Q1 2020 Earnings Call
Good morning, and welcome to the Q1 2020 Medical properties Trust earnings Conference call. It is my pleasure to during today's call over to Charles Lambert Treasury, managing director Mr. Lambert the floor shores.
Good morning.
Welcome to the medical properties Trust conference call to discuss our first quarter 2020 financial results.
With me today or your ever K., Aldag Junior Chairman, President and Chief Executive Officer, If the company and Steven Hamner Executive Vice President and Chief Financial Officer.
Our press release was distributed yesterday and furnished on form 8-K, with the Securities and Exchange Commission.
He did not received a copy.
Available on our website.
Www Dot medical properties Trust Dot com in the Investor Relations section.
Additionally, we're hosting a live webcast of today's call, which you can access and at that same section.
During the course of this call, we will make projections and certain other statements that maybe considered forward looking statements within the meaning of its private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to known and unknown risks uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed pandora underlying such forward looking statements.
We refer you to the company's reports filed with the Securities and Exchange Commission for discussion of the factors that could cause the company actual results or future events to differ materially from those expressed in this call.
The information being provided today is out of this great only and except as required by the federal security laws. The company does not undertake no duty to update any such information.
In addition, during the course every 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 is reconciled on all non-GAAP financial measures that are most directly comparable GAAP measures in accordance with Reg G requirements.
You can also refer to our website.
W.W. Dot medical properties Trust Dot com for the most directly comparable financial measures and related reconciliations.
I'll now turn the call over to our Chief Executive Officer It out there.
Thank you Charles Good morning, and thank all of you for joining us today for our first quarter earnings call I.
I want to address our portfolio and the Corona virus Cobot 19, but first allow me to acknowledge the incredible work and sacrifices to healthcare workers all over the world if they keep the rest of the bus healthy and say.
Many of these workers risk their own lives to say brothers in fact in places like Italy, where we have eight hospitals. Many of these healthcare workers became victims to the virus themselves I'd like to offer our sincere gratitude to these workers and sympathy to all of their families.
It's pandemic has brought an unprecedented focus on health care access delivery and particular hospitals never has it been more parents. Then it is today of the importance of hospitals worldwide. Our hearts had been broken by the tragic stories pictures and videos of devastating repercussions or this deadly bars.
And our Hearts had been warm as we have seen the good and mankind as individuals businesses and governments have come together to assist those impacted physically financially and mentally by this terrible disease.
Sure. So proud of all the health care providers and workers not only across the nearly 400 MTT own hospitals, but also throughout the world is they battled this pandemic and sacrifice sometimes with their own lives.
Our portfolio of hospitals and hospital operators remain financially strong they continue to meet their financial obligations.
People MPC collected more than 96% about rental revenue and based on the reports from our operators and information we've been able to review we expect this trend to continue.
Across our portfolio, our hospitals have treated thousands of tainted by getting patients.
Following government directives, all hospitals, including those in entities portfolio stop most if not all elective procedures.
Please keep in mind that elective procedures does not mean, they're not medically. They are medically unnecessary just did they are ones that can be delayed.
These procedures will still need to be before operators across the globe expected there will be a large backlog of surgeries they will need to be done once we all come out of the pandemic prices.
Our operators had been able to rightsize their staffs and operations to account for this temporary deferral.
Both internationally and domestically, we have seen our post acute care provider step up.
Step forward to assist acute care hospitals by offering their value add capabilities.
Bad for the transfer of certain patients from acute care settings, thereby creating additional capacity repopulate 19 patients in the acute care facilities.
We've also seen operators worked in close alignment with their respective federal and local authorities to ensure appropriate poured nation into provisions of health care services. During this time of prices.
One example of this has been in England, where private health care providers like MPT portfolio operators circle in DMR and Ramsey have reached a temporary agreement with National Health services to fully aligned operations in both the public and private sector in order to ensure that the capacity needs are accomplished with.
This alliance, England can arrange for the appropriate allocation of resources, both human and material.
Sorry points is tier.
MPT is absolutely supported the this extraordinary cooperation agreement as a part of this agreement by the NHS is to ensure that operating possible hospitals are met including but not limited to facility ret.
The same scenario is being played out with our operators in Spain, Italy in Australia.
Another example is into hard hit northern region of Italy, where amputees portfolio, operator, Pdm and other private and public hospital systems have been working together to meet the high demand for patient care. These collaborative efforts will be compensated as the Italian government government issued a degree law.
Indicating the possibility for tag in regions through increased reimbursement for all health care operators, including the private ones that cared for cobot Nike Inc. Nations <unk> non <unk> 19 patients were simply made their beds available by delaying non life threatening procedures at the request with the government.
These increases were big exempt from the limit on health care calls set by regulators previously issued.
In Australia Health Stopes continues to work with the Commonwealth States and territory governments to secure arrangements for providing health care services to respond to cope with 19.
In Switzerland, our operator, the Swiss medical network worked very closely with the federal government and each can do developed and implemented plan for dealing with this virus. They expect to be back to full operations in late may or early June.
In Germany, our largest German operation median has performed superbly media and expects to their overall operations to remain strong throughout the year Andre and his team it'd be didn't have done an outstanding job adjusting to the move it might seem virus.
During the height of the prices I wasn't daily contact with the Ceos of all of our largest operators I cannot stress enough how proud I am with each of them on how they've handled this pandemic and cooperation that they offered to MPG and to me personally.
As most of you know on April the chance Twentytwenty health and human services announced the immediate release of $30 billion of the hundred billion dollar public health Emergency fund provided for by the Cares Act the fun reimburses eligible health care providers more expenses and lost revenue directly attributable gold.
Good day team. These funds are being released in tranches. The initial $30 billion in immediate relief bonds had been delivered to all facilities and providers they've received Medicare fee for service reimbursements and 2019.
Today, our top five operators have received almost $400 million the stimulus funds. Additionally, they've received almost $2.2 billion in Medicare advances.
Plans have been announced to distribute a portion of the remaining $70 billion.
However operators do not yet no the amount of funding did they received from this robin stimulus. Additionally, Congress and the President of recently agreed to another $75 billion a funding to providers.
Let me now provide a quick update on the lease coverage for our portfolio for the fourth quarter remember that when we report one quarter in arrears. So these numbers represent the quarter ending 12 31 night Jade.
We added a net of one additional facility to our same store portfolio or same store portfolio EBITDARM coverage for the trailing 12 months due for 2019 is essentially flat at 2.7.
Same store acute care EBITDARM coverage is 2.93, which represents a slight decline year over year.
Her EBITDARM coverage is 2.06, which represents a 4% increase year over year and Eltek EBITDARM coverage is 1.93, which represents a 19% increase year over year.
The least cover just for the first quarter 2020 will be irrelevant. When they are reported we will obviously look for other ways to show, how our portfolio and hopefully the world is back up and running.
Remember, what I said earlier, all will be elective surgeries and procedures that had been postponed or stacking up. These the procedures that are still medically necessary and indeed of getting done volume and more will be there when the world is able to focus on providing health care without the threat of building like Jane.
In January of this year, we announced the completion of our largest single investment to date of almost $2 billion and 30, UK hospitals with stark will be m.
As a part of the review and approval process of you Chase competition in markets Authority Circle is expected to the best is Bath in Birmingham Hospital operations. Both of these hospitals are in news stated the arc facilities that MPT own prior to the B.M.I. acquisition and we're confident in the ability to find suitable replacement.
Operator.
We continue to have a large active pipeline of projects and you're working as a part of the cobot 19 prices several new opportunities that come to light.
We're confident that we will be able to act on these opportunities but at this time do not believe it would be prudent to try to predict when these will occur.
We remain very bullish on MPT and hospitals throughout the world.
As the first and only pure play hospital reach MPT has always seen and understood. The importance that hospitals plays the Keystone and foundation of health care delivery systems throughout the world.
I've always said it is impossible to imagine our healthcare systems without hospitals and at times like this I don't think anyone can at this time I'll, let Steve door, the specifics about financial performance and our very strong balance sheet Steve.
Thank you Ed.
I want to take most of our time to focus on our future outlook and expectations concerning rent collections liquidity capital expenditures and growth opportunities, but first let me briefly review a few matters that are part of our historical quarterly results last night, we reported normalized FFO of 37 cents per diluted share.
For the first quarter of 2020.
As you. We're all aware, we do not provide calendar earnings guidance, but rather run rate annualized estimates of normalized FFO generally based on in place asset and a normalized capital structure.
The 37 cents per share we reported last night is consistent with our estimate range of $1.65 to $1.68 taking into account among other reconciling items to follow first as it just mentioned we closed the $2 billion circle BMI transaction in early January.
Subject to the lease agreement that was in place immediately prior to the closing of the transaction.
We had agreed with circle being mine to amendments just to terms of that lease agreement that will become effective upon the approval of the transaction by the UK competition and markets authority.
That amendment increases the gap lease rate and we will begin recognizing rent based on the newer higher rate had these new terms than in effect for the entire quarter, including all of January our 37 cents per share normalized FFO would have been 2.4 cents per share higher all.
Else equal.
The way and again as Ed mentioned as you May has concluded that only two markets in the UK will require circled to dispose of any operating subsidiaries. This will have no impact on MPT pro forma run rate because we're not required to dispose of the related real estate assets, so unless we elect to sell the underlying real estate.
Or otherwise amend those leases any new operator will assume the leases with their existing terms.
Second the Golden Star extraordinary financial performance in market, leading shareholder returns in 2019, which by the way we delivered the sector, leading 39% total return to shareholders.
And also for the three five and 10 year result, we're now required to assume similar outperformance with respect to the performance hurdles in our share based compensation estimates.
And that is even in the face of the potential impact at the coated prices may create.
These mandated assumption to result in increased expense accruals over the next three years, even though there is no assurance that we will continue to generate the levels of operating performance and of total shareholder return that will result in that maximum payout.
For example, if our actual performance is it only the threshold rather than the maximum outperformance level the quarterly FFO would increase by approximately another one penny per diluted share.
In general as a result in a bit effectively doubling the size of the company in 2019 and growing FF FFO per share by more than 25% in 2020.
Our 2020 share based compensation expense is expected to increase by approximately two and a half million dollars per quarter in excess of the 2019 accruals.
Finally, I will point out a few other items in the quarter that are notable even though they do not affect normalized FFO.
Almost two years ago, we disclose that we would no longer include rental revenue from a relatively small relationship in our pro forma run rate and we simultaneously recorded impairment charges related to their respective real estate.
Facility that the operator ceased operating and closed last year.
The impact of the cobot situation that resulted in our decision now to offer to get this facility due the local municipality.
Resulting in a charge in the first quarter of approximately $9 million.
Again this has no impact on any previously recognized revenue or on our run rate normalized FFO estimates.
Similarly, the cobot impact on traffic at freestanding emergency facilities around the country, let us to reevaluate certain of the freestanding ers that remain leased to affiliates of Adeptus and we have recorded an impairment on those remaining facilities of approximately another $9 million.
We simultaneously wrote off an aggregate of about $7.7 million of accrued straight line rent related to these facilities.
As a reminder, and a summary of Adeptus when Adeptus filed for bankruptcy in August 2017, we had committed to approximately $415 million of investment in about 60 facilities.
Today after almost three years post.
Bankruptcy.
We believe the current value of those facilities that we retain along with proceeds from sales in the interim is at least 450 million.
And while we have no current plans to dispose of them even in today's pandemic conditioned. We're confident that there is a deep and vibrant market for such facilities that are leased to investment grade locally dominant healthcare systems, such as the University of Colorado Health Common Spirit health care, which was formally dignity.
And Catholic health initiatives and Oscar clinic.
Finally, we recorded an approximate 10 million dollar noncash unrealized loss in our common equity investment in E. This who most of you will recall this the parent company of our large Swiss hospital, operator, Swiss medical network, the second largest private operator in Switzerland.
Swiss medical is fully paid up on incremental obligations, but because even as his primary businesses, our hospitals and luxury resort hotels, we're not surprised that as a relatively thinly traded public company. Its equity value has suffered along with other healthcare and hospitality companies worldwide.
While we of course cannot provide absolute assurance, we are hopeful that as conditions returned to normal with respect to switch helps create health care and luxury travel the value of our either stock will also returned to normal.
Moving onto the future.
As we disclosed last night in our press release and based on these limited exceptional items. Our first quarter results are right in line with our expectations and we are able to reaffirm our annualized run rate guidance and its previous range of $1.65 to $1.68 per diluted share.
This range could change, possibly materially if the impact of the coated endemic causes our hospital operator tenants to be unable to pay us their rental obligations a risk. We described in the April 820, 20, 8-K, we filed with the FCC.
And is also subject to risks described in last Night's press release and any other risk factors described in our most recently filed 10-K.
But at present, our expectation is that we will collect materially all of the rent in interest currently called for under our lease and other financing contracts. We based this confidence on among other information to follow.
We collected 99% of all payments due for the first quarter.
In April in the depth to the pandemic, we collected 96% of all payments do.
We continue to expect to collect all of the rent in interest that its do pursuant to our existing lease and loan agreements.
These payments by the way were made by our tenant even before the receipt of the government grant and advances that Ed mentioned.
Our largest five U.S. operators, who comprise 65% of our global monthly cash expectations received in April alone approximately $2.6 billion in grants in Medicare advances.
Our way it perspective, this represents more than 10%.
Their combined 2019 net revenue.
And again as Ed mentioned in the most recent tranche of additional government cobot stimulus hospitals were allocated another $75 billion and support.
In each other country, where we have hospital investments the respective governments have offered support to compensate our operators for lost revenue. So that these hospitals will be available for coated patients.
But even if after all of this immediate in liquid and future support certain operators are nonetheless faced with temporary cash flow pressures that result in delayed rent in interest payments. We believe these operators will be able to recover over a relatively short time and catch up on their pain.
It should be clear by now that as we appear to be moving into the back half of this once in a century global crisis. We are very optimistic about the outlook for hospitals and npts areas of the world.
Most of you have heard as they many times they live in B T people do their jobs and underwrite hospitals that serve a true need in their communities.
Those facilities are like infrastructure.
If they were to close or for any reason could not treat the citizens in their areas health care suffers people suffer.
Our view remains that communities governments providers pay ores and investors will join us in that belief more strongly than ever and that even if in the near term financial pressures on hospital operators become greater than we presently expect MPT is extraordinarily well positioned to transition.
Through any such pressures and take unique advantage of what we expect will be newfound support to maintain overall hospital facilities to be prepared for future challenges to the world's acute health care needs.
Even over the past several years that we have invested to deliver unmatched growth those investments have been well underwritten prudently financed and as evidenced by our results in the first quarter and sense have contributed great strength to our platform.
That strength includes that we have more than $1.8 billion in immediately available cash and liquidity with no debt maturities for two years and only minimal ordinary course required capital expenditures.
Our largest single exposure to any hospital represents less than 3% of our total investments.
And the great majority of our Phil facilities around the World are part of Master leases that produced the strength that comes with diversity and multiple unconnected markets.
[noise] most reassuring if we needed prove it has been abundantly provided that into countries that NPT invest in people will not be turned away from hospitals, regardless of cost and regardless of ability to pay.
Even more than the statutory support provided by the government to these countries. It is there citizenry there are people who for generations have demanded and been willing to pay to assure that hospitals are available when needed even.
Even if that need occurred only once in 100 years.
And with that I will turn the call back to the operator for any questions.
Thank you.
I would like to ask an audio question. Please press star followed by the number one on the telephone.
Once again that is far one question.
And your first question from the line of Derek Johnston with Deutsche Bank.
Hi, everyone very good afternoon.
Witnessing no is.
Hi, we'd like you know as much as possible about the international impacts and what the funds are available outside the U.S. to assist hospitals and operators.
Through similar circumstances as we see here in the U.S.
Essentially any forms of cares Act international version or other assistance for your international operators that you can walk us through.
Sure. There this is that Uh huh from the from the international standpoint keep in mind that for the most part they were a month or more ahead of us. This crisis. So we were able to see.
Their reactions were going to be and what the overall affects it was going to be on the various hospitals.
Steve mentioned earlier in every single location that were in the government has stepped up to assist hospitals understanding the very important need of all of them and providing care to their citizens. It's been very different from location to location, but it has all been extremely supportive as I mentioned earlier.
The UK as an example of the NHS went with the.
The procedure, where they would actually have reached an agreement with the top five largest private operators whereby they would in essence control those hospital beds to make them available.
Not so much for the cope with 19 patients, but for the non posted 19 patients and in return for that they agreed to make all of the operating Paul So those operators, which includes the rental segment itself, so very very safe and secure issues. There in Germany. It's been the two different things are post acute care.
Operator, which is our largest operator in Germany, that's performed exceptionally well the government recognized the need for the post acute care providers to be able to take a patient from the acute care hospitals to allow the speaker hospitals to be able to have patients beds available for the overnight Jane.
And so that that worked very very well our hospitals.
Post acute care sector in Germany were able to adjust them just a few weeks minimal.
They actually projected they will do they have so far done better and the in 2000, and we need and they have in 2019 for the same period, obviously, Germany has just recently reopened so we'll get to see how how the grown krona virus works in a reopening of the societies from the standpoint.
Of the acute care providers, our Q <unk> largest provided there is autos and they remain very financially strong.
They like the rest of the world had not seen the number of Tobin patients I think we all expected in the acute care hospital situations, but they have a very very strong balance sheet have a tremendous amount of cash and have also been done protected with what they referred to as number all over the bad so they've made available to the government.
And in some of the other states like Switzerland, and Italy, and Australia, it's more fragmented because it's more state involved in it is federal government involved but in each case, they have gotten the assurances or actual payments from the local governments to compensate them for making.
They're beds available for either October 19, or for the non cokemaking patients moving out of the public hospitals, so doing very financially well there even even in Italy, where they didn't hit the hardest in Spain. Our two most recent hospitals, they're primarily cancer base.
Hospitals, the government has transferred all of their cancer patients from their public hospitals into those hospitals their financial situation. The also remains very strong. So we feel very good about our international hospitals.
As well as our domestic hospitals here in the U.S.
Okay, Great and just one more for me so back to the U.S. So the carriers acts set aside over 100 now it seems to be 175 billion.
To assist hospitals in the form of grants and and I believe these are largely with no repayment. So as the capital flows through to hospitals in the U.S. as some has already I guess the question is.
How much will these grants assist your hospital operators and getting through this tough time and ultimately as it enough.
So I want to reiterate the point that Steve made at the tail end of his presentation could I think it's very important for everybody to here and to understand long before the care is that the long before any of our domestic hospitals here in the U.S. received any funding additional funding or through the carriers that.
On the various from the federal government. The our hospitals were all in good financial shape and we do they all paid their April rent and we didn't expect them to have any issues. They all rightsizing. Their staffs are they were able to move very very quickly and adjusting their expense levels and so even before any of them received.
The first dollar of funding from the care that they all believes that they were going to continue to be in good shape from from their their strong balance sheets and their ability to rightsize all of their operations now.
I don't think we yet know exactly how much of the of the funding the they'll be able to keep long term. Obviously there is the grass. But then there are also the Medicare advances at this point the Medicare advances, but they received or four as a far larger number then to grants.
The repayment schedule for that is said well there obviously, there's been some talk about extending that as well, but but I won't want us all to remember that as we go through the Finalization of those particular payments that are hospitals were doing well before they received those payments.
Very helpful. At thank you.
Thanks Terry.
Next question.
Exactly.
Barclays.
Hi, Thanks, good morning.
Good morning, Steve.
So a couple of questions for you first of all because we follow the hospital sector periodic we got a pretty good view that that federal grant money because the most for will be treated as revenue and EBITDA or let's call. It EBITDAR. So I think when you're sort of calculating your coverage ratios going forward that will be in there.
So.
I I guess I feel that plays out but is there any color you can provide you give any insights on where some of those coverage ratios are shaking out right now that you can share.
I wish I might have.
Just across the overall portfolio or is it just too premature to give any numbers around that.
Yeah, it's really too pretty pretty mature, Steve and remember that of the $2.6 billion that are taught a hospital operators have received to date only 400 million of that represents the grants the rest of it or in Medicare advances that.
So little up in their exactly how how that'll be be treated in the long run, but if you look just overall across the board.
Hospital operations are probably down 30, or 40% that's a from from like.
Everything from surgeries.
He our goods is never everything obviously the numbers vary from different sections of the country.
For instance, the northeast obviously didn't hit much harder than than the rest of the country that places that that some of our hospital operators haven't had any cope with 19 patients. So they they've been sitting there are pretty much totaling their thumbs with a much reduced staff. So it's hard to say what the coverages are going to be but we obviously.
Focus for the last 30 60 days on or what is the cash balances and their ability to pay rent without having this additional revenue and it's all very strong and we we as we pointed out we don't expect anybody to two missed their rental payments on a substantial basis and we don't expect any body.
Ah, but no one has asked for any rent abatement, a the 4% in the rental payments to Havent been collected we still expect that those will be collected at just the defer or delayed.
It was going to be the follow up actually with for that 4%. How much of that is maybe like you know officially deferred under some sort of signed agreement or if it's just kind of more of a handshake of hey don't worry it'll still be favorites sort of answer that.
Yes, they see the vast majority of it 99.9% of that is is from hey.
Can't can't make the full pay but right now, but we will make it up and so it's more of a handshake. We haven't had we haven't had anybody else for social requests other than some very very small tenants that we have as an example into Portugal facility that we acquired last year. It we are too small a tennis that one.
And so Dennis and I can't remember what the other is but other than that there hasn't been any formal request.
Okay, all right great. Thank you.
Your next question is from the line of Michael Carroll with RBC.
Yeah, Thanks at or Steve I know in the I'm in the press release that you guys put out last night. There is some commentary on the strength of your investment pipeline.
And how that continues to grow what's your stance right now on new investments I mean, how aggressive are you willing to be I mean has that been delayed here in the near term or is that something that you're still pursuing right now.
Oh, My God I think all of it has been delayed Oh, we certainly haven't lost anything we continue to work on it but thats as a the cobot crisis really got a hot and heavy even though the people that were working on it whether some of the other side that have delayed the.
There there need to push it as well, but as I mentioned in my prepared remarks, we've had a couple of things that have come up post the coated prices that we believe are great opportunities, but not large numbers. So so I think some of those that we can take advantage of because there are opportunistic that just.
Aren't very large numbers that will affect our liquidity and in a very important way.
And do you think that the this current environment has I guess changed private market valuations a little bit to allow you to pursue deals earlier than you would have previously expected or is it 40 in there on the valuations putting in they're better than you thought.
Mike I'm not sure anybody knows exactly what effect. This is going to have long term on the valuations.
I certainly don't have any push back where we have had been working hard on any any transactions to get to the point of closing so I can't give you any real numbers and whether anybody.
Exactly where I think the cap rates will end up if I had to guess right now I think the delay there will be slightly higher than where they are today.
What I do think that that we'll see in what we are saying is that some of the one off operators just on the unrealized as they just don't have the ability to handle situations like this and so some of our larger operators see great opportunities with further consolidation in some of those areas.
Okay, and then Steve can you provide some commentary on the I guess, the Gionee expense uptick in one Q 20, I know you kind of mentioned this in your prepared remarks is that mostly due to the equity compensation and that's a good run rate. We should expect going forward just given the performance that that the company that deliver over there.
Past few years.
Yeah. The at the answers are yes, and yes. It it is mostly due to the increased accrual of the performance based share.
Which is driven again as I tried to mention.
By our past history, when when our accountants look at I'm estimating a really what's a wide range of potential outcomes for for share issuance and in the compensation plans. We're now in a position where we have to assume that we're going to continue this extraordinary.
The performance that we've done over the last several years you know again last year is 39% total return to shareholders. We doubled the size of the company.
We are positioned now our guidance is that our per share FF FFO will increase by upwards of 25%.
Now you know whether long term all of that is sustainable in three years from now when we look back will we have met all of those hurdles I don't know we would all love to think so and if we do then then that will be great, but if we don't then of course these accruals.
Those were making now that that that are the reason for the increased DNA.
They think they won't actually be paid out and regrettably the way the accountants work, they won't let us reversed that but but but nonetheless, you're absolutely right. That's that's the.
Primary reason for the increase and a your second question, yes. It is a good run rate.
Okay, great. Thank you.
Your next question is from the line of Josh what generally of Bank of America.
Hey, good morning, guys. Thanks for all the Hey, Josh.
I'm just curious.
Give some more color on the 4% the portfolio.
Hey, Brad was that.
No one specific tenant was it more than one and then and then is there any color you can provide unlike geographic or maybe like commonalities across operators or or hospitals that kind of didn't pay rent.
[noise], Josh it is less than a handful of operators.
It's generally a situation where they didnt pay all of the rent.
But have assured us that they will catch up all of that rent shortly.
As I mentioned earlier.
There isn't any one that's asked for an abatement there isn't any one that we've had to do any lease amendments to and we are based on everybody's a cash situation. We believe that some of the those ones that have deferred some rents. They continued to have a tremendous amount of cash on their balance.
Jake.
They had there's just been hoarding cash for whatever.
Reason.
The cope with the fear of the Kogut continuing longer than I think some of us it will.
Got it thanks, that's it for me. Thank you appreciate it.
Thanks, Josh.
Your next question is sort of line of Jordan Sadler Keybanc.
Thank you I just wanted to follow up on the.
The the Gionee as part of it but also just getting to the run rate.
Guidance Steve.
[music].
Maybe you can walk us from the almost 40 cents or so of FFO in the quarter, a if you add back the 2.4 cents.
Member.
To the 41 to 42 or so embedded in the run rate per quarter embedded in the run rate guidance.
It sounds like the Gionee is going to stay at the same.
Level. So so what else is expected to happen to drive that run rate higher sequentially.
The.
The big in precision is in the capital structure.
Three months ago, when when we initially put out the 65 to 68, we were in but they normalized environment and today.
Obviously is not normalized certain markets, maybe open but we're not in a position where we need to go into the markets when.
When when we don't think we would get fair pricing. So so there's there's cushion wiggle room uncertainty really around that the other issue would be remember it. It is a run rate and therefore, there are developments that we don't have a lot of developments, but they are.
Marginally a very additive when they come online and so we've we've got.
The the Idaho Hospital, we've got the Birmingham Hospital in England, There a couple of others that will all in make US no another penny or two and so so that's really it its a.
It's not.
No with great precision and it leaves room for us to be flexible we've said we want to get the.
We expect to get the the leverage down to five and a half again when that happens now.
What equity valuation now so so those are the it was the primary inputs.
So it just to be clear it's silly.
It's sort of there would have been an expectation of potentially lower interest expense as a result of sort of going into the markets be it in Europe or wherever.
And now it's just a you wouldn't necessarily do that today, so that penny or two of upside or you know that.
You could see was you can start to see that when things normalize at the right way to think about it.
Ah, yes with respect to the capital both both the the leverage level itself and then even if the leverage level Didnt change say, we stay at 5.9 of the interest cost going into the market. Today is obviously vastly different if they can even.
To be measured today versus what it was a few weeks ago.
So, but but we do hope and expect a and again given opportunities for upside on the revenue side.
That does that that's where the additional I think your arithmetic is right starting with the 40 plus a couple of more sense comes from.
It was there any bad debt reserve or expense taken in the quarter just as a.
You know in terms of ER as a cautious measure just reflecting.
The fact that a 4% wasn't collected in April or no.
No. There there was not I'll I'll take the opportunity to answer your question you Didnt ask and that is there is a new accounting provision that everybody other than banks basically had two out to implement this quarter.
But that was a prior period adjustment to equity it did not impact and it was about around $8 million, where accounts now have to estimate at the time a credit facilities originated how much. It's it's a well lose over the life that facility. So we took a roughly eight.
Eight and a half million dollar charge, but it didn't go into earnings the in the period of implementation. It it hits retained earnings, but no that that had no impact.
It was there a particular.
Lease that that pertain to or was that just across the board in aggregate.
It's just not leases by the way, but it is across the board of everything that's not a straight operating lease so to the extent, we have loans or in the aggregate.
And a in mortgages, even all of that was reviewed and determined that based on history, which is very very difficult because we don't have much of a write off history.
That.
If you look at all of that number and I'm sorry, you don't have the nominal amount.
I'm.
Happy to get that to you, but it's a very very small percentage of the probably billion plus dollars in an exposure.
Okay.
And then on on the top operators I appreciated Ed.
The commentary and the fact that you guys were able to.
Pulled together the total amount of grants and receipt from the federal government.
Can you.
Maybe parse this a little bit more for us and just thinking about these top five in particular.
Or.
Our they're not looking for you to you know.
Tell us who received what per se, but just as you're thinking about it maybe qualitatively who have these are for having the most difficulty in terms of cove it relative to payments and you know if any of these folks.
I have been a source of some of the discussions.
The even having that was referring to I guess and that amendment. The 10-K, you had earlier in the quarter.
And let me the mean reference the 10 Jay first the the 10-K was a typical risk disclosure was not related to any particular tended in fact, if you look at our top five to five tenants and I'll, just remind everybody who they are steward prospect medical Lifepoint Prime and Ernest health all of those.
Operators continue to perform very well, although many of them like Stuart as an example, and lifepoint and prospect medical.
And again those are the U.S. top operations were talking about the cares Act here.
Though they.
Reduced all of their elective surgeries are most of their elective surgeries in the and just did not have that many cobot 19 patients I think that.
Stuart as an example has roughly seven 8000 hospital beds and I think they had roughly a 1000 of hospitalized cobot 19 patients. That's those are roughly the same types of a percentages and numbers that you see for everybody else, but all of them all of those that I've mentioned are performing Gov.
Very well they moved very very quickly early on to rightsize their operations. They they were able to obtain all of the pea that they needed.
He jumped through some hoops in some cases, but but that was never an issue for them ventilators whenever an issue for them.
Ernest Health in this category is the only one that's a non acute care operators.
They actually there the rehab nerf portion is operating very very well there are there eltek operations as you saw from the increase in the coverages earlier have also performed well. So so none of these top of U.S. operators or anybody that we're worried about these these are people that I literally talk to on a on a day.
Only basis during the height of it or at least on a weekly basis now and and updated is as late as up earlier. This week, so I'm confident and all of their operations.
Okay, I'll yield before I think sort of color.
Thank you.
Your next question from the line of Connors Devorski of brain barrier.
Good morning, everybody hope all as well, taking a bit of a long term.
Taking a bit of a long term view on the situation I'm wondering if there's any dichotomy in performance for your larger and smaller operator tenants and then is there any possibility that the fallout from this period would usher in a some M&A activity with those operators.
Yeah. So I think there will be a good amount of M&A activity from the these operators. These larger operators that I mentioned in the group just a minute ago all of them are in a good position financially their balance sheets are in good position as they've got good.
Cash reserves and other liquidity reserves and early on they recognize that there were going to be winners and losers in this and they have their eyes on some people to think we'll make that acquisition targets. I think those are primarily going to be the one offs that don't have the ability to handle a crises like this.
As well as some of the larger more diversified operators to so we think that they are all going to have a great great opportunities there.
Okay, great. Thanks for the color and then another one on ventilator capacity in on working under the assumption that in the state of New Jersey. For example, we've never actually reached ventilator capacity. So I'm wondering if we see a resurgence of the virus come colder months, if there would be a need to cut back on elective procedures event again, or if we could kind of keep the.
Ball rolling in that regard.
[noise] gracious Conrad I don't think anybody has any idea of where we're going to be with this virus and where and when a vaccine becomes available. The good news is is that if we do have a resurgence in the fall into winter months. We've all been here before I think we'll have a better handle on how to operate.
I think that from our operator standpoint anyway.
I think that they will be in a very good position should should we have any resurgence, but up let's let's hope that we don't for the for the whole economy standpoint.
Right I can definitely agree with you there and then a one more for me on the construction side of things.
Any developing narratives that would suggest hospital interiors, we need to be re fit out to mitigate mitigate the spread of respiratory illnesses in the future.
So I don't think so Conor I think that most hospitals are in a good position from having isolation rooms in isolation wards. There obviously has been some some academic type talk about making rooms bigger. So you can convert single occupancy rooms to double occupancy.
And those would be things that we all study for a long long time, I think that the private hospitals are probably in better shape than most of the public hospitals that are generally older facilities and may be less oh, well capitalized. So I think from all the all of the Ceos that I've talked to about this particular issue.
I don't get any of them are concerned about where their particular hospital. Stan you may remember early on the steward was one of the first off operators that actually designated in each one of their regions. The hospital to be there covert patients and I think that that's a good way for people that have more than one facility to operate goes.
Some facilities are better equipped in other support.
Right. Okay. Thanks, very much the color that's all for me.
Your next question is when might have Tayo okusanya within me, though.
Oh, yes, good morning, everyone hope, everyone is keeping safe and healthy.
Gentlemen, I guess one of the questions I would like to ask is when do when we do think about a world where hopefully cool that is behind US all these elective procedures starts to come back.
Going forward, how does one thing about kind of the profitability of the hospital systems.
Going forward, especially in a world, but we have slipped high on employment, you probably have a whole bunch of people.
Who would have been paying commercial will suddenly attack big commercial anymore.
So when you come to think about what could happen to profitability of the hospitals was that kind of sheen's your opinion about kind of tenant credit risk.
[noise] so that's a good question.
I think that if you look at in Europe, where they're getting back to work quicker than we are here in the U.S.
It's a little bit of a different story because of the way. They are reimbursing works from an overall standpoint, let me let me use Switzerland, probably is the best example, they plan to be fully operational and in late may or early June they're actually going to go to a six day work, we scheduled to close the expected.
Volume to be so very strong that they can't get it all dawn and their typical five day work schedule. The various governments there remember switzerland's more of a consideration the boom boom the system that we have here and so you're dealing with a lot of different states there, but the overall.
Plan that they have is that they will increase of their reimbursements to basically have a catch up type situation. The remaining part of the year I don't know that that will continue into 2021 or not a here in the U.S., we hope that most of the unemployment or there's a large numbers of unemployment.
The economy gets back open and working to this won't be like a typical recession, you'll you'll see those workers getting back to the worked very quickly.
But if they're not a if they if they don't have they don't have the healthcare insurance and keep in mind at this point I'm not I'm not sure. If anybody has any exact numbers on that but there's still going to be a reimburse something whether its reimbursed through Medicaid type number or back through some sort of commercial and Medicare.
<unk> number we still believe that the overall impact.
We'll be that when we can get the operations back up and only running the hospitals will continue to be profitable I remember that we were dealing with coverage is in the three and a half times range. So there's a lot of room there.
Okay. That's it that's very helpful. I've been just along those lines as well when would you kind of think about.
You know whether it's for the six months from now a lot of these Medicare advances have to get paid back according to the talent rules.
What what confidence do about that point that kind of elective surgeries and all those things would have come back enough from profitability will be a robust enough.
With tenants can pay back from editor Bath on campy about the interest obligations can continues to kind of paying or rent, but kind of tenda Qs that is the problem going to being four months.
So when the rubber hits, the rude and Russell somebody is going up.
Ah Ah things haven't they get paid back and it puts you know kind of more stress.
On the caspers of a possible systems.
Well that's a good question anti IL and I don't think anybody knows the exact answer of that didn't exactly how I will ultimately end up in the repayment of those but I think the it's been trying to analyze that from our standpoint or your standpoint is now analysts covering us important thing to remember is that even before any of our hospital operators received any of those.
Payments.
We we were assured by them and through our own analysis that they all had sufficient cash to continue to pay their reps. So I think that if that's the is the hospital operations haven't come back in such a matter that that they can make those repayments as a are currently planned two things will happen one is they'll be an overall it.
Just want to what those repayment plans because the U.S. government certainly doesn't want to put hospitals out of business that'll be counterproductive to what they're trying to do here and secondly, if they haven't come back in full the way that a bit we've all expected that they will have come back, but I think.
Some of this cash that they would it plan to use before they received they could use that cash to make to make that repayments.
Got so that's helpful. Oh, the one other one that your indulge me I guess you mentioned that you went really doing anything actively and we've got under writing today, but it didn't just curious with all the uncertainty [laughter] or how would you underwrite a hospital transactions that they like what we did things.
You would have to kind of think about or get comfortable with the pool that for you on the transaction you know if it gets one kind of king.
Kinda stood up by your doorstep today.
[noise] CLL and let me clarify my comment, though we are actively underwriting or we are not actively preparing to close anything any transactions with exception of those are very few cobot related type opportunities that we have that we think are from a timing our opportunistic but those aren't large enough.
Numbers.
From our liquidity standpoint, but from an underwriting standpoint, we're underwriting it as if there were no cope with 19, all the things that we know normally do but there's a hospital needed in that community as a truly part of the infrastructure what Haas what happens at the hospital closes if it if it closes and nobody Mrs. Their healthcare needs.
Obviously this is the same questions that we would always ask and then what obviously has become much more important is the strength of the operator, but as Steve talked about some in his prepared remarks, we've done a really good job, but with our with our growth that we've had over the last five or six years with operators that have really.
The strong balance sheets and good financial position. So I think we'll just continue that trend.
Gotcha, and then one more if you don't mind international operations, they see the field level up kind of drop off in admission volumes that we saw in the U.S. as well like as you Kid, Germany, Australia admission volumes also down 50, 60, 70% as well.
So so yes, and though so it varies from location to location Australia. As an example, so very similar type drops that we saw here in the U.S. and very similar.
<unk> non numbers of cobot 19 patients at Cobiz 19 patients just just didn't materialize like we all thought they would materialize, but Australia hasn't had a the number of covert patients that the rest of the world as of <unk> for whatever reason.
The Switzerland.
They they operated much like you just happened to us in Spain, where the hospitals there have more been responsible for dealing with the non covert 19 patients will transferred from public hospitals are of normal patients. If you will to make room for the cope with 19 patients within other hospitals. There there are some exceptions to that.
I had in Switzerland, they've had a one hospital that that was one of hours that has dedicated been dedicated to the covert 19 patients, but all of them saw an initial drop but in a in Spain and in Switzerland, or they didn't solve the the those patients being replaced with with public patients.
From the public hospitals, Germany is there's a totally different a success story, because it's mostly post acute.
He took about two weeks to revamp their operations to take a lot of patients that would have normally been an acute care setting, but we're able to come out in come into the post acute quicker.
Well they saw about a 30% dropped very quickly, but all of that has recovered. Since then obviously a very very different story in the UK where are the NHS is managing all of the a the bed access this looks it's really hard to to analyze those particular numbers.
Alright, Thank you very much <unk> banks for a lot of the details on the call.
Thanks Tycho.
Your next question, it's Mike, Mike Mueller with JP Morgan.
Hi, good morning.
Just a quick when they might can you talk a little hey can you talk a little bit about what you're seeing in terms of debt availability for the to fruit regions around the Globe Britain and.
Estimated capital cost for those.
Well, we haven't actually then I'm planning to meet any early in the process I think a especially in the high yield area things kind of froze up rates have a spreads I should say have widened dramatically. We wish you premiums have ER.
Just just from observations of the company that that's not really in the market.
All of that is to say from our perspective is we're thankful that that we have a upwards of $2 billion in liquidity and we don't need to access to debt markets.
We are hopeful of course is things come back to normal that the pricing will get back to where.
It where it was before the crisis.
Okay. That's that's fair a that was a thank you.
<unk>.
Your next question, it's minus Cox tender with Wells Fargo.
I think so I hope you guys are well.
We are Todd Thanks for asking sure thing elective surgeries I just to stay in that same [noise].
Really thats top of mind I would think for some investors. Its first health system is getting back on their feet generating revenue. How is your geographic footprint at least here in the U.S. weighted toward states that look to be ofer reopening a sooner than later.
[noise] most of where we are looking to reopen sooner rather than later, so we don't have anything but we don't have anything in New York and we don't have much in the northeast.
So probably Massachusetts would probably be one of the let last stage to reopen for us but.
Florida, Alabama lots or the other west or areas that expect to get reopened fairly quickly now the question will be a as I mentioned earlier, how how place places like Germany, and Switzerland, do because they're gonna be some of the first reopened and then some of the stage here that are reopened quickly, we'll we'll see whether theres any room.
So just me as any effect there, but we've had a lot of a hospital capacity, there's been sitting around waiting for the coded 19.
Patients that that but just get didn't materialize in in a very big way. So I will I think that we'll see in the in May and June a lot of those so surgeries getting backbone.
Those patients Ed that has been either moved out.
The hospitals are really gone to post acute is that fair, whether its rehab eltek, even skilled nursing home.
For home or just state.
Do you see in light of rising appetite from you guys I know, you're certainly more acute care side, maybe a bigger appetite going forward for post acute just in the sense of health care migrating towards the lowest cost setting.
[noise] Todd I think that we'll have some opportunities in Europe from the post acute care setting a slightly different than what we have here in the U.S. and the U.S.. We've always remained strong on the inpatient rehabilitation business. We actually have also like to deltak business. The market just hasn't liked it very much but maybe they've proven there there.
Worse to the industry because they certainly have been very needed in this time frame the real problem for the post acute here in the U.S. for us because there's just not that much volume. So even if we if we doubled what we had now just wouldn't be that much volume.
Okay. That's helpful. Thank you.
At this time there no further questions I'll turn the call back over to Ed ethnic that's our AD dollars.
To close the call.
Thank you Stephanie and again all of you. We appreciate you being on the call today. We appreciate your questions. If you have any further questions. Please don't hesitate to contact anyone of us in the prior so all of your family and Hope you all remain say thank you very much.
Thank you. This concludes today's meeting you may now disconnect.