Medical Properties Trust - Q1 2024

Transcript

Operator (participant)

Good day and welcome to the first quarter 2024 Medical Properties Trust earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. Today's call is scheduled for 60 minutes. Please note this event is also being recorded. I would now like to turn the conference over to Mr. Charles Lambert. Please go ahead.

Charles Lambert (Senior VP of Finance and Treasurer)

Thank you and good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 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. And Rosa Hooper, Senior Vice President of Operations and Secretary. 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 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.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Thank you, Charles, and thanks to all of you for joining us this morning on our first quarter 2024 earnings call. I'm pleased to be joined again today by Steve Hamner, Rosa Hooper, and Kevin Hanna. You will hear from each of them shortly. For the past several quarters, you've heard me say that we're focused on executing a capital allocation strategy to generate at least $2 billion of additional liquidity in 2024. I'm pleased to share that we've made strong progress on this strategy, executing $1.6 billion of total liquidity transactions this year, including the recently announced sale of 75% of our interest in five Utah hospitals to a new joint venture with a leading multi-billion dollar asset manager. We've used the proceeds from these transactions to pay down near-term debt, including full repayment of our Australian term loan that was due in 2024.

Importantly, while we've already reached 80% of our initial liquidity target, we're just getting started and now expect to exceed that amount for the year. Our early results prove there's strong demand for our assets at attractive valuations. We have several available levers to generate additional liquidity, and we remain actively engaged in numerous discussions. As with the transactions already executed, we expect to continue demonstrating the value and cash flow potential embedded in our portfolio throughout the year. Turning to Steward and his decision earlier this week to commence a Chapter 11 restructuring process, there has obviously been a great deal of media attention on this filing, and we want to take a few minutes to share our perspective directly with all of you. First, if you've had an opportunity to read through the first-day declarations that Steward filed with the U.S.

Bankruptcy Court, you will find a clear story of how Steward got here. Notably, no mention was made of rent as a contributor to Steward's distress. We believe that bankruptcy will facilitate the re-tenanting or sale of Steward hospitals in an orderly and timely fashion. We firmly believe that an orderly transition of Steward hospitals to new operators is in the best interest of everyone, and we're committed to providing $75 million in debt financing to help achieve that. We expect Steward to use this financing to ensure continuity of patient care while accelerating the re-tenanting of its hospitals. To be clear, we have not committed to providing any additional funding beyond this initial $75 million. As I said before, rent is never mentioned by Steward on the list of contributing factors to his financial stress.

That's because rent, which represents only a small fraction of a hospital's total revenue, is virtually never the primary cause of financial stress for hospitals. And if Steward wasn't paying rent, they'd be paying interest and principal repayments on some type of financing for the facilities because, as we all know, buildings are not free. While we've seen a great deal of misinformation recently reported about our business model, the fact remains that MPT provides hospital operators permanent and affordable capital, enabling them to redirect the substantial cash resources that would otherwise be used for real estate to their primary mission: healing patients. We continue to be pleased with the progress we are making with parties interested in the Steward hospitals. It would be inappropriate for us to discuss the details of each of these transactions until they are approved by the court.

I will now turn it over to Rosa to discuss the performance of our portfolio. Rosa?

Rosa Hooper (Senior VP of Operations and Assistant Secretary)

Thank you, Ed. As with the past few quarters, I'll take you through some of the highlights across our portfolio of critical hospital real estate, beginning with a few high-level comments. During the fourth quarter of 2023, we were pleased with the solid sequential and year-over-year coverage improvements delivered across our portfolio. In fact, on a discrete quarter-over-quarter sequential basis, our general acute, inpatient rehab, and LTCH segments all reported increasing coverage in the fourth quarter. During the first quarter of 2024, volume trends across our portfolio, excluding Steward and Prospect, grew in line with and, in some cases, outpaced the growth of large public operators. Behavioral health hospitals, which represent 14% of our portfolio, continue to see increasing volumes year-over-year as these facilities prove their enduring value in their respective communities.

While LTCHs have seen declining year-over-year volumes as a result of the CMS waiver expiration last May, it is worth noting that these facilities represent just 1.5% of our portfolio and are generally part of larger operators that include inpatient rehab and/or acute care hospitals, therefore ensuring diversification and additional coverage for ongoing rent payments. Going forward, we will no longer provide individual disclosure of LTCH coverages but will instead begin to combine them with inpatient rehab coverages for a post-acute property type. In the U.K. and continental Europe, operators continue to benefit from strong growth in reimbursement rates, overall volumes, and higher acuity admissions, leading most operators to report increasing operating profits year-over-year. Circle remains well-positioned in the U.K. private healthcare market with steady volume growth and increasing patient acuity that is expected to extend through 2024.

With the sustained growth of private health insurance coverage and self-pay in the U.K., Circle has delivered steady financial performance and expects that strong performance to be maintained. As the largest independent mental healthcare provider in the U.K. by number of beds, Priory continues to capitalize on increased demand for behavioral health services within the U.K. They are seeing steadily improving reimbursement trends along with stable occupancy levels and remain focused on cost-effective management to ensure quality and efficient care. Together, these focus areas are driving incremental improvements in coverage and earnings. Priory's parent company, MEDIAN, has largely recovered from the impacts of the COVID-19 pandemic on its German operations with improving occupancy, favorable reimbursement rates, moderating inflation, and strong cost control. MEDIAN's operating margins have proven resilient over the past several years, and we expect them to maintain that stability.

While Swiss Medical's profitability was marginally impacted by inflationary pressures and investments related to its pioneering integrated care network in 2023, initial results from the first quarter already indicate that these temporary headwinds are abating. In addition, Swiss Medical's Genolier Innovation Hub, which began construction in 2021, remains on track to open in the second half of 2024. Turning to our U.S. portfolio, excluding Steward and Prospect, we're seeing increasing admissions almost universally across our diversified portfolio of general acute hospitals, inpatient rehabilitation facilities, or IRFs, and behavioral health facilities. Reimbursement rates are generally accelerating, and operators are doing a commendable job of controlling costs in this inflationary environment. A major highlight for the quarter was the announcement of the new JV we formed with a leading investment firm involving our hospitals in the Salt Lake City area of Utah, operated by CommonSpirit.

We are pleased to retain an approximate 25% interest in these facilities and expect strong performance trends to persist over the long term. Ernest Health reported stable performance with consolidated EBITDARM coverage above 2x. Ernest's IRFs are performing well with coverage in excess of 2x. On their same store IRF, excluding Ernest's three recent developments, it is approaching 3x. Ernest's total reported coverage was adversely impacted at its LTCH facilities by the volume headwinds I mentioned earlier. As an important reminder, LTCHs comprise less than 20% of our investment in Ernest, and their rent is more than covered by the IRFs. Shifting to Prime, as part of the California and New Jersey sale transaction, MPT and Prime agreed to a new 20-year master lease for our remaining four Prime hospitals.

The new master lease includes a purchase option for Prime to buy the real estate of these remaining hospitals for a minimum purchase price of $238 million. They report increasing volumes and normalization of labor costs, which has led to improved EBITDARM for MPT-owned hospitals. At our LifePoint hospitals, volumes have sustained momentum following the ninth rebound we saw in the fourth quarter of 2023. As a result, MPT-owned LifePoint facilities have delivered meaningful EBITDARM improvements over the last several months, including an encouraging March in which they delivered the highest monthly EBITDARM in more than two years. LifePoint's recently dedicated cardiovascular and surgical care pavilion at Conemaugh Memorial in Pennsylvania has been very well received by the community, and we remain optimistic that it will further position that market for future success.

Our LifePoint behavioral facilities' inpatient volumes have steadily increased, offsetting seasonal declines in volumes from partial hospitalization programs and intensive outpatient programs. At ScionHealth, general acute facilities reported nearly a full-turn improvement in coverage year-over-year to 1.9x, driven by double-digit volume increases and substantial reductions in contract labor. However, like Ernest, LTCH performance has been adversely impacted by the waivers that expired in 2023. Finally, Prospect paid cash rent and interest of approximately $7 million during the quarter and reported EBITDARM coverage of approximately 1x on its California portfolio for the 12 months ended December 31, 2023. Coverage has further increased to approximately 1.3x on a trailing 12-month basis through the end of February. Prospect paid March rent for California after the end of the quarter. However, at this time, MPT has not yet received rent for the months of April and May.

To briefly summarize before I turn it over to Kevin, the majority of operators in our highly diversified portfolio continue to perform well, and we're encouraged by the volume and cost trends we're seeing across geographies and care settings. As such, we remain confident in the core pillars of our business model and the long-term cash flow potential of our portfolio. Kevin?

Kevin Hanna (Senior VP, Controller, and Chief Accounting Officer)

Thank you, Rosa. This morning, we reported a GAAP net loss of $1.23 per share and normalized FFO of $0.24 per share for the first quarter of 2024. As mentioned in our earnings release, first quarter results included approximately $18 million of consolidated cash revenue from Steward and Prospect. It is worth noting that Steward additionally continued to make full payments as it relates to the Massachusetts Partnership portfolio, about $19 million in the first quarter at MPT share. Subsequent to quarter end, Steward has paid $9.5 million in rent, half of which is MPT share, and Prospect has paid roughly $7 million. We also described approximately $693 million in non-cash impairments recorded in the quarter, primarily related to non-real estate investments in Steward and the international joint venture. These charges were estimated and recorded pursuant to U.S.

GAAP accounting rules and reflect conservative assumptions regarding potential recoveries, which MPT remains committed to pursuing. As was the case last quarter, investments in the operations of Steward and the investment in the operations of the international joint venture were evaluated with assistance of a third-party independent appraiser. The first quarter charges included the full impairment of MPT's approximately $360 million loan to Steward made in 2021, the remainder of its equity investment in Steward, and other obligations. Further, we impaired our full investment in the international joint venture. As a reminder, these investments were previously moved to cash-based accounting, and no related income was recorded in the first quarter. It is worth noting a couple of other adjustments to normalize FFO. First, we adjusted the book value of our investment in PHP Holdings downward by approximately $60 million based on the most recent third-party independent appraisal.

Further, we recognized an approximate $8 million loss on our sale of a Priory term loan, as well as an $8 million negative adjustment to the fair value of marketable securities such as our shares and Aedifica. One thought before I hand it over to Steve. We remind investors in advance of our 10-Q filing that first quarter cash flows from operations are typically influenced negatively by the timing of cash interest payments on our debt. Assuming no impact from transactions or Steward rent tendering activity, we would expect 2024 cash flow from operations to be seasonably weighted to the back half of the year. With that, I will turn it over to Steve for a discussion of liquidity and our overall capital allocation strategy. Steve?

Steven Hamner (EVP and CEO)

Thank you, Kevin. I'll begin by echoing Ed's earlier comments about the success of the liquidity plan we described late last year, which is working even better than we predicted. At that time, we estimated that during all of 2024, we would generate $2 billion from asset sales and secured financing. By halfway through April, we had achieved $1.6 billion, or 80% of the initial estimate, and those transactions were executed during a particularly volatile period in terms of inflation and interest rates. Based on those early successes, we believe we will exceed our $2 billion target for 2024 with additional transactions at attractive valuations and capitalization rates well inside of what our public securities imply. Going back a bit further, MPT has reduced its net debt by $1.6 billion since this time last year.

We've accomplished this delivering primarily with about $2.4 billion of proceeds from profitable asset sales, including completely exiting Australia, selling hospitals back to operators pursuant to their repurchase options, and most recently, our sale of 75% of our Utah facilities for almost $900 million of cash proceeds. That does not include the $190 million of non-recourse financing proceeds. As a side note, this Utah transaction fully validates the price we paid for these hospitals in 2020 when they were operated by Steward. We are pleased to retain a 25% interest, which provides us the opportunity to participate in any future increases in the values of these assets. We currently have about $900 million in immediately available liquidity through cash balances and revolver capacity.

Planned uses for this current liquidity, as well as future operating cash flows and any proceeds from potential additional transactions, include up to $75 million for the Steward debtor in possession loan. As Ed mentioned, we have made no commitment to fund any more than that. Repayment of GBP 100 million, that's about $130 million, in a sterling-denominated seller financing loan due late this year, and prepayment of approximately another GBP 105 million, or another roughly $130 million, related to our sterling-denominated term loan, and up to about $230 million in development commitments, including two projects that may be sold, so the actual amount of that funding is uncertain. Partly in recognition of our success in selling assets at attractive valuations and also in light of the deteriorating Steward situation prior to its bankruptcy filing, we recently amended our bank facilities.

One of our bank loan financial covenants limits the amount of unsecured debt as a percentage of unencumbered assets to 65%. For that calculation, the amount of unencumbered assets leased to tenants in bankruptcy is limited to 10%. The bank group agreed to waive this 10% limitation through the quarterly June 30 test, which means that, all else equal, Steward assets will remain in the unencumbered asset calculation for financial covenants until the next quarterly test on September 30. Our plan and expectation are that during the five months until September 30, we will replace Steward with better qualified operators at many of our hospitals that are currently leased to Steward, so that even if Steward remains in bankruptcy at that time and the waiver is not extended, its effect on our unencumbered asset value-based financial covenant is expected to be mitigated.

Second, given our current priorities and the liquidity generated from asset sales and financing transactions already executed and expected in the future, we no longer need the large $1.8 billion revolving credit facility that we had during earlier years when our acquisitions exceeded $3+ billion annually. Accordingly, we offered to reduce the revolver commitment by $400 million down to $1.4 billion. Further, because the majority of these liquidity transactions are expected to be sales rather than secured financings, we project relatively low levels of secured borrowings for the foreseeable future, and accordingly, we were willing to reduce our secured debt basket from 40% down to 25%. Before going to questions, I'll just summarize and point out we have addressed all our 2024 maturities.

We have only the GBP 100 million sterling mortgage remaining to be paid, and we expect to have significant liquidity going into 2025, and that's before considering the possible liquidity that we expect to achieve from the additional transactions that I've alluded to. Our plans remain to continue to monetize assets, increase liquidity, and reduce debt and retenant hospital real estate that is currently leased to Steward. And with that, I will turn it over for questions. Operator?

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Again, please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue. At this time, we'll pause momentarily to assemble our roster. The first question will come from Austin Wurschmidt with KeyBank Capital Markets. Please go ahead.

Austin Wurschmidt (Senior Equity Research Analyst)

Hey, good morning, everybody. First, just wondering if all of the facilities leased to Steward are open and operating and whether you expect that will remain the case. Just wondering if you're still receiving the weekly cash flow reports from Steward's advisors and just any changes for better or worse there.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

So Austin, all of the facilities, other than the ones that were previously closed prior to bankruptcy, continue to be operating. In the second question, we do continue to receive cash flow reports from Steward's advisors, and they have, so far, exceeded their projections on, I believe, every week.

Austin Wurschmidt (Senior Equity Research Analyst)

As you start negotiations or have been in negotiations with other parties to backfill the operations at these facilities, I mean, what's the thinking around potential rent moving forward relative to Steward's prior contractual cash rent?

Steven Hamner (EVP and CEO)

So the hospitals, as we've been saying for many months on a localized four-walls perspective, are generating positive EBITDA. The issues with Steward, which are very well laid out in the bankruptcy filings, are around legacy payables, revenue cycle management, the level of revenue reimbursement. So all of that is to say that we believe that these hospitals can continue to pay rent at the contractual levels. Now, there's obviously a lot that goes into negotiation, and with bankruptcy, there's more scrutiny. But that's a long-winded way of saying we anticipate across the portfolio to continue to get at or near the amount of rent that the current lease agreements call for.

Austin Wurschmidt (Senior Equity Research Analyst)

Just last one for me, I guess, any stance on the timeline of when you could start to get any of these facilities back or whether any of these leases will be rejected for any reasons, either for better or worse. That's all from me. Thank you.

Steven Hamner (EVP and CEO)

I'm sorry. I think your question was around the timeline, and I think, again, in the bankruptcy filings, there are some very strict target dates to have agreements in place that would then start the regulatory process. I won't get into bankruptcy law because I don't think many of us are lawyers on this call, but we have no indication that Steward would have any motivation in rejecting either of the two master leases.

Austin Wurschmidt (Senior Equity Research Analyst)

Thank you.

Operator (participant)

The next question will come from Joshua Dennerlein with Bank of America. Please go ahead.

Joshua Dennerlein (Head of Business and Information Services Equity Research)

Yeah. Hey, guys. Thanks for the time. Just curious on the DIP financing, why did you guys feel the need to provide the DIP financing? And then I was looking over the 8-K documents. Just curious why it's called junior debt and then what is it junior to?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Gosh, the reason that we decided to do the $75 million DIP financing is exactly as I said in my prepared remarks, is that we think it's very important that the hospitals continue to operate as we go through this process.

Joshua Dennerlein (Head of Business and Information Services Equity Research)

Were there no other potential folks who would be willing to provide DIP financing in the BK?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Yeah, there absolutely were others. There are other lenders involved, as you know, but we're not going to get into the details of those negotiations at this point.

Joshua Dennerlein (Head of Business and Information Services Equity Research)

Okay. And then in the 8-K document, it was referred to as junior DIP financing. I think that's the correct term. Just curious, does that mean it's junior to other debt or claims, or why was that term used?

Steven Hamner (EVP and CEO)

Well, because of the security waterfall, and as you alluded to, there are other lenders that have first liens on the typical collateral of receivables.

Joshua Dennerlein (Head of Business and Information Services Equity Research)

Okay. Correct me if I'm wrong, but I always thought DIP financing was the most secure claim. Anyway, any on the PHP Holdings write-down, just could you kind of walk us through what drove the fair market adjustment? What's driving that, and how does that potentially impact the potential monetization I think you guys have talked about in the past?

Steven Hamner (EVP and CEO)

It's based on, as we do every quarter, independent appraisals and evaluations of a lot of inputs, including things like discount rates, financing rates. So it's really on a private basis. I think, as Kevin described, like any other security that we value on a fair market basis, it's clearly an estimate, and it is not based on necessarily our expectation of what happens to PHP or when.

Joshua Dennerlein (Head of Business and Information Services Equity Research)

Okay. So just the way that you answered it, was it more based on just moves in interest rates, or was there something that changed with the cash flows of the underlying investment?

Kevin Hanna (Senior VP, Controller, and Chief Accounting Officer)

Yeah, I think the biggest piece, as Steve alluded to, was the discount rate and some working capital adjustments as well, but mainly the discount rate.

Joshua Dennerlein (Head of Business and Information Services Equity Research)

All right. Appreciate the time. Thanks.

Operator (participant)

Again, as a reminder, please limit yourself to one question and one follow-up. Our next question will come from Vikram Malhotra with Mizuho. Please go ahead.

Vikram Malhotra (Managing Director)

Hi, this is George Wang for Vikram. Can you just comment on Prospect? How should we think about the rent recovery there?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

The rent recovery? Is that what your rent coverage?

Vikram Malhotra (Managing Director)

Yes. Rent recovery.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Yeah. Well, the rent coverage.

Vikram Malhotra (Managing Director)

Rent recovery. I think he's saying rent recovery.

Steven Hamner (EVP and CEO)

Well, as Rosa pointed out, we have collected the rent on the California assets through March, but that March payment came subsequent to March, and as of now, we've not collected April or May.

Vikram Malhotra (Managing Director)

As of the point, the QAF payments are expected in the coming months, which will be a slug of cash for Prospect, so we would anticipate them having additional proceeds at that time. Okay. That's helpful. Just can you provide more color on the pricing of the dispositions that you did in April? And you mentioned you're likely to exceed the $2 billion target of liquidity. How does this number look like today, and what are your expectations?

Steven Hamner (EVP and CEO)

So I think we mentioned this, and it's a good question, last quarter with respect to the prime assets that we sold, which we calculated a mid-sevens cap rate, and we said that the negotiations we were undergoing at that time, and frankly, we remain, well, we closed one of those, and we remain negotiating others. That cap rate in the mid-sevens ± is very indicative when adjusted for geography and size and quality of assets to what we expect to achieve on the additional sales or financings that we have mentioned.

Vikram Malhotra (Managing Director)

Just how large do you think the pipeline would be? How much above the $2 billion? If you can provide more color, that would be super helpful.

Steven Hamner (EVP and CEO)

Well, you're breaking up a little bit, but if I heard you correctly, of course, we've already achieved 80% of the $2 billion. Based on those results and our visibility into the market, into potential buyers and financing sources, that's why we've said we think we'll ultimately exceed the $2 billion through the remainder of 2024, and we think it will be a similar pricing, attractive pricing for us.

Vikram Malhotra (Managing Director)

Great. Thank you for taking my question.

Steven Hamner (EVP and CEO)

Thank you.

Operator (participant)

The next question will come from Michael Carroll with RBC. Please go ahead.

Michael Carroll (Managing Director)

Yep. Thanks. Steve and Rosa, I wanted to circle back on the Prospect situation. I guess, how concerning is it that they haven't paid April and May rents? And I know, Rosa, you said that quoth payments are going to come in. I mean, does that fix their situation, and what month do those quoth payments come in?

Steven Hamner (EVP and CEO)

So, your question, how concerning is? Of course, Prospect's been on a cash basis for some time, and as Rosa mentioned, and I'll let her address the Quoth in a minute, we've always had with our California operators this Quoth issue. And then when you combine it with respect specifically to Prospect and delays in disposing of other regions in the country, they have significant cash pressures on them. But aside from that, having been paid through the quarter with the Quoth issue that, again, is not unexpected, we remain confident that ultimately the cash will come in to pay the rent in California.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

California coverage continues to improve.

Rosa Hooper (Senior VP of Operations and Assistant Secretary)

Those Quoth payments are due at the end or should come in by the end of this month, end of May, and it's a substantial sum. It should really help them with their cash flow.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Okay. And then.

Kevin Hanna (Senior VP, Controller, and Chief Accounting Officer)

I'm sure again, February was almost a 1.3.

Michael Carroll (Managing Director)

Yeah. I'm assuming, though, that what the Connecticut and Pennsylvania and maybe the Rhode Island assets are kind of weighing that down. As they are missing these rent payments, do they have other cash pressures that are making their position tighter? I guess, does missing these rent payments in April and May solve their cash issues, or are they falling behind on other vendor payables that they may have?

Steven Hamner (EVP and CEO)

Yeah. I don't think we have a comment on that. Again, we expect to get our rent, and they're operating at a level. And again, Ed's mentioned the very positively improving coverage. Now, you have to convert that coverage to cash, and that's what we expect comes in with the quoth.

Michael Carroll (Managing Director)

Okay. And then just finally, Steve, can you talk a little bit about what you're expecting for the Steward transitions? I know you said in your prepared remarks that you didn't need the 10% BK covenant test in September because you expected transitions to occur. Do you expect a portion of transitions to occur? And I did look at the BK filing saying that it expects some of this stuff to get done by the beginning of August. I mean, I'm assuming for this to get done by the beginning of August, you would need to have a lot of process already underway. I mean, can you comment on how much interest there are in those hospitals right now, and are people looking at the financials to get ready to put in bids, or is that process just starting right now?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Well, Mike, it's been going on for almost five months now. We're way down the road with many different people.

Michael Carroll (Managing Director)

And then, Steve, your comment on the 10% BK covenant, was that you expect a percentage of the Steward hospitals to be transitioned, or can you kind of clarify that comment?

Steven Hamner (EVP and CEO)

Well, I'll try to clarify. I won't try to predict. The point I was trying to make is if we need relief from that covenant at the end of September, we would expect that need, all else equal, to be substantially mitigated by the number of hospitals that move away from the Steward relationship into new relationships. Now, we don't try to predict exactly which hospitals will transition on which dates, but between now and the end of this almost five-month period, we do think that, again, based on what Ed just said remember, this didn't just start with the filing of bankruptcy. They've been marketing these hospitals for at least five or six months. But we do expect, without specifying which hospitals go when, we do expect that a meaningful amount of Steward exposure will be moved away to new operators before the end of September.

Michael Carroll (Managing Director)

Okay. Great. Thank you.

Operator (participant)

The next question will come from Mike Mueller with J.P. Morgan. Please go ahead.

Mike Mueller (Senior Equity Research Analyst)

Yeah. Hi. Maybe a couple of quick ones here. I guess following up on the prior question, can you give us a high-level sense of, at the end of this process, what portion of Steward assets do you think you have now will ultimately be managed by other operators, either sold or transitioned or whatever?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Mike, I'm not sure I completely understand your question, but I think you said, "At the end of this transition, whenever it is, do we expect any of the facilities to continue to be operated by Steward?" Is that the question?

Mike Mueller (Senior Equity Research Analyst)

Well, yeah. Let me rephrase it. I guess at the end of this bankruptcy process, at the other side of it, what portion of your Steward assets now do you think will be in the hands of other operators as opposed to being operated by Steward?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

I would guess close to 100%.

Mike Mueller (Senior Equity Research Analyst)

Okay. Okay. And then, I guess, as it relates to the recent news with Connecticut, Yale New Haven, I guess, can you give us, I guess, current thoughts on what the plan B is there if those assets do not get sold?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Yeah. With the ongoing discussions between the state, Yale, and Prospect, we're just not going to comment on that right now.

Mike Mueller (Senior Equity Research Analyst)

Got it. Okay. Thank you.

Operator (participant)

The next question will come from Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes (Analyst)

Hi. Good morning. Are there any concerns or discussions with new potential operators for the Steward properties, focusing on increasing market share that might lead to concentration issues and maybe scrutiny from the FTC, or is it because Steward is in bankruptcy, the primary goal is to find a new operator and preserve healthcare services regardless of increased market share?

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Yeah. It's a lot of different markets, so I can't be 100% accurate on this. But to the best of my recollection right this moment, I don't think there are any that would require a market concentration issue.

Jonathan Hughes (Analyst)

Okay. And then maybe my second question on the dividends. The last month's dividend was declared after the Utah and the Prime transactions, which was consistent with your prior comments that the dividend is dependent on liquidity transactions. And that press release mentioned that it was a regular dividend, but that April dividend was declared more than five months after the prior. So is it fair to assume future dividends might also be more sporadic? And maybe given the change in Steward's status since then and focus on preserving liquidity, is the board still comfortable with that current dividend amount? Thanks.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Yeah. Jonathan, our next board meeting is the same day as our annual meeting, which I believe is May the 30th, and it'll be discussed at that point.

Jonathan Hughes (Analyst)

All right. I look forward to hearing more then. Thank you for the time.

Operator (participant)

The next question will come from John Pawlowski with Green Street. Please go ahead.

John Pawlowski (Managing Director)

Thanks for the time. My first question's on the Utah transaction. The press release said $1.1 billion in proceeds prior to costs and reserves. Can you quantify what the costs and reserves are? I imagine some of it's CapEx, so any additional color on the deferred CapEx in that portfolio and how it impacted the transaction price would be helpful.

Steven Hamner (EVP and CEO)

Well, the reference to costs and reserves are just customary costs of a transaction, fees, brokerage, and typical reserves that a first-line lender may require. I'm not quite sure if I'll let the follow-up question.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

There was nothing extraordinary in those expenses in reserve.

Steven Hamner (EVP and CEO)

No. No. That's my point. And I'm not sure what was meant by CapEx.

John Pawlowski (Managing Director)

Yeah. There's no additional CapEx that NPW needs to fund to get that headline purchase price.

Steven Hamner (EVP and CEO)

This is an absolute net lease that the operator, CommonSpirit, is responsible for CapEx.

John Pawlowski (Managing Director)

Okay. Next question's on Steward. So with the Macquarie JV, just given that Steward's still paying rent on that JV, were MPT's lease payments due from Steward on either of your master leases with Steward subordinated to the JV when that was structured?

Steven Hamner (EVP and CEO)

No.

John Pawlowski (Managing Director)

Okay. Last question from me. Did you pledge any of your real estate as collateral in conjunction with the Steward ABL or bridge loan refinancing? And if so, how many assets have liened against them right now?

Steven Hamner (EVP and CEO)

No.

John Pawlowski (Managing Director)

All right. Thanks for the time.

Operator (participant)

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ed Aldag. For any closing remarks, please go ahead.

Edward K. Aldag, Jr. (Chairman, President, and CEO)

Thank you, Chuck. We appreciate everyone listening today. If you have any additional questions, please don't hesitate to call Drew or Tim, and they'll get your questions responded to as quickly as we can. Thank you.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.