Medical Properties Trust, Inc. (MPT) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Medical Properties Trust 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 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're 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 for our first quarter 2017 earnings call. 2017 is off to a fantastic start for Medical Properties Trust. For the past four months we have further strengthened our balance sheet which is now one of the strongest balance sheets of all the healthcare 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 three Louisiana Adeptus facilities to an investment grade rated tenant Ochsner Clinic Foundation and 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 4.5 times is one of the lowest of all the healthcare 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 had announced about $450 million of new investments. These consisted of 10 new hospitals in Ohio, West Virginia, Pennsylvania and Florida. Eight 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 two 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 dollar gain after only 19 months. This is another validation of the value of our portfolio. Last fall Adeptus surprised the market with the 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 owned the majority of the operators of our facilities, and very importantly the critical and expanding role the 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 and 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 the company plans for and then reacts to the inevitable bumps. Our experience with Adeptus is an excellent example of our underwriting, deal structuring and work out 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 the $7 million gain. Approximately five years ago, we began our planned investment in Western Europe. Today, we have approximately US$1.6 billion invested in four 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 occurred on older 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 defined as having been in our portfolio for at least two 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 EBITDAR basis, if our tenants 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 [indiscernible] doesn't give the markets the true strength of our properties. This is one of the issues 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 3.9 times coverage. The IRF saw a very slight decline quarter-over-quarter and slightly more of a decline year-over-year to 1.7 times. It is important to note that our U.S. IRFs are covering at a 2.12 times 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 LTACs saw their biggest decline to date. Their coverage was down both quarter-over-quarter and year-over-year to 1.3 times. Just to show the magnitude of issues with Boise and Laredo, if we were to eliminate these two facilities the LTAC coverage would be 1.5 times. Now before you get all along, let me address this drop. The fourth quarter was a down quarter for our LTACHs, we have 17 facilities in this category. LTACHs only represent 5% of our total portfolio at this time. 16 of the 17 facilities declined to year-over-year with more than ever the decline coming from four facilities. Out of the seventeen LTACHs we own all, but four of the facilities saw good increases in the first quarter. One of the worst performing facilities in the fourth quarter saw its EBITDA are more than double in the first quarter. Another one saw its EBITDA go from zero to more than $1.7 million in the first quarter. All told the EBITDAR 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 growing from an EBITDAR 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 shelved and that is 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 analysts to publish 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 the hospital late in the quarter and recognized a $7.4 million gain. It was a solid performance, 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 cash capitalization rate of 7.6%, well inside our purchase cap rate of 8%. Their charges totaling about $13.6 million for a cost of refinancing are $1.7 billion bank credit facility and early redemption of €200 million in unsecured notes. We issued €500 million in new unsecured notes with a coupon of about 3.3% as compared to the redeemed notes coupon 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 three 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 between $500 million and $1 billion throughout the year and the prominent funding of those acquisitions substantially with long-term debt. Since the end of the quarter, there had been two 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 4.5 times EBITDA to our long-term target of 5.0 to 5.5 times, and use that capital for immediately accretive acquisitions. We are hopeful 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 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 and depreciated 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 4.5 times in place EBITDA and remember that is stable, predictable, inflation protected EBITDA generated by the long-term master leases with the top hospital operators in the country. Most people on this caller aware they are stated and historical financial targets including leverage range of between 5 and 5.5 times EBITDA. So our position today at 4.5 times and $7.4 billion in assets gives us tremendous headroom to increase our asset by another up to $1.5 billion without exceeding our 5.5 times target. And of course as 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 their 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 assessable to investors. That is operators and other sellers are becoming more willing to sell and leaseback their otherwise non-contributing 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's 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 file 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 healthcare. The Deerfield Adeptus plans approved by the court where relevant include the newly recapitalized Adeptus will assume the MBT master leases and 100% of all of the MBT 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 MPTs rent. There's 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. Six of these facilities will be released from the Adeptus master lease 90 days after bankruptcy exit, unless we sell or released them earlier and seven of them one full-year after bankruptcy exit, again unless we sell or released 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 release 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 three 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. Your line is open.

Good morning.

Good morning.

In terms of the acquisition, 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 this deal?

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.

Thank you. 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 maybe, are there plans to dispose of any assets beyond the Adeptus transitional portfolio through 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's 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're 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.

That's helpful. Thank you very much.

Thanks Drew.

And our next question comes from Michael Carroll of RBC. Your line is open.

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

Sure. Just a second. So as I mentioned on the call, we have 17 LTAC 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've all come back. Now the interesting thing is I mentioned earlier on the call is that we artificially penalize ourselves 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 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 2.12 times coverage for the fourth quarter. We expect that the coverage for the LTACs 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 LTAC reimbursement. Ernest, in particular where we've had some of the biggest issues, they expected that they will actually see a slight benefit from the recently announced proposed changes. So while we certainly don't expect the LTACs 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 [indiscernible] see a slight benefit and if I remember correctly, the patient criteria has been out. Was there anything specific on the proposed rules that that will benefit then that they didn't expect?

Well, in some of their short stay outlier payments they believe will benefit them more than others.

Okay.

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.

Okay.

Which has been proven by the first quarter numbers thus far.

Okay. And now the patient criteria is still rolling out, I mean we have another what year plus 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 and if it's going to stabilize, I mean what's different that it's going to make it stabilized from this point going forward?

Yes, so the only operator of ours that I haven't had direct conversations with at this point is Kindred, which represents I think three of our facilities. I mean I've had conversations directly with the CEOs of both, Bob or Ann for Ernest. Both of them think that they've seen their bottom and they think that they will see continued improvement, although not in large numbers. 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've always considered and continue to consider 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 Earnest and all in the Earnest coverage even with the weakness in the LTACs exceeds 1.6 times.

Okay, great. Thank you very much.

And our next question comes from Tayo Okusanya of Jefferies. Your line is open.

Yes, good morning everyone. 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 for 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 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 kind of thinking about balancing again liquidity, any kind of the capital raises that may cause some dilution versus when you actually deploy the capital. How do you kind of think about potentially JVs or asset sales on top of that that would 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's 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 and meaningful joint venture arrangement.

And Tayo remember that if we do a joint venture we expect that the proceeds that we would get from a joint 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 market or move to new asset type specifically maybe behavioral hospitals?

Yes. Maybe what hospital behavioral. Yes, 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 is the same that we talked about the last earnings call which is that it is almost entirely acute care hospitals it not entirely acute care hospitals primarily here in the United States. We will expand in Europe outside of the four countries that we are now, but it will 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.

Gotcha. And then last one for me. Any of the potential changes in the healthcare bill that we introduce that kind of changes your mind when we are not about you know the impact of a healthcare reform on the hospital space.

Well, it changes every day as we know certainly that the bill changes every day and the prospects of it pasting changes every day. But we should continue to stand by what we said more than eight years ago with the changes in the healthcare. While there may from time-to-time be disruption as rules change we expected the overall reimbursement, the overall revenue for hospitals to remain steady. As you all have heard me say you can't paint a picture in this country without hospital we're 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.

Thank you very much.

And that next question comes from Josh Raskin of Barclays. Your line is open.

Thanks. Good morning.

Hey, Josh.

Hi, how are you guys, just quick follow-up on the LTAC. Is all of the coverage changed you think that's all criteria based, I know you haven't spoken to [indiscernible] and Ernest. Are they suggesting that's all criteria - patient criteria related or are there broader sort of labor and other issues there?

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

That makes sense. And then Omni facilities the present 80s going to Ochsner just to confirm I assume those are going to be transferred to their hospital license and still operated its freestanding ED. 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 were a risk that these get converted into urgent care or something on the lower end of the reimbursement spectrum?

Yes. On the margin there maybe some of that, so just for example in a market that may have 20 facilities - 20 of our facilities that are being leased by a joint venture with a major market operator there could be one or two 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 you should consider one relationship where there maybe 20 facilities in a market. We're not averse to giving some flexibility has to change in use. Specifically with respect to Ochsner 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. I'll just comment because it's a fair question. It's really not accurate to look at these on a standalone 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 focus 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 component 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 could be prepared to see significantly lower coverage ratios just as - again assuming the same rant just because the reimbursement methodology is for 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 is going to impact whatever coverage we report to cause concern, is just not going to happen very much.

Okay. So it's not enough facilities, all right, so that's [indiscernible]. So coverage should stay within that. 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, 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 $0.10 or so that we can get a good portion of it back. I just wanted 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 very lumpy, to try to predict that and until we get a little bit more clarity.

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

Yes.

Okay. Perfect. Thanks, guys.

And our next question comes from Chad Vanacore of Stifel. Your line is open.

Good morning all.

Good morning, Chad.

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

Almost 100% of acute care is general acute care hospitals.

Gotcha. And then when you think about the transaction market for hospitals right now, there's plenty of hospitals available. Are you expecting to be able to stepping into deals from the large four profit hospitals, who are net sellers or these going to be more non-profit system sales?

Most I'm actually be the four profit, they 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 buyer of the possible assets on the market today? Who is your competition?

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

All right, that's it for me. Thanks.

Thanks, Jeff.

And our next question comes from Paul Roantree of JPMorgan. Your line is open.

Hey, guys.

Hey, Paul.

[Indiscernible] if you guys touch on fairly, 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 majority of that $200 million of that basically is the German facilities that we actually signed and [indiscernible] late last summer. It's been our experience now being in Germany now going on four or five 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've 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 that it is primarily almost exclusively general acute care hospitals, its property that that the market certainly knows from our previous earning calls that we've been at least on the edges or working on for a while. And we have good expectations, but some of that will certainly come to fruition, the issue is Steve has been discussing is just the timing of it.

Gotcha, that's helpful for me.

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

Hi, good morning. Thanks for the time.

Good morning, Juan.

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 standalone entities and if you - unless you have any market share or margins 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 eight individual facilities, they range from number one in their market, number two in their market, number three in their market all the way to one facility is the last facility in as far as market share. You can always equate market share to the profitability of a hospital for example the facility that had is the bottom of the 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 a HMA facilities and obviously CHS just had its internal issues. They've had these facilities for sell 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 two times. We believe and Steward believes that there is enough low hanging fruit that these facilities will quickly approach three times sometime in the 2018 and rapidly get to the numbers that are much higher than that that I even mention. But we feel very comfortable about Stewards ability to not only take these facilities beyond the low hanging fruit that is out there, but actually put them in their particular management plan and generate coverage is that in the coverage ranges of our other state long standing hospitals.

So the Steward CDs individual hospitals they're requiring is profit centers or their part of their business strategy of making money kind of elsewhere throughout their broader enterprise. I think standalone profitable in their views?

Yes, absolutely.

Okay. And then could you share a little bit about your thoughts and how you went about value in the APCO portion of electro and how that structured it equity stake.

It is totally one an upside profit interest there is no incremental investment in intellect.

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're seeing any change from what you've been doing with seemingly more money chasing healthcare real estate broadly speaking and going in coverage level expectations on an EBITDAR basis?

It really hasn't changed anyone we're still looking at in the eight 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 three times range.

And eight to 10 is that's a GAAP or cash cap rate?

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

Thank you.

Thanks Juan.

And our next question comes from Karin Ford of MUFG Securities. Your line is open.

Hi, good morning.

Hi, Karin.

I 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 that a cap rate equivalent of about 7.6.

And that's GAAP is well?

No, no that's on a cash basis.

That's cash basis. Okay great. Second questions 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 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 better in possession financing for more loans to keep the facilities operating. So they have a tremendous investment already in Adeptus and there's more to come. What they see and why they are willing to make this kind of investment. They have not had both mentioned it I think on this call the real importance and evolving importance of these freestanding departments that expand a hospitals 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 up and running and the largest such a 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 addressed that by joint venture. Just for example, in the Dallas/Fort Worth market with Texas Health Resources that largest operator of hospitals in that market. So yes, there's going to be and there is already a fall out 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 are not going to be part of the fallout.

Thanks for the color. Last question is just on G&A, do you expect that to tick up with the opening of the office in Luxembourg?

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

Great. Thanks very much.

Thanks Karin.

And our next question comes from Jordan Sadler of KeyBanc. Your line is open.

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

That's true, but there's not a lot of net cash proceeds because of the transaction we just closed. We closed the Steward acquisition of eight 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.

I was looking at your sup, Page 8 you've got a $226 million after eight Steward, two Alecto in 2014 in Germany in RCCH, is that - am I missing a couple of deals in that that with post quarter end.

I'm sorry. Jordan you can call me offline.

That's all right. Bottom of Page 8.

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

So that 225 is in the euros and basically saying that can't really be used to reduce the revolver?

It could be, but it would mean converting them to dollars and then you're 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 reserve for the European investment.

Okay. 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're exploring. I'm curious if there's any in sight you can lend there in terms of what the cost of that capital is or what kind of structure you'd be thinking about?

So 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 a 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 100, we hope to get more than 100. But we're not in a position where we can confidently say how much it will be. Structurally, we're working on two portfolios one U.S.-based and one European-based that would basically be we would dropdown those assets into a joint venture and the investor would then by its interest at the pricing we ultimately negotiate. And it would be treated generally as a sale. We would continue to have management rights. And it will be a very long-term investment for the investor and typically we're looking at investors who have that type of time horizon, sovereign funds, public and private pension funds and other manage 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 the objective year in terms of what you 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?

It is truly just another tool, which is used for capital access. There could be other benefits for example of diversification, validation of the value of certain either portfolios, tenant relationships or types of assets, but primarily this is a capital access strategy.

Okay. Thanks for the time.

Thanks Jordan.

And I am showing no further questions. I would now like to turn the call back over to Ed Aldag for closing remarks.

Thank you operator and again thank you all of you for listening in today. If you have any further questions after the call, there's 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.