U.S. Markets open in 28 mins

Edited Transcript of MPW earnings conference call or presentation 3-May-18 3:00pm GMT

Q1 2018 Medical Properties Trust Inc Earnings Call

Birmingham Sep 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Medical Properties Trust Inc earnings conference call or presentation Thursday, May 3, 2018 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Charles R. Lambert

Medical Properties Trust, Inc. - Treasurer & MD of Capital Markets

* Edward K. Aldag

Medical Properties Trust, Inc. - Chairman, President & CEO

* R. Steven Hamner

Medical Properties Trust, Inc. - Executive VP, CFO & Director

================================================================================

Conference Call Participants

================================================================================

* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Chad Christopher Vanacore

Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst

* Juan Carlos Sanabria

BofA Merrill Lynch, Research Division - VP

* Karin Ann Ford

MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst

* Kathleen Noel Morgan

KeyBanc Capital Markets Inc., Research Division - Associate

* Michael Albert Carroll

RBC Capital Markets, LLC, Research Division - Analyst

* Omotayo Tejamude Okusanya

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Medical Properties Trust First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference may be recorded. I'd now like to introduce your host for today's conference, Mr. Charles Lambert, Treasurer and Managing Director. Sir, please go ahead.

--------------------------------------------------------------------------------

Charles R. Lambert, Medical Properties Trust, Inc. - Treasurer & MD of Capital Markets [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. Welcome to the Medical Properties Trust conference call to discuss our first 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'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 factor -- factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call.

The information being provided today is as of this date only, and except as required by 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.

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Charles, and good morning to you all. Thank you for listening in on our 2018 First Quarter Earnings Call. Much of our first quarter was spent working on the 2 joint ventures we discussed with you over the last few earnings calls. We're close to finalizing these 2 transactions, and as we have previously reported, expect to be able to make some announcements during this quarter. While there can be no assurance until the documentation is actually signed, we are very pleased with where we are at this point. We will save the details for the formal announcements but the completion of these joint ventures will not only improve our already strong debt ratios and liquidity, they will provide third-party validation that our recent share price significantly undervalues our portfolio. With this quarter's reporting, we added a net of 8 additional properties to our same-store reporting.

Notably this quarter, we initiated reporting on our 8 Italian acute care properties. Our total same-store EBITDARM coverage for trailing 12 months Q4 2017, inclusive of the Italian properties, is approximately 3.3x, which represents a 6% year-over-year and a 7% increase quarter-over-quarter. These results are even better than what we had projected at the end of the last quarter.

Within our acute care portfolio, year-over-year EBITDARM coverage improved approximately 9% from 3.8x to 4.2x, primarily driven by Q4 volume increases and improvements at our Prime hospitals. Acute care EBITDAR coverage increased to 3.3x, which represents a 12% year-over-year and a 10% quarter-over-quarter improvement. EBITDARM coverage year-over-year for our LTACHs increased by 11% to 2x coverage, while IRFs declined slightly to 1.84x. As previously noted, U.S. LTACHs represent less than 4% of our total portfolio. For just the U.S. IRF portfolio, EBITDARM coverage was 2.65x. Just to follow-up on the Ernest LTACH in Boise, Idaho; Vibra Healthcare and Ernest have consolidated their LTACHs in Boise into a joint venture housed in our building. This transformation was completed in March, and we expect this facility to perform well from this point on.

A couple of additional notes of interest. In April, S&P removed Prime from the rating agency's credit watch, where they were previously placed in May of last year. Prime's outlook was returned to stable by S&P after a review of their 2017 financial results. Prime continues to make tremendous strides in their operational performance, as they stopped acquisitions and focused on integration, just as we predicted almost a year ago. Prime's cash EBITDARM was well over 3.5x for Q4 trailing 12 months.

Some of you may have noticed that the 2 new Vision hospitals in Arizona were recently forced into involuntary bankruptcy. Prior to that filing, we had already terminated their leases and have a replacement operator ready to take over those facilities. These facilities are in good markets with good patient demands. We are confident that with the right management, they can again be returned to profitable hospitals. We expect this to be a positive outcome for our investments and moreover, as a point of reference, New Vision represents less than 0.5% of our total portfolio. Steward, our largest tenant, continues to perform well and is on track for a record year in 2018. CMS just announced the 2019 Medicare reimbursement rate proposals, and once again, included rate hikes to the inpatient prospective payment system, which along with DSH rate increases, will result in estimated payment increases of 3.4%. The proposals for LTACHs and IRFs were also positive. For LTACHs, CMS also has proposed to eliminate the 25% rule, which will make managing the LTACHs much more palatable.

As reflected in the performance noted previously, we continue to be confident in our operators' abilities to navigate the evolving healthcare landscape. Q1 2018 was a period of integration for MPT and its healthcare operators, as we each laid the foundation for another good year. As we've worked our joint venture models and some select possible dispositions, we have simultaneously working our acquisition pipeline. We're excited about completing many of these opportunities throughout the year. We continue to be highly selected with our robust pipeline of potential acquisitions and joint venture opportunities. We look forward to continued strong growth in 2018. Steve?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [4]

--------------------------------------------------------------------------------

Thank you, Ed. This morning, we reported normalized FFO of $0.36 per diluted share for the first quarter of 2018, consistent with our own and market expectations and slightly impacted by adoption of a new accounting principle. As expected, there was very limited investment disposition and capital activities during the quarter, resulting in the consistent FFO from quarter-to-quarter.

In just a few minutes, I will update you on our expectations concerning near-term investment and capital activities. But first, let me describe a few items that we include in this quarter's normalized FFO. We adopted the new revenue recognition accounting rules as of the first quarter, resulting in the immediate recognition of previously deferred gains on sale of real state of approximately $1.9 million. The sales that generated these gains occurred quite a few years ago, and this previously deferred gain was recorded this quarter through an equity adjustment, not through net income. Separately, in the first quarter of this year, we sold our Houston St. Joseph Hospital to Steward for a mortgage loan, resulting in a gain on sale of approximately $1.5 million, that we subtracted from FFO in accordance with NAREIT policy.

As we described last quarter, we expect that in coming quarters, we will sever certain leases from Adeptus and either sell or re-lease these facilities to other operators. Accordingly, we are accelerating the amortization of the straight-line rent accrual that accumulated in the early years of these particular facilities. During the first quarter of 2018, this resulted in an adjustment to straight-line rent of about $1.8 million. That will leave a balance of about $4 million in accrued straight-line rent related to these facilities, which we expect to write-off over the next up to about 6 quarters. We also wrote off accrued straight-line rent, aggregating about $2.8 million to the sale of the Houston St. Joseph Hospital and another facility, whose lease we terminated in expectation of re-leasing it to a new operator. Ed mentioned that as being the New Vision facility in Arizona. On last quarter's call, Ed described that we had successfully restructured the lease on an Ernest LTACH facility, such that it is now leased to a joint venture between Ernest and Vibra affiliates. Because this changed the classification from a direct financing lease to an operating lease, we wrote off the $1.5 million in unbilled interest that had accrued, pursuant to the direct financing lease. This unbilled interest is comparable to straight-line accruals pursuant to an operating lease, and we have included it in the $6.1 million FFO adjustment, including in this morning's press release.

Finally, in recent years, in accordance with GAAP rules concerning acquisitions of businesses, we have expensed certain third-party acquisition cost and then added those costs back to calculate normalized FFO. As of January 1, we adopted new GAAP, which no longer classifies real estate acquisitions as acquisitions of a business. And accordingly, these acquisition costs are now appropriately capitalized into the cost of our investments. We mentioned this last quarter, but I just take the opportunity to remind you that you will no longer see this adjustment to normalized FFO going forward.

We're very pleased with the progress we have recently achieved with respect to the joint venture negotiations and documentation. And although I'll repeat that there are no assurances that any transaction will ultimately close, we remain highly optimistic that we will have binding agreements with substantive, sophisticated investors signed in the near future. We expect to use proceeds from such investors and secured lenders to reduce debt, reinvest in additional hospital facilities and for other strategic and general corporate purposes. Depending on the timing of any such reinvestment, there is likely to be temporary dilution of FFO. Although, we continue to believe the benefits from greater diversification, lower leverage, additional liquidity and access to attractively priced new sources of capital will be well worth any temporary impact on FFO.

We continue to expect normalized FFO in 2018 of between $1.42 and $1.46 per share. This is based primarily on our current portfolio, taking into consideration our expectations about interest rates, currency markets and other assumptions. Importantly, our estimates of future normalized FFO do not include the impact that will result from any of the possible JV transactions, which as mentioned, may include reduction of rental income and changes to expense -- to interest expense and other capital cost, along with possible additional investment income from reinvestment of sale proceeds.

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

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

--------------------------------------------------------------------------------

Kathleen Noel Morgan, KeyBanc Capital Markets Inc., Research Division - Associate [2]

--------------------------------------------------------------------------------

This is Katie on for Jordan, and I appreciate the color you gave us on the joint venture transactions. I was just wondering if you could update us on your expectations for closing the joint venture transactions, just in particular with the European joint venture? Do you foresee that you'll need German regulatory approval? And do you foresee that you can run into potential delays with that?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

As we've said, and I probably didn't make clear a few minutes ago, but we do expect execution of the joint ventures before the end of this quarter. There will be customary conditions, including, in the case of the Europe arrangement, German regulatory approval, primarily antitrust approval. And so it's hard to handicap the time that may take, but we are hoping it will be within 30 to 60 days after application.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Our next question comes from the line of Drew Babin with Baird.

--------------------------------------------------------------------------------

Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [5]

--------------------------------------------------------------------------------

Quick question on the Houston St. Joe Hospital. I guess, the transaction, selling the property to Steward and getting the mortgage investment, I suppose what was the purpose of that and the mechanics behind the decision to make that transaction?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [6]

--------------------------------------------------------------------------------

So the purchase by Steward, the repurchase that is Steward, remember this was one of the IASIS properties that we bought at the end of September and leased immediately to Steward. Then Steward and we agreed that we would sell the facility to Steward and it's actually the first of a series of expected transactions, the goal of which is to lead to actually additional leased facilities and a reduction mortgage facilities, with respect to Steward. So just, for example, the total transaction with Steward, real estate transaction, in September of last year, was about $1.4 billion, half of which was mortgages and half of which were sale leasebacks. The goal of this anticipated sequence of transactions is to significantly rebalance that, weighted toward leases versus mortgages. We expect and hope to have that completed during the course of 2018.

--------------------------------------------------------------------------------

Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [7]

--------------------------------------------------------------------------------

Okay. And then on the New Vision Hospital bankruptcies, obviously there's a tenant lined up to replace them. Will there be any change in the cash rents recognized there? And I suppose, will it be a credit upgrade with a new tenant?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [8]

--------------------------------------------------------------------------------

It will absolutely be a credit upgrade. It's hard not to upgrade when you're coming out of a bankrupt tenant but it will be, in any definition a credit upgrade. And we've not completed negotiation of the new rental terms. But given the very, very limited exposure, I think Ed mentioned is less than 0.5% of our total portfolio, there will be no material impact on our projected total rental income.

--------------------------------------------------------------------------------

Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

--------------------------------------------------------------------------------

Okay. Then lastly, on Prime, on the improvements that you cited there, I guess going into this year and your conversations with them, what are the biggest cost pressures that they're seeing? Is it more labor, materials, et cetera, et cetera, I guess, where are they seeing the most pressure? And what are they doing to combat it?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [10]

--------------------------------------------------------------------------------

So the most pressure that they were having was really from an internal standpoint. It was really, an integration of all of the acquisitions that they've made over the last few years into their systems. So it's really not one particular cost item, it's just getting their cash collections in order with their revenue. As I reported on the last call, I can't remember the exact number, but they were recovering more than -- collecting more than -- more cash than their actual book to revenue. This quarter, they had -- we're right at about 100% of cash collections. So I think, the -- for the remainder part of this year, they'll continue to improve their integration of those facilities. And as I've stated on the call earlier, they've just done a fantastic job. The last issue, the real issue that they have is the Department of Justice lawsuit. You may have seen that there was actually a filing, where the 2 parties, Prime and Department of Justice, have stated that they have reached an agreement in principle, and they have stayed the lawsuit or in the process of trying to work out the details. I can't remember the exact number of days that the court gave them to do that but I think it's over the next few months.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Our next question comes from the line of Chad Vanacore with Stifel.

--------------------------------------------------------------------------------

Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [12]

--------------------------------------------------------------------------------

So I was just thinking about maybe, you can give us an update on the progress you've made re-leasing the former Adeptus assets? Have you received any bids? Or are there any under consideration for new leases right now?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [13]

--------------------------------------------------------------------------------

Yes, there are. In fact, Chad, we've got about $36 million in total properties, that we have agreement in principle, very close to binding agreement that will move into a -- another very well-capitalized, very experienced dominant operator in particular markets. We are marketing for sale a hospital -- a acute care hospital in the Dallas area that we have significant interest on, again, from dominant operators in that market. We're not in a position where we could handicap timing or amount. But there's a high level of interest in this hospital. That's about a $30 million to $33 million investment for us. And then there remain another roughly $30 million to $33 million investment in multiple facilities that will not be part of a system. And so, we are marketing those and really, in the early stage of entertaining offers on individual of those facilities. That's about 6 or 7 facilities.

--------------------------------------------------------------------------------

Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [14]

--------------------------------------------------------------------------------

Okay, that's excellent color. And then, Steve, what was the magnitude of the impact of those accounting changes on G&A just in this quarter here?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [15]

--------------------------------------------------------------------------------

It's minimal. It's $1.6 million, basically, which is less than $0.005. And so, there were much more significant impacts on earnings, including new facilities that came online, interest expense that increased due to market rates going up. The accounting change was fairly limited.

--------------------------------------------------------------------------------

Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [16]

--------------------------------------------------------------------------------

All right. One last one. On Page 13, the supplemental, compared to last quarter, you disclosed 2 new facilities with coverage less than 1.5x. Were those, those Arizona facilities? Or is that something else?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [17]

--------------------------------------------------------------------------------

Chad, I'm not sure, exactly. I'll have to get back with you on those. I don't think they were the Arizona facilities.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Juan Carlos Sanabria, BofA Merrill Lynch, Research Division - VP [19]

--------------------------------------------------------------------------------

Just with regards to current cap rates in the transactions environment. Where do you see those, where Vista noted that kind of hospital cap rates are now sub-7%. Is that in line with what you're seeing? And how comfortable do you feel acquiring at those types of prices?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [20]

--------------------------------------------------------------------------------

Well, we're not seeing those cap rates here in the U.S. For select properties and portfolios, you do see some of that in Europe. And in Europe, we do have some exciting opportunities that we may have a going in cash rate in a sub-7% or right at a 7%, but we're not seeing that here in the U.S.

--------------------------------------------------------------------------------

Juan Carlos Sanabria, BofA Merrill Lynch, Research Division - VP [21]

--------------------------------------------------------------------------------

Okay. And then, just a bigger picture question. We've seen a ton of consolidation in the healthcare space. The CVS and Aetna, Walmart looking to make some plays into the healthcare delivery system, Amazon talking about some opportunities there to cut costs. What do you see as the impact to hospitals and maybe changes in patient flows and how they interact with physicians? And how are you thinking about what the real estate is positioned with these dynamics changing?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [22]

--------------------------------------------------------------------------------

Well, that's a great question. But it's a long way off before any of us know the exact answers to it. In a big macro vision that we have of it, we think that all of these are ultimately good news for hospitals. We think that having big national players that bring the focus more on national level than the individual state levels is a good thing for hospitals. We think that it brings more patients to the hospitals. Ultimately, having more patients that are covered and more patients that are actually tending to their healthcare needs. So we think it's good news in the long run. It's -- as I said, it's a long way off before any of us see what the actual results are. From a hospital space, as we have always said, we think that the acute care hospitals, in particular, have continued to remain at the very top of the pyramid, the top of the pyramid of the delivery system of healthcare in this country, which is why we continue to expand the percentage of our portfolio, being in acute care hospitals. From -- people talk about the outpatient versus inpatient, from an acute care hospital, it doesn't matter to us whether the revenues come in from an outpatient or from an inpatient. The hospital is still getting both of those revenues. When you look at the performance of, not just our portfolio, but Tenet and HCA, which have also recently released their numbers, they all are improving and actually, all had very strong quarters, and we think that that's exactly in line with what our expectations were.

--------------------------------------------------------------------------------

Juan Carlos Sanabria, BofA Merrill Lynch, Research Division - VP [23]

--------------------------------------------------------------------------------

And just one last quick one for me. Is there a way to quantify the impact, the positive impact, on coverage that the flu may have had?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [24]

--------------------------------------------------------------------------------

Well, I'm not sure you can tell exactly. And as I talked about on the last quarter call, this flu season was unique, in that, most flu seasons, even if they're bad, bad meaning that a lot of people have the flu, but generally, not as high acuity as we saw this year. There certainly was a benefit to hospitals with the higher acuity patients that we had. But when I look back and looked at what the admissions have been, we really didn't see that much additional admissions. I think it was a short-term blip. When you look at the some of the hospitals that we had that actually had to go on diversion for surgeries and other procedures because they didn't have enough beds. It really didn't seem to last for much longer than a week or 2 weeks. So, I think it did have a positive impact, but I don't think that's all of the impact that we saw.

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [25]

--------------------------------------------------------------------------------

And, operator, let me answer Chad's question. Those 2 new properties were 2 new properties in Germany, the 2 new -- 2 MEDIAN properties.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

--------------------------------------------------------------------------------

Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [27]

--------------------------------------------------------------------------------

Ed, can you talk a little bit about your acquisition strategy and what markets have to look like for you to pursue a deal in that specific market? I'm specifically looking at the recent RCCH deal that you guys completed in Washington. I believe that's a smaller market. I think, on previous calls, you kind of highlighted that, that market was too small for you. Was the reason why you were able to get in there because it was partnered with one of your existing relationships?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [28]

--------------------------------------------------------------------------------

Well, I'm not sure exactly which facilities you're talking about. But my -- I have been to all of those facilities, and while the towns are not big metropolitan areas, they all do have more than one hospital operating in them. And they all meet the most important need -- the most important criteria that we have in doing our analysis, which is regardless of where the hospital is located, can we answer the question positively that what happens if that hospital closes down? Does the community suffer from its healthcare needs? And we think that those, in particular, that you're questioning or asking about there was the RCCH are -- do indeed, meet those in a positive way.

--------------------------------------------------------------------------------

Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [29]

--------------------------------------------------------------------------------

Okay. And are you interested in expanding in Kenwick with that operator too? 'Cause I know they're looking for an asset over there also.

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [30]

--------------------------------------------------------------------------------

We have not been invited to look at that particular facility.

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [31]

--------------------------------------------------------------------------------

We actually -- Mike saw that years ago, when it was first being constructed, and I think it's now in bankruptcy, but we're not involved at present.

--------------------------------------------------------------------------------

Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [32]

--------------------------------------------------------------------------------

Okay, great. And then can you talk a little bit about some of the JVs I know you kind of highlighted that you expect the European JV to be done sometime soon. There's a second JV, right? And I'm sorry if you already talked about this, is that going to have a similar closing date?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [33]

--------------------------------------------------------------------------------

Yes, I didn't mean to distinguish, because they're both pretty much on similar timing tracks. We hope to have both signed up -- expect to have both signed up during this quarter.

--------------------------------------------------------------------------------

Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [34]

--------------------------------------------------------------------------------

All right. Do you have an estimated size of those types of deals? Or may be in an aggregate of how big of a joint venture we're talking about?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [35]

--------------------------------------------------------------------------------

Yes, we haven't disclosed that, and we'll leave that to the ultimate announcement.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Our next question comes from the line of Tayo Okusanya from Jefferies.

--------------------------------------------------------------------------------

Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [37]

--------------------------------------------------------------------------------

I just wanted to go back to one question about consolidation in the healthcare space. On the flip side, we are seeing hospitals also doing some vertical integration. I think, classic example is the ProMedica deal with Welltower to buy HCR ManorCare and QCP. I mean when you start to see hospitals evolve that way when you it starts to vertically integrate? Does that change how you think about underwriting real estate that you may lease to them?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [38]

--------------------------------------------------------------------------------

Well, Tayo, I don't have the details of that particular transaction, so I can't comment on that. But from an overall consolidation, we've seen this going on for a long time and that's primarily, in our field, has been just a consolidation of one acute care hospital with another acute care hospital or acute care hospitals. We haven't seen a lot of consolidation up and down the chain from acute care hospitals but if that were to happen with any of our operators, it would look very similar to what Steward's original model has been and it's a model that has worked very well for them and one that we obviously, have endorsed with them. So it would have to be on a case-by-case basis. But certainly, in certain cases, like Steward, it's worked very well.

--------------------------------------------------------------------------------

Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [39]

--------------------------------------------------------------------------------

Okay. That's helpful. And then just back to the Arizona assets. If I recall correctly, those assets also did go bankrupt about 5 years ago. So I'm just curious, if you could just talk -- let us know over the course of those 5 years, what kind of happened? It seemed like things were improving and now they're back in bankruptcy and kind of, what lessons are there to learn in regards to the next time you lease those assets out. What kind of tenant credit you are looking for?

--------------------------------------------------------------------------------

R. Steven Hamner, Medical Properties Trust, Inc. - Executive VP, CFO & Director [40]

--------------------------------------------------------------------------------

Well, just -- you're right. This is second time around for both of those facilities. We never missed a lease payment during the earlier run up. We do not expect to take certainly, any material, perhaps, any missing of lease payment at all, once we make this transition. And the lesson there is once again, make the right decision when you underwrite and buy, and that starts with the question on, I know most people on this call are maybe tired of hearing us say it, Ed just repeated it, make sure that the hospitals we buy are needed in those communities, such that when you have a situation, as we now have again, in Arizona, and a particular operator, for whatever reason, is unable to operate profitably. That hospital needs to be there. The market dynamics, the demographics are such that it should be able to be operated profitably and bringing in a competent, experienced, well-capitalized operator, will achieve that. And that's what we expect with these facilities.

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [41]

--------------------------------------------------------------------------------

And Tayo, you may remember that these 2 facilities were some of the last facilities that were done that were primarily -- they were essentially joint ventures with local physicians amongst themselves. When they got in trouble the first time, it was because the physicians were fighting with each other. They didn't perform very well coming out of the first bankruptcy and some of the same old personality issues rose again and they spent more time arguing with each other than they did managing the facilities.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Our next question comes from the line of Karin Ford with MUFG Securities.

--------------------------------------------------------------------------------

Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [43]

--------------------------------------------------------------------------------

I wanted to go back to the freestanding ERs again. I saw there were some new legislation in Colorado and Texas and MedPack was recommending a 30% cut to Medicare payments to facilities within 6 miles of a hospital. Do those things cause you to rethink the piece of the facilities that you're going to keep, maybe making that smaller? And how much of the portfolio you are going to keep meets that 6-mile criteria?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [44]

--------------------------------------------------------------------------------

So, Karin, as we all know, the MedPack proposal is merely that, it's a suggestion and has a long way to go before it actually became a reality. So none knows what the exact answer would be. But obviously, we've looked at it assuming that, that was exactly what happened. And you -- I think, we all have been surprised that the projected effect on our revenue -- our tenants' revenue has been -- is extremely small, it's less than or about a 2.5% overall negative impact. So we -- just like with any of the operator -- any of the specific types of facilities, we expect there to be adjustments from time to time to the reimbursement schedules. But we did not change our opinion on our particular model, which is, doing these freestanding ERs with acute care hospitals, and we think that the industry and the hospital association will continue to show that these are very much needed in local communities, where they don't need a general acute care hospital. So it has not changed our opinion of them and if it were enacted exactly as MedPack has proposed, it would have very little effect on our tenants.

--------------------------------------------------------------------------------

Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [45]

--------------------------------------------------------------------------------

That's good color. And last question is just on the nice coverage improvement you saw this quarter. Do you have a sense for how much the changing same-store pool impacted the coverage change?

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [46]

--------------------------------------------------------------------------------

Yes, that's a good point out, Karin. It's actually -- so if you look at the additions that we had, the Italian facilities, those facilities actually had a lower coverage than our overall prior same-store coverage. So if you took those out, the same-store coverage would actually be even higher.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Aldag for closing remarks.

--------------------------------------------------------------------------------

Edward K. Aldag, Medical Properties Trust, Inc. - Chairman, President & CEO [48]

--------------------------------------------------------------------------------

Thank you very much and as always, we appreciate all of your interest. If you have any additional questions, please don't hesitate to call on us. Thank you very much.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.