Good afternoon. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medical Properties Trust Second Quarter 2022 Earnings Conference Call. I would now like to turn the conference over to Charles Lambert, Vice President. Please go ahead.

Good afternoon. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2022 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 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 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 medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Charles, and thank all of you for listening in today to our second quarter earnings call for 2022. You all will recall that the public reporting hospital operators reported Q1 2022 results, reflecting the issues with the Omicron surge in December, January and part of February. As we predicted last quarter, since we report coverages one quarter in arrears, the results we reported from our operators today show that same softening. Furthermore, just as we predicted with the public health systems like HCA and Tenet, who have both published their Q2 results, the positive trends that we are seeing in March and April have accelerated into May and June. There are several points that we believe are important for us to address today. First, we underwrite every investment at the facility level. We believe reporting coverages at the facility level is the appropriate metric. Whether we acquire a large portfolio of hospitals or a single hospital, we underwrite that acquisition at the facility level, understanding the competition market, the physician referral sources and the operator. We must be right on the market and the referral sources, but long-term collection of our rent does not depend on the financial results of a particular operator. In the few times that we've had to transition from one operator to another, we have been successful in attracting highly capable and qualified operators because we had acquired hospital real estate that was essential to the community and in the right location could be operated profitably. And as a reminder, our rent typically represents approximately 5% to 7% of a hospital's net revenue. Two, rarely is an operator's real estate 100% subject to an MPT lease. In many cases, MPT does not even own the majority of an operator's real estate. And three, hospitals can and do exist without corporate offices. However, corporate offices and their functions would not exist without the hospitals they support. Another item that is sometimes confusing to investors is the repair and maintenance numbers in coverage. The repair and maintenance is expensed on the income statement and represents the bulk of nondiscretionary spending required to maintain the hospital real estate. The hospital's capitalized expenditures then fall into two primary categories, equipment-related and building related. In both cases, the entire amount of the expense does not represent an immediate cash outlay. The overwhelming majority of these costs are financed and repaid over the terms agreed to by lenders or vendors. For larger true real estate capital expenditures like a new hospital tower, a new parking deck or roof replacement, MPT has always been supportive of continued investment in our hospital real estate, to the extent that a project meets our underwriting criteria. Sometimes MPT has to finance these investments in which case they're generally added to our lease base. Moving on now to discuss our operators in the portfolio lease coverages. You all may recall that historically, we provided coverage at the EBITDARM level. Over the years, many shareholders and analysts suggested that we provide EBITDAR coverages to be consistent with other REITs. Internally, we use a conservative 5% of net revenues across the board with our tenants to approximate the management cost of operators. Most of our operators' actual cost is significantly less than the 5%. The actual cost usually approximates between 3% and 4% and some even less. We used the 5% internally to help show us direction and early warning signs. Let me give you some specific examples. Using our tenants' actual numbers and not the 5% number we use internally across the board, LifePoint's actual EBITDAR coverage for the trailing 12 months ending March 31, 2022, was 1.38x; ScionHealth was 1.17x; Priory was 1.75x; Prospect was 1.0x and so on. Whether we use the 5% or the numbers provided by the tenant, this is an art and not a science. Also remember that as announced during the last earnings call and as previewed by HCA, Tenet and others, the first quarter of 2022 was a difficult quarter for everyone. Our operators have returned to more normal metrics since then. Our total portfolio EBITDARM coverage for the trailing 12-month period ending 3/31/2022, was 2.4x. This compares to the trailing 12-month period ending 12/31/2021 of approximately 2.7x. The trailing coverage for last year's first quarter results was also 2.4x. Using the surrogate number of 5% of net revenue for management fee, EBITDAR total portfolio coverage for the trailing 12-month period ending 3/31/2022 was 1.7x. The details of our EBITDARM and EBITDAR coverages using the 5% number by operator, are shown in our supplement report we filed this morning. Now let me take a few moments to provide some high-level updates on some of our larger tenants. Steward. Steward operations continue to make dramatic improvements from 2020. In 2020, Steward's unadjusted EBITDA was approximately $209 million. In 2021, based on current unaudited numbers, Steward generated an unadjusted EBITDAR of more than $450 million. This reflects a more than $240 million improvement. Based on the most recent two months, Steward's internal unadjusted EBITDAR shows a run rate of more than $800 million. The Utah and Miami markets alone continue to perform very strong and made up approximately $350 million of that $800 million. By the end of September, Steward will have paid back all of its MAP requirement, excluding the small amount associated with the hospital in Massachusetts that was hit by a flood two years ago. The exhaustion of the payback of the MAP money in September and the termination of the Tenet management agreement will mean approximately $50 million additional cash dollars per month available to Steward. Volumes at Steward are up 11% over the volumes in February and up more than 20% relative to the same time last year. And very importantly, the quality of these volumes is strong. Current labor costs at Steward are currently 9% lower than they were in January. Circle continues to reflect steady operations and coverages. Self-pay admissions continue to trend upwards, which is a good thing in the U.K. as growing NHS backlogs are driving substantial wait times in the public sector and overall volumes are approximating pre-pandemic levels. Circle also continues to report that they are not experiencing any significant issues with staffing or inflation impacts. Prospect has not rebounded where we hoped they would at this point, post the third COVID cycle and staffing changes. In talking with management, they are still bullish on California and believe that Pennsylvania has turned the corner after an enterprise system conversion. Prospect is actively involved in ongoing negotiations with prospective acquirers for the Connecticut and Pennsylvania markets. To date, we have not been involved in any of these negotiations. Swiss Medical Network continues to perform well as they have in the past. They continue to outperform the prior year from a revenue growth standpoint and expect to continue that trend as they onboard their most recent acquisitions. Median's operations and coverage remained steady as they have throughout the pandemic. Average occupancy through May has trended up from the prior year and additional increases are expected during the remainder of 2022. Personnel costs through May 2022 have been managed below budget and are up only 6% year-over-year. Median expects to be able to effectively manage in alignment with expectations during the remainder of 2022. Priory saw an increase in coverage in Q1 2022 and remains near 2x coverage since the transaction last year. Occupancy remains strong and the remainder of 2022 is currently expected to be in alignment with expectations. Healthscope at the end of 2021 and during the early months of 2022 in Australia continued to institute periodic restrictions on elective surgeries due to the COVID pandemic. Healthscope continues to work towards completion of multiple capital improvement projects at a number of our facilities. Prime continued its strong coverage performance in Q1 2022. Fifteen of our 22 facilities posted EBITDARM coverage of over 3x with seven of our facilities covering over 4x. Volumes during Q1 2022 were almost even with Q1 2021 and their cash position is strong. Dr. Prem Reddy, the Founder and CEO of Prime Healthcare, was recently recognized by the Los Angeles Business Journal as one of the 500 most influential leaders and executives in Los Angeles. This was the third consecutive year that Dr. Reddy has been recognized on this prestigious list and Dr. Kavitha Bhatia, President and Chair of the Prime Healthcare Foundation, was also named to that list. Lastly, before I turn the call over to Steve, I'd like to provide a quick update on some of our recent activity on the acquisition front. We are actively pursuing opportunities with locations across Spain, the U.K., Australia and the United States. Our second Spanish transaction is a development agreement with one of our current operators, IMED. Recall back in 2015, we agreed to a similar deal with IMED to develop a brand-new state-of-the-art hospital in Valencia, Spain. That facility, which is a great example referenced in our annual report on multiple occasions, was completed in 2017 and has successfully served as their flagship hospital. The facility has now matured and IMED is ready to begin the next phase of our growth strategy with the development of three new acute care hospitals across the Mediterranean coast of Spain. The estimated combined budget of these redevelopment projects is EUR 121 million. Each facility has a separate construction timeline, but we expect them to be completed between the second half of 2023 and the second half of 2024. We are excited to grow our investments and relationship with the team at IMED. Early in the third quarter, we closed on a $26 million acquisition of another hospital in Colombia, operated by a new tenant to MPT named FCV. They are a pioneer in Colombia and Latin American health care excellence as they were the first to receive JCI accreditation in Colombia. Also during the quarter, MPT acquired from separate third parties two facilities located in Arizona and Florida and leased to Steward for a combined $80 million. The Arizona facility, which will operate as a combined ambulatory surgery center, imaging center and freestanding emergency department, is expected to drive additional volume to the nearby Mountain Vista Medical Center in Mesa, which is a Steward facility. The Florida general acute care facility provides Steward an economical way to expand within the same service area as their Coral Gables Hospital and is expected to commence operations in January 2023. And with that, I'll turn the call over to Steve.

Thank you, Ed. This morning, we reported normalized FFO of $0.46 per diluted share. The $0.01 change from the first quarter's result was expected and is primarily related to the effect of the late first quarter close of the Macquarie joint venture. As this morning's press release noted, our 2022 calendar year guidance of $1.78 to $1.82 per share remains unchanged. Adjustments to normalized FFO are routine and immaterial individually and in the aggregate, and I'll be happy to address any questions during our Q&A. So for the next few minutes, I want to discuss a few of the slides we posted this morning as an investor update. Frankly, these slides are more of an investor reminder than an update because nothing has changed from how we have run the company and underwritten the real estate that comprises about 85% of our total assets since our inception. But of course, as we have grown from $0 in assets in 2004 to $22 billion today, our investor base has certainly changed, and some investors do not have the long-term history that others have. So we believe this is a good time to describe our general strategy for investing in hospital real estate and review the outstanding successes our strategy has delivered over that 18-year period. Then before we go to Q&A, I will briefly describe our expectations about investments and capital markets activities in the present market and economic environment. First and foremost, we invest primarily in real estate. We underwrite our real estate investments to attract successful operators such that just like most REITs and other real estate investors, if any particular lessee is unable to continue paying our rent, we expect to find another lessee that can. In other words, it is the characteristics of our real assets that we believe attract successful operators and sustainable real estate returns as opposed to relying on any particular operator lessee to bring value to our real assets. Slide 4 in our investor update summarizes some of the key characteristics of hospital real estate that if present, will attract a profitable replacement operator if necessary. The more of these real estate characteristics that any particular hospital facility has, the more likely it is that that hospital is truly critical community infrastructure that a replacement operator will be able to run profitably and continue paying us attractive real estate returns. Many of you have heard MPT's executive officers acknowledge that it is the primary responsibility of MPT management to identify, underwrite and invest in hospital real estate that has these characteristics. And our history proves that we have been successful in doing so. That is what Slide 5 and the update demonstrates. In our 18-year history, we have invested about $24 billion in the real estate assets of about 530 hospitals. And due to our specialized hospital expertise applied to our initial underwriting, it has only been necessary to replace operators of 20 of these facilities. That's in addition to the Adeptus relationship, which we described in last quarter's investor update. Slide 5 demonstrates that we have actually made money. Frankly, we think this should be the expectation for real estate investors, certainly across the long term. And to be clear, this slide aggregates every instance of operator replacement over 18-plus years. And by the way, this success is not solely due to our underwriting. Slide 5 also describes the value of being a lessor versus a lender and of the master lease structure, both of which are key components of our overall strategies and historical success. Finally, Slide 5 calls out three examples of the 11 instances of operator replacement, each with different causes and outcomes. Town & Country, which was a ground-up development of a state-of-the-art acute hospital and medical office building, was, due to our careful underwriting that we consciously designed to ensure that this real estate was needed in and valuable to the surrounding community, extremely attractive to other prospective operators in the Houston market. When the original lessee was unable to access profitable managed care contracts — and by the way, a risk that MPT identified very early in the underwriting process — we had multiple alternatives and ultimately elected to sell our real estate for an attractive price to the dominant acute provider in the market, and we more than recovered our investment. Just to make clear, again, it was the real estate, not the operator that was valuable to the buyer. Shasta Hospital in Redding, California is a good example of what can happen when an operator's parent, not MPT's lessee, gets into financial stress and even enters bankruptcy. Our hospital real estate was being operated at an attractive EBITDA coverage ratio even when the parent company, who was our guarantor, was deeply distressed because of the facility-level profitability and because our lease almost always mandates that our lessee is a special purpose entity, creditors may not attach our real estate assets or facility operations other than secured receivables. Shasta was truly a community infrastructure asset. To the extent that the state of California regulators worked with us and the replacement operator to transfer licenses and keep the hospital open in a matter of 24 hours, there was simply not enough capacity in the market to absorb the loss of patient access that a closure of Shasta would have created. It has then been operated at strong profitability. And not only did we negotiate higher rents with the new operator but we were paid a $12 million cash inducement fee in addition to net rent. Finally, the slide calls out our small LTAC in New Orleans as an example, because it was our very first RIDEA transaction, giving us the ability to capture operating upside in addition to the real estate rents, which in this case were unchanged from the prior operator. Just to summarize, again, in these cases and a few other instances when we have had to terminate a lessee, it was the quality and characteristics of our real estate that protected us from material financial losses. The operating results of the terminated lessee did not impair our asset or impact the value of our recoveries. And by the way, virtually all of the $20 million in losses you see on Slide 5 resulted from a single relationship that comprised five of the 20 facilities summarized. And even some of this could have been avoided because we elected to contribute one of the facilities to the local community instead of selling it for value. Our point in going through this is not to highlight operator failures, but to point out that, first, we invest in real assets whose values are not derived from any particular lessee. And second, if we continue to carefully underwrite as we have since our inception, even when there are, as there will inevitably be, operator weaknesses, we have good reason to believe that we will successfully re-tenant our hospital real estate. It doesn't simply turn into an empty building that generates no rental revenue. But to be clear, any such transition is disruptive and a management distraction and this motivates us to work with tenants that we believe can recover from their problems, sometimes even to the extent of providing financial support. But the amount of any such financial support is considered in the aggregate $20 million loss mentioned on Slide 5. Some REITs address these tenant issues, but generally, MPT has not done so, with permanent reductions of rent, other material amendments to lease obligations, acquisition of equity or preferred ownership and purchase of tenant operations among other means. I want to take a couple of minutes to consider our largest tenant relationship, Steward, which Ed has already highlighted. First, the characteristics of the 41 hospitals we own and lease to Steward, regardless of whether or not Steward remains the operator, are consistent with those that we've discussed earlier and that would be very attractive to competitors and other potential replacement operators. Slide 4 refers to them in detail, so I will comment only briefly. First, and as we have previously discussed, the real estate we own and presently leased to Steward comprises six different markets. In the aggregate, the facility-level EBITDARM coverage for the 12 months ended March 31 was 2.6x. Remember, this includes, as Ed mentioned, two relatively weak quarters of financial performance across the entire hospital industry. That is evidenced by the publicly reporting operators such as HCA, Tenet and others. My point, of course, is that even in the industry-wide weak operating and financial environment, the Steward facilities continue to operate profitably at the facility level. And by the way, EBITDARM coverages across the six markets range from 2.0x to 3.7x. Secondly, I remind you that Steward’s Massachusetts operations, its first and among its largest markets, was recently subjected to detailed and sophisticated underwriting as part of last quarter's completion of our joint venture with Macquarie Infrastructure Funds. This process confirmed our own evaluation of the value of the Massachusetts real estate. Finally, and very importantly, I will just reiterate what Ed discussed about the recent generation of EBITDAR for May and June. On an annualized basis for these two most recent months, the run rate EBITDAR for Steward approximated $800 million, including more than $350 million for the Utah and Florida markets combined. We are not suggesting that these annualized run rates will be sustained because there's no assurance that they will be. But we are confident that Steward, especially in its major markets, is a healthy operator and will continue to pay its rent based on very strong long-term coverage ratios. And most importantly, even if Steward is not the lessee, we believe the value and characteristics of our real estate currently leased to Steward will attract, frankly, as it already has, multiple potential replacement operators. But we expect additional contributions from Steward's improving operations will also include, again as Ed mentioned, by the middle of next month, Steward will have fully repaid over $400 million of MAP funding and have completed its transition from the Tenant Management Services Contract, freeing up between a total of $45 million and $50 million of cash flow per month starting earlier than in October. That provides up to $600 million on an annualized basis in incremental cash flow. Almost $70 million of delayed Texas Medicaid waiver payments will have been received by the end of the third quarter. Moreover, Steward's Texas hospitals expect to begin receiving an incremental $6 million per month based on new Medicaid waiver calculations. Elective procedures in Steward's Massachusetts hospitals returned to normal during the second quarter. And in fact, we expect that Steward will receive state reimbursement in the near term of almost $30 million for COVID-related losses. Moreover, the staffing and other industry-wide issues, which we have heard about from recent quarterly reports from public acute operators, have begun to substantially improve across the Steward system. In addition to this recovery of cash that Steward has funded in recent months, Steward has begun implementing strategic and operational initiatives that should lead to further near-term improvements. First, the previously disclosed sale of Steward's value-based Medicare business to CareMax would not only generate additional liquidity of as much as $125 million, but just as importantly, will align the interests of both organizations in a manner that will pave the way for future profitable growth opportunities. Second, as the industry continues to recover from the Omicron-related revenue and staffing pressures from late 2021, Steward has almost completely executed substantial cost initiatives in labor, purchased services, the previously mentioned runoff of the Tenant Management Services Contract and further EHR cost rationalization. In the aggregate, Steward expects these to range between $350 million and $400 million annually. Finally, let me give you a little perspective about the terminated sale of Steward's Utah operations to HCA. Almost a year ago, Steward and HCA agreed to a binding agreement for the sale of these operations. Unfortunately, the FTC blocked the transaction and it was ultimately terminated. Nonetheless, the value of Steward's Utah operations and the value of MPT's Utah real estate that were both so attractive to HCA have not gone away. In fact, Steward continued to improve the financial performance of Utah, even while waiting to close the sale to HCA. Steward now has alternatives with respect to Utah, including retaining and continuing to operate the highly profitable market itself. Notwithstanding Steward's strong recent and improving facility-level EBITDARM performance across its portfolio, the most recent quarters have suffered from cash pressures. These were caused by, for the most part, the investment of more than $200 million in last summer's acquisition of five hospitals in the Miami area; the repayment of the previously mentioned $420 million in MAP obligations; delay of Medicaid reimbursement by the state of Texas of close to $70 million; the mandated restrictions of elective procedures in Massachusetts late last year and earlier this year; and of course, the termination of the HCA transaction. And as I described a minute ago, with the exception of the cash proceeds that were anticipated from the terminated HCA sale, these issues are almost fully resolved and even more importantly, we are confident in the near-term improvements in operating cash flows that could aggregate up to $1 billion annually. So all of this describes why we remain enthusiastic about, first and foremost, the value of our hospital real estate, but also Steward's near and long-term outlooks. This led us to agree early in the second quarter to facilitate Steward's transition of its recent cash pressures to the strongly positive cash flow outlook I have just described by providing a $150 million debt facility to Steward. Among other key terms in the facility are a relatively short five-year term, cross-collateralization to our master leases, mandatory prepayment from proceeds of any sale of Utah and other operations and attractive interest payments. The strength of our master lease structure, whereby we basically have first priority in the valuable Utah and Florida operations, along with other markets, made this investment decision very attractive for MPT. Moving on to a brief discussion of capital acquisition. We previously predicted that our 2022 acquisitions volume will be in the $1 billion to $3 billion range. And given the rapid and dramatic development in the capital markets and the global economic environment, even since our last earnings call, acquisitions will very likely be on the low end of that range. There are no meaningfully sized transactions in the pipeline, although there are actually a number of potential transactions in the market, and we are generally seeing indications that sellers are beginning to adjust their expectations in line with changes in the cost of real estate capital. But I do want to reiterate an MPT strength that we have always felt has not received enough recognition, and that is our built-in inflationary rental escalations. Slide 13 in the update deck summarizes, based on July 2022 U.S. and European inflation rates, the increase in cash rents we expect to receive in 2023 compared to a same-store portfolio in 2022. So in other words, this accounts for the Macquarie joint venture as if it occurred on January 1, 2022. We estimate that our cash rents will increase in 2023 over 2022 by about $57 million as a result of our inflationary escalators. That's an average increase across the portfolio of approximately 4.4%. Applying an estimated and arbitrary blended capitalization rate of 6.5% to this incremental cash results in the equivalent of about $875 million of additional leased real estate, for which we have effectively zero incremental cost of capital. So in capital markets that are temporarily squeezing investment spreads, we are very pleased with the built-in improvements in yield that we expect beginning early in 2023. And of course, that's on top of the previously disclosed 2022 escalation. And with that, we'll turn the call over to questions. Dennis?

And your first question is from the line of Steven Valiquette with Barclays.

Great. I guess just a follow-up on the disclosure around the Steward financials, its annual run rate is close to the $800 million of EBITDA somewhere in there. I guess you mentioned that's still unadjusted but there were similar adjustments you'd make to that as you've done for the other numbers you report when you do your rent coverage ratios. Is there any way just to give us the math on where that would shake out on either EBITDAR or EBITDARM and rent coverage the way it stands right now, just looking for color around that?

There are no adjustments. Those are just the numbers. We do not make any adjustments to any of the EBITDAR numbers in any of the tenants and those that we report for tenants are not adjusted either. They're unadjusted.

And then I guess it did dip from 2.8 to 2.6 on a sequential basis, but again, that is in one quarter in arrears. So based on what you're saying, we should assume that when you're reporting this next quarter, all else being equal, that probably trends back upwards. That sounds like that's kind of the message that you're trying to convey I want to confirm that.

Well, all of these are numbers from the first quarter. So we're behind the quarter in all the publicly reporting. So all of our tenants were experiencing the same issues that the publicly reported about the same time we were reporting our first quarter earnings.

Your next question is from the line of Austin Wurschmidt with KeyBanc Capital Markets. Okay. We'll move on to the next person, and that is from the line Joshua Dennerlein with Bank of America.

I appreciate all the new color in the presentation. That 5% proxy to go from EBITDARM to EBITDAR. I guess I heard the details, but I'm just curious why you wouldn't actually just use the actual and you use that 5% — sounds like it's always more?

Yes, Josh, that's a fair question. So we've been doing this a long time. And the reason is that we're trying to get a number that's standard across the board for us when we're doing our analysis. We obviously are looking at all of the numbers all of the time. But even when the tenants are providing us what their management cost are, they fluctuate quarter-to-quarter. They're based on what they allocate to their particular properties. And remember that very seldom do we own 100% of all of any one tenant's properties. So it gets very confusing and sometimes can be misleading. So we've just decided to be very conservative and use the 5% number.

Okay. So it sounds like that's kind of like the upper limit you would ever kind of?

Yes, the vast majority of our tenants' actual numbers that they provide are much less than that 5%. It doesn't change some of the people's very much. I listed some of the ones that some of our bigger tenants in my script there.

Okay. And then you mentioned Prospect Health. It sounds like they're having like a bit slower recovery on the cash flow front and they're below EBITDAR. Just curious what's driving that?

Yes. So the East Coast facilities have never done as well as their West Coast facilities. They're very bullish on the West Coast facilities and continue to believe that those facilities will generate good coverage. They had the same issues in the first quarter that everybody else did. Some of our California properties saw more of those issues from a labor standpoint than across the country. In Pennsylvania, they're probably very extremely bullish on where they are in Pennsylvania. But as you know, they are in active negotiations on selling both Pennsylvania and the Connecticut facilities.

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

Yes. Just digging into Prospect a little bit more. I know that — I guess, and it sounded like in your prepared remarks that they're not hitting your expectations too, so they're underperforming where you thought that they should be. I mean, has their results started to rebound kind of post this Omicron wave? And are they heading in the right direction now?

So they are, Mike. I guess I should have gone into a little more detail about why my expectations were more. They think they're right on track. They feel very, very good about it. And when you talk to them, I just expected the improvements to be a little bit better than they were — maybe now that we're past the Omicron surge that we saw in the first quarter, they will be. When we report third quarter, their second quarter — but they're just where I was hoping that they would be, but the management continues. I spoke with the CEO early this week, and he continues to feel good about where they are.

And were they impacted more by Omicron than some of your other tenants? It looks like their coverage ratio dropped a little bit more. How do they compare versus the other tenants between 1Q and 4Q?

Yes. I don't know about volume-wise, but certainly, they had probably more hospitalizations on the East Coast for those Omicron patients that didn't generate the profit margins that previous COVID patients were generating.

Okay. And then in your remarks, too, you were kind of highlighting that they are excited about California, Pennsylvania is turning a corner. But what about Connecticut? You haven't — you didn't mention about the viewpoint on what's going on with that portfolio?

Yes. I think that's because they're the furthest along with their negotiations with the potential buyer there, though I haven't had as many discussions about operations as I have where they are about selling those facilities. But as I said in my prepared remarks, we still haven't had any discussions with a potential purchaser.

Okay. And when does that typically occur when do they bring you in to kind of get approval on executing that transaction?

Well, probably soon. I think there have been some public going back and forth between Yale and Prospect at this point, but they're probably pretty close to where they think they need to be to bring us in.

Okay. And is the expectation still that the Pennsylvania and the Connecticut assets will be sold?

That is certainly Steward for Connecticut, that is their expectation. I'm not sure that Prospect feels that way about Pennsylvania anymore.

And then just last one for me. I don't know if I heard an update on the Prime purchase options. So do we have a viewpoint of what's going on with those assets?

No, there is no update, Mike. We remain kind of ambivalent — on the one hand, of course, it's a very nice return for us. On the other hand, it's about upwards of $360 million that we would apply to debt, reduce our leverage. So that's as much of a report as we have.

And when do those leases officially expire?

Well, the termination is really not that relevant. They actually expired at the end of last month, but it's typical on any expiration or extension to continue to negotiate. They're still leasing from us at this point.

Your next question is from the line of Connor Siversky with Berenberg.

I hate to go back to this, but just in terms of Steward's EBITDA run rate, just so we're clear, this only happens after we get through the $200 million investment in Florida, $420 million in MAP obligations and that delay in Texas funding. But to get to that point, is that what necessitates the $150 million debt facility to Steward in the interim?

It really is, Connor, when you add up all of that hitting in a very tight time table. And so that's really what facilitated us being willing, frankly, a little bit eager to make this investment. We truly expect Steward by the fourth quarter to be generating very strong levels of EBITDAR — if not the $800 million, then certainly very strong free cash flow coverage.

And then on Page 5 of the investor presentation slides, you outlined several models of success repositioning properties over the years. And then in consideration of some of the deferrals booked over the last several quarters, are there any assets that are kind of falling into this pool right now? Or anything you're repositioning currently? And if so, what the time frame on that could look like?

No. The only new deferral is a very limited amount down in Australia because they, once again, earlier in the year, shut down elective procedures. So you remember in the very earliest days of COVID, we deferred a couple of quarters. We're now collecting that back. We agreed to a very limited amount that ended in May. So in June, we were fully collecting again. That's the only deferral we've done that's not in accordance with lease terms.

And then last one for me, just considering what happened in Utah. I mean, from your perspective, what's the most attractive avenue to take here? I mean do you leave Steward in the facilities? Or do you seek a JV partner, which might be a little more difficult given the rate environment? Or is there another operator that could potentially step in to buy those operations? I'm just curious to see what the most attractive outcome to you guys would be?

Well, from selling the operations, that's a Steward decision. Steward is doing very, very well, as we mentioned. If you take roughly $125 million run rate EBITDAR for Utah alone and put a market multiple on that, that's a very attractive proposition. They may elect to sell or joint venture with another operating partner. For us, the biggest advantage, frankly, would be diversification. But we're very confident in having Steward as our tenant in Utah and that may ultimately be what they choose to do. There's a lot of opportunity in a very strong market.

Your next question is from the line of Vikram Malhotra with Mizuho.

So just maybe going back to the coverages and just bigger picture how the lease may be structured. So if I heard you correct, you highlighted, obviously, labor costs are an issue. We're probably coming off of funds that the government has provided in the care funds, some of the public hospitals like HCA, et cetera, said volumes are a little lighter. Can you give us a sense of what the trailing three-month coverages are just so we know what spot looks like? And do you anticipate that to dip before things improve?

So Vik, I don't — to make sure I understand your question. You're asking what the coverages were for the last three quarters?

The quarter.

For the quarter. I don't have the exact number for you other than to tell you that they are up from where they were in the first quarter, quarter-over-quarter, not trailing 12, just quarter-over-quarter.

And quarter-over-quarter, that's essentially 2Q over 1Q?

That's correct.

Okay. And then in these leases, I just want to clarify, when you have a lease with a hospital and in some — I'm assuming you mentioned you have a guarantee. Is this — the way hospitals are structured? Is this a guarantee with the parent company, the obligated group? Or is this a guarantee with the SPV at a state or city level?

No. It's the parent typically. And of course, every relationship has differences. But typically, it's the parent company. So every one of our facilities is occupied and leased by, as you point out, a special entity. And that's where we derive that facility-level coverage, but we also have the protection of the guarantee typically by the parent company.

Okay. That's helpful. And then just last one, I guess, given where you are cost of capital in the past, you've talked about potential new JVs. There's also some talk about Ramsay and KKR. And I'm just wondering what sort of have you seen broadly in the hospital space JV for your assets? And can you talk — is the Ramsay transaction something of interest to you?

Well, we typically wouldn't comment on transactions that we may or may not be involved with. But frankly, I'll show my hand here by saying I'm really not up-to-date on what's going on with Ramsay and KKR at this point. My impression was the fee cap rate that KKR was seeking was going to be hard to get done. But that's just my historical recollection. There nonetheless remains a very, very strong interest in these types of assets. And it's driven really by two criteria. One, I mentioned at the end of my prepared remarks, and that's just really, really strong inflationary protection. That is long term and is permanent. That's very attractive in today's market. And then secondarily, of course, going back to just before COVID started, COVID demonstrated the absolute certainty that governments and people are going to support their infrastructure like hospitals. And so all of that has led to a very high level of interest in the private market, and that's with sovereigns and pension funds and asset managers and people like you just mentioned, KKR. So we expect that that continues. As in any real estate cycle, typically, I think the sellers are the last ones to come up to the table and recognize that, well, I'm not going to get a 4% cap rate like I could have 12 months ago. But as I mentioned earlier, we're seeing that shift. We're seeing some recognition that the current interest rate and cost of capital environment is not going to support pricing that it may have supported a couple of years ago.

So Vik, on top of the pricing that Steve was just referring to, we like Ramsay. We think Ramsay is a good operator. We own six Ramsay hospitals. But we're not interested in the structure that was the original. The original structure asked investors to be a part of a fund and we didn't have any interest in that. But we do like Ramsay as an operator.

Your next question is from the line of Derek Johnston with Deutsche Bank.

Ed. So how is your acquisition pipeline standing today? And really, what's it going to take to drive acquisition volumes — are you seeing any positive developments to get back to pre-COVID activity levels?

So the pipeline is still there. It didn't go anywhere. There's still plenty of things out there that are all just kind of floating around. But I think everybody from the sellers and potential buyers are all kind of sitting around waiting to see where the world goes. I don't think there are many deals getting done right now. We certainly are interested in doing deals, but with the market as confused as it is, we aren't actively trying to pursue the levels that we have been historically. So I'm not sure I can give you an exact answer for when we get back to the regular normalized-type acquisition levels. It's not that the opportunities aren't there. It's that the world is in such a flux right now.

And then switching gears a bit. So the slipping coverage ratios are a bit of an issue. I feel like we've covered that, right? But the question is, can they also be a leading indicator for future acquisitions, potentially like driving higher volumes as hospitals look to sale leasebacks to unlock capital or reinvest?

I think that implies that hospitals in financial distress are more willing to do sale-leaseback transactions. And that may be, but that's never been our target. Again, using trailing 12, particularly including the trailing six months as of the end of the first quarter is really not the right baseline. In any year, the first quarter is the weakest quarter. We all know that first quarter activity in particularly general acute hospitals is weaker than the other quarters. But in this particular first quarter, it's exponentially weaker than any other quarter would be. So I'd be careful about reading into the decline in coverage as indicated by our calculations that that's something that's not going to be recovered pretty quickly.

And maybe we would have been concerned if they didn't all bounce back like we knew they were going to bounce back as we already saw what the end of February and March were looking like when we did the first quarter earnings call.

Your next question is from the line of Michael Mueller with JPMorgan Chase.

I guess going back to acquisitions. As you move into 2023, if the stock isn't back to a level where you feel more comfortable issuing equity, should we think of you as having another pool of assets that you would potentially sell or joint venture or just potentially keep the pause on the acquisition volume?

Yes, Mike, I don't — I know I'm not ready to try to predict what 2023 is going to look like at this point with the economy where it is, the Fed as confused as it is and so it's not just our stock price, obviously, but it's all of those pieces together. So we wouldn't have the need to do the big joint venture if we weren't in an acquisition mode.

Your next question is from the line of Tayo Okusanya with Credit Suisse.

First of all, Ed, Steve and the team, thank you so much for all the additional disclosure. It's super, super helpful, and I hope that this is kind of here to stay. So thanks for that. First question is Steward. I have a two-parter there. The term loan, the five-year term loan, could you tell us again exactly when that kicks in and what the interest rate is and any kind of kicker interest payments that you talked about. If you could just show a little bit more detail about what potential upside could come from that. And then second of all, Steward itself, their line of credit is mentioned to mature. Their revolving line is meant to mature in September. And I think it's like the one thing you haven't talked about in your Steward update. If you have any update for us in regards to that particular line item?

Sure, Tayo. Let me take the ABL first, and you and I have been together for a long time. So I know your health care background. And you know that ABLs are highly secured loans. They're secured by the receivables and have very good margins. So it's usually not something that we even think about mentioning. Obviously, we've never had an issue in any of our tenants being able to renew their ABL and certainly don't expect that situation here either.

I'll add the Shasta Hospital example that was in our prepared remarks and it is in Slide 5 of the update. Even as we were transitioning from one operator to another and coming through bankruptcy, they redid their ABL, again, because Ed said, it's well over-secured by government receivables primarily with the discount on that. So that's the reason it just doesn't get a lot of attention from us. With respect to the credit facility we provided, it was closed and completed by the end of the quarter, well before the end of the quarter. It has a nominal and escalating interest rate that would be equivalent to a lease. And as you know, we don't disclose specific terms of those. The kicker is attractive. I mean it's not hundreds of millions of dollars by any means, but it would increase the nominal interest rate by several turns. And aside from that, it's generally what we would disclose about any particular transaction: very well secured, of course, and priced as an accretive transaction even in today's market.

What causes the kicker to kick in? Is this they have margin?

It's built into the structure; it's not dependent on any single transaction. There are performance-related triggers that would increase the interest, so it's not a contingent event on a sale or similar single event.

That's helpful and good to know. And Ed, in prior quarters with your rent coverage, you've always kind of helped us understand what the government grants in that number were having on the rent coverage. Is that something you could provide this quarter as well of — if you took that out, plus coverage dropped 30 bps or 40 bps like you kind of expressed last quarter?

You're talking about the grants. There aren't that many grants still left in the coverage. I don't have the exact number right now, Tayo, but we're about done with those. So I don't know the exact number what it is right now.

Okay. That's helpful. And then just one more. Direct deferrals again, $7 million year-to-date. I think you mentioned earlier that that all relates to Healthscope. Is that correct? Or were there any other kind of rent deferrals in that number?

No, that's correct. And again, already back to paying 100% of that.

Your next question is from the line of Jonathan Hughes with Raymond James.

Just kind of following up on Tayo's question a second ago on that $150 million debt facility, I think did you say that it was extended at the end of the quarter? Was that as of June 30? Or are you talking about like this quarter? And I guess maybe why wasn't it put on the investment page in the supplement?

No, it was completely closed during June. And it's not a long-term sustained investment kind of like what's our bread and butter. That's really the only reason we didn't put it on there. Certainly it will be clear in the 10-Q, and we were eager to get it out there today in this morning's comments. So that's really all there was to that.

And then earlier you talked about potential JVs, and I know there's a lot of demand out there. But if there are any other transactions, could we expect kind of the entirety of any of those potential JV proceeds to be used for debt repayment and/or capital recycling? Or could we see some use for stock buybacks? I understand that likely wouldn't be huge, but and leverage does play a part. But that is an investment in your own company that comes with no underwriting uncertainty and would be at an attractive kind of high 6% cash yield, a 15% discount to consensus.

Yes, all of which makes financial sense, of course, but we don't have a JV yet. We don't have anticipated proceeds. So we certainly haven't given thought to how we might apply those proceeds. It will depend, just to repeat what Ed said a minute ago, it will depend on a lot of things we don't know right now: what's going on in the economic environment, what's available to us in the market, higher cap rate investments potentially. We just don't know. But all of the uses that you named are certainly available to us.

Yes. Okay. And then one more on the CapEx disclosure clarification. And I realized it was kind of standard practice and a standard cost for hospitals, but it's a little unique in the traditional net lease world: is that part of the reason why maybe it wasn't emphasized before this is just that it's kind of status quo on the hospital side?

Jonathan, I think it's because hospitals are what we know, and sometimes we forget, it's not what everybody else knows, and we're not traditional real estate people.

Your next question is from the line of John Pawlowski with Green Street.

Steve, do you expect to release an amended 10-K with Steward's audited financials this year?

Not at this point. And the reason is primarily because we always want to follow what the SEC rules are and the SEC rules do not require it. So because they don't require it, we would have some issues with our tenants in — on our own filing financial statements.

All right. I do struggle with the optics of that. You disclosed it a few years in the past, and now you're extending additional financing to a highly levered entity that struggled with cash flow. It's an issue for the stock. So I may feel better about the selective disclosure of doing it in the past and not doing it today during a very tough operating climate where we need visibility on financial health?

All fair points, John, but we disclosed it in the past because of the SEC requirements — and we're not required now. It's a very specific requirement. And if we do become required to disclose it under the SEC rules, we absolutely will. We're trying to provide as much as we can. I know we're doing that gradually, but we made a lot of progress over the last couple of quarters. Ed described kind of the high-level results on an unaudited basis early in his prepared remarks. And so that's where we have it now.

Okay. I want to spend a minute on Prospect. So property-level coverage of 0.6x, and that excludes lower quality hospitals. So I know you've viewed Prospect and others as high-quality operators. So I just don't see a scenario where a next operator can come in and cover rents. So can you help us feel better about rent coverage for Prospect hospitals given the high-quality hospitals are at 0.6x?

So we don't share the same more urgent immediate concern that you have on Prospect. If there are hospitals in any of our tenant portfolios that are weaker than other hospitals in that tenant portfolio, that's the power usually of the master lease arrangement. We've emphasized, as prospect management has emphasized, the value of the West Coast portfolio. And any so-called excess value over our lease base in those West Coast hospitals is applied to what could be a deficiency — and I'm not saying there is a deficiency — but if there is a deficiency on the East Coast, then we get the benefit of the excess value on the West Coast.

Okay. I guess my point is there's no excess in the West Coast because you're sub 1x. But maybe the final question would be do you plan to extend incremental debt financing to Prospect to bridge them similar to Steward?

No, we don't expect that will be necessary. We are aware of conversations and potential transactions that we can't speak to in the public environment, but we have reason to think that Prospect is not going to result in any material impairment or loss to MPT.

Your next question is from the line of Jon Petersen with Jefferies.

So just a follow-up on the Steward financials. You have a footnote where you say that because the value of it is less than 20%, you don't have to disclose it. I think that's the SEC rules. So your revenues are 2%. Can you pull back the curtain a little bit and maybe just help us better understand how you value the assets internally in your portfolio to get to that hurdle?

It's a GAAP basis calculation. There's no valuation other than what's on the books.

I see. Okay. And then you guys — you had — I appreciate your comments on the HCA Steward breakup in Utah. Just curious if there's any more just higher-level thoughts there on, I guess, the ability for your tenants to sell their operations or you to re-tenant if the FTC is going to step in when they have some of these concerns, it would seem like the natural operator to come in would be one of the larger ones in the market. But if the FTC is just going to block those deals, I mean, how should we think about prospects for re-tenanting hospitals?

Well, fair point. We have an aggressive antitrust environment today. It's not just hospitals, particularly hospitals, but it's all around. But the fact is the FTC looked at the particular market and determined the combination would be anti-competitive. Generally, if a prospective operator comes in and is not already a direct competitor, then it wouldn't have the same prospect of FTC objection as the prior buyer did.

Jon, I don't dare speak for the FTC, but in addition to that, not only was HCA already in the market, HCA and Steward together would have represented around 30% of the market. HCA is viewed as a higher-cost provider in that market, and that's primarily what the FTC focused on: that combining HCA and Steward could lead to higher prices and loss of a lower-cost provider. That's less likely to be the case for other potential operators that don't have the same market share or cost profile.

Your next question is from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Given the current cost of capital today and sort of the leverage position, you discussed the low end of the $1 billion to $3 billion range as being a higher likelihood at this point. I guess, one, is achieving or exceeding that $1 billion dependent at all on the outcome of the Prime repurchase option? And then second, what's sort of the right level of investment you're comfortable with going forward if there isn't a meaningful change in your cost of capital?

Yes. And Austin, sorry about the earlier when we called on you. I apologize about that. I'm not ready to predict where we'll get back to. We certainly ought to be able to, in a regular environment, continue to do $3-plus billion in acquisitions. But given where the market is — a bigger driver right now is the overall market uncertainty. So whether we'll exceed $1 billion by much is unclear. It's not dependent on the Prime potential repurchase of their properties.

And then just secondly, I guess given the comment earlier on disclosure requirements for Steward, should we expect that you could continue to give us updates on tenant health and maybe that run rate EBITDA figure at least in the short run going forward?

Yes, absolutely, Austin. We're doing all that we can to continue to provide information to get everybody comfortable.

And this does conclude the Q&A session of the call. I will now turn the call back over to Ed for closing remarks.

Dennis, thank you very much, and thank you all again for listening in today. If you have any follow-up questions, please don't hesitate to call Drew or Tim.

This does conclude the Medical Properties Trust Second Quarter 2022 Earnings Conference Call. Thank you all for joining. You may now disconnect.