Medical Properties Trust Inc (MPW) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Medical Properties Trust, Inc. first quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

At this time, I would now like to turn the call over to Mr. Mike Stewart, Executive Vice President and General Counsel. Please proceed, sir.

Good morning. Thank you for joining the Medical Properties Trust conference call to review the company's announcement yesterday regarding its results for the first quarter of 2006. With me today are Edward K. Aldag, Jr., Chairman, President and CEO of the company, and Steve Hamner, our Chief Financial Officer.

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 Federal Securities laws. 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 Forms S-11 and other 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 disclaims any obligation 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 refer to our Web site at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations.

I will now turn the call over to our Chief Financial Officer, Steve Hamner.

Good morning. Thank you, Mike. I'll spend just a few minutes reviewing some of the issues related to our first quarter results and then discuss our expectations for the remainder of 2006 before Ed makes some comments and then we'll take questions.

Our first quarter revenue, net income and funds from operations all increased substantially compared to our fourth quarter, 2005 results. In particular, our FFO per diluted share was $0.25 for the quarter, an increase of $0.25 over the immediately preceding quarter in 2005.

To remind you all, we placed in service our Town and Country Hospital and medical office building in Houston, acquired 2 general acute care hospitals in Southern California, and made a first lien mortgage loan on a general acute care hospital in Odessa, Texas in November and December of last year.

These transactions totaled approximately $145 million and had a weighted average initial cash yield of over 10.2%. It was these investments of course that drove the 25% growth in revenue, net income and funds from operations.

We also improved the tenant diversification during the quarter. The revenue we received from our largest tenant, Vibra Healthcare, represented less than 55% of our total revenue in the first quarter. That's down from over 95% in last year's first quarter and an improvement of almost 50% in a little more than a year.

Furthermore, as we have previously discussed, Vibra has informed us that they intend to begin repaying the $41 million we loaned them to acquire 6 hospitals in 2004. Based on our conversations with Vibra management, we believe as much as one-third to one-half of the $41 million could be repaid in 2006, beginning as early as during this second quarter.

As Vibra repays that loan, we will earn less interest income and percentage rental income until we reinvest the loan proceeds.

Let me make a couple of qualitative notes about the quarter's results that may help with the analysis of our earnings. Number one, we continue to estimate 2006 general and administrative expenses at approximately $7.2 million, and generally, we expect that will be incurred ratably over each of the quarters. To remind you, this does not include the effect of amortization of restricted stock grants under Statement and Financial Accounting Standards No. 123R.

Accordingly, our reported G&A of $2.5 million for the quarter, after adjustment for $606,000 in the FAS123R expense, and another $200,000 litigation settlement expense, is in line with our estimate of a $7.2 million run rate for 2006.

Secondly, straight line rent for the quarter was $1.3 million. We expect similar amounts for each of 2006's remaining quarters for the existing portfolio. As I noted, share based compensation expense was $606.000, and we expect that will also be consistent over the next 3 quarters.

We believe many investors and analysts use those 2 adjustments, that is straight line rent and share based compensation, to calculate further adjustments to funds from operations.

We also included amortization of loan fees and costs approximating $250,000 in interest costs during the quarter, but almost 65% of interest was capitalized in the quarter, so the effect of amortized loan cost on adjusted FFO is limited.

Finally, for calculation purposes, the weighted average shares outstanding during the quarter were 39,501,723. The total outstanding shares as of today are 40,055,064.

With respect to future operations, we have previously disclosed our estimates at 2006 FFO per share will be between $1.16 and $1.20. That of course is on a diluted basis. We are not changing that estimate. Achievement of FFO in that range is, of course, substantially dependent upon the timing, amount and terms of our acquisitions, and to a lesser but important extent, the effect of any prepayment of the Vibra loan and the timely completion of the 3 hospitals that are presently under construction.

Those hospitals have a total estimated development cost of approximately $137 million, and for purposes of estimating their effects on 2006 FFO, we are presently estimating a completion date of mid-November and a weighted average GAAP lease rate of approximately 12.4%, and an initial cash rate of approximately 10.64%.

With that, I'll ask Ed to comment further on our outlook, the pipeline, and we'll turn the call over to questions after that. Ed?

Thank you, Steve. Thank you, Mike. I want to thank all of you for joining us for the first quarter 2006 earnings call for Medical Properties Trust. As each of you know, we released our first quarter results last night and I continue to track the impressive growth we've had since our first equity offering in April of 2004.

Because of our rapid growth, I think the most telling numbers are those that show the growth from quarter to quarter as opposed to against the same period last year. Our funds from operations or FFO grew at an impressive 25% over the fourth quarter of 2005.

The primary factor for this growth was the addition of more than $145 million of properties in the fourth quarter of 2005. In the first quarter, we completed our stabilized staffing requirements.

Also during the first quarter, we spent the better part of the quarter integrating the late fourth quarter acquisitions into our systems and negotiating the commitments of additional acquisitions of more than $100 million on 4 different properties that we expect to close in the second or early third quarters.

At the end of the first quarter of 2005, as Steve mentioned earlier, our largest tenant, Vibra, represented over 95% of our total revenue. At the end of the first quarter, 2006, Vibra represented less than 55% of our total revenue. These numbers demonstrate our concentrated efforts to continue to expand our tenant base and decrease the exposure to any one tenant.

With the 4 commitments totaling more than $100 million we have just announced, along with our continued guidance of total acquisitions for 2006 between 200 and $300 million, we will be able to further achieve great tenant diversification by year end.

For the most part, our properties continue to perform better than expected. On the whole, our portfolio's EBITDA or lease coverage ratio approximated 3.3 times. The original 6 hospitals in the Vibra portfolio also continue to perform above expectations. Their total EBITDA or lease coverage ratio on base rev approximated 1.81 times.

On a negative note, we have 2 facilities in Louisiana that continue to feel the aftereffects of Hurricane Katrina. Their EBITDA or lease coverage ratio has declined from approximately 3 times to just under 2 times. We are working with the operator on these properties to insure that these 2 properties get to a post-Katrina stabilization soon. On both of these properties, we have the corporate guarantee of the parent company that remains very strong.

Our Town and Country project in West Houston is about 2 months behind in negotiating their payer contracts with the major providers in the Houston area, but we continue to be very bullish on this project long term.

Our 3 other development projects remain on schedule to see a completion in the fourth quarter of this year. We continue to be very pleased with the acquisition and development opportunities that we are seeing. Our acquisitions team is also beginning to realize the fruits of some courting of potential tenants that have been taking place over the past 2 years.

We continue to be very optimistic about the growth potential of this company for the next few years. We will continue to maintain a strong geographical and property type diversification and as mentioned earlier, by year end, we expect to have a very strong tenant diversification.

The healthcare industry in this country continues to be a great place to do business and we're proud to be able to offer a unique opportunity for our investors to participate in it.

At this time, operator, we'd like to open up the discussion to questions from the callers.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of [Michael Mueller) with JP Morgan. Please proceed, sir.

Hey guys. It's actually [Joe Danzio) here.

Hey Joe, how you doing?

Good. How you doing, Ed?

Fine, thank you.

A question on the Vibra loan pay down, I know you guys gave a rough estimate of the size, but would they sort of pay that down in pieces or do you think it would be all at once?

No, I think they will pay it down in pieces and our best expectations at this point is they'll probably - the first pay down will probably be somewhere close to half of the outstanding loan.

The remaining portion of the pay down in our estimation will probably come over the next 12 to 18 months in chunks, so probably half that and then the remaining portion.

Okay, and then still staying with Vibra, where are they now with respect to the 75% rule? Do you see any kind of material impact on coverages if they gets phased in?

Yes. We don't see any material impact. On all of their properties, they continue to do very well with the exception of one of the properties in Kentucky. It's the Bowling Green facility.

It is a facility where it's the only rehab facility in the market area and it's been more of a longer-term education process and I think we or Vibra expect it, but we do not see any problems with the coverages there in continuing to meet the 75% rule.

Okay. And then with respect to the acquisition pipeline - sorry if I missed this, but any of the 4 that you expect to acquire in the next couple of months, are any of those operated by Vibra?

One of those 4 is operated by Vibra.

Okay. And then last question, beyond the 3 projects that are probably under construction, is there any - what's kind of the outlook for the development pipeline beyond that?

Well, we have focused very hard so far this year and the end of last year in '05 all on acquisition and existing properties, but we do have 2 projects that are - or 2 potential development projects that are in the pipeline that very well may start construction some time in the late summer.

But that's about the extent of the development pipeline right now. We could do more development projects if we wanted to, but our focus has been on the acquisitions.

Okay, thank you.

[OPERATOR INSTRUCTIONS].

Your next question comes from the line of Paul Morgan with FBR. Please proceed, sir.

Good morning.

Hey Paul.

Hi. If I just think about the second quarter and any deltas that we might see from here to there, is it pretty much just interest expense and then any sort of marginal partial result of a Vibra loan pay down? Or is there anything else that could move the second quarter versus the first quarter?

That's all that we see, Paul.

Okay. You mentioned the 1.8 times Vibra coverage, is that based on the 10.25 initial yield?

It's based on the escalated, which is now at 10.51.

Okay. Is any of the loan repayment, you've given a little bit more definition about that this time, included in your guidance, incorporated in it?

No.

No, so that - okay. And you mentioned something about the Town and Country Hospital 2 months behind in negotiations. What's the - that's the first I've heard of that, regarding that development. I mean, what are the implications of the timing of the negotiations for cash flows for the hospital?

Well, they still have plenty of cash flow and cash reserves from the project, and we don't see the project in any danger whatsoever. The effect that it has had is not on admissions, but on the surgeries and other procedures that have not been done at the facility, that we hoped would have already been done.

There are 3 major payers in the Houston area. They currently have contracts with 2 of them and are negotiating hard on the third one right now. The third one happened to be the largest one. As soon as they are able to get those contracts finalized, it will open up the door for the additional surgeries and procedures.

Okay. And then two, I guess specific questions. One, you had at the end of the fourth quarter mentioned an agreement, I think a development agreement maybe within Oklahoma as I recall. Any update there and then also on the conversion of the Redding facility, how that is going?

Well, Paul, as you know, we don't make it a policy of discussing the projects that we have under commitment in detail, however, because of the S-11 filings that we had, we had to put more information on those properties than we normally would have out in the public arena.

That particular project is a perfect example of our not willing to do a project that ends up not meeting all of our standards just to get a project done. That project is no longer on our - in our pipeline or on our closing list.

And the Redding?

I'm sorry. The question on Redding was how is it coming on the conversion?

Yes.

The first half of the conversion was completed in January and the second half of the conversion obviously is somewhat to the whim of OSHPD, but we're hoping that that will be completed in the fourth quarter of this year.

Okay, thank you.

[OPERATOR INSTRUCTIONS]

At this time, there are no questions in the queue.

Okay. Well, thank you all very much. We appreciate you listening and as always, don't hesitate to call on us.

This concludes today's conference. Thank you for your participation. You may now disconnect. Thank you and have a good day.