Q2 2024 Medical Properties Trust Inc Earnings Call
Good day and welcome to the Medical Properties Trust second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2.
Please note, today's 60-minute call is being recorded.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note that today's 60-minute call is being recorded. I would now like to turn the conference over to Charles Lambert. Please do so.
I would now like to turn the conference over to Charles Lambert. Please go ahead.
Charles Lambert: Thank you and good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2020-24 financial research. With me today are your Edward K. Aldag, Jr., Chairman, President, and Chief Executive Officer of Okusanya, Stephen Hamner, Executive Vice President and Chief Financial Officer, Kevin Hanna, Senior Vice President, Controller, and Chief Accounting Officer, and Rosa Hooper, Senior Vice President of Operations and Secretary.
Charles Lambert: Thank you and good morning.
Charles Lambert: Welcome to the Medical Properties Trust conference call to discuss our second quarter 2024 financial results.
Speaker Change: With me today are Edward K. Aldag, Jr., Chairman, President, and Chief Executive Officer of the company.
Charles Lambert: Stephen Hamner, Executive Vice President and Chief Financial Officer
Speaker Change: Kevin Hanna, Senior Vice President, Controller and Chief Accounting Officer, and Rosa Hooper, Senior Vice President of Operations and Secretary.
Unknown Executive: A press release was distributed this morning and filed on Form 8K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website, at medicalpropressures.com, in the Investor Relations section. Additionally, we're hosting a live webcast of today's call, which you can't access in that same section.
Our press release was distributed this morning and furnished on Form 8K with the Securities and Exchange Commission.
Speaker Change: If you did not receive a copy, it is available on our website at medicalpropertiestrust.com in the investor relations section.
Additionally, we're hosting a live webcast of today's call, which you can access in that same section.
Unknown Executive: During the course of this call, we will make projections in certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause our financial results in future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's 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.
Speaker Change: 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.
Speaker Change: These forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause our financial results in future events to differ materially from those expressed in or underlying such forward-looking statements.
We refer you to the company's reports filed with the Securities and Exchange Commission for discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call.
Unknown Executive: 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-gap financial measures, which should be considered in addition to and not in lieu of comparable gap 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 and also referred to our website at medicalprophystrust.com for the most directly comparable financial measures in related reconciliation. I will now turn the call over to our Chief Executive Officer, Ed Aldag.
Charles Lambert: 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.
Charles Lambert: 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.
Charles Lambert: 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.
Charles Lambert: You can also refer to our website at medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations.
Charles Lambert: I will now turn the call over to our Chief Executive Officer, Ed Aldag.
Edward Aldag: Thank you, Charles, and thanks to all of you for joining us this morning on our second quarter 2024 earnings call. I'm pleased to be joined again today by Steve Hamner, Kevin Hanna, and Rosa Hooper. Also joining the call for Q&A this morning is Jason Frey.
Ed Aldag: Thank you, Charles, and thanks to all of you for joining us this morning on our second quarter 2024 earnings call.
Speaker Change: I'm pleased to be joined again today by Steve Hamner, Kevin Hanna, and Rosa Hooper. Also joining the call for Q&A this morning is Jason Fry.
Jason Frey: Jason has been with NPT for 15 years and was recently named Managing Director of Asset Management and Underwriting. During the quarter, we continue to see positive trends across our global portfolio of hospital real estate. Consistent with what's been reported by large public operators, admissions and surgical volumes are increasing year over year, and the overall financial health of our hospitals is improving. Before Rosa discusses these portfolio trends in more detail, I would like to spend a few minutes providing an update on our capital allocation strategy, as well as Steward Health Care's ongoing Chapter 11 restructuring process.
Speaker Change: Jason has been with the NPT for 15 years and was recently named Managing Director of Asset Management and Underwriting.
Speaker Change: During the quarter, we continue to see positive trends across our global portfolio of hospital real estate.
Charles Lambert: Consistent with what's been reported by large public operators, admissions and surgical volumes are increasing year over year, and the overall financial health of our hospitals is improving.
Speaker Change: Before Rosa discusses these portfolio trends in more detail, I would like to spend a few minutes providing an update on our capital allocation strategy, as well as Steward Healthcare's ongoing Chapter 11 restructuring process.
Jason Frey: Beginning with our strategy, we indicated last quarter that we were on track to exceed our initial $2 billion target for additional liquidity in 2024. We have successfully carried the momentum forward, executing several additional transactions at attractive valuations, including the July cell of pre-standing emergency department facilities, as well as one general acute care hospital in Arizona to dignity health for approximately $160 million, or an implied cap rate of less than 7.5%. As a result, we have generated $2.5 billion in total liquidity to date and repaid all debts scheduled to mature in 2024. We remain focused on accelerating debt paydown and have several available levers to create additional liquidity, comfortably satisfying our expected maturities in 2025 and beyond.
Rosa Hooper: Beginning with our strategy, we indicated last quarter that we were on track to exceed our initial $2 billion target for additional liquidity in 2024.
Charles Lambert: We have successfully carried the momentum forward, executing several additional transactions at attractive valuations.
Charles Lambert: including the July sale of freestanding emergency department facilities, as well as one general acute care hospital in Arizona to Dignity Health, for approximately $160 million, or an implied cap rate of less than 7.5%.
Charles Lambert: As a result, we have generated $2.5 billion in total liquidity to date and repaid all debts scheduled to mature in 2024.
Charles Lambert: We remain focused on accelerating debt pay down and have several available levers to create additional liquidity comfortably satisfying our expected maturities in 2025 and beyond.
Edward Aldag: Turning to Stewart, this is understandably a complicated restructuring process involving several interested stakeholders with competing priorities. The Massachusetts market has received the most public attention to date, which is particularly unfortunate as the noise in Massachusetts has slowed down the sales process in other important markets where transitioning Stewart's ownership is expected to be more straightforward. As a reminder, the eight properties that stood and operates in Massachusetts are 50% owned by MBT through our interest in a joint venture with Macquarie infrastructure partners.
Speaker Change: Turning to Stewart, this is understandably a complicated restructuring process involving several interested stakeholders with competing priorities.
Stewart: The Massachusetts market has received the most public attention to date, which is particularly unfortunate as the noise in Massachusetts has slowed down sales process and other important markets where transitioning steward's ownership is expected to be more straightforward.
Stewart: As a reminder, the eight properties that Stewart operates in Massachusetts are 50% owned by MPT through our interest in a joint venture with Macquarie Infrastructure Partners.
Edward Aldag: These properties are also subject to a master lease agreement that's separate from all other steward properties around the country. Since early 2024, well before Stuart's Chapter 11 filing in May, we have sought to work collaboratively with Stuart and the Commonwealth to keep its hospitals functioning and minimize patient disruption through the transition to new operators, including stepping in to provide necessary capital when no other party was willing to do so. We have regularly met with the Department of Health and Human Services.
Stewart: These properties are also subject to a master lease agreement that's separate from all other steward properties around the country.
Stewart: Since early 2024, well before Stuart's Chapter 11 filing in May, we have sought to work collaboratively with Stuart and the Commonwealth to keep its hospitals functioning and minimize patient disruption through the transition to new operators.
Speaker Change: including stepping in to provide necessary capital when no other party was willing to do so.
Speaker Change: We have regularly met with the Department of Health and Human Services. We have participated in several rounds of negotiations with state officials to discuss viable solutions.
Speaker Change: We believe all of these hospitals are critical to the health care of their respective communities.
Speaker Change: And over the years, we have invested approximately $140 million over and above our original purchase price into these eight facilities to fund various infrastructure upgrades.
Rosa Hooper: We have long maintained these facilities can be run profitably by other operators, and the recent bidding process validated this belief. Quality operators, including some of the largest private hospital systems in the country, showed early interest in submitting or actually submitting bids, and contemplated various rent concession scenarios that MPT and Macquarie were willing to grant. In short, we believe there were several viable paths to keeping all eight of these hospitals open. An MPT was willing to be a part of the solution to avoid the closure of any of the hospitals. Unfortunately, the considerable volume of inaccurate negative commentary scared away or discouraged many for-profit and out-of-state operators from participating in the process.
Speaker Change: We have long maintained these facilities can be run profitably by other operators, and the recent bidding process validated this belief.
Speaker Change: Quality operators, including some of the largest private hospital systems in the country, showed early interest in submitting or actually submitted bids, contemplated various rent concession scenarios that MBT and Macquarie were willing to grant.
Speaker Change: In short, we believe there were several viable paths to keeping all eight of these hospitals open, and NPT was willing to be a part of the solution to avoid closure of any of the hospitals.
Speaker Change: Unfortunately, the considerable volume of inaccurate negative commentary scared away or discouraged many for-profit and out-of-state operators from participating in the process.
Rosa Hooper: The Commonwealth's focus seems to have been on transferring ownership of these hospitals only to in-state, not-for-profit operators, and ultimately, the regulators determine who receives the license to operate these facilities. We are deeply concerned that the recent criticism of privately owned healthcare businesses and real estate owned by reach stems from misunderstandings that will only damage access to care and employment opportunities for healthcare workers over the long term. The fact of the matter is, every dollar of a hospital's own resources that is used for real estate is a dollar that is unavailable to invest in valuable patient-facing categories, and sell leasebacks have proven over the long term to be a relatively inexpensive financing alternative compared to the other choices.
Speaker Change: The Commonwealth's focus seems to have been on transferring ownership of these hospitals only to in-state, not-for-profit operators, and ultimately, the regulators determine who receives the license to operate these facilities.
Speaker Change: We are deeply concerned that the recent criticism of privately owned health care businesses and real estate owned by REITs stems from a misunderstanding that will only damage access to care and employment opportunities for health care workers over the long term.
Speaker Change: The fact of the matter is, every dollar of a hospital's own resources that is used for real estate is a dollar that is unavailable to invest in valuable patient-facing categories.
Speaker Change: And sell leasebacks have proven over the long term to be a relatively inexpensive financing alternative compared to the other choices.
Rosa Hooper: Given the conditions currently being imposed on the sales process in Massachusetts, we believe exiting these eight properties and allowing Stewart and the Commonwealth to determine the most appropriate outcome is in the best interest of all stakeholders. Our primary objectives have always been to ensure that the health care of these communities benefits from our business model and to protect the best interests of our shareholders. We are obviously disappointed with the outcome in Massachusetts.
Speaker Change: Given the conditions currently being imposed on the sales process in Massachusetts, we believe exiting these eight properties and allowing Stewart and the Commonwealth to determine the most appropriate outcome is in the best interest of all stakeholders.
Speaker Change: Our primary objectives have always been to ensure that the health care of these communities benefits from our business model and to protect the best interests of our shareholders.
Speaker Change: We are obviously disappointed with the outcome in Massachusetts.
Rosa Hooper: But, subject to court approval, we expect positive results in Stewart's remaining markets based on the real estate agreements we have negotiated with new operators, as well as others that are close to being finalized. We urge all parties in the process to move with a greater sense of urgency for the sake of all of the local communities. I'll now turn it over to Rosa to discuss the performance trends across our portfolio.
Speaker Change: But subject to court approval, we expect positive results in Stewart's remaining markets based on the real estate agreements we have negotiated with new operators as well as others that are close to being finalized.
Speaker Change: We urge all parties in the process to move with a greater sense of urgency for the sake of all of the local communities.
Speaker Change: I'll now turn it over to Rosa to discuss the performance trends across our portfolio.
Rosa Hooper: Thank you, Ed. As usual, I will take you through some of the highlights across our diverse portfolio of critical hospital real estate, beginning with a few high-level comments. As Ed mentioned, operators across our portfolio are reporting positive volume and EBITDARM coverage trends. General Accute and Behavioral Health Facilities, which represent approximately 75% of our total assets, reported particularly notable improvement. The post-acute segment, which includes our inpatient rehabilitation and LTCH portfolios, remained flat.
Rosa: Thank you, Ed. As usual, I will take you through some of the highlights across our diverse portfolio of critical hospital real estate, beginning with a few high-level comments.
Rosa Hooper: As Ed mentioned, operators across our portfolio are reporting positive volume and EBITDARM coverage trends.
Rosa: General Acute and Behavioral Health Facilities, which represent approximately 75% of our total assets, reported particularly notable improvements.
Rosa: The post-acute segment, which includes our inpatient rehabilitation and LTCH portfolios, remained flat.
Speaker Change: In the U.K. and continental Europe , we continue to benefit from increased demand for private hospitals, an unmistakable trend over the past few years.
Rosa Hooper: In the UK and continental Europe, we continue to benefit from increased demand for private hospitals, an unmistakable trend over the past few years. For example, the Private Healthcare Information Network in the UK recently reported a 7% year-over-year increase in the incidence of patients choosing private treatment options in 2023. And the head of the NHS is reportedly urging the UK administration to allow for more collaboration with the private sector in order to alleviate the NHS backlog.
Speaker Change: For example, the Private Healthcare Information Network in the UK recently reported a 7% year-over-year increase in incidence of patients choosing private treatment options in 2023.
Speaker Change: and the head of the nhs is reportedly urging the u k administration to allow for more collaboration with the private sector in order to alleviate in hs backlogs
Rosa Hooper: Circle Health, which was recently recognized by health investors as the private hospital group of the year for the fourth consecutive year, is clearly well positioned to capitalize on this trend and continues to deliver steady financial performance. During the second order, we announced the successful completion of approximately $800 million of news, non-records, non-amortising, secured financing, backed by some of our UK assets operated by circle, further demonstrating the tremendous value embedded in our UK portfolio.
Speaker Change: Circle Health, which was recently recognized by health investors as Private Hospital Group of the Year for the fourth consecutive year, is clearly well positioned to capitalize on this trend and continues to deliver steady financial performance.
Speaker Change: During the second quarter, we announced the successful completion of approximately $800 million of new, non-recourse, non-amortizing, secured financing backed by some of our UK assets operated by Circle.
Speaker Change: Further demonstrating the tremendous value embedded in our UK portfolio.
Rosa Hooper: Also in the UK, Priory, which is the largest independent mental health care provider in the country and which consistently delivers more than two times the coverage, continues to take action to innovate in this space and position itself to most efficiently service the heightened demand it continues to see. To that end, they are in the second year of implementing the PRIORI plan, a comprehensive strategy for quality improvement through focusing on best-in-class services and measured outcomes.
Speaker Change: Also in the U.K.
Rosa: Priory, which is the largest independent mental health care provider in the country.
Rosa: and which consistently delivers more than two times coverage.
Rosa: continues to take action to innovate in this space and position itself to most efficiently service the heightened demand it continues to see
Speaker Change: To that end, they are in the second year of implementing the Priory Plan, a comprehensive strategy for quality improvement through focusing on best-in-class services and measured outcomes.
Rosa Hooper: In Germany, Priory's parent company, Median, is delivering steady performance, making incremental improvements through both increased occupancy and higher reimbursement rates. Turning to our U.S. portfolio, excluding steward and prospect, general acute revenue trends remain strong, benefiting from higher admissions, acuity mix, and reimbursement rates. During the quarter, we closed on our previously announced formation of a new JV with a leading institutional asset manager to hold our five Utah properties operated by Common Spirit.
Speaker Change: In Germany, Priory's parent company Median is delivering steady performance, making incremental improvements through both increased occupancy and higher reimbursement rates.
Speaker Change: Turning to our U.S. portfolio, excluding steward and prospect, general acute revenue trends remain strong, benefiting from higher admissions, acuity mix, and reimbursement rates.
Speaker Change: During the quarter, we closed on our previously announced formation of a new JV with a leading institutional asset manager to hold our five Utah properties operated by Common Spirit.
Rosa Hooper: This portfolio, in which we retain a 25% interest, is performing well, with admissions up more than 20% year-over-year. Ernest Health's consolidated EBITDAARM coverage remains stable above two times with its same store Earth delivering strong performance, partially offset by the L-Tax and new Earth development. In March, Ernest successfully opened its first inpatient rehab unit inside one of their L-TACs, and is already seeing positive results from the unit
Speaker Change: This portfolio, in which we retain a 25% interest, is performing well, with admissions up more than 20% year over year.
Speaker Change: Ernest Health's consolidated EBITDARM coverage remains stable and above two times, with its same-store earth delivering strong performance, partially offset by the LTACHs and new earth developments.
Speaker Change: In March, EARNEST successfully opened its first inpatient rehab unit inside one of their LTACHs and is already seeing positive results from the unit.
Speaker Change: This was also the second consecutive quarter in which EARNEST's New Earth Development Portfolio reported positive EBITDARM as admissions and revenues continued to ramp.
Speaker Change: Our Lifepoint Health portfolio of hospitals was a big standout this quarter, recording its highest total admissions in nearly three years. As a result, Lifepoint has realized material EBITDARM improvement over the last several months.
Speaker Change: In fact, LifePoint's EBITDARM results in May of 2024 were its highest in more than two years.
Rosa Hooper: Life Point Behavioral's operating performance also benefited from steadily increasing inpatient volumes as well as continued decreases in physician-related costs. Our prime facilities saw 3% growth in admissions year over year. This quarter, we also announced that we completed the sale to Prime of five hospitals in California and New Jersey for an aggregate consideration of $350 million. This consideration consists of $250 million paid in cash and a $100 million for a sparing mortgage.
Speaker Change: lifepoint behavioral's operating performance also benefited from steadily increaseed increasing in-patient volumes as well as continued decreases in physician-related cost
Speaker Change: Our prime facilities saw 3% growth in admissions year-over-year.
Speaker Change: This quarter, we also announced that we completed the sale to prime of five hospitals in California and New Jersey for aggregate consideration of $350 million.
Speaker Change: This consideration consists of $250 million paid in cash and a $100 million interest bearing mortgage.
Kevin Hanna: Coverage at Scions helps general acute facilities increase almost one time year over year, driven by double-digit volume increases and substantial reductions in contract labor. Finally, Prospects California facilities are seeing some positive momentum on the admission side so far this year with an approximate 2% increase year-over-year on a trailing 12-month basis. This momentum has helped California coverage rebound from last year's cyber attack. Prospect fully paid its $18 million of cash rent due from the first and second quarters, as well as $4 million of cash interest.
Speaker Change: Coverage at Scions helps general acute facilities increase to almost one time year-over-year, driven by double-digit volume increases and substantial reductions in contract labor.
Speaker Change: Finally, Prospects California facilities are seeing some positive momentum on the admission side so far this year with an approximate 2% increase year-over-year on a trailing 12-month basis.
Speaker Change: This momentum has helped California coverages rebound from last year's cyber attack.
Speaker Change: prospect fully paid its eighteen million of cash rent d from the first and second quarters as well as four million dollars of cash interest
Kevin Hanna: In summary, MPT has a well-diversified portfolio with more than 50 unique tenants operating across care settings. We are confident the steadily improving volume and cost trends we are seeing will continue to drive solid financial performance for the vast majority of the operators in our portfolio and, in turn, generate meaningful cash flows for MPT over the long term. Kevin
Speaker Change: In summary, MPT has a well-diversified portfolio with more than 50 unique tenants operating across care settings.
Speaker Change: We are confident the steadily improving volume and cost trends we are seeing will continue to drive solid financial performance for the vast majority of the operators in our portfolio and in turn generate meaningful cash flows for MPT over the long term. Kevin.
Kevin Hanna: Thank you, Rosa. This morning, we reported a gap net loss of $0.54 per share and normalized FFO of $0.23 per share for the second quarter of 2024. As mentioned in our earnings release, second quarter results included approximately $19 million of consolidated cash revenue from Stewart and $22 million from Prospect. It is worth noting that Stewart additionally continued to make full payments as relates to the Massachusetts Partnership portfolio. About 14 million dollars in the second quarter, representing MPT's share, subsequent to quarter-end, Stewart has paid for the month of July, possibly $10 million in solidator rent, and $9.5 million of consolidated rent, of which our share is 50%.
Kevin Hanna: Thank you, Rosa. This morning we reported a gap net loss of 54 cents.
Speaker Change: Thank you for joining us today for the second quarter of 2024. As mentioned in our earnings release, second quarter results included approximately $19 million of consolidated cash revenue from Stewart and $22 million from Prospect.
Speaker Change: It is worth noting that Stewart additionally continued to make full payments as it relates to the Massachusetts Partnership Portfolio.
Kevin Hanna: About $14 million in the second quarter representing MPT share.
Speaker Change: Subsequent to Quarter End, Stewart has paid for the month of July approximately $10 million in consolidated rent and $9.5 million of consolidated rent, of which our share is 50%.
Speaker Change: With regard to GNA, the increase from the first quarter is due to the timing of stock award grants, resulting in only a partial quarter
Speaker Change: of Expanse and Q1.
Speaker Change: excluding stot compensation expense gnaa is flat with a quarter and the lower than at two thousand and twenty three second quarter
Speaker Change: I will point out that the majority of this non-cash, share-based compensation expense
Speaker Change: is related to performance-based awards that will not pay out unless our share price appreciates substantially from the price on the date of the award and as of today.
Speaker Change: In April , we formed a new joint venture with a leading investment firm involving our eight hospitals in the Salt Lake City area, operated by Common Spirit. We hold an equity investment of approximately $100 million, representing our 25% share of the JV.
Speaker Change: I will also point out that we will record our share of the JV earnings on a quarterly-like basis, with the first quarter of reporting being the third quarter of 2024.
Speaker Change: Approximately $550 million in non-cash impairment charges were recorded in the quarter, primarily related to the full impairment of our equity stake in the Massachusetts partnership with Macquarie.
Kevin Hanna: These charges were estimated and recorded pursuant to U.S. GAAP accounting rules and reflect conservative assumptions regarding potential recoveries. We currently have approximately $440 million of secured non-real estate investments in Stuart and $2.3 billion in real estate that is expected to be released or sold as part of the ongoing bankruptcy process. We believe these investments are fully recoverable at this time. However, no assurances can be given that we will not have any additional impairments in future periods.
Speaker Change: these charges were estimamazing recorded pursuant to u us gaap accounting rules and reflect conserved assumptions regarding potential recoveries
Speaker Change: We currently have approximately $440 million of secured non-real estate investments in Stewart and $2.3 billion in real estate that is expected to be released or sold as part of the ongoing bankruptcy process.
Speaker Change: We believe these investments are fully recoverable at this time, however, no assurances can be given that we will not have any additional payments in future periods.
Steve Hamner: I will note a couple other adjustments to normalize FFO. First, we adjusted the book value of our investment in PHP holdings downward by approximately $163 million, based on the latest third-party independent appraisal. It is important to note, however, that this adjustment does not necessarily reflect the ultimate sales price that Prospect expects to obtain from any prospective purchasers. Second, we recorded a small favorable adjustment related to the fair value of marketable securities, such as our shares of EBITS. With that, I will turn it over to Steve for a discussion of liquidity and our overall capital allocation strategy.
Speaker Change: I will note a couple other adjustments to normalize FFO.
Speaker Change: First, we adjusted downward by approximately $163 million to book value our investment in PHP holdings based on the latest third-party independent appraisal.
Speaker Change: it is important to note however that this judgment does not necessarily reflect the ultimate sales price that prospect expects to obtain from any perspective purchasers
Speaker Change: Second, we reported a small favorable adjustment related to the fair value of marketable securities such as our shares of EBITS. With that, I will turn it over to Steve for a discussion of liquidity and our overall capital allocation strategy.
Steve Hamner: Thank you, Kevin. On our last quarterly update call, we expressed our belief that we would exceed our $2 billion full-year monetization target. And, as Ed just pointed out, we have now executed more than $2.5 billion in year-to-date transactions. Very importantly, virtually all of these, a total of roughly 50 hospital facilities in five major transactions, have been executed at very attractive valuations, whether that's based on capitalization rate, IRRs to us, real estate replacement cost, our initial investment, and almost any other valuation metric, particularly in light of the diminished values that other real estate categories have suffered during the same period.
Steve Hamner: Thank you, Kevin. On our last quarterly update call, we expressed our belief that we would exceed our $2 billion full-year monetization target. And as Ed just pointed out, we have now executed more than $2.5 billion in year-to-date transactions.
Steve Hamner: Very importantly, virtually all of these, a total of roughly 50 hospital facilities in five major transactions, have been executed at very attractive valuations.
Speaker Change: whether that's based on capitalization rate irrs to us real estate replacement cost our initial investment and almost any other valuation metric particularly in light of the diminished values that other real estate categories have suffered during the same period
Steve Hamner: These transactions have provided liquidity that we have used to pay down one and a half billion dollars of debt in the second quarter, enabling us to fully pay all 20-24 matureties and address all about 20-25 scheduled maturities. As a result of our success executing this liquidity strategy, we received overwhelming support from our bank lenders to adjust our evolving credit agreement to provide a long runway and covenant cushion as Stewart continues to pursue the sale and re-tenanting of its hospital operation.
Speaker Change: these transactions have provided liquidity that we have used to pay down one and a half billion dollars of debt in the second quarter enabling us to fully pay all two thousand and twenty four maturities and address all of our two thousand andtwentyfive schedued maturities
Speaker Change: as a result of our success executing this liquidity strategy we received overwhelming support from our bank lenders to adjust our revolving credit agreement to provide a long runway and covenant cushion as steward continues to pursue the sale and reting of its hospital operations
Steve Hamner: There is long-term value in the majority of our hospital real estate currently leased to Steward, and we expect to retain that value as we replace Steward with new tenants or sell assets to quality operators through the court-supervised restructuring process. We appreciate our lender's recognition that we do not control the timing of this process and the additional flexibility afforded by this covenant cushion during the restructuring process. We filed an AK this morning that describes key provisions of the amendment, so I will only briefly summarize a few points. First, our last quarterly call.
Speaker Change: There is long-term value in the majority of our hospital real estate currently leased to Stewart, and we expect to retain that value as we replace Stewart with new tenants or sell assets to quality operators through the court-supervised restructuring process.
Speaker Change: We appreciate our lender's recognition that we do not control the timing of this process.
Speaker Change: and the additional flexibility afforded by this covenant cushion during the restructuring process.
Speaker Change: We filed an 8K this morning that describes key provisions of the amendment, so I will only briefly summarize a few points.
Steve Hamner: We discussed a temporary waiver of the loan provision that limited the value of certain assets, least to tenants in bankruptcy, to 10% of total unencumbered assets. At that time, the waiver was effective through the end of this current quarter, the third quarter. This limitation has now been waived for 14 months through September 30, 2025. This generally means that our real estate lease to steward will remain in that calculation until then, and our expectation is that virtually all assets leased to steward will have been sold or transitioned to other operators within that period. However, assurances, we certainly expect that will happen sooner rather than later in the period.
Speaker Change: first on last quarter's call we discussed a temporary waiver of the loan provision that limited the value of certain assets leased to tenants and bankruptcy to ten percent of total unencumbered assets
Speaker Change: At that time, the waiver was effective through the end of this current quarter, third quarter.
Speaker Change: This limitation has now been waived for 14 months through September 30, 2025.
Speaker Change: This generally means that our real estate lease to steward will remain in that calculation until then, and our expectation is that virtually all assets leased to steward will have been sold or transitioned to other operators within that period.
Speaker Change: And although there are no assurances, we certainly expect that will happen sooner rather than later in the period.
Steve Hamner: Second, given our current priorities and the liquidity generated from asset sales and financing transactions already executed and available in the future, we further reduced our revolving credit commitment to $1.28 billion. We just do not need the multibillion-dollar facility that was available to us during the years of rapid and significant growth.
Speaker Change: second
Speaker Change: Given our current priorities and the liquidity generated from asset sales and financing transactions already executed and available in the future, we further reduced our revolving credit commitment to $1.28 billion.
Speaker Change: We just do not need the multi-billion dollar facility that was available to us during the years of rapid and significant growth.
Steve Hamner: Third, the amendments also provide headroom all the way through next September 2025 for certain financial companies. These modifications will preclude the need to continually evaluate and adjust the effects of the Stewart-Trendition, including sale prices, lease terms, any rent deferrals, etc. Again, these are described in this morning's 8K.
Speaker Change: Third, the amendments also provide headroom all the way through next September of 2025 for certain financial covenants. These modifications will preclude the need to continually evaluate and adjust for the effects of the steward transitions.
Speaker Change: Including sale prices, lease terms, any rent deferrals, etc.
Steve Hamner: I will highlight that the consolidated net worth covenant has been permanently adjusted to $5 billion, and that can be compared to the $6.2 billion of gap net worth we reported as of the end of the second quarter. Other changes, which are affected through September 30, 2025, are to increase the allowed total leverage to 65 percent, increase allowed unsecured leverage to 70 percent, and reduce the required unsecured interest coverage to 1.45 times. We believe that each of these commoners gives us cushion that anticipates the steward retening selling outcomes, and, as of June 30, which is the effective date of the amendment, we are well within each of them.
Speaker Change: Again, these are described in this morning's 8K. I will highlight that the consolidated net worth covenant has been permanently adjusted to $5 billion, and that can be compared to the $6.2 billion of gap net worth we reported as of the end of the second quarter.
Speaker Change: Other changes that are effective through September 30, 2025, are to increase the allowed total leverage to 65%, increase allowed unsecured leverage to 70%, and reduce the required unsecured interest coverage to 1.45 times.
Speaker Change: We believe that each of these covenants gives us cushion that anticipates the steward re-tenanting selling outcomes. And, as of June 30, which is the effective date of the amendments, we are well within each of them.
Steve Hamner: Finally, we agreed that, unless we elect to terminate the amendment provisions ahead of next September 30, we will limit to $0.08 per share per quarter the amount of cash included in our quarterly dividend payment. Based on this morning's reported quarterly results and recent market share prices, this would represent a normalized FFO payout ratio of about 35% and a dividend yield of about 7%. If our retaxable income requires a payout in excess of eight cents per quarter, our board will determine which additional dividend alternatives are most appropriate at the time.
Speaker Change: Finally, we agreed also that unless we elect to terminate the amendment provisions ahead of next September 30, we will limit to $0.08 per share per quarter the amount of cash included in our quarterly dividend payments.
Speaker Change: Based on this morning's reported quarterly results and recent market share prices, this would represent a normalized FFO payout ratio of about 35 percent and a dividend yield of about 7 percent.
Speaker Change: If our retaxable income requires a payout in excess of the 8 cents per quarter, our board will determine which additional dividend alternatives are most appropriate at the time.
Operator: These covenant amendments again are generally effective through the end of the third quarter of 2025. That is certainly not a prediction that it will take more than a year to transition our steward leased assets, but it is an indication of the assessed strength of our business, especially that of the non-steward portion of our assets. For our fixed income investors and shareholders, the key takeaway from this amendment should be that we have repeatedly proven, especially to our lenders, over the last couple of years that our hospital real estate portfolio is strong and liquid and readily available to strategically monetize in the event we elect to do so, and looking through calendar 2025 into 2026.
Speaker Change: These covenant amendments, again, are generally effective through the end of the third quarter of 2025.
Speaker Change: That is certainly not a prediction that it will take more than a year to transition our steward leased assets, but is an indication of the assessed strength of our business.
Speaker Change: especially that of the non-steward portion of our assets.
Speaker Change: For our fixed income investors and shareholders.
Speaker Change: The key takeaway from this amendment should be that we have repeatedly proven, especially to our lenders.
Speaker Change: Over the last couple of years that our hospital real estate portfolio is strong and liquid and readily available to strategically monetize in the event we elect to do so.
Speaker Change: And looking through calendar 2025 into 2026, our expectation is that we will have a stable portfolio of hospital real estate leased to key operators in their respective markets with no exposure to stewards.
Operator: Our expectation is that we will have a stable portfolio of hospital real estate leased to key operators in their respective markets with no exposure to stewards. We expect to have multiple options to satisfy maturing loans, including refinancing, additional monetization of high-value real estate, and other strategies.
Speaker Change: We expect to have multiple options to satisfy maturing loans, including refinancing, additional monetization of high-value real estate, and other strategies.
Speaker Change: And with that, I will turn it back over to the operator for questions.
Operator: Thank you. We will now begin our question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. And the first question will be from Austin Wurschmidt from KeyBank Capital Markets. Please go ahead.
Speaker Change: Thank you. We will now begin our question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2.
Speaker Change: we asked that you please limit yourself to one question and one follow-up at this time we will pause momentarily to assemble our roster
Speaker Change: And the first question will be from Austin Wurschmidt from KeyBank Capital Markets. Please go ahead.
Austin Wurschmidt: Thanks and good morning everybody. Ed, can you expand on your comments about expecting positive results in the steward, you know, from releasing the steward assets and just give us a sense of how those negotiations are going, comparing kind of the in-place contractual rent today with steward versus what you expect to achieve, and then also share, you know, what percent of the facilities leased to steward currently have an operator lined up to take over operations at the appropriate time?
Austin Wurschmidt: thanks and good morning everybody and we walk is to expand on your can you expand on your comments about expecting positive results in the steward
Austin Wurschmidt: You know, from releasing the steward assets and just give us a sense how those negotiations are going.
Speaker Change: comparing kind of the in-place contractual rent today with Steward versus what you expect to achieve. And then also share, you know, what percent of the facilities leased to Steward currently have an operator lined up to take over operations at the appropriate time.
Edward Aldag: So often, I absolutely would love to, but we're under a court confidentiality order, as are all of the other participants in this bankruptcy process, and other than my prepared remarks, that's all I can say at the moment.
Speaker Change: So, Alton, I absolutely would love to, but we're under a court confidential order, as are all of the other participants in this bankruptcy process. And other than my prepared remarks, that's all I can say at the moment.
Edward Aldag: Is there anything that you're able to share about the percent of assets that, you know, you would expect to sell out of the 2.3 billion total real estate investments?
Speaker Change: Is there anything that you're able to share about the percent of assets that you would expect to sell out of the $2.3 billion of total real estate investments?
Edward Aldag: All I can say is that there will be a combination of sales and re-tenanting.
Alton: All I can say is that there will be a combination of sales and re-tenanting.
Steve Hamner: Ok, got it, and then how should we think about what the quarterly cash rent and interest payment from Stewart should be for the third quarter?
Speaker Change: Okay, got it. And then how should we think about what the quarterly cash rent and interest payment from stewards should be for the third quarter?
Steve Hamner: Austin, Steve here. Again, it's something that is moving rapidly, literally day to day, in the bankruptcy procedures, and we simply don't have the visibility into the evolution of either assets sold or re-tenanted, and if re-tenanted, what the cash lease rate will be, if there's any deferral, if there's any ramp-up. So we simply don't have the confidence to give any precision to our prediction.
Speaker Change: Austin, Steve here. Again, it's something that is moving rapidly, literally day-to-day, in the bankruptcy procedures, and we simply don't have the visibility.
Speaker Change: into the evolution of
Speaker Change: either assets sold or re-tenanted.
Speaker Change: and if re-tenanted, what the cash lease rate will be, if there's any deferral, if there's any ramp-up.
Speaker Change: So we simply don't have the confidence to give any precision to a prediction.
Austin Wurschmidt: Thanks for the time.
Operator: And our next question is from Joshua Dennerlein from Bank of America. Please go ahead.
Speaker Change: Thanks for the time.
Speaker Change: And our next question is from Joshua Dennerlein from Bank of America. Please go ahead.
Joshua Dennerlein: Yeah, hey guys, thanks for the time. I guess just thinking through the lease rejection and the steward mass portfolio, just like how do we get comfortable that that wouldn't happen across the rest of the steward assets or maybe just even the broader portfolio if there are other BKs? Just seems like it might be like one of the easier parts of the capital structure you could like adjust or kind of wipe out if you can't flex. I'm assuming it's hard to flex labor costs for hospitals. So just kind of how can we get comfortable that that might not happen?
Joshua Dennerlein: Yeah, hey guys, thanks for the time. I guess just thinking through, like, the, the lease rejection and, uh, Stuart Mass, um...
Joshua Dennerlein: portfolio, just like how do we get comfortable that that wouldn't happen across the rest of the steward assets or maybe just even the broader portfolio if there are other BKs? Just seems like it might be like one of the easier parts of the capital structure you could like adjust.
Joshua Dennerlein: or kind of wipe out if you can't flex. I'm assuming it's hard to flex labor costs for hospitals. So just kind of how can we get comfortable that that might not happen?
Steve Hamner: So, I'll just point out, Josh, and thanks for the question, that Massachusetts is different than everything else, just by virtue of its structure, including its joint venture that we have with Macquarie. You all know that.
Joshua Dennerlein: So I'll just point out, Josh, and thanks for the question, that Massachusetts is different than everything else.
Speaker Change: Just by virtue of its structure, including it's a joint venture that we have with Macquarie, you all know that. And very importantly, there's secured non-recourse financing on those assets.
Steve Hamner: And very importantly, there is secured non-recourse financing on those assets. And that limits, of course, the true equity value is not necessarily nearly as much as the gross value of the assets. And then, again, within the constraints that Ed just described about confidentiality and mediation and so forth, we did believe there were alternatives to closing certain hospitals, and we just weren't able to work through the regulatory constraints to achieve what we thought was probably a higher value.
Speaker Change: And that limits, of course, the true equity value.
Speaker Change: is not necessarily nearly as much as the gross value of the assets. And then finally, again, within the constraints that Ed just described about confidentiality and mediation and so forth, we did believe there were alternatives.
Ed Aldag: to closing certain hospitals, and we just weren't able to work through the regulatory constraints to achieve what we thought was probably higher value.
Joshua Dennerlein: And then on the you, as you mentioned, mass situations causing some noise with potential buyers, what what is it that maybe spooked them? And like, what are they waiting for to kind of maybe come back and look at relook at some of the assets?
Speaker Change: Okay, um, and then on the, you, Ed, you mentioned mass situations causing some like, like noise with like potential buyers. What, what is it that like, maybe spooked them? And like, what are they waiting for to kind of maybe come back and look at relook at some of the assets?
Steve Hamner: Uh, Josh, maybe you misunderstood me, but that was only in regard to Massachusetts. Okay.
Speaker Change: Josh, maybe you misunderstood me, but that was only in regard to Massachusetts.
Joshua Dennerlein: Oh, okay. Okay, sure.
Josh: Oh, okay, okay, sure.
Operator: And the next question will be from Vikram Malhotra from Mizuho. Please go ahead.
Speaker Change: thanks yes
Speaker Change: And the next question will be from Vikram Malhotra from Mizuho. Please go ahead.
Vikram Malhotra: Morning, thanks for taking the questions. I guess, you know, you've talked, you've given us some, you know, thoughts around Stuart. The rest of the portfolio, you know, given sort of we're, I guess, coming close to an election, you know, there may be more changes on the regulatory front towards hospitals, you know, payments, I'm just wondering, are you able to sort of maybe give us some color on any of the other tenants that may be sort of close to kind of one times or anything that you may be monitoring from a watch list perspective, just as we model kind of the second half into 25?
Vikram Malhotra: Morning, thanks for taking the questions. I guess, you know, you've talked, you've given us some, you know, thoughts around Stuart.
Vikram Malhotra: The rest of the portfolio, you know, given sort of we're, I guess, coming close to an election, you know, there may be more changes on the regulatory front towards hospitals, you know, payments. I'm just wondering.
Speaker Change: Are you able to sort of maybe give us some color on any of the other tenants that may be sort of close to kind of one-times or anything that you may be monitoring from a watch list perspective just as we model kind of the second half into 25?
Edward Aldag: So, Vikram, there really only remains the one tenant that we talked about in the last quarter, which represents around 1% of our total portfolio. From our standpoint, the properties that we have with them continue to perform okay. They have some properties that are not associated with NPT that they're in the process of selling. And other than that, there really aren't any issues in the portfolio.
Vikram Malhotra: So Vikram, it really only remains the one tenant that we talked about in the last quarter, which represents around 1% of our total portfolio.
Vikram: From our standpoint, the properties that we have with them continue to perform okay. They have some properties that are not associated with NPT, that they're in the process of selling. And other than that, there really aren't any issues in the portfolio.
Vikram Malhotra: Okay, that makes sense. And then, you know, on the CapEx side, I think it was about 100 million. I'm just wondering, and maybe that was also development, I'm just wondering, like, on a go-forward basis, second half, and maybe if you can give some color or thoughts into 2025, how do you anticipate that CapEx, both maintenance as well as development CapEx, trending into next year? So the vast majority of that continues.
Speaker Change: Okay, that makes sense. And then just, you know, on the CAPEX side...
Speaker Change: I think it was about $100 million. I'm just wondering, and maybe that was also development, I'm just wondering, like, on a go-forward basis, second half, and maybe if you can give some color or thoughts into 2025, how do you anticipate that CapEx, both maintenance as well as development CapEx, trending into next year?
Edward Aldag: So the vast majority of that continues to be the two facilities that we have under development related to Stewart, one in Norwood and one in Texas, Arcano. You may have seen in Massachusetts that the Supreme Court ruled favorably on the definition of the storm damage there in Massachusetts. So we expect to have additional insurance relief there. We continue to have a good interest in both of those facilities on a go-forward basis and believe that they will be completed and released to someone other than stewards.
Speaker Change: So the vast majority of that continues to be the two facilities that we have under development related to Stewart, one in Norwood and one in Texas, in Texarkana. Excuse me.
Speaker Change: You may have seen in Massachusetts that the Supreme Court ruled favorably on the definition of the storm damage there in Massachusetts.
Speaker Change: So we expect to have additional insurance relief there. We continue to have good interest in both of those facilities on a go-forward basis and believe that they will be completed and released to someone other than Stewart.
Operator: And the next question is from Michael Carroll from RBC. Please go ahead.
Speaker Change: Thank you.
Speaker Change: And the next question is from Michael Carroll from RBC. Please go ahead.
Michael Carroll: Yeah, thanks. I'm just following up on your last comment regarding the Norwood Hospital Ed. I guess those insurance proceeds have been kind of stuck in court for some time now. I mean, do you need to go through the appeal process? I guess what's the timing of that happening? And is there a potential of a settlement occurring where you can get those proceeds sooner?
Michael Carroll: Yeah, thanks. I'm just following up on your last comment regarding the the Norwood Hospital Ed. I guess those insurance proceeds, I know it's been kind of stuck in court for some time now. I mean, do you need to go through the appeal process? I guess, what's the timing of that happening and is there a potential of a settlement occurring where you can get those proceeds sooner?
Edward Aldag: So you're right, we do have to go back to the lower courts. The Supreme Court ruled in our favor on the definition of the storm damage, and I am not going to try to make a guess on what the next timing will be. It was a very favorable ruling for us.
Speaker Change: So you're right, we do have to go back to the lower courts. The Supreme Court ruled in our favor on the definition of the storm damage, and I am not going to try to make a guess on what the next timing will be. It was a very favorable ruling for us.
Michael Carroll: Okay, great. And then I just wanted to touch on the credit facility amendment. And the AK mentioned that NPW is required to repay outstanding amounts from certain proceeds from asset sales and debt transactions. What does that mean?
Speaker Change: Okay, great.
Speaker Change: and then just wanted to touch on the credit facility amendment in the a k mentioned that pws required to repay outstanding amounts from certain proceeds from asset sales and debt transactions
Speaker Change: I mean, what does that mean? I mean, if you have a big asset sale, does 100% of those proceeds need to go pay down that credit facility? And can you pool in that credit facility right now? Is there any limitations on you pooling additional funds from the availability onto the facility?
Steve Hamner: I mean, if you have a big asset sale, does 100% of those proceeds need to go pay down that credit facility? And can you pull on that credit facility right now? Are there any limitations on you pulling additional funds from the available from the availability onto the facility?
Michael Carroll: Now, we have access to the facility. And what, you know, your initial question, a certain percentage, and I think it's public in the document we'll file, is 50% of net cash proceeds from certain future asset sales. And initially, you're targeted to pay down, you may recall we have a Sterling-based term loan that's due in January. So that will be prepaid with any additional property sale cash proceeds.
Speaker Change: No, we have access to the facility.
Speaker Change: And what, you know, your initial question, a certain percentage, and I think it's public in the document we'll file, is 50% of net cash proceeds from certain future asset sales.
Speaker Change: Initially you're targeted to pay down, you may recall we have a sterling-based term loan that's due in January , so that will be prepaid with any additional property sale cash proceeds.
Steve Hamner: But you don't lose the capacity once you pay down the availability? On the line, that's correct.
Speaker Change: But you don't lose the capacity once you pay down the availability?
Michael Carroll: On the line, that's correct. Yes, just to be clear, staying down the Sterling Turnlein, that's permanent, goes that gap matured on January 25, but staying down on the line, we have full access to redraw under the line.
Speaker Change: On the line, that's correct. Yes. Just to be clear, paying down the Sterling term loan, that's permanent because that matures in January 25. But paying down on the line, we have full access to redraw under the line.
Operator: And the next question is from Mike Mueller from J.P. Morgan. Please go ahead.
Speaker Change: But yeah, thanks.
Speaker Change: And the next question is from Mike Mueller from J.P. Morgan. Please go ahead.
Mike Mueller: Yeah, hi. Since it seems like you can't talk about the go-forward mix of sales versus releasing for Steward, can you remind us, like, at the beginning of this, what was the total investment when Steward filed? You know, what have you addressed of that investment amount so far? And, you know, what do you have definitively locked up? And I guess, you know, including the givebacks as well.
Mike Mueller: Yeah, hi, since it seems like you can't talk about the go forward mix of sales versus releasing for steward.
Mike Mueller: Can you remind us, like, at the beginning of this, what was the total investment when Stewart filed? You know, what have you addressed of that investment amount so far? And, you know, what do you have definitively locked up? And I guess, you know, including the givebacks as well.
Edward Aldag: Well, Michael, the only thing that's definitively complete is that you find it, and it is not even definitively complete. We do expect that we'll relinquish our interest in Massachusetts, but even that is not something to definitive agreement yet.
Speaker Change: Well, Mike, the only thing that's definitively complete, and it's not even definitively complete, we do expect...
Mike Mueller: that
Speaker Change: We'll relinquish our interest in Massachusetts, but even that is not subject to definitive agreement yet.
Mike Mueller: Got it. So it's basically that. And then, second question, any update you can give us on, I guess, with Prospect, the Yale sale, back and forth, and anything on the monetization timing for the managed care business?
Speaker Change: Okay.
Speaker Change: Got it. So it's basically that. And then second question, any update you can give us on I guess with Prospect, the Yale sale, back and forth, and anything on the monetization timing for the managed care business?
Edward Aldag: On the Connecticut Yale cell, we don't have any update, and I'm not going to make any guesses. I think it was roughly a year ago this time that I quit trying to guess what the timing of that situation was going to be. On the PHP cells, I believe they are expecting final bids this month, and then we'll pick a winner and move forward to closing.
Speaker Change: So on the Connecticut-Yale cell, we don't have any update, not going to make any guesses. I think it was roughly a year ago this time that I quit trying to guess what the timing of that situation was going to be. On the PHP cells, I believe they are expecting final bids this month, and then we'll pick a winner and move forward to closing.
Mike Mueller: Got it. Okay. Thank you.
Speaker Change: Got it. Okay. Thank you.
Operator: And the next question is from Michael Lewis with Truist Securities. Please go ahead.
Speaker Change: And the next question is from Michael Lewis with Truist Securities. Please go ahead.
Michael Lewis: Great, thank you. Ed and Steve, you both talked about the options available to you for refinancing debt or addressing debt over the next couple of years. I see about $3 billion in total in 25 and 26 at a 2.8% interest rate. Should we assume that, you know, most of that will be addressed through property sales? Or, you know, what are some of those other options that you've been exploring or that you alluded to?
Michael Lewis: Great, thank you.
Michael Lewis: And Steve, you both talked about, you know, the options available to you for refinancing debt or addressing debt over the next couple of years.
Speaker Change: I see about three billion dollars.
Speaker Change: total in 25 and 26 at a 2.8 percent.
Speaker Change: Interest Rate. Should we assume that, you know, most of that will be addressed through property sales? Or, you know, what are kind of those other options that you've been exploring or that you alluded to?
Steve Hamner: Well, the options are existing liquidity, we've talked about that, further asset sales if necessary, although we have nothing to discuss or announce at this point. At some point, we do expect to be able to refinance, and then, you know, normal, conventional refinancing, replacement, as we get through the uncertainty of the Stewart situation.
Speaker Change: early the options are our existing liquidity we ve talked about that
Speaker Change: Further asset sales, if necessary, although we have nothing to discuss or announce at this point. At some point, we do expect to be able to refinance.
Speaker Change: And, you know, normal, conventional refinancing, replacement as we get through the uncertainty of the Stewart situation.
Michael Lewis: You think property prices are that, or maybe it's too early; you don't know what the public market is. We have no further plans for that. We certainly have capacity. You saw what we were able to achieve on the circle last time. That's a sub 7%, six, 10 year non-amortizing loan. More that is available, but that's not our number one or number two or probably number three priority. We'd like to come out of this after resolving stewardship, remaining, and unsecured borrowers, but those values certainly are available. I guess that's the point.
Speaker Change: You think property level debt, or maybe it's too early, you don't know what the public market will offer? We have no further plans for that. We certainly have capacity. You saw what we were able to achieve on the Circle assets, a sub-7% fixed 10-year.
Speaker Change: Non-Advertising Loan.
Speaker Change: More of that is available, but that's not our number one or number two or probably even number three priority. We'd like to come out of this after resolving Stewart, remaining an unsecured.
Speaker Change: We have a number of levers that we've already pulled, exceeding ours and frankly anybody's expectations in frankly six months.
Michael Lewis: More of those levers are available, but we also believe that we'll be able to address 26 and beyond maturities with more conventional means.
Speaker Change: Okay, understood. And then my second question, just on the liquidity transactions you've already done, the $2.5 billion plus,
Speaker Change: What, you know, is the quality and the yield of those assets kind of representative of the rest of the portfolio? And I'm thinking a little about, you know, if the sales are, you know, strengthening or weakening the overall, you know, risk and growth profile of the portfolio.
Michael Lewis: No, I don't think so. And I think if you look back across, you know, going all the way back into early 2023, which would include the Australian transaction, we've sold assets across the globe, across our property type spectrum, across the operator type, and gotten a very, very good sample of the overall portfolio. And as I pointed out earlier, in every situation, in every one of those transactions, we've achieved very, very strong valuations.
Speaker Change: No, I don't I don't think so. And I think if you if you look back across, you know, going all the way back into early 2023, which which would include the Australian transaction.
Speaker Change: We've sold assets across the globe, across our property type spectrum, across the operator type, and gotten a very, very good sample of the overall portfolio. And as I pointed out earlier,
Michael Lewis: And I don't think, in fact, I feel confident that we haven't diminished the overall quality of the remaining portfolio. That was really the point of my comment, that if we need to, if we strategically decide to sell more, we think we have a very, very strong portfolio that would achieve a similar valuation. I think that was the point of your question.
Speaker Change: In every situation, in every one of those transactions, we've achieved very, very strong valuation.
Speaker Change: And I don't think, in fact I feel confident that we haven't diminished the overall quality.
Speaker Change: of the remaining portfolio.
Speaker Change: That was really the point of my comment, that if we need to, if strategically we decide to sell more, we think we have a very, very strong portfolio that would achieve similar valuation. I think that was the point of your question.
Steve Hamner: Yeah, that's great. Thank you.
Speaker Change: Yeah, that's great. Thank you.
Operator: And the next question is from Omotayo Okusanya from Deutsche Bank. Please go ahead.
Michael Lewis: And the next question is from Omotayo Okusanya from Deutsche Bank. Please go ahead.
Omotayo Okusanya: Yes, good morning, everyone. I just wanted to clarify on the dividend is the way it's going to work going forward is it's going to be eight cents a quarter cash, and that's going to be the number unless of course you need to move on dividend requirements and then if there's any increment that has to get paid out then that gets paid out in some of the alternate forms such a star for something of that nature is that maybe we should be thinking about it.
Omotayo Okusanya: Yes, good morning everyone. I just wanted to clarify on the dividend. The way it's going to work going forward is it's going to be 8 cents per quarter cash.
Omotayo Okusanya: And that's going to be the number, unless, of course, you need to meet your minimum dividend requirements. And then if there's any increment that has to get paid out, then that gets paid out in some other alternative form, such as stock or something of that nature. Is that the way we should be thinking about it?
Steve Hamner: No, I don't think so, Tayo, because the next dividend hasn't been set yet. It will be set in the ordinary course.
Omotayo Okusanya: No, I don't, I don't, I don't think so, Taya, because the dividend, the next dividend hasn't been set. It will be set in the ordinary course.
Omotayo Okusanya: All we're saying is, obviously, we have to pay a dividend. We will maintain our REIT status. I think that goes without saying. And of that dividend, whatever and whenever it may be determined, only up to $0.08 a share per quarter can be in cash.
Speaker Change: All we're saying is, obviously we have to pay a dividend, we will maintain our REIT status, I think that goes without saying, and of that,
Michael Lewis: of that dividend, whatever and whenever it may be determined, only up to $0.08 a share per quarter can be in cash.
Steve Hamner: Thank you for that clarification. And then one other question I wanted to ask is just in regards to stewardship and, you know, assets that may be transitioned to other operators. How does it work? Or can you kind of walk us through how exactly it would work? You know, if Stewart again rejects the lease, and between that period of them rejecting the lease, and when you get a new operator in there, because I think you might be going through that at North Shore already in Florida.
Speaker Change: Thank you for that clarification. And then one other question I wanted to ask is just in regards to steward and, you know, assets that may be transitioned to other operators. How does it work, or if you're just going to walk us through, how exactly would it work?
Speaker Change: If Stuart again rejects the lease, between that period of them rejecting the lease and when you get a new operator in there, because I think you might be going through that at North Shore already in Florida.
Edward Aldag: So Tayo, let me remind everyone that the remaining properties are all under one master lease. So for the first steward to reject that lease, they would have to reject them all. These are very valuable properties, not just for us but for Stuart as well.
Speaker Change: So, Kyle, let me remind everyone that the remaining properties are all under one master lease. So, for the, for Stewart to reject that lease, they would have to reject them all.
Speaker Change: These are very valuable properties, not just for us, but for Stuart as well.
Omotayo Okusanya: Thank you very much.
Kyle: Gotcha. Okay.
Operator: And ladies and gentlemen, this concludes today's question and answer session. I would like to turn the conference back over to Ed Aldag for any closing remarks.
Speaker Change: And ladies and gentlemen, this concludes today's question and answer session. I would like to turn the conference back over to Ed Aldag for any closing remarks.
Edward Aldag: Thank you, Chad. And again, I appreciate everyone being on today's call. I wish we could have given you more detailed information on the Stewart bankruptcy, but I do want you to listen to what I said in my prepared remark. We feel very good about where we are and look forward to getting this resolved sooner rather than later.
Ed Aldag: Thank you, Chad. And again, I appreciate everyone being on today's call. I wish we could have given you more detailed information on the Stewart bankruptcy, but I do want you to listen to what I said in my prepared remark. We feel very good about where we are and look forward to getting this resolved sooner rather than later.
Operator: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Edward Aldag: We have participated in several rounds of negotiations with state officials to discuss Bible solutions. We believe all of these hospitals are critical to the healthcare of the respective communities. And over the years, we have invested approximately $140 million over and above our original purchase price into these eight facilities to fund various infrastructure upgrades.
Kevin Hanna: We hold an excellent investment of approximately $100 million, representing our 25% share of the JV. I will also point out that we will record our share of the JV earnings on a quarterly-like basis, with the first quarter of reporting being the third quarter of 2024. Approximately $550 million in non-cash impairment charges were recorded in the quarter, primarily related to the full impairment of our equity stake in the Massachusetts partnership with Macquarie.
Rosa Hooper: This was also the second consecutive order in which Ernest's new Earth Development Portfolio reported positive EBITDAARM as admissions and revenues continue to ramp. Our Live Point Health portfolio of hospitals was a big standout this quarter, recording its highest total admissions in nearly three years. As a result, Live Point has realized material EBITDAARM improvement over the last several months. In fact, its EBITDAARM results in May of 2024 were at their highest in more than two years.
Kevin Hanna: With regard to GNA, the increase from the first quarter is due to the timing of stock award grants, resulting in only a partial quarter of expense in the Q1, including stock compensation expense. GNA is flat with a quarter, and lower than the 2020-3 second quarter. I will point out that the majority of this non-cash share-based compensation expense is related to performance-based awards that will not pay out unless our share price appreciates substantially from the price on the day to the award and as of today. In April, we formed a new joint venture with a leading investment firm involving our eight hospitals in the Salt Lake City area operated by common spirit.
Steve Hamner: I would reiterate, we have a number of levers that we've already pulled exceeding hours and frankly anybody's expectations in, frankly, six months. More of those levers are available, but we also believe that we will be able to address 26 and beyond maturities with more conventional means. Okay, understood. And then my second question, just on the liquidity transactions, you've already done the two and a half billion plus. What, you know, is the quality and the yield of those assets kind of representative of the rest of the portfolio? And I'm thinking a little about whether the sales are, you know, strengthening or weakening the overall risk and growth profile of the portfolio.