Medical Properties Trust Inc (MPW) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2006 Medical Properties Trust earnings conference call. My name is Latasha, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to Mr. Mike Stewart, General Counsel of the company. 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 third quarter of 2006. With me today are Edward K. Aldag, Jr., Chairman, President and CEO of the company and Steven Hamner, our Chief Financial Officer.

During the course of this call, we will make predictions 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 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 website at www.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.

Thank you, Mike, and good morning and welcome to the third quarter 2006 Medical Properties Trust earnings call. Our third quarter proved be a very positive quarter for MPT. As of the close of business yesterday, we have delivered a total shareholder return year to date of over 60%. The one-year total shareholder return is more than 80%. During the third quarter, we pushed our total assets to almost $640 million.

In a few moments, Steve will go through the third-quarter results in details. With my personal involvement in the acquisitions department, deal flow picked back up in the third quarter. We have a good pipeline of potential properties and have been able to turn down a good number of projects that did not meet our criteria, without affecting our overall backlog.

We're still looking for a full-time Director of Acquisitions. I'm going to continue to be very selective in this hire. We have proven that it is better to continue along in our current fashion than to make the wrong hire. Because our focus is exclusively on the hospital sector, we are looking for someone with extensive experience in the hospital industry and someone with good management skills. At this time, we do not have any idea when this position will be filled.

Our existing and fully operational properties continue to perform well. After adjusting prior periods to reflect the sale of Kentfield and a one-time management fee on some of the prime facilities, our facilities increased their EBITDA release covered ratio about 50 basis points over the first eight months of 2005.

At the beginning of the third quarter, we still had three facilities in the development stage. One of those facilities, Monroe Hospital in Bloomington, Indiana, has completed construction and began admitting patients approximately a week ago. Thus far, the facility has been well received in the community. They expect to receive their Medicare provider number any day now. They also have had a good success in obtaining managed care contracts.

Our remaining two facilities under development are North Cypress in Houston and DSI in Bucks County, Pennsylvania. North Cypress is still expecting to be completed in the fourth quarter, while DSI may slide into the early part of the first quarter 2007. One area in acquisitions that we have been disappointed in is the pipeline of new development.

While we continue to expect to do new development, we clearly will not start any new development projects in 2006, and I don't expect our 2007 new development projects to exceed $75 million. We're still seeing plenty of development deals, but we are being very selective on the deals we choose to pursue. Should our expectations on future volume change, we will certainly update you.

We are very close to finalizing the acquisition of an additional $90 million of properties. These acquisitions will push our total 2006 acquisitions above our projections of at least $200 million for 2006. Even without a Director of Acquisitions, I'm confident that we'll be able to acquire at least $200 million of new projects in 2007.

If we're able to complete our acquisitions team prior to the end of 2006, that number has the potential to be even larger. The pipeline is very strong. Our issue is manpower. Our first real disappointment for MPT came to a head this week. Earlier this week, we elected to terminate the lease on our Houston Town & Country project between Stealth and MPT. It became apparent to us that the current operator was not going to be able to obtain third-party managed care contracts and it was not going to have sufficient capital to fund the period between now and the time another system could be brought in that already has managed care contracts.

We therefore decided that it was in our best interest to terminate the lease and put 100% of the negotiations with the other system operations between us and them. At this point, we have brought in a well-qualified and experienced third-party management company, Murer& Associates out of Chicago, who has over 20 years of experience in managing healthcare facilities throughout the country but particularly in Texas and, more specifically, the Houston market.

The company is run by nationally acclaimed Cherilyn Murer. She and her staff were on site taking over operations first thing Monday morning. At this time, we are actively negotiating with several systems that are interested in leasing the facility. All of these systems are well capitalized and have the managed care contracts already in place. We are optimistic that we will be able to conclude these negotiations quickly.

However, in the meantime, Ms. Murer and her staff intend to operate the hospital in a manner that allows the full potential of the hospital to be realized. Other than some delay of payments, we do not expect any material adverse impact on MPT from this situation. The smooth transfer of operations at Houston Town & Country this week demonstrates the success of the MPT lease structure and the importance of management team with the hospital expertise like MPT has.

We were able to recognize the problem, act on the problem and not only keep the asset operating, but operating in a way to maximize value. While no one likes bumps in the road, they are inevitable from time to time, and this one shows that MPT has the documents and the expertise in place to handle these types of situations. As soon as we consummate the transactions on the additional $90 million of properties previously mentioned, our portfolio will approximately break out as follows.

By operator, Vibra will represent approximately 30%, Prime, 20%, Murer the Houston Town & Country Product, 9.5%, Centinela, 9.1, North Cypress, 8.9, Alliance, 5.6 and all others, 16.9%. By type, we have acute care hospitals at 65%, rehabilitation hospitals at 15%, [LTAG], 17, and MOBs, three.

By state, we are in 10 different states, with California being the largest at 36% and Texas the second largest at 30%. At this time, I'd like to turn the discussions over to Steve Hamner, our Executive Vice President and CFO, and then we'll be glad to take questions.

Steve?

Thank you, Ed. I will provide a brief review of the operating results for the third quarter, which are fairly simple and straightforward, and then we'll go right into questions. As Ed has described, we acquired over $120 million in healthcare real estate assets during the quarter.

This is in line with what our expectations were during the quarter and with what we discussed on last quarter's call, if you remember. As a result of the timing of these acquisitions, along with the effects on interest expense of the issuance of approximately $125 million in senior unsecured notes, we reported FFO this morning for the quarter of $0.27 per diluted share. This is an increase over last year's third quarter of 59% and an increase over this year's second quarter of 11%. I will be happy to answer any detailed questions about the results in just a few minutes.

On last quarter's call, we estimated that, based on our outlook at that time, concerning the existing portfolio pending acquisitions and completion of development, we expected full-year FFO to range between $1.06 and $1.08. This morning, we have discussed our near-term pipeline of approximately $90 million and our process of re-leasing the Town & Country Hospital. The outcome of those two matters, among possible other circumstances, may affect our full-year 2006 results.

We expect to discuss 2007 expected operations, including guidance regarding acquisitions, debt levels and cost, development and anticipated results of operations during our next conference call in early 2007. Let me very briefly describe our existing expectations regarding Vibra's intentions to make early payments on its note.

As we have discussed several times in the past, Vibra has informed us that it intends to begin making principal payments on our note that we made to Vibra in 2004. And, by the way, they are not required to make principal payments for another year, but their business plan has been so successful that they are able to access cheaper capital than ours and they will use that cheaper capital to reduce our note balance.

Part of their strategy for accessing the cheaper debt capital includes using the Kentfield facility that we recently sold to them as collateral for new loans. There was recently a survey, a state health department survey of that facility, and as is typical in such surveys, certain findings were noted and until all those survey matters are cleared, Vibra will not close on that loan.

Our understanding as of today is that clearance of the survey is expected next month. Operator, at this time, we will take questions.

Thank you. [OPERATOR INSTRUCTIONS]

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

Hi, a few questions, here. First of all, on the Houston property, where you're looking for a new tenant, do you expect any differential in cash flow on the new lease compared to what you have on the lease in place today?

That's certainly possible. We are negotiating, as Ed mentioned, with several potential new tenants and the terms may very well differ, plus or minus, depending on the particular element of the transaction from what we have today.

Okay, can you give us any idea of a magnitude? Are we talking pennies or something bigger?

No, we really couldn't with very much confidence or expected accuracy tell you where the different elements of the lease may fall out.

But, Michael, we are very close in reaching an agreement with one or more of these operators and we'll be able to respond to that very quickly, we hope, early next week.

Okay. I guess to that point, Steve, on the '06 guidance, I know you mentioned these factors could impact it. It sounds like you'll have one part of that cleared up next week. When you talked about guidance potentially changing or impacting it, are you thinking on the positive side or the negative side, considering the amount of acquisitions coming in. It seems like it should be on the positive side for '06. Is that correct?

Yes, again, there are moving parts, including timing of resolution of Town & Country and timing of the acquisitions, but generally, Mike, I agree with you. I think I would expect that any significant change would be not the positive side.

Okay, for the timing of the acquisitions, can you give us an idea of who they could filter in in the fourth quarter?

We think very, very soon, and again, keeping in mind all the forward-looking caveats that Mike gave you at the beginning, we think early in November we would see as much as 60 million of those acquisitions, and then probably by the end of November the remaining roughly 30 million.

Okay, and the last question, Ed, when you talked about the Vibra exposure being at about 30%, is that just of the revenues? Is that including the loan, or excluding the loan?

It includes the loan, and it's of revenues. They're slightly less than that when you just look at number of properties. The 30% is based on revenue.

Okay, and that 30% compares to what today? Because that's after the 90 million of acquisitions, correct?

Correct, and it's about 33% today.

Okay, so down about 10%. Okay, thank you.

And you next question comes from the line of Steve Swett with Wachovia. Please proceed, sir.

Good morning.

Hey, Steve.

On the Houston Town & Country properties, are they liabilities associated with the replacement of that tenant?

Can you be a little bit more specific? I'm not quite sure.

Any outstanding -- I don't know -- balances that they owe?

That they owe us?

Yes.

Yes. They do owe us, in particular, $1,620,000 on a working capital loan that was part of the original transaction. There are also some other notes to us that amount to about 2 million, but those notes were transaction fee notes, and so there are deferred revenue credits on the balance sheet that, when we eliminate those, there will be virtually no financial impact, because the debit gets eliminated almost dollar for dollar against the credit.

We did have collateral. We certainly don't plan when we underwrite a facility to have this happen, but we are prepared for it. We had a letter of credit that we have captured. We -- at this point, as we said in the release, based on that collateral, based on the timing of the action we took and based on our level of confidence about reaching a new agreement, at this time, we do not expect any material, certainly any material cash effect, of what's gone on.

Okay, do the -- excuse me -- do the third quarter numbers fully reflect the changes to the Vibra leases?

Well, they do, but there haven't been much changes because, remember, as we discussed last quarter, those changes are for the most part contingent on Vibra making the payment that we discussed last time, which was in the 10% range. That is about 10 to $12 million, and they have not made $7.5 million, roughly, of that payment.

Okay, I wanted to make sure that it's contingent on the full receipt of that payment.

That's correct.

Okay. Ed, with regard to the acquisition environment, your pipeline is obviously very strong. Have you seen any more competition from other buyers? I know it's sort of a unique, specialized product niche, but given all the capital that's out there, has there been any push into this group?

We've seen a couple of new entrees into the market that have not yet been successful in being able to compete with us.

Okay, that's it. Thanks.

Thanks, Steve.

[OPERATOR INSTRUCTIONS]

And I show no further questions in the queue.

Thank you very much. We appreciate everyone's interest. Look forward to the next quarter.

This concludes the presentation. You may all now disconnect. Good day.