Q4 2021 Medical Properties Trust Inc Earnings Call

February 3, 2022

Good day and thank you for standing by welcome to the fourth quarter 2021 Medical properties Trust earnings Conference call.

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

After the presentation, there will be a question and answer session.

To ask a question during the session you'll need to press Star then one on your telephone keypad.

Please be advised today's conference may be recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to Charles Lambert Vice President. Please go ahead.

Good morning.

And welcome to the medical properties Trust Conference call.

Discuss our fourth quarter and full year 2021 financial results.

With me today are Edward K Al 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 it.

Billable on our website at medical properties Trust Dot com in the Investor Relations section.

Additionally, we are 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 1095. These forward looking statements are subject to known and unknown risks uncertainties and other 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 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 measure.

In accordance with Reg G requirements.

You can also refer to our website at medical properties Trust's 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 joining us this morning.

For March 2020 until October 2021, like most of the World Mpt's offices were closed in October of last year, while we reopened our offices, we still ran less than 100% back in the office due to various spikes in COVID-19 throughout the last quarter of 2021.

Our people were working from their homes remote offices through zoom and teams in any way, we could keep moving forward and move forward. We did I cannot stress enough how proud I am of the job all of our employees and our five offices around the world have done over the last two years to produce back to back.

Record years during the worst worldwide pandemic, we've seen in modern times.

Following on a record year for 2000 22021 was another remarkable year in the past almost 20 years of MPT, which Steve will discuss in more detail.

121 was also another banner year for acquisitions.

<unk> continued to execute on our acquisition strategy to amass another $3 $9 billion in investments across five different countries and NAND. It with nine different operators five of which were new operators.

After including these acquisitions in our portfolio, we have 53 operators that manage over 435 MPT owned facilities worldwide.

To recap the year from an acquisitions perspective, we began the year with a $1 billion plus investment in the leading provider of behavioral health in the United Kingdom. The Priory group. This investment included the real estate of 35 behavioral health facilities located throughout the U K as well as the <unk>.

One 9% equity interest in the operating entity.

This transaction highlights an important strategic relationship with water land, a private equity investor with whom we have had an ongoing relationship for many years, what began years ago as our first investment outside the U S has grown into a relationship with one of the largest multinational health care provider.

In the World, but now merged median and Priory enterprise.

In the Middle of 2021, we announced and subsequently closed two sizable acquisitions. The FERC was a $950 million acquisition of 18 additional inpatient behavioral health hospitals, along with an equity interest in the operating entity of spring Stone LLC.

These 18 facilities are purpose built inpatient facilities located carefully selected U S markets. This transaction closed in October of 2021 as.

As we all know the affordable Care Act long before Covid contained a large expansion of mental and behavioral health coverage in the U K. The NHS establish the need for increased behavioral health services also long before COVID-19 .

Behavioral health care is estimated to be 200 billion dollar plus market in the U S with only 40% of that market currently access to.

The hospitals in which MPT has invested will continue and we will continue to invest in both here and in the U S and abroad, we will play a significant role in addressing these needs.

The second announcement was our $900 million acquisition of five general acute care hospitals in South, Florida from tenet healthcare and in conjunction with Steward health acquisition of the operations of those hospitals.

Additionally, as we have previously discussed we announced two other significant transactions in 2021 that will enhance our portfolio, while also confirming and demonstrating the value of our business model in the second half of 2021, we announced our agreement to form a joint venture partner.

<unk> with Macquarie infrastructure partners. This Macquarie controlled subsidiary will acquire a 50% interest in a portfolio of eight, Massachusetts based general acute care hospitals owned by MBT and operated by Steward Health care system, the transaction values the portfolio at approximately $1 7 billion.

We.

This transaction to close in the first half of 2022.

The other previously disclosed transaction that we announced in 2021 that we expect to close later this year is the agreement to lease substantially all of our Utah hospitals to HCA healthcare.

This will place HCA is one of Mpt's five largest tenants and reduce the percentage of mpt's portfolio represented by Stuart just below 19%.

As we have pointed out before but it is a good reminder, no steward regional market will represent more than 6% of our total portfolio and no single steward property will represent more than 2% of our pro forma assets.

Fortunately the much talked about <unk> <unk> of Covid has not caused much disruption to the health care services provided by our operators.

However, most of our operators are experiencing staffing issues as health care workers Battle burn out from the pandemic and from federal and state mandates requiring health care workers to be bags donated.

While the vast majority of the staff at our portfolio of hospitals have been vaccinated the disruption caused by the minority who are not.

<unk> has had an impact on our labor cost as a result labor costs have increased and in some cases services have had to be temporarily reduced or limited.

Despite these challenges our operators are managing through these times and continuing to perform well.

You will recall that last quarter, we began the approach of providing our coverage metrics on a total portfolio basis. Instead of same store, we have gotten to the size where additions and subtractions do not make material artificial impact on the numbers.

And just as a reminder, there are approximately 100 of our 435 facilities that are either not yet reporting because they were just recently acquired not required to report other than parent company information because they were acquired from other landlords or facilities operated by operators who only.

<unk> the parent company financial information for.

For the trailing 12 months of our total acute care portfolio generated an EBITDAR coverage of three <unk> times versus $3 11 times last quarter trailing 12 months.

We reported Q2 2021 trailing 12 month coverage of three <unk> three during last quarter as a result of moving three behavioral facilities.

<unk> into prospect to the behavioral health property type. The Q2 2021 trailing 12 month acute care coverage being reported this quarter is $3 one one times VL.

<unk> segment generated an EBITDAR coverage of three two times versus 327 times last quarter trailing 12 months.

The <unk> coverage for the trailing 12 months was two <unk> times versus $2 12, trailing 12 months, we reported the Q2 trailing 12 months coverage for 2021 of two four times during the last quarter as a result of selling the encompass Fort Lauderdale facility in <unk>.

Moving it from earnings for Q2, 2021, trailing 12 months coverage being reported today was $2. One two times due to our recent behavioral health acquisitions, we've initiated reporting coverages on this property type this quarter, which generated an EBITDAR coverage of 192 times.

For the trailing 12 months.

Now I'd like to provide some updates on some of our largest operators steward, which represents 19% of our portfolio on a pro forma basis continues to perform well with coverage near three times. The integration of the five recently purchased Miami facilities has been successful in the market.

To exceed expectations Steward continues to closely manage the onboarding of the new facilities, including working down the accounts receivable to steady state levels in the near term the latest Covid surge is having an impact on the volume in Q4 and early into Q1 as Massachusetts.

Third some elective procedures there Stuart expects that most of these deferred procedures will still be performed at their facilities. Prior to the end of Q1 <unk>.

Circle, which represents 11% of our portfolio continued to show strong coverages their coverage for the third quarter in 2021 reflects stabilization at a high coverage level driven by robust increase in self pay volumes, which provide for increased reimbursement I'd also like to highlight the 2021.

Ward received by Circle in November for excellence in acute health care services with a focus on innovation.

Prospect, which represents 7% of our portfolio is doing well in California, and showing some softness in Pennsylvania and Connecticut.

We're seeing some rising labor cost as the rest of the country has.

But rebounding surgical volumes are helping to offset those costs with growing revenues most of the labor issues prospects are occurring at their Pennsylvania hospitals.

Several prospects, California facilities have recently been recognized with top excellent in five star quality Awards from health grades helps.

Help scope, which represents 5% of our portfolio continued to show quarterly EBITDAR increases.

Spike periodic government suspensions of certain elective surgeries due to the pandemic revenues remained steady and patient days are increasing it.

MPT continues to partner with <unk> to make additional investments into renovations and improvements at our hospitals in new South Wales and Victoria.

Median which represents 5% of our portfolio continued its steady performance median has performed superbly throughout the pandemic and it continues along that path today Andrej Schmidt the CEO and his management team have done a superb job throughout mpt's relationship with median price.

<unk>, which represents 5% of our portfolio continues its stellar performance, they're consistent EBITDAR coverage is at the top of our portfolio volumes have shown steady improvement year over year. During Q3, a number of problems hospitals were recognized by health grades as five star recipients.

For women's health care.

On the one year anniversary of <unk> acquisition of St. Francis Hospital in Lynnwood, California, both Prime and St. Francis were recognized by local officials for their extraordinary service to the community.

Priory, which represents 5% of our portfolio report solid operational performance that is in line with our underwriting expectations priority has only reported one quarter of operational and financial information to MPT, thus far but that one quarter is right in line with our underwriting projections.

Spring stone one of our newest operators now represents 5% of our portfolio. This behavioral inpatient their behavioral inpatient facilities continue to serve a vital need in each of their communities while not yet included in our quarterly reporting monthly consolidated EBITDAR is in line with underwriting projections and.

Head of prior year.

Ernest which represents 3% of our portfolio continues to perform at the very top of the market coverages for their <unk> and <unk> are both near end or above all time high coverage levels as a result of solid volume and revenue growth in 2021.

Well I'd point, which represents 3% of our portfolio continues to perform well, though we did see their EBITDAR coverage plateau a bit in Q3. It is still seeing significant growth in 2021. They are singing seeing strong growth on the surgical side of business that should help continuing covered.

Growth. Additionally, light points successfully completed the acquisitions of kindred and the subsequent creation of Psi on health at the end of 2021, we now have facilities under both of these companies.

I'd like to refer all of you to our website to see the recently posted case studies on one of Prime Hospital and one pipeline hospital. These to highlight the critical importance of hospitals and underserved neighborhoods in Los Angeles. These are examples of how our capital and can rapidly facilitate improved care.

There for underserved urban communities, especially as they experienced a disproportional impact from the global pandemic.

Like me some of you may be a lifelong reader of national geographic.

Are you probably saw a cover story they did last year and the lack of trees and lower income neighborhoods in urban areas. The article, particularly focused on L. A it has always been imported JBT to make an impact on the communities. We serve in addition to its health care needs.

Contacted and established a relationship with an entity called city plants, a not for profit organization in Los Angeles that distributes implants, approximately 20000 trees a year in areas that lack access to the many environmental and health benefits of robust treat canopy.

We have recently made a sizeable donation and members of our staff travel to L. A to physically worked with this organization with their tree planting.

<unk> thousand 22 is shaping up to be another great year for MPT. Our pipeline is robust our portfolio is diversified not only from an operated perspective, but also from a geographic perspective as well as from an asset class perspective, given our recent large investments in behavioral health space.

Steve.

Thank you Ed.

This morning, we reported normalized <unk> per diluted share of <unk> 47 for the fourth quarter of 2021.

Along with <unk> 36.

Continuing the extraordinary double digit year over year quarterly growth that we have recently reported.

On a full year basis, our normalized <unk> of $1 75, and <unk> of $1 37 also represent the continuation of double digit growth.

Our record virtually unmatched demand not only our peers, but the entire universe of REIT with a similar or larger market cap.

As a reminder, this growth comes on top of 2020 results and which normalized <unk> per share growth exceeded 20% and <unk> grew at a similar mid teens rate.

In fact over the past 10 full years, we have delivered normalized <unk> per share at compound annual growth rate in the mid <unk> and mid <unk>, respectively.

While maintaining an average net debt to adjusted EBITDA ratio in the mid five times range.

While certain peaks and troughs in both earnings and leverage occurred over this timeframe due to transaction timing. The long term results speak for themselves and we are confident that we will continue to deliver strong growth in the future.

As usual there were a few items that impacted our reported earnings and corresponding adjustments to normalized <unk> for the quarter.

Each quarter, we recognize a change in the market value of our investment in the securities of our tenants with medical networks parent EBIT.

This year this quarter I should say, a $5 $4 million gain.

Also each quarter generally accepted accounting principles require us to present certain cost as MPT expenses, even though they are contractual obligations that are reimbursed by our tenants. These.

These charges amounted to approximately $4 $8 million for the quarter and we included this amount in property related expenses and offsetting revenue of a similar amount in our income statement.

We recognize roughly $25 million in debt costs, primarily related to our refinancing in October a 500 million euros of unsecured note, which effectively lowered our annual coupon from 4% to less than 1%.

Finally, we recognized gains exceeding $84 million for various properties and equity investments divested during the quarter, and which I will detail momentarily.

In November we purchased our partner's 50% interest in EMEA at Valencia flagship private hospital in Valencia, Spain, where roughly 46 million Europe .

Because of the high development yield that we are already earning on our initial 50% interest in this facility and the economic benefits of capturing the previous third party investment and asset management fees, along with the control at the 100% owner, we expect this to become one of our most attractive European hospitals.

Also on the growth side construction commenced on a new campus for widely regional Medical center operated by Stewart in Texarkana, Texas the original.

Facility, which is owned by other real estate investors has been serving the community for more than 120 years and the new campus will provide state of the art care to a larger portion of the local population.

MPT expects to invest nearly $170 million and the approximately 120 bed facility with rent commencement under our master lease expected in the summer of 2024.

The fourth quarter was a relatively busy one for one off dispositions MPT completed the long pending sale of capital Medical Center in Olympia, Washington for $135 million <unk>.

Including a $33 million gain representative of a mid teens internal rate of return over mpt's period of investment.

We also sold an inpatient rehab facility in Fort Lauderdale for roughly $27 million.

Collecting additional strong gains.

And we agreed to facilitate our operators sale of our Midwest hospital by selling the related real estate for about $63 million that also includes an attractive gain.

We expect this to close in the second quarter of this year.

Finally, we sold five former adept as freestanding emergency Department properties.

In addition to the substantial capital and the gains generated from our real estate sales. We also completed the sales of our equity investments in median and Nato's for 40 to 42 million euros in gross proceeds virtually all of which is gain.

These represent the most recent two examples in our history of highly profitable equity investments in certain of our operators.

Collectively MPT received and is under agreement to receive approximately $300 million in proceeds from dispositions during and after the end of the quarter.

On the flip side, we recognized the likelihood that our loans, including our dip loan to the bank Rep. Watsonville Hospital project may not be collectible and recorded a net charge of $31 million.

Progress continues as expected on both our anticipated partnership transaction with Macquarie infrastructure fund related to H Stewart facilities in Massachusetts, as well as our expected lease agreement with HCA healthcare for five Utah hospitals commensurate with their acquisition of the operations from Stuart.

As an aside because we will not include extension options in our assumed lease term as we presently do for steward, our noncash straight line rent component will be approximately $12 million lower annually upon commencement of the new lease with HCA.

Pro forma for our expected joint venture proceeds of $1 $3 billion that we will repay our extend our outstanding interim credit facilities, we anticipate having immediately available liquidity exceeding $1 billion in cash and revolver resources.

Taking into account the <unk> dilution of the joint venture remember, we're selling 50% of our high yielding steward, Massachusetts hospitals.

The change in the straight line calculation that I, just mentioned inflationary rent increases in pro forma revenue for certain underdevelopment.

Projects, we estimate our annualized <unk> run rate to be between $1 81, and $1 85 at.

At our current pro forma leverage ratio of six four times. However that is not meant to establish a capital strategy different from our long term target of between five and six times, we plan to continue to prudently manage our balance sheet liquidity and investments with capital sources that include.

At the market and limited underwritten common stock offerings, one off distributions dispositions I should say and loan repayments the possibility of additional joint venture or partnership transactions that further diversify our portfolio and take advantage of more attractive private pricing and retained <unk>.

So including inflationary rent increases.

The great majority of our leases have annual or other periodic contractual rate increases driven by inflation, including floors generally in the 1% to 2% range.

The effect of those floors is included in our cash rental revenue regardless of actual inflation.

Inflation during 2021 substantially exceeds these floors, so our 2022 and future rental rates will reflect incremental increases.

We estimate that this incremental cash rent in 2022 will approximate $24 million or.

Or <unk> <unk> per share.

This is tangible measurable demonstration of one of the key strengths of the MPT model.

Because the great majority of our debt is at fixed interest rates.

Even in a rising interest rate environment, we expect to realize higher rents when our interest expense is rising only modestly which will certainly be the case in 2022.

As a reminder, this run rate guidance is an estimate of the expected annual <unk> for our in place and asked in place asset as of today plus other assets that are either under development are subject to binding acquisition agreements.

These future assets are of course not included in the fourth quarter result, and in some cases will not be for several quarters.

Similarly, certain revenue that is included in the fourth quarter results, primarily revenue from 50% of our steward, Massachusetts assets that are pending sale to the joint venture and the noncash straight line rent I just mentioned will not be included in future quarters. These.

These items alone.

Net of the benefit to refine it refinancing activities and investments since we introduced this range in early September .

<unk>, an approximate annualized <unk> per share and in addition to the impact of assumptions related to leverage reduction underpin our current guidance range and the pro forma six point O times leverage mentioned in this morning's press release.

Beyond this we assume no other investments or capital markets transactions, and we will plan to update the market in the future as they occur.

Our pipeline of opportunities for 2022 is robust and we continue to expect domestic opportunities to make up the majority of our near term activity.

This alone is expected to further lower our leverage as we generally use relatively higher levels of equity funding for domestic versus non U S investment, while still generating accretive investment spreads.

In addition to the multiple forms of common equity issuance.

It can accomplish this.

Within certain pricing parameters.

We are confident that we are in the early stages of development of a global market that we helped greatly to create.

With our execution, we have historically delivered and we believe we'll continue to look to deliver in the foreseeable future.

Al covered cash dividend outperforming <unk> growth and value creation with a conservative approach to funding. This growth that have made it a substantial total shareholder return outperformance over virtually any period.

In fact going back to our 2005 IPO, we have delivered total shareholder return of 661%.

Recently over the past three years that notably include two plus years of global pandemic and accelerating inflation, we have returned 73% to our shareholders.

And even in 2021, we generated a 14% one year total shareholder return.

Almost incredibly for a company that started with three unpaid founders and no assets and listed on the New York Stock Exchange. One year later, we have created eight $7 billion in value for our many thousands of shareholders.

With that I will turn the call back to the operator for questions operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

Your all your question press the pound key.

Our first question comes from Tayo Okusanya with credit Suisse.

Yes, good morning, everyone. Congrats on the solid results.

Two quick ones from me first of all Ed and as well as Steve you did talk about <unk> quite a bit on kind of the increasing risk of rising labor.

On some of your hospital with tenants.

Could you give a sense of.

Some other things they are doing to combat that.

What potentially the impact would be on rent coverage.

We kind of look into 2022.

Well Tayo welcome back glad glad to have you on the call.

The short answer is I think we've seen the worse I think that the numbers are reflected.

Some of the third quarter there'll be reflected in some of the fourth quarter.

Stingley to me, we haven't had many labor issues at many labor issues in Europe as we're having here in the U S things that they've done.

<unk> scaled back some of their services adjust their schedules and obviously use contract labor, obviously contract labor is extremely expensive, but they've been through this before with other type markets.

And despite that Youll see that all of them continued to perform very well. So all of them believe that this is short term and that you won't see any long term effects from this.

Gotcha. That's helpful. And then the second question is around Prime again, much smaller part of your portfolio now, but they do constitute most of your <unk>.

Lease maturities in 'twenty two.

Is that probably a bunch of purchase options.

Behind some of those leases as well could you just kind of talk about how thats shaping up possibility of them exercising the purchase options on how we should think about that as we're modeling in 'twenty two as well.

So tayo you you pointed out well that's a mid 2022 exploration of the initial term prime has.

Typical options one.

One of which is to repurchase the facilities.

In which case we.

He would receive because it's a fixed repurchase option for those facilities very unusual in our portfolio, but it's around $350 million debt at prime elected as you pointed out could actually repurchased those in which case, we would we would reinvest.

Likely would be something of a diluted reinvestment, because we're earning pretty high rates on those now.

Turn it typically we can negotiate a.

New lease or even an extension of the old lease, which which in our experience is what happens in the great majority of times.

And what we believe will happen here.

Finally of course prime can simply walk away from those hospitals and because they are extraordinarily profitable and cannot be replicated in those urban California markets. We think that's an unreasonable option for them.

Okay.

They tried to approach system for them.

We knew the leases.

That's right.

But again given that cost of capital has been improving of late though I mean would you expect them to renew expiring rents because again like I said, that's a very high yield.

Yes.

We have about six months and we've already started talking to <unk> about this I probably wouldn't wouldn't speculate now about what what the terms of again, we expect will be a new or an extended lease, but probably not prepared to talk about a potential terms.

Okay.

Great. Thank you congrats again.

Thanks Tayo.

Our next question comes from Steven Valiquette with Barclays.

Alright, great. Thanks, good morning, everybody.

Good morning.

So my question is on the Legislative front for the U S Hospital sector.

My understanding is that there is a push for another COVID-19 relief bill that could come to fruition as early as this month.

And most of the money is earmarked for the U S Hospital sector and I guess as part of this there is some talk for the federal government to potentially.

Give any remaining Medicare receivable loans that were taken out by some of the hospitals earlier on in the pandemic.

There's no guarantee it will be in the final version, but I guess my high level question around this is where does the medical properties Trust stands right now.

Your U S portfolio of hospital operators that May still have some of these federal loans still outstanding.

Is this something that's on your radar screen as a catalyst to further improve the cash and liquidity profile of some of your operators, especially in the face of some of the ongoing labor and staffing challenges that we all talked about earlier.

So let's see.

The answer to the last part of that question is that our operators are currently probably in the best liquidity and cash positions as they've ever been in the history collectively in the history of <unk>.

I, certainly not going to speculate on whether or not this bill will get passed or whether they get attached to a bill that gets passed.

As Europe people have stated if it doesn't get passed before the middle of summer that I don't think it will get passed at all given that this is an election year.

I think that for the most part there are a number of rural hospitals are hospitals that weren't operating in 2019 that probably need some additional funding.

I think that any of our hospitals.

Any of the hospitals in our portfolio, we will suffer if they don't get any additional of all of our hospital operators are have either repaid all of their advances are in the process of it being recouped in the normal course of business under the CMS rules and regulations. So it's not something that we are.

That we're counting on and it's not something that we think if it doesn't happen that is that is that it is a terrible thing for our hospital operators.

I'll leave it at that.

Okay, Alright, thats helpful. I appreciate the color. Thanks.

Our.

Next question comes from Michael Carroll with RBC capital markets.

Yes. Thanks, Ed can you provide some color on how the company's thinking about new development I know that in the press release, just announced a pretty big one with steward I know HCA announced that they plan on building five new hospitals. I mean is this a bigger trend in the hospital space just going forward and if so will someone like <unk>.

They prefer to do that themselves or is this something that MPW can help outlet.

Well.

Remember, Mike you've been with US a long time.

Wildly hospital was originally owned by Isis and the redevelopment of that hospital was planned long before it was a steward acquisition. So it is a facility that we've been looking at for a very long time, and it's just to reiterate what Steve pointed out we don't own the existing hospital and widely but we've been looking at.

The replacement facility for a long time.

We think replacement facilities like that are good but you got it you got to look at all of the various nuances that go with it particularly east of the Mississippi River. There are there's not usually a whole lot of land for replacement hospitals. So that's one of the reasons why you haven't seen it a really big part of the of the MPT.

Portfolio I have not studied the announcement that HCA made about their Texas, and Florida new facilities there.

Plan on building, we certainly hope with the HCA Tran.

Transaction in Utah, and obviously, we've worked with them closely on that on that list I've been in this business for 35 years I've got friends at HCA and hopefully we can continue to build on that relationship. We certainly have done development deals is the very very beginning of MPT I think that we will do some more but.

I don't think that Youll see a very large increase in the percentage of development deals that we continue to do.

Okay, Great and then just talking about I guess some of your funding strategies and maybe Theres a little bit deleveraging included in guidance and obviously you need to fund future investments.

There was talk of AR.

Second joint venture I mean is that something that the company is considering now or are you willing to issue equity at these prices I guess, how do you weigh the differences between those two options.

So <unk>.

Mike We went through at least in my comments kind of a list of capital that's available to US. It does include <unk>.

Common equity either <unk> or ATM underwritten offerings.

We will continue to consider the types of joint venture.

Access to capital that we did with promoting all and more recently with Macquarie.

I really don't think you should overlook also it may not be billions of dollars, but it's very important to look at the proceeds we received a $300 million I mentioned that we received on.

Just kind of our own recycling assets.

On retained earnings retained cash, earning from an <unk> perspective.

Amounts to several $100 million.

Over the course of the foreseeable future. So all of those are available to us.

Certainly nothing where we are announcing today, obviously, but we continue to.

To be thankful.

And encouraged that all of those types of capital access is available to us.

Okay, Great and Steve would you consider like a forward equity offerings kind of pre fund some of your <unk>.

But youll likely due in 2022 is that kind of come across your desk yet.

So when we've looked at the forward structure first of all you have to start with.

Regardless of whether you have got a forward component and you're offering do you want to offer equity and the pricing and the discount and all that so that comes first.

And then maybe you want to use some some portion of that as a forward the problem with forward that we've always had at.

At MPT and Saudi remains even though is going away as we get larger and larger is the lumpiness and the.

And the inability for us to predict with any precision large transaction.

If we were to start doing more more developments as you just suggested.

A minute ago.

That provides opportunity when you know that over the course of <unk>.

Several quarters youre going to be drawing down construction funding, but we're not in that position right now.

Okay, Great and then just last one for me on the CPI rent bump. Thanks for the disclosure on the increase I guess, what was the CPI increase am I correct to say that most of those will occur in <unk> 'twenty, two and is that fully reflected in guidance or does the guidance just reflect the minimum escalators.

No no the guidance the guidance reflects our full calculation for CPI with respect to your earlier question most of it you're right, especially in the U S probably virtually all.

All of the bumps occur on January one of each year that deferred is in some of the other countries also with difference in some of the other countries as the measurement itself.

In the UK is not identical to what it is in the U S and some time to different different reference is used there is there is a retail price index in the U K for example that some of our tenants prefer and frankly, it's not it's not much different so so we're pretty agnostic toward it.

You know as well as we of course CPI.

In the U S.

In 2021 runs at Iran. It upwards of 6%.

That doesn't mean that we got 6% of course, because many of our leases have ceilings in the 4% to 5% range.

But whatever we collect whatever whatever we will earn over and above our floors is reflected.

In the $1 81 to $1 85 guidance.

Okay, great. Thank you.

Our next question comes from Jordan Saddler with Keybanc.

Hey, guys. Good morning, I wanted to.

Kick off on the pipeline if I could.

And the press release.

And some of your prepared remarks, you alluded to the robust pipeline of new opportunities.

Here, we are early February .

Early days in the year.

But maybe can you.

Give us a little bit of flavor on what you have.

Cooking and maybe line of sight.

Or investment opportunities.

Sure Jordan most of it continues to be general acute care hospitals.

While we haven't given.

<unk> range of where we think will be this year.

I don't think it'll be in the $4 billion range that we did in the last two years.

Steve has pointed out we're being very very cautious and trying to use the best sources of capital and doing our pipeline ignoring the capital uses I think our pipeline it could be as big as we wanted it to be but I think if you realistic look at somewhere between $1 billion.

$3 billion is probably is probably the right range.

And would you expect.

What would the mix be.

U S versus.

Rest of World.

So thats really hard to say exactly most of it most of what we're looking at right now is in the U S, but things pop quicker sometimes in other places so.

Probably the most conservative would say 50 50, but.

More likely more in the U S.

Okay.

And then maybe Steve just one for you.

Just sort of rounding out the sort of sequential.

Lack of a change in the run rate normalized <unk> guidance range, maintaining the range $1 25, a couple of things have happened obviously.

The CPI escalator.

Positive and then.

As an offset.

Macquarie in the closing any adjustment.

Into the straight line rent are those basically just offsetting one another.

So.

Versus the year sequential.

Sequentially versus your prior guidance.

Yes.

At a high level in general Youre, absolutely right.

Tween the.

The straight line rent change, which again I'll point out is in noncash noneconomic change for us but between that.

Offsetting.

A great part of the CPI plus.

Because we have continued to grow modestly since we established that one 181 to 185 the leverage has creeped up as you would expect from wherever we were back then around six two to date is to explore and because we're maintaining that 6.0.

Metric.

It just requires a little bit more dilution to get back to <unk> than it did.

A quarter or so ago.

So it's really those those three primary components that offset each other and there's details there is ins and outs.

But it's primarily the ones you mentioned plus plus the.

Incremental dilution that we need to get back to six point out.

Okay.

Think I misspoke Macquarie was in the previous guide I know so yeah. So it's basically <unk> <unk> of upside from the.

Incremental CPI adjustment.

Being able to recognize.

Offset by a couple pennies from lower straight line rents.

Some additional dilution from some capital raising.

Yes.

On the <unk> of CPI.

We do accrue taxes were not yet in taxpaying situations, primarily in the away from the U S of course, we don't pay taxes on real estate income in the U S and other countries we accrue.

And so that chips away a little bit at that four cents of CPI, perhaps as much as a penny out of the four.

But again, that's just one of those into announced that I mentioned there are a few others.

All of which is why we left.

We left the guidance where it is.

Okay, and then is there anything in the normalized run rate.

Guide related to the prime expiry.

Or is it accurate that we.

No no.

Okay.

Thank you guys.

Yeah.

Our next question comes from Mike Mueller with Jpmorgan.

Yes, Hi, Steve just following up on the <unk>.

The guidance.

When we think about the cash bumps going up because of the escalator goes up your GAAP rent is seen though correct.

That's correct.

Got it.

Okay.

And then separately what sort of cap rates, we think be thinking about this year in terms of acquisitions.

Yeah.

From the GAAP perspective, and again following up on Ed's bias towards the U S which.

Lets just say its 50% I think I think I think you mentioned is probably higher than that.

But.

The most recent deals we've done and disclosed on a GAAP basis.

Probably.

Or where they were this time last year and through the summer maybe with some upward pressure due to inflation, but we're still looking at.

On a GAAP basis, certainly U S high.

High sevens into the eights.

Got it.

And then maybe just circling back to the guidance one more time the run rate guidance. So.

If we have the street lane burn off coming from the transition, what's the offset to that if your GAAP rent change isn't.

If your GAAP rents aren't changing because of the bumps.

While the offset will be.

Sure.

We'll be collecting more cash rent.

And I don't know if that answers your question, but we will continue to collect the cash rent due to inflation without respect to the straight line rent.

Okay. Okay.

Okay.

I'll follow up offline okay. Thank you.

Our next question comes from Joshua <unk> with Bank of America.

Yes.

Just I know you've talked about the prime purchase option, but maybe I'll call. It.

Or.

What else what else is under.

Tenant purchase option.

Particularly interested in knowing if theres any other in 2022 and two.

Going twice.

No I mean again, we have 400 something hospitals, so it could be wrong, but there's certainly nothing that would even begin to move the needle other than prime in 'twenty, two and I don't think there's anything different for 'twenty three or four for several years following.

Okay. Okay. That's it for me thanks, guys.

Our next question comes from John Pawlowski with Green Street.

Great. Thank you for the time.

Few questions on recent disposition capital Medical center asset in the Western Plains Medical complex could you share the NOI cap rate on those sales.

The sale.

Cap rate.

I mean, I don't have that at my fingertips, but.

I'm not going to guess, but that was a very.

But both of them are very attractive, particularly the capital both of them were very attractive significant compression.

<unk>.

But below what we were earning.

Okay.

Is there anything yes.

Yes.

These are core assets at one point they shifted towards the disposition bucket other than price what else changed in terms of the outlook of these assets over time.

Warranted.

<unk>.

Well both of them were part of master leases.

And.

We are always.

Evaluating.

A large portfolio typically at the master leases are working with and trying to accommodate the needs of our tenants we like to be a good landlord.

Which is one reason we've been able to grow so fast I think.

There is nothing specific in other words, we didn't go through the portfolio and say that when no longer meet our investment criteria.

It is or the most part as as our tenants are large master lessees.

Evolve their own portfolio that we try to be helpful and usually always frankly.

It's very helpful for us at the same time.

Okay.

Makes sense last one for me I may have misheard it.

Beginning remarks, Steve.

The impairment or the write off of the mortgage loan can you provide some context.

<unk> south.

So this is the watsonville property I assume you are talking about this is in Santa Cruz, California, We bought this property rate before.

Covid hit.

So the new operators were just operational with it in 2021 of the problems with the funds grants that hospitals received during COVID-19 , but it was based on operations in 2019. So this hospital operator got very little to no.

<unk>.

Grants federal grants from Covid or Medicare advances from Covid.

So that is the primary reason coupled with some other just market issues.

Local community that badly wanted to.

Re acquire the facility through their hospital local authority and Thats, where we are right now.

Okay. Thank you very much.

Our next question comes from Vikram Malhotra with Mizuho.

Morning, Thanks for taking the questions.

Maybe just stepping back we will see.

<unk> JV and the value it.

It was done.

You had.

Had any conversation even maybe somewhat.

With other large managers just interested in the hospital space and maybe just give your thoughts more about.

The underlying value of certain pieces of the portfolio after sort of doing the.

The JV with Macquarie.

So when we announced the Macquarie transaction several months ago, I think even at that time, we announced we talked about the high level of interest.

<unk>.

From from other potential partners.

That had been going on for a while we actually did began a formal process.

With with the Massachusetts properties and got a tremendous amount of interest and.

And jumped pretty quickly because we saw.

Macquarie is being a good eager partner.

That has only increased.

We're certainly not in a position.

Haven't begun to market any other portfolio.

But we think we've got a tremendous amount of opportunity.

Particularly across the longer term to continue to acquire assets. The way frankly, we think we only are able to do.

Mature those assets season them.

Work with the operators just like I just mentioned.

Two to improve the portfolio and then it becomes very very valuable. So we think that will play an important role going forward for us.

Thanks, So much and then just on the on the comments you made initially.

Just sort of the more global nature now.

Has there been any change in the competition, especially people.

Some of these larger deals and whether it's in the U S or any of your other global markets and just new players looking at this space.

No not not in the near recent past there hasnt.

The issue has been for a while just as I mentioned.

Second to go there is a tremendous amount of interest, especially coming out of Covid, it's only grown by by what I'll call. The lack of a better term passive investors investors, who see the sustainability.

<unk> that compete with us have because naturally we built the company with hospital.

So.

Until until we see.

Competition that has built with hospital people, who really have the capability of underwriting very complex hospital systems in government and so forth.

We don't think the competitive environment is going to change too much.

Okay, Great and then just last one on the.

The benefit from the from inflation on the CPI Linker is there can you just maybe remind us is that is the whole benefit accruing. This year is there any kind of spillover into next year from what we've seen.

Inflation environment so far.

No again, most of our U S leases.

Our pretty standard we measure inflation year and it takes effect on January one.

And then of course, we do it again next year, so, but but inflation the inflation escalation starts whether it's U S or not as starts on a date specific.

Usually January one.

But there's no carryover it does it doesn't.

It doesn't.

Come in over time, I will point out, though that on January one in rent raises and then it compounds.

For the next 30 or however, many years that the properties under lease.

It is a very powerful.

Component of our business story.

Great makes sense. Thanks, so much.

Our next question comes from Andrew Ross of Itch with Wolfe Research.

Hi, everybody most of my questions have been answered and thanks for your time and this just one question because you guys have gotten so much more international since I've covered you should we be thinking about currency at all.

That impact your boundaries.

Currency, you said well, yes, I mean, we're up.

Yes, we're always thinking about currency of course, and you may remember Andrew I mean, when we did the first deal, which really set the pattern for US back in 2013, we bought a portfolio that became median and we used 100% debt financing.

And in Europe that was a German portfolio and Thats. The pattern. We tried to follow when we have followed two to great extent and that protects us from currency volatility at least on the asset side.

On the earnings side, that's a little bit.

Trickier.

But at least through now we're not we're not bringing earnings home. So we're retaining earnings in the local currency and reinvesting in the local currency. So even that is not an issue for us but it.

I'll take the time to also mentioned at the call, we do things that way because when we buy away from the U S. We try to use.

Local currency.

In the form of long term very low rate debt.

And over.

The period from about 2017 through 2020.

A significant portion of our acquisitions were overseas that's why.

Leverage temporarily got higher than it normally would if we were used if we were buying only in the U S, where we use a lot more equity rather than debt.

<unk>.

So that's that.

Our outlook on currency for the most part has been very successful so far and.

We don't we don't see any changes.

Is that just.

Because I understand that the capital hedge.

Obviously, you are buying at a higher yield than where the debt is that.

Do you hedge the income on top of that or would that be exposed to currency moves.

We don't it would be exposed to currency moves and of course, the income as income stream over decades. So obviously you cant you cant hedge that at best you can hedge out maybe three years.

And that's not always the case frankly.

And again, you only need to do it or you only need to consider it if we're bringing if we're changing the currency, if we're earning say in euros or pounds Sterling and yet we want to bring that home into dollars. That's when you have exposure to a currency.

Issue, we just don't have that yet.

And so did that when you were doing your run rate what did currency have any impacts of it.

No.

Okay, and then one other one.

Watsonville I know it was a small deal but did that impact your run rate calculation at all.

No because that doesn't flow through <unk> anyway.

Okay.

Thanks, a lot guys really appreciate it.

Sorry go ahead.

Well I was just going to say.

We're not earning any more on that $31 million that obviously the earnings on the principal does flow through at <unk> I think that has an impact of less than $1 million.

Yeah, that's what I thought it was a small number.

Thanks, guys.

Our next question comes from Derek Johnston with Deutsche Bank.

Hi, everybody and sorry, if I missed this but on elevated labor costs. So we know wage inflation is here to stay but some expense components, notably high agency utilization by health systems, whether it's due to COVID-19 call outs shortages or even isolation guidelines.

Now they can be multiples of normal wages. So do your.

Operators have a timeframe when they believe overall labor expenses will we track back to a normal run rate.

Well not exactly but I think they think that the third quarter and the fourth quarter and a tiny bit in the first quarter is the peak and then it starts going back to normal levels after that.

So you would think by June of this year, we should be seeing more normalized overall labor expense at health systems.

Thats certainly helpful.

Like we say another very had come through.

Well I'm with you there alright, guys Thats. It for me. Thank you most of my others have been answered.

Thank you there.

Our next question comes from Michael Carroll with RBC capital markets.

Yes. Thanks, I just wanted to follow up on the behavioral investment and you are looking at growing in the behavioral I guess, mainly with the primary investment in the UK.

Is that country in the behavioral product big enough for MPW to partner with another operator or will most of your investments and focus kind of growing as priority.

Well sadly it is not big enough anywhere here in the U S. We have a very very fragmented market. We wanted to be in the behavioral health for very long time, and it's been very hard to Dubai scale. We did that obviously with the spring stone, we obviously have been able to do it with Priory really was only one other operator that.

Had any size Ramsey acquired it recently and so there really isn't.

Any size left in the U K, there will be small additions to it but but there arent any additional really big investments.

Okay, great. Thanks, guys.

That concludes today's question and answer session I would like to turn the call back to Ed <unk> for closing remarks.

Thank you very much and again, thank all of you for listening in if you have any additional questions. Please don't hesitate to call. Thank you very much.

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

Okay.

Yes.

[music].

Yes.

[music].

Good day and thank you for standing by welcome to the fourth quarter 2021 Medical properties Trust earnings Conference call.

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

After the presentation, there will be a question and answer session.

To ask a question during the session you'll need to press Star then one on your telephone keypad.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to Charles Lambert Vice President. Please go ahead.

Good morning.

And welcome to the medical properties Trust Conference call.

To discuss our fourth quarter and full year 2021 financial results.

With me today are Edward K Al 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 it.

Billable 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.

And future events to differ materially from those expressed in or underlying such forward looking statements.

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 accordance with Reg G requirements.

You can also refer to our website at medical properties Trust's 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 joining us this morning.

Record years during the worst worldwide pandemic, we've seen in modern times.

Following on a record year for 2000 22021 was another remarkable year in the past almost 20 years of MPT, which Steve will discuss in more detail.

2021 was also another banner year for acquisitions MPT continued to execute on our acquisition strategy to amass another $3 $9 billion in investments across five different countries and NAND with nine different operators five of which were new operators.

After including these acquisitions in our portfolio, we have 53 operators that manage over 435 MPT owned facilities worldwide.

To recap the year from an acquisitions perspective, we began the year with a $1 billion plus the investment in the leading provider of behavioral health in the United Kingdom. The Priory Group. This investment included the real estate of 35 behavioral health facilities located throughout the U K as well as a nine.

9% equity interest in the operating entity.

This transaction highlights an important strategic relationship with water land, a private equity investor with whom we have had an ongoing relationship for many years.

What began years ago as our first investment outside the U S has grown into a relationship with one of the largest multinational health care providers in the world, but now merged median and Priory enterprise.

These 18 facilities are purpose built inpatient facilities located carefully selected U S markets. This transaction closed in October of 2021 as.

Behavioral health care is estimated to be 200 billion dollar plus market in the U S with only 40% of that market currently accessed the.

The hospitals in which MPT has invested will continue and we will continue to invest in both here and in the U S and abroad, we will play a significant role in addressing these needs.

Ship with Macquarie infrastructure partners. This Macquarie controlled subsidiary will acquire a 50% interest in a portfolio of eight, Massachusetts based general acute care hospitals owned by MBT and operated by Steward Health care system, the transaction values the portfolio at approximately $1 7 billion.

<unk>.

We expect this transaction to close in the first half of 2022.

The other previously disclosed transaction that we announced in 2021 that we expect to close later this year is the agreement to lease substantially all of our Utah hospitals to HCA healthcare.

This will place HCA is one of Mpt's five largest tenants and reduce the percentage of mpt's portfolio represented by steward to just below 19%.

Fortunately the much talked about omicron variant of code that has not caused much disruption to the health care services provided by our operators.

While the vast majority of the staff at our portfolio of hospitals have been vaccinated the disruption caused by the minority who are not.

<unk> has had an impact on our labor cost as a result labor costs have increased and in some cases services have had to be temporarily reduced or limited to.

Despite these challenges our operators are managing through these times and continuing to perform well.

<unk> the parent company financial information for.

For the trailing 12 months of our total acute care portfolio generated an EBITDAR coverage of three <unk> times versus $3 11 times last quarter trailing 12 months.

We reported Q2 2021 trailing 12 month coverage on 303 during last quarter as a result of moving three behavioral facilities.

<unk> into prospect to the behavioral health property type. The Q2 2021 trailing 12 month acute care coverage being reported this quarter is $3 one one times.

<unk> segment generated an EBITDAR coverage of three two times versus 327 times last quarter trailing 12 months.

The RF coverage for the trailing 12 months was $2 <unk>.

<unk> versus $2 12, trailing 12 months, we reported the Q2 trailing 12 months coverage for 2021 of two four times during the last quarter as a result of selling the encompass Fort Lauderdale facility and removing it from earnings for Q2, 2021 trailing 12 months coverage.

Being reported today was $2 one two times.

Due to our recent behavioral health acquisitions, we've initiated reporting coverages on this property type this quarter, which generated an EBITDAR coverage of 192 times for the trailing 12 months.

Year to exceed expectations Steward continues to closely manage the on boarding of the new facilities, including working down the accounts receivable to steady state levels in the near term the latest Covid surge is having an impact on the volume in Q4 and early into Q1 as Massachusetts.

Third some elective procedures, there Stuart and expect that most of these deferred procedures will still be performed at their facilities. Prior to the end of Q1 <unk>.

Circle, which represents 11% of our portfolio continued to show strong coverages their coverage for the third quarter in 2021 reflects stabilization at a high coverage level driven by a robust increase in self pay volumes, which provide for increased reimbursement I'd also like to highlight the 2021.

Ward received about circle in November for excellence in acute health care services with a focus on innovation prosper.

Prospect, which represents 7% of our portfolio is doing well in California, and showing some softness in Pennsylvania, and Connecticut. They are seeing some rising labor cost as the rest of the country has.

But rebounding surgical volumes are helping to offset those costs with growing revenues most of the labor issues prospects are occurring at their Pennsylvania hospitals.

Several prospects, California facilities have recently been recognized with top excellence in five Star quality Awards from health grades helps.

<unk> scope, which represents 5% of our portfolio continued to show quarterly EBITDAR increases.

Spike periodic government suspensions of certain elected for surgeries due to the pandemic revenues remained steady and patient days are increasing MBT continues to partner with health scope to make additional investments into renovations and improvements at our hospitals in new South Wales and Victoria.

For women's health care.

Priory, which represents 5% of our portfolio report solid operational performance that is in line with our underwriting expectations Priory has only reported one quarter of operational and financial information to MPT, thus far but that one quarter is right in line with our underwriting projections.

Head of prior year.

Ernest which represents 3% of our portfolio continued to perform at the very top of the market coverages for their <unk> and <unk> are both near end or above all time high coverage levels as a result of solid volume and revenue growth in 2021.

There for underserved urban communities, especially as they experience and disproportionate impact from the global pandemic.

Like me some of you may be a lifelong reader of National geographic. If you are you probably saw a cover story. They did last year and the lack of trees and lower income neighborhoods in urban areas. The article, particularly focused on L. A it has always been imported <unk> to make an impact on the communities we serve.

In addition to its healthcare needs, we contacted and established a relationship with an entity called city plants, a not for profit organization in Los Angeles that distributes implants, approximately 20000 trees a year in areas that lack access to the many environmental and health benefits of robust <unk>.

We have recently made a sizeable donation and members of our staff travel that law. The physically work with this organization with their <unk> planning to.

2022 is shaping up to be another great year for MPT. Our pipeline is robust our portfolio is diversified not only from an operated perspective, but also from a geographic perspective as well as from an asset class perspective, given our recent large investments in behavioral health space.

Steve.

Thank you Ed.

This morning, we reported normalized <unk> per diluted share of <unk> 47 for the fourth quarter of 2021.

Along with <unk> of <unk> 36.

Continuing the extraordinary double digit year over year quarterly growth that we have recently reported.

On a full year basis, our normalized <unk> of $1 75, and <unk> of $1 37 also represent the continuation of double digit growth.

Our record virtually unmatched demand not only our peers, but the entire universe of REIT with a similar or larger market cap.

As a reminder, this growth comes on top of 2020 results and which normalized <unk> per share growth exceeded 20% and <unk> grew at a similar mid teens rate.

In fact over the past 10 full years, we have delivered normalized <unk> per share at compound annual growth rate in the mid <unk> and mid <unk>, respectively, while maintaining an average net debt to adjusted EBITDA ratio in the mid five times range.

As usual there were a few items that impacted our reported earnings and corresponding adjustments to normalized <unk> for the quarter first each quarter, we recognize a change in the market value of our investment in the securities of our tenant Swiss medical network apparent EBIT.

This year this quarter I should say, a $5 $4 million gain.

Also each quarter generally accepted accounting principles require us to present certain cost as MPT expenses, even though they are contractual obligations that are reimbursed by our tenants.

These charges amounted to approximately $4 8 million for the quarter and we included this amount in property related expenses and offsetting revenue of a similar amount in our income statement.

We recognized roughly $25 million in debt costs, primarily related to our refinancing in October a 500 million euros of unsecured note, which effectively lowered our annual coupon from 4% to less than 1%.

Finally, we recognized gains exceeding $84 million for various properties and equity investments divested during the quarter, and which I will detail momentarily.

In November we purchased our partner's 50% interest in EMEA at Valencia flagship private hospital in Valencia, Spain, where roughly 46 million euros.

Because of the high development yield that we are already earning on our initial 50% interest in this facility and the economic benefits of capturing the previous third party investment and asset management fees, along with the control is the 100% owner, we expect this to become one of our most attractive European hospitals.

Also on the growth side construction commenced on our new campus for widely regional Medical Center operated by Stewart in Texarkana, Texas They.

The original facility, which is owned by other real estate investors has been serving the community for more than 120 years and the new campus will provide state of the art care to a larger portion of the local population.

MPT expects to invest nearly $170 million and the approximately 120 bed facility with rent commencement under our master lease expected in the summer of 2024.

The fourth quarter was a relatively busy one for one off dispositions MPT completed the long pending sale of capital Medical Center in Olympia, Washington for $135 million <unk>.

Including a $33 million gain representative of a mid teens internal rate of return over mpt's period of investment.

We also sold an inpatient rehab facility in Fort Lauderdale for roughly $27 million.

Collecting additional strong gains.

And we agreed to facilitate our operators sale of our Midwest hospital by selling the related real estate for about $63 million that also includes an attractive gain.

We expect this to close in the second quarter of this year.

Finally, we sold five former adept as freestanding emergency Department properties.

In addition to the substantial capital and the gains generated from our real estate sales. We also completed the sales of our equity investments in median and <unk> for 40 to 42 million euros in gross proceeds virtually all of which is gain.

These represent the most recent two examples in our history of highly profitable equity investments and certain of our operators.

Collectively MPT received and is under agreement to receive approximately $300 million in proceeds from dispositions during and after the end of the quarter.

On the flip side, we recognize the likelihood that our loans, including our dip loan to the bank Rep. Watsonville Hospital project may not be collectible and recorded a net charge of $31 million.

Progress continues as expected on both our anticipated partnership transaction with Macquarie infrastructure fund related to H Stewart facilities in Massachusetts as.

As well as our expected lease agreement with HCA healthcare for five Utah hospitals commensurate with their acquisition of the operations from Stuart.

Taking into account the <unk> dilution of the joint venture remember, we are selling 50% of our high yielding steward, Massachusetts hospitals that.

The change in the straight line calculation that I, just mentioned inflationary rent increases in pro forma revenue for certain underdevelopment.

Projects, we estimate our annualized <unk> run rate to be between $1 81, and $1 85 at.

So including inflationary rent increases.

The great majority of our leases have annual or other periodic contractual rate increases driven by inflation, including floors generally in the 1% to 2% range.

The effect of those floors is included in our cash rental revenue regardless of actual inflation.

Inflation during 2021 substantially exceeds these floors, so our 2022 and future rental rates will reflect incremental increases.

We estimate that this incremental cash rent in 2022 will approximate $24 million or.

Or <unk> <unk> per share.

This is tangible measurable demonstration of one of the key strengths of the MPT model.

Because the great majority of our debt is at fixed interest rates.

Even in a rising interest rate environment, we expect to realize higher rents when our interest expense is rising only modestly which will certainly be the case in 2022.

These future assets are of course not included in the fourth quarter result, and in some cases will not be for several quarters.

Similarly, certain revenue that is included in the fourth quarter results, primarily revenue from 50% of our steward, Massachusetts assets that are pending sale to the joint venture and the non cash straight line rent I just mentioned, we will not be included in future quarters. These.

These items alone.

Net of the benefit to refinance refinancing activities and investments since we introduced this range in early September .

<unk>, an approximate annualized <unk> per share.

And in addition to the impact of assumptions related to leverage reduction underpin our current guidance range and the pro forma six point O times leverage mentioned in this morning's press release.

Beyond this we assume no other investments or capital markets transactions, and we'll plan to update the market in the future as they occur.

Our pipeline of opportunities for 2022 is robust and we continue to expect domestic opportunities to make up the majority of our near term activity.

This alone is expected to further lower our leverage as we generally use relatively higher levels of equity funding for domestic versus non U S investments.

While still generating accretive investment spreads.

In addition to the multiple forms of common equity issuance.

It can accomplish this.

Within certain pricing parameters.

We are confident that we are in the early stages of development of a global market that we helped greatly to create.

With our execution, we have historically delivered and we believe we will continue to look to deliver in the foreseeable future well covered cash dividend outperforming <unk> growth and value creation with a conservative approach to funding. This growth that have made it a substantial total shareholder return outperformer over virtually.

<unk> any period.

In fact going back to our 2005 IPO, we have delivered total shareholder return of 661%.

Recently over the past three years that notably include two plus years of global pandemic and accelerating inflation, we have returned 73% to our shareholders.

And even in 2021, we generated a 14% one year total shareholder return.

Almost incredibly for a company that started with three unpaid founders and no assets and listed on the New York Stock Exchange. One year later, we have created eight 7 billion and value for our many thousands of shareholders.

With that I will turn the call back to the operator for questions operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.

Our first question comes from Tayo Okusanya with credit Suisse.

Thanks.

Yes, good morning, everyone. Congrats on the solid results.

Two quick ones from me first of all Ed and as well as Steve you did talk about <unk> quite a bit on kind of the increasing risk of rising labor.

On some of your hospital tenants.

Could you give a sense of some other things we're doing to come back that.

What potentially the impact would be on rent coverage as we kind of look into 2022.

Well Tayo welcome back glad glad to have you on the call.

The short answer is I think we've seen the worst I think that the numbers are reflected.

Some of the third quarter there'll be reflected in some of the fourth quarter.

Stingley to me, we haven't had many labor issues as many labor issues in Europe as we are having here in the U S things that they've done.

<unk> scaled back some of their services adjust their schedules and obviously use contract labor, obviously contract labor is extremely expensive, but <unk> been through this before with other type markets and it and despite that youll see that all of them continued to perform very well. So all of them believe that this is Sean.

Term and that we won't see any long term effects from this.

Gotcha. That's helpful. And then the second question is around Prime again, much smaller part of your portfolio now, but they do constitute most of your <unk>.

Lease maturities in 'twenty two.

Is that probably a bunch of purchase options.

Behind some of those leases as well could you just kind of talk about how that shaping up.

Ability of them exercising the purchase options on how we should think about that as we're modeling in 'twenty two as well.

So tayo you you point out well Thats, a mid 2022 exploration of the initial term prime has.

Typical options, one of which is to repurchase the facilities.

In which case we.

He would receive because it's a fixed repurchase option for those facilities very unusual in our portfolio, but it's around $350 million debt. If prime elected they as you pointed out could actually repurchased those in which case, we would we would reinvest.

Likely would be something of a diluted reinvestment, because we're earning pretty high rates on those now.

Alternatively, we can negotiate a.

New lease or even an extension of the old lease, which which in our experience is what happens in the great majority of times and and what we believe will happen here.

Finally of course prime can simply walk away from those hospitals and because they are extraordinarily profitable and cannot be replicated in those urban and California markets. We think that's an unreasonable option for them.

Either they tried to approach system for the <unk>.

We knew the leases.

That's right yes.

But again given that cost of capital has been improving of late though I mean would you add.

I got to renew at current rents because again like I said, that's a very high yield.

Yes.

We have about six months and we've already started talking to prime about this I probably wouldn't wouldn't speculate now about what what the terms of again, we expect will be a new or an extended lease, but probably not prepared to talk about a potential terms.

Okay.

Great. Thank you congrats again thanks.

Thanks Tayo.

Our next question comes from Steven Valiquette with Barclays.

Alright, great. Thanks, good morning, everybody.

Good morning.

So my question is on the Legislative front for the U S Hospital sector.

My understanding is that there is a push for another COVID-19 relief bill that could come to fruition as early as this month.

And most of the money is earmarked for the U S Hospital sector and I guess as part of this there is some talk for the federal government to potentially.

Forgive any remaining Medicare receivable loans that were taken out by some of the hospitals earlier on in the pandemic.

Guarantee it will be in the final version, but I guess my high level question around this is where does medical properties Trust stands right now.

Your U S portfolio of hospital operators that May still have some of these federal loan still outstanding.

And is this something that's on your radar screen as a catalyst to further improve the cash and liquidity profile of some of your operators.

In the face of some of the ongoing labor and staffing challenges that we all talked about earlier.

So let's say the answer to the last part of that question is that our operators are currently probably in the best liquidity and cash positions as they've ever been in the history of Google collectively in the history of <unk>.

Certainly not going to speculate on whether or not this bill will get passed or whether they get attached to a bill that gets passed.

As Europe people have stated if it doesn't get passed before.

The middle of summer that I don't think it will get passed at all given that this is an election year.

I think that for the most part there are a number of rural hospitals are hospitals that weren't operating in 2019 that probably need some additional funding I don't think that any of our hospitals.

Any of the hospitals in our portfolio, we will suffer if they don't get any additional of all of our hospital operators have either repaid all of their advances are in the process of it being recouped in the normal course of business under the CMS rules and regulations. So it is not something that were there.

We're counting on is not something that we think if it doesn't happen that is that is that it's a terrible thing for hospital operators and.

I'll leave it at that.

Alright Thats helpful. I appreciate the color. Thanks.

Our next question comes from Michael Carroll with RBC capital markets.

Yes. Thanks, Ed can you provide some color on how the company's thinking about new development I know that in the press release, just announced a pretty big one with Stuart I know HCA announced that they plan on building five new hospitals I mean is this a bigger trend in the hospital space just going forward and if so will someone like <unk>.

They prefer to do that themselves or is this something that MPW can help outlet.

Well if you.

Remember, Mike you've been with US a long time.

The widely hospital was originally owned by Isis and the redevelopment of that hospital was planned long before it was a steward acquisition.

Acquisition. So it's a facility that we've been looking at for a very long time and is just to reiterate what Steve pointed out we don't own the existing hospital and widely but we've been looking at the replacement facility for a long time.

Folio I have not studied the announcement that HCA made about their Texas, and Florida, new facilities that there is a.

Land on building, we certainly hope with the HCA.

Transaction in Utah, and obviously, we worked with them closely on that on that list I've been in this business for 35 years I've got friends at HCA and hopefully we can continue to build on that relationship. We certainly have done development deals is the very very beginning of <unk> I think that we will do some more but.

I don't think that Youll see a very large increase in the percentage of development deals that we continue to do okay.

Okay, Great and then just talking about I guess some of your funding strategies and maybe theres a little bit deleveraging included in guidance.

Do you need to fund future investments.

I know there was talk of a second joint venture I mean is that something that the company is considering now or are you willing to issue equity at these prices I guess, how do you weigh the differences between those two options.

So.

Mike We went through at least in my comments kind of a list of capital that's available to US. It does include common.

Common equity, either and or ATM underwritten offerings.

We will continue to consider the types of joint venture.

Access to capital that we did with promoting all and more recently with Macquarie.

I really don't think you should overlook also it may not be billions of dollars, but it is very important to look at the proceeds we received a $300 million I mentioned that we received on.

Just kind of our own recycling assets.

And on retained earnings.

Main cash, earning from an <unk> perspective.

<unk> to several $100 million over.

Over the course of the foreseeable future. So all of those are available to us.

Certainly nothing where we are announcing today, obviously, but we continue to.

To be thankful.

And encouraged that all of those types of.

Capital access is available to us.

Okay, Great and Steve would you consider I guess forward equity offerings kind of pre fund some of your investments that youll likely due in 2022 is that kind of come across your desk yet.

So when we've looked at the forward structure first of all you have to start with.

Regardless of whether you have got a forward component and you're offering do you want to offer equity and the pricing and the discount on all of that so that comes first and then maybe you want to use some some portion of that as a forward the problem with forward that we've always had at.

At MPT and Saudi remains even though is going away as we get larger and larger is the lumpiness and the and the inability for us to predict with any precision a large transaction.

If we were to start doing more more developments as you just suggested.

A minute ago than that.

That provides opportunity when you know that over the course of several quarters youre going to be drawing down construction funding, but we're not in that position right now.

Now the guidance the guidance reflects our full calculation for CPI with respect to your earlier question most of it you're right, especially in the U S probably virtually all.

All of the bumps occur on January one of each year that that deferred is in some of the other countries also were different than some of the other countries as the measurement itself.

CPI in the UK is not identical to what it is in the U S and sometimes.

A different reference is used there is there is a retail price index in the U K for example that some of our tenants prefer and frankly, it's not it's not much different so so we're pretty agnostic toward it.

As well as we have core CPI.

In the U S and.

In 2021 runs at Oran, it upwards of 6%.

That doesn't mean that we got 6% of course, because many of our leases have ceilings in the 4% to 5% range.

But whatever we collect whatever whatever we will earn over and above our floors is reflected.

In the $1 81 to $1 85 guidance.

Okay, great. Thank you.

Our next question comes from Jordan Saddler with Keybanc.

Hey, guys. Good morning, I wanted to.

Kick off on the pipeline if I could.

And the press release.

And some of your prepared remarks, you alluded to the robust pipeline of new opportunities.

We are early February .

Early days in the year.

But maybe can you.

Give us a little bit of flavor around what you.

Cooking and maybe line of sight.

Now in terms of investment opportunities.

Sure Jordan most of it continues to be general acute care hospitals.

While we haven't given an exact range of where we think will be this year.

I think it'll be in the $4 billion range that we did in the last two years.

As Steve has pointed out we're being very very.

Cautious in.

And trying to use the best sources of capital and doing our our pipeline ignoring the capital uses.

Our pipeline it could be as big as we wanted it to be but I think if you realistic look at somewhere between 1 billion and $3 billion is probably is probably the right range.

And would you expect.

What would the mix be U S versus <unk>.

Rest of World.

So thats really hard to say exactly most of it most of what we're looking at right now is in the U S, but things pop quicker sometimes in other places so.

Probably the most conservative would say 50 50, but.

Probably more likely more in the U S.

Okay.

And then maybe Steve just one for you.

Just sort of rounding out the sort of sequential.

Lack of a change in the run rate normalized <unk> guidance range, maintaining the range $1 25, a couple of things have happened obviously.

Yes.

The CPI escalator.

Positives and then.

As an offset.

Macquarie in the closing any adjustment related to the straight line rent.

Basically just offsetting one another.

So all <unk> year sequential ASIC.

Sequentially versus your prior guidance.

Yes.

High level in general Youre, absolutely right.

But between the.

The straight line rent change, which again ill point out is in noncash noneconomic change for us but between that are offsetting.

Great part of the CPI plus.

<unk>, we've continued to grow modestly since we established that one 181 to 185 the leverage has creeped up as you would expect from wherever we were back then around six to today, it's explore and because we're maintaining that six point.

Metric.

It just requires a little bit more dilution to get back to <unk> than it did.

A quarter or so ago.

So it's really those those three primary components that offset each other now and Theres details there is ins and outs.

But it's primarily the ones you mentioned plus plus the.

Incremental dilution that we need to get back to six point up.

Okay.

I Misspoke Macquarie was in the previous guide I know so yes, so it's basically <unk> <unk> of upside from the.

Incremental CPI adjustment that youll be able to recognize.

Offset by a couple of pennies from lower straight line rent and some additional dilution from some capital raising yes.

Yes.

And on the <unk> of CPI.

<unk>.

We do accrue taxes were not yet in taxpaying situations, primarily in the in <unk>.

From the U S of course, we don't pay taxes on real estate income in the U S and other countries we accrue.

And so that chips away a little bit at that four cents of CPI.

Half as much as a penny out of the four.

But again, that's just one of those into announced that I mentioned there are a few others.

All of which is why we left.

We left the guidance where it is.

Okay, and then is there anything in the normalized run rate.

Guide related to the prime expiry.

Or is it accurate that we.

No no.

Okay.

Thank you guys.

Our next question comes from Mike Mueller with Jpmorgan.

Yes, Hi, Steve.

Steve just following up on the against the guidance when we think about the cash bump going up because of the escalator goes up your GAAP rent is staying the same though correct.

Yes, correct.

Got it.

Hey.

And then separately.

It sort of cap rates, we think be thinking about this year in terms of acquisitions.

Well from the GAAP perspective, and again following up on Ed's bias towards the U S which.

Lets just say its 50% I think I think I think you mentioned is probably higher than that.

But.

The most recent deals we've done and disclosed on a GAAP basis.

Probably are or where they were this time last year and through the summer maybe with some upward pressure due to inflation, but we're still looking at on a GAAP basis, certainly U S.

Hi, <unk>.

Got it.

And then maybe just circling back to the guidance one more time the run rate guidance. So.

If we have the straight line burn off coming from the transition what's the offset to that if your GAAP rent change isn't.

Your GAAP rents arent changing because of the bumps.

While the offset will be.

<unk>.

We'll be collecting more cash rent.

And I don't know if that answers your question, but we will continue to collect the cash rent due to inflation without respect to the straight line rent.

Okay.

I'll follow up offline okay. Thank you.

Our next question comes from Joshua <unk> with Bank of America.

Hey, Rod.

Just I know you talked about the prime purchase option, but mainly of the I'll call. It.

Or.

What else what else is under.

Tenant purchase option.

Particularly interested in knowing if theres any other in 2022.

2023.

No I mean that they are.

We have 400 something hospitals, so it could be wrong, but there's certainly nothing that would even begin to move the needle other than prime in 'twenty, two and I don't think there's anything different for 'twenty three or four for several years following.

Okay. Okay.

That's it for me.

Our next question comes from John Pawlowski with Green Street.

Great. Thank you for the time.

A few questions on recent disposition capital Medical center asset in the Western claim medical complex could you share the NOI cap rate on those sales.

The sale cap rate.

Don't have that at my fingertips, but.

I'm not going to guess, but that was a very but both of them are very attractive, particularly the the capital both of them were very attractive significant compression.

<unk>.

But below what we were earning.

Okay.

There anything yes.

Yes.

These are core assets at one point they shifted towards the disposition bucket other than price what else changed in terms of the outlook of these assets over time.

Lauren a disposition sale.

Well both of them were part of master leases.

And.

We are always.

Evaluating.

A large portfolio typically at the master leases are working with and trying to accommodate the needs of our tenants we like to be a good landlord.

Which is one reason we have been able to grow so fast I think.

There is nothing specific in other words, we didn't go through the portfolio and say that when no longer meets our investment criteria.

It is for the most part as as our tenants are large master lessees.

Evolve their own portfolio that we try to be helpful and usually always frankly.

It's very helpful for us at the same time.

Okay.

Makes sense last one from me I may have misheard it.

At the beginning remarks, Steve.

The impairment or the write off of the mortgage loan can you provide some context.

<unk> south.

So this is the watsonville property out assuming you are talking about this is in Santa Cruz, California, We bought this property rate before.

Covid hit.

So the new operators were just operational with it in 2021 of the problems with the funds grants that hospitals received during COVID-19 , whereas it was based on operations in 2019. So this hospital operator got very little to no.

<unk>.

Grants federal grants from Covid or Medicare advances from Covid. So that is the primary reason coupled with some other just market issues.

Local community bad badly wanted to.

Reacquired the facility through their hospital local authority and Thats, where we are right now.

Okay. Thank you very much.

Our next question comes from Vikram Malhotra with Mizuho.

Morning, Thanks for taking the questions.

Maybe just stepping back we will see.

<unk> JV and the value add.

It was done.

You had.

Had any conversation even maybe somewhat.

With other large manager existed in the hospital space and maybe just give your thoughts more about.

The underlying value of certain.

Piece of the portfolio after sort of doing the.

The JV with Macquarie.

So.

When we announced the Macquarie transaction several months ago, I think even at that time, we announced we talked about the high level of interest.

<unk>.

From from other potential partners that.

That had been going on for a while we actually did began a formal process.

With the Massachusetts properties and got a tremendous amount of interest and.

And jumped pretty quickly because we saw.

Macquarie is being a good eager partner.

That has only increased.

We're certainly not in a position.

Haven't begun to market any other portfolio.

But we think we've got a tremendous amount of opportunity.

Particularly across the longer term to continue to acquire assets. The way frankly, we think we we only are able to do.

Mature those assets season them.

Work with the operator, just like I just mentioned.

Two to improve the portfolio and then it becomes very very valuable. So we think that will play an important role going forward for us.

Thanks, So much and then just on the comment you made initially.

Just sort of the more global nature now.

Has there been any change in the competition, especially post some of these larger deals and whether it's in the U S or any of your other global markets and just new players looking at this space.

No not not in the near recent past there hasnt.

The issue has been for a while just as I mentioned.

See the inflation protection see the infrastructure like nature of the asset and want to capture that long term cash flow, but they recognize it does take an extraordinary level of expertise that very few Reits that compete with us have because naturally we we built the company with hospital.

So.

Until until we see.

Competition that has built with hospital people, who really have the capability of underwriting very complex hospital systems in government and so forth.

We don't think the competitive environment is going to change too much.

Okay, Great and then just last one on the.

Inflation environment so far.

Now again, most of our U S leases.

Our pretty standard we measure inflation year and it takes effect on January one.

And then of course, we do it again next year, so, but but inflation the inflation escalation starts whether U S or not as star Tom on a date specific.

Usually January one.

But there's no carryover it does it doesn't.

Yes.

It doesn't.

Come in over time, I will point out though that on January one.

Rent raises and then it compounds.

For the next 30 or however, many years that the properties under lease so it is it.

It is a very powerful.

Component of our business story.

Great makes sense. Thanks, so much.

Our next question comes from Andrew <unk> with Wolfe Research.

That impact your boundaries.

Currency, you said well, yes, I mean, we're up.

We're always thinking about currency of course, and you may remember Andrew I mean, when we did the first deal, which really set the pattern for US back in 2013, we bought a portfolio that became median and we used 100% debt financing.

And in Europe that was a German portfolio and Thats. The pattern. We tried to follow when we had followed two to a great extent and that protects us from currency volatility at least on the asset side.

On the earnings side, that's a little bit.

Kia.

I'll take the time to also mentioned at the call, we do things that way because when we buy away from the U S. We tried to use.

Local currency in.

In the form of long term very low rate debt.

And over the.

The period from about 2017 through 2020.

A significant portion of our acquisitions were overseas that's why.

Leverage temporarily got higher than it normally would if we were used if we were buying only in the U S, where we use a lot more equity rather than debt.

<unk>.

So that's the that's our outlook on currency for the most part has been very successful so far in <unk>.

We don't we don't see any changes.

Is that do you.

Understand that the capital hedge.

Obviously, you are buying at a higher yield than where the debt is that do you hedge the income on top of that or would that be exposed to currency moves.

No we don't.

Would be exposed to currency moves and of course the income.

As an income stream over decades. So obviously you cant you cant hedge that at best you can hedge out maybe three years.

And that's not always the case frankly.

Issue, we just don't have that yet.

And so did that you were doing your run rate work did currency have any impacts of it.

Sure.

Okay, and then one other one.

And Bill I know it was a small deal but did that impact your run rate calculation at all.

No because that doesn't flow through <unk> anyway.

Okay.

Thanks, a lot guys really appreciate it.

Sorry go ahead.

Well I was just going to say.

We're not earning any more on that $31 million that obviously the earnings on the principal does flow through at <unk> I think that has an impact of less than $1 million.

Yeah, that's what I thought it was a small number on your size. Thanks guys.

Yes.

Our next question comes from Derek Johnston with Deutsche Bank.

Now they can be multiples of normal wages. So do your operators have a timeframe when they believe overall labor expenses will we track back to a normal run rate.

Well not exactly but I think they think that the third quarter and the fourth quarter and a tiny bit in the first quarter is the peak and then it starts going back to normal levels after that.

So you would think by June of this year, we should be seeing more normalized overall labor expense at health systems.

Well Thats certainly helpful.

Unless we see another very headcount growth.

While I'm with you there alright, guys Thats. It for me. Thank you most of my others have been answered.

Thank you there.

Our next question comes from Michael Carroll with RBC capital markets.

Yes. Thanks, I just wanted to follow up on the behavioral investments.

Looking at growing in the behavioral I guess, mainly with the prior investment in the UK is that country in the behavioral product big enough for MPW to partner with another operator or will most of your investment and focus.

Brian its priorities.

Well sadly, it's not big enough anywhere here in the U S. We have a very very fragmented market. We wanted to be in the behavioral health for very long time, and it's been very hard to Dubai scale, we did that obviously with the spring stone.

Obviously, you have been able to do it with priory.

With only one other operator that had any size Ramsey acquired it recently and so there really isn't.

Any size left in the U K, there will be small additions to it but but there arent any additional really big investments.

Okay, great. Thanks, guys.

That concludes today's question and answer session I would like to turn the call back to Ed <unk> for closing remarks.

Thank you very much and again, thank all of you for listening in if you have any additional questions. Please don't hesitate to call. Thank you very much.

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

Q4 2021 Medical Properties Trust Inc Earnings Call

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