Medical Properties Trust Inc Q4 FY2024 Earnings Call

Good morning everyone, and welcome to the Q4 2024 Medical Properties Trust Earnings Conference Call. All participants will be in a listen-only mode. The operator provided instructions for callers on how to ask questions. After today's presentation, there will be an opportunity to ask questions. The operator provided instructions for callers on how to ask questions. Please note that today's 60-minute event is being recorded. At this time, I'd like to turn the conference call over to Charles Lambert, Senior Vice President. Please go ahead.

Thank you, and good morning. Welcome to the Medical Properties Trust conference call, to discuss our fourth quarter and full year 2024 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the Company; Steven Hamner, Executive Vice President and Chief Financial Officer; Kevin Hanna, Senior Vice President, Controller and Chief Accounting Officer; Rosa Hooper, Senior Vice President of Operations and Secretary; and Jason Frey, Managing Director, Asset Management and Underwriting. 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 thanks to all of you for joining us this morning, on our fourth quarter 2024 earnings call. I'm pleased to be joined again today by Steve, Kevin, Rosa and Jason. Before you hear from the rest of the team, I'll spend a few minutes covering a few important recent strategic updates. We entered 2024 with a plan to execute $2 billion in liquidity transactions. We significantly outperformed that target by executing approximately $3 billion in liquidity transactions during the year. Sales repeatedly provided third-party validation of our real estate underwriting. In early 2025, we were able to further strengthen our liquidity, issuing more than $2.5 billion of seven-year secured bonds, at a blended coupon of 7.88%. With this successful offering, we now have more than enough liquidity to cover all upcoming debt maturities through 2026. Taken together, these actions clearly showcase the resilience of our business model, and demonstrate that our diverse global portfolio of hospital real estate remains very attractive to both real estate investors and operators. Last quarter we discussed Prospect Medical Group's liquidity challenges, primarily resulting from a stalled sales process across various East Coast markets. In January, Prospect commenced Chapter 11 bankruptcy proceedings, citing a confluence of factors leading up to this decision, ranging from the impacts of COVID-19, labor cost inflation, reimbursement challenges and pension obligations. This has been a very different process from Steward's bankruptcy. Since the beginning, we've been working collaboratively with all other stakeholders, including quickly engaging with Prospect's advisors, to reach a consensual resolution of various issues. In a short time, we reached a global settlement agreement that will allow Prospect to more effectively market and sell its hospitals, along with the related real estate, and avoid the delays, uncertainty and cost of prolonged litigation. The proceeds from these asset sales will be allocated primarily to MPT and Prospect's other creditors. We've also agreed to provide $25 million in funding to supplement the new debtor-in-possession financing that Prospect obtained at the outset of the bankruptcy process. While this agreement remains subject to court approval, with this settlement in place, all parties should be moving forward with the same objectives, and we believe this restructuring process will position us for enhanced recoveries. MPT has more than a 20-year track record of successfully deploying capital into critical healthcare structures. A cornerstone to our underwriting process is to ensure that each facility is needed in its community, functioning like an infrastructure asset. Over the years, MPT has bought over 500 hospitals during our history, and virtually all of those hospitals remain hospitals to this date. There is no better validation of our underwriting than the fact that we buy hospitals and the facilities stay open, providing essential healthcare services to their respective communities. While 2024 was a challenging year in many respects, we are proud of our ability to remain relentlessly focused on delivering on our objectives. As a result of our team's extraordinary efforts throughout the year, we now have a stronger balance sheet, and a more diverse operator mix. Global healthcare expenditures continue to grow, hospital buildings are expensive, and one thing that's clear is hospitals need access to affordable capital to continue to innovate and serve patients in their communities. As such, we believe our business model is more important than ever. In recent days, there has been very much focus in Washington on budget savings that may be possible through changes to Medicaid. We actually applaud and encourage this focus, and I make this point only because we have a number of new investors who may not be fully familiar with our business model. MPT gets zero revenue from Medicaid; certainly some of our lessees do, but even that is a relatively small portion of total net revenue and, moreover, it's not very profitable, so contributes little to our tenants' EBITDARM results. Second, an enormous amount of the cost of Medicaid goes to programs that have nothing to do with hospitals and other true medical costs. We believe that savings from potential Medicaid restructuring may be directed into actually providing acute healthcare to beneficiaries. We are entering 2025 with a great deal of confidence in our ability to continue to execute our strategy. The vast majority of our portfolio continues to generate predictable rent payments, and as we said last quarter, assuming no additional changes to our portfolio and inclusive of our share of real estate joint ventures, we expect total annualized cash rent of more than $1 billion once our new tenants are fully ramped. With our debt maturities covered through 2026, the road is clear for the rebound to take shape. The future is bright for MPT, and we look forward to the year ahead. With that, I'll turn it over to Rosa.

Thank you, Ed. Turning now to some of the highlights across our portfolio, we've seen a continuation of many of the same trends discussed last quarter. Hospital fundamentals are clearly strengthening, with admissions and surgical volumes growing, and against that backdrop, all asset types in our portfolio reported continued improvement in coverages on both a sequential and year-over-year basis. I'd like to begin today with what we see at the six new operators recently added to our portfolio. As we disclosed last year, when we announced our new leases with these operators, contractual cash rent ramps up between January 2025 and October 2026 to an aggregate quarterly run rate of about $40 million. Only one of the tenants has been obligated to commence cash rent payments and has done so. The largest tenant is scheduled to commence cash rent payments on March 1, and recently fully paid that rent early. HonorHealth now operates three MPT-owned hospitals in the Phoenix metro area, representing approximately 300 of HonorHealth's roughly 1,400 licensed beds in the area. Patient satisfaction scores are increasing, and HonorHealth is focused on physician alignment and upgrading facilities as they continue to progress towards volume recovery. HonorHealth has also embarked on an impressive technology transformation effort at these facilities. HSA took over operations at eight hospitals in South Florida, Texas and Louisiana. Notably, the first thing the HSA team did was stabilize the supply chain serving these hospitals. This helped to clear a key hurdle to recruiting back many of the excellent surgeons that had previously left. Through extensive community outreach and improved relationships with EMS, HSA has also quickly increased both emergency department volumes and discharges across the portfolio. Weekly cash collections are improving, and we are encouraged by several cost-saving initiatives being implemented. Quorum Health assumed operations for two facilities in West Texas. Staff levels are increasing, and Quorum is reporting a high level of excitement and support from the local team. Supplies are readily available again, meaning patients no longer need to be diverted to other hospitals in the area. Fourth quarter inpatient volumes were up 35% versus 2023. Insight Health operates the Hillside and Trumbull facilities in Ohio, where staff levels have stabilized and supplies have been readily available since they took over operations. At Trumbull, Insight plans to continue the surgical residency program, expand the cardiac services department, and to open a neuroscience center. College Health, which specializes in psychiatric care, is now operating one MPT behavioral health facility in Phoenix. In December, the facility received a limited license to open one of its 22-bed units, and they are already at full capacity. College Health anticipates receiving the license to open the remainder of the facility during the first quarter. Finally, a few weeks ago, in close collaboration with the Pennsylvania Attorney General, we reached an agreement for Tenor Health to take over operations at Sharon Hospital in Pennsylvania. Tenor's team impressed MPT local officials and the Attorney General with their plan to turn around profitability at Sharon by implementing superior clinical protocols, expanding service lines with a focus on primary care and outpatient services, and implementing acuity-based staffing models. In short, we are confident that all of these facilities are in better hands today and well positioned to deliver quality care to their local communities. The new operators are taking the right steps to ramp operations and resume partial monthly rent payments this year. Turning to our more established portfolio of operations, we'll begin as we always do in Europe with the U.K., where private medical insurance utilization has hit an all-time high. Circle Health is a clear beneficiary of this trend, reporting consistent growth in private medical insurance volumes. As mentioned last quarter, Circle's performance also continues to benefit from improved patient acuity mix, as more complex cases are now being addressed in the private sector. Circle continues to focus on being the U.K.'s most innovative and technologically advanced hospital provider, with significant investments in robotics, AI, fully digital pathways and online booking. Priory, the largest independent mental healthcare provider in the U.K., has continued to report steady performance, with increased acuity mix driving strong reimbursement trends. Revenue and EBITDARM performance are both up by double-digit percentages year-over-year. Behavioral health referral patterns from the NHS are expected to normalize in 2025 following minor disruption from the change in the U.K. government ruling party in 2024. Turning to Priory's parent company, Median in Germany has continued to deliver solid performance through the third quarter, with year-to-date revenues outpacing prior year, driven by increased occupancy and an improving reimbursement rate environment. Swiss Medical Network reported an EBITDARM increase of more than 11% during the third quarter, driven by revenue growth and cost optimization efforts. Following September's opening of the Genolier Innovation Hub, we received our first rental payments during the second half of the year. Turning to the U.S., Earnest Health's consolidated EBITDARM coverage remains excellent at 2.1 times with Earnest legacy IRFs continuing to deliver coverages above 2.5 times. As discussed last quarter, given the success of its first inpatient rehab unit at the Provo LTACH, Earnest is progressing plans to implement this model at LTACHs in other markets during 2025. LifePoint Health continues to deliver strong top-line growth, driven by increased admissions. Conemaugh Memorial has been the most significant driver of this, with discrete quarter admissions up 23% year-over-year. Further, LifePoint reported significant year-over-year EBITDARM increases in October and November, driven by increased admissions, improved reimbursement rates, and benefits from supplemental funding programs. LifePoint Behavioral's consistent year-over-year admissions growth and strong labor cost management led to another quarter of improved operating performance. To further increase revenues looking ahead, LifePoint Behavioral is particularly focused on increasing outpatient volumes. Scion Health's revenues increased by high single-digits year-over-year, driven by higher admission volumes and patient days at its general acute facilities, coupled with continued contract labor declines. Trailing 12-month EBITDARM at Scion's general acute facilities continues to increase sequentially and year-over-year. In closing, we are pleased with the continuation of strong performance trends across our portfolio this quarter. Our portfolio is better diversified than ever before, and we are confident in the ability of these operators to generate sustainable cash flows for MPT over the near and long-term. Kevin?

Thank you, Rosa. This morning we reported a GAAP net loss of $413 million and normalized FFO of $0.18 per share for the fourth quarter of 2024, and a GAAP net loss of $2.4 billion and normalized FFO of $0.80 per share for the full year period. As we previewed in the January 29 Form 8-K filing, which accompanied our January senior secured notes offering, impairments and other adjustments related to Prospect's Chapter 11 bankruptcy process impacted our GAAP results and resulted in adjustments to normalized FFO in the quarter by approximately $415 million. This impairment, along with a negative fair value adjustment related to PHP Holdings— even though this entity is not part of the bankruptcy—approximated roughly one-third of the previous investment in Prospect. These adjustments to our various investments related to Prospect were made according to third-party appraisals and proposed restructuring terms, which remain subject to court approval. Actual recoveries related to any specific Prospect-related investment, or as a whole, may ultimately differ from those adjusted book values. Further, we impaired our mortgage investments in Colombia by approximately $19 million, as the government continues to limit reimbursement to hospitals. We did receive $10 million in the quarter as a rent catch-up payment for a small tenant, subject to cash basis accounting. This $10 million is reflected as revenue in the quarter and included in normalized FFO. With that, I will hand the call over to Steve to discuss our recent capital market activities and strategies going forward.

Thank you, Kevin. Earlier this month, we completed the two senior secured notes offerings that Ed mentioned, aggregating more than $2.5 billion at a blended coupon of less than 8%. The offering was more than five times oversubscribed and the collateral of highly diversified real estate assets was underwritten at a 65% loan-to-value, reflecting the quality of the collateral pool. The level of investor demand, the attractive coupon and the valuation of the collateral, along with other considerations, validate yet again the quality of our healthcare real estate. That portfolio quality remains even after our aggregate $4 billion in sales, loan repayments and secured financings over the last two years. The secured notes offering cap off two years of transactions aggregating $6.5 billion and dozens of diverse assets that have individually, and in the aggregate, proved the deep market for sophisticated global private capital that remains attracted to healthcare real asset infrastructure. Importantly, these market transactions have proved that our real estate investments have maintained—in fact increased—their values through five years of a once-in-a-century pandemic that saw virtually all hospitals closed, industry-wide disruption to staffing and cost of critical employees, generationally high levels of inflation, worldwide constraints to credit markets and steep spikes in interest rates. As we built this portfolio over more than 20 years, we consciously sequenced our unsecured debt maturities, and for the past several years we have successfully accessed capital and satisfied these maturities from quarter-to-quarter. With the recent secured notes transactions, we pivoted to a longer-term and more comprehensive horizon and, in the cliché words of some, ripped the band-aid off and cleared the runway, and fully addressed maturities for the next two years at once, rather than continue, however successfully, to execute on a quarterly basis. Simultaneously with the notes issuances, we amended our bank credit facility so that it now shares in the same collateral pool as the secured notes. This amendment—with virtually 100% participation in the strong endorsement of our long-standing relationship banks—maintained the full credit facility commitment of about $1.5 billion, effectively extended its maturity to June of 2027, increased to 40% our ability to secure unencumbered assets, and actually reduced the cost of the facility. With about $1.4 billion in cash and undrawn revolver liquidity, the credit agreement and indenture covenants provide flexibility for continued execution of balance sheet strategies, and we are and expect to remain in compliance with all of these covenants. All of that is to point out that, after completing the secured notes transactions, the runway provided by addressing almost three years of debt maturities in this single offering allows thoughtful consideration of next steps—steps that we believe will further improve our FFO, lower our leverage calculations and drive equity value. These next steps over coming quarters may include additional asset sales or joint ventures, other potential portfolio repositioning and rationalization transactions, benefiting from the contractual rent ramp up of the recently relet hospitals, primarily in the Florida, Texas and Arizona markets; three years of contractual rental escalations on our global portfolio; and potentially macroeconomic and credit market improvements globally. That's not to mention the potential impacts of our expected resolution of the Prospect bankruptcy, or the two hospitals under construction in Massachusetts and Texas. The blended secured notes rate of 7.88% is of course higher than the debt it repays. That's the case with almost any borrower, regardless of credit rating, that today is refinancing debt issued during the long period of extraordinarily low rates in the years following the financial crisis. And we of course recognize that some of the increased coupon for MPT is related to company-specific recent history. But there are a few points to highlight. First, it is not a surprise that market rates may increase over the terms of our leases. That's why we require inflation-referenced annual rent escalators. The scheduled annual increases in our cash rents, often at rates higher than the increases in market interest rates, are designed to effectively maintain the net spread over our cost of debt capital. In return for accepting this rate dilution, we now have the flexibility and time to carefully execute the available balance sheet strategies I just mentioned, including continued reestablishment of cash rents from facilities we transitioned to new operators late last year. Finally, while the new secured notes have a seven-year term, we also have certain early redemption options that, depending on future market rates and our execution of further balance sheet strategies, will allow us to take advantage of lower rates when appropriate. Meanwhile, as we continue with the potential transactions over coming quarters, we have a platform from which we expect to grow earnings even without additional capital. Starting with the fourth quarter reported $0.18 normalized FFO as a baseline, we would point out a few considerations. The incremental interest expense related to the secured bond offerings will be on a pro forma quarterly basis about $26 million or $0.04 per share. Prospect, the rent and interest for which we have recognized only as cash is received since the start of 2023, made no payments in the fourth quarter. So any future income, or expense reductions resulting from the resolution of Prospect, will be additive to results from operations. Similarly, as part of the global settlement we discussed last quarter, in the third and fourth quarters we re-tenanted facilities with an aggregate lease base of approximately $2.1 billion, but received no cash rents and recognized only limited straight-line rent accruals in the fourth quarter. Again, as rent pursuant to these new leases is received and recognized over the next eight quarters, this revenue will be additive to operating results. Based on these contractual requirements, and as we previously reported, contractual cash rent from these facilities is scheduled to ramp up to about $40 million per quarter, or an incremental $0.06 per share by October 2026. To reiterate Rosa's earlier comment, one of the leases required cash payments starting in January, and that was paid timely, and the master lease for more than half of the $2.1 billion covering hospitals in Florida, Texas and Louisiana actually paid early the rent that commences in March. In recent years, we commenced construction of a handful of new hospitals and capital improvements for certain of our longtime tenants. These are detailed on Page 15 of the fourth quarter supplemental we posted to our website this morning. When completed, we will earn market lease rates on these investments—additional revenue that we estimate will total about $10 million annually; obviously this is not included in this morning's reported fourth quarter $0.18. We are also prudently completing construction of two hospitals that we started before Steward's decline into distress and bankruptcy—what we call Norwood and Wadley. As we progress with construction, we are simultaneously marketing both facilities for sale or lease and have reason to be confident that both will be attractive to hospital operators. Until we have more assurance about the timing of any agreements to sell or lease these hospitals, we intend to limit construction to a stage of protective weatherization of the buildings. We estimate the remaining cost to progress to this stage aggregates approximately $30 million. Depending on the terms of any future negotiations with prospective lessees, we may agree to fund additional costs to fully complete construction. The impact of any prospective revenue and interest expense savings will be somewhat offset by additional interest expense on the cost to complete. So looking forward over the next several quarters, subsequent to the use of proceeds from this month's secured note offerings, we start 2025 with liquidity sufficient to satisfy debt obligations up to October 2027, a portfolio of highly attractive and unencumbered healthcare real assets, multiple options to continue to improve the balance sheet in coming quarters, and near-term operations that we expect to continue to generate strong and growing FFO and returns to our shareholders. With that, I will turn the call back to the operators to queue up any questions.

Our first question today comes from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead with your question.

Hi, this is Vikram Garewal on for Austin. Thanks for taking our questions. Was hoping you could provide some additional color on Prospect. Specifically, is the plan to sell all the real estate previously leased to Prospect, or is it possible that you would keep and re-lease some of the facilities like what you own in California?

Thank you, Vikram. The settlement agreement is fully described in the bankruptcy court filings, as are the benefits to MPT and the debtor entering this agreement. It is of course subject to court approval. In general though, MPT is now treated as a secured creditor, generally behind only the senior debt lender. Prospect's advisors will now seek resolutions that provide the best financial results to the creditors, which is mainly us. This may include sales of hospital real estate and operations together, sales of operations and real estate separately, sales of operations and a new MPT lease, or some combination of these. The financial statements we posted this morning reflect the best information we have about the ultimate realization in the aggregate of our Prospect investments. So the somewhat long-winded answer to your question is it's simply uncertain right now. There are several buckets of assets including Philadelphia, Connecticut, Rhode Island, and very importantly California. These will likely resolve separately, and perhaps in different manners. So it's just simply not possible to predict how each one resolves.

Okay. Understood. And beyond Prospect, are there any other asset sales that you're currently evaluating at this time?

No, we haven't announced any other pending sales.

Got it.

Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead with your question.

Yes, thanks Rosa. I wanted to touch on your comments regarding the new tenants taking over the former Steward assets. Can you remind us: has enough time passed for these tenants to be cash flow positive before rent? I know there's always a delay between billing and collecting patient revenues. So has enough time passed where they're actually cash flow positive now, like excluding your rent?

Yes. So most of these operators went in in September. It varies greatly the timing that it takes for Medicare to do their thing, particularly as one of the large payers. But yes, cash collections are coming in. Certainly they are still ramping up, which is the reason that we provided the ramp up in rental payments.

But to answer your question, certainly the vast majority of them are cash flow positive at this point.

Okay. And then how should we think about the ramp up in rent? I know the $90 million annualized target in Q4 '24. So will they pay a quarter of that $90 million, because it's an annualized run rate? And then the expectations for the ABLs to be paid back, is that by the end of this year?

So the answer to that second question is yes, certainly by the end of this year. And we think well within that period. It's not a ratable ramp up. There are six different lessees involved here and each of them have different terms and timing of their ramp up. So it's not ratable. You can't simply take 25% of the $90 million in Q1 and expect that to be the rent.

Okay. And then just last one from me, I guess. James, you made a comment about a catch-up payment of $10 million in the quarter from a smaller tenant. Is that the 1% tenant that you previously mentioned? Should we expect that that tenant will continue to pay rent going forward?

That is the 1% tenant. It may not be the full $10 million every quarter, but there will be continued payments, and they have made payments in January, February and March already.

Okay. So are they current on their rent right now?

They are.

Okay. Great. Thank you.

Our next question comes from Jordan Finco from Mizuho. Please go ahead with your question.

Hi, this is Georgi on for Jordan. I just wanted to touch base. We noticed one of the tenants, Accordion Health Services, coverage went from 0.9 times to 0.7 this quarter. Can you just provide more color on what led to the decline, and if there is anything there we should be worried about?

So that tenant is our Colombian asset, and as we've mentioned publicly, that country continues to struggle with leadership as they try to navigate through some healthcare reform. The facilities that we have are continuing to see volumes at capacity. So it's not a product of operations; it's more a product of the healthcare reform going on in the country.

And Georgi, this isn't just our facilities. We actually have two sets of facilities operated by different operators, but it's countrywide. Right now the government is paying a lot of their fees in IOUs. We have the utmost confidence they will catch up.

Thank you, that's helpful. And just a follow-up on the dispositions: the $100 million of sales that you mentioned, what was the cap rate on those? And then going forward, if you need to dispose any assets, do you see more opportunities domestically or in the international markets?

So let me be clear. I used a very broad range — I don't think it's really close to $100 million. I said it's well less than $100 million. I think it totals probably about $50 million. Those are all U.S. assets. It's an aggregate of several small ones. But to answer your bigger question, as we've demonstrated over the last two years, we've sold dozens of facilities—$6.5 billion either sold or refinanced. That covers the U.K., Europe, the U.S., Australia—every type of asset that we have, whether it be general acute or behavioral or post-acute. So the market worldwide, at least in the markets where we have hospitals now, remains very vibrant and very active in the private infrastructure and healthcare real estate markets. There's nothing pending that we've announced, but asset sales remain an opportunity, a lever for us to pull as we go forward to access additional liquidity and equity.

Great, thank you.

Our next question comes from Mike Mueller from JPMorgan. Please go ahead with your question.

Yes, hi. I guess with the mentality of let's rip the band-aid off, and given the demand that you talked about with the offering, why not upsize it even more just to completely take care of all 2026 maturities, outside of the stuff coming due in October?

Well, it was certainly available to us. As you might imagine, with the 5.5 times oversubscribed book and the very attractive coupon we got. But we were driving coupon, to be very frank. Secondly, we don't need it. Thirdly, by not upsizing it further than the $2.5 billion plus or minus, we retain flexibility for the various strategies that I mentioned, including further asset sales. We have the capacity clearly to do additional secured financings; that's not on the table at present. But by not upsizing we got the coupon we wanted, we are able to address everything in 2025 and 2026, and we retain the flexibility, frankly, to come back for even better terms in different structures.

Got it. Okay, thank you.

Our next question comes from John Klickowski from Wells Fargo. Please go ahead with your question.

Good morning. Thank you. Maybe just following up on all the capital markets activity in the quarter: were there any amendments to the credit agreement? And I believe last time we spoke there was a discussion about covenants being waived up until September 2025. Would you expect to be in breach of any covenants from now through that point?

So specifically with respect to the amendment we negotiated in the third quarter of last year, all of that went away. In fact, as I mentioned earlier, we reverted from a 25% to a 40% ability to secure unencumbered properties, the rate actually went down. I don't remember every component of that amendment that was to be effective through September of 2025, but that's totally gone now.

Okay. Very helpful. And then, I guess, is there any expectation about collecting rent from any of the co-off payments expected to happen this quarter?

There's nothing new on that. The most significant exposure to co-off is, as you may know, Prospect California, which I think now is scheduled to come in in March and April.

Got it. Thank you.

Our next question comes from Farrell Granath from Bank of America. Please go ahead with your question.

Hello. Thank you so much for taking my question. I was curious, could you give some color on the percentage of encumbered versus unencumbered assets in your base?

Could you repeat that, Farrell? After the bond offerings along with the credit facility security, the total is a little over $6 billion encumbered; the remainder is unencumbered.

Thank you for that. And I appreciate the comments in the beginning in terms of the possible Medicaid cuts that could be expected. I was curious if you could give us a little bit more comment on maybe thoughts of worst-case versus best-case scenario. And if there would be any other pressures beyond Medicaid—even if it comes in the form of Medicare—that you would see affecting your tenants?

So it's hard to provide a precise color on that hypothetical. I think what we said in the prepared remarks is that we believe there is room in Medicaid and Medicare for items that don't affect hospitals, and that could take care of some areas of inefficiency. We think that at this particular point both parties view healthcare as important, and we believe it will continue to be essentially where it is today.

Okay, thank you. I appreciate it.

Our next question comes from Omotayo Okusanya from Deutsche Bank. Please go ahead with your question.

Yes, good morning, everyone. Congrats on the progress. Just wanted to follow up on the prior question about the covenant in the new secured credit agreement: any covenants around being able to fully access the capacity of the line or anything like that in the new arrangement that we should be aware of?

No. We have full access to the line. When I mentioned earlier that our total commitment remains unaffected, it remains at $1.5 billion; $1.3 billion of that is the revolver. As of recent days, we have probably around €100 million drawn on that, no more than that.

That's super helpful. And then on the prior question around encumbered versus unencumbered assets, is there a way to get a better sense of the 167 assets that are encumbered—what those are related to versus what's still unencumbered that could give you opportunities to do further secured financing or potential asset sales? Could we get something high level to get a general sense of what is what?

Yes. Right now, to repeat myself, we have the ability to encumber up to 40% of our assets. Today, after the bond deals, we're at a little more than half of that. If you convert that to nominal dollars, we're at about $6 billion encumbered and maybe another $5 billion or $6 billion unencumbered now. That's what's available to us under the current covenants. That's very high level and general, and again, that's part of what gives us the flexibility and cushion to execute the strategies we've been talking about.

Could I ask, is the unencumbered pool more U.S. assets at this point versus European assets?

Maybe it's a little bit more weighted towards U.S., without looking at it specifically.

Okay, that's helpful. Thanks again.

At this time, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Ed Aldag for closing remarks.

Thank you, Jamie. And as always, if anybody has any additional questions, please reach out to Drew or Tim, and we'll get back with you quickly. Thank you again for your time.

And ladies and gentlemen, with that, we will conclude today's presentation. We do thank you for joining. You may now disconnect your lines.