Medical Properties Trust Inc. Q1 2023 Earnings Call
[music].
Good morning, and welcome to the first quarter 2023 Medical properties Trust earnings Conference call.
All participants will be in a listen only mode for a 60 minute duration and should you need any assistance during that time. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad and to withdraw your question. Please press Star then two please.
Please also note that this event is being recorded today.
I would now like to turn the conference over to Charles Lindbergh Vice President. Please go ahead Sir.
Thank you.
Good morning, and welcome to the medical properties Trust conference call to discuss our first quarter 2023 financial results.
With me today are Edward K Al Dag 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 medical properties Trust Dot com in the Investor Relations section. Additionally.
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 1995 days.
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.
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 measure.
<unk> 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 thanks to all of you for joining US this morning for our earnings call.
The overall preliminary results from our operators for the first quarter of 2023 are following in the same positive trends. We have recently seen from other publicly reporting hospital operators.
Remember, we report a quarter in arrears. So today's results from the quarter ending 12 31 22.
On the volume side, our domestic operators same store admissions across our portfolio are positive with admission steadily increasing over the last few months, including January 'twenty twenty-three.
Surgical volumes look even better on a same store basis surgeries are up year over year trailing 12 months Q4, 2022 versus trailing 12 months Q3, 2022.
We're also seeing good momentum on a discrete quarter basis with quarter four up 3% over quarter three.
Number of ER visits had been steadily rising since the beginning of 2022 topping off in December with the highest ER volumes our portfolio saw in all of 2022.
Internationally, we are seeing particularly strong demand both from an admissions and surgical perspective in the Spanish market recall that we're currently developing three ground up general acute care hospitals, along the Mediterranean coast of Spain with Ahmed it's great to see the demand in this market continuing to grow at such a high rate with our.
I'm, Ed Valencia hospital, saying admissions up 8% year over year and surgical volumes up 11% during the same period.
The German and UK markets are also experiencing continued improvement with the German occupancy up 6% year over year through February 2023.
In the U K circle admissions and outpatient volumes continue to increase with overall volumes exceeding pre pandemic levels.
In Colombia, 2022 admissions and surgeries were up over 20% year over year.
You can refer to our supplement filed this morning for more information on our EBITDAR coverages, but some points I'd like to highlight for you.
We're getting close to the point, where cares Act grant will no longer impact the trailing 12 month coverage is <unk>.
General acute inpatient rehab and behavioral health, where all flat for the trailing 12 months quarter three over quarter for long term acute care coverage has declined from two three to one nine times remember that L tax represent only one 4% of our total portfolio and the one nine times coverage.
It's more in line with historical coverages.
I know that people are specifically interested in Stewart hospitals performance. So excluding grants stewards hospitals 2022 coverage increased to almost two and a half times from approximately two two times in 2020 one.
Coverage has increased another 18 points for the trailing 12 months ending February of 2023.
Also relating to steward the transaction with common spirit is still scheduled to close next week, we look forward to expanding our relationship with common spirit and the liquidity this transaction brings to Stuart.
One prospect, we've seen some positive events, which Steve will go over in more detail in a few moments, but just briefly for me on the Yale sell this continues to move along positively. This week one of the biggest unions came out to support this L. The California operations continue to see improvements with volumes near historical.
Levels additional capitation agreements have been signed by the hospitals, which will allow those volumes to continue to grow.
Labor costs to continue to hold down the trailing 12 months coverages, but they've seen good improvement in that over the last few months.
Managed care business continues to grow its membership and its profits. It continues to exceed budget, we remain confident that our overall investment in prospect will be fully realizable from that investment.
Our recent announcement to sell our Australian investments operated by help scope is a testament to the steady demand of hospitals anticipated cash proceeds from this divestiture will result, and sufficient liquidity to repay the term loan used to fund the acquisition back in 2019.
Our well ladder debt maturity schedule, along with our inflation protected long term leases allows for our cash flow to continue to increase without adding additional properties.
Until the global markets stabilize we do not anticipate making any significant acquisitions. However, our relationships with our operators create numerous organic growth opportunities. We will continue to analyze these opportunities as they come in and make prudent decisions about the use of our capital.
We announced this morning, an acquisition with Priory for five behavioral hospitals for 44 million pounds. This closed in the second quarter. Additionally, we closed on the purchase of two medium rehabilitation hospitals in Germany for 47 million euros with a third expected to close later this quarter for 23 million euros.
Speaking of growing relationships. It was announced earlier this month that inner mountain health based in Utah as acquired a minority Opco interest in both of our Idaho Falls Community Hospital and Mountain view Hospital. This partnership will provide these two hospitals with additional access to highly trained specialists and vast.
Resources as a result of collaborating with one of the region's largest and most successful health systems, while the financial terms of the investment have not been disclosed we can say that they are an impressive valuation, resulting from this equity investment, which once again proves the essential nature of our hospital real estate.
Steve Thank.
Thank you Ed.
This morning, we reported net income and normalized <unk>, five and 37 cents per diluted share respectively for the first quarter of 2023. There are a few components of these reported results that I will point out.
First this includes no rent or interest income related to prospect as we reported last quarter. We are currently recognizing prospect rental income only as cash is received and prospect paid no rent or interest during the quarter.
I will have a further a little further information on our prospect investment in just a few minutes.
There are two transactions that we expect will generate more than $900 million in cash proceeds that we plan to use to repay debt.
About $830 million will come from the previously announced binding agreements to sell our Australian assets.
And just this morning, we announced that prime healthcare has elected to exercise its option to repurchase three general acute care hospitals for $100 million in cash.
Both transactions are binding and considered probable accounting principles mandate that we recognize their estimated earnings impact even though neither has closed yet accordingly, we adjusted normalized F. F O for the noncash real estate impairment and other charges of approximately $90 million as follows.
About $11 million is related to Unbilled straight line rent on the three prime hospitals and I'll come back to prime in just a minute.
And about $79 million in charges relates to the health scope sale. That's further broken down as follows.
Of the total $79 million. These are U S dollars by the way approximately $37 million.
Is unbilled straight line rent.
Then there are $8 million in fees and costs to sell to hospitals.
$13 million is the recognition of previously capitalized currency exchange rate deferrals and finally, there is a net $20 million difference between the contractual purchase price and our current carrying value offset by the value of our related interest rate swap agreement and.
And we will continue to earn rent until closing of both of these transactions and we'll report that in future quarters as earned.
Finally, we do not include in normalized F F O $7 $7 million in direct costs and expenses incurred to respond to the defamatory statements published by certain parties, including those who are defendant in a lawsuit we filed late last month.
So upon closing of the health scope and prime transactions receipt at the $900 million plus in cash and the reduction of debt with those proceeds we have refined our 2023 calendar normalized <unk> estimate to a range of between $1 50, and $1 61 per share.
This also adjust for the acquisitions in England, and Germany that Ed mentioned and our estimates of revenue from prospect during the year.
With respect to prospect.
During the first quarter, we agreed as part of an expected series of additional agreements to invest invest $50 million in a convertible loan issued by prospects managed care entities.
Subsequent to quarter end prospect received a binding commitment from several third party lenders for financing, which should provide prospect with significant liquidity.
Importantly, a portion of the proceeds of this anticipated financing will be used to pay off prospects existing receivables backed loan arrangement. The result of which will be the prospect, we will face no near term debt maturities.
In conjunction with these commitments we in prospect agreed to pursue certain follow on transactions at the closing of which Mpt's investments in prospect asset will be comprised of the following.
Our master lease covering six California hospitals empty.
NPT purchased these hospitals in 2019 for about $500 million. The current contractual cash rental rate is roughly eight in the quarter percent and escalates annually reference to inflation.
We presently expect to recommence collection of a portion of the contractual monthly rent in September of this year.
Secondly, it first lien mortgage on the Pennsylvania real estate.
Third up to $75 million and in a loan secured by first liens on prospects accounts receivable.
This amount, which will be fully the receivables will be fully unencumbered.
Is well below the existing ABL arrangements borrowing base.
And finally, a significant noncontrolling ownership interest in prospect managed care business that will have an agreed value closely tied to the remainder of Mpt's recorded investments, which will include unpaid rent and interest.
The managed care business has continued to perform well and we think that as evidenced by the commitment letters for attractive new financing that prospect has received.
As our press release noted and in light of continuing global inflationary banking and other economic conditions. We made limited investments during the quarter. In fact, we continue to emphasize transactions that generate return of capital to us and liquidity for debt reduction.
With liquidity at quarter end of approximately $1 billion.
Plus the more than $900 million from sales that I, just mentioned along with additional cash expectations from the sale of Connecticut to Gail repayment of steward loans and other transactions, we will be well able to satisfy all of our roughly $1 $4 billion in 2023 and 2020.
For debt maturities.
Just a couple of comments back to the prime expected repurchase.
This is not a bargain purchase option prime is required to pay us the amount that we originally bought the property for 10 plus years ago.
The vast majority of our leases that have repurchase options provide for a repurchase price of the greater fair value and our original investment in.
In fact as $100 million portfolio is the last of the Prime Master leases that is at that fixed original price.
We were satisfied with these terms at the time, we completed the original transactions because of the very attractive lease rate that we negotiated in return.
And that will make the sale back to Prime F. F O dilutive, albeit a relatively small impact because of the high rents. We have earned until recently, but the benefits of recycling this capital into greater liquidity and lower leverage offset that slight dilution.
Shortly after quarter end, we closed or committed to acquire a total of eight behavioral and rehabilitation hospitals in England, and Germany for up to an approximate $150 million investment.
Similar to our limited late 2022 acquisitions these acquisitions selectively add to certain existing relationships in ways that strategically strengthen their respective portfolios at.
At present, there are no other scheduled or expected near term acquisitions.
We have virtually completed our Newbuild hospital for Ernest in Stockton, California, and it will come online and begin paying rent during the second quarter.
The Ernest Newbuild in South Carolina is still underdeveloped we continued.
<unk> development of a new state of the art behavioral hospital in Texas for Springs done now a part of life point.
And we continued construction of the three general acute care hospitals for our Premier Spanish Tenet I met.
In conjunction with the redevelopment of stewards Norwood Hospital, which you may remember was made unusable by storms and floods. During COVID-19, we advanced $50 million that is secured by among other things proceeds from Stewart insurance claims well in excess of the advance this development is well underway.
Finally, we have already noted the prospect convertible debt of $50 million, we funded in conjunction with the binding funding commitments from third party lenders to prospect.
Also as noted in this morning's press release, our board has declared a quarterly dividend unchanged at <unk> 29 per share and will be paid on July 13 to stockholders of record on June 15.
After a virtually unchanged business model since we started the company almost 20 years ago I thought I would make a few comments that irrelevant to analysis of that model sustainability.
At the highest level, one might say that the product NPT sells to its lessees as capital and.
And capital of course has a cost or.
Our business plan has always recognized that we do not control the cost of that capital, particularly with respect to that cost.
And this is true for most Reits and other real estate investors.
That is why all of our long term debt is at fixed rates.
It is also why we carefully plan on staggered maturities.
Both of those cornerstones strategies are consciously designed to help avoid a situation that might otherwise arise if interest rates spike upward and significant amounts of debt mature simultaneously.
But critically our model has always anticipated the likelihood of rising interest rates and the need for our contractual rental rates to increase with the inflationary pressures that result in higher interest rates.
Hospital leases typically do not have provision for periodic market rent reset there are good reasons for that but beyond the scope of this morning's discussion in.
Instead virtually everyone of Mpt's leases provide for annual contractual rental increases that are tied to inflation.
Moreover, even in recent years when inflation has been minimal and in some cases, even negative or cash rent has continued to escalate each year.
Based on these annual contractual increases in our cash rent and under almost any reasonable and historically normalized assumptions rents from our existing portfolio only are expected to increase at rates at least comparable to interest rate increases in our maturing debt issues.
My point of course is that our model is designed to anticipate normal course volatility in interest rates and other macroeconomic conditions.
And Moreover, analyzing a strawman scenario than any REIT might be forced to immediately refinance all of its debt at shock interest rates, even though that debt matures over many years in the future is probably not a good use of any one time.
Finally, we did point out in this morning's press release that recent transactions have supported the values of our leased assets.
We think it's important to point that out because it demonstrates that sophisticated investors and operators recognize and are willing to invest billions of dollars based on the long term sustainability of our model, particularly our receipt of annually increasing rental payments that are generated from local hospital operations.
With that we have time for a few questions and I will turn the call back over to the operator.
We will now begin the question and answer session.
Again to ask a question you May Press Star then one on your telephone keypad.
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At this time, we will take our first question, which will come from.
<unk> <unk> with Wells Fargo. Please go ahead with your question.
Good morning out there. Thank you for having me back on the call.
Hey, Connor.
Quickly on prospect you can see you removed the east coast assets from the rent coverage calculation, leaving coverage at one times I mean is there any indication or any color as to what you think that number could look like towards the end of the year and in consideration of the comments that the operating environment in general is improving.
Yeah, I don't I don't know what it will be obviously by the end of the year, but just based on what we've seen in the early part of 2023. The volumes continue to skyrocket from where they were in the early part of 2022 labor costs are higher there than they are anywhere else a little disappointed to see we'll see what those were.
The FERC fourth quarter, but those numbers do appear to be going down the prospect feels really good about it.
So we think that California could get back by the end of the year to closer to what the what it was maybe pre pandemic levels.
Okay. Thanks for that and then just wanted to jump back to the guidance I mean.
You mentioned on the last earnings call that the range would be impacted by timing of planned asset sales timing of profit cost prospect revenues and so on so on balance just in consideration of the four cent reduction at the top end how are those factors affecting the change I mean, what is it what is attribute what is contributing to that reduction of four cents at the top end.
It's primarily almost exclusively.
The sale transactions between health scope and.
And prime.
Okay. Thank you and then one more for me just broadly speaking I think we can all appreciate the challenges inherent in hospital real estate.
And these are magnified in the fallout of Covid in a tough labor environment and MPT is really the only public REIT that is underwriting these assets. So in the context of the new lease with common spirit in Utah. Some of the challenges we've seen related to hospital closures I mean, when we look out to future acquisitions or portfolio transitions should we be is.
Assuming that the operator market, we'll be looking for lower rents than may have been initially contemplated say over the balance of the last five years.
Yeah, Conor I don't think Thats, a fair assessment at all I think when you look at common spirit versus Stuart that was entirely based on the financial strength of common spirit versus the financial strength of Stuart. So if you look at all things being equal from the same financial strains of different operators I don't think you're going to see any change.
In the in the interest rates I mean, it's already in the cap rates other than cap rates are obviously higher today overall than they were more than a year ago. So I don't I don't think that that's the right assessment. The assessment is is that we've got stronger operators, you're going to see a lower cap rate, but as we've pointed out.
And the whole common spirit, Utah thing.
Common spirit being the tenant it makes the properties more valuable even at the lower rate.
Yeah.
Got it understood I'll leave it there. Thank you for the time.
Yes.
And our next question will come from Michael Carroll with RBC capital markets. Please go ahead with your question.
Yeah. Thanks, Steve I, just wanted to touch on your comments related to the pending prospect agreement and what has to happen for that deal to close I mean does prospect need to complete the Connecticut sale and maybe the Rhode Island sale for that to close or what are the stumbling blocks that that's still ahead of them.
Yes, so so we're still a little bit constrained on.
What we can say.
Other than I'll reiterate we had we are binding week prospect has binding commitment.
For the financing that we mentioned.
And I can say that those commitments are not conditioned on.
On a sale of Connecticut.
Four of.
Of Rhode Island.
Okay are there any material differences and best agreement versus the prior agreement that that fell through in mid January .
Well there are differences there are.
And.
Frankly, we were very satisfied with this agreement remember what has all happened since since late in the fourth quarter, even early in the fourth quarter the market disruptions the credit facility disruptions the inflationary pressures and then we had the banking panic.
And yet through all of that.
We're very satisfied with what we expect the outcome to be.
And the fact that although when named these.
Lenders.
We will be very recognizable win.
When the transaction closes and announcements are made.
So my point there is as these these lenders are willing to commit.
<unk> meaningful amounts.
To a business that last quarter, we indicated our view was based on some pretty good evidence we thought that was worth at least $1 billion nothing.
Our view is that that is even further validated by virtue of the of the commitments we have.
Okay and then just last one for me is I guess, what's the reason for the $50 million alone that you provided at prospect to the first quarter and is there a expected timing of when these transactions close.
The reason is just to continue to to advance this.
Process that has been going on as you know for well over a year has been through at least two earlier iterations and I forget the second part of your go timing yes.
Yes, we're not making any announcements on timing we.
We're just not making any further announcement on that now.
But it shouldn't it shouldnt J&J from what we announced last quarter in the 12 to 18 months for all of us to work through.
That's right that's the quite yet if that was your question Thats absolutely right. I thought you were talking about timing of closing of the loan transactions, but it is absolutely correct.
It will not affect our expectation on the ultimate outcome.
The ultimate outcome include this transaction being completed or does the ultimate outcome, including this transaction and other stuff being completed I mean could this deal closed in the beginning of 2024.
Well, we're not sure of which still you are talking about.
Let me, let me drives in the field that Steve just was talking about what should close.
Yeah, and then resolution of the entire transaction, primarily with bill on a monetization of the managed care business.
Okay perfect. Thank you.
And our next question will come from Jonathan Hughes with Raymond James. Please go ahead with your question.
Hey, good morning.
Could you remind us of the timing of health scope, meaning cash changing hands I think that's a phased.
Transaction, and then maybe the timing and the expected disposition yield on the prime purchase options.
So angel scope, you're correct. It is a phase two basically two phased transaction the first and most significant part of the exchange.
We will we will be we think in the second quarter and the second.
<unk> could be second quarter, but more likely third quarter on prime.
Ultimate closing probably is.
Mid to late third quarter.
Okay, and then you had mentioned that as one of the last kind of thing.
Purchase options and fixed purchase prices can you share the yield or can we assume maybe a similar.
Yield is.
The purchase options from late last year no. If you if you if you take our 2023.
Passing rent it it's it's low double.
Double digit yield on that $100 million.
Okay. So similar to the one last year.
Okay and then.
Taking somewhat with capital allocation.
You will have invested over.
$400 million in prior year median and median since the start of the fourth quarter of last year.
Yet the stock has traded well above an 8% cash cap rate and in your desk yielded double digits that entire time.
I understand that repurchasing stock would not help lower leverage which is the main priority today, but.
Investing in the company buying back stock or buying back debt underwriting.
Underwriting uncertainty. So my question is why not buyback solve your your long term it would be accretive and help with deleveraging and also send a message impossible.
Gummies outlook your comments and obviously, what you gave us earlier off Paul.
And that message of confidence to the market versus going out there investing externally.
No it's not an unfair comment at all especially just considered from from the total mathematical perspective, and and it's not off the table.
Okay.
Yes.
How deep is that discussion gone up to the board level and then maybe also really related to that you know about <unk>.
Dividends.
I think you've made it clear it's covered but nonetheless, the market seems to be gaining very little credit to it today, yielding north of 14%. So it hasn't had the cutoffs have been considered by the board and when that perhaps be.
Another good capital allocation decision use those potential retained bonds to shore up the balance sheet, even faster pay down debt.
Yes.
We were very satisfied as you can tell we've made an announcement that we.
Uh huh.
We declared the dividend. This morning, we're satisfied with where we are on the foreseeable future.
But all of those are levers that any company has to pull.
Whether it's dividend or property sales or share repurchases or.
Debt tenders.
Thankfully we are in a very very strong position liquidity wise the value of our assets.
The growth in the NOI of our assets.
And again none of those.
Considerations are off the table as any company would do we.
It starts at the board level frankly.
Continue to to observe all those conditions and Jonathan and these are detailed conversations the board has on a regular basis and the board makes decisions based on the long term health of this company not short term and we're very comfortable with the decisions that we've made.
Alright, thanks for the time.
And our next question will come from Steven Valiquette with Barclays. Please go ahead with your question.
Great. Thanks, good morning, everybody.
Hum.
My question here is also a kind of regarding the potential monetization of the prospect medical managed care business. You can also just trying to better understand this new binding commitment from a third party lender versus the.
Potential managed care transaction that was under negotiation previously that with a third party that stalled out back in January that you kind of mentioned on the last quarterly call.
Yeah, I'm sure, hoping that up based on this I thought maybe the old one bite involves a third party.
More ownership of that right now so they're going to this new.
Binding commitment MPW would have more direct ownership of that managed care business and.
In the interim and then maybe you monetize that somewhere later down the road I don't know if that is true or not true on the difference between the two but I'm trying to understand.
Your level of comfort I guess, if youre going to own part of this managed care business before maybe it gets monetized you know to some other third party later.
As you know what might have been considered previously and open up the question makes sense, just trying to get more color around around all of that thanks.
Yeah, we'll we'll read rather than trying to reconcile back to.
A deal that kind of long been dead, maybe I'll just reiterate what we expect at at let's say phase next which would be execution on these commitments.
Commitment letters, which would provide prospect with as I mentioned.
<unk> amount of liquidity take that pressure off of.
Of its operations of its management team and provide even a better platform for growth of the managed care business. While at the same time as Ed mentioned, you know, presumably California continues to improve and so we would end up with a a roughly 500 million dollar.
<unk> in the California assets that under normalized circumstances.
<unk> and again that includes not draining cash out of California for the East Coast that includes having management have have attention to pay to the California operations and so forth. So.
So $500 million in.
In our performing master lease.
We we commented Ed commented earlier on on the continuing prospect pardon the pun of the of the Yale sale that will provide significant amount of cash returned to us and then the interest that we're talking about would be.
Our security interest.
Pledges and collateral interest in the equity of the managed care company. The monetization of managed care has always been the key to the timing of our recovery of our investment and that really hasnt changed between.
At least the potential transaction that was being considered during the fourth quarter and the one that we now expect to do execute let's see if I understand your question correctly, the big picture Hasnt changed at all the same contemplation all along even before we thought we had a deal back in January it was just a little bit of a change.
And the details, but the big picture is the same.
Okay. That's helpful. Maybe I'll follow up offline with you guys later with a few follow ups on that but thanks for the color. Thanks.
Yeah.
And our next question will come from Austin, where Schmidt with Keybanc capital markets. Please go ahead with your question.
Great. Thanks, everybody. So Steve when you kind of wrap everything up of what's assumed in guidance can you can you just give us that like you did last quarter, a little bit of additional detail of now what's assumed kind of at the high end low end of the range.
With the collection of prospects rent in California, beginning in September how is that factored into the range and what sort of the probability that that you could end up within the higher end of the range just given the better visibility around some of the moving pieces.
Within guidance.
Well, it probably wouldn't handicap.
What's the most likely pinpoint.
Result.
I think it is fair to say that the difference is represented primarily by what what may happen with with prospect.
And and look we're hopeful that you know and in the next.
Reasonably short period will have more detail about as I described it earlier prospect step next and maybe that will help both us and and analyst and investors better handicap that.
Is any potential sale of the eastern portfolio on the table today or has that.
And then sort of.
Sideline for the near term.
Purchase agreement, we again prospect has a binding purchase agreement for the east coast as it as it relates to Yale.
They they are making progress it is our understanding on a sale of Rhode Island, which only leaves, Pennsylvania and.
And we're not aware and I think we would be we're not aware of any advanced negotiations for any particular seller about Pennsylvania, but the other two markets absolutely yeah.
And then just the last one for me I guess.
As you and the board kind of discuss capital allocation and balance sheet management.
Our eyes, what what are the next steps to bring leverage down to levels that are more consistent with the company's longer term average.
Well as Steve pointed out earlier, we will have all of the maturities coming due through 'twenty four are taken care of in short order.
And then we feel very comfortable about where the remaining maturities are and where they're ladder and we're obviously not going to make any knee jerk reactions. We've got good cash flow.
Well cover the dividend on a growing basis.
So again, just not gonna make knee jerk reactions and just to be clear point something out I know, it's obvious but if you look in our supplemental.
Leverage page, which we've adjusted a little bit for this.
This quarter.
It's highly dependent upon it.
Any particular three months period EBITDA.
And at in the last two three months period, EBITDA, where we're not including prospect income.
It it's really disproportionately impacts that kind of number whether its our seven two or another way to look at it was I think six points look all of that what we want to do by changing that page. This quarter is give analysts and investors.
The inputs they need and then they can make their own assumptions.
About well how much EBITDA is really depressed right now and should we really be saying well MPT is levered <unk>.
Seven plus times, but that's only because we're not recognizing anything from prospect and that could change very quickly. So again I'm, stating the obvious.
But it's really kind of a soft objection to being overleverage.
Only if you use that in.
In a particular period we.
We're not reporting all of the revenue that we think ultimately we will based on the in place existing portfolio.
Okay.
No that's definitely fair comment just trying to understand the moving pieces and I guess, how you guys are thinking about the balance sheet.
And the kind of near to medium term, but I appreciate it.
It's a good point, let me just reiterate that you know your question thinking about the balance sheet. We've got no pressing maturities are now for two years.
And again bye bye kind of pointing to the transactional values that.
That we've executed with with sophisticated third parties in recent weeks even during.
This global panic hadn't seen anything like this.
At least since the financial crisis and even during all of that are our underwriting and our values have been validated. So so and I think I described you know upwards of two plus billion dollars in anticipated liquidity in.
In the very near term and and then even more than that on on transactions. We expect to have and so then no no unaddressed maturities for the next two years and during that two years.
My personal opinion is you know things will normalize like they always do after a panic things will normalize we will see a more normal debt.
That market.
Hopefully and I believe this firmly we're not going to be looking at implied double digit bond rates for us and at the same time, we will continue to work through.
You know that the prospect situation. So all of that is a long winded way of saying we have a lot of liquidity, we have a lot of value we have a lot of leavers to pull.
And we don't even have to be thinking about really what's next not that we're not thinking about it but there's nothing pressing until 2025 and I'm not even saying that is pressing I'm, just saying we have to address them some coming maturities at that time.
No none of that's lost on us but appreciate.
The comments thanks, Steve.
And our next question will come from Vikram Malhotra with Mizuho. Please go ahead with your question.
Thanks for taking the questions.
Maybe if you could just clarify just to be crystal clear so in the guidance.
Prospects into September is that sort of the high end and could you just translate that guide like you did last time into what what our Lafayette circle or Fad range would be.
You broke up there.
The question was kind of a repeat of Austin and no I just wanted to make sure I knew at the high end of the range.
What it was a prospect rent to September is that and is that is that the high end essentially and then you just a few I may have missed it but could you just translate.
The guide.
The assets will guide into kind of the FTC.
See you today, what the Fad guide would be just thinking kind of dividend coverage at both ends of the range.
Yeah. So so again instead of trying to pinpoint exactly you know what we expect from from admittedly a number of moving parts on prospect.
The range to 50 to 61 range is not exclusively but but.
But the great majority of that range varies on your prospect assumptions.
And.
The low end I can say at the low end does does include well.
Prospect even under that.
The pending contractual payments starting in September it does include that amount.
Other than that again.
The rest of the range just depends.
And.
Yes, I think I think that was.
And.
Can you just remind us sort of a run rate.
What roughly what is the bump.
12 months forward what is the bump.
On an annual basis, I should say a bump from from inflation given the CPI linked escalators.
Well it varies across every one of our lease arrangements.
And if I understand the question I think I do typically almost all of our leases have a floor and let's just say that has a weighted average floor of 2%.
So we've been we've been realizing those cash bumps even recently when inflation has been less than 2% and then the ceiling, which almost all of our leases have some type of a.
High end that high end could be unlimited inflation, which some of our leases have and some of our leases have have a ceiling on that and let's just say that on average we feel there's a ceiling at let's call. It 4%. If you weight all of our leases youll, probably come up with a portfolio.
Number of a ceiling I mean, a floor of two and a ceiling probably in the five range.
Okay that makes sense I'm, assuming sort of.
On a run rate basis is kind of embedded in guidance is that number towards the higher end, just given where that where it played out.
<unk>.
Well, yeah right, it's been actual inflation he has embedded in it right.
Right because remember.
Most of our leases.
Reset on January one regardless of when the lease starts most of our leases reset on January one so we know.
We know as of January one what the cash rent, which.
To a great extent, we know what it's going to be for the for the calendar year, if I understand what you're asking vikram. It's not the run rate is not a we haven't we haven't projected what inflation is going to be it's actual in gradual right and what the leases have been.
Okay. That's helpful.
I didn't realize all of that I like to hold the reset was basically like.
Jan one I thought it might have been staggered through the year, but the vast vast majority of our January .
Okay and then just last one are you thinking about you mentioned capital availability, you mentioned transaction the value being validated. So just do things can you clarify what you know.
When value is being validated how do we think how do we translate all of these transactions and doing well.
It's a range of cap rates or a.
A four foot value or replacement cost value.
Would you venture to say sort of versus <unk>.
The original Macquarie transaction, you know, what where are you seeing those cap rates number one and then number two from a capital availability standpoint, given the broader real estate capital in.
Yeah.
How does that translate into say a doing a new.
Receivables or ABL alone for hospitals in terms of just the hospitals access to capital.
So the first part of that but let me try and I'll just give you the history going back a year ago. We did as you pointed out the Macquarie transaction that was basically a five 6% capitalization rate.
And Thats measurable that's objective.
And so again that was before the panic that we got in recently.
The Australian deal.
Again, we are we signed that deal at the very peak of the banking panic, a few weeks ago and that's about a five seven.
And and then if you look at.
Other recent transactions, we've we've done that we can point to with sophisticated third parties their spring stone.
It wasn't a real estate deal, but that transaction was valued based on our spring stone investment.
Very very attractive financing, we generated very strong return on our spring stone investment that we then sold to light point.
The fact that Gail is willing to pay what it's willing to pay for that hospital.
And and then again prime Prime Prime has a fixed repurchase but they're willing to pay what the hospitals were on our books for all of these are the indicators and then there are other transactions that we're not involved with them for.
For example, there was a recent transaction in France for a very very significant kind of unique portfolio, whose characteristics in their hospitals are not nearly as strong as ours went which went for a low five.
Handle cap rate. So all of those are the reasons, we pointed out this morning, and we continue to say that.
That our values, our underwritten values have been sustained even in this market. This global kind of economic market that that we've suffered with recently our values have seemingly been sustained in and we think the reason is obviously is not because the public markets are giving us credit but.
<unk> private investors or whether it be the Macquarie transaction, whether it be an operator sophisticated operator like common spirit.
Whether it be you know Apollo backed life point, and and then others look because these were competitive transactions and and I can tell you. We continue to get a high level of interest in doing similar transactions and I think thats available to us. If in fact, we decided you know we want or need to do that at some time.
So I'm sorry that went on that but I think the second part of your question was regarding bank I'm, sorry, Oh hospitals and their access to capital, but we don't have any operators that have expressed our concerns to us about their refinancing of any ABL that may or may not be coming due obviously, we've had a specific example with <unk>.
Prospect, where they had a number of choices to refinance their ABL. So even in that strange situation. There certainly were avenues out there I'm not aware of any of our operators that had any issues with some of the west coast banks that went through the issues in the last couple of months.
Everything seems to be operable out there right now.
Thank you.
Okay.
Okay.
And our next question will come from Josh <unk> with Bank of America. Please go ahead with your question.
Hello, This is Dan.
Dialing in for Josh.
Could you provide a little bit more details on the terms of that $50 million loan.
It's $50 million R&D provided prospect.
Okay.
The convert.
The convert that we didn't yeah yeah.
It's a convertible loan and we're not disclosing the terms right now theyre very attractive.
The point being that we have the right to convert it into the what we think is a much more valuable.
Our managed care equity.
Got it no that makes sense and then I guess just kind of follow up on that how does the third party lender commitment impact your prospect financing and what are your thoughts on providing prospect additional support from Iran.
You broke up on that last part, but the third party commitment is to the managed care company.
And what it really really does for us very attractively a.
It frees up all of the locked up collateral that is that is presently under the current ABL.
That gets repaid totally unencumbered.
The prospect receivables.
And and gives them liquidity AR to continue to operate and invest in their hospitals not ultimately.
As we've said, we expect beginning of September payout rent.
Got it and then.
I didn't catch that last part on the second part of my question about what are your thoughts for them, providing more potentially additional support for prospect.
Well, we make we May I think we said at least in my prepared remarks, we said that part of our the outcome of this that's the reason I mentioned the receivables is we may advance another up to $75 million, which would be secured.
<unk>.
By the receivables balance which is.
Well, well well in excess of the $75 million and this is why you had mentioned a minute ago that operators really don't have.
Issues accessing ABL type financing, because it's very very well collateralized.
With government and insurance receivables.
And.
Again, just just assume our current kind of apples to apples borrowing base for a prospect of $175 million.
And we may advance up to $75 million and earn a very attractive.
Rental rate on that by the way.
And that helps facilitate.
The next steps for ultimately monetizing a monetizing managed care and be stabilizing and improving the California hospitals.
Got it. Thank you really appreciate the color guys.
Yeah.
And our next question will come from Michael Mueller with J P. Morgan. Please go ahead with your question.
Yeah, Hi, and you talked a little bit about steward before and was wondering back I guess on the prior conference calls at the end of last year and they were you put out some benchmarks for where you thought there EBITDA ramp was going to for 2023, and just can you give us an update there in terms of what's changed what hasn't changed.
Yeah, Mike I really don't have an update other than to say that the January numbers were good which isn't much to go on but the January numbers year over year or.
Close to $100 million.
Got it okay.
That's it thank you.
Right.
And our next question will come from John Pawlowski with Green Street Advisors. Please go ahead with your question.
Thanks for the time I have a follow up on the just the aggregate amount you expect to invest with prospect in these additional commitments and so a $50 million alone and then up to $75 million and the ABL side.
Financing are you contemplating additional support for prospect above those announce this year no. Other John then deferral of rent.
So no further cash investments for lack of a better term.
Our our plans with the prospect and we mentioned this last last quarter also and.
It includes some some deferral of rent that rent deferral whatever it may be goes into our interest in <unk> and the managed care company. So the expectation based on our valuation is.
That we would recover that.
Okay, and then turning to Stuart could you just confirm for me there was another roughly $25 million in loans provided late last year to steward and then do you expect additional cash to go to steward.
This year outside of the I guess the insurance.
Recoveries prepayment.
The last question is no we do not expect any further.
Again, I'll turn it operating support liquidity support for Stuart.
Other than what you've just described.
In redevelopment cost on the late two.
2022, there was another $28 million that we advanced this was.
Stuart had as many of our operators do they participate in.
One is supplemental program, so Stuart I had the opportunity to participate in a meaningful supplemental program.
At they didn't have to they didn't have to spend as 'twenty, we ended up being $28 million, but had they not contributed this is called the tax that was the tax part was to pay a tax of $28 million to two particular programs in return for that then the operators are reallocated some more benefit.
What's your Aries and some are not of additional government reimbursement because stewards.
Our business plan really serves two.
To a great extent lower income.
Ah patients in some areas steward has always had beneficiary so.
So by paying this $28 million Steward has has received and will receive in the near future multiples of that $28 million by virtue of the reallocation.
And so we elected to go ahead and fund that because otherwise it would just leaving money on the table.
Understood I guess I'm struggling with last quarter on this call I asked you directly have you extended Stewart additional capital and he said no and so I guess why wasn't that disclosed verbally on the call.
Don't remember that question John I do remember you ask a question that carved out prospect and steward, but.
But if you had asked a direct question like that the answer she would have been yes, I would've given you the same answer that I just did.
Okay.
One for me.
<unk> and <unk>.
Adjusted funds from operations in the quarter can you just give us a sense.
How much are noncash.
Or deferred rent and interest is in that 30 figure in the quarter.
I don't have that off the top of my head.
Yes, sorry.
Okay. Thanks for the time.
And that concludes our question and answer session I would like to turn the conference back over to Ed <unk> for any closing remarks.
Operator, and as always if you have any follow up questions don't hesitate to call drew or Tim. Thank you very much.
Yeah.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.