Medical Properties Trust Inc (MPW) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and Welcome to the First Quarter 2007 Medical Properties Trust, Incorporated Earnings Conference Call. My name is Carol, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Mike Stewart, Executive Vice President and General Counsel. Please proceed, sir.

Good morning. Thank you for joining the Medical Properties Trust Conference Call to review the Company's announcement yesterday regarding its results for the first quarter of 2007. With me today are Edward K. Aldag, Junior, Chairman, President and CEO of the Company, and Steven Hamner our Chief Financial Officer.

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 Federal Securities laws. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the 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 disclaims any obligation 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 refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliation.

I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Mike, and thank all of you for joining us for our 2007 first quarter earnings call. In today's call we will review the results for the first quarter and preview our expectations for the future of Medical Properties Trust. After a tremendous 2006 we are pleased with the ground work laid in the first quarter of this year to propel MPT to another great year in 2007.

Since late last year we have indicated that we expect to be able to close on an additional $200 million in investments in 2007. We've also made clear that, if we believe we can exceed this target and the right equity market existed, we would raise additional equity to allow us to meet these opportunities. Once again, our timing was very good. We raised an additional $190 million in equity in late February, just before the retreat of the rate market. Given current market conditions, our timing proved right on the mark. Steve will go through the offering and other capital related issues in a few moments.

With our announcement last night of another $50 million investment in an acute care hospital in San Diego, our total investment for 2007 thus far is $147 million. We're currently working on potential investments that could substantially increase that number in very short order. We remain highly confident that we have very good investment opportunities throughout the rest of this year.

On the operational front, the transfer of Town & Country Hospital to Memorial Hermann is essentially complete. There remain a few normal items to wrap up, but the whole Town & Country situation will now take much less of our personnel's time. Bucks County, now referred to as the DSI of Bucks County Comprehensive Breast Care Institute, admitted its first patient on April 17. They continue to gain momentum and have already done 50% more procedures in half a month than they expected for the whole first month.

As you all know, we have many properties with many different tenants and therefore they're not all cross defaulted. Some of the properties with related tenants are indeed cross defaulted, but certainly on a portfolio-wide basis the properties are not. Therefore, when trying to look at the health of these properties through EBITDAR or lease coverage ratio, it becomes hard to get meaningful metrics to analyze. So in an effort to give you a better sense of the health of our properties, rather than give you meaningless portfolio-wide lease coverages, we wanted to break out the information as follows.

Using all 17 of our properties that are fully operational, in other words not including the development properties that have just come on stream or those that are still in the LTACH demonstration period, we have only two acute care hospitals whose coverage is below three times and only one whose coverage is below 2.79 times. We have two LTACHs that are below two times and one that is below 1.8 times, and two rehabs that are below two times but only one below 1.8 times. Given the increases in annual rent, the increases in investment amounts in some properties, you really begin comparing apples and oranges when you try to track back the portfolio-wide changes from year to year. We hope the format just given gives a better understanding of the portfolio as a whole.

We will still continue to watch the Monroe Hospital situation very closely. Vibra has made terrific strides in correcting the issues of the previous management team. However, this is not going to be a quick turnaround. The primary issue there is a lack of primary care physicians. We have assigned [Will McKenzie] our Vice Chairman who has owned and operated acute care hospitals all of his adult life, direct responsibility for working with Vibra at this facility to ensure that this project can reach its full potential.

The North Cypress Medical Center in North Houston, another one of our development facilities, continues to be a grand success. It frequently runs at full capacity after only four months of operations. In fact, for the month of March they generated three times EBITDAR lease coverage. Vibra's Dallas facility will complete its LTACH demonstration for the period in late July or early August and should start contributing to their bottom line shortly thereafter.

The Vibra-Redding facility completed its conversion of 34 skilled nursing beds to LTACH beds and should start contributing to their bottom line soon. The Vibra Portland facility is completed and received its approval from the state earlier this month. Once the facility goes through its six-month LTACH demonstration period it will contributing to their bottom line. Steve will give you more details in a few moments on the original Vibra portfolio.

There has been a lot of talk and misinformation swirling around the healthcare REIT market about LTACH and the proposed, and now actual changes to their reimbursement. As most of you know, CMS issued its final ruling on the expected changes May 1st. The report was some 700 plus pages long. We and our LTACH operators and most of the rest of the healthcare world have been working to figure out exactly what it all means.

First let me point out that we have $138 million invested in LTACHs out of a total portfolio of $797 million. This is only 17% of our portfolio. Furthermore, our LTACHs only represented 21% of our total revenue for the first quarter of '07 and, with the additional acute care hospitals that we added in the first quarter and last night and the ones we will add additional this year, that percentage should go down.

As most of you have heard us say before, we have always expected the LTACH reimbursement to go down. We actually expected it to be lower than it is today, even after the most recent CMS regulations. What we didn't expect was the inclusion of the freestanding LTACHs in the so-called 25% rule. Since the rulings were published, we've been working to project the impact they will have on our facilities. Let me walk you through all nine of our LTACHs.

Two of the LTACHs have recently completed construction and are in the six-month Medicare demonstration period, seven have been in full operation for more than several years. At this time, it's difficult to fully assess the affect of the regulation on freestanding LTACHs because of the complexity of the components of the regulations. The regulations have multiple factors involved in computing reimbursement rates for an individual facility.

The three areas of focus by operators will be financial management, case management and operations management. This includes managing the interaction of such factors as the mix DRGs, short stay outliers, length of stay and referral sources. The single most significant change is the extension of the 25% threshold rule for freestanding facilities. However, in recent conversations with our operators, we do not anticipate major problems complying with the proposed threshold.

Specifically let me walk you through each one of these facilities. Warm Springs in Luling, Texas, there is no issue there. Luling receives no more than 15% of its referral from any hospital in its service area. In addition, with the urban designation it will be able to take advantage of the higher wage index. Warm Springs in Victoria, Texas, same situation with the urban designation. It has a hospital, Citizens General Hospital, that is a MSA dominant facility, which pushes the threshold to 50%. Currently the Warm Springs facility in Victoria receives 37% of its referrals from Citizens so this is not an issue.

Gulf States and Denham Springs Louisiana again has the urban designation. Its highest concentration of referrals is from 15% one general hospital followed by 10% from another; again, no issue. Gulf States Covington, Louisiana again has the urban designation. Its highest concentration of referrals is from 27% from one general hospital, only slightly above the maximum allowed 25%. We don't believe this to be an issue.

Vibra Thornton, Colorado has the urban designation. It has no issue on the 25% rule. There are ten general hospitals that serve the Denver market and refer patients to this facility. Vibra Northern California and Redding, it does have an issue. There currently is a concentration of 67% from one hospital, followed by 24% from another hospital. The MSA dominant exemption threshold is 50% from any provider here, however in our current analysis we did not assess as to whether or not these cases were high-cost outliers, which are not included in the compliance rule.

Accounting for the high-cost outliers reduces the concentration from a primary referral source. In addition, Redding has at least one year to modify their referral patterns if compliance becomes an issue. Vibra New Bedford, Massachusetts, we do have an issue there. Currently the hospital received 43% of its referrals from one hospital. Vibra Dallas, Texas, this is a new hospital and it's currently in the six-month demonstration period, with a large number of general acute care hospitals in the area, we don't anticipate that to be a problem.

Portland, Oregon has the urban designation as well. It too is a new hospital, received its license last week, it is the only LTACH provider in the area. There are nine general acute care hospitals, we don't anticipate any problem. In summary, we have two facilities that have threshold issues and only one of these serious and has 27 months to fix the problem.

In addition to these LTACH changes, CMS has recently announced proposed changes to acute hospitals and inpatient rehabilitation hospitals. While not yet final and not out long enough to understand entirely, we have briefly analyzed what affect, if any, these changes would have on MPT properties. CMS proposed PPS changes for acute care hospitals. As you know, MPT owns investments in 13 general acute care hospital properties. CMS released their 2008 proposed inpatient perspective payment system rule last month.

This rule is still in the proposal phase and the agency will be taking public comment on the rule until June 13, 2007. The rule should be published in early August and will go into effect October 1, 2007. This rule will apply to hospital discharges occurring in the period from October through September, 2008. Overall, payments will increase to hospitals by 3.3% or $3.3 billion.

There is a new proposed DRG structure. CMS is proposing to create 745 severity adjusted DRGs from the current 538. The new structure is referred to as Medicare Severity DRGs or MSDRGs. The intention is to assure that hospitals are paid more for treating sicker and more costly patients and less for patients who are less ill. On first blush, it looks like the proposed changes will be positive for orthopedic implant procedures like last year challenging for cardiac specialty hospitals.

Emergency room services, each MPT acute care hospital [per property] complies with the CMS new guidance on emergency services. CMS proposed guidance makes it clear that all hospitals must be able to evaluate persons with emergencies, provide initial treatment and refer or transfer these individuals when appropriate. We currently comply with these guidelines.

Physician owned hospitals, CMS is proposing a requirement that hospitals disclose in writing that they are physician owned and that a list of the names of all physician owners is available upon request. Physician owners would have to disclose their ownership to patients who are referred to this facility. That shouldn't be a problem for any of our facilities with physician ownership.

CMS proposed perspective payment system for inpatient rehabilitation hospitals, MPT owns four inpatient rehabilitation hospitals. CMS has issued a proposed rule for the inpatient rehabilitation facility perspective payment system that is estimated to increase Medicare payments in fiscal year '08 by approximately $150 million. CMS will be accepting comments on the proposed rule until July 2nd. The proposed rule would increase our payment rate by 3.3%, based on the rehabilitation, psychiatric and long-term care hospital market basket.

The proposed rule will continue the existing phase in to the 75% compliance threshold, a requirement that, when fully implemented, will require that at least 75% of the inpatient rehabilitation facilities total inpatient population has one of the 13 designated medical conditions for which intensive patient -- inpatient rehabilitation services are considered medically necessary.

The compliance threshold increases to 65% [for cost] reporting periods beginning during the 12-month period starting July 1st of this year; for cost reporting periods beginning on or after July 1, 2008 of compliance percentage is 75%. Rehabilitation hospitals operated by Vibra and Warm Springs, which are the only rehabilitation hospitals we have, are in compliance with the current thresholds.

In summary, we are confident that while some of our operators will have to make adjustments to their operations after these changes, our portfolio as a whole is very well positioned to continue to thrive under these proposed changes. As mentioned before, we continue to expect our portfolio to consist of approximately 60% of acute care hospitals with approximately 20% LTACH and 205 rehabilitation hospitals.

At this time I would like to call on Steve Hamner, our Chief Financial Officer, to go over the specific financial results of our first quarter, and after that we'll be glad to take questions. Steve?

Thank you, Ed. As Ed has described, the execution of our business plans in the first quarter, and in fact continuing all the way through our announcement yesterday about the Paradise Valley acquisition, was again very successful for us. From an operational perspective and with consideration of a couple of matters that we will discuss momentarily, we performed right in line with the forecast that we discussed on our last call with you in January.

Our reported earnings per share and funds from operations for the quarter were $0.24 and $0.20 respectively. As I mentioned, there were several transactions that need to be discussed in order to give investors and analysts a better picture of what the first quarter results indicate about our future operations.

First, as we have previously announced, we sold the Houston Town & Country Hospital in January. As part of accounting for this transaction, we accrued charges for certain costs that we incurred or the management company incurred to acquire control of the hospital, these costs that we may not recover. So net of these accruals we recognized a gain in the quarter of approximately $4.1 million or about $0.10 per diluted share.

We discussed our policy about this last quarter but it bears repeating that our business model does not currently include problematic or recurring sales of assets such as Town & Country, so we do not include any gains such as what we recognized from Town & Country in our calculation of FFO. We're very pleased that we've been able to realize a substantial gain on Town & Country, but it's important to remember that we do not expect gains of this magnitude or nature on an ongoing basis in the future.

Second, in February we announced a transaction whereby we sold two hospitals to their tenants, both affiliates of Prime Healthcare Services Inc., and simultaneously made mortgage loans to the tenants. We had owned one of these properties for about two years and the other for about 15 months. These transactions created two accounting results that again we do not expect to recur on an ongoing basis.

First, the sales price resulted in an aggregate to us on the sale of the properties of approximately $1.9 million or $0.04 per share. This amount however is deferred over the 15-year expected term of the related loans, so there is little recognition in any single quarter.

Secondly, we wrote off about $1.25 million in previously accrued non-cash straight-line rent. And I think we pointed this out when we announced the transaction back in February. We did not defer this charge over the loan terms but recognized it fully in the first quarter. This results in a $0.03 charge per share to net income and to FFO. And again, we do not expect this type of non-cash charge to be a normal element of our operations going forward.

The final item affecting earnings that we should discuss is executive compensation. As announced in the press release this morning, our Compensation Committee during the first quarter reevaluated executive and director compensation levels. One of the goals was to measure and reward the founders and management for the economic value added that they had created for our shareholders, specifically since our July, 2005 IPO, through the combination of dividends and increase in share value.

One result of the evaluation was the payment of cash bonuses in the first quarter in the aggregate amount of approximately $2.1 million. On a more normalized basis, this would have been and in the future will be reported over four fiscal quarters rather than just one. Over four quarters this amount would equate to about $525,000 per quarter, a difference a little more than $1.6 million or $0.04 per share from what was reported in the first quarter of 2007 and affected net income and funds from operations.

There are a few other items that may help your analysis and forecasting. Number one, general and administrative expense includes about $125,000 in TRS level taxes. Number two, G&A also includes for the quarter about $800,000 in amortization expense for share-based compensation. And finally, percentage rent from Vibra in the quarter was approximately $139,000 and we expect that level through at least the remainder of 2007. This represents about 0.5% rate on Vibra's net revenue.

It's reduced from the previously predicted 1% because Vibra has brought to us, and we have executed and acquired, acquisitions pursuant to our agreement. They're calculated to replace percentage rent with additional amounts of base rent from new acquisitions. To remind you of what we have previously discussed, the Vibra percentage will be reduced to zero at the time that the acquisition loan is paid down to $20 million, it now has a balance of about $30 million.

We will go into Q&A in just a few minutes, and we'll try to address any more detailed questions you may have about the financial statements or results that we released this morning, but before we open it to Q&A I want to go into a little bit more detail on Vibra. I'd like to point out a couple of highlights concerning our Vibra relationship. We previously announced the early partial payment of our acquisition loan to Vibra. That transaction, along with our acquisitions of non-Vibra properties, has continued to reduce the relative amount of our portfolio and revenue associated with Vibra, as Ed described earlier. In fact, Prime Healthcare Services Inc., at about 36% of our portfolio, is now our largest tenant.

Vibra now operates nine hospitals. We own the real estate of eight of those. Of those eight, five are the original hospitals that were acquired in 2004, for which Vibra borrowed from us substantially all of the acquisition price. That of course is what the loan proceed were used for. The initial loan, if you recall, was approximately $41 million and Vibra used those proceeds to buy six hospitals, one of which we have subsequently resold to Vibra.

So the loan now has a balance of approximately $30 million. Vibra's 2006 EBITDAR for these five hospitals, for which the loan financed the hospitals, was more than $25 million. Another way of saying that is that our loan balance is about 1.2 times the hospital's one-year EBITDAR. In a market where hospital operations trade for multiples much higher than 1.2 times, we remain very comfortable with our collateral value for this loan.

Vibra continues to reinvest the earnings that it retains after payment of rent and interest to us, and we believe that this reinvestment, and particularly Vibra's outstanding operating performance, will begin contributing incremental cash flows starting later this year as their newer hospitals begin to come on line, as Ed previously discussed.

And with that, Operator, we will open up the call to questions if there are any.

Thank you, sir.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Michael Mueller with JPMorgan Securities. Please proceed.

Hi, a few questions here. First Steve, can you run through, when you strip the noise out of G&A, what's the correct run rate going forward?

Mike, I think it is still what we discussed on the call last quarter, in the $2 million per quarter range is the right forecast. Now that does not include -- and if you recall we haven't included in the past, the amortization of share-based compensation. But if you take the 1.6 million of the unusual amount of the cash compensation out, and you take the roughly $125,000 of TRS taxes out, and you take the $800,000 of share-base compensation out, then you're going to be in the $2 million range per quarter and we still think that's the right number to project, at least through the remainder of 2007.

Okay. So those items will not be impacting the number going forward, the 2 million? You're going to report a 2 million number? Or, what number will be reported?

Well all other things equal, we would be reporting the 2 million, but that does not include the share-based compensation.

So that's the 525 that gets thrown on top of that?

No, 1.6 million gets taken out of that and that gets you down to a quarterly run rate on that compensation of 525.

Okay. So the reported number in Q2, theoretically, that we would see on the P&L would be what amount?

Well what you see on the P&L would be roughly 2.8, but that would include 800,000 of share-based compensation.

Okay. And that does factor in the 525 that you were talking about.

Yes, it does.

Okay. So it's about 2.8 going forward. 2 million of which --

Right, which [is] share-based compensation.

And that should carry forward into 2008 as far as you know.

Well, I think for planning all the way through 2007 that's a good number. I would expect at least nominal increases going beyond that if for nothing else just for cost of living increases.

Sure. Okay, but nothing is expected to drop off beyond that. Okay. On prior calls you talked about guidance, can you update guidance?

Well what we've said on the prior calls was, give a run rate based on the existing portfolio and not build in any acquisitions other than what we had already committed to, and I think what we said last quarter was status quo run rate for the year was $1.11. And so what that type of guidance allows us and you to do is make your own estimates about the timing of acquisitions, the issuance of any equity, the use of debt, and we think that's still the level of guidance that we want to give. So bottom line to that is we're not updating that because we think we've given the baseline for making calculations going forward.

Okay. So the baseline of at least $1.11 is before the equity offering, before the acquisitions. So that's not reflective of that, or you're keeping the same guidance after the deals we've seen and after the equity we've seen?

That's right. I think your questions were consistent, the answer is the $1.11 did not include issuance of the new equity or the acquisitions that we've announced. Now it did include the developments that were under development at that time, which included Bucks and Portland.

Okay. Is it your expectation that that $1.11 goes up, given the deal flow that you guys are talking about?

That's our expectation, yes, that it goes up. And to achieve that increase, obviously to make up for the dilution, we've got to -- I mean it remains the key determinant is acquisitions and the timing of those acquisitions. Based on the acquisitions we've made and how we feel about the near term, we do think that it will go up.

Okay. And last guidance related question here, but the $1.11, can you refresh us in terms of what is included in that in terms of, for example, Q1 you have extra G&A charges in there, is that $1.11 relating to the $0.27 you reported, or $1.11 relating to the $0.20 you reporting? And does that factor in comp costs and everything else as well, so that currently reflects the higher comp costs?

Well, the $1.11 that we projected did not include that comp cost. But when I answer your question with the answer that we expect 2007 to be better than $1.11, that obviously does include the comp cost.

Okay. So that's factoring in and counting, theoretically, a $0.20 first quarter?

Right.

A $0.20 first quarter not a $0.27 first quarter.

Right.

Okay. Just a couple of other real quick ones. You talked about Vibra and Prime, what's the percentage of revenues right now coming from each?

I'll tell you what, Mike, we pull a meaningful number, it's better to give you a number as of now rather than what the quarter numbers were.

Sure.

So why don't we go on to the next question and somebody just remind us to get back with that answer.

Okay. And then in terms of the remaining equity to be issued, can you walk through what are the parameters of that, when it needs to be taken down and kind of what's in --?

Sure. Remember we sold approximately 12 million shares in February. Now, 3 million of those shares we did not issue. We executed forward agreements with two of the investment banks for the 3 million shares. We can take those 3 million shares down generally whenever we want to, as long as we get it done by the one-year anniversary of the offering, which was late February. So we would anticipate needing to use that equity as we continue to ramp up the acquisitions in the near term and all the way through really the first quarter of 2008.

We don't have a schedule for that, we will obviously utilize the best type, most efficient type of capital as we make acquisitions, but the expectation of course then is that we will need those 3 million shares prior to February, 2008. And it's important to point out that the price for those shares is fixed. It was fixed based on the offering price of the amount of the offering that we completed back in February, which was 15 50, thereabouts, less cost.

Okay thanks.

Your next question comes from the line of Jerry Doctrow with Stifel, Nicolaus. Please proceed.

Good morning, a couple things. I wonder just on Monroe if we can get a little bit more detail. I think you had put in, if my memory serves me correctly, 4.9 million of working capital or you were committed to do that. I was wondering if that amount has changed. Can we just get a little more color on kind of what's going on there?

Steve, I don't know exactly what that number is but it will change, Jerry, it will go up some more. The situation at Monroe is that it is very flat with its occupancy, very flat with its procedural that it's doing. As I think you know, I think everybody on here knows that we changed the management of Monroe approximately two months ago and brought in the Vibra management team, reconstituted, redid the Board there with the Monroe operating entity.

The situation primarily has to do with the prior management team and some of the members of the doctors' staff there. Those issues have been addressed, Vibra is doing a very good job with addressing those issues and we feel very confident that this hospital will end up where it needs to end up. We had originally projected that that may get completed by the end of this summer, we think now that it will probably take a little bit longer than that. I hope that answers your question.

Yes. And just remind me, this is like a sale leaseback and so the rent's still getting paid but it's basically being paid out of the working capital advances.

That's correct.

It's also important to remember that we do have cash collateral for a full year's rent that we have not tapped, and probably would not unless we had to kind of make a strategic change if this particular strategy looks like it's not going to work. But we do have a full year's rent already in the bank.

Okay. And is there any concern that this will [get] consolidated up because you're providing working capital financing on the income statement? I'm trying to think of the right terminology, but you understand what I --.

Sure. Well it is a loan. You've got two issues obviously, you've got GAAP and tax, and from tax it's pretty black and white. I mean there are Safe Harbors in the tax law that really specify what's straight debt. And as long as we really do have straight debt then you do have the Safe Harbor. And we meet all the criteria for that. That's actually the more important issue is tax because obviously, if you get an equity ownership or deem to have an equity ownership in one of your tenants, that can be really, really bad for a REIT. So we don't think that's much of a risk, in fact we think it's minimal.

From the GAAP side you're really getting to the FIN 46 issue, and again Vibra in this case has made a meaningful equity injection. So they really are first in line from a fairly significant level, not only because of the cash equity injection that they made into the partnership that we're loaning this to, but also because there's outside debt and there's management fees that are subordinated.

So it's a structure very similar to the initial Vibra structure, which has passed any number of legal and tax GAAP reviews and we haven't consolidated it. Now that's not to say that people can't come in with hindsight and make you restate the accounting that everybody had approved prior, but we think we've considered that very carefully and don't think it's much of a risk, certainly from the tax perspective and really with just a little less certainty from the GAAP perspective.

Okay. But it won't go through audit probably until -- I mean has it gone through audit I guess at the end of quarter? Or, it won't really until the end of year for this sort of stuff?

You mean for --?

Like FIN 46 just --.

Oh yes absolutely.

Okay. They've looked at it for the quarter?

Yes.

Okay.

But again, just to remind you that the structure is very, very similar with the exception that we actually have more credit outside than we did with the original Vibra loan. And so KPMG, our auditors, this was not a new thing that they had to work through.

Yes okay that's helpful, thanks. On just Prime, I guess a couple questions there. I was wondering, since they are now your largest tenant, [would get any] more color on them. And I was curious whether there's anymore pipeline from them now that you've bought another hospital, and again, whether from an underwriting standpoint you're trying to diversify where you would do additional financings with either them or Vibra.

Well Jerry, as I've said before, our overall goal is not to have any of our tenants represent more than 30% of our total concentration on any long-term basis. But we've also said that we know that we'll exceed that from time to time with good opportunities. And we consider Prime to be one of those examples of a good opportunity. All of their hospitals perform exceptionally well with very high lease coverage ratios, even the facility that they've just recently acquired with us are facilities that are generating anywhere from I think a low of around 275% all the way to a high of almost a 14 times lease coverage ratio.

They are an extremely strong tenant that generates very substantial annual income and have very substantial balance sheets. We have one additional property that they have made an agreement to acquire and are awaiting Attorney General approval for that. Other than that, we don't have anything on the drawing board with them. But we also have a number of other substantial acquisitions in the very near future that will help to push their numbers down that don't involve prime.

Okay, that's helpful. And then just one or two more if I could, just in terms of acquisitions, was there anything in the 141 that has not been announced? I mean you guys put out regular press releases, I just want to make sure there wasn't something that we had missed, or has everything been out in the press releases?

No all of the 141s been out, with the most recent being the 50 million that came out last night.

Right I saw that one, okay. And then if I could just circle back to comp, I don't want to beat this to death, but I remain a little bit confused on a couple points. The amount in the quarter, the 2.1 million, was cash comp if I've got that right, and it was for cash bonuses?

Right.

And then separate from that what we've got is 800,000 per quarter in the non-cash stock-based comp and both of those things are basically in the number for the quarter?

That's correct.

Okay. And then if we think about this going forward, I guess what I'm trying to get a sense of is overall comp levels. So if we think about '08, presumably you're talking about the 525 if you stretch it out over four quarters but that's not the way accounting is done, but as we go into '08, assuming there's other cash bonuses, are we to be accruing? Or, would we expect to see sort of these one-time ops again?

No you shouldn't expect to see them again, we will be accruing. Based on the total 2.1 that was paid, we will accrue through 2007 another, I don't know whether it's be 2.1 or less, I don't think it would be higher, but what we expect to get paid in early 2008 for our 2007 performance. So the answer is no, if we accrue correctly then you should not see this kind of one-time recurring first quarter bump.

But then in terms of, just to come back to the question that was asked earlier, in terms of what the G&A is going to look like, let's just focus on second quarter for a second. G&A is going to be your 2 million base that you were talking about plus the 800,000 non-cash plus say, for argument sake, 525 or some number that'll get you an accrual for the bonus comp next year.

No, that should be build in.

That's into the 2 million.

That's in the two.

Okay. But, I guess what I'm trying to understand is what total comp is and the 2 million is sort of a big number certainly relative to your size, I'm just trying to understand why it's there and maybe more about overall comp policies perhaps.

Yes the reason, I'll let Ed address the size in just a minute, but the reason that we had the bump in the first quarter was we didn't accrue enough probably under any circumstances. We were accruing based on the guidance that the Comp Committee had given early in 2006, which had criteria that -- turned out the Comp Committee wanted to change those criteria, because it would have ended up with a very, very low compensation to the executives during a period when performance had been superior.

So throughout 2006, we accrued based on that formula. And when the Comp Committee reassessed and considered things that happened during 2006 and going all the way into 2007, for example selling the Town & Country Hospital at a gain and getting rid of the options on the prime transactions that we did in February, they changed the way the evaluated and measured what the compensation should be. And so, in that 2.1 is a pretty good piece of catch up for 2006.

Okay. And so, round numbers what were you accruing sort of in non-cash and -- I'm trying to get a sense of what you were accruing in cash for each quarter and maybe the non-cash. So there's money basically on top of this 2.1 in terms of the comp that was actually paid.

Well, I guess if you'll let me I'll get you that. But from the first quarter to the fourth, we continue to adjust the accrual of the annual bonus amount as we evaluated this formula against the actual performance or actual performance against those measures. So it was a variable amount, I will get that to you and anybody else that wants it, but I'll have to ask for a little time.

Okay. And just any [old] -- just overall comp or comp policy, because there's some stuff in the proxy as well that just talks about changes of plan doing these LLC units rather than restricted stocks. So if you could just give us a little sense of maybe the overall sort of philosophy or approach or [levels of] comp.

Sure Jerry, the amendment to the plan basically just is for tax purposes to allow each individual executive to make decisions as to whether they receive the restricted shares or LTIPS or some other type of tax advantaged unit. But it doesn't expand on what the Compensation Committee expect to give each executive, it just allows more flexibility for tax planning purposes.

The very significant majority of go-forward share-based compensation will be, I think the way it's labeled is superior performance units, whether those are restricted share units or units in the operating partnership. And that's basically what Ed was describing is the change in the plan is to be able to create these profit units in the partnership. And it's strictly for tax advantages for the executive and has no incremental cost, tax or otherwise, to the Company.

Okay.

But the overall philosophy continues to be that we will reward the executive team and the management here tied to shareholder returns and shareholder value.

And go forward, then, just Steve, in your statements we might see declines in sort of cash-based comp and increases in kind of greater shift towards stock-based comp or pseudo stock-based comp.

I believe that's absolutely possible. And one of the reasons is, again, remember this 2.1, a fair piece of that was catch up going back at least to the IPO. And nobody's interested in going through all the history of compensation and how things develop, but a piece of that is catch up. So, I don't think a 2.1 annual bonus is something that should be considered necessarily a run rate. But we will accrue toward just because, until we see the criteria that we're now measured on, which is I think almost totally limited to total shareholder return, until we see if that formula drives it up or down. But for reasons again we can go into --.

Okay I appreciate it, again, I'm just trying to understand. Thanks.

Your next question comes from the line of James Kumpel with Friedman, Billings, Ramsey. Please proceed.

Hi. I just have one question in 27 parts. The first question really relates just to those new criteria. So basically to follow up on Jerry's point, the criteria are basically going to be focused on the stock price plus the dividends, basically the total return to the shareholders as opposed discreet events like assets sales or what have you, or absolute levels of rents or FFO?

The answer is the performance measures almost totally based on total return to shareholders.

Okay. And essentially that gets reevaluated, the criteria should be consistent on a going-forward basis as opposed to being readjusted or recalibrated for the size of your portfolio?

Well that's right because, again, a very significant majority of all the upside that management and the founders can get is based on what is labeled as a multi-year plan. So shares are awarded at the beginning of that multi-year structure which has a measurement period of four years and the shares don't even begin, a portion of them at least, some are different, but a portion of them, the biggest portion, don't even begin to vest until the end of that four-year measurement period.

And, we've got to meet certain criteria for even those to begin to vest over the next three years. So, it's a total seven-year look forward and the real income, the real generation of additional value to management, comes based on measurement of total shareholder return in that four-year measurement period.

Okay. And on to just sort of an extension on that point, can you just clarify the number of people that are encompassed by the -- I guess we're at kind of a run rate at this point of about 800,000 a quarter, so can you tell us the number of people who are encompassed by that plan?

Well, the vast majority of it is to five of the senior executives, but it includes everybody in the Company.

Okay, great. Can you also just discuss cap rate trends that you're seeing for I guess it's the three different segments that you addressed, acute, rehab and LTACHs, and whether or not you think there will be changes as a result of these various tweaks in the reimbursement and regulatory environment?

Well let me start with the acute care hospital sector, I think that what we're seeing there is relatively flat [in] what it's been over the past 12 months and what we're seeing out in the near-term future. From the rehab hospital standpoint, while we haven't seen any changes there, you may see a little bit more money chasing rehab hospitals as some of the more certainty has come out and what the reimbursements for rehabs will be.

Obviously when the proposed changes to the LTACHs came out earlier this year, LTACHs became a nonexistent deal to get done, so it's hard to say what the change in the cap rate was. However I expect that you will see fewer and fewer and fewer people willing to step up to the plate to do LTACHs, particularly those that are not in the healthcare arena, which is what some of the LTACH cap rate compression came from in the past, simply because of the complexity of the situation right now. We don't have any additional LTACHs on the drawing board right now.

Could you just specify those cap rates for acute, rehab and LTACH please?

From the acute you're probably looking at between nine and 11, and for the rehabs maybe 100 basis points more than that. And, I'm just very uncertain as to what the LTACHs are right now.

Right, okay. And can you maybe just discuss at least your views of Vibra in terms of how they're changing the environment at Monroe specifically? And do you have specific metrics in place, aside from kind of the rent coverage, that you're kind of holding them to?

Well as I have said, any time anybody has ever asked me about healthcare in general, the answer to any hospital success is the involvement of the local physicians and the right mix of the local physicians. For this particular general surgery type hospital, if you don't have the primary physicians, your internists, involved or excited about the facility, you're not going to get the referrals to the specialists to do the surgeries and the other procedures that need to be done.

I've known Brad Hollinger for more than 20 years now, and his management team, and I'm not sure there's anybody better in the country at doctor relations and understanding the importance of that. Brad and his team bring a professionalism to the management of Monroe Hospital that it was badly missing with the prior management that has been received very, very well in the community. Obviously doctors are slow to make changes but the reception has been good.

We are in the process of recruiting new primary physicians not only to the hospital but to the area, the area is badly under staffed with primary physicians. And it will be somewhat of a domino effect as the primary physicians that are there begin using the facilities, as we bring in additional primary physicians and they begin using the facility, we believe that you'll see a much bigger change.

The first thing to judge though, after only two months of being there, is just the feeling that you get and the temperature that you get from the local physicians. A large number of our staff have spent many hours on the phone, many hours there in Monroe, as I mentioned earlier, Will McKenzie is devoting all of his MPT time to this project. And the feeling that we get from everybody in Bloomington is that Brad and his team have made incredible strides in changing the whole perception of the facility. So we have great expectations. Now that's going to take time to show up in the actual patients coming to the hospital.

Okay. And just as it relates to mortgage loans, can you just remind us the various inputs that led to the 105 to 225, and where you anticipate that number ending up at year end, given all your plans for the year?

Yes the big difference was the Prime transactions that we announced and described in February where we sold the owned properties back to Prime, and then put mortgage loans on those properties for a total of $120 million. Now the reason you did the mortgage loans was to get the value out of the real estate that had a very low basis to the operator without paying capital gains tax.

I mean there are alternate strategies, but there aren't any as good as structuring a straight mortgage loan where there's absolutely no question that there's sale and a taxable event. So there are very few reasons that I can think of that we have done or would consider doing mortgage loans, other than driven by tax.

Now when we structure these, we structure them to get us as close to the same economics of a sale leaseback as we have gotten under a sale leaseback. So, there's very little economic difference to us. It's clearly better if you get into a troubled situation to have ownership of the property, where you don't have to go foreclose, but we do have the right, both before there is any type of payment default, to acquire these properties or to force Prime to repay the mortgage loan. So we think we've addressed that issue and in particular with Prime because they are so strong and we do have such good collateral that risk is mitigated somewhat.

And, do you anticipate that 225 is going to be flat throughout the year? Or, do you anticipate that with some of your other projects on the docket that that's going to increase?

I would not be surprised. I guess there's nothing in the pipeline right now that we've got structures in mortgage, but I would not be surprised if it doesn't grow.

Great. Thank you very much.

Your next question comes from the line of Heath Binder with UBS. Please proceed.

Hi, it's actually Tayo from UBS, just two quick questions. Can you hear us by the way?

Yes.

With all the development now pretty much online I just wanted to talk about how you build up the development pipeline going forward. I know on the last call you were expecting that sometime this year maybe you could get about 50 million in development, do you still feel comfortable with that at this point?

We do, Tayo, we have a number of development deals that we're looking at. But as I said on the last couple of calls, we're going to be very picky about our development deals.

Okay that's very helpful, thank you very much.

Thank you, Tayo.

And sir, you have a follow-up question from the line of Michael Mueller with JPMorgan Securities. Please proceed.

Hi, just one quick follow up, sorry to beat a dead horse, but on G&A. The prior [1.11] had an expectation of some level of G&A and it seems like G&A is different than what was in there. How much relative to that prior expectation did G&A go up on this call versus last call? Is it the $0.04 or is it something greater than that?

It's clearly not the $0.04, that's apples and oranges.

Yes.

Okay.

Yes it is apples and oranges, which is why I'm kind of struggling with how to answer. But again, I'll be happy to walk you through in detail, probably better to do that on a separate call.

Okay, thanks.

Your next question is also a follow-up question from the line of Jerry Doctrow with Stifel, Nicolaus. Please proceed.

I wont ask about G&A, I promise. I just wanted to actually broaden it out a little bit, because what we've seen actually is some of your competitors in the healthcare REIT particularly that are talking much more fondly about LTACHs and some of the kind of facilities that you've done, especially hospitals and that sort of thing. So, I was just wondering if you could chat a little bit about the competitive environment. You know it sounds like some of the other guys are maybe getting into this space or trying to get into this space a little bit more.

Well Jerry, I think that's very true on the LTACHs and the rehabilitation hospitals and I think it's always been the case. We just don't happen to have any LTACHs or rehabilitation hospitals in our forward-looking pipeline right now so we haven't been out there directly competing with any of our competitors in that space. But I think that space is something that our so-called competitors certainly know a lot more about than they do of the acute care hospital setting.

From the acute care hospital setting, we're still not seeing any of the traditional healthcare REITs out there, we're still seeing primarily the healthcare lenders that I've discussed before. But we clearly expect that the other normal healthcare REIT players out there will continue to invest in particularly rehab hospitals and LTACHs. There certainly was a dead period here as we were all trying to figure out what the changes were going to look like, and clearly they will analyze them, as we have, and probably come up with the same conclusion as this is not a death sentence as some may have thought it was going to be.

Okay. And just on the acute care hospital side, and I assume that might include some MOBs as well, but just any more color about what kinds of things that are out there? I mean, I think your history I guess the way I think of it is really to identify some leading kind of private operators and sort of work closely with them. And you've also done more on the development side some physician deals, any color on what that pipeline looks like going forward in terms of types of --?

Yes, the vast majority of them will continue to be what you describe as the leading private players out there. And they will not be medical office buildings, we're not actively out there looking for any medical office buildings. If we get any medical office buildings they will be because they came to us as a part of an acute care hospital that we acquire. But I can't imagine that there would be any stand alone medical office buildings that would meet our investment criteria out there that wouldn't meet somebody else's much, much better.

Okay. And much more on the acquisition side, I guess, than development, based on what you said earlier?

That's correct.

Okay. And just is it recapitalizations or consolidations or people buying not for profits like they have been --?

It's a lot of them buying not for profits, it's a good bit of the consolidation and it's people that are making money like Prime that are able to grow their base.

Okay. All right great, thanks.

Thank you.

Sir, you have another follow-up question from the line of Heath Binder with UBS. Please proceed.

Yes it's Tayo again, a quick question, apologies if you've answered this already, but the acquisition pipeline, I know not every single deal you're looking at is going to close but have you given us a sense of just how large that could potentially be?

Well we didn't give any specific numbers, Tayo, but in the very early part of the call I indicated that, while we've done $141 million of our expected $200 million to date, we are currently working on acquisitions right now that we hope to be able to close very soon which will significantly add to that $141 million. And we obviously believe that we're going to do a good number above the $200 million, which is why we went back to the equity markets in February.

Great, thank you.

There are no additional questions at this time, I would now like to turn the call back over to management for closing remarks.

Again, thank all of you for joining us today. And as always, if you have any follow-up questions, please don't hesitate to call Steve Hamner or myself, Ed Aldag, or Charles Lambert, our Director of Finance. Thank you very much.

Thank you for joining in today's conference. You may now disconnect. Thank you and have a great day.