Medical Properties Trust, Inc. common stock

Good day and welcome to the Medical Properties Q2 2023 Trust Earnings Conference Call. All participants will be in a listen-only mode for the 60-minute call. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Charles Lambert, Vice President. Please go ahead.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2023 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 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 thanks to all of you for joining us this morning on our second quarter 2023 earnings call. As we've always said and continue to firmly believe, there is no scenario where a world exists without hospitals. Even as healthcare delivery has changed over the years with technological advances, the importance of hospitals to the delivery system not only remains critical, but has grown in importance. Hospital services remain the largest single category of spending in the U.S. healthcare. According to CMS projections, hospital services are expected to continue to make up 31% of total healthcare spending in 2023. That equates to approximately $1.5 trillion. Importantly, hospital services are projected to continue growing. CMS expects hospital services to grow almost 6% over the next seven to eight years because of the aging population, growing consumer demand, and expanded medical service offerings. Combine this volume growth with the fact that our operators are generally seeing 3% to 6% average rate increases as they negotiate new payer agreements along with continued Medicare rate increases over the last several years. And you see a compelling case for strong performance from the hospital sector. During the COVID pandemic, governments all over the world validated these essential nature of hospitals with various types of provider relief funds. These funds sustained hospitals through the pandemic. And now as volumes have come back and continue to grow, hospitals all over the world continue to show improvement in performance. You can refer to our supplemental information filed this morning for more detailed information on our portfolio. And remember, while reviewing that information, we report one quarter in arrears. Most of you probably have seen the reporting by various publicly reporting hospital operators on their most recent quarters. Their numbers, which are one quarter more recent than ours, continue to show the overall market improving. Let me take a few moments to highlight some of our larger tenants. This past Friday, Steward refinanced their ABL five months ahead of the December 2023 maturity. The new ABL is led by a group of third-party private credit lenders whose aggregate assets under management exceed $50 billion. The new ABL provides significantly more liquidity to Steward than the most recent facility. There are seven unrelated lenders in the ABL. Steward taking the concerns of the market for the ABL refinancing off the table and having a new ABL with a much larger liquidity availability with a maturity of four years plus, Steward having the right to extend that maturity is a very strong positive. MPT's investment in the credit facility is peri-pursue with all the other lenders and provides MPT with a strong return. This participation is not an operating loan to Steward. This is well secured by receivables that MPT would not otherwise have a security interest in. Steward continues to perform well operationally. In fact, their EBITDARM coverage is currently one of the strongest in our portfolio at 2.9 times. Stewards' volumes are doing well, and they expect to continue improvement throughout 2023 and 2024. Their primary focus going forward will be, one, to divest some of their lines that don't fit into their overall future plans, and to continue to reduce their use of contract labor, which is down 43% from 12-31-22, to around only 1% of their total FTEs. I spent some time in California a few weeks ago visiting the prospect and pipeline management teams and a few of the respective hospitals. Let me start with Prospect. Prospect California continues to perform in line with our expectations. One of the hospitals I visited was the Culver City Hospital. The area has seen an impressive revitalization and the hospital itself was extremely busy. Prospect is making improvements to several areas of the facility including a brand new state-of-the-art emergency department. Prospect is also moving their corporate headquarters to this area to be closer to this hospital. The managed care business continues to be profitable and on track to meet revenue and EBITDA targets and timelines. They are still planning for a monetization event of the managed care business in 2024. Some of you may have seen that late last week, PROSPECT WAS HIT WITH A RANSOMWARE ATTACK. THE FBI IS ASSISTING IN THIS CASE. ACCORDING TO PROSPECT, PATIENT CARE AT PROSPECT HOSPITALS HAS BEEN MINIMALLY IMPACTED THANKS TO THE EXTRAORDINARY EFFORTS OF THE NURSES, DOCTORS AND ALL OF THE HOSPITAL STAFF FOLLOWING IN PLACE DOWNTIME PROCEDURES. PROSPECT IS WORKING HARD TO BRING THE IMPACTED SYSTEMS BACK ONLINE. MANY OTHER HOSPITAL PROVIDERS IN THE COUNTRY HAVE BEEN HIT WITH SIMILAR ATTACKS. During the first six months of 2023 alone, the healthcare sector, including healthcare providers, health plans, and business associates, has suffered approximately 295 breaches. These include providers such as HCA, Common Spirit, Johns Hopkins, CHS, Kaiser, and many more. The Yale Connecticut transaction is still progressing to close pursuant to the APA. Neither we nor Prospect are aware of any opposition to this transaction. I'm pleased to report that pipeline facilities in California, which only represent 1% of our portfolio, continue to be on track. Volumes are steadily improving and contract labor continues to subside. The state recently approved the behavioral hospital portion of Coast Plaza Hospital. Coast Plaza should see significant increases to EBITDA from this unit in the near term. The grand opening of this unit was this past weekend. Regarding LifePoint, the performance for their overall portfolio for the second quarter saw good improvement over our reporting today of the first quarter results. You may have seen the bond issue that was recently announced by LifePoint. The bond issue had these second quarter results included, and was upsided from its original target. All of this is a good indication of their current operations. There are several initiatives going on in the third and fourth quarters that should show significant improvement in their results by end of the year. Senior management team continues to be bullish on their facilities. Moving on to the operations of the United Kingdom, we continue to be pleased with the overall performance of that portfolio. In addition, the recent press releases issued by the UK government reflecting the elective recovering task force implementation plan to address the historically large NHS patient wait list was a further endorsement of the private healthcare sector. Notably, the plan contemplates utilization of available private sector capacity to help resolve that wait list as well as advocating increased patient choice to access more care. We believe this will positively impact our UK hospitals over time. Most importantly, this plan continues to validate what we have known all along, that our private hospitals in the UK are a vital component of the healthcare landscape in the UK and continues momentum behind the alignment of the NHS and private healthcare sector, ensuring quality patient care overall in the UK. Our other European hospitals continued to be a steady rock. Overall, from a trailing 12 months quarter over quarter, our acute care sector improved from 2.6 in Q4 2022 to 2.8 times in Q1 2023. Inpatient rehabilitation facilities and behavioral were essentially flat quarter over quarter at approximately 1.8 times. LTACs at just over 1% of our portfolio declined from 1.7 times to 1.5 times. Also, just as a reminder, we no longer include any grant money in any of the trailing 12-month calculations. While our stock and bond prices have recovered some in the past couple of months, we're not satisfied that they reflect the true value and strength of our portfolio. especially given the sustained inflation protection and growing cash rents that our master lease structures provide and the demonstrated value of our portfolio. More than a year ago, we told our investors that our board will continually evaluate our deleveraging and investment strategies as our debt and equity pricing reacts to our continued performance. Steve?