Good afternoon. My name is Dennis, and I will be your conference operator today. At this time, I would like to Welcome Everyone To The Medical Properties Trust Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, simply press Star, then the number 1 on your telephone keypad. To withdraw your question, press Star 1 again. I would now like to turn the conference over to Charles Lambert, Vice President. Please go ahead.
Good afternoon. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2022 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 medicalpropertiestrust.com in the investor relations section. Additionally, we're hosting a live webcast of today's call, which you can access in that same section. During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to, and not in lieu of, comparable GAAP financial measures.
Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg. G requirements. You can also refer to our website at medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag.
Thank you, Charles, and thank all of you for listening in today to our second quarter earnings call for 2022. You all will recall that the public reporting hospital operators reported Q1 2022 results, reflecting the issues with the Omicron surge in December, January, and part of February. As we predicted last quarter, since we report coverages one quarter in arrears, the results we reported from our operators today show that same softening. Furthermore, just as we predicted with the public health systems like HCA and Tenet, who have both published their Q2 results, the positive trends that we are seeing in March and April have accelerated into May and June. There are several points that we believe are important for us to address today. First, we underwrite every investment at the facility level. We believe reporting coverages at the facility level is the appropriate metric.
Whether we acquire a large portfolio of hospitals or a single hospital, we underwrite that acquisition at the facility level, understanding the competition, market, the physician referral sources, and the operator. We must be right on the market and the referral sources, but long-term collection of our rent does not depend on the financial results of a particular operator. In the few times that we've had to transition from one operator to another, we have been successful in attracting high, capable, and qualified operators because we had acquired hospital real estate that was essential to the community and in the right hands could be operated profitably. As a reminder, our rent typically represents approximately 5%-7% of a hospital's net revenue. 2, rarely is an operator's real estate subject to an MPT lease.
Rarely is 100% of an operator's real estate subject to an MPT lease. In many cases, MPT does not even own the majority of an operator's real estate. Three, hospitals can and do exist without corporate offices. However, corporate offices and their functions would not exist without the hospitals they support. Another item that is sometimes confusing to investors is the repair and maintenance numbers in the coverage. The repair and maintenance is expensed on the income statement and represents the bulk of non-discretionary spending required to maintain the hospital real estate. The hospital's capitalized expenditures then fall into two primary categories, equipment-related and building-related. In both cases, the entire amount of the expense does not represent an immediate cash outlay. The overwhelming majority of these costs are financed and repaid over the terms agreed to by lenders or vendors.
For larger, true real estate capital expenditures, like a new hospital tower, a new parking deck, or roof replacement, MPT has always been supportive of continued investment in our hospital real estate to the extent that a project meets our underwriting criteria. Sometimes MPT is asked to finance these investments, in which case they're generally added to our lease base. Moving on now to discuss our operators and the portfolio lease coverages. You all may recall that historically, we provided coverages at the EBITDAR level. Over the years, many shareholders and analysts suggested that we provide EBITDARM coverages to be consistent with other REITs. Internally, we use a conservative 5% of net revenues across the board with our tenants to approximate the management cost of operators. Most of our operators' actual cost is significantly less than the 5%.
The actual cost usually approximates between 3% and 4%, and some even less. We use the 5% internally to help show us direction and early warning signs. Let me give you some specific examples. Using our tenants' actual numbers and not the 5% number we use internally across the board, LifePoint Health's actual EBITDAR coverage for the trailing twelve months ending March 31, 2022 was 1.38x. ScionHealth was 1.17x. Priory was 1.75x. Pipeline was 1.0x, and so on. Whether we use the 5% or the numbers provided by the tenant, this is an art and not a science.
Remember that as announced during the last earnings call, and as previewed by HCA, tenet, and others, the first quarter of 2022 was a difficult quarter for everyone. Our operators have returned to more normal metrics since then. Our total portfolio EBITDARM coverage for the trailing twelve-month period ending 3/31/2022 was 2.4 times. This compares to the trailing twelve-month period ending 12/31/2021 of approximately 2.7 times. The trailing coverage for last year's first quarter results was also 2.4 times. Using the surrogate number of 5% of net revenue for management fee, EBITDAR total portfolio coverage for the trailing twelve-month period ending 3/31/2022 was 1.7 times.
The details of our EBITDARM and EBITDAR coverages using the 5% number by operator are shown in our supplement report we filed this morning. Now, let me take a few moments to provide some high-level updates on some of our larger tenants. Steward. Steward operations continue to make dramatic improvements from 2020. In 2020, Steward's unadjusted EBITDAR was approximately $209 million. In 2021, based on current unaudited numbers, Steward generated an unadjusted EBITDAR of more than $450 million. This reflects a more than $240 million improvement. Based on the most recent two months, Steward's internal unadjusted EBITDAR shows a run rate of more than $800 million.
The Utah and Miami markets alone continue to perform very strong and make up approximately $350 million of that $800 million. By the end of September, Steward will have paid back all of its MAP requirement, excluding the small amount associated with the hospital in Massachusetts that was hit by a flood two years ago. The exhaustion of the payback of the MAP money in September and the termination of the tenant management agreement will mean approximately $50 million additional cash dollars per month available to Steward. Volumes at Steward are up 11% over the volumes in February and up more than 20% than the same time last year. Very importantly, the quality of these volumes is strong. Current labor costs at Steward are currently 9% lower than they were in January. Circle continues to reflect steady operations and coverages.
Self-pay admissions continue to trend upwards, which is a good thing in the UK, as growing NHS backlogs are driving substantial wait times in the public sector, and overall volumes are approximating pre-pandemic levels. Circle also continues to report that they are not experiencing any significant issues with staffing or inflation impacts. Prospect has not rebounded where we hoped they would at this point, post the third COVID cycle and staffing changes. In talking with management, they are still bullish on California and believe that Pennsylvania has turned the corner after an enterprise system conversion. Prospect is actively involved in ongoing negotiations with the would-be acquirers for their Connecticut and Pennsylvania markets. To date, we have not been involved in any of these negotiations.
Steward continues to perform well, as well as they have in the past. They continue to outperform the prior year from a revenue growth standpoint and expect to continue that trend as they on board their most recent acquisitions. MEDIAN's operations and coverage remain steady as they have throughout the pandemic. Average occupancy through May has trended up from the prior year, and additional increases are expected during the remainder of 2022. Personnel costs through May 2022 have been managed below budget and are up only 6% year-over-year. MEDIAN expects to be able to effectively manage in alignment with expectations during the remainder of 2022. Priory saw an increase in coverage in Q1 2022 and remains near 2 times coverage since the transaction last year.
Occupancy remains strong, and the remainder of 2022 is currently expected to be in alignment with expectations. Healthscope at the end of 2021, during the early months of 2022, Australia continued to institute periodic restrictions on elective surgeries due to the COVID pandemic. Healthscope continues to work towards completion of multiple capital improvement projects at a number of our facilities. Prime continued its strong coverage performance in Q1 2022. 15 of our 22 facilities posted EBITDARM coverage of over 3x, with 7 of our facilities covering over 4x. Volumes during Q1 2022 were almost even with Q1 2021, and their cash position is strong. Dr. Prem Reddy, the founder and CEO of Prime Healthcare, was recently recognized by the Los Angeles Business Journal as one of the 500 most influential leaders and executives in Los Angeles.
This was the third consecutive year that Dr. Prem Reddy has been recognized on this prestigious list. Dr. Kavitha Bhatia, President and Chair of the Prime Healthcare Foundation, was also named to that list. Lastly, before I turn the call over to Steven, I'd like to provide a quick update on some of our recent activity on the acquisition front. With locations across Spain, the UK, Australia, and the United States. Our second Spanish transaction is a development agreement with one of our current operators, IMED. Recall, back in 2015, we agreed to a similar deal with IMED to develop a brand-new state-of-the-art hospital in Valencia, Spain. That facility, which has graced the cover of our annual report on multiple occasions, was completed in 2017 and has successfully served as their flagship hospital.
The facility has now matured, and IMED is ready to begin the next phase of their growth strategy with the development of the three new acute care hospitals across the Mediterranean coast of Spain. The estimated combined budget of these three development projects is EUR 121 million. Each facility has a separate construction timeline, but with all expected to be completed between the second half of 2023 and the second half of 2024. We are excited to grow our investments and relationship with the team at IMED. Early in the third quarter, we closed on a $26 million acquisition of another hospital in Colombia, operated by a new tenant to MPT, named FCV. They are a pioneer in Colombia and Latin American healthcare, as the first to receive JCI accreditation in Colombia.
Also, during the quarter, MPT acquired from separate third parties 2 facilities located in Arizona and Florida, and leased to Steward for a combined $80 million. The Arizona facility, which will operate as a combined ambulatory surgery center, imaging center, and freestanding emergency department, is expected to drive additional volume to the nearby Mountain Vista Medical Center in Mesa, which is a Steward facility. The Florida General Acute Care Facility provides Steward an economical way to expand within the same service area as their Coral Gables Hospital, and it's expected to commence operations in January 2023. With that, I'll turn the call over to Steve.
Thank you, Ed. This morning, we reported Normalized FFO of $0.46 per diluted share. The 1 cent change from the first quarter's result was expected and is primarily related to the effect of the late first quarter close of the Macquarie joint venture. As this morning's press release noted, our 2022 calendar year guidance of $1.78-$1.82 per share remains unchanged. Adjustments to Normalized FFO are routine and immaterial individually and in the aggregate, and I'll be happy to address any questions during our Q&A. For the next few minutes, I want to discuss a few of the slides we posted this morning as an investor update.
Frankly, these slides are more of an investor reminder than an update because nothing has changed from how we have run the company and underwritten the real estate that comprises about 85% of our total assets since our inception. Of course, as we have grown from $0 in assets in 2004 to $22 billion today, our investor base has certainly changed, and some investors do not have the long-term history that others have. We believe this is a good time to describe our general strategy for investing in hospital real estate and review the outstanding successes our strategy has delivered over that 18-year period. Before we go to Q&A, I will briefly describe our expectations about investments and capital markets activities in the present market and economic environment. First and foremost, we invest primarily in real estate.
We underwrite our real estate investments to attract successful operators, such that just like most REITs and other real estate investors, if any particular lessee is unable to continue paying our rent, we expect to find another lessee that can. In other words, it is the characteristics of our real assets that we believe attract successful operators and sustainable real estate returns, as opposed to relying on any particular operator lessee to bring value to our real assets. Slide four in our investor update summarizes some of the key characteristics of hospital real estate that, if present, will attract a profitable replacement operator if necessary. The more of these real estate characteristics that any particular hospital facility has, the more likely it is that that hospital is truly critical community infrastructure that a replacement operator will be able to run profitably and continue paying us attractive real estate returns.
Many of you have heard MPT's executive officers acknowledge that it is the primary responsibility of MPT management to identify, underwrite, and invest in hospital real estate that has these characteristics, and our history proves that we have been successful in doing so. That is what slide 5 in the update demonstrates. In our 18-year history, we have invested about $24 billion in the real estate assets of about 530 hospitals. Due to our specialized hospital expertise applied to our initial underwriting, it has only been necessary to replace operators of 20 of these facilities. That's in addition to the Adeptus relationship, which we described in last quarter's investor update. Slide 5 demonstrates that we have actually made money. Frankly, we think this is, should be the expectation for real estate investors, certainly across the long term.
To be clear, this slide aggregates every instance of operator replacement over 18-plus years. By the way, this success is not solely due to our underwriting. Slide 5 also describes the value of being a lessor versus a lender and of the master lease structure, both of which are key components of our overall strategies and historical success. Finally, slide 5 calls out three examples of the 11 instances of operator replacement, each with differing causes and outcomes. Town & Country, which was a ground-up development of a state-of-the-art acute hospital in MOB. Due to our careful underwriting that we consciously designed to assure that this real estate was needed in and valuable to the surrounding community, this campus was extremely attractive to other prospective operators in the Houston market.
When the original lessee was unable to access profitable managed care contracts, and by the way, a risk that MPT identified very early in the underwriting process, we had multiple alternatives and ultimately elected to sell our real estate for an attractive price to the dominant acute provider in the market, and we more than recovered our investment. Just to make clear again, it was the real estate, not the operator, that was valuable to the buyer. Shasta Hospital in Redding, California, is a good example of what can happen when an operator's parent, not MPT's lessee, gets into financial stress and even enters bankruptcy. Our hospital real estate was being operated at an attractive EBITDAR coverage ratio, even when the parent company, who was our guarantor, was deeply insolvent.
Because of the facility-level profitability and because our leases almost always mandate that our lessee is a special purpose entity, creditors may not attach our real estate assets or facility operations other than secured receivables. Shasta was truly a community infrastructure asset to the extent that the state of California regulators worked with us and the replacement operator to transfer licenses and keep the hospital open in a matter of 24 hours. There was simply not enough capacity in the market to absorb the loss of patient access that a closure of Shasta would have created. It has since then been operated at strong profitability. Not only did we negotiate higher rents with the new operator, but we were paid a $12 million cash inducement fee in addition to that rent.
Finally, the slide calls out our small LTAC in New Orleans as an example because it was our very first RIDEA transaction, giving us the ability to capture operating upside in addition to the real estate rents, which in this case were unchanged from the prior operator. Just to summarize, again, in these cases and a few other instances when we have had to terminate a lessee, it was the quality and characteristics of our real estate that protected us from material financial losses. The operating results of the terminated lessee did not impair our asset or impact the value of our recoveries. By the way, virtually all of the $20 million in losses you see on slide five resulted from a single relationship that comprised five of the 20 facilities summarized.
Even some of this could have been avoided because we elected to contribute one of the facilities to the local community instead of selling it for value. Our point in going through this is not to highlight operator failures, but to point out that first, we invest in real assets whose values are not derived from any particular lessee. Second, if we continue to carefully underwrite as we have since our inception, even when there is, as there will inevitably be, operator weaknesses, we have good reason to believe that we will successfully retenant our hospital real estate. It doesn't simply turn into an empty building that generates no rental revenue. To be clear, any such transition is disruptive and a management distraction. This motivates us to work with tenants that we believe can recover from their problems, sometimes even to the extent of providing financial support.
The amount of any such financial support is considered in the aggregate $20 million loss mentioned on slide 5. Some REITs address these tenant issues, but generally, MPT has not done so, with permanent reductions of rent, other material amendments to lease obligations, acquisition of equity or preferred ownership, and purchase of tenant operations, among other means. I want to take a couple of minutes to consider our largest tenant relationship, Steward, which Ed has already highlighted. First, the characteristics of the 41 hospitals we own and lease to Steward, regardless of whether or not Steward remains the operator, are consistent with those that we've discussed earlier and that would be very attractive to competitors and other potential replacement operators. Slide 4 refers to them in detail, so I will comment only briefly.
First, as we have previously discussed, the real estate we own and presently lease to Steward comprises six different markets. In the aggregate, the facility-level EBITDARM coverage for the 12 months ended March 31 was 2.6 times. Remember, this includes, as Ed mentioned, two relatively weak quarters of financial performance across the entire hospital industry. That is evidenced by the publicly reporting operators such as HCA, Tenet, and others. My point, of course, is that even in the industry-wide weak operating and financial environment, the Steward facilities continue to operate profitably at the facility level. By the way, EBITDARM coverages across the six markets range from 2.0 times to 3.7 times.
Secondly, I remind you that Steward's Massachusetts operations, its first and among its largest markets, was recently subjected to detailed and sophisticated underwriting as part of last quarter's completion of our joint venture with ` . This process confirmed our own evaluation of the value of the Massachusetts real estate. Finally, and very importantly, I will just reiterate what Ed discussed about the recent generation of EBITDAR for May and June. On an annualized basis for these two most recent months, the run rate EBITDAR for Steward approximated $800 million, including more than $350 million for the Utah and Florida markets combined. We're not suggesting that these annualized run rates will be sustained, because there's no assurance that they will be.
We are confident that Steward, especially in its major markets, is a healthy operator, and will continue to pay its rent based on very strong long-term coverage ratios. Most importantly, even if Steward is not the lessee, we believe the value and characteristics of our real estate currently leased to Steward will attract, frankly, as it already has, multiple potential replacement operators. We expect additional contributions. Steward's improving operations will also include, again, as Ed mentioned, by the middle of next month, Steward will have fully repaid over $400 million of MAP funding and have completed its transition from Tenet's management of its recent Florida portfolio acquisition, freeing up between a total of $45 million and $50 million of cash flow per month, starting earlier than in October. That provides up to $600 million on an annualized basis in incremental cash flow.
Almost $70 million of delayed Texas Medicaid waiver payments will have been received by the end of the third quarter. Moreover, Steward's Texas hospitals expect to begin receiving an incremental $6 million per month based on new Medicaid waiver calculations. Elective procedures in Steward's Massachusetts hospitals returned to normal during the second quarter, and in fact, we expect that Steward will receive state reimbursement in the near term of almost $30 million for COVID-related losses. Moreover, the staffing and other industry-wide issues which we have heard about from recent quarterly reports from public acute operators have, similar to those reports, also began to substantially improve across the Steward system. In addition to this recovery of cash that Steward has funded in recent months, Steward has begun implementing strategic and operational initiatives that should lead to further near-term improvements.
First, the previously disclosed sale of Steward's value-based Medicare business to CareMax will not only generate additional liquidity of as much as $125 million, but just as importantly, will align the interests of both organizations in a manner that will pave the way for future profitable growth opportunities. Second, as the industry continues to recover from the Omicron-related revenue and staffing pressures from late 2021, Steward has almost completely executed substantial cost initiatives in labor, purchase services, the previously mentioned runoff of the tenant management services contract, and further EHR cost rationalization. In the aggregate, Steward expects these to range between $350 million and $400 million annually. Finally, let me give you a little perspective about the terminated sale of Steward's Utah operations to HCA.
Almost a year ago, Steward and HCA agreed to a binding agreement for the sale of these operations. Unfortunately, the FTC blocked the transaction, and it was ultimately terminated. Nonetheless, the value of Steward's Utah operations and the value of MPT's Utah real estate that were both so attractive to HCA have not gone away. In fact, Steward continued to improve the financial performance of Utah even while waiting to close the sale to HCA. Steward now has alternatives with respect to Utah, including retaining and continuing to operate the highly profitable market itself. Notwithstanding Steward's strong recent and improving facility-level EBITDA performance across its portfolio, the most recent quarters have suffered from cash pressures.
These were caused by, for the most part, the investment of more than $200 million in last summer's acquisition of five hospitals in the Miami area, the repayment of the previously mentioned $420 million in MAP obligations, delay of Medicaid reimbursement by the State of Texas of close to $70 million, the mandated restrictions of elective procedures in Massachusetts late last year and earlier this year, and of course, the termination of the HCA transaction. As I described a minute ago, with the exception of the cash proceeds that were anticipated from the terminated HCA sale, these issues are almost fully resolved. Even more importantly, we are confident in the near-term improvements in operating cash flows that could aggregate up to $1 billion annually.
All of this describes why we remain enthusiastic about, first and foremost, the value of our hospital real estate, but also of Steward's near and long-term outlooks. This led us to agree early in the second quarter to facilitate Steward's transition of its recent cash pressures to the strongly positive cash flow outlook I have just described by providing a $150 million debt facility to Steward. Among other key terms in the facility are a relatively short five-year term, cross-collateralization to our master leases, mandatory prepayment from proceeds of any sale of Utah and other operations, and attractive kicker interest payments. The strength of our master lease structure, whereby we basically have first priority in the valuable Utah and Florida operations along with other markets, made this investment decision very attractive for MPT. Moving on to a brief discussion of capital acquisition.
We previously predicted that our 2022 acquisitions volume will be in the $1 billion-$3 billion range. Given the rapid and dramatic developments in the capital markets and the global economic environment, even since our last earnings call, acquisitions will likely be, very likely be on the low end of that range. There are no meaningfully sized transactions in the pipeline, although there are actually a number of potential transactions in the market, and we are generally seeing indications that sellers are beginning to adjust their expectations in line with changes in the cost of real estate capital. I do want to reiterate an MPT strength that we have always felt has not received enough recognition, and that is our built-in inflationary rental escalations.
Slide 13 in the update deck summarizes, based on July 2022 US and European inflation rates, the increase in cash rents we expect to receive in 2023 compared to a same-store portfolio in 2022. In other words, this accounts for the Macquarie joint venture as if it occurred on January 1 of 2022. We estimate that our cash rents will increase in 2023 over 2022 by about $57 million as a result of our inflationary escalators. That's an average increase across the portfolio of approximately 4.4%. Applying an estimated and arbitrary blended capitalization rate of 6.5% to this incremental cash results in the equivalent of about $875 million of additional leased real estate, for which we have zero cost of capital.
In capital markets that are temporarily squeezing investment spreads, we are very pleased with the built-in improvements in yield that we expect beginning early in 2023. Of course, that's on top of the previously disclosed 2022 escalation. With that, we'll turn the call over to questions. Dennis?
At this time, I would like to remind everyone, in order to ask a question, simply press star then the number one on your telephone keypad. Your first question's from the line of Steven Valiquette with Barclays. Please go ahead.
Great. Thanks. Hello, everyone. Thanks for taking the question. I guess just to follow up on the disclosure around the Steward financials, if it's annual run rate is close to the $800 million of EBITDA somewhere in there. I guess you mentioned that's still unadjusted. If there were a similar adjustment you'd make to that as you've done for the other numbers you report when you do your rent coverage ratio, is there any way just to give us the math on where that would shake out? On either, you know, EBITDAR or EBITDA and rent coverage the way it stands right now. Just looking for more color.
There are no adjustments. Those are just the numbers. We do not make any adjustments to any of the EBITDA numbers in any of the tenants. Those that we reported for tenants are not adjusted either. They're unadjusted.
Okay. Okay, that's helpful. Then, I guess it did dip from 2.8 to 2.6 on a sequential basis. Again, that is reflecting one quarter in arrears. Based on what you're saying, we should assume that when you're reporting this next quarter, all else being equal, that probably trends back upward. That sounds like that's kind of the main message that you're trying to convey. I just want to confirm that.
Well, all of these are numbers from the first quarter, so we're behind a quarter in all of the publicly reporting. All of our tenants were experiencing the same issues that the publicly reported about the same time we were reporting our first quarter earnings.
Okay, got it. Okay. All right. That's helpful. Thanks.
Your next question is from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead. Okay, we'll move on to the next person, and that is from the line of Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hey, guys. I appreciate all the new color and the presentation. That 5% proxy to go from EBITDA to EBITDAR, I guess I heard the details, but I'm just curious why you wouldn't actually just use the actual and you use that 5%, which sounds like it's always more.
Yeah, Josh, that's a fair question. We've been doing this a long time, and the reason is that we're trying to get a number that's standard across the board for us when we're doing our analysis. We're obviously looking at all of the numbers all of the time. But even when the tenants are providing us what their management costs are, they fluctuate quarter to quarter. They're based on what they allocate to their particular properties. And remember that very seldom do we own 100% of all of any one tenant's properties. So it gets very confusing and sometimes can be misleading. So we just decided to be very conservative and use the 5% number.
Okay. It sounds like that's kind of like the upper limit you would ever kind of see.
Yeah. The vast majority of our tenants' actual numbers that they provide are much less than that 5%. Doesn't change some of the people's very much. I listed some of the ones that some of our bigger tenants in my script there.
Okay. Then you mentioned Prospect Medical Holdings. It sounds like they're having, like, a bit slower recovery on the cash flow front. It's like they're below EBITDAR. Just curious what's driving that?
Yeah. Their East Coast facilities have never done as well as their West Coast facilities. They're very bullish on the West Coast facilities and continue to believe that those facilities will generate good coverage. They had the same issues in the first quarter that everybody else did. Some of our California properties saw more of those issues from a labor standpoint than across the country. Pennsylvania, they're probably extremely bullish on where they are in Pennsylvania. As you know, they are in active negotiations on selling both Pennsylvania and the Connecticut facilities.
Okay. Thanks, Ed.
Your next question is from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Yeah, just digging into Prospect a little bit more. I know that it sounded like in your prepared remarks that they're not hitting your expectations too, so they're underperforming of where you thought that they should be. I mean, has their results started to rebound kind of post this Omicron wave, and are they heading in the right direction now?
They are, Mike. I guess I should have gone into a little more detail about why my expectations were more. They think they're right on track. They feel very good about it. When you talk to them, I just expected the improvements to be a little bit better than they were. Maybe now that we're past the Omicron surge that we saw in the first quarter, they will be when we report third quarter, their second quarter. They just weren't where I was hoping that they would be. The management continues. I spoke with the CEO early this week, and he continues to feel good about where they are.
Were they impacted more by Omicron than some of your other tenants? It looks like their coverage ratio dropped a little bit more, to kind of compare them versus the other tenants between 1Q and 4Q.
Yeah, I don't know about the volume-wise, but certainly they had probably more hospitalizations on the East Coast for those Omicron patients that didn't generate the profit margins that previous COVID patients were generating.
Okay. Then in your remarks too, you were kind of highlighting that they're excited about California, Pennsylvania is turning a corner. What about Connecticut? You didn't mention about the viewpoint on what's going on with that portfolio.
Yeah, I think that's because they're the furthest along with their negotiations with the potential buyer there. I haven't had as many discussions about operations as I have where they are about selling those facilities. As I said in my prepared remarks, we still haven't had any discussions with the potential purchaser.
Okay. When does that typically occur? When do they bring you in to kind of get approval on executing that transaction?
Well, probably soon. I think there have been some public going back and forth between Yale and the Prospect at this point, but they're probably pretty close to where they think they need to be to bring us in.
Okay. Is the expectation still that the Pennsylvania and the Connecticut assets will be sold?
Certainly for Connecticut, that is their expectations. I'm not sure that Prospect feels that way about Pennsylvania anymore.
Okay, great. Just last one for me. I don't know if I heard an update on the Prime purchase options. Do we have a viewpoint of what's going on with those assets?
No, there is no update, Mike. We remain kind of ambivalent. On the one hand, of course, it's a very nice, attractive return for us. On the other hand, it's about upwards of $360 million that we would apply to debt, reduce our leverage. That's as much of a report as we have.
When do those leases officially expire?
Well, the termination's really not that relevant. They actually expired at the end of last month, but it's typical, you know, on any expiration or extension, you know, to continue to negotiate. They're still leasing. You know, they're still leasing from us at this point.
Okay, great. Thanks, Steve.
Your next question's from the line of Connor Siversky with Berenberg. Please go ahead.
Hey, good afternoon out there. Thank you for having me on the call. Hate to go back to this, but just in terms of Steward's EBITDA run rate, just so we're clear, this only happens, you know, after we get through the $200 million investment in Florida, $420 million in rent obligations, and that delay in Texas funding. To get to that point, is that what necessitates the $150 million debt facility to Steward in the interim?
It really is, Connor, when you add up all of that hitting in a very kind of tight timetable. That's really what facilitated us being willing, frankly, a little bit eager to make this investment. We truly expect fourth quarter in Steward to be generating the very strong levels of EBITDA. If not the $800 million, then certainly very strong cash flow, free cash flow coverage.
Okay, understood. On page 5 of the investor presentation slides, obviously outlined several models of success repositioning properties over the years. In consideration of some of the deferrals booked over the last several quarters, are there any assets that are kind of falling into this pool right now or anything you're repositioning currently? If so, what the timeframe on that could look like?
No, the only new deferrals is a very limited amount down in Australia because they once again, earlier in the year, shut down elective procedures. You remember in the very earliest days of COVID, we deferred 50% of a couple of quarters. We're now collecting that back. We agreed to a very limited amount that ended in May. We're, you know, back in June, we were fully collecting again. That's the only deferral we've done that's not in accordance with lease terms.
Got it. Understood. Last one from me, just considering what happened in Utah, I mean, from your perspective, what's the most attractive avenue to take here? I mean, do you leave Steward in the facilities, or do you seek a JV partner, which might be a little more difficult given the rate environment? Or is there another operator that could potentially step in to buy those operations? I'm just curious to see what the most attractive outcome to you guys would be.
Well, from selling the operations, that's a Steward decision. Steward is doing very well, as we mentioned. If you take roughly, you know, $125 million run rate EBITDA for Utah alone, and put a market multiple on that's EBITDA, by the way, then, you know, Steward has options. They may elect to sell or joint venture with another operating partner. For us, the biggest advantage, frankly, would be in diversification. We're very confident in having Steward as our tenant in Utah and that may ultimately be what they choose to do. There's a lot of opportunity. It's a very strong market.
Okay. Understood. Thank you for the time.
Your next question is from the line of Vikram Malhotra with Mizuho. Please go ahead.
Thanks so much for taking the question. Just maybe going back to the coverages and just bigger picture how the lease may be structured. If I heard you correct, you know, obviously labor costs are an issue. We're probably coming off of funds that the government has provided, the CARES funds, you know, some of the public hospitals like HCA, et cetera, have seen volumes a little lighter. Can you give us a sense of what the trailing three-month coverage is, just so we know what spot looks like? Do you anticipate that to dip before things improve?
Vik, let me make sure I understand your question. You're asking what the coverages were for the last three-
Just the quarter.
Just for second quarter, just for the quarter?
Well, if you have the spot or you have like, I mean, I guess, you give it, you know, a 1Q trailing. If you just have like what's the in place, if you do it on a, on a trailing three-month, because the number went from 2 to 1.7 on an EBITDAR basis. I'm just wondering, like on a spot basis, what would that be?
Yeah, I don't have the exact number for you other than to tell you that they are up from where they were in the first quarter-over-quarter.
Okay.
Not trailing twelve, just quarter-over-quarter.
Quarter-over-quarter, that's essentially 2Q over 1Q?
That's correct.
Okay. Then in these leases, I just wanna clarify. When you have a, you know, say, a lease with a hospital, and in some cases, I'm assuming you mentioned you have a guarantee. Is this the way hospitals are structured? Is this a guarantee with the sort of the mothership, the obligated group, or is this a guarantee with, you know, the SPV at a state or city level?
No, it's the parent, typically. Of course, every relationship has differences, but typically it's the parent company. Every one of our facilities is occupied and leased by, as you point out, a special purpose entity. That's where we derive that facility level coverage. We also have the protection of the guarantee, typically by the parent company.
Okay, that's helpful. Just last one, I guess. You know, given your cost of capital in the past, you've talked about, you know, potential new JVs. You know, there was also some talk about, you know, KKR and Ramsay, and I'm just wondering, you know, what sort of interest have you seen broadly in the hospital space, you know, joint ventures for your assets? Is the Ramsay transaction something of interest to you?
We typically wouldn't comment on transactions that we may or may not be involved with. Frankly, I'll show my hand here by saying I'm really not up to date on what's going on with Ramsay and KKR at this point. My impression was that the cap rate that KKR was seeking was gonna be hard to get done, but that's just my historical recollection. There nonetheless remains a very strong interest in these types of assets, and it's driven really by two criteria. One, I mentioned at the end of my prepared remarks, and that's just really strong inflationary protection that is long term and is permanent. That's very attractive in today's market.
Then secondarily, of course, really going back to just before COVID started. COVID demonstrated the absolute certainty that governments and people are going to support their infrastructure like hospitals. All of that has led to a very high level of interest in the private sector, and that's with sovereigns and pension funds and asset managers and people like you just mentioned, KKR. We expect that continues. As in any real estate cycle, typically, I think the sellers are the last ones to come up to the table and recognize that, well, I'm not going to get a 4% cap rate like I could have 12 months ago. As I mentioned earlier, we're seeing that shift. We're seeing some recognition that, you know, the current interest rate and cost of capital environment is not going to support pricing that it may have supported a couple of years ago.
Vig, on top of the pricing that Steve was just referring to, we like Ramsay. We think Ramsay is a good operator. We own six Ramsay hospitals, but we're not interested in the structure with the original. I feel like Steve haven't kept up with it, but the original structure was ask the investors to be a part of a fund, and we didn't have any interest in that. We do like Ramsay as an operator.
Okay. Thank you very much.
Your next question is from the line of Derek Johnston with Deutsche Bank. Please go ahead.
Hi, everybody. Ed, how is your acquisition pipeline standing today? Really, you know, what's it gonna take to drive acquisition volumes? Are you seeing any positive developments to get back to, like, pre-COVID activity levels?
The pipeline is still there. It didn't go anywhere. There's still plenty of things out there that are all just kind of floating around. I think everybody from the sellers and potential buyers like us are all kind of sitting around waiting to see where the world goes. I don't think there are many deals getting done right now. We certainly don't have any interest in doing any deals right now with the market as confused as it is. I'm not sure I can give you an exact answer for when we get back to the regular normalized type acquisition levels. It's not that the opportunities aren't there, it's that the world is in such a flux right now. We aren't actively trying to pursue the levels that we have been historically.
Thank you. That is helpful. Switching gears a bit. The slipping coverage ratios, you know, are a bit of an issue, and I feel like we've covered that, right? You know, the question is, can they also be a leading indicator for future acquisitions, you know, potentially like driving higher volumes as hospitals look to, you know, sale-leasebacks to unlock capital or reinvest?
I think that implies that hospitals in financial distress are more willing to do sale-leaseback transactions, and that may be, but that's never been our target. Again, using trailing twelve, particularly including the trailing six months and as of the end of the first quarter, is really not the right baseline. In any year, the first quarter is the weakest quarter. We all know that first quarter activity in particularly general acute hospitals is weaker than the other quarters. In this particular first quarter, it's exponentially weaker than any other quarter would be. I'd be careful, I think we're careful of reading into, you know, the decline in coverages indicated by our calculations that that's something, you know, that's not going to be recovered pretty quickly.
Maybe we would've been concerned if they didn't all bounce back like we knew they were going to bounce back, 'cause we already saw what the end of February and March were looking like when we did the first quarter earnings call.
Thanks, guys. That's it for me.
Your next question is from the line of Mike Mueller with JPMorgan Chase. Please go ahead.
Yeah, hi. I guess going back to acquisitions. As you move into 2023, if the stock isn't back to a level where you feel more comfortable issuing equity, should we think of you as, you know, having another pool of assets that you would potentially sell or joint venture or just potentially kind of wait it out and keep the pause on the acquisition volume?
Yeah, Mike, I don't know I'm not ready to try to predict what 2023 is gonna look like at this point with the economy where it is, the Fed as confused as it is, with the administration. It's not just our stock price obviously, but it's all of those pieces together. We wouldn't have the need to do the big joint venture if we weren't in an acquisition mode.
Got it. Okay. Okay, that's fair. Thank you.
The next question is from the line of Omotayo Okusanya with Credit Suisse. Please go ahead.
Hi. Yes, good afternoon. First of all, Ed, Steve, and the team, thank you so much for all the additional disclosure. It is super helpful, and I hope that this is kind of here to stay, so thanks for that. First question is, Steward. I have a two-parter there. The term loan, the five-year term loan, you know, could you tell us again exactly when that kicks in and what the interest rate on it is and any kind of kicker interest payments that you talked about? If we could just share a little bit more detail about what potential upside could come from that. Then second of all, Steward itself, their line of credit is meant to mature. Their term on a revolving line is meant to mature in September, and I think it's like the one thing you haven't talked about in your Steward update. If you have any update for us in regards to that particular line item.
Sure, Tayo. Let me take the ABL first. You and I have been together for a long time, so I know your healthcare background. You know that the ABLs are highly secured loans. They're secured by the receivables and have very good margins. So it's usually not something that we even think about mentioning. Obviously, we've never had an issue in any of our tenants being able to renew their ABL, and certainly don't expect that situation here either.
I'll take the opportunity, Tayo, to mention the Shasta Hospital that was in our prepared remarks and is in the slide five of the update. Even as we were transitioning from one operator to another and coming through bankruptcy, Shasta redid their ABL again because as Ed said, and again you know, it's well over secured by government receivables primarily with a discount on that.
So that's the reason it just doesn't get a lot of attention from us. With respect to the credit facility we provided, it was closed and completed by the end of the quarter, frankly, well before the end of the quarter. It has a nominal and escalating interest rate that would be equivalent to a lease. As you know, we don't disclose specific terms of those. The kicker is attractive, I mean, it's you know it's not hundreds of millions of dollars by any means, but it would increase the nominal interest rate by several turns.
What causes the kicker to kick in? Oh, they haven't been by a certain date?
I'm sorry, you broke up, Tayo.
Yeah. I said, what causes the kicker to kick in? Like, what are the terms that make you kind of get the kicker?
Repayment. Yeah, it's built in. It's not dependent on any particular transaction.
That's helpful and good to know. Then Ed, in prior quarters with your rent coverage, you've always kind of helped us understand what the government grants in that number, you know, what kind of influence it was having on the rent coverage. Is that something you could provide this quarter as well or if you took that out, does coverage drop 30 basis points or 40 basis points like you kind of expressed last quarter?
Oh, are you talking about the grants? There aren't that many.
Yeah.
Grants still left in the coverage. I'll have to get that exact number, Tayo, but we're about done with those, so I don't know the exact number what it is right now.
Okay, that's helpful. Then just to confirm one more, the rent deferrals, again, $7 million year to date, I think you mentioned earlier on that all relates to Healthscope. Is that correct? Or were there any other kind of rent deferrals in that number?
No, that's correct.
Excellent. Thank you so much.
again, already back to paying 100% of that.
Yep. Thank you.
Your next question is from the line of Jonathan Hughes with Raymond James. Please go ahead.
Hey, good afternoon. Just kind of following up on Tayo's question a second ago. On that $150 million debt facility, I think. Did you say that was extended at the end of the quarter? Was that as of June 30, or are you talking about, like, this quarter? I guess maybe why wasn't it put on the investment page in the supplement?
No, it was completely closed during June. You know, it's not a long-term sustained investment, kind of like what's our bread and butter. That's really the only reason we didn't put it on there. It certainly will be clear in the Form 10-Q, and we were eager to get it out there today and in this morning's comments. That's really all there was to that.
Okay. Fair enough. Earlier, you know, we talked about potential JVs, and I know there's a lot of demand out there. You know, if there are any of those transactions, could we expect kind of the entirety of any of those potential JV proceeds to be used for debt repayment and/or capital recycling, or could we see some use for, you know, stock buybacks? I understand it likely wouldn't be huge, but, and leverage does play a part but, you know, that is an investment in your own, you know, company that comes with no underwriting uncertainty and, you know, would be at an attractive kind of high six cash yield and 15% discount to consensus NAV.
Yeah. All of which makes arithmetical sense, of course. We, you know, don't have a JV yet. We don't have, you know, anticipated proceeds, so we certainly haven't given thought to how we might, you know, apply those proceeds. It will depend. Just to sort of repeat what Ed said a minute ago, it will depend on a lot of things we don't know right now. What is going on in the economic environment? I mean, what's going on in the political and global environment? What is available to us insofar as higher cap rate investments, potentially? We just don't know. All of the uses that you named are certainly available to us.
Yeah. Okay. And then one more on the kind of CapEx disclosure, clarification. I realize it was kind of standard practice and a standard cost for hospitals, but you know, it's a little unique in the traditional net lease world. Is that part of the reason why maybe it wasn't emphasized before this? It's just that it's kind of status quo on the hospital side, but as we look at other types of traditional net lease real estate, we generally see that below the EBITDA line.
Yeah, Jonathan, I think it's because hospitals are what we know, and sometimes we forget it's not what everybody else knows, and we're not traditional real estate people.
Okay. Yep. Fair enough. Thank you for the time. Appreciate it.
Your next question is from the line of John Pawlowski with Green Street. Please go ahead.
Thanks for keeping the call going. Steve, do you expect to release an amended 10-K with Steward's audited financials this year?
Not at this point. The reason is primarily because we always want to follow what the SEC rules are. The SEC rules, you know, do not require it. Because they don't require it, you know, we would have some issues with our tenants in, you know, on our own filing, financial statements.
All right. I struggle with the optics of that. You disclosed it a few years in the past. Now you're extending additional financing t o a highly levered entity that struggle with cash flow, it's an issue for the stock. Help me feel better about the selective disclosure of doing it in the past and not doing it today during a very tough operating climate where we need visibility on financial health.
All fair points, John. We disclosed it in the past because of the SEC requirements. We're not required now. It's a very specific requirement. If we do become required to disclose it under the SEC rules, we absolutely will. We're trying to provide as much as we can. I know we're doing that gradually, but we made a lot of progress over the last couple of quarters. Ed described kind of the high level results on an unaudited basis early in his prepared remarks. That's where we have it now.
Okay. I wanted to spend a minute on Prospect. Property level coverage of 0.6 times, and that excludes lower quality hospitals. I know you've endorsed Prospect and others as high quality operators, so I just don't see a scenario where a new operator can come in and cover rent. Can you help us feel better about no rent cut coming for Prospect Hospitals given their high quality hospitals are at 0.6 times?
Yeah. We don't share the same, sounds like kind of more urgent, immediate concern that you have on Prospect. If there are hospitals in any of our tenant portfolios that are weaker than other hospitals in that tenant's portfolio, that's the power usually of the master lease arrangement. You know, we've emphasized as Prospect Management has emphasized the value of the West Coast portfolio and any so-called excess value over our lease base in those West Coast hospitals is applied to what could be a deficiency. I'm not saying there is, but if there is a deficiency on the East Coast, then we get the benefit of the excess value on the West Coast.
Okay. I guess my point is there's no excess value on the West Coast because you're sub one times. Maybe the final question would be, do you plan to extend incremental debt financing to Prospect to bridge them similar to Steward?
No, we don't expect that will be necessary. We, you know, don't expect that to be necessary. You know, we are aware of conversations and potential transactions that we can't speak to, you know, in a public environment, but we have reason to think that, you know, Prospect is not going to result in any material impairment or lost MPT.
Okay. Thank you for the time.
Your next question's from the line of Jon Petersen with Jefferies. Please go ahead.
Oh, thanks. I like how you saved all the Johns and Jonathans for the end of the call. I kept thinking of this line here.
Yeah. There we go.
Just to follow up on the Steward financials. You have a footnote where you say that because the value of it is less than 20%, you don't have to disclose it. I think that's the SEC rule. Your revenues are 28%. Can you pull back the curtain a little bit and maybe just help us better understand how you value the assets internally in your portfolio to get to that hurdle?
It's a GAAP-basis calculation. There's no valuation, you know, other than what's on the books.
I see. Okay. You guys, you had, I appreciate your comments on the HCA-Steward breakup in Utah. I'm just curious if there's any more just higher level thoughts there on, I guess, the ability for your tenants to sell their operations or you guys to retenant if the FTC is gonna, you know, step in when, you know, when they have some of these concerns. It would seem like the natural operator to come in would be, you know, one of the larger ones in the market. If the FTC is just gonna block those deals, I mean, how should we think about prospects for retenanting hospitals?
Well, fair point. We have an extreme environment in antitrust today. It's not just hospitals, particularly hospitals, but it's all around. HCA is already a competitor in the market that was defined by the FTC. Others may reasonably, you know, object to that definition. The fact is the fact. The FTC said there's a particular market. HCA was already in it, and therefore this transaction, you know, FTC objected to it. The simple answer there, and it is quite a simplistic answer, is generally, if a prospective operator comes in and is not already a competitor, then it wouldn't have the same scrutiny of the FTC for getting terminated.
John, I don't dare speak for the FTC, but in addition to that, not only was HCA already in the market, and a combined HCA and Steward would have represented 30% of the market. Still not a huge number. But HCA is the highest cost provider. That's primarily if you read the information, that's what the FTC hung their hat on, that if HCA bought Steward, they would raise the prices and the market would lose one of their low cost providers. That's not the case for some of the other people in the market that don't have the same percentage that HCA had and certainly aren't recognized as a high cost provider.
I see. All right, that's helpful. Thank you.
Your next question's from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Great, thanks, and good afternoon. Given the current cost of capital today and sort of the leverage position, you discussed the low end of the $1 billion-$3 billion range as being a higher likelihood at this point. I guess one is achieving or exceeding that $1 billion dependent at all on the outcome of the Prime's repurchase option? Then second, what's sort of the right level of investment you're comfortable with going forward if there isn't a meaningful change in your cost of capital?
Well, yeah. Austin, sorry about the earlier when we called on you on our end. I don't know what the glitch was when we called on you on our end. I apologize about that.
No problem. That was on my end.
I certainly can't tell you where I think we'll get back to. We certainly ought to be able to, in a regular environment, continue to do $3+ billion in acquisitions. But given where the market is a bigger driver right now than. By market, I mean just the entire market, not MPT stock, not cost of capital, but just the confusions within the markets as a whole, where we are in the recession or whatever you wanna call it, and those types of questions as to whether or not we'll exceed the $1 billion by much or exceed it at all. It's not dependent on the Prime potential repurchase of their properties.
Got it. That's helpful. Then just secondly, I guess, you know, given, you know, the comment earlier on disclosure requirements for Steward, should we expect that you could continue to give us updates on tenant health and maybe that run rate EBITDA figure at least in the short run, going forward?
Yeah, absolutely, Austin. We're doing all that we can to continue to provide information to get everybody comfortable.
Understood. Thank you.
Does this conclude the Q&A session of the call? I will now turn the call back over to Ed for closing remarks.
Dennis, thank you very much, and thank all of you again for listening in today. If you have any follow-up questions, please don't hesitate to call, Drew or Tim.
This does conclude the Medical Properties Trust second quarter 2022 earnings conference call. Thank you all for joining. You may now disconnect.