Medical Properties Trust, Inc. common stock

Good morning, everyone, and welcome to the Q4 2022 Medical Properties Trust Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your question, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Charles Lambert, Vice President. Sir, please go ahead.

Thank you. Good morning, and welcome to the Medical Properties Trust conference call to discuss our fourth quarter and full year 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 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 report 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 Aldack.

Thank you, Charles, and thank you all for listening in today on our fourth quarter earnings call. As one of the largest publicly traded owners of hospitals in the world across 10 different countries on four continents, we find the outlook for our tenants extremely encouraging on all fronts. Recent public comments from U.S. operators confirm the optimism about the industry. Staffing costs are dramatically improved going into 2023, as is access to qualified patient care staff. And our tenants are implementing innovative means to develop and retain employees. Contract labor costs peaked last March and have come down approximately 33%. Our operators continue to take advantage of advances in technology to increase efficiencies, deliver quality patient care, and reduce cost on a per patient basis. My point being that simply because an inflation index is high doesn't mean that our operators do not have arrows in their quivers to reduce structural costs, transform procedures, et cetera. Hospitals have been for decades required to continually improve process procedures, treatments, and optimized charges to maintain equilibrium with a rapidly growing demand for patient treatment. As we move into 2023, the prognosis for generalized margin improvement across the entire industry on increasing volume is encouraging. Our operators are experiencing low to mid single digit comparable revenue increases, depending on the diagnosis, acuity, and payer, which along with improving volumes and expanding reimbursement programs, all along the scale are expected to generate an attractive 2023 for NPT's tenants. We've been very busy during all of 2022, maintaining relationships, building new ones, and keeping our sights on our abundant opportunities throughout the world. We continue to see tremendous opportunities and are prepared to act on them as soon as the world settles down on the new normal for interest rates. We continue to have a strong pipeline in our current markets like the United States, Europe, and South America, but we also continue to explore new markets across the NAFTA and Asian business quarters. Our portfolio continues to produce operating results in line with our original underwriting standards. Like the results posted by the publicly reporting hospital operators, our operators continue to see vast improvements to the labor issues that affected the market this time last year. In December of 2022, we acquired approximately 230 million pounds of additional properties. This addition of six Priory hospitals purchased from a third party will be added to our master lease with Priory and improve the already strong Priory portfolio. And as you all know, we recently completed the Springstone transaction with Apollo. Springstone will be added to the LifePoint portfolio. This is another good example of our acquiring a whole co, spinning out the operating piece out to a third party for profit and retaining the real estate. I'll spend a few minutes reviewing Prospect due to its relevance this quarter. Prospect continues to make progress with their east coast divestitures in Rhode Island and Connecticut. The transaction in Connecticut with Yale, New Haven Health Systems is still tracking for a mid-year close. while the non-MPT facilities in Rhode Island are expected to close in the latter part of 2023. On an extremely encouraging note, independent third parties have valued Prospect's managed care business at around $1 billion. With our security interest in this managed care business, our share of proceeds from the Yale sale, and the excess value in the California properties, we believe we have more than sufficient collateral even without regard to the value of the Pennsylvania properties, to more than realize a full return of our investment in prospect, including any deferred rent. In addition to multiple initiatives at their hospitals, prospect management is focused on an aggressive cost-cutting measure that should enable them to return the Pennsylvania market to profitability in approximately 12 to 18 months. The California facilities are currently generating a coverage of 1.2 times on a trailing 12-month basis as of the end of the third quarter 2022. That being said, given the elongated timing of the Pennsylvania recovery, we felt it prudent to write off previously recorded straight-line rent and write down the Pennsylvania facilities. Last week, Steward and Common Spirit announced a definitive agreement for Steward to sell the operations of their Utah facilities to Catholic Health Initiative, a Common Spirit subsidiary. The purchase price will be used by Steward to pay down debt obligations, including the loan MPT made to Steward last summer, and provide Steward with a good amount of liquidity. We announced our agreement to lease our entire Steward Utah hospital portfolio to Catholic Health Initiatives. This will be the second transaction we've done with Common Spirit, and we are excited to expand this relationship. As you know, Common Spirit, with a credit rating of A, is one of the country's largest and most respected not-for-profit healthcare providers. The announcement made last week regarding Stewart's pending sale of its Utah facilities once again validates the NPT model of underwriting and further validates the value of our entire portfolio. Our track record of underwriting hospital real estate, where the demand for the operations, and hence the value of the underlying real estate, can far outlast the operator itself, has a 20-year outstanding history. I want to close this part of our earnings call to make a few comments about one in mine and Steve's co-founders, Emmett McLean. Today, we will announce Emmett's retirement from MPT, effective on September 1, 2023. Emmett and Steve and I met in 2003 and have worked closely with each other ever since. It has been a remarkable collaboration of different strengths. I want to take this time to publicly thank Emmett for his work and dedication for the past 20 years. Emmett, we know that you and Katherine, your children, and those precious grandchildren will cherish your much-earned retirement. Congratulations. We will issue a press release and an 8K later today on Emmett's retirement.