Medical Properties Trust Inc (MPW) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Medical Properties Trust Third Quarter Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Charles Lambert, Managing Director. Sir, you may begin.

Good morning. Welcome to the Medical Properties. Trust conference call to discuss our third quarter 2018 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 risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed and/or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information.

In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to, and not in lieu of, comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations.

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

Thank you, Charles, and thank all of you for joining us today. The third quarter served as another testament to the value of the MPT portfolio, as we closed on multiple transactions, both domestically and abroad, resulting in strong double-digit returns. We have spoken a good bit about our German inpatient rehabilitation hospitals joint venture with Primonial Group and the deal valued at EUR 1.63 billion, which produced an unlevered IRR exceeding 15%. I want to talk a little more today about 2 other transactions that were also highly successful for MPT. In 2005, we agreed to fund the development of an acute care hospital in Cypress, Texas, with a group of local physicians who wanted to create a better healthcare experience with the patients in this Houston community. The hospital opened in 2007 with 64 acute care beds and 1 medical office building on campus. Because the hospital experienced incredible growth year-after-year, licensed bed capacity was increased to 139 beds. Strong physician leadership and experienced management team and community need were some of the key factors leading to this hospital's success. The 11-year success of this hospital eventually led to the largest U.S. for-profit hospital operator, HCA, knocking on their door with an offer to buy North Cypress. The sale returned to MPT a total of $148 million, which represented $86 million above our original investment.

In early 2012, we announced the Ernest Health transaction, where we essentially invested approximately $100 million into the Ernest operations, in addition to $300 million in the real estate. At the time of the announcement, we noted that this investment would give MPT upside over and above the strong real estate returns from leases and mortgage loans. That upside was validated with the completion of the recapitalization of Ernest by One Equity in early October. During the 6-plus years of our investing in the operations of Ernest, we almost doubled our initial investment, earning almost $95 million of cash returns.

Additionally, we still maintain real estate investments in 25 outstanding postacute facilities and look forward to continue to support Ernest with continued growth capital. Proceeds from these transactions have been utilized to reduce debt and further strengthen our already strong balance sheet. This has well positioned us to take advantage of our robust pipeline while continuing to maintain our selective approach.

Our overall acquisition pipeline continues to be as strong as it has ever been, approximating around $5 billion in total active negotiations, including approximately $3 billion domestically and $2 billion in international opportunities. We will continue to update you as we progress with signed commitments.

Steward, our largest tenant, continues to perform at anticipated levels, with same-store trailing 12-month EBITDARM coverage exceeding 3x. I had previously noted potential divestitures of 2 Steward hospitals. Steward has decided to keep these 2 hospitals and has reenergized the local market with new leadership and a strategic plan for strengthened and sustained performance.

Our Median rehabilitation facilities continue to perform well, with a combination of top line revenue growth and reduced operational calls compared to prior year. This has resulted in a year-over-year increase in EBITDARM coverage to approximately 1.7x, an increase of 8% from the prior year. You may have seen the recent news articles about Median's equity partner Waterland running a sales process for their investment in the operations. They are beginning the final round of this process. We met recently with Waterland for an update and are very pleased with the indications of interest from various international groups. We will continue to maintain our investment in the real estate and expect that we will be a part of the growth capital there for many years to come.

Prime finalized its settlement with the Department of Justice during this quarter as anticipated. Prime continues to perform well, with EBITDARM coverage for the trailing 12 months ending second quarter 2018 at almost 4.7x. Additionally, Prime's cash collections continue to track with net revenue.

Overall, year-over-year same-store EBITDARM coverage is up 17%, driven primarily by strong year-over-year improvements from our acute care facilities. This quarter also saw increased coverages across all geographic regions, both domestic and international. With this quarter's reporting, we added a net of 1 property to our same-store reporting. As noted above, this quarter, we sold our North Cypress general acute care hospital, and we added 2 general acute care hospitals to the same-store reporting.

Our same-store total portfolio EBITDARM coverage for the trailing 12 months Q2 2018 is 3.2x, which represents a 17% increase year-over-year and 0.5% increase quarter-over-quarter. Same-store acute care EBITDARM coverage increased to 4x, which represents a 22% year-over-year increase and a 0.5% quarter-over-quarter improvement.

IRF EBITDARM coverage increased to approximately 2x, which represents a 6.5% year-over-year coverage and a 2% quarter-over-quarter improvement. U.S. IRFs represent about 4.8% of our total portfolio. LTACH EBITDARM coverage decreased to 1.5x, which represents a 14 basis point year-over-year and a 15 basis point quarter-over-quarter decline. Now it is important to note that this coverage decline is driven by one facility, whose EBITDARM coverage declined from over 9x to a still very strong coverage of over 4x, primarily as a result of one-time expenses related to expanding operations. LTACHs represent approximately 3% of our total portfolio.

The United States represents 79.6% of the total portfolio. Over the next year or so, we'd like to see the international portion continue to increase to more like 30 plus-or-minus percent. Acute care hospitals continue to make up the bulk of our investments domestically at 79%, which is right in line with our target range. Our top 3 tenants are: Steward at 37%; Prime at 11%; and Median at 11%. It is an important reminder that approximately 91.5% of our same-store portfolio is master leased cross defaulted and/or includes a parent guarantee. Additionally, our portfolio is diversified across 29 different operators. September marks the 1-year anniversary of Steward's acquisition of IASIS. In the last 12 months, Steward has made significant progress in developing efficiencies, implementing operational best practices, recruiting new positions and beginning to achieve economies of scale benefits.

Significantly, Steward has invested in its management team, moved its headquarters to a geographically central location in Dallas and their divisional operations are producing solid results. Their divisions are producing EBITDARM results that range from 2.5x to 3.75x. While Steward represents 37% of our portfolio, long-term MPT investors know that our underwriting focus on healthcare operations and we divide Steward's operations into 6 different markets: Their largest division is in Massachusetts, and represents approximately 14% of our portfolio; their next largest division is the Salt Lake City market in Utah and represents a little more than 10%. In total, Steward's 6 divisions have different market and operational characteristics but our credit is strong with a master lease and loan agreement in place.

Lastly, we continue to see exciting progress on our ongoing construction projects in Idaho and the United Kingdom. Our surgery partners project in Idaho recently completed Phase III, is on schedule and expected to be completed by the end of 2019. Our Circle acute care and rehabilitation development projects in Birmingham, UK, are expected to be completed in the first quarter of 2019 and the third quarter, respectively. 2018 has been a tremendous year for MPT and 2019 is shaping up to be another fantastic year. Steve?

Thank you, Ed. For the last 18 months, our primary focus, of course, has been on positioning MPT to continue delivering sector-leading growth and investments, FFO per share and dividends. That process is now virtually complete. And before we discuss the quarterly results and our future expectations, I just wanted to summarize those major steps we took to successfully execute this strategy. We sold assets, including through a German joint venture, that created more than $673 million in gains net of certain adjustments and cash proceeds exceeding $1.5 billion. Each one of those transactions proved to be outstanding increase in value we created since initial acquisition of the sold assets. Importantly, they covered all of our asset types, including large acute care hospitals, rehabilitation hospitals, long-term acute care hospitals, international assets and RIDEA equity investments, such as our highly successful Ernest transaction. We used proceeds to reduce our debt to a sector-leading 4.5x ratio of net debt to EBITDA. We significantly increased the value of our Steward master lease by acquiring previously mortgaged facilities and joining those to the master lease, whereas previously, 1/2 of the initial $1.2 billion Steward portfolio acquired in 2016 were in the form of mortgages, 100% of that portfolio is now master leased. This makes our Steward investment even more valuable than it already was. And if in the future, we elect to access inexpensive capital through a joint venture or other disposition of these assets, we already have indications that the new all leased structure will result in substantial incremental proceeds over what we were previously considering earlier this year.

During this time of restructuring, even as we completed these transactions, we further developed our acquisition infrastructure, leading to what has become the largest and most diverse acquisition pipeline that we have ever had. We're adding acquisition professionals and support staff and have invested in data resources, both in the U.S. and in our Luxembourg office. We are replacing our previously outsourced accounting and administrative functions in Luxembourg with MPT employees, which is expected to lead to reduced G&A and more effective operations there.

That all brings us to where we are today. MPT has more than $2 billion in cash and revolver availability that we plan to invest over the next 12 months. We expect that at the end of that process, our balance sheet will remain lowly levered, and we will have significant remaining liquidity for even more accretive acquisitions. Our portfolio at that time should be generating $1.46 to $1.50 per share. And you just heard Ed describe the $5 billion-plus actionable pipeline we are working. So it is entirely possible that we could even exceed those outstanding results in 2019. In any case, we offer our shareholders the almost-unique opportunity for strong growth in FFO and dividends, as the hospital real estate sector continues to grow and offer very attractive investment opportunities.

So I'll briefly just describe our reported results. This morning we reported normalized FFO of $0.35 per diluted share for the third quarter of 2018. Importantly, this does not include almost $650 million or $1.76 per share of net realized gains on asset transactions during the quarter.

The quarterly results do reflect the temporary dilution from the use-of-sale proceeds to reduce our debt balances to a level equivalent to the aforementioned 4.5x in place EBITDA. Adjustments reconciling NAREIT FFO to normalized FFO are consistent with those of previous quarters, including acquisition and transaction costs and accrued straight-line rent related to sold properties. I'll be happy to take any questions about this in our Q&A. As we reported in our press release this morning, we expect 2018 normalized FFO to approximate $1.36 per diluted share. Based on our present expectations about the timing of acquisitions and sources of capital in 2019, we expect normalized FFO for calendar 2019 to grow to a range of between $1.42 to $1.46. And as I noted earlier, we expect the portfolio at that time would generate annualized, normalized FFO of between $1.46 to $1.50. That is about an expected 8%-plus growth rate compared to expected 2018 normalized FFO. And with that, we'll be happy to take questions. Operator?

(Operator Instructions) And our first question comes from the line of Jordan Sadler from KeyBanc Capital.

Can you first run us through what you're seeing in the pipeline? I mean, you seem very optimistic, which I suspect means you guys are getting closer to being able to close and you've even baked it into the guidance at this point. So -- but is there any additional color you can offer around what's in there?

Jordan, it is the same type of properties that I have mentioned over the last 2 earnings calls, which is primarily, almost exclusively, acute care hospitals. It is both domestically and internationally broken up in the numbers that I gave earlier. But the guidance that we've given is that we believe we can do at least $2 billion. But as Steve pointed out, we think that we have the ability to even exceed that. So we are very optimistic about where we are in the negotiations. We are very optimistic about what we see. But certainly, not ready at this point to give you any more specifics than that.

Okay. How is pricing looking?

So if you look across all of what we have baked into our estimate and that assumes, over the course of 2019, identifying the activities we're working on. Bottom line is, we expect 7.5% to 8.5% kind of an all-in blended rate and that's what gets us to the run rate of $1.46 to $1.50.

Is that on a GAAP basis, Steve?

It is.

Okay. And ratable, a fair assumption for the year's guidance?

No, we wouldn't say that. We're hopeful that one would be early in 2019 and then, there are others that we assume will come in the first half. The biggest chunk would be after the end of the first half.

But closer to the middle of the year?

Yes, weighted all in. Yes.

Okay. And lastly, how are you financing this in guidance? Is this -- is there an equity component?

Yes, there is. There -- we assumed in our guidance the permanent financing. And to result in this, as we've discussed both in the press release and on this call, conservative leverage in the range that we've always talked about.

And our next question comes from the line of Chad Vanacore from Stifel.

Just a cap rate range that Steve just gave at 7.5% to 8.5%. Is it fair to assume European assets trending toward the lower end of that and domestic on the higher end?

That is a fair assumption.

All right. And then, would you look outside of Europe for investments or are you just focused on that area?

Well, it's -- as you know, when we first started looking outside of the United States, our very first look at was in Australia. We didn't do anything in Australia, but we have continued to follow it along. We would make investments there as well. But primarily we're talking about Europe.

And our next question comes from line of Drew Babin from Baird.

Question on the Steward lease additions. I guess, has that changed the cash versus GAAP yield dynamics at all? I know those mortgaged properties were, I think, a straight-cash yield but does that now, kind of -- is that subject to increases over time and is there anything that might happen with straight-line rent with near-term results that might influence the FFO?

Drew, from a cash perspective, nothing changed. From a reporting perspective, because they are now leases, we will be accruing a straight-line component. But the escalation was always in the mortgage agreement. So we were always a beneficiary of annual escalation, we just didn't recognize that from an accounting perspective.

Okay, that makes sense. And I guess, can you talk a little bit more about the valuation differential, the way that investments look at these mortgage investments relative to lease investments? Maybe quantify it in terms of cap rate spread between what they would they be willing to pay. Are they looking at the mortgage investments essentially at book and the leases, obviously, it capped cash flow or is the answer sort of somewhere in between?

So we don't think there should be much of a difference. The big difference is in two perspectives: Number one, it's hard to get financing for mortgage, I'll put it this way. It's harder to get affordable financing for a mortgage. So for example, if we were to sell the mortgaged -- or the mortgages, it would be difficult for the buyer to get full value for that. So that's one component of how it impacts pricing. But that's only if you're sellers; the other issue is, of course, in the event of kind of apocalyptic stress at the operator that leads to bankruptcy, the mortgage is much more difficult for us as the mortgagee to deal with than a lease is. So that's the big difference. When we do these mortgages as part of doing a larger, say, a leaseback transaction, the economics are virtually the same.

Okay. And one last question and more of a clarification. It would appear that promoting out deal, it's unconsolidated, correct?

Right.

So the equity and income coming from that would be in other income on the income statement and the investment would be in other assets on the balance sheet, I would assume. And have you given any thought to maybe giving a little additional disclosure on that JV given that in the supplemental it's still listed as a pretty large share of your revenue, the Median investment?

Yes and yes. Your assumptions about the reporting are exactly correct. And yes, we have given thought to that. But given the -- really, the short time since they've actually been in the joint venture, just 1 month during the quarter, we elected to defer that until the next quarter when we absolutely do intend to give more fulsome disclosure about what's actually happening at that joint venture level.

And our next question is from the line of Michael Carroll from RBC Capital Markets.

Ed and Steve, can you talk a little bit about the $2 billion of deals that you have been highlighting in the call? And forgive me if you already disclosed this, but did you highlight what percentage of that's going to be within Europe and what percent could be in the U.S.?

Well, I said earlier that of the $5 billion that we are in active negotiations over, about $3 billion of that is in the U.S. and about $2 billion of it is in -- outside of the U.S.

Is that the same percentage in the $2 billion that you highlighted in the guidance?

Yes, yes.

Okay, great. And then, Ed, you keep on highlighting too that you want to get the European portfolio back up to about 30% of our portfolio. I mean, is there a time frame that you're thinking about to achieve that goal or is just something that you just want to do eventually.

Well, we've been there before. But then with the IASIS acquisition, we moved obviously, back down from a percentage standpoint. But I suspect that we will be there about -- during 2019.

Okay, great. And then, Steve, for the equity component that you highlighted that you included in guidance, is that an offering that you expect to do or are you still contemplating potential asset sales or other JV type transactions to fund those?

So for purposes of the guidance, it's pretty conventional permanent financing. We assume unsecured debt and the common equity.

Okay. When that day comes though, you're also going to be looking at doing some type of JV too if you can get better valuations, is that correct?

So we're also -- always looking at, always thinking about what's the best long-term most affordable and efficient capital. Obviously, we hit the ball out of the park with the German Primonial joint venture. And so, yes, we will always be considering that. And as I mentioned a little bit earlier about the rationalization of the Steward portfolio away from the mortgages, it makes it all the more marketable, if in fact, we were to elect to do that, and there's no immediate plan to do that right now.

And our next question comes from the line of Derek Johnston from Deutsche Bank.

Could you tell us a little more about your new approach to leverage? It seems like you're no longer focusing on a target of historical ranges but where do you feel most comfortable leverage-wise and how are you guys thinking about it?

Well, we don't think we've changed. If you look across the last 8 or 10 years with periodic exceptions, like we're in a period of exception right now at 4.5x, in the past, we've been as high as 6x, 6x-plus. But the goal is to operate in that roughly mid 5xs level, which we think is actually, more than appropriate, given the fact that we don't have mortgage debt, so we don't have periodic mortgage refinancing. We don't have capital expenditure obligations, that all rests on the tenants. So we feel like that 5.5x range is the right place to be.

But Derek, I think it's important to point out, I think you're alluding to this, the 5.5x range is we think a conservative number where we'd like to operate but it's not a cap. It doesn't put us in a box.

Got it. And just switching gears, just slightly. What kind of development opportunities are you seeing out there and do -- are there any increased efforts to ramp that up next year in addition to the acquisitions? How are you thinking about that?

So over the course of the last 15 years, there haven't been a whole lot of development opportunities. Hospitals don't often start from scratch in building new facilities. We do have some. We have some like the one in Idaho that we are working on and the one in the UK that we are working in. We have some others in the pipeline. But as a percent of the total pipeline, they are very, very small.

And our next question comes from the line of Tayo Okusanya from Jefferies.

This is Austin Caito on for Tayo. I just want to follow up on some of the opening remarks around coverage on Steward. Was that EBITDAR or EBITDARM?

EBITDARM.

And what is the EBITDAR coverage on that?

It's about 50 basis points lower.

50 basis points lower. Okay, great. And then, as you look at the $2 billion in acquisitions for 2019, could you guys give maybe a pro forma of that could reduce Steward's exposure to?

Yes, good question. At the end of that process, the being investing $2 billion, and by the way, there's nothing in the pipeline, that $2 billion pipeline, for Steward. Steward would be down from its roughly 37%, 38% now to the low 30s, 32%, 33%. And again, that's with the initial $2 billion. But again, I'll take the opportunity to reiterate what Ed mentioned is that Steward is really 6 different operations, 6 totally different markets, 6 different local management teams, the largest of which is Massachusetts at about 14%. And that's the way we underwrite, that's the way we manage and that's the way we look at the concentration risk when it comes to any particular operator. Any of those -- I'll put it this way, none of those 6 markets are dependent upon any of the other markets or dependent upon headquarters to continue to operate. The coverages that Ed gave for Steward, of course, they vary across those markets but all of them on a market-level basis, are very, very strong, 2x-plus coverage.

Great. And last one for me. I believe, in the opening remarks, you touched upon G&A coming down a little bit. I saw it spiked up a bit in 3Q '18, maybe just, what we should expect for 4Q '18?

Yes, it did spike up. There are a handful of reasons for that, none of which, on their own, make a big difference but they accumulate to what you saw, the roughly 1% spike up, including top line revenue was reduced for the top accounting, moving out of revenue and down into equity and earnings. There were fairly meaningful, onetime professional fees in completing not only the top transaction but in some of the infrastructure costs in Luxembourg that I mentioned. And with the more than $1 billion Euro proceeds that we got, that we haven't yet reinvested, that's sitting in banks in Europe. And unfortunately, over there, they charge you to use their banks. So there is roughly $0.5 million charge for negative interest that's included in G&A. All of that, of course, we expect to go away in future quarters.

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

Just following up on that last G&A question. Can you give us a sense of what's assumed in the 2019 guidance?

I can't tell you specifically but clearly, more normalized G&A that will take advantage of the 20%-plus growth in assets and revenue. So I'm sorry, that's just as specific as I'm able to be right now.

Okay. And then, for the cap rate discussion, should we still be thinking that European cap rates are now sub-6% and you kind of highlighted Australia, Healthscope is out there. Are you interested in those assets at present and where are those kind of valuations at -- or cap rates?

No, the European assets could be as low as sub-6%. I think we've tried to make that clear in recent months. We wouldn't comment on any specific transaction such as Healthscope or anything else.

But anything outside of Europe internationally is or is not contemplated in guidance?

No. We haven't disclosed in that level of detail where the acquisitions will actually be sourced.

Okay. And then, just one last question on the balance sheet. The $2 billion, if you did fund that all with cash and available liquidity on the line or otherwise, what would the pro forma leverage be, assuming no equity or dispositions?

Yes, I don't know. I mean, that's not our plan. But it would still remain less than 6x. But -- and look, we could do that but that's not realistic. That's why when we give this guidance, it's long-term permanently capitalized guidance. So we wouldn't expect to ride the line that has a 2-year term for a 30-year asset.

Okay. And just one last one me, I got a question from an investor. Just with regards to Steward, I know you guys view it as, I think you said 6 different pools, but do the rating agencies view it the same and is that an impediment at all to -- from a credit-rating perspective?

No, the agencies look at it at the topline level.

Meaning that the full exposure?

Yes, yes.

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

Just wanted to get your view explicitly. It sounds like from your comments about your viewing Steward as different regions that you currently have no more plans to do any asset sales or pursue another joint venture to bring down that exposure?

We don't have any active discussions with doing a joint venture to do that right now. Obviously, if the right opportunity comes along, we would still consider it. But if you look just at the acquisitions that we have projected for 2019, and as Steve pointed out earlier, none of that includes any additional Steward properties, you already begin to see getting that number down fairly significantly. I believe that gets it down into the high 20s.

Yes, I think you said like 32% to 33%, you're comfortable at that level?

On any one operator, I'd like to see it in -- below 30%.

Okay, okay. And the earlier discussion we had about the differential in valuation between owning the fee simple interest versus the mortgage interest. Should we think about that in terms of the $14 million additional money that you paid to Steward when you made the conversion? Is that a good estimate on, sort of, the benefits that you outlined on the fee simple ownership?

No, that's a fair comment. And has something to do -- a lot to do frankly, with the increase that we were willing to pay over the mortgage balance, small as that is. But it's also some of those -- well, all of those properties we've held now for 2 years and they frankly, are more valuable today than when we mortgaged them or when Steward mortgaged them 2 years ago.

Great. And last question for me. Can you give us an update on the status of the Adeptus sales?

Yes. We have basically completed the transition of all of the Adeptus properties that, as we sit here today, we think will be transitioned. So that leaves 7 that we think will be sold. And all of that could change, it's a very rapidly moving dynamic. And so, that's where we are with Adeptus. We -- it's likely that we will sell those 7 but it could be just as likely that we'll retain them.

We seem to have more interest for them today than we did even 3 months ago.

Yes, exactly.

And our next question comes from the line of Eric Fleming from SunTrust.

I wanted to dig a little bit more on the pipeline. It looks like the pipeline is effectively flipped between U.S. and Europe. Obviously, it's pretty fluid. But last quarter, I think you were indicating there's a potential for upwards of $1 billion in that pipeline to close aggressively by year end but early in 2019. So I just wanted to make sure, the timing into 2019, is it like there's a slug at the start of the year and then another slug potentially mid-year, is that kind of the way you're talking about the 2019 $2 billion?

Eric, that's generally right but that slug's probably too big. But that's generally right.

And our next question comes from the line of Todd Stender from Wells Fargo.

I had some question about the mechanics. I think I'm going to save those for off-line. I'll probably call you guys later just on the mortgages, the Steward mortgages, the ownership. But, Steve, you've highlighted maybe there was a chance that the value has gone up in the properties. Is that -- does that mean your cost basis will change as well from what maybe what you were holding the mortgages at versus what the ownership will be?

Oh, yes, of course. We will be earning the lease rate based on the purchase price.

Okay. And do you guys -- can you cover what the rent coverage has been over the last 2 years on those 5 hospitals?

For those we just converted, we haven't gotten that specific into each one of the individual properties. We have broken it out by regions but not individually on the properties.

We've only owned a few for 2 years and most of them for 1 year, if I understood the question.

Yes, just to get a sense that there's some value creation that's gone on that we can quantify. And then, I guess, you highlighted in the press release that this change will improve the credit metrics of the portfolio. Is that just simply that Steward will no longer have as much mortgages on their books? Is that, kind of, how we look at it?

No, it makes our portfolio more valuable for the reasons I described a little bit earlier about making the properties more marketable. That's what's meant by that. And also, in the, certainly, unexpected event of a bankruptcy, the power of a leased facility over a mortgaged facility is very, very wide and that in itself brings great value versus a portfolio of mortgages, for example.

And our next question comes from the line of Michael Mueller from JPMorgan.

A couple of questions. First, for the 30% mix of Europe by the end of next year, is that just based on the likelihood of what you think is going to end up closing next year so that's where you end up, or is it a little bit more for reasons XYZ, 30% is the right mix for the portfolio to have there?

No, you may recall that when we first made our initial investment overseas, we always have said that our goal was in the 30%-plus or minus range, and we have fluctuated over the years with that number based on our acquisitions in both locations. But we expect that we will be in and around 30% maybe a couple of times next year, as we go through the acquisitions. Not exactly sure where we'll end up the year but probably ought to be very close to that.

Okay. And then, on the financing side, to the extent that you are in the debt markets next year, I mean, how should we think about domestic versus Euro debt?

Well, it will track exactly with the acquisitions, if that's the question, yes.

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

Just following up on Mike's question on the debt side. So you wouldn't necessarily increase the leverage on any European acquisitions to minimize tax leakage, and could you just talk about where you see debt cost in the unsecured market for both Europe and the U.S.?

Yes, your colleagues on the other side of the bank tell us about, if we were to go out today on a 10-year U.S, we're probably looking in high-5s to 6. You could see that as low as 200 bps lower in Europe.

Okay. But the comment about increasing the leverage relatively to European acquisition, is that valid just from a tax leakage perspective?

Yes, generally. Although, in most jurisdictions in Europe, and it's coming here, by the way, there are limitations as to tax deductibility of interest that's driven by borrower EBITDA. And so, there's quite a lot that goes into structuring a European deal to minimize the tax leakage.

Okay. And one last one for me, probably for Ed, I guess. On the political front, obviously, we have the election coming on Tuesday. If the Republicans hold both the House and the Senate, do you see any risks? I know you always like to say, you can't paint the picture in this country without the need for hospitals. But on the margin, any risk to profitability if Republicans hold, given articulated plans around the Affordable Care Act and the like?

Well, we don't see any big political changes regardless of who wins the elections next week right now.

And I'm showing no further questions at this time. I'd like to turn the call back to Ed for closing remarks.

Thank you, operator, and thank you, everyone, for listening in today, and if you have any additional questions, please don't hesitate to give us a call. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.