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Medical Properties Trust Inc  (NYSE:MPW)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2018 Medical Properties Trust Earnings Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Charles Lambert. Sir, you may begin.

Charles Lambert -- Managing Director

Thank you. Good morning, everyone. Welcome to the Medical Properties Trust conference call to discuss our fourth quarter and year-end 2018 financial results.

With me today are Edward K. Aldag Jr., Chairman, President and Chief Executive Officer of the Company; and Steven Hamner, Executive Vice President and Chief Financial Officer.

Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at www.medicalpropertiestrust.com in the Investor Relations section. Additionally, we are hosting a live webcast of today's call, which you can access in that same section.

During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the Company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the Company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the Federal Securities laws, the Company does not undertake a duty to update any such information.

In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to, and not in lieu of, comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliations.

I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thank you, Charles and thank all of you for listening in today.

For 2018, MPT achieved a total shareholder return of more than 25% compared to a negative 4.5% for the MSCI US REIT Index. Our two-year total shareholder return was more than 50% compared to the SNL U.S. REIT Healthcare Index of 6% and less than 0.5% for the MSCI US REIT Index.

For the 10-year total shareholder return, MPT ranked Number 1 for all healthcare REITs with a 445% return, which was more than 2.5 times that of the SNL U.S. REIT Healthcare Index.

During 2018, MPT had another year of milestones and records. We once again saw the value of our portfolio validated through multiple and exciting transactions, including our highly valued joint venture in Germany with the Primonial Group, the successful buyout of our equity ownership in Earnest Health and several other profitable exits, such as the sale of North Cypress Medical Center to HCA. These and other 2018 transactions provided record proceeds of $1.5 billion, of which more than $500 million of those proceeds were over and above our original investment. The proceeds were used to reduce debt and to put MPT in prime position for accretive capital deployment in 2019, like that of the transaction in Australia we just announced.

We were pleased to kick off 2019 with our announcement last week of our agreement to acquire 11 Australian hospitals from Healthscope. Since our inception, Australia was a location with which we have targeted for growth. Like other European countries where we have expanded into, Australia has a healthcare system that is similar to the United States. Healthcare in Australia is among the best in the world and we are delighted to add these quality Healthscope assets to our portfolio. We've been watching and analyzing the Healthscope assets for more than 10 years now. The portfolio of 11 Healthscope hospitals are truly some of the finest hospitals in Australia.

Of the 11 facilities, eight are general acute care hospitals, representing 86% of our total investment. One is a rehab hospital representing 6%, and two are psychiatric facilities representing 7%. They are primarily located along the East Coast concentrated around Sydney and Melbourne and in Perth on the West Coast. We work directly with the current management team of Healthscope since late summer of 2018, and have been working with Brookfield since the early part of the summer. We are excited to team up with Brookfield on this transaction and look forward to growing this portfolio with them.

2018 included continued work on exciting construction developments of over $187 million with Surgery Partners and Circle Health, the latter providing another milestone as the first of its kind, private stand-alone inpatient rehabilitation hospital in the United Kingdom. MPT continues to be the leader in acute care real estate and has amassed approximately $10 billion pro forma gross assets with 30 different operators now spanning three continents.

Our existing portfolio also continued to perform well. With this quarter's reporting, we added 10 properties to our same-store reporting. All of the additions to the same-store reporting were general acute care hospitals. Our same-store total portfolio EBITDARM coverage for the trailing 12 months Q3 2018 is 3.1 times, which represents a 10% increase year-over-year. Same-store acute care EBITDARAM coverage is 3.6 times, which represents a 12% increase year-over-year. Inpatient rehabilitation EBITDARM coverage increased to 1.9 times, which represents a 2.5 times -- 2.5% year-over-year coverage improvement. USRs represent about 4.6% of our total portfolio. LTAC EBITDARM coverage decreased to 1.5 times, which represents a 7.4% year-over-year decline. It's important to note that this coverage decline is driven by one facility whose EBITDARM coverage declined from over 9 times to a still very strong coverage of 5 times. LTAC represents approximately 3% of our total portfolio.

United States represents 77% of the total portfolio, acute care hospitals continue to make up the bulk of our investments domestically at 80%, which is right in line with our target range. It is an important reminder that approximately 93.6% of our same-store portfolio is master-leased, cross-defaulted or includes a parent guarantee.

MPT has never been in a stronger position than the present as we continue to grow in size and reputation as the global leader in hospital real estate and the industry's preeminent source of capital. We are actively engaged in billions of dollars of domestic and international acquisitions with more opportunities coming our way.

Steve?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Thank you, Ed. On our last quarter's call, we reported that we had completed the capital and portfolio repositioning strategy that we had been focused on for more than a year, resulting in record profitability, liquidity and financial flexibility, along with an actionable 2019 acquisition pipeline of $2.0 billion. Since then, our acquisition expectations have grown even further. And last week, we demonstrated the strength of that pipeline by announcing agreements to acquire and expand 11 premier hospitals in Australia for as much as $1.2 billion.

We'll focus on our outlook for 2019 momentarily, but first, I'll review the fourth quarter and full year 2018 results. As expected, this morning we reported normalized FFO of $0.31 per diluted share for the fourth quarter of 2018 and $1.37 for the year. These annual results do not, of course, include approximately $671 million in gains on the sale of real estate, including a $1.4 million fourth quarter true-up of the previously completed German joint venture transaction.

The only material adjustment from NAREIT FFO to normalized FFO was a fourth quarter $4.4 million tax valuation adjustment caused by the continued profitability of our taxable investments.

We have previously noted that our estimate provide for general and administrative expenses to be about 9.5% of total revenue. However, we now report revenue from our joint venture assets through the other income line, making prior periods not comparable. For 2018, this revenue approximated $32 million. Moreover, non-cash straight-line rent adjustments during the year reduced revenue by a further $17.5 million. And finally, in 2018 we adopted new accounting policies that reclassified about $6.2 million to G&A. With these movements, our 2018 G&A represents about 8.9% of comparable revenue. Going forward, we remain confident in our estimates of 9% to 9.5% G&A.

Before moving on to the update to our 2019 estimates, I will point out that in December and January and in anticipation of capital needs for our Australian and other likely acquisitions, we activated our $750 million at-the-market equity program and sold approximately 11.9 million shares at an average price of $16.75 for about $200 million in proceeds. Recently, as a result, we had cash balances approximating $900 million along with a $1.3 billion availability under our revolving credit facility.

Given our estimate of in-place EBITDA and outstanding borrowings, our current net debt to EBITDA ratio approximates 4.4 times.

This morning, we reported that we have increased our 2019 acquisitions expectations by about $500 million to $2.5 billion, over our estimate from last quarter. Consequently, we now estimate that upon completion of the $2.5 billion in expected 2019 acquisitions, our annualized in-place normalized FFO will be about $1.54 per share. Last quarter, our estimate was for approximately $1.50 per share. Built into last quarter's $1.42 to $1.46 calendar 2019 normalized FFO estimate was an assumption of a late December acquisition that is now not included in our 2019 estimates. However, due to the growing pipeline, we are maintaining our $1.42 to $1.46 calendar 2019 normalized FFO estimate. The calendar year estimate is of course sensitive to timing and we intend to periodically update our estimates as we gain clarity into likelihood of closings.

We continue to estimate that the blended GAAP yield of our 2019 acquisitions will fall between 7.5% and 8.5%. To be clear, that is not a range of targeted deal terms, but an average portfolio yield weighted by investment value. We also continue to expect that nominal capitalization rates will likely be lower in areas outside the United States, where the cost of capital is similarly lower than in the U.S. The Australian opportunity is a good example wherein we invest to achieve yield substantially above our cost of capital. And just to clarify, this investment will be strongly and immediately accretive for our shareholders.

Importantly, certain investments can also deliver intangible value that leads directly to even lower cost of capital and higher long-term FFO. These intangibles include diversification from geographic, tenant and credit perspectives, extension of our portfolio, average lease terms, improvement of MPT's own credit ratings and borrowing cost and attraction of other forms of long-term permanent and inexpensive equity like capital. The best recent example of this last benefit is the creation of $600 million in virtually free capital through our German joint venture.

We do not focus solely on the year-one cash capitalization rate when we underwrite a potential acquisition. We will continue to grow Medical Properties Trust as the unchallenged and sustainable global leader in hospital real estate finance. This requires that rather than simply building a collection of stand-alone leases, we create a portfolio of many assets, providing diversity in geographies, operators and property types that create predictable, inflation-protected cash returns for our shareholders. Along with the initial cap rate and immediate accretion, we consider all of these characteristics and their effects on our portfolio taken as a whole. The Healthscope transaction will, in addition to creating a medium and long-term accretive returns, substantially improve the MPT portfolio considered as a whole.

And with that, we will be happy to take any questions. Operator?

Questions and Answers:

Operator

Thank you. (Operator's instructions) Our first question comes from Jordan Sadler from KeyBanc Capital Markets. Your line is now open.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thank you and thanks for all the color. If you guys could a little bit -- you've increased the acquisition guidance a little bit seems that Healthscope was probably a driver of that, as you mentioned. Is the character of the remaining acquisition pipeline the same as it was last quarter as well or have there been other -- some puts and takes in terms of what you're focused on?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Well, Jordan, it's probably very similar. The only difference that would make is probably more here in the U.S. than internationally after -- post the Healthscope transaction, but it is all general acute care hospitals.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

A little bit more active domestically, did you say?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Correct.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. And the size of that aggregate pipeline is still in the $5 billion range, would you say?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

That's correct (inaudible) that Healthscope was part of that original $5 billion that we talked about in the last call.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. And then Steve, for you on dry powder. Obviously you've got quite a bit of liquidity, I think you outlined north of $2 billion. But as it relates to your debt to EBITDA target, what do you feel is your dry powder right about now before hitting that target?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Well, we're not constrained by a -- for example, a 5.5 times leverage ratio on a temporary basis. So I'm not quite sure I'm am answering your question, but we can certainly exceed that because of the alternatives we have with the ATM, with other equity offerings, with joint venture type arrangements. So we have upwards of $2 billion available to us that would likely put us at about the 5.5 times range in itself.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. I guess I -- the way I was looking at it is, and I don't know if you view it similarly, but just based on where you stood at the end of the year and where you stand today because you've obviously been using the ATM, just how much you could spend before hitting that threshold? I think that is still your -- the upper limit of your threshold. I don't know maybe you've had some -- temporary flexibility around it, but I think you want to target being around there, I'm just curious how much you would need to -- how much you could spend before hitting that, in your view, based on the returns that you achieve on your investment? Is it probably $1 billion plus or minus?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

It's unlikely that we would get close to that. We're not going to run right up to the edge and then began thinking about replenishing equity or other types of non-debt capital. So it's just not the way we manage the balance sheet or manage the acquisition pipeline.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

You know, Jordan, part of the advantage we have is that all of that acquisitions (inaudible) going to come in one big chunk. So we got the ability to manage the capital needs fairly well.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. Is your -- last question (inaudible) the timing, what does it look like Healthscope plus or minus and the rest of the pipeline, how should we be thinking about that timing?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

The Brookfield and Healthscope people seem pretty confident second quarter and so we are following their their guidance on that. The other major opportunities in the pipeline, we are on a weighted average, expecting some time a little earlier than mid-year. But those are very often beyond our control and can accelerate or as you well know, sometimes go beyond what -- where we expect it.

Okay, thank you guys.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. Thank you, guys.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thanks, Jordan.

Operator

Thank you. And our next question comes from Drew Babin from Baird. Your line is now open.

Drew Babin -- Baird -- Analyst

Hey, good morning.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Morning, Drew.

Drew Babin -- Baird -- Analyst

A question again on sources of capital. Obviously, you hit the ATM in the first quarter or toward the end of last year, I should say. Is the Steward potential JV, the Massachusetts portfolio, something that could be kind of reignite it potentially now that the properties are all leased or is that then kind of moved on from as a potential source of capital?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

No, that is available for the reasons you described.

Drew Babin -- Baird -- Analyst

And I guess how should we think about the cost of equity on doing something like that relative to where your stock trades right now? Obviously, is one, if you had to raise capital today, which would you prefer? (multiple speakers).

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Well, I think (multiple speakers) yeah, on a strictly cost basis, the joint venture with would be less expensive, but that's not necessarily the sole or the primary focus.

Drew Babin -- Baird -- Analyst

Okay. And one more question on Healthscope, the development investments that come along with that, would the lease terms on those be the same as the acquisition itself or would the yields potentially be higher on the developments?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

No, the yields are higher. Contractually higher.

Drew Babin -- Baird -- Analyst

Okay. And one more question, just going back to Steward. I guess how much of the Steward portfolio in place right now is in the same-store coverage ratios that you report? And I guess, if you can give us an update on kind of where Steward stands as a whole and/or just by market as it stands right now?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yeah, Drew, I don't have that first to answer right off the top of my head, but from -- and how is Steward doing, it's doing exceptionally well. Their coverage is over 2 times.

Drew Babin -- Baird -- Analyst

Okay. So, is any of it in the same-store numbers that are in the supplemental?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Yes. There are a total of 13 hospitals that are in the same-store.

Drew Babin -- Baird -- Analyst

Okay. That's helpful. Thank you very much. That's it for me.

Operator

Thank you. And our next question comes from Michael Lewis from SunTrust. Your line is now open.

Michael Lewis -- SunTrust. -- Analyst

Thank you. Your stock price is obviously now higher than when you tapped the ATM, somebody once said to me you shoot the bear when the bear is there. I'm curious if you have thoughts of, kind of, you don't need to, but you could over-equitize the deal and if you have any specific kind of funding assumptions in your guidance that you could share in terms of equity?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

No, the only guidance is, again, we intend to maintain in the model, it's constrained by the 5.5 times leverage and depending on timing, on pricing, on the overall pipeline, because we do look at the $2.5 billion fungibly, then that leverage could be lower than that.

Michael Lewis -- SunTrust. -- Analyst

Okay. In terms of the $350 million of potential redevelopment or expansion opportunities, what will determine if those come to fruition or not? Do you expect all of that to come to fruition? And it sounds like you're not giving specific returns, but is it something well, maybe you won't answer, is it 6% plus returns you expect on this?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Most of that development, I think, will come to fruition. The question is more of a timing standpoint when all the approvals happen and I think that if you look at the -- where we think the yields will be on that is, it will be higher than the 6% range.

Michael Lewis -- SunTrust. -- Analyst

Okay, great. Thank you.

Operator

Thank you. And our next question comes from Derek Johnston of Deutsche Bank. Your line is now open.

Shivani Sood -- Deutsche Bank -- Analyst

Hi, this is Shivani Sood on for Derek Johnson. You guys mentioned that the Australian healthcare system has similarities with the U.S. So can you give us sort of an overview of how you view it versus the U.S. and the EU in terms of a little more details? And the mix between private and public insurance?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Sure. The similarities are that they actually call some of their government reimbursement medicare, they have the same three buckets that we have, they have the federal reimbursement, they have the medicaid-similar type reimbursement and they obviously have the private healthcare insurance reimbursement. The coverage provided by the three different buckets are essentially what they are here in the U.S., about 50% being private insurance and the rest of it being some form of governmental insurance.

The biggest difference is that they do have a universal coverage as opposed to what we have here in the U.S.

Shivani Sood -- Deutsche Bank -- Analyst

Thanks. And then how do you managed -- plan to manage or mitigate any sort of foreign exchange risk as it becomes a bigger factor of the exposure?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

So it's upwards of 100-year lease, so we're not obviously trying to hedge out even the initial term, which is of about 20 years. We do expect that to the extent of any debt that we use, it will be denominated in the Australian dollar.

Shivani Sood -- Deutsche Bank -- Analyst

Thanks so much.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Chad Vanacore from Stifel.

Todd -- Stifel -- Analyst

Hi, good morning. This is Todd (ph) in for Chad Vanacore.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Good morning.

Todd -- Stifel -- Analyst

Morning. So could you help me (ph) get the size of the market and investment opportunities in Australia and New Zealand?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

I'm sorry, would you repeat the question? Would -- about the size of the total market?

Todd -- Stifel -- Analyst

Yeah, yeah, exactly.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yes. It is substantially larger than the the roughly $900 million that we've committed to at this particular point. (multiple speakers) and Healthscope in particular, they've got about 43 hospitals, the transaction that they're doing here is 11 with us and 11 with with another healthcare REIT. So there are more opportunities there, they have more greenfield opportunities with them there and obviously, there are other operators. So we think that we've got good opportunity to grow in Australia, we don't think that we're limited to the roughly $1 billion that we're putting in at this point.

Todd -- Stifel -- Analyst

Okay. So what would be the geographic makeup of your portfolio at the end of 2019 or 2020?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Well, that's a good question. It depends on how successful we are in all the various things that we're working on right now. I think that we probably will be more heavily weighted in the U.S. than I had anticipated at the end of the last quarter. I'd like to see our mix being closer to a 70-30 type range, 70-30, 65-35 something like that. But I think that we probably will be much closer to a 75-25 ratio by the end of the year.

Todd -- Stifel -- Analyst

So there is a $350 million development opportunities embedded with this transaction. How much would you take on in 2019 and what is the timing of that?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Very little, relatively speaking, would be in 2019, especially considering that that the earliest the transaction closes at mid-year. So most of this will be in the early years of the lease but relatively little in 2019, we expect.

Todd -- Stifel -- Analyst

Okay, that's helpful. You also mentioned the cap rates and the cost of capital are both lower outside the U.S. Could you comment on spread in this transaction and how does that compare to sort of your US. opportunities?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

You know, the spreads are very similar to what we are getting in the U.S., where our spreads range anywhere from our total portfolio from 200 basis points to 350 basis points and we think that we'll continue to get those types of spreads internationally as well as domestically.

Todd -- Stifel -- Analyst

And how would the portfolio coverage change with the Healthscope transaction?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

How would the portfolio coverage, the EBITDARM coverage -- I don't think it will change it at all, I think it will still be in the same range.

Todd -- Stifel -- Analyst

Okay. And you are still expecting a 7.5% average yield for the acquisitions still? Should we model kind of a higher cap rate for the reminder of the acquisition pipeline this year?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

No, I think that's still the right range for -- on a GAAP basis.

Todd -- Stifel -- Analyst

Okay, that's great. Thank you.

Operator

Thank you. Our next question comes from Tayo Okusanya from Jefferies. Your line is now open.

Tayo Okusanya -- Jefferies Group -- Analyst

Hi, yes. Good morning, gentlemen.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Good morning, Tayo.

Tayo Okusanya -- Jefferies Group -- Analyst

Congratulations on the transaction.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thank you very much.

Tayo Okusanya -- Jefferies Group -- Analyst

It's good to see you in another part of the world. Questions, so I know that NorthWest also kind of did a similar transaction with Healthscope, 11 properties, $1.2 billion as well. But I'm trying to understand if there are any key differences between your transaction and theirs, given that on their deal, they're quoting a 5% cap rate.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Tayo, I think the transactions are very similar. Some of the biggest differences, I think are our cost of capital is much cheaper than NorthWest, but I obviously haven't seen the documentation for theirs, but I would imagine that it was very similar.

Tayo Okusanya -- Jefferies Group -- Analyst

The (inaudible) it was very similar, that means -- is the cap rates similar then versus your transaction or I mean, you guys have kind of talked about a range of that 7.5% to 8.5% on this deal, they're kind of quoting 5%. So I'm just -- I think the NorthWest deal is closing -- quoting 5% (multiple speakers).

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

To be clear, Tayo, the 7.5% to 8.5% is the blended rate what we said last quarter when we announced the $1.42 to $1.46, that's based on a pipeline that would, on the average, yield a GAAP blended rate of 7.5% to 8.5%. So for example, if the first deal we did was a 6.5%, depending on how big that deal was, the next deal maybe a 7.5% or an 8% and be much bigger, that would continue then to yield the blended rate of 7.5% to 8.5%.

Tayo Okusanya -- Jefferies Group -- Analyst

Okay. That's (multiple speakers).

Edward K. Aldag -- Chairman, President and Chief Executive Officer

And Tayo, it's obviously a very important for us in our negotiations with existing and future clients not to give specific about every single transaction because every single transaction is different and you can't just point out one particular part of the transaction. And so that's why we're not giving you -- everyone specifics about the cap rate on this transaction or others.

Tayo Okusanya -- Jefferies Group -- Analyst

That is perfectly fair, totally understand that. Okay, so that's number one. And then number two, could you just (inaudible) a bit again of why guidance didn't change, it sounded like there was a December deal you dropped out of your guidance range and now you maybe brought this transaction into 2019. Just (inaudible) about the puts and -- the puts -- the pluses and minuses and then why guidance overall didn't change for '19 despite the higher acquisition outlook?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Well, the biggest issue, as Steve pointed out in his previous wording was that we had a transaction that we thought was going to close at the end the year and be producing income for us for all of 2019, that didn't happen. So that was the only negative that we had. The other positives that we've had is that we've had reductions in cost of capital and a much quicker Healthscope transaction than we thought we were going to have and a larger amount of acquisitions than we thought we were going to have in 2018 -- I mean '19.

Tayo Okusanya -- Jefferies Group -- Analyst

Okay. And I know (inaudible) OK, that is helpful. And then one more, again, I know you are very close to being Superman, but again it's Australia, Germany and Alabama, how do you kind of plan to manage all these given your current staff?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Well, remember, Tayo, that it's all triple net leased properties. So we don't have to be there on a daily basis. We obviously will be there to review our properties on a regular basis, but it's not something we have to be there on a daily basis. Our team is very well versed in the Australian market, they are very well versed in Healthscope and not just these properties, but all of the Healthscope properties. And we'll get the same type of reporting that we get from our other properties. So we have our -- we now have a staff in Luxembourg, that's about 15 people and obviously we've got a much larger staff here in the United States, in Birmingham and in New York and we have the ability to get there, not on a moment's notice, it does take a little bit longer, but we do plan on being there on a regular basis.

Tayo Okusanya -- Jefferies Group -- Analyst

Sounds good there. Thank you very much.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thanks, Tayo.

Operator

Thank you. Our next question is going to come from Karin Ford from MUFG Securities. Your line is now open.

Karin Ford -- MUFG Securities -- Analyst

Hi, good morning.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Hi, Karin.

Karin Ford -- MUFG Securities -- Analyst

Hi. Can you tell us where you think -- what rate you think you could raise long-term debt today in Australia and in the U.S.? And have you issued anything under the ATM in January?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

10-year unsecured bonds in the U.S., Karin, probably in the low to mid-fives, unsecured loans in Australia, in the low threes.

Karin Ford -- MUFG Securities -- Analyst

Got it. And should we model in any more ATM?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

I'm sorry, didn't answer that part of it. Yes, that's half of the raise, the $200 million raise was in January.

Karin Ford -- MUFG Securities -- Analyst

Okay, got it. Next question was just also more for modeling than anything else. It looks like the depreciation and amortization add back for FFO purposes was about $6.5 million higher than the expense line. I assume that's due to the Primonial JV that's now in other income. I wanted to see if I could reiterate the request that you guys got last quarter for more JV disclosure, just so we can more effectively model out those lines.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yes, you may renew the request and I will commit to next quarter meeting that request.

Karin Ford -- MUFG Securities -- Analyst

Okay, great. And am I correct that the reason for the discrepancies to JV (multiple speakers)?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Yeah, you're correct in your assumption.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Ye.

Karin Ford -- MUFG Securities -- Analyst

Okay, great. And then just last question, do you have any update on Waterland sale of the operations for Median?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

No, they haven't announced anything and there's just not enough to report there at this point.

Karin Ford -- MUFG Securities -- Analyst

Okay, thank you.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thanks, Karin.

Operator

Thank you. Our next question comes from Todd Stender from Wells Fargo. Your line is now open.

Todd Stender -- Wells Fargo -- Analyst

Hi, good morning. Thank you.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Good morning, Todd.

Todd Stender -- Wells Fargo -- Analyst

I don't know if I missed this, how many master leases, and I guess that was the wording, are the 11 Healthscope hospitals spread across?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Three, of which the the first and primary master lease has about 80% of the portfolio.

Todd Stender -- Wells Fargo -- Analyst

Okay, got it. And have you guys disclosed the EBITDARM coverage that those are underwritten at?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

I think it's out there and it's about 2.25 times.

Todd Stender -- Wells Fargo -- Analyst

Okay. With expectations that it rises closer to your portfolio average or generically, it's going to be tighter like it is in Europe, I guess, in Australia?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yeah, generically, it will be tighter, it won't get up to the 3.6 times we are now.

Todd Stender -- Wells Fargo -- Analyst

Okay, thank you. And then probably for Steve, the cash you're holding on the balance sheet, if that's from the German post-acute care hospitals that you sold into the joint venture, if that's held in Europe, can that be deployed into the Australian acquisition? I wasn't sure if there was any tax ramifications or repatriating the cash, any nuances to that?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Well, a portion, frankly, a minority portion is held in Europe. Most of it's in U.S. dollars and we have some flexibility. The fact is we need the euros there. So it's unlikely that we would take euros and convert Australian dollars, it's just not necessary. Again, keeping in mind that we look upon this entire $2.5 billion 2019 pipeline fungibly.

Todd Stender -- Wells Fargo -- Analyst

So deploying a lot of that cash is fair to say, from Q4, the Q4 balance, OK.

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Right. That plus $200 million in U.S. dollars raised in the ATM.

Todd Stender -- Wells Fargo -- Analyst

In equity, OK. Okay, great. Thank you.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thanks, Todd.

Operator

Thank you. And our next question comes from Jason Idoine from RBC Capital Markets. Your line is now open.

Jason Idoine -- RBC Capital Markets -- Analyst

Hi, thanks. Yeah, I was wondering what the main attributes that you guys look for before you enter into international markets are?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yeah, well the first one is rule of law, the second one is their commitment to healthcare and the third one is how the healthcare is funded and -- historically, and how it's done.

Jason Idoine -- RBC Capital Markets -- Analyst

And so with Australia, you thought that all of those were relatively similar to the U.S. so it's a natural fit?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yeah, don't necessarily have to be similar to the U.S., obviously rule of law does, they obviously passed that one easily. Their commitment to healthcare is probably better than what we've seen here in the U.S. and we're very comfortable and had been watching Australia for over 10 years from a historical and where we think it is going forward.

Jason Idoine -- RBC Capital Markets -- Analyst

Okay. And in terms of competition for deals, could you provide some details on the differences between international and domestic markets?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Internationally, we see a lot more sovereign wealth funds and big insurance companies, they move very slow. We are still much -- more nimble than they are even at $10 billion in assets, but that's primarily what our competition is.

Jason Idoine -- RBC Capital Markets -- Analyst

Got you. Okay, thank you very much.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is going to be from Michael Mueller from JPMorgan. Your line is now open.

Michael Mueller -- JPMorgan. -- Analyst

Thanks. Just a quick one for Steve. From an accounting standpoint, are you straight-lining just the 20-year lease, the initial term or are you factoring in some option periods as well?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

it's only the initial term.

Michael Mueller -- JPMorgan. -- Analyst

Got it, OK. That was it. Thank you.

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Thank you.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thanks, Mike.

Operator

Thank you. Our next question comes from Jordan Sadler from KeyBanc Capital Markets. Your line is now open.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

I just wanted to come back to a question on Healthscope. Did you guys have the opportunity or the interest level to look at the entire property portfolio that ended up getting split up?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Well, we certainly had the interest level and continue to think that we'll be able to grow with Brookfield in this particular portfolio, but the only 50% of it is what we were offered.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. And did you say that the escalate -- did you give the number on the escalators? Is it similar to what was disclosed by the other capital provider?

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Yes.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

I think it was maybe 2.5%?

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Yeah, I think (inaudible) that other press release, yes.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. And I think that was -- that was all I had for you. Appreciate it.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thanks, Jordan.

Operator

Thank you. I'm not showing any further questions. I would now like to turn the call over to Ed Aldag for further remarks.

Edward K. Aldag -- Chairman, President and Chief Executive Officer

Thank you very much, operator. And we appreciate all of your interest today. And as always, if you have any further questions after the call, don't hesitate to give us a call. Thank you very much.

Duration: 40 minutes

Call participants:

Charles Lambert -- Managing Director

Edward K. Aldag -- Chairman, President and Chief Executive Officer

R. Steven Hamner -- Chief Financial Officer, Executive Vice President, Director

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Drew Babin -- Baird -- Analyst

Michael Lewis -- SunTrust. -- Analyst

Shivani Sood -- Deutsche Bank -- Analyst

Todd -- Stifel -- Analyst

Tayo Okusanya -- Jefferies Group -- Analyst

Karin Ford -- MUFG Securities -- Analyst

Todd Stender -- Wells Fargo -- Analyst

Jason Idoine -- RBC Capital Markets -- Analyst

Michael Mueller -- JPMorgan. -- Analyst

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