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Edited Transcript of MPW earnings conference call or presentation 2-May-19 3:00pm GMT

Q1 2019 Medical Properties Trust Inc Earnings Call

Birmingham May 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Medical Properties Trust Inc earnings conference call or presentation Thursday, May 2, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles R. Lambert

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

* Edward K. Aldag

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

* R. Steven Hamner

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

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Conference Call Participants

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* Andrew T. Babin

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

* Chad Christopher Vanacore

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

* Jordan Sadler

KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst

* Karin Ann Ford

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

* Mei Wen Tan

JP Morgan Chase & Co, Research Division - Analyst

* Michael Albert Carroll

RBC Capital Markets, LLC, Research Division - Analyst

* Omotayo Tejamude Okusanya

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

* Todd Jakobsen Stender

Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen and welcome to the Q1 2019 Medical Properties Trust Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Charles Lambert. Sir, you may begin.

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

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Thank you. Good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2019 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.

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

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Thank you, Charles, and thank all of you for being on the call today. The first quarter of 2019 has been very busy for Medical Properties Trust. Our acquisitions and underwriting teams have been actively engaged in performing underwriting and due diligence on potential acquisitions valued at over $2.5 billion with another $2.5 billion a little further behind in the process.

No potential acquisitions have fallen out since our last earnings call. While we cannot guarantee the closings of these transactions, we feel good about where we are in the closing process. They're all attractive and exciting additions to -- for our hospital portfolio. These potential acquisitions represent about 50% domestic and 50% international opportunities. The vast majority of properties are with new operators, allowing MPT to continue to diversify operator concentrations within our portfolio.

If we are successful in completing all $2.5 billion that we are actively working towards closing, stewards percentage of the portfolio would fall to the low 30s. The investments are high-quality inpatient hospitals, representing a strong mix of acute care and a few behavioral and post-acute care facilities. Most of the facilities are based in major metropolitan markets with significant market share in their respective service area. We hope to be able to publicly announce these deals over the next several months.

As you saw this morning, we completed a $45.5 million transaction with the acquisition of our fourth hospital in the U.K, with an operator who is new to the MPT portfolio, BMI Healthcare. BMI Healthcare is the UK's largest privately owned healthcare provider with over 50 hospitals and healthcare facilities across the U.K. This facility is up and running and performing very well. Our previously announced transaction to acquire 11 hospitals in Australia from Healthscope is on track with an expected closing date in late second quarter.

Despite some of the political noise from the current Democratic presidential debates around Medicare for All, we continue to believe that the healthcare industry doesn't show any signs of slowing down. Aging and growing populations, greater prevalence of chronic diseases and advances in innovative technologies continue to increase healthcare demand and expenditures. Also, many healthcare organizations looking to optimize financial and operational performance continue to turn to mergers, acquisitions and partnering to add capabilities and build scale. MPT will continue to be there to play a vital role to assist in financing these transactions.

Finally, it's worth mentioning that we were pleased to read the recent fiscal year 2020 payment rates proposed by CMS. Realizing these are not final, CMS is proposing payment increases for acute care, psychiatric and post-acute care hospitals. This bodes well for our company and the hospital industry at large.

Now turning to this quarter's reporting. We added 5 properties to our same-store reporting. All of the additions to same-store reporting were inpatient rehabilitation facilities. Our same-store total portfolio EBITDARM coverage for the trailing 12 months Q4 2018 is 3x, which is essentially flat year-over-year. Same-store acute care EBITDARM coverage is 3.5x, which represents a 2% increase year-over-year. IRF EBITDARM coverage is 1.9x, which is also essentially flat year-over-year.

LTACHs, which represent less than 3% of our total portfolio, have EBITDARM coverage of 1.3x. Unless LTACHs increase as a percentage of our total portfolio, at under 3%, we will suspend reporting for their coverage. If anything significant occurs in this segment, we will certainly report on it.

The United States represents 78% of our total portfolio. Acute care hospitals continue to make up the bulk of our investments, domestically at 79%, which is right in line with our target range. It is an important reminder that approximately 94% of our same-store portfolio is master leased, cross-defaulted or includes a parent guarantee.

MPT has never been in a stronger position than the present including, but not limited to, our opportunities, our balance sheet and our staffing. We continue to grow in size and reputation as the global leader in hospital real estate financing and the industry's preeminent source of capital. We are actively engaged in billions of dollars of domestic and international acquisitions with more opportunities coming our way.

Steve?

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

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Thank you, Ed. This morning, we reported normalized FFO of $0.31 per diluted share for the first quarter of 2019. These results were as we expected and reflect the stable portfolio of hospital real estate throughout the quarter. I will take a few minutes to point out a couple of details behind these results, describe certain accounting changes and then address our investment expectations for the remainder of the year after which we will take some questions.

Included in property-related expenses for the first quarter is about $1.6 million in ground lease expense that in prior periods has been netted against rental revenue. This change is a result of our adoption of the new lease accounting standard as of January 1, which requires lessors to gross up certain impositions to show the lessors' contractual payment obligations as an expense and reimbursement of such expense from lessees as rental revenue.

Our general and administrative expenses were $23.5 million for the quarter, which is up from previous quarters due to assumptions we have made about stock compensation expense. As you may recall, our stock awards are heavily weighted toward achievement of objective, predetermined performance measures. Given our strong operational and total shareholder return performance in 2018, with the 1-year total shareholder return of 25% and 73% over the last 3 years along with our confidence in executing our robust pipeline, we believe it is more likely that such performance awards will be earned and have adjusted our stock compensation expense accordingly.

From a go-forward perspective, we believe general and administrative expenses will range between $23 million to $25 million per quarter in the remainder of 2019, which we expect to represent 9% to 10% of our revenues once our acquisitions target for 2019 is met. Excluding stock compensation expense, G&A for the first quarter would be approximately $16.7 million or about 9.3% of reported total revenues.

Going forward, we expect that our adoption of the new lease accounting will have no material impact on our results of operations. We made a transition adjustment during the quarter that had the effect of increasing assets and liabilities both by less than $100 million but with no income or FFO impact. As already noted, certain reimbursable impositions that our tenants are responsible for paying, such as ground rents and in some instances property tax and insurance, will be presented gross in the income statement.

Our primary focus so far in 2019 has been and will remain on the acquisition of new hospital real estate, taking important steps with respect to the $859 million Healthscope acquisition, initiating and completing the acquisition of a very attractive hospital in Southern England last month, signing agreements that we expect will result in additional acquisitions this quarter and making great progress concerning other targeted acquisitions that we're not prepared to discuss this morning. The point, as Ed has already made, is that we remain highly confident that we will complete the acquisition in 2019 of $2.5 billion in high-quality hospital real estate that is essential to delivery of health care to the surrounding communities.

Reflecting our confidence is the fact that we have raised more than $1.3 billion in acquisition capital in anticipation of these investments, $500 million in common equity under our ATM program and over $850 million in unsecured Australian-denominated term debt at an expected rate of less than 3%.

Our current net debt-to-EBITDA ratio is approximately 4.2x, and upon closing of the Healthscope acquisitions, expected in early June, it will remain historically low at no more than 5.0x.

It is not possible to precisely predict when our additional acquisitions will be completed, but we expect to maintain our prudent leverage strategies on a long-term basis. Accordingly, we remain confident in the guidance we provided on last quarter's call that upon completion of $2.5 billion in 2019 acquisitions, our annual normalized FFO run rate will range between $1.54 and $1.56 per diluted share.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Michael Carroll with RBC Capital.

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Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [2]

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I wanted to touch on the BMI deal real quick. I know you've been trying to get into the U.K. market, I guess, more meaningfully after the Circle acquisition. Does this investment provide a foothold in that country and does it allow you to invest more aggressively over time? Or should we think it more of a one-off type transaction?

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

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Well, Mike, I think that's a good question. Obviously, I've been disappointed with the slowness of our investments in the U.K. but I still -- we still have a good team there and we think that we'll be able to see some greater traction there in the very near future. But having said that, this is a one-off investment here with BMI. We don't have any contractual rights for additional properties, but obviously, it builds the relationship and just gives us an upper foothold there.

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Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Okay. And what are the terms, I guess, of the lease? I know I think in the earnings release, it was 7% GAAP cap rate. I guess how long is the lease and what are the rent bumps?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [5]

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We have 14 years remaining on the lease. The...

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

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They're fixed rent bumps that we've not disclosed the detailed terms.

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [7]

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But they're in the range of what we're used to, Michael.

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Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [8]

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Okay. How long was the initial lease? What was the initial lease terms? If there's 14 years remaining when it was signed, how long was it?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [9]

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Yes, I have to get back to you on that, Mike.

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Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [10]

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Okay. Great. And then I want to talk about the -- I guess, the LTACH coverage. It does seem like coverage has dropped year-over-year. I mean how are you thinking about that part of the portfolio right now? If I remember correctly, I believe the coverage was weak related to the Ernest assets. Is that the case? And does the IRF in that portfolio continue to support that coverage ratio?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [11]

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Well actually, Mike, it's pretty mixed. We've got a number of facilities that aren't Ernest-related. The Ernest-related ones are some of the ones that are closer, near to the bottom. But when you combine the other rehab coverage and all of the cross defaults with the strong-performing LTACH, these are well-covered facilities with the Ernest facilities. There is one facility that is not crossed. That has nothing to do with Ernest. It has to do with another operator.

But we have an extremely large letter of credit there, so we feel very comfortable about that because the property itself is a very valuable piece of property. Maybe it's something other than an LTACH ultimately down the road. But what you've seen is just the continuing -- everybody trying to find the bottom with the patient criteria. We think that we're close to there on most of them. There are probably a couple of them that still have a lease to go. But remember that this is 13 properties, $283 million. It's just not that big part of our portfolio at this point and we don't see that growing.

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Michael Albert Carroll, RBC Capital Markets, LLC, Research Division - Analyst [12]

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Okay. And then I guess finally, I know -- I think that sometime soon, you're supposed to report Steward financials. Is there a timing on that? Is there an expectation of when you'll be releasing those financials?

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

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Yes, we expect it to be fairly quickly.

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Operator [14]

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And our next question comes from Drew Babin with Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [15]

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Starting out on the coverage ratios. It looks like both the acute care hospitals and the IRFs have very much stabilized year-over-year. And I guess, kind of doing the attribution of that based on the financials you've seen from the fourth quarter and anything from the first quarter, are things sequentially improving? Might we see kind of those lagging coverage ratios begin to creep up a little more as time goes on?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [16]

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Yes, I think -- Drew, I think so in all categories. I'm not sure about the LTACHs yet but certainly in the IRF and the acute care.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]

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Okay. And do you attribute that mostly to just operator improvements and operators like Prime working out some operating issues it had in the past or is something maybe more on the legislative front?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [18]

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I think you're right, it's on operator efficiencies, operators improvement. Prime, in particular, is truly humming. They've done an incredible job of getting their house back in order after doing probably too many acquisitions too fast, but their portfolio is just truly fantastic. Some of the other portfolios are catching up to where they wanted to be, probably by -- in the fourth quarter last year, in the first quarter here. And so we think 2019 is going to be a great year for the acute care hospitals in particular.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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Okay. And then are you able to talk at all about potential pricing terms on the Aussie term loan. I think we have modeled something in the 3-ish kind of looking at that market, but any color on what that might look like?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [20]

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Yes, I think if you use a 3 flat, that's going to be pretty close to what it ends up. It will be driven off of the -- what is known as the BBSY reference in Australia, which today is in the 1.6, 1.7-ish times, and then our spread is 1.25. So as of today, it would actually be slightly less than 3.0.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Okay. And then one last one and apologies if I missed this, but did you provide a cash cap rate on the BMI deal? I know the GAAP yield is 7%.

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [22]

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No, we did not.

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [23]

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We did not. We generally don't for obviously negotiating purposes with other tenants.

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Operator [24]

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And our next question comes from Tayo Okusanya with Jefferies.

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [25]

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Just a couple for me. First of all, just wanted to get your thoughts on the new fiscal year '20 CMS proposals for Medicare reimbursement rates for hospitals as well as for LTACHs?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [26]

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Tayo, if I heard your question right -- asking to having to increase the volume as you were talking, but I thinking you were asking about the CMS proposals for acute cares and LTACHs?

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [27]

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Yes, for fiscal year '20, just what your thoughts are on the proposal?

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

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For acute care hospitals, we're obviously very pleased with what they propose. We obviously have to wait and see what the final results are. Actually, we're surprised pleasantly with the proposal for the LTACHs. The key on LTACHs continues not to be so much the rate reimbursement but the patient criteria, and we think most of the LTACHs in our portfolio have hit the bottom there, if you will, and we're still watching a few of them there.

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [29]

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Got you. I know you have kind of talked about the -- no longer reporting that coverage, but I think again it's -- while it's a small part of your portfolio, I think I would advocate that you guys continue to kind of give us that disclosure, given that there is decent amount of interest around how those assets are performing from the investor perspective.

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

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I hear you.

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [31]

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And then lastly, Steward. Just curious about the deal that you did do post 1Q '19, if you could talk a little -- post 1Q 2019, if you could talk about that a little bit. And then I was a little bit surprised in the disclosure that you discussed, exposure to Steward being almost in the low 40s now. That just seemed rather high. I'm not quite sure what that number represents?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [32]

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Yes. So let me address both of those, Tayo. The acquisition last month of a very small hospital for Steward was really a unique one-off and actually very attractive opportunity for us to protect and, in fact, improve Steward's and MPT's position in West Texas, where we have existing investments. It is not by any means an indication of any near-term future meaningful Steward investments. It's really just a fill-in, as I say, to protect our market. With respect to the calculation of Steward exposure on a revenue basis, I think you're probably looking in the supplemental. And I will just point out a couple of things there that the measurement, as you'll see on Page 11, is actual recent results.

And so you'll see that, for example, Healthscope, which we've included, has no revenue. It also doesn't include adjustments for the joint venture. And then again, as you'll see, there's $1.5 billion of other assets, a lot of that is under development, also has no revenue associated with it. So if you pro forma those out, you'll get right back to where we've always been reporting Steward, and that's in that 38% range, which is also similar to the investment level.

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Operator [33]

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And our next question comes from Jordan Sadler with KeyBanc.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [34]

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I wanted to start on the Australian term loan. Can you -- so it looks like the size of the term loan is pretty substantial relative to your investment in Healthscope. Can you maybe speak to maybe what the LTV is there? Or am I just looking at it the wrong way?

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

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No, you're looking at it exactly right. And as is typical with our non-U. S. investments, we overlever, and that's for a couple of reasons: number one, to take advantage of the much lower cost of debt, both in Australia and in Western Europe; and then secondly, to offset -- to naturally hedge our investment. So it's an unstructured loan. So it's totally fungible to the rest of MPT's debt, which is why it makes sense for those 2 reasons, again, as we've done with historical European investments to overlever. So that just means we have to offset that when we do U.S. acquisitions. And so that's why we're confident in being able to say that going forward, we'll retain our overall corporate unsecured leverage in that 5 to 5.5x range on a long-term basis.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [36]

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Okay. So it's essentially 100% LTV?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [37]

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It's 100%. It absolutely is.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [38]

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Okay. And then separately, so the guidance tweak I know you suspended this year. I presume, is that purely a function of timing in that you've used the ATM in the quarter, and the acquisition closing timing has just become a little harder to predict?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [39]

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It is 100% acquisition timing closing. It's extremely lumpy as it always has been, and when we were talking about dollar sizes, the way that we are right now, it's just harder to exactly predict, and as I pointed out in my previous announcement that no properties that we've been working on have fallen out since the last earnings call. So it's not an issue of that. It's just an issue of timing.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [40]

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So the only -- so I guess the only change because everything's pretty much seems the same. I guess you did the ATM, which might have been a little bit more new, would have expected to be able to do. And did the timing in the acquisitions push back a little bit?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [41]

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No, what really started is, when we first gave guidance in that roughly $1.45 a share range, back in the fourth quarter of last year, we were counting on a fairly large transaction to happen very early in January. And that's when we were, I think at that time, anticipating a $1.5 billion in acquisitions. Well, that January transaction didn't happen. But we continued to develop the pipeline and added another $1 billion to it. So we remained, at least until recently, confident that we could still meet that $1.45. As we approach middle of the year now and we're still not sure specifically about timing than it's -- it just becomes more and more difficult. But that's the history of basically the $1.45 and why we're now saying it's unlikely to be $1.45 on a calendar year basis.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [42]

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Okay. I guess just to follow up on that, 2Q right now at least looks like it might be pretty similar to 1Q, just assuming that there's -- you did a small acquisition but you obviously did quite a bit of ATM. So correct -- just correct me if I'm wrong there. And then separately, the run rate, I noticed you bumped up the run rate guide by a couple of pennies at the high end or at least you made a range. And I was curious if there was anything driving that.

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [43]

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Yes. Just more clarity on terms other than timing.

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

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Yes. As we're already very near the end of the second quarter, we'll have -- the properties that will close in the second quarter will all be back-end loaded. And so you're right, there won't be much difference between the first quarter and the second quarter from that standpoint. But we hope to have more announcements by the end of the second quarter.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [45]

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Okay. And then a quick follow-up on BMI. Does that have an extension option or a renewal option?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [46]

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Yes.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [47]

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And then assume -- you guys assume it's likely that it will be extended?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [48]

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Well, 14 years from now, I'm not sure.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [49]

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You don't make an assumption in the GAAP calculated spend of...

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [50]

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No. No, no. Not for that. The GAAP rate is driven by accounting rules, which is basically the initial term.

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [51]

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This is a strong performer for BMI, but 14 years out, who knows?

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [52]

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Okay. For some reasons, I guess I was thinking in -- over time, you guys have had to make assumptions as it related to certain renewal options as it related to the accounting rules, but...

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [53]

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That's right. But that's with respect to when there's a large master lease and when we are analyzing whether an operator, really has the leverage to walk away from any single asset because it can't walk away from all of the assets.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [54]

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Okay. Okay. As opposed to a one-off?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [55]

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Right.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [56]

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Okay. Large master lease, you brought it up. Just on Steward, did you -- can you give us any color on what coverage has looked like there? How it's trended?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [57]

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Steward overall?

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [58]

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Yes.

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [59]

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Yes, it's trended up and we expect 2019 to be a very strong year for them.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [60]

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And you get that -- they provide you just sort of a preliminary EBITDA coverage by facility but they don't give you their overall financials?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [61]

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We get daily information on all of our facilities, not just Steward, but we're working with them on a regular basis and so we do have insight into what all the facilities are doing.

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Operator [62]

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Our next question comes from Chad Vanacore with Stifel.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [63]

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I'll keep it to one quick question. So Ed, you made a comment on slower growth in the U.K. than you'd like, so I'm curious, what have been some of the hurdles to expansion on the level that you would have liked to have seen.

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [64]

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Yes. Well, that's going back 7 or 8 years or more with the U.K. They've introduced a long time ago any willing provider where their citizens can use the NHS insurance cards for any private hospitals. And so they've got the ability to do it, but it just psychologically hasn't happened yet, and so it's just been a longer process than we had hoped.

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Operator [65]

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

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [66]

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I wanted to ask about the 7.5% to 8.5% GAAP acquisition yield range that you'd given before. I think you had said previously that most of the rest of the '19 deals outside of Healthscope were going to be in the U.S. and that would bring the average into that range. It sounds like now you've increased your targeted split to be more international, 50% I think you said. So is that range still good for us?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [67]

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Yes, it is, Karin, because remember, when we talked about it last earnings call, we're still getting the same spread in both the U.S. and here -- and overseas because of our lower borrowing cost overseas.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [68]

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Okay. But just for modeling purposes, should we still be -- is a 7.5% GAAP yield still a reasonable number or could it fall below that on -- just on the yield side?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [69]

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That's a good reasonable number.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [70]

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Okay. Fair enough. Just a question on Healthscope. It looks like the NorthWest REIT publicly said that they were delaying their update on that acquisition from late April to now mid-May. Is there a chance that deal could slip to 3Q? And any chance that you might be able to step in the NorthWest's shoes if they're unable to get over the finish line?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [71]

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It's highly unlikely that it slips to 3Q. They're more likely -- answer would be exactly what you just said, if NorthWest is unable to perform, we then step in.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [72]

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Okay. And then last question. It looked like there was a $2.6 million write-off of straight-line rent in the quarter. Can you just talk about what that was related to?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [73]

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Yes. That was actually a number of minor transactions going in and out. It's not all straight-line rent. Frankly off the top of my head, I can't recall exactly what it was in, but just ordinary course adjustments that netted out to that $2.6 million.

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Operator [74]

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Our next question comes from Todd Stender with Wells Fargo.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [75]

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In the past, you've given some clarity on Steward's rent coverage. Just by the 6 markets that you're in, can you give those rent coverages by those markets?

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [76]

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Well, let me give it to you. I don't have it in front of me by the 6 markets, but on an overall basis, Steward's coverage is well over 2x. It's actually in the 2.5x range.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [77]

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Okay, 2.5x. Okay. And some of those markets were in excess of 3x.

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [78]

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Yes, that's it.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [79]

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Okay. All right. I'll switch gears. The Steward property in Big Spring, Texas. Is that a straight acquisition. Is that wholly owned by you guys or is there more of a debt financing investment?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [80]

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No, we own the real estate and only the real estate.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [81]

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Okay. Did you provide the GAAP yield on that and also the lease term?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [82]

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We did not. But it rolls into the math, the Steward master lease.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [83]

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Okay. Comparable yield, is that fair?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [84]

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Yes.

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Operator [85]

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And our next question comes from Michael Mueller with JPMorgan.

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Mei Wen Tan, JP Morgan Chase & Co, Research Division - Analyst [86]

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It's actually Sarah on for Michael Mueller. Just a quick question on equity issuance. So I guess you guys just now touched upon raising the run rate guidance by $0.01 at the higher end. How can we assume the pipeline gets funded to reach that run rate? And in terms of equity issuance, can we think the rest of the year should look like, given that you want to remain at the lower end of your debt-to-EBITDA range but also having issue with that $1.2 billion of term loan debt?

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R. Steven Hamner, Medical Properties Trust, Inc. - Founder, Executive VP, CFO & Director [87]

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Well, the -- when we closed Healthscope having issued $1.5 billion in equity under the ATM and as Jordan pointed out earlier, financing Healthscope 100% with debt. Even with that, we'll be at 5.0x leverage. Going forward, as we've said now these many years, that on a long-term basis, our expectation, our plan and our history is to run the company at between 5 and 5.5x leverage. So that doesn't mean that any day we wake up or any day immediately following an acquisition, we will be there. But our plan and expectation is that as we make these $2.5 billion of acquisitions, we will be adjusting the balance sheet to maintain that very prudent leverage level. With respect to timing and when we do debt and when we do equity, it is all obviously driven by the acquisition velocity, and we just have no ability to be precise. I'm not sure that I answered your question.

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Operator [88]

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And we have a follow-up from Tayo Okusanya.

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [89]

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Well actually, I took myself off the queue.

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Operator [90]

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

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Edward K. Aldag, Medical Properties Trust, Inc. - Founder, Chairman, President & CEO [91]

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Thank you, Jimmy, and thank all of you for your interest in the call today. If you have any additional questions, please don't hesitate to call our offices. Thank you very much.

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Operator [92]

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