Medical Properties Trust, Inc. (MPT) Q1 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Medical Properties Trust First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Mr. Charles Lambert. Sir, you may begin.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2016 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 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 federal securities laws, the Company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Charles and thank all of you for listening in on today first quarter 2016 earnings call. Operationally 2015 was one of the best years in the history of Medical Properties Trust's, we broke all sort of records on growth in almost every category. But even more importantly than that the strategic decisions we made in 2014 and 2015 were absolutely perfect to position MPT as the preeminent provider of hospital real estate asset based financing. As we’ve said since the inception of this Company, we will always manage this Company for the long-term benefit of our shareholders. The results of our first quarter for 2016, were truly tremendous. Our normalized FFO per share was $0.35 up 25% compared to the first quarter of 2015. Our revenue was up more than 41% year-over-year for the same period. With our recent disposition in subsequent debt pay down, we are in a position of enviable strength within an abundance of liquidity to take advantage of accretive acquisitions. Almost immediately after our Capella acquisition of the end of last summer. We feel that numerous in down calls from operators and private investors, who wanted to either purchase or invest with us in the Capella operating piece. After strategic discussions with the Capella management team and the MPT executive team, we began having in-depth conversations with the Apollo led RegionalCare. Those conversations led to the merger of Capella operations into the RegionalCare last week. This transaction should give investors, analyst and the credit rating agencies all comfort and the value and quality of the underwriting conducted by the MPT staff. In less than a few months, we had entities that were willing to pay more than we did for the same Capella assets. We are delighted about the new chapter the Capella relationship. We have a much stronger and better capitalized tenant, we retained our real estate investments and we have a vehicle with which can continue to grow. And just as importantly, we were able to reduce our debt by some $500 million and put our balance sheet back into top 30% of our REITs. Our leverage ratios, covered ratios and abundant liquidity, gives us the ability to make strategic opportunistic acquisitions. At almost $6 billion and assets, our portfolio [strength] continues to be the hallmark of MPT. Remember when we report our property EBITDAR coverages, we do so on a same-store basis to provide the clearest understanding about our properties. We also use the more conservative approach of EBITDAR, not EBITDARM. We add properties to same-store, when they had been operational in our portfolio for 24-months. When newer properties are added to the group, it will have an effect on product quarters, because they get added 24-months back. Because our seasoned properties have such high coverages, the movement for these prior quarters are often downward. This quarter we had 11 of our German rehab facilities, two U.S. rehab facilities and two Acute Care facilities or a total of 15 new properties added to the same-store comparisons. Our overall portfolio continues to perform exceptionally well, all three of our major areas Acute Care, LTACH and IRFS were essentially flat year-over-year. For the Acute Care sector, we added two new hospitals to our same-store set, with no change to prior quarters. The fourth quarter coverage dropped approximately 10 basis point to 4.4 times year-over-year. for the LTACH there were no new facilities added to the same-store set, the LTACH remained flat at one 1.9 times coverage year-over-year. For the IRFS we added the thirteen facilities to the same-store group grouping, 11 of which were the original German facilities. Obviously with the newer facilities not being as seasoned as older facilities, they have artificially reduced the previous quarters coverage from 2.9 times on updated third quarter coverage of 2.4 times. This new same-store group reporting the same coverage of 2.4 times for the fourth quarter. adjusting for the 15 new properties added to the total portfolio of same-store. The total portfolio EBITDAR coverage drop 10 basis points, from 3.6 times to 3.5 times. After the closing of this disposition to the Capella operational pieces this past Friday, prime and median each represent approximately 19% of our portfolio followed by on Ernest at 10% and Capella at 9%. And most importantly to us from a diversification standpoint, the largest single investment in 81 property represent only 2% of our total portfolio. In the U.S. our investments are represented by Acute Care at 69%, IRFS at 12% and LTACHs at 10.5% and freestanding ERs 8.5%. We have 78.5% in the U.S., 19% in Germany, 1.5% in Italy and 0.5% each in Spain and the UK. We are delighted to be able to present our shareholders with today's report and we are excited about the position we are in and the opportunities that exist. At this time, I'll ask Steve to go over the specifics of this past quarter’s financials.

Thank you, Ed. This morning we reported normalized FFO for the first quarter of $0.35 per diluted share, an outstanding 25% increase compared to 2015s first quarter. We also reaffirm that we expect full-year normalized FFO will range between $1.29 and the $1.33. As you can see from the press release the only significant difference between NAREIT FFO and our normalized FFO is $4.3 million in acquisitions cost. The great majority of which are related to transfer taxes and other cost incurred for the closing of the Italian joint venture with AXA. We account for this investment by the equity method on a one quarter lag basis and future results will be separately reflected in the income statement. Late last week, we completed our previously announced transactions among Capella a Apollo Global management and RegionalCare hospital partners. Those transactions netted us $551 million in cash, which we use primarily to repay revolver borrowings. In February, we issued $500 million of eight-year senior notes that we also used to repay debt. So as of today we have about 1.1 billion available under our revolver. These transactions plus our record setting cash flows in excess of our dividends payments has improved our leverage profile such that our net debt at about 5.6 times to EBITDA places us in the top third of both the healthcare sector in the entire REIT universe. This is the level that we have traditionally operated in. Only six-months ago during the period in which almost all REITs were suffering from increasing cost of capital, we set this lower leverage level as a target that we hope to achieve by the end of June. The fact that we accomplished this aggressive goal way ahead of expectations makes several important statements. First and foremost, our entire team at MPT is made up of hospital people, who understand better than anyone the value inherent and well underwritten hospital real estate. Even though we made the decision to sell our Capella interest during a steep downturn in hospital valuations and instability in the global financial markets, we achieved outstanding pricing from Apollo and RegionalCare. Importantly, we continue to receive strong interest in our assets by investors who are eager to take advantage of the low risk, high return portfolio of hospital real estate that we have created. Second, there is a vibrant market for these assets. Participants include the most sophisticated and largest private equity investors public and private REITs, pension fund advisors, sovereign wealth fund, global financial institutions and local investors. All of these investors are recognizing more and more that well placed expertly operated hospitals generate the highest returns with the lowest risk among other healthcare real estate. Third, our industry leading strategy of establishing long-term relationships with the best hospital operators through multiple acquisition methods has created a valuable portfolio with outstanding diversity among geography, patient acuity, reimbursement strength and the best operators in the business. We can and expect to continue to develop and grow this portfolio through a traditional sale leasebacks, development commitments, combination real estate OpCo acquisitions, joint ventures and other leading edge creative transaction structures. We have positioned MPT today as well as at any time in our history to make highly and immediately accretive long-term investments in hospital real estate. As of today, we have modest leverage consistent with the best REITs our liquidity sources include cash and available credit facilities of over $1.3 billion and only $1.25 million of 2016 debt maturities. We pay a very attractive dividend that represents less than 70% of our expected 2016 normalized FFO and we are acknowledged by the best hospital operators as the leader in hospital real estate. Before I turn the call over for questions, we want to reiterate that for calendar year 2016 we reaffirm our previous estimate that normalized FFO per share will range between the $1.29 and the $1.33. Major assumptions underlying this estimate include limited to no additional assets dispositions, long-term borrowing or other capital issuances and limited expectations that we will make meaningful new investments in hospital real estate. There are other factors that will affect our actual results including interest rates and other capital markets conditions tenant operations and other unforeseen conditions. So with that, we will be happy to take questions and I’ll turn the call back over to the operator.

Thank you [Operator Instructions] And our first question comes from the line of Jordan Sadler of KeyBanc Capital Markets. Your line is now open. Please go ahead.

Thank you. Good morning. Just regarding Capella, I think in your prepared remarks you mentioned that either there were offers that were more than the valuation or you sold it more than the valuation. Could you just clarify that for me, I kind of felt after I looked at the discloser that the valuation was pretty similar to what you had paid for it. just to clarify relative value, versus your cost basis and so? And then separately I have a follow-up on hospital valuation. Thanks.

Sure. On Capella, we received net basically what we paid for it, but in order to get that point they had to pay more than that because of the split with the management team at Capella.

Okay. And then separately, I think in these remarks there we had a discussion that steep downturn in global hospital valuations. Where are you seeing valuation today, have we normalize somewhat or are you continuing to see downward pressure?

Well, when we closed Capella back in August, the initial close, we were right in the middle of hospital companies reporting their second and later third quarter operations and that’s the environment that we mentioned. When we say we decided to sell Capella, when there was a high level of concern about admissions, about utilization, about so called tailwind of the Affordable Care Act, all of that resulted in significant declines in hospital equity valuations. And some of that has been recovered since then. On the other hand, you have got a couple of major operators and is no secretes that we can name. Community has some struggles and so some extend its believe my personal, my own professional view that that continues to way somewhat on the market. Now operator however, continue to do very, very well, we are not seeing significant declines in admissions or utilization and certainly EBITDA. Ed may have something to add.

Yes Jordan, last fall when we commented on this during the time and it happened. There is a lot of skies falling from analyst concern that the perceived benefits of the ACA were over and things were going to turn the other direction. Our remarks at that will take a time were for people not to panic, this was exactly what we had projected that the short-term benefits of ACA were exactly that. And that the long-term prospect for hospital would continue to grow, but at a much slower pace than some of the immediate benefit that you saw from stage with the expansion in medicate areas. You have seen that happen now, even with the two hospital companies that Steve reported on just a second ago. Though they not had operational issue, they have had some other internal issues primarily relating to some of their expense controls and some of the merger issues and some related to other issue. But if you look at all of hospital as a whole, they continue to performance very well on the same-store admissions and that’s the same case with ours. And with that you have seen the re-energization from private equity firms and other investors into the hospital space in 2016.

Okay. And then separately on guidance, you have reaffirmed here for 2016 normalized, can you walk us through a couple of assumptions, particularly as it relates to transaction side, are there any additional asset sales in there?

No, the reaffirmation this morning assumes no additional disposition or meaningful acquisitions other than what we state is in the pipeline primarily completion of development commitments.

Okay. I'll leave the floor. Thank you.

Thank you.

Thank you. And our next question comes from the line of Chad Vanacore of Stifel. Your line is now open. Please go ahead.

Hey good morning all. Alright, so you have done quite bit of delevering up to this point, would you expect to stay at this level or the near-term maybe through 2016 or would we expect more delevering from here or growth from here?

Chad, I think the answer to all of that is yes to all of that. You will see some more delevering, you will see some more growing, nothing ever stays exactly the same, if it does you are probably dying. We will have some periods where our leverage will go down from here, we will have periods where our leverage will go up from here. But we want to continue to operate as we always have with only small periods of exception to that within the range that we always have.

What is that range historically?

From the net debt to EBITDA levels, it's in the five to 5.5 times.

Okay. And then just think about your [indiscernible] developments, how are the five new ERs coming online impact results in the second quarter?

They are built into the guidance.

You don’t want to put any other color around that?

I’m not sure what the question is, I mean when we read from guidance $1. 29 to $1.33 it takes into account the timing of those coming online and beginning to pay rent, if I missed the question, I’m sorry.

Yes think about how much quarterly rent we are talking about, I mean I’m guessing annual rent is probably somewhere around the $2.3 million or so?

On just those that...

Just those coming online at the end of the second or at end of the first quarter?

Thanks correct.

Okay. And then just one last one for me. How do you think the changes in LTACH reimbursement are going to affect your LTACH at converge on the total portfolio by the end of 2016?

As Chad as we said since the inception of those changes, we thought that the overall impact on our LTACH would be a decrease in our coverage of approximately 10 basis point. I’m not sure that is going to be that any more, I think that our operators have performed much better and quicker than we thought they would in adjusting to the changes and the performance we seen this far, has been very strong. As you saw in today report, our LTACH coverage has remained flat, but officially we are still looking at a very slight decrease in the overall coverage.

Alright so they should hold up pretty well there. Alright that’s it for me for now. Thank you so much.

Thank you Chad.

Thank you and our next question comes from the line of Tayo Okusanya of Jefferies. Your line is open. Please go ahead.

Hi guys good morning everyone. Congrats on another solid quarter. the question I have is just when I kind of think out 18-months to 24-months and I look at your portfolio, you don’t really have a lot debt maturing any time soon, or you don’t really have a lot of lease maturities either. So everything kind of goes very stable. Against that backdrop how should we think about a sustainable earnings growth rate. Where again is the idea going forward, you kind of have 2%, 3% growth were just from the annual rent bumps and then we should just be fixed focused on external growth. I’m just kind of curious if you could kind help us think through that about the sustainable growth rate for you guys?

Yes, Tayo as you know, we’ve had dramatic growth over the last four years, we’ve almost doubled in past from approximately three-years ago, our compound annual growth rate exceeding 35% and the growth that we had this past quarter year-over-year begin in the 25% range. We have purposely not given a target for what we think our acquisitions will be this year. We certainly want to focus on maintaining a very strong balance sheet and taking advantage of very strong accretive and opportunistic acquisitions. We certainly will grow better than just the pure organic growth, but we don’t have a number for you on that specific projection for 2016, beyond what the guidance that we get this morning was.

Okay, along that same theme the $190 million of funding commitment you have for different projects, what kind of incremental earnings do you expect that to deliver to you?

Well those are still in the range that we’ve always described in this case between going in cash rate of eight on the lower end and in those particular assets around a 10 on the higher and again those are cash rate. You could probably add a 150 bips to that range for GAAP straight line ramp.

Sounds good. I got it, appreciate it. thank you.

Thanks Tayo.

Thank you and our next question comes from the line of Michael Carroll of RBC Capital Markets. Your line is now open, please go ahead.

Thanks. Ed or Steve, can you guys give us an update on the remaining asset that you have on the market for sale, are you still pursuing those sales or did you take those off?

Mike we’ve not taken anything off at this particular point, we will see if we have compelling reasons to make any of those dispositions, but we don’t have any specific plans at his point.

And would compelling reasons mean, just the valuations that the buyer puts on those assets or just additional investments that you are tracking in the market?

It would be both of those, with a lot of in emphasis on the valuation. We think it’s important as we did with the Capella transactions to prove to the market, just how valuable our portfolio is. So from a valuation standpoint that will be key and also what particular uses we have for that money.

Okay and then can you talk a little bit about the IRF coverage ratio. It looks like it dropped this quarter compared to what you reported last quarter. I'm assuming you just added I guess new assets to that bucket, but can you talk a little bit about those assets that you added to the bucket and why coverage was lower than the season portfolio that you kind mentioned earlier in the call?

We added the 13 additional rehab facilities, two here in the U.S. and 11 in Europe, tough they were the 11 original German facilities and those facilities not being as seasoned as the other ones have a lower coverage ratio than the properties that it had been in our portfolio for some time. When we add the properties to our same-store portfolio, we do it retroactively and so when you add those back for the past 24-months it obviously lowers the coverage, because their coverages were lower than the seasoned properties. But if you look at the portfolios and compare those 11 properties compared to how they were doing 24-months ago everything continues to perform very well. Our German properties will probably never have the types of coverage that we have here in the U.S. our rehab hospitals have been in the three times coverage, our German facilities we don’t expect to be in that type of range, but they continue to perform exceptionally well.

Okay great. Thank you.

Thanks Mike.

Thank you. And our next question comes from the line of Mr. Mueller of JPMorgan. Your line is now open. Please go ahead.

Yes hi, just thinking a little bit more about acquisitions, I know you are not speaking anything in guidance and Ed you said you didn’t want to throw a number out. But I mean how are you thinking about the world when it comes to acquisitions, their cost to capital, how the stocks rebounded some and are you at the mindset where before you would have a target of maybe 400 million a year. You though you would have pretty good pipeline to go out and stay consistently active on that front. But is that kind of the mindset you have even though you are not saying it or are you kind of backing off of that and it's really going to be lower volume, more selective, I mean just how should we take your take on acquisitions for the balance of this year and next year?

Sure. Mike as I said, the last three-years when we've had tremendous growth that I didn’t expect us to be able to continue to have that growth year-in and year-out. The world is in a constant state of change. As Steve said, we have tremendous opportunities. We are in a wonderful position to be able to pick and choose which opportunities we want to take advantage of. You are right, our stock price has rebounded dramatically some 40%, but it's still not where we think it ought to be. That being said, our acquisitions that we make will be very strategic in nature and they will all be from an accretive standpoint. We have not put a number on that on purpose, because we are more tied to what it means to the overall company from a strategic and valuation standpoint than have a specific target in amount of acquisitions that we have to achieve. We certainly do not expect that we will make no acquisitions that’s certainly not the case at all, we expect to continue to be very active, but it will be very selective.

Okay. Thank you.

Thank you. And our next question comes from the line of Eric Fleming of SunTrust. Your line is now open. Please go ahead.

Hey guys just wondering back to Mike’s question on the additional dispositions that you guys have mentioned before. So previously you guys said you had interest starting upwards of $900 million. If you [indiscernible] Capella to say rough numbers $600 million. Are you still looking at $300 million or has there been even more interest in terms of further dispositions for you guys?

Yes, Eric you remember when we said that 900 number, we had no intention of selling $900 million worth of property. We were in a very nice position that we had inbound calls on roughly $900 million worth the property, we still won't meet that number, with the Capella transaction we don’t have to do anymore to meet the goal that we originally set. So if we do anymore, it will merely be because the valuation is so compelling that it makes the best strategic sense for the company, but we do not have an additional target for any additional disposition, just because we think we need to make any.

Understood I mean obviously I know, I think that like you said. The Capella deal I think when you guys said do you wanted to do or this is more I was wondering if had there been further interest in the portfolio kind of getting you more opportunity to potentially deal...

No. Absolutely we continue to receive inbound calls and Eric as Steve said in his prepared remark, there are tremendous valuations.

And just one jus small question, on Capella you guys mentioned the $143 million into new loans with MPT just give more detail on what that is?

Yes it's actually I think it waited REITs but $93 million of that $143 million was actually money we get parked with Capella in the original transaction waiting to get approval from the state of Washington to actually acquire the real estate in what us called the Capital Hospital campus. We still are waiting that so that's really nothing new that will be converted into a sale leaseback upon final approval of this certificate to need board. The other $50 million is the acquisition and I think we made this clear in the press releases earlier that we acquired $50 million of unsecured debt alongside Apollo. As basically the final tranche in the financing stack to get the acquisition done. So that's $50 million we have at a very, very attractive coupon on that. We are shoulder-to-shoulder with the Apollo, so if they happen to get out, we get out, but in the meanwhile, frankly we are very satisfied with that.

Okay, good. Thanks, I appreciate it.

Thanks Eric.

Thank you. And our next question comes from the line of Juan Sanabria of Bank of America. Your line is now open. Please go ahead.

Hi good morning thanks for the time. Just hoping you could speak a little bit about the capital structure at a leverage at the now merged Capella RegionalCare OpCo.

Sure, and what we can disclose is public information, it's been put out in the offering memorandum that resulted in the financing. But whereas prior to the merger with the Apollo company MPT was basically the capital in the form of our loan with the merger Apollo has actually put in, if I recall about $120 million something of equity RegionalCare ported over its equity. So we now have a tenant in what I think they are calling RegionalCare Capella Hospitals at least temporarily. That’s twice the size of our form on Capella operator has substantially more equity and is supported by one of the largest if not the largest more sophisticated well funded private equity fund in the world.

Okay. And then just on the leverage target, so you previously talked about I think 40% to 45% debt to gross assets, it seems like that’s now shifted to be focused more on net debt to EBITDA of five to six, is that correct or if you could just clarify that?

Well, frankly Juan what we have found and I think this is probably the right way to look at it. most investors, most analyst, most credit people are more focused on that EBITDA measure rather than just a total leverage measure. It doesn’t change the way we look at how we want to have our debt and credit profile. But that’s really it, we are just focusing on disclosure of the one measure rather than two, but that’s not driven by any change in our views.

So that when you sort of reiterated and your target is five to six times. That’s how we should think about managing a balancing sheet?

No, I think Ed just said five to 5.5.

Sorry, apologies for that. And just last question on the acquisition pipeline and the opportunities set, can you break down or help us to think about overseas opportunities and how that makes up what you are looking at?

Yes Juan, we still have targeted in a long-term basis in the 70%, 30% range, 70% U.S., 30% in Europe. That will obviously fluctuate from time-to-time because all the acquisition don’t happened on the same day. But that’s the same target level that we are looking at.

Okay. Thank you very much.

Thanks Juan.

Thank you. And our next question comes from a line of Todd Stender of Wells Fargo. Your line is now open. Please go ahead.

Hi good morning. thank you. Steve just to start with you, I think your next debt maturity is schedule for October. I just want to see when you can call it in without penalty or restrictions and how you are looking at refinancing that? Is it as long as you can, is getting the term out as long as you can or do you want to…

So just to clarify, we've got 125 million of term notes due this year, the first tranche and it's about 50/50. First tranche is July and then second one is October as you point out. We have got those hedged and have had them hedged for a number of years. So we won't try to break that match for what would probably cost us money, we would just go and pay those off. We have two bond issues maturing in 24 that become eligible for call over the next coming months. And you are right that we absolutely are looking at that, we will continue to look at that as to whether it's beneficial to go ahead and refinance those, call them in and under market conditions now, if we could draw a circle around today. It looks like it would be somewhat advantages for us to do that, although we have made no commitments to do any refinancing, it’s certainly something that as you would expect we are considering.

Is it fair to say that your liquidity financial position is much improved from when you floated February bond, which is eight-years, six and three eights.

Six and three eights that’s right and you are absolutely right not only has our liquidity improved but the overall market conditions are substantially improved and as we all know that could change by this afternoon. But your point is absolutely correct.

Okay, thanks Steve. And just to look at the initial yields on your rehab hospital in Ohio and then if you can go through the yields on the free standing ER facilities more of a remainder and then if there are any differences in yields amongst the Texas locations and then Colorado?

With respect to the ERs and all of those are debt, there is no geographic differentiation. Those yields range between pretty much our overall range, in this case between 9% and 10% plus depending on when we committed under - we got three tranches totaled $0.5 billion and so as those come online depending on which tranche they are in, it falls into those. And again those are cash yield. On the rehab hospital for Ernest and again, we’ve never given specific cap rate but this goes into the Ernest master lease and once again if you take our range that we've given between eight and 10 this one falls right in the middle of that.

That’s helpful and then just going forward, how about either the properties that are under construction, are those that are in the planning stages. Are those yield locked in or did they move?

Yes, they are locked in, once again depending on which of three adjusted tranches they are locked in.

Okay thank you, and just finally, just you updated thoughts maybe on underwriting, whether it’s new acquisitions, new development, specifically how you are viewing rent escalators and just balancing between raising them too much and they are not enough.

Yes Todd from a development acquisitions standpoint, we’ll continue to do the vast majority of our new investments in an acquisitions standpoint versus development standpoint. From the standpoint of what we would like to see on the rental increases, as you know all of it is part of the negotiations, although when you push here, you push out to push somewhere else or give somewhere else. From our general feeling, we like to see the rental increases tide to some inflation number, we would like to get that as unlimited as possible, but roughly half of the portfolio ends up having some type of color on that.

Great. Thank you Ed.

Thank you and our next question comes from the line of Bill Carpenter of Goldman Sachs. Your line is now open. Please go head.

Good morning gentlemen. Just two questions. First, on the ratings agencies side, any thoughts on our goal for perhaps for investment grade, may be you can give us a sense of what you think that might be, how that might impact your costing to capital. And secondly, I know you spent a bit of time talking about valuations and how they declined last summer and then you have a lot of incoming calls in the last few months. I’m just curious of the asset values today sort of comeback to the levels that you had seen last year or are they below and is that why the activity is increased?

Bill let me address the last part of that question, let me makes sure I understood it correctly. So if don’t answer it the way you asked, please correct me. But the valuations to today are every bit as strong as they were last year at the beginning of the summer. There was the very short time period beginning at the end of summer and running through probably last fall, where it seemed that the entire world was kind of on a wait and see situations with what was going to happen with the fed and interest rates and the economy as a whole. That certainly seems to have subsided some and we’re very comfortable with were the valuations are. From our standpoint from certainly from a dispositions standpoint. We’ve always thought that the our portfolio was much more valuable than the market had given us credit for and we’re very happy to be able to show some of that, improve some of that with some of this disposition activity that we have. From a standpoint of the rating agencies and getting to be investment grade, that certainly is valuable but it’s not as valuable as it used be in old days with interest rates being as low as they are, they aren’t that much difference these days. We certainly would very much like to be, at investment grade, but as I have always said, we won’t run this Company with just the goal of trying to meet the various aspects, or trying to get to investment grade. There are obviously some of the items what the rating agencies would like to see that are the same goals as ours, one of those was increasing in our size, which therefore improves our diversification overall. As I said, we’ve grown, we've almost doubled in size in last three-years and very, very importantly to us and I think the credit rating agencies is that by doing that we've pushed down our exposure to our properties so that are largest property only represents 2% of our portfolio. That’s outstanding diversification from that standpoints. You know one of the headwinds that we’ll always face is just the health care market in general, when you look at the overall, outlook of the credit rating agencies on hospitals as a whole, which includes all of the government run hospital which certainly in not our market, it’s a negative outlook. But then when you look at the specific tenants that they cover a bit of ours, which represents about 60% , 65% of our total revenue, the vast majority of those outlooks are from a positive standpoint. So I think our continued performance, they continue to incredible performance of our existing portfolio and their EBITDAR coverages. I think that the opportunity for us to get moved up to investment grade rating above the agencies, it’s certainly one that’s a reason for expectation.

Thank you very much.

Thanks Bill.

Thank you and our next question come from a follow-up Tayo Okusanya of Jefferies. Your line is now open please go ahead.

Thanks for that, Just a quick follow-up question. So your peers again totally different healthcare sectors, but are starting to look a little bit more ideals where they are doing more debt investments again higher end of the capital structure, but are still kind of getting very decent returns on some of the debt investments. Is that something that as you kind of look into the horizon you could see us all doing more of or you really want to kind of stick more to the fee simple and actually own the assets?

Tayo, we will continue, it's certainly as far out as I can see has being primarily fee simple owners and straight real estate investors. Obviously part of our original model continues to be that we will make selective investments like we did with Capella, like we did with our Ernest, but I think you are referring to different type of instruments, there is some of our other particularly larger healthcare REIT peers have done and that is not our target market.

Okay. Good to know. Thank you.

Thanks Tayo.

Thank you. And our next question comes from a follow-up question from Jordan Sadler of KeyBanc Capital Markets. Your line is now open. Please go ahead.

Thanks. Regarding the LTACH and IRF exposure, can you talk about sort of what you see as if any the risk to those assets or properties vis-à-vis [indiscernible] payments CMSs focus there now where they seem to be at least attempting to basically implement the same segment for payment opportunities for some of the procedures that are being performed in those facilities.

Yes, Jordan let me start with LTACHs and let me remind all of us that the patient criteria or bill which is pretty much started all of this whole discussion was supported and very much encouraged by the industry. So there actually is a definition of what constitute to an LTACH patient. We support that, we think that as I have always said, as you may recall, I got my start in the physical rehabilitation business. What we did back in the early 80s versus what they do today is very different. We always there to supported pushing things out to the lowest cost provider and technology continues to improve, you will see that continue to evolve. We have always said, as a part of that we pick the very best operator that are able to adjust with the times and adjust with the changes and as I stated just a little while ago in the response to someone questioned about the LTACH reimbursement. We have been extremely pleased with how well our operators have made adjustments, we think they are all away ahead of schedule with where we thought they would be with making those adjustments. We don’t have any plans to make any additional LTACH investments at this point, we like the rest of the market are kind of in a wait and see from the overall standpoint. We believe and as the American Hospital Association and CMS that the LTACHs actually provide a good service and a good benefit for society as a whole. But I think that we probably have another 12-month to 18-months for all of it to see exactly where that shakes out. But we are very positive on where it's going at this particular point. From the rehab standpoint, we continue to be very bullish on the rehab market as I think most people do and again we very much support pushing patients out to the lowest cost provider and not having them in a place of higher cost and therefore higher reimbursement that they don’t need to be. Again, our operators have been very good at making those adjustments and moving with the times and we continue to be very bullish on the whole [indiscernible] sector.

Would you continue to be in an incremental investor and rehab and you said you wouldn’t in LTACH right now, but in rehab beyond sort of your current commitments of the existing or relationships.

Yes. But just to clarify, we don’t see any additional growth from people that we are not already doing business with, it doesn’t mean that we may get an opportunity that we think is a really good one. But we think that the opportunities we have with our existing rehab providers is enough to keep to us comfortable in that particular market.

Okay. And then just on the ATM, was there any utilization of the ATM during the quarter or afterwards and any thoughts there?

Yes. We announce ATM activities with the filing of the appropriate 10-Q.

Okay. We will for it. Thank you.

Thanks Jordan.

Thank you and I'm showing no further questions at this time. I would now like to turn the call over to Mr. Ed Aldag for closing remarks.

Thank you operator, and again thank all of you for listening today and for your interest and I greatly appreciate all of the questions. If you have any additional questions throughout the day or throughout the week, please don’t hesitate to call any of us here at MPW. Thank you very much.

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