Q4 2022 Medical Properties Trust Inc Earnings Call

February 23, 2023

Good morning, everyone and welcome to the Q4 2022 Medical properties Trust earnings Conference call, all participants will be in a listen only mode.

Need assistance, please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

I ask a question you May press Star and then one using a touchtone telephone.

So what's your all your question you May press Star two.

Please also note today's event is being recorded.

At this time I would like to turn the floor over to Charles Lambert Vice President Sir. Please go ahead.

Thank you.

Good morning, and welcome to the medical properties Trust conference call to discuss our fourth quarter and full year 2022 financial results.

With me today are hybrid <unk> 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 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 $19 95. These forward looking statements are subject to known and unknown risks uncertainties and other factors that may cause our finance.

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.

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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 we 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 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 Al DAC. Thank you Charles and thank you all for listening in today on our fourth quarter earnings call.

It's one of the largest publicly traded owners of hospitals in the world across 10 different countries on four continents, we find the outlook for our tenants extremely encouraging on all fronts recent public comments from U S operators confirm the optimism about the industry.

Staffing costs are dramatically improve going into 2023 as is access to qualified patient care staff and our tenants are implementing innovative means to develop and retain employees contract labor costs peaked last March and have come down approximately 33%.

Our operators continue to take advantage of advances in technological and technology to increase efficiencies deliver quality patient care and reduce cost on a per patient basis.

Point being that simply because an inflation index as high doesn't mean that our operators do not have arrows in their quiver to reduce structural costs transform procedures et cetera hospitals have been for decades required to continually improve process procedures treatments and optimized charges to maintain equilibrium with a rapidly.

Growing demand for patient treatment.

We move into 2023, the prognosis for generalized margin improvement across the entire industry on an increasing volume is encouraging.

Our operators are experiencing low to mid single digit comparable revenue increases depending on the diagnosis acuity and payer, which along with improving volumes and expanding reimbursement programs. All along the scale are expected to generate an attractive 2023 for MPT extents.

We've been very busy during all of 2022, maintaining relationships building, new ones and keeping our sites on our abundant opportunities throughout the world. We continue to see tremendous opportunities and are prepared to act on them as soon as the world settles down on the new normal for interest rates, we continue to have a strong.

Our pipeline in our current markets like the United States, Europe , and South America, but we also continue to explore new markets across the NAFTA and Asia business quarters.

Our portfolio continues to produce operating results in line with our original underwriting standards like the results posted by the publicly reporting hospital operators, our operators continue to see vast improvements to the labor issues that affected the market. This time last year.

In December of 2022, we acquired approximately 230 million pounds of additional properties. This addition of six priority hospitals purchased from a third party will be added to our master lease with priory and improve the already strong primary portfolio.

And as you all know we recently completed the spring stone transaction with Apollo Spring Stone will be added to the life portfolio. This is another good example of our acquiring a holdco spinning out the operating piece out to a third party for profit and retaining the real estate.

I'll spend a few minutes reviewing prospect due to its relevance this quarter.

<unk> continues to make progress with their east coast divestitures in Rhode Island, and Connecticut, The transaction in Connecticut with Yale New Haven Health systems is still tracking for a midyear close while the non MPT facilities and Rhode Island are expected to close in the latter part of 2023.

On an extremely encouraging note independent third parties have valued prospects managed care business at around $1 billion with our security interest in this managed care business our share proceeds from the <unk> sale and the excess value in the California properties. We believe we have more than <unk>.

Sufficient collateral even without regard to the value of the Pennsylvania properties through more than realize a full return of our investment in prospect, including any deferred rent.

In addition to multiple initiatives at their hospitals prospect management is focused on an aggressive cost cutting measure that should enable them to return the pennsylvania market to profitability and approximately 12 to 18 months.

The California facilities are currently generating a coverage of one two times on a trailing 12 month basis as of the end of the third quarter 2020 to.

That being said given the elongated timing of the Pennsylvania recovery, we felt it prudent to write off previously recorded straight line rent and write down of the Pennsylvania facilities.

Last week, Stuart and common spirit announced a definitive agreement for steward to sell the operations of their Utah facilities to Catholic health initiatives, a common spirit subsidiary.

The purchase price will be used by steward to pay down debt obligations, including the loan MPT made the steward last summer and provide steward with a good amount of liquidity.

We announced our agreement to lease our entire steward do Tau hospital portfolio to Catholic health initiatives.

This will be the second transaction, we've done with common spirit and we are excited to expand this relationship.

As you know common spirit with a credit rating of a is one of the country's largest and most respected not for profit health care providers. The announcement made last week regarding stewards pending sale of its Utah facilities. Once again validates the MPT model of underwriting and further validates the value of our entire portfolio.

A track record of underwriting hospital real estate, where the demand for the operations and hence the value of the underlying real estate can far outlast. The operator itself has a 20 year outstanding history.

I wanted to close this part of our earnings call to make a few comments about one in mind in Steves co founders Emmett Mclean.

Today, we will announce emits retirement from MPT effective on September <unk> 2023.

Steve and I met in 2003 and have worked closely with each other ever since it has been a remarkable collaboration of different strengths.

I wanted to take this time to publicly thank him for his work and dedication for the past 20 years.

We know that you and Katherine your children in those precious grandchildren will cherish or much earned retirement.

Gratulation.

We will issue a press release in an 8-K later today O&M. It's retirement, Steve. Thank you Ed. This morning, we reported normalized <unk> of <unk> 43.

And a $1 82 per ship per diluted share for the fourth quarter and full year 2022, respectively. In line with our prior expectations. We also introduced our estimate of 2023 calendar net income and normalized <unk>, which I will reconcile to the fourth quarter's results momentarily.

First I'll just mention a change we made to our supplemental reporting around our concentration metrics in prior quarters. We had based operator concentration on an adjusted gross asset basis that is a non-GAAP basis, starting this quarter, we are using GAAP numbers.

That's because in December 2022, the SEC published update due its non-GAAP financial measure guidance, and basically stated that non-GAAP disclosures and charts tables and graphs need to display the related GAAP measure in equal or greater prominence.

In order to avoid duplicative disclosures of these charts tables and graphs, we chose to provide the GAAP related charge tables and graphs to reduce confusion. However, we did provide our historical non-GAAP concentration metric on our key operators in the footnote to page 11.

Of our supplemental for comparative purposes to the prior quarters.

Okay.

As described in the press release and Ed's earlier comments included in the determination of fourth quarter normalized <unk> or adjustments to reserve prospect straight line rent and the carrying value of our Pennsylvania prospects facilities.

In conjunction with prospects continuing progress in improving its east coast operations and strategies, we have decided to fully exit our non California prospect investments and reallocate that capital to new investments.

At the end of this period of transition we expect that we will have recovered and have available for reinvestment most or all of our original investment plus any interim deferrals of rent through.

Through the following.

As we have alluded to in recent months prospect owns a valuable managed care business that we believe based on third party offers and negotiations and independent valuations is currently worth about $1 billion.

More immediately we continue to expect the pending sale to the Yale New Haven health system of our Connecticut hospitals to close by late next quarter.

We do anticipate also that is hospital operations and financial results improve over the next several quarters, our Pennsylvania hospitals will become increasingly attractive acquisition targets and.

And proceeds from their future sale will provide additional resources for reinvestment.

The accounting adjustment in the fourth quarter to recognize an impairment acknowledges the possibility that such proceeds may be less than our original investment. However, we expect the value of the managed care business will significantly exceed the aggregate amount of the fourth quarter impairment.

Any investment Unrecovered from cash proceeds from the sale of Connecticut, and the non real estate loan that we originally extended to prospect in 2019.

During this transaction period, and Ed earlier mentioned that it is likely to extend beyond calendar 2023, we are considering providing rent and interest deferral options to prospect and expect to account for rental income from our non California prospect investment along with any interest from our 115.

Non real estate loan on a cash basis.

And our 2023 guidance.

Estimates take into account the range of our expectations about rent and interest that may not be paid during that period.

So today, we are providing our estimate of calendar 2023 normalized <unk>.

Following may help investors bridge from our fourth quarter 2022, normalized <unk> annualized run rate of about $1 71 to our guidance range of approximately $1 15 to $1 65 for normalized <unk> on a calendar basis.

Starting with the $1 71 <unk>.

Contractual rent Escalations will add about five a share and the impact of rent and interest income from acquisitions and dispositions and the common spirit, Utah transaction Theyre related cash proceeds and interest expense with respect to transactions in the fourth quarter and through today is an aggregate pro forma of <unk>.

Another <unk> <unk> a share.

So those estimates on their own would yield a guidance estimate of approximately $1 79 of normalized SFO on a prospect neutral basis that is as a prospect paid all its 2023 rent and interest obligations.

Our estimate of potential outcomes regarding prospect range from a worst case scenario in which case, we would recognize no rent or interest to our more reasonably expected likely outcome that we recognize most of our California in Connecticut rent, but nothing from the Pennsylvania investment.

The per share range of these scenarios would be 2023 normalized <unk> of between $1 50, and $1 65 and that is what we reported in this morning's press release.

Even at the $1 65 high end of our 2023 guidance. It does not consider incremental <unk> that would be created by the recycling of our current investment in our prospect East coast investment assuming success in the restructuring and monetization prospects managed care.

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With that we have time for a few questions and I'll turn the call back to the operator.

Ladies and gentlemen at this time, we'll begin the question and answer session. Once again in order to ask a question you May Press Star and then one so with all of your questions you May press Star and <unk>.

Our first question today comes from.

Austin worsening from Keybanc capital markets. Please go ahead with your question.

Hey, good morning, everybody and thanks for the time here.

I just wanted to Steve I want to hit on that the guidance and sort of the buildup that you provided so it sounds like when all is said and done that dollars 79 captures all of the announced activity.

That you've announced over the last six plus months and would be maybe a reasonable jumping off point once we think about sort of.

You reinvesting proceeds into.

Any future activity once you've buttoned up the prospect deal is that a fairway to think about it I'm just trying to understand what sort of debt.

Exit rate or run rate is on a go forward basis.

Once accounting for prospect.

I think that that's generally correct.

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And.

Again assumes generally that.

We will replace the prospect income.

With income from from new investments again, assuming the.

The recycling of that capital.

And then I was hoping that you could maybe share with us.

Just think about sort of the monetization of the managed care.

Do you expect to receive proceeds I guess from the sale of their managed care business or could you end up in some scenario with just a partial investment in that business down the line.

That maybe.

Maybe it takes longer to monetize.

And ultimately reinvest the proceeds I mean is there any timeline you can give us on when you would expect.

Received that investment.

Our approach.

From that investment.

Yes, I think its the 12 to 18 months that Ed mentioned earlier.

That business as probably many on this call are aware is is very very vibrant very very attractive right now and again, we just saw yesterday the Amazon closing of its transaction with a kind of a similar business plan and it is an up and running and and currently.

<unk> business for prospect now and to try to anticipate kind of beyond a 12 to 18 months.

The sale process, which could involve any number of.

Of alternatives.

And I won't mention them here, but that's our that's our expectation is that.

We hope not to end up with a long term equity type investment and we don't think that's the likely outcome. We think it's more likely that there will be a sale or a recapitalization that will that will recover.

At least and possibly more than our investment.

And.

In the East coast properties.

And you're absolutely right. It is it is our intent as we worked through this to push forward ourselves sooner rather than later, but.

Are there other issues that have to work through.

No understood and can you just remind us what the total dollar investment is in those four eastern VA hospitals, and then what the contractual.

Annual cash rent that those.

Yes from those buildings.

So the Pennsylvania hospitals have an aggregate gross investment of about $420 million.

Yes, but before impairment.

Before impairment and then we should just described sort of a high single low double digit type yield on that to get to an annual cash rent.

From those facilities.

Well that would be right, but just to point out that in even in our.

High end of the range of $1 65, we're not counting on rent from from Pennsylvania.

Got it understood just trying to understand what you.

You will need to reinvest to sort of recapture I guess that that earned rent. That's all for me and I'll hop back into the queue. Thank you.

Our next question comes from Vikram Malhotra from Mizuho. Please go ahead with your question.

Thanks for taking the questions maybe just first on on steward bullish.

Both the Utah transaction can you maybe just provide two things one just any update.

On your view on underlying cash flow projections as we look at 'twenty three or.

Other ins and outs and then just second the remaining non Utah.

Could you give us a sense of like the underlying health of those businesses slash rent coverage.

Sure Vikram.

The.

Expectations for 2023 continues to be.

In excess of $350 million, including the Utah facilities, Utah facilities represent approximately $80 million of that so somewhere in the $300 million annualized 2023 post the <unk> transaction.

I think there is a public misnomer thinking that the Utah properties are the most profitable properties and the steward portfolio.

Actually that is not the case when the Utah property transaction closes their overall coverage will actually increase.

So it's an opportunity for them to take.

Proceeds from our mature market from their concern into markets, where they had the ability to grow even more as we've stated before the Florida properties in particular continue to way outperform our original underwriting and steward still believes there's tremendous growth there.

Okay. That's helpful and then just so on this.

The disclosure based on the new GAAP guidance, Oh, ACC guidance I guess.

Maybe.

It's a it seemed like a sizeable change in maybe I'm not fully understanding what change would you mind.

I typically won't do this on the call, but would you mind, just giving US. An example, like takes takes the Stuart Florida or so-called held just explain to us like what changed in the disclosure.

And it would be helpful. If you can.

Maybe in an updated gave us just I know, it's a lot more pages, but give us the pro forma versus you know what changed and I guess I'm again, I'm not understanding what gene because I didnt see like other Reits, having to make this change in their supplements.

So the biggest changes I'll just address that generally and we can absolutely supplement our supplement with.

With our prior guidance.

But the big changes were again, just GAAP change.

Changes for example, too to deduct depreciation accumulated depreciation that affects obviously the relative and the overall denominator of the calculation and then in our prior.

Pro forma examples we would pro forma for example.

Finding contracts for transactions that had not yet closed so just by way I'll give you a very brief example here.

If you have the supplement in front of you page 11, and you look at the Steward health care the aggregate of all of the Steward health care market shown in the GAAP basis statement is.

Is 24, 2% had we presented this on the old method. It would have been as the footnote says it would have been 19, 8%.

And again instead of going through line by line. The details of that will we will get out as I say a supplement to the supplement.

Okay that would be hopefully as you can bridge that do with all the the GAAP like you said depreciation because I felt both were net but maybe I'm just reading it incorrectly and then any pro forma adjustments just to clear just to make it.

So clear in terms of what you did just that.

Last question can you remind us just.

In an effort to.

Sure up more cash flow and hopefully reduce leverage going forward can you remind us sort of.

Any update on say the Australian assets or other assets that you may be monetizing what the underlying appetite is for hospital real estate today.

Well, we don't have anything to report on Australia.

But other than to address your question.

We continue to see strong appetite.

Across the geographies and that's indicated by unsolicited.

Occasional but fairly frequent inquiries about our assets across <unk>.

Western Europe .

And although we've never acknowledged.

Australia and sale process that we don't.

We don't deny it but we have nothing to report on that at this time.

Okay. Thank you.

Okay.

Our next question comes from Steven Valiquette from Barclays. Please go ahead with your question.

Great. Thanks, Good morning, Thanks for taking the question.

And also I appreciate the extra color around prospect medical but maybe just to provide some additional updated color around their underlying operations within the Pennsylvania hospitals.

Just remind us what the key variables are to improve the profitability of the operations.

And I recall, there was some conjecture to potentially re purpose some of those assets into alternative use I believe on the behavioral side.

But that May have had some roadblocks I'm just curious if you can just give us an update on these collective dynamics suggest path to.

To improvement for these Pennsylvania Hospital, just based on what you know right now yes.

Yes sure Steve.

We've all talked about previously that particular area was hit harder with COVID-19 than lot of other areas of the United States and Thats not just from a patient standpoint, but probably worse from a staffing standpoint. The rules that we all used to have to go buy if you tested positive for Covid. If you even tested for Covid, most hospitals don't even test for Covid anymore.

So most of those issues have been resolved, but youre right. When they originally bought these facilities. They had a plan, which we knew about in light of Repurposing a number of the facilities. The problem is you got facilities. There that are very close to each other that are providing the same services and we think that had a very good <unk>.

<unk> four.

Repositioning what services were provided in each individual facility.

But I guess, none of US took into account was the political fallout that would cause of various politicians, saying well I'm not don't take my hospital away those types of things that's been much harder than any of us realized.

Think that is still a prospect has gone through this the politicians have been a much easier to work with as of late so we have we do have hope that they can do with the original plan was and Repurposing some of those facilities.

I don't want to make a plan based on the last month and two months and a half but their operating statistics, all look dramatically better than they did this time last year and so they are clearly, making some progress, but two and a half months don't make don't make a real real plan at this point.

Okay, Alright, I appreciate that color. Thanks.

Our next question comes from Michael Carroll from RBC Capital markets. Please go ahead with your question.

Yes, Thanks, I wanted to stay on on prospect and I guess, Steve you made some comments that you provided prospects with some potential deferred rent options I mean, what do those options include and have they made a decision on what they wanted to do with those options.

No I think just to be clear, we are considering that and we expect that we will.

Provide some fairly significant.

Options rent rent deferral options.

Again going back to Ed Ed's opening comments about.

Prospect, it's going to be a at least a 12 to 18 months.

Process and Thats. The reason for example, we gave the worst case scenario as as if during 2023, we collect nothing from prospect. That's what gets you to the $1 50. So so that truly is a worst case scenario, we do expect to provide prospect some.

Some some alternatives to manage its cash flow across the quarters.

But we have not finalized that yet and just because we are presenting a worst case scenario of collecting no rent that's not necessarily imply that thats, what we intend to offer prospect.

So what under what scenario would you defer all your rents I mean, if they ask for it would you necessarily provide that to them.

Well, we are a long way from from that there are lots of parties involved in in the prospect strategies and negotiations and we have simply said that along with other parties. We are willing to consider contributing to prospects 2023 cash needs and primarily.

By virtue of our potential.

Rent concessions rent deferrals.

Did did prospect paid their full rent in January and February .

Okay.

In January and February .

We haven't disclosed but but.

But no they did not pay their full rent.

Okay and then.

Under what scenario I guess do you expect that this will be completed I know in the press release you highlighted that this will take 12 to 18 months. But then you also indicated that you would expect to get some recoveries in the second half of the year I mean, what's the give and takes with that potential outcome.

Yes.

Is the Yale sale, Connecticut fell the improvement of the <unk>.

Overall operations in the facilities and an ultimate conclusion of a restructuring for them.

Yeah.

Okay, and then last question from me.

Why has this transaction taken so long I know in the middle of 2022, you kind of expect that something would get done in the fourth quarter. So why is it being pushed out further into 'twenty three problems sounds like probably 2024.

While we did expect and we had good reason to expect in the fourth quarter actually going going into the first quarter and into the early weeks of January .

I'd say we.

Prospect was negotiating with a.

A potential financial partner.

That.

That would have began the monetization process of the managed care business that would have provided.

Immediate.

Liquidity for operations and those negotiations went.

Went very deep and it was only in the middle of January that it became apparent that that particular party with.

It was not going to continue to move forward and Thats what.

That's the big change that caused us to.

To make these accounting decisions.

Okay, great. Thank you.

Yeah.

Our next question comes from Michael Mueller from Jpmorgan. Please go ahead with your question.

I'll take it off mute there.

First of all I guess after the Connecticut assets are sold are you anticipating a rent cut on Pennsylvania, and the California assets on a go forward basis and is any of that baked into that 15 cash recovery.

No. The difference the primary difference between the $1 50, worst case scenario, which which again not to belabor it but assumes no rent at all from any prospect properties. The difference between that $1 50, and $1 65 is primarily <unk>.

<unk> of the Connecticut Red.

And collection of.

The California rent and interest.

Okay.

Got it.

But on a go forward basis. So so you're assuming what are you assuming on a go forward basis, not necessarily a calendar 'twenty three but for the Pennsylvania assets are you anticipating some sort of rent diminution there or just.

That operator being picked up.

I think at any point, along the range of $1 50 to $1 65, there is no, Pennsylvania rent assumed there ideally we'd like to see Pennsylvania improved.

And as I mentioned earlier become an attractive. It is it is an acquisition target and you. All may recall. This time last year. There was an offer a non binding offer from from an investment grade rated not for profit.

And it is still an attractive facility for operators. So so R. R.

Our preference would be for that to happen and prospect to find a buyer and we actually sell the real estate.

And recover at least the impaired value of the real estate.

Mike those hospitals aren't going away.

Can be seen in the political fight about any potential closures of any particular parts of hospitals people won't those hospitals the politicians won't both hospitals all to say open. We just believe this is already proven to us that would be taking longer than we had anticipated and we just don't know anymore. At this point to how quickly the pencil.

They can be resolved, but it's not a zero.

Okay, and then I guess on the managed care side the $1 billion.

Praise value there I guess, how should we think about how much of that you are entitled to from I guess your wood.

Would you have structured into the leases it sounds like you think that if it's $1 billion.

The base case should we be thinking that you are entitled to at least based on what you are telling us the $170 million that you've kind of written down on the assets. So thats kind of the minimum threshold of what you think you can kind of.

You're entitled to out of the $1 billion valuation.

I think a different way to look at it Mike would be that we think we're entitled to enough of it to get all of our money back and including obviously, what we're going to get out of Connecticut, and what we think the value of California is.

Okay.

Okay. Thank you.

Our next question comes from Tayo Okusanya from Credit Suisse. Please go ahead with your question.

Hi, Yes, good morning, everyone.

Couple from me again still on.

Prospect.

Again, you guys have moved to cash basis.

I'm curious.

Auditor's perspective.

Prospect has any issues around being a going concern.

Does.

How do you guys kind of think about a potential bankruptcies, there and a plan b for getting on a new operator for those assets.

So we certainly haven't had anybody.

Raise the concern of a going concern at this particular point, but.

We believe we are in the same place whether this is a bankruptcy or.

Work together restructuring standpoint, obviously, if it's a bankruptcy it may take a little bit longer, but we still believe we're in a good position to recover all of our investments, including the deferred rent.

Okay.

That's helpful.

Then number two moving onto priority could you talk a little bit about just the economics of that transaction.

Cap rates you did the deal and also the seller financing what interest rates that was done at.

Yes. This is the one we just announced this morning, the additional six properties.

These are six properties that were not owned by the property. When we bought the original transaction. These were owned by a third party, who put them up for sale middle of late last last year last summer and we've been working with them. They we believe they are some of the very best assets.

For Priory, and they will be added to the master lease with priority go under the same.

Terms that are there we believe it will help.

Even improve what is already a strong coverage there and a strong collateral base.

But in regards to the actual cap rates on it and as well as the funding cost on the seller financing and assume that it's not something you can provide.

No.

We normally don't give specific cap rate other than this is attractive and accretive.

And.

Even on a cash basis.

With the seller financing.

Is is is cash flow accretive.

<unk>.

And again as included in the guidance that we gave out I mentioned earlier.

I think roughly three <unk>.

Net.

Accretion to the transactions that we announced this morning.

Okay.

Great.

<unk>.

Then can we move over to.

Our current leverage and just taking a look at the balance sheet and some other moving items, there that kind of contributor to what's higher leverage and with the line of credit kind of going up a decent amount.

It seems like again your accounts receivables increase.

There's this kind of additional mortgage loans increase of about $60 million, just kind of talk about kind of some of the items that may have contributed to the higher use of the line.

Hi.

Net debt.

Sure.

The calculation we showed this morning at six four times and just to be clear, we footnoted that.

Based on the range of.

Potential outcome with prospect.

But starting with the baseline six four is up from last quarters.

<unk> eight that's due primarily as I mentioned to the effect of the range of prospect assumptions.

Secondly, as you mentioned our acquisition of the Priory assets in the fourth quarter funded with seller financing and the impact of currency movements.

The $60 million you mentioned was a.

Our European investment, we made in the fourth quarter.

And I think thats about right yeah.

And then the AAR receivables being up $50 million in anything going on there with kind of slower.

Yes.

Yes prospect is a big piece of unpaid billed rent.

Gotcha.

Okay.

And then from an accounting perspective, just bear with me.

I appreciate the explanation about the change to net investments that you discussed earlier on Steve.

The only challenge is when you have that change when we don't see gross investments, we can't really see any additional investments that will need.

Could you just talk about again since you guys did the $250 million of investments to steward prospect.

Any additional investments to those two operators since that time.

No other than routine order of business for example.

The development funding that.

That goes on with.

Of course, there are no development funding prospect there as the texture, Canada in Norwood.

Construction projects in.

With steward, but.

<unk>.

That's the increased investment.

Gotcha. Okay. That's helpful. And then just one final comment from me I think again just.

Having the EBITDA rent coverage is then used to provide in the past I think investors do find that useful it would be great. If you could see a return of those metrics in the next supplemental and <unk> 23.

Thank you very much.

Thanks Tayo.

Our next question comes from.

Comes from John Pawlowski from Green Street Advisors. Please go ahead with your question.

Thanks for the time, maybe a follow up to Tyler's question did you provide any operators at all financial support in the fourth quarter.

Through the rent deferrals.

Equity Stakes or do you expect to have two in the coming quarters.

Prospect.

What's that final part do we expect to see.

Do you expect to us outside of prospect.

Oh aside from prospect no we don't.

Okay.

They've gone back to their prospects restructuring, Steve I think you alluded to you expect to collect most of the California rent. So can you just take a step back and I know you put some scenarios in there I'm less concerned about worst case scenarios that are embedded in guidance I'm just trying to understand it.

Actual reality in terms of how much cash is going to come in the door. This year. So the total prospect relationship what.

What percent of your annual cash payments that are owned by prospects do you actually expect to collect this year you can use a range if you'd like I, just we just need some quantification.

Well I think we've given the range.

We don't expect the worst case.

It's possible that the $1 65, which as you point out is basically collection of the California rent.

And.

And six months of Connecticut, assuming we sell Connecticut.

At the end of the six months.

The cash number right.

Okay.

So am I right to interpret that there is going to be a shortfall on the California rent collection as well.

That's quite possible yes.

Okay are they are they paying rent currently in there of California.

For hospitals.

No.

Sure.

As I mentioned a little earlier.

Very little of January February rent has been paid.

Okay last one for me.

I assume that repayment of the upsides mortgage bonds did occur in the fourth quarter can you give us a sense for when you expect that mortgage longer they'd be repaid and the California properties.

Uh huh.

Along with the recovery from.

Primarily the sale of managed care business.

Although there are other restructuring options with respect to that particular facility that facility. Obviously as you pointed out is mortgaged now.

We are considering a number of options that could include.

Acquisition of that facility for the mortgage balance, but but there is nothing definitive or binding with respect to that possible strategy.

Okay. Thank you.

Our next question comes from Andrew Ross <unk> from Wolfe Research. Please go ahead with your question.

Hey, good morning, guys how are you.

Thank you.

I was thinking maybe something that.

Right.

Would you be able to translate.

You're asking so into.

<unk> guidance, because I'm guessing.

Some of the puts and takes related to prospects are probably related to cash basis versus a straight line.

Yeah.

I got lost in that question I'm sorry.

Sorry, Steve so.

So that you have.

Bob.

<unk> 65, and I think a lot of a search I do.

Thank you to dividend coverage.

And I'm guessing that.

If we took it.

Step from 'twenty two to 'twenty three.

The difference in anthem, so is less than the difference in as well.

Yes, so so if you take that.

Worst case scenario again at $1 50.

And you make necessary adjustments for four <unk>, we're at about a $1 29.

Got it okay. Thank you very much and then my second one is really nerdy.

No.

Some of these numbers are estimated.

Your schedule for.

And in disclosures used to have EBITDAR and EBIT Dara.

You now have EBITDAR just curious why you went to one calls.

Yeah, and Andrew you May remember that we stopped doing EBITDAR, a long time ago, because it was confusing because a lot of that our assumptions that everyone has to make.

Including us about what the.

The M part of the EBITDAR is.

For example, if you look at.

That page, which is page 14 in the supplement.

A number of those operators the EBITDAR and EBITDAR is the same thing so what we did a long time ago. When we were trying to show EBITDAR, we used an arbitrary.

Number for us from that we got from what the management fee, maybe many times those were much higher than actual numbers. Another example.

We have a couple of operators, who prefer not to be named in this report, although it doesn't take a genius to figure out which ones those are but.

We own a very small part of their overall portfolio. So it's not it's not easy to try to go from EBITDA arm to EBITDAR based on when you own a very small part of the overall portfolio. So what you see here on the EBITDAR is what we've been reporting for a long.

Time, and obviously you can go back and look at what the various trends are and Youll see that the overall trend for most of our operators is up in the right direction. So it's just that EBITDAR, but wasn't a scientific number as we talked about in great detail I believe this time last year.

<unk> had a lot of subjectivity to it.

You're typically taking a you're making that guess.

In assumption and expenses as a percentage of revenues that's.

That's correct yes.

Whereas EBIT arms that actual number that youre getting.

That's correct.

Terrific. Thanks, a lot guys.

And our next question is a follow up from Vikram Malhotra from Mizuho. Please go ahead with your follow up.

Thanks, just two quick follow ups first can you just clarify the the Utah sale, that's going to come in spirit.

My quick calculation I think the new rent is at about 10% lower on a cash basis can you clarify was there a rent change.

With Goldman Spirit.

Yes, there was a rent change.

On a cash basis.

They are paying you can do the arithmetic there paying seven 8% on the roughly $1 billion to $2 billion.

Of investment that's that's a reduction from what steward paid in 2020 to buy a little more than $6 million.

Some of that $6 million.

Will be recovered through reallocation of that rent back to other steward facilities.

And again all of that's built in.

To the guidance numbers, we gave.

Okay. That's helpful. And then can you just maybe give us a little bit more color on the on the guidance components on two things just what's the what's the straight line rent baked into.

The guide on either end of the range. If you can and also what the G&A ranges if it's possible.

I think we'll probably have to get back to you on that I don't think anybody around this table has.

Intermediate answered, especially the straight line that.

The G&A is a recent run rate.

Okay. Thank you.

And our next question is also a follow up from John Pawlowski from Green Street Advisors. Please go ahead with your follow up.

Hey, Thanks for taking the second question.

Steve or at what level of leverage and the debt to EBITDA basis on your metrics do you expect to be running at this time next year, because I think Ed to opening remarks were pretty bullish on acquisition pipelines, but there's.

There's a lot of moving pieces in terms of potential dispositions. So this time next year what level of leverage can shareholders expect you'd be running that.

Well, let me make the point about the acquisitions that I was trying to make them.

The prepared remarks, there we have a great pipeline, but until we get a new norm for where interest rates are all around the world I'm not going to be a whole lot of acquisitions from us as we have said throughout the year, we will continue to support.

Our existing customers and other very strategic moves like we did with the Priory transaction transaction, we announced today.

But.

Other than that I'm, just making the point that the pipeline is strong we are continuing to work those relationships.

Yeah, and what what goes unsaid, probably don't need to be said with without it. We certainly don't expect to deleveraging up to take advantage of marginally accretive transactions.

We expect leverage to remain essentially unchanged.

Unchanged or do you expect to deal with.

We expect it to remainder of that five to six times that.

We were working on and making great progress on until the latter part of last year. So that remains our strategy is.

It is to maintain that level of long term leverage and to do that along with making accretive acquisitions we.

We need to see first as Ed has mentioned now.

Some some certainty in the cost of debt and we need to see some rationality on the part of sellers for recognizing that the cost of capital.

Is driving down.

The otherwise value of their assets.

And until that happens and we can access affordable equity type capital then.

Then we won't make it wont be making significant acquisitions, certainly not if that means driving up leverage.

Okay. Thank you.

And ladies.

And gentlemen, with that we'll end today's question and answer session I would like to turn the floor back over to Ed All day for any closing remarks Jamie.

Jamie Thank you very much and as always we appreciate your listening in and your interest.

Any follow up questions. Please don't hesitate to give us a call. Thank you very much.

Ladies and gentlemen, with that we'll be we'll be closing today's conference call and presentation. We do thank you for joining you may now disconnect your lines.

Okay.

[music].

Good morning, everyone and welcome to the Q4 2022 Medical properties Trust earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

I ask a question you May press Star and then one using a touchtone telephone.

What's your all your question you May press Star two.

Please also note today's event is being recorded.

At this time I'd like to turn the floor over to Charles Lambert Vice President Sir. Please go ahead.

Thank you.

Good morning, and welcome to the medical properties Trust conference call to discuss our fourth quarter and full year 2022 financial results.

With me today are <unk> 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 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.

<unk>.

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 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 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 you all for listening in today on our fourth quarter earnings call.

Staffing costs are dramatically improved going into 2023 as is access to qualified patient care staff and our tenants are implementing innovative means to develop and retain employees contract labor costs peaked last March and have come down approximately 33%.

Our operators continue to take advantage of advances in technological and technology to increase efficiencies deliver quality patient care and reduce cost on a per patient basis.

Point being that simply because an inflation index as high doesn't mean that our operators do not have arrows in their quiver to reduce structural costs transform procedures et cetera hospitals had been for decades required to continually improve process procedures treatments and optimized charges to maintain equilibrium with a rapidly.

Growing demand for patient treatment as.

We move into 2023, the prognosis for generalized margin improvement across the entire industry on an increasing volume is encouraging.

Our pipeline in our current markets like the United States, Europe , and South America, but we also continue to explore new markets across the NAFTA and Aegean business quarters.

I'll spend a few minutes reviewing prospect due to its relevance this quarter.

<unk> continues to make progress with their east coast divestitures in Rhode Island, and Connecticut, but <unk>.

Transaction in Connecticut, with Yale New Haven Health system is still tracking for a midyear close while the non MPT facilities and Rhode Island are expected to close in the latter part of 2023.

Sufficient collateral even without regard to the value of the Pennsylvania properties through more than realize a full return of our investment in prospect, including any deferred rent.

The California facilities are currently generating a coverage of one two times on a trailing 12 month basis as of the end of the third quarter 2022.

That being said given the elongated timing of the Pennsylvania recovery, we felt it prudent to write off previously recorded straight line rent and write down the Pennsylvania facilities.

Last week, Stuart and common spirit announced a definitive agreement for steward to sell the operations of their Utah facilities to Catholic health initiatives, a common spirit subsidiary.

The purchase price will be used by steward to pay down debt obligations, including the loan MPT made the steward last summer and provide steward with a good amount of liquidity, we announced our agreement to lease our entire steward do Tal hospital portfolio to Catholic health initiatives.

This will be the second transaction, we have done with common spirit and we are excited to expand this relationship as you know common spirit with the credit rating of a is one of the country's largest and most respected not for profit health care providers. The announcement made last week regarding stewards pending sale of its Utah facilities one.

Again validates the MPT model of underwriting and further validates the value of our entire portfolio.

Our track record of underwriting hospital real estate, where the demand for the operations and hence the value of the underlying real estate can far outlast. The operator itself has a 20 year outstanding history.

I wanted to close this part of our earnings call to make a few comments about one in mind in Steves co founders Emmett Mclean.

Today, we will announce emits retirement from MPT effective on September one 2023.

Steve and I met in 2003 and have worked closely with each other ever since it has been a remarkable collaboration have different strengths.

I wanted to take this time to publicly thank him for his work and dedication for the past 20 years.

And we know that you and Katherine your children in those precious grandchildren will cherish or much earned retirement, congratulations we will issue a press release in an 8-K later today O&M it's retirement Steve.

Thank you Ed. This morning, we reported normalized <unk> of <unk> 43.

Starting this quarter, we are using GAAP numbers, that's because in December 2022, the SEC published update due its non-GAAP financial measure guidance, and basically stated that non-GAAP disclosures and charts tables and graphs need to display the related GAAP.

Measure in equal or greater prominence.

Of our supplemental for comparative purposes to the prior quarters.

At the end of this period of transition we expect that we will have recovered and have available for reinvestment most or all of our original investment plus any interim deferrals of rent through.

Through the following.

As we have alluded to in recent months prospect Downs of valuable managed care business that we believe based on third party offers and negotiations and independent valuations is currently worth about $1 billion.

More immediately we continue to expect the pending sale to the Yale New Haven health system of our Connecticut hospitals to close by late next quarter.

We do anticipate also that is hospital operations and financial results improve over the next several quarters, our Pennsylvania hospitals will become increasingly attractive acquisition targets and proceeds from their future sale will provide additional resources for reinvestment.

Any investment Unrecovered from cash proceeds from the sale of Connecticut, and the non real estate loan that we originally extended to prospect in 2019.

Non real estate loan on a cash basis.

And our 2023 guidance estimates take into account the range of our expectations about rent and interest that may not be paid during that period.

So today, we are providing our estimate of calendar 2023 normalized <unk>. The following may help investors bridge from our fourth quarter 2022, normalized <unk> annualized run rate of about $1 71 to our guidance range of approximately $1 50 to one dollar.

65, or normalized <unk> on a calendar basis stock.

Starting with the $1 71 contractual rent Escalations will add about five a share and the impact of rent and interest income from acquisitions and dispositions and the common spirit, Utah transaction Theyre related cash proceeds and interest expense with respect to transactions in the fourth quarter and through today.

<unk> is an aggregate pro forma of another <unk> <unk> a share.

So those estimates on their own would yield a guidance estimate of approximately $1 79 of normalized <unk> on a prospect neutral basis that is as a prospect paid all its 2023 rent and interest obligations.

The per share range of these scenarios would be 2023 normalized <unk> of between $1 50, and $1 65 and that is what we reported in this morning's press release.

<unk>.

With that we have time for a few questions and I'll turn the call back to the operator.

Our first question today comes from.

Austin worsening from Keybanc capital markets. Please go ahead with your question.

Hey, good morning, everybody and thanks for the time here.

I just wanted to Steve I want to hit on that the guidance and sort of the buildup that you provided so it sounds like when all is said and done that dollars 79 captures all of the announced activity.

That you've announced over the last six plus months and would be maybe a reasonable jumping off point once we think about sort of.

You reinvesting proceeds into.

Any future activity once you've buttoned up the prospect deal is that a fairway to think about it I'm just trying to understand what sort of debt.

Exit rate or run rate is on a go forward basis.

Once accounting for prospect.

I think that that's generally correct.

And.

Again assumes generally that.

We will replace the prospect income.

With income from from new investment again, assuming the.

The recycling of that capital.

And then I was hoping that you could maybe share with us.

How to think about sort of the monetization of the managed care.

Do you.

To receive proceeds I guess from the sale of their managed care business or could you end up in some scenario with just a partial investment in that business down the line.

That debt.

Maybe it takes longer to monetize.

And ultimately reinvest the proceeds I mean is there any timeline you can give us on when you would expect.

Receive that investment.

Our approach.

It is just from that investment.

Yes, I think its the 12 to 18 months that Ed mentioned earlier.

And it is an up and running and and currently profitable business for prospect now and to try to anticipate kind of beyond a 12 to 18 months.

The sale process, which could involve any number of.

Of alternatives.

And I won't mention them here, but that's our that's our expectation is that.

At least and possibly more than our investment.

And.

And the East coast properties.

And you're absolutely right. It is our intent as we worked through this to push forward ourselves sooner rather than later, but.

Are there other issues that have to work through.

No understood and can you just remind us what the total dollar investment is in those four eastern VA hospitals, and then what the contractual.

Annual cash rent that those.

Yes from those buildings.

So so the Pennsylvania hospitals have an aggregate gross investment of about $420 million.

Yes look before impairment.

Before impairment and then we should be finished right sort of a high single low double digit type yield on that to get to an annual cash rent.

From those facilities.

Well that would be right, but just to point out that in even in our.

High end of the range of $1 65, we're not counting on rent from from Pennsylvania.

Got it understood just trying to understand what you.

You will need to reinvest to sort of recapture I guess that that earned rent. That's all for me and I'll hop back into the queue. Thank you.

Our next question comes from Vikram Malhotra from Mizuho. Please go ahead with your question.

Thanks for taking the questions maybe just first on on steward bullish.

Bullish the Utah transaction can you maybe just provide two things one just any update.

On your view on underlying cash flow projections as we look at 'twenty three or.

Other ins and outs and then just second the remaining non Utah.

Could you give us a sense of like the underlying health of those businesses slash rent coverage.

Sure Vikram.

The.

Expectations for 2023 continues to be.

In excess of $350 million, including the Utah facilities, Utah facilities represent approximately $80 million of debt so somewhere in the $300 million annualized 2023 post the <unk> transaction.

I think there is a public misnomer thinking that the Utah properties are the most profitable properties and the steward portfolio.

Actually that is not the case when the Utah property transaction closes their overall coverage will actually increase.

So it is an opportunity for them to take product.

<unk> for a more mature market from their concern into markets, where they had the ability to grow even more as we've stated before the Florida properties in particular.

<unk> to way outperform our original underwriting and.

Stuart still believes there's tremendous growth there.

Okay. That's helpful. And then just so on this <unk>.

Disclosure based on the new GAAP guidance.

Guidance I guess.

Maybe.

It seemed like a sizeable change in maybe I'm not fully understanding what change would you mind.

<unk>.

We won't do this on the call, but would you mind, just giving US. An example, like <unk> takes the Stuart Florida, our so-called held just explain to us like what changed in the disclosure.

And it would be helpful. If you can.

So the biggest changes I'll just address that generally and we can absolutely supplement our supplement with.

With our prior guidance.

But the big changes were again, just GAAP change.

Changes for example, too to deduct depreciation accumulated depreciation that affects obviously the relative and the overall denominator of the calculation and than in our prior.

Pro forma examples we would pro forma for example binding contracts for transactions that had not yet closed so just by way I'll give you a very brief example here.

If you have the supplement in front of you page 11, and you look at the Steward health care the aggregate of all of the Steward health care market shown in the GAAP basis statement is.

Is 24, 2% had we presented this on the old method. It would have been as the footnote says it would have been 19, 8%.

And again instead of going through line by line. The details of that will we will get out FSA a supplement to the supplement.

Okay that would be helpful. Yes, you can bridge that do with all the the GAAP like you said depreciation because I felt both were net but maybe I'm just reading it incorrectly and then any pro forma adjustments just to clear just to make it crystal clear in terms of what you did just that.

Question can you remind us just.

In an effort to.

Sure up more cash flow and hopefully reduce leverage going forward can you remind us sort of.

Update on say the Australian assets or other assets that you may be monetizing what the underlying appetite is for hospital real estate today.

Well, we don't have anything to report on Australia.

But other than to address your question.

We continue to see strong appetite.

Across the geographies and that's indicated by unsolicited.

Occasional blip fairly frequent inquiries about our assets across <unk>.

Western Europe .

And although we've never acknowledged.

Julian sale process that we don't we.

We don't deny it but we have nothing to report on that at this time.

Okay. Thank you.

Our next question comes from Steven Valiquette from Barclays. Please go ahead with your question.

Great. Thanks, Good morning, Thanks for taking the question.

And also I appreciate the extra color around prospect medical but maybe just to provide some additional updated color around their underlying operations within the Pennsylvania hospitals.

Just remind us what the key variables are to improve the profitability of the operations.

And I recall, there was some conjecture to potentially be purpose some of those assets into alternative use I believe on the behavioral side.

But that May have had some roadblocks I'm just curious if you can just give us an update on these collective dynamics suggest path too.

The improvement for these Pennsylvania Hospital, just based on what you know right now thanks, Yes sure Steve as we've all talked about previously that particular area was hit harder with Covid and lot of other areas of the United States and Thats not just from a patient standpoint, but probably worse from a staffing standpoint, the rules that we all used to have to go by.

If you tested positive for Covid, if you even tested for Covid, most hospitals don't even test for Covid anymore. So most of those issues have been resolved, but youre right. When they originally bought these facilities. They had a plan, which we knew about in light of Repurposing a number of the facilities.

Problem is you got facilities there that are very close to each other that are providing the same services and we think they had a very good plan for repositioning what services were provided in each individual facility.

I think that.

As Stu as prospect has gone through this.

Politicians have been a much easier to work with as of late so we have we do have hope that they can do with the original plan was and Repurposing some of those facilities.

I don't want to I don't want to make a plan based on the last month and two months and a half but their operating statistics, all look dramatically better than they did this time last year and so they are clearly, making some progress, but two and a half months don't make don't make a real real plan at this point.

Okay, Alright, I appreciate that color. Thanks.

Our next question comes from Michael Carroll from RBC Capital markets. Please go ahead with your question.

Yes, Thanks, I wanted to stay on prospect and I guess, Steve you made some comments that you provided prospects with some percent potential deferred rent options I mean, what do those options include and have they made a decision on what they wanted to do with those options.

No I think just to be clear, we are considering that and we expect that we will.

Provide some fairly significant rent options rent rent deferral options.

Again going back to <unk> opening comments about <unk>.

Prospect is going to be a at least a 12 to 18 months.

Process and Thats. The reason for example, we gave the worst case scenario as as if during 2023, we collect nothing from prospect. That's what gets you to the $1 50. So that truly is a worst case scenario, we do expect to provide prospect some.

<unk>.

Some alternatives to manage its cash flow across the quarters.

But we have not finalized that yet and just because we are presenting a worst case scenario of collecting no rent that's not necessarily imply that thats, what we intend to offer prospect.

So what under what scenario would you defer all your rents I mean, if they ask for it would you necessarily provide that to them.

We're a long way from from that there are lots of parties involved in in the prospect strategies and negotiations and we have simply said that along with other parties. We are willing to consider contributing to prospects 2023 cash needs and primarily.

By virtue of our potential.

Rent concessions rent deferrals.

Did did prospect paid their full rent in January and February .

Okay.

January and February .

We haven't disclosed but but.

<unk>.

But no they did not pay their full rent.

Okay and then.

Yes.

Is the Yale sale, Connecticut sell the improvement of the <unk>.

Overall operations in the facilities and an ultimate conclusion of a restructuring for them.

Okay.

Okay, and then last question from me as well.

While we did expect and we had good reason to expect in the fourth quarter actually going going into the first quarter and into the early weeks of January .

I'd say we.

Prospect was negotiating with a.

A potential financial partner.

That.

That would have began the monetization process of the managed care business that would have provided.

Immediate.

Liquidity for operations and those negotiations went.

Went very deep and it was only in the middle of January that it became apparent that that particular party with.

It was not going to continue to move forward and Thats what.

That's the big change that caused us to to.

To make these accounting decisions.

Okay, great. Thank you.

Yeah.

Our next question comes from Michael Mueller from J P. Morgan. Please go ahead with your question.

Okay I'll take it off mute there.

So first of all I guess after the Connecticut assets are sold are you anticipating a rent cut on Pennsylvania, and the California assets on a go forward basis and is any of that baked into that 15% cash recovery.

No. The difference the primary difference between the $1 50, worst case scenario, which again not to belabor it but assumes no rent at all from any prospect properties. The difference between that $1 50, and $1 65 is primarily collection.

<unk> of the Connecticut, Red and collection of.

The California rent and interest.

Okay.

Got it.

But on a go forward basis. So so youre, assuming what are you assuming on a go forward basis, not necessarily calendar 'twenty three but for the Pennsylvania assets are you anticipating some sort of rent diminution there or just.

That operator being picked up in December .

I think at any point, along the range of $1 50 to $1 65, there is no Pennsylvania rent assumed there ideally we'd like to see Pennsylvania improved and as I mentioned earlier become an attractive that it is an acquisition target and you all may recall this time last year there wasn't.

Offer a non binding offer from from an investment grade rated not for profit.

And it is still an attractive facility for operators. So so our our.

Our preference would be for that to happen and prospect to find a buyer and we actually sell the real estate.

And recover at least the impaired value of the real estate.

Mike those hospitals aren't going away.

Can be seen in the the political fight about any potential closures of any particular parts of hospitals people want those hospitals the politicians won't both hospitals all to say open. We just believe this is already proven to us that would be taking longer than we had anticipated and we just don't know anymore. At this point to how quickly the pencil.

They can be resolved, but it's not a zero.

Got it Okay, and then I guess on the managed care side, the $1 billion appraised value. There I guess, how should we think about how much of that you are entitled to from I guess here.

Would you have structured into the leases it sounds like you think that if it's $1 billion as a base case should we be thinking that.

You are entitled to at least based on what you are telling us about $170 million that you've kind of written down on the assets. So thats kind of the minimum threshold of what you think he can kind of.

You're entitled to out of the $1 billion valuation.

Yes, I think a different way to look at it Mike would be that we think we're entitled to enough of it to get all of our money back and including obviously, what we're going to get out of Connecticut, and what we think the value of California is.

Okay.

Okay. Thank you.

Our next question comes from Tayo Okusanya from Credit Suisse. Please go ahead with your question.

Yes, good morning, everyone.

Couple from me again still on.

Ross back. So again, you guys have moved to cash basis Im curious.

Auditor's perspective.

Prospect has any issues around being a going concern.

Does.

How do you guys kind of think about a potential bankruptcies, there and a plan b for getting on a new operator for those assets.

So we certainly haven't had anybody raise the concern of a going concern at this particular point, but we believe we are in the same place whether this is a bankruptcy or.

<unk> worked together restructuring standpoint, obviously, if it's a bankruptcy it may take a little bit longer, but we still believe we're in a good position to recover all of our investments, including the deferred rent.

Okay. That's.

Thats helpful.

And number two moving onto priority could you talk a little bit about just the economics of that transaction.

Cap rates you did the deal out and also the <unk>.

<unk> financing what interest rate that was done at.

Yes. This is the one we just were just announced this morning.

Six properties.

These are six properties that were not owned by the by property. When we bought the original transaction. These were owned by a third party, who put them up for sale.

Middle of late last last year last summer.

And we've been working with them. They we believe they are some of the very best assets for Priory and they will be added to the master lease with priority go under the same.

Terms that are there we believe it will help.

Even improve what's already a strong coverage there and a strong collateral base.

But in regards to the actual cap rates on it and as well as the funding cost on the seller financing and assume that it's not something you can provide.

No.

We normally don't give specific cap rates other than this is attractive and accretive.

And.

Even on a cash basis.

With the seller financing.

Is is is cash flow accretive.

<unk>.

And again as included in the guidance that we gave out I mentioned earlier.

I think roughly three <unk>.

Net.

Accretion to the transactions that we announced this morning.

Okay.

Great.

<unk>.

Can we move over to.

It seems like again, you accounts receivables increase.

This kind of additional mortgage loans increase of about $60 million, just kind of talk about kind of some of the items that may have contributed to the higher use of the line.

Hi.

Net debt.

Sure.

The calculation we showed this morning at six four times and just to be clear, we footnoted that.

Based on the range of.

Potential outcome with prospect.

But just starting with the baseline six four is up from last quarters.

Five eight that's due primarily as I mentioned to the effect of the range of prospect assumptions.

Secondly, as you mentioned our acquisition of the Priory assets in the fourth quarter funded with seller financing and the impact of currency movements.

The $60 million you mentioned was a <unk>.

European investment, we made in the fourth quarter.

And I think that's about right yes.

And then the AI receivables being up $50 million in anything going on there with kind of slower.

Yes.

Yes, the prospect is a big piece of unpaid billed rent.

Gotcha.

Okay.

And then from an accounting perspective, just bear with me.

I appreciate the explanation about the change to net investments that you discussed earlier on Steve.

The only challenge is when you when you have that teens, when we don't see growth investments, we can't really see any additional investments that we need.

Could you just talk about again since you guys did the $250 million of investments to steward prospect.

If there were any additional investments to those two operators since that time.

No other than routine order of business for example.

The development funding that.

That goes on with.

Of course, there are no development funding at prospect there as the Texarkana in Norwood.

Construction projects in.

With steward, but.

Debt.

The increased investment.

Gotcha. Okay. That's helpful. And then just one final comment from me I think again just.

Having the EBITA rent coverages that used to provide in the past I think investors do find that useful it would be great. If you could see a return of those metrics in the next supplemental and <unk> 23.

Thank you very much.

Thanks Tayo.

Our next question comes.

Comes from John Pawlowski from Green Street Advisors. Please go ahead with your question.

Thanks for the time, maybe a follow up to Tyler's question did you provide any operators at all financial support in the fourth quarter.

Through the rent deferrals.

Equity Stakes or do you expect to have.

Two in the coming quarters outside of prospect.

What's that final part do we expect to.

Do you expect to us outside of prospect.

Oh aside from prospect no we don't.

Okay.

Have you gone back to their prospects restructuring, Steve I think you alluded to you expect to collect most of the California ran so can you just take a step back and I know you put some scenarios in there I'm less concerned about worst case scenarios that are embedded in guidance I'm just trying to understand.

Actual reality in terms of how much cash is going to come in the door. This year. So the total prospect relationship.

What percent of your annual cash payments that are owned by prospects do you actually expect the class. This year and you can use a range if you'd like I, just we just need some quantification.

Well I think we've given the range.

We don't expect the worst case.

It's possible that the $1 65, which as you point out is basically collection of the California rent.

And.

And six months of Connecticut, assuming we sell Connecticut.

At the end of the six months.

The cash number Frank.

Okay.

So in my right to interpret that there is going to be a shortfall on the California rent collection as well.

That's quite possible yes.

Okay are they paying rent currently on the California.

Per hospital.

No.

Sure.

As I mentioned a little earlier.

Little of January February rent has been paid.

Okay last one for me.

Assume that repayment of the upsize of mortgage loans that occur in the fourth quarter can you give us a sense for when you expect that mortgage longer they'd be repaid and the California properties.

Ah.

Along with the recovery from <unk>.

Primarily the sale of managed care business.

Although there are other restructuring options with respect to that particular facility.

Obviously as you pointed out is mortgaged now.

We are considering a number of options that could include <unk>.

Acquisition of that facility for the mortgage balance, but but there is nothing definitive or binding with respect to that possible strategy.

Okay. Thank you.

Our next question comes from Andrew Ross of Arc from Wolfe Research. Please go ahead with your question.

Hey, good morning, guys how are you.

Fine Thank you.

I was thinking maybe something that might.

Mike.

If you would you be able to translate.

Your absence so into.

Into <unk> guidance, because I'm guessing.

Some of the puts and takes related to prospect there are probably related to cash basis versus a straight line.

Yeah.

<unk>.

Got lost in that question I'm, sorry, Oh, sorry, Steve So.

So that you have.

But 65 an acre.

Out of a search I too.

Back into dividend coverage.

And I'm guessing that.

If we took it.

Steph from 22 to 23 to.

The difference in <unk> is less than a difference in ASP as well.

Yes, so if you take that.

Worst case scenario again at $1 50.

And you make necessary adjustments for four <unk>, we're at about a $1 29.

Got it okay. Thank you very much and then my second one is really nerdy.

No.

Some of these numbers are estimated.

Schedule for.

And and disclosures.

NAV EBITDAR and EBIT Dara.

You now have EBITDAR just curious why you went to one column.

Yeah, and Andrew you May remember that we stopped doing EBITDAR, a long time ago, because it was confusing because a lot of that our assumptions that everyone has to make.

Including us about what the.

Part of the EBITDAR is for example, if you look at.

That page, which is page 14 in the supplement a number of those operators the EBITDAR and EBITDAR is the same thing. So what we did a long time ago. When we were trying to show EBITDAR, we used an arbitrary.

Number for us from that we got from what the management fee, maybe many times those were much higher than actual numbers. Another example.

We have a couple of operators, who prefer not to be named in this report, although it doesn't take a genius to figure out which ones those are but.

<unk> had a lot of subjectivity to it.

You're typically taking a you're making I'm guessing an assumption of an expense as a percentage of revenues.

That's correct yes.

Whereas EBIT arms that actual number that youre getting.

Correct.

Terrific. Thanks, a lot guys.

And our next question is a follow up from Vikram Malhotra from Mizuho. Please go ahead with your follow up.

Thanks, just two quick follow ups first can you just clarify the Utah settled that gone into common spirit.

My quick calculation I think the new rent is at about 10% lower on a cash basis can you clarify was there a rent change with.

With Goldman Spirit, yes.

Yes, yes, there was a rent change.

On a cash basis.

They are paying you can do the arithmetic there, they're paying seven 8% on the roughly $1 billion to $2 billion.

Of investment.

That's a reduction from what Stuart paid in 2020 to buy a little more than $6 million.

Some of that $6 million.

Will be recovered through reallocation of that rent back to other steward facilities.

And again all of that's built in.

To the guidance numbers, we gave.

Okay. That's helpful. And then can you just maybe give us a little bit more color on the on the guidance components on two things just what's the what's the straight line rent baked into.

Guide on either end of the range. If you can and also what the G&A ranges if it's possible.

I think we'll probably have to get back to you on that I don't think anybody around this table has.

Intermediate answered, especially the straight line.

The G&A is a recent run rate.

Okay. Thank you.

And our next question is also a follow up from John Pawlowski from Green Street Advisors. Please go ahead with your follow up.

Hey, Thanks for taking the second question.

Steve or at what level of leverage and debt to EBITDA basis on your metrics do you expect to be running at this time next year, because I think at Delta remarks were pretty bullish on acquisition pipelines.

There's a lot of moving pieces in terms of potential disposition. So this time next year what level of leverage can shareholders expect you'd be running that.

Well, let me make the point about the acquisitions that I was trying to make them.

Our existing customers and other very strategic moves like we did with the Priory transaction transaction, we announced today.

But.

Other than that I'm, just making the point that the pipeline is strong we are continuing to work those relationships.

Yes, and what what goes unsaid, probably don't need to be said with that and we certainly don't expect to be leveraging up to take advantage of marginally accretive transactions.

Okay have you expect leverage to remain essentially unchanged.

<unk>.

We.

We expect it to remainder of that five to six times debt.

We were working on and making great progress on until the latter part of last year. So that remains our strategy is.

Is to maintain that level of long term leverage and to do that along with making accretive acquisitions. We we need to see first as Ed has mentioned now.

Some some certainty in the cost of debt and we need to see some rationality on the part of sellers, but recognizing that the cost of capital.

Is driving down.

The otherwise value of their assets.

And until that happens and we can access affordable equity type capital then.

Then we won't make it wont be making significant acquisitions, certainly not if that means driving up leverage.

Okay. Thank you.

And ladies and gentlemen, with that we'll end today's question and answer session I would like to turn the floor back over to Ed <unk> for any closing remarks.

Jamie Thank you very much and as always we appreciate your listening in and your interest you have any follow up questions. Please don't hesitate to give us a call. Thank you very much.

Ladies and gentlemen, with that we'll be we'll be closing today's conference call and presentation. We do thank you for joining you may now disconnect your lines.

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