Medical Properties Trust Inc (MPW) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2012 Medical Properties Trust earnings conference call. My name is Clinton and I will be your operator for today.

At this time all participants are on a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

Now I would like to hand the call over to Charles Lambert, Managing Director. Please proceed, sir.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our fourth-quarter and full-year 2012 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 are 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 others 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 in or underlying 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 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 being with us today. In 2012 everything came together for MPT. All of the hard work and precise planning paid off. The capital and balance sheet planning, the personnel planning and development, the acquisitions ground work -- it all came together to produce a year of spectacular results.

In previous years we had never acquired more than approximately $425 million in any one year and, in fact, had averaged about $300 million a year. In 2012 our acquisitions and commitments exceeded $800 million.

Our normalized FFO per share for the year increased by 27%. By the fourth quarter our FFO had increased 32% year over year. Our payout ratio improved to 80% and is expected to continue to improve in 2013. Both of these metrics are almost a full year ahead of our projections and investors' expectations.

As you know, we take a very disciplined approach to our RIDEA or equity type investments. The non-Ernest RIDEA investments proved themselves this year generating returns in excess of 40% on an annualized basis for the last three quarters. The Ernest results are right in line with expectations generating an approximately 15% return on our equity type investment.

Some of the highlights of 2012 for MPT are we completed a restructuring of our investment with Prime whereby all of our leases are now under master leases. In addition to the security that a master lease provides, we also improved the annual rental increases to correspond to CPI without any limits. We completed a management agreement with St. Vincent's Health, which operates 14 hospitals in Indiana and is part of the Ascension Health Group, for the management of Monroe Hospital in Bloomington, Indiana.

We selectively sold two average assets for 27% more than their original cost, validating our investment thesis and demonstrating to the market the value of our existing portfolio. Our portfolio continued to perform well above industry standards.

The EBITDAR lease coverage ratio for our mature operations, meaning the properties have been in our portfolio for at least a year, at approximately 5 times. Nine of our facilities achieved the top performer recognition from the joint commission. We received an upgrade from Moody's in our credit rating to Ba1.

We executed several capital transactions that maintained conservative leverage levels, provided us with stability and financial flexibility, and with a record low cost of capital for MPT. We issued $100 million in unsecured term loan at 250 basis points over LIBOR. We issued $220 million in equity.

We increased the revolver by $70 million, now having a total of eight banks participating in the credit facility. We issued $200 million in 10-year unsecured bonds at 50 basis points lower than our most recent issue. MPT's total return to shareholders for 2012 was approximately 31% and was more than 85% for the last five years, placing MBT in the approximately 80th percentile of broad-based REIT indices.

Turning to our existing portfolio. We added a number of properties to the mature listing, many as they again have been in our portfolio for at least 12 months. These facilities were strong performers and our increases in coverages reflect that. However, you won't be able to do a direct comparison of the coverages announced on the third quarter call because these properties were not in those coverages and their comparisons today include their ramp-up period.

Looking first at our acute care hospital segment, on a trailing 12-month basis fourth quarter over fourth quarter our acute care EBITDAR coverage increased 12% to approximately 5.84 times. This was also a significant improvement for trailing 12 months fourth quarter over third quarter. Our LTACHs and inpatient rehabilitation hospitals, or IRFs, also saw similar improvements.

For trailing 12 months fourth quarter over fourth quarter the LTACHs improved to almost 2.5 times, or a 6%, increase and IRFs improved to almost 4 times at 3.82, or a 15%, increase. The improvement over third quarter was not quite as dramatic coming in at an increase of 2% and 6%, respectively.

So again, in an attempt to present a full picture of how well our properties are doing, with an expanding portfolio of our 22 operators only four experienced any declines in EBITDAR coverage. And those were not significant and they did not involve our two largest operators. One of the four was directly affected by Hurricane Sandy.

Regarding utilization trends for our hospitals, our acute care hospitals saw a slight increase year over year and were flat quarter over quarter. The IRFs were up slightly year over year and up about 3% quarter over quarter. LTACH utilization was down across the board, 9.6% year over year and 7.3% quarter over quarter.

For the 11-month period from January through November Ernest EBITDA is approximately 2.5% ahead of budget. Since acquiring Ernest last February we have commenced construction on two new IRFs for Ernest and completed the expansion of one of their facilities. One of these commenced operations in February and the other is expected in the third quarter of 2013.

River Oaks, now known as Twelve Oaks, completed its renovations for the vast majority of the building and our new lead tenant representing 55% of the building commenced operations on January 23. The construction and improvements turned out better than even we expected, and we believe we would not have any problems leasing the remaining approximately 45%.

Of the 10 properties that were under development in 2012, four of them commenced operations in 2012, three are expected to complete construction and commence operations in the first quarter of 2013, two in the third quarter, and one in 2014. We are delighted how our existing polio is performing and are well positioned for further accretive growth in 2013 and beyond.

At this time Steve will walk you through the financial results for 2012 and provide guidance for 2013. Steve?

Thank you, Ed. As Ed has just emphasized, 2012 was a landmark year for us in that our real estate investment strategies, our idea investment strategies, our capital strategies, and our people strategies all came together. The effect on our per share profitability measures, our dividend coverage, and our total return to shareholders were dramatic.

Total annual revenue was up almost 50% year over year, normalized FFO was up by 53% year over year, and on a per-share basis fourth-quarter normalized FFO was $0.25 in 2012, 32% higher than 2011's $0.19. This is the third consecutive quarter of year-over-year per-share FFO growth that exceeds 30%. For the year our per-share FFO increased by 27% and our dividend payout ratio correspondingly improved to 80% for the quarter with further improvements expected in 2013.

We think it is important to point out what may be obvious, and that is because we are continuing to make significant amounts of acquisitions at average cash rates of return between 9% and 11% and because our cost of capital is substantially lower than that each dollar we invest in new assets immediately increases our per-share results and improves our dividend payout ratio even further.

We made a single small RIDEA-type investment in the fourth quarter, our only such investment in 2012 other than the Ernest investment. That brings to eight the number of these investments and operations that we have made including Ernest. In the fourth quarter we recorded $3.5 million in earnings from our operating investment in Ernest for an approximate annualized return of 15% and $2.1 million for the other seven investments for an approximate annualized return of 43%.

As we have previously reported, our objective in making investments in operations, under RIDEA or otherwise, is to achieve outsized returns for little, sometimes no incremental risk or investment. And returns exceeding 40% demonstrates our success. Remember that we separately earned rent and mortgage interest of approximately $52 million annually from these operators.

There are two items that reconcile funds from operations to normalized FFO. Number one, cost associated with asset acquisitions of $1.3 million and, number two, the non-cash charge of accrued straight-line rent related to facilities that we sold during the quarter of about $4.8 million. We recognized gains on sale of those facilities exceeding $9 million and those gains, of course, are excluded from FFO in accordance with common practice.

We had previously reported one of these sales, which accounts for $7.2 million of the gain, and as a reminder the sale proceeds, when combined with rental received since we acquired the property, resulted in an unlevered internal rate of return of 15%.

In addition to these properties, sales our portfolio transactions during the fourth quarter included the $15 million acquisition of an existing long-term acute care hospital, along with a small OpCo investment that gives us rights to a 25% interest in that operator; commencement of the development of a $33 million replacement surgical hospital; commencement of development of an $18 million rehabilitation hospital for Ernest; and our $100 million commitment to fund development and leasing of up to 25 freestanding emergency facilities.

The weighted average initial lease rates for our fourth-quarter investments exceeded 10%. We financed the fourth-quarter investments with cash on hand, including proceeds from the property sales I just mentioned, and from the sale of approximately 1.1 million shares under our at-the-market share program. Detailed information about our quarter-end capitalization details is included in the supplemental disclosures that were posted to our website earlier this morning.

Turning to guidance. This morning we are providing our estimate of 2013 normalized FFO of $1.10 per share. In arriving at this estimate we took into account our assets and debt as of December 31; placement into service of one Emerus emergency hospital during the first quarter of 2013; placement into service of the Ernest rehab hospital in Lafayette, Indiana, during the first quarter and the Ernest rehab hospital in Spartanburg, South Carolina, in the fourth quarter; and the acquisition during the second half of 2013 of $400 million of new hospital real estate.

Because we think the first of the new acquisitions will close beginning in July the $1.10 annual estimate will likely not be equal quarter to quarter. Our estimate also includes assumptions about our capital raising activities, including we expect to maintain our balance sheet in 2013 such that our total debt to undepreciated book assets approximates 43% to 45%.

We expect pricing in the unsecured debt market will remain in line with recent periods, and by way of reference, our two issues of unsecured bonds have traded recently between yields of 4.75% and 5.25%. And our dividend payout ratio will remain around the 75% level.

Based on these assumptions, the pro forma estimated normalized FFO run rate as of January 1, 2014, would be approximately $1.16 per share. That is not an estimate for 2014, but simply an extension of pro forma results and does not make any assumptions about acquisitions over and above our $400 million guidance for 2013.

But we have every reason to expect that in 2014 we will continue to be able to execute on our strategy of buying high-yielding hospital real estate, creating immediate and meaningful per-share incremental value. As usual these estimates do not include the effects, if any, of debt refinancing cost, real estate operating cost, interest rate swaps, write-offs of straight-line rent, properties sales, or other nonrecurring or unplanned transactions.

In addition, this estimate will change if market interest rates change, debt is refinanced, addition debt is incurred, assets are sold, other operating expenses vary, income from investments in Tenet operations vary from expectations, or existing leases do not perform in accordance with their terms.

So before we go to questions let me summarize. We have positioned MPT from our inception over nine years ago to take advantage of high real estate returns from hospital real estate assets which are truly critical necessary assets to the communities they serve, very similar to other infrastructure assets that a population cannot live without. And, additionally, to earn incremental outsized returns from limited prudent investments in operations.

2012 was the best demonstration so far of our success in executing that business plan. Here in the early months of 2013 we are working a large and attractive pipeline of acquisition opportunities. We have tremendous access to low-cost capital and our management team is uniquely experienced to invest that capital in high yielding hospital real estate. Every dollar we invest in 2013 under those conditions creates immediate accretion for our shareholders.

With that I will turn the call back to the operator and we will take any questions.

(Operator Instructions) Karin Ford, KeyBanc Capital Markets.

Hi, good morning. Just first a couple questions of clarification on the guidance. So, Steve, based on your comments, guidance does assume some level of equity issuance in order to obtain that leverage level that you mentioned, the 43% to 45%?

Yes, the guidance does include maintaining that low 40%s to 45% leverage.

And it also does include an unsecured debt deal as well?

Well, it doesn't necessarily identify any specific source of capital. One would expect, given conditions in the market, that unsecured debt would be part of that.

Okay, that is fair. Did you guys close yet on any properties under the First Choice facility so far this year?

Not yet.

Okay. When do you expect to start to deploy that capital?

Imminently.

Okay. Final question is I think you had three leases expiring at the end of last year. It looked like two of those pushed into this year. Can you talk about the status on those and what the rent spread was on the one that you did take care of?

Two are Cornerstone leases and we are still negotiating with the tenant. The other was a property that we sold actually in this quarter, in the fourth quarter.

Okay. And your expectation is that you will re-sign Cornerstone and do you expect the rent to change at all on those two leases?

We would not expect any change in the rent, assuming an extension of those leases.

Okay, thank you.

Tayo Okusanya, Jefferies.

Yes, good morning. Just along Karin's line of questioning about a guidance, just want to make sure I understand what is in there and what is not. $400 million of new acquisitions, the construction of the rehab hospital in Spartanburg, but there is nothing in there from the First Choice commitment and nothing in there from the Altoona, Wisconsin, commitment?

There is nothing in 2013 coming from First Choice and on Altoona there would be probably nothing.

Okay, all right. That is helpful. Then could you just talk about the $400 million itself, whether there is more of a focus on general acute care hospitals or stuff that is -- or post acute care? It's kind of up in the air depending on the opportunity you get.

Tayo, it is the same answer that we have given the last few quarters about that. With the Ernest transaction that we did we got a little bit out of whack on what our normal mix is for properties and so we expect that going forward, as it was after post-Ernest and as we expect in 2013, it will be much more weighted toward the acute care.

That is great. Then as we are roughly a year away from the implementation of universal healthcare, what are you kind of hearing from hospitals and kind of what are they doing at this point to prepare for that? And how will that potentially benefit in MPW going forward?

Ed Aldag First, I think it will be surprise for everybody to know that we were going to universal healthcare, but I understand your question, Tayo. I think there are a number of questions on that. I think everybody is still trying to figure out exactly where everybody is going to end up on the healthcare exchanges in the various states with some of participating, some not participating, and federal government running most of the ones in the country.

Everybody is still trying to figure out exactly what ACOs mean, trying to figure out exactly what bundling means. But I think the bottom line for everyone as they work through the various nuances of the details of Obamacare that the answer is going to be that there aren't going to be any great increases, but there aren't going to be any great decreases. And rather than much changes in the reimbursement dollars, it is more going to be just understanding the new system and where the opportunities are.

That is helpful. Then just on the topic of change in reimbursement dollars, now that we are a month away from supposed sequestration. What is your take from conversations you are having either with Washington pundits or whoever you are talking with in regards to whether you think sequestration happens or whether we end up with something totally different?

Well, Tayo, I got out of the business a long time ago of trying to figure out what Congress was going to do and that was back at a time where they actually spoke to each other. So I certainly have no idea at a time when they won't even speak to each other across the aisle.

But you will recall that we went over this in great detail in the third quarter call, and let me just remind you.

Rather than trying to figure out exactly where we will end up, whether it is with sequestration or whether it is with one of the other various plans to get the budget under control that have been mentioned out there, rather than trying to figure out what that answer is going to be, you will recall that we ran a couple of scenarios that assume two different scenarios. And they are both draconian. One was that there was an across-the-board 5% cut in Medicare and the other one was that there was a 10% across-the-board cut in Medicare.

You will remember from that conversation in the third quarter call if you assume that there is a 5% overall cut to Medicare and that our tenants make absolutely no adjustments in the way they operate, which is obviously a very conservative and ludicrous analysis, but under those circumstances our portfolio coverage would go down to about 4.25 times. The acute care hospital coverage would see approximately a 70 basis point drop; in the LTACHs about a 50 basis point drop and the IRFs about a 40 point basis point drop.

If you assume a 10% cut across the board to Medicare then MPT's total portfolio coverage would see a drop of just more than 100 basis points. LTACHs would see the biggest decline; would see a decline of about 100 basis points and the IRFs would see a decline out of about 80 basis points.

So in both of those situations we still have good coverage in MPTs, rent wouldn't be affected at all, and obviously I think everybody would agree that those types of cuts are very draconian. But that is about the best way we can analyze it rather than trying to figure out what Congress is going to do.

But I think as you think about this and you go through your analysis of what may be and what might not be, you got to keep in mind that you just can't paint a picture in this country where we are not going to continue to have hospitals. And hospitals, particularly acute care hospitals, are going to remain at the top of the pyramid structure, if you will, for the delivery system in this country. So we feel very good about where we are positioned for all of the continued budget discussions.

That is very helpful. Then just one more for the road. There was a press release that came out last night about Prime disclosing a couple of federal investigations. I know it is hot off the presses, but is there anything about those investigations you can tell us?

Tayo, it was not a press release. It was another article written by California Watch, which is an arm of the SEIU. And if you read the article closely you will see that it is the exact same allegations that were brought up approximately three years ago.

Now if you remember all the discussions that we have had about that those allegations have been investigated by the state of California, [HVAP], and [JACO], and others. In all of those instances they were cleared. Now I think that we and Prime -- and obviously we saw the same article you did.

But we and Prime -- I haven't spoken to Prime, but I can imagine they feel the same way as we do, we actually welcome the Justice Department investigation, if in fact there is one, because this is not unlike our court systems where you have the process where you start with the lower courts and make it all the way up to the Supreme Court. Obviously, if there is indeed this same investigation, it will be the final say-so and, hopefully, finally put all this to bed.

Okay, that is helpful. It just seems like the press release is saying that Prime actually did disclose this in the process of trying to buy a new hospital.

Yes, it was an article written by SEIU not -- written by California Watch, not a press release. But what they quoted was that Prime stated it in a filing that they made, I believe, in Rhode Island where they were trying to acquire an additional property. Those same allegations were being investigated by the Justice Department.

Now there is one new additional apparent investigation; it's kind of a damned if you do, damned if you don't. You will recall that early on three-some-odd years ago that the California Watch had a patient in I believe it may have been the Redding, California, facility that actually used that patient's name and used the diagnosis in that patient's medical records to make these allegations against Prime.

Well, that apparently is okay but when Prime used those same medical records and patient information to refute those allegations, they got charged with violating the HIPAA rules.

Okay, that is helpful. Thank you so much.

Michael Carroll, RBC Capital Markets.

What drove your strong pace of acquisitions in 2012 and why do you expect it will fall back down to $400 million in 2013?

That is a good question, Mike. 2012 was obviously a fantastic year. The $400 million for guidance for 2013 is not an indication that the volume is any less. It is that all of these processes we have learned over the last 10 years just take a very long time. So a lot of the things that we were working on in 2012 we began working on in 2011.

So it is just a matter of all of it falling in place. It is possible that we could greatly exceed that $400 million, but that is a conservative attempt based on where we see the time being able to spend, the timeline that it takes to get these things over the finish line.

Okay. Then do you have the sites picked out for the First Choice development projects yet?

Remember that First Choice is actually doing the site development. The way the process will work is that they will pick the sites, bring them to us. We will review them and approve them or not. And so, yes, there are a large number of sites that they have already picked out and we expect to start getting those sent to us very soon.

Okay. Then my last question is related to the documentation and coding adjustments that could occur for the 2014 update for the Medicare rate for hospitals. I believe that is what -- they indicated they are going to cut it by 60 to 80 basis points, the stopover payments, and then they are going to try to recover about $11 billion of overpayments over the next four years.

I know how you already talked about how that will hit your coverage ratios, but will that affect your RIDEA investments at all?

Well, obviously it is possible that any of those items could affect the RIDEA investments but remember that it is an extremely small part of our overall portfolio. The whole investment is 5% of our portfolio; the return substantially less than that. And that a 40% return that we are currently getting that is substantially higher than what we all thought we would be getting when we originally did these investments.

Okay. So, let's say, if the rates were cut by 5% do you know how much that would cut the RIDEA rates by?

No, I don't have that information right now, Mike.

Okay, great. Thank you.

Mike Mueller, JPMorgan.

Good morning. A few questions. I guess going back to Tayo's question about coverages; obviously the portfolio, not every property you have is at a 5 times coverage, some are significantly higher skewing that.

If you are looking at the bottom tier of the portfolio where the coverages are the lowests, under those scenarios would they still fare pretty well in terms of --?

They really would, Mike, and that is what I was trying to show in the analysis that I gave. We don't give it for each individual property, but showing you how the operators had done in my previous prepared remarks. But of all of our coverage ratios particularly I believe we have two properties, and that is a little bit of a misnomer.

Obviously Monroe is the lowest performing property, but there are a couple of other properties that are -- if you look at it from a stand-alone basis, one of them doesn't generate full coverage but the operator generates them as two. And with the two of them combined they are more than adequate coverage. So there really isn't the gap that your question implies.

Okay. If we are looking at the supplementals on page eight where you talk about the $800 million of investment activity for the year, I know it is committed and some of it is investment. How much of that -- obviously the First Choice $100 million is a commitment. But how much of the other was dollars going out the door versus commitment?

And when you are thinking of guidance, it is safe to assume that the $400 million is actual investments not commitments, correct?

Correct.

Yes, that is correct. Mike, looking at the $800 million, obviously you have the Oak Leaf which is a development project. You have the Ernest Spartanburg project, which is a development project, but that one is well through the process.

You have got Ernest Lafayette which is essentially complete. And then you have got the post acute, which is another development project in Victoria, and that one as well is well underway.

Okay, great. Just, I guess, from income statement presentation standpoint the equity and earnings line isn't there this quarter and I understand it may be in a couple other lines. I was just wondering if you could give us a little more color on kind of what drove that and geographically where it is showing up.

Sure, Mike, because of the way we structure our investments in these operating companies to give us a high degree of security and a preferred return, our instruments are sometimes notes and sometimes equity interest. All of which we consider earnings from OpCo. So we record -- for GAAP we record a portion of that return as interest and a portion as equity in earnings.

That presentation in the condensed financial statements that accompany our press release becomes difficult to follow, particularly when investors are trying to determine what our investment returns are. So we have combined those lines for interest and other earnings in the press release, but we clearly summarize the RIDEA-type returns on a dollar basis in the supplemental. And in fact, it is on that same page you just referred to in the supplemental.

And in our SEC financial statements, whether it be a 10-Q or the upcoming 10-K, that allows us a little bit more flexibility and room for clear disclosures and reconciliations. So you will see that when we file the SEC statement, which normally you would see at this time. Obviously there is no 10-Q with the fourth quarter though.

Got it. Just two other quick ones. Steve, when you were talking about before the $400 million of investments you said, I think, nothing before July 1. That was just for guidance; that was just a comment about guidance, right?

That is exactly right. I think everybody on this call understands the lumpiness of the acquisition process. It is certainly not inconceivable that we close something before July 1.

Okay. Is anything imminent that is likely you could close in Q1, or do you think we are really looking to Q2 at this point?

I don't think anything closes in the next six weeks left in Q1.

Okay. Last question here on, I guess, Twelve Oaks now. Nothing is in guidance for the lease up of that, correct? And when do you think it is feasible to assume something comes back online?

Yes, that is correct, except for the 55% that is already leased and is already operating. You will remember that we made the conscious decision not to lease up the other 45%, because we believed and I think we were right after seeing the finished product, that we will get much better rental rates with having the lead tenant in and having the project completed.

Now that that is done our people have begun in earnest to lease up the remaining floors. We just, at this time, don't have guidance on when that -- but those numbers, the 45%, are not included in the guidance.

Okay, great, thanks.

Phil DeFelice, Wells Fargo.

Good morning. It is Phil DeFelice for Todd Stender. I have a question; on your two asset sales in the quarter would you mind disclosing your exit cap rates?

I think, Phil, just to be absolutely accurate, you probably can go back to the third-quarter disclosures. We gave those numbers in some detail and I, frankly, don't have them in front of me. Point being the exit cap rate was significantly below what we were earning and that is the point we tried to make in the third quarter and then again in this quarter is -- and, by the way, those were not our best properties by any means and so we weren't cherry picking the very best properties to sell.

They are moderate, average properties that we generated substantial gain over and above, not only our book value but what we paid for them seven years ago. And that is what resulted in the 15% IRR. Again, feel free to call me or Charles after this call and we will walk you through the third-quarter disclosures.

Great, thanks. That is helpful. Do you happen to know offhand what percentage of your current mortgage loan balance, about $370 million, is prepayable?

None of it.

None of it, okay. What is the current average duration on that investment book?

Again, we can give you an accurate answer later, but probably eight or nine years, I would say, would probably be the weighted average remaining term.

Great, that is all I had. Thanks a lot, appreciate it.

Daniel Bernstein, Stifel.

Good morning. So on the acquisition pipeline are you looking at new operators and geographies as well?

Yes, absolutely.

You think you will have new operators come out of that?

Yes.

Twelve Oaks, what is the gross value of that property? I was just trying to think in my head if you lease up the other 45% on, I don't know, what did you say, 10% yield, what kind of addition to your FFO or run rate I can get to. So what is the gross value of those assets?

Including all of the additions that we made to that property it is about $55 million.

Okay, thank you. Then when I look at Prime Healthcare, and I don't want to beat a dead horse here, you know they have beat a number of these allegations in the past. But they do seem to be targeted; SEIU, whoever.

Do you see that just the target of Prime as a risk to that tenant? I know that it's good lease coverage, but how are you thinking about the risk of Prime itself given these allegations keep popping up?

Well, Dan, they are the exact same allegations. They are not as if they keep being new allegations. They are the same allegations. All I can tell you is that every federal agency and federal component and state component that have looked at it to date has all cleared Prime of these allegations.

When you go back to the why does this keep coming up, I think it is very clear that it is a fight between the SEIU union with Prime. Prime is not the only hospital entity that has a fight with the SEIU, in particular in California. There are a number of other REITs, some nursing home operators that have had similar type fights with the SEIU.

Prime actually very recently entered into a very complementary, large agreement with the other union. Now I always get the names confused, but we all know the SEIU wears the purple shirts and this other union wears red shirts.

Not affiliated with the Baltimore Ravens.

So it is not just a fight with the unions, it is particularly is just a fight with the SEIU. Other than just looking at historically now what has happened, Dan, I don't know what else I can say.

Is their healthcare workers at Prime unionized?

Yes, they are. They are the -- I wish I could just think of it. Is it the NHW or something like that? National Healthcare Workers Union or something like that. CNA.

Okay. I was just trying to understand the motives behind what is going on there.

Then on guidance, again kind of rehashing it a little bit. But if we took out the $400 million in acquisitions and any additional capital that you might have assumed in there has the guidance really changed from the 108 last quarter? Did that really change otherwise?

No, I think I am following your question and the answer would be no. If we just stopped right now, we would be looking at that 108 roughly.

Okay. I just wanted to make sure that there is nothing else that had changed in there. I think that is all for me. I appreciate you taking my time.

Thank you. We now have no more questions at this time and I would like to turn the call back over to Ed Aldag. Please go ahead.

Thank you, Clinton. Again, we thank all of you for listening and we greatly appreciate your insightful questions. If you have any additional questions, don't hesitate to call on Charles, Steve, or myself. Thank you very much.

Thank you for joining today's conference. This concludes your presentation. You may now disconnect and have a good day.