Medical Properties Trust, Inc. common stock

Good day and welcome to the Medical Properties Trust Incorporated fourth quarter 2023 conference call. All participants will be in 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. And please note that today's presentation will only last 60 minutes. And to ask a question, you may press star then one on your 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.

Thank you. Good morning. Welcome to the Medical Properties Trust conference call to discuss our fourth quarter and full year 2023 financial results. With me today are Edward K. Aldag, Jr., Chairman, President, and Chief Executive Officer of the company, Stephen Hamner, Executive Vice President and Chief Financial Officer, Kevin Hanna, Senior Vice President, Controller and Chief Accounting Officer, and Rosa Hooper, Senior Vice President of Operations and Secretary. 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 grade 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.

Ed Aldag Thank you, Charles, and thanks to all of you for joining us this morning on our fourth quarter 2023 earnings call. I'm pleased to be joined again today by Steve Hamner, Rosa Hooper, and Kevin Hanna. You will hear from each of them shortly. As discussed in detail last quarter, our primary focus right now is executing a capital allocation strategy that will aim to generate at least $2 billion of additional liquidity in 2024 and help us satisfy our debt maturities for several years into the future. Since outlining this new capital allocation approach last year, we have made significant strides, and I'd like to begin today by highlighting that progress. During the fourth quarter, we closed on the sale of our four remaining Australian facilities for approximately $305 million, or a 5.7% cap rate. And in our press release earlier this morning, we announced another $480 million of agreed upon liquidity transactions, including the sale of five hospitals to prime at a 7.4% economic cap rate, as well as the sale of our syndicated term loan investment in Median, the parent company of Priory Group. We believe these recent transactions and other processes we are actively engaged in clearly demonstrate that our assets remain attractive to operators and sophisticated real estate investors around the world. We are actively working on several additional asset sell opportunities, as well as other transactions that we believe will validate underwritten asset values. And the prices we have achieved to date are broadly consistent with initial indications of market value that we've received on these other assets. As such, we remain disciplined and optimistic in our ability to continue to execute transactions on attractive terms. And we feel good about where we stand today relative to our $2 billion target for 2024. The Board will meet later this quarter to discuss the dividend. The board's policy on the dividend remains unchanged. As has always been the case, the board will review all aspects of the company, including items such as FFO payout ratios, REIT requirements, and liquidity. Before I turn it over to Rosa, Kevin, and Steve to go through our results in more detail, I wanted to provide a brief update on Steward and Prospect. During our last call in October, we discussed Steward's revenue cycle management challenges which had resulted in a sizable accounts payable backlog. Unfortunately, since that time, Steward's cash collection challenges have become more pronounced, and the resulting changes to vendor payment terms have put pressure on supplies, constraining Steward's ability to perform higher margin surgeries that are a key driver of cash flow. As a result, in early January, we shared that we had been working with Steward and its advisors to develop an action plan to strengthen their balance sheet, liquidity, accelerate recovery of unpaid rent, and ultimately significantly reduce our exposure to Steward. This plan contemplates a wide range of strategic transactions, including transitioning certain hospitals to new tenants and selling its managed care business called Stewardship. While it will take some time for Steward to execute these steps, we are encouraged by the early progress. As this plan is executed, Steward needs access to liquidity to continue to operate its critical hospital facilities. As we previously disclosed in January, we funded a $60 million bridge loan which provided a second lean on Stewardship's business, subordinate only to Steward's ABL lenders. We also consented to a limited and tapering deferral of rent until the end of June or the completion of the anticipated asset sales. In the fourth quarter, Stewart paid approximately 25% of all rent and interest owed to NPT. In our press release this morning, we shared that NPT and certain lenders in the ABL group are negotiating a new bridge facility under which each party would fund an additional initial $37.5 million to Stewart. of which NPT has already funded $20 million. Any additional funding is entirely dependent on stewards achieving significant milestones towards optimizing the amount and timing of NPT's recoveries. Turning to prospect, importantly in California, prospect is current on all rent and interest due through January 2024, though they have not yet paid February's rent. Prospects EBITDARM has improved year-over-year, driven by increased admission volumes, higher Medi-Cal reimbursement rates, and lower supplies cost. We are encouraged by their most recent December trailing 12-month rent coverage, which was above one times. While we do not have a meaningful update to share today on the sale of Prospects' three Connecticut hospitals to Yale New Haven, as a reminder, our $2 billion of targeted liquidity transactions does not include this expected transaction or the expected recovery of our investment in PHP holdings. As detailed in our press release this morning, we have moved steward and prospect to cash basis accounting and divided our portfolio into two categories. Our hope is that this split will make it easier for investors to track the performance of our stabilized portfolio, which consists of more than $11 billion of assets and is accounted for using the accrual method. As this breakdown demonstrates, the portfolio continues to perform well, reinforcing our conviction in NVT's underlying business model. While hospital operators have spent the past several years navigating challenges ranging from the COVID-19 pandemic to unprecedented labor shortages to insufficient reimbursement rates, and some tenants have suffered more long-term impacts from those headwinds than others, the simple fact remains that there are no more essential services than those provided by acute care hospitals. For more than 20 years, our underwriting approach has centered on these essential infrastructure-like characteristics and identifying hospitals that are integral to sustaining community health over many years. Given the highly diversified portfolio of assets we've assembled over that period, we are confident in our ability to find competent replacement operators as needed and continue to execute sales that achieve our objectives. I will now turn it over to Rosa to provide an update on performance of the stabilized portfolio during the fourth quarter. Rosa?