Medical Properties Trust, Inc. 2026 Q3 Earnings Call

Welcome to the MPT conference call to discuss our third quarter 2026 financial results. With me today are Edward K. Aldag Jr., Chairman, President, and Chief Executive Officer of the company, Steven Hamner, Executive Vice President and Chief Financial Officer, Kevin Hanna, Senior Vice President, Controller, and Chief Accounting Officer, Rosa Williams, Senior Vice President of Operations and Secretary, and Jason Frey, Managing Director, 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 mpt.com in the investor relations section. Additionally, we are hosting a live webcast of today's call, which you can access in that same section.

During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause our financial results and future events to differ materially from those expressed and/or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information.

In addition, during the course of 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, MPT 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 mpt.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.

Thank you, Charles. And thank all of you for joining us this morning. Earlier this year, we projected MPT would reach annualized cash rental revenue of at least $1 billion by the end of this year. Year to date, we have already collected more than $750 million of cash revenue, which annualizes to more than the $1 billion we projected earlier. This reflects the strength of our diverse portfolio of operators around the world. During the year, we have sold 9 properties for cash proceeds of approximately $600 million, and we still hit our target. For 2027, despite these sales, we continue to expect portfolio cash rents above $1 billion. Now I would like to address some recent changes at HSA. Many of you are aware that the 2 principals leading HSA have been engaged in a legal dispute that has served as an unfortunate distraction from core hospital operations.

With the resolution of this matter and the exit of one of those principals, we now have a new tenant in place that goes by the name of Adonis. At this time, the hospitals will continue to operate under the HSA name. As we have discussed in the past few quarters, HSA's core challenges remain revenue cycle management. Simply put, these hospitals have not done a good enough job of billing and collecting. To address these continued challenges, HSA has engaged Ovation Healthcare based in Nashville, Tennessee, to provide management services. Ovation manages over 500 hospitals across the U.S. and will immediately take over all aspects of operations across the portfolio, including revenue cycle, IT, staffing, supply chain, and other areas. Ovation's immediate focus will be on improving RCM. We are optimistic that Ovation can help HSA to unlock the significant potential of these hospitals.

Turning to the U.K., where we have been discussing budget constraints that have adversely impacted the NHS for several quarters now. As a result of these challenges, the NHS has not been able to fully fund the robust demand the country continues to see for behavioral health services. Recognizing these ongoing dynamics, MPT and Priory have reached an agreement to reduce the annual rental obligations by approximately 18%, with the ability for rents to increase as patient volumes recover. As part of this agreement, we added an extension option at MPT's election that effectively extends Priory's lease by 10 years. Following our recent asset sales at attractive valuations and the comprehensive steps we have taken to refinance our debt, that Steven Hamner will discuss in more detail shortly, we have meaningfully strengthened our balance sheet this year.

Additionally, as Rosa will cover, our portfolio consists of more than 50 operators around the world that are well-positioned to continue servicing increased global demand for healthcare services. As such, we remain confident that our business model is as important today as it has ever been, and we are well-positioned to achieve our financial objectives and to create enduring value for our shareholders.

Rosa? Thank you, Ed. Across the portfolio, post-acute care remains a notable source of momentum, general acute performance is broadly stable, and operators in behavioral health are taking targeted steps to improve staffing, service mix, and referral alignment.

Across Europe, operators are benefiting from strong performance trends. MEDIAN delivered another quarter of solid performance driven by strong occupancy, particularly in orthopedics, psychosomatics, and addiction treatment, combined with prudent cost management. Circle Health continues its strong performance, delivering increased revenue, consistent volumes, and robust margins. Following the successful Infracore IPO in July, Swiss Medical Network reported increasing hospital revenue year-over-year and coverage surpassing 2 times, driven by its growing integrated care networks and cost containment initiatives.

Finally, in Spain, IMED is generating notable volume growth, with surgeries increasing more than 11% year-over-year, led by a nearly 40% increase at IMED Colón in Valencia, which is reaching stabilization in its third year of operations. The opening of the new hospitals in Alicante and Barcelona in the coming months will further expand IMED's capacity in attractive Spanish markets. In the U.S., Ernest Health remains a standout post-acute operator, maintaining a consistent coverage of 2.5 times. NOR continues to produce strong earnings, with volumes up year-over-year and coverage of 2.4 times on full contractual rent. NOR is currently paying 50% of contractual rent as scheduled and with all payments current, and will begin paying 100% contractual rent in December. In summary, we see meaningful momentum across several of our largest investments, along with practical operating plans where improvement is needed.

The strength of our portfolio's diversity is as evident as it has ever been. Post-acute care remains a clear portfolio differentiator, supported by improving coverage and favorable demand. We are also encouraged by early signs of stabilization in behavioral health, while our general acute portfolio generates solid coverage. Together, these trends demonstrate the value of our diversified portfolio.

Kevin? Thank you, Rosa. Today, we reported normalized FFO of $0.11 per share for the third quarter of 2026, which was in line with our expectations, except for the non-payment of September rent from HSA.

The $2.4 billion secured debt refinancing transaction that was completed in August included extinguishments of existing unsecured notes at par, and in other instances, extinguishments of debt below par, capturing an approximate $123 million of net discount. We recognized $70 million on this discount as a gain in the quarter, with the remainder to be recognized through interest expense over the term of the notes. Also in the quarter, we agreed to a rent modification of approximately 11 million GBP annually to Priory. We have incorporated a variable rent component to recapture some or all of that rent if Priory were to reach certain revenue hurdles.