Medical Properties Trust Grilled on Adeptus Health Relationship

Medical Properties Trust (NYSE: MPW) faced an onslaught of questions about its ongoing relationship with Adeptus Health Inc. (NYSE: ADPT) during its fourth-quarter 2016 earnings call this week, with analysts inquiring as to whether the Birmingham, Alabama-based self-advised real estate investment trust (REIT) would be adequately protected in the event of Adeptus failing to pay rent.

Texas-based freestanding emergency room operator Adeptus disclosed corporate-level liquidity issues in early November 2016, followed by a drastic drop in share price and questions about its ability to eventually bounce back. At the time, Medical Properties Trust owned 58 Adeptus facilities.

On Thursday, Medical Properties Trust reported a fourth-quarter 2016 revenue of $153.3 million, beating analysts’ expectations by $2.17 million. The REIT reported a fourth-quarter 2016 FFO per diluted share of 31 cents, compared with a FFO of 35 cents in the fourth quarter of 2015.

Despite its troubles, Adeptus continues to pay rent to Medical Properties Trust in full and on time, Medical Properties Trust Executive Vice President and CFO Steven Hamner said on Thursday’s earnings call.

“That in and of itself is a positive observation from our viewpoint,” Hamner said.

The sheer quality of the facilities Adeptus operates also provides a level of comfort to Medical Properties Trust.

“The facilities we have developed for Adeptus are brand new, state-of-the-art, already generating revenue, in great locations, and the majority partner with the dominant not-for-profit acute system in their markets,” Hamner said. “Adeptus may well be able to continue to operate these facilities, but once again if it is necessary to transition operations, we remain highly confident that can be done without material impact on MPT.”

Medical Properties Trust Chairman, President and CEO Ed Aldag echoed Hamner’s sentiment, adding that the REIT’s business model will cushion any future blow.

“We have met with the joint venture partners, and I can’t stress enough the bullish meetings that we had with each and every one of those joint venture partners,” Aldag said on the earnings call. “So as Steve has harped on the last call and this call, we think that our model protects us very well. We think that Adeptus is going to come out of this and continue to be able to be a viable company going forward, but if we are wrong and they are not, we believe that we are in even a stronger position today with these facilities then we were at the end of the third quarter.”

Currently, Medical Properties Trust has $6.7 billion worth of assets, $900 million more than the company had at the end of 2015, despite disposing over $750 million assets in 2016.

‘Certain’ ACA will be repealed

Aldag expressed certainty that the Affordable Care Act (ACA) would be repealed on the earnings call, in addition to predicting that the law will also likely be replaced.

“Whatever that replacement is… hospitals will continue to be the lynchpin of the delivery system, and there will be reimbursement in some form or fashion in roughly the same type of dollars, obviously shifted around,” Aldag explained. “With that, you have seen a lot of people or we have seen a lot of people get back into the markets, get back in to the M&A activity.”

This bodes well for Medical Properties Trust, Aldag reckoned.

“We have gotten a lot of calls… of people saying, look we are ready to look at additional acquisitions and we just want to put you on notice and hopefully be able to use you for financing in the future,” he said.

Written by Mary Kate Nelson