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 listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star then zero on your touchtone telephone. 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 in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures which should be considered in addition to, and not in lieu of, comparable GAAP financial measures.
Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at 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 EUR 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 worth of our portfolio, as this transaction alone is valued at more than EUR 1.6 billion, of which we expect to recognize a gain of approximately EUR 500 million upon closing. In another recent announcement, MPT will sell our equity interest in the OpCo of Ernest Health to the private equity firm One Equity Partners, a 2015 spin out 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 the market ever fully recognized.
Additionally, MPT will continue to own the real estate of these 25 post-acute hospitals and benefit from the strong returns they generate. We expect to continue to grow with this relationship. We also completed the sale of three LTACs to Vibra Healthcare for $73.1 million, resulting in a $24.2 million gain on the sale of real estate and a 12.8% unlevered internal rate of return. MPT once again has demonstrated the successful recycling of mature assets for double-digit returns to our shareholders. This transaction brings our total investment in LTACs down to approximately 3% of our total portfolio. Additionally, this quarter brought a new prominent not-for-profit hospital operator into our portfolio following the successful transition of the Arizona Adeptus properties to Dignity Health. The transaction again proves the value of the MPT freestanding emergency room model to hospitals and health systems across the nation.
Just last week, it was announced that one of our operators, Apollo-backed RCCH, will acquire LifePoint Health to create an even stronger healthcare provider with combined pro forma revenues of over $8 billion, approximately 60,000 employees and 12,000 licensed beds at 84 acute hospitals. This merger continues to enhance the strength of our already robust portfolio of hospital operators. Given our relationship with RCCH and their equity partner, Apollo, we fully expect to be able to continue to grow our assets with this new company. Last quarter, Prime signed a memorandum of understanding with the Department of Justice to resolve all claims. Prime has already started the execution process, which includes a settlement agreement and a corporate integrity agreement. Prime expects to issue a press release in the near future, and they have indicated they are pleased with the final terms of this settlement. Prime Healthcare continues to perform well.
Prime's EBITDARM coverage for the trailing 12 months ending first quarter of 2018 was over four and a half times. Prime's cash collections continue to track with net revenues. Steward, our largest tenant, continues to perform well, and we expect that they will achieve a record year in 2018. The 2017 acquisitions by Steward, which are still in process of integration, mainly in the Texas and Utah markets, are on track. Steward's EBITDARM coverage for the trailing 12 months ending first quarter of 2018 was approximately two and a quarter times. With this quarter's reporting, we removed a net of three properties from our same store reporting. As noted previously, this quarter we sold three Vibra long-term acute care hospitals and transitioned operators on one long-term acute care hospital and one inpatient rehabilitation facility was added to same store reporting.
The trailing 12 months across our portfolio have shown strong results. Our same store total portfolio EBITDARM coverage for trailing 12 months Q1 2018 is approximately 3.3 times, which represents a 9% increase year-over-year and a 1% increase quarter-over-quarter. Within our same store acute care portfolio year-over-year, EBITDARM coverage improved approximately 13%, from 3.7 times to 4.2 times. LTAC EBITDARM coverage was flat at 1.65 times. IRF EBITDARM coverage also remained relatively flat at 1.9 times. LTACs represent, as I previously said, approximately 3% of our portfolio, and U.S. IRFs represents 5.6% of our portfolio. The United States represents 80% of our total portfolio. Over the next year or so, we'd like to see the European portion increase back up to the 30% plus or minus range. Acute care hospitals continue to make up the bulk of our investments domestically at 79%.
This is right in line with our target range. Our top three tenants are Steward at 37%, MEDIAN at 12.5%, and Prime at 11.7%. As you know, we believe the most important concentration number is on a property-by-property basis because each facility is underwritten on its own merits. Currently, no property represents more than approximately 3.5% of our total portfolio. Over the last 12 months, we have invested or committed to invest approximately $300 million in new investments with our existing tenants. We expect this number will continue to increase annually as we continue to grow. Having strong relationships with our valued customers allows us to have built-in growth over and above new business. We also have a significant number of projects we are working on both here in the U.S. and in Europe. It is too early on all of them to predict which will close this year.
It is important to note that we are currently actively working on projects valued at approximately EUR 3 billion in Europe and more than $2 billion here in the U.S. We will update these projects once we have signed commitments. I want to take a moment to comment on a very important story. 11 years ago, we invested in the Shasta Hospital in Redding, California. This hospital has been a large success story for us here at MPT. The success has been due in large part to the fabulous people in Redding and the surrounding areas that work at this hospital. Many of you have probably seen on the news the devastating Carr Fire that literally destroyed much of the area and has even threatened our own hospital and the downtown area of Redding.
The operation of the hospital has been vital to not only the people of Redding, but also the firefighters and volunteers fighting the fire. Without the dedicated employees and doctors of the hospital, Shasta Regional Medical Center could have never stayed open. At least 32 healthcare workers reported to work last week despite losing their homes and everything they had to the fires. I want to take this opportunity to thank them for their dedication to their fellow residents of Redding and for reminding us all about the good things of humanity. This hospital is a Prime-run hospital, and I want to commend their management team throughout the organization, especially those on site in Redding, for the work they did in serving the patients and residents in this very dangerous and fast-moving fire. Steve?
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 3 LTACs 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've 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 are selling to affiliates of Primonial a 50% interest in this newly formed JV for approximately EUR 816 million or, at yesterday's exchange rate, $955 million, which along with the recognized increase in value of our remaining 50% interest, results in an expected gain on sale of approximately EUR 500 million, again at yesterday's exchange rate, equivalent to about $600 million. Our gross undepreciated investment in these hospitals, including transfer and other taxes that were expensed at the time of acquisition, aggregate about $1.4 billion, resulting in an unlevered IRR of more than 15%. From any measurement perspective, this clearly is a tremendous outcome for MPT and just as importantly, an objective and independent indication of the future outstanding shareholder value that may be created by the recycling reinvestment of our $1.5 billion in cash resulting from recent transactions.
Most of you are aware that we have also been exploring a potential similar structure for some of our U.S. acute assets in order to diversify our exposure to any single operator. With the other capital recycling successes such as the Primonial JV, the Ernest transactions, the Vibra sales, and other unannounced but expected opportunities, we certainly do not need additional capital for delevering or reinvestment. We have decided to sell or retenant certain of the Steward hospitals rather than continue to take the additional time necessary to create a joint venture. As a result, we have entered negotiations with two new operators to buy or lease certain Steward hospitals, the impact of which is expected to be very similar to our previous expectations about a JV. Moreover, we also are improving the Steward portfolio by purchasing certain of the mortgage properties over the next few quarters.
By converting these mortgages to owned properties, this makes the portfolio that much more valuable and attractive to potential partners for when and if we do decide to remarket the portfolio. In any case, the expected reinvestment of proceeds from the Primonial JV and other transactions will much more rapidly diversify our portfolio away from any single operator in a single joint venture arrangement. Ed has already mentioned our sale of three Vibra LTACs back to Vibra, so I will simply reiterate that this transaction not only reduced our LTAC exposure to approximately 3%, but provided outstanding profit and IRR results for these investments, along with about $53 million in cash proceeds. Regarding Adeptus, since our last quarterly call in May, we signed a new long-term master lease for eight Phoenix area facilities with Dignity Health, a large investment grade-rated, not-for-profit system.
Economic terms of the leases are substantially consistent with the terms of the previous Adeptus lease. We also have agreed to resolution of 8 of the 16 Adeptus facilities that we agreed to sever as part of the bankruptcy plan. These facilities, with a book value of approximately $36 million, are expected to be leased to two operators, one of which is new to MPT, at economic terms substantially consistent with the previous Adeptus terms. We have engaged a financial advisor to market for sale or lease another seven facilities with a book value of approximately $34 million, and we continue to consider alternatives for the eighth facility with a book value of about $33 million as it remains subject to the Adeptus master lease. With regard to full year 2018 normalized FFO, we plan to reinstate our estimated guidance shortly after closing of the JV and Ernest transactions.
We believe both of these will close prior to the end of this third quarter. At that time, we will be able to determine the impact of these transactions on net income, rental and other revenue, and interest expense for the remainder of the year. After using proceeds to fully repay our revolving credit facility with a June 30 balance of approximately $820 million, we expect our net debt to EBITDA multiple will be approximately 4.7 times, and we will have cash on hand of approximately $800 million. This puts MPW in a uniquely attractive position among many REITs today. We will have a pristine balance sheet, liquidity of more than $2 billion while maintaining prudent leverage, and a broad and diverse pipeline of acquisition opportunities that Ed just described.
On a pro forma basis for full reinvestment of such cash, along with maintenance of sector-leading leverage levels, annualized normalized FFO is expected to range between $1.46 and $1.50 per diluted share. To be clear, we are not at this time establishing a guidance range, but merely pointing out that the end result of the recent transactions is expected to be increased FFO per share, substantially reduced leverage ratios, and significant operator diversification. We are among the very few REITs that offer substantial near-term and accretive growth opportunities, and we have consistently demonstrated our ability to generate outstanding unlevered IRRs for our investors. We are excited about continuing to execute that plan. With that, I will turn it over for questions. Operator?
Thank you. Ladies and gentlemen, if you have a question at this time, please press star and then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Again, that is star, then one to ask a question. Our first question will come from the line of Michael Carroll with RBC Capital Markets. Your line is now open.
Yeah, thank you. Steve, can you provide some additional details regarding the potential Steward transactions? How many of these assets do you want to sell? When you say re-lease some of those facilities, does Steward want to exit the ones that they recently bought, or how should we 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 an exit with a different operator.
Does Steward 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. Can you quantify these sales, and how much will this reduce your exposure to Steward?
No, we can't at this time. It is very similar in volume to what we were expecting from the joint ventures transaction.
Okay.
Point being, we're achieving the same result generally. We're just doing it quicker and without a lot of friction that comes with establishing a joint venture. 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.
Okay. 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? I know you highlighted that there's about $5 billion that you're currently tracking. What's a reasonable number to expect is going to be the close rate on those deals? How does that compare to the deals you attract historically?
Mike, they are almost all acute care hospitals. Some rehab spattered in there primarily in the German market. For the most part, European and U.S., they're all general acute care hospitals. It's hard to give you an exact number because the size of some of these portfolios are large. I think that it would be very reasonable to expect 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, the German acquisitions, would that be put joint venture, or are you going to be doing that by yourself?
We'd be doing that by ourselves.
Okay, great. Thank you.
Thank you. The next question will come from the line of Drew Babin with Baird. Your line is now open.
Hey, good morning.
Morning, Drew.
A question on the dispositions and redeployment. Would the proceeds from the MEDIAN Primonial JV, for any formal reason, need to be redeployed directly within Europe from a repatriation standpoint?
No. That's our expectation. Obviously, we'll bring a significant amount of that back home to repay the dollar-based revolver. The rest of it is available to bring back home, subject to currency risk. We do expect, as Ed just described, to be able to reinvest euros in euro-denominated assets.
Okay. Then as far as the redeployment pipeline, I was hoping you could talk some, and obviously in a very general context, about potential gap in cash redeployment yields in the U.S. and Europe, and how they've trended over the last 12 months or so.
They stayed relatively flat. Haven't had much change, 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.
Certainly in Europe, where they're not seeing the rising rate environment that we are here, we haven't seen much increase.
Okay.
I will 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.
Okay. 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 facilities to Dignity, was that ahead of your expectations? Was there some kind of a loss of rent relative to what Adeptus was paying built into guidance for the year? Or was 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 a similar size. I think they were both about eight facilities. From the beginning, we had every right to demand what was in the Adeptus master lease. After all, those 16 properties were leased to a joint venture between Adeptus and the respective hospital systems. From the beginning, we expected not to lose any revenue on the transition.
Great. That's all for me. Thank you.
Thanks.
Thank you. The next question comes through the line of Jordan Sadler with 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 about the recent LifePoint merger with RCCH and Apollo. Could you guys comment about your interest or appetite in participating in the financing of the transaction by buying the real estate?
Katie, I think that 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. We certainly expect to continue to be working with them in the future.
Thank you. Then just a quick one. Did you guys give the cap rate on the disposition for the three LTACs you sold in the quarter?
We did not. Obviously at a roughly 13% IRR, it was a very attractive transaction for us.
A $24 million gain, Katie.
Thanks, guys.
Thank you.
Thank you. The next question will come from the line of Omotayo Okusanya with Jefferies. Your line is now open.
Hi. Yes, good morning, everyone. How are you?
Good, Tayo. How are you?
Good, thank you. I'm just trying to understand the Steward situation a little bit better, in regards to your statement earlier on that, despite the different structure, you're basically kind of getting the same thing you were looking for, but in a more efficient way. I guess, what I'm trying to figure out is, if one hospital, there's a new operator in it, and then they actually sell the other asset. I'm not quite sure if I understand how proceeds from that scenario equate to the proceed you'd have gotten out of a JV.
Well, Tayo, remember that the real object of any joint venture or process that we did with the Steward portfolio was not necessarily proceeds. As Steve pointed out earlier, we have substantial liquidity and proceeds available to reinvest. The primary objective was further diversification. 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. It's more of the diversification goal that's still pretty much the same.
That's correct.
Excellent. Okay. I got that now. That's helpful. Then second of all, on the LTAC side, post the sale to Vibra, the coverage is about one times and everything you kind of have left. I'm assuming that's the Ernest LTAC stuff left, or kind of, what's that stuff, the low coverage? How do you kind of think about that?
Sure. Tayo, it is almost exclusively the Ernest facilities. There are approximately three other facilities that are not related to Ernest. 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. I think the easier number to look at, or the better number to look at, 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. Also remember that in the Ernest LTACs, there are eight Ernest LTACs, and they're all cross-defaulted with the rehabilitation hospitals, which continue to perform very well. Just yesterday, I got some additional information about the performance of the Ernest portfolio. Remember, we report all of these coverages one quarter in arrears.
The operational numbers that I got yesterday bode very well for the future of the Ernest facilities.
Got you. Is there a number you can provide, just with all 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?
For-
That's across the master lease rather than just.
Yeah. For Ernest, including all of their facilities, their coverage is in excess of two times.
That's helpful. That's all again, cross-collateralized. It's all one master lease.
It's all master lease with the exception of four facilities, frankly, I'm not sure if any of those are LTACHs that are mortgaged. The mortgages are crossed to the master lease.
That is helpful. I look forward to seeing you do something in Europe very soon.
Thanks, Tayo.
Thank you. The next question will come from the line of Karin Ford with MUFG Securities. Your line is now open.
Hi. Good morning. Just wanted to follow up on the LifePoint RCCH deal. I know that LifePoint's hospitals are a little bit more rural than your current portfolio. Are you interested in 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 have discussed for at least the last 10 years, my definition of rural may be different than some people because I grew up in a really rural town in South Alabama. Generally speaking, no, we're not generally interested in rural hospitals that are in very small communities with no growth potential. LifePoint has a number of hospitals that we would be very interested in.
Got it. You definitely saw a nice improvement in acute care coverage. Can you just give us more color as to what you think drove that?
Well, I don't think it's much different than what you're seeing in healthy operators across the country. We all saw what HCA's reporting was this past week. You look at the Prime Healthcare hospitals, which probably makes up the bulk of the improvement. Some of the improvement is also from the Steward Health Care integration. It is certainly Prime Healthcare's efforts that they've made over the last 18 months in focusing on their collections and their operations rather than their growth.
Thanks. Wanted to ask you about the increasing interest from healthcare systems in vertical integration with skilled nursing and senior care, ProMedica, Ascension, et cetera. Do you think that's the future? 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 have been very large transactions. 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're very small in nature and not a total integration like I think the portfolio that you're probably referring to.
Great. Just one last one on the modeling side. There was almost a $2 million sequential pickup in G&A from 1Q to 2Q. Is $19.5 million the right run rate there going forward?
No, it's not. That spike is a timing issue related to a quarterly catch-up of certain estimated expenses. Q1 was slightly lower than it should have been. Q2 is slightly higher than it should have been.
Okay. Roughly an average between the two?
That's right.
Okay. Thank you very much.
Thanks, Karin.
Thank you. The next question comes from the line of Eric Fleming with SunTrust. Your line is now open.
Yes.
Eric.
Any update on the RCCH Pasco hospital? Any progress there?
One day.
All right. They're still working through all the fun out there.
Yes
Eastern Oregon or Eastern Washington, so.
Yes.
All right. Thanks.
Thank you. The next question comes from the line of Chad Vanacore with Stifel. Your line is now open.
Thank you. I'm going to backtrack a little bit just because I had little phone issues towards the end of Steve's commentary and Michael's question. That $1.46, $1.50 FFO guidance, am I right that that's run rate post reinvestment of proceeds from these JV transactions you expect in the third quarter?
That's correct.
Okay. 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.
Okay.
Yep. Remember, one of those we expect will simply be an assignment of the lease, so there'll be no impact from that one in any case.
All right. Just retenanting or sale of properties. Are these mostly the IASIS hospitals or what we'd consider legacy Steward, which is kind of a little bit harder to get at seeing as they've grown so much? Who's 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 want a certain asset because they think it fits their specific portfolio, and Steward's okay with the offer that they've been given and the exiting of that particular area. The other one is just Steward readjusting from some of their original plans.
Okay. Just one last one. You're contemplating new guidance at the end of the third 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. Again, primarily then on Primonial. The fewer months we have left in the year, the more sensitive the results get.
It's primarily timing, that's virtually all.
Okay.
Yeah.
Yeah. Thanks for taking the questions.
Thanks, Chad.
Thanks, Chad.
Thank you. Our next question comes from the line of Juan Sanabria with Bank of America Merrill Lynch. Your line is now open.
Hi, thanks. Just on Chad's question on the guidance, at the $146-$150 run rate, that's not a 2018 number, that's kind of maybe a 2019 number to start, X any incremental acquisitions or dispositions. Is that a fair way to think about it?
I don't think so, because, Juan, that would imply that on January 1, we reinvest 100% of our proceeds, and we're not at all saying that. We're just trying to give some indication of the strategic reason and the results and the opportunity for when we do reinvest. What Ed's described with $5 billion worth of potential pipeline, we could reinvest that earlier than expected. 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, is what you're trying to say?
It certainly won't be, Juan.
Okay. 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's any sort of penalty that they've agreed to? With the corporate integrity agreement, any thoughts on what that incremental cost could mean to coverage and how you guys are thinking about that as a risk on a go-forward basis?
Yeah, Juan, we along with Prime think that this is great news 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 always is with these things. The most important aspect of it is the corporate integrity agreement. Prime doesn't think that there will be any material negative impact on their operations from the corporate integrity agreement. That's the most exciting good news.
Okay. 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 % of assets or rents? What's the goal in terms of efficiency, and when do you think you can get there?
Well, I think we're pretty satisfied with what we reported last year and kind of the low nine-ish that we are now, given the portfolio today as we continue to grow. Presumably, we expect that to continue to come down modestly. Once again, at $10 billion, it's harder to bring it down by virtue of volume than it was back when we were $2 billion. Point being, we've got a very attractive G&A burden. We expect it to continue to come down modestly with our growth. Notwithstanding the timing spike that you might get from period to period.
The low nine is what number? Sorry.
You mean from a dollar standpoint, Juan?
You mentioned a low nine. I don't know if that was a percentage or?
9% of revenue.
Yeah.
Yeah, 9% of revenue. I'm sorry.
Okay. Great. Thank you very much.
Thanks, Juan.
Thanks.
Thank you. This does conclude today's question and answer session. I would now like to turn the call back over to Mr. Ed Aldag for closing remarks.
Thank you, Sabrina. Again, thank all of you for listening in today, and thank you for your questions. If you have any additional questions once the call has ended, please don't hesitate to give us a call. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.