Charles Lambert - Finance Director Edward Aldag - Chairman, President & CEO Steven Hamner - EVP & CFO

Jordan Sadler - KeyBanc Capital Markets Vincent Chao - Deutsche Bank Michael Carroll - RBC Capital Markets Chad Vanacore - Stifel Financial Corp. Juan Sanabria - Bank of America Merrill Lynch Michael Mueller - JPMorgan Tayo Okusanya - Jefferies Eric Fleming - SunTrust Robinson Humphrey

Welcome to the Medical Properties Trust, Inc. Q2 2016 Earnings Conference Call. [Operator Instructions]. I would like to introduce your host for today's conference, Charles Lambert. You may begin.

Good morning. Welcome to the Medical Properties Trust conference call to discuss our second quarter 2016 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 Event 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 risk, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed and/or underlying such forward-looking statements. We refer you to the Company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the Company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only and except as required by federal securities laws, the Company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can refer to our website 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 again thank all of you for listening in today for our second quarter earnings call. We've had a very busy successful second quarter that has continued into the third quarter. We also expect the remainder of the year and 2017 to continue to be very positive times for MPT. Let me start by pointing out the strong success of the repositioning of our balance sheet. Our debt to equity metrics are consistent with our historical operating ranges and in fact are well positioned to give us plenty of flexibility to grow. Today, our net debt to recurring EBITDA is 5.4 times, while the net debt to gross book is in the 45% range and the net debt to total capitalization as a percentage is about 41%. It's important to see how we got here. On the last call, we discussed in great detail the sale of the Capella operating piece. We were able to sell our investment in the operations in less than six months for an economic gain. And Capella repaid two of our mortgages. This transaction provided us with about $550 million in net proceeds. In recent months, we sold two portfolios, one individual property and we sold our $50 million RegionalCare note. The first portfolio we sold was our investment with Post Acute Medical. This consisted of four LTACHs and one IRF, we sold these properties for a $10 million gain over our original investment and an almost $20 million gain over our net book value. Next, we sold an individual LTACH building with a tenant who was ceasing operations. Despite being an almost vacant building, we were able to sell it and still recoup our investment. And lastly, we sold three IRFs that were originally developed and operated by Reliant healthcare, whose operations had recently been acquired by HealthSouth. Our gross investment in these facilities was approximately $74 million. We sold these three buildings for more than $110 million, a net book gain of almost $45 million. With the recent sale of five LTACHs, our concentration in the LTACH assets is currently only 7% of our total portfolio. Not only did all of these transactions give us access to capital to reposition our balance sheet, these transactions are a resounding validation of the value of our portfolio and the strength of our underwriting that we've been touting for years. In addition to these dispositions, we acquired two properties during the second quarter, we added another hospital with Prime Healthcare in New York-New Jersey for $63 million. Formerly Catholic owned and operated, St. Michael's is a 357-bed acute care hospital located in the Central Ward of New York-New Jersey in the heart of New York's growing business and educational district. Since completing the acquisition in May, Prime has successfully renegotiated more favorable managed care contract rates, is rebuilding the hospital's medical staff and growing the oncology and cardiology programs. St. Michael's is the fourth New Jersey hospital acquired by Prime and affords Prime significant scale in the region. We added another hospital through our MEDIAN investments at Heidelberg, Germany. Heidelberg is a $47 million investment in the real estate of a 73-bed, acute care hospital with a focus on orthopedics. The Heidelberg hospital is considered one of the top orthopedic hospitals in Germany. This hospital will be folded into the MEDIAN master lease. Today, we're also announcing the agreement between MPT and affiliates of our German tenant, MEDIAN and other third parties to acquire the real estate of 23 additional hospitals throughout Germany. These acquisitions are subject to various German antitrust regulations and as such we expect the consummation of this transaction to begin in the fourth quarter of this year and continue throughout 2017. So far in 2016, we've added approximately $110 million of new investments and committed to an additional $300 million for a total year-to-date number of a little over $400 million. We continue to see good opportunities and we're working on projects that are typical to our portfolio. While we have not projected what our total investments for 2016 will be, we have said and continue to say, these investments will be day-one accretive and leverage neutral. Our existing portfolio continues to outperform. As we have reported from the recent dispositions we've completed, the value of our portfolio significantly exceeds our cost basis. The value to our investors of our underwriting and asset management abilities continues to show through the performance of our portfolio. After making adjustments for normal year-end all-in reconciliations, first quarter 2015 versus first quarter 2016 showed an increase in our total portfolio coverage of approximately 40 basis points to 3.6 times EBITDAR lease coverage. Both our LTACHs and IRFs remained steady year-over-year at 1.8 times and 2.2 times respectively. The acute care hospital sector continues to produce industry-leading coverages increasing to 4.5 times for the first quarter of 2016. Please be sure to refer to our second quarter 2016 supplemental information for more detailed information on the total portfolio. Admissions for our acute care portion of our portfolio were up 3.2% quarter-over-quarter. The IRFs are up 3.3% and the LTACHs are up 8.8%. After our recent dispositions and acquisitions, our concentrations by property type are right within our target range. Acute care hospitals represent approximately 75% of our domestic portfolio and 62% of our total portfolio including Europe. We expect to see both of these numbers rise in the near future. Our two largest tenants are now Prime and MEDIAN and about 20% each. While we expect to continue to do business with each of them, we do expect our overall exposure to them to decrease over the next year. Today, about 77% of our total portfolio is in the U.S. with the remaining in Western Europe. We expect that our U.S. portfolio will continue to fluctuate between 70% and 80%. Some of you may have seen the recent announcement about the departure of Frank Williams to become the CFO of a New York Stock Exchange listed company. Frank did a good job for us here and he will be missed. We of course wish Frank and his family, the very best. Steve, Emmett McLean and I have always held the primary relationship with our tenants and have been the driving decision makers of each investment that we make. Our acquisitions department is well staffed with quality people. Our acquisitions will not miss a beat. We will continue to move diligently to replace Frank, but there certainly is no sense of urgency here. I also want to comment on the recent news articles regarding the lawsuit involving Prime and the U.S. government. All of you who've been involved in hospital investments over the years recognize that this is not uncommon. In fact, numerous operators have been through or are going through similar lawsuits. At this time, we do not expect the ultimate outcome to have any material adverse impact on Prime. It is worth noting that many of the issues at hand have already been through RAC audits or individual reviews by Medicare administrative law judges or the Medical Appeals Council judges with positive outcomes for Prime. At this time, I'll ask Steve to walk you through the detailed financial numbers for the quarter. Steve?

Thank you, Ed. This morning we reported normalized FFO for the second quarter of $0.32 per diluted share, a 7% increase over 2015 second quarter. Even after significant sales of assets during 2016, we also reaffirmed that we continue to expect full year normalized FFO will range between $1.29 and $1.33. Net income increased 100% over last year, primarily because of the substantial gains on asset sales. Of the six properties sold in the second quarter, all but one was an LTACH, a sector that is not in great favor. And yet we generated substantial profitability and overall shareholder returns, because when we originally underwrite any investment as hospital people, we know what is important and what will preserve and grow value over the long term, while generating current cash returns that are among the highest of all real estate sectors. The buyers included other REITs and the dominant not-for-profit operator in the Dallas-Fort Worth area. We will see even greater gains on sales in the third quarter related to the recently announced sale of three inpatient rehabilitation hospitals in July at a cash capitalization rate of 6.7%. While these were very attractive facilities, the remainder of our IRF facilities have similarly attractive characteristics and this sale clearly demonstrates the substantial unrealized value in our portfolio and again, speaks to our investment judgment, our underwriting quality and our ability to protect and grow value even when market conditions are unfavorable. The buyer was a large sophisticated institutional real estate investor, who used bank financing of approximately 70% loan to value. There is considerable and growing appetite for hospital real estate from not only REITs across the spectrum, but also conventional sources of real estate capital. There are a few other items in the net income to FFO reconciliation that deserve mention. Any time we sell a property, we eliminate the unbilled straight-line rent that we require to approve. This item amounted to about $3 million in the quarter and includes a component related to the sale of Capella operations to Apollo RegionalCare. Transaction cost of about $6 million reflects costs and expenses of the Capella Apollo sale. Acquisition expenses primarily reflect real estate transfer taxes on properties we closed in Germany. And it is important to remind you that even though GAAP requires us to expense these taxes, they are included in the total investment on which our tenants pay us our base rental rates. Finally, the impairment charge of about $7.4 million is to reflect the loss of value in our investment in the operator of the LTACH facility we sold for $8 million gain. GAAP does not allow us to net these two components, but that's the way we think of it. I'd be happy to take questions about any of these items during our Q&A. Since the beginning of the year, we have recycled more than $800 million in asset value to reduce debt and rationalize parts of our portfolio. We refinanced $1 billion in debt to repay revolver borrowings and to lower our long-term interest rates even in a rising rate environment earlier this year. We have the opportunity, subject to market conditions, to refinance an additional EUR200 million at what we think will further significantly lower our interest cost. Late in the quarter and into July, we sold almost $90 million in common shares through our at-the-market program for an average price of almost $15.10. These sales require no discount as in underwritten offerings and have a very low sales fee. So we have successfully and rapidly executed the plan we described not even a year ago to reset our balance sheet, liquidity and portfolio profile, such that we're now perfectly positioned to begin to accelerate again our highly accretive acquisitions. And as we do that, we will retain the flexibility and balance sheet strength that allowed us to complete our repositioning without diluting our shareholders with sales of low priced equity. During the past few quarters, as we completed our plans, the market for hospital acquisitions has remained strong and we have been able to support our great client relationships where they have needed capital. Now, we plan to take advantage of this still strong market and increase our acquisition activity to generate incremental cash flow, FFO and dividend growth, all on a per share basis. As of today, we have approximately $1.5 billion of cash on hand and immediately available revolver capacity. We have up to three years remaining on that facility. Even after increasing our annual dividend by 5% for the third straight year, disposing of $800 million in assets and selling $90 million in common shares, our dividend payout ratio is expected to approximate 70% on a normalized FFO basis and only 77% on an AFFO basis, giving us capacity to manage the dividend along with our expected growth in cash flow. That is based on our estimate of normalized FFO for 2016 which we reaffirm today between $1.29 and $1.33 a share. Major assumptions underlying this estimate include limited to modest asset dispositions, long-term borrowings or other capital issuances and modest incremental investments through the end of the year. As always with this type of real estate timing of closing of acquisitions is often unpredictable and because most single properties are significant in value, delays in closing may impact periodic revenue. I will also point out that our third quarter results will include approximately $23 million in issue and redemption premium cost related to our July $500 million 10-year bond refinance. Even considering the premium, the refinancing of 6.875% debt with 5.25% debt and extending the maturity is highly cash flow and earnings positive. There are other factors that will affect our actual results including interest rates and other capital market conditions, tenant operations and other unforeseen conditions. So with that, we will be happy to take questions. Operator?

[Operator Instructions]. And our first question comes from the line of Vincent Chao from Deutsche Bank. Your line is open.

Just wanted to go back to in terms of the acquisitions or dispositions that were made in the quarter, I think in the press release you talked about being 6.5% to 7% and then I think I heard you say that some of them were either vacant or almost vacant. Just curious what the stabilized cap rates on those assets look like, if you can provide that?

There was actually only one of them that was ceasing operations and that was not part of the portfolio sales.

So 6.5%, 7% [indiscernible]. And then on the deal with MEDIAN that's pending or pending I guess clearance, can you give us a sense of just the order of magnitude or size of these 23 assets, but just dollar value, what are we talking about and then I think in the press release also mentioned some sale leaseback potential as well. Can you just talk about or frame the opportunity there?

So, the agreement we signed with MEDIAN recently for the 23 when combined with other opportunities that although we're not under binding contract yet, we're highly confident that it'll happen in the next couple of quarters and including then a relatively nominal amount to increase our equity investment in MEDIAN, so we maintain the 5.1% interest as they grow. The overall expectation of that is around the $300 million plus or minus range and all of those will immediately become either part of the existing master lease or part of a new master lease with MEDIAN.

And just one last from me, just in terms of the pipeline, it sounds like the opportunity set is still pretty attractive, but curious how the U.S. pipeline is shaping up here for the balance of the year and how are you thinking about the U.S.?

Yes, it is extremely strong, Vin, it's -- I said earlier the -- we expect that the percentage of U.S. investments we'll maintain between the 70% and 80%, we're 77% right now. I think in the near future that 77% will move up closer to the 80%, that just gives you a magnitude of the difference between the -- what we're seeing here in the U.S. versus what we're seeing -- what we're doing in Europe.

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

So just to dig a little bit more on the sales, it sounds specifically like the IRFs that you sold in July were at a 6%, 7% cap, but of the five or so I guess would be the four LTACHs that you sold to the Post Acute Medical facilities, what was the cap rate on those sales?

So it's a bit opaque and I'll describe why. But, the answer is in the high single digits. And the reason it's not quite precise is, it included, as we've already said, that almost empty facility in Dallas which was sold to the largest not-for-profit operator in Dallas. It also included because we had equity investments in Post Acute Medical. It includes that, when you consider the cap rate. But all of that notwithstanding and given the -- as we've mentioned this is somewhat out of favor market for LTACHs, our exit cash cap rate as I say was in the high single digits.

If you were to strip out the allocated portion related to the vacated facility, I imagine that would have -- put a little bit of upward pressure on the cap rate, is it the right way to think about it? Zero income, but it adds some value ascribed to it, I assume?

We have tremendous amount of value ascribed to, we were hoping for $28 million. So, yes, any way you look at it, the LTACHs, I would say good LTACHs like we sold probably today have that 9% plus cap rate from a market expectation.

What are the thoughts on the remaining 7% of LTACHs in the portfolio?

We don't have any plans to sell any of them. We're comfortable with where they are. We're comfortable with the positions that the operators of those particular facilities have made and the patient care and the criteria and their affiliations with acute care hospital operators. So we're feeling good about their ability to continue to perform at the levels they've been performing going forward.

And then on [indiscernible] question, thanks for touching on Frank's recent departure and movement there. But away from that, I'm interested to one, I thought you guys might have been marketing some assets there for sale, if you can give us an update? And then just an update on the overall relationship and where you stand in terms of the remaining commitment?

Who knew Frank wanted to be a CFO, but the overall relationship is still very strong, we committed about -- we committed $0.5 billion in the funds for them, we committed all but about $75 million of that right now. So we certainly have expectations that we will continue to do business with that company. We're currently not marketing any of their facilities, as we stated starting back at last fall, we had a lot of inbound traffic. Some of the inbound traffic that we had were for some of their facilities. So they've had a lot of resales of some of their facilities, some of these that we did not do or have not done. And so when we were looking at our overall what we're going to sale, what we're going to keep in order to help pay down some of our leverage. That was certainly in the mix, but we don't have any of those facilities being marketed now.

Any particular reason, is that you've got enough liquidity or you just really like the way that these are performing and the prospects, all of the above?

All the above, Jordan. They are performing exceptionally well. They are performing better than our original projections and we will be very comfortable with where our balance sheet is.

And then as it relates to MEDIAN, what are the expected economics of the incremental, is the total incremental of MEDIAN $300 million?

Yes, yes.

Is this the same as master Lease.

Yes, they'll join to the master lease and just step into the terms of the existing master lease. And if you recall probably not two years ago, when we did the biggest MEDIAN master lease, it was on a cash basis, 8% to 8.5% and that escalates every year.

Last one, would that be in the affirmative guidance the $300 million?

Yes.

And so that's being offset presumably by some of the equity issuance and the sales?

Yes.

Which is why you're maintaining, right?

Correct.

And our next question comes from the line of Michael Carroll from RBC Capital Market. Your line is open.

Can you guy's kind of off of Jordan's question, can you give us a little bit more color on the pending German acquisition? Who is the operator of these properties now and are these similar property types that MEDIAN currently operates?

The operator is one of the largest private operators of these types of facilities in Germany and we'll have to remain unnamed. But they are similar to the existing roughly EUR1 billion portfolio that MEDIAN has now, but we'll extend some of the rehab services into addiction and other behavioral.

I remember, when you first did the MEDIAN deal too, you said this is a highly fragmented market, MEDIAN has a pretty small percentage of it, I guess. How much does MEDIAN operate in this market after this type of acquisition and is there continued opportunities for them to expand in Germany?

Yes, Mike, you're right, it was an extremely fragmented and it continues to maintain an extremely fragmented market. So, even with all of the roll-ups that MEDIAN has done, including this roll-up, there is still an awful lot of room for continued growth. This roll-up does -- will make MEDIAN the second largest provider of this type of care in the country.

This type of care I guess that's delivered in Germany is a kind of top end, where there's a few large players and a lot of small players, how is that kind of broken up?

The government is the largest player and then it will be MEDIAN and a lot of little players.

And then could you kind of dive through real quick on the coverage ratios? There's a pretty big improvement in the general acute care hospital coverage ratio. What drove that this quarter?

Yes, continued improvement in the operations, it's continued improvement in their overall adjusted discharges and the improvement in their expense controls.

To get to the 0.5 coverage ratio pick up, it's pretty big--

Remember, Ed already said there is 3% increase in admissions. And then when you're running at a pretty full clip in the first place and you increase your revenue basically by 3%, a great deal of that falls to EBITDAR and drops that type of coverage increase.

And then last quarter I guess, in the coverage ratios sheet, there was a lease that had about what 1.2% of investments. So the coverage ratio below 1.5. I think that lease is now gone. Now was that sold or did they actually have the prudent operations that took it out of that bucket?

Yes, that was one and that was sold.

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

So, I'm going to fish for a little more detail on the MEDIAN transaction. There are 23 hospitals around $300 million investment, are these rehab and hospitals just like those that are in existing deal and then what kind of cap rates and coverage should we expect?

So let me back you up just a little bit, because the 23 is just part of the $300 million. We have binding contract for the 23. We also have a handful of others that are not under binding contracts but given the stage of where we're with negotiation we're highly confident that those will happen also and so that's what combines to the roughly $300 million. And with respect to the economics of the deal, again, these will fall right into the existing terms of the MEDIAN master lease which when we signed that going on two years ago, as I just mentioned, the cash cap was between 8% and 8.5%. Coverage will get anything on a portfolio basis will modestly improve, but certainly will not be a diminution of coverage.

As far as the types of facilities, Chad, that remember in Germany the rehabs are a little bit different than what we see here in the U.S.. Their primary focus is getting people back in the workforce or staying in the workforce. Ad so when you look at this entire continuum of care within the rehab markets, this is the largest provider of the -- Steve said behavioral and addiction to rehab care, MEDIAN already did some of that, but this will add a lot to their continuum of care to give the entire coverage for the rehab market in Germany.

And then just -- I recall the closing of transactions were subject to regulatory approvals, so that drag on a little longer than anticipated originally, so what's the time line for completing this deal?

We think it's all done by the end of next year and it could be earlier than that, but you're right, we have a lot of experience now with how that can be delayed. So that's why we said it will start closing throughout the remainder of this year. But, probably the bulk of it is going to be beginning in 2017 and may go for much of the year.

And then just one last question, just in the commentary you said guidance is for limited acquisitions, dispositions for the balance year, so how do we reconcile that with this MEDIAN transaction and your prior disposition guidance?

Very little of this transaction is included in 2016.

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

Just hoping we could spend a little time on the IRF coverages. If I look at the IRFs and go back historically and look at some of the supplemental, it looks like the coverage is -- if you look at the third quarter 2015 were 2.9% and now that is kind of 2.2%, I recognize it, maybe, if you could just clarify what's going on there and has the base changed as new acquisitions come in at lower levels that drag that down or what's going on with that IRFs coverage levels?

Yes, it is changing the mix of what's included in the facilities, you remember that what we've tried to do is to establish a same-stores sales and we've been in a very rapid acquisition growth for the last three, four years, actually longer than that. And so when you look at those coverages that we report, they are facilities that have been in our portfolio for at least 24 months. So when facilities come into that, that will include facilities on their 25 month that are -- they haven't been as seasoned as some of the facilities that have been in there longer. So when you go back and look at what the coverages where at different times of the portfolio, you have to keep in mind that we're adding new facilities to that mix and those facilities will be mostly developmental facilities and so they haven't been around to develop the coverages like some of the older properties have.

And it looks like the pie chart that you gave that breaks out the ranges of the coverages looks like that really only covers about 40% to 50% of the portfolio, any sense to how that other 40%, 50% or 50% to 60% would look?

The other portfolio -- the other properties that we have acquired that haven't been in there for entire 24 months yet are performing exactly as we had projected or better than we had projected with only have -- I think one facility that is slightly below what our original projections are.

And then on that same pie, that's on your supplemental on page 13, excuses me, because there is various shades of gray pun intended. That 14.3%, is that under a master lease and is that the same piece that's under 1.5 times coverage and what's the story there?

No, that's the piece that's at the 1.8 times coverage.

Is that a fixed charge or is that the EBITDAR coverage?

That's EBITDAR coverage.

And as someone earlier pointed out, I can't remember who it was, in this pie chart we don't have anything less than 1.5 times, so that shade of gray is not on there anymore.

Okay, got you. This is hard to tell what the different colors. I apologize.

I think that's it from me. Thanks guys.

And our next question comes from the line of Tayo Okusanya from Jefferies.

First of all, great quarter. I like what I'm seeing. Quick question on the acquisition. So you talk about $300 million that's all German base and you talk about the U.S. versus the rest of the world going to be somewhat between 75% to 80% type ratio in the near term. So does that mean you are possibly looking at doing $1.5 billion of acquisitions in the U.S. to kind of keep that ratio the same.

So the $300 million of the 77% is included in that number, Tayo. So when you look at what our pipeline is, the preponderance of that, the vast majority of that is U.S. based and so when I have said in my prepared remarks that we expect to see that number increase over the next year that's the reason why.

You expect -- the $300 million is all German stuff though.

That's correct. And so when you look at what the pipeline is the vast majority of the remaining pipeline that's not identified yet, that's not identified in the numbers, is U.S. based.

Our policy has always been that we don't announce transactions until they actually become binding. And so, just because we only have $300 million of Germany in this particular press release, doesn't speak to what's in the background that in particular in the U.S.. And the point being that, we think the U.S. continues to significantly overshadow European to the extent that over time you'll see this 20% to 30% maximum Germany or Europe, I should say.

The implication of that is that, again the U.S. stuff is several multiples higher than this $300 million non-U.S. stuff, to kind of keep that ratio where you wanted to be, correct?

If you take a snapshot of today at 11.40 Eastern Time, you're absolutely correct.

And then the second thing I wanted to ask is, I mean a lot of activity you've had this quarter whether it's with MEDIAN, the New York-New Jersey acquisition that's with Prime, you are doing a lot of stuff with your current tenants which is great and I think everyone would like to see relationships growing. But I think one thing people always ask about MPW is that you do have some fairly large tenant concentrations and these transactions does make those concentrations bigger. So are there any opportunities, maybe within the U.S. stuff that you haven't talked about yet, that will move you guys towards a little bit more diversification going forward?

Yes, Tayo absolutely. As I said in the prepared remarks, both MEDIAN and Prime currently represent about 20% each of our overall portfolio and while we expect to continue to do additional facilities with each of them, we do expect their overall number to decrease and obviously the only way to do that is by adding new relationships.

And our next question comes from the line of Michael Mueller from JPMorgan. Your line is open.

So Steve, just want to double check to make sure I'm getting your comments on the dispose the right way. On those five LTACH, so we should look at it that comment about the nine cap or high single digits is on the overall five, the overall $90 million or so. So it's call it $8 million of NOI that goes away. It's not to comment on the four that were rent paying, is that correct?

That's right, but the exit is nine. Yes, the exit is nine, we were receiving north of 10 on those. We're going to lose, we have lost a little more than $8 million in revenue.

And then in terms of -- I know would you have a guidance talk about minimal investment activity in the balance of the year, but does it feel like that's going to be what plays out or that's just more of a base case guidance assumption and what you're looking at now has the potential to come in above and beyond that? And how should we think of what's in guidance versus what could happen

Remember over the last, almost a year since the original Capella transaction, we've been focused, as Tayo, just mentioned, we've been focused on our existing customers and making sure that we met their needs for capital. So, although we've been in the market and by virtue of that know, that there is a strong market, we really haven't been focused on generating new relationships and large transactions that focus has now changed. So to answer your question and again, given that we're hearing in August and the time it takes to generate an opportunity to closing, I think you should probably expect relatively little, relative to almost $6 billion balance sheet, so maybe upwards of a couple of hundred million dollars could close between now and the end of the year. But that's not indicative of we think ramping up with the acquisitions and going into 2017 with a very, very strong near-term pipeline at which time we'll come back and revisit guidance.

And just one last one. I guess with respect to Prime, just thinking about that from your standpoint, isn't it usual on a go-forward acquisition basis, something comes up with them, you've the mindset, go ahead and do it or do you kind of take a little bit of a pause, while you guess, the [indiscernible] going on?

I don't think we need to take a pause because of the DoJ stuff. You go back and look at there, the press release of June 24 for more detailed information other than what I said earlier this morning, we're not alarmed by that. This is the same thing that many other operators have had to deal with. This is the observation versus inpatient. We believe that it will not have any material adverse impact on Prime's financial situation. But having said that, we're not doing all of Prime's transactions, so we have not done all of their most recent acquisitions. So if and when they present us with opportunities we will underwrite each one of those individual opportunities and look at the overall relationship and make a decision as we have in the recent past.

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

I guess, I'm going to stick to the MEDIAN theme here. So you're saying it's $300 million. Can you say what percent of that is the 23 properties, that you're talking about?

Eric, we can't and that's the reason for this dance that we're all doing here is we're prohibited until we close everything specifically identifying that.

Is it going to be just individual closings as you get the approval or will it be somewhat what you did on the first meeting [indiscernible] where you kind of given the loan and then flipped from the loan to a sale leaseback, as you got the approval?

No, there is very little that loan here and, but very little, I mean really very, very little, so we will announce as we close.

Do you think this is going to be like a bolus or is it just as each individual region needs to get the approvals, as this is going to be kind of ones and twos here and there?

I think there will be a bolus at some point just because of the way it's structured that we will actually acquire the majority of these properties from MEDIAN itself or an affiliate of MEDIAN and not from the family-owned company. And so as that gets approved through antitrust, I think there will be a meaningful bolus as you call it.

Just like we have a 2017 event?

I really think so, yes.

And then just a quick question, with the reaffirmed guidance, is that just essentially kind of the incremental dispositions kind of match what you've acquired, so that's the reason why -- and I'm basically looking at and you sold another $200 million, so I think your guidance might move a little bit lower?

Remember we did the bond refinancing as well.

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

Just a quick follow-up on the Prime DoJ stuff. Do you guys not see any risks that the billing behaviors change or become any less potentially aggressive if you read the DoJ compliant that may impact net coverage levels and if you could just remind us what the coverage levels are for the Prime leases?

As an overall portfolio, the Prime leases are in excess of 3 times. So there's plenty of coverage there and certainly not going to speculate as to what the -- any type of settlements that Prime enter into. You just look historically what DoJ has done with other operators, there may be some effect on their conversions of VRs to inpatient, but we do not expect that the overall drop in coverage, if there were any, would be any material amount.

And our next question comes from the line of Tayo Okusanya from Jefferies. Your line is open.

A quick one on the U.S. acquisition pipeline, could you give us a sense of what's in there, is it mainly acute care hospitals, IRFs, LTACHs?

It is almost entirely acute care hospitals.

And then just with the tenants as well, if you could just give a quick update on how things are going both on [indiscernible] and Ernest that would be helpful as well?

Both of them continue to do well. ISIS continues to perform above our original expectations and very well at each one of the facilities we have with them. Ernest same store facilities, the IRFs continue to way outperform, the LTACHs are continuing to maintain and improve and the new facilities are coming online nicely.

Thank you. At this time, I'm showing no further questions. So I would like to turn the call back over to Ed Aldag for closing remarks.

Thank you, Operator. And again, thank all of you for listening and as always, if you have any questions, don't hesitate to call myself, Steve Hamner or Tim Berryman. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.