Q1 2021 Medical Properties Trust Inc Earnings Call
Day, and thank you for standing by and welcome to the Q1 2021 Medical properties Trust earnings Conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question during the cash and you would need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Mr. Charles Lambert. Thank you. Please.
Go ahead.
Thank you good morning, welcome to the medical properties Trust conference call to discuss our first quarter 2021 financial results.
With me today are Edward K, Outback Junior 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 medical properties Trust Dot com in the Investor Relations section.
Additionally, we're hosting a live webcast of todays 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 days.
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 <unk> underlying such forward looking statements.
We refer you to the company's 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.
You can also refer to our website at medical properties Trust Dot com for the most directly comparable financial measures and related reconciliations.
I will now turn the call over to our Chief Executive Officer, Ed <unk>.
Thank you Charles and thank all of you for listening in today for the medical properties Trust first quarter earnings call.
21 is shaping up to be another fantastic year per M. D. G more on that in just a few minutes.
But before I move on I'd like to once again express our appreciation for all of our hospital operators and the nurses and doctors and other health care workers across the globe than at fault. This deadly disease.
They face the dangers head on like a farm and running into a burning building.
Simultaneously saving hundreds of thousands of and maybe millions of lives.
We remain in all of their bravery and commitment to their patients.
The pandemic has told the world a lot and in particular for our industry. There is no second guessing the need for hospitals, especially acute care hospitals.
The world could not have survived without the hospital industry this past year.
At least in our lifetimes people will continue to have to come to hospitals for their acute needs.
The advancements in outpatient services and particularly in telemedicine.
Two final patients to hospitals today.
Today, because of the technological advances and services such as telemedicine hospitals are seeing a whole new group of patients they wouldn't have seen before.
In April or May in May of last year, we knew that as soon as hospitals opened back up the patients would come back and come back quickly.
This wasn't a choice of going out to dinner or to a movie this is life and death.
As has been reported throughout the industry hospitals are performing well with EBITDA is back at 2019 levels or above.
Our portfolio is no different like every industry hospitals were shut down for basically a quarter last year.
That period makes looking at trailing 12 months coverage truly irrelevant.
What matters is how hospitals are performing now.
Therefore, I'm going to compare fourth quarter 2020 to a fourth quarter 2019, but please note the downward skewed skewed seasonal effect of only including the fourth quarter is not totally comparable to an annualized coverage over a trailing 12 months.
Now, excluding all grants and advances the acute care hospital segment of our portfolio was two three times coverage in the fourth quarter 2020, compared to 2.72 times book The Corp fourth quarter 2019.
For <unk>. It was 2.01 times compared to two point to three times and four L. Tax. It was an amazing 247 times compared to 1.92 times in 2019.
These are all truly remarkable numbers and amazing recovery from the depths of COVID-19.
Now even those coverages don't tell the complete story because they include the rental increases on all of our leases.
So just comparing EBITDAR again, excluding all grants for those same periods. Our operators were only down 6% in the fourth quarter of 2020 compared to the fourth quarter of 2019.
Looking forward, we have some partial results for a small number of our operators for January and February and like the public company hospitals that have already reported our operators saw a softer January and February from a utilization standpoint.
Its been primarily due to the harsh winter storms in that time period, and the very light flu season, and the world has seen.
We are hearing and getting reports that the numbers are back up in March.
On the acquisition front as we mentioned on last quarter's call 2021 started off with a great momentum with our announced 800 million pounds Priory acquisition, which significantly expands our president in the behavioral health space with a leading behavioral health provider in the U K.
So during the first quarter of 2021, we continue to expand our relationship with our hospital operator in Switzerland, The Swiss medical network with an additional investment of approximately $158 million.
You May recall Swiss medical network is the second largest private operator in Switzerland, We started our relationship with the Swiss medical in early 2019.
Since that time, we've executed multiple accretive transactions, bringing our total investment in the Swiss organizations to one $3 billion.
We've also increased our investment in steward by an additional 335 million investment, which provides strong returns and additional opportunities with steward.
Since the beginning of 2020, we have successfully executed approximately $5 billion and transactions.
Our active pipeline not only continues to be strong but continues to grow well.
We expect to be able to make some additional exciting announcements late in the first half of this year and early part of the second half.
During 2020, we added approximately 35 people to our corporate team, we have expanded our offices in Australia and Luxembourg. We're in the process of moving our offices in New York to a new location, where we can add more staff there we.
We also expect to staff and office in London with people, who are currently in Luxembourg.
We have worked very well, mostly remote for a little over a year now a birmingham offices have been revamped and we're ready to bring everyone back as soon as it's safe and prudent to do so we.
We are well positioned to handle not only the remarkable growth we've had over recent years, including 2020, but also the growth we expect in 2021 and beyond.
I will now ask Steve to go through some specific financial reviews before we open it up to questions Steve.
Thank you at this.
This morning, we reported normalized <unk> per BOE, a 42 cents per diluted share for the first quarter of 2021.
And a half per cent increase versus last year's first quarter result.
And this comes on top of the 21% annual <unk> growth for calendar 2020, and even before we begin to fully recognize the contractual eight 6% GAAP lease yield on the recently closed primary transactions.
And before any additional 2021 acquisitions.
And by the way. It is notable that a F. F. O grew at a similar rate. This provides for continued capacity to increase our dividend as we did last quarter.
As a reminder, our run rate guidance of $1 72 to $1 76 is an estimate of the expected annual F. F O four hour in place assets plus other assets that are under development or a binding agreement to acquire <unk>.
Taking simply four times. This morning, <unk> 42 per share would yield an annualized $1 69 per share obviously within a few pennies of the run rate guidance. There are a handful of items that are included in our run rate that were not yet reflected in the first quarter as actual results and vice versa. These include.
First the 800 million pound real estate loan that we funded to close our purchase of the Priory group is to be replaced with sale leaseback arrangements on 35 high value behavioral hospital facilities.
When this is completed which we continue to expect during the second quarter. We will begin recognizing lease revenue at that higher rate than the current interest rate on the existing real estate loans.
Second we are in the process of developing two inpatient rehabilitation hospitals that are pre leased to earn his tail pursuant to a master lease.
As of certain points and construction expected by this time next year, we will begin recognizing lease revenue from these projects and also from from other projects that are under development.
Third in conjunction with our primary investment and in addition to the 800 million pound real estate loans, we made a 250 million dollar loans that we expect to be repaid. This year, we recognized interest on the loan in the first quarter, but such interest is not included in our run rate F. F O.
When the impact of these adjustments is combined along with the expected further impact of deleveraging transactions. We are highly confident to reaffirm our most recent run rate guidance of between $1 72, and $1 76 per diluted share.
There are a couple of additional items that deserve mention even though their impact is not included in SFO.
Our press release and Ed's comments. This morning mentioned are very attracted up attractive opportunities. We have created for increased investment in the operations of several of our tenants as part of those and similar investments. We received during the first quarter of distribution of $11 million from Stuart.
<unk> two since the share for accounting purposes, though this is treated as a return of capital but to be clear. It was a cash receipt and the result of stewards ongoing and increasing success.
Second as usual we do not include in F. F O. The fluctuations in the fair market value of our investment in the publicly traded securities of EBIT.
The Swiss parent of our tenant Swiss medical network, but for the quarter, we recognize a gain in this investment of $4 $1 million.
I'll move on to an update on our current and near term financial position and capital availability.
After completing our $711 million of equity issuance in January we issued 850 million pounds of senior notes in the pound Sterling market to permanently fund our prior reinvestment at fixed rates.
The 2.9% weighted average interest rate on the Sterling notes with maturities in 2026, and 2030 is highly attractive and assures a highly favorable spread compared to the eight 6% yield in the sale leaseback of the 35 priory, but behavioral facilities as well as the very important natural.
Currency hedging benefits.
As part of the January equity offering or ATM was necessarily inactive until early March but during the following six weeks, we issued about 8 million shares for $173 million in net proceeds at an average price of $21 72.
There are at least two important things to note about that.
First based on the program being active for only half a quarter. It indicates capacity in the market for a quarterly run rate of at least $350 million.
Which would provide to us a very meaningful source of lower cost common equity and second the all in per share proceeds to us under the ATM were approximately 11% higher than what we received through the January offering.
We have ample liquidity available to meet any expected near term funding needs, including $1 $7 billion in cash and revolving line of credit capacity and more than $400 million remains available on our ATM.
In addition, with a very well covered dividend to a F. F O payout ratio and that ratio was even stronger considering that we'd not did not include N. A F O the $11 million and Stuart distributions.
We expect free cash flow from operations in excess of our dividend will approach $200 million plus.
Plus we also expect approx approximately $550 million in dispositions and loan repayments in 2021, including the 250 million pound priority short term loans that we have discussed.
Global demand for investment opportunities in hospital real estate continues to grow, particularly from sovereign funds public and private pension funds infrastructure investors and other sources of private institutional capital.
Because of the speed at which we're able to underwrite complex hospital real estate transactions the amount of funding that we can deploy on short notice and our reputation for mutually beneficial relationships with tenants. We have a very strong competitive advantage to attracting this type of highly efficient capital.
We continue to evaluate several options, but given the resources available to us that I've. Just described we have the luxury of being very selective insofar as both the portfolio of assets, we may contribute and are potential partners.
To summarize our liquidity and capital positions, we are very comfortable with our ability to address a significant amount of near term new investments.
Before turning to questions I'll briefly review, our first quarter investment activity that aggregated about one $6 billion.
Of course, we had previously discussed at length, our $1 1 billion dollar investment and priority real estate and if questions remain about that transaction I'll be happy to address them shortly.
And as Ed mentioned, we also made a few non real estate investments immaterial in the aggregate in certain operators, including Swiss Medical network Priory group and Stuart.
These investments reflect attractively priced opportunities to supplement our real estate returns further align us strategically with our tenants provide incremental insight and influence over real estate decisions and in some cases participate and potential increases in attendance value.
And again to reiterate ed's comments, the nature quality geography, and diversity of the projects. We are currently underwriting habits very enthusiastic about further accretive growth in 2021.
Of course, there is no assurance that we will ultimately succeed in acquiring all of the facilities that we are now underwriting and that is especially true given the growing competition for hospital real estate that I mentioned earlier.
With that we'll turn the call back over to the operator for questions.
As a reminder to ask a question you will need to press star one on your telephone.
Preston.
Thank you.
Good day roster.
Your first question is from Sarah Tan.
J P Morgan.
Hi, Thanks, so much for taking my call just one question on that day.
$8 million a loan that was extended tenants can wait could you talk a bit about them for the long term plan for that and in Asia.
Pulling down the road there.
Hey, Sir how are you this morning.
Hi.
The loans the investment that we've made.
On both <unk> and <unk>.
With medical network as part of our original business plan. So for those of you who've been with us.
At the beginning of time, you'll know that we have done. This a lot. We have had the opportunity to take advantage of our healthcare knowledge from our view will know that not background is actually in hospitals.
When we put the company together most of the people that we are at.
Backgrounds in hospital, but from.
Time to time, but we had the opportunity to make these types of investments and we have and will continue to do so where we've made these investments in the past they have been highly successful.
Probably our very first and biggest investment with aren't as healthcare.
We earn day, a tremendous return on that for the next largest one would've been propeller health again, which propelled us into our relationship with light point and Apollo again, a fantastic return.
In addition to that we have equity investments in the tenants such as media and our German <unk>.
Operator.
Doing these types of investments continues to provide us with additional avenue to make the real estate investment and align our answer to the same place as our tenant.
This is a long term investment that we've made with food, we think it's a wonderful opportunity.
We are excited to have this potential opportunity. It's also an opportunity we weren't necessarily expecting board with medical group, but glad it came along and I think it just further strengthens our position with that particular, operator, so nothing new here from the standpoint of our business plan part of the original business model.
Things that Youll continue to see we continue to grow.
Sure. Thanks, so much for that just one follow up on that question I like what's that got to tell.
So could you tell us more about yes.
I guess could you give some more color on what's out there right.
What share extending that.
The rate is a nominally profitable right for us the the goal of the investment is not necessarily.
To earn a high profit interest rate as Ed has just described what it does is better align us with with the steward strategies with growth opportunities and in this particular case it it gives us additional opportunities to participate in any value increase.
Stuart.
Okay. Thank you that's all from me. Thank you so much.
Your next question is from Steven Valiquette with Barclays.
Great. Thanks, good morning, everybody good.
Good morning, each day. So you know one time, hey, good morning, So one common theme that we've seen across some of the publicly traded hospital operators recently is that a higher acuity patient mix is more than offsetting the admission declines relative to the pre COVID-19 baseline that we're actually seeing EBITDA upside from a lot of the operators on the on the public side.
If you're able just to speak high level, whether you're seeing any similar trends or feedback from some of the private operators in the U S. Now so is that a trend that might be somewhat prevalent among international operators and as a quick follow on sort of a similar question do you have any sense, whether or not treatment of COVID-19 patients as more profitable on average versus non COVID-19.
That was funded from debate around that and what you want to opine on that or if you want to just hold off I'm, sorry, I'll just throw that question out there as well thanks.
Thanks, David and I are absolutely I'll address those so we are indeed seeing with our operators the higher acuity levels and thus the higher profitability I've discussed in some of the past earnings calls one of the things that has not come back for antibody is things like the E. R.
Admissions or visits to the E. R. Theres still hovering around 69 70 per cent of what they were in 2019, but that's actually a good thing as we all know way too many people come to the R. And you don't get as many admissions from those types of patients as you do today today with higher acuity levels that are coming.
There you see a lot higher percentage of admissions from from the ER same thing with the surgeries and other procedures are what's being done are primarily the higher acuity levels as I mentioned on the last two earnings calls our operators were able or force to during the height of COVID-19 in the early days too.
To really tightened their belts on the expense side. They continue to be able to do that so you're seeing an overall profit margin higher than what it was previously with somewhat lower.
Utilization levels now most of the utilization levels and our operators today or essentially back where they were in 2019 with the exception of the ER visits, but but the answer that you've seen in the last two or three publicly reporting companies is exactly what we're seeing in our companies as well it's slightly.
And internationally, they probably are seeing a higher utilization volume than what we're seeing in the U S. A.
But you're still saying because of the tightening of the belt and some of the ways that the foreign governments handled their payment to hospitals, which is where they generally handled the payment of the staff and the workforce.
Still seeing a higher profit margins there as well so all in all our all the way across the globe are our operators are in very strong positions.
COVID-19, Okay, great that's helpful too.
Okay.
Let me answer your question about the COVID-19 profitability or not is not highly profitable area. We I think everybody would just assume that the COVID-19 patients go away, but they are certainly not losing money at this point all the COVID-19 patients.
Got it okay, alright, great. Thanks.
Your next question is from Jordan Saddler with Keybanc capital markets.
Reported on the line from Jordan I, just wanted to ask about the expansion into New York with the New office lease you could provide some more color on your thought process there.
And maybe what percentage of your employee base could be based in New York and also any color on the pipeline from the deals youre seeing in the market would be appreciated. Thanks.
So we've had an office in New York for a long time, we have space that I think the date with somewhere around right. After the financial crisis. I think is when we entered into this particular lease we're committed to New York. We think it's very important to have a presence there, particularly with some of our act.
<unk> team.
We have.
Co overall corporate staff of about 130 people in the New York Office well. We currently have about six people I believe and with the new office space will probably be able to more.
More than double that but in the near future, we'll probably get that number up to around 10 people. So it's not a large percentage of our overall staff, but we do think it's important to have an office there and we had the opportunity to upgrade the office space to expand the office space is it's very similar to location.
Where we are now and are excited to have it being put together in the near future.
Yeah.
Oh.
If you repeat your question about the pipeline.
Yeah.
Yeah. If you could just provide any color on pipeline and what youre seeing in the market.
Sure. So so almost all of the pipeline continues to be general acute care hospitals.
It's probably split 50, 50 internationally and in the U S. What where have most the near term as you are U S acquisitions and that is almost exclusively and.
In general acute care hospitals, we are seeing some movement in the U S in the behavioral health.
As we all know that market is still very very fragmented we do see some additional opportunities in the inpatient rehabilitation segment, but even that it's just a small number it won't move the needle from that standpoint, but.
That's where most of the acquisitions are right now.
Thank you.
Your final question is from Michael Carroll with RBC capital markets.
Yeah. Thanks, Steve can you explain how the Super alone will help MPW profit on the potential upside of that operator, I mean is this a straight loan or is there some type of equity component tied to it too.
No there is no equity, but there are opportunities other than a direct equity too.
Two over time recognize opportunities too.
To capture value increase that.
The details are.
We are not going to be disclosed.
Okay, and then I guess can you talk about the reasoning for this one I think you said it was it was planned I mean, it was it just simply to take out the <unk> funding and does that allow all Stuart to operating any differently today or did those big control will change. This occurred when that convert was originally issued in I guess the middle of last year.
It's a good it's a good question Mike It does remove some prohibitions that the former PE sponsor had.
Do allow steward more freedom to two two.
Grow and also create the kind of value increase that we've just been talking about in and specifically Ah Stewart had a tremendous amount of liquidity.
And and equity value available that found its way to us by virtue of that $11 million distribution. We commented on that that would not have been possible under the prior structure.
Mike Let me, let me add with with the prior equity sponsor out it is truly a physician owned.
The company now with approximately 600 positions involved the thinking process is obviously much more long term and much more aligned to the thought process with MPT.
Okay that makes sense and I guess on the dividend I guess now that I guess they are allowed to issue a dividend should we view that as more of a onetime type of occurrence or is that going to be more reoccurring down the road.
Quarterly or annually annual type basis.
No I don't think you should expect any.
Any predictable periodic distributions there they're there.
You know if things go very well as we hope then there will be further distributions as as conditions.
You know kind of mandate, but no don't don't build that into some model that you know we will be expecting X amount of every six quarters or anything like that.
Okay, and then I guess, just finally can you talk a little bit of bounce the joint ventures. I mean are those still in under discussion right now are in potentially plan from the back half of this year I guess, how should we think about that.
So we have no timing.
And then to answer the first part of your question, Yes, we continue to discuss various as I mentioned in my remarks, various different portfolios that.
They could be dropped into joint venture at the same time having.
Having direct discussions with with multiple potential partners.
We do feel again as I mentioned that we had the luxury of time.
We have nothing pressing that would make us have to do something and the market just continues to get better in our view.
So so yes, we continue to have discussions and we have nothing new to announce specifically.
But.
But we do see this as a very attractive way to access very efficient capital for us.
Okay.
As COVID-19 slowed those discussions down at all or is this really just driven by MPW I'm just trying to think of the right time I guess for you guys to be able to do something like that.
COVID-19 has really had no impact on it.
Okay, great. Thank you.
There are no further questions at this time I'll turn the call back over to Mr. Ed.
Closing remarks.
Thank you Erica and again, thank all of you for listening in today, we remain very bullish on MPT excited about the remaining part of 2021 and the future ahead do you have any additional questions. Please don't hesitate to reach out to us and we'll be glad to get back with you. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
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