Medical Properties Trust, Inc. common stock

good day and thank you for standing by and welcome to the q1 2022 medical properties trust earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance please press star 0 I will now hand the conference over to your first speaker today, Charles Lambert. Please go ahead.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2022 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 the federal securities laws, the company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.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 Aldack.

Thank you, Charles, and thank all of you for listening in today on our first quarter earnings call for 2022. As first quarter results continue to demonstrate, NPT and its portfolio are in the strongest positions in our history. Our portfolio is well diversified and performing well. Our tenants are generating strong lease coverages and are poised for a strong 2022. We have a strong balance sheet and we have more and better worldwide opportunities in both acquisitions and joint venture possibilities than ever before. I look forward to sharing with you this morning details about our portfolio and future acquisition expectations. In my overall remarks today, I will also take time to address a few other points that have been raised in recent reports and media coverage about MBT. While we typically don't respond to the various third-party reports of this nature, and some of this information may seem like real estate 101, we have heard from many of you, our shareholders and others, that we should take the opportunity to set the record straight and correct some of the erroneous information that has been published. Let me start with the EBITDARM coverage for our portfolio. First, let me point out, as I have numerous times, EBITDARM and these calculations come straight from property level gap basis financial reports we receive from our tenants, which include their annual audited financials at year end. Except in extremely rare or unusual circumstances, such as the COVID grants for 2020 and 2021, and some minor immaterial prior period updates, no adjustments have been made to these numbers. These EBITDARM numbers are trailing 12 months for the period ending 12-31-21. We use earnings before interest, depreciation, amortization, rent, and management fees, and the actual cash rent amounts owed to MPT. There have been a couple of recent reports from third parties outside of the company that have tried to use CMS cost report NOI numbers to show profit margins and equate that to a lease coverage comparison. CMS uses different definitions and allows different deductions for items such as depreciation, amortization, interest, and other items than what is required in GAAP financial statements. Furthermore, they include all rental and lease payments and interest payments among other items. Therefore, when quoting the profit margins, one must keep in mind that all MPT rent and other rent and interest has already been accounted for in those numbers. By definition, the CMS cost reports could actually show a negative profit margin in all of the rent and interest being paid at the same time. To further demonstrate this point, in the supplement to our filings this morning, we have provided individual tenant coverages for our portfolio. For the small percentage of operators that do not provide detailed quarterly financial results at the hospital level, we have provided the credit profile of those tenants. Now I want to take a few moments to go through some of our larger tenants. I'll start with Steward. Steward has kept coverage ratios at or above the industry standard and has remained flat close to an almost three times coverage for the past three quarters. One item of note is that the recent acquisitions in the Miami region continue to far exceed our original expectations. And just as a reminder, the HCA Utah transaction is projected to close by the end of the second quarter of this year. Notwithstanding the value we have generated from Stewart being one of our tenants, Steward accounts for an increasingly smaller portion of our portfolio as we continue to invest domestically and internationally in non-Steward hospitals. We recognize that labor costs is a topic at the front of people's minds in this economic environment. So as I go through these tenets today, I will give an update on that per tenet. Labor costs for Steward. Steward is very active in their daily management of overall labor costs. Contract labor is down year over year, though it has been increased slightly in the last two months. Overall, salary, wages, and benefits in contract labor are well below budget. They have been able to cancel and rehire contract labor as rates improve. Utility costs. They've seen some inflationary pressures, but not material. Food costs. They have not seen a large increase, as they have worked very hard to keep costs down through their GPO. Next, Circle in the UK, which continues to be a superb operator, producing coverages that continue to exceed NPT's original projections. Post-COVID, the self-pay inpatient volumes are trending between 40% to 75% above where they were in 2019. Self-pay in the United Kingdom is a very profitable aspect of their business. Circle is seeing some labor shortages, primarily with nurse staffing as a result of the spike in Omicron that caused an unusually high number of nurses to be out sick or in quarantine. They are seeing some inflationary pricing pressures across supplies, utilities, food costs, et cetera, but are navigating through these and do not see it having any material impact on their budget. They expect Q1 to be in alignment with their budget. Prospect. As you've seen in various news reports, Prospect has entered into an agreement with two separate entities to acquire their Pennsylvania and Connecticut facilities. At this point, MPT has not agreed to any changes in our status as the landlord. In the meantime, Prospect has made a number of operational changes to those facilities, particularly at Crozier. which have resulted in some improvements to their operations there. NPT continues to monitor the situation in these two states to see how any potential sale may affect us. Regarding prospects' labor costs, they are starting to see those level off over the last month or two. They peaked around the end of January, beginning of February, and declining each week since. They're also seeing contract labor costs coming down $15 to $20 per hour. utility, food, and other expenses, have been up over the last year or so but are still somewhat in line with inflation. They have not experienced any shortages or supply chain issues and do not see any concerns with cost at this point. Next, Swiss Medical ended 2021 with strong coverage and continued its expansion inside of Switzerland. 2021 EBITDARM increased by approximately 21% year over year, fueled by both acquisitions and organic growth. Swiss inflation rate is one of the lowest in the developed world, with March 2022 figures at 2.4%. Swiss Medical is not reporting any issues with staffing. Median. Median's EBITDARM coverage remains steady as it has throughout the past two years. Average occupancy was approximately 2.5 points, ahead of where it was last year. Q1 2022 is expected to be in line with expectations despite COVID-related self-isolation staffing issues. Personnel costs through February 2022 are below budget, but 8% up year over year when compared to a significantly lower staffing level in Q1 2021. Priory. Priory saw a slight decline in their coverage but still in acceptable ranges near two times. Occupancy exceeded last year and was only held back by the same labor shortages that other behavioral health facilities have experienced. Q1 2022 is expected to be in line with expectations despite these COVID-related self-isolation staffing issues. Staffing pressures have been identified as a concern with personnel calls through February being up 4%, but year over year, only 1% over budget. HealthScope, once again, HealthScope's coverage exceeds two times. As is the case in most of the world, all elective surgery restrictions there have been eased or lifted. Prime. Prime continues its stellar performance with coverages exceeding five times. I recently met with Prime's leadership, and both NPT and Prime expressed their desire to continue to work together. We have a very long, strong, and mutually respectful relationship. We're still working through the few releases that expire this summer. Steve will discuss this in more detail in just a few moments. Labor. Many of the contract nurses hired during Omicron were signed on a six-month contract that will end in Q2 2022. Therefore, salary and wages and benefits and contract labor costs are expected to normalize in Q3 and Q4 of 2022. There are no concerns noted in their utilities or food costs. And finally, LifePoint. Overall, LifePoint continues to perform well. Their trailing 12-month coverage was essentially flat quarter over quarter, Late last year, LifePoint completed its merger with Kindred and has spent off of some Kindred facilities and some of LifePoint hospitals to the new entity, Scion Health. MBT has both of these entities as tenants going forward. Labor cost. They peaked around the end of February and early March. They've seen a small but steady decline ever since. As far as utility, food, and other expenses, They've seen increases over the last year so far, but not any new pressures here, fairly stable over the last couple of quarters and in line with their budgets. Since our inception, MBT has prided itself on strong tenant and operator relationships, including broadening and diversifying those we work with as our businesses have grown and expanded. Our relationships are based on a strong sense of mutual trust, but also proven track records of performance and consistent delivery. Our operators have done a tremendous job over the past few years and expect, except for some labor pressures for a few, they're all close to or at record levels of EBITDA. Even if the labor pressures don't subside, given where our operators are in their operations today, They all feel good about their overall expected outcome for 2022. An important historical note to recognize, on a cumulative basis, Medicare reimbursements to hospitals have always exceeded inflation. I spent the last five weeks on the road visiting with most of our tenants for the first time since COVID. It is good to see everyone face to face, and I couldn't be happier with the relationships we've built with our customers, which are central to our success. Turning to our most recent acquisitions announced today, these most recent acquisitions marked NPT's entry into the Nordic nation of Finland. The Nordic countries have always been a promising target for NPT. Finland has a cooperative public-private healthcare system. The private sector is extremely important to the overall Finnish healthcare system. This 178 million euro transaction included the acquisition of four hospitals in four distinct major metropolitan areas throughout Finland. And I know that I will not pronounce these names correctly, but Helsinki, Ulu, Turku, and Kupeo. Two of these hospitals are certified LEED gold facilities, and the other two are certified LEED platinum facilities. The main tenant, again, I apologize in advance for the pronunciation, Pijahalana, is the third largest private hospital operator in all of Finland. This transaction brings another strong operator and a new country into our already diversified portfolio. Looking forward, from an acquisitions perspective, NPT continues to have top-notch opportunities all over the world. But as we have stressed for the past three quarters, we will not be making large acquisitions if we must sell stock to do so. given our view that our stock is significantly undervalued and does not appropriately reflect what we believe the value of NPT to be. As I mentioned, we believe strongly that there have been rumors and falsehoods around NPT and our business in recent months. We appreciate that, like other public companies, NPT is regularly the focus of third-party reports that may express opinions about the company which may be favorable or not. However, we encourage our investors to recognize that not all market commentators or reporters are equal or write objectively without agendas. We welcome each of you to speak directly with me, Steve, Drew, or Tim as we are eager to address any questions or concerns you may have. Before I turn it over to Steve, I'll say again that we believe NPT is in the strongest position in its history and we are confident about the continued value creation and the future of NPT.