Good day, ladies and gentlemen, and welcome to the Medical Properties Trust Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to Mr. Charles Lambert, Treasurer and Managing Director. Sir, you may begin.

Thank you. Good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2018 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the Company; and Steven Hamner, Executive Vice President and Chief Financial Officer. Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at www.medicalpropertiestrust.com in the Investor Relations section. Additionally, we’re hosting a live webcast of today’s call, which you can access in that same section. During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed and/or underlying such forward-looking statements. We refer you to the Company’s reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the Company’s actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only and except as required by the federal securities laws, the Company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Thank you, Charles, and thank all of you for listening in today for our 2018 second quarter earnings call. During the second quarter, we have announced or completed transactions that have or will generate more than $600 million of value over and above our net investment. Through these transactions and others previously executed, we continue to demonstrate the strength and value of our portfolio. We recently announced the pending formation of a joint venture with Primonial Group, one of Europe’s leading asset and wealth managers with over €23 billion under management. Primonial will acquire a 50% interest in a portfolio of 71 post-acute care hospitals throughout Germany while MPT retains a 50% interest. MPT will continue the role of asset manager. Our strategic vision to expand beyond the U.S. continues to be very beneficial to MPT as highly regarded investors throughout the world are choosing to partner with us. The establishment of this partnership also demonstrates a credible endorsement of the works of our portfolio, as this transaction alone is valued at more than €1.6 billion of which we expect to recognize a gain of approximately €500 million upon closing. In another recent announcement, MPT will sale our equity interest in the OpCo of Ernest Health to the private equity firm, One Equity Partners, a 2015 spinout of JP Morgan with approximately $7 billion of assets under management. Upon closing, MPT expects our portion of the proceeds to be $175 million, which represents an approximate 13% unlevered IRR on our original $96 million investment. The culmination of this transaction will allow MPT to recognize the value from an investment I’m not sure that market ever fully recognized. Additionally, MPT will continue to own the real state of these 25 post-acute hospitals and benefit from the strong returns they generate. We…

Thank you, Ed. This morning, we reported normalized FFO of $0.36 per diluted share for the second quarter of 2018, consistent with our own and market expectations. There are just a couple of items this quarter that reconcile NAREIT to normalized FFO. Virtually, all of the adjustments to arrive at normalized FFO this quarter related to straight-line rent in the aggregate amount of $7.2 million. Of this, fully $5.1 million was to write off unbilled straight-line rent related to our sale of the three LTACHs to Vibra on which we recognized a gain of $24.2 million. The remainder primarily relates to the acceleration of straight-line rent on certain of the Adeptus facilities that we expect to sell or re-lease in the near term. You may recall that we have described these adjustments on the last two quarterly earnings calls. There now remains a balance of about $2.7 million that we expect will be written off over the next few quarters, as we finally resolve the last of the Adeptus facilities. One final point I want to bring to your attention regarding our balance sheet presentation is the classification of about $1.25 billion as assets held for sale. This represents the net book value of the assets that will form the previously announced joint venture with Primonial. Post closing, we will report our 50% interest in the JV as equity investment in unconsolidated subsidiaries and recognize our portion of the JV’s net income, as earnings from equity investment in unconsolidated subsidiaries. The secured debt will be recorded on the books of the JV. To summarize this transaction, again. We’re selling two affiliates of Primonial a 50% interest in this newly formed JV for approximately €816 million or at yesterday’s exchange rate, $955 million, which along with the recognized increase in value…

Thank you. [Operator Instructions] And our first question will come from the line of Michael Carroll with RBC Capital Markets. Your line is now open.

Steve, can you provide some additional details regarding the potential Steward transactions? How many of these assets do you want to sell? And when you say re-lease some of those facilities, doe Steward want to exit the ones that they recently bought or how we should think about that?

Today, Mike, we are in significant negotiations for two. One of those would be a sale to a different operator and the other would be a release of a facility that Steward has actually negotiated in exit with the different operator.

So, this plan on stopping operating these two?

Well, Steward will exit them, Yes. Steward will exit both. They will both continue to be operated just by different operators.

Okay. And then, how -- could you quantify these sales? And how much will this reduce your exposure to Steward?

No, we can’t at this time. But, it is very similar in volume to what we were expecting from the joint venture’s transaction. So, point being, we are achieving the same result generally. We are just doing it quicker and without a lot of friction that comes with establishing a joint venture. Now, we may go back to that. Again, you can tell by what we did with Primonial that notwithstanding that there is friction in bringing on partners. But, the results that we got and the future that it indicates for us with having significant new avenues of very affordable capital is very well worth that. Once we finish rationalizing the Steward portfolio, and by that I mean basically converting certain of the mortgages to owned real estate, that makes the portfolio much more attractive to joint venture partners. And we may well elect to reopen those discussions sometime in the future.

And then, can you talk a little bit about the investments that you’re looking at right now? What type of deals are of interest to you? And I know you highlighted that there is about 5 billion that you are currently tracking. What’s the reasonable number to expect as going to be the close on those deals and how does that compare to the deals you’d attract historically?

Mike, they are almost all acute care hospitals, some rehab spaded in there with primarily in the German market but for the most part European and U.S., they are all general acute care hospitals. It’s hard to give you an exact number, because the size of some of these portfolios are large. But, I think that it would be very reasonable to expect that the number -- the success rate on the number in Europe to be at least $1 billion and the success rate in the U.S. to be somewhere around $750 million.

Okay. Question be the German acquisitions, would that be put joint venture or you’re going to be doing that by yourself?

We’ve been doing that by ourselves.

And the next question will come from the line of Drew Babin with Baird. Your line is now open.

Question on the dispositions and redeployment. Would the proceeds from the Median promoting out JV for any formal reasons need to be redeploy directly within Europe from a repatriation standpoint?

No. That’s our expectation. But obviously, will bring a significant amount of that back home to repay the dollar based revolver. And the rest of it is available to bring back home subject to currency risk. But, we do expect, as Ed just described, to be able to reinvest euros in euro denominated assets.

Okay. And then, as far as the redeployment pipeline, I was hoping if you could talk to some and obviously in a very general context about potential GAAP and cash redeployment yields in the U.S. and Europe, I mean how they’ve trended over the last 12 months or so?

They stayed relatively flat and haven’t had much change in the last certainly -- in the last six months. In the last 12 months, there’s probably been a slight uptick but not much in the last six months.

So, certainly in Europe where they are not seeing the rising rate environment that we are here, it’s -- we haven’t seen much increase. I would tell you, the estimate we gave you for a run rate post full reinvestment is a very modest GAAP rate, lower than what’s our average on the books today and frankly we hope lower than what we’re actually able to put it to work at.

And then, one last question, I guess as it pertains to your prior guidance range and just your general expectations going into the year, was the re-leasing of the Adeptus facility to Dignity, was that ahead of your expectations, was there some kind of a loss of rent relative to what Adeptus is paying built in the guidance for the year or is that the outcome you expected from the beginning?

We expected that from the beginning that the same as I think last quarter we were able to announce the Colorado transaction of the similar size. I think they were both -- got 8 facilities. And from the beginning we had every right to demand what was in the Adeptus master lease. After all, those properties, those 16 properties were leased to a joint venture between Adeptus and the respective hospital systems. So, from the beginning, we expected not to lose any revenue on the transition.

And the next question comes from the line of Jordan Sadler KeyBanc Capital Markets. Your line is now open.

Hi, everyone. This is Katie on for Jordan. You guys touched upon this in your prepared remarks the recent LifePoint merger with RCCH and Apollo. Could you guys comment about your interest or appetite in anticipating in the financing of the transaction by buying real estate?

Katie, I think the short answer is that we are very interested. We have a long relationship with Apollo. It’s been a very pleasant and good working relationship. And we certainly expect to continue to be working with them in the future.

And then, just a quick one. could you guys give the cap rate on the disposition for those 3 LTACHs you used, on the quarter?

We did not, but obviously at a roughly 13% IRR, it was a very attractive transaction for us.

And $24 million gain, Katie.

And the next question will come from the line of Tayo Okusanya with Jefferies. Your line is now open.

I’m just trying to understand the Steward situation a little bit better. In regards to your statement earlier on that, despite a different structure, you are basically kind of getting the same thing you were looking for but in a more efficient way. So, I guess, what I’m trying to figure out is, if you re-lease or -- one hospital and there is a new operator in it and then they actually sell the other asset, I’m not quite sure I understand how proceeds from that scenario equate to the proceeds you just gotten out of the JV.

Tayo, remember that the real object of any joint venture or process that we did with the Steward portfolio was not necessarily proceed. Steve pointed out earlier, we have substantial liquidity in proceeds available to reinvest. The primary objective was further diversification. So, doing it through this method still provides us with the same diversification that we would’ve gotten through the potential joint venture of the limited portfolio we were discussing previously.

Okay. That makes perfect sense. There is a more of a diversification goal. That’s still pretty much the same.

That’s correct.

Excellent. Okay. I’ve got that now. That’s helpful. And then second of all, on the LTACH side, post the sales to Vibra, the coverage is about one times on everything you have left. I’m assuming that all the -- is that the Ernest LTACH stuff left, or what that stuff, the low coverage, how do you think about that?

Sure. Tayo, it is almost exclusively the Ernest facilities. There are approximately three other facilities that are not related to Ernest. But, remember that the EBITDAR coverage that we present is an artificial number because we have always penalized ourselves in adding a 5% management fee to that number. So, I think the easier number to look at or the better number to look is what the EBITDARM coverage is. And it continues to be in the 165 range, which is roughly what it was in the last quarter as well. And also remember that in the Ernest LTACHs, there are eight Ernest LTACHs and they’re all cross defaulted with the rehabilitation hospitals, which continue to perform very well. And just yesterday, I got some additional information about the performance of the Ernest portfolio. And they have -- remember, we report all of these coverages one quarter in arrears. And the operational numbers that I got yesterday bode very well for the future of the Ernest facilities.

Is there a number you can provide just with all of the cross-collateralization with the other Ernest assets, what’s kind of the overall quote unquote fixed charge coverage or whatever kind of terminology you want to use for that coverage number…?

So, for Ernest including all of their facilities, their coverage is in excess of 2 times.

That’s helpful. And that’s all again cross-collateralized, it’s all one master lease?

It’s all master lease with the exception of four facilities, and frankly I’m not sure if any of those are real types that are mortgaged but the mortgages are across to the master lease.

That’s helpful. I look forward to seeing you do something in Europe very soon.

Thanks, Tayo.

And the next question will come from Karin Ford with MUFG Securities. Your line is now open.

I just wanted to follow-up on the LifePoint RCCH deal. I know that LifePoint’s hospitals are little bit more rural than your current portfolio. Are you interested more rural assets? And do you think there should be a cap rate premium on a rural hospital versus an urban one?

Well, Karin as you and I’ve discussed for at least the past 10 years, my definition of rural may be different than some people because I grew up in a really rural town in South Alabama. But, generally speaking, no, we’re not generally interested in rural hospitals that are in and very, very small communities with no growth potential. But LifePoint has a number of hospitals that we would be very interested in.

You definitely saw a nice improvement in acute care coverage. Can you just give us more color as to what you think -- what you think drove that?

Well, I don’t think it’s much different than what you are saying and healthy operators across the country. We all saw what HCA’s reporting was this past week. You look at the Prime Hospitals which probably makes up the bulk of the improvement but some of the improvement is also from the Steward integration, but it is certainly Prime’s efforts that they made over the last 18 months in focusing on their recollections and their operations, rather than their growth.

I wanted to ask you about the increasing interest from healthcare systems and vertical integration with skilled nursing and senior care for ProMedica, Ascension, et cetera. Do you think that’s the future and would MPW like to participate and own senior housing operated by one of its customers?

Well, the short answer to the last question is no, that we are very comfortable with our mix of properties and what we know. From a vertical integration, I really think it depends on each one of the operators. I’m not going to talk specifically about some of the opportunities that have happened out there that are outside of our portfolio, which are -- have been very large transactions. But, obviously, some of our operators currently have skilled nursing facilities in their portfolio. They have some that are a part of our hospitals which we do own but they are very, very small in nature, and not a total integration like I think the portfolio that you’re probably referring to.

And just one last one on the modeling side. There was almost a $2 million sequential pickup in G&A from 1Q to 2Q, is 90.5 [ph] million the right run rate there going forward.

No, it’s not. That spike is a timing issue related to quarterly catch-up of certain estimated expenses. So, Q1 was slightly lower than it should have been; Q2 is slightly higher than it should have been.

So, roughly an average between the two?

That’s right.

And the next question comes from the line of Eric Fleming with SunTrust. Your line is now open.

Any update on the RCCH Pasco Hospital, any progress there?

One day.

All right. So, they’re still working through all the fun out there in Washington?

Yes.

And the next question comes from the line of Chad Vanacore with Stifel. Your line is open.

So, I’m going to backtrack a little bit just because I had a little phone issues towards the end of Steve’s commentary and Michael’s question. But that $1.46 to $1.50 FFO guidance, am I right that that’s run rate post reinvestment of proceeds from this JV transactions you expect in third quarter?

That’s correct.

And then, Steve, does that include contemplated Steward acquisitions or that’s not in that number?

The Steward transactions we mentioned, no, that’s not in there. But remember, one of those we expect will simply be an assignment of the lease. So there will be no impact from that one in any case.

And then, just re-tenanting or sale of property, are these mostly the ISS [ph] hospitals or what we consider legacy Steward which is a little bit harder to get at [indiscernible] so much? And then, who is driving that? Is this Steward consolidating their core portfolio or is it MPW just wanting to redistribute its risk amongst operators?

No, it’s primarily Steward having people approach them and won’t certain asset, because they think it’s their specific portfolio. And Steward is okay with the offer that they have been given and the exiting that particular area. And then the other one is just Steward readjusting from some of their original plans.

And then, just one last one. You are contemplating new guidance at the end of their quarter after a lot of these transactions are closed. What are some of the moving pieces that keep you from releasing that guidance now?

Primarily timing and again primarily, then on Primonial. The fewer months we have left in the year, the more sensitive the results get. So, it’s primarily timing.

And our next question comes from the line of Juan Sanabria with Bank of America Merrill Lynch. Your line is open.

Just on Chad’s question on the guidance. The 146 to 150 run rate, that’s not a ‘18 number, that’s kind of may be a ‘19 number to start ex any incremental acquisitions or dispositions. Is that a fair way to think about it?

No, I don’t think so because Juan that would imply that on January 1 we reinvest 100% of our proceeds and we are not at all saying that. We are just trying to give some indication of the strategic reason and the results and the opportunity for when we do reinvest. Now, Ed’s described with $5 billion worth of the potential pipeline, we could reinvest that earlier than expected. But at this point we’re not ready to handicap when and how much that will be reinvested.

It sounds like you have a huge pipeline, but it may not be reinvested by the time January 1 rolls around this, is what you are trying to say?

It’s certainly won’t be well, Juan.

And then, I was just hoping you could touch on Prime. You talked about kind of an agreement or MOU with the DOJ. Is there any dollar number you could share if there is any sort of penalty that they have agreed to. And with the Corporate Integrity Agreement, any thoughts on what that incremental costs could be to coverage and how you guys are thinking about that as a risk of on a go forward basis?

We along with Prime think that this is great news is just to have it behind them. They are going to issue a press release in the very near future which will outline all of this in detail. There certainly will be a dollar payment as there are always is with these things. But, the most important aspect of it is the Corporate Integrity Agreement. And Prime doesn’t think that there will be any material negative impact on their operations from the Corporate Integrity Agreement. And that’s the most exciting good news.

And then, lastly, to Karin’s questions on G&A, you guys have grown assets fairly significantly over the last several years. How do you guys think about benchmarking that as a percentage of assets or rents, and what’s the goal in terms of efficiency and when do you think you can get there.

Well, I think we were pretty satisfied with what we reported last year and kind of the 9ish, low 9ish that we are now, given the portfolio today. As we continue to grow, presumably we expect that to continue to come down modestly. But once again, at $10 billion, it’s hard to bring it down by virtue of volume than it was back when we were $2 billion. But point being we’ve got a very, very attractive G&A burden, we expect to continue to come down modestly with our growth, notwithstanding the timing spike that you might get from period to period.

And the low 9 is what number sorry?

You want from a dollar standpoint, Juan.

You mentioned a low 9, I don’t know if that was a percentage.

9% of revenue.

Yes. 9% of revenue. I’m sorry.

Thank you. This does conclude today’s question-and-answer session. I would now like turn the call back over to Mr. Ed Aldag for closing remarks.

Thank you, Sabrina, and again thank all of you for listening in today and thank you for your questions. If you have any additional questions, once the call is ended, please don’t hesitate to give us a call. Thank you very much.

Ladies and gentlemen, thank you for your participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day.