Medical Properties Trust, Inc. common stock

Good morning and welcome to the Q3 2024 Medical Properties Trust Earnings 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. To ask a question, you may press star then one on your telephone keypad. To withdraw a question, please press star then two. Please note this event is a 60-minute presentation and is being recorded. I would now like to turn the conference over to Charles Lambert, Senior Vice President. Please go ahead.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our third quarter 2024 financial results. With me today are Edward K. Albeck, 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. Rosa Hooper, Senior Vice President of Operations and Secretary, and Jason Fry, Managing Director, Asset Management and Underwriting. 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 medicalpropertytrust.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 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 thanks to all of you for joining us this morning on our third quarter 2024 earnings call. I'm pleased to be joined again today by Steve Hamner, Kevin Hanna, Rosa Hooper, and Jason Frye. Before you hear from the rest of the team, I'll spend a few minutes covering a few important recent strategic updates. The big news during the quarter was our global settlement with Stuart and its creditors that enabled us to take back control of our real estate and sever our relationship with Stuart. While there has been widespread media attention on Stuart's bankruptcy process over the past few months, we believe these stories failed to note the significant steps that NPT has taken throughout the process to avoid hospital closures, protect jobs, and ensure continuity of patient care. When Steward was unable to complete transactions with buyers for its operations around the country, our team worked around the clock for weeks to identify a diverse set of qualified operators to take over facilities in five markets. We are confident these five operators are better positioned to serve their respective communities in Arizona, Florida, Louisiana, Ohio, and Texas. The four operators that assumed management of 15 facilities in September, HSA, Honor Health, Insight Health, and Quorum Health, have already done a tremendous job of stabilizing the hospitals in each market and laying the foundations to return them to profitability by providing high quality patient care. They have dedicated significant time and energy to employee, physician, and community outreach, all of which have reportedly been well received. While it will take time for these facilities to return to pre-bankruptcy operational performance, we are very impressed with what we have seen so far. In most cases, October discharges are trending higher than the low point in September prior to these transitions. Earlier this week, we reached an agreement with College Health to lease the St. Luke's campus in Phoenix, Arizona. College Health has over 35 years of experience and specializes in inpatient behavioral health services. They expect to reopen the campus as a behavioral health hospital in the first quarter of 2025. With the successful retenanting of these 17 properties, which collectively carry a lease base of approximately $2.1 billion, we expect to gradually resume receipt of cash rents on this portfolio in the first quarter of 2025, ramping up to approximately $90 million in the aggregate annualized rent by the end of 2025, and fully stabilized aggregate annualized rent of approximately $160 million by the end of 2026. Assuming no further changes to our portfolio, when these 17 properties begin paying full rent, we expect NPT's total annualized cash rent to be in excess of $1 billion. We are also actively engaged in discussions regarding the four other properties with an aggregate lease base of approximately $170 million, as well as our development projects in Texarkana, Texas, and Norwood, Massachusetts. With respect to Norwood, we remain in discussions with the state regarding critical licensing decisions. Before moving on from Stewart, it's worth zooming out for a moment to evaluate our real estate portfolio. Beginning in 2016, NPT spent roughly $5.3 billion on real estate that was leased or mortgaged to Stewart. We recovered approximately 45% of that through cash proceeds from asset sales and other transactions involving this portfolio. As just discussed, we also continue to hold a real estate portfolio with a lease base of approximately $2.3 billion, excluding the development projects, more than 90% of which has already been re-tenanted. Over the years, we also collected approximately $1.9 billion in cash rent and mortgage interest. During the third quarter, we continued to advance our strategy of generating additional liquidity to accelerate debt pay down and enhance financial flexibility. We sold 18 freestanding emergency departments, as well as a general acute care hospital in Arizona and Colorado, for approximately $246 million. In October, we sustained this momentum by closing the sale of two additional small freestanding EDs in Texas for approximately $5 million, as well as the sale of Watsonville Community Hospital in California for approximately $40 million. Watsonville is a great story of community perseverance and our business model working as intended. Watsonville was forced into bankruptcy primarily because it was unable to access COVID funding similar to most of the other hospitals in 2020. At the time, MPT was virtually the only party willing to step in and provide the funds necessary to ensure the hospital could remain open. Our close engagement with community leaders helped facilitate the formation of a local nonprofit to take over operations in 2022. And now for that same group to acquire the property outright by exhibiting patience and focusing on doing the right thing for the community. we were ultimately able to fully recover our real estate investment. In closing, before I turn it over to Rosem, there is no doubt the health care sector is uniquely exposed to the impacts of global macroeconomic trends. At various intervals over the past few years, hospitals have been forced to navigate lagging reimbursement rates, declining patient volumes, heightened operating expenses, rising interest rates, revenue cycle management challenges, and cybersecurity incidents. While we are pleased that many of these trends appear to be reversing, it is important to remember that access to a broad array of potential capital solutions is critical to help ensure a flourishing healthcare sector over the long term. Simply put, sell-leaseback transactions are a superior financing source for many operators compared to any other sources available. Land and buildings are often an operator's single largest asset, and that must be funded with some form of capital. So leasebacks provide a relatively inexpensive way for operators to access up to 100% of the value of their real estate to fund improvements that will more directly affect patient care. They enable operators to negotiate rents that typically represent only a small single-digit percentage of total sustainable reimbursement revenue. and a plan for fixed annual amount over the long term without being subject to refinancing risk. For these reasons, we strongly believe NPT's business model is more important than ever. We continue to take meaningful action that better positions our business to create compelling shareholder value over the long term. And following our successful re-tenanting strategy, we look forward to demonstrating the strength and resilience of our business model. Rosa?