Medical Properties Trust, Inc. common stock

Ladies and gentlemen, thank you for standing by and welcome to Q2 2020 Medical Properties Trust earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, Charles Lambert, Vice President and Treasurer. Thank you. Please go ahead, sir.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2020 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 8K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at www.medicalpropertystrust.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 in 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 discussion of the factors that can 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.medicalpropertytrust.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.

Ed Aldag Thank you, Charles, and good morning, everyone, and thank you for joining us today on our 2020 second quarter earnings call. You all recall that on our first quarter earnings call, I made the following statement. Following government directives, all hospitals, including those in MPT's portfolio, stopped most, if not all, elective procedures. Please keep in mind that the word elective does not mean they are medically unnecessary, just that they are ones that can be delayed. These procedures will still need to be performed. Our operators across the globe expect that there will be a large backlog of surgeries that will need to be done once we come out of the pandemic crisis. As hospitals around the world began to open back up in May and June of this year, we have seen that these expectations were correct. As has been reported by companies such as HCA and others, the patients have indeed come back. This is also true in NPT's portfolio. Most of our operators are back within 92% of where they were in June of 2019, and some are even around or above 100%. None of our operators in the COVID-19 hotspots are reporting any issues with COVID-19 patients or bed shortages. Our operators have done a good job in reconfiguring where necessary to not only be able to provide for COVID-19 patients, but also to be able to treat their non-COVID-19 patients. While COVID-19 has continued to change our world, healthcare workers and hospital operators both domestically and internationally have heroically continued to keep pace with those changes. Some of those changes have been providing personal protective equipment for all staff, redesigning patient flow, rigorous testing and isolation procedures, enhancing hygienic and cleaning protocols, expanding telemedicine capabilities, and repurposing beds to meet their specific needs. These efforts both individually and collectively demonstrate the ability of hospitals and health systems to quickly adapt and thrive within a changing environment. Based on lessons learned in the early phase of the pandemic, hospitals are now better positioned to respond to the current surge of COVID-19 cases in some parts of the US. As was expected during this extraordinary time, we saw a decline in our tenant operator coverage for the quarter ending March 2020. However, Even with essentially a halt to all elective procedures worldwide beginning in mid-March, our overall lease coverage for that period remained strong. We added two properties, one domestic inpatient rehabilitation facility and one LTAC, to our same-store reporting and we subtracted one acute care property. Our same-store portfolio EBITDARM coverage for all sectors for the trailing 12 months Q1 2020 declined to 2.52 times, a decline of only 16 basis points. It is important to note that this coverage does not include any grants or accelerated payments from the CARES Act. Same-store acute care EBITDARM coverage is 2.67 times, which is only 23 basis point decline quarter over quarter and 37 basis point decline year over year. Earth EBITDARM coverage is 2.16, which was flat quarter over quarter and actually up 17 basis points year over year. LTAC EBITDARM coverage is 1.82 times, which is an increase of 6 basis points quarter over quarter and an increase of 29 basis points year over year. MBT's portfolio of hospitals has historically operated at levels producing more coverage ratios among the REIT industry's best, and therefore providing significant cushion for these unexpected declines. Our operators have taken proactive measures to strengthen their balance sheets by raising capital and slashing expenses as volumes declined. In fact, our top five largest U.S. operators, which account for nearly 80% of our U.S. investments, had combined liquidity of more than $5 billion at June 30. As you know, we at NPT are bullish on hospitals, and we have long preached the integral role they play in the U.S. and international health systems and overall economies. We were also confident that the U.S. and international governments shared that same understanding and would step up as necessary to ensure the long-term viability of hospitals and continuing to provide quality health care to its communities. In the US, the federal government has stepped up via the CARES Act. As part of the unprecedented relief package, the CARES Act allocated approximately $100 billion to US hospitals. Our largest US hospital operators have received approximately $1.5 billion in grants. Additionally, they have received about $2.2 billion in accelerated payments for a total of $3.7 billion. And recall that they currently have liquidity of more than $5 billion, providing ability to repay any of that should they be required to do so. Our international operators have also benefited from various forms of government relief, including enhanced reimbursement mechanisms and cost sharing or offsetting arrangements. In Germany, the government is providing additional reimbursement Thank you. Thank you. Cost Reimbursement Operational Agreement with the National Health Services to ensure full alignment from an operational perspective across the healthcare landscape and ensure quality patient care and needed capacity throughout the pandemic. These arrangements have also provided assurance to private hospitals that they will not be unduly burdened during these challenging times. In these unprecedented times, certain circle and BMI facilities have been transitioned into hospitals providing specialized oncology, cardiology, emergency, and other types of care which NHS hospitals have traditionally provided, reflecting a united approach to the focus on the health and well-being of citizens in the UK. In Italy, the government has created funds to cover the cost of PPE, COVID-19 testing, and other COVID-19-related costs, has guaranteed up to 90% of loans provided to impacted businesses, including hospitals and has continued its regular national health service budgeted payments to hospital operators regardless of changes in volume. Similar type efforts have taken place in Switzerland, Spain and Portugal. These government relief programs and coordinated efforts coupled with already solid balance sheets have provided a firm financial foundation for our operators not only to weather this pandemic storm but to emerge in prime position to benefit from a likely consolidating market. While much has been said regarding the direct financial benefits of the CARES Act and other government related actions, there are also many less visible benefits helping our acute care operators during these challenging times. Specifically, our post-acute operators in the IRF and LTCH spaces have been able to maintain most of their pre-COVID-19 volumes due to patient criteria waivers and the existence of strong relationships with general acute care hospitals. These waivers and relationships have enabled IRFs and LTACs to relieve volume spikes at acute hospitals and take on additional patients, including COVID-19 patients, without fear of penalties or reduced reimbursement. This in part is the reason why you've heard earlier when I provided our coverages that IRF and LTAC coverages are actually up year over year. Our discussions with our operators have confirmed that volume declines appear to have bottomed out in April and volumes have been increasing month over month in both May and June. We also know that there continues to be a significant amount of backlog in surgeries and other routine patient care which will augment volumes over the coming months. It is also important to remind everyone that throughout this pandemic, MPT has continued to collect 96% or more of its rent each month of the pandemic. We expect to collect 98% as it applies to our full year 2020 collections with plans in place to ultimately collect 100% of our rent with interest. This is a testament to the effective and efficient operations of our hospital operators and the power of our lease structures. Like most U.S. hospitals, ER visits and surgeries dropped off in late March and trended down to a low point in April. May and June volume has been consistently higher month over month. We have noted similar volume trends in our international hospitals. With society's commitment to world-class healthcare for the population and governments around the world quickly stepping up with unprecedented funding, our hospitals are in good position to continue to serve the needs of their patients and meet their own financial obligations. As I stated on last quarter's earning call, NPT continues to see opportunities across the globe. In today's announcement, you see that we have added another $1.1 billion to an already $2 billion we invested pre-COVID-19. We expect to continue to add quality investments for the remainder of 2020. Earlier this month, we had the opportunity to convert the last two Steward Mortgage Hospitals into cell leasebacks for an additional $200 million investment. Today, we announced the signing of an agreement on the acquisition of St. Francis Medical Center, a large acute care hospital campus located in Southern California, to be operated by Prime Healthcare. The total investment consideration is $300 million. Additionally, we are pleased to announce the execution are the definitive documents for the acquisition of the Median-Dollner-Hyde Rehabilitation Facility in Germany for 12.5 million euros. This transaction further expands our relationship with Median, our strong German rehabilitation operator. We expect to fund this acquisition during the third quarter. For the past year, we have discussed the potential to move into South America with an investment in the Colombian hospital market. We are proud to announce the commitment to fund the acquisition of three hospitals in Columbia for $100 million. This is in addition to the $205 million investment NPT made in a joint venture that will operate these Colombian hospitals as well as serve as a vehicle for future international hospital acquisitions. Closing of the Colombian transaction is expected in early Q4 2020. This will be NPT's first acquisition on the continent of South America. We have been working on these acquisitions for a little over a year. We've conducted detailed on-site visits in Colombia, including high-level meetings by myself and others with the President and his administration. The country of Colombia is committed to health care for its people and is committed to a pro-business and foreign investment agenda. In excess of our recently closed commitment to develop a post-acute facility with earnest help in Bakersfield, California for $48 million, we are at various stages with agreements to invest in $210 million in acute, acute behavioral, and post-acute hospital investments in multiple locations. The healthcare system continues to generate high demand for these facilities, and we are working diligently to meet that demand. Our pipeline remains robust with quality domestic and international acquisition targets. We again want to reemphasize and express our sincere gratitude and appreciation for all healthcare workers worldwide as they battle this deadly disease on the front lines. We're also very proud of our operators around the globe and the job that they have done during these historical trying times. Steve?