Medical Properties Trust(US:MPW)2023-10-26 19:31Financial Data and Key Metrics - The company expects a double-digit annualized reduction in costs compared to 2022, with further reductions anticipated in Q4 2023 and into 2024 [3] - The company reported GAAP net income of $0.19 and normalized FFO of $0.38 per diluted share for Q3 2023 [77] - The company has reduced total annualized operating expenses by approximately $19 million since Q1 2023, with further declines expected in Q4 2023 and into 2024 [42] - The company expects to preserve approximately $335 million of cash per year by rightsizing the dividend level to a near-term AFFO payout ratio below 60% [36] Business Line Data and Key Metrics - Steward's hospital operations showed strong trailing 12-month EBITDARM coverage of 2.7x, with significant expense reductions and improved revenue cycle management [76] - Lifepoint Health's behavioral health portfolio delivered sequential improvements in EBITDARM coverage, driven by strong admission trends and cost efficiencies [41] - Priory, the largest independent mental healthcare provider in the UK, maintained EBITDARM coverage of approximately 2x, with strong financial performance expected to continue [63] - Ernest Health maintained steady EBITDARM coverage of greater than 2x, with new facilities expected to strengthen revenue and cash flow [48] Market Data and Key Metrics - The UK market saw strong performance from Circle Health, with revenues up 11% and EBITDARM up 12% year-over-year, driven by private insurance expansion [75] - Swiss Medical Network in Europe delivered strong performance, with margins improving year-over-year and significant investor interest in its assets [91] - The U.S. market saw strong performance from CommonSpirit and Prime, with Prime maintaining trailing 12-month EBITDARM coverage of 4x despite nursing shortages [83] Company Strategy and Industry Competition - The company is focusing on a capital allocation strategy to provide liquidity for debt maturities, with plans to execute approximately $2 billion of liquidity transactions over the next three to four quarters [103] - The company is considering additional asset sales, limited secured financing, and joint venture structures to enhance liquidity and address debt maturities [103] - The company is confident in the long-term value of its hospital real estate assets, which are seen as critical community assets with strong demand from operators, sovereigns, and infrastructure funds [5] Management Commentary on Operating Environment and Future Outlook - Management expects further cost reductions and improved cash flow from Steward, driven by efficiency initiatives and revenue cycle improvements [73] - The company is optimistic about the sale of its Connecticut hospitals to Yale New Haven Health, which is expected to provide additional liquidity [43] - Management believes the hospital real estate market remains attractive, with strong demand for assets that offer long-term, inflation-protected cash flows [90] Other Important Information - The company has reached an agreement in principle with a tenant to exit a relationship, resulting in expected collection of $17 million in deferred rent and $32 million in unbilled straight-line rent [52] - The company has repurchased approximately £50 million of notes due in December 2023 and closed the sale of its Australian facilities for approximately $305 million at a 5.7% cap rate [60] Q&A Session Summary Question: Steward's working capital issues and receivables - Steward is expected to continue improving its operations and revenue cycle management, with no concerns about the collectibility of receivables [67][104] - Steward has made significant progress in reducing denials and improving cash collections, with no discounts on receivables [70][88] Question: Secured debt and asset sales - The company is considering limited secured debt as a temporary measure to avoid selling assets into a high cap rate environment [15][18] - The $2 billion liquidity target includes a mix of asset sales and secured debt, with no specific guidance on the exact mix [16][17] Question: Cap rates and asset sales - Cap rates are elevated compared to six months ago, and the company may prefer temporary secured financing over selling assets into a high cap rate environment [18] Question: Steward's financials and management changes - The company expects to file Steward's financials once they are received with auditor consents [105] - Steward has filled key management positions and has a well-rounded management team in place [137] Question: Long-term acute care (LTACH) outlook - The LTACH portfolio has stabilized, with no further declines expected, though it represents a small portion of the company's overall portfolio [114] Question: Incentives and management strategy - The company is evaluating changes to management incentives as it shifts its strategy towards reducing leverage and focusing on liquidity [99] Question: Asset sales and portfolio simplification - The company has interest in selling assets across all geographic locations and facility types, with strong demand for assets at greater than net book value [125] Question: Cost reductions and G&A savings - The company has already reduced G&A by mid-teens year-to-date and expects further savings over the next 12 months [131]