Medical Properties Trust Inc (MPW) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the third quarter 2011 Medical Properties Trust, Inc. earnings conference call. My name is Pamela and I will be your operator for today. (Operator Instructions). I would now like to turn the conference over to Mr. Charles Lambert, Director of Finance. Please proceed.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our third 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 are hosting a live web cast of today's call which you can access in that same section.

During the course of the call we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Security 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 report 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 security laws, the Company does not under take a duty to update 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 not in lieu of comparable GAAP financial measures. Please not that in our press lease 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.

Thank you Charles, and thanks for all of you joining us today. A year ago during our 2010 third quarter earnings call we announced that we expected to do at least $300 million in acquisitions in 2011. With today's announcement, I am pleased to report that thus far our total year to date acquisitions has reached $3.15 million. We closed two new properties during the third quarter, and $18 million investment in an LTACH in DeSoto, Texas, in the Dallas area, and an almost $13.5 million investment in an LTACH in New Braunfels, Texas, near Austin. In both of these properties, not only did we purchase the real estate in traditional sell-leaseback transactions, with our normal rates and terms, but we also utilized our RIDEA structure to make investments in the operating entities as well. Investments like this give us the opportunity to enhance our overall portfolio return without changing our risk profile. Steve will go through this in more detail with you in a few moments.

The DeSoto LTACH will be operated by Vibra, while the New Braunfels facility will be operated by Post Acute. In addition to those two properties we made two more acquisitions shortly after the close of the third quarter. Both transactions add to our growing diversity in terms of geography and types of facilities. One was a portfolio of three acute care hospitals with an emergency room focus to be developed in the San Antonio area. These properties are being developed by a company in Houston named Emerus, which is new to the MPT portfolio and are being operated through a joint venture between Emerus and Vanguard, a publicly traded national hospital operating company. Our total investment in these three facilities is approximately $30 million.

In addition to the Emerus properties we closed on our Hoboken acquisition late last week with a total $75 million investment. This facility is a general acute care hospital in Hoboken, New Jersey, and will be operated by an affiliate of the same group that operates our Bayonne, New Jersey, hospital. The Hoboken facility is structured as a traditional sell-lease back transaction with our normal rates and terms with an additional MPT RIDEA investment in the operations. Again Steve will go over this in more in detail with you in a few moments.

With the inclusion of these most recent acquisitions we have further improved our diversification in every respect. Our largest tenant now represents about 26.9% of our investments. Our largest investment by state, California, is now reduced to approximately 28.5%, and our largest property represents only 5.6% of our total portfolio.

We continue to feel very good about our overall acquisitions pipeline and strategy. To that end we have added Frank Williams, a seasoned Wall Street health care investment banker, as our Senior Managing Director of Acquisitions to augment the efforts of our existing team led by Maurice Arbelaez, a seasoned health care operator. The two disciplines of health care operations combined with health care finance have always been the signature strength of MPT.

Despite the fact that the third quarter is almost always the weakest quarter in health care operations, our entire portfolio saw increases in EBITDAR coverage on a trailing 12 month basis third quarter over second quarter. This was also despite the fact that there were some pockets of declines in California and a couple of the more rural hospitals on the east coast. On a trailing 12 month basis, third quarter over second quarter, our acute care hospitals increased their EBITDAR coverage by 16 basis points to 7.94 times.

And just to clarify, we show EBITDAR coverage, which is after management fees. Our LTACHs saw an increase in their coverage of five basis points, and our [ERFs] increase of four basis points. Year over year, each sector also saw an increase on a trailing 12 month basis third quarter over third quarter. The acute care hospital saw an increase of 4 basis points to 7.94 times. The LTACHs, an increase of 38 basis points to 2.52 times, and the [ERFs] an increase of 22 basis points to 3.42 times.

At Monroe, we also continued to see significant improvement with hospital generating positive EBITDAR in ten of the last 12 months compared to just four months of the prior 12 month period. At River Oaks, we negotiated a favorable final financial settlement with the insurance companies for our damage caused by Hurricane Ike. Due to the interest in the facility we have significantly added to the renovations which will make this facility one of the nicest facilities in Houston. Completion is now scheduled in phases beginning in summer of 2012. running through the end of 2012.

I would now like to ask Steve to give you some more color on the financial performance of the Company. Steve?

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

For the third quarter of 2011 we reported normalized FFO of approximately $19.5 million and adjusted FFO of approximately $19.8 million or $0.18 perper diluted share for both measures.

As of the end of last quarter we had estimated on a quarterly basis our in place normalized FFO run rate at $0.18 to $0.19 per share, but that estimate included revenue from our previously announced Hoboken investment. Because Hoboken did not close until last Friday, this quarter's $0.18 pershare is well line with our run rate estimate.

As a reminder, we normalize FFO by adding back the amount of deal costs and in 2011's third quarter these costs totaled $529,000 or about $0.005 per share. Also in this quarter we added back approximately $10.4 million in costs to repurchase 87% of our 2013 exchangeable notes during the quarter.

Net income for the quarter ended September 30 was $425,000, or less than $0.01 per share, compared with net income of $8.9 million or $0.08 per share for the year ago period.

Net income in 2011 was again affected by the $10.4 million in cost related to repurchase of exchangeable notes. Weighted average fully diluted shares outstanding for the third quarter of 2011 was 110,719,000 shares.

As we just mentioned, during the quarter we have completed a tender offer for any and all of our outstanding 9.25% exchangeable notes that are otherwise due in March of 2013, and we acquired about 87% or $71 million in face value of those notes. The $10.4 million premium we paid to acquire these notes results in the avoidance of approximately $11 million in interest payments through maturity and the avoidance of any dilution that may have resulted from conversion of the debt to common shares at approximately it $12.36 per share.

This morning we posted to our website a supplemental information package that includes a summary of debt as of September 30, 2011. That schedule remains materially unchanged today. With the exception that late last week we borrowed $50 million under our recover to financial the Hoboken transaction.

Moreover we expect to pay $1.9 million later in November to repay the balance of our 2011, 6.125% exchangeable notes.

Most of you will remember that in late June of 2010 we restarted our acquisitions activity after a year and a half of dormancy due to the global financial crisis. Since that time, about 15 months ago, we have committed approximately $500 million in health care real estate that is now under long term lease including about %60 million under development at September 30. The weighted average initial year lease rate on these investments is well within our guidance target of between 9.75% and 10.5%, with a few outliers on both ends of that scale.

As Ed mentioned earlier, we continue to successfully diversify our portfolio from tenant and geographic perspectives, as less than 25% of our investments since 2010 were related to Prime or Vibra. We expect to make future investments with both of these top operators but also expect to see further diversification over time. In addition, four of the 18 properties that we acquired since 2010 include arrangements that provide for MPT to own certain interests of between 9.9% and 25% of the operations of our lessees. Our aggregate investment for these interests is approximately $10.2 million. And we underwrite these investments to provide returns in the 20% plus range once the facilities are opened and stabilized.

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 September 30, 2011, portfolio, plus the Hoboken transaction, and as if our if Florence development project was complete, which we expect to be in the first quarter of 2012, we estimate that annualized, normalized FFO would approximate $0.76 to $0.80share.

So taking into account the currently existing capital structure, which is expected to provide at least $330 million in available liquidity, and limiting our overall leverage to less than approximately 50% we would expect to invest approximately $275 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 continues to assume that average initial yields on the new investments will range from 9.75% to 10.5%. And we continue to believe we are able to complete these transactions before the end of 2012.

These estimates do not include the effects, if any, of cost and litigation related to discontinued operations, debt refinancing cost, real estate operating costs, interest rate swap, writes off of straight line rent or other non recurring or unplanned transactions. They also do not include any earnings from the RIDEA type transactions and investments that we mentioned earlier and they do not include any revenue from releasing our River Oaks property. In addition this estimate will change if $275 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%, if market interest rates change, debt is refinanced assets are sold, other operating expenses vary 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 she will open it up for any questions that you may have.

(Operator Instructions). And your first question comes from the line of Tayo Okusanya of Jefferies. Please proceed.

Good morning everyone. Just a couple of questions. In regards to the normalized guidance range, the $0.93 to $0.97, when you take a look at your acquisition pipeline today, on the $275 million that's built into that number, how quickly do you actually think you might be able to get there? Arewe talking a year out? Are we talking 18 months out?

Well, actually what we have said I think is that we are highly confident we will have that done by the end of 2012, but if you go back again and look at when we restarted our acquisition activity in June of 2010, we've done about $100 million per quarter on average. And so if you expect, as we have some level of confidence that we will retain that investment level velocity, then the hope would be that it would be actually before the end of 2012.

Got it. Okay. And then the second question, I know you guys don't have a lost of leases rolling over in 2011 or 2012 but all the public hospital operators this quarter were all basically talking about a weaker volumes outlook. I'm just curious how that's impacting your business, number one, and then number two, just kind of given that back drop why you feel it's the right time to kind of have these TRS type structures with these new acquisitions that you made. Is there anything different about those particular operators just kind of given the overall industry feel of weaker admission volumes?

Well, Tayo, the weaker admissions that you are referring to is not universal. All the publicly reporting operators out there have not seen weaker admissions. We feel very good about where all of our hospital operators are. As I have said earlier. They all have had improvement in their EBITDAR. They have had improvement in their utilization with the exception of a couple of pockets in California and a couple of rural areas. But overall, we feel very good about a lot of the low hanging fruit that's out there and some hospitals that we have made these investments in where we believe that the operators that have been operating them have left a lot of low hanging fruit on the table and so we believe that these investments will prove to be very strong for us.

Okay.

Tayo, to address the first part of your question, we really have less than a handful of leases maturing in the next 24 months. I think we have announced that two of those we expect to result in repurchases at certainly no loss to us. And one of the others has recently notified us that they intend to extend, so we really have a very limited exposure to roll over risk in the near future.

Okay. But that context is very helpful. Thank you very much.

And your next question comes from the line of Jerry Doctrow of Stifel Nicolaus. Please proceed.

Just a couple things, I guess, and I apologize because I haven't really spent much time this morning.

(Operator Instructions.)

Hello?

And please continue, Mr. Doctrow.

Okay. Sorry. So I haven't digested your balance sheet but I kind of wanted to go back given your projected acquisition levels and that sort of thing, how are you thinking about accessing additional capital sort of outside the debt markets as you go forward. So we thinking another convert, are we thinking common equity, unsecured?Just as you -- you gave some guidance that you want to be 50-50 debt to equity. And I was just thinking about, talking about the $275 million kind of target level, maybe even what's the assumption in your guidance about accessing the capital markets?

Well, the assumption in the near term with respect to that $275 million is we have the capital. And that does get us to kind of what we think of as a soft ceiling of 50%. Actually we have always operated, traditionally operated, at significantly below that, in the low 40%s and that's our intent in the future. With respect to the next tranche of capital that we get there are alternatives to common equity that will be available or not at the time we need that. These include sales of properties, secured debt, and you mentioned converts although we've got no plans at this time to get back into the convert arena. It's really hard to answer until you get to the point where you actually go out and start planning to raise the capital and at that time the market determines to a great extent what's available to you.

Jerry, the good news is that we have all of these avenues available to us now. We all know the markets have very narrow windows right thousand so when we get ready at that particular point we will analyze exactly where we are and choice the right one.

So in terms of funding the $275 million, it's basic cash on hand and use of the line as well as maybe, I know you said you have got some asset sales perhaps coming, so that gets you to there. And then you would see what's available when as you kind of go forward. Is that --

That's correct.

Okay.

That's right, and then keep in mind although I'll reiterate we don't have any plans at this time for anything specific, we are continuing to invest at an average initial yield in excess of 10% so it gives us perhaps more flexibility when you start talking about common or other types of equity than if we were investing at significantly lower rates.

Okay. And when you give your $0.90 -- whatever it was, $0.93 to $0.97 -- is that assuming basically that everything stays on the line so that if it was refinanced, either termed out of the debt or equity, the numbers would change from that level?

No, it assumes the current line rate.

Okay. And Steve one of the things you didn't mention was just term unsecured debt, so you would probably do, on the -- in terms of terming out the debt, you would more likely be with kind of a bank term loan or some sort of secured term loan rather than trying unsecured?

No, I didn't mean to imply that because right -- actually right now with the exception of the revolvers we are completely unsecured. And that again, depending on the markets, which happen to right now to be fairly widely open for additional unsecured if we wanted to go that route, the exception would be if we actually termed it out with what I was really thinking as secured would be mortgage debt and there are growing opportunities and a growing market for that.

Okay. and then let's see, the only other thing I guess I just wanted to ask a little bit broader question about reimbursement. Obviously we are kind of a week, ten days away from the joint select committing doing, or not doing, recommendations. Starting to see a little bit more chatter in the news letters about them particularly acting. So as you're pricing deals today, what are you sort of thinking about in terms of the reimbursement environment? Is your sense you are getting enough lease coverage that whatever happens you guys can absorb, or how are you thinking about that or are you waiting maybe until you get a little bit more clarity at least out of congress here at year end before committing more capital?

I don't think we will have any more clarity out of -- by year end, Jerry, than we have right now. We feel very comfortable overall where we are in our particular properties. In the acute care hospital, we went through this earlier in the summer, what it would look like if we had a 10% cut in our Medicare reimbursements and all these assume that the -- our operators don't make any adjustments. And you're right. We feel very good about the coverage in our current portfolio. So what are we doing on going forward basis?On a going forward basis we are assuming that we are not going have any increases, that in some instances we're assuming as much as a 5% decrease and still getting comfortable with our underwriting at that particular point.

Okay. And for some of the ones like Hoboken, where they might be more exposed to disproportionate share, or the medical education or some of those things that have kind of been bandied about, even there you don't think you've got any real concerns on the reimbursement side?

No.

Okay. All right. That's all for me thanks.

Thanks, Jerry.

Your next question comes from the line of Michael Mueller of JPMorgan. Please proceed.

Great, thanks. Couple things. First of all, can you walk through the time line for some of the developments? I think you mentioned Florence coming on line in the first quarter but the ones you announced today, when should we expect to see them begin to break ground, come on line, impact earnings?

Sure. Well, they're in the process of breaking ground now, Mike, but they will take approximately 14 months to complete.

Okay. Okay. Great. And then with respect to the RIDEA investments is any of that income being -- flowing through the income statement today?

There's an immaterial amount for our first two RIDEA type investments. Those were Covington and Bucks. But other than that truly immaterial amount, there's nothing in the income statement for the operating income today.

Okay. And how should we think about the thresholds for what has to happen before you start to recognize that income?

Well --

I'm sure it probably varies by deal so --

It does. It varies by deal to some extent. For example, Bucks truly does have thresholds and ceilings. The others, in each case, the other five I think, and we have percentages of 9.9%to 25%, that there are no thresholds. We participate to the extent of our ownership interest in dollar one of profitability.

Okay. And then last question following up on Jerry's question going back to the $0.93 to $0.97 guidanceafter $275 million of investments. When you hit that 50% threshold is it ideally the plan to kind of pull it back down to that 40% range where you are a little more comfortable or you are comfortable -- it sounds like you are comfortable for running at 50%, is the plan to stay up around 50%.

No, we are comfortable at 50%, we are highly comfortable. But, that being said, our plan is to operate it in kind of our traditional range which is low to mid 40%s. There will be no immediate urgent requirement for us to get it below 50%, so we will be able to select the market at the right time. But you know we don't intend to start growing the leverage level.

Got it.

From what traditionally we have had.

Got it. Okay. Thank you.

And your next question will come from the line of Frank Morgan of RBC Capital. Please proceed.

Good morning. Couple of questions. First on the use of RIDEA is that more -- does that help you win deals or is that something you want to do because you see the opportunity of catching the up side in the operations? That would be my first question.

It's the latter, Frank. It's not helping us win deals, it's not prohibiting us from winning, from getting deals, but I know you haven't been with us from the very beginning, but combining the operations and the real estate have been part of the MPT story since the very beginning, and RIDEA just lets us do that a lot easier.

I got you. And then secondly, I was interested in your new relationship you've got with Vanguard. I was just hoping you could expand on that and are there other opportunities that you can pursue with them in some of their other markets or do you think this is more of a one-off? Thanks.

Right it's probably more of a one off. It's a joint venture and our relationship is primarily with the Emerus Group which has the relationship with Vanguard.

Okay thank you.

Operator?

Yes, Mr. Morgan your line is open.

My questions were answered thanks.

All right. Great.

Any more questions, Operator?

Ms. Ford your line is open.

Hi, good morning.

Hi, Karin.

Just a clarification on River Oaks. Does it sound like rent will now start flowing there starting either in the summer, towards the end of 2012, versus sort of the beginning of 2012 previously because you added to the renovation?

That is correct. Sort of in the summer of 2012, now. We made a decision with one of our new tenants there to totally renovate, to totally gut and renovate the operating floor, the ORs, and so that's what the delay is.

Okay. And is the lease with that tenant signed today.

No it is not.

Okay. Second question is just on the San Antonio development. Can you just talk about 00 you said that's a new relationship a new tenant for MPT, can you talk about how you underwrote their credit and what their track record is in development and will rent start flowing on that upon completion, 14 months away?

They are actually an experienced company. They have got a number of other properties that we were able to look at and see how their operations are going. They are actually backed by a Texas venture capital firm so they have a good balance sheet, good experience. So while it's a new relationship to us it's not a brand new company. And then obviously with the joint venture that they formed with Vanguard, the Baptist systems there in San Antonio, it helped out an awful lot. Now, what was the last part of the question? When would rent start?

Yes.

The rent will start at the end of construction completion.

There's no ramp up on the rents or deferral.

Got it. And last question is, we had seen in some of the local newspapers here in New York that Prime Healthcare was looking to try to buy a hospital in Jersey City, Christ Hospital, would MPW involved in that acquisition, if Prime made it?

We have not been asked to at this time so our knowledge of that is the same as yours, is what we have read in the newspapers.

Okay, great, thanks very much.

Our last question is follow-up question from the line of Tayo Okusanya of Jefferies. Please proceed.

Just a quick one, I may have missed this, but did you actually provide the most recent coverage ratios across the portfolio.

I did, Tayo, and I went through in detail, so if you will call back off line I will be glad to give that to you again.

Will do thank you very much.

Okay.

With no further questions in queue, I would like to turn the call over to Mr. Ed Aldag for closing remarks.

Thank you, Operator. And thank all of you again for listening and as always if you have any questions don't hesitate to call Charles Lambert, Steve Hamner or myself, and we'll be glad to get those answered for you. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.