Medical Properties Trust, Inc. (MPW)

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Call Start: 11:05

Call End: 11:41

Medical Properties Trust, Inc. (MPW)

Deutsche Bank 20th Annual Leveraged Finance Conference Call

October 11, 2012 11:05 AM ET


R. Steven Hamner - EVP and CFO


Henry Reukauf - Deutsche Bank


Henry Reukauf - Deutsche Bank

Good morning. My name is Henry Reukauf. I do healthcare research here for Deutsche Bank. And this morning we have Medical Properties Trust. They’re going to be presenting and Steve Hamner is the CFO of the company and he is here this morning. So Steve, take it on.

R. Steven Hamner

Thank you, Henry. Thank you all and those are listening on the webcast, I do want to thank Deutsche Bank for having us here. We appreciate it. This morning I’m just going to give a little bit of history because most of you probably have some familiarity with this. But I will give you a little bit of history about the Company and then little bit more detail recent history with the idea of bringing us to where we’re today and what our expectations are in the near and foreseeable future.

We’ve been – we capitalize the Company eight years ago, in 2004. We went public in 2005 on the New York exchange. Today we’re about a $1.5 billion, with almost $2.5 billion in total enterprise value. And that comes from zero. You all know – may remember we started the Company basically as a blunt pool. Myself, Ed Aldag, our CEO; and Emmett McLean, our COO are the three founders. And we’ve been with the Company and continue to manage the Company today.

We are the only healthcare REIT, in fact the only Company that we are aware of that focuses exclusively on financing hospital real estate. We buy hospitals, lease them back to the operators, we don’t do assisted living, we don’t do medical office, we don’t do skilled nursing, its licensed hospitals. General acute care hospitals, long-term acute care hospitals, and inpatient rehabilitation hospitals and we lease to the – to some of the strongest hospital operators in the country.

In fact 80% of our portfolio is with the top 10 operators in their field and by that the three characteristics or the three types of hospitals that I just mentioned. We like the hospital business for two reasons. We get to ask the question frequently why did you chose to do this? Because no one else does that and by the way that’s good and bad, that brings advantages and disadvantages. But why did we do it? Our management team all the way down to the lower levels of the Company came out of hospital operations, hospital finance, hospital financial planning and strategic planning.

So we know what goes on inside the buildings that we own. And we think that’s absolutely critical to be able to invest long-term wisely and profitably in hospital real estate. Because once a hospital goes dark for whatever reason its basically a catastrophe.

Now hospitals – and we will get into our underwriting in just a moment to try to describe how we avoid that happening. But hospitals are just like infrastructure in our view. If you purchase the right hospital, its just like the water works. It’s a community asset that has to be in a particular community. And that’s what we focus on when we underwrite.

There are about 5,000 hospitals in the U.S., not all of those are receptive too or appropriate for our financing, but many many of them are. We think that 5,000 hospitals equates to anywhere between $400 billion and $500 billion in value and very very little of that is owned by REITs or other institutions, less than 1% in fact. You compare that to the other types of real estate office, multi family retail REITs and other institutions own as much as 10% or 15% of the value of those types of real estate.

Hospitals are very stable. They very rarely close. Those that you read about closing are of a particular type. Usually they’re typically government owned. They’re not even built to make a profit because they’re built to serve truly the poorest of the poor. We don’t buy those hospitals.

Just going through some of this to try to speed it up a little bit, but again hospitals are a part of the community that they’re in. They’re very difficult to relocate. Hospitals don’t like to move. So when we underwrite a hospital that we purchase, that’s what we’re looking for. Many hospitals, we have hospitals not portfolio for example, they have parts of them that over a 100 years old. And they’re not going anywhere because there is a huge economy and communities that has built up around that hospital and there is nowhere else to go in those particular cases.

So it’s a very, very good business to be in. Despite what you may read, the hospital business is a good business to be in for those who know how to operate. The top 50 percentile of all hospitals in the country, talking about general acute care hospitals are very profitable. The top 25% are extremely profitable with operating margins in the high teens to high 20s. And those are the hospitals that we focus on.

Since the beginning in 2004 when I mentioned that we capitalize the Company, we grown from zero assets, we had zero contract and zero assets to today almost $2.4 billion. You will note there that during the credit crisis between 2008 and the early part of 2010 we stopped acquisitions. We had no issues, we had no cash flow issues, we had no maturity issues during that time, we were just afraid of what was going on in the world as was everybody else. So we put the breaks on acquisition.

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