Good day, and thank you for standing by. Welcome to the Q1 2021 Medical Properties Trust Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Mr. Charles Lambert. Thank you. Please go ahead.

Thank you. Good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2021 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the Company; and Steven Hamner, Executive Vice President and Chief Financial Officer. Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at medicalpropertiestrust.com in the Investor Relations section. Additionally, we’re hosting a live webcast of today’s call, which you can access in that same section.

Thank you, Charles, and thank all of you for listening in today for the Medical Properties Trust First Quarter Earnings Call. 2021 is shaping up to be another fantastic year for MPT. More on that in just a few minutes. But before I move on, I’d like to once again express our appreciation for all of our hospital operators and the nurses and doctors and other health care workers across the globe that have fought this deadly disease. They faced the dangerous head on like a fireman running into a burning building, while simultaneously saving hundreds of thousands, and maybe millions, of lives. We remain in awe of all of their bravery and commitment to their patients. The pandemic has troubled the world a lot. And in particular, for our industry, there is no second-guessing the need for hospitals, especially acute care hospitals. The world could not have survived without the hospital industry this past year, at least in our lifetimes. People will continue to have to come to hospitals for their acute needs. The advancements in outpatient services and particularly in telemedicine have helped to funnel patients to hospitals. Today, because of the technological advances in services, such as telemedicine, hospitals are seeing a whole new group of patients they wouldn’t have seen before.

Thank you, Ed. This morning, we reported normalized FFO of $0.42 per diluted share for the first quarter of 2021, a 13.5% increase versus last year’s first quarter result. And this comes on top of the 21% annual FFO growth for calendar 2020. And even before we begin to fully recognize the contractual 8.6% GAAP lease yield on the recently closed Priory transactions and before any additional 2021 acquisitions. And by the way, it is notable that AFFO grew at a similar rate. This provides for continued capacity to increase our dividend, as we did last quarter. As a reminder, our run rate guidance of $1.72 to $1.76 is an estimate of the expected annual FFO for our in-place assets, plus other assets that are under development or binding agreement to acquire. Taking simply 4x this morning’s $0.42 per share would yield an annualized $1.69 per share, obviously within a few pennies of the run rate guidance. There are a handful of items that are included in our run rate that were not yet reflected in the first quarter’s actual results and vice versa. These include: First, the GBP 800 million real estate loan that we funded to close our purchase of the Priory Group is to be replaced with sale-leaseback arrangements on 35 high-value behavioral hospital facilities. When this is completed, which we continue to expect during the second quarter, we will begin recognizing lease revenue at that higher rate than the current interest rate on the existing real estate loan.

Your first question is from Sarah Tan with JP Morgan.

Just one question on the $335 million loan that was extended to Steward. Could you talk a bit about the long-term plan for that and any strategic reasons going down the road there?

The loan, the investment that we’ve made on both Steward and in the Swiss Medical Network, is part of our original business plan. So for those of you who’ve been with us since the beginning, you’ll know that we have done this a lot. We’ve had the opportunity to take advantage of our health care knowledge. And some of you will know that my background is actually in hospitals. And when we put the company together, most of the people that we hired have backgrounds in hospitals. So from time to time, we have the opportunity to make these types of investments, and we have and we’ll continue to do so. Where we’ve made these investments in the past, they have been highly successful. Probably our very first and biggest investment with Ernest Health Care, in which case we earned a tremendous return on that. So the next largest one would have been Capella Health, again, which propelled us into our relationship with LifePoint and Apollo, again, a fantastic return. But in addition to that, we have equity investments in tenants such as MEDIAN, our German operator. And by doing these types of investments, it continues to provide us with additional avenues to make the real estate investment and align our interests in the same place as our tenant. This is a long-term investment that we’ve made with Steward. We think it’s a wonderful opportunity and are excited to have this potential opportunity. It’s also an opportunity we weren’t necessarily expecting for the Swiss Medical Group, but glad it came along, and I think it just further strengthens our position with that particular operator. So nothing new here from the standpoint of our business plan, part of the original business model, and things that you’ll continue to see as we continue to grow.

Sure. Just one follow-up on the question. Like with regard to the loan itself, could you give us a bit more color on sort of the rate at which you’re extending that?

The rate is a nominally profitable rate for us. The goal of the investment is not necessarily to earn a high profit interest rate. As Ed has just described, what it does is better align us with the Steward strategies, with growth opportunities. And in this particular case, it gives us additional opportunities to participate in any value increase in Steward.

Your next question is from Steven Valiquette with Barclays.

So one common theme that we’ve seen across some of the publicly-traded hospital operators recently is that a higher acuity patient mix is more than offsetting the admission declines relative to the pre-COVID baseline. We’re actually seeing EBITDA upside from a lot of the operators on the public side. So if you are able just to speak high level, whether you’re seeing any similar trends or feedback from some of the private operators in the U.S.? And also is that a trend that might be somewhat prevalent among international operators? And as a quick follow-on, sort of a similar question, do you have any sense whether the treatment of COVID patients is more profitable on average versus non-COVID? There’s been some debate around that, so I wanted to put that question out there as well.

Thanks, Steve. Absolutely, I’ll address those. So, we are indeed seeing with our operators the higher acuity levels and thus the higher profitability. I’ve discussed this in some of the past earnings calls. One of the things that has not come back for anybody is things like ER admissions or visits to the ER. They’re still hovering around 69% to 70% of what they were in 2019. But that’s actually a good thing. As we all know, way too many people come to the ER, and you don’t get as many admissions from those types of patients as you do today. Today, with higher acuity levels that are coming there, you see a much higher percentage of admissions from the ER. Same thing with the surgeries and other procedures. What’s being done are primarily the higher acuity levels. As I mentioned on the last two earnings calls, our operators were forced during the height of COVID in the early days to really tighten their belts on the expense side. They continue to be able to do that. So you’re seeing an overall profit margin higher than what it was previously with somewhat lower utilization levels. Now most of the utilization levels in our operators today are essentially back where they were in 2019 with the exception of the ER visits. But the answer that you’ve seen in the last two or three publicly reporting companies is exactly what we’re seeing in our companies as well. It’s slightly different internationally; they probably are seeing a higher utilization volume than what we’re seeing in the U.S., but you’re still seeing because of the tightening of the belt and some of the ways that the foreign governments handled their payment to hospitals, which is where they generally handled payment of the staff and the workforce, you’re still seeing higher profit margins there as well. So all in all, all the way across the globe, our operators are in very strong positions.

Okay, great. That’s helpful.

Steve, let me answer your question about the COVID profitability. It’s not a highly profitable area. I think everybody would just assume that COVID patients are losing money, but they’re certainly not losing money at this point on the COVID patients.

Your next question is from Jordan Sadler with KeyBanc Capital Markets.

On the line for Jordan. I just want to ask about the expansion into New York with the new office lease. If you could provide some more color on your thought process there? Maybe what percentage of your employee base could be based in New York? And also any color on the pipeline and some of the deals you’re seeing in the market would be appreciated.

So we’ve had an office in New York for a long time. We have space that I think the date was somewhere around right after the financial crisis, I think, is when we entered into this particular lease. We’re committed to New York. We think it’s very important to have a presence there, particularly with some of our acquisition team. We have overall corporate staff of about 130 people in the New York office, so we currently have about 6 people, I believe. And with the new office space, we’ll probably be able to more than double that. But in the near future, we’ll probably get that number up to around 10 people. So it’s not a large percentage of our overall staff, but we do think it’s important to have an office there, and we had the opportunity to upgrade the office space to expand the office space. It’s a very similar location to where we are now and we are excited to have it being put together in the near future. As for the pipeline, almost all of the pipeline continues to be general acute care hospitals. It’s probably split 50-50 internationally and in the U.S. Most near-term opportunities are U.S. acquisitions, and that is almost exclusively in general acute care hospitals. We are seeing some movement in the U.S. in behavioral health. As we all know, that market is still very, very fragmented. We do see some additional opportunities in the inpatient rehabilitation segment, but even that is just a small number. It won’t move the needle from that standpoint. But that’s where most of the acquisitions are right now.

Your final question is from Michael Carroll with RBC Capital Markets.

Steve, can you explain how the Steward loan will help MPT profit on the potential upside of that operator? I mean, is this a straight loan? Or is there some type of equity component tied to it, too?

No, there’s no equity, but there are opportunities other than a direct equity to over time recognize opportunities to capture value increase. The details are not going to be disclosed.

Okay. And then, I guess, can you talk about the reasoning for this one? I think you said it was planned. I mean, was it just simply to take out the PE fund and does that allow Steward to operate any differently today? Or did those big control changes occur when that convert was originally issued in, I guess, the middle of last year?

No, it’s a good question, Mike. It does remove some prohibitions that the former private equity sponsor had that do allow Steward more freedom to grow and also create the kind of value increase that we’ve just been talking about. And specifically, Steward had a tremendous amount of liquidity and equity value available that found its way to us by virtue of that $11 million distribution we commented on, that would not have been possible under the prior structure.

And Mike, let me add with the prior equity sponsor out, it is truly a physician-owned company now with approximately 600 physicians involved. The thinking process is obviously much more long term and much more aligned to the thought process with MPT.

Okay. That makes sense. And I guess, on the dividend, now that some of these issues with dividend distributions have occurred, should we view that as more of a one-time type of occurrence? Or is that going to be more recurring down the road on a quarterly or annual basis?

No. I don’t think you should expect any predictable periodic distributions. Things go very well as we hope, and there will be further distributions as conditions dictate. But no, don’t build that into some model that we’ll be expecting X amount every X quarters or anything like that.

Okay. And then I guess, just finally, can you talk a little bit about the joint ventures? I mean, are those still under discussion right now and potentially planned for the back half of this year? How should we think about that?

So we have no timing. Other than to answer the first part of your question, yes, we continue to discuss various, as I mentioned in my remarks, different portfolios that could be dropped into a joint venture at the same time, having direct discussions with multiple potential partners. We do feel, again, as I mentioned, that we have the luxury of time. We have nothing pressing that would make us have to do something. And the market just continues to get better in our view. So yes, we continue to have discussions. We have nothing new to announce specifically. But we do see this as a very attractive way to access very efficient capital for us.

Has COVID slowed those discussions down at all? Or is this really just driven by MPT? Just trying to think of the right time for you guys to be able to do something like that.

No. COVID has really had no impact on it.

There are no further questions at this time. I’ll turn the call back over to Mr. Ed Aldag for closing remarks.

Thank you, Erica. And again, thank all of you for listening in today. We remain very bullish on MPT. Excited about the remaining part of 2021 and the future ahead. If you have any additional questions, please don’t hesitate to reach out to us, and we’ll be glad to get back with you. Thank you very much.

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