Medical Properties Trust, Inc. common stock

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 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 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 turn the conference over to your host today, Charles Lambert. Thank you. Please go ahead.

Thank you. Good morning and welcome to the Medical Properties Trust conference call to discuss our third quarter 2021 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 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 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 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 MedicalPropertiesTrust.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 thank all of you for listening in today for our third quarter 2021 earnings call. During the month of September, we made two announcements that are significant milestones for NPT. Steve will go over each of these in detail in a few moments, but it is important for me to put them in context. The first one was a partnership with Macquarie Infrastructure Partners 5 for eight Steward hospitals in Massachusetts. These transactions alone reflect a number of very strong points. NBC has always referred to and thought of our hospitals as important parts of any community's infrastructure. As part of our underwriting, we investigate the importance of each facility to that specific community. As most of you know, Macquarie is one of the world's leading infrastructure investors. They too believe the premise that most hospitals are an important part of a community's infrastructure. When Macquarie researched the world's leading experts in hospital investing, they turned to MBT. In the words of one of their executives, NBC is the clear leader, and there really isn't a number two. When we purchased the Massachusetts hospitals five years ago, the cap rate on these leases was in the mid-7% range and has escalated since then. The value of these hospitals that we agreed with Macquarie was based on a market cap rate in the mid-5% range. Reflecting our unique underwriting expertise, stewards' operating skills, and a market for hospital real estate that is rapidly attracting sophisticated private investors. These conditions establish a whole new value for our entire portfolio, not just the Massachusetts hospitals. We are excited about this relationship with Macquarie, and we hope to be able to grow it together. And while we're not making any additional announcements today, we are encouraged about opportunities we have seen for similar relationships with other institutional investors in other markets. The next announcement is the pending acquisition by HCA of the operations of the Stewart, Utah hospitals. Stewart acquired these hospitals in an NPT-financed acquisition as a part of its acquisition of IASIS in 2017. Over the last four years, Stewart has done an outstanding job of growing the top and bottom lines for these facilities. As a part of its transaction with Stewart, HCA has agreed to enter into a new master lease with NPT for these facilities paying the same rent and annual escalators for the real estate as Stewart is currently paying. Like the Macquarie transaction, this transaction provided reinforcement on the value of NPT's real estate by sophisticated third parties along with the validation of the strong performance of these Stewart hospitals. Upon the closing of these two transactions, stewards' concentration for NPT will have been reduced to approximately 18%. More importantly, no standalone steward regional market will represent more than 6%, and no single steward-operated property will represent more than 2% of our pro forma assets. Our largest single investment, approximating 3% of our assets, will then be operated by HCA. In 2019, the last year before the pandemic, NVT's acquisitions totaled approximately $4.5 billion. In 2020, during the heart of the pandemic, NVT's acquisitions totaled approximately $3.6 billion. And year-to-date, in 2021, we have acquired approximately $3.7 billion of additional investments. We have done this with the strategic use of JV capital, common equity through underwritten offerings in the ATM, selective dispositions, funds received from opportunistic debt repayments to MPT, debt offerings with historic low interest rates, and retention of earnings by the virtue of a very prudent AFFO dividend payout ratio. We continue to have a robust pipeline. that we will execute selectively while effectively utilizing the most efficient sources of capital. Before speaking to the operator performance, I'd like to mention a special award that speaks to the importance of NPT places on corporate culture. As we announced in late September, NPT ranked as the fifth best place to work for millennials according to Modern Healthcare's Best Places to Work 2021. This was based on an employee survey conducted by an independent third party in which our overall employee engagement score of 98% was recorded, and in which particularly strong marks related to employee satisfaction and confidence in management were communicated by our employees across the board. Our most important asset is our people, and we are proud that our employee base is satisfied across multiple measures of our internal social responsibility. As NVT has grown over the years, we have attempted to show the performance of our portfolio in a number of ways. Many years back, we instituted a same-store analysis. When we were growing so fast and our total assets were much smaller than they are now, this approach made more sense. It was structured to show performance without undue influence from the newly acquired facilities. As we've gotten much larger, both in terms of total assets in dollars and in number of facilities, the accumulation of additional properties in any one period no longer creates the spikes up or down that could be misleading. We have therefore decided from this point forward that we will report total portfolio without regard to when facilities are acquired. But these statistics will still exclude facilities where A, no detailed individual hospital operating statistics are required under the lease. Now, it's important to point out that each of these leases do provide overall information on the parent company or aggregated hospital performance. This can include leases we inherited or master leases guaranteed or master or guaranteed leases with investment grade tenants such as UC Health, Ochsner, Ramsey, and a few others. There are approximately 80 facilities in this category. Or B, our facilities that are so new to our portfolio, their reporting requirements have not yet begun, like Priory and SpringStomp. There are approximately 70 facilities in this category. Or C, facilities that are under development. There are currently only two facilities in this category. Our attendance results for the past 12 months are very strong. These results include the grants but not the advances that were received by our hospital operators. For the past 12 months, our acute care hospital portfolio generated an EBITDarm coverage of slightly more than three times. The LTCH segment generated an EBITDarm coverage of more than three and a quarter times, and the IRF coverage for the trailing 12 months was approximately 2.15 times. Now, some specific updates on some of our largest operators. Circle, which represents 11% of our portfolio, continues to show strong coverages. Their coverages for the second quarter in 2021 was substantially more than it was in the fourth quarter of 2020, which was also a strong quarter. Circle continues to have a strong liquidity position. And as a reminder, the American insurance company Centene which already owed an interest in Circle, is now the 100% owner of Circle. Earnest, which represents 3% of our portfolio, continues to perform at the very top of the market. Their coverages for both their IRFs and LTACs are approaching three times. Like Circle, they too have a very strong liquidity position. Healthscope, which represents 5% of our portfolio, is seeing some of its best EBITDARM coverages since our acquisition of these facilities in June of 2019. LifePoint, which represents 5% of our portfolio, continues to outperform. Their EBITDARM coverages continue to be one of the highest in our portfolio and grew significantly from the first quarter to the second quarter on a trailing 12-month basis. LifePoint has a very strong liquidity position. And as a side note for LifePoint, some of you may have seen their announcement this week that after the Kindred acquisition, LifePoint will split the company into two separate companies. We will have facilities with both companies, and we have worked very close with LifePoint to ensure that NPT will retain its strong position within both of these companies. Median, which represents 5% of our portfolio, continues its rock-steady performance. Median performed superbly throughout the pandemic and continues along that path today. Their liquidity position also remains very strong. Prime, which represents 5% of our portfolio, continues its stellar performance. Their EBITDARM coverage is at the very top of our portfolio. Prime is one of the strongest liquidity positions of any of our operators. On a very important additional note, St. Michael's Hospital in Newark, New Jersey, operated by Prime Healthcare, was rated the number two most socially responsible hospital in America by Loan Institute Hospitals Index based on measures related to health outcomes, value, and equity. This is in addition to Prime itself, being ranked as the fifth most socially responsible hospital operator in the U.S. We are proud of what our facilities and our operators mean to the communities they serve. Priory, which represents 5% of our portfolio, reports that their operations continue to improve from 2020. They have experienced some labor issues in a few of their locations, but it is not a company-wide issue. Our underwriting showed a 2020 EBITDA coverage of approximately two times Management reports thus far indicated a coverage for 2021 generally in line with this number. We'll begin getting detailed reports from Priory in the near future. Prospect, which represents 7% of our portfolio, is showing its best EBITDARM coverage to date. Their liquidity, too, remains very strong. Steward... which pro forma represents 8% of our portfolio, is generating its strongest EBITDARM coverages to date, well in excess of two and a half times. I would also like to point out, Steward received recognition for ranking first in membership, tied for first in quality, and earned the second highest shared savings payout of 513 participants in the CMS Medicare Shared Savings Program. As the nation's largest physician-led healthcare network and accountable care organization, Steward generated more than $68 million in total 2020 Medicare cost savings while receiving a perfect 100% quality rating amid the challenges of the COVID-19 global pandemic. All across the board, our operators continue to perform with outstanding results. In some general news regarding operations across our various regions, our domestic operators saw volumes rebound in the first half of 2020 to 2019 numbers. In Europe, private hospital systems are increasingly viewed as solutions for backlogs of elective procedures caused by the pandemic. Patient volumes continue to normalize there as operations continue to perform well. In Australia, 70% of eligible citizens are now fully vaccinated, triggering Phase 2 of Australia's reopening. Most of Australia expects to be fully open by the end of this year. Most hospitals are currently operating at normal levels. In Colombia, occupancy rates remain high, and surgeries have increased substantially over the last several months. The moratorium on high complexity and elective surgeries in Bogota ended in July. At this time, I'll ask Steve to go over the details of our financial results. Steve?