Q1 2022 Medical Properties Trust Inc Earnings Call

April 28, 2022

Good day, and thank you for standing by and welcome to the Q1 2022 Medical properties Trust earnings Conference call at.

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

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Be advised that today's conference is being recorded if you require any further assistance. Please press star zero.

I'll now hand, the conference over to your first speaker today Charles Lambert. Please go ahead.

Good morning, welcome to the medical properties Trust conference call to discuss our first quarter 2022 financial results.

With me today are Edward Kaye Al deck 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.

You did not receive a copy it is available on our website at Www Dot medical properties Trust Dot com in the Investor Relations section. Additionally, we're hosting a live webcast of todays call, which you can access in that same section.

During the course of this call, we will make projections and certain other statements that may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

These forward looking statements are subject to known and unknown risks uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward looking statements.

We refer you to the Companys reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call.

The information being provided today is as of this date, only and except as required by the federal Securities laws. The company does not undertake a duty to update any such information and.

In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered.

In addition to and not in lieu of comparable GAAP financial measures.

Please note that in our press release medical properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements.

Can also refer to our website at Www Dot medical properties Trust Dot com for the most directly comparable financial measures and related reconciliations.

I will now turn the call over to our Chief Executive Officer, Ed <unk>.

Thank you Charles and thank all of you for listening in today on our first quarter earnings call for 2022.

As the first quarter as first quarter results continue to demonstrate MPT in this portfolio are in the strongest position in our history, our portfolio is well diversified and performing well our tenants are generating strong lease coverages and are poised for a strong 2022, we.

We have a strong balance sheet, and we have more and better worldwide opportunities in both acquisitions and joint venture possibilities than ever before.

I look forward to sharing with you. This morning details about our portfolio and future acquisition expectations.

Our overall remarks today I will also take time to address a few other points that have been raised in recent reports in media coverage about NPG.

While we typically don't respond to the various third party reports of this nature and some of this information may seem like real estate 101, we have heard for many of you our shareholders and others that we should take the opportunity to set the record straight and correct. Some of the erroneous information that has been published.

Let me start with the EBITDAR coverage for our portfolio.

First let me point out as I have numerous times EBITDAR them in these calculations come straight from property level GAAP basis Financial report, we received from our tenants which include their annual audited financials at year end.

<unk> been extremely rare or unusual circumstances, such as the Covid grants for 2020 in 2021, and some minor immaterial prior period updates no adjustments have been made to these numbers.

These EBITDAR numbers, our trailing 12 months for the period ending 12 31 21, we.

We use earnings before interest depreciation and amortization rent and management fees and the actual cash rent amounts owed to MPT.

There've been a couple of recent reports from third parties outside of the company that have tried to use CMS cost report NOI numbers to show profit margins and equate that to a lease coverage comparison CA.

CMS uses different definitions and allows different deductions for items, such as depreciation amortization interest and other items than what is required in GAAP financial statements.

Furthermore, they include all rental and lease payments and interest payments among other items.

Therefore, when quoting the profit margins one must keep in mind that all MPT rent and other rent and interest had already been accounted for in those numbers by definition. The CMS cost reports could actually show a negative profit margin and all of the rent and interest being paid at the same time.

To further demonstrate this point in the supplement to our filing. This morning, we have provided individual tenant coverages for our portfolio for the small percentage of operators that do not provide detailed quarterly financial results at the hospital level. We have provided the credit profile of those tenants.

Now I want to take a few moments to go through some of our larger tenants I'll start with steward.

Stuart has kept coverage ratios at or above the industry standard and has remained flat close to an almost three times coverage for the past three quarters.

One item of note is that the recent acquisitions in the Miami region continue to far exceed our original expectations and.

And just as a reminder, the HCA, Utah transaction is projected to close by the end of the second quarter of this year.

Notwithstanding the value we have generated from steward being one of our tenants Stewart accounts for an increasingly smaller portion of our portfolio as we continue to invest domestically and internationally and non Stewart hospitals.

We recognize that labor cost as a topic at the front of People's minds in this economic environment. So as I go through these tenants today I will give an update on that per tenant.

Labor costs for Steward Steward is very active in their daily management of overall labor cost contract labor is down year over year, though it has been increased slightly in the last two months overall salary wages and benefit and contract labor are well below budget.

Been able to cancel and rehab contract labor as rates improve.

Utility costs, they've seen some inflationary pressures pressures, but not material.

Food cost they have not seen a large increase as they have worked very hard to keep costs down through their GPO.

Next circle in the UK, which continues to be a superb operator, producing coverages that continue to exceed mpt's original projections.

Post COVID-19 the self pay inpatient volumes are trending between 40% to 75% above where they were in 2019 self pay in the United Kingdom as a very profitable aspect of their business.

Circle is seeing some labor shortages, primarily with nurse staffing as a result of the spike in the omicron that call. It an unusually high number of nurses to be out sick or in corn team.

They are seeing some inflationary pricing pressures across supplies utilities food costs et cetera, but are navigating through these and do not see it having any material impact on their budget.

They expect Q1 to be in alignment with their budget.

Prospect as you've seen in various news reports prospect has entered into an agreement with two separate entities to acquire their Pennsylvania, and Connecticut facilities. At this point MPT has not agreed to any changes in our status as the landlord and.

In the meantime, prospect has made a number of operational changes to those facilities, particularly at crozier, which have resulted in some improvements to their operations there.

<unk> continues to monitor the situation in these two states to see how any potential sale may affect us.

Regarding prospects labor cost they are starting to see those level off over the last month or two they peaked around the end of January beginning of February and declining each week since.

We're also seeing contract labor costs coming down 15% to $20 per hour.

Utility food and other expenses have been up over the last year or so but are still somewhat in line with inflation.

Not experienced any shortages or supply chain issues and do not see any concerns with cost at this point.

Next the Swiss medical ended 2021 with strong coverage and continued its expansion inside of Switzerland two.

2021, EBITDAR increased by approximately 21% year over year fueled by both acquisitions and organic growth.

Swiss inflation rate is one of the lowest in the developed world with March 2022 figures at two 4% Swiss medical is not reporting any issues with staffing.

Median medians EBITDAR coverage remained steady as it has throughout the past two years average auction occupancy was approximately two and a half point ahead of where it was last year.

Q1, 2022 is expected to be in line with expectations. Despite COVID-19 related self isolate the legislation staffing issues.

<unk> costs through February 2022 are below budget, but 8% up year over year, when compared to a significantly lower staffing level in Q1 2021.

Priory.

Primary saw a slight decline in their coverage, but still an acceptable ranges near two times occupancy exceeded last year and was only held back by the same labor shortages that other behavioral health facilities have experienced Q1 2022 is expected to be in line with expectations. Despite these COVID-19 .

Related self isolation staffing issues staffing pressures have been identified as a concern with personnel calls through February being up 4%, but year over year only 1% over budget.

Help scope once again held scopes coverage exceeds two times as is the case in most of the world all elective surgery restrictions there had been eased or lifted.

Rhyme Prime continues its stellar performance with coverage is exceeding five times I recently met with problems leadership and both MPT and Prime Express expressed their desire to continue to work together, we have a very long strong and mutually respectful relationship we're still working through the few leased.

Does that expire this summer Steve will discuss this in more detail in just a few moments.

Labor many of the contract nurses had during hired during <unk> Spike were signed on a six month contract that will end in Q2, 2022, therefore salary and wages and benefits and contract labor costs are expected to normalize in Q3 and Q4 of 2022.

There are no concerns noted in their utilities or food cost.

And finally life point overall life point continues to perform well their trailing 12 month coverage was essentially flat quarter over quarter late last year life point completed completed its merger with kindred and the spin off of some kindred facilities and some of <unk> hospitals to the new entity Scion health MPT is Boe.

These entities as tenants going forward.

Labor cost they peaked around the end of February and early March they've seen a small but steady decline ever since as far as utility food and other expenses. They have seen increases over the last year, so far but not any new pressures here fairly stable over the last couple of quarters and in line with their budgets.

<unk>.

Since our inception, MPT has prided itself on strong tenant and operator relationships, including broadening and diversifying those we work with as our businesses have grown and expanded our relationships are based on a strong sense of mutual trust, but also proven track records of performance and consistent.

Livery.

Our operators have done a tremendous job over the past few years and expect except for some labor pressures for a few they are all close to or at record levels of EBITDAR.

Even if the labor pressures don't subside, given where operators are in their operations today. They all feel good about their overall expected outcome for 2022 and.

An important historical note directing us on accumulative basis, Medicare reimbursement to hospitals have always exceeded inflation.

I've spent the last five weeks on the road visiting with most of our tenants for the first time since Covid.

It is good to see everyone face to face and I couldnt be happier with the relationships, we've built with our customers, which are central to our success.

Turning to our most recent acquisitions announced today. These most recent acquisitions Mark Mpt's entry into the Nordic nation of Finland. The Nordic countries have always been a promising target for MPT, Finland has a cooperative public private health care system. The private sector is extremely important to the overall finish healthcare.

System is 178 million Euro transaction included the acquisition of four hospitals and four distinct major metropolitan areas throughout Finland.

And I know that I will not pronounced these names correctly, but how thinking Hulu, Turkey and Cooper.

Two of these hospitals are certified LEED gold facilities and the other two are certified LEED platinum facilities.

The main tenant again I apologize in advance for the pronunciation P. J, how Lana is the third largest private hospital operator in all of Finland.

This transaction brings another strong operator, and a new country into our already diversified portfolio looking forward from an acquisitions perspective, MPT continues to have tightened top notch opportunities all over the world, but as we have stressed for the past three quarters, we will not be making large act.

<unk>, if we must sell stopped to do so given our view that our stock is significantly undervalued and does not appropriately reflect what we believe the value of MPT debate.

As I mentioned, we believe strongly that there had been rumors and fault. So it's around MPT and our business in recent months.

We appreciate that like other public companies MPT is regularly the focus of third party reports that May express opinions about the company, which may be favorable or not however, we encourage our investors to recognize that not all market commentators or reporters are equal or write objectively without agendas.

We welcome each of you to speak directly with me, Steve drew or to them as we are eager to address any questions or concerns you may have.

Before I turn it over to Steve I'll say again that we believe MPT is in the strongest position in its history and we are confident about the continued value creation and the future of MPT. Steve. Thank you Ed. This morning, we reported is widely expected normalized <unk> of <unk> 47 per diluted share there is one.

One, albeit large adjustment that I want to point out we reported a net gain on sale of real estate and other of about $452 million.

The gross amount of gains included approximately $600 million related to our sale of eight steward facilities to the Macquarie joint venture.

But we offset that with the accounting rules required write off of about $125 million in Unbilled straight line rent to be abundantly clear. This accounting adjustment has zero impact on the collection of brands over the term of the lease.

And I will take this opportunity to remind our investors and analysts that virtually all of any historical adjustment to straight line rent have been for similar reasons that is in relation to highly profitable profit property sales or in relation to other re tenanted.

And in recent years these re tenant and transactions have been primarily related to adaptive and elekta and by the way had been prominently and expressly described in our public disclosures.

In other words to clarify misstatements from one recent report these adjustments to straight line rent are routine ordinary course and have nothing to do with lease amendments.

So for example, the $2 6 million write off of straight line rent shown in this quarter's <unk> reconciliation relates to the profitable sale of one of the former adept at hospitals mentioned in this mornings press release.

Other adjustments to normalized <unk> for the quarter, our routine and immaterial individually and in the aggregate, although I'll be happy to address any questions during our Q&A.

Our G&A expenses increased slightly due primarily to two seasonal type reasons number one during each year's first quarter, we incur about five times the employer taxes and 401K match up the other three quarters. So in 2020 twos first quarter. This amount was $2 6 million versus the fourth quarter of.

2021 of less than 500000.

Second prior year compensation, primarily nonexecutive bonus accruals are truda and this typically results in about another half a million dollars incremental expense there are other minor ins and outs and the only reason I mentioned these very small amount as to make clear that this quarter to quarter increase is not indicative.

Of any change in our G&A cost structure.

This morning, we filed on our website a few slides that address some of the misdirection that Ed mentioned earlier and one of those slides compares mpt's G&A to others in our peer group.

I'll mention other of these slides in a few minutes.

We noted in this morning's press release that going forward, we have revised our guidance methodology from our historical run rate to a more conventional calendar year estimate our.

Our scale is a $22 billion company and the resulting level of what is material makes us a more appropriate way to estimate near term results than when we were much smaller.

There are two primary differences first we will no longer project the rents to be received upon completion of development and other capital projects. Sometimes these rents are not received until two or more years into the future.

So our previous guidance included approximately $25 million and anticipated rents primarily from our development projects, even though the tenants had not commenced paying rent.

That $25 million about <unk> <unk> per share annualized is now no longer included in our new calendar 2022 guidance between $1 78, and $1 82 per share.

With the exception of the recently delivered Ernest Bakersfield facility.

Second our guidance no longer attempts to adjust for the estimated future dilutive impact of capital transactions, because the timing and source of that capital is not definitive.

The calendar year 2022, <unk> guidance of $1 78 to $1 82 per share includes of course, the first quarter result of 47 that we reported this morning.

It also takes into account our expectations concerning the outcome of primes repurchase options for two of the five prime master leases.

That outcome remains undetermined, but the dilutive impact of any likely outcome remains well within the scope of our guidance range.

Actual calendar results could increased based on acquisition activity and continued upward pressure on consumer price indices. While decreases may result from timing and quantum of any joint venture transactions, our asset sales subject to possible reinvestment opportunities.

Ed made clear on last quarter's call and reiterated a few minutes ago that MPT is not compelled to maintain its extraordinary last 10 year record of roughly 30% compound accretive growth funded by common stock issuances at unacceptable prices.

It's why we have estimated a range of accretive acquisitions in 2022 between one and $3 billion.

We are confident the investment opportunities are there, but the ultimate volume this year will be related to the amount and timing of our access to attractively priced equity capital.

We expect this capital to come from some combination of the following.

Selective property sales such as the profitable hospital sales, we announced this morning.

Joint venture transactions similar to our extraordinarily attractive Macquarie Steward deal, we just closed and the 2018 promoting all media joint venture.

We have no binding agreements to announce this morning, but we are confident based on the strong interest from well known institutional investors, who were interested in the steward portfolio and from ongoing inquiries and solicitations from multiple investors and their advisors that we will be able to replicate these structures.

I'll also remind the group that HCA has pending acquisition of stewards, Utah operations includes the assumption by HCA of the economics of our current master lease with steward with respect to those Utah hospitals, and I'll point out two very important considerations.

This implies a fair value of these facilities significantly higher than our investment in them.

This of course is testimony to mpt's underwriting and to Stuart's strategic and operational expertise.

Second recall that MPT has a put option.

Subject to FTC approval and closing of the transaction with steward.

Allows us to sell these assets to HCA at fair value.

It is currently not our expectation or our plan to exercise that option in the foreseeable future.

But when compared with an alternative that would contemplate funding our growth with common stock sales at recent prices.

Should make clear to anyone that it is highly unlikely that there will be any such common issuances.

So far our JV strategy has been to assemble a portfolio of well underwritten, but perhaps previously under managed assets season. These assets, while our premier operator tenants improve the financial performance and then sell in interest to our JV partners.

This has been very profitable and very beneficial to our common shareholders, but.

But we also have the ability to co invest with joint venture partners on the front end of acquisitions and this may be another attractive strategy for capital access in periods, such as recently during which these highly sophisticated and experienced joint venture partners place much higher values on our assets than does the.

Equity market.

Finally, we continue to generate meaningful excess <unk> above our dividend payout and in the inflationary environment that looks like it may be with us for a while this free capital is likely to accelerate.

To the extent that we rely on our current portfolio for continued long term success and growing and collecting our cash rents and in using this portfolio to harvest built in gains and access additional efficient equity capital, we have enhanced our tenant level reporting of lease coverage on page 13.

<unk> of our first quarter supplement we have listed a significant majority of our major tenant relationships and their most recent trailing 12 month EBITDAR to lease payment coverage ratio.

We think it makes it abundantly clear that our operators continue to generate generate EBIT arm at sector, leading ratios to lease payments and that the unencumbered assets that may be available for joint venture or other transactions are no less financially attractive to potential partners and where our Macquarie <unk>.

Promoting our portfolios.

Before we go to questions I want to point out again, the investor update that we posted to the empty MPT website. This morning, and just call your attention to a few of the slides. We presented these to correct. What may have been misinterpreted based on recent third party commentary.

First we present, a summary of adjusted <unk> over the past 10 years compared to dividends paid we have always considered and prominently displayed at the <unk> metric because we like many real estate investors think it critically important to measure results not only based on <unk>.

GAAP, which includes mandated noncash straight line rent, but on a measure that does not include this noncash unbilled rent concept.

As the slide says cash cannot be engineered or manipulated.

Engined earlier that any straight line rent write offs have not been related to lease amendments, but primarily highly profitable property sales.

We must have cash to pay our dividends, which have grown consistently and this cash comes from tenant operations.

And by the way, we maintain a very strong payout ratio. Most recently in the 80% of <unk> range.

To demonstrate the sustainability of this cash driven business plan I already called your attention to our new disclosure in the supplement that summarizes the cupboard strength of our major tenants.

But that is not to say that even with strong local facility performance operators will never get stressed and MPT will never need to re tenant its facilities.

Felipe It has happened over our 18 year history less than a handful of times and in those rare circumstances, we have in the aggregate actually improved our financial position.

Page seven in this morning's deck summarizes how our specialized knowledge about hospital operations underwriting expertise and carefully structured master lease arrangements led to a successful if distracting re tenant in process and the worst of circumstances and those circumstances included.

A complete termination of the existing operator, and a lengthy bankruptcy process.

I will not regurgitate the adaptive experience as most of you are familiar with it and lived through it with US I'll just point out that we have recently sold the last of the major adept as hospitals, both at substantial profits, resulting in a quantifiable value well in excess of the 450.

Million dollar investment we had made when a depth just went into bankruptcy.

A recent third party note made much of the concept that net lease cash yield should trend up into the right.

And of course as our slide number eight shows that's exactly how our leases perform virtually without exception as the chart in the top half of that slide demonstrates and in the current inflationary environment that many economists economists believe will be with us for a while that curve up into the right.

We will grow even steeper.

But the report that implies that there is something surprising that on a consolidated balance sheet basis Mpt's gross yield is declining.

I'm not going to walk this group through the evident arithmetic because it is apparent and frankly, we receive not a single question about this but in today's world. We thought we should document why gross yields come down in a compressing rate environment, while investment spreads remained healthy.

Slide nine compares two sources for the calculation of hospital operating results Ed has already been through this but the two methods are operators GAAP basis reporting and a collection by Medicare of the full scope of all charges that hospital used to report to their reimbursement source.

Based on GAAP reporting and the results achieved by <unk>.

Relying on CMS reports.

The comparison is in slide nine.

I will not repeat that explanation because most analysts on this call have considered this a long time ago and already understand that the CMS numbers are not meant to arrive at true operating margins and second just conceptual to interpret the CMS numbers as indicative of true profitability would imply that virtually no hospital.

And the country is profitable.

Slides 10, and 11 are included simply to address the absurd concept proposed by a recent news article that implied that MPT consciously deliberately overpays for real estate. So seller lessees will have liquidity to pay the subsequent rent.

The slides summarize two things first we of course do not overpay as demonstrated by recent highly profitable sales of these facilities to sophisticated third party operators and investors.

Second even if one could accept that a company would execute such an overpayment strategy.

Slides make clear that such overpayment would have gone to the sellers of the real estate such as the former owners of steward.

<unk> or community our tenant the parties from whom we bought the real estate and to whom was paid the sale proceeds.

These parties certainly did not turn around then and pay steward's rent out of those proceeds the proceeds were never available to steward for anything including rent.

Slide 12 makes it clear that the majority of MPT equity investments is actually $1 $5 billion of hospital real estate that is owned in partnership type vehicles about $900 million.

Our 60% of this is half of our median asset and half of our Stewart, Massachusetts assets that are in those two joint ventures, we still own the real estate and nothing more by the way no liabilities in those structures and we still manage the real estate the.

The remainder is similarly owned acute care hospitals in Switzerland, Spain and Italy.

The slide following detailed non real estate investments there are only two true RIDEA investments both of which had been expressly described in detail previously spring stone, which we bought late last year and the international joint venture that bought Colombia, and all other non U S.

<unk> opportunities in infrastructure from steward two years ago.

We have two investments and Stuart.

First we have a preferred interest of $139 million.

This was originally $150 million, but has since been reduced by an $11 million distribution last year.

While we are not three to disclose expected returns on this interest in anticipation of certain pending transactions. We can reiterate that we are highly satisfied with the likely profitability of this investment.

Second we have loaned about $360 million.

The initial proceeds of which went directly to stewards former private equity owners.

These proceeds redeemed from those private equity owners, approximately 37% interest and steward.

And in addition to earning a current rate of interest on this loan MPT expects to receive value equivalent to that ownership interest upon certain events.

MPT has no funding or other obligations as a result of these investments.

The remaining investments on the slides are self explanatory, although I will reiterate that none of these investments obligate MPT to support hospital operations or liabilities in any way.

So with that we'll wrap up our prepared remarks, it's taken a little longer than normal today, but we will nonetheless open the call to questions operator.

As a reminder to ask a question you will need to press star one on your telephone again that is star then the number one.

Draw your question press the pound key.

Please stand by while we compile the Q&A roster.

And your first question will come from Steven Valiquette with Barclays. Your line is open.

Thanks, Good morning, everybody and congrats on these results in this current environment.

So.

I hate to ask a mathematical related question on the fly on our quarterly conference call, but I guess just to throw it out there.

I'm curious whether or not you guys just completed any sort of stress test.

<unk> for your overall $2 seven EBITDAR rent coverage ratio across the entire portfolio.

Pacifically related to rising labor costs.

For every 1% incremental increase in labor costs across all your operators, how much would that 1% change your EBITDA rent coverage ratio if at all or how many percentage points of labor costs would it take to move that by 10 basis points from 2.7.

That nickel 2.6.

They have done a few of my own calculations.

I guess I'm just curious to get your insights around this do you have any color on the fly right now thanks.

So Steve we haven't done that and the primary reason would be.

We do not expect inflation to hit only the cost side of the income statement. It will also hit the revenue side and Ed mentioned in his prepared remarks.

A very long term history of CMS and other hospital reimbursements, staying at least even and frankly over time ahead of inflationary pressures. So so we expect even even in a relatively steep inflationary environment that we think we're in now that the revenue.

First of all the revenue will keep up with the increases secondly.

Hospital operators.

Especially going back if you want to go back to the financial crisis, and then again.

More so with the Covid impact hospital operators have demonstrated a very strong ability to manage their costs labor and otherwise to maintain their margins.

Steve as I mentioned earlier.

No.

I've met with most of our operators over the last five weeks. Obviously this was on the list of agenda in my discussions with them.

None of them are overly concerned.

Obviously, all have been dealing with this for longer than just the most recent.

And inflation increases.

The shortage in labor that we had over the over the last 10 years and they've done a great job of managing it.

Tried to give a little color on the largest tenants and where they are most of them are are seeing the labor cost.

The increases subside here in the last couple of months, but it obviously is something that we pay attention to and talk to our operators on a regular basis.

Okay, Great and then just one other real quick housekeeping question with the disclosures this quarter around the.

The coverage ratios by all those individual tenants that certainly helpful. Just want to confirm are you still planning on doing that going forward every quarter for the foreseeable future or is this kind of more of a one off just wanted to get confirmation on that one way or the other.

No.

We will try to do something very similar to this youll notice that we have two operators that didnt want their names mentioned.

But we still disclose what their coverage was and will continue to try to continue to improve our our disclosure.

Okay, great Okay. Thanks.

Our next question will come from Jonathan Hughes with Raymond James.

Hey, good morning, Thank you for the prepared remarks, and the enhanced disclosures.

I see that the leveraged profile did tick up a bit from last quarter.

And that is despite announcing over.

$300 million of new investments. This morning, you've made it very clear that raising equity is not on the table.

Recycle capital to fund any investments this year.

Which to me means unless you sell more then you buy in leverage will remain pretty static or maybe improve a little bit. So is leverage temporarily running higher this year with plans to get that back down in the five to six times range in the next 12 or 24 months or half leverage targets.

And you are more comfortable at these levels given the stability of your portfolio.

Well, we are comfortable at that six and a half way very comfortable by the way, but that's not to say that that we've changed our plan that we've been.

Stating for quite a while and that is to reduce leverage to get it down to a level. The primary purpose is one.

If you can hope that that rationale returns to at least the way we look at our stock valuation in the stock valuation gets back to something.

We believe is acceptable and leverages at a level that allows US then to react very quickly, which is one of our great competitive advantages to react very quickly to relatively large opportunities.

Without having to drive and leverage even above the 6% or six five time. So in other words if.

If we're operating with leverage it.

At five times, and we have the opportunity to make a large acquisition and we and we.

You can use borrowings interim borrowings for that and maintain the leverage below six it just gives us that much more flexibility that much more competitive advantage. So the answer is yes, we continue to plan to see leverage come down over time. It is not something we feel like has to be done immediately.

It will come at us.

As the acquisitions.

Drive capital access.

And the plan.

To address your point Jonathan is is.

We would.

We would over equity ties future acquisitions, we would not just sell.

$100 of assets and by $100 of assets necessarily.

Okay.

Alright. Thank.

And get the pieces there and then.

Maybe.

If you could maybe clarify I think you said earlier that.

Any impact to NTT from the prospects some of their Pennsylvania, and Canadian operations and what that means for you as a landlord is still unclear I.

I guess im just trying to understand how that can be the case you do not have a rate as the owner of those properties.

Operator.

Do you have any sense of timing when you might have more clarity on that front.

Yes, absolutely we do have the right and more to the point, we make the decision of whether or not we want to sell the properties.

We haven't been asked to do that Jed I think that prospect into to perspective buyers are still in early stages of negotiations and so when somebody comes to us and makes US a proposal will address it at that point.

Is it possible you would just keep those in swap the operator.

Well, absolutely, but as I said, we havent had any discussions with the proposed new operators at this point.

<unk>.

Okay.

Wanted to.

You can get more colors and worth a shot.

And then if I could sneak one more in.

Has the board discussed.

Splitting the chairman and CEO role, we don't normally see.

That combined for a company of your size. So I'm curious if that is something on the table to help improve the governance profile and if not why not.

Jonathan we have discussions at the board level about all of our governance.

All the relative governance point of.

If you read in the proxy statement as described very well in there of why the board is comfortable with my remaining as the chairman and CEO and remember that Ive been the chairman and CEO since the company was founded.

Yeah.

Yes.

And where I just didn't know if that.

Had been something addresses the company has grown and increase in size and typically we do see a split.

Taking a deeper look and look forward to talking again soon.

Your next question will come from Michael Carroll with RBC capital.

Capital markets. Your line is open.

Yes, Thanks, I wanted to touch on the current private market valuations for hospital assets and I guess, specifically has the uptake and interest rates in inflationary expectations does that kind of affected investors return expectations.

And in turn have you seen cap rates for hospitals trend a little bit higher over the past six months or so.

Steve I can't hear the Echo is too much can you hear the question.

Question generally in case, others didn't hear it I think Mike is any any notable movements in cap rates that may be in reaction to the inflationary pressures and the simple answer is no I mean, it's pretty.

Any short term.

Period right now.

<unk>.

As both Ed and I mentioned there is there is activity there is opportunity for acquisitions and in <unk>.

I can tell you sellers or not.

We're not moving off of recent cap rate levels.

<unk>.

I'll point to another business.

The recently announced acquisition by Blackstone to the ACC.

Certainly didn't show any cap rate compression that one might have expected in answer to your question at least that was my personal observation like that was maybe a low fours, even reaching the four handle for pricing those assets, which.

I guess, you could interpret as real assets in today's <unk>.

Equity world are as attractive as ever so that's kind of our general observation. We just we just did the.

In the quarter, we did the Finland deal that that was at a cap rate that probably I would have expected the same cap rate six or 12 months ago.

And by the way that was that was heavily marketed in a highly competitive process.

Okay, Great hopefully you can hear me better I tried changed up.

My my system.

Also can you talk a little bit about your current JV discussions I know that those have been ongoing I mean can you kind of highlight how active those are right now and what our investors currently saying and has those discussions changed or advanced over the past several quarters.

We have nothing nothing new to report.

We continue to evaluate different parts of the portfolio, we do have preliminary.

Discussions about specific parts of the portfolio, but nothing other than that to report other than I guess in conjunction with your other question Mike.

Certainly we're not seeing any pressure from potential partners to drive cap rates up on the sales side.

And then what about like on individual assets and you kind of mentioned this in your prepared remarks that there are some assets that you are willing to sell our part with I mean, how many of those are within the portfolio and assuming there are some opportunistic deals I don't know if you can talk about.

Assuming HCA would want to own those Utah assets is there something that you could do there at some pretty attractive cap rates just on the opportunistic side.

So I'll take those questions as if they are two one is yes, even though again, we announced this morning.

That we sold to general acute care hospitals that used to be in the adaptive portfolio last quarter. I think we made a couple of similar announcements and then late last year. Similarly, I don't think theres any pattern and there's certainly not a list that we maintain a assets wed like to sell.

But just historically over the last few quarters, you've probably seen.

100 plus million dollars.

Quarter on average that's not unreasonable to expect frankly, we we expect a couple of more kind of one offs in the very near term.

With respect to the HCA question is not that whether they would want to we have a put option.

If we want to sell to HCA once that transaction closed we have the right.

To put the assets to them.

At fair value with the floor. We haven't we haven't described the floor, but but fair value will greatly exceed the floor in any case.

So we have that opportunity yes.

It's available to us as I mentioned it is not our plan to do that in the near in the near term or in the foreseeable future, but it is available to us.

Great. Thanks, Steve.

Your next.

Will come from Connor <unk> with Baird. Your line is open.

Good morning out there thanks for having me on the call first one's quick I'm. Just wondering if you could provide any additional color on the lease terms for the acquisitions completed during the quarter I'm just trying to get the puts and takes to work back to a cash yield on those acquisitions.

I think they are.

Theres four separate leases on the on the Finland deal I think they are all in the range of 13 two.

The 13% to 17 years is my recollection remaining lease term roughly 15 years.

On a blended average.

Okay, and then just jump back to cover real quick I really appreciate the color additional color provided there.

Looking into contact with the inflationary pressures. So correct me if I'm wrong here, but I think we should be working under the assumption that we should see those coverage levels levels ticked down for Q1, 'twenty, two and probably through the end of the year and then within that framework I'm just wondering given the reimbursement rate hike I think the budget increase was $1 6 billion.

Can you just provide any commentary here, whether or not that's viewed favorably or unfavorably by the operator base.

It's in the same vein how is the top line on these procedures looking for private pay models. I mean are you seeing any improvement in the reimbursement rates there.

So cloud are we disagree with your original statement in there until to our operators.

For the for the first quarter February was not a great month for everyone to short month, obviously and that's when you saw most of the labor spikes. There. So you may see a slight downturn in coverages in the first quarter, although I don't have numbers to back that up yet.

But no one in our portfolio none of our operators certainly none of our major operators are expecting 2022 to have a lower EBITDA than they have.

And.

In 2000.

While I guess going back to 2019.

All of them all of these major operators ones that I'll discuss today are expecting that 2022 is going to be a good year for them.

And what they are because I missed the second get you had another question Countervail private pay was.

Sure.

The reimbursement from <unk>.

Commercial insurance that was at the <unk>.

<unk>.

Yes, both from CMS and commercial well.

Well from a theme from CMS standpoint, as I stated earlier on accumulative basis same message has always exceeded.

The inflationary rates from the announced the payment that were announced for general acute care hospitals. Our operators are very pleased with those numbers and as we all know of the commercial insurance generally follows whatever CMS does.

Okay I appreciate the color there and then just one last quick one on the development pipeline I noticed I think one of those project timeline.

Timelines that pushed out a little bit just wondering how rising costs of construction inputs might be affecting your predictions.

The only issue that doesn't show up in any of these numbers or whether or not some people will continue to do development deals that they were planning to do only because we still don't have final numbers on some of those projects they're not material.

But we.

We don't have any existing projects, where anybody has come back and said that the project costs will go up.

Remember if they do if they did go up our rental payment would go up as well.

Got it understood appreciate the comments.

Your next question will come from Austin, <unk> with Keybanc capital markets. Your line is open.

Good morning, Arthur Porto Entre Austin.

Just trying to understand where coverage ratios could trend.

<unk> funds from 2021 roll off so could we expect some impact to rent coverage this year.

The HHS films roll off.

<unk>.

As to what rolls off, but you talked about the grants.

Yes, yes, HHS grants.

Yes, so so.

If you look at the trailing 12 months ended 12 31.

The vast majority of those grants that are still included in that are in the first and second quarter. So if you take out all of the grants that are still included in that it would reduce the coverage.

Bases excuse me the coverage for at least coverage for 2021 overall, approximately 40 basis points, there's very very little grants still remaining in the second.

Sorry in the third and fourth quarter of 2021.

Great. Thanks, and just one follow up.

So given some of the recent investment activity.

You sort of expect a shift in the pipeline for Europe , and the U S into Europe and also yes.

Potentially the targeted markets or asset types pipeline changes large scale acquisitions or policy.

Yes.

Keeping in mind that we're not going to do any.

Large scale acquisitions until the stock price gets back to a place where we're comfortable in and selling stock, but if you look at what the pipeline is it still what it was for the last two quarters that are reported which is roughly 50 50 international and in U S. The issue of when it happens as is.

As I've stated before we can't pinpoint what the timing is but the preponderance of the acquisitions short term acquisitions are here in the U S.

Great. Thanks, Ed.

Your next question will come from Vikram Malhotra with Mizuho. Your line is open.

Thanks, so much for taking the questions maybe just to clarify when you said removing the ground.

Just by 40 basis points is that the coverage goes down by a point for <unk> is that correct or am I interpreting that correctly.

No that is correct.

So good point.

The total portfolio.

<unk> broken out.

Okay. Okay. So just to clarify I mean I get it.

The coverages are going.

Third and fourth quarter, the new provider range and eventually rolling off.

You still have labor pressures.

To me it sounded like the HHS side.

CMS increases across multiple.

Asset types, whether it was skilled or hospitals or hospital.

It just seemed like they were below expectation, so but mathematically.

When you report the 12 month coverage for next quarter trailing 12 months will take umbrage be down.

Yes, that's what I was trying to answer to Arthur I do expect that the.

Next quarter will be down slightly.

But primarily due to the February the pressures in February and February not being a great month, but is also reported in the prepared remarks, everyone has seen all of that improve for the remainder of March and April So I expect it to just be short term.

Got it so as the quarters roll off as you go through the year you expect it to increase.

Makes sense.

I guess just on liquid.

Capital availability as you look to execute on this pipeline you outlined.

Can you just maybe give us a bit more color on potential JV.

How is the pool of.

Interested parties changed at all and what are they looking for.

It just feels like that's become more and more important source of capital apart from the dispositions, just given where the stock price. So I'm wondering.

Where are you in discussion how close when can we expect something if at all.

So we are not able to predict when we might announce a.

An agreement.

I think I answered a similar question from from Mike Carroll.

There's been very little change in when we're talking economically with potential.

Joint venture partners.

And by that I mean, if we had been having and we were having these discussions.

Before we finish the Macquarie deal six months to 12 months ago.

We're still talking in the same.

Reising range cap rate range, obviously debt costs have come up some and that has an impact on our total yield which impacts the equity cost that just simple arithmetic.

And.

So there is another part of your question now.

Yes.

Overall, it's a much more important part of executing on your pipeline, So I guess I'm.

Just trying to get gauge like.

Can you tell us that you are having conversation close or not at all right now it just feels like it's a really important part of you executing on.

On the pipeline.

We absolutely are having conversations.

We internally.

The process with us starts with determining what could be the most appropriate part of the portfolio.

Should we slice and dice between different types of properties between different operators across master leases. So it's putting that together and at the same time kind of gauging the level of interest.

But but we're also having a specific direct conversations with multiple potential partners, but I'll just reiterate we're not in a position.

To predict when we might have something to announce.

Okay got it and then just two more quick quick ones.

Apologies I'm new to the story, so I just wanted to clarify.

I didn't realize.

That you had RIDEA exposure in some of the hospital into the hospitals you mentioned, but is this the structure of that.

Net net you anticipate using more or is it just was it specific to these deals.

And can you just remind us where is that RIDEA income reported yes, a really really good question. So why do we do these RIDEA deals and when I say RIDEA Im talking about as I mentioned for example, the spring Stone transaction. We also sometimes we'll make a less than 10% investment in <unk>.

Operator, thats not technically RIDEA, we do RIDEA I'll just explain.

Spring stone because there is a pattern there is a reason we do it it's not that we necessarily.

Want to own equity in the operator, but spring stone was a tremendous extraordinary platform one of the kind that.

Included 18 existing and several in process, new build state of the art behavioral hospitals in order for us to acquire those hospitals that real estate, which of the total roughly $950 million price that was that was 75% of it in <unk>.

Order for us to capture that.

Seller was not willing to bifurcate out the real estate and sell to US and then go try to find another buyer for the operations.

So we entered into the RIDEA transaction, where we bought the whole Cup.

And when we've done this in the past, which frankly is very rare, we've probably done three or four in our entire history.

And they are all extraordinarily profitable going back to the very first one.

Was very profitable then we did.

Ernest.

And the outcome with iron as what we bought 16 proper.

Properties and then we paid another $100 million I think for the Opco today, we have a relationship with <unk>, where we sold the opco years ago for a mid teens Unlevered IRR and yet today I think we owned 25 or 26 properties that generate extra.

Ordinarily strong coverage and rent payments. So that's why we do RIDEA.

Okay.

It has been very profitable, but the big point is it allows us for a relatively small incremental relatively.

Risk list that is incremental risk.

Investment to acquire significant growing real estate platforms.

Okay, great Yeah, I might follow up on that.

On the call, but just last one just to clarify you mentioned you'd elaborate a bit on the G&A.

I may have missed this but I just wanted to clarify.

Just the overall G&A, but just also in the proxy kind of exact compensation the metrics.

By which you sort of gauge.

In terms of the exact comp in additives.

The metrics.

And adjusted <unk> number can you just clarify the difference between that versus what.

You may be reporting for Q4 earnings purposes.

So the main the main adjustments.

And I.

I'm, sorry, if I'm a bit constrained because we're literally hours from filing our proxy and I can't I can't step on the proxy.

Historically, the main adjustments that we make are.

Four dilution from board of director approved disposition strategies. So in other words, if the board says go do a steward Macquarie type.

<unk> venture.

We don't get we don't get deemed the calculation doesn't get deemed for the reduction in <unk> from that so that's one second is generally we annualize the impact of the acquisitions and the impact of the dilutive capital that we used to fund.

Those acquisitions so in other words, if if we do a transaction on July one.

Because from day, one the rent is in place, it's 100% leased and it's and it's collected so we annualize that and if we borrow money and issue shares to fund that acquisition on July one we also rewind that back to January one.

Sure.

To reflect the dilution and <unk> <unk> per share that comes from that.

Thats really.

The only adjustments we make to what the actual numbers are.

Okay, Great I'll, probably follow up on both of these uplift to call it but thanks for all the additional disclosure and color.

Thanks Vivek.

Your next question will come from Tayo Okusanya with credit Suisse. Your line is open.

Hi, Yes, good afternoon, I think I've done over 60 earnings calls with you guys. This is by far the most exciting.

No.

Higher today, not very often.

Yes.

Got it.

Anyway.

Well congrats on all of them all.

I think again.

The sell side and buy side have been clamoring for a long time.

Yeah.

It would be good to see that information and that continues to kind of encourage that going forward.

Guidance wine I, just wanted to make sure I understood what was.

Given you have now switched back to <unk>.

Guidance, that's kind of more in line with how you provide it.

Do you have in there.

Just acquisitions that have been done.

Year to date.

But you don't have any prospective acquisitions in there you don't have any prospective capital when needed.

Transaction.

Yeah.

We do have some.

Expectation.

Asset sales in there, but nothing around prospects than what they're doing with some of the sales of the operations.

So tayo your true.

Youre correct up until when you mentioned prime we do not necessarily assume that prime is going to exercise its options to buy roughly $330 million of properties, we make assumptions about what we think is going to happen.

Haven't disclosed what we think that is.

But.

We have a level of confidence.

Our expectations. However, if we're wrong, if we're totally and completely wrong and prime does in fact exercise its options.

And then what we've said is the result, as well within that 78 to 82.

Guidance range.

On the <unk> prospect, we assume nothing on prospecting and just to make clear what Ed said.

We absolutely have the right to decide whether we sell our property or not we've not been proposed.

Any.

Potential transaction about what the what the sale price would be what different lease terms might be what's the credit of a potential replacement operator all of those are decisions.

Are all of those are data points, we take into decision we will ultimately make about that but insofar as guidance. There is there is no. There is no assumption about any property sales or at least adjustments or anything with those prospect hospitals.

Okay. That's helpful.

Ben.

Lease coverage again, the additional detail is great.

I'm just kind of curious.

Thanks to the backward the back of the envelope math between you guys provide EBITDA coverage for all of the tenant.

All we're trying to look at.

<unk> not dorm rooms, what's kind of a good thing.

So again I know all of the companies have different EBITDA margins and things of that nature, but.

That guide us to what EBITDAR could look like rather than the Dara.

You remember tayo, we used to do it that way.

We were the we were the only REIT that did it that way and so we we're getting dinged for providing more information. So we do it the same way everybody else does it's a little bit confusing because.

Some of the EBIT dorm.

Julie is inclusive of all of the corporate side of that of that equation.

But if you just if you want to be ultra Conservative then.

We'd have to go through and figure out which ones didn't but.

A 4% management fee would probably be a very conservative calculation of that.

But that's a whole bunch Anthony on the revenue on the top line.

Right.

You don't have so yes, exactly without we don't even know what the margins I think so.

Lots of back into it but but.

That's helpful.

And then act.

It seems wide.

The 1.1.

Once a $3 billion range that you've kind of talked about.

It seems not.

Given the question or not.

Unlikely to do a very big deal this year, but again I'm just kind of curious when you look out.

Lance.

The actual deal opportunity.

Why wouldn't you consider that.

There are tayo, there are great opportunities out there.

As we have stressed so hard for the last three quarters, we're certainly not going to do any of those transactions if it means selling stock at <unk>.

Prices are where we are today, but there certainly are good big opportunities out there hopefully with this disclosure and this correction of some misunderstanding.

The stock probably we will see a rise in the stock price.

Excellent.

I think the information is great and I really encourage you guys to do more of it going forward.

Thanks Tayo.

Your next question will come from Mike Mueller with Jpmorgan. Your line is open.

Yes, hi.

And I guess on the comment about not doing large scale acquisitions until the stock comes back.

Should we think of that is that just keeps you out at the upper end of the 1% to $3 billion acquisition range or would that keep you out of the bottom end of that range as well.

No it keeps keeps us out of the $5 billion to $6 billion range.

Okay. So so.

So it sounds like the.

The 1% to three stands based on your expectations of dispositions and JV formations and stuff you talked about in the call outside of equity. So you don't need the equity to come back keep the one to three guidance range is that the right way to think of it.

That is correct.

Remember I tried to say that in the fourth quarter or in the earnings call in December and confused everyone half of the people thought I was lowering guidance.

Other half thought our southern stock but.

The pipeline is extremely strong the opportunities are good worldwide opportunities out there and if.

If capital weren't an issue we could do ranges in the range that we've done over the last six or seven years.

Got it got it and you haven't seen it sounds like you have enough visibility on asset sales and the potential JV east to knock out that 1% to three okay. Greg that's correct that was it I appreciate it. Thank you.

Thanks, Mike.

Your next question will come from Joshua <unk> with Bank of America.

Yes, hey, everyone.

Curious on the.

Messaging change on the JV is it previously.

Previously it was always kind of like you would do it. After you had closed on a deal kind of created the value upfront and now it sounds like if I heard correctly, you would be willing to bringing a partner upfront just kind of.

Do you kind of lose some of the value bye bye. Thank you.

Changing it up where youre, bringing a partner upfront.

You do a really good point.

Josh and it's the reason why we've done it the way we've done it.

So far and we're not saying that we're changing that theres still remain opportunities.

Significant multiple opportunities to replicate kind of the the steward and the median joint ventures that we did where we acquire a portfolio we season. It improves and then we sell it.

At 100, or 200 bps less than what we're earning.

That's obviously very very attractive.

At just now mentioned that absent capital issues, we'd be doing we'd be expecting weigh more than $3 billion.

<unk> be in that.

There is a pipeline out there that.

We could do for five or more billion. So the question may come that Theres a real opportunity.

A big number and in order for us to do it in the current equity markets. We will have to bring in a partner upfront. That's really all that I meant was that.

We're not dependent long term on our growth to waiting for the stock to come back one way or another big.

Big acquisitions has to be funded and they have to be funded with a significant piece of equity that equity can come from private investors are from public shareholders.

And if we have to go to the private market to make a big acquisition. Then that's something that we think is available to us.

Okay.

Do you think there is anything you could you can do differently.

Ross capital constrained.

Zero in equity.

We could get the stock up.

Yes, okay.

Okay.

Yes.

I'll leave it there.

Okay. Thanks, Josh.

And your last question will come from John Pawlowski Green Street.

Great. Thanks for keeping the call going.

Apologies, if you've disclosed this before but on the 19 of depth. This property and he sold $135 million and realize value could you just share the cash.

Cash cap rate on those sales.

Well im not sure a lot of those were empty.

So for example of the two we just sold that we announced this morning one.

Was anything by the way they were they were the two largest adept as properties. These these were two of the three hospitals we built.

They form at the hub of the adapt because hub and spoke system. So in order to execute that strategy.

That this needed general acute care hospitals, one was in Houston, one was in Dallas. The one in Dallas was occupied the one in Houston was not so so you can't put a cap rate when we didn't have any income coming in on Houston.

<unk>.

So it's kind of a hard impossible question to ask to answer I think if I'm understanding it correctly.

Yes, just looking for a kind of a rough range of our cash yield somebody would underwrite the buyer would underwrite on the 19 properties sold.

Yes, there is just a lot of most of the value.

Came from these two hospitals, we just sold.

And of the rest of the 17 hospitals they were freestanding emergency rooms.

Some leased many not so so again there was no market rent coming in when they were sold.

Okay.

Final question for me, just so I understand the <unk>.

EBITDAR coverage levels by operator.

Steward two eight times.

Similar to past Investor presentations are you, adding back COVID-19 related costs and other large corporate related costs to get to that to that $2 eight.

Yes, there are no no add backs to any of the EBITDAR calculations. They are all facility level revenue numbers without any adjustments made to any of them.

Okay.

Try to marry that with the I think it was in June 'twenty, one investor presentation, where steward steward financials coverage was sub one times.

How do I marry these two figures.

Well, yes, I think youre, referring to the corporate.

Financial statements that were filed and the adjustments that were made to that is that what youre referring to.

Yes, Sir.

And those adjustments were non reoccurring non corporate non facility level numbers, they were primarily related to the.

Acquisition of Isis.

<unk>.

And some COVID-19 numbers in there, but that is outside of the facility level numbers and similar to the question that Tayo was asking about EBITDAR versus EBITDAR.

John We did not attempt we wouldn't attempt to pushed down from the corporate level. For example, there was there was a big adjustment for electronic health record Tonight.

That was incurred up at the top.

At the parent level, we didn't try to push that down.

To the facilities and just by way of quick background. The reason, we look at it from a facility level basis.

Is if something happens.

Hey at that top parent level, so going back to your question about the 2020 financial audit financial statements that we filed last June or July .

If that were to lead to financial stress at the steward level.

What we want to be sure of when we underwrite and when we collect our rent is that if that happens and it impacts Stewart operations, we can extract from Stuart the hospitals, we want to extract and they should be.

It's key to our entire existence, they should be profitable at the local level. That's why we do it at the local level. So for example, let's just take you topic I'll Stuart has already agreed to sell Utah, what if something bad happened at the steward parent level.

12 months ago, and we had to start taking back our facilities, what we would capture those Utah asset.

And any others, we want it presumably they would be generating strong profitability based on the local coverage that we've just reported and we would be able to call HCA, our intermountain or some other.

A large operator, who wants to get into Utah and tell them, where the landlord. We have these businesses. Its not just empty shell buildings. We have these businesses that are generating substantial profitability recurring profitability, we'd like to give them to you don't have to do any you don't have to you don't have to pay to get into a market you don't have to wrap.

<unk> you don't have to put in a whole lot of capital. All you have to do is take over these lease payments now frankly, what would happen in that cases is we wouldn't just give it to them we would extract value from from whoever that replacement operator is but that's the whole concept behind us focusing on facility level local level coverages.

Okay understood. Thanks, so much for the time.

And that concludes our question and answer session I will now turn it back over to Ed.

For closing remarks.

Peter Thank you very much and again, we greatly appreciate all of your interest. We appreciate all the questions and please don't hesitate to call any of US. If you have any additional questions or any concerns today or throughout the year. Thank you.

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

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Good day, and thank you for standing by and welcome to the Q1 2022 Medical properties Trust earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

We advice that today's conference is being recorded.

You require any further assistance please press star zero.

I will now hand, the conference over to your first speaker today Charles Lambert. Please go ahead.

Good morning, welcome to the medical properties Trust conference call to discuss our first quarter 2022 financial results.

With me today are Edward K out AG 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 it is available on our website at Www Dot medical properties Trust Dot com in the Investor Relations section. Additionally, we're hosting a live webcast of todays call, which you can access.

In that same section.

The information being provided today is as of this date, only and except as required by the federal Securities laws. The company does not undertake a duty to update any such information.

In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures.

Please note that in our press release medical properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements.

You can also refer to our website at Www Dot medical properties Trust Dot com for the most directly comparable financial measures and related reconciliations.

I will now turn the call over to our Chief Executive Officer, Ed <unk>.

You Charles and thank all of you for listening in today on our first quarter earnings call for 2022.

As the first quarter as first quarter results continue to demonstrate MPT in this portfolio are in the strongest position in our history.

Our portfolio is well diversified and performing well our tenants are generating strong lease coverages and are poised for a strong 2022.

We have a strong balance sheet, and we have more and better worldwide opportunities in both acquisitions and joint venture possibilities than ever before.

I look forward to sharing with you. This morning details about our portfolio and future acquisition expectations.

Our overall remarks today I will also take time to address a few other points that have been raised in recent reports in media coverage about NPG.

Let me start with EBITDAR coverage for our portfolio.

First let me point out as I have numerous times EBITDAR in these calculations come straight from property level GAAP basis financial report that we received from our tenants which include their annual audited financials at year end.

Except in extremely rare or unusual circumstances, such as the Covid grants for 2020 in 2021, and some minor immaterial prior period updates no adjustments have been made to these numbers.

These EBITDAR numbers, our trailing 12 months for the period, ending 12 31 'twenty one we.

We use earnings before interest depreciation and amortization rent and management fees and the actual cash rent amounts owed to MPT.

CMS uses different definitions and allows us different deductions for items, such as depreciation amortization interest and other items than what is required in GAAP financial statements.

Furthermore, they include all rental and lease payments and interest payments among other items.

Therefore, when quoting the profit margins one must keep in mind that all MPT rent and other rent and interest has already been accounted for and those numbers by definition. The CMS cost reports could actually show a negative profit margin and all of the rent and interest being paid at the same time.

Now I want to take a few moments to go through some of our larger tenants I'll start with steward.

Stuart has kept coverage ratios at or above the industry standard and has remained flat close to an almost three times coverage for the past three quarters.

One item of note is that the recent acquisitions in the Miami region continue to far exceed our original expectations.

And just as a reminder, the HCA, Utah transaction is projected to close by the end of the second quarter of this year.

We recognized that labor cost as a topic at the front of People's minds in this economic environment. So as I go through these tenants today I will give an update on that per tenant.

Labor costs for Steward Steward is very active in their daily management of overall labor cost contract labor is down year over year, though it has been increased slightly in the last two months.

Overall salary wages and benefits and contract labor are well below budget.

<unk> been able to cancel and rehab contract labor as rates improve.

Totally cost they've seen some inflationary pressures pressures, but not material food.

Food cost they have not seen a large increase as they have worked very hard to keep costs down through their GPO.

Next circle in the UK, which continues to be a superb operator, producing coverages that continue to exceed mpt's original projections.

Post COVID-19 the self pay inpatient volumes are trending between 40% to 75% above where they were in 2019 self pay in the United Kingdom as a very profitable aspect of their business.

Circle is seeing some labor shortages, primarily with nurse staffing as a result of the spike in AUM across that call. It an unusually high number of nurses to be out sick or in corn team. They are seeing some inflationary pricing pressures across supplies utilities food costs et cetera, but are navigating through these.

We do not see it having any material impact on their budget.

We expect Q1 to be in alignment with their budget.

In the meantime, prospect has made a number of operational changes to those facilities, particularly at crozier, which have resulted in some improvements to their operations there.

<unk> continues to monitor the situation in these two states to see how any potential sale may affect us.

Regarding prospects labor cost they are starting to see those level off over the last month or two they peaked around the end of January beginning of February and declining each week since.

We're also seeing contract labor costs coming down 15% to $20 per hour.

<unk> food and other expenses had been up over the last year or so but are still somewhat in line with inflation. They have not experienced any shortages or supply chain issues and do not see any concerns with cost at this point.

Next the Swiss medical ended 2021 with strong coverage and continued its expansion inside of Switzerland.

2021, EBITDAR increased by approximately 21% year over year fueled by both acquisitions and organic growth.

<unk> Suisse inflation rate is one of the lowest in the developed world with March 2022 figures at two 4% Swiss medical is not reporting any issues with staffing.

<unk> medians EBITDAR coverage remained steady as it has throughout the past two years average auction occupancy was approximately two and a half points ahead of where it was last year.

Q1, 2022 is expected to be in line with expectations. Despite COVID-19 related self isolated relation staffing issues personnel costs through February 2022 are below budget, but 8% up year over year, when compared to a significantly lower staffing level.

In Q1 2021.

Rory.

We saw a slight decline in their coverage, but still an acceptable ranges near two times occupancy exceeded last year and was only held back by the same labor shortages that other behavioral health facilities have experienced Q1 2022 is expected to be in line with expectations. Despite these COVID-19 related.

It is self isolation staffing issues.

<unk> pressures have been identified as a concern with personnel calls through February being up 4%, but year over year only 1% over budget.

Health scope once again held scopes coverage exceeds two times as is the case in most of the world all elective surgery restrictions there had been eased or lifted.

Prime Prime continues its stellar performance with coverage is exceeding five times I recently met with problems leadership and both MPT and Prime Express expressed their desire to continue to work together, we have a very long strong and mutually respectful relationship we're still working through the fuel.

Leases that expire this summer Steve will discuss this in more detail in just a few moments.

Labor many of the contract nurses had during higher during <unk> Spike were signed on a six month contract that will end in Q2 2022.

Therefore salary and wages and benefits and contract labor costs are expected to normalize in Q3 and Q4 of 2022.

There are no concerns noted in their utilities or food cost.

And finally life point overall life point continues to perform well their trailing 12 month coverage was essentially flat quarter over quarter late last year light point completed completed its merger with kindred and the spinoff on some kindred facilities and some of <unk> hospitals to the new entity Scion health MPT is both.

These entities as tenants going forward.

Labor cost they peaked around the end of February and early March they've seen a small but steady decline ever sets as far as utility food and other expenses they've seen increases over the last year, so far but not any new pressures here fairly stable over the last couple of quarters and in line with their budgets.

Since our inception, MPT has prided itself on strong tenant and operator relationships, including broadening and diversifying those we work with is our businesses have grown and expanded.

Our relationships are based on a strong sense of mutual trust, but also proven track records of performance and consistent delivery our operators have done a tremendous job over the past few years and expect except for some labor pressures for a few they are all close to or at record levels of EBITDAR.

Even if the labor pressures don't subside, given where operators are in their operations today. They all feel good about their overall expected outcome for 2022.

An important historical note directing nos on accumulative basis, Medicare reimbursement to hospitals have always exceeded inflation.

I've spent the last five weeks on the road visiting with most of our tenants for the first time since Covid.

It is good to see everyone face to face and I couldnt be happier with the relationships, we've built with our customers, which are central to our success.

Turning to our most recent acquisitions announced today. These most recent acquisitions Mark Mpt's entry into the Nordic nation of Finland.

Northern countries have always been a promising target for MPT, Finland has a cooperative public private healthcare system. The private sector is extremely important to the overall finished healthcare system. This 178 million Euro transaction included the acquisition of four hospitals and four distinct major metropolitan areas.

Throughout Finland.

And I know that I will not pronounce these names correctly, but how thinking Hulu, Turkey and <unk> two of these.

Hospitals are certified LEED gold facilities and the other two are certified LEED platinum facilities the.

The main tenant again I apologize in advance for the pronunciation P. J, how Lana is the third largest private hospital operator in all of Finland.

This transaction brings another strong operator, and a new country into our already diversified portfolio.

Looking forward from an acquisitions perspective, <unk> continues to have tightened top notch opportunities all over the world, but as we have stressed for the past three quarters, we will not be making large acquisitions. If we must sell stopped to do so given our view that our stock is significantly undervalued and.

Does not appropriately.

<unk>, what we believe the value of MPT debate.

As I mentioned, we believe strongly that there had been rumors in fall so its around MPT and our business in recent months.

We welcome each of you to speak directly with me, Steve drew or <unk> as we are eager to address any questions or concerns you may have before.

Only one, albeit large adjustment that I want to point out.

We reported a net gain on sale of real estate and other of about $452 million.

The gross amount of gains included approximately $600 million related to our sale of eight steward facilities to the Macquarie joint venture but.

And in recent years. These re tenanted transactions have been primarily related to adaptive and elekta and by the way had been prominently and expressly described in our public disclosures.

In other words to clarify misstatement from one recent report these adjustment to straight line rent are routine ordinary course and have nothing to do with lease amendments.

So for example, the $2 6 million write off of straight line rent shown in this quarter's <unk> reconciliation relates to the profitable sale of one of the former adept as hospitals mentioned in this mornings press release.

Other adjusted.

<unk> to normalized <unk> for the quarter, our routine and immaterial individually and in the aggregate, although I'll be happy to address any questions during our Q&A.

Our G&A expenses increased slightly due primarily to two seasonal type reasons number one during each year's first quarter, we incur about five times the employer taxes and 401K match of the other three quarters. So in 2020 twos first quarter. This amount was $2 $6 million.

Versus the fourth quarter of 2021 of less than 500.

Second prior year compensation, primarily nonexecutive bonus accruals are true up and this typically results in about another half a million dollars incremental expense. There are other minor ins and outs and the only reason I mentioned these very small amount as to make clear that this quarter to quarter increase is not indicative.

Of any change in our G&A cost structure.

This morning, we filed on our website a few slides that address some of the misdirection that Ed mentioned earlier and one of those slides compares mpt's G&A to others in our peer group.

I'll mention other of these slides in a few minutes.

We noted in this morning's press release that going forward, we have revised our guidance methodology from our historical run rate to a more conventional calendar year estimate our scale is a $22 billion company and the resulting level of what is material makes us a more appropriate way to estimate near term rig.

<unk> then when we were much smaller.

So our previous guidance included approximately $25 million and anticipated rents primarily from our development projects, even though the tenants had not commenced paying rent.

That $25 million about <unk> <unk> per share annualized is now no longer included in our new calendar 2022 guidance between $1 78, and $1 82 per share.

With the exception of the recently delivered earnest Bakersfield facility.

Second our guidance no longer attempts to adjust for the estimated future dilutive impact of capital transactions, because the timing and source of debt capital is not definitive.

The calendar year 2022, <unk> guidance of $1 78 to $1 82 per share includes of course, the first quarter result of 47 that we reported this morning.

It also takes into account our expectations concerning the outcome of primes repurchase options for two of the five prime master leases.

That outcome remains undetermined, but the dilutive impact of any likely outcome remains well within the scope of our guidance range.

Ed made clear on last quarter's call and reiterated a few minutes ago that MPT is not compelled to maintain his extraordinary last 10 year record of roughly 30% compound accretive growth funded by common stock issuances at unacceptable prices.

That's why we have estimated a range of accretive acquisitions in 2022 between one and $3 billion.

We are confident the investment opportunities are out there, but the ultimate volume this year will be related to the amount and timing of our access to attractively priced equity capital.

We expect this capital to come from some combination of the following.

Selective property sales such as the profitable hospital sales, we announced this morning.

Joint venture transactions similar to our extraordinarily attractive Macquarie Steward deal, we just closed and the 2018 promoting all media joint venture.

I'll also remind the group that HCA has pending acquisition of stewards, Utah operations includes the assumption by HCA of the economics of our current master lease with steward with respect to those Utah hospitals and I'll point out two very important considerations first this implies.

A fair value of these facilities significantly higher than our investment in them.

This of course is testimony to MPT is underwriting and to Stuart's strategic and operational expertise.

Second recall that MPT has a put option.

Subject to FTC approval and closing of the transaction with steward.

Allows us to sell these assets to HCA at fair value.

It is currently not our expectation or our plan to exercise that option in the foreseeable future.

But when compared with an alternative that would contemplate funding our growth with common stock sales at recent prices. It should make clear to anyone that it is highly unlikely that there will be any such common issuances.

So far our JV strategy has been to assemble a portfolio of well underwritten, but perhaps previously under managed asset season. These assets, while our premier operator tenants improve the financial performance and then sell in interest to our JV partners.

This has been very profitable and very beneficial to our common shareholders.

Equity market.

To the extent that we rely on our current portfolio for continued long term success and growing and collecting our cash rent and in using this portfolio to harvest built in gains and access additional efficient equity capital, we have enhanced our tenant level reporting of lease coverage on page 30.

<unk> of our first quarter supplement we have listed a significant majority of our major tenant relationships and their most recent trailing 12 month EBITDAR arm to lease payment coverage ratio.

We think it makes it abundantly clear that our operators continue to generate generate EBITDA arm at sector, leading ratios to lease payments and that the unencumbered assets that may be available for joint venture or other transactions are no less financially attractive to potential partners and where our Macquarie.

And promoting our portfolios.

First we present, a summary of adjusted <unk> over the past 10 years compared to dividends paid.

We have always considered and prominently displayed at the <unk> metric because we like many real estate investors think it critically important to measure results not only based on GAAP, which includes mandated noncash straight line rent, but on a measure that does not include this noncash unbilled rent concept.

<unk> <unk>.

As the slide says cash cannot be engineered or manipulated.

I mentioned earlier that any straight line rent write offs have not been related to lease amendments, but primarily highly profitable property sales.

We must have cash to pay our dividends, which have grown consistently and this cash comes from tenant operations.

And by the way, we maintain a very strong payout ratio. Most recently in the 80% of <unk> range.

To demonstrate the sustainability of this cash driven business plan I already called your attention to our new disclosure in the supplement that summarizes the covers strength of our major tenants, but that is not to say that even with strong local facility performance operators will never get stressed and <unk>.

MPT will never need to re tenant its facilities.

Thankfully it has happened over our 18 year history less than a handful of times and in those rare circumstances, we have in the aggregate actually improved our financial positions.

Page seven in this morning's deck summarizes how our specialized knowledge about hospital operations underwriting expertise and carefully structured master lease arrangements led to a successful if distracting re tenant in process in the worst of circumstances and those circumstances included.

A complete termination of the existing operator, and a lengthy bankruptcy process.

I will not regurgitate the adaptive experience as most of you are familiar with it and lived through it with US ill just point out that we have recently sold the last of the major adept at hospitals, both at substantial profits, resulting in a quantifiable value well in excess of the 415.

Investment we had made when adept as went into bankruptcy.

A recent third party note made much of the concept that net lease cash yield should trend up into the right.

And of course as our slide number eight shows that's exactly how our leases perform virtually without exception as the chart in the top half of that slide demonstrates.

And in the current inflationary environment that many economy economists believe will be with us for a while that curve up into the right we'll grow even steeper.

But the report that implies that there is something surprising that on our consolidated balance sheet basis Mpt's gross yield is declining.

I'm not going to walk this group through the evident arithmetic because it is apparent and frankly, we received not a single question about this but in today's world. We thought we should document why gross yields to come down and are compressing rate environment, while investment spreads remained healthy.

Based on GAAP reporting and the results achieved by.

Relying on CMS report.

Comparison is on slide nine.

Spittle in the country is profitable.

Slides 10, and 11 are included simply to address the absurd concept proposed by a recent news article that implied that MPT consciously deliberately overpaid for real estate. So seller lessees will have liquidity to pay the subsequent rent.

The slides summarize two things first we of course do not overpay as demonstrated by recent highly profitable sales of these facilities to sophisticated third party operators and investors.

Second even if one could accept that a company would execute such an overpayment strategy. The slides make clear that such overpayment would have gone to the sellers of the real estate such as the former owners of steward.

<unk> or community our tenant the <unk>.

Parties from whom we bought the real estate and to whom was paid the sale proceeds these.

These parties certainly did not turn around then and pay steward's rent out of those proceeds the proceeds were never available to steward for anything including rent.

Slide 12 makes clear that the majority of MPT equity investment is actually $1 $5 billion of hospital real estate that is owned in partnership type vehicles about $900 million.

The remainder is similarly owned acute care hospitals in Switzerland, Spain and Italy.

The slide following detailed non real estate investments there are only two true RIDEA investments both of which have been expressly described in detail previously spring stone, which we bought late last year and the international joint venture that bought Colombia, and all other non U S.

Opportunities in infrastructure from steward two years ago.

We have two investments and steward.

First we have a preferred interest of $139 million.

This was originally $150 million, but has since been reduced by an $11 million distribution last year.

Second we have loaned about $360 million. The initial proceeds of which went directly to stewards former private equity owners.

These proceeds redeemed from those private equity owners, approximately 37% interest and steward.

And in addition to earning a current rate of interest on this loan MPT expects to receive value equivalent to that ownership interest upon certain events.

MPT has no funding or other obligations as a result of these investments.

The remaining investments on the slides are self explanatory, although I will reiterate that none of these investments obligate MPT to support hospital operations or liabilities in any way.

So with that we'll wrap up our prepared remarks, it's taken a little longer than normal today, but we will nonetheless open the call to questions operator.

As a reminder to ask a question you will need to press star one on your telephone again that is star then the number one.

Draw your question press the pound key.

Please stand by while we compile the Q&A roster.

And your first question will come from Steven Valiquette with Barclays. Your line is open.

Thanks, Good morning, everybody and congrats on these results in this current environment.

I hate to ask a mathematical related question on the fly on our quarterly conference call, but I guess just to throw it out there.

I'm curious whether or not you guys have completed any sort of stress test calculations for your overall $2 seven EBITDAR rent coverage ratio across the entire portfolio specifically related to rising labor costs. For example for every 1% incremental increase in labor costs across all your operators how much would that.

1% change your EBITDA rent coverage ratio, if at all or how many percentage points of labor cost would it take to move that by 10 basis points from $2 seven so like a hypothetical 2.6.

A few of my own calculations on them I guess I'm just curious to get your insights around this do you have any color on the fly right now thanks.

So Steve we haven't done that and the primary reason would be.

We do not expect inflation to hit only the cost side of the income statement. It will also hit the revenue side and Ed mentioned in his prepared remarks.

The very long term history.

CMS.

And in other hospital reimbursement staying at least even and frankly over time ahead of inflationary pressures. So so we expect even even in a relatively steep inflationary environment that we think we're in now that the revenue first of all the revenue, we'll we'll keep up with the increases.

Secondly, our hospital operators.

Especially going back if you want to go back to the financial crisis, then again.

More so with the Covid impact hospital operators have demonstrated a very strong ability to manage their costs labor and otherwise to maintain their margins.

Steve as I mentioned earlier.

I've met with most of our operators over the last five weeks. Obviously this was on the list of agenda in my discussions with them.

None of them are overly concerned.

Obviously, all have been dealing with this for longer than just the most recent.

Inflation increases.

Onto the shortage in labor that we had over the over the last 10 years and they've done a great job of managing it.

Tried to give a little color on the on the largest tenants and where they are most of them are seeing the labor cost.

Greece's subside here in the last couple of months, but it obviously is something that we pay attention to and talk to our operators on a regular basis.

Okay, Great and then just one other real quick housekeeping question with the disclosures this quarter on the.

And the coverage ratios by all those individual tenants that certainly helpful. Just want to confirm are you still planning on doing that going forward every quarter for the foreseeable future or is this kind of more of a one off just wanted to get confirmation on that one way or the other.

No I would say.

We will try to do something very similar to this year.

You'll notice that we have two operators that didnt want their names mentioned.

But we still disclose what their coverage was and will continue to try to continue to improve our our disclosure.

Okay, great Okay. Thanks.

Our next question will come from Jonathan Hughes with Raymond James.

Hey, good morning, Thank you for the prepared remarks, and the enhanced disclosures.

I see that the leveraged profile did tick up a bit from last quarter and that is despite announcing over.

$300 million of new investments. This morning, you've made it very clear that raising equity is not on the table and recycle capital to fund any investments this year, which to me means unless you sell more then you buy in leverage will remain pretty static or maybe improve a little bit so is leverage temporarily running.

Higher this year with plans to get that back down in the five to six times range in the next 12 or 24 months or half leverage targets.

Moved up and you're more comfortable at these levels given the stability of your portfolio.

Well, we are comfortable at that six and a half we were very comfortable by the way, but thats not to say that that we've changed our plan that we've been stating.

Stating for quite a while and that is two to reduce leverage to get it down to a level.

The primary purpose is one.

If you can hope that that rationale returns to at least the way we look at our stock valuation in the stock valuation gets back to something we believe is acceptable and leverages at a level that allows US then to react very quickly, which is one of our great competitive advantages to react very quickly.

<unk> two relatively large opportunities.

Without having to drive and leverage even above the six or six five time. So in other words, if we're if we're operating with leverage it.

At five times, and we have the opportunity to make a large acquisition and we and we.

It will come at us.

As the acquisitions.

Drive capital access.

And the plan.

To address your point Jonathan is is.

We would we would over equity ties future acquisitions, we would not just sell.

$100 of assets and by $100 of assets necessarily.

Okay.

Alright.

Get the pieces there and then.

Maybe.

If you could maybe clarify thank you said earlier that.

Any impact to NTT from the prospects some of their Pennsylvania, and Canadian operations and what that means for you as a landlord is still unclear I.

I guess I'm just trying to understand how that can be the case you do not have a right as the owner of those properties operate them.

Any sense of timing when you might have more clarity on that front.

Yes, absolutely, we do have the right and more to the point.

Make the decision of whether or not we want to sell the properties. We haven't been asked to do that yet I think that prospect in the to perspective buyers are still in early stages of negotiations and so when somebody comes to us and makes US a proposal will address it at that point.

Is it possible you would just keep those in swap the operator.

Well, absolutely, but as I said, we havent had any discussions with the proposed new operators at this point.

<unk>.

Okay.

I wanted to check if you can get more colors and worth a shot.

And then if I can sneak one more in.

Has the board discussed.

Splitting the chairman and CEO role, we don't normally see.

That combined for a company of your size. So I'm curious if that is something on the table to help improve the governance profile and if not why not.

Jonathan we have discussions at the board level about all of our governance.

All the relative governance point of.

Yeah.

Yes.

And where I just didn't know if that.

Had been something addresses the company has grown and increase in size and typically we do see a split.

Taking a deeper look and look forward to talking again soon.

Your next question will come from Michael Carroll with RBC capital.

Capital markets. Your line is open.

And in turn have you seen cap rates for hospitals trend a little bit higher over the past six months or so.

Steve I can't hear the Echo is too much can you hear the question.

<unk> generally in case, others didn't hear it I think Mike is any any notable movements in cap rates that may be in reaction to the inflationary pressures and the simple answer is no I mean, it's pretty short term.

Period right now.

<unk>.

As both Ed and I mentioned there is there is activity there is opportunity for acquisitions in.

I can tell you sellers or not.

We're not moving off of recent cap rate levels.

<unk>.

I'll point to another business.

The recently announced acquisition by Blackstone of ACC.

Certainly didn't show any cap rate compression that one might have expected in answer to your question at least that was my personal observation, Mike that was a maybe a low fours, even reaching the four handle for pricing those assets switch.

I guess, you could interpret as real assets in today's <unk>.

Equity world are as attractive as ever so that's kind of our general observation. We just we just did the.

In the quarter, we did the Finland deal that that was at a cap rate that probably I would have expected the same cap rate six or 12 months ago.

And by the way that was that was heavily marketed in a highly competitive process.

Okay, Great hopefully you can hear me better I tried changed up my my my system.

Also can you talk a little bit about your current JV discussions I know that those have been ongoing I mean can you kind of highlight how active those are right now.

What are investors currently, saying and has those discussions changed or advanced over the past several quarters.

Now we have nothing nothing new to report.

We continue to evaluate different parts of the portfolio. We do have preliminary discussions about specific parts of the portfolio.

But nothing other than that to report other than I guess in conjunction with your other question Mike.

Certainly we're not seeing any pressure from potential partners to drive cap rates up on the sales side.

And what about like on individual assets and you kind of mentioned this in your prepared remarks that there are some assets that you are willing to sell our part with.

How many of those are within the portfolio and assuming there are some opportunistic deals I don't know if you can talk about.

Im assuming HCA would want to own those Utah assets is there something that you could do there at some pretty attractive cap rates just on the opportunistic side.

So.

I'll take those questions.

There are two one is yes, even though again, we announced this morning that we sold to general acute care hospitals that used to be in the adaptive portfolio last quarter. I think we made a couple of similar announcements and then late last year. Similarly, I don't think theres any pattern and there's certainly not a list that we maintain.

Are assets wed like to sell.

But just historically over the last few quarters, you've probably seen.

<unk> plus million dollars.

A quarter on average that's not unreasonable to expect frankly, we we expect a couple of more kind of one offs in the very near term.

With respect to the HCA question is not that whether they would want to we have a put option.

If we want to sell to HCA once that transaction closed we have the right.

To put the assets to them.

At fair value with the floor. We haven't we haven't described the floor, but but fair value will greatly exceed the floor in any case.

So we have that opportunity yes.

Sure.

It's available to us as I mentioned it is not our plan to do that in the near in the near term or in the foreseeable future, but it is available to us.

Great. Thanks, Steve.

Your next question will come from Connor Seversky Berlin Burke Your line is open.

Good morning up there thanks for having me on the call first one's quick I'm. Just wondering if you could provide any additional color on the lease terms for the acquisitions completed during the quarter I'm just trying to get the puts and takes to work back to a cash yield on those acquisitions.

I think they are.

Theres four separate leases on the on the Finland deal I think they are all in the range of 13 two.

The 13% to 17 years is my recollection remaining lease term roughly 15 years.

On a blended average.

Okay, and then just jump back to coverage real quick I really appreciate the color additional color provided there and I'll just need.

Into contact with the inflationary pressures. So correct me if I'm wrong here, but I think we should be working under the assumption that we should see those coverage levels levels ticked down for Q1, 'twenty, two and probably through the end of the year and then within that framework I'm just wondering given the reimbursement rate hike I think the budget increase was $1 6 billion.

Just provide any commentary here, whether or not that is viewed favorably or unfavorably by the operator base.

It's in the same vein how is the top line on these procedures looking for private pay models. I mean are you seeing any improvement in the reimbursement rates there.

So cloud are we disagree with your original statement in there until two our operators for.

For the for the first quarter February was not a great month for everyone to short month obviously.

That's when you saw most of the labor spikes. There. So you may see a slight downturn in coverages in the first quarter, although I don't have numbers to back that up yet.

But no one in our portfolio none of our operators certainly none of our major operators are expecting 2022 to have a lower EBITDA than they had in <unk>.

<unk>.

While I guess going back to 2019.

All of them all of these major operators ones that I've discussed today are expecting that 2022 is going to be a good year for them.

And what they are which I missed the second Gary you had another question Countervail private pay was.

The reimbursements from.

Commercial insurance does that was that the question yes.

Yes, both from CMS and commercial.

From a theme from CMS standpoint, as I stated earlier on accumulative basis same as has always exceeded.

Okay I appreciate the color there and then just one last quick one on the development pipeline I noticed I think one of those projects.

Timeline got pushed out a little bit just wondering how rising costs of construction inputs might be affecting your predictions.

So we haven't had any issues on existing projects that are under construction with contractors coming back and saying they were having trouble meeting any of the original prices that has not been an issue at all the only issue that doesn't show up in any of these numbers or whether or not some people will continue to do development.

<unk> that they were planning to do only because we still don't have final numbers on some of those projects they're not material.

But we.

We don't have any existing projects, where anybody has come back and said that the project costs will go up.

Remember if they do if they did go up our rental payment would go up as well.

Got it understood appreciate the comments.

Your next question will come from Austin, <unk> with Keybanc capital markets. Your line is open.

Good morning, Arthur Porto Entre Austin.

Just trying to understand where coverage ratios could trend.

<unk> funds from 2021 roll off so can we expect some impact to rent coverage this year.

The HHS funds roll off.

<unk>.

As to what rolls off and you talked about the grants.

Yes, yes HHS guidance.

Yes. So if you if you look at the trailing 12 months ended 12 31.

<unk> lease coverage for 2021 overall, approximately 40 basis points, there's very very little grants still remaining in the second and I'm sorry in the third and fourth quarter of 2021.

Great. Thanks, and just one follow up.

So given some of the recent investment activity.

You sort of expect a shift in the pipeline for the year from U S into Europe and also yes.

Potentially the targeted markets or asset types in the pipeline changes large scale acquisitions or possibly.

Yes, well as you say.

Keep in mind that we're not going to do any.

As I've stated before we can't pinpoint what the timing is but the preponderance of the acquisitions short term acquisitions are here in the U S.

Great. Thanks, Ed.

Your next question will come from Vikram Malhotra with Mizuho. Your line is open.

Thanks, so much for taking the questions maybe just to clarify when you said removing the ground.

Adjusted by 40 basis points is that the coverage goes down by a point for <unk> is that correct or am I interpreting that correctly.

No that is correct.

So good point.

The total portfolio.

<unk> broken out.

Okay.

So just to clarify I mean I get it.

The coverages are going.

For the third and fourth quarter, the new provider range and eventually rolling off.

You still have neighbor pressures.

To me it sounded like the HHS side.

The CMS increases across multiple.

Asset types, whether it was skilled or hospitals or hospital.

It just seemed like they were below expectation, so but mathematically.

When you report the 12 month coverage for next quarter trailing 12 month winter coverage be down.

Yes, that's what that's what I was trying to answer to Arthur I do expect that the.

Next quarter will be down slightly.

Got it so as the quarters roll off as you go through the year you expect it to increase.

Makes sense.

I guess just on liquid.

Capital availability as you look to execute on this pipeline you outlined.

Can you just maybe give us a bit more color on potential JV.

How is the pool of.

Interested parties changed at all on what are they looking for.

It just feels like that's become more and more important source of capital apart from the dispositions just given where the stock price. So I'm wondering where are you in discussion how close when can we expect something if at all.

So we are not able to predict when we might announce a.

An agreement.

I think I answered a similar question from from Mike Carroll.

There's been very little change in when we're talking economically with potential.

Joint venture partners.

And by that I mean, if we had been having and we were having these discussions.

Before we finish the Macquarie deal six or 12 months ago.

We're still talking in the same.

Reising range cap rate range, obviously debt costs have come up some and that has an impact on our total yield which impacts the equity cost that just simple arithmetic.

And.

So there is another part of your question now.

Yes.

Overall, it's a much more important part of executing on your pipeline, So I guess I'm.

Just trying to get gauge like.

Can you tell us that you are having conversation close or not at all right now it just feels like it's a really important part of you executing on.

On the pipeline.

We absolutely are having conversations.

We internally.

The process with us starts with determining what could be the most appropriate part of the portfolio.

But but we're also having a specific direct conversations with multiple potential partners, but I'll just reiterate we're not in a position.

To predict when we might have something to announce.

Okay got it and then just two more quick quick one.

Apologies I'm new to the story, so I just wanted to clarify.

I didn't realize.

That you had RIDEA exposure in some of the hospital into the hospitals you mentioned, but is this the structure of that.

Net net you anticipate using more is it just was it specific to these deals.

Operator, thats not technically RIDEA, we do RIDEA I'll just explain.

Spring storm because there is a pattern there is a reason we do it it's not that we necessarily.

Want to own equity in the operator, but spring stone was a.

Mendes extraordinary platform one of the kind that.

Order for us to capture that.

Seller was not willing to bifurcate out the real estate and sell to US and then go try to find another buyer for the operations. So we entered into the RIDEA transaction, where we bought the whole Cup.

And.

And when we've done this in the past, which frankly is very rare, we've probably done three or four in our entire history and they are all extraordinarily profitable going back to the very first one.

It was very profitable then we did.

Ernest.

And the outcome with iron as what we bought 16 properties.

And then we paid another $100 million I think for the Opco today, we have a relationship with <unk>, where we sold the opco years ago.

Or a mid teens unlevered IRR and yet today I think we owned 25 or 26 properties that generate extraordinarily strong coverage and rent payments. So that's why we do RIDEA.

Okay.

It has been very profitable, but the big point is.

It allows us for a relatively small incremental relatively risk list that is incremental risk.

Investment to acquire significant growing real estate platforms.

Okay, great Yeah, I might follow up on that.

Post the call, but just last one just to clarify you mentioned you'd elaborate a bit on the G&A.

I may have missed this but I just wanted to clarify.

Just the overall G&A, but also in the proxy kind of exact compensation the metrics.

By which you sort of.

In terms of those exact comp in additives.

The metrics.

And adjusted <unk> number can you just clarify the difference between that versus what.

You may be reporting for Q4 earnings purposes.

So the main the main adjustments.

And.

I'm, sorry, but I'm a bit constrained because we're literally hours from filing our proxy and I can't I can't step on the proxy.

But historically the main adjustments that we make are.

Four dilution from board of director approved disposition strategies. So in other words, if the board says go do a steward Macquarie type.

<unk> venture.

Those acquisitions so in other words, if if we do a transaction on July one.

Sure.

Two to reflect the dilution and <unk> <unk> per share that comes from that.

Thats really the.

The only adjustments we make to what the actual numbers are.

Okay, Great I'll, probably follow up on both of these uplift to call it but thanks for all the additional disclosure and color.

Thank you Vivek.

Your next question will come from Tayo Okusanya with credit Suisse. Your line is open.

Hi, yes, good afternoon.

I've done over 60 earnings calls with you guys. This is less optimistic.

No.

Higher today, not very often.

Got it.

Anyway first of all.

Well congrats on all of them all.

I think again.

The sell side and buy side have been clamoring for a long time.

It would.

It will be good to see that information and that continues to kind of encourage that going forward.

Guidance wise.

I just wanted to make sure that.

And what was in the <unk>.

Given you have now switched back to <unk>.

Guidance, that's kind of more in line with how you provide it.

Do you have in there at all.

Just acquisitions that have been done.

Year to date.

But you don't have any prospective acquisitions in there you don't have any prospective capital when needed.

Transaction in there.

Yeah.

We do have some.

Expectation.

Asset sales in there, but nothing around prospects from what they're doing with some of the sales of the operation.

So tayo your true.

Youre correct up until when you mentioned prime we do not necessarily assume that prime is going to exercise its options to buy roughly $338 million of properties, we make assumptions about what we think is going to happen.

Haven't disclosed what we think that is.

But.

We have a level of confidence.

All of our expectations. However, if we're wrong, if we're totally and completely wrong and prime does in fact exercise its options.

Then then what we've said is the result, as well within that 78 to 82.

Guidance range.

On the <unk> prospect, we assume nothing on prospecting and just to make clear what Ed said.

We absolutely have the right to decide whether we sell our property or not we've not been proposed.

Any.

Potential transaction about what the what the sale price would be what different lease terms may be what's the credit of a potential replacement operator all of those are decisions.

Are all of those are data points, we take into a decision we will ultimately make about that but insofar as guidance. There is there is no. There is no assumption about any property sales or at least adjustments or anything with those prospect hospitals. Okay.

That's helpful.

No.

Lease coverage again, the additional detail is great.

I'm just kind of curious what we're trying to do the backward the back of the envelope math.

Between.

Guys provide EBITDA coverage for all of the tenant.

We're trying to look at.

<unk> not dawn hub rooms, what's kind of a good thing.

All of the companies have different EBITDA margins and things of that nature, but.

Bill when you kind of guide us to what you did.

<unk> could look like rather than the Dara.

Yes, you remember tayo, we used to do it that way.

We were the we were the only REIT that did it that way and so we we're getting dinged for providing more information. So we do it the same way everybody else does it's a little bit confusing because.

Some of the EBIT dorm AG.

Actually is inclusive of all of the corporate side of that of that equation.

But if you just if you want to be ultra Conservative then.

Yes, it would have to go through and figure out which ones didn't but.

A 4% management fee, we would probably be a very conservative calculation of that.

No that's helpful on the revenue on the top line.

Right.

Yes, exactly I know, we don't even know what the margins.

So none of them back into it but.

That's helpful.

And then acquisitions why.

The one point once.

115 billion range that you kind of talked about.

Seems not.

Given your question or not.

Unlikely to do a very big deal this year, but again I'm just kind of curious when you look out into the lab.

The actual deal opportunity.

Around why wouldn't you consider that.

There are tayo, there are great opportunities out there.

But as we have stressed so hard for the last three quarters.

We're certainly not going to do any of those transactions if it means selling stock at the prices of where we are today, but there certainly are good big opportunities out there and hopefully with this disclosure and this correction of some misunderstanding.

The stock probably we will see a rise in the stock price.

Excellent.

So again I think the information is great news.

Would you encourage you guys to do more of that going forward.

Thanks Tayo.

Your next question will come from Mike Mueller with JP Morgan Your line is open.

Yes, hi.

And I guess on the comment about not doing large scale acquisitions until the stock comes back.

Should we think of that is that just keeps you out at the upper end of the 1% to $3 billion acquisition range or would that keep you out of the bottom end of that range as well.

No it keeps keeps us out of the $5 billion to $6 billion range.

Okay.

So.

So it sounds like the.

The 1% to three stands based on your expectations of dispositions and JV formations and stuff you talked about in the call outside of equity. So you don't need the equity to come back to keep the one to three guidance range is that the right way to think of it.

That is correct.

Remember I tried to say that in the fourth quarter or in the earnings call in December and confused everyone half of the people thought I was lower than guidance in the <unk>.

Other half thought our sell in stock but.

The pipeline is extremely strong the opportunities are good worldwide opportunities out there and if.

If capital warrant an issue we could do ranges in the range that we've done over the last six or seven years.

Got it got it and you haven't seen it sounds like you have enough visibility on asset sales and the potential JV east to knockout that 1% to three okay. Correct. That's correct that was it I appreciate it. Thank you.

Thanks, Mike.

Your next question will come from Joshua <unk> with Bank of America.

Yes, hey, everyone.

I'm curious on the road.

Messaging change on the JV is it previously.

Do you kind of lose some of the value bye bye. Thank you.

Ranging it up where youre, bringing a partner upfront.

You do it's a really good point.

Josh and it's the reason why we've done it the way we've done it.

So far and we're not saying that we're changing that theres still remain opportunities.

Significant multiple opportunities to replicate kind of the the steward and the median joint ventures that we did where we acquire portfolio. We season. It improved and then we sell it.

It at 100, or 200 bps less than what we're earning.

That's obviously very very attractive.

At just now mentioned that absent capital issues, we'd be doing we'd be expecting weigh more than $3 billion.

We'd be in that.

There is a pipeline out there that.

We could do for five or more billion. So the question may come that Theres a real opportunity.

A big number and in order for us to do it in the current equity markets. We will have to bring in a partner upfront. That's really all that I meant was that.

We're not dependent long term on our growth to waiting for the stock to come back one way or another big.

Big acquisitions has to be funded and they have to be funded with a significant piece of equity that equity can come from private investors are from public shareholders.

And if we have to go to the private market to make a big acquisition. Then that's something that we think is available to us.

Okay.

Do you think there is anything you could you can do differently.

Ross capital constrained.

Zero in equity.

We could get the stock up some.

Yes, okay.

Okay.

Yeah.

Yes.

I'll leave it there.

Okay. Thanks, Josh.

And your last question will come from John Pawlowski Green Street.

Great. Thanks for keeping the call going.

Apologies, if you've disclosed this before but on the 19 of depth. This property is $135 million and realize value could you just share the cash.

Cash cap rate on those sales.

Well im not sure a lot of those were empty.

So for example of the two we just sold that we announced this morning one.

Was anything by the way they were they were the two largest adept as properties. These these were two of the three hospitals we built.

They form at the hub of the adapters hub and spoke system. So in order to execute that strategy that this needed general acute care hospitals, one was in Houston, one was in Dallas. The one in Dallas was occupied the one in Houston was not so so you can't put a cap rate when we didn't have any income coming in on Houston.

<unk>.

So it's kind of a hard impossible question to ask to answer I think if I'm understanding it correctly.

Yes, just looking for a kind of a rough range of our cash yield somebody would underwrite the buyer would underwrite on the 19 properties sold.

Yes, there is just a lot of most of the value.

Came from these two hospitals, we have sold.

And of the rest of the 17 hospitals they were freestanding emergency rooms.

Some leased many not so so again there was no market rent coming in when they were sold.

Okay.

Final question from me, just so I understand the.

EBITDAR coverage levels by operator.

So steward two eight times.

Similar to past Investor presentations are you, adding back COVID-19 related costs and other large corporate related costs to get to that to that $2 eight.

Yes, there are no no add backs to any of the EBITDAR calculations. They are all facility level revenue numbers without any adjustments made to any of them.

Okay.

Try to marry that with the I think it was in June 'twenty, one investor presentation, where steward steward financials coverage was sub one times.

How do I marry these two figures.

Well, yes, I think youre, referring to the corporate.

Financial statements that were filed and the adjustments that were made to that is that what youre referring to.

Yes, Sir.

And those adjustments were non reoccurring non corporate non facility level numbers, they were primarily related to the.

Acquisition of Isis <unk>.

And some COVID-19 numbers in there, but that is outside of the facility level numbers and similar to the question that Tayo was asking about EBITDA arm versus EBITDAR.

In other words, John we did not attempt we wouldn't attempt to pushed down from the corporate level. For example, there was there was a big adjustment for electronic health record Tonight.

That was incurred up at the top.

At the parent level, we didn't try to push that down.

To the facilities and just by way of quick background. The reason, we look at it from a facility level basis.

Is if something happens.

Hey at that top parent level, so going back to your question about the 2020 financial audit financial statements that we filed last June or July .

If that were to lead to financial stress at the steward level.

It's key to our entire existence, they should be profitable at the local level. That's why we do it at the local level. So for example, let's just take Utah book I'll Stuart has already agreed to sell Utah, what if something bad happened at the steward parent level.

12 months ago, and we had to start taking back our facilities, what we would capture those Utah asset.

Okay understood. Thanks, so much for the time.

Yeah.

And that concludes our question and answer session I will now turn it back over to Ed.

For closing remarks.

Peter Thank you very much and again, we greatly appreciate all of your interest. We appreciate all of the questions and please don't hesitate to call any of US. If you have any additional questions or any concerns today or throughout the year. Thank you.

Sure.

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

Q1 2022 Medical Properties Trust Inc Earnings Call

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