% of July rent as of today. Second, and as Kevin just pointed out, second quarter interest expense is fully loaded for the incremental cost of the $2.5 billion in new secured notes we issued mid-first quarter. But on a quarter-to-quarter basis, the growing rental income substantially offset that incremental interest expense. All else equal, and there is no assurance that all else will remain equal, as we go into the third quarter, the expected further increases in cash rents should more directly drop to the bottom line. Now, just a few observations about the balance sheet, all of which are consistent repeats from previous quarters.
In fact as of the start of 2025 third quarter contracted annualized cash rent represents more than $60 million or almost 40% of the fully ramped up rent.
And we have collected all but 3% of July rent as of today.
Second and as Kevin just pointed out second quarter interest expense is fully loaded for the incremental cost of the $2 5 billion in new secured notes, we issued mid first quarter.
But on a quarter to quarter basis, the growing rental income substantially offset that incremental interest expense all else equal and there is no assurance at all else will remain equal as we go into the third quarter. The expected further increases in cash rents should more directly dropped to the bottom line.
Now just a few observations about the balance sheet, all of which are consistent repeat from previous quarters.
Steven Hamner: For the second consecutive quarter, we completed a substantial refinancing transaction, most recently with the previously announced secured refi of our German joint venture. Two inarguable conclusions are evident. Our assets have not only retained but increased their values. Multiple sophisticated global institutional investors and lenders completed detailed physical and financial diligence, including independent appraisals that resulted in strong value growth in these JV assets. That's consistent with the strong valuations that attracted seven times oversubscription of the $2.5 billion in secured notes in February. Following that February issuance that had a blended rate of slightly less than 8% and an underwritten to a very attractive underwritten 65% LTV, this most recent JV refi was executed at a low fixed rate of only 5.1%, a surprise to many analysts, especially in light of the 10-year term.
For the second consecutive quarter, we completed a substantial refinancing transaction. Most recently with the previously announced secured refi of our German joint venture.
Two an arguable conclusions are evident.
Our assets have not only retain but increase their values.
Multiple sophisticated global institutional investors and lenders completed detailed physical and financial diligence, including independent appraisals that resulted in strong value growth in these JV assets.
That's consistent with the strong valuations that attracted seven times oversubscription of the $2 5 billion in secured notes in February.
Following that February issuance that had a blended rate of slightly less than 8% and an underwritten to.
Very attractive underwritten and 65% LTV.
This most recent JV refi was executed at a low fixed rate of only five 1% a surprise to many analysts and especially especially in light of the 10 year term.
Steven Hamner: This was a competitive process with an outcome that continues to demonstrate the depth of the global market for well-underwritten hospital real estate, proving that MPT has multiple avenues for access to affordable capital. The $30 million sale in the second quarter of a standalone LTAC at an amount close to our original investment, along with a handful of additional transactions we expect in the near future, aggregating more than $100 million, are priced at amounts near or in excess of our basis, continuing to demonstrate the resilience of our underwriting in maintaining the values of hospital real estate. These pending sales are all subject to binding contracts, one which we expect will benefit our prospect recovery waterfall. Finally, virtually every major decision we have made over the last year has been based on increasing our financial flexibility as we consider further balance sheet options.
This was a competitive process with an outcome that continues to demonstrate the depth of the global market for well underwritten hospital real estate.
Moving that MPT has multiple avenues for access to affordable capital.
The $30 million sale in the second quarter of Standalone al Tac at an amount close to our original investment along with a handful of additional transactions, we expect in the near future aggregating more than $100 million.
Priced at amounts near or in excess of our basis continuing to demonstrate the resilience of our underwriting and maintaining the values of hospital real estate.
These pending sales are all subject to bonding contracts, one, which we expect will benefit our prospect recovery waterfall.
Finally, virtually every major decision we have made over the last year has been based on increasing our financial flexibility as we consider further balance sheet options. These are decisions to sell assets re tenant valuable hospital real estate with carefully attenuated cash rental schedules that are performing and paying as expected.
Steven Hamner: These are decisions to sell assets, re-tenant valuable hospital real estate with carefully attenuated cash rental schedules that are performing and paying as expected, refinancing debt, taking the dilution associated with early redemption of lower-rate debt as we satisfy all near-term maturities, and extending our maturity horizon to give us a long runway for execution of operational strategies that will build equity value. So today, we retain the optionality that execution of these strategies has provided us. We are not pressed for time as we continue to execute, and this quarter's growth in contractual cash rents is demonstrative of that execution. We retain all the options that we have described in earlier quarters. We have valuable hospital real estate that is available for monetization. This may include joint venture capital. We have clearly demonstrated the opportunities for further debt refinancing.
Refinancing debt, taking the dilution associated with early redemption of lower rate debt as we satisfy all near term maturities and extending our maturity horizon to give us a long runway for execution of operational strategies that will build equity value.
So today, we retain the optionality that execution of these strategies has provided us we're not pressed for time as we continue to execute and this quarter's growth in contractual cash rent is demonstrative of that execution. We retain all of the options that we have described in earlier quarters, we have valuable hospital real estate that is available.
Alible for monetization. This may include joint venture cap, we have clearly demonstrated the opportunities for further debt refinancing and.
Steven Hamner: And as we continue to execute and grow earnings, we look forward to further reduction in our cost of capital, leading to increases in our equity valuations. We will continue to evaluate the best approach and use of these options at the appropriate time. And with that, I'll turn the call back to the operator to queue any questions. John?
And as we continue to execute and grow earnings we look forward to further reduction in our cost of capital leading to increases in our equity valuations.
We will continue to evaluate the best approach and use of these options at the appropriate time.
And with that I'll turn the call back to the operator to queue any questions John.
John (Conference Operator): Thank you. As a reminder to everyone, if you would like to ask a question, that is to press star one on your telephone keypad. Please submit yourself to one question and one follow-up. We will pause for a moment to compile the Q&A roster. Thank you. Your first question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
As a reminder to everyone. If you would like to ask a question that express star one on your telephone keypad. Please limit yourself to one question and one follow up a little pause for a moment to compile the Q&A roster. Thank you.
Your first question comes from the line of Michael Carroll with RBC capital markets. Please go ahead.
Michael Carroll: Yeah, thanks. Can you guys provide some color on HSA's performance and how confident are you that 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?
Yes. Thanks can you guys provide some color on <unk> performance and how confident are you that that rent ramp will occur as expected I.
I guess when or have they already started paying cash rents I guess when does that specifically commence and your lease agreement with them.
Edward Aldag: Well, Mike, you must have missed the early part of the call. 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.
To remind you must have missed the early part of the call of 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.
Michael Carroll: And are you still confident that they can ramp up as written in the lease?
And are you still confident that they can that can ramp up as has Britain and lease.
Edward Aldag: Yes. We are very impressed with what they've done with the hospitals. The way they brought doctors that were previously operating at Stewart that left during the bankruptcy have come back, and we believe they're doing a good job.
Yes.
We are very impressed with what they've done with the hospitals the way. They brought doctors that were previously operating at Stuart that left during the bankruptcy you come back and we believe they are doing a good job.
Michael Carroll: Okay. And then, Ed, I guess in the bankruptcy filings with Stewart, there was a claim from a lender that HSA was in default on a loan. I mean, it sounds like that issue was resolved. I mean, are they still in default on that loan, or can you kind of describe HSA's credit and if they're in default on any other issues outside of MPW?
Okay, and then Ed I guess in the bankruptcy filings with stewards. There was a claim from a lender that HSA was in default on alone.
It sounds like that issue was resolved I mean are they still in default on that loan or can you kind of describe HSA is credit and if theyre on default on any other issues outside of MPW.
Edward Aldag: Well, Mike, that was well described in the various court filings. Just to remind you, when they took over from Stewart September the 11th, Stewart had not paid into the supplemental payment for Florida. There was approximately 28 some odd million dollars that was due and a $55 million payment that would then come from the state of Florida. HSA chose to borrow that money from a lender and pay that money into the state of Florida, and it took the state of Florida longer to repay that because the Stewart, the people that were running Stewart post the bankruptcy or post filing bankruptcy, decided to file a claim on that money even though they hadn't paid any of the supplemental payment taxes for that. And you're right. That has been resolved, and that lender has been mostly paid back.
So Mike that was well described and the various court filings.
Just to remind you when they took over from stores September the 11th Steward had not paid into the supplemental payment for Florida. There was approximately 28, some odd million dollars that was due in a $55 million payment is due with income from the state of Florida.
HSA chose to borrow that money from a lender.
And pay that money into the state of Florida, and it took the state of Florida longer to repay that because the steward were people that were running steward post the bankruptcy of a post filing bankruptcy.
<unk> to file a claim on that money, even though they hadn't paid any of the supplemental payment taxes for that and Youre right that has been resolved and that.
Debt lender has been mostly paid back I believe theres, a small amount of money still outstanding from both the state and then from HSA to that lender.
Edward Aldag: I believe there's a small amount of money still outstanding from both the state and then from HSA to that lender. It's nothing to do with operations.
Nothing to do with the operations.
Michael Carroll: Okay. Great. No, I appreciate that. And then just lastly for me, and I know that, you guys discussed this a little bit in the prepared remarks, but can you talk a little bit about the prospect recovery process? I know that PHP proceeds were lower than expected. is that, was that impaired in your financial statements in the other bucket? And I guess can you talk about, like, what's the timeline of the expectations of if MPW could collect anything in addition to, I guess those PHP loans kind of in the, the prospect bankruptcy case?
Okay, Great No I appreciate that and then just lastly from me and I know that.
You guys discussed this a little bit on the prepared remarks, but can you talk a little bit about the person from prospect to recovery process I know the PHP proceeds were lower than expected.
Is that was that inherent in your financial statements and the other bucket and I guess can you talk about <unk>.
What's how whats the timeline of the expectations of if MPW could collect anything in addition to.
Those PHP loans kind of in the prospect bankruptcy case.
Edward Aldag: So, Mike, again, if you follow through the bankruptcy of this particular entity, we reached a global settlement with them, I believe it was in January of this year, January, February, something along those lines, that has a waterfall. So everything goes into a bucket and then flows out. The PHP process, I think Astrana paid something in the neighborhood of $700 plus million dollars. The vast majority of that ended up going to repaid debt and legal fees and consulting fees. And so that's why the small amount flowed through to MPT. We believe that the sulking horses for both Connecticut and California will be announced fairly soon. And then we believe that shortly thereafter, the auction will take place, and we will move forward with closing on these properties. Still a lot of interest, particularly in the California properties.
So again, if you follow through the bankruptcy of this particular entity, we reached a global settlement with them I believe it was January of this year January February is up big along those lines that has a waterfall. So everything goes into a bucket and then flows out the PHP process I think.
<unk> something in the neighborhood of $700 million.
Vast majority of that ended up going to repay debt and legal fees and consulting fees and so thats why the small amount flowed through to BJ.
We believe that the stalking horses for both Connecticut, and California will be announced fairly soon and then we believe that shortly thereafter, the auction will take place and we will move forward with closing on these properties still a lot of interest, particularly in the California properties.
Michael Carroll: Okay. Thanks. Appreciate it.
Okay. Thanks I appreciate it.
John (Conference Operator): Your next question comes from the line of Michael Mueller with JP Morgan. Please go ahead.
Your next question comes from the line of Michael Mueller with JP Morgan. Please go ahead.
Michael Carroll: Yeah, hi. 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, you know, allocate new capital for an investment as opposed to sitting on the sidelines?
Yes, hi.
Dumped on late two types.
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 or 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 divestment as opposed to sitting on the sidelines.
Edward Aldag: So, Mike, 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 Stewart properties or other orphaned 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.
So Mike 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.
The avenues that we've been trying to explore longtime with Swiss medical and Evercore is too good inroads into the public hospitals. This was an opportunity we believe for <unk> record to make a strong.
Inroad into that market to allow them other avenues for.
Buying properties out 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.
Okay.
Michael Carroll: Got it. Thank you.
Got it thank you.
John (Conference Operator): Your next question comes from the line of John Kielichowski with Wells Fargo. Please go ahead.
Your next question comes from the line of John can be Celski with Wells Fargo. Please go ahead.
Michael Carroll: Good morning. Thank you. A question for me on just the legacy Stewart 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 $150 million annualized run rate by October 26th, or do you think you're running ahead at this point?
Good morning, Thank you.
Question for me on just the legacy Stewart asset ramp up here just based on the update that you've given us in the expected $17 million in <unk> are you still on pace to hit that $150 million annualized run rate by October 26, or do you think youre running ahead at this point.
Edward Aldag: 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 are ahead where we thought it would be.
Well I think the operators are running ahead, whether any of them will agree to ramp up the ramp from there they're required portion I kind of doubt it.
But clearly the operations at ahead, where we thought it would be.
Michael Carroll: Got it. And then, you know, you increased your equity investment in Infracore in the quarter. Could you elaborate on the strategic rationale and the expected return profile?
Got it and then you increased the your equity investment in for core.
In the quarter could you elaborate on the strategic rationale and the expected return profile.
Edward Aldag: Yeah, that was primarily done to pay off debt in Infracore. It had debt that was coming due, and we thought it was a good return on our investment for Infracore.
Yes that was primarily done to pay off debt and then for cohort had debt that was coming due.
We thought it was a good return on our investment for <unk>.
Michael Carroll: Very helpful. Thank you.
Okay very helpful. Thank you.
John (Conference Operator): Your next question comes from the line of Omatayo Okusanio at Deutsche Bank. Please go ahead.
Your next your next question comes from the line of almost Tayo Okusanya with Deutsche Bank. Please go ahead.
Georgi Denkov: Yes. Good morning, everyone. 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 re-tenant it instead.
Yes, good morning, everyone.
I just wanted to confirm I think the point you made earlier on with.
With prospect, California asset.
A lot of stalking horse on that side.
So I thought there was an opportunity to possibly.
Edward Aldag: Tayo, you broke up there at the end, but I think you're asking about the potential stalking horse on the California properties.
Sorry, you broke up there at the end, but I think youre asking about the potential stalking horse on the California properties.
Georgi Denkov: Yes, I am.
Yes.
Edward Aldag: 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.
They are looking for people, who 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 stocking horse will be made public and then we'll go to an auction.
Georgi Denkov: Okay. That's helpful. And then, Ed, I appreciate the comments you made earlier on about the changes to ACA and Medicaid expansion and kind of what you thought some of your operators would have to do, operators in general would have to do in anticipation of that. Can you just talk to me a little bit about, again, when you talk to your operators, kind of how they're gearing up for, you know, for that to ultimately happen once some of those changes start to happen in 2028? Like, what are the key things they really have to get right over the next two to three years?
Okay. That's helpful.
Ben.
Ed I appreciate the comments you made earlier on about the changes.
And Medicaid expansion.
What you thought some of your operators would have to do operators in general would have to do.
<unk> of that.
Talk to me a little bit about again, when you talk to your operators.
Kind of how we are gearing up for.
That's ultimately happen.
One some of those changes start to happen in 2028, what are the key things that really have to.
Get lives over the next two to three years.
Edward Aldag: You know, Tayo, if you look at the bill and all of the things that are in it, none of us will know what exactly comes from it until we've had a few years to see what comes from it. And what I mean by that is the intent for the bill is to get people off of Medicaid and back into the workforce. Sorry, guys, I'm going to hit the mute button. One of the things that we won't know is how many of those people that get back into the workforce that are getting off Medicaid go into an entity that allows them commercial insurance. If that's the case, then our operators would actually see an increase in their revenue. If you ask our operators, most of them are not, no one's having a heart attack about it.
<unk> if you look at the build in all of the things that are in it we have.
None of US will know what exactly comes from it until we've had a few years to see what comes from it and what I mean by that is the intent for the bill is to get people off of Medicaid and back into the workforce.
Alright, guys hit the mute button. So one of the things that we won't know is how many of those people to get back into the workforce better getting off Medicaid go into an entity that allows them commercial insurance if that.
The case, then our operators would actually see an increase in their revenue and if you ask our operators most of them are not no one's having a heart attack about it most of them believe that there will be some places that there are improvements to their revenue because of those changes, but the bottomline is that nobody will know.
Edward Aldag: Most of them believe that there will be some places that there are improvements to their revenue because of those changes. But the bottom line is that nobody will know for sure for a number of years to come.
For sure for a number of years to come.
Georgi Denkov: Gotcha. That's helpful. And then last one for Steve, the balance on the line of credit and also the cash balance kind of remains elevated. I know in 1Q, you were kind of trying to manage around, you know, some uncertainty around, you know, write-offs and things like that associated with Prospect. Just kind of curious, with that kind of behind you, now that you've kind of taken this, you know, additional write-offs of 113 or 130 or so this quarter, why are you still kind of, why is that still elevated? And if we can expect some payoff of the line with the large cash balance going forward.
Gotcha, that's helpful and then last one for Steve.
The balance on our line of credit and also the cash balance kind of remains elevated.
No.
<unk> you were kind of trying to manage around some uncertainty around write offs and things like that.
And things like that associated with prospect, just kind of curious with that kind of behind you now that you've kind of taken the additional write offs of $1 13, or 130 or so in this quarter.
Why are you still kind of wide backfill elevated I think we can expect some pay off of the line with the large cash balance going forward.
Steven Hamner: Yeah, you're right, Tayo. It's the same explanation as in the first quarter, albeit significantly lower. Going into the end of the quarter, which is obviously the key date here, you know, in an abundance of caution, we simply build up the cash balance. That was repaid less than 24 hours later. Whether that will be the case at the end of the next quarter, I don't know. We'll continue to evaluate and make sure that there's no foot fault on our covenants.
Yes, Youre right Tayo is the same explanation as in the first quarter, albeit significantly lower going into the end of the quarter, which is obviously the key date here and an abundance of caution we simply build up the cash balance.
Debt was repaid less than 24 hours later, whether that will be the case at the end of the next quarter I don't know, we will continue to evaluate and make sure that theres no footfault on our covenants.
Georgi Denkov: Got it. Oh, so July, you've already paid it down already in July.
Close of July you've already active already paid it out already in July.
Steven Hamner: Right.
That's right.
Georgi Denkov: Excellent. Thank you very much.
Excellent. Thank you very much.
John (Conference Operator): Your next question comes from the line of Farrell Granite with Bank of America. Please go ahead.
Your next question comes from the line of viral granite with Bank of America. Please go ahead.
Farrell Granite: Morning. Thank you for taking my question. 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 had just made some comments about the Big Beautiful Bill, but I was curious if there's been any conversations on that, if how that would impact the operations on your tenant level.
Good morning, Thank you for taking my question.
Was hoping that you could add a little bit more color on the CMS proposed elimination of the inpatient only list.
You just made some comments.
But I was curious if theres been any conversations on that and how that would impact operation on your tenant level.
Edward Aldag: So, Farrell, your volume was so low we couldn't hear the first part of your question. We heard the last part. It went back up. Can you repeat that if you don't mind?
So apparel your volume was so low we couldnt hear the first part of your question. We heard the last part of it went back up can you repeat that if you don't mind.
Farrell Granite: Hi. Yes. Sorry about that. First of all, thank you for taking my question, but I was curious if you could add a little color around the CMS proposed elimination of the inpatient-only list and how that may impact the operations on the tenant level.
Hi, yes, sorry about that.
First of all thank you for taking my question, but I was curious if you could add a little color around the CMS proposed elimination of the inpatient only list and how that may impact them.
The operations on the tenant level.
Okay.
Edward Aldag: Yeah, 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.
Yes.
I think what you're referring to that it just goes from inpatient to outpatient and none of our operators have expressed any concern over that.
Farrell Granite: Okay. Thank you. And also a little bit more color. I know you mentioned there was about 3% of rent not collected, and I think there was also a note in the press release on the 500,000 in rent related to two facilities, if you could just give a little bit more color.
Okay. Thank you and also a little bit more color I know you mentioned there was about 2% of rent not collected and I think there is also a note of.
Press release on the 500000 in rent.
Related to two facilities, if you could just give a little bit more color.
Edward Aldag: Sure. It's the facilities in Ohio and the facility in Pennsylvania. I believe everybody's probably familiar with what's going on in Ohio. We had, the operator there had an issue with Stewart and Stewart not paying over the amount of revenue that they had generated. That is still an ongoing issue for them. They hope to be operational again by the end of next month. We'll see if it is or not. And then the other one is in Sharon, Pennsylvania, another very small facility. It actually is operating well under the circumstances. It's just been a slow process for them.
Sure.
It's the facilities in Ohio, and the facility in Pennsylvania, I believe everybody's probably familiar with what's going on in Ohio.
We the operator, there had an issue with steward and Stuart.
Paying over the amount of revenue that they had generated.
That is still an ongoing issue for them.
They hope to be operational again by the end of next month, we will see if it is or not.
And then the other one is in Sharon, Pennsylvania, another very small facility.
Actually is operating well under the circumstances.
It's been a slow process for them.
Farrell Granite: Okay. Thank you very much.
Okay. Thank you very much.
John (Conference Operator): Your next question comes from the line of Vikram Malhotra with Bizzuho. Please go ahead.
Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Georgi Denkov: Hi. 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 EBIT/DAR cover the cash rent they are paying right now?
Hi, This is George 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 H HSA and does the HSA EBITDAR cover covers a cashier and they're paying right now.
Edward Aldag: The answer is yes and no. We did loan an additional $5 million in May. That was, again, part of the issues where they were having, very public issues that they were having with Stewart and their TSA agreement. Those have been resolved, and they are not covering full cash rent at this point.
The answer is yes and no.
We did loan an additional $5 million in May that was again part of the issues, where they were having very public issues that they were having with steward and their TSA agreement those have been resolved.
They are not covering full cash rent at this point.
Georgi Denkov: Thank you. And just one more for me, just on the one tenant that is below one coverage, I think those are the Columbia assets. What's the latest there? Any update on, you know, do you see coverage trending, and you know, is that like a potential risk you're monitoring?
Thank you and just one more for me just on the one tenant that is below one coverage I think those are the Columbia assets.
The latest is there any update on where you do see coverage trending in.
Are you is there like a potential risk you are monitoring.
Edward Aldag: So interestingly, those hospitals are performing exceptionally well. They are extremely full. The problem is, is they aren't being reimbursed from the system down there. It's not just our hospitals. It's countrywide. Hopefully, it will be resolved over the next six months. But the administration, the new election is in May of 2026, and we certainly believe it'll 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.
So interestingly those hospitals are performing exceptionally well.
Our extremely full.
Problem is as they arent being reimbursed from the system down there, it's not just our hospitals.
Countrywide.
So hopefully it will be resolved over the next six months, but the administration new election is in May of 2026, and we certainly believe it will be resolved by that point, but it is not an issue of whether or not the facilities are generating the revenue that just arent collecting the cash.
Cash.
Georgi Denkov: Great. Thank you so much for taking my questions.
Great. Thank you so much for taking my questions.
John (Conference Operator): Thank you. I will now turn the call back over to Ed Aldag for closing remarks.
Thank you.
I will now turn the call back over to Ed <unk> for closing remarks.
Edward Aldag: John, thank you very much, and thank all of you again. I believe most of you probably know that Tim Berryman retired this past quarter, so this is our first earnings call in a very long time without Tim. We wish him the very, very best. And if you have any questions, please don't hesitate to call through.
John Thank you very much and thank all of you again I believe most of you probably know that Tim Berryman retired this past quarter. So this is our first earnings call in a very long time without him we wish them. The very very best and if you have any questions. Please don't hesitate to call drew.
John (Conference Operator): Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect your lines. Have a pleasant day, everyone.
Ladies and gentlemen that concludes today's conference call. We thank you for your participation you may now disconnect your lines have a pleasant day everyone.
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.