Prepared remarks
Hello, everyone. Thank you for joining us and welcome to Medical Properties Trust Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Charles R. Lambert, Senior Vice President. Charles, please go ahead.
Good morning. Welcome to the MPT conference call to discuss our second quarter 2026 financial results. With me today are Edward K. Aldag, Jr., Chairman, President, and Chief Executive Officer of the company; R. Steven Hamner, Executive Vice President and Chief Financial Officer; James Kevin Hanna, Senior Vice President, Controller, and Chief Accounting Officer; Rosa H. Williams, Senior Vice President of Operations and Secretary; and Jason Frey, Managing Director, Management and Underwriting. 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 mpt.com in the investor relations section. Additionally, we are 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 Regulation G requirements. You can also refer to our website at mpt.com for the most directly comparable financial results and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.
Thank you, Charles, and thanks to all of you for joining us this morning on our second quarter 2026 earnings call. Before I begin today, we would like to extend our thoughts and prayers to the people of Colombia after this morning's earthquake. Now let me begin with the most significant update. Today, we announced a comprehensive refinancing transaction that extends $2.4 billion of debt maturities to 2032, significantly reducing near-term maturities and positioning us well to pursue a balanced capital allocation strategy moving forward. Steve will discuss this transaction in more detail shortly. Turning to our performance highlights. Total portfolio EBITDARM coverage remained steady. As we continue to see robust demand for rehabilitation services around the world, our post-acute operators again delivered the strongest growth in the portfolio, with EBITDARM increasing more than $70 million year over year, led by a 24% increase in Median and a 13% increase in Ernest Health. General acute performance was stable. Behavioral health remains a source of pressure on the overall portfolio. Despite the increased importance and demand for these services we continue to see around the world, in the U.K. market especially, revenue continues to be impacted by funding pressures at the NHS, as the new administration in the U.K. works to rebalance its entire budget. I spent last week in the U.K. spending time with many of our operators there. I walked away from those meetings impressed with the level of activity across the facilities, confident in the opportunities for high-quality general acute providers, and encouraged that the behavioral market remains a compelling long-term investment. As most of you know, our Swiss joint venture went public this summer; it is now listed on the SIX exchange. Infracore continues to see attractive opportunities for growth, and the company was able to access capital for further growth. We retain a significant ownership position in Infracore, and remain bullish on Switzerland and look forward to seeing our overall investments grow there. Finally, to further strengthen our portfolio, we consolidated all of our ScionHealth general acute hospitals and LifePoint leases into one LifePoint master lease. As a part of this conversion, Scion transitioned certain MPT-owned acute hospitals to LifePoint, and we are pleased with the resulting single lease relationship with a mature operator with an enhanced credit profile. With the strong trends we continue to see across our diverse portfolio of operators, the proving enduring value of our assets, and a plan to clear the runway of debt maturities until late 2028, we are well positioned to achieve our goal of over $1 billion annualized cash rent by the end of the year and to create value for shareholders moving forward. Rosa?
Thank you, Edward. As usual, I will walk through the trends we are seeing, the continued progress of our recently transitioned operators, and the steps tenants are taking to enhance performance. Across our core portfolio, performance trends remain broadly stable. General acute operators still comprise the majority of the portfolio and reported aggregate EBITDARM coverage of 2.8x during the quarter. As Ed mentioned, our post-acute portfolio delivered another really strong performance with coverage of 2.4x. Finally, our behavioral portfolio coverage was down slightly to 1.4x, reflecting the discrete headwinds in the U.K. and U.S. markets that we have discussed all year. For individual operator coverage details, we would encourage you to review the supplemental published on the investor relations page of our website. Our international portfolio continues to provide meaningful stability. Swiss Medical Network, Median, and Circle continue to produce strong, stable earnings, executing on their respective growth and innovation strategies. Swiss Medical Network is advancing its integrated care strategy with revenue growth supported by recent acquisitions and an ongoing shift toward higher-value outpatient and primary care. In Germany, Median continues to build on its momentum, with year-to-date EBITDA running ahead of budget. At Priory, proactive measures are being taken to address challenges related to the previously discussed shift in NHS referral patterns. With the ongoing budget constraints in the U.K., management is focused on implementing even more disciplined cost control measures and optimizing services to better align with demand. Turning to the U.S., Prospect continues to produce strong results. NOR began paying 50% of contractual rent in June. Operationally, NOR delivered encouraging momentum with admissions, emergency department visits, and surgeries all higher year over year reflecting volume recovery across the platform. The emergency department project at Culver City is progressing and remains scheduled to open in the fourth quarter of 2027. HCA, which operates hospitals in Florida, Louisiana, and Texas, saw mixed results in the second quarter due to certain disruptions that caused lower cash collections and volume declines in some markets. First, the MEDITECH EMR conversion caused a temporary inability to bill and collect cash for a period during the month of May, resulting in lower collections in May and June. Additionally, prior to the conversion, HCA transitioned its revenue cycle management to an outsourced firm. And because HCA operates in markets where they serve an above-average number of indigent patients, reliance on supplemental payments from federal and state sources is necessary. These payments are not always predictable and can therefore be a strain on cash flows. That was evident when the Florida supplemental funding that was due in April was delayed until August, which caused further short-term pressure on HCA's liquidity. With the MEDITECH conversion largely behind them, HCA has brought revenue cycle management back in house and expects to improve revenue cycle and operational efficiency in the coming months. While cash collections are still lagging, HCA has received significant payments from the Florida supplemental funding program in August, enabling them to begin repayment of the working capital advances we made during the quarter. While trailing 12-month EBITDARM to cash rent coverage of 2.0x, we remain cautiously optimistic about the trajectory of HCA and will continue carefully monitoring their operations. Our U.S. post-acute portfolio remains an area of strength. Ernest Health is a standout, and we are excited to see Ernest continue to grow with its acquisition of Reunion Rehabilitation Hospitals adding seven hospitals with closing expected this summer. Finally, we remain confident in the long-term earnings power of these assets and in our path toward normalized rent across the portfolio. With that, I will turn it over to Kevin.
Thank you, Rosa. Today, we reported normalized FFO of $0.15 per share for the second quarter of 2026, which was in line with our expectations as last quarter's results were $0.14 per share and we expected the rent from HCA and NOR to continue to increase in accordance with their lease agreements. As a reminder, HCA is currently paying 75% of their contractual rent, increasing to 100% in mid-September, while NOR started paying rent in mid-June equal to 50% of contractual rent, increasing to 100% in mid-December. As Ed noted in his remarks, we have combined the LifePoint behavioral and all but one Scion post-acute property into a combined single master lease. Cash rent from this combined lease will be basically the same as it was previously. G&A expense for the quarter was higher year over year, primarily driven by stock compensation expense due to the change in fair market value of certain cash-settled stock awards and the increase in depreciation expense of the corporate headquarters building that was placed into service during the first quarter of this year. Finally, during the quarter, we impaired approximately $17 million in working capital loans primarily related to the two Steward replacement tenants in the Midwest.
Thank you, Kevin. As Ed mentioned, this morning, we announced a two-step process to fully satisfy our 2026 and 2027 debt maturities totaling about $2.7 billion along with an additional approximately $1.2 billion of longer-dated unsecured notes. Step 1, which we expect to complete later today, is the issuance of $2.4 billion in secured notes. The proceeds of which will be used as follows. First, to fully redeem the upcoming maturity of our €500 million unsecured note, and approximately $738 million, or about 53%, of our unsecured notes due in 2027. We will also exchange at a discount another approximately $1.2 billion of longer-dated unsecured notes, reducing gross debt by about $123 million. Step 2, which we have commenced and expect to complete in the coming weeks, will repay the remainder of the 2027 unsecured notes, complete a new multiyear bank revolver, and repay our $200 million term loan due in June 2027. MPT will then have no debt maturing in 2026 or 2027. In fact, our sole maturity over the next three years will be a modest balance of about $600 million of notes due in June 2028. Moreover, with $1.1 billion of expected liquidity, based on recent and expected near-term asset sales, we will have substantial flexibility for further delevering in the near term. Also importantly, our single bond maintenance covenant that requires 150% of unencumbered assets over unsecured debt will be substantially improved, up to almost 300% depending on how we deploy our liquidity. The new notes have a coupon of 9.25%, a 5.5-year term that becomes prepayable after two years, and other customary ratchet provisions, all of which we describe and qualify by reference to the descriptions and documents included in the to-be-filed current report on Form 8-K. I will make a few additional observations about our overall financial position. Once again, and in several ways, sophisticated third-party investors have affirmed that market values of our hospital assets exceed their book values. First, some of the most sophisticated global fixed income investors underwrote the value of the assets that secure the $2.4 billion of notes we just discussed. Moreover, recent transactions including the IPO of Infracore in Switzerland have established market values of our hospital assets above our original investments. In another pending sale that will close imminently, we will receive about $172 million in after-debt cash proceeds, reflecting a 60% increase over our original investment and an IRR of about 34%. In addition to these recently completed transactions, we are in discussions with potential buyers of additional assets that if completed will generate hundreds of millions of dollars more in sale proceeds at pricing well above our original investments. There is no assurance that these transactions will be completed, but the fact that sophisticated parties are even initially offering this level of pricing is encouraging validation of our overall asset values. Upon completion of these refinancings, we will retain additional collateral value and flexibility for future delevering. Just to reiterate, no debt maturities until June 2028, and then a modest $600 million. Up to $1.1 billion in liquidity, dependent only on completion of certain asset sales that are already in process of being negotiated, and substantial cushion in our bond covenant that opens up opportunities for certain additional delevering strategies. In closing, our business model remains attractive and growth opportunities continue to present themselves in our markets. With our assets continuing to demonstrate attractive market value, and with significant liquidity on hand, we are well positioned to continue to focus on reducing debt while capitalizing on strategic growth opportunities.
With that, we will open up the call for questions. Operator?
Questions and answers
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Mueller with JPMorgan. Mike, please go ahead.
Yeah. Thanks. Hi. So I guess with the balance of the 2027 notes that you are looking to pay off, is that just going on basically a new credit line that is going to be the near-term mechanism? And what is going to be the rate on that facility?
No, that is not the expectation, Mike. In fact, Phase 2, or Step 2 as we call it, will include, as I noted, the repayment of those 2027 notes. But it will not be just based on using the credit line.
Okay. Will it be all from assets?
No. We have a number of options that we have always had, including asset sales, including liquidity that we have, and including additional secured debt opportunities.
Got it. Okay. Thank you.
Your next question comes from the line of John Kielakowski with Wells Fargo. John, your line is open. Please go ahead.
Thank you. Hi. Good morning. Just to clarify, as I am looking at the press release, we talked through in the opening remarks about 2026 and 2027, but this also talks about refinancing the 2027 through 2031 notes. Could you just kind of clarify that timing and when this goes into place and then the pro forma cash interest from this move?
John, we are having a lot of trouble getting your question here.
John, maybe you can try speaking up a little bit. Yours was very, very soft.
Apologies. Can you hear me better now? Yes. Thank you. Yeah. Alright. Thank you. The opening remarks focused mostly on the 2026 and 2027 maturities, but I am also seeing commentary in the press release about the 2027 through 2031 notes. Could you just talk through the timing and clarify, is all of that being refinanced now as well? And the pro forma cash interest number following this move?
No. It comes in two steps. Step 1 is the $2.4 billion that we announced this morning. That will fully prepay/repay the 2026s and, in cash and exchange combined, about $740 million of the 2027s. And then Step 2, we expect to complete in the coming weeks, will satisfy the remainder of the 2027s and, in addition, as we mentioned during Step 1, we will also exchange about $1.5 billion of the longer-dated notes.
Okay. Very helpful. Thank you.
Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael, please go ahead.
Thanks. Can you guys provide some more color on the HCA situation? I mean, how confident are you that Conifer can push cash collections where they need to be? I believe you indicated last quarter that they were up to 82% from 78%. It needs to be in the 90-plus percent range, and it sounds like it dipped in May and June just due to the EMR transfers that you are talking about.
Yeah. Mike, it has been a lot slower than we hoped it would be. Still in the eighties. If you look from an operational standpoint, the good news is they are generating 2 times coverage. But that does not do you any good if you are not collecting the cash. And then you had the late payments from Florida. If you add all of that together, we are cautiously optimistic. But they still have to improve the cash collections greatly.
So what gives you confidence that they are able to do that? And did they already receive the Florida DPP payments, and is that how the $20 million got paid back? Can you talk about how and when you expect the next $20 million will be paid? It was unclear in the press release. Is $10 million of that just going to be outstanding or will that be repaid soon, too?
So they have received approximately half of the DPP money from Florida. The other could come in as early as today, but certainly in the next week or so. And with that money, they will pay back the additional $20 million and then they will have the remaining $10 million repaid sometime in the next quarter.
Okay. And then just lastly from me, I know NOR was supposed to start paying rent in June. Did they pay that rent? And are they current right now too?
Yes. Yes, Prospect did pay the rent, and Prospect is doing well. Remember, those are two different entities, Prospect and HCA. Prospect's operations are doing very well.
Your next question comes from the line of Michael Diana with Maxim Group. Your line is open. Please go ahead.
Thank you. I wanted to ask about asset sales. Could you review for us the asset sales you are going to make, the asset sales that you are probably going to make, and the calculus that you are using when determining whether or not to sell an asset?
Okay. So what we know, what has happened and is happening, in fact, as we speak, we mentioned the Infracore transaction, which generated about $140 million in proceeds for us. And I will just point out again that pricing tested by the market was at a higher valuation than we carried the assets on our books for. Secondly, today, a transaction is closing that we are regrettably not able to identify publicly yet, but will be within a matter of hours. We can tell you a transaction is closing that will generate after-debt payment about $172 million to us today. That is the transaction that I spoke of that once again validates across the portfolio the value of our assets exceeding, sometimes by a significant amount, our original investment. In this case, an aggregate 60% plus gain on our original recording of that investment, representing about a 34% IRR. In addition, we are in various stages of negotiation for a handful of other significantly valued assets, each of which, if they were to trade at the values that we are negotiating, would again represent significant gains over not just net book depreciated value but our original investment. We think that could be realistically, over the next few weeks, another $200 million to $400 million in cash proceeds. Possibly it could be more than that, but we are relatively confident that we will be in that additional $200 million to $400 million proceeds level.
Okay. And what impact will this have on the income statement broadly?
So, obviously, a great question, and it depends on a number of things that are self-evident to people on this call. Obviously, the gain on sale—i.e., we are earning rent typically on these assets based on our original investment. To the extent we can sell for more than that and take those proceeds and apply them to, for example, the 9.25% interest that we just issued this morning, one would think that has a very positive, perhaps even accretive, impact on normalized FFO. Obviously, timing of completion of the secured issuance we announced this morning, timing in terms of Step 2—the refinance of the bank facility and completion of paydown of the 2027s—execution and timing of asset sales, and then further delevering by use of these asset sale proceeds will all have an impact on go-forward normalized FFO. As will continued ramp up of the HCA and NOR relationships. So as those become more definitive, we will be able to better predict and return to providing run-rate guidance in future quarters.
Okay. Great. Thanks very much.
Your next question comes from the line of Farrell Granath from Bank of America. Farrell, your line is open. Please go ahead.
Thank you very much. Good afternoon, or morning. My question is on any collateral restrictions. I know you had mentioned some of that in your opening remarks, but hoping that you could dive a little bit deeper on how you are thinking about any of your credit facilities' maintenance covenants.
Both Step 1 and Step 2 have impacts on the bond covenant. That really, Farrell, is the only maintenance covenant we have. While it will not go away because that is a bond covenant, the cushion and the headroom it provides will increase. The minimum requirement is 1.5x and we have been in that range—about 1.55 to 1.60—over the last several quarters. We expect that with completion of Step 1, which will likely happen today, that will go up to almost 200%, and completion of Step 2 will drive it up again as much as to 300%. So what that does is give us additional flexibility to use different strategies and gives us the opportunity to further delever, which is the goal. The goal is not simply to continue to extend maturities, but to actually reduce leverage, and these transactions we are announcing take us a very long step toward being able to do that more aggressively.
Okay. Thank you. My second question is on the U.K. Prime Minister's commentary about potentially having social care for all adults. In your conversations and recent travels, has that been coming up as a concern or actually a tailwind for the companies that are over there?
Social care is very different than health care. Social care is primarily focused on end-of-life care and dementia-type services and other items that are not included in current NHS services.
Your next question comes from the line of Vikram Malhotra with Mizuho. Vikram, your line is open. Please go ahead.
Good morning. Thank you. Sorry if I joined late and missed this. Do you mind just clarifying for any additional 2027 and any future maturities, what the thinking is post this transaction?
I am sorry, Vikram. The question was about 2027s?
Yeah. Like, just after you have done this transaction, you pushed out the maturities, right? You said there is nothing now through 2026 and 2027. I meant post-2027. Maybe give us the latest thinking on plans to raise additional capital to take care of additional future maturities?
Well, the primary immediate liquidity comes from asset sales. Even assuming, which we are not disclosing yet, a meaningful decline in our current revolver, we expect to reduce out-year maturities. The immediate reduction would come from asset sale proceeds. The broader plan remains the same: use asset sales and other alternatives to reduce leverage while preserving flexibility.
That is fair. And then just lastly, on the sales you are contemplating, how should we think about where multiples or cap rates are today? What is the broad range, and should we think about a core asset in the U.S. versus one that is more struggling? How are private markets valuing these assets relative to public?
Vikram, I think it goes across the board. If you look at what Steve mentioned earlier, every single one of the assets that we are in current negotiations with or have actually closed—we were not out marketing them; people came to us. There is high demand for assets both in the U.S. and in Europe.
Your next question comes from the line of Michael Carroll with RBC Capital Markets.
Yes. Thanks. Steve, where is MPT at on its secured debt ratio? Correct me if I am wrong, but I think that covenant is about 40%. It sounds like with Phase 1 that kind of puts you pretty close to that ratio. So does MPT have capacity to issue additional secured debt via Phase 2?
We do, but you are right. It does drive us up from where we were this morning, which was around 25%, to much closer to that 40% level.
So then can you—these additional asset sales give you more capacity to make more room on that secured debt ratio? I am calculating that you are pretty tight and do not really have much more secured debt. Any color on how you can regain additional secured debt via this Phase 2 path?
Just by definition, you are right. Asset sales would provide more headroom for that. Using the proceeds to reduce debt would provide more headroom.
Okay. And then just lastly, can you talk about an update related to Norwood? And what is MPT's cost basis in that asset? I know a filing said it is about $350 million. I was under the impression it was just above $200 million. Is that additional dollars that MPT had to put into that asset to weatherize it, which pushed that cost basis up into that mid-$300 million range?
Mike, as you know, there is a lot of stuff going on with Norwood and various discussions with the state. We have made public statements; those are listed on our website, and that is where we will leave it right now.
There are no further questions at this time. I will now turn the call back to Edward Aldag, CEO, for closing remarks.
Thank you very much for everyone's interest today. If you have any additional questions, please do not hesitate to reach out to us. Thank you very much.
This concludes today's call. Thank you for attending. You may now disconnect.