Medical Properties Trust Inc (MPW) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Medical Properties Trust Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the conference over to our host for today's call, Mr. Charles Lambert. You may begin.

Thank you. Good morning, everyone. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2017 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 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 risk, 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 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 thanks all of you for joining us today for our first quarter 2017 earnings call. 2017 is off to a fantastic start for Medical Properties Trust. For the past 4 months, we have further strengthened our balance sheet, which is now one of the strongest balance sheets of all the health care REITs.

We have made investments totaling 90% of our initial guidance for 2017. We replaced a senior note issue with a new issue with a substantially lower cost and longer term. We recycled assets. We expanded the MPT footprint with the opening of an office in Luxembourg, re-leased 3 Louisiana Adeptus facilities to an investment-grade rated tenant, Ochsner Clinic Foundation, and the Adeptus situation is working out just like we expected and described last fall.

Steve will go through the details of our balance sheet in a few moments, but let me take a minute to point out that with our recent equity raise and our $1.3 billion revolving credit facility, we not only have the liquidity to make additional investments, but also our pro forma debt-to-EBITDA of 4.5x is one of the lowest of all the health care REITs.

With this ratio, we have the ability to make approximately $1.5 billion of additional investments without the need of any additional equity and still keep our debt ratio within our self-imposed levels.

Last week, we announced about $450 million of new investments. These consisted of 10 new hospitals in Ohio, West Virginia, Pennsylvania and Florida. 8 of these operated by Steward were closed on this week. Our hospital in Valencia, Spain, opened for operations and is already seeing more than 200 patients per day.

We completed the purchase of one of the 2 previously announced RCCH facilities in Lewiston, Idaho, and expect to complete the purchase of the other one in Pasco, Washington, shortly. We started construction on a previously announced hospital in Birmingham, England, with Circle. And we disposed of one hospital from our original Capella portfolio, resulting in a $7 million gain after only 19 months. This is another validation of the value of our portfolio.

Last fall, Adeptus surprised the market with news of its liquidity and organizational problems. Because we knew even then about the strength of our master lease structure, our credit enhancements, the market dominant hospital systems that own the majority of the operators of our facilities, and very importantly, the critical and expanding role that freestanding emergency rooms are playing in the delivery system of our acute care services. We were able to immediately announce on the same day that we were highly confident in the value of our freestanding emergency room real estate.

We knew that even if resolution of Adeptus' problem led to bankruptcy, in fact, especially so, our original underwriting in master lease structuring, would put MPT in the strongest position of any investor or creditor, and that is exactly what has happened. The specialized knowledge of our people have about hospital operations and strategies, along with the position of greatest strength that our master lease structure gives us, are the reasons that over the course of our 13-year history, 250-plus hospitals, we have never taken a material real estate impairment. And with very limited exceptions, have not missed receiving rental payments, even during bankruptcy.

We are landlords after all, and in the real world, tenants will have bumps in the road. Our tenants' bumps have been remarkably infrequent, but we, nonetheless, carefully plan for and anticipate them. One of the keys to the success of any business, ours included, is how well a company plans for and then reacts to the inevitable bumps. Our experience with Adeptus is an excellent example of our underwriting, deal structuring and workout strength.

As we reported earlier, we disposed of a property that was part of the original Capella portfolio we acquired in August of 2015. 19 months later, we disposed of that property, providing us with a $7 million gain.

Approximately 5 years ago, we began our planned investment in Western Europe. Today, we have approximately $1.6 billion invested in 4 countries in Western Europe. As in the U.S., we are the undisputed leader in hospital financing in Western Europe. In order to further our efforts there, we have established an office in Luxembourg headed up by Luke Savage, a 10-year veteran at MPT.

Let me now address the coverages of our existing portfolio. We continue to work on ways to provide more visibility to our investors, while at the same time, protecting the confidential information of our tenants. We've made some of these changes today and we will continue to look for improvements. You will note that until further notice we have taken out the Adeptus-related properties until we are comfortable with the information that they are reporting. As you know, they are current on all their rents owed to MPT and with the agreement with Deerfield Management, we expect that to continue.

You will also remember that we report coverages one quarter in arrears to give all of our tenants ample time to get their information to us. So as a reminder, the following information is for the fourth quarter. As is typical for hospitals, the fourth quarter was not as strong as the first quarter has been. I'll give you some specific examples in a few minutes.

Again, we traditionally have reported our coverages on a same-store basis, which we define as having been in our portfolio for at least 2 years. This allows us to smooth out the artificial spikes up or down we may have from an unseasoned property being added to our portfolio.

Also very importantly, we currently report on an EBITDA basis. If our tenant does not include corporate overhead or management fee in their numbers, we artificially add a management fee of 5% of net revenue. This is a very conservative method of reporting and one that we are afraid doesn't give the markets the true strength of our properties. This is one of the issues we will -- we are looking at addressing.

Our acute care hospitals continue to perform well. As a group, their coverage was flat quarter-over-quarter and up slightly year-over-year or 3.9x coverage. The IRFs saw a very slight decline quarter-over-quarter and slightly more of a decline year-over-year to 1.7x. It is important to note that our U.S. IRFs are covering at a 2.12x, which is flat year-over-year. In the future, we may break out the difference between the U.S. IRFs and the European IRFs.

The LTACH saw their biggest decline to date. Their coverage was down, both quarter-over-quarter and year-over-year to 1.3x. Just to show the magnitude of issues with Boise and Loretto, if we were to eliminate these 2 facilities, the LTACH coverage would be 1.5x. Now before you get all alarmed, let me address this drop.

The fourth quarter was a down quarter for our LTACHs. We have 17 facilities in this category. The LTACHs only represent 5% of our total portfolio at this time. 16 of 17 facilities declined year-over-year with more than half of that decline coming from 4 facilities. Out of the 17 LTACHs we own, all but 4 of the facilities saw good increases in the first quarter. One of the worst performing facilities in the fourth quarter saw its EBITDA more than doubled in the first quarter. Another one saw its EBITDA go from 0 to more than $1.7 million in the first quarter. All total, the EBITDA for this group went from $8.2 million in the fourth quarter to almost $13.5 million in the first quarter. So a very strong start to 2017. The IRFs also saw strong increases, with the group going from an EBITDA of $12.4 million to $17.2 million.

Currently, our investments in acute care hospitals domestically represent about 80% of the portfolio. We continue to believe that our portfolio is undervalued as proven by some of our recent sells and the Adeptus resolution. We will continue to educate the market on this particular strength. With our sector-leading balance sheet and our industry-leading portfolio and the opportunities we have ahead, we look forward to a very bright 2017 and beyond. Steve?

Thank you, Ed. This morning, we reported normalized FFO of $0.33 per diluted share for the first quarter of 2017, which is within the range of our internal expectations and those of analysts who published their own estimates. I'll briefly point out a few items that reconcile net income to normalized FFO, and I'll be happy to take any questions about these in just a few minutes.

We sold a hospital late in the quarter and recognized a $7.4 million gain. It was a solid performer. But for a couple of reasons, the operator preferred to reallocate resources and capital away from this asset and toward others, and we were happy to facilitate the operator strategies by consenting to a sale to a new operator. Although we held it only 19 months, we realized a strong gain at a price that indicated a cash capitalization rate of 7.6%, well inside our purchase cap rate of 8%.

Their charges totaling about $13.6 million for cost of refinancing our $1.7 billion bank credit facility and early redemption of EUR 200 million in unsecured notes. We issued EUR 500 million in new unsecured notes with a coupon of about 3.3%, as compared to the redeemed notes coupon of 5.75%, generating a net present value to the benefit of our shareholders exceeding $9 million.

There is a total of another roughly $3.7 million in net income to normalized FFO adjustments, primarily made up of acquisition cost and $1.1 million in aggregate write-offs of straight-line rent associated with the sold hospital and the 3 freestanding emergency facilities that we terminated from Adeptus to move to the investment grade rated Ochsner Clinic in New Orleans.

So let's relate our $0.33 per share to the most recent full year 2017 guidance of $1.35 to $1.40. The assumptions underlying that prior guidance were consistent with the actual performance during the first quarter. Those assumptions primarily included immediately accretive acquisitions of between $500 million and $1 billion throughout the year, and the permanent funding of those acquisitions substantially with long-term debt.

Since the end of the quarter, there had been 2 major changes to those assumptions. One, our decision to use equity to partially fund 2017 acquisitions and related, the development of a large and attractive acquisition pipeline that exceeds the $1 billion top end of our prior guidance.

So the impact then of last week's $548 million equity raise is to temporarily dilute FFO for 2017 until we reset our capital structure from the current, historically low leverage of 4.5x EBITDA to our long-term target of 5x to 5.5x EBITDA, and use that capital for immediately accretive acquisitions. We are hopeful that, that will happen in the relatively near term. But until we have more certainty concerning the size and timing of any additional acquisitions, we will not to try to quantify the near-term impact on our prior guidance.

We have recently, that is in the last few days, closed acquisitions of about $450 million, and we expect to complete other acquisitions pursuant to binding agreements, of about $250 million equivalent. That brings our total gross undepreciated assets to about $7.4 billion and total net debt to about $2.9 billion. That net debt includes $275 million drawn on the revolver, leaving us with availability of about $1 billion.

Our net debt is equivalent to about 4.5x in-place EBITDA. And remember that is stable, predictable, inflation-protected EBITDA, generated by long-term master leases with the top hospital operators in the country. Most people on this call are aware they are stated and historical financial targets include a leverage range of between 5x and 5.5x EBITDA.

So our position today at 4.5x and $7.4 billion in assets gives us tremendous headroom to increase our assets by another up to $1.5 billion without exceeding our 5.5x target. And of course, this has been our history of strong accretive growth over many years. Whatever the level of new acquisitions we may complete in the near term, we believe there are immediate cash returns and moreover their long-term GAAP returns will substantially exceed the cost of the related incremental capital. We are truly in an enviable position.

I'll make one final comment about our financial position as it relates to our long-term strategies. As we look beyond 2017 and into 2018, we continue to see strong affirmation of the interest of sophisticated global real estate investors in the unique characteristics of hospital real estate. At the same time, both in the U.S. and elsewhere, our view is that the tremendous inventory of this real estate is becoming more and more accessible to investors; that is operators and other sellers are becoming more willing to sell and lease back their otherwise noncontributing real estate assets to fund ever increasing capital needs.

We are continuing to explore opportunities to attract efficient, permanent capital from these investors through possible property sales and joint venture structures. At the same time, and as Ed and I have already mentioned, this growing attraction to hospital real estate is creating what we believe are substantial near- and longer-term growth opportunities.

I want to briefly summarize our expectations about the Adeptus facilities. There has been a lot of separately provided information from both us and Adeptus itself, so I will not belabor it, but there are no doubt some on this call who may not be fully informed as to how MPT is affected.

Adeptus filed for Chapter 11 bankruptcy a couple of weeks ago. The court has approved their plan, which involves affiliates of Deerfield Management taking control of Adeptus. Deerfield is a large well-known investment company focused solely on health care.

The Deerfield-Adeptus plans approved by the court where relevant, include the newly recapitalized Adeptus will assume the MPT master leases and 100% of all of the MPT leases will continue to be paid during the bankruptcy. We have received on time all of our lease payments since the beginning of our Adeptus relationship and we have been fully prepaid for May.

Deerfield will provide financing during the bankruptcy to assure continued operations, including payment of MPT's rent. There is no assurance as to the length of any bankruptcy. Although expectations are that this process could be completed within 90 days.

There are 13 facilities that represent about 15% of our investment in Adeptus facilities that will be separated from the master leases at various times after Adeptus exit bankruptcy. And we will then sell or lease them to new operators. 6 of these facilities will be released from the Adeptus master lease 90 days after bankruptcy exit, unless we sell or re-lease them earlier. And 7 of them, 1 full year after bankruptcy exit, again, unless we sell or re-lease them earlier.

To be clear, recapitalized Adeptus will continue to pay 100% of the rent on these facilities throughout the bankruptcy and afterward up to the release date. We are confident, given the very high level of interest we have already received from multiple operators, that we will be able to sell or re-lease them without material adverse impact.

By the way, the remaining 5% of our investment was resolved even before Deerfield made its investment when we replaced Adeptus as the operator with the market-leading investment-grade rated Ochsner Health System in New Orleans.

Finally, only 3 facilities remain under construction and estimated cost to complete are about $10 million. These facilities are part of the 80% of our investment that would be permanently assumed by recapitalized Adeptus. The successful Adeptus outcome did not happen by luck or accident. As Ed already mentioned, we start planning for potential bumps in the road very early in our underwriting process and before there is even a letter of intent, and that is why we have not had to close any facilities or take any real estate impairment in our history.

And with that, we will be happy to take questions. Tanya?

(Operator Instructions) And our first question comes from Drew Babin of Robert Baird.

In terms of the acquisitions and the increased potential guidance for the second half of the year that's been laid out. On the debt side, I assume there will be some unsecured debt related to that. What are you seeing right now in the debt markets? And sort of what are your preferences in terms of duration and type of debt to finance the other debt portion of those deals?

Well, Drew, almost as always with our extremely long asset side of the balance sheet with leases that we expect to go 30 years, we try to match that as much as possible on the liability side of the balance sheet. So just a general answer to your question is, we intend to continue with that philosophy, which is comparing the cost of duration on a long term versus a shorter term and making decisions based on volume, based on that tension. Kind of a long-winded answer, that I suppose I could say, we want longer debt at lowest cost. And in our history, we've been able to do that, creating very attractive spreads over our debt cost of capital, and that's what I would expect going forward as we look to permanently finance the pipeline.

That's helpful. And on the equity side, obviously, plenty of cash at your disposal right now, but as far as any additional equity needs, there may be other plans to dispose of any assets beyond the -- this transitional portfolio at the end of the year. Is there anything in the queue that we should expect should be disposed of in the next few quarters?

There is nothing meaningful. We have over 250 assets now. So we should probably all come to expect every now and then ad hoc type transactions like we did in the first quarter with the hospital we sold. But other than that, there are no plans with the exception, and I'll just reiterate, we've mentioned it on prior calls and I alluded to it again a minute ago, we are exploring and we are relatively far down the road in that exploration for attracting long-term high-quality institutional capital, either through large asset sales, but much more likely through joint venture type structures. And we do believe that offers us tremendous opportunity, although it remains to be proved, but tremendous opportunity to open up a completely new avenue toward affordable capital that we would use in the place sometimes of what would otherwise fall to common equity.

And next question comes from Michael Carroll of RBC.

Can you give us some more color on the drop in coverage in the LTACH portfolio? Maybe can you break it out between LTACHs and the Ernest portfolio and the rest of the LTACH portfolio?

Sure, just a second. So, as I mentioned on the call, we had -- we have 17 LTACH facilities and 16 of those facilities all suffered declines in the fourth quarter. They have all but 4 of those come back in the first quarter. So I'm not exactly sure what was the cause for the decline in the fourth quarter, but the good news is that they have all come back. Now the interesting thing, as I mentioned earlier on the call, is that we artificially penalized ourselves on -- by having like Ernest as an example is where we add a 5% management fee. If you take out that 5% management fee, the coverage goes from a 1.3 to 1.5 scenario. Same thing on the inpatient rehabs, that goes from a 1.7 to a 1.9. Further, a little bit complicated on the inpatient rehabs is the fact that we own so many in Europe, which has historically had a lower coverage than our inpatient rehabs here in the U.S. And as I mentioned on the call, our inpatient rehabs here in the U.S. have about a 2.12x coverage for the fourth quarter. We expect that the coverage for the LTACHs in the first quarter, when we report that, will be much stronger than it showed in the fourth quarter. We have begun our analysis of the changes to the LTACH reimbursement. Ernest, in particular, where we've had some of the biggest issues. They expect that they will actually see a slight benefit from the recently announced proposed changes. So while we certainly don't expect the LTACHs to get back to the level that they were years ago, we do think that we're in a leveling out and improving basis going forward from the first quarter.

So what changed that, now that Ernest believes that they could see a slight benefit? I mean, if I remember correctly, this patient criteria has been out. Was there anything specific in the proposed rules that will benefit them that they didn't expect?

Well, it's some of their short-stay outlier payments that they believe will benefit them more than others. Now we don't expect -- Mike, we don't expect that to be large numbers, but we don't expect a continuing of what we saw in the fourth quarter, which has been proven by the first quarter numbers thus far.

Okay. Now the patient criteria is still rolling out. I mean, we have another what, year plus for -- before these policies are fully enacted. I mean, should we expect the coverage ratio to still continue to trend lower? I mean -- or has it stabilized? If it's going to stabilize, I mean, what's different that's going to make it stabilize from this point going forward?

Yes. So the only operator of ours that I haven't had direct conversations with it at this point is Kindred, which represents, I think, 3 of our facilities. But I've had conversations directly with the CEOs of both Vibra and for Ernest. Both of them think that they've seen their bottom and they think that they'll see continued improvement, although not in large numbers. And I don't have the details on exactly why at this point.

Okay. And then, I guess, final question. What is the coverage ratio on the operator loan to Ernest? And how are you thinking about that right now?

Mike, as we have always considered and continue to consider that, that to us is an equity-like investment. And so we look at the entire fixed charge coverage, including payments on that loan when we look at Ernest. And all in, the Ernest coverage, even with the weakness in the LTACHs, exceeds 1.6x.

And our next question comes from Omotayo Okusanya of Jefferies.

First of all, just thanks for all the additional color around portfolio performance in 1Q versus 4Q. I think that's pretty helpful. Question. Ed, could you just clarify to me the $1.5 billion of capacity you talk about, between your line and with the recent capital raises, is that on top of the $450 million you've already done year to date? Is it on top of the $450 million plus the $250 million pending? I'm just trying to understand the magnitude.

Yes, it is, Tayo.

On top of the $450 million or on top of the $700 million?

$700 million.

On top of the $700 million. Okay. That's helpful. Then number two, again, I was just kind of thinking about balancing again liquidity and kind of the capital raises that may cause some dilution versus when you actually deploy the capital. How do you kind of think about potential JVs or asset sales on top of that, that could create even further dilution, just kind of given how low your leverage currently is already?

Well, I mean, if you try to predict kind of the curve and the sequencing, we do believe there is a reason for us to think that in the relatively near term, we could be growing the portfolio by upwards of $1.5 billion. We're not counting on having any type of JV or other equity-type financing in place before we do that. So just to follow the sequencing, again, you see the balance sheet increase significantly, both on the asset liability side and then you would see it modulate back down, presumably, if there is a successful or meaningful joint venture arrangement.

And Tayo, remember that if we do a joint venture ratio -- venture, we expect that the proceeds that we would get from a joint venture venture would be substantially greater than our gross investment in those assets. We would then be able to put back to work. So we wouldn't expect any dilution from those standpoints.

Okay. That's helpful. And then the acquisition pipeline as you kind of think about it, any -- could we see a world where you guys either move to new markets or move to new asset types specifically, maybe behavioral hospitals?

Yes, maybe the what hospitals? Oh, behavior. We've always had that as a target opportunity for us, Tayo. We've gotten close a couple of times, but we've obviously never pulled the trigger on that. So that wouldn't be a change in policy for us. In our existing pipeline that we have, it's the same that we have -- we talked about it at the last earnings call, which is that, it is almost entirely acute care hospitals, if not entirely acute care hospitals, primarily here in the United States. We will expand in Europe outside of the 4 countries that we are now, but it will not be in material amounts compared to where our current portfolio is. But -- so just to reiterate, what we're looking at right now is acute care hospitals which may include some behavioral, but not any large percentage of that, primarily general acute care hospitals.

Got you. And then a last one from me. Any potential -- any other potential changes in the health care bill that's been reintroduced that kind of changes your mind one way or another about the impact of health care reform on the hospitals say?

Well, it changes every day, as we know. Certainly, that the bill changes every day and the prospects of a passing changes every day. But we just continue to stand by what we said more than 8 years ago with the changes in the health care. While there may from time to time be disruption as rules change, we expect that the overall reimbursement, the overall revenue for hospitals to remained steady. As you all have heard me say, you can't paint a picture in this country without hospitals. We are going to continue to have hospitals. We're going to continue to have reimbursement. Is it going to change? Absolutely. And that means that people will have to adjust to the way that they do business. But long term, we still feel exceptionally strong about the hospital business.

And our next question comes from Josh Raskin of Barclays.

Just a quick follow-up on the LTACHs. Is all of the coverage changed? Do you think that's all criteria-based? I know you haven't spoken to Kindred, but Vibra and Ernest. Are they suggesting that's all criteria -- patient criteria related? Or are there broader sort of labor and other issues there?

Well, there certainly are some labor issues there. We did have some facilities where the revenue was either flat or slightly up, where there were some labor issues. But I'm not sure what the big drop was for the fourth quarter because all of these facilities, most of these facilities had already been going through the patient criteria changes. I think it was more total macro market standpoint as opposed to the reimbursement and any other micro issues in the individual markets. I'd be concerned about it if we haven't seen the improvement, the great improvement that we have already seen in the first quarter of this year.

That makes sense. And then on the facilities, the freestanding EDs going to Ochsner. Just to confirm, I assume those are going to be transferred to their hospital license and still operated as freestanding EDs. And I guess, my bigger concern would be, will some of these freestanding EDs that Adeptus has in relatively competitive markets or maybe even very competitive markets, is there a risk that these get converted into urgent care or something on the lower end of the reimbursement spectrum?

Yes, Josh, on the margin, there may be some of that. So just for example, in a market that may have 20 facilities -- 20 of our facilities in a joint -- that are being leased by a joint venture with a major market operator. There could be 1 or 2 that they may want to convert. Now that has absolutely nothing to do with how much rent they have to pay us. That doesn't change. But these are big markets. And as I say, just consider one relationship where there may be 20 facilities in a market. We're not averse to giving some flexibility as to change in use. Specifically, with respect to Ochsner, it frankly is our understanding that they will use these not only for freestanding emergency strategies, but may also combine with less intense, urgent care type facilities. But once again, it's up to them as to how to generate revenue from these properties, and that's done in combination with their entire system. And we have the investment-grade rated guarantee of Ochsner and it will -- whatever they do with them, will not impact our rep.

And I'll just comment because it's a fair question. It's really not accurate to look at these on a stand-alone coverage basis because after all, remember, these are actually labeled, in regulatory terms, hospital outpatient departments. They are really departments of major hospitals. And so just like we wouldn't measure coverage on a patient wing of a hospital, it's really getting myopically focused to measure coverage on any department because the hospital uses each of these departments to generate significant revenue that may end up being recorded in another department. But nonetheless, they are critical components of an overall hospital system.

No, I get it. That's completely fair. But I assume when you're reporting the coverage, it's specific to the assets in the combined or master lease and I would assume, in an urgent care structure, we should be prepared to see significantly lower coverage ratios just as, again, assuming the same rent just because the reimbursement methodologies for a freestanding ED versus urgent care hugely divergent, right?

And you're absolutely right. And just to be clear, while that may happen again on the outer margins, it won't be so much that it's going to impact whatever coverage we report to cause concern. It's just not going to happen very much.

Okay. So there's not enough facilities, right. So that's, I think, the answer. So coverage should stay (inaudible). And then just lastly, we think about, I don't know, roughly a dime of dilution from a higher share count. I just want to make sure I understand the message,. Is the message that we're going to do our best to get back to the original guidance? Or we're not going to get back to the original guidance, but it's not going to be the full, call it, 10 cents or so, that we can get a good portion of it back? I just want to make sure I understand the message.

The message is we very well could end up in 2017 reporting within the range of $1.35 to $1.40. But it just -- it's a fool's errand with our type of a pipeline that's so very lumpy, to try to predict that until we get a little bit more clarity.

Okay. All right. So you guys -- it sounds like there's a little bit more confidence then that you can guys get back there.

Yes.

And our next question comes from Chad Vanacore of Stifel.

So I just want to follow up on your comments on the deep pipeline. So roughly what percentage of opportunities would be acute care versus specialty hospitals?

Almost 100% acute care, generally acute care hospitals.

Got you. And then just, when you think about the transaction market for hospitals right now, there is plenty of hospitals available. Are you expecting to be able to step into deals from the large for-profit hospitals who are net sellers? Or are these going to be more nonprofit system sales?

Most of them will likely be the for-profit. We -- there will continue to be, as we've seen in the past, some of the not-for-profit selling to for-profit. But we haven't seen an awful lot of opportunities with -- directly with the not-for-profits.

All right. And then just in general, who are the buyers of the possible assets on the market today? Who are your competition?

Well, the buyers of the operations are obviously the people that continue to be the existing operators and private equity firms. The competition for us, for our assets, continue to be other health care REITs.

And our next question comes from Paul Roantree of JPMorgan.

I'm not sure if you guys touched on this earlier, but do you guys have any color on the timing of the $250 million of pending acquisitions and anything beyond that?

So Paul, most of that, the great majority of that, $200 million of that basically is the German facilities that we actually signed and announced late last summer. And it's been our experience now, being in Germany now going on 4 or 5 years, that it takes a long time to wind its way through the regulatory approval. We have yet to have a regulator or a local council deny or exercise their right to intervene. And we have done 70-something hospitals. But that's the primary reason we're still waiting to close those roughly $200 million of hospitals we announced probably last September.

Got it. And kind of any color on stuff beyond that?

So other than the fact that it is primarily almost exclusively general acute care hospitals, it's properties that we -- the market certainly knows from our previous earning calls that we have been, at least on the edges, of working on for a while. And we have good expectations that some of that will certainly come to fruition. But the issue, as Steve has been discussing, is just the timing of it.

And our next question comes from Juan Sanabria of Bank of America.

Just on the Steward transaction on the follow-up deals, could you just comment on the coverage levels there? And your comfort level with those hospitals being kind of profitable stand-alone entities? And I don't know if you have any market share or margin data points you could share with us?

Sure, Juan. From a market share standpoint, it's literally across the board. As you know, it's 8 individual facilities. They range from #1 in their market, #2 in their market, #3 in their market, all the way to one facility is the last facility as far as market share. You can't always equate market share to the profitability of a hospital. For example, the facility that is the bottom of its market in market share is actually one of the best producing in the EBITDA numbers for the individual hospitals. As you pointed out in your note earlier this morning, these facilities have been operated by CHS primarily. The Florida facilities are legacy HMA facilities. And obviously, CHS has had its own internal issues. They have had these facilities for sale for a while. So they haven't been having a tremendous amount of management attention. As you pointed out, the going in coverage for these facilities is approximately 2x. We believe, and Steward believes, that there is enough low-hanging fruit that these facilities will quickly approach 3x some time in 2018 and rapidly get to numbers that are much higher than that, that I dare even mentioned. But we feel very comfortable about Steward's ability to not only take these facilities beyond the low-hanging fruit that's out there, but actually put them in their particular management plan and generate coverages that are in the coverage ranges of our other long-time standing hospitals.

So does Steward see these individual hospitals they are acquiring as profit centers? Or they're part of their business strategy of making money kind of elsewhere throughout their broader enterprise? Are there any stand-alone profitable in their views?

Yes, absolutely.

Okay. And then could you share a little bit about your thoughts on how you went about valuing the opco portion of Alecto and how that's structured, that equity stake?

It is totally, Juan, an upside profit interest. There is no incremental investment in Alecto.

Okay. And then just last question on the pipeline, I guess, over and above the assets in Germany that are pending. Could you comment on just the general cash cap rates you are seeing, and any change from what you have been doing with seemingly more money chasing health care real estate broadly speaking, and going-in coverage level expectations on an EBITDA basis?

Yes, it really hasn't changed anyone. We're still looking at in the 8-plus all the way to 10-plus cap rate ranges. And we're still looking at the going-in coverage cap rates between 2.5 to maturity levels in the 3x range.

And the 8 to 10, is that the GAAP or cash cap rate?

That's GAAP, and it actually could be both. I mean, if you look at, say, an initial year cap, just for example last year, when we did the Steward deal, was 7.5%. That rapidly climbs to 8% and then escalates with inflation from there. That ends up with a GAAP rate of in excess of 10%.

And our next question comes from Karin Ford of MUFG Securities.

I'm just following up on Juan's question. Can you share with us the cap rate on the hospital you sold in Oklahoma?

Yes, it sold at a cap rate equivalent of about 7.6%.

And that's GAAP as well?

No, no, that's on a cash basis.

That's cash basis. Okay, great. Second question just on Adeptus. Can you share with us any conversations you've had with Deerfield about just what their plans are to turn it around? And can you just share with us any trends that you've seen on collections and volumes there?

So Deerfield bought 100% of the outstanding senior debt, which was about $220 million, and since then has made loans just in the range, I don't have the details, but call it in the $25 million range. And has committed to debtor-in-possession financing for more loans to keep the facilitating -- facilities operating. So they have a tremendous investment already in Adeptus, and there is more to come. What they see and why they are willing to make this kind of investment is, Ed and I had both mentioned it, I think, on this call that the real importance and evolving importance of these freestanding departments that expand a hospital's footprint, expand its market share, capture very profitable patients that might otherwise go elsewhere, and so that's what Deerfield has recognized. For all of the complaints that people may have about Adeptus, they did something extraordinarily well. They built this platform that's up and running and the largest such platform in the country, probably the only comparable platform would be that of HCA itself, and joint ventured with the dominant hospital operators in each of their markets. And that has made this extraordinarily valuable. And Deerfield recognized that and intends to continue to develop that, not only in the markets they already are in, but expanding across the country.

Would you consider any other deals with any other freestanding ER operators?

We absolutely would. It is a phenomenal market. We were able to be part of, frankly, its creation. We have other operators with freestanding emergency departments and it is a tremendous opportunity. Now there are certain overbuilding issues in certain markets. But again, we saw that way back when we first got into it, and that was the reason that -- the only reason we expanded with Adeptus is because they address that by joint venture. Just for example, in the Dallas-Fort Worth market with Texas Health Resources, the largest operator of hospitals in that market. So, yes, there is going to be and there is already a fallout with overbuilding, particularly in Texas markets, but you can rest assured that Texas Health Resources, or in the case of Arizona, Dignity, or Colorado, the University of Colorado Health System, they're not going to be part of the fallout.

Last question is just on G&A. Do you expect that could tick up with the opening of the office in Luxembourg?

No.

No, there should be little if any increase and, in fact, the greater likelihood would be a decrease, because, obviously, we've been outsourcing everything over there, and we expect Luke to help mitigate some of them.

And our next question comes from Jordan Sadler of KeyBanc.

I wanted to just come back to the equity and the impact, if there is a way to get to the run rate. I know that you are not offering guidance, but, Steve, is it safe to assume that the cash proceeds in the meantime will be used to reduce the revolver?

That's true, but there is not a lot of cash -- net cash proceeds because of the transactions we just closed. We closed the Steward acquisition of 8 hospitals, that took $300 million plus of the offering proceeds. And then the RCCH was another close to $100 million. And then we've got pending the Alecto. And so that pretty much takes care of the proceeds.

All right. I was looking at your sup, Page 8, you've got a $226 number, $226 million, after 8 Steward to Alecto and the 14 in Germany and RCCH. Is that -- am I missing a couple of deals in that, that were post quarter end?

I'm sorry, Jordan, you've kind of caught me off guard.

Bottom of Page 8.

Okay. You're talking about cash on the balance sheet. And yes, the great majority of that is euro denominated, euros, which euros are denominated in.

So that $225 million is in euros and basically can -- you're saying that can't really be used to reduce the revolver.

It could be, but it would mean converting them into dollars and then you are exposing yourself to currency fluctuations, when, in fact, we expect that we'll use those, again, as the pending MEDIAN deals close. We've always used local currency and that's kind of reserved for the -- for European investment.

Okay, Okay, I think I get it. So that's basically still outstanding as cash on hand?

Yes.

The other question I had was regarding the sizable asset sales or joint ventures you are exploring. I'm curious if there is any insight you can lend there in terms of what the cost of that capital is. Or what kind of structure you would be thinking about?

So, for the first question is, we're still in the discovery phase. We don't know what the cost is going to be. As Ed mentioned, we certainly are hopeful, and we think we have reason to be hopeful, that there will be meaningful gains embedded in those transactions. So just in other words, if we sell assets that are on our books for a $100 million, we hope to get more than $100 million. But we are not in a position where we can confidently say how much it would be. Structurally, we are working on 2 portfolios: One U.S.-based; and one European-based. That would basically be -- we would drop down those assets into a joint venture and the investor would then buy its interest at the pricing we ultimately negotiate. And it would be treated generally as a sale. We would continue to have management rights, it would be a very long-term investment for the investor. And typically, we are looking at investors who have that type of time horizon; sovereign funds, public and private pension funds and other managed money for very long-term investors.

So to be treated by a sale, would it be safe to assume you'd sell a majority interest?

No. That's just not determined yet.

Okay, okay. And this -- and the objective here in terms of what you'd put into the JV would be really just another source of capital? Or would you be looking to monetize a particular type of asset or facility or geography?

No. It's truly just another tool to use for capital access. There could be other benefits, for example, diversification, validation of the value of certain either portfolios, tenant relationships or types of assets. But primarily, this is a capital access strategy.

And I'm showing no further questions. I would now like to turn the call back over to Ed Aldag.

Thank you, operator. And again, thank you all of you for listening today. If you have any further questions after the call, as always, please don't hesitate to call Charles, Tim, Steve, or myself. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a great day.