Medical Properties Trust - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 printed a GAAP net loss of $0.69 per share on $231.8M of revenue, but normalized FFO per share improved sequentially to $0.18 (from $0.16 in Q3), as large Prospect- and PHP-related impairments of ~$415M weighed on GAAP results.
• Balance sheet/liquidity execution was the quarter’s catalyst: MPT completed >$2.5B of seven‑year senior secured notes at a 7.885% blended coupon, amended its revolver, and effectively addressed all debt maturities through October 2026, leaving ~$1.4B of combined cash and revolver availability post-transactions.
• Steward re‑tenanting continues to progress; contractual cash rents under new leases are scheduled to ramp to ~$40M per quarter by October 2026, and January/March rent start obligations have commenced; one large tenant paid March rent early. Management reiterated total annualized cash rent should exceed $1B once fully ramped.
• Prospect entered Chapter 11 in January; MPT agreed to a settlement term sheet to facilitate asset sales with MPT’s cooperation and will provide $25M of DIP funding. Q4 impairments/fair value adjustments tied to Prospect/PHP approximated $415M, or $0.69/sh, and management framed the process as positioning for enhanced recoveries (subject to court approval).

What Went Well and What Went Wrong

• What Went Well
  • Liquidity and maturities: “more than $2.5 billion” of secured notes at a ~7.88% blended coupon addressed all maturities through Oct 2026; the revolver now shares collateral and effectively extends to June 2027 with broadly affirmed commitments.
  • Portfolio/operations: Europe remained a tailwind (U.K. PMI utilization at all‑time highs benefiting Circle; Priory and MEDIAN reported solid YoY improvements), while U.S. general acute and behavioral volumes and coverages improved; new operators at formerly Steward‑run facilities are stabilizing and ramping.
  • Re‑tenanting/rent trajectory: Cash rent ramps are underway; one tenant began January payments, and the largest March payment was made early. Contractual ramps are expected to lift cash rents to ~$40M per quarter by Oct 2026; management reiterated the roadmap to >$1B annualized cash rent once fully ramped.
• What Went Wrong
  • Prospect/PHP charges: Q4 net loss includes ~$415M of impairments/fair value adjustments related to Prospect and PHP; full‑year GAAP net loss reached $4.02/sh due to cumulative impairments and fair value marks.
  • Colombia headwinds: Coverage at Cordiant Health fell to 0.7x amid national reimbursement reform/limitations, prompting ~$(19)M mortgage impairments; management expects the government to catch up on obligations, but timing remains uncertain.
  • Higher cost of debt near‑term: The 7‑year secured notes (~7.88% blended coupon) introduce incremental quarterly interest expense of ~$26M (~$0.04/sh) near‑term, though management cited early redemption options and rent ramps to offset over time.

Transcript

Edward K. Aldag Jr. (CEO)

Good morning, everyone, and welcome to the Q4 2024 Medical Properties Trust earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference operator 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 and then one on your touch-tone telephones. To withdraw your questions, you may press star and two. 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.

Charles Lambert (Head of Investor Relations)

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 Fry, 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 and/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 refer to our website, 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. (CEO)

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 that 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 Holdings's liquidity challenges, primarily resulting from 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 and labor cost inflation to reimbursement challenges to 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 a 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 outside debtor in possession funding 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 their 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 day. 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. First, 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 it contributes little to our tenants' EBITDA results.

Second, an enormous amount of the cost to the government of Medicaid goes to programs that have nothing to do with hospitals and other true medical costs, and 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.

Rosa Hooper (SVP of Operations and Secretary)

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, and 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 Regional Medical Center 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 EBITDA performance are both up by double-digit % 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 EBITDA 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., Ernest Health's consolidated EBITDA coverage remains excellent at 2.1 times, with Ernest's legacy ERFs continuing to deliver coverages above 2.5 times.

As discussed last quarter, given the success of its first inpatient rehab unit at the Provo LTAC, Ernest Health is progressing plans to implement this model at LTACs 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 this quarter admissions of 23% year over year. Further, LifePoint Health reported significant year-over-year EBITDA 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 EBITDA 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.

Kevin Hanna (SVP, Controller and Chief Accounting Officer)

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 million, excuse me, 2.4 billion, and normalized FFO of $0.80 per share for the full year period. As we previewed in the January 29th 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 normalize 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. Steve.

Steven Hamner (CFO)

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 in 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 and 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 considerations 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 relit 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 reestablishing 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 on its own 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 space 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 long-time tenants. These are detailed on page 15 of the fourth quarter supplemental. We posted that 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 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 declined into stress 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 an additional interest expense on 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.

Edward K. Aldag Jr. (CEO)

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on your touchscreen telephones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. We also do ask that you please limit yourselves to one question and a single follow-up. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead with your question.

Vikram Grewal (Analyst)

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

Steven Hamner (CFO)

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, 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. These will almost certainly resolve separately and perhaps in different manners. And so it's just simply not possible to predict how each one resolves.

Vikram Grewal (Analyst)

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

Steven Hamner (CFO)

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

Vikram Grewal (Analyst)

Got it. That's all something I can think of.

Steven Hamner (CFO)

I think maybe last quarter we announced some small sales, and there's a couple of those still pending that certainly well under an aggregate of $100 million.

Vikram Grewal (Analyst)

Understood. Thank you.

Edward K. Aldag Jr. (CEO)

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

Michael Carroll (Analyst)

Yeah, thanks. Rosa, I wanted to touch on your comments regarding the new tenants taking over the former Steward assets. I mean, 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 patients' revenues. So has enough time passed where they're actually cash flow positive now, excluding your rent?

Rosa Hooper (SVP of Operations and Secretary)

Yes. So most of these operators went 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 ramping up still, 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.

Michael Carroll (Analyst)

Okay. And then how should we think about the ramp-up in rent? I mean, I know the $90 million annualized target in 4Q24. I mean, 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?

Steven Hamner (CFO)

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, what, 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 quarter one and expect that to be the rents.

Michael Carroll (Analyst)

Okay. And then just last one for 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, and should we expect that that tenant will continue to pay rent going forward?

Charles Lambert (Head of Investor Relations)

That is the 1%. 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.

Michael Carroll (Analyst)

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

Charles Lambert (Head of Investor Relations)

They are.

Michael Carroll (Analyst)

Okay. Great. Thank you.

Edward K. Aldag Jr. (CEO)

Our next question comes from Georgi Dinkov from Mizuho. Please go ahead with your question.

Georgi Denkov (Analyst)

Hi, this is Georgi on for Vikram. I just wanted to touch base. We noticed one of the tenants, Scion Health, 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?

Rosa Hooper (SVP of Operations and Secretary)

So that tenant is our Colombian asset. And as we've mentioned publicly, that country continues to struggle with the leadership as they try to navigate through some healthcare reform. So the facilities that we have are continuing to see volumes at capacity. And 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. So right now, the government is paying a lot of their fees in IOUs. We have the utmost confidence that they will catch up.

Georgi Denkov (Analyst)

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

Steven Hamner (CFO)

So let me just be clear. I used a very broad range there. 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 then, as we've demonstrated, as I mentioned in my remarks over the last two years, we've sold dozens of facilities, $6.5 million 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. And so the market worldwide, or at least in the markets where we have hospitals now, remains very, very vibrant, very, very active in the private infrastructure and healthcare real estate markets. There's nothing, as I mentioned earlier, that is pending that we've announced.

But that remains, as you point out, asset sales remain an opportunity, a lever for us to pull as we go forward to access additional liquidity and equity.

Georgi Denkov (Analyst)

Great. Thank you.

Edward K. Aldag Jr. (CEO)

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

Mike Mueller (Analyst)

Yeah. 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 of 26 maturities outside of the stuff that we do in October?

Steven Hamner (CFO)

It was certainly available to us, as you might imagine, with a 5.5 times oversubscribed book and the very attractive coupon we got. But we were driving coupon. I mean, to be very frank, we were driving coupon, number one. 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 it generally, by not upsizing, gave us the coupon we wanted. We are able to address everything in 2025 and 2026, and we retain the flexibility, frankly, we think, to come back for even better terms in different structures.

Mike Mueller (Analyst)

Got it. Okay. Thank you.

Edward K. Aldag Jr. (CEO)

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

Vikram Grewal (Analyst)

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

Steven Hamner (CFO)

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

Vikram Grewal (Analyst)

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

Steven Hamner (CFO)

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

Vikram Grewal (Analyst)

Got it. Thank you.

Edward K. Aldag Jr. (CEO)

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

Farrell Granath (Analyst)

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

Steven Hamner (CFO)

Could you repeat that, Farrell?

Farrell Granath (Analyst)

Oh, sorry. I was curious about the encumbered versus unencumbered assets. Is there a general percentage?

Steven Hamner (CFO)

The bond offerings, along with the credit facility securities, total about a little over $6 billion is encumbered. The remainder are unencumbered.

Farrell Granath (Analyst)

Okay. Thank you for that. And I guess also 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.

Steven Hamner (CFO)

So it'd be kind of hard to give you a color on that hypothetical of a question. I think what we said in the prepared remarks is that we believe there is room in Medicaid, even in Medicare, for items that don't affect the hospitals that could take care of some, I don't want to call it abuse, but places where they can make changes in both of those. We think that at this particular point, that both parties believe that healthcare is important, and we believe that it will continue to be essentially where it is today.

Farrell Granath (Analyst)

Okay. Thank you. Appreciate it.

Edward K. Aldag Jr. (CEO)

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

Omotayo Okusanya (Managing Director)

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

Steven Hamner (CFO)

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

Omotayo Okusanya (Managing Director)

That's super helpful. And then also on the other prior question around the encumbered versus the unencumbered assets, is there a way to get a better sense of kind of the 167 assets that are encumbered, kind of 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 just-it could be very high level-but just to kind of get a general sense of what is what?

Steven Hamner (CFO)

Yeah. So right now, to tie you again, to repeat myself, we have the ability to encumber up to 40% of our assets. Today, after the bond deals, we're at about a little more than half of that. I think Farrell's question earlier, if you convert that to nominal dollars, we're about at a $6 billion encumbrance and maybe another, after adjustments, maybe another $5 billion or $6 billion unencumbered now. So that's what's available to us under the current covenants. That's speaking, as you point out, very high level, very general. And again, that's part of what gives us the flexibility, the cushion to execute these various strategies that we've been talking about.

Omotayo Okusanya (Managing Director)

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

Steven Hamner (CFO)

Maybe that's without looking at it, and I certainly could and get back to you, but maybe it's a little bit more weighted toward U.S.

Omotayo Okusanya (Managing Director)

Okay. That's helpful. Thanks again.

Edward K. Aldag Jr. (CEO)

Ladies and gentlemen, 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.

Charles Lambert (Head of Investor Relations)

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.

Edward K. Aldag Jr. (CEO)

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