Medical Properties Trust's Q3 2025: Contradictions Emerge on HSA Performance, Rent Ramp, Stock Repurchase, and Debt Management

Guidance:

• Targeting >$1B total annualized cash rent by year-end 2026 (excludes California Prospect properties)
• Expect incremental $200M+ in scheduled annual cash rent from new operators as they ramp
• Implemented $150M opportunistic share repurchase program to be deployed immediately
• Expect Prospect proceeds and Connecticut facility sales to cure DIP and improve liquidity
• Evaluating asset sales, selective strategic acquisitions and possible repurchases/tenders of discounted debt
• Anticipate 2026 annual escalations and tenant-funded CapEx additions (~$40M) to be added to lease bases

Business Commentary:

* Tenants' Financial Performance: - Medical Properties Trust's tenants, including LifePoint Health, ScionHealth, Ernest Health, Vibra, MEDIAN, and behavioral health operators, reported significant increases in EBITDARM year-over-year. - The growth in financial performance was driven by exceptional operational performance and strategic investments by the tenants.

• Prospect Bankruptcy and Recoveries:
• NOR Healthcare Systems was named the successful bidder for Prospect's 6 California facilities, with a new lease agreement deferring rent for the first 12 months and ramping up thereafter.

• A settlement agreement with Yale New Haven provided $45 million to Prospect, with two Connecticut facilities sold and negotiations ongoing for the third facility.

• Asset Sales and Debt Management:

• The company sold 2 facilities in Phoenix, Arizona, for approximately $50 million, demonstrating its ability to generate liquidity through asset sales.

• Medical Properties Trust has repaid and refinanced several billion dollars of debt in 2025, utilizing the proceeds from asset sales and securing new financing at favorable terms.

• Share Repurchase Program:

• The Board of Directors authorized a new $150 million share repurchase program, reflecting confidence in the company's undervalued stock price.
• This program is intended to be deployed opportunistically, using available liquidity and potential asset sales to fund repurchases.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong tenant performance ("more than $200 million increase in EBITDARM year-over-year"), expressed confidence in hitting >$1B annualized cash rent by end-2026, and announced a $150M share repurchase program as evidence of conviction that the stock is undervalued.

Q&A:

• Question from Michael Mueller (JPMorgan Chase & Co, Research Division): How do you weigh buybacks versus paying down debt or repurchasing debt, and what funding sources (asset sales, cash, credit line) would you use?
  Response: Company has multiple options (asset sales, cash, credit, debt tenders, selective acquisitions) and will evaluate opportunistically; borrowing incremental funds for buybacks is not ruled out.

• Question from Michael Carroll (RBC Capital Markets, Research Division): Timing of buyback given 2027 maturities and current liquidity — do you need to resolve those before buying back stock?
  Response: Management said buybacks should start immediately.

• Question from Michael Carroll (RBC Capital Markets, Research Division): Update on HSA and the late September rent payment — is this a concern for future rent ramp?
  Response: HSA performance improving (doctor recruitment, strong Texas results); September payment timing was a one‑time operational/lender repayment issue tied to TSA finalization; management does not expect further issues and October rent was paid.

• Question from Farrell Granath (BofA Securities, Research Division): Status of Yale New Haven hospitals — progress on re-leasing or sale and the third property?
  Response: Two facilities are under binding agreements expected to close by year‑end or shortly after; a binding agreement for the third is expected imminently.

• Question from Farrell Granath (BofA Securities, Research Division): Does NHS restructuring and referral changes threaten Priory's behavioral coverage and future performance?
  Response: Management believes the impact is short‑term; Priory remains >2x coverage with operational adjustments and the operator does not expect a material decline in coverage.

• Question from Omotayo Okusanya (Deutsche Bank AG, Research Division): Rent collection shortfalls in Pennsylvania and Ohio — is this related to Insight and what's the asset transition status?
  Response: Issue is primarily the Ohio facility delayed reopening (rent start moved to January); Pennsylvania amount is immaterial (c.$30k/month); reopening progress expected to restore payments.

• Question from Omotayo Okusanya (Deutsche Bank AG, Research Division): The ~$20M of new loans in the quarter — who received them and for what purpose?
  Response: Two operator loans: one to Insight for CapEx/reopening costs and one to the Pennsylvania facility for CapEx.

• Question from Omotayo Okusanya (Deutsche Bank AG, Research Division): Status of the eight assets (of 23) that were not leased — what's happening with those?
  Response: Key assets (Norwood, MA and Texarkana, TX) remain under construction; company is in negotiations under NDAs regarding disposition or leasing.

Contradiction Point 1

HSA Performance and Rent Ramp

It involves differing perspectives on HSA's performance and the expected timing of rent ramp-up, which are crucial for financial projections and tenant stability.

Is the September rent payment delay a concern for HSA's ability to pay increased rent over time? - Michael Carroll(RBC Capital Markets, Research Division)

2025Q3: HSA continues to perform well. The delay in September rent was due to finalizing TSA and repaying the DIP loan. The rent did double in September, and they have paid October rent without issues. - Edward Aldag(CEO)

How is HSA performing? Are you confident the rent increase will proceed as expected? When does the rent increase begin under your lease agreement with HSA? - Michael Albert Carroll(RBC Capital Markets)

2025Q2: HSA has been paying rent and is current. Their performance has been impressive, with doctors returning and facilities upgraded. We are confident they will ramp up as expected, with rents already increasing rapidly. - Edward K. Aldag(CEO)

Contradiction Point 2

Stock Repurchase Plan

It involves a significant strategic decision about when and how to initiate a stock repurchase plan, which impacts investor expectations and capital allocation strategy.

When will the stock repurchase plan begin? Given the 2027 debt maturity and current negative cash flow, will these issues need to be resolved first, or can buybacks start soon? - Michael Carroll (RBC Capital Markets)

2025Q3: The stock repurchase plan will start immediately. - Edward Aldag(CEO)

Given the 2027 debt maturity you've mentioned and the open-minded approach to stock buybacks, should we consider this as a key event or a near-term priority? - John Kielakowski (Wells Fargo)

2025Q1: We remain flexible with regard to our capital allocation strategy, including consideration of stock repurchase, although we are not intending to do that or to provide any guidance on a future stock repurchase until such time as we have concluded our transition to the new operating partners and resolved the debt maturity issue in late 2027. - Edward Aldag(CEO)

Contradiction Point 3

Debt Management and Capital Allocation

It involves differing perspectives on debt management and capital allocation strategies, which are crucial for financial health and operational flexibility.

How do you prioritize share repurchases versus debt reduction, considering current and pro forma leverage levels? Would funding come solely from asset sales, or would cash reserves or credit lines also be used? Can you provide an overall perspective on the buyback strategy? - Michael Mueller (JPMorgan Chase & Co, Research Division)

2025Q3: We have multiple options, including reinvesting in the business, tendering or repurchasing bonds, and seizing opportunities due to our shares being undervalued. We will evaluate opportunities and the timing, with available capital coming from asset sales, cash on hand, and possibly borrowing more money. - R. Hamner(CFO)

Were there other investments this quarter not highlighted in the supplemental section? Also, why is debt higher than expected, and are there other cash outflows to explain this? - Michael Carroll (RBC Capital Markets)

2025Q1: We of course have the flexibility to do either or to do those types of things to manage that issue going forward as it is a concern, but we'll obviously look at each opportunity as it comes and make the best decision for our shareholders. - R. Hamner(CFO)

Contradiction Point 4

Rent Collections and Delays

It addresses the company's ability to collect rents from tenants, which impacts financial performance and stability.

Regarding rent collections, were there any delays specific to Insight, and any updates on Insight’s asset transition? - Omotayo Okusanya(Deutsche Bank AG)

2025Q3: The rent collection delay was primarily due to the Ohio facility's reopening being delayed. We expect full rent from January, and Pennsylvania's facility is improving, yet to begin paying rent. - Edward Aldag(CEO)

Were there any amendments to the credit agreement, and do you expect covenant breaches? - John Kilichowski(Wells Fargo)

2024Q4: For the most part, we are in the situation of collection percentage is right where it should be. What's not right where it should be is the payment is slightly behind. - R. Hamner(CFO)