Medical Properties Trust, Inc. common stock

Good day and thank you for standing by. Welcome to the fourth quarter 2021 Medical Properties Trust earnings conference call. At this time, all participants are in listen only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone keypad. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star then zero. I'd now like to hand the conference over to Charles Lambert, Vice President. Please go ahead.

Good morning, and welcome to the Medical Properties Trust conference call to discuss our fourth quarter and full year 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 it, 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 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 thank all of you for joining us this morning. From March 2020 until October 2021, like most of the world, MPT's offices were closed. In October of last year, while we reopened our offices, we still ran less than 100% back in the office due to various spikes in COVID throughout the last quarter of 2021. Our people were working from their homes, remote offices, through Zoom and Teams in any way we could keep moving forward, and move forward we did. I cannot stress enough how proud I am of the job all of our employees in our five offices around the world have done over the last two years to produce back-to-back record years during the worst worldwide pandemic we've seen in modern times. Following on our record year for 2020, 2021 was another remarkable year in the past almost 20 years of MPT, which Steve will discuss in more detail. 2021 was also another banner year for acquisitions. MPT continued to execute on our acquisition strategy to amass another $3.9 billion in investments across five different countries with nine different operators, five of which were new operators. After including these acquisitions in our portfolio, we have 53 operators that manage over 435 NPT-owned facilities worldwide. To recap the year from an acquisitions perspective, we began the year with a $1 billion-plus investment in the leading provider of behavioral health in the United Kingdom, the Priory Group. This investment included the real estate of 35 behavioral health facilities located throughout the UK, as well as a 9.9% equity interest in the operating entity. This transaction highlights an important strategic relationship with Waterland, a private equity investor with whom we have had an ongoing relationship for many years. What began years ago as our first investment outside the US has grown into a relationship with one of the largest multinational healthcare providers in the world, the now merged Median and Priory Enterprise. In the middle of 2021, we announced and subsequently closed two sizable acquisitions. The first was our $950 million acquisition of 18 additional inpatient behavioral health hospitals, along with an equity interest in the operating entity of Springstone LLC. These 18 facilities are purpose-built inpatient facilities located carefully selected U.S. markets. This transaction closed in October of 2021. As we all know, the Affordable Care Act, long before COVID, contained a large expansion of mental and behavioral health coverage. In the U.K., the NHS established the need for increased behavioral health services also long before COVID. Behavioral health care is estimated to be a $200 billion plus market in the U.S., with only 40% of that market currently accessed. The hospitals in which NPT has invested and will continue to invest in, both here and in the U.S. and abroad, will play a significant role in addressing these needs. The second announcement was our $900 million acquisition of five general acute care hospitals in South Florida from Tennant Healthcare in conjunction with Stewart Health's acquisition of the operations of those hospitals. Additionally, as we have previously discussed, we announced two other significant transactions in 2021 that will enhance our portfolio while also confirming and demonstrating the value of our business model. In the second half of 2021, we announced our agreement to form a joint venture partnership with Macquarie Infrastructure Partners. This Macquarie-controlled subsidiary will acquire a 50% interest in a portfolio of eight Massachusetts-based general acute care hospitals owned by NVT and operated by Stewart Healthcare System. The transaction values the portfolio at approximately $1.7 billion. We expect this transaction to close in the first half of 2022. The other previously disclosed transaction that we announced in 2021 that we expect to close later this year is the agreement to lease substantially all of our Utah hospitals to HCA Healthcare. This will place HCA as one of MPT's five largest tenants and reduce the percentage of MPT's portfolio represented by Stewart to just below 19%. As we have pointed out before, but it is a good reminder, No steward regional market will represent more than 6% of our total portfolio, and no single steward property will represent more than 2% of our pro forma assets. Fortunately, the much talked about Omicron variant of COVID has not caused much disruption to the healthcare services provided by our operators. However, most of our operators are experiencing staffing issues as healthcare workers battle burnout from the pandemic and from federal and state mandates requiring healthcare workers to be vaccinated. While the vast majority of the staff at our portfolio of hospitals have been vaccinated, the disruption caused by the minority who are not has had an impact on our labor cost. As a result, labor costs have increased, and in some cases, services have had to be temporarily reduced or limited. Despite these challenges, our operators are managing through these times and continuing to perform well. You will recall that last quarter we began the approach of providing our coverage metrics on a total portfolio basis instead of same store. We have gotten to the size where additions and subtractions do not make material, artificial impacts on the numbers. And just as a reminder, there are approximately 100 of our 435 facilities that are either not yet reporting because they were just recently acquired, not required to report other than parent company information because they were acquired from other landlords, or facilities operated by operators who only provide the parent company financial information. For the trailing 12 months of our total acute care portfolio, generated an EBITDARM coverage of 3.06 times versus 3.11 times last quarter trailing 12 months. We reported Q2 2021 trailing 12-month coverage of 3.03 during last quarter as a result of moving three behavioral facilities, one steward and two prospects, to the behavioral health property type The Q2 2021 trailing 12-month acute care coverage being reported this quarter is 3.11 times. The LTCH segment generated an EBIDARM coverage of 3.2 times versus 3.27 times last quarter trailing 12 months. The IRF coverage for the trailing 12 months was 2.09 times versus 2.12 trailing 12 months. We reported the Q2 trailing 12-month coverage for 2021 of 2.14 times during the last quarter. As a result of selling the encompassed Fort Lauderdale facility and removing it from earnings, the Q2 2021 trailing 12-month coverage being reported today was 2.12 times. Due to our recent behavioral health acquisitions, we have initiated reporting coverages on this property type this quarter. which generated an EBITDARM coverage of 1.92 times for the trailing 12 months. Now I'd like to provide some updates on some of our largest operators. Steward, which represents 19% of our portfolio on a pro forma basis, continues to perform well with coverage near three times. The integration of the five recently purchased Miami facilities has been successful and the market continues to exceed expectations. Stewart continues to closely manage the onboarding of the new facilities, including working down the accounts receivable to steady state levels in the near term. The latest COVID surge is having an impact on the volume in Q4 and early into Q1, as Massachusetts deferred some elective procedures there. Stewart expects that most of these deferred procedures will still be performed at their facilities prior to the end of Q1. Circle, which represents 11% of our portfolio, continues to show strong coverages. Their coverage for the third quarter in 2021 reflects stabilization at a high coverage level, driven by a robust increase in self-pay volumes, which provide for increased reimbursement. I'd also like to highlight the 2021 award received by Circle in November for excellence in acute healthcare services with a focus on innovation. Prospect, which represents 7% of our portfolio, is doing well in California and showing some softness in Pennsylvania and Connecticut. They are seeing some rising labor costs, as the rest of the country has, but rebounding surgical volumes are helping to offset those costs with growing revenues. Most of the labor issues prospects are occurring at their Pennsylvania hospitals. Several of Prospect's California facilities have recently been recognized. with top excellence and five-star quality awards from health grades. HealthScope, which represents 5% of our portfolio, continues to show quarterly EBITDARM increases. Despite periodic government suspensions of certain elective surgeries due to the pandemic, revenues remain steady and patient days are increasing. NPT continues to partner with HealthScope to make additional investments into renovations and improvements at our hospital's in New South Wales and Victoria. Median, which represents 5% of our portfolio, continues its steady performance. Median has performed superbly throughout the pandemic and continues along that path today. Andre Schmidt, the CEO, and his management team have done a superb job throughout NPT's relationship with Median. Prime, which represents 5% of our portfolio, continues its stellar performance. Their consistent EBITDARM coverage is at the top of our portfolio. Volumes have shown steady improvement year over year. During Q3, a number of Prime's hospitals were recognized by health grades as five-star recipients for women's health care. On the one-year anniversary of Prime's acquisition of St. Francis Hospital in Linwood, California, both Prime and St. Francis were recognized by local officials for their extraordinary service to the community. Priory, which represents 5% of our portfolio, reports solid operational performance that is in line with our underwriting expectations. Priory has only reported one quarter of operational financial information to NPT thus far, but that one quarter is right in line with our underwriting projections. Springstone, one of our newest operators, now represents 5% of our portfolio. Their behavioral inpatient facilities continue to serve a vital need in each of their communities. While not yet included in quarterly reporting, monthly consolidated EBITDA is in line with underwriting projections and ahead of prior year. Earnest, which represents 3% of our portfolio, continues to perform at the very top of the market. Coverages for their IRFs and LTACs are both near or above all-time high coverage levels as a result of solid volume and revenue growth in 2021. LifePoint, which represents 3% of our portfolio, continues to perform well. Though we did see their EBITDA coverage plateau a bit in Q3, it is still seeing significant growth in 2021. They are seeing strong growth on the surgical side of business that should help continuing coverage growth. Additionally, LifePoint successfully completed the acquisitions of Kindred and the subsequent creation of Scion Health at the end of 2021. We now have facilities under both of these companies. I'd like to refer all of you to our website to see the recently posted case studies on one of Prime Hospital and one Pipeline Hospital. These two highlight the critical importance of hospitals in underserved neighborhoods in Los Angeles. These are examples of how our capital can rapidly facilitate improved care for underserved urban communities, especially as they experience a disproportional impact from the global pandemic. Like me, some of you may be a lifelong reader of National Geographic. If you are, you probably saw a cover story they did last year on the lack of trees in lower-income neighborhoods and urban areas. The article particularly focused on L.A., It has always been important to NVT to make an impact on the communities we serve in addition to its healthcare needs. We contacted and established a relationship with an entity called City Plants, a not-for-profit organization in Los Angeles that distributes and plants approximately 20,000 trees a year in areas that lack access to the many environmental and health benefits of robust tree canopy. We have recently made a sizable donation and members of our staff travel to LA to physically work with this organization with their tree planting. 2022 is shaping up to be another great year for NPT. Our pipeline is robust, our portfolio is diversified, not only from an operator perspective, but also from a geographic perspective, as well as from an asset class perspective, given our recent large investments in behavioral health space. Steve?