Q2 2020 Medical Properties Trust Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to Q2, Twentytwenty Medical properties Trust earnings Conference call.
At this time, all participants' lines aren't they listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During this session you would need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your hosts today, Charles Lambert Vice President and Treasurer. Thank you. Please go ahead Sir.
Good morning.
Welcome to the medical properties Trust conference call to discuss our second quarter 2020 financial results.
With me today are Edward carry out that junior Chairman, President and Chief Executive Officer of the company and Steven Hamner Executive Vice President and Chief Financial Officer.
Our press release was distributed this morning and furnished on form 8-K, with the Securities and Exchange Commission.
If you did not receive a copy is available on our website.
Www Dot medical properties Trust Dot com and the Investor Relations section.
Additionally, we're hosting a live webcast of today's call, which you can access in that same section.
During the course of this call, we will make projections and certain other statements that may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to known and unknown risks uncertainties and other factors that make calls our financial results in future events to differ materially from those expressed and are 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's actual results or future events to differ materially from those expressed in this call.
The information being provided today is as of this state only and except as required by the federal Securities laws. The company does not undertake no duty to update.
Such information.
In addition during to the during the course of the conference call. We will describes certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures.
Please note that in our press release medical properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Greg requirements.
You can also refer to our website at Www Dot medical properties Trust Dot com for the most directly comparable financial measures unrelated reconciliations.
I'll now turn the call over to our Chief Executive Officer, Ed Aldag.
Thank you Charles and good morning, everyone and thank you for joining us today on our 2022nd quarter earnings call.
You'll recall that our first quarter earnings call I made the following statement.
Following government directives, all hospitals, including those in MPT portfolio stops and most if not all elective procedures. Please keep in mind that the word elective does not mean, there medically unnecessary just that they are ones that can be delayed these procedures will still need to be performed.
Our operators across the globe expected there will be a large backlog of surgeries that will need to be done once we come out of the pandemic crisis.
As hospitals around the World began to open back up in May and June of this year, we have seen that these expectations were correct.
As has been reported by companies such as H.C.A. and others. The patients have indeed come back. This is also true and Npts portfolio. Most of our operators are back within 92% of where they were in June of 2019 in summer even around or above 100%.
None of our operators in the Cobot 19 hot spots are reporting any issues with cobot 19 patients aurs bed shortages are operators have done a good job in reconfiguring, where necessary to not only be able to provide for coated 19 patients, but also to be able to treat their non toby.
19 patients.
While cold with 19 is continue to change our world healthcare workers in hospital operators, both domestically and internationally. However, robotically continued to keep pace with those changes some of those changes have been providing personal protective equipment for all staff redesigning patient flow rigorous testing and ice.
Relation procedures, enhancing hygienic and cleaning protocols, expanding tele medicine capabilities and re purposing beds to meet their specific needs.
These efforts both individually and collectively demonstrate the ability of hospitals and health systems to quickly adapt and thrive within a changing environment.
Based on lessons learned in the early phase of the pandemic hospitals are now better position to respond to the current surge of cobot 19 cases in some parts of the U.S.
As was expected during his extraordinary time, we saw a decline in our tenant operator coverage for the quarter ending March 2020.
However, even with essentially a halt to all elective procedures worldwide beginning in mid March our overall lease coverage for that period remained strong.
We added two properties, one domestic inpatient rehabilitation facility and one l. tagg to our same store reporting and we subtracted one acute care property.
Our same store portfolio EBITDARM coverage for all sectors for the trailing 12 months Q1, Twentytwenty declined to 2.52 times, a decline of only 16 basis points.
It is important to note that this coverage does not include any grants or accelerated payments from the cares Act.
Same store acute care EBITDARM coverage is 2.67 times, which is only third 23 basis point decline quarter over quarter, and 37 basis point decline year over year Earth EBITDARM coverage is 2.16, which was flat quarter over quarter and actually upset.
15 basis points year over year Eltek EBITDARM coverage is 1.82 times, which is an increase of six basis points quarter over quarter, and an increase of 29 basis points year over year.
MBS portfolio hospitals has historically operated at levels producing coverage ratios among the read industries best and therefore, providing significant cushion for these unexpected declines.
Operators have taken proactive measures to strengthen their balance sheets, while raising capital and slashing expenses as volumes declined.
In fact, our top five largest us operators, which account for nearly 80% of our US investments had combined liquidity of more than $5 billion at June thirtyth.
As you know we had MPT are bullish on hospitals and we have long for each the integral role they play in the U.S. and international health systems and overall economies.
We were also confident that the us in international government shared that same understanding and would step up as necessary to ensure the long term viability of hospitals and continuing to provide quality healthcare to its communities.
In the U.S. the federal government has stepped up the care Zack as part of the unprecedented relief package the care that allocated approximately $100 billion to us hospitals are the largest US hospital operators have received approximately 1.1 point $5 billion in grants. Additionally, there.
Received about $2.2 billion, an accelerated payments for a total of $3.7 billion.
And recall that they currently have liquidity of more than 5 billion, providing ability to repay any of that should they be required to do so.
Our international operators have also benefited from various forms of government relief, including enhanced reimbursement mechanisms and call sharing or offsetting arrangements in Germany. The government is providing additional reimbursement for underutilized bed capacity directly linked to covert 19 as well as providing.
Labour costs offset through his technical unemployment provisions, thus, allowing healthcare facilities to remain there vital human capital in Australia. The Federal Health Minister has confirmed that the federal government will guarantee the financial viability of the private hospital sector in the UK private.
Hospitals entered into a net neutral cost reimbursement operational agreement with the National Health services to ensure full alignment from an operational perspective across the healthcare landscape and ensure quality patient care and needed capacity throughout the pandemic. These arrangements have also provided a share.
As to private hospitals that they will not be unduly burdened during these challenging times.
And these unprecedented time certain circle and BMR facilities have been transitioned into hospitals, providing specialized oncology cardiology emergency and other types of care, which NHS hospitals have traditionally provided reflecting a united approach to the focus on the health and wellbeing of citizens in the U.S.
Okay.
In Italy. The government has created funds to cover the cost of Pp Cobot 19 testing and other cobot 19 related costs has guaranteed up to 90% of loans provided to impacted businesses, including hospitals and has continued its regular national health service budgeted payments to hospital operators.
Regardless of changes in volume.
Similar type efforts have taken place in Switzerland, Spain and Portugal.
These government relief programs and coordinated efforts coupled with already solid balance sheet have provided a from financial foundation for operators not only to whether this pandemic storm, but to emerge in prime position to benefit from a likely consolidating market.
While much has been said regarding the direct financial benefits with the cares AG and other government related actions. There also many less visible benefits, helping our acute care operators. During these challenging times, specifically our post acute operators in the urban eltek spaces have been able to maintain most of their pre cobot.
In volumes due to patient criteria waivers and the existence of strong relationships with general acute care hospitals. These waivers and relationships have enabled herbs and elteks to relieve volume spikes that acute hospitals and take on additional patients, including cobot 19 patients without fear of penalties or reduced reimburse.
Segment. This in part is the reason why you've heard earlier when I provided are covered bridges that are fun eltek coverages are actually up year over year.
Our discussions with our operators have confirmed that volume declines appear to have bottomed out in April and volumes have been increasing month over month and both May and June. We also know that there continues to be a significant amount of backlog and surgeries and other routine patient care, which will all.
Current volumes over the coming months.
It is also important to remind everyone that throughout this pandemic MPT has continued to collect 96% or more of its read each month of the pandemic.
We expect to collect 98% as it applies to our full year twentytwenty collections with plans in place to ultimately collected 100% of our risk with interest.
This is a testament to the effective and efficient operations of our hospital operators and the power of our lease structures.
Like most us hospitals, EOL visits and surgeries drop off in late March and trended down to a low point in April.
Hey in June volume has been consistently higher month over month, we've noticed similar volume trends in our international hospitals with societies commitment to world class healthcare for the population and governments around the world quickly stepping up with unprecedented funding our hospitals are in good position.
And to continue to serve the needs of their patients and meet their own financial obligations.
As I stated on last quarter's earning call MPG continues to see opportunities across the globe and today's announcement you see that we have added another $1.1 billion to an already $2 billion, we invested pre cobot 19.
We expect to continue to add quality investments for the remainder of 2020.
Earlier this month, we had the opportunity to convert the last two steward mortgage hospitals into sale lease backs for an additional 200 million dollar investment today, we announced the signing of an agreement on the acquisition of saying Francis Medical Center, a large acute care hospital campus located in southern California to be operated by.
Prime healthcare the total investment consideration is $300 million. Additionally, we're pleased to announce the execution of a definitive documents for the acquisition of the median donor hide rehabilitation facility in Germany for 12.5 million euros. This transaction further.
Expands our relationship with the median our strong German rehabilitation operator, we expect to fund this acquisition during the third quarter.
For the past year, we have discussed the potential to move into South America with an investment in the Colombian hospital market. We're proud to announce the commitment to fund the acquisition of three hospitals in Colombia for $100 million. This is in addition to the 205 million dollar investment MPT made in a joint.
Venture that will operate these colombian hospitals as well as serve as a vehicle for future International Hospital acquisitions.
Closing of the Colombian transaction is expected in early Q4 2020. This will be Mpcs first acquisition on the continent of South America, we had been working on these acquisitions for a little over year. We've conducted detailed on site visits in Colombia, including high level meetings by myself and others with the.
President and his administration the country of Columbia is committed to healthcare for its people and is committed to a pro business in foreign investment agenda.
In excess of our recently closed commitment to develop a post acute facility with aren't as to help in Bakersfield, California were $48 million, we were at various stages with agreements to invest and 210 million in acute acute behavioral and post acute hospital investments in multiple locations.
Yes.
The healthcare system continues to generate high demand for these facilities and we're working diligently to meet that demand our pipeline remains robust with quality domestic and international acquisition targets. We again want to reemphasize, an express our sincere gratitude and appreciation for all health.
Our workers worldwide as they battle this deadly disease on the front lines. We're also very proud of our operators around the globe in the job that they have done during these historical trying times, Steve. Thank you Ed.
This morning, we reported normalized FFO of 38 cents per diluted share for the second quarter of 2020.
As a reminder, due to our 30% plus compound annual growth over the last several years the difficult to predict timing and size of individual acquisition transactions and the resulting lumpiness in necessary capital transactions to fund this very high level of accretive investments we have historically provided estimates.
Of run rate normalized FFO in other words, we estimate future normalized FFO based on our in place, earning investments and our target long term capital plans.
We do not attempt to predict the timing of future investments or funding of those investments. So the 38 cents normalized FFO that we reported this morning is a 23% increase over 2019 second quarter and is consistent with our most recent estimated range of $1.65 to $1.68 Andy.
Realized run rate taking into account among other reconciling items to follow.
Similar to last quarter, our second quarter results did not include the full GAAP rental income that we negotiated with respect to our $2 billion January acquisition and lease back of 30 hospitals in the United Kingdom.
Late in June the British competition in markets Authority approved the new rate and we began recognizing rent at the full 8.9% master lease rate.
Had we recognized that rate for the full quarter, our normalized FFO would have increased by approximately $8 million or almost two cents per share.
In addition, the reported quarterly normalized FFO does not include net operating income from properties that were under development during that period.
As Ed described we expect to collect 100% of the rent and interest contractually due us in 2020.
We expect 98% of that will actually be collected during 2020 as scheduled and the 2% that will be deferred will be collected over time with interest.
We recognized 100% of these amounts in earnings because they are contractual and we're confident in their collectability, but we do adjust a FFO for the amount of the deferral, which in the second quarter was approximately $7.2 million again this will be collected over time with interest.
Before moving on to comments regarding our outlook in near term investment plans I want to mentioned a few items from the second quarter that were noteworthy despite their exclusion from our normalized FFO calculation.
First we expect to terminate the leases on our six remaining facilities leased to Adeptus.
This resulted in a 12 million dollar write off of primarily straight line rent that had been accrued from the 2013 inception of the initial master lease. We are currently entertaining offers for leasing these facilities to new operators and our highly encouraged with the level of interest. Although we do not include any replacement income.
In our updated guidance that I will address momentarily.
Second we booked a $5.1 million straight line rent write off related to the sale of east in hospital for with which we sold at a price that approximated our 2017 purchase price.
Third we booked a $3.6 million gain related to our common equity investment in eavis, the parent of our tenant Swiss medical network.
Finally, we were required to recognize a $2.1 million cash credit loss reserve expense related to the new loan accounting standards introduced in January.
Moving onto our investment activities during and since the second quarter as Ed mentioned, we completed or committed to complete approximately $1.1 billion in previously undisclosed investment.
I'm going to describe each of these because the scope nature and diversity of these strongly and immediately accretive hospital investments that we have generated during the very worst days of the global pandemic.
Speak to the ever increasing size quality and market acceptance of our business plan.
First we acquired the fee simple interest in two of stewards previously mortgage and best performing hospitals in Utah. This was an incremental $200 million over the prior mortgage balance and the facilities are now included in the steward master lease at its double digit gap lease rate.
There are no longer any mortgages in the steward portfolio and in fact, our total mortgage loan exposure is now down to about 3.5% of our total assets.
While not contractually bound this yet we do expect to invest approximately $300 million in Los Angeles area Hospital to believe to be leased to prime healthcare pursuant to our prime master lease structure.
Ben we acquired through a newly formed joint venture that Ed just described along with Dr., Ralph Dilatory in certain others, the assets and rights of steward to acquire and develop all of stewards non us hospital investments.
Our investment of $205 million is in the form of a market rate loan to the JV and we will also only 49% interest in the JV that we expect will provide a significant upside over and above the current interest yield.
The first investment of the JV will be in approximately 100 million dollar acquisition of three hospitals in Colombia, and while our commitment is not yet contractually binding we expect this transaction to close in the second half of 2020.
Next we have committed to five separate investments.
Aggregating approximately $165 million that we expect to become operational starting between 18 and 24 months from now and that will earn a commencing aggregate GAAP capitalization rate of approximately 10%.
We expect all five of these us based agreements have been executed and development underway. During this current third quarter of 2020.
And then we've made various commitments in Europe, and Australia for four separate investments aggregating approximately $110 million at GAAP rates consistent with our recent non us investment.
So as we disclosed this in this mornings press release and based on the items noted above and our recent investment activity. Our first quarter results are right in line with our expectations and we are increasing our annualized run rate guidance to $1.68 to $1.71 per diluted share. This range. Good.
Change, possibly materially subject to risks described in this mornings press release and in the other risk factors described in our most recently filed 10-K.
With nearly $1.7 billion in immediate liquidity as of June 30, Npts balance sheet remains flexible to accommodate growth opportunities that meet our underwriting standards and provide for attractive risk adjusted returns. Our recently increased dividend is well cushion with AFFO we have.
Significant capacity on our revolving credit facility and we face no near term debt maturities.
While our current leverage is slightly above our long term target, we remind investors that fluctuations below this level, sometimes at the of even greater magnitude have also occurred in our recent history. Furthermore, global capital continues to pursue attractive hospital and post acute real estate providing MPT.
The flexibility to and select cases consider harvesting gains and cash from JV partnership opportunities or outright dispositions with respect to the public markets, we have approximately $830 million available under our at the market share offering and recent conditions in the equity and unsecured.
Notes markets are very attractive.
With that we'll turn the call back to the operator for any questions operator.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the culinary roster.
Your first question comes from the line of Joshua Dennerlein with Bank of America.
Hey, guys.
But curious on the the JV Muni I'll start there.
One other international markets are you targeting and how are you choosing those markets and and maybe what's the broader scope of what youre investing.
And with this year.
And Josh the JV is not going to be the only way we will invest in additional international hospitals, we will continue to do invest with our existing international operators and other international operators. This particular JV with Ralph and some of his team members are from people.
Within the Columbia healthcare system and a couple of other places that we have not yet announced that they are working with so it's it's people that have specific experience in those markets.
That we're working with we expect that there will be other opportunities in Colombia over and above this hundred million dollar investment.
Okay.
And I guess on a go forward basis for funding on that.
Just kind of continue funding projects at 49% of investment or is there an ability to kind of ticked downward the JV or the construct relative shouldn't be any additional funding on the operating side, we'll we'll obviously subject to our underwriting fund the real estate acquisitions.
But.
Josh.
We will very likely continue our historic strategy of using as much local debt as possible.
While maintaining the overall unsecured.
Leveraged at that we've also always always targeted and that of course allows us to to match the.
The investment and the financing for the investment in the same currency.
Okay Awesome and I guess that leads me into my last question just kind of thinking about.
Equity and debt needs going forward, just given it seems like.
You've acquired a lot more on it seems like you had a good pipeline how should we be thinking about that.
So as as I, just mentioned wrapping up my prepared remarks, it's really a very very strong and attractive market for raising capital.
We will maintain our five to six times leverage and to do that obviously with the type of accretive growth that we continue to generate that will require additional capital and while we have not specifically targeted in amount a time or components.
We do have a number of avenues available to us and as these transactions close and we continue to monitor our capital structure will come out the other side.
With long term five to six times leverage.
As as we as we've operated for for quite a few years now.
Got it thanks, guys I'll audio before.
Thanks, Josh.
Your next question comes from the line of Jordan Sadler with Keybanc.
Hi, guys. Good morning, this caveat Jordan, how do you guys are all doing well.
Doug cautious question for second about investing with the JV.
Just kind of curious though.
As is that going to go forward basis. If you guys. They can you expand with the JV would those be markets, it's Stuart and bring to you how would you guys decide.
Allocating between.
With your historical investment strategies.
So congrats Mike are contributing to the JV.
Well, there's there's really.
The JV the way our JV is work the way our idea structures work just to remind you there's really no difference with respect to the real estate.
All of the real estate is owned by our US reach shareholders. There's there's no JV ownership of the real estate now the exception of course is the promotional deal. We did a few years ago, but going forward. Just for example in Colombia, we will own the investment in the real estate not through the JV the JV will show.
Share the.
The profitability in Opco, so so that won't be an issue.
Just because we are investing alongside.
The Ralph Dilatory team on the Opco side.
And as Ed mentioned, just just to be clear, we'll we'll continue to source international opportunities and the JV is just one more avenue for sourcing those opportunities.
Casey This is exactly what we did back.
In earlier days with Ernest Health care also with Capella, where we had some ownership in the operations, but we own the real estate on a person.
Got it. Thank you very helpful guys and just following up on coverage.
Talk about in your prepared remarks on can you give us any update on coverage it into maybe the second quarter just general.
Description.
Some like elective procedures are still on hold.
Yes, so we don't have those numbers exactly at this point.
The way that we get reported but two things to point out one remember that the coverages I gave you did not include any cares AG fundings will no no grants or advances, though which is purely operations. We hit the low marked in April. So we had a half of months of bad in the first quarter.
We'll have it at least a month and a half or maybe two full months a half of June.
It's on behalf of May that are still backup on the upswing. So I expect that they will be lower again, excluding all of the the cares that funding and other governmental funding I expected they will be close lower in the second quarter. When we do report them, but they will have been increasing significantly.
Since the middle part of made.
Okay. That's helpful. Thank you guys I appreciate it.
Thanks Katy.
Your next question comes from the line of Steven Valiquette with Barclays.
Thanks, Good morning, everybody.
Florida.
Hey, So a couple of questions here first just on the U.S. market for a moment.
So most of the.
Good trading guys have talked about admissions patient volumes getting back to 90% to 95% or pre Kobe levels in June and some mentioned after July as well.
Despite the cobot cases spiking in the Sun belt, and you've had some recommendations like in Texas, but not the requirement for hospitals to re shutdown elective procedures. Just curious if you're seeing any of your operators follow those recommendations.
Re shut down some of the non critical care or hurt your operators generally keeping those parts of their their procedures and volume still open.
Yes, as you know the the recommendations for the shut downs of so the OLED does work in order to save room or beds for coated patients in all of our operators and this was updated just as recently as this week all of our operators.
Have plenty of bed capacity, so none of them have had the need to low to shut down or reduce their elective procedures again. So they continue to operate at full capacity and have room for covert patients as well a number of them like Stuart increased the number there as to you bid increased in.
Number of their overall bed capacity by Reconfiguring does prospect at the same thing branded the same thing so given given time they were able to work better than they were obviously when the world sell off a cliff in March.
Okay. One other quick one just on South America for a moment here.
As we think about Npts underwriting discipline in Colombia, and really just for South America. Overall, if you can generalize is there any bias for the cap rates and or rent coverage ratios to be a little higher than your overall corporate averages when comparing to your current acute care portfolio.
And also for higher.
Yes, I answer that my first one other follow one okay. So yes, absolutely our returns are a good bit higher in Colombia than they are here in the us.
And we as I said in the call earlier, we spent.
For more than a year getting to know the market very well they have a a really strong reimbursement system.
It's a system, where the government the employers and employees all contribute to a fund it's been distributed out to different managed care groups and then all of the population to size, which managed care group. They want to go with everyone in Colombia, everyone is entitled to healthcare and has healthcare insurance.
So it's a good market.
With a good base to it but but we understand the the added premium that needs to be in place and we have that.
Okay, and the final one kind of tied into that.
Just curious if theres any meaning if we sized their private hospital chains or health systems in South America, where you think overtime you can be signing larger sized deals in South America with one stroke of the pan or is it more likely we'll see deals here you're doing maybe a couple of hospitals at a time kind of like what you just signed in Colombia.
I think so we're not ready to announce any other any countries at this point interestingly I did a turnover of had an opportunity to do a tour of some of the other south American countries and meeting with some of the of the existing presidents and former president and without exception all of them rated Colombia as.
The best place for Us to come invested we're not there alone United's there for in is there.
A lot of other big players that have come to Columbia about the same time that we have come so it's a market well thought of right now and not sure. There is anywhere else in South America or at this point.
Okay I appreciate the color. Thanks.
Your next question comes from the line up Omotayo Okusanya with Mizuho.
Yes, good morning.
That's on the solid quarter.
Thanks Tayo.
First question on the JV and I know, we've kind of spent some time on that.
205 million dollar and you said that just weekly in the Opco.
With your partner I guess I'm going to be confused about.
As of today, what did that 205 million dollar debt.
Yes. So it is a tires is 205 million in the Opco joint venture and then 100 million in the real estate that we own 100% of what it gives us in the in the Opco joint venture is that Stuart has been working.
Several international markets, only one of which were prepared to announce today and Thats Columbia that they put an awful lot of time and effort and infrastructure in place and Thats, what the $205 million Scott.
Okay.
I got it okay.
Like Paul has gone off I get it now.
[laughter] then the second thing any thoughts on again.
Sometimes talk to kind of weight into politics, but if you do end up in the World, where you know Biden becomes president and held with more of a democratic sweep of Congress.
Does that kind of influence how you kind of think about health here in America.
Okay. So deeply.
So it really doesn't tie O and you've been with US very long time. So you've heard me say this before but on a totally nonpolitical basis. It really doesn't matter from MPT standpoint, what political party is in the white house or in Congress or all of the all of the above at the same time.
Because we're still going to have hospitals, we may change the way we do reimbursement in this country is as it has evolved over the last 50 plus years, but if it if it's a biden administration with the by abide in time Congress, we believe that there will be more funding.
Initially there may be also some more control, but you're still going to have hospitals that are very much needed for this country. One thing that posted 19 did for the entire world is that it reinforced to everyone well, we've been saying for almost 20 years now is that you truly can't paint a picture without hospitals.
The private hospital sector has played a very important role in every country that were located in for the coded 19 aspects of it and the governments have all been very supportive and understand the need for the private hospitals as well as the public hospitals and quite frankly, they've all worked very.
Very well together here in the us is probably.
A little less well known that a number of our operators had plenty of ventilators NPV and provided much of that equipment to various states around around the around the country. So it's been a good partnership and we don't have a political biased as to where we feel better about.
We think that MPT and hospitals thrive under either administration.
Gotcha, and I see just indulge me a little bit more than the rent coverage ratios.
When you did not include anything and we got Graham.
At the kind of cochlear.
We didnt like just kind of given majority of the facts from the end up the implicated in the Sanofi advances so why not.
Yes.
It was just an attempt to be totally transparent to pursue to not show the tainted picture or.
Rosier picture of the operations in the where I wanted to show exact show everybody exactly what the operations where without regard to the additional payments from the government, but then obviously I wanted everybody to know what the payments were and then what the liquidity is should any portion of it be repaid, but it's just a call trying to make it as transparent as.
Possible and time remember Taiyo and all we report our coverage is on a quarter trailing basis and the end of first quarter.
I'm not even sure when the grants were received.
And I know HC, a has gone through probably pretty sophisticated analysis of how much of the grants to include as they reported their second quarter NRP just haven't been through that yet.
Thats. Okay. That's helpful. Then the last one for me I promise Adeptus leases and the did discuss into kind of so many.
Hi, good just talking about what kind of June that at this point.
What kind of what Tayo.
What drove the decision to terminate the results remain at depth.
Well you know, we all get lost when we talk about the Adeptus portfolio because it was a very large number of properties, but this was only six properties you remember the rest of the properties are leased to use the health dignity option, there Methodist and others. So this was only six properties and this is just adeptus.
The old Adeptus throwing the towel.
We have.
Really lots of people that won't these facilities as Steve pointed out we didnt include that in the guidance, but we think there will be released fairly quickly.
If there is that the different adeptus as kind of still struggling so you guys.
And again.
Changing the operating tenants are they asking.
That's correct.
Great. Thank you very remarks again, congrats on a great quarter.
Thank you tie up.
Your next question comes from line of Michael Carroll with RBC capital markets.
Yes. Thanks, just on the JV real quick is that with skewered or with keep those Stewart's management teams as individuals I guess, who is who are your partners in that JV that so that's a good catch my Jos I use dose do it in my and my last answered answer to tell you and I called that after our said it but no. It is not stay.
It's with Ralph and members of his management team some of which are very very important to the joint venture that are not a part of steward. They are people in the local markets that Ralph and his team have been working with and putting these facilities together some of them up particularly in Colombia were.
Part of the ownership team of some of these hospitals.
Okay, and then within I guess, South America should we view I guess this investment as a beachhead type of investment what the plan of getting it bigger over time kind of similar with you have done in continental Europe and the UK.
Certainly were Colombia is concerned we really like Colombia, and we've got some really good opportunities there.
That will probably come to fruition late in the year early part of next year.
Okay. So could that market is a big where you would want to open up an office in South America feel like you did in Europe.
So I don't think so although there is some beautiful places in Colombia.
But ralph and his team obviously do have offices, there and in Bogota.
Okay, and then as season the run rate guidance numbers that that you provided that is to set your net debt to EBITDA ratio is near five five correcting and if so I guess, what's included into those assumptions that assuming you're over equitizing future acquisition that you've already announced or is that just assume your.
I'm doing a big slug of equity you to get back down to that level.
Well it is just a generic assumption you're right. It does assume that were in that 5.5 range and that requires.
As a certain level of additional equity that will be needed.
Again, as our historic practice has been as.
As as these acquisitions get to closing and we actually need the capital then at that time, we'll we'll decide.
What type of capital and by that I mean is it ATM issuance does it have to be an underwritten offering is is it joint venture.
Are there some properties that we may want to sell.
All of that is available to us, but but there is no specific plan right now as to timing and.
And what type of component of those that I've just described.
Okay, and then I guess locking for me just on the Stuart investment the incremental $200 million now I'm, assuming that just kind of already those assets were already included in the master lease so that incremental land just kind of reduces your stewart coverage ratios by what 10 to 15 basis points is that the right way to think about it.
No I don't think so.
There are couple of questions in there was not in the steward master lease because they were mortgages.
They are now in the steward master lease.
But.
And your point is by by virtue of increasing the value by 200 million that would not have a 10 to 15 basis point impact on coverage Arithmetically, you're correct. It has some impact.
But but certainly not that magnitude and stewards operations have been a strike.
Norinko with four minute, particularly in Utah.
Okay, great. Thank you.
Your next question comes from the line of Derek Johnston with Deutsche Bank.
Hi, everybody. Thank you I'm just quickly back to coverage ratios you asked first quarter, probably had very little covidien impact, but certainly we could see some in the second quarter have you considered perhaps changing how you report hospital or operator coverage.
Into Q and beyond.
Yes, though we consider that a lot we looked at trying to look at different different ways. This quarter, we decided the best thing for this quarter was to continue with the old method and just lay it all out there like we have we do have some ideas about trying to presented in a way that's more user friendly.
To analyst and investors and hopefully we'll have that available.
Sometime next quarter.
Okay, great and definitely understand.
And as far as private market values and yield assumptions on new acquisition. How is this change post cobot 19, I guess another way to kind of ask it is has you're negotiating leverage.
In relation to new deals has it improved stayed the same or deteriorated post kogut 19, and introduction of the cares Act like what's the puts and takes private market values, where they trading in yield assumptions. Thank you.
Well, that's an excellent question because you've seen a lot of people that have been successful like everybody in our portfolio that have come through this very strongly and are anxiously wanting to make some additional acquisitions and grow their companies. So while you can make a case that may.
Maybe.
Private hospitals and some in particular solve their values decrease there is a pretty big appetite for those hospitals. So I don't I don't think we will recognize any of the pressure from covert 19 on the prices with the private hospitals. It may actually be the opposite there may actually be.
A slight increase because of the demand for from the good operators I think that our operators have all been very happy with the MPT leases. The fact that they lease there their facilities, the but the capital and ability that we gave them for their balance sheets. So I think that.
We'll have more appetite from our existing operators and other operators that we have not yet done business with but that I've been on the phone with through taking calls and making calls that I think we'll be more apt to do so leasebacks with US then they may have been prior to cope with 19, so I really think that way.
We're in a really good positioned to benefit from the situation that the world is in.
Thank you guys.
Thanks to.
Your next question comes from the line of Connors tougher scheme with bearing Baird.
Hey, everybody. Thank you for having me.
Quick question on EBITDARM coverage I think your same store pool requires two years operating data. So I'm wondering if there's any color you could provide.
Potential impact at the acquisitions made through the end of 2018 early 2019 as they roll into the same store pool.
Yes.
There would be and that's one of the things that we're looking at Conor and as representing a coverage is going forward.
We tried to do that as a way to smooth out the the coverage is because we're making acquisitions so quickly.
But I think it probably makes more sense to do it on a more total portfolio basis with the answer to your question is is we included everything it would have very little.
Change to whereas of where the coverages are today.
Okay. Thanks for that and then broad sense, where we're seeing somewhat of an exodus from from the major cities in the U.S. I mean this change the way that you look at your target markets at all or any perhaps secondary markets look more favorable.
Well keep in mind that we're other than new Jersey were not up in that northeast area. We're not in New York, New York doesn't.
Allow for private hospitals, a whole private hospitals, that's not an issue other than the fact that for you remember part of our model is that we had the ability to replace the operators and if you only ability is replacement, we though not for profit operator that oftentimes would move to slow to being a.
Situation that would work for us so to answer your question in general sense no.
We certainly don't think theres going to be a mass exodus from the major populations, but take Alabama as an example.
Our major healthcare city as Birmingham, So even if people move outside of Birmingham, There's still going to come back to Birmingham to get their major medical needs met so so I don't think it affects us on an overall basis other than continuing to keep us out of places like New York.
Alright, Thanks for that helps and then one final one.
How are your operator staring related to the availability of test kits I mean based on recent news flow, we're seeing that more and more tech and capacity has been promise to say skilled nursing facilities.
Like supply constrained to continue show through so I'm wondering if your operators really still on the top of that priority list no matter what market therein.
So I don't know if it's because they're better organized because they had the ability to be better prepared for oral pandemic all of our operators were better prepared for all of.
The type of supplies they seem to be in a much better position then certainly what you're hearing on the news and I don't know.
If thats a situation of news exaggerating the situation, but we don't have a situation with any of our operators, where there where they are not able to get test now that doesn't mean, they're still not being very careful with with the testing in being sure that we're trying not to test people unnecessarily, but we don't have.
As a single operator that is crying about need for test right now.
Certainly good to hear.
That's all for me, Thanks, again, and congratulations on the quarter.
Thank you.
Your next question comes from the line of Sarah Tan with JP Morgan.
Yes.
Sarah I can't hear you if you could.
Maybe turn your volume up.
No.
Hi, Thank you Sarah Palin on for Mike Miller.
Yes, I hear you now.
Okay, and just two questions from me.
First one is on.
Skew it.
Conversion to equity just wondering what triggered that at this point Clinton and then the second one is on a new TV investments.
Talk about.
People, who are involved so Ralph and the other can then Greg you mentioned, Derek sticky and operating International Hospital.
Correct Yeah.
Sure. So the first question does is actually something we've been talking to steward about or while so it wasn't something that just came up it's just something that just was able to actually take place, but I know that you've heard Steve in particular talk about the the desire to be in a landlord position.
In rather than they.
Mortgage or position and so we began really as it was the late last early last fall and the discussions with them about doing a conversion in that and just probably would have gotten to done sooner.
If it had not been for the other things that we're working on but it's our desire to be in a landlord position over being in a mortgage position.
On the second part of your question from the management team that Ralph has wisdom in Colombia. Its members of his existing steward team, but it's also very importantly, some international team members that we're not part of steward us they are people who.
Have distinct knowledge and experience in the countries, where they are attempting to operate obviously one of them being Colombia in Colombia. They actually have members of their team there that have actually had a hand in operating.
Some of these three hospitals at least one of these three hospitals that we are currently committed to so it just seemed as well versed in not just Colombia as a team this well versed in the Colombian healthcare system. You May know that Ralph is Cuban who speaks fluent Spanish all of his team members there so.
I think of fluent Spanish.
Most everybody there is very kind to me and speaks fluid English, but but they are they all speak.
Very good English and and when Rosen are there they all translate for us.
Thank you.
Your next question comes from the line of Todd Stender with Wells Fargo.
Hi, Thanks, guys. Most of my questions have been answered.
But when it comes to the Stewart mortgage conversion.
If you essentially get your principal back.
And maybe what were the yield on those loans.
Compared to many what they lease yield is going to thanks.
What we basically exchange the the mortgage loan along with the 200 million dollar increment.
Two acquired the fee interest into two hospitals and.
The cash yields were very similar the differences in the.
In the GAAP yield.
Which which again goes in now to the master lease which is in excess of 10%.
No change in that in that yield it just I guess reverts or converts to what the existing master lease.
That's correct.
Okay Thats helpful. Thanks, Steve.
Yes.
And at this time there no further questions I would like to turn the call back over to Ed Aldag for closing remarks.
Thank you operator, and thank all of you again for listening in today, we greatly appreciate your interest as always if you have any questions. Please don't hesitate to reach out to us and everyone stay safe. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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