Q3 2021 Medical Properties Trust Inc Earnings Call

October 28, 2021

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 met Medical properties Trust earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer says.

To ask a question during the session you will 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 turn the conference over to your host today Charles Lambert. Thank you. Please go ahead.

Thank you.

Good morning, and welcome to the medical properties Trust conference call to discuss our third quarter 2021 financial results.

With me today are Edward K, all that 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 of a copy it is available on our website at medical properties Trust's 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.

These forward looking statements are subject to known and unknown risks uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for 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 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 All day.

Thank you Charles and thank all of you for listening in today for our third quarter 2021 earnings call. During the month of September we made two announcements that are significant milestones for MPT, Steve will go over each of these in detail in a few moments, but it is important for me to put them in context.

The first one was a partnership with Macquarie infrastructure Partners 548, Stewart hospitals in Massachusetts.

These transactions alone reflect a number of very strong points.

MPT is always referred to and thought of our hospitals is important part of any communities infrastructure.

As part of our underwriting we investigate the importance of each facility to that specific community.

As most of you know Macquarie is one of the world's leading infrastructure investors.

To believe the premise that most hospitals are an important part of our community is infrastructure.

Macquarie research the world's leading experts in hospital investing they turned to MPT in the words of one of their executives MPT is the clear leader in there really isn't a number two.

When we purchased the Massachusetts hospitals five years ago. The cap rate on these leases was in the mid 7% range and has escalated since then the.

The value of these hospitals that we agreed with Macquarie was based on a market cap rate in the mid 5% range, reflecting our unique underwriting expertise stewards operating skills and a market for hospital real estate that is rapidly attracting sophisticated private investors.

These conditions establish a whole new value for our entire portfolio not just the Massachusetts hospitals.

We are excited about this relationship with Macquarie and we hope to be able to grow it together and while we're not making any additional announcements today. We are encouraged about opportunities we have seen for similar relationships with other institutional investors and other markets.

The next announcement is the pending acquisition by HCA and the operations of the Stewart, Utah hospitals.

Stewart acquired these hospitals and in MPT financed acquisition as a part of its acquisition of <unk> in 2017 over the last four years Stewart has done an outstanding job of growing the top and bottom lines for these facilities.

As a part of its transaction with Steward HCA has agreed to enter into a new master lease with MPT for these facilities paying the same rent and annual escalators for the real estate as Stuart is currently paying.

Like the Macquarie transaction. This transaction provided reinforcement of the value of MPT is real estate by sophisticated third parties, along with the validation of the strong performance of the Stewart hospitals.

Upon the closing of these two transactions steward's concentration for MPT will have been reduced to approximately 18%.

More importantly, no standalone steward regional market will represent more than 6% and no single steward operated property will represent more than 2% of our pro forma assets.

Our largest single investment approximating 3% of our assets will then be operated by HCA.

In 2019, the last year before the pandemic MPT is acquisitions totaled approximately $4 $5 billion in 2020 during the heart of the pandemic MPT the acquisitions totaled approximately $3 6 billion and year to date in 2021, we have acquired approximately.

$3 7 billion of additional investments.

We have done this with the strategic use of JV capital common equity through underwritten offerings in the ATM selective dispositions bonds received from opportunistic debt repayments to MPT debt offerings with historic low interest rates and retention of earnings by the virtue of a very prudent a F F O.

Our dividend payout ratio.

We continue to have a robust pipeline that we will execute selectively while effectively usual utilizing the most efficient sources of capital.

Before speaking to the operating performance I'd like to mention a special award that speaks to the importance MPT places one corporate culture as.

As we announced in late September MPT ranked as the fifth best place to work for millennials. According to modern Healthcare's Best places to work 2021.

This was based on an employee survey conducted by an independent third party in which our overall employee engagement score of 98% was recorded and then which particularly strong marks related to employee satisfaction and confidence in management were communicated by our employees across the board.

Our most important asset is our people and we are proud that our employee base is satisfied across multiple measures of our internal social responsibility.

MPT has grown over the years, we have attempted to show the performance of our portfolio in a number of ways.

Many years back we instituted our same store analysis, we were growing so fast in our total assets were much smaller than they are now this approach made more sense.

It was structured to show performance without undue influence from the newly acquired facilities as we have gotten much larger both in terms of total assets in dollars and a number of facilities. The accumulation of additional properties in any one period no longer creates the spikes up or down.

That could be misleading.

We have therefore decided from this point forward that we will report total portfolio without regard to wind facilities are acquired.

But these statistics will still exclude facilities were.

A no detailed the individual hospital operating statistics are required under the lease and it is important to point out that each of these leases do provide overall information on the parent company or aggregated hospital performance. This can include leases, we inherited or master leases guaranteed or master or guarantee.

Leases with investment grade tenants, such as UC health, Ochsner, Ramsay and a few others.

There are approximately 80 facilities in this category or B are facilities that are so new to our portfolio, they're reporting requirements have not yet begun like priory and spring store. There are approximately 70 facilities in this category.

C facilities that are under development. There are currently only two facilities into this category.

Our tenants results for the past 12 months are very strong. These results include the brands, but not the advances that were received by our hospital operators.

For the past 12 months.

The acute care hospital portfolio generated an EBITDAR coverage of slightly more than three times the <unk>.

<unk> segment generated an EBITDAR coverage of more than three and a quarter times and the earth coverage for the trailing 12 months was approximately $2 one five times.

Now some specific updates on our some of our largest operators.

Our goal, which represents 11% of our portfolio continues to show strong coverages their coverages for the second quarter in 2021 was substantially more than it was in the fourth quarter of 2020, which was also a strong quarter.

<unk> continues to have a strong liquidity position and as a reminder, the American insurance company, Centene, which already own interest in circle is now the 100% owner of circle.

Ernest which represents 3% of our portfolio continues to perform at the very top of the market.

Their coverages for both their arps and <unk> are approaching three times like circle, they too have a very strong liquidity position.

Scope, which represents 5% of our portfolio is seeing some of its best EBITDAR coverages since our acquisition of these facilities in June of 2019.

Life point, which represents 5% of our portfolio continues to outperform their EBITDAR coverages continue to be one of the highest in our portfolio and grew significantly from the first quarter to the second quarter on a trailing 12 month basis.

<unk> has a very strong liquidity position and as a side note for life point. Some of you may have seen their announcement. This week that after the kindred acquisition like point will split into splitting the company into two separate companies. We will have facilities with both companies and we've worked very close with life.

To ensure that MPT will retain its strong position within both of these companies.

Median which represents 5% of our portfolio continues its rock steady performance median performed superbly throughout the pandemic and continues along that path today.

Our liquidity position also remains very strong.

Prime which represents 5% of our portfolio continues its stellar performance their EBITDAR coverage is at the very top of our portfolio.

<unk> is one of the strongest liquidity positions of any of our operators.

On a very important additional note St. Michael's hospital in Newark, New Jersey operated by Prime Healthcare was rated the number two most socially responsible hospital in America, but loan Institute hospitals index based on measures related to help outcomes value and equity.

In addition to prime itself being ranked as the fifth most socially responsible hospital operator in the U S. We are proud of what our facilities and our operators means that the community sites are.

Priory, which represents 5% of our portfolio reported their operations continue to improve from 2020.

They have experienced some labor issues at a few of their locations, but it is not a company wide issue. Our underwriting showed a 2020 EBITDA coverage of approximately two times management reports, thus far indicated a coverage for 2021 generally in line with this number will begin.

Getting detailed reports from priory and the near future.

Aspect, which reports, which represents 7% of our portfolio is showing its best EBITDAR coverage to date their liquidity to remains very strong.

<unk>, which pro forma represents 8% of our portfolio is generating its strongest EBITDAR coverages to date well in excess of two five times.

I would also like to point out Steward received recognition for ranking first in membership tied for first in quality and earned the second highest shared savings payout of 513 participants and the CMS Medicare shared savings program as the nation's largest physician led.

Health care network, an accountable care organization steward generated more than $68 million and totaled 2020, Medicare cost savings, while receiving a perfect 100% quality rating amid the challenging challenges of the COVID-19 global pandemic.

All across the board our operators continued to perform with outstanding results.

And some general news regarding operations across our various regions are domestic operators saw volumes rebound in the first half of 2022 2019 numbers.

And Europe private hospital systems are increasingly viewed as solutions for backlogs of elected procedures caused by the pandemic patient volumes continued to normalize there as operations continue to perform well in.

In Australia, 70% of eligible citizens are now fully vaccinated triggering phase two of Australian reopening most of Australia are expected to be fully opened by the end of this year. Most hospitals are currently operating at normal levels in Colombia occupancy rates remain high and surgeries.

They have increased substantially over the last several months the moratorium on high complexity and elective surgeries in Bogota ended in July.

At this time I'll ask Steve to go over the details of our financial results Steve.

Thank you Ed. This morning, we reported normalized <unk> of <unk> 44 per diluted share for the third quarter of 2021, along with adjusted <unk> per share of <unk> 34.

From the end of 2019 through 2021 year to date MPT is among a very small handful of large cap reach that continue to deliver double digit growth on a per share basis.

When considered along with our low 80% <unk> payout ratio, our access to abundant attractively priced capital and growing acquisition opportunities in virtually all of our markets MPT offers near and long term immediately accretive asset revenue and did.

The demand growth that is not available for most regions.

And that's exactly what the activities of the third quarter, So abundantly demonstrated.

Before I discuss these activities I will point out a few minor items that impacted our reported results.

First as is the case every quarter, we recognized a change in the market value of our investment in the securities of <unk>, the parent of our tenant Swiss medical network and $800000 gain for this quarter.

We wrote off $3 $6 million in straight line rent and other costs related to properties that were sold during the quarter for an aggregate of about $42 million. Aside from these routine reporting adjustments, we realized gains on these transactions of about $9 3 million.

As we have previously explained.

GAAP requires us to present as NPT expenses certain costs, even though they are contractual obligations of and we are reimbursed by our tenants. These charges amounted to approximately $4 million for the quarter and we included this amount in property related expenses and offsetting.

New of a similar amount in our income statement.

Finally, again as required by GAAP, we have reclassified the book value of the Massachusetts hospitals that are pending contribution to our joint venture with Macquarie to real estate held for sale on the balance sheet.

So beginning with the July completion of our five hospital 900 million dollar expansion into South, Florida, I'll highlight the near and long term importance of our recent transactions, which for the most part we have previously announced.

The primary appeal of the South Florida hospitals is their long standing historical and future importance to very densely populated in growing communities with significant barriers to new development and alternative health care facilities looking.

Looking forward, we are excited about stewards plans to raise the bar for care in these facilities and improve their financial results to position them for long term success in.

Importantly, as part of our agreements with steward concerning these hospitals steward made early elections to extend our master lease agreement for all Stewart hospitals by 10 years to the year 2041.

It is important to view this exciting new acquisition in conjunction with the $1 $78 billion, Massachusetts joint venture with Macquarie and the $1 2 billion HCA re tenanted Steward, Utah hospitals.

Upon completion of these transactions and completion is not assured MPT will have access to approximately $1 $3 billion and.

And attractively priced capital.

Great Lee diversified its tenant mixed introduced HCA as a top five tenant in the MPT portfolio of World Class Hospital operators.

<unk> Accretively recycled JV proceeds into these irreplaceable hospital facilities in the country seventh largest metropolitan area.

I'll take a few minutes to review details of these two track transactions and I'll be happy to take questions in just a few minutes.

On September one we announced an agreement by which a 50 50 partnership formed with the subsidiary of Macquarie infrastructure Partners will purchase from MPT eight, Massachusetts based general acute hospitals operated by steward for approximately $1 $7 8 billion.

This is a portfolio that from being on the verge of closing in 2010 is now a coherent network of award winning hospitals that has proven remarkably resilient and its delivery of care and its financial performance throughout our period of investment.

MPT recognized in its underwriting prior to our initial investment in 2016 that the community served truly dependent on these particular hospitals and that stewards operating model was likely to drive substantial value creation.

And five years later after a substantial independent diligence process Macquarie recognize this same dynamic both in terms of the value of the real estate and in what Stuart has created.

Coincidentally and later in September we announced an agreement to lease five hospitals in Utah currently operated by Steward to HCA healthcare upon the closing of stewards related to planned sale to HCA of the hospitals operations.

In a manner similar to MPT is investment in the Massachusetts hospitals in 2017, we underwrote these utah hospitals to their full potential in the context of stewards model actual cash flow not only created strong rent coverage, but facilitated MPT has ability to refinance its initial <unk>.

Mortgage loan investment with a larger and much preferable sale leaseback structure reflective of full market real estate value without compromising coverage.

Fast forward to today HCA healthcare one of the Premier Hospital operators in the World has agreed to rental payments and purchase obligations that validate the real estate values that MPT previously underwrote.

Just a relevant reminder.

Since 2016, we have underwritten and invested $4 $4 billion 40 hospitals lease to steward in six major and independent market areas.

Over that period, we have been paid more than $1 $2 billion in rent and interest and our shareholders have been rewarded with growing dividends and share value.

Size credit characteristics and market diversification of this assembled portfolio is what allowed us during the third quarter to orchestrate the tremendous value enhancement represented by the Massachusetts in Utah transactions and the recycling into the Florida hospitals.

<unk> our purpose built behavioral hospitals in carefully selected communities and very well run a unique portfolio that we had been observing for several years, we also invested $190 million to own a 49% interest in the operator.

Similar but infrequent op co investments we have made in the past have been extraordinarily successful.

Because the level of investment is typically relatively small the benefits or sometimes more about having competitive advantage advantages in a process being run to sell an operator, whose assets are heavily weighted toward hospital real estate than simply a nominal return Nonetheless, our results are almost uniformly straw.

Normally profitable.

Many of you will remember our double digit IRR from Ernest Health Capello, now life point and others and just this month, we realize similar returns from the sale of our equity interest in median clinic and separately in German acute care, operator <unk> clinics.

While our investment in these operators were not material amount, we realized very attractive gains more importantly, only because we were willing to underwrite and make these investments years ago, where we in a position to then acquire more than $1 5 billion euros and high quality hospital.

Real estate that we still own.

When it comes to our investments and steward is with medical among others and now spring stone, which collectively represent a very small percentage of our overall investment base, we gain a great deal of alignment in inside but an expectation for future capital gain is always part of our equation.

I should also mention that we closed in late October on an 18 million Euro cancer treatment Center in Portugal leased to an affiliate of <unk> health.

This complements our inaugural investment in Portugal in late 2019 and adds to our foothold in that nation growing private health care market.

And we remain active in an enthusiastic about continental Europe, the United Kingdom, Australia, and South America.

Finally, I will comment on both our current and pro forma balance sheets.

Funding for the Steward, South, Florida, and spring stone investments with sourced with a combination of existing cash as well as short term borrowing resources, including a $1 billion of interim line of credit.

Which we expect will be repaid in full upon completion of the announced Macquarie partnership.

The resulting net debt to EBITDA ratio, taking all of this into account is expected to be six three times.

As we think about this ratio relative to our historical five to six times range, which has not changed we remind investors that more than half of our investing activity. Since the end of 2018 has been outside of the U S.

And that in order to cost efficiently and naturally hedge most of our related currency exposure and to take advantage of very attractive international debt markets.

We have funded more than 75% of these international investments with non U S. Dollar long term unsecured debt at low rates.

As is evidenced by our recent 500 million euro unsecured notes offering at a coupon of less than 1%.

Because of this and with no detriment to current liquidity, our net debt to EBITDA has temporarily and predictably fluctuated to levels outside our long term target.

Acquisitions in 2021 have been more heavily weighted to high quality U S facilities for which our history has generally been heavier use of equity funding.

So we expect to see continued reduction in our leverage ratio.

But in Stark contrast to prior years were follow on equity with sometimes the only way to accomplish this we now have more flexibility today with a vibrant and growing direct investment market for infrastructure like hospitals with our ATM use with the $22 billion balance sheet that provides.

Attunity for selective property sales.

And with earnings retained over and above our low <unk> payout ratio.

As a reminder, our run rate guidance of $1 81 to $1 85 per diluted share is an estimate of the expected annual SFO for our in place assets as of today.

Plus other assets that are either under development or subject to bonding acquisition agreements that are obviously not included in third quarter results.

These items in addition to the impact of the announced Macquarie partnership and additional assumptions assumptions related to reducing leverage to near six times underpin our current guidance range beyond this we assume no other investments or capital markets transactions and we'll plan to update the market in the future as.

They are term.

The bedrock of our history of total shareholder return outperformance is the compounded effect of a well covered dividend as well as growth in per share cash earnings all within certain self imposed in long term parameters that keep our leverage very much in line with other healthcare Reits.

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

At this time, if you'd like to ask a question. Please press star one on your telephone again Thats star one to ask a question.

Okay.

Your first question comes from Jonathan Hughes with Raymond James.

Hey, good morning, Thanks for the time.

Good morning.

I know you are limited a bit and what you can.

Can say could you share some some high level commentary on the soon to be HCA, Utah facilities and the option for you to sell them to HCA.

Those effectively become like an ATM vehicle.

And for some reason the future of the public market doesn't provide you with an attractive and appropriate cost of equity capital you can sell those to HCA to generate capital capital for other investments.

So that's a very good for perspective and.

It actually is the way if we were to so the lag that it could work.

I think in our announcement, we actually disclosed.

Our put option that we have we haven't we haven't disclosed the total.

Total details of it but to add at a minimum.

That we can put the properties to HCA at no less than fair value. There is actually a floor that were unable to to disclose but it's a very attractive option for us and provides us the liquidity flexibility that you've just described.

Okay.

Assume that put option here.

It's a unique feature to this because you don't have meaningful equity stake in the operator like some of the other larger relationships you have.

Well to put option is not normally something we have in our leases I am not sure thats necessarily related to.

Less than 10% equity stakes in certain of our operators, but youre absolutely correct in that it is.

It's something of a unique feature.

Okay.

And then one more for me looking at the other funding sources the debt side.

Your run rate net debt to EBITDA assumes six turns.

Since the pandemic and some recent actions proved your underwriting.

As well as the stability and safety of hospitals and Steve I realize you did talk about the leverage target in your prepared remarks, but have you considered running leverage maybe a little higher like closer to seven turns.

It does seem like your hospitals could handle it you can raise international head at pretty low rates. So it just seems like an interesting way to lower your overall cost of capital.

And drive further accretion from investments.

To hear your thoughts on that front.

Yes, so again, it's a fair observation I mean, it's just arithmetic from from that perspective at this point, though in.

For the long term future.

We will retain that five to six times target and there are good reasons for that we are still growing very rapidly we want to be able to react quickly.

Two two potential acquisitions, sometimes these are very large acquisitions and if we're already running up towards the top of what is what is a prudent leverage range and sometimes we don't have the flexibility to react quickly. So that's just one reason why why we think the five to six times.

Times range is appropriate.

There is we are we are a public company.

There is a calculus I'm not sure it can be precisely.

Express, but there is a calculus between share value and leverage and we think.

Another reason for that five to six times is.

That's probably the the fulcrum for for keeping our equity valuation at a point, where we think is appropriate.

Yes.

Okay, well I appreciate the color and thanks for the time.

Your next question comes from Jordan, Saddler, with Keybanc capital markets.

Hey, This is Arthur Florida on for Jordan.

My first question is on the investment pipeline.

<unk>.

If you could just provide some color on the geography.

Thank you.

The overall scale of the pipeline.

Sure.

<unk> remains extremely strong we continue to work the pipeline and the.

$3 billion to $5 billion range that doesn't mean, we have $3 billion to $5 billion of acquisitions to make but it's an active pipeline, but having said that we haven't given any sort of indications of what we think will close for the remainder of the year. We've done three 7 billion. So far this year.

Very happy with where we are right now the vast majority of that property of that pipeline is general acute care hospitals is located all throughout our existing markets. We've got some additional things that we know that we're working on with some of our existing operators that will certainly come to <unk>.

<unk> in the next couple of quarters. So that's that's where we are right now.

Great. Thanks.

I just have a follow up question.

Lease escalators.

New leases are typically tied to.

Escalators.

Please quantify the size of the increase.

You might expect to see in 2022.

Great. Thanks.

They are roughly half of the properties have some sort of collar with a minimum floor in a maximum both CPI and then the rest of them are essentially unlimited CPR. So obviously, it'll it'll depend where inflation ends up.

And it will.

Whatever it is.

We'll probably be probably be within the cap the collar for the 50% so somewhere in the range of actual CPR.

Alright, Thanks, a lot Ed.

Your next question comes from Mike Mueller with Jpmorgan.

Yes, hi.

He said the proceeds weren't all that material from the German operator sales, but can you give us just a ballpark rough range of what what's the amount of proceeds.

It's really immaterial.

I mean, just in a range, we're talking less than 20 million euros.

Got it Okay, and then thinking about the Macquarie transaction with steward that JV, how close if were thinking about what the next bidder was relative to the five six cap cash rate can you give us a sense as to.

How close number two came to number one.

It was a very competitive process.

There were multiple indications of interest.

We're not able to rank them publicly of course, but.

Had we not.

Come to an agreement quickly with Macquarie.

We would have had alternatives.

Some of the offers or some of the interested parties.

<unk> and below but it was the relationship at R. R.

Sure.

Fault that Macquarie would move very quickly and work well with us.

Got it okay.

That was it thank you.

Your next question comes from John Pawlowski with Green Street.

Great. Thanks for taking the question maybe just a few follow up questions on the state of the transaction market following the Macquarie deal.

Cap rates seem to be compressing across real estate with anything with a durable cash flow profile. So curious. These next few years, where you think you'll have to be acquiring assets on a one off basis, given the state of the transaction market.

Well.

A great question that I, certainly can't answer with any precision other than to point to the most the most recent history and that as we continue to be able to make acquisitions at very attractive cap rates.

Certainly significantly above the valuation that we got on the on the Massachusetts transaction and and.

The last big joint venture, we did with <unk> in Germany, we continue to be able to harvest. These these gains part of that is because.

Sure.

We are where the foundation of this market, we don't have a lot of competition, that's growing as more and more.

Investors and investment managers the opportunities here, but we still are able to to acquire to assemble to two to season, a portfolio and then take it to.

Take it to the market selectively as we've done.

Okay great.

And just so I understand the nature of the bidding tends to your point you are a big player or often be player in the market.

Deals you'd like to acquire that year in quality criteria for just general acute care hospitals.

And you bid on what percentage of the deals do you lose and what <unk>.

Rare instances, where that type of entities that can outbid you.

Well that's a good question, we rarely lose deals that we want.

The most.

Recent and it has been and that's not very recent would be European transaction and a specific country, where the investor was a local investor that was willing to pay substantially more than we were willing to pay with some government funding involved in their access as well.

So we truly very very seldom lose a transaction that we won't.

And it's not it's not it's not just it's not just on price.

All of our knowledge of hospitals and the operators.

Very excited and interested in working with someone that actually understand their business.

Okay understood. Thank you for the time.

Yeah.

Your next question comes from Joshua Lane.

With bank of America.

Yes, hey, everyone.

Good day.

I guess kind of two follow ups here one of them the equation Brian.

I just wanted to double check which.

CPI index should we watch as a total CPI is it like a specialty index related to health care.

And then also what's kind of the lag for when.

The increase in equation would flow through your financials or leases.

So it's total CPR and the vast majority of our leases all readjusted. The first of the year. So you would see the rent increases in January.

Okay, Okay, great and then on the.

HCA transaction I wanted to follow up on that put option and I believe they also have the right to.

By the assets back from you.

<unk>.

Is that something we should expect more of and future acquisitions or is this kind of unique to HCA transaction.

No.

That's contrary to what I said about our put option that is relatively common to have a.

Some type of preemptive option at the end of the lease term, where an operator can assure itself that at the end of the lease term that operator is not going to lose its hospital, because obviously hospitals. They can't just pick up and move down the street licenses are specific to.

Specific locations and so there has always been in many if not most of our leases some type of preemption at the end of the term.

And that is almost always based on the greater of the.

Then fair value or our our growth investment so so even before considering depreciation we would not take a loss if the operator typically would exercise that repurchase option.

Okay. Okay.

I didn't quite realize that I appreciate that thank you.

Okay.

Again, if you wish to ask a question. Please press Star then the number one on your telephone keypad.

Your next question comes from the line of David Toti with Colliers Securities.

Okay.

My questions have been answered thank you.

Your next question comes from the line of Jason <unk> with RBC capital markets.

Hey, you guys have done a good job of reducing the steward's concentration.

Just wondering what the outlook is for that relationship and if you plan to continue reducing it naturally over time or kind of where we go from here.

Yes, Jason we do plan on continuing to.

Reduce it over time, just as part of the natural progression. Those of you that have been with US a long time may recall that prime healthcare at one time was our largest tenant we continue to do business with Brian, but we also continue to add to that.

Add additional properties in different operators. So prime now is way down in their total percentage of our portfolio. We expect that to be the same thing with Stuart we will continue to do additional business with them, but as a percent of our overall portfolio, we expect that to continue to decline.

Okay, and then just thinking about funding so what would be the plan to fund future investments I guess is there a preference for either JV transaction or equity issuance.

No there is no preconceived preference for any particular.

As yet unidentified acquisition.

What we have.

What we've announced both in our prepared remarks, and the press release.

It has been really to describe the options that we now have that as a smaller younger company, we didn't always have.

We do have as you point out.

Joint venture opportunities.

The ATM is.

<unk> is a much more efficient way of raising <unk>.

Common equity than perhaps what we had in the past, but we still have those opportunities also with there is a big transaction and we need to fill in.

The holes with with.

Over night underwritten offering we can do that given market conditions.

<unk> sale proceeds as we've talked about.

Our first question.

Wanted out something that again.

Oh It was perceptive about this unique structure of the HCA lease gives us total flexibility on that so we have lots of options and at the time, we begin looking at an acquisition that we we had some confidence is going to close then we will decide what's the best most efficient way.

To fund any particular transaction.

Okay. Thanks.

At this time there are no further questions I'll turn the call to Ed <unk> for closing remarks.

Thank you operator.

Greatly appreciate everybody listening in today, we always appreciate your interest if you have any additional questions. Please don't hesitate to reach out to US later in the day. Thank you very much.

Okay.

Thank you for participating you may disconnect at this time.

Okay.

Yes.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 met medical properties Trust earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during the session you will 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 turn the conference over to your host today Charles Lambert. Thank you. Please go ahead.

Thank you.

Good morning, and welcome to the medical properties Trust conference call to discuss our third quarter 2021 financial results.

With me today are Edward K, all that 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 to 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 ask.

In that same section.

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 our 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.

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 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 at Outback.

Thank you Charles and thank all of you for listening in today for our third quarter 2021 earnings call during.

During the month of September we made two announcements that are significant milestones for MPT, Steve will go over each of these in detail in a few moments, but it is important for me to put them in context.

The first one was a partnership with Macquarie infrastructure partners 548, steward hospitals in Massachusetts.

These transactions alone reflect a number of very strong points.

MPT is always referred to and thought of our hospitals is important part of any community is infrastructure.

As part of our underwriting we investigate the importance of each facility to that specific community.

As most of you know Macquarie is one of the world's leading infrastructure investors.

I too believe the premise that most hospitals are an important part of our community is infrastructure.

Macquarie research the world's leading experts in hospital investing they turned to MPT in the words of one of their executives MPT is the clear leader in there really isn't a number two.

When we purchased the Massachusetts hospitals five years ago. The cap rate on these leases was in the mid 7% range and has escalated. Since then the value of these hospitals that we agreed with Macquarie was based on a market cap rate in the mid 5% range.

<unk>, our unique underwriting expertise.

Operating skills and a market for hospital real estate that is rapidly attracting sophisticated private investors.

These conditions establish a whole new value for our entire portfolio not just the Massachusetts hospitals.

Next announcement is the pending acquisition by HCA and the operations of the Stewart, Utah hospitals.

Stewart acquired these hospitals and in MPT finance the acquisition as a part of its acquisition of adhesives in 2017 over the last four years Stewart has done an outstanding job of growing the top and bottom lines for these facilities.

As a part of its transaction with steward.

He has agreed to enter into a new master lease with MPT for these facilities paying the same rent and annual escalators for the real estate as Stuart is currently paying.

The closing of these two transactions steward's concentration for MPT will have been reduced to approximately 18%.

More importantly, no standalone steward regional market will represent more than 6% and no single steward operated property will represent more than 2% of our pro forma assets, our largest single investment approximating 3% of our assets. We would then be operated by HC.

In 2019, the last year before the pandemic MPT is acquisitions totaled approximately $4 $5 billion.

In 2020 during the heart of the pandemic MPT the acquisitions totaled approximately $3 6 billion and year to date in 2021, we have acquired approximately $3 7 billion of additional investments.

We have done this with the strategic use of JV capital common equity through underwritten offerings in the ATM selected dispositions funds received from opportunistic debt repayments to MPT debt offering to its historic low interest rates and retention of earnings by the virtue of a very prudent ASF.

Our dividend payout ratio.

We continue to have a robust pipeline that we will execute selectively while effectively usual utilizing the most efficient sources of capital.

Before speaking to the operating performance I'd like to mention a special award that speaks to the important MPT places on corporate culture, as we announced in late September MPT ranked as the fifth best place to work for millennials. According to modern Healthcare's Best places to work 2021.

Our most important asset is our people and we are proud that our employee base is satisfied across multiple measures of our internal social responsibility.

At MPT has grown over the years, we have attempted to show the performance of our portfolio in a number of ways.

Many years back we instituted our same store analysis, where we are.

We're growing so fast in our total assets were much smaller than they are now this approach made more sense.

It was structured to show performance without undue influence from the newly acquired facilities as we have gotten much larger both in terms of total assets in dollars and a number of facilities the.

<unk> of additional properties in any one period no longer creates the spikes up or down that could be misleading. We have therefore decided from this point forward that we will report total portfolio without regard to wind facilities are acquired but these statistics will steadily SKU.

<unk> facilities were.

No detailed individual hospital operating statistics are required under the lease and it is important to point out that each of these leases do provide overall information on the parent company or aggregated hospital performance.

This can include leases, we inherited or master lease is guaranteed or master or guaranteed leases with investment grade tenants, such as UCL Eisner Ramsay and a few others. There are approximately 80 facilities in this category or B are facilities that are so new to our portfolio of their reporting.

<unk> does not yet begun like Priory and spring store there are approximately 70 facilities in this category.

Or C facilities that are under development. There are currently only two facilities into this category.

<unk> results for the past 12 months are very strong. These results include the brands, but not the advances that were received by our hospital operators for.

For the past 12 months, our acute care hospital portfolio generated an EBITDAR coverage of slightly more than three times.

The <unk> segment generated an EBITDAR coverage of more than three and a quarter times and the earth coverage for the trailing 12 months was approximately $2 one five times.

Now some specific updates on our some of our largest operators.

Circle, which represented 11% of our portfolio continued to show strong coverages their coverages for the second quarter in 2021 was substantially more than it was in the fourth quarter of 2020, which was also a strong quarter circle continues to have a strong liquidity position.

And as a reminder, the American insurance company stem team, which already opened in interest in circle is now the 100% owner of circle.

Ernest which represents 3% of our portfolio continues to perform at the very top of the market their coverages for both their arps and <unk> are approaching three times like circle day to have a very strong liquidity position.

<unk> scope, which represents 5% of our portfolio is seeing some of its best EBITDAR coverages since our acquisition of these facilities in June of 2019.

As a side note for life and some of you may have seen their announcement. This week that after the kindred acquisition light point will split into splitting the company into two separate companies.

We will have facilities with both companies and we have worked very close with like point to ensure that MPT will retain its strong position within both of these companies.

Median which represents 5% of our portfolio continues its rock steady performance median performed superbly throughout the pandemic and continues along that path today their liquidity position also remains very strong.

Prime which represents 5% of our portfolio continues its stellar performance their EBITDAR coverage is at the very top of our portfolio.

<unk> is one of the strongest liquidity positions of any of our operators on.

On a very important additional note St. Michael's hospital in Newark, New Jersey operated by Prime Healthcare was rated the number two most socially responsible hospital in America by loan Institute hospitals index based on measures related to help outcomes value and equity.

We are proud of what our facilities and our operators mean to the commander. These dates are.

Priory, which represents 5% of our portfolio reported their operations continue to improve from 20, joining they have experienced some labor issues at a few of their locations, but it is not a company wide issue. Our underwriting showed a 2020 EBITDA and coverage of approximately two times.

Management reports, thus far indicated a coverage for 2021 generally in line with this number will begin getting detailed reports from bribery in the near future Prosper.

Prospect, which reports, which represents 7% of our portfolio is showing its best EBITDAR coverage to date their liquidity to remains very strong.

Steward, which pro forma represents 8% of our portfolio is generating its strongest EBITDAR coverages to date well in excess of two five times.

I would also like to point out steward received recognition for ranking first in membership.

For first in quality and earned the second highest shared savings payout of 513 participants and the CMS Medicare shared savings program as the nation's largest physician led health care network, an accountable care organization steward generated more than 68.

In total 2020, Medicare cost savings, while receiving a perfect 100% quality rating amid the challenging challenges of the COVID-19 global pandemic.

All across the board our operators continue to perform with outstanding results.

And some general news regarding operations across our various regions are domestic operators saw volumes rebound in the first half of 'twenty, one 'twenty two 2019 numbers.

And Australia, 70% of eligible citizens are now fully vaccinated triggering phase two of Australia's reopening most of Australia are expected to be fully opened by the end of this year. Most hospitals are currently operating at normal levels in Colombia occupancy rates remain high and surgeries.

They have increased substantially over the last several months the moratorium on high complexity and elective surgeries in Bogota ended in July.

At this time I'll ask Steve to go over the details of our financial results Steve.

Thank you Ed. This morning, we reported normalized <unk> of <unk> 44 per diluted share for the third quarter of 2021, along with adjusted <unk> per share of <unk> 34.

From the end of 2019 through 2021 year to date MPT is among a very small handful of large cap reach that continue to deliver double digit growth on a per share basis.

Dividend growth that is not available for most regions.

And thats exactly what the activities of the third quarter, So abundantly demonstrated.

Before I discuss these activities I will point out a few minor items that impacted our reported results.

First as is the case every quarter, we recognized a change in the market value of our investment in the secured either leave is the parent of our tenant Swiss medical network and $800000 gain for this quarter.

We wrote off $3 $6 million in straight line rent and other costs related to properties that were sold during the quarter for an aggregate of about $42 million.

Side from these routine reporting adjustments, we realized gains on these transactions of about $9 3 million.

As we have previously explained GAAP requires us to present as NPT expenses certain costs, even though they are contractual obligations of and we are reimbursed by our tenants. These charges amounted to approximately $4 million for the quarter and we included this amount in property.

Related expenses and offsetting revenue of a similar amount in our income statement.

The primary appeal of the South Florida hospitals is their long standing historical and future important to very densely populated in growing communities with significant barriers to new development and alternative health care facilities.

Looking forward, we are excited about stewards plans to raise the bar for care in these facilities and improve their financial results to position them for long term success.

It is important to view this exciting new acquisition in conjunction with the $1 $78 billion, Massachusetts joint venture with Macquarie and the $1 2 billion HCA re tenant ing of Steward, Utah hospitals.

Upon completion of these transactions and completion is not assured MPT will have access to approximately $1 $3 billion and.

And attractively priced capital.

<unk> greatly diversified tenant mix introduced HCA as a top five tenant in the MPT portfolio of World Class Hospital operators.

<unk> Accretively recycled JV proceeds into these irreplaceable hospital facilities in the country seventh largest metropolitan area.

I'll take a few minutes to review details of these two track transactions and I'll be happy to take questions in just a few minutes.

And five years later after a substantial independent diligence process Macquarie recognize this same dynamic both in terms of the value of the real estate and in what Stuart has created.

Mortgage loan investment with a larger and much preferable sale leaseback structure reflective of full market real estate value without compromising coverage.

Fast forward to today HCA healthcare one of the Premier Hospital operators in the world as agreed to rental payments and purchase obligations that validate the real estate values that MPT previously underwrote.

Just a relevant remind you since 2016, we have underwritten and invested $4 4 billion 40 hospitals lease to steward in six major and independent market areas over that period, we have been paid more than $1 $2 billion in rent and interest and our shareholders.

<unk> had been rewarded with growing dividends and share value.

The size credit characteristics and market diversification of this assembled portfolio is what allowed us during the third quarter to orchestrate the tremendous value enhancement represented by the Massachusetts in Utah transactions and the recycling into the Florida hospitals.

So just to wrap up our recent activities last week, we closed on our acquisition of 18 inpatient behavioral hospitals master lease to spring stone across several U S States for a total of $760 million. These facilities are purpose built behavioral hospitals in carefully selected communities and very well run.

A unique portfolio that we had been observing for several years, we also invested $190 million to own a 49% interest in the operator.

Similar but infrequent op co investments we have made in the past have been extraordinarily successful.

Strongly profitable.

Our real estate that we still own.

I should also mention that we closed in late October on an $18 million Euro cancer treatment Center in Portugal leased to an affiliate of <unk> health.