Q3 2020 Medical Properties Trust Inc Earnings Call

October 29, 2020

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At this time, all participants are in listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session. You want me to press one on your telephone keypad.

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I would now like to hand, the conference over to your host today, Charles Lambert Vice President. Thank you. Please go ahead.

Good morning welcome.

Welcome to the medical properties Trust conference call to discuss our third quarter 2020 financial result.

With me today are Edward Clay I'll dive, Jr, Chairman, President and Chief Executive Officer of the company.

And Steven Hamner, Executive Vice President and Chief Financial Officer.

Our press release was distributed this morning and furnished on form 8-K, with the Securities and Exchange Commission. If you did not receive a copy it is available on our website at Www Dot medical properties Trust Dot com in the Investor Relations section. Additionally, we are 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 and 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 and or underlying such statements.

We refer you to the Companys 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 again at Www Dot medical properties Trust Dot com for the most directly comparable financial results and related reconciliations I.

Ill now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you Charles and thank everyone for listening in today to our 2023rd quarter earnings call. We always appreciate your interest and NPT.

As I prepared for todays call are made by presentation to the board earlier. This week I realize that I have never been more excited about our performance and the future of MPG.

It really simple, but important terms for years, we have been steadily executing all the MPT strategy and business plan, while the cobot pandemic has been a worldwide tragedy. It is absolutely further validated our model hospitals are the center point of the healthcare delivery system all over the <unk>.

World and civilizations, we'll do whatever they have to to ensure their populations have access to hospitals.

During one of the worst Pandemics. The world has seen the MPT has to the delivered a year over year increase in our FFO of 24%.

Our operators are performing beautifully across the world. They have strong liquidity strong operations and none of them are suffering from any capacity issues or lack of supplies.

We have been able to acquire more than $3 billion of new investments in this new world of zone and limited travel our offices in Europe, and Australia has proven invaluable and our historical performance and reputation among operators have served us well.

Our pipeline remains strong and manageable we have no need to do any traditional equity offerings to meet our needs in the near term Steve in our internal capital markets and finance teams have done a great job of managing our needs in a way that keeps several efficient funding options on the table.

I'll get in my update at this point because it is truly that simple and that strong, but let me continue with more detail. Our hospitals are all back to essentially normal operations. They range from low ninetys to over 100% of where they were in 2019.

With coated first hit hospital operators across our portfolio did a fantastic job of cutting expenses and streamlining operations.

All of our operators have strong liquidity positions and all are looking forward to new opportunities.

As predicted the backlog of non emergency surgeries has pushed surgical volumes back to pre COVID-19 levels at many of our hospitals and some even ahead of budget and prior year numbers for instance, our hospitals in Spain have seen an increase in outpatient surgical volumes.

As the backlog at the public hospitals this force them to redirect patients to our private hospitals. This has created a fortuitous opportunity for our Spanish operators as these patients experience first hand, the top notch facilities and care provided at these private hospitals.

In the UK private operators, including our operators continue to operate under their unprecedented collaborative agreements with the NHS to ensure excellent health care volumes continue to increase within the private hospitals from the early second quarter lows to 90% to 100% of prior year.

Averages by the end of the third quarter, the recently announced NHS contract for up to 10 billion pounds for the private sector represents a significant opportunity to partner with the NHS on their increasing weightless backlog, which is expected to approach 10 million people by the end of 2020.

In Germany positive cases have increased in recent weeks. However, median our German rehabilitation Hopper operator continues to see overall volumes approximating 2019 in fact their volumes are currently exceeding where they were in 2019, Austria.

Australia continues to see its number of overall covert cases stay relatively low and not only is our operated they're doing well, but is actively engaged in expansion.

Throughout the worst of the pandemic shutdown, we continue to collect almost all of our rent as of October. The first we're collecting essentially 100% of our rent including interest on the deferred portion from earlier in the year, but.

Before transitioning to my usual comments on coverage ratio reporting I'd like to share some general thoughts regarding the current political conversation involving hospitals over.

Over the 35 years I've been investing in hospitals, the legal obligation of hospitals to treat all patients regardless of their ability to pay has been a constant and the amount of funds spent at hospitals has only increased since CMS began tracking nominal us healthcare spending at hospitals in 1960 12 press.

Didn't drill administrations ago nominal spending at hospitals has grown at an 8.8% compound annual growth rate with no single negative year, I say, this because Republican or Democrat no asea or expanded asea, an increasing amount of money is likely to be spent on.

Hospitals each.

Each generation expects to have better healthcare then the last countries will continue to fall in healthcare even in the worst of times as Weve seen during this pandemic.

For the last 35 years I've seen many changes in how hospitals are reimbursed, but the one constant is that as a population, we've always demanded and gotten better healthcare.

Relative to the 1.2 trillion dollar spent at hospitals as officially measured in 2019 in the us the impact or potential changes or repeal of the affordable care Act is marginal.

Our experience tells us that in any case the same doctors will treat the same patients overall spending will grow and our rent will be paid regardless of changes, resulting in shifts and payer mix it any related healthcare insurance reform.

Now that coverage is just to remind everyone. We report coverages one quarter in arrears because at the time, we do our earnings call. We do not have all of the quarter ending information from our operators. So the coverage is we are reporting is where the three month period ending June thirtyth.

Also please remember that all of our operators Rasta shut down all elective surgeries and other procedures and anticipated patient of COVID-19 patients that really never materialized. This period was basically March through April or May.

So most of the second quarter, our operators were essentially closed.

As you will also recall through the Tears Act in the U.S. and other forms of funding from other governments in our other eight countries. Our hospitals received funding to cover the shutdown period.

In the U.S. The funding came into forms grants, which are scheduled to be kept by the operators and the other in the form of Medicare advances, which are currently slated to be repaid.

Our largest us operators received approximately $1.6 billion in brands and $2.3 billion in advances.

Well same operators are sitting on approximately $5.4 billion in liquidity, so should they be required to repay the advances they are in good shape to do so with plenty of excess liquidity. This.

This pandemic has made coverage reporting difficult. We told you at the end of the first quarter that the elective surgeries and procedures were all medically necessary and would indeed come back they would not just disappear we were 100% correct about this so in an attempt to show you as much clarity as we can im going to repeat.

The EBITDARM coverage two ways.

One without any grants or advances and one was just the grants Ed in neither case are we including the advances as they are scheduled to be repaid.

Furthermore, in the Formula which includes the grants we are going to include 100% of the grant even though at this point.

Not all of the operators have included the grants in their published numbers.

Now let me provide a quick update on our existing portfolio, we removed the two acute care properties from our same store reporting this quarter that are no longer owned by us.

So first without grants our same store portfolio EBITDARM coverage for all sectors total portfolio for the trailing 12 months Q2, 2020 was 2.12 times so.

Same store acute care EBITDARM coverage was 2.16 times, that's even during the pandemic still coverage over two times, which represents a 29% decrease year over year it.

Eltek EBITDARM coverage was 1.99, which actually represents a 23% increase year over year and.

Inpatient rehabilitation hospital EBITDARM coverage was also over two times 2.04 to be exact which represents a 1% increase year over year I remember those numbers were without any additional grants.

Now second with the grants included our same store portfolio EBITDARM coverage for all sectors for the trailing 12 months Q2, 2020 was 3.17 times same store acute care EBITDARM coverage acute care hospitals with three.

0.56 times, which represents an 18% increase year over year.

Eltek EBITDARM coverage was 2.29 times, which represents a 41% increase year over year and.

Inpatient rehabilitation hospital facilities EBITDARM coverage was 2.14 times, which represents a 6% increase year over year.

It is amazing to think that during a year of such unprecedented disruption and uncertainty that MPT will successfully underwriting close on $3.1 billion and investments not only this is a testament to our business model and the increasing acceptance.

Understanding of it by hospital operators throughout the World, but also a testament to our team no matter the circumstances MPT can move quickly and adjust and adapt to a new way of doing business and maintain our level of excellence and unparalleled growth.

Nevertheless, we are not done not even close as the buyer of hospitals as the largest buyer of hospitals in the world. We see materially every potential opportunity underwrite the more promising transactions over the course of multiple years and as you know we are willing to execute when deals both meet our standards and generate immediate earnings.

Accretion. It is this logic that drove 24% normalized FFO per share growth in the third quarter and ranks us number one among us rates exceeding $3 billion in equity market cap and 20 20-F FFO growth.

Though it is still too early to announce any specific acquisition goals for 2021, we are confident in our ability to continue to grow and to do it prudently, but let me remind you again, if we do nothing else, but just stop acquiring as of today, we are tracking at the high end of our guidance range.

COVID-19 has certainly created a new mobile changes in our lives, but it is comforting to know one thing is constant that the quality health care. We continue to we will continue to be delivered in hospitals throughout the world. We are proud of our operators in their employees and providers for making it happen.

Medical properties Trust and our team is honored to be a part of the total team Steve.

Steve.

Thank you Ed.

This morning, we reported normalized FFO of 41 cents per diluted share for the third quarter of 2020.

As it has pointed out this is a 24%.

2000, Nineteens third quarter and is consistent with the run rate guidance of $1.68 to $1.71, which we affirmed this in this mornings press release.

And the midpoint of which is a 31% increase over 2000 nineteens actual annual results.

When considering the full quarter timing of transactions closed during the third quarter, our annualized normalized FFO was well within our guidance range and Moreover, we are not yet recognizing revenue at up to active development projects or from our significant number of expansion and renovation projects, which in the aggregate country.

Meaningfully to our earnings growth.

Just as a quarterly reminder, due to the magnitude of our external growth over the past several years and the unpredictable timing of these acquisitions. We have historically provided estimates of run rate normalized FFO instead of attempting to predict with precision when particular acquisitions will actually close.

Yes, our guidance represents the stabilized earnings of our in place portfolio additional transactions closed or under binding agreement.

Ongoing development and renovation projects and expected recycling transactions. For example, we will sometimes receive payment for mortgages for repurchases that are expected to be reinvested with the same operator in the foreseeable future.

As Ed mentioned earlier, we are collecting virtually all rent contractually due and fully expect to collect roughly $12.5 million in rent deferred in the earlier part of the year.

That is with interest by the way.

While the contractual collectability of these amounts justified their full inclusion in our earnings we conservatively excluded $5.4 million of these amounts from adjusted funds from operations in the third quarter down from $7.2 million in the second quarter.

Before moving on to remarks about outlook and near term investment plans. It's worth mentioning a few items that were notable in the third quarter. Despite their exclusion from our normalized FFO we.

We recorded a one time income tax expense of $8.5 million, primarily as the result of corporate tax rate changes in both Switzerland, and the United Kingdom also we wrote down straight line rent of about $1.3 million in the quarter related to the sale of one small.

Free spans freestanding emergency facility and to our transit transitioning of five other freestanding emergency fist facilities to affiliates of eight CA and Methodist health care in Texas Fine.

Finally, we recorded a $1.6 million fair value adjustment gain on our equity investment in EBITDA, the parent of our tenant Swiss medical network.

During the quarter, we closed on roughly $350 million of accretive transactions with three separate operators.

In early August we added another German post acute facility to our portfolio of properties operated by median at a cost of 12, and a half million euro using euro denominated cash already on our balance sheet.

In addition, and also in early August we acquired to be in mine Woodlands Hospital in the UK that is operated by circle sell for 29.4 million pound Sterling.

The facility is home to highly rated orthopedic and ophthalmic specialists and has long been meeting the needs of the population of northeast England.

As we expected as of last quarter's call. We closed on the Prime Saint Francis Medical Center in Lynnwood, California in August at total consideration of $300 million.

All three of these highly sought after facilities provide cash and GAAP yields that generate immediate and strong per share accretion.

This is how we continue to drive double digit and market, leading FFO and FFO growth.

As a further example, as part of the Prime Saint Francis acquisition, this hospitalist and join to an existing master lease for which prime has executed early a five year extension, giving this $500 million portfolio, a new 15 year term.

In Testament to its financial strength Prime recently priced a $700 million notes issue proceeds of which will be used partially to repay roughly $280 million in mortgage loans from MPT that would otherwise mature in 2022.

As evidenced by the Saint Francis Transit acquisition, we expect to continue to grow with prime recycling capital as appropriate.

It's also important to point out that by the end of this year, we expect our real estate mortgage portfolio to represent less than one in a quarter percent of our assets.

That's down from almost 8% as recently as the end of last year.

And we have occasionally provided mortgages as an accommodation to our tenant tax strategies, but our preference is almost always that we already own or less or rather than a lender we.

We have reduced this mortgage exposure, primarily by acquiring the underlying mortgaged assets rather than simply taking diluted repayments. This.

This is always our strategy going into mortgage transactions and our successful execution of it over the last couple of years is even more evidence of the npts underwriting skill and structuring creativity.

As mentioned last quarter, we continue to expect our first property investment to Colombia in Colombia to close in the fourth quarter at a value of roughly $135 million, including facility improvements that were not included in our initial $100 million estimate.

Given the Colombian governments commitment to health care and the location of these three hospitals in dense underserved markets. We believe the joint venture operator, we formed last quarter will be effective in improving the care delivery and profitability of these facilities.

As mentioned earlier this morning, we affirmed our dollar 68 to $1.71 run rate guidance. This is based upon third quarter annualized normalized FFO of approximately $1.66 two cents of incremental benefit from the timing of third quarter in early fourth quarter close transactions three.

Cents of accretion from ongoing development and redevelopment projects and pro forma leverage that remains within our long term target range.

Pro forma for the investments and other transactions I have just described our net debt to EBITDA ratio remains in that six times area in terms of liquidity. We are in an excellent position with roughly one and a quarter billion dollars of cash and revolver capacity and almost $700 million of remaining capacity.

Our ATM facility.

On which we are selectively active since the end of June.

On an FFO basis, our retained earnings is estimated to provide at least $150 million annually over and above current dividend payment and we expect to receive a similar amount of cash liquidity from miscellaneous and non dilutive sales and refinancings over the next few quarters.

Finally, large institutions continue to pursue opportunities with us for a joint venture investments in hospital portfolios.

As many of you know we have executed joint venture transactions in the past at very attractive terms for MPT and we continue to explore these opportunities.

What this means to US is that we believe we have a number of alternative capital sources to continue our double digit accretive growth in coming quarters, while maintaining our prudent historical leverage target and avoiding the more expensive and dilutive capital raising strategies during recent market conditions.

With that we'll turn the call back to the operator for questions operator.

At this time, if you would like to ask a question. Please press Star then the number one we will pause for just a moment to compile extending roster.

Your first question comes from the line of Steven Valiquette with Barclays.

Great. Thanks, Good morning, and Steve Thanks for taking the question.

A couple of questions here I guess, just looking at some of the September quarter results from publicly traded hospital operators like HP and tenant over the last week or two.

Senses, we're probably back to maybe 90% pre hospital patient volumes at the end of third quarter, you're seeing that number dropped to call. It around 50% for the industry maybe back in the June quarter. So just curious if you generally agree with that broad characterization for your portfolio to U.S. operators without agreeing to those exact numbers John.

Speaking.

Makes sense to use those publicly traded comps as a proxy for your underlying portfolio.

Thanks.

Hey, Steve Hope, you're doing well to two answers to that question first first of all our our portfolio is generally on a volume basis doing better than that we have some operators.

That are well over 100% of where they were in 2019, we have some that are as low as it is in the low ninetys 90 to 93, but the average is much closer to 100%, but keep in mind that just looking at the volumes is not a good measure.

I think that if you look at the community Health systems reported they did yesterday or the day before when this first hit are all hospital operators, particularly our portfolio of the publicly reporting wants that we've seen thus far did an incredible job of cost cutting and getting there the costs under control. So I think.

That if you look at that and you look specifically at the results that you saw in community.

In their reporting this week.

Our hospitals are doing exceptionally well. So if you look at the volume and it says 95% of what they were doing in 2019, doesnt necessarily mean that they're only generating 95% of what they generated in EBITDA in 2019, our hospitals across the board in Europe, Australia and here in the us are doing.

Very well and every one of them.

Certainly all of the big ones are looking for opportunities and have opportunities to grow. So we feel very good listen we told everybody back at when Cobot first head and the governments around the world.

Not pointing fingers at anyone because.

You can sit there and look at it in hindsight, we Didnt know what this was going to do we didn't know what coated was going to look like the models were showing a tremendous number of patients in beds that were needed and that just didnt materialize and so we had hospitals that said vacant for two and a half months.

We certainly don't ever have to do that again, you need to remember that the press is very sensational it.

It Amazes me sometime because I love this business some of the reports that are here.

I actually had been in Utah recently, and as those listening to reports from the news channels, telling everyone in Utah that they were going to have to start rationing care again, because all of the hospitals were turning away patients that is absolutely not the truth may maybe the one hospital that they were talking to is probably up.

Public hospital, but even there I know some of some of the factors as to why that's not true, but our household were the largest owner of hospitals in Utah.

We are.

Not in danger of being out of assay you beds at any of our hospitals and certainly not in danger of having to ration health care in any fashion.

Every one of our hospitals are fully open for all of their surgical needs. So.

It's really amazing to see where we've come since March April and May of last year of this year, which you were last year.

Yes.

Great I appreciate that color and now you're right I mean the.

The acuity mix is leading to EBITDA results, there and maybe even slightly better than some of the volume trends.

I appreciate that color too.

Absolutely.

Your next question comes from the line of Michael Carroll with RBC capital markets.

Yes. Thanks, Steve can you provide some color on potential JV opportunities that you mentioned in your prepared remarks, I guess what type of opportunities are you looking at your portfolio today and are you are pursuing those deals there are trying to find partners to pursue those deals or is that still kind of in theory right now.

Well no it's not a theory, but by any means.

I'll just I'll just remind everyone on the call that may not know our whole history, we have both basically half a dozen JV arrangement right now the largest being.

The transaction, we did I guess, we closed about two years ago in Germany.

Where an institutional investor very large institutional investor in this case.

And insurance and asset manager to help them on the all in France bought half an hour.

German portfolio.

At very very attractive and compressed cap rates versus what we had originated those those leases to be.

Since then not only in Europe, but in Australia and increasingly in the US we are seeing more interest from similar type institutions, and others, including sovereigns and other.

Private equity public pension funds.

Similar institutions has been on y'all and Axa.

With with whom we've done other joint ventures. So we are working.

Conceptually around.

More than one potential transactions that would look similar to what we did with promoting all basically.

Selling a portion of the.

Of a discrete portfolio.

Very very attractive pricing, especially compared to.

Pricing in the public equity markets today.

But there is nothing specific to report at this time.

And then I know I remember when you are pursuing the German portfolio JV on that the lead time or the timing to get that transaction done.

For is pretty long I guess, if you do elect to do a JV how long do you expect it will take is this something that could be announced in the beginning of 2021 to help fund. Some of your 2021 investments that you have planned that Ed kind of mentioned in that the pipeline is pretty strong or what's the thought process around that.

So we wouldn't expect it to take as long a lot of things have changed since then including the rapid increase in interest from from institutional and other passive investors for this type of product.

The other big issue being we have been through it now.

We have we are much bigger when we started those those negotiations it was actually more than three years ago. Since then.

I'd have to look but we've added many billions of dollars in in assets to to our own ownership. So we have a number of alternatives and opportunities to slice and dice.

And again given.

Given the continuing search by these institutions for yield.

We we think could we could accelerate.

The underwriting and closing process, we certainly wouldn't.

Enter into negotiations, if we didnt think that.

Insofar as timing now we've got nothing to announce now and no.

No prediction of when that May happen.

Okay, great. Thanks.

Your next question comes from the line of Conor So first key burn Berenberg.

Hey, everybody. Thanks for having me on the call.

Quick one movie could you could you touch on portfolio vacancy at all and then any opportunity to lease any available space in the near term or.

Any color on what impact that could have looking forward.

That's a very good question and and there is very limited portfolio vacancy.

Obviously.

Most if not all of our buildings are single tenant.

Occupancy so when something's vacant.

It was not is not generating any earnings all of the very limited amount of facilities and mostly they are the on the old adeptus facilities that we've discussed in recent quarters. There is no.

Inclusion of any potential re leasing of those facilities in our guidance so that but on the other hand, if if we were to release, 100% of them Tomorrow, It's just not going to move the needle that much on on guidance because all in Adeptus has been very very successful in what we end up with an hour earlier.

Early to.

Kind of the bottom tier.

And there's just not that much of it there are opportunities in that and I mentioned, it very briefly and in my prepared remarks about potential sales that would generate additional liquidity and and basically free capital.

Because they would be non dilutive there in addition to those old adeptus facilities I. Just mentioned they are are they less than a handful a couple or so other facilities that were not recognizing any income on.

And yet have we believe fairly.

Fairly substantial value relatively speaking.

Which which we are hopeful and I think we have reason to be hopeful that that we could generate upwards of another.

100 million plus or minus dollars and in the near term in potential sale proceeds.

And Carter I'll add to that just just briefly while Steve's absolutely right. It's a very small number of very interestingly as people have gotten comfortable where we are post code. We have actually have a number of people negotiating with us for these facilities. So it up while it wont move the needle it's nice to have all the answers.

Okay. Thanks for that you guys actually answered both my questions there.

Your next question comes from the line of Joshua Dennerlein with Bank of America.

Yes, thanks for the question and morning, everyone.

Morning, Josh to to really for me I guess, just globally, where are you seeing the most opportunities as far as acquisitions go.

And then how are you guys thinking about health systems and maybe how.

How how they might consolidate or changed post coded and how that might impact your your opportunities.

So Josh the the pipeline continues to be split in the 60 40 range, 60% in the us 40% outside of the U.S. its.

It's primarily in the nine countries that were currently in it which includes the US there are some small opportunities in some of the smaller countries in Europe, but it's primarily where we are today. It is mostly with the with new operators and it is almost entirely maybe 90%.

That general acute care hospitals from $1 dollar standpoint.

From a bizarre formally opportunity standpoint with systems. So we continue to to see a lot of interest in the for profit buying some of the not for profit entities. We see a lot of the continued interest, particularly post coded both nightmare Kogut I guess.

From the not for profits that really needs to have more than just one facility that are willing to sell at this particular time. So we continue to see good opportunities I think everybody wouldnt hold adverse it obviously everybody put everything on hold and were were scared to where this was going to go but as I said in my prepared remarks.

It is amazing how everybody were working with is looking for opportunities right now.

Appreciate that thanks.

Thanks.

Your next question comes from the line of Sara Tan with JP Morgan.

Hi, Good morning. This is Derek on for Mike just two questions. The first one is on coverages and ready to trend given.

And secondly, do you expect to add on to your development pipeline going into this is to project right now.

So is there hope you're doing well on the first part of the question, though we expect them to continue to trend up.

As you saw from the remarks earlier, even though without any any federal grants and a two and a half months shutdown, our general acute care hospitals still generated a more than a two times coverage our.

Elteks and inpatient rehabilitation hospitals actually increased the LTX increase significantly the rehabilitation hospitals increased some.

In Germany, where we have the largest number of rehabilitation hospitals, those hospitals did exceptionally well all throughout the coated crisis and we expect that to continue.

We really don't see the situation of having hospitals shut down again.

Again, I'm not pointing fingers at anyone I think that in hindsight thats, probably all we all we could do to we did know although we know now we know how to treat these patients we literally are not treating them with the with any additional drugs, but we've cut the mortality rate by 85% and we've cut the number of people staying in.

In hospitals were very long time, there there are varying numbers all across the board because people look at it very differently and I know some of you may have seen the reports from Dr. balance sheet yesterday that he estimated that 40% of all patients in the hospital.

Back in the early days of this crisis were cobot, well, yes, thats, probably drew because they got rid of all the other patients among.

Im on the board of a not for profit hospital that has over 300 beds and we averaged three patients for two and a half months. So it doesn't take many of those three pages to be koby pages to make those numbers looks skewed just be very careful with what what you're looking at but our hospitals are good good good liquidity positions.

Volume to come back very strong and we expect the coverages to continue.

I think the second part of your question was on developments, we will continue to see development activity, but from a dollar standpoint or percentage standpoint of our portfolio portfolio. It will ever decrease just because we've grown so still very big I think that any given the year, we'll probably have.

Less than 10 total development projects with that just won't be large percentage.

Thank you.

Your next question comes from the line of John Peterson with Jefferies.

Okay. Thank you good morning, guys.

Yes, I was curious if.

Yes, I'm curious have you seen.

I guess any incremental interest from kind of not the nonprofit hospitals and in the past you've talked about that as a big opportunity that you're trying to break into.

I don't know if anything has changed there with covance in terms of any other situations that have opened up opportunities and then maybe just asked another way more broadly are there any.

You know different types of hospital owners or property types or regions, where where cobalt has kind of changed the conversation and opened more opportunities.

For acquisitions in the future.

So from a not for profit standpoint, I would certainly like to see more not for profit activity I think that just given the way that their structure is they're they're they're leadership structure. We just haven't seen that what we have to continue to see is the non for profit is really moving toward the selling as opposed.

Two.

These types of routes.

We still will push that Avenue, we like there are a lot of non for profit other we'd like to do business with and we will continue to push that but it just it just hasn't been what I thought it would be 20 years ago. When we started this company.

From other opportunities because of coated I think the the opportunities really lies in the fact that that those that have really figured out that they can operate in this environment that they continue to do well.

It wasn't the disaster that we all feared in March for hospitals, and so the opportunities are there. There are good people out there that we know very well you know I've been in this business for 35 years.

I know just about everybody in those everybody eat a node me or somebody that we've done business with and I get a lot more phone calls today I probably in the last three months I've gotten a lot of phone calls from old friends that have done business with that that are interested in doing something else. So yes, I think from that standpoint, there are lots of opportunities out there.

All right.

And then the election as less than a week away I guess, if we wake up next Wednesday morning, or in a month from however, we figured out and Biden President should NPW stock go up or down the next day.

Well I think that as Steve and I have literally said since we started this company because you remember when we first started it there where the discussions about all the various changes to healthcare and there are probably six or seven different health care reforms floating around before Obama finally got elected than we all settled on the.

Hey.

It really doesn't matter for MPT. If you look back at all of those various forms of health care reform. The total number of dollars into bucket Didnt change at all.

What did change is the payer mix and how that number of dollars were allocated but the hospitals continued to be paid as they continue to get roughly the same amount of dollars depending on what state you're in was how it was allocated differently, but from an overall.

Truly nonpartisan standpoint, it really doesnt matter, who gets elected long term, obviously short term there may be a boost just because people think that the FDA is this.

Wonderful, thank for hospitals, and and without Trump it probably won't go away.

But but we think that it really doesn't matter, whether it's a trump election already have abiding collection from that standpoint.

Okay. All right. Thank you appreciate it.

Your next question comes from the line of Michael Lewis with tree last.

Great. Thank you.

So I certainly understand their enthusiasm.

Whether the portfolio weathering, a pandemic and doing well.

Now that it looks like we're headed toward a higher number of code expenses.

No in wave one I suppose maybe the risk was holding back it sounds like you think we won't do that again, what's the risk in wave. Two cases continue to go up do you feel like we've kind of figure this out and can handle it now or what are some things we should look for you know.

The cases continue to trend up like that.

Mike Thats, a fair question and clearly if you look at the numbers. They R&D trending up I don't think any of US know at this particular point how much of that is related to the fact that we've got a lot more test that are out there and people are being tested more often.

But clearly they're going up I think the good news from an overall world standpoint is this if you look at our hospitals in the southern Hemisphere, I think Australia has 130 patients left right now of Kogut pages, that's in a in a fairly large country and it's kind of isolated obviously, but.

Weve done we they have done a very good job from it from that standpoint, if you look at the people that are the number of people that are getting kogut very few of them are ending up in the hospital like they did originally back in in March April May and even June and most importantly, I think as what I reported earlier.

What everybody as affordable what I commented on earlier is is the lower mortality rates and thats with not any real additional drugs. That's truly just with hospitals understanding how to treat patients better you have to be very very careful look you listened to own our 24 hour news cycles, because they report snippet.

Obviously, let me give you. An example, when co would first hit every hospital that we own greatly increased the size of their eyes to use they all have the ability to adjust a bit.

Its configuration that is one of the reasons why we've done so well in business from the early days on is that we understand how to run hospitals, a number of the people here, including myself actually ran hospitals originally and so we understand how to do bed reconfiguration and give the approval for that from very quick standpoint. So if you look where we are today.

Most hospitals have decreased the number of those co bid asked a new beds to go back to somewhat of a normal standpoint. So even if you hear a hospital that is that the news as reported may be running out of asset you beds thats. It thats, probably a bad number and I know of one in particular, where this was reported.

Well, they're reporting is a hospital that that jumped up to more than 30 assay you best for Cobi patients the Golden pages never materialized. So they dropped that back down to three kogut patient and they were full of threeq over patients, but they had the ability to do a good bump the other beds back up.

I think that the worst thing that could happen to the country to the world to our hospitals would be if we decided that we needed to cut elective surgeries that just didnt help us it didnt help the country again I'm not pointing fingers at anyone we were all operating in a vacuum and Didnt know what to expect with.

But we had hospitals all over this country that sat totally vacant one of those things that is just now starting to be reported and we'll probably learn more about it in five years or so or the number of people that died because not of coca directly but because of the fact that they couldn't.

Get to a hospital that they needed to be treated I told you I'm on the board of the not for profit hospital with 300, plus beds and I asked our management. During this standpoint, we literally had three patients as I know all of those patients, particularly the cancer patients still need treatment, what what's happening and the answer was they weren't getting treated.

So so hopefully no one will make that mistake again, and we won't go to a shutdown.

If you look at Europe, you look at the announcements that just came out in Germany, and France yesterday, the hospitals were shut down the elective surgeries weren't shut down if you look in Italy, and Spain, which will obviously two of the hardest hit countries early on I'm in daily contact with our sales there. They both feel very very good about where.

They are despite the fact that the numbers are officially going up the hospital utilization the deaths and those numbers comparatively aren't what they were in March April may and June so unless unless we just have a terrible political.

Decision about what to do with hospitals, we should be in very good shape.

Okay, great. Thanks for the color and then I.

Hi, just a quick one for Steve.

On the tax rate change.

You mentioned that was one time.

So.

A tax rate change sounds to me like maybe that would be a permanent change, but there is nothing going forward here that that should impact no a higher tax rate going forward.

Yes, it's a good question the increase in rate does go forward.

The the Big hit we took this quarter was two account basically a purchase accounting adjustment was the biggest piece of it related to if you remember we did the $2 billion acquisition in January and there were some some tax liabilities that we basically had to re price.

As of that acquisition date going forward, if we will have a miniscule.

Impact on on our yield.

Okay that makes a lot of sense and then just lastly for me.

You know I wanted to ask about the Upsized Columbia investment to fit the yield change on that in other words are you, earning a return on the on the incremental amount and then.

Just just built in general in the pipeline right. The low financing might make you think that that yields to come in but then we've got maybe there is a perceived risk premium.

Are you seeing yields in the pipeline in general move at all.

I would answer that very marginally.

If you compare what will be done recently and what we think the most near term transactions will be we're certainly in our view.

Minimal exception not seeing any further cap rate compression. So the cap rates. We've talked about you know starting last year to this year us versus international we are we continue to get at least those rates and as I say marginally it it's it's upwards rather than downwards.

Okay and on Colombia, specifically to the yield change with the incremental investment.

The yielded and change but to answer your question, we are getting that yield on on that incremental $35 million yes.

Thanks, a lot guys.

Thanks, Mike.

There are no further questions at this time I would now.

I turn the call back over to Mr. Aldag for closing remarks.

Randy Thank you very much and I appreciate all of your interest today I. Appreciate your questions. If you have any additional questions for US. Please don't hesitate to reach out to drew or Tim and we'll get back to you as quickly as we can again. These are great times for MPT I couldn't be more excited about where we are and more excited about.

Future of MPG. Thank you very much.

This concludes today's conference call you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Q3 Twentytwenty Medical properties Trust earnings Conference call.

All participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone keypad.

Please be advised that todays call is being recorded if you require any further we're supposed to please press star then zero I would now like to hand, the conference over to your host today, Charles Lambert Vice President. Thank you. Please go ahead.

[music] good morning.

Welcome to the medical properties Trust conference call to discuss our third quarter 2020 financial result.

With me today are Edward K.L. that Jr, Chairman, President and Chief Executive Officer of the company.

And Steven Hamner, Executive Vice President and Chief Financial Officer.

Our press release was distributed this morning and furnished on form 8-K, with the Securities and Exchange Commission.

If you did not receive a copy it is available on our website at Www Dot medical properties Trust Dot 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.

We refer you to the Companys reports filed with the Securities and Exchange Commission for discussion of the factors that could cause the companys 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.

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 Dot medical properties Trust Dot com for the most directly comparable financial results and related reconciliations.

Now I'll turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you Charles and thank you everyone for listening in today to our 2023rd quarter earnings call. We always appreciate your interest and then they take it.

As I prepared for todays call and made my presentation to the board earlier in this way I realized that I have never been more excited about our performance and the future of MPG Didnt.

Didn't really simple, but important terms for years, we have been steadily executing all the MPT strategy and business plan, while the cobot pandemic has been a worldwide tragedy. It is absolutely further validated our model.

Hospitals are the center point of the health care delivery system, all over the world and civilizations, we'll do whatever they have to to ensure their populations have access to hospitals.

During one of the worst Pandemics. The world has seen the MPT has to do delivered a year over year increase and our CFO up 24%.

Our operators are performing beautifully across the world. They have strong liquidity strong operations and none of them are suffering from any capacity issues or lack of supply.

We have been able to acquire more than $3 billion of new investments in this new world of zone and limited travel our offices in Europe, and Australia have proven invaluable and our historical performance and reputation among operators have served us well.

Our pipeline remains strong and manageable we have no need to do any traditional equity offerings to meet our needs in the near term Steve.

Steve and our internal capital markets and finance teams have done a great job of managing our needs in a way that keeps several efficient funding options on the table.

Good luck update at this point because it is truly that simple and that strong, but let me continue with more detail.

Hospitals are all back to essentially normal operations.

Ranged from low ninetys to over a 100% of where they were in 2000 and lighting.

Colin first hit hospital operators across our portfolio did a fantastic job of cutting expenses and streamlining operations all of our operators have strong liquidity positions and all are looking forward to new opportunities.

As predicted the backlog of non emergency surgery has pushed surgical volumes back to pre COVID-19 levels at many of our hospitals and so even ahead of budget and prior year numbers.

For instance, our hospitals in Spain have seen an increase in outpatient surgical volumes as the backlog at the public hospitals. This force them to read direct patients to our private hospitals. This.

This has created a fortuitous opportunity for our Spanish operators as they.

These patients experience first hand, the top notch facilities and care provided at these private hospitals.

I need to a 100% of prior year averages by the end of the third quarter. The recently announced the NHS contract for up to 10 billion pounds for the private sector represents a significant opportunity to partner with the NHS on their increasing weightless backlog, which is expected to approach 10 million.

People by the end of 2020.

Australia continues to see its number of overall covert cases stay relatively low and not only is our operated they're doing well, but is actively engaged in expansion.

For transitioning to my usual comments on coverage ratio reporting I'd like to share some general thoughts regarding the current political conversation involving hospitals.

Over the 35 years I've been investing in hospitals, the legal obligation of hospitals to treat all patients regardless of their ability to pay has been a constant and the amount of PON spin at hospitals has only increased.

CMS began tracking nominal U.S. healthcare spending in hospitals, and 1960 12 presidential administration's ago nominal spending at hospitals has grown at an 8.8% compound annual growth rate with no single negative year.

We do this because Republican or Democrat no I see a or expanded asea, an increasing amount of money is likely to be spent on hospitals.

Each generation expects to have better health care than the last.

Countries will continue to fall in healthcare, even in the worst of times as Weve seen during this pandemic.

Over the last 35 years I've seen many changes in how hospitals are reimbursed, but the one constant is that as a population we have always demanded and gotten better healthcare.

Relative to the 1.2 trillion dollar spent at hospitals as officially measured in 2019 in the us the impact of potential changes or repeal of the affordable care Act is marginal.

Experience tells us that in any case the same doctors will create the same patients overall spending will grow and I rent will be paid regardless of changes, resulting in ships and payer mix and any related healthcare insurance reform.

Now the coverage is just to remind everyone. We report coverages one quarter in arrears because at the time, we do our earnings call. We do not have all of the quarter ending information from our operators. So the coverage is we are reporting is for the three month period ending June thirtyth.

Also please remember that all of our operators were asked to shut down all elective surgeries and other procedures and anticipated patient of COVID-19 patients that really never materialized. This period was basically March through April or may so.

So most of the second quarter operators were essentially closed.

As you will also recall through the Tears Act in the U.S. and other forms of funding from other governments in our.

Our other eight countries our hospitals received funding to cover the shutdown period.

In the U.S. the funding payments informs grants, which are scheduled to be kept by the operators and the other in the form of Medicare advances, which are currently slated to be repaid.

Our largest us operators received approximately $1.6 billion in brands and $2.3 billion and advances will.

Well same operators are sitting on approximately $5.4 billion and liquidity so should they be required to repay the advances they are in good shape to do so with plenty of excess liquidity.

Pandemic has made coverage reporting difficult. We told you at the end of the first quarter that the elective surgeries and procedures were all medically necessary and would indeed come back they would not just disappear we were 100% correct about this so in an attempt to show you as much clarity as we can I'm going to report.

The EBITDARM coverage two ways, one without any grants or advances and one with just the grants at it and neither case are we including the advances as they are scheduled to be repaid.

Furthermore, the Formula which includes the grants were going to include 100% of the grads, even though at this point.

Not all of the operators have included the grads in their published numbers.

Now let me provide a quick update on our existing portfolio, we removed the two acute care properties from our same store reporting this quarter that are no longer owned by us. So.

So first without breaths, our same store portfolio EBITDARM coverage for all sectors total portfolio for the trailing 12 months Q2, 2020 was 2.12 times sales.

Same store acute care EBITDARM coverage was 2.16 times, that's even during the pandemic still coverage over two times, which represents a 29% decrease year over year it.

Eltek EBITDARM coverage was 1.99, which actually represents a 23% increase year over year.

Inpatient rehabilitation hospital EBITDARM coverage was also over two times 2.04 to be exact which represents a 1% increase year over year I remember those numbers were without any additional graphs.

Now second with the grass included our same store portfolio EBITDARM coverage for all sectors for the trailing 12 months Q2, Twentytwenty was 3.17 times same store acute care EBITDARM coverage acute care hospitals were three.

0.56 times, which represents an 18% increase year over year at.

Eltek EBITDARM coverage was 2.29 times, which represents a 41% increase year over year.

Inpatient rehabilitation hospital facilities EBITDARM coverage was 2.14 times, which represents a 6% increase year over year.

It is amazing to think that during a year of such unprecedented disruption and uncertainty that MPT will successfully underwriting close on $3.1 billion in investments not only is this a testament to our business model and the increasing acceptance of an understanding of it by hospital operators throughout the world but.

Also a testament to our team no matter the circumstances MPT can move quickly and adjust and adapt to a new way of doing business and maintain our level of excellence and unparalleled growth.

Nevertheless, we are not done not even close as the buyer of hospitals are the largest buyer of hospitals in the world. We see materially every potential opportunity underwrite the more promising transactions over the course of multiple years and as you know we are willing to execute when deals both meet our standards and generate immediate arnie.

The accretion it is this logic that drove 24% normalized FFO per share growth in the third quarter and ranks us number one among us reads exceeding $3 billion in equity market cap and 20 20-F FFO growth noted.

Though it is still too early to announce any specific acquisition goals for 2021, we are confident in our ability to continue to grow and to do it prudently, but let me remind you again, if we do nothing else, let's just stop acquiring as of today, we are tracking at the high end of our guidance range.

COVID-19 has certainly created a numerable changes in our lives, but it is comforting to know one thing is constant there the quality healthcare. We continue to look continue to be delivered in hospitals throughout the world. We are proud of our operators in their employees and providers for making it happen.

Medical properties Trust and our team is honored to be a part of the total team.

Steve.

Thank you Ed.

This morning, we reported normalized FFO of 41 cents per diluted share for the third quarter of 2020.

As Ed has pointed out this is a 24% increase.

2000, Nineteens third quarter and is consistent with the run rate guidance of $1.68 to $1.71.

We affirmed this in this mornings press release.

The midpoint of which is a 31% increase over 2000 nineteens actual annual results.

Contribute meaningfully to our earnings growth.

Our guidance represents the stabilized earnings of our in place portfolio.

Additional transactions closed or under binding agreement.

As Ed mentioned earlier, we are collecting virtually all rent contractually due and fully expect to collect roughly $12.5 million in rent deferred in the earlier part of the year.

That is with interest by the way.

Before moving on to remarks about outlook and near term investment plan to its worth mentioning a few items that were notable in the third quarter. Despite their exclusion from our normalized FFO we.

Re spans freestanding emergency facility and to our transit transitioning of five other freestanding emergency facilities to affiliates of H.C.A. and Methodist Health care in Texas Fine.

Finally, we recorded a $1.6 million fair value adjustment gain on our equity investment in EBITDA, the parent of our tenant Swift medical network.

During the quarter, we closed on roughly $350 million of accretive transactions with three separate operators.

In addition, and also in early August we acquired to be in my Woodlands Hospital in the UK that is operated by circle sell for 29.4 million pound Sterling.

Facility is home to highly rated orthopedic an apartment specialist and has long been meeting the needs of the population of northeast England.

As we expected as of last quarter's call. We closed on the Prime Saint Francis Medical Center in Lynnwood, California in August at total consideration of $300 million.

All three of these highly sought after facilities provide cash and GAAP yields that generate immediate and strong per share accretion.

This is how we continue to drive double digit and market, leading FFO and FFO growth.

As a further example, as part of the Prime Saint Francis acquisition. This hospital has been joined to an existing master lease for which prime has executed early a five year extension, giving this $500 million portfolio, a new 15 year term into.

And Testament to its financial strength Prime recently priced a $700 million notes issued proceeds of which will be used partially to repay roughly $280 million in mortgage loans from MPT that would otherwise mature in 2022.

As evidenced by the St. Francis Transit acquisition, we expect to continue to grow with prime recycling capital as appropriate.

It's also important to point out that by the end of this year, we expect our real estate mortgage portfolio to represent less than one in a quarter percent of our assets Thats.

Thats down from almost 8% as recently as the end of last year.

We have occasionally provided mortgages as an accommodation to our tenant tax strategies, but our preference is almost always that we already own or less or rather than a lender.

We have reduced this mortgage exposure, primarily by acquiring the underlying mortgaged assets rather than simply taking diluted repayments. This.

This is always our strategy going into mortgage transactions and our successful execution of it over the last couple of years is even more evidence of npts underwriting skill and structuring creativity.

As mentioned last quarter, we continue to expect our first property investment to Colombia in Colombia, the close in the fourth quarter and the value of roughly $135 million, including facility improvements that were not included in our initial $100 million estimate.

Cents of accretion from ongoing development and redevelopment projects and pro forma leverage that remains within our long term target range.

Our ATM facility.

On which we were selectively active since the end of June.

On an FFO basis, our retained earnings is estimated to provide at least $150 million annually over and above current dividend payments and we expect to receive a similar amount of cash liquidity from miscellaneous and non dilutive sales and refinancings over the next few quarters.

Finally, large institutions continue to pursue opportunities with us for a joint venture investments in hospital portfolios as many of you know we have executed joint venture transactions in the past at very attractive terms for MPT and we continue to explore these opportunities.

What this means to US is that we believe we have a number of alternative capital sources to continue our double digit accretive growth in coming quarters, while maintaining our prudent historical leverage target and avoiding the more extensive and dilutive capital raising strategies during recent market conditions.

With that we'll turn the call back to the operator for questions operator.

At this time, if you would like to ask a question. Please press Star then the number one we will pause for just a moment to compile the Kenny roster.

Your first question comes from the line of Steven Valiquette with Barclays.

Great. Thanks, Good morning, Steve Thanks for taking the question.

A couple of questions here I guess, just looking at some of the September quarter results from publicly traded hospital operators like HP and tenant over the last week or two.

Senses, we're probably back to maybe 90% pre co bid hospital patient volumes at the end of third quarter, you're seeing that number dropped to call. It around 50% for the industry maybe back in the June quarter. So just curious if you generally agree with that broad characterization for your portfolio. The U.S. operators without agreeing to those exact numbers, but just general.

Speaking, whether it makes sense to use those publicly traded comps as a proxy for your underlying portfolio in the us. Thanks.

Hey, Steve Hope you're doing well.

The answers to that question first first of all our our portfolios generally on a volume basis doing better than that we have some operators.

I think that if you look at the community Health systems report that they did yesterday or the day before.

This first hit are all hospital operators, particularly our portfolio of the publicly reported wants that we've seen thus far did an incredible job of cost cutting and getting there the costs under control. So I think that if you look at that and you look specifically at the results that you saw in community.

In their reporting this week.

Our hospitals are doing exceptionally well. So if you look at the volume and it says 95% of what they were doing in 2019, doesnt necessarily mean that they are only generating 95% of what they generated an EBITDA in 2019, our hospitals across the board in Europe, Australia and here in the us are doing.

Very well and every one of them.

Certainly all of the big ones are looking for opportunities and have opportunities to grow. So we feel very good listen we told everybody back at.

Cobot first head and the governments around the world Neil I'm, not not pointing fingers at anyone because you can't sit there and look at it in hindsight, we Didnt know what this was going to do we didn't know what cogut, who is going to look like the models were showing a tremendous number of patients and beds that were needed and that just didnt materialize and so we had hospitals that said vacant.

For two and a half months.

We certainly don't ever have to do that again, you need to remember that the press is very sensational.

It Amazes me sometime because I love this business some of the reports that I hear.

I actually had been and Utah recently and as those listening to reports from the news channels, telling everyone in Utah that they were going to have to start rationing care again, because all of the hospitals were turning away patients that is absolutely not the truth made maybe the one hospital that they were talking to it's probably up.

Public hospital, but even there I know some of some of the fact as to why that's not true, but our household were the largest owner of hospitals in Utah we.

We are.

Not in danger of being out of assay you beds at any of our hospitals and certainly not in danger of having to ration health care in any fashion. Every every one of our hospitals are fully open for all of their surgical needs. So.

It's really amazing to see where we've come since March April and May of last year of this year, which over last year.

That's great I appreciate that color and now you're right I mean the.

Acuity mix is leading to EBITDA results, there and maybe even slightly better than some of the volume trends.

Upon us as well so I appreciate that color too so thanks.

Thanks.

Absolutely.

Your next question comes from the line of Michael Carroll with RBC capital markets.

Yes. Thanks, Steve can you provide some color on potential JV opportunities that you mentioned in your prepared remarks, I guess what type of opportunities are you looking at your portfolio today and our you're pursuing those deals there are trying to find partners to pursue those deals or is that just kind of been in theory right now.

Well no it's not a theory by any means.

I'll just I'll just remind everyone on the call that may not know our whole history, we have basically half a dozen JV arrangements right now the largest being.

The transaction, we did I guess, we closed about two years ago in Germany.

Where an institutional investor very large institutional investor in this case.

And insurance and asset manager to help them on the all in France bought half an hour.

Gentlemen portfolio.

At very very attractive and compressed cap rates versus what we had originated those those leases to be.

Since then not only in Europe, but in Australia and increasingly in the US we are seeing more interest from similar type institutions, and others, including sovereigns and other.

Private equity public pension funds.

Understood and just ammonia all and Axa.

With with whom we've done other joint ventures. So we are working.

Conceptually around.

More than one potential transactions that would look similar to what we did with pony all basically.

Selling a portion of the.

Of a discrete portfolio.

Very very attractive pricing, especially compared to.

Pricing in the public equity markets today.

But there is nothing specific to report at this time.

And then I know I remember when you are pursuing the German portfolio JV on that the lead time or the timing to get that transaction done.

Was pretty pretty long I guess, if you do elect to do a JV how long do you expect it will take is this something that could be announced didnt beginning in 2021 on to help fund. Some of your 2021 investments that you have planned that Ed kind of mentioned in that the pipeline is pretty strong or what's the thought process around that.

So we wouldn't expect it to take as long a lot of things have changed since then including the rapid increase in interest from from institutional and other passive investors for this type of product.

The other big issue being we've been through it now.

We have were much bigger when we started those those negotiations it was actually more than three years ago. Since then.

I'd have to look, but we've added many billions of dollars in.

Assets to do our own ownership. So we have a number of alternatives and opportunities to slice and dice.

And again given.

Given the continuing search by these institutions for yield.

We we think could we could accelerate.

The underwriting and closing process, we certainly wouldnt.

Enter into negotiations, if we didnt think that.

Insofar as timing, we've got nothing to announce now and no.

No prediction of when that May happen.

Okay, great. Thanks.

Your next question comes from the line of Conor So first ski with burn Berenberg.

Hey, everybody. Thanks for having me on the call.

Quick one movie could you could you touch on portfolio vacancy at all and then any opportunities to lease any available space in the near term or.

Any color on what impact that could have looking forward.

That's a very good question and and there is very limited portfolio vacancy.

Obviously.

Most if not all of our buildings are single tenant occupancy so when something's vacant.

It's not it's not generating any earnings all all the very limited amount of facilities and mostly they are the on the old adeptus facilities that we've discussed in recent quarters. There is no.

Inclusion of any potential re leasing of those facilities in our guidance so but on the other hand, if if we were to release, 100% of them Tomorrow, It's just not going to move the needle that much on on guidance because all in Adeptus has been very very successful in what we end up with an hour.

Really the.

The bottom tier.

And there's just not that much of it they are.

Opportunities not an on mentioned it very briefly and in my prepared remarks about potential sales that would generate additional liquidity and and basically free capital because they would be non dilutive. There. In addition to those old adeptus facilities I just mentioned they are are they less.

A handful.

Couple or so other facilities that were not recognizing any income on.

And yet have we believe fairly.

Fairly substantial value relatively speaking.

Which which we are hopeful I think we have reason to be hopeful that that we could generate upwards of another.

100 million plus or minus dollars and in the near term in potential sale proceeds.

And Carter I'll add to that just just briefly while Steve's absolutely right. It's a very small number of very interestingly as people have gotten comfortable where we are post code that we have actually have a number of people negotiating with us for these facilities. So it up while it wont move the needle it's nice to have all the interest.

Okay. Thanks for that you guys actually answered both my questions there.

Your next question comes from the line of Joshua Dennerlein with Bank of America.

Yes, thanks for the question morning, everyone.

Josh to to really for me.

Just globally, where are you seeing the most opportunities as far as acquisitions go.

And then how are you guys thinking about health systems and maybe how.

How how they might consolidate or change post coded and how that might impact your your opportunities.

So Josh the out the pipeline continues to be split in the 60 40 range, 60% in the U.S., 40% outside of the U.S. its.

That general acute care hospitals from $1 dollar standpoint.

From a because apparently opportunity standpoint with systems. So we continue to to see a lot of interest in the for profit buying some of the not for profit entities. We see a lot of the continued interest, particularly post cobot, both Nightmare Cove It I guess.

From the not for profits that really need that have more than just one facility that are willing to sell at this particular time. So we continue to see good opportunities I think everybody wouldnt hold adverse it obviously everybody put everything on hold and were were scared to where this was going to go but as I said in my prepared remarks.

It is amazing how everybody were working with is looking for opportunities right now.

Appreciate that thanks.

Thanks.

Your next question comes from the line of Sara <unk> with JP Morgan.

Hi, Hi, Good morning. This is Derek on for Mike Mauler, just two questions from me. The first one is on coverages and where do you see any trends given that eight.

Secondly, do you expect to add on to your development pipeline going into this is to project right now.

So so I hope you're doing well on the first part of the question, though we expect them to continue to trend up.

As you saw from the remarks earlier, even without any any federal grants and a two and a half months shutdown, our general acute care hospitals still generated a more than a two times coverage our.

L tags and inpatient rehabilitation hospitals actually increased the LTX increase significantly the rehabilitation hospitals increased some.

In Germany, where we have the largest number of rehabilitation hospitals, those hospitals did exceptionally well all throughout the coated crisis and we expect that to continue.

We really don't see the situation of having hospitals shut down again.

Again, I'm not pointing fingers at anyone I think that in hindsight thats, probably all we all we can do that we didnt know what we know now we know how to treat these patients were literally are not treating them with the with any additional drug, but we've cut the mortality rate by 85% and we've cut the number of people staying in.

Back in the early days of this crisis, Workover and well, yes, thats probably drove because they got rid of all the other patients.

On the board of a not for profit hospital that has over 300 beds and we averaged three patients for two and a half months. So it doesn't take many of those three pages to be Gobi pages to make those numbers looks skewed JV very careful with what what you're looking at but our hospitals are good good good liquidity positions the volumes that.

Come back very strong and we expect the coverages to continue.

The Battle I think the second part of your question was on developments, we will continue to see development activity, but from a dollar standpoint or percentage standpoint of our toward vote portfolio. It will ever decreased just because we've grown so so very big I think that any given year, we'll probably have.

Less than 10 total development projects with that just won't be a large percentage.

Thank you.

Your next question comes from the line of John Peterson with Jefferies.

Oh, great. Thank you good morning, guys.

I was curious if you.

Yes, I'm curious have you seen.

I guess any incremental interest from kind of the nonprofit hospitals I know in the past you've talked about that as a big opportunity that you're trying to break into.

I don't know if anything has changed there with Kobe in terms of any other situations that have opened up opportunities and then maybe just asked another way more broadly are there any.

Different types of hospital owners or property types or regions, where where cove. It has kind of changed the conversation and open more opportunities.

For acquisitions in the future.

Silver will not for profit standpoint, I would certainly like to see more not for profit activities I think that just given the way that their structure is there.

Their leadership structure, we just haven't seen that what we have to continue to see is the not for profit is really moving towards the selling as opposed to.

These types of routes.

We still will push that Avenue, we like there are a lot of not for profit as other we'd like to do business with and we will continue to push that but it just it just hasn't been what I thought it would be 20 years ago. When we started this company.

From other opportunities because of coated I think the the opportunity is really lies in the fact that that those that have really figured out that they can operate in this environment that they continued to do well.

I know just about everybody in those everybody either knows me or somebody that we've done business with and I get a lot more phone call today, probably in the last three months I've gotten a lot of phone calls from old friends that I've done business with that that are interested in doing something else. So yes, I think I think from that standpoint, there are lots of opportunities out there.

All right.

And on the election as less than a week away I guess, if we wake up next Wednesday morning, or in a month from however, we figured out and Biden President should NPW stock go up or down the next day.

Well I think that is it.

Stephen I have literally said since we started this company because you remember when we first started that there were the discussions about all the various changes to healthcare and there are probably six or seven different healthcare reforms floating around before Obama. Finally got elected then we all settled on the AC a.

It really doesn't matter for MPT. If you look back at all of those various forms of health care reform. The total number of dollars into bucket Didnt change at all.

What did change is the payer mix and how that number of dollars were allocated but the hospitals continue to be paid as they continue to get roughly the same amount of dollars depending on what state you're in with how it was allocated differently, but from an overall.

Truly nonpartisan standpoint, it really doesn't matter, who gets elected long term.

Additionally, short term there may be a boost just because people think that the FDA is this.

Wonderful, thank for hospitals, and and without Trump it probably won't go away.

But but we think that it really doesn't matter, whether it's a trump election or a of abide election from that standpoint.

All right. Thank you appreciate it.

Your next question comes from the line of Michael Lewis with true last.

Great. Thank you.

So I certainly understand their enthusiasm.

Whether the portfolio weathering, a pandemic and doing well.

Now that it looks like we're headed toward a higher number of co located centers in wave one I suppose maybe the risk was holding back it sounds like you're saying, we won't do that again, what's the risk in wave. Two cases continue to go up do you feel like we've kind of figure this out and can handle it now.

Or what are some things we should look for you know, it's a cases continue to trend up like that.

But but clearly they are going up I think the good news from an overall world standpoint is this if you look at our hospitals in the southern Hemisphere, I think Australia has 130 patients left right now of Kogut pages, that's in a in a fairly large country and it's kind of isolated obviously, but.

Weve done we they have done a very good job from it from that standpoint.

If you look at the people that are the number of people that are getting kogut very few of them are ending up in the hospital like they did originally back in in March April May and even June and most importantly, I think as what I reported earlier or what everybody is reporting what I commented on earlier is is the lower mortality rate.

And thats with not any real additional drugs, that's truly just with hospitals understanding how to treat patients better you have to be very very careful what you listened to own our 24 hour news cycles, because they report snippets. Obviously, let me give you. An example, when co would first hit every high.

Hospital that we own greatly increased the size of their eyes to use they all had the ability to adjust.

Ed configuration that is one of the reasons why we've done so well in business from the early days on is that we understand how to run hospitals. The number of the people here, including myself actually ran hospitals originally and so we understand how to do bed reconfiguration and give the approval for that from very quick standpoint. So if you look where we are today.

Most hospitals have decreased the number of those co bid ask the new beds to go back to somewhat of a normal standpoint. So even if you hear a hospital that is that the news as reported may be running out of asset you beds. That's a that's probably a bad number and I know of one in particular, where this was reported.

It was a little bit of reporting as a hospital that that jumped up to more than 30 assay you beds for cobot patients the golden pages never materialized. So they dropped that back down to three go good patient and they were full of threeq over patients, but they had the ability to do a good bump the other beds back up.

I think that the worst thing that could happen to the country to the world to our hospitals would be if we decided that we needed to cut elective surgeries that just didn't help us it didnt help the country again I'm not pointing fingers at any one we were all operating in a vacuum and Didnt know what to expect with.

But we had hospitals all over this country that sat totally vacant one of those things that is just now starting to be reported and we'll probably learn more about it in five years or so or the number of people that died because not of cobra directly but because of the fact that they couldnt.

Get to a hospital that they needed to be treated.

Told you I'm on the board of a not for profit hospital with 300, plus beds and I asked our management. During this standpoint, we literally had three patients as I know all of those patients, particularly the cancer patients still need treatment, what what's happening and the answer was they weren't getting treated so so hopefully no one will make that mistake again, and we won't go to a shot.

Down if you look at Europe, you look at the announcements that just came out in Germany, and France yesterday, the hospitals were shut down the elective surgeries weren't shut down if you look in Italy, and Spain, which will obviously two of the hardest hit countries early on I'm in daily contact with our sales there they both feel very very good.

What about where they are despite the fact that the numbers are officially going up the hospital utilization the debts and those numbers comparatively aren't what they were in March April may and June so unless unless we just have a terrible political.

Decision about what to do with hospitals, we should be in very good shape.

Okay, great. Thanks for the color and then I.

Just a quick one for you on that.

On the tax rate change.

You mentioned that was one time.

So.

A tax rate change sounds to me like maybe that would be a permanent change, but there is nothing going forward here that that should impact no a higher tax rate going forward.

Yes, it's a good question.

The increase in rate does go forward.

As of that acquisition date going forward. It will have a miniscule on impact on on our yield.

Okay that makes a lot of sense and then just lastly from me.

You know I wanted to ask about the Upsized Columbia investment to fit the yield change on that in other words are you, earning a return on the on the incremental amount and then.

Just just built in general in the pipeline right. The low financing might make you think that that yields to come in but then we've got maybe there is a perceived risk premium are you seeing.

Sales in the pipeline in general move at all.

I would answer that very marginally.

If you compare what we've done recently and what we think the most near term transactions will be we're certainly in our view with that.

Minimal exception not seeing any further cap rate compression. So the cap rates, we talked about starting last year to this year us versus international we are we continue to get at least those rates and as I say marginally it it's it's upwards rather than downwards.

Okay, and on Colombia, specifically, LTL change, but the incremental investment.

The yielded and change, but but to answer your question, we are getting that yield on on that incremental $35 million yes.

Thanks, a lot guys.

Thanks, Mike.

There are no further questions at this time I would now.

A quick turn the call back over to Mr. Aldag for closing remarks.

Randy Thank you very much and I appreciate all of your interest today I. Appreciate your questions. If you have any additional questions for US. Please don't hesitate to reach out to drew or Tim and we'll get back to you as quickly as we can again. These are great times four four MPG I couldn't be more excited about where we are and more excited about.

Future of MPG. Thank you very much.

This concludes today's conference call you may now disconnect.

Q3 2020 Medical Properties Trust Inc Earnings Call

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