Medical Properties Trust, Inc. common stock

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Medical Properties Trust Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, Charles Lambert, Vice President. Thank you. Please go ahead.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our third quarter 2020 financial results. With me today are Edward K. Alved, Jr., Chairman, President, and Chief Executive Officer of the company, and Stephen 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.medicalpropertytrust.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 in 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 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 security 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, again, at www.medicalpropertystrust.com, for the most directly comparable financial results in related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Charles, and thank everyone for listening in today to our 2020 third quarter earnings call. We always appreciate your interest in NPT. As I prepared for today's call and made my presentation to the board earlier in this week, I realized that I have never been more excited about our performance and the future of NPT. In really simple but important terms, for years we have been steadily executing on the NPT strategy and business plan. While the COVID pandemic has been a worldwide tragedy, it has absolutely further validated our model. Hospitals are the center point of the healthcare delivery system all over the world, and civilizations will do whatever they have to to ensure their populations have access to hospitals. During one of the worst pandemics the world has seen, NPT has delivered a year-over-year increase in our FFO of 24%. Our operators are performing beautifully across the world. They have strong liquidity, strong operations, and none of them are suffering from any capacity issues or lack of supplies. We have been able to acquire more than $3 billion of new investments in this new world of Zoom and limited travel. Our offices in Europe and Australia have proven invaluable, and our historical performance and reputation among operators have served us well. Our pipeline remains strong and manageable. We have no need to do any traditional equity offerings to meet our needs in the near term. Steve and our internal capital markets and finance teams have done a great job of managing our needs in a way that keeps several efficient funding options on the table. I could end my update at this point because it is truly that simple and that strong. But let me continue with more detail. Our hospitals are all back to essentially normal operations. They range from low 90s to over 100% of where they were in 2019. When COVID first hit, hospital operators across our portfolio did a fantastic job of cutting expenses and streamlining operations. All of our operators have strong liquidity positions and all are looking forward to new opportunities. As predicted, The backlog of non-emergency surgeries has pushed surgical volumes back to pre-COVID-19 levels at many of our hospitals and some even ahead of budgeted and prior year numbers. For instance, our hospitals in Spain have seen an increase in outpatient and surgical volumes as the backlog at the public hospitals has forced them to redirect patients to our private hospitals. This has created a fortuitous opportunity for our Spanish operators as these patients experience firsthand the top-notch facilities and care provided at these private hospitals. In the UK, private operators, including our operators, continue to operate under their unprecedented collaborative agreements with the NHS to ensure excellent healthcare. Volumes continue to increase within the private hospitals from their early second quarter lows to 90% to 100% of prior year averages by the end of the third quarter. The recently announced NHS contract for up to 10 billion pounds for the private sector represents a significant opportunity to partner with the NHS on their increasing waitlist backlog, which is expected to approach 10 million people by the end of 2020. In Germany, positive cases have increased in recent weeks. However, median, our German rehabilitation operator, continues to see overall volumes approximating 2019. In fact, their volumes are currently exceeding where they were in 2019. Australia continues to see its number of overall COVID cases stay relatively low. And not only is our operator there doing well, but is actively engaged in expansion. Throughout the worst of the pandemic shutdown, we continue to collect almost all of our rents. As of October 1st, we are collecting essentially 100% of our rent, including interest on the deferred portion from earlier in the year. Before transitioning to my usual comments on coverage ratio reporting, I'd like to share some general thoughts regarding the current political conversation involving hospitals. Over the 35 years I've been investing in hospitals, the legal obligation of hospitals to treat all patients, regardless of their ability to pay, has been a constant. and the amount of funds spent at hospitals has only increased. Since CMS began tracking nominal U.S. healthcare spending at hospitals in 1960, 12 presidential administrations ago, nominal spending at hospitals has grown at an 8.8% compound annual growth rate with no single negative year. I say this because Republican or Democrat, no ACA or expanded ACA, An increasing amount of money is likely to be spent on hospitals. Each generation expects to have better healthcare than the last. Countries will continue to fund healthcare even in the worst of times, as we've seen during this pandemic. For the last 35 years, I've seen many changes in how hospitals are reimbursed. But the one constant is that as a population, we have always demanded and gotten better healthcare. Relative to the $1.2 trillion spent at hospitals as officially measured in 2019 in the U.S., the impact of potential changes or a repeal of the Affordable Care Act is marginal. Our experience tells us that in any case, the same doctors will treat the same patients, overall spending will grow, and our rent will be paid regardless of changes resulting in shifts in payer mix and any related health care insurance reform. Now the coverages. Just to remind everyone, we report coverages one quarter in arrears because at the time we do our earnings call, we do not have all of the quarter-ending information from our operators. So the coverages we are reporting is for the three-month period ending June the 30th. Also, please remember that all of our operators were asked to shut down all elective surgeries and other procedures and anticipated patient of COVID-19 patients that really never materialized. This period was basically March through April or May. So most of the second quarter, our operators were essentially closed. As you will also recall, through the CARES Act in the US and other forms of funding from other governments in our other eight countries, our hospitals received funding to cover the shutdown period. In the US, the funding came in two forms. which are scheduled to be kept by the operators, and the other in the form of Medicare advances, which are currently slated to be repaid. Our largest U.S. operators received approximately $1.6 billion in grants and $2.3 billion in advances. Those same operators are sitting on approximately $5.4 billion in liquidity. So should they be required to repay the advances? They are in good shape to do so with plenty of excess liquidity. This pandemic has made coverage reporting difficult. We told you at the end of the first quarter that the elective surgeries and procedures were all medically necessary and would indeed come back. They would not just disappear. We were 100% correct about this. So in an attempt to show you as much clarity as we can, I'm going to report the EBITDARM coverage two ways. one without any grants or advances, and one with just the grants added. In neither case are we including the advances as they are scheduled to be repaid. Furthermore, in the formula which includes the grants, we're going to include 100% of the grants, even though at this point not all of the operators have included the grants in their published numbers. Now let me provide a quick update on our existing portfolio. We removed the two acute care properties from our same store reporting this quarter that are no longer owned by us. So first, without grants, our same store portfolio EBITDARM coverage for all sectors total portfolio for the trailing 12 months Q2 2020 was 2.12 times. Same store acute care EBITDARM coverage was 2.16 times. That's even during the pandemic, still coverage over two times, which represents a 29% decrease year-over-year. LTCH EBIDARM coverage was 1.99, which actually represents a 23% increase year-over-year. Inpatient rehabilitation hospital EBIDARM coverage was also over two times, 2.04 to be exact, which represents a 1% increase year-over-year. Remember, those numbers were without any additional grants. Now, second, with the grants included, our same-store portfolio EBITDARM coverage for all sectors for the trailing 12 months Q2 2020 was 3.17 times. Same-store acute care EBITDARM coverage, acute care hospitals, was 3.56 times, which represents an 18% increase year-over-year. LTCH EBITDARM coverage was 2.29 times, which represents a 41% increase year-over-year. Inpatient rehabilitation hospital facilities EBITDARM coverage was 2.14 times, which represents a 6% increase year-over-year. It is amazing to think that during a year of such unprecedented disruption and uncertainty, that NPT will successfully underwrite and close on $3.1 billion in investments. Not only is this a testament to our business model and the increasing acceptance and understanding of it by hospital operators throughout the world, but also a testament to our team. No matter the circumstances, NPT can move quickly and adjust and adapt to a new way of doing business and maintain our level of excellence and unparalleled growth. Nevertheless, we're not done, not even close. As the largest buyer of hospitals in the world, we see materially every potential opportunity underwrite the more promising transactions over the course of multiple years. And as you know, we are willing to execute when deals both meet our standards and generate immediate earnings accretion. It is this logic that drove 24% normalized FFO per share growth in the third quarter and ranks us number one among U.S. REITs exceeding $3 billion in equity market cap in 2020 FFO growth. Though it is still too early to announce any specific acquisition goals for 2021, we are confident in our ability to continue to grow and to do it prudently. But let me remind you again, if we do nothing else but just stop acquiring as of today, we are tracking at the high end of our guidance range. COVID-19 has certainly created innumerable changes in our lives, but it is comforting to know one thing is constant, that the quality healthcare will continue to be delivered in hospitals throughout the world. We are proud of our operators and their employees and providers for making it happen. Medical Properties Trust and our team is honored to be a part of the total team. Steve?