Medical Properties Trust, Inc. common stock

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Medical Properties Trust Earnings, Inc. 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'll 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 0. I would now like to hand the conference over to your speaker today, Charles Lambert, Vice President. Please go ahead, sir.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our fourth quarter and calendar year 2020 financial results. With me today are Edward K. Aldag, 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.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 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 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.medicalpropertystrust.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.

Thank you, Charles, and good morning to all of you listening in today to our 2020 recap and insight into what 2021 will look like for NPT. 2020 will be a year that we will all remember for the rest of our lives. For those of us at NPT, it will be remembered not only for the pandemic, but how well NPT was positioned to continue our outperformance. We outperformed our peers in almost every measurable financial metric. But what makes me the proudest about that is the fact that the business plan and the groundwork we put in place for the last almost 20 years was absolutely validated and reinforced during the pandemic. I also want to take this opportunity to congratulate the NPT workforce for the incredible job they did adjusting to the virtual offices and the new norms created by the virus. They did all of this without missing a beat. I also want to thank the tens of thousands of frontline workers in all of the hundreds of NPT hospitals for literally putting their lives on the line to keep healthcare available to people all around the world. NPT hospitals proved essential and extraordinary in nine countries on four continents, truly our proudest moment to date. And while the year had untold numbers of challenges, I want to take just a moment to reflect on the remarkable accomplishments of our healthcare systems and providers worldwide. Just like we knew they were all capable of, our operators adjusted their operations on a moment's notice. They reconfigured their beds, added PPE, ventilators, and learned how to treat a new world disease. Our operators are world-class. They moved quickly and amazingly to treat their populations with COVID-19 while not ignoring their non-COVID patients. I cannot say enough to express my gratitude to each and every one of them for the job they did. At MBT, we were able to continue our remarkable growth. We were able to close on almost $3.6 billion in transactions throughout 2020. We began 2020 with the announcement of our approximate $2 billion acquisition of BMI in the UK. We entered South America for the first time with our Columbia transaction. We expanded our ownership of Infracore, the real estate owner of Swiss Medical Network, the second largest private operator in Switzerland. We acquired new and valuable hospital assets with established partners such as Prime Healthcare, Circle, and Median, and we grew our earnest portfolio via several new IRF developments throughout the U.S. We also established new relationships with operators, including the NHS in the UK and Cura Health, a US operator of inpatient rehabilitation hospitals. And just like last year, we began 2021 with a major announcement of an approximate £800 million investment to acquire a portfolio of real estate at Priory Group, the leading behavioral health provider in the UK. This acquisition further expands our investment in behavioral health, an area of healthcare that we believe has a tremendous underserved need throughout the world, and also offers NPT a major platform for future growth. We were able to improve our concentration metrics with the Priory acquisition. Now with a total of 50 operators, our largest tenant represents 22% of our portfolio, and most importantly, No single property represents more than 2.8% of our overall portfolio. Remember, every single hospital serves a distinct local market. Healthcare is truly a local business. Regardless of parent ownership, the most important diversity measure is at the single property level. Our hospitals performed very well in 2020 despite hospitals across the world. being essentially shut down for two to three months. Let me take a moment to walk you through some amazing statistics. As we did last quarter, we want to be very transparent about our coverage ratios. So, our first will provide you with EBITDARM coverages for the trailing 12 months, Q3 2020, with all grants, but still not including any Medicare advances that have been received by our operators to date. I will then give you those same ratios without any grants. Remember that we added four properties, three international IRFs and one acute care to our same-store reporting, and we removed four acute care properties. Inclusive of the $706 million in grants through the CARES Act fund received to date, our same-store portfolio EBITDARM coverage for all sectors for the trailing 12 months ending Q3 2020 was 3.13 times. This represents an 18.4 percent increase year-over-year. Same-store acute care EBIDARM coverage was 3.51 times, which represents a 20 percent increase year-over-year. LTCH EBIDARM coverage was 2.39 times, which represents an almost 50 percent increase year-over-year. IRF EBITDARM coverage was 2.21 times, which represented a 6.6% increase year over year. Now, those same ratios, excluding any grants and remembering all hospitals were essentially shut down for two to three months. Our same store portfolio EBITDARM coverage for all sectors for the trailing 12 months ending Q3 2020 declined to 2.02 times. Again, these coverages did not include any CARES Act and did include the two to three months that these hospital operators were essentially shut down. Same story, acute care EBITDARM coverage was approximately two times, which represented a 32% decrease. LTCH EBITDARM coverage approximately 2.07 times, which represented an almost 30% increase year over year. And the IRF coverage was 2.1, which represented a 1.4% increase year over year. So you see that even without any CARES Act grants whatsoever, our operators were still very well covered. And furthermore, without any grants, comparing the third quarter 2020 to the third quarter 2019, All of the operations are very close to or better than they were in 2019. Excluding any grants or advances, the total same-store portfolio EBITDARM coverage was off just 6% from 2019 levels for the third quarter. As I previously mentioned, and Steve will report on in more detail, we have already had a great start to 2021. We continue to work on strong opportunities both in the U.S. and abroad. We expect 2021 to be another successful year for MPT. MPT has the strongest portfolio of hospitals in the world. Our operators are at the very top of the class in their regions. We remain committed to quality accretive investments and look forward to seeing MPT continue its role as the leading provider of capital to hospitals worldwide. Steve?

Thank you, Ed. This morning, we reported normalized FFO of 41 cents per diluted share for the fourth quarter of 2020. This represents growth of 17% over last year's fourth quarter results, and on a full-year basis is an astounding 21% year-over-year growth rate. during a period in which the entire world was battling a devastating pandemic. As Ed has just described, we expect continued double-digit per share FFO growth as we go into 2021. All else equal, even if we stopped our acquisition activities today, and based on the assumptions underlying our updated run rate guidance, FFO per share would be expected to increase by another 10 plus percent. And we certainly do not expect to stop our acquisition activities. I'll make a few points about the financial results we reported with this morning's press release. First, we recorded $27.6 million, or five cents per share, in a debt refinancing charge during the fourth quarter. This is related to our redemption of $800 million of unsecured notes that were due in 2024. We redeemed these notes, which had a weighted average coupon of 6%, with proceeds from our recent issuance of new notes that have a 3.5% coupon, generating long-term interest savings and a strongly positive net present value. Second, our practice is to deduct from AFFO the unbilled or straight-line rent portion of revenue to reflect an amount closer to a cash basis. You will note that the $71.7 million deduction in our reconciliation to net income exceeds the $55.1 million of straight-line rent in the statement of income. That's because to be more reflective of cash-like revenue, we also deduct from AFFO the straight-line rent that is recognized by our unconsolidated joint venture operations and other non-cash revenue. Finally, Total G&A continues to represent about 9% of total revenue, and that total revenue adjusted similarly includes unconsolidated joint venture revenue. It is also helpful to point out that 35% of G&A is for estimated share-based compensation, a significant portion of which is not actually paid unless we continue to deliver strongly accretive acquisitions, dividend growth, and market-leading returns to our shareholders. Other items immaterial on both an individual and collective basis included a small fair value adjustment loss on our equity investment in EVIS, the parent of our tenant Swiss Medical Network, a favorable tax adjustment related to our investment in InfraCorps, and other one-time items. During the fourth quarter, we closed on roughly $670 million of accretive transactions with five different operators. First, in late November, we acquired for 50 million pounds the 999-year ground lease on the Royal Marston Private Care, a general acute facility operated by England's National Health Service and prominently located in London's Cavendish Square at the very entrance to the world-renowned Harley Street Complex of premier London hospital providers. It has been a long-term goal of ours to find an opportunity to demonstrate to the NHS the ease of working with the hospital experts at MPT, and we could not have found a better facility. Already, this has led to other real opportunities that we fully expect to manifest in additional investments with the NHS. We also acquired in mid-December the Reading Hospital for 85 million pounds. We actually bid to acquire this hospital several years ago when an institutional investor paid more than we were willing at the time. But when it came time to consider the impact of market changes and a standalone hospital operation in the very bespoke hospital real estate market, the institutional investor preferred to sell to someone with a long-term expertise in that market. And we ultimately acquired the hospital. Redding will be joined to our long-term master lease agreement with Circle. providing a substantial accretion of value to both the Redding investment and the overall circle relationship. The United Kingdom, and central London in particular, remain one of the most attractive real estate markets in the world. But even with keen competition, especially for the premier Cavendish Square location on an ultra-long-term lease, These investments will yield to us a blended lease rate and spread to our funding cost consistent with our recent European and U.K. investments. We also added to our U.S. inpatient rehabilitation portfolio in the quarter with the mid-December acquisition of two properties in El Paso, Texas, and Louisville, Kentucky, leased to Cura Health for roughly $58 million. Cura Health is an operator of 17 post-acute hospitals across 10 states and is sponsored by the respected and experienced healthcare investor, Nautic. In addition, we purchased an earnest facility for $17 million in Elgin, South Carolina, and committed to the development of an earnest facility in Stockton, California, at a total projected cost of $48 million. We also acquired from earnest four hospitals that we had mortgaged as part of our initial 2012 transaction with Earnest. These hospitals, along with the Elgin and Stockton facilities, have been joined to an existing master lease agreement with Earnest that now has a remaining initial term of 17 years until 2037. The Cura Health and Earnest leases have a weighted average gap lease rate approximating 10%. Finally, at the end of the fourth quarter, we increased our investment in InfraCorp by approximately 207 million Swiss francs. As Ed mentioned, we kicked off 2021 with the acquisition for 800 million pounds of about 40 primarily behavioral hospitals that will be leased to UK's largest operator, the Priory Group. The leases will be structured to provide master lease characteristics for a term of up to 45 years and a gap basis capitalization rate of about 8.6%. Simultaneously, Priory was acquired by Waterland Private Equity, the premier Dutch private equity investor who also owns Median Kliniken, the largest private operator of German post-acute and behavioral hospitals, and our long-established and successful tenant. MPT has a 5.1% passive interest in Median and will have a 9.9% passive interest in the Priory tenant. Even in the depth of the COVID environment, Priory attracted significant interest by competing bidders. but MPT had unique competitive advantages that led to our successful bid with Waterland. The Priory transaction has a structure similar to our very successful Median investments. As a reminder, with Median we originated and then assembled a 1.2 billion euro portfolio of hospitals at very attractive cash returns. We seasoned that portfolio and validated our underwriting and then recapitalized it with low-cost joint venture equity priced at a substantially compressed cap rate. And while there is no assurance that these results will be replicated with Priory, we think the value of our investment in the Priory real estate will be even further improved as Waterland executes its planned strategy to combine Priory and Median, creating the largest behavioral platform in Europe. Ed mentioned already that we did not slow down in 2020, and our recent transactions certainly demonstrate that. As we enter 2021, we continue to work on a vibrant pipeline, including expanding our investments and relationships in the U.S. As we negotiate these possible transactions, we see general underwriting in economic terms as unchanged from recent years' acquisitions. This includes a bias toward general acute facilities, consistent coverage projections, and a mostly flat capitalization rate. I'll simply summarize what we previously reported about our capital activities in the court. I mentioned a minute ago that we recently issued $1.3 billion in 10-year unsecured notes at 3.5%, in part to redeem $800 million in unsecured notes maturing in 2024 that had a blended coupon of 6%. Also on the debt side, we recast our $1.5 billion credit facility earlier this month, extending the duration of the revolver and term loan components to 2024 and 2026, respectively. On top of that, we arranged for an interim credit facility under similar initial terms for up to $900 million, about $680 million, denominated as 500 million pounds, of which was temporarily drawn to fund the Priory Deal. On the equity side, we raised a combined $828 million from fourth quarter ATM activity and our early January follow-on offering. As mentioned earlier, we have increased our run rate normalized FFO guidance range to $1.72 to $1.76. This is based upon fourth quarter annualized normalized FFO of $1.63 and adjusted to for the annualized EBITDA effects of mid-quarter and post-quarter transactions, completion of and billing for development and expansion projects, and the effect on interest expense and share count of assumptions about the capital transactions that would be necessary to generally achieve our target net debt to EBITDA ratio. It is important for us to reiterate that this is not meant to be a forecast of earnings or FFO results for any particular quarter or year. In fact, this calculation will change with each material additional acquisition or disposition of assets, capital raising transactions, dividend modification, debt repayments, and other plan changes to our in-place EBITDA. Accordingly, we will maintain our practice of updating this estimate periodically. What this calculation does show is that based on the economics of our completed and committed investments and on current expectations about future capital transactions, We continue to achieve strongly and immediately positive per share increases in FFO and AFO. Our liquidity remains excellent with roughly $1.5 billion of cash and immediate borrowing capacity as of today. With that, we'll turn the call back to the operator for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by, we'll compile the Q&A roster. Our first question comes from Joshua Centerline with Bank of America. You may proceed with your question.

Joshua Centerline Hey, good morning, guys, and thanks for the question. Ed, I just wanted to follow up on a comment from your opening remarks. You mentioned that the Priory Group is going to be a platform for NPW within behavioral health. I'm curious, is that growth going to be focused on the U.K.? ? or is it kind of a partnership across Europe?

Yeah, and I didn't mean to imply that it was a platform within the Priory organization, more of a platform for us to invest in more behavioral health. It's something that we've wanted to do for a long time. We felt like it was very much needed, and certainly, as you know, under the Obamacare, it was something that was mandated to have coverage. But it just hasn't grown in the U.S. like it has outside of the U.S., So we're excited to have the Priory Behavioral Health. We think there are other opportunities outside of Priory, but by having that big investment in Priory gives us the ability to approach other operators.

Interesting. So it sounds like in Europe it's a much bigger sector to invest in. Is that right?

Yes, that is correct. That is correct.

Okay. Awesome. And then... On the coverage ratios, can you remind me if the coverage ratios you quote are trailing 12 months? And if so, you know, how should we kind of think about the evolution going forward as kind of some of the pre-COVID operations roll out? And I guess I'm more focused on the coverage ratios excluding the CARES Act grants.

Sure, absolutely. They are trailing 12. So what we reported includes obviously the first quarter coverage the second quarter in which all hospitals were basically shut down, and then the third quarter in which they began to come back into operations. It does not include any of the fourth quarter because of the reporting that we get from our hospital operators. We do have the unofficial October-November numbers from some of our operators, and it looks like the continuation of building back to where they were on a trailing 12 coverage to pre-COVID numbers look very, very positive. I certainly don't want to give the number where I think we'll be in the fourth quarter yet, but I think that it'll be substantially higher without any CARES Act on where we are right now. Let me just give you a couple of statistics. As an example, just quarter over quarter, our same-store admissions for our acute care hospitals alone was up almost 20%, up 18%. In addition to that, many of the operators, as I mentioned on the last earning call, were able to make a lot of expense adjustments. We've seen that with some of the HCA reporting. That's the same thing with our operators as well. So I think that as HCA reported, I think that they all will come out of this in a much stronger position, and we're very excited about where they are operationally, and we'll continue to see those numbers grow. I don't know when we get back to a trailing 12 above where we were pre-COVID, but these are very, very strong numbers. When you think about it, A two-times coverage with an entire quarter being shut down, that's extremely strong.

Yeah, appreciate that. Thanks, Ed. Thank you.

Our next question comes from Connor Siversky with Barenburg. You may proceed with your question.

Good morning, everybody. Thank you for having me on the call today. First of all, just to add to Josh's question, on the investment activity in the UK. I'm curious about behavioral health, some of the initiatives that have been laid out by the NHS there. I'm wondering if you can provide any color as to what kind of momentum that space is seeing in the UK in terms of funding from the NHS.

Absolutely. And this actually started well before COVID. They made a very big push to outsource the behavioral health. The NHS's facilities were very old, very dilapidated. They didn't build any additional facilities. instead closed the facilities and decided they were going to use the third-party private sector. So they have pushed it in a very big way. They've added additional funding, and all of this was pre-COVID. So during COVID, they actually used some of the behavioral health hospitals in those early months, and the same thing that we saw happen over here in the U.S., where they used some of those for true acute care facilities. They didn't need as many as they thought they needed, so they very quickly opened them back up to behavioral. Behavioral came back in a very, very big way without any additional COVID funding from the NHS. So if you look at just the hospitals that we acquired from Priory, and remember that Priory has 300-plus facilities, but a vast majority of those are educational or autistic, very small facilities that don't meet our criteria. So what we bought were the behavioral health hospitals. And when you look at those alone, they actually ended up 2020 about 2% better than they were in 2019 without any additional funding. But the NHS in all of England, as we've all learned even here in the U.S., that mental health, behavioral health is a real issue during the pandemic, and they are absolutely committed to increase the funding that they committed to prior to COVID. So it's in a very strong position right now.

That's great, Culler. Thanks for that. Changing gears a little bit, thinking about the race to distribute the vaccine versus some of the emerging virus variants that we're seeing news flow on, is there any commentary available from your operators, whether in the U.S. or elsewhere, in regard to the take-up of the vaccinations by the healthcare workers and how quickly they're being distributed through the facilities?

It obviously varies from region, but it would follow the same that you would see at people's attitudes about vaccines in general. But very generally speaking, very generally speaking, probably 70% of the hospital employees have agreed to take the vaccine. We don't have any operators at this point that have made the decision to require all of their operators. As all of us know, and some of us have had the opportunity to talk to some of the experts, particularly in my case with the people at Pfizer, they think that we only need 40% of the population to take the vaccine, along with the roughly 30% of us that have already had COVID to get us to a herd immunity type situation. So the 70% of the healthcare workers that are taking the vaccine is a very, very strong number, and stronger than what we're seeing throughout the population right now.

Okay, thanks for that. And one more quick one from me. Just looking at pro-forma leverage ticked up a little bit, so I'm just wondering when you consider the investment pipeline through the end of the year, maybe beyond, if you're going to consider a different financing mix for future acquisitions.

No, it wouldn't be accurate to say different, because over the last especially couple of years, we've really tapped any number of sources from traditional common equity issuances to long-term unsecured notes with the joint venture financing, equity financing, along with secured financing in those joint ventures. We've used the ATM. Over the course of those two years, not even including the Promonial Joint Venture a couple of years ago, we've sold several hundred million dollars of assets, and that's provided accretive financing. We've got a handful of more assets that are ripe for sale. that would allow accretive refinancing. And then at today's dividend rate, we're generating upwards of $200 million a year in retained AFFO. So we will continue to tap all of those as the need arises and as the circumstances mandate which of those various alternatives are better at any particular time.

Okay, thanks for that. That is all for me. I'll yield the floor. Thanks, Connor.

Thank you. Our next question comes from Steven Delicate with Doug Barclays. You may proceed with your question.

Thanks. Good morning, everybody.

Good morning, Steve.

So, you know, Ed, when you were commenting in your prepared remarks around the pipeline, you talked about expanding investments and relationships in the U.S. I'm just curious, I don't know if you're able to give more color on the pipeline overall. but sort of balancing U.S. versus international opportunities. Nelson, you've talked a lot historically about being able to better penetrate the not-for-profit hospitals in the U.S. I don't know if that portion of the U.S. pipeline is also accelerated. I just wanted to get more color on the overall pipeline. Thanks.

Sure, Steve. And it really hasn't changed from my comments on the last earnings call that we had. Obviously, as we all know, the acquisitions don't all happen on the same day, and we just did a a big UK acquisition, so it's a little bit skewed right now. But we continue to see about 60% of the portfolio in the U.S. and 40% outside. That obviously is not a fixed number as we go because of the way acquisitions work out. But we have a number of good, large acquisition opportunities that we are actively working in the U.S., which we hope to be able to announce over the next couple of quarters. We still continue to have opportunities outside of the U.S., Again, most of what we're doing, it continues to be on a dollar basis, continues to be general acute care hospitals. But we also, as I mentioned earlier, have some good opportunities, good-sized opportunities outside of the U.S. for behavioral. We still have behavioral opportunities in the U.S., but they're not big opportunities. So the vast majority of what we're looking at in both international and national is general acute care hospitals.

Okay, great. Okay, that's it for me. Thanks.

Thanks, Dave.

Thank you. Our next question comes from Todd Stender with Wells Fargo. You may proceed with your question.

Hi. Thank you. For the priority deal, how many hospitals ended up coming with the portfolio?

So, Todd, it is approximately somewhere between 35 and 40 hospitals. And you remember that, as I said earlier, Priory has a total of 300-plus facilities, but Many of those are very small facilities that don't fit our model. So, if you look at their overall EBITDA numbers, the vast majority of that comes from these 35, 40 facilities that we acquired.

Male Speaker 1 All right. So, you guys, you've extended the loan. Is it cash flowing, or that really just turns into real estate ownership upon consummation of the merger or acquisition of the operators?

Male Speaker 2 No, it's current paying. We'll just convert invisibly to observers from what will be categorized initially as interest to lease payments as we actually close each individual hospital.

I see. What's the rate of the loan right now relative to that gap yield of 8.6%?

There's no difference.

No difference. Okay. How about the timing of the bridge loan? Is that consummated in the first half here? Is that what happens?

The 250 million pound loan that we made to the acquirer was funded at the same time we closed on the real estate transaction, and we expect that to be repaid during 2021. Got it. Okay.

And then how about the 9.9% interest? Has that amount been determined yet or not yet?

That hasn't been disclosed.

Okay, got it. And then just for behavioral health, you underwrote this at a two times EBITDA. Is that a fair number for us to kind of think about for the long term, or should that trend a little bit higher into the two-and-a-half times range?

Oh, yeah, it will absolutely trend higher. That's a very strong going in. coverage there in the UK, and that will trend higher. That is on existing numbers. It does not take into consideration the improvements that the new operator will make.

Got it. Okay. Thank you. One last one for me. Steve, you mentioned the earnest transaction. Was the South Carolina asset, was that a loan converted to real estate ownership in Q4? Sure.

No, that was actually the purchase of a recently completed development.

Understood. Okay, thank you.

Thank you. Our next question comes from Omotayo Opusanya with Mizuho. You may proceed with your question.

Yes, good morning. Congrats on another strong quarter. Thank you, Tayo. My pleasure. Thanks for all the details in regards to rent coverage and the trend. I'm just kind of curious, is there a way you can share additional detail a little bit more on the tenant level around rent coverages rather than the total portfolio? Even if you don't want to talk specifically about one tenant, just to get, are they all kind of trending the same way? Is there someone that kind of, you know, behind all the others because of something unique, especially for some of you are larger tenants, just trying to understand what would be happening at that level.

Absolutely, Tayo, and you'll notice in my very last part of my prepared remarks, I talk about the portfolio being the strongest group of hospitals in the world, and it truly is. These operators all across the board in our portfolio are trending in the same direction. They all have very strong coverages. We don't have any in the large group of operators that are having any issues whatsoever. You're seeing the same trends across the board. It it is a very strong position where they are all right now.

Okay, that's helpful. And then second question, and I think Steve Vallick has touched on it a little bit. When you think about U.S. versus U.K. opportunities, I know you kind of said it's this kind of 40-60 balance is kind of where you hope to end up. But when you're talking about near term, what could happen? Is it really more of a U.S. opportunity that's kind of lined up, or is it more of a European or international opportunity? No, near term, it's more U.S. Near term, it's more U.S. Okay, great. Okay. Thank you. Thanks, Tayo.

Thank you. Our next question comes from Jordan Sadler with KeyBank Capital Markets. He may proceed with your question.

Thanks. Good morning, guys.

Morning.

So right. So a little bit deeper on Priory. So as a partner in median, I'm sort of curious about the financing. And Steve, I think you touched on it a little bit what was done with median. Eventually, you brought in, I think, promoting out. And I was curious to see if to know if they were invited to participate in the Priory deal, given that they're a partner in median.

No, we did on our own the Priory transaction. Okay.

Well, that I know. Would it be likely that you would look to execute a similar type of structure around the permanent capital base of Priory?

Yeah, we have no plans for that as we sit here today. I made the point in my remarks because it – the median transaction with Moniala was so extraordinarily successful. It's certainly not impossible that we would want to replicate that, but that would be a longer-term process because, as I mentioned, that was several years. I think we began assembling that median portfolio in 2013, 2014, and it was not until late in 2018 – that we had completed assembling it, we had seasoned it, we had allowed median to bring its efficiencies to bear, and only then did we take it out and recapitalize it. So that's possible that Priory could follow that pattern, but there is certainly no plan or commitment to do that as we sit here today.

And, Jordan, just to belabor the point that Steve's making, if we had brought Priory or anyone else in on the front end, we wouldn't have had the ability to realize the gain that we think we could realize later down the road if we did it at that time.

Okay. And then that makes sense then. And then as it relates to the dispositions during the quarter Olympia Medical and then Steve, you talked about some other potential. So one on Olympia Medical, anything you can offer up in terms of the economics there? I know there was $51 million of proceeds, but any other details around sort of yield on sort of the sale? And then maybe the scale of additional dispositions or how much else do you have teed up?

So remember, Olympia was a mortgage loan for us, and the operator, Electo, sold it to UCLA, and as part of our relationship with Electo that we've been disclosing over the past couple of years, we've had a couple of facilities that we've taken impairment charges on, we've stopped recognizing current rent, and so the $51 million proceeds goes not only to repay 100% of the mortgage balance, our mortgage balance that was outstanding on the Olympia facility, but recovered some of those prior charges and provided for profit over and above that on other cross-collateralizing, cross-defaulted charges we had taken over the last couple of years. Okay, got it. And then other sales? Like just how much do you have to do that? Well, relatively minimal, but when considering, you know, combining various sources for capital, for recycling, you know, meaningful, you know, upwards of a couple of hundred million dollars over the, you know, potential course of the next few quarters. Okay, great.

I can yield the floor. Thank you. Thanks, Jordan.

Thank you. Our next question comes from Mike Muller with JP Morgan. You may proceed with your question.

Oh, hi. Just a quick one. Is there any updated timing on recognizing the straight line income from Priory?

Well, that will start. The straight line will start as we close each facility, as Ed mentioned. And just by way of a little background, we agreed that with Waterland to provide 800 million pounds of real estate financing, and it is our discretion as to which of the hundreds of facilities that Priory owns and operates, we choose, and that's why Ed comes up with the 35 to 40 facilities. We're in the process of selecting our facilities. That process then will lead to periodic closings of those facilities, And as each facility is closed, we'll start recognizing the straight line component of the master lease agreement.

Got it.

So just to close that, Mike, we're hopeful that all of that is closed by the second quarter of this year.

Got it. Okay, that was it. Thank you. Thanks, Mike.

Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. You may proceed with your question.

Yeah, thanks. I wanted to touch on the NHS deal that you guys announced. And it seems like this is with, I guess, a private operator within NHS. I guess, how does that work out? I guess, is it with NHS or was it a private operator or is this some special segment that they created?

So we acquired a 999-year ground lease on the real estate that has the term used in the UK is an occupational lease with the NHS operator, that occupational lease, I think, has 40-plus potential years running, after which, just like any other transaction, then we would, if they don't extend, the real estate would revert to us.

Now, is that a corporate guarantee or that lease directly with the NHS, or is it a subsidy or is it NHS? Yes.

Well, subsidiary is not the right term. The NHS is responsible for funding all NHS trusts and operations, and so it's effectively, in our view, a government yield.

So technically all of the trusts operate independently of each other, but they're recognized as part of the NHS.

Okay. Okay. And then, I guess, how big of an opportunity is it for you to continue to grow with NHS in the U.K.? I know that most of the growth has been with private operators. I mean, there's an opportunity to make a bigger investment with NHS?

We think so. We think that this opportunity has been there for a very long time, but it's always getting that first one in the door. We thought we had an opportunity seven or eight years ago with the Manchester Trust University Hospital there. But with this one actually closed, we expect that there will be others that we can do.

Does NHS typically sell their real estate? I mean, I guess, do they own most of their own?

So, again, it's individual with each individual trust, and each individual trust has done a lot of different transactions similar to this, not necessarily a sell-leaseback type transaction or exact transaction, but a sell-leaseback type transaction. So this isn't foreign to them. Okay.

And then can you talk a little bit about the Swiss Medical Network deal? Did I hear that correctly? That was into the operator, or was there some real estate investment tied with that?

Yeah, no, it is the real estate portion of it. You'll remember that our investment there is with an entity called Infracor, which in our tenant there is the Swiss Medical Network. And we bought out one of the other investors. This was something that we had planned on or hoped that we would be able to do when we made our original investment in Infracore. And so when the opportunity came along, we were very excited to consummate it. But it's entirely real estate.

Okay. And then I know that there was an opportunity when you originally did that deal to kind of consolidate and grow in that market. I mean, have you started doing that yet, or is there near-time opportunities to kind of start acquiring new properties and grow that entire venture? Sure.

Yeah, I think we were very close to adding new properties before COVID hit. So it is still the ultimate plan, but obviously with COVID, everything in Switzerland got put on hold. Okay, great. Thanks, guys. Thanks, Mike.

Thank you. Our next question comes from Tom Hennessey with Deutsche Bank. You may proceed with your questions.

Good morning. Just going back to the pipeline real quick, could you just discuss the impacts of the pandemic on the pipeline, I guess, as the year progressed? I mean, I assume getting boots on the ground was a considerable challenge, but is there any way to quantify this, whether it be lost or delayed deals, how much capacity went unused as the year progressed? And then I guess, you know, any challenges carrying over to 21, and would you anticipate a meaningful acceleration once we get back to normal?

Thanks, Tom. I think that there weren't any deals that were lost. There were a large number of deals that got put on hold and delayed. Priory is a perfect example of that. We were working on Priory well before COVID hit, and obviously when COVID hit, it along with everything else got put on hold. Most everything has opened back up, including opportunities that we were just really getting into. So I think the pipeline as a total Figure is back to where we were on a pre-COVID basis. Some of the items still move a little slow. You talk about boots on the ground. We were very, very fortunate to have our Luxembourg office because while those of us here in the U.S. weren't allowed to come to Europe, our Luxembourg office was still able to travel freely. We also had boots on the ground in Australia. So with some of the expansions, most of them were planned there. You remember when we did the original transaction with Healthscope in Australia. We had a $300 million planned addition to that portfolio that obviously got put on hold, but as I mentioned in the last earnings call, got started back up, and again, having our boots on the ground there has been able to be very, very beneficial. In South America and Colombia, they still let us in, and so we've been able to have our team there and to continue that process. That's, as I have said to some of the people that have asked over the last few months, that's probably the biggest challenge that we have in going forward in 21 because it certainly is not going to be back to 2019 overnight. But it is our ability to operate in this new environment. I think we've done a very good job of it. We pride ourselves on building relationships with people face-to-face. We have had to do some of that from a Zoom standpoint. But as we get into 21 and more and more people throughout the world are able to have the vaccine, we hope to be able to travel more freely. That obviously hasn't happened yet, but with our offices around the world, it hasn't slowed us down any. But that's where we are in the pipeline right now.

Great. That's it for me. Thanks for the additional call.

Thanks, Tom.

Thank you. Our next question comes from Michael Lewis with Truist Securities. You may proceed with your question.

Great. Thank you. My first question is about the run rate FFO guidance and, you know, our ability to use that as a yardstick. And the reason I ask is, you know, you gave FFO guidance back in December 2019, and now a full year later you still haven't quite hit it, even though, you know, you've made billions of dollars of accretive investment since then. you're still above the financial leverage target that was contemplated in that run rate. And, you know, I assume it's wrong to presume that your FFO would be higher today had you, you know, made no investments in 2020 and delevered the balance sheet by almost a turn. So, you know, are you missing your guidance or is it just, you know, a timing related thing where it can take, you know, a year or however long it takes to get to that run rate?

So a couple of questions. would be, firstly, we reported in 2020 FFO per share 21% higher than we did in 2019. And secondly, so I don't think we're lagging. But more importantly, as I made an attempt earlier in my prepared remarks to explain, there's lots that goes into a run rate guidance. And when a company is growing very, very rapidly like ours, I mean, over the last almost 10 years at 30-plus percent compounded annually, the only way to get to a firm target of FFO is to stop that growth because every single transaction that is done impacts the arithmetic, the calculation that goes in. So... I'm not quite sure, I didn't quite hear all of your question, but are we lagging? I don't think so. We're growing almost exponentially, accretively, and that's what the guidance is really meant to show, because unless, like I say, you wanted to stop all of the forward-looking assumptions, which include further growth, which include capital, which is a very significant part of the guidance is to bring the leverage back down from where we are, which is slightly above the six times, into something between five and six. That's the most significant, meaningful impact to a straight EBITDA-based accretion. So, again, I'm around to repeating myself, but as long as we continue to grow, that run rate guidance is going to be a constantly moving target. And the faster we grow, the more unpredictable it becomes. But it is important for investors to see that, nonetheless, we are investing accretively and, frankly, very strongly accretively. And I think that's the evidence given by the 21% year-over-year per share results.

Okay. So I guess there's no You know, there's no time period on when you might hit this 172 to 176, for example.

Well, yes, if we stopped growing, yes, we would expect to hit that in 2021.

But we're not going to stop growing. I see. Because the number you gave in December 2019 was 165 to 168. You just reported 41 cents, right, which if you annualize would be 164. which is why I asked the question, but we could do this offline, too. My second question, I wanted to ask about, and this one maybe has already been answered, but, you know, Ed, you talked about the trailing 12-month nature of the coverage ratios. I mean, is it fair, again, setting expectations? I would assume that we probably don't see much movement in that coverage then since 4Q is not going to be, you know, a unique comp, Eurovere comp, 1Q won't be. And really, we may not see real movement in that ratio, in that coverage ratio, until we get, you know, this really kind of bizarre 2Q, you know, out of the trailing equation. Is that a fair way to think about it?

Well, Mike, it is. But as I said earlier, while I don't want to set any expectations because we just have two months, unofficial numbers for a number of our tenants for the fourth quarter. But the fourth quarter numbers, even on a trailing 12, look substantially better than they did even on the third quarter trailing 12. So, as I said earlier, if you look at the same store admissions compared to the third quarter, we're up, or compared third quarter to second quarter, we're up 10 percent overall and up 18 percent in acute care. And then if you look at the reporting that we've had for October and November, They are very strong numbers. So, again, not with setting exact expectations. I do expect you to see good movement in the coverage for when we get through the first quarter and reporting fourth quarter numbers. But you're absolutely right. Until we're through with the second quarter, in which case all hospitals were basically shut down, you're not going to see numbers back above 2019. Okay.

That makes sense and sounds promising. Thank you.

Thank you. Our next question comes from Jordan Sadler with KeyBank Capital Markets. He may proceed with your question.

Just a quick follow-up. I was confused a little bit by your answer to Mike's question about the rate on the Waterline loan versus the GAAP yield. I think in a previous question, previous answer, you said that they were the same yield, but then Straight line rent is supposed to kick in as you close these properties. So I guess from a modeling perspective, are we modeling the 800 million pounds at an 8.6 yield going in?

So good point. And I didn't mean to imply that we will be earning 8.6% during this interim period. I was really in my own mind comparing that to the cash rate that actually, yeah, which we haven't disclosed yet.

Okay. So it's the same as the cash. So there will be a delta. And as you close these loans, the gap yield or FFO yield will step up incrementally throughout the second, like through the second quarter, basically, as you close these. That's correct.

Yes.

Gotcha. Thank you, Steve. And then one other on the refi. opportunities ahead of you. So I meant to touch on this a little bit earlier, but how do you intend to finance this portfolio with debt longer term?

So similar to our kind of long-term practice, because of the very, very low rates away from the U.S. and because we naturally want to hedge our purchase price Our expectation would be that long-term we would finance the Priory deal with as much unsecured local currency-based notes as we can.

Is there along those lines, you know, earlier you did some refi or pre-refi opportunity redemptions. Anything else here sort of eyeing in the capital structure that looks a little bit above market that can be taken out?

I don't think so. There's a couple of euro issuances, but it's not nearly as attractive at this point. So we're not expecting that in the near term. It will be much more likely to be new issuances in the sterling market. Okay. Thank you.

Thank you. And I'm not sure any further questions at this time. I would now like to turn the call back over to Ed Aldy for any further remarks.

Josh, thank you very much. And again, thank all of you for listening in today. Thank you for your interest in Medical Properties Trust. And if you have any additional questions after the call, please don't hesitate to reach out to Drew or Tim, and they'll get with the right people. So thank you very much.