Medical Properties Trust Inc (MPW) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Medical Properties Trust earnings conference call. My name is Brian, and I will be your operator for today's call. At this time, all attendee lines are muted and in listen-only mode, and we will be facilitating a question-and-answer session at the end of today's remarks. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded for replay purposes.

I would like now to introduce to you Mr. Charles Lambert, Director of Finance. Please proceed, sir.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2011 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the Company; and Steven Hamner, Executive Vice President and Chief Financial Officer.

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 www.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.

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 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, 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 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.

Charles, thank you. Good morning, everyone, and thank you for joining us on today's call. This is a good time for Medical Properties Trust. Our portfolio continues to generate some of the highest EBITDAR lease coverages in the industry. The reimbursement environment continues to be favorable for our portfolio. Our capital structure and access to capital are better than they ever have been. And our opportunities for further growth continue to exceed our expectations.

First, let me turn to our portfolio. As I mentioned on the last call, with the number of facilities we have acquired over the last 12 months, some of our newer properties are still in their ramp-up stage and are thus lowering our overall coverage artificially when compared to some of our more mature properties. For example, Alvarado has only been in our portfolio for approximately five months, and Prime is still installing their systems. That property generates EBITDAR lease coverage ratio of about 2.5 times, which is well below Prime's average of more than 5.5 times, but still a very strong coverage.

When comparing trailing 12 months, ending 5-31-11, versus 5-31-10, the acute care hospitals in our portfolio had an EBITDAR lease coverage of approximately 6.5 times, which was a slight decline of about 30 basis points. This was primarily due to some softening in admissions, which was consistent with other hospitals across the country. However, when looking at same-store comparisons, discharges, ER visits and net revenue were all up in our facilities. Our LTACHs and inpatient rehabilitation facilities were both essentially flat to slightly up with strong coverages of about 2.1 and 3.2 times respectively.

We have no standalone skilled nursing facilities in our portfolio and very few total SNF beds, thus our portfolio of properties will not suffer from any ill effects of the CMS cut to the nursing home reimbursement rates. As you probably know, CMS has now released the final fiscal year 2012 rates for acute care hospitals and approximately 1.1% increase, and LTACHs an approximately 2.5% increase and (inaudible) an approximately 2.2% increase.

Just to show you how strong our coverages are, assume that acute care hospitals had their Medicare rates cut 11%, and there were no operating adjustments made by our operators, which as I've said before, is a really bad assumption but a very conservative one. Our coverage would decline by approximately 100 basis points, to about 5.5 times EBITDAR coverage. Still an extremely strong coverage.

Year to date for 2011, we have closed on $268 million of new investments, including the one facility that is waiting regulatory approval, which Steve will discuss in a little more detail. We still expect the net number to exceed $350 million by year end. The opportunities we expect to acquire are spread fairly evenly over our current property type and are predominantly with new clients.

Shortly after the close of the second quarter, we acquired a 40-bed LTACH in DeSoto, Texas, just south of Dallas, operated by Vibra. In this investment, we not only did a traditional sell lease back with market rates and terms on the real estate, but we also took an ownership interest of 25% in the operations for an additional $2.5 million. During the second quarter, we finalized our unsecured credit facility and issued $450 million of ten-year unsecured bonds, with a coupon of under 7%. In July, we purchased $69.5 million of our 9.25% convertible notes. Steve will go through these in more detail with you in his financial report. Steve?

Thanks, Ed, and good morning, everyone. I'll briefly run through the highlights of our second quarter 2011 financial results, then describe our outlook for future periods, and then we'll open up the call for any questions.

For the first quarter of 2011, we reported normalized FFO of approximately $17.5 million and AFFO of approximately $17.8 million or $0.16 per share for both measures. As of the end of last quarter, we had estimated on a quarterly basis our in-place, normalized AFFO run rate at $0.17 to $0.18 per share, but that estimated included revenue from our previously announced Hoboken investment. Because Hoboken has not yet closed, this quarter, $0.16 per share is well in line with our run rate estimate.

As a reminder, we normalized FFO by adding back the amount of deal cost, and in 2011's second quarter, these costs totaled $616,000, or about $0.01. Also in this quarter we added back approximately $2.4 million in charges related to our reassessment of our Denham Springs investment, which I'll discuss in a few minutes. Finally, we added back about $3.8 million in charges related to the completion of our refinancing early in the second quarter.

Net income of the quarter end of June 20 was $2.6 million or $0.02 per diluted share, compare with net income of $6.2 million or $0.06 per share for the year-ago period. Net income in 2011's quarter was affected by the Denham Springs charges and the cost of debt refinances.

In comparison of these results to those of the same period a year ago, the per-share amounts were affected by an increase in the weighted average diluted common shares outstanding to 111 million for the three months ended June 30, 2011. This is up from 103 million shares for the same period in 2010, and is primarily due to the common stock offering of 29.9 million shares completed in April of last year.

Turning to recent capital activities, as you are all aware, we completed the refinancing of much of our balance sheet early in the quarter and have previously described in detail those transactions. We will be happy to address any questions about those transactions during our Q&A in a few minutes.

In June, we launched a tender offer for any and all of our outstanding 9.25% exchangeable notes that are due in March 2013. Subsequent to the end of the quarter, we completed that offering and acquired about 85% or $69.5 million face value of those notes. We will recognize a charge in the third quarter for early payment of those notes, approximating $10 million.

This morning we posted to our website a supplemental information package that includes a summary of debt as of June 30, 2011. Other than the reduction of $69.5 million and the 9.25% note, that schedule remains materially accurate as of today.

As I mentioned a few minutes ago, we routinely assess our investments for indications of impairment. In 2011 second quarter, we concluded that it was more likely than not that we would not receive all of the amounts due us from our tenant at the Denham Springs LTACH. We established reserves for approximately $1.8 million in outstanding receivables and recorded real estate impairment of approximately $564,000. This hospital continues to operate, and we believe there are opportunities for improved operations and profitability, and we have not terminated the lease and have no immediate plans to do so. However, we will discontinue rent accruals.

Just to remind you all, Denham was part of a two-property transaction that included our successful Covington Hospital. When we recaptured these assets from the bankrupt parent of our tenants, we recovered value that was substantially higher than our investment in Covington. And today, as a result, we own 18% of that operating entity that we did not own originally. Accordingly and consistent with our underwriting assumptions and our initial diligence, we have protected the value of our initial investment in these two hospitals, even though the accounting rules require that we now treat the hospitals separately and prohibit us from recognizing the incremental Covington value that we have acquired.

Moving to guidance, historically our policy has been not to provide estimates of future quarterly financial results. We have provided estimates of annualized FFO based solely on assumptions about a specific portfolio, and that's what we have done again this quarter. Based solely on the June 30, 2011 portfolio, plus the anticipated Hoboken acquisition, the recently completed DeSoto transaction and the affects of the completed tender offer, we estimate that annualized, normalized FFO would approximate $0.72 to $0.76 per share. And to reiterate, that's upon closing of the Hoboken transaction, which we continue to anticipate will close during 2011's third quarter.

So taking into account the currently existing capital structure, which is expected to provide at least $370 million in available liquidity and limiting our overall leverage to less than approximately 50%, we would expect to invest approximately $325 million in future quarters. We believe the portfolio, after such investments, will generate normalized FFO of between $0.93 and $0.97 per share on an annualized basis once fully invested. This estimate assumes that average initial yields on new investments will range from 9.75% to 10.5%. We continue to believe that we are able to complete these investments by the end of 2012.

These estimates do not include the affects, if any, of cost and litigation related to discontinued operations, debt refinancing costs, real estate operating cost, interest rate swaps, write-offs of straight-line rent or other nonrecurring or unplanned transactions. They also do not include any earnings from (inaudible) investments and operations, and they do not include any revenue from re-leasing our River Oaks property or from the Florence development.

In addition, this estimate will change if $325 million in new acquisitions are not completed or such investments' initial yields are lower or higher than the range of 9.75% to 10.5%, market rates change, debt is refinanced, assets are sold or other operating expenses varying or existing leases do not perform in accordance with their terms.

That concludes our prepared remarks for today. I will now turn the call back to the operator, and he will open it up for any questions that you may have.

Thank you, sir. (OPERATOR INSTRUCTIONS) And your first question comes from the line of Karin Ford of KeyBanc Capital Markets. Please proceed.

Hi, guys. This is [Austin Worshman] here. You had mentioned that you expect to exceed your $350 million of investments this year. What should we expect on the timing, and do you have anything under contract today?

Austin, as you know, we have not historically given what we expect on the timing because very seldom do things happen exactly when we expect that they will. We expect that will happen before yearend, and we do have properties under letters of intent but not in a formal contract stage at this point.

That's helpful. Given kind of what's going on with healthcare spending kind of being a target for future deficit reductions, have you seen any delays in investment decisions or any increases in hospital cap rates?

Yes, Austin, we haven't seen any delays in the acute care or rehab investment decisions being made, and we haven't really seen any changes in hospital cap rates from where we've been pretty much throughout the year, which has been a pretty wide spread, depending on the strength of the operator, ranging basically anywhere from the low [9s] all the way up to a [12], and that's a fairly wide spread, but it -- every operator is not created equally.

Yes, thank you. And should we assume kind of then what you have coming for the remainder of the year to kind of be in that same band that you've provided in your press release, so high 9%?

Yes, we expect so.

Okay, thank you. And then just lastly, could you give us an update on the situation with Prime?

And what situation would that be, Austin?

Related to the billings.

You'll have to expand on your question specifically.

Prime was in -- previously under investigation for the billings under Medicare, I believe, in California, and I was just curious if there were any updates you could provide.

Austin, Prime has not been under any investigation for any billings to our knowledge or to anyone's knowledge that they've been able to show us anything differently than the article written by the California Watch with the SEIU. We have worked with Prime in reviewing that particular article. As you know, Prime has recently acquired, not with us but through their not-for-profit arm, another hospital. It was approved by the justice department and approved by the state of California. And if the Prime were under investigation for those types of actions, I doubt they would have been approved for those -- that additional acquisition.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Michael Mueller of JPMorgan. Please proceed.

Hey, good morning, guys. This is actually Joe Dazio here. Quick question on the run rate guidance, does that include the potential dispositions that you outlined? I think there was $37 million of assets at book value that you noted in the press release that tenants were looking to potentially repurchase, so I just wanted some clarification there.

Yes, it does.

Okay. Thank you.

Thanks, Joe.

And at this time, gentlemen, there are no further questions in the queue. Oh, I apologize. There does appear to be a follow-up question from the line labeled as Karin Ford. One moment.

Hi, guys, it's Austin again. Could you just give us an update on the -- you had previously talked about some single tenant looking at your River Oaks hospital, and could you just give us an update on the timing of when you expect the lease to commence there and what kind of demand you're getting.

Yes, Austin, we're getting a tremendous amount of demand from the multi-tenant, which is what we had expected, which would probably be a combination of (inaudible), surgery center and LTACH beds. We have had some interest from a single tenant. They are interested. The timing probably won't work for us. And so it looks like we're on track for the original schedule, which was late the end of this year, early part of next year.

Great. Thank you very much.

And gentlemen, there appears there are no further questions in the queue at this time. I would now turn the call back over to Mr. Ed Aldag for any closing remarks.

Brian, thank you very much. And again, thank all of you for listening today. If you have any further questions, please don't hesitate to call myself, Steve Hamner or Charles Lambert. Thank you very much.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect your line and have a nice day.