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Good day, and thank you for standing by. And welcome to the Q1 2022 Medical Properties Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now hand the conference over to your first speaker today, Charles Lambert. Please go ahead.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2022 financial results. With me today are Edward K. Aldag, Jr. Chairman, President and Chief Executive Officer of the company; and Steven Hamner, Executive Vice President and Chief Financial Officer. Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at www.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. During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed and/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. The information being provided today is as of this date only and except as required by the federal securities laws, the company does not undertake a duty to update any such information. In addition during the course of the conference call we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Charles, and thank all of you for listening in today on our first quarter earnings call for 2022. As first quarter results continue to demonstrate, the MPT in its portfolio are in the strongest positions in our history. Our portfolio is well-diversified and performing well. Our tenants are generating strong lease coverages and are poised for a strong 2022. We have a strong balance sheet and we have more and better worldwide opportunities in both acquisitions and joint venture possibilities than ever before. I look forward to sharing with you this morning details about our portfolio and future acquisition expectations. In my overall remarks today, I will also take time to address a few other points that have been raised in recent reports and media coverage about MPT. While we typically don't respond to the various third-party reports of this nature and some of this information may seem like real estate one-on-one, we have heard from many of you our shareholders and others that we should take the opportunity to set the record straight and correct some of the erroneous information that has been published. Let me start with the EBITDARM coverage for our portfolio. First, let me point out as I have numerous times, EBITDARM in these calculations come straight from property level GAAP basis financial reports we received from our tenants, which include their annual audited financials at year-end. Except an extremely rare or unusual circumstances such as the COVID grants for 2020 and 2021 and some minor immaterial prior period updates, no adjustments have been made to these numbers. These EBITDARM numbers are trailing 12 months for the period ending 12/31/21. We use earnings before interest, depreciation, amortization, rent and management fees and the actual cash rent amounts owed to MPT. There have been a couple of recent reports from third parties outside of the company that have tried to use CMS cost report NOI numbers to show profit margins and equate that to a lease coverage comparison. CMS uses different definitions and allows different deductions for items such as depreciation, amortization, interest and other items than what is required in GAAP financial statements. Furthermore, they include all rental and lease payments and interest payments among other items. Therefore, when quoting the profit margins one must keep in mind that all MPT rent and other rent and interest has already been accounted for in those numbers. By definition, the CMS cost reports could actually show a negative profit margin and all of the rent and interest being paid at the same time. To further demonstrate this point, in the supplement to our filings this morning, we have provided individual tenant coverages for our portfolio. For the small percentage of operators that do not provide detailed quarterly financial results at the hospital level, we have provided the credit profile of those tenets. Now I want to take a few moments to go through some of our larger tenants. I'll start with Steward. Steward has kept coverage ratios at or above the industry standard and has remained flat close to an almost three times coverage for the past three quarters. One item of note is that the recent acquisitions in the Miami region continue to far exceed our original expectations. And just as a reminder, the HCA Utah transaction is projected to close by the end of the second quarter of this year. Notwithstanding, the value we have generated from Steward being one of our tenants, Steward accounts for an increasingly smaller portion of our portfolio as we continue to invest domestically and internationally in non-Steward hospitals. We recognize that labor cost is a topic at the front of people's minds in this economic environment, so as I go through these tenants today, I will give an update on that per tenant. Labor cost for Steward. Steward is very active in their daily management of overall labor cost. Contract labor is down year-over-year though it has been increased slightly in the last two months. Overall, salary wages and benefits and contract labor are well below budget. They have been able to cancel and rehire contract labor as rates improve. Utility cost, they've seen some inflationary pressures but not material. Food cost, they have not seen a large increase as they have worked very hard to keep costs down through their GPO. Next, Circle in the UK, which continues to be a superb operator producing coverages that continue to exceed MPT's original projections. Post COVID, the self-pay inpatient volumes are trending between 40% to 75% above, where they were in 2019. Self-pay in the United Kingdom is a very profitable aspect of their business. Circle is seeing some labor shortages primarily with nurse staffing as a result of the spike in Omicron that called an unusually high number of nurses to be out sick or in quarantine. They are seeing some inflationary pricing pressures across supplies, utilities, food costs, et cetera, but are navigating through these and do not see it having any material impact on their budget. They expect Q1 to be in alignment with their budget. Prospect. As you've seen in various news reports, Prospect has entered into an agreement with two separate entities to acquire their Pennsylvania and Connecticut facilities. At this point, MPT has not agreed to any changes in our status as the landlord. In the meantime, Prospect has made a number of operational changes to those facilities, particularly at Crozer, which have resulted in some improvements to their operations there. The MPT continues to monitor the situation in these two states to see how any potential sale may affect us. Regarding Prospect's labor costs, they are starting to see those level off over the last month or two. They peaked around the end of January beginning of February and declining each week since. They're also seeing contract labor costs coming down $15 to $20 per hour. Utility food and other expenses have been up over the last year or so but are still somewhat in line with inflation. They have not experienced any shortages or supply chain issues and do not see any concerns with cost at this point. Next, Swiss Medical ended 2021 with strong coverage and continued its expansion inside of Switzerland. 2021 EBITDARM increased by approximately 21% year-over-year, fueled by both acquisitions and organic growth. Swiss inflation rate is one of the lowest in the developed world with March 2022 figures at 2.4%. Swiss Medical is not reporting any issues with staffing. MEDIAN. MEDIAN'S EBITDARM coverage remains steady as it has throughout the past two years. Average occupancy was approximately 2.5 points ahead of where it was last year. Q1, 2022 is expected to be in line with expectations despite COVID-related self-isolation staffing issues. Personnel costs through February 2022 are below budget but 8% up year-over-year when compared to a significantly lower staffing level in Q1 2021. Priory. Priory saw a slight decline in their coverage but still in acceptable ranges near two times. Occupancy exceeded last year and was only held back by the same labor shortages that other behavioral health facilities have experienced. Q1 2022 is expected to be in line with expectations despite these COVID-related self-isolation staffing issues. Staffing pressures have been identified as a concern with personnel costs through February being up 4%, but year-over-year only 1% over budget. Healthscope. Once again, Healthscope's coverage exceeds two times. As is the case in most of the world, all elective surgery restrictions there have been eased or lifted. Prime. Prime continues its stellar performance with coverages exceeding five times. I recently met with Prime's leadership and both MPT and Prime expressed their desire to continue to work together. We have a very long, strong and mutually respectful relationship. We're still working through the few leases that expire this summer. Steve will discuss this in more detail in just a few moments. Labor. Many of the contract nurses hired during Omicron spike were signed on a 6-month contract that will end in Q2 2022. Therefore, salary and wages and benefits and contract labor costs are expected to normalize in Q3 and Q4 of 2022. There are no concerns noted in their utilities or food cost. And finally, LifePoint. Overall LifePoint continues to perform well. Their trailing 12-month coverage was essentially flat quarter-over-quarter. Late last year LifePoint completed its merger with Kindred and the spin-off of some Kindred facilities in some of LifePoint hospitals to the new entity ScionHealth. MPT has both of these entities as tenants going forward. Labor cost. They peaked around the end of February and early March. They've seen a small, but steady decline ever since. As far as utility, food and other expenses they've seen increases over the last year so far, but not any new pressures here, fairly stable over the last couple of quarters and in line with their budgets. Since our inception MPT has prided itself on strong tenant and operator relationships including broadening and diversifying those we work with, as our businesses have grown and expanded. Our relationships are based on a strong sense of mutual trust, but also proven track records of performance and consistent delivery. Our operators have done a tremendous job over the past few years and expect -- except for some labor pressures for a few they are all close to or at record levels of EBITDARM. Even if the labor pressures don't subside, given where our operators are in their operations today, they all feel good about their overall expected outcome for 2022. An important historical note to recognize, on a cumulative basis, Medicare reimbursements to hospitals have always exceeded inflation. I spent the last five weeks on the road, visiting with most of our tenants for the first time since COVID. It is good to see everyone face-to-face and I couldn't be happier with the relationships we've built with our customers which are central to our success. Turning to our most recent acquisitions announced today. These most recent acquisitions marked MPT's entry into the Nordic nation of Finland. The Nordic countries have always been a promising target for MPT. Finland has a cooperative public private healthcare system. The private sector is extremely important to the overall Finnish healthcare system. This €178 million transaction included the acquisition of four hospitals and four distinct major metropolitan areas throughout Finland. And I know that I will not pronounce these names correctly, but Helsinki, Oulu, Turku and Kuopio, two of these hospitals are certified lead gold facilities and the other two are certified lead platinum facilities. The main tenant, again, I apologize in advance for the pronunciation, Pihlajalinna is the third largest private hospital operator in all of Finland. This transaction brings another strong operator and a new country into our already diversified portfolio. Looking forward from an acquisition's perspective, MPT continues to have top-notch opportunities all over the world. But as we have stressed for the past three quarters. we will not be making large acquisitions, if we must sell stock to do so, given our view that our stock is significantly undervalued and does not appropriately reflect what we believe the value of MPT to be. As I mentioned we believe strongly that there have been rumors and falsehoods around MPT and our business in recent months. We appreciate that like other public companies, MPT is regularly the focus of third-party reports that may express opinions about the company which may be favorable or not. However, we encourage our investors to recognize that not all market commentators or reporters are equal or right objectively without agendas. We welcome each of you to speak directly with me, Steve, Drew or Tim as we are eager to address any questions or concerns you may have. Before I turn it over to Steve, I'll say again that we believe MPT is in the strongest position in its history and we are confident about the continued value creation and the future of MPT. Steve?

Thank you, Ed. This morning we reported as widely expected normalized FFO of $0.47 per diluted share. There is only one, albeit, large adjustment that I want to point out. We reported a net gain on sale of real estate and other of about $452 million. The gross amount, of gains included approximately $600 million related to our sale of eight Steward facilities to the Macquarie joint venture, but we offset that with the accounting rules required write-off of about $125 million in unbilled straight-line rent. To be abundantly clear, this accounting adjustment has 0 impact on the collection of rent over the term of the lease. And I will take this opportunity to remind our investors and analysts that virtually all of, any, historical adjustment to straight-line rent have been for similar reasons, that is, in relation to highly profitable property sales or in relation to other re-tenanting. And in recent years these re-tenanting transactions have been primarily related to Adeptus and Alecto and by the way have been prominently and expressly described in our public disclosures. In other words, to clarify a misstatement from one recent report, these adjustments to straight-line rent are routine ordinary cores and have nothing to do with lease amendments. So for example, the $2.6 million write-off of straight-line rent shown in this quarter's FFO reconciliation, relates to the profitable sale of one of the former Adeptus hospitals mentioned in this morning's press release. Other adjustments to normalized FFO for the quarter are routine and immaterial individually and in the aggregate although, I'll be happy to address any questions during our Q&A. Our G&A expenses increased slightly due primarily to two seasonal-type reasons. Number one, during each year's first quarter we incur about five times the employer taxes and 401(k) match of the other three quarters. So in 2022's first quarter, this amount was $2.6 million versus the fourth quarter of 2021 of less than $500,000. Second, prior year compensation primarily non-executive bonus accruals are trued up and this typically results in about another $0.5 million incremental expense. There are other minor ins and outs and the only reason I mentioned these very small amounts, is to make clear that this quarter-to-quarter increase is not indicative of any change in our G&A cost structure. This morning we filed on our website a few slides that address some of the misdirection that Ed mentioned earlier. And one of those slides compares MPT's G&A to others in our peer group. I'll mention other of these slides in a few minutes. We noted in this morning's press release, that going forward we have revised our guidance methodology from our historical run rate to a more conventional calendar year estimate. Our scale as a $22 billion company and the resulting level of what is material makes this a more appropriate way to estimate near-term results than when we were much smaller. There are two primary differences. First, we will no longer project the rents to be received upon completion of development and other capital projects. Sometimes these rents are not received until two or more years into the future. So, our previous guidance included approximately $25 million in anticipated rents primarily from our development projects, even though the tenants had not commenced paying rent. That $25 million about $0.04 per share annualized is now no longer included in our new calendar 2022 guidance of between $1.78 and $1.82 per share, with the exception of the recently delivered Ernest's Bakersfield facility. Second our guidance no longer attempt to adjust for the estimated future dilutive impact of capital transactions, because the timing and source of that capital is not definitive. The calendar year 2022 FFO guidance of $1.78 to $1.82 per share includes of course the first quarter result of $0.47 that we reported this morning. It also takes into account our expectations concerning the outcome of Prime's repurchase options, for two of the five prime master leases. That outcome remains undetermined, but the dilutive impact of any likely outcome remains well within the scope of our guidance range. Actual calendar results could increase, based on acquisition activity and continued upward pressure on consumer price indices. While decreases may result from timing and quantum of any joint venture transactions or asset sales, subject to possible reinvestment opportunities. Ed made clear, on last quarter's call, and reiterated a few minutes ago, that MPT is not compelled to maintain its extraordinary last 10-year record of roughly 30% compound accretive growth funded by common stock issuances at unacceptable prices. That's why we have estimated a range of accretive acquisitions in 2022 of between $1 billion and $3 billion. We are confident the investment opportunities are there. But the ultimate volume this year will be related to the amount and timing of our access to attractively priced equity capital. We expect this capital to come from some combination of the following. Selected property sales, such as the profitable hospital sales we announced this morning. Joint venture transactions, similar to our extraordinarily attractive Macquarie-Steward deal we just closed and the 2018 Primonial-Median joint venture. We have no binding agreements to announce this morning, but we are confident based on the strong interest from well-known institutional investors who were interested in the Steward portfolio and from ongoing inquiries and solicitations from multiple investors and their advisers that we will be able to replicate these structures. I'll also remind the group that HCA's pending acquisition of Steward's Utah operations, includes the assumption by HCA of the economics of our current master lease with Steward with respect to those Utah hospitals. And I'll point out two very important considerations. First, this implies a fair value of these facilities significantly higher, than our investment in them. This of course, is testimony to MPT's underwriting and to Steward's strategic and operational expertise. And second, recall, that MPT has a put option that subject to FTC approval and closing of the transaction with Steward, allows us to sell these assets to HCA at fair value. It is currently not our expectation or our plan to exercise that option in the foreseeable future. But when compared with an alternative that would contemplate funding our growth with common stock sales at recent prices, it should make clear to anyone that, it is highly unlikely that there will be any such common issuances. So far our JV strategy has been to assemble a portfolio of well underwritten, but perhaps previously under-managed assets, seizing these assets, while our premier operator tenants improved the financial performance, and then sell an interest to our JV partners. This has been very profitable and very beneficial to our common shareholders. But we also have the ability to co-invest with joint venture partners on the front end of acquisitions and this may be another attractive strategy for capital access in periods such as recently during which these highly sophisticated and experienced joint venture partners place much higher values on our assets than does the public equity market. Finally, we continue to generate meaningful excess AFFO above our dividend payout. And in the inflationary environment that looks like, it may be with us for a while, this free capital is likely to accelerate. To the extent that, we rely on our current portfolio for continued long-term success in growing and collecting our cash rent and in using this portfolio to harvest built-in gains and access additional efficient equity capital, we have enhanced our tenant level reporting of lease coverage. On page 13 of our first quarter supplement, we have listed a significant majority of our major tenant relationships and their most recent trailing 12-month EBITDARM to lease payment coverage ratio. We think it makes abundantly clear that, our operators continue to generate EBITDARM at sector-leading ratios to leased payments, and that the unencumbered assets that may be available for joint venture or other transactions are no less financially attractive to potential partners than where our Macquarie and Primonial portfolios. Before we go to questions, I want to point out again the investor update that, we posted to the MPT website this morning, and just call your attention to a few of the slides. We presented these to correct what may have been misinterpreted based on recent third-party commentary. First, we present a summary of adjusted FFO, over the past 10 years compared to dividends paid. We have always considered and prominently displayed the AFFO metric because we, like many real estate investors think it's critically important to measure results not only based on GAAP, which includes mandated, non-cash straight-line rent, but on a measure that does not include this non-cash unbilled rent concept. As the slide says, cash cannot be engineered or manipulated. I mentioned earlier that, any straight-line rent write-offs have not been related to lease amendments, but primarily highly profitable property sales. We must have cash to pay our dividends, which have grown consistently and this cash comes from tenant operations. And by the way, we maintain a very strong payout ratio most recently in the 80% of AFFO range. To demonstrate, the sustainability of this cash-driven business plan, I already called your attention to our new disclosure in the supplemental that summarizes the coverage strength of our major tenants. But that is not to say that, even with strong local facility performance, operators will never get stressed and MPT will never need to re-tenant its facilities. Thankfully, it has happened over our 18-year history less than a handful of times. And in those rare circumstances, we have in the aggregate actually improved our financial positions. Page 7 in this morning's deck, summarizes how our specialized knowledge about hospital operations, underwriting expertise, and carefully structured master lease arrangements led to a successful, if distracting re-tenanting process in the worst of circumstances. And those circumstances included a complete termination of the existing operator, and a lengthy bankruptcy process. I'll not regurgitate the Adeptus experience as most of you are familiar with it and live through it with us. I'll just point out that we have recently sold the last of the major Adeptus hospitals both at substantial profits resulting in a quantifiable value well in excess of the $415 million investment we had made when Adeptus went into bankruptcy. A recent third-party note made much of the concept that net lease cash yields should "trend up and to the right." And of course as our slide number 8 shows that's exactly how our leases perform, virtually without exception as the chart in the top half of that slide demonstrates. And in the current inflationary environment that many economists believe will be with us for a while. That curve up and to the right will grow even steeper. But the report then implies that, there is something surprising that on a consolidated balance sheet basis MPT's gross yield is declining. I'm not going to walk this group through the evident arithmetic, because it is apparent and frankly we received not a single question about this. But in today's world, we thought we should document why gross yields come down in a compressing rate environment, while investment spreads remain healthy. Slide 9 compares two sources for the calculation of hospital operating results. Ed has already been through this. But the two methods are operators GAAP basis reporting and the collection by Medicare of the full scope of all charges that hospitals use to report to their reimbursement source. Based on GAAP reporting and the results achieved by relying on CMS reports, the comparison is on Slide 9. I'll not repeat that explanation because most analysts on this call have considered this a long time ago and already understand that the CMS numbers are not meant to arrive at true operating margins. And second, just conceptual to interpret the CMS numbers as indicative of true profitability would imply that virtually no hospital in the country is profitable. Slides 10 and 11 are included simply to address the absurd concept, proposed by a recent news article that implied that MPT consciously, deliberately overpays for real estate so seller lessees will have liquidity to pay the subsequent rent. The slide to summarize two things. First, we of course do not overpay. As demonstrated by recent highly profitable sales of these facilities to sophisticated third-party operators and investors. Second, even if one could accept that a company would execute such an overpayment strategy, the slides make clear that such overpayment would have gone to the sellers of the real estate such as the former owners of Steward or IASIS or community or tenant the parties from whom we bought the real estate and to whom was paid the sale proceeds. These parties certainly did not turn around then and pay Steward's rent out of those proceeds. The proceeds were never available to Steward for anything including rent. Slide 12 makes clear that the majority of MPT equity investments is actually $1.5 billion of hospital real estate that is owned in partnership-type vehicles. About $900 million or 60% of this is half of our MEDIAN asset and half of our Steward Massachusetts assets that are in those two joint ventures. We still own the real estate and nothing more by the way no liabilities in those structures and we still manage the real estate. The remainder is similarly owned acute care hospitals in Switzerland, Spain and Italy. The slide following details non-real estate investments. There are only two true RIDEA investments, both of which have been expressly described in detail previously. Springstone which we bought late last year and the international joint venture that bought Columbia and all other non-US opportunities and infrastructure from Steward two years ago. We have two investments in Steward. First, we have a preferred interest of $139 million. This was originally $150 million but has since been reduced by an $11 million distribution last year. While we are not free to disclose expected returns on this interest in anticipation of certain pending transactions, we can reiterate that we are highly satisfied with the likely profitability of this investment. Second, we have loaned about $360 million the initial proceeds of which went directly to Steward's former private equity owners. These proceeds redeemed from those private equity owners approximately 37% interest in Steward. And in addition to earning a current rate of interest on this loan, MPT expects to receive value equivalent to that ownership interest upon certain events. MPT has no funding or other obligations as a result of these investments. The remaining investments on the slides are self-explanatory, although I will reiterate that none of these investments obligate MPT to support hospital operations or liabilities in any way. So with that we'll wrap up our prepared remarks. It's taken a little longer than normal today but we will nonetheless open the call to questions. Operator?

Thank you. [Operator Instructions] And your first question will come from Steven Valiquette with Barclays. Your line is open.

Thanks and good morning everybody and congrats on these results in this current environment. So I hate to ask a mathematical-related question on the fly on a quarterly conference call. But I guess just to throw it out there I'm curious whether or not you guys have completed any sort of stress test calculations for your overall 2.7% EBITDARM rent coverage ratio across the entire portfolio specifically related to rising labor costs? Like for example, for every 1% incremental increase in labor costs across all your operators how much would that 1% change your EBITDARM rent coverage ratio if at all? Or how many percentage points of labor cost would it take to move that by 10 basis points from 2.7% to like a hypothetical 2.6%? So I've done a few of my own calculations and I guess I'm just curious to get your insights around this if you have any color on the fly right now? Thanks.

So Steve we haven't done that. And the primary reason would be we do not expect inflation to hit only the cost side of the income statement. It will also hit the revenue side. And Ed mentioned in his prepared remarks, the very long-term history of CMS and other hospital reimbursements staying at least even and frankly over time ahead of inflationary pressures. So we expect even in a relatively steep inflationary environment that we think we're in now that the revenue -- first of all the revenue will keep up with increases. Secondly, hospital operators especially going back if you want to go back to the financial crisis and then again more so with the COVID impact, hospital operators had demonstrated a very strong ability to manage their cost labor and otherwise to maintain their margins.

Steve as I mentioned earlier, I've met with most of our operators over the last five weeks. Obviously this was on the list of agenda in my discussions with them. None of them are overly concerned. They, obviously, all have been dealing with us for longer than just the most recent inflation increases because of the shortage in labor that we had over the last 10 years. And they've done a great job of managing them. I tried to give a little color on the largest tenants and where they are. Most of them are seeing the labor cost increases subside here in the last couple of months. But it obviously is something that we pay attention to and talk to our operators on a regular basis.

Okay, great. And then just one other real quick housekeeping question. With the disclosures this quarter around the coverage ratios by all those individual tenants that's certainly helpful. Just want to confirm, are you still planning on doing that going forward every quarter for the foreseeable future? Or is this kind of more of a one-off? I just want to get a confirmation on that one way or the other? Thanks.

No. Steve we'll do -- we'll try to do something very similar to this. You'll notice that we have two operators that didn't want their names mentioned, but we still disclose what their coverage was and we'll continue to try to continue to improve our disclosure.

Okay, great. Okay. Thanks.

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

Hey, good morning. Thank you for prepared remarks and enhanced disclosures. I see that the leverage profile did tick up a bit from last quarter and that is despite announcing over $300 million of new investments this morning. You've made it very clear that raising equity is not on the table and you'll recycle capital to fund any investments this year, which to me means unless you sell more than you buy leverage will remain pretty static or maybe improve a little bit. So is leverage temporarily running higher this year with plans to get that back down in the five to six times range say in the next 12 or 24 months? Or have leverage targets moved up and you're more comfortable at these levels given the stability of your portfolio?

Well, we are comfortable at that 6.5%. We're very comfortable by the way but that's not to say that we've changed our plan that we've been stating for quite a while and that is to reduce leverage. To get it down to a level, the primary purpose is once if you can hope that rationale returns to at least the way we look at our stock valuation and the stock valuation gets back to something where we believe is acceptable and leverage is at a level. That allows us then to react very quickly, which is one of our great competitive advantages to react very quickly to relatively large opportunities without having to drive in leverage even above the six or 6.5 times. So in other words if we're operating with leverage at five times and we have the opportunity to make a large acquisition and we can use borrowings, interim borrowings for that and maintain the leverage below six, it just gives us that much more flexibility that's much more competitive advantage. So the answer is yes. We continue to plan to see leverage come down over time. It is not something we feel like has to be done immediately. It will come as the acquisitions drive capital access and the plan to address your point Jonathan is we would over equitize future acquisitions. We would not just sell $100 of assets and buy $100 of assets necessarily.

Okay. I get the pieces there. And then maybe Ed if you could maybe clarify I think you said earlier that any impact to MPT from the Prospect sales of some of their Pennsylvania and Connecticut operations and what that means for you as a landlord is still unclear. I guess, I'm just trying to understand how that can be the case, do you not have a right as the owner of those properties to say who operates them? Do you have any sense of timing when you might have more clarity on that front?

Yeah, absolutely. We do have the right and more to the point we make the decision of whether or not we want to sell the properties. We haven't been asked to do that Jon. I think that Prospect and the two prospective buyers are still in early stages of negotiations. And so when somebody comes to us and makes us a proposal, we'll address it at that point.

Is it possible you would just keep those and swap the operator?

Well, absolutely. But as I said we haven't had any discussions with the proposed new operators at this point.

Okay. I just wanted to try and see if we can get more color. It's worth the shot. And then if I can squeeze one more in. Has the Board discussed splitting the Chairman and CEO role? We don't normally see that combined for a company of your size. So I'm curious, if that is something on the table to help improve the governance profile and if not why not? Thank you.

Jonathan, we have discussions at the Board level about all of our governance -- all the relative governance points. If you read in the proxy statement as described very well in there why the Board is comfortable with me remaining as the Chairman and the CEO. And remember, that I've been the Chairman and the CEO since the company was founded.

Yes. No, I'm aware, I just didn't know if that had been something addressed as the company has grown and increased in size and typically we do see it split. But I'll take a deeper look and look forward to talking to again soon. Thanks.

Your next question will come from Michael Carroll with RBC Capital Markets. Your line is open.

Yeah. Thanks. I wanted to touch on the current private market valuations for hospital assets. And I guess specifically has the uptick in interest rates and inflationary expectations, does that kind of affected investors' return expectations? And in turn, have you seen cap rates for hospitals trend a little bit higher over the past six months or so?

Steve, I can't hear the echo is too much. Did you hear the question?

Yeah. The question generally in case others didn't hear it, I think Mike is any notable movement in cap rates that may be in reaction to the inflationary pressures. And the simple answer is, no. I mean, it's a pretty short-term period right now. As both, Ed and I mentioned there's activity. There's opportunity for acquisitions. And I can tell you sellers are not moving off of recent cap rate levels. I'll point to another business the recently announced acquisition by Blackstone of ACC certainly didn't show any cap rate compression that one might have expected an answer to your question at least that was my personal observation Mike. That was a maybe a low 4s even reaching the four handle for pricing those assets, which I guess you could interpret as real assets in today's equity world are as attractive as ever. So that's kind of our general observation. We just did the -- in the quarter we did the Finland deal that was at a cap rate probably I would have expected the same cap rate six or 12 months ago. And by the way that was heavily marketed in a highly competitive process.

Okay. Great. Hopefully, you can hear me better. I try to change up my system. I also want -- can you talk a little bit about your current JV discussions? I know that those have been ongoing. I mean, can you kind of highlight how active those are right now? And what are investors currently saying? And has those discussions changed or advanced over the past several quarters?

No, we have nothing new to report. We continue to evaluate different parts of the portfolio. We do have preliminary discussions about specific parts of the portfolio, but nothing other than that to report. Other than I guess in conjunction with your other question Mike, certainly we're not seeing any pressure from potential partners to drive cap rates up on the sell side.

And what about like on individual assets? I know you kind of mentioned this in your prepared remarks that there are some assets that you're willing to sell or part with. I mean, how many of those are within the portfolio? I'm assuming there are some opportunistic deals. I don't know if you can talk about -- I mean, I'm assuming HCA would want to own those Utah assets? Is there something that you could do there at some pretty attractive cap rates just on the opportunistic side?

So I'll take those questions as if the two. One is yes, again, we announced this morning that we sold two general acute care hospitals that used to be in the Adeptus portfolio. Last quarter, I think we made a couple of similar announcements and then late last year. Similarly, I don't think there's any pattern and there's certainly not a list that we maintain of assets we'd like to sell. But just historically over the last few quarters, you've probably seen $100-plus million a quarter on average. That's not unreasonable to expect. Frankly, we expect a couple of more kind of one-offs in the very near term. With respect to the HCA question, it's not that whether they would want to, we have a put option. If we want to sell to HCA, once that transaction close, we have the right to put the assets to them at fair value with the floor. We haven't described the floor, but fair value will greatly exceed the floor in any case. So we have that opportunity, yes, and it's available to us. As I mentioned, it is not our plan to do that in the near term in the foreseeable future, but it is available to us.

Great. Thanks Steve.

Your next question will come from Connor Siversky with Berenberg. Your line is open.

Good morning. Thanks for having me on the call. First one is quick. I just wonder if you could provide any additional color on the lease terms for the acquisitions completed during the quarter. I'm just trying to get the puts and takes to work back to a cash yield on those acquisitions.

I think, there's four separate leases on the Finland deal. I think they are all in the range of 13 to 17 years is my recollection remaining lease term.

Roughly 15 years.

On blended average, yes.

Okay. And then just jump back to coverage real quick. I really appreciate the color -- the additional color provided there. Now just thinking into context of the inflationary pressure. So, correct me if I'm wrong here, but I think we should be working under the assumption that we should see those coverage levels kick down for Q1 2022 and probably through the end of the year. And then within that framework, I'm just wondering given the reimbursement rate hike, I think, the budget increase was $1.6 billion. Can you just provide any commentary here whether or not that's viewed favorably or unfavorably by the operator base? And then in the same vein, how is the top line on these procedures looking for private pay models? I mean, are you seeing any improvement in the reimbursement rates there?

So Connor we disagree with your original statement in there and so do our operators now. For the first quarter, February was not a great month for everyone. It's a short month obviously, and that's when you saw most of the labor spikes there. So you may see a slight downturn in coverages in the first quarter, although, I don't have numbers to back that up yet. But no one in our portfolio, none of our operators, certainly none of our major operators are expecting 2022 to have a lower EBITDARM than they had in 2020, I guess, going back to 2019. All of them -- all of these major operators ones that I discussed today are expecting that 2022 is going to be a good year for them. And was there -- did I missed the second part?

Yes. You had another question Connor about private pay was…

The reimbursements from commercial insurance was that the question?

Yes, both from CMS and commercial.

Well, from a CMS standpoint, as I stated earlier, on a cumulative basis, CMS has always exceeded the inflationary rates from the announced -- the payments that were announced for general acute care hospitals. Our operators are very pleased with those numbers. And as we all know the commercial insurance generally follows whatever CMS does.

Okay. I appreciate the color there. And then just one last quick one on the development pipeline. I noticed I think one of those projects time line got pushed out a little bit. Just wondering how rising costs of construction inputs might be affecting your yield projections.

So we haven't had any issues on existing projects that are under construction with any contractors coming back and saying they were having trouble meeting any of the original prices. That has not been an issue at all. The only issue that doesn't show up in any of these numbers is whether or not some people will continue to do development deals that they were planning to do only because we still don't have final numbers on some of those projects. They're not material. But we don't have any existing projects where anybody has come back and said that the project cost will go up. Remember, if they do -- if they did go up, our rental payment would go up as well.

Got it. Understood. Appreciate the comments.

Your next question will come from Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Good morning. This is Arthur Porto on for Austin. Just trying to understand where coverage ratios could trend HHS funds from 2021 roll off. So could we expect some impact to rent coverage this year, as the HHS runs roll off from prior periods?

As the what rolls off? Are you talking about the grants?

Yes, yes. HHS grants.

Yes. So if you look at the trailing 12 months that ended 12/31, the vast majority of those grants that are still included in that are in the first and the second quarter. So if you take out all of the grants that are still included in that, it would reduce the coverage in the basis -- excuse me, the coverage for -- a lease coverage for 2021 overall approximately 40 basis points. There is very, very little grant still remaining in the second and -- I'm sorry, the third and fourth quarter of 2021.

Great. Thanks. And just one follow-up. So given some of the recent investment activity, could we sort of expect a shift in the pipeline from Europe -- from the U.S. into Europe? And also if potentially the targeted markets or asset types and the pipeline change, if large-scale acquisitions are possibly put on hold?

Yes. Well as you said, keeping in mind that we're not going to do any large-scale acquisitions until the stock price gets back to a place where we're comfortable in selling stock. But if you look at what the pipeline is it's still what it was for the last two quarters that I reported which is roughly 50-50 international and US. The issue of when it happens is as I've stated before we can't pinpoint what the timing is, but the preponderance of the acquisitions short-term acquisitions are here in the US.

Great. Thanks, Ed.

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

Thanks so much for taking the questions. Maybe just to clarify when you said removing the grants adjust by 40 basis points is that the coverage goes down by 0.4x. Is that correct? Or am I interpreting that incorrectly?

No, that is correct. And that's the total portfolio. I don't have it broken out.

Okay. So just to clarify, I mean, I guess that the coverages are going for the third and fourth quarter. There's no provider rents and eventually it's rolling off, you still have labor pressures. To me it sounded like the HHS – sorry, the CMS increases across multiple asset types whether it was skilled or hospitals or hospice, it just seemed like they were below expectations. So -- but mathematically when you report the 12-month coverage for next quarter trailing 12 months wouldn't the coverage be down?

Yes. That's what I was trying to answer to Arthur. I do expect that the next quarter will be down slightly, but primarily due to the February -- the pressures in February and February not being a great month. But as also reported in the prepared remarks everyone has seen all of that improve for the remainder of March and April. So I expect it to just be short term.

Got it. So as the quarters roll off as you go through the year you expect it to increase that makes sense. I guess just on the question of capital availability as you look to execute on this pipeline you outlined, can you just maybe give us a bit more color on potential JVs? How is the pool of interested parties changed at all? What are they looking for? It just feels that that's become more and more of an important source of capital apart from the dispositions just given where the stock price is. So I'm wondering where are you in discussions? How close -- when can we expect something if at all?

So we're not able to predict when we might announce an agreement. I think, I answered a similar question from Mike Carroll. There's been very little change when we're talking economically with potential joint venture partners. And by that I mean if we had been having and we were having these discussions before we finish the Macquarie deal 6 months or 12 months ago I mean we're still talking in the same pricing range, cap rate range. Obviously, debt costs have come up some and that has an impact on our -- on total yield which impacts the equity cost. That's just simple arithmetic. And there's another part of your question now that...

Yes. Just overall it's a much more important part of the -- executing on your pipeline. So I guess, I'm just trying to gauge like are you -- can you tell us that you're having conversations, you're close or not at all? Right now, it just feels like it's a really important part of you executing on the pipeline.

We absolutely are having conversations. We internally the process with us starts with determining what could be the most appropriate part of the portfolio. Should we slice and dice between different types of properties, between different operators across master leases? So it's putting that together and at the same time, kind of, gauging the level of interest. But we're also having a specific direct conversations with multiple potential partners. But I'll just reiterate we're not in a position to predict when we might have something to announce.

Okay. Got it. And then just two more quick ones. Apologies, I'm new to the story. So I just want to clarify, I didn't realize that you had RIDEA exposure in some of the hospitals -- in two of the hospitals you mentioned. But is this a structure that you anticipate using more? Is it just -- was it very specific to these two deals? And can you just remind us where is that RIDEA income reported?

Yes. So a really, really good question. So why do we do these RIDEA deals? When I say RIDEA, I'm talking about as I mentioned for example the Springstone transaction. We also sometimes will make a less than 10% investment in an operator. That's not technically RIDEA. We do RIDEA I'll just explain Springstone because there is a pattern there's a reason we do it. It's not that we necessarily want to own equity in the operator but Springstone was a tremendous extraordinary platform a one of a kind that included 18 existing and several in-process new build state-of-the-art behavioral hospitals. In order for us to acquire those hospitals, that real estate, which of the total roughly $950 million price, that was 75% of it. In order for us to capture that, the seller was not willing to bifurcate out the real estate and sell to us and then go try to find another buyer for the operations. So we entered into the RIDEA transaction where we bought the whole cup. And when we've done this in the past, which frankly is very rare, we've probably done three or four in our entire history and they are all extraordinarily profitable. Going back to the very first one, it was very profitable then we did Ernest. And the outcome with Ernest was we bought 16 properties, and then we paid another $100 million, I think, for the OpCo. Today, we have a relationship with Ernest where we sold the OpCo years ago for a mid-teens unlevered IRR. And yet today, I think we own 25 or 26 properties that generate extraordinarily strong coverage and rent payments for us. So that's why we do RIDEA. It has been very profitable. But the big point is it allows us for a relatively small incremental, relatively riskless, that is incremental risk investment to acquire significant growing real estate platforms.

Okay. Great. Yeah, I might follow-up on that post the call. But just last one, just to clarify you mentioned you'll elaborate a bit on the G&A. I may have missed this, but I just want to clarify, just the overall G&A but just also in the proxy kind of exact compensation, the metrics by which you sort of are gauged in terms of those exact comp and LTIPs, the metrics, specifically, there's like an adjusted FFO number. Can you just clarify the difference between that versus what you may be reporting for earnings purposes?

So the main adjustments – and I'm sorry, but I'm a bit constrained because we're literally hours from filing our proxy, and I can't step on the proxy. But historically, the main adjustments that we make are for dilution from Board of Director approved disposition strategies. So in other words, if the Board says go do a Steward-Macquarie type joint venture, we don't get dinged, the calculation doesn't get dinged for the reduction in FFO from that. So that's one. Second is, generally, we annualize the impact of the acquisitions and the impact of the dilutive capital that we used to fund those acquisitions. So in other words, if we do a transaction on July 1, because from day 1, the rent is in place, it's 100% leased and it's collected, so we annualize that. And if we borrow money and issue shares to fund that acquisition on July 1, we also rewind that back to January 1 to reflect the dilution in FFO that per share that comes from that. That's really the only adjustments we make to what the actual numbers are.

Okay. Great. I'll probably follow up on both of these post the call. But thanks for all the additional disclosure and color.

Thank you, Vik.

Your next question will come from Omotayo Okusanya with Credit Suisse. Your line is open.

Yes. Good afternoon. I think I've done over 60 earnings calls with you guys, and this is by far the most exciting. So Steve's on fire today. Not very often I hear he does that, but he did it. Anyway, first of all, congrats on the – again, on all the disclosure, I think, again, stuff that the sell side and buy side have been covering for a long time. So it is really, really good to see that information, and I continue to kind of encourage that going forward. Guidance wise, I just wanted to make sure I fully understood what was in there given you've now switched back to guidance that's kind of more in line with how your peers provided. So you do have in there or just acquisitions that have been done year-to-date. But you don't have any prospective acquisitions in there. You don't have any prospective capital related transactions in there, but you do have some expectation of client asset sales in there mucking around Prospect and what they're doing with some other sales of the operations.

So Tayo, you're correct up until when you mentioned Prime. We do not necessarily assume that Prime is going to exercise its options to buy roughly $330-ish million of properties. We make assumptions about what we think is going to happen. We haven't disclosed what we think that is – but we have a level of confidence of our expectations. However, if we're wrong, if we're totally and completely wrong and Prime does in fact exercise its options then what we've said is the result is well within that $78 million to $82 million guidance range. On Prospect, we assume nothing on Prospect. And just to make clear what Ed said, we absolutely have the right to decide whether we sell our property or not. We've not been proposed with any potential transaction about what the sale price would be. What different lease terms may be? What's the credit of a potential replacement operator? All of those are decisions that are -- all of those are data points we take into a decision we will ultimately make about that. But in so far as guidance, there's no assumption about any property sales or lease adjustments or anything with those Prospect hospitals.

Okay. That's helpful. And then, lease coverage, again, the additional detail is great. I'm just kind of curious if we were trying to do the back of the envelope math between you guys provide EBITDA coverage for all the tenants. If we were trying to look at EBITDAR, not DARM coverage, what's kind of a good sense of -- I know all the companies have different EBITDA margins and things of that nature, but is there a way you could guide as to what EBITDAR could look like rather than the DARM?

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

Yes.

And we were the only REIT that did it that way. And so, we were getting dinged for providing more information. So we now do it the same way everybody else does. It's a little bit confusing, because some of the EBITDARM actually is inclusive of all of the corporate side of that equation. But if you just -- if you want to be ultra-conservative and we'd have to go through and figure out which ones didn't. But, a 4% management fee would probably be a very conservative calculation of that.

But that's a 4% fee on the revenue on the top line, correct?

Right.

Yes, which you don't have. So...

Yeah. Exactly, and I don't even know what the margin is exactly. So, kind of hard back into it. But I -- that's helpful. And then acquisition-wise, the $1.1 billion to $3 billion range that you kind of talked about, again, if it's not -- you've given an impression, you're not really -- you're not likely to do a very big deal this year. But again, I'm just kind of curious when you look out into the landscape I mean are the actual big deal opportunities around? And why wouldn't you consider that?

There are -- Tayo, there are great opportunities out there, but as we have stressed so hard for the last three quarters, we're certainly not going to do any of those transactions. If it means, selling stock at the prices of where we are today. But there certainly are good big opportunities out there. And hopefully, with this disclosure and this correction of some misunderstandings of the stock price, we'll see a rise in the stock price.

Got you. Excellent. Again, I think the information is great and I just really encourage you guys to do more of it going forward.

Thanks, Tayo.

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

Yeah, hi. Ed, I guess on the comment about not doing large-scale acquisitions until the stock comes back. Should we think of that as that just keeps you out of the upper end of the $1 billion to $3 billion acquisition range? Or would that keep you out of the bottom end of that range as well?

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

Okay. So, it sounds like the $1 billion to $3 billion stands based on your expectations of dispositions and JV formations, and stuff you talked about in the call outside of equity. So, you don't need the equity to come back keep the $1 billion to $3 billion guidance range. Is that the right way to think of it?

That is correct. You remember I tried to say that in the fourth quarter or in the earnings call in December and I confused everyone. Half of the people thought, I was lowering guidance and the other half thought I was selling stock. But the pipeline is extremely strong. The opportunities are good, worldwide opportunities out there. And if capital weren't an issue, we could do ranges in the range that we've done over the last six or seven years.

Got it got it. And you haven't -- it sounds like you have enough visibility on asset sales and the potential JVs to knock out that $1 billion to $3 billion. Okay.

Correct. That's correct.

That was it. I appreciate it. Thank you.

Thanks Mike.

Your next question will come from Joshua Dennerlein with Bank of America.

Yeah. Hey, everyone.

Hey, Josh.

Just kind of curious on the kind of messaging change on the JVs. Previously, it was always kind of like a you would do it after you had closed on a deal kind of created the value upfront. And now, it sounds like, if I heard correctly you would be willing to bring in a partner upfront. Just kind of -- do you kind of lose some of the value by maybe changing it up where you bring in a partner upfront or?

You do. It's a really good point, Josh, and it's the reason why we've done it the way we've done it so far. And we're not saying that we're changing that. There still remain opportunities, significant multiple opportunities to replicate kind of the Steward and the MEDIAN joint ventures that we did, where we acquire a portfolio, we seasoned it, it improved and we sell it at 100 or 200 bps less than what we're earning. That's obviously very, very attractive. Ed just now mentioned that, absent capital issues, we'd be doing -- we'd be expecting way more than $3 billion. We'd be in that -- there's a pipeline out there that we could do $4 billion or $5 billion or more billion. So the question may come that there's a real opportunity. It's a big number. And in order for us to do it in the current equity markets, we'll have to bring in a partner upfront. That's really all that I meant was that, we're not dependent long term on our growth to waiting for the stock to come back. One way or another, big acquisitions have to be funded and they have to be funded with a significant piece of equity. That equity can come from private investors or from public shareholders. And if we have to go to the private market to make a big acquisition then that's something that we think is available to us.

Okay. Do you think there's anything you could do differently, so you feel less capital constrained on using your own equity?

We could get the stock up. So --

Yes. Okay. I’ll leave it there.

Okay. Thanks, Josh.

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

Great. Thanks for keeping the call going. Apologies, if you've disclosed this before, but on the 19 Adeptus properties you sold, $135 million in realized value, could you just share the cash cap rate on those sales?

Well, I'm not sure a lot of those were empty. So, for example, of the two we just sold, that we announced this morning, one was empty. And by the way they were the two largest Adeptus properties. These were two of the three hospitals we built. They form the hub of the Adeptus hub-and-spoke system. So in order to execute that strategy Adeptus needed general acute care hospitals, one was in Houston, one was in Dallas. The one in Dallas was occupied. The one in Houston was not. So you can't put a cap rate when we didn't have any income coming in on Houston. So it's kind of a hard -- it's an impossible question to ask, but to answer, I think, if I'm understanding it correctly.

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

Yes. There's just a lot of -- and most of the value came from these two hospitals we just sold. And of the rest of the 17 hospitals, they were freestanding emergency rooms, some lease, many not. So, again, there was no market rent coming in when they were sold.

Okay. A final question for me, just so I understand the EBITDARM coverage levels by operator. So Steward 2.8 times, similar to past investor presentations, are you adding back COVID-related costs and other large corporate-related costs to get to that 2.8?

Yes. There are no add-backs to any of the EBITDARM calculations. They are all facility level revenue numbers without any adjustments made to any of them.

Okay. But if I try to marry that with the -- I think, it was a June 2021 investor presentation, where Steward's financials coverage was sub-1 times. How do I marry these two figures?

Well, yes, I think, you're referring to the corporate financial statements that were filed and the adjustments that were made to that. Is that what you're referring to?

Yes sir.

And those adjustments were non-recurring, corporate non-facility level numbers. They were primarily related to the acquisition of IASIS and some COVID numbers in there. But that is outside of the facility level numbers and similar to the question that Tayo was asking about EBITDARM versus EBITDAR.

So no John, we did not attempt. We wouldn't attempt to push down from the corporate level. For example, there was a big adjustment for electronic health records and IT that was incurred up at the top at the parent level. We didn't try to push that down to the facilities. And just by way of quick background, the reason we look at it from a facility level basis is, if something happens stay at that top parent level. So going back to your question about the 2020 financials all of the financial statements that we filed last June or July. If that were to lead to financial stress at the Steward level, what we want to be sure of when we underwrite and when we collect our rent is that if that happens and it impacts Steward operations, we can extract from Steward the hospitals we want to extract. And they should be. It's key to our entire existence. They should be profitable at the local level. That's why we do it at the local level. So for example, let's just take Utah because Steward has already agreed to sell Utah. What if something bad happened at the Steward parent level 12 months ago and we had to start taking back our facilities where we would capture those Utah assets and any others we wanted. Presumably they would be generating strong profitability, based on the local coverage that we've just reported. And we would be able to call HCA or Intermountain or some other large operator who wants to get into Utah and tell them, we're the landlord. We have these businesses. It's not just empty shell buildings. We have these businesses that are generating substantial profitability, recurring profitability. We'd like to give them to you. You don't have to -- you don't have to pay to get into a market. You don't have to ramp up. You don't have to put in a whole lot of capital. All you have to do is, take over these lease payments. Now frankly what would happen in that case is, we would just give it to them we would extract value from whoever that replacement operator is. But that's the whole concept, behind us focusing on facility level, local level coverages.

Okay. Understood. Thanks so much for the time.

And that concludes our question-and-answer session. I will now turn it back over to Ed Aldag, for closing remarks.

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