Medical Properties Trust Reit Inc (MPW) Q3 2021 Earnings Call Transcript

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Medical Properties Trust Reit Inc (MPW -8.68%)
Q3 2021 Earnings Call
Oct 28, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2021 Medical Properties Trust Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host today, Charles Lambert. Thank you. Please go ahead.

Charles R. Lambert -- Vice President, Treasurer and Managing Director of Capital Markets

Thank you. Good morning, and welcome to the Medical Properties Trust conference call to discuss our third quarter 2021 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.

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

Thank you, Charles, and thank all of you for listening in today for our third quarter 2021 earnings call. During the month of September, we made two announcements that are significant milestones for MPT. Steve will go over each of these in detail in a few moments, but it is important for me to put them in context. The first one was a partnership with Macquarie Infrastructure Partners V for eight Steward hospitals in Massachusetts. These transactions alone reflect a number of very strong points. MPT has always referred to and thought of our hospitals as important parts of any community's infrastructure. As part of our underwriting, we investigate the importance of each facility to that specific community.

As most of you know, Macquarie is one of the world's leading infrastructure investors. They too believe the premise that most hospitals are an important part of a community's infrastructure. When Macquarie researched the world's leading experts in hospital investing, they turned to MPT. In the words of one of their executives, MPT is the clear leader, and there really isn't a number two. When we purchased the Massachusetts Hospitals five years ago, the cap rate on these leases was in the mid-7% range and has escalated since then. The value of these hospitals that we agreed with Macquarie was based on a market cap rate in the mid-5% range, reflecting our unique underwriting expertise, Steward's operating skills and a market for hospital real estate that is rapidly attracting sophisticated private investors.

These conditions establish a whole new value for our entire portfolio not just the Massachusetts Hospitals. We are excited about this relationship with Macquarie, and we hope to be able to grow it together. And while we are not making any additional announcements today, we are encouraged about opportunities we have seen for similar relationships with other institutional investors in other markets. The next announcement is the pending acquisition by HCA of the operations of the Steward Utah hospitals. Steward acquired these hospitals in an MPT financed acquisition as a part of its acquisition of IASIS in 2017. Over the last four years, Steward has done an outstanding job of growing the top and bottom lines for these facilities.

As a part of its transaction with Steward, HCA has agreed to enter into a new master lease with MPT for these facilities paying the same rent and annual escalators for the real estate as Steward is currently paying. Like the Macquarie transaction, this transaction provided reinforcement on the value of MPT's real estate by sophisticated third parties along with the validation of the strong performance of these Steward hospitals. Upon the closing of these two transactions, Steward's concentration for MPT will have been reduced to approximately 18%. More importantly, no stand-alone Steward regional market will represent more than 6%, and no single Steward operated property will represent more than 2% of our pro forma assets.

Our largest single investment approximating 3% of our assets will then be operated by HCA. In 2019, the last year before the pandemic, MPT's acquisitions totaled approximately $4.5 billion. In 2020, during the heart of the pandemic, MPT's acquisitions totaled approximately $3.6 billion, and year-to-date, in 2021, we have acquired approximately $3.7 billion of additional investments. We have done this with the strategic use of JV capital, common equity through underwritten offerings in the ATM, selective dispositions, funds received from opportunistic debt repayments to MPT, debt offerings with historic low interest rates and retention of earnings by the virtue of a very prudent AFFO dividend payout ratio. We continue to have a robust pipeline that we will execute selectively while effectively utilizing the most efficient sources of capital.

Before speaking to the operated performance, I'd like to mention a special award that speaks to the importance MPT places on corporate culture. As we announced in late September, MPT ranked as the fifth best place to work for millennials, according to Modern Healthcare's Best Places to Work 2021. This was based on an employee survey conducted by an independent third party, in which our overall employee engagement score of 98% was recorded, and in which particularly strong marks related to employee satisfaction and confidence in management were communicated by our employees across the board. Our most important asset is our people, and we are proud that our employee base is satisfied across multiple measures of our internal social responsibility.

As MPT has grown over the years, we have attempted to show the performance of our portfolio in a number of ways. Many years back, we instituted a same-store analysis. When we were growing so fast and our total assets were much smaller than they are now, this approach made more sense. It was structured to show performance without undue influence from the newly acquired facilities. As we've gotten much larger, both in terms of total assets in dollars and in a number of facilities, the accumulation of additional properties in any one period no longer creates the spikes up or down that could be misleading. We have, therefore, decided from this point forward that we will report total portfolio without regard to when facilities are acquired.

But these statistics will still exclude facilities where, a, no detailed individual hospital operating statistics are required under the lease. Now it's important to point out that each of these leases do provide overall information on the parent company or aggregated hospital performance. This can include leases we inherited or master leases guaranteed or master or guaranteed leases with investment-grade tenants such as UCHealth, Ochsner, Ramsay and a few others. There are approximately 80 facilities in this category; or b, our facilities that are so new to our portfolio, their reporting requirements have not yet begun like Priory and Springstone. There are approximately 70 facilities in this category; or c, facilities that are under development. There are currently only two facilities in this category. Our tenants' results for the past 12 months are very strong.

These results include the grants, but not the advances that were received by our hospital operators. For the past 12 months, our acute care hospital portfolio generated an EBITDARM coverage of slightly more than three times. The LTACH segment generated an EBITDARM coverage of more than 3.25 times and the IRF coverage for the trailing 12 months was approximately 2.15 times. Now some specific updates on some of our largest operators. Circle, which represents 11% of our portfolio continues to show strong coverages. Their coverages for the second quarter in 2021 was substantially more than it was in the fourth quarter of 2020, which was also a strong quarter. Circle continues to have a strong liquidity position. And as a reminder, the American Insurance Company, Centene, which already owned an interest in Circle is now the 100% owner of Circle. Earnest, which represents 3% of our portfolio continue to perform at the very top of the market. Their coverages for both their IRFs and LTACHs are approaching three times. Like Circle, they too have a very strong liquidity position.

Healthscope, which represents 5% of our portfolio is seeing some of its best EBITDARM coverages since our acquisition of these facilities in June of 2019. LifePoint, which represents 5% of our portfolio continues to outperform. Their EBITDARM coverages continue to be one of the highest in our portfolio and grew significantly from the first quarter to the second quarter on a trailing 12-month basis. LifePoint has a very strong liquidity position. And as a side note for LifePoint, some of you may have seen their announcement this week that after the Kindred acquisition, LifePoint will split into -- split the company into two separate companies. We will have facilities with both companies, and we have worked very close with LifePoint to ensure that MPT will retain its strong position within both of these companies. Median, which represents 5% of our portfolio continues its rock-steady performance.

Median performed superbly throughout the pandemic and continues along that path today. Their liquidity position also remains very strong. Prime, which represents 5% of our portfolio continues its stellar performance. Their EBITDARM coverage is at the very top of our portfolio. Prime is one of the strongest liquidity positions of any of our operators. On a very important additional note, St. Michael's Hospital in Newark, New Jersey, operated by Prime Healthcare was rated the number two most socially responsible hospital in America by Lown Institute Hospital Index based on measures related to health outcomes, value and equity. This is in addition to Prime itself being ranked as the fifth most socially responsible hospital operator in the U.S. We are proud of what our facilities and our operators mean to the communities they serve.

Priory, which represents 5% of our portfolio, reports that their operations continue to improve from 2020. They have experienced some labor issues in a few of their locations, but it is not a companywide issue. Our underwriting showed a 2020 EBITDARM coverage of approximately two times. Management reports thus far indicated a coverage for 2021, generally in line with this number. We'll begin getting detailed reports from Priory in the near future. Prospect, which reports -- which represents 7% of our portfolio is showing its best EBITDARM coverage to date. Their liquidity too remains very strong. Steward, which pro forma represents 8% of our portfolio is generating its strongest EBITDARM coverages to date, well in excess of 2.5 times. I would also like to point out, Steward received recognition for ranking first in membership, tied for first in quality and earned the second highest shared savings payout of 513 participants in the CMS Medicare Shared Savings Program.

As the nation's largest physician-led healthcare network, an Accountable Care Organization, Steward generated more than $68 million in total 2020 Medicare cost savings while receiving a perfect 100% quality rating amid the challenges of the COVID-19 global pandemic. All across the board, our operators continue to perform with outstanding results. In some general news regarding operations across our various regions, our domestic operators saw volumes rebound in the first half of 2020 to 2019 numbers. In Europe, private hospital systems are increasingly viewed as solutions for backlogs of elective procedures caused by the pandemic. Patient volumes continue to normalize there as operations continue to perform well. In Australia, 70% of eligible citizens are now fully vaccinated, triggering Phase two of Australia's reopening. Most of Australia expects to be fully opened by the end of this year. Most hospitals are currently operating at normal levels. In Colombia, occupancy rates remain high and surgeries have increased substantially over the last several months. The moratorium on high complexity and elective surgeries in Bogota ended in July.

At this time, I'll ask Steve to go over the details of our financial results. Steve?

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

Thank you, Ed. This morning, we reported normalized FFO of $0.44 per diluted share for the third quarter of 2021, along with adjusted FFO per share of $0.34. From the end of 2019 through 2021 year-to-date, MPT is among a very small handful of large cap REITs that continue to deliver double-digit growth on a per share basis. When considered along with our low 80s percent AFFO payout ratio, our access to abundant attractively priced capital and growing acquisition opportunities in virtually all of our markets, MPT offers near- and long-term immediately accretive asset, revenue and dividend growth that is not available for most REITs. And that's exactly what the activities of the third quarter so abundantly demonstrated. Before I discuss these activities, I will point out a few minor items that impacted our reported results.

First, as is the case every quarter, we recognized a change in the market value of our investment in the securities of Aevis, the parent of our tenant Swiss Medical Network, an $800,000 gain for this quarter. Second, we wrote off $3.6 million in straight-line rent and other costs related to properties that were sold during the quarter for an aggregate of about $42 million. Aside from these routine reporting adjustments, we realized gains on these transactions of about $9.3 million. As we have previously explained, GAAP requires us to present as MPT expenses, certain costs, even though they are contractual obligations of and we are reimbursed by our tenants. These charges amounted to approximately $4 million for the quarter, and we included this amount in property-related expenses and offsetting revenue of a similar amount in our income statement. Finally, again, as required by GAAP, we have reclassified the book value of the Massachusetts Hospitals that are pending contribution to our joint venture with Macquarie to real estate held for sale on the balance sheet. So beginning with the July completion of our five hospital $900 million expansion into South Florida, I'll highlight the near- and long-term importance of our recent transactions which, for the most part, we have previously announced.

The primary appeal of the South Florida hospitals is their long-standing historical and future importance to very in -- densely populated and growing communities with significant barriers to new development and alternative healthcare facilities. Looking forward, we are excited about Steward's plans to raise the bar for care in these facilities and improve their financial results to position them for long-term success. Importantly, as part of our agreements with Steward concerning these hospitals, Steward made early elections to extend our master lease agreement for all Steward hospitals by 10 years to the year 2041. It is important to view this exciting new acquisition in conjunction with the $1.78 billion Massachusetts joint venture with Macquarie and the $1.2 billion HCA retenanting of Steward's Utah hospitals. Upon completion of these transactions, and completion is not assured, MPT will have access to approximately $1.3 billion in attractively priced capital, greatly diversified its tenant mix, introduced HCA as a top five tenant in the MPT portfolio of world-class hospital operators and accretively recycled JV proceeds into these irreplaceable hospital facilities in the country's seventh largest metropolitan area. I'll take a few minutes to review details of these two transactions, and I'll be happy to take questions in just a few minutes.

On September 1, we announced an agreement by which a 50-50 partnership formed with a subsidiary of Macquarie Infrastructure Partners will purchase from MPT, eight Massachusetts-based general acute hospitals operated by Steward for approximately $1.78 billion. This is a portfolio that, from being on the verge of closing in 2010, is now a coherent network of award-winning hospitals that has proven remarkably resilient in its delivery of care and its financial performance throughout our period of investment. MPT recognized in its underwriting prior to our initial investment in 2016 that the communities served truly depended on these particular hospitals, and that Steward's operating model was likely to drive substantial value creation. And five years later, after a substantial independent diligence process, Macquarie recognized the same dynamic, both in terms of the value of the real estate and in what Steward has created. Coincidentally, and later in September, we announced an agreement to lease five hospitals in Utah currently operated by Steward to HCA Healthcare upon the closing of Steward's related planned sale to HCA of the hospital's operations. In a manner similar to MPT's investment in the Massachusetts Hospitals, in 2017, we underwrote these Utah hospitals to their full potential in the context of Steward's model.

Actual cash flow not only created strong rent coverage, but facilitated MPT's ability to refinance its initial mortgage loan investment with a larger and much preferable sale-leaseback structure reflective of full market real estate value without compromising coverage. Fast forward to today, HCA Healthcare, one of the premier hospital operators in the world, has agreed to rental payments and purchase obligations that validate the real estate values that MPT previously underwrote. Just a relevant reminder. Since 2016, we have underwritten and invested $4.4 billion in 40 hospitals leased to Steward in six major and independent market areas. Over that period, we have been paid more than $1.2 billion in rent and interest, and our shareholders have been rewarded with growing dividends and share value. The size, credit characteristics and market diversification of this assembled portfolio is what allowed us during the third quarter to orchestrate the tremendous value enhancement represented by the Massachusetts and Utah transactions and the recycling into the Florida hospitals. So just to wrap up our recent activities. Last week, we closed on our acquisition of 18 inpatient behavioral hospitals master leased to Springstone across several U.S. states for a total of $760 million. These facilities are purpose-built behavioral hospitals in carefully selected communities and very well run, a unique portfolio that we have been observing for several years.

We also invested $190 million to own a 49% interest in the operator. Similar but infrequent opco investments we have made in the past have been extraordinarily successful. Because the level of investment is typically relatively small, the benefits are sometimes more about having competitive advantages in a process being run to sell an operator whose assets are heavily weighted toward hospital real estate than simply a nominal return. Nonetheless, our results are almost uniformly strongly profitable. Many of you will remember our double-digit IRRs from Ernest Health, Capella, now LifePoint and others. And just this month, we realized similar returns from the sale of our equity interest in Median Kliniken and separately in German acute care operator, ATOS Clinics. While our investment in these operators were not material amounts, we realized very attractive gains. More importantly, only because we were willing to underwrite and make these investments years ago were we in a position to then acquire more than EUR1.5 billion in high-quality hospital real estate that we still own.

When it comes to our investments in Steward and Swiss Medical, among others, and now Springstone, which collectively represent a very small percentage of our overall investment base, we gain a great deal of alignment and insight. But an expectation for future capital gains is always part of our equation. I should also mention that we closed in late October on an EUR18 million cancer treatment center in Portugal, leased to an affiliate of Atrius Health. This complements our inaugural investment in Portugal in late 2019 and adds to our foothold in that nation's growing private healthcare market. And we remain active in and enthusiastic about Continental Europe, the United Kingdom, Australia and South America. Finally, I will comment on both our current and pro forma balance sheets. Funding for the Steward South Florida and Springstone investments was sourced with a combination of existing cash as well as short-term borrowing resources, including a $1 billion interim line of credit, which we expect will be repaid in full upon completion of the announced Macquarie partnership.

The resulting net debt-to-EBITDA ratio, taking all of this into account is expected to be 6.3 times. As we think about this ratio relative to our historical five to six times range, which has not changed, we remind investors that more than half of our investing activity since the end of 2018 has been outside of the U.S. and that in order to cost efficiently and naturally hedge most of our related currency exposure and to take advantage of very attractive international debt markets, we have funded more than 75% of these international investments with non-U.S. dollar long-term unsecured debt at low rates, as is evidenced by our recent EUR500 million unsecured notes offering at a coupon of less than 1%. Because of this and with no detriment to current liquidity, our net debt to EBITDA has temporarily and predictably fluctuated to levels outside our long-term target. Acquisitions in 2021 have been more heavily weighted to high-quality U.S. facilities for which our history has generally been heavier use of equity funding. So we expect to see continued reduction in our leverage ratio.

But in stark contrast to prior years where follow-on equity was sometimes the only way to accomplish this, we now have more flexibility today with a vibrant and growing direct investment market for infrastructure like hospitals with our ATM use, with the $22 billion balance sheet that provides opportunities for selective property sales and with earnings retained over and above our low AFFO payout ratio. As a reminder, our run rate guidance of $1.81 to $1.85 per diluted share is an estimate of the expected annual FFO for our in-place assets as of today, plus other assets that are either under development or subject to binding acquisition agreements that are obviously not included in third quarter results. These items, in addition to the impact of the announced Macquarie partnership and additional assumptions related to reducing leverage to near six times, underpin our current guidance range. Beyond this, we assume no other investments or capital markets transactions, and we'll plan to update the market in the future as they occur. The bedrock of our history of total shareholder return outperformance is the compounded effect of a well-covered dividend as well as growth in per share cash earnings, all within certain self-imposed and long-term parameters that keep our leverage very much in line with other healthcare REITs.

With that, I'll turn the call back to the operator for questions. Erica?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Jonathan Hughes with Raymond James.

Jonathan Hughes -- Raymond James -- Analyst

Hey, good morning. Thanks for the time. I know you are limited a bit in what you can say. But could you share some high-level commentary on the soon-to-be HCA Utah facilities and the option for you to sell them to HCA? I mean, could those effectively become like an ATM vehicle, where if, for some reason in the future, the public market doesn't provide you with an attractive or appropriate cost of equity capital, you could sell those to HCA to generate capital for other investments?

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

So that's a very good perspective. And it actually is the way, if we were to so elect, that it could work. I think in our announcement, we actually disclosed there's a put option that we have. We haven't -- we haven't disclosed the total details of it. But at a minimum, that we can put the properties to HCA at no less than fair value. There's actually a floor that we're unable to disclose, but it's a very attractive option for us and provides us the liquidity flexibility that you just described.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And I assume that put option here is -- it's a unique feature to this deal, because you don't have a meaningful equity stake in the operator unlike some of the other large relationships you have.

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

Well, the put option is not normally something we have in our leases. I'm not sure that's necessarily related to less than 10% equity stakes in certain of our operators, but you're absolutely correct in that it's something of a unique feature.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And then one more for me. Looking at the other funding source, the debt side. Your run rate net debt-to-EBITDA assumes six turns. But I think the pandemic and some recent actions proved your underwriting as well as the stability and safety of hospitals. And Steve, I realize you did talk about the leverage target in your prepared remarks.

But have you considered running leverage maybe a little higher, like closer to seven turns, since it does seem like your hospitals could handle it? You can raise international debt at pretty low rates. So it just seems like an interesting way to lower your overall cost of capital and drive further accretion from investments. Just curious to hear your thoughts on that front.

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

So again, it's a fair observation. I mean, it's just arithmetic from that perspective. At this point though, and for the long-term future, we think we'll retain that five to six times target. And there are good reasons for that. We're still growing very rapidly. We want to be able to react quickly to potential acquisitions. Sometimes these are very large acquisitions. And if we're already running up toward the top of what is a prudent leverage range, then sometimes we don't have the flexibility to react quickly.

So that's just one reason why we think the five to six times range is appropriate. Another is we are a public company. There is a calculus. I'm not sure it can be precisely expressed, but there is a calculus between share value and leverage. And we think another reason for that five to 6 times is that's probably the fulcrum for keeping our equity valuation at a point where we think it's appropriate.

Jonathan Hughes -- Raymond James -- Analyst

Okay. I appreciate the caller and take your time.

Operator

Next question comes from Jordan Sadler with KeyBanc Capital Markets.

Arthur Mario Porto -- KeyBanc Capital Markets -- Analyst

Hey. This is Arthur Porto on for Jordan. My first question is on the investment pipeline to 2022. If you could just provide some color on geography, asset type and pricing and maybe the overall scale of the pipeline?

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

Sure. The pipeline remains extremely strong. We continue to work a pipeline in the $3 billion to $5 billion range. That doesn't mean we have $3 billion to $5 billion of acquisitions to make, but it's an active pipeline. But having said that, we haven't given any sort of indications of what we think will close for the remainder of the year. We've done $3.7 billion so far this year. We're very happy with where we are right now. The vast majority of that property, of that pipeline is general acute care hospitals. It's located all throughout our existing markets. We've got some additional things that we know that we're working on with some of our existing operators that will certainly come to fruition in the next couple of quarters. So that's where we are right now.

Arthur Mario Porto -- KeyBanc Capital Markets -- Analyst

Great. And I just have a follow-up question. This is on lease escalators. So your leases are typically tied to CPI escalators. If you could just please quantify the size of the increase that we might expect to see in 2022? That would be great.

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

They are. Roughly half of the properties have some sort of collar with a minimum floor and a maximum CPI. And then the rest of them are essentially unlimited CPI. So obviously, it will -- it will depend with where inflation ends up. And it will -- whatever it is, it will probably be within the cap -- I mean, the collar for the 50%. So somewhere in the range of actual CPI.

Arthur Mario Porto -- KeyBanc Capital Markets -- Analyst

Ok. Thanks for that.

Operator

Your next question comes from Mike Mueller with JPMorgan.

Mike Mueller -- JPMorgan -- Analyst

Hi. And I know you said the proceeds weren't all that material from the German operator sales, but can you give us just a ballpark rough range of what's the amount of proceeds?

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

It's really immaterial. I mean just in a range, we're talking less than EUR20 million.

Mike Mueller -- JPMorgan -- Analyst

Got it. Okay. And then thinking about the Macquarie transaction with Steward and that JV. How close, if we're thinking about what the next bidder was relative to the five, six cap cash rate, can you give us a sense as to just how close to number two came to number one?

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

It was a very competitive process. There were multiple indications of interest. We're not able to rank them publicly, of course, but had we not come to an agreement quickly with Macquarie, we would have had alternatives.

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

Some of the offers or some of the interested parties were above and below, but it was the relationship and our thought that Macquarie would move very quickly and work well with us.

Mike Mueller -- JPMorgan -- Analyst

Got it. Okay and with that, Thank you.

Operator

Your next question comes from John Pawlowski with Green Street.

John Pawlowski -- Green Street -- Analyst

Great. Thanks for taking my questions. Maybe just a few follow-up questions on the state of the transaction market following the Macquarie deal. Cap rates seem to be compressing across real estate with anything with a durable cash flow profile. So curious, these next few years where you think you'll have to be acquiring assets on a one-off basis given the state of the transaction market.

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

Well, a great question that I certainly can't answer with any precision other than to point to the most recent history. And that is we continue to be able to make acquisitions at very attractive cap rates, certainly significantly above the valuation that we got on the Massachusetts transaction and the last big joint venture we did with Primonial in Germany, we continue to be able to harvest these gains. Part of that is because we -- we're the foundation of this market. We don't have a lot of competition. Now that's growing as more and more investors and investment managers see the opportunities here, but we still are able to acquire, to assemble, to season a portfolio and then take it to the market selectively as we've done.

John Pawlowski -- Green Street -- Analyst

Okay. Great. And just so I understand the nature of the bidding tents, to your point, you're a big player or often B player in the market. Deals you'd like to acquire that fit your quality criteria for just general acute care hospitals and you bid on, what percentage of deals do you lose? And what -- in those rare instances, who are the type of entities that can outbid you?

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

Well, that's a good question. We rarely lose deals that we want. The most recent, and that's not very recent would be a European transaction in a specific country where the investor was a local investor that was willing to pay substantially more than we were willing to pay with some government funding involved in their access as well. So we truly very seldom lose a transaction that we want. And it's not just on price. It is on our knowledge of hospitals and the operator's very excited and interested in working with someone that actually understands their business.

John Pawlowski -- Green Street -- Analyst

Okay. Understood. Thank you for the time.

Operator

Your next question comes from Joshua Dennerlein with Bank of America.

Joshua Dennerlein -- Bank of America -- Analyst

I guess kind of two follow-ups here. One on the inflation front, I just want to double check which CPI index should we watch? Is it total CPI? Is it like a specialty index related to healthcare? And then also what's kind of the lag for when the increased inflation would flow through your financials or your leases?

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

So it's total CPI. And the vast majority of our leases all readjusted the first of the year. So you'd see the rent increases in January.

Joshua Dennerlein -- Bank of America -- Analyst

Okay. Okay. Great. And then -- On the HCA transaction, I wanted to follow up on that put option. And I believe they also have the right to buy the assets back from you. Is that -- Is that something we should expect more of in future acquisitions? Or is this kind of unique to the HCA transaction?

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

No, that's -- contrary to what I said about our put option. That's relatively common to have some type of pre-emptive option at the end of the lease term where an operator can assure itself that at the end of the lease term, that operator is not going to lose its hospital. Because, obviously, hospitals, they can't just pick up and move down the street. Licenses are specific to specific locations. And so there has always been in many, if not most of our leases, some type of pre-emption at the end of the term, and that is almost always based on the greater of the then fair value or our gross investment. So even before considering depreciation, we would not take a loss if the operator typically would exercise that repurchase option.

Joshua Dennerlein -- Bank of America -- Analyst

Okay. Okay

Operator

[Operator Instructions] Your next question comes from the line of David Toti with Colliers Securities.

David Toti -- Colliers Securities -- Analyst

My questions have been answered. Thank you.

Operator

Your next question comes from the line of Jason Iodine (sic) Idoine with RBC Capital Markets.

Jason Iodine (sic) Idoine -- RBC Capital Markets -- Analyst

You guys have done a good job of reducing the Steward concentration. Just wondering what the outlook is for that relationship and if you plan to continue reducing it naturally over time or kind of where we go from here?

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

Yes, Jason, we do plan on continuing to reduce it over time just as part of the natural progression. Those of you that have been with us a long time may recall that Prime Healthcare at one time was our largest tenant. We continue to do business with Prime, but we also continue to add to -- add additional properties and different operators. So Prime now is way down in their total percentage of our portfolio. We expect that to be the same thing with Steward. We will continue to do additional business with them. But as a percent of our overall portfolio, we expect that to continue to decline.

Jason Iodine (sic) Idoine -- RBC Capital Markets -- Analyst

Okay. And then just thinking about funding. So what would be the plan to fund future investments. I guess, is there a preference for either a JV transaction or equity issuance?

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

No, there's no preconceived preference for any particular as yet unidentified acquisition. What we've announced both in our prepared remarks and the press release has been really to describe the options that we now have that as a smaller, younger company, we didn't always have. We do have, as you point out, joint venture opportunities. The ATM is a much more efficient way of raising common equity than perhaps what we had in the past. But we still have those opportunities also, if there's a big transaction and we need to fill in the holes with an overnight underwritten offering.

We can do that given market conditions. There are sale proceeds as we've talked about. Our first question pointed out something that, again, I thought was perceptive about this unique structure of the HCA lease, gives us total flexibility on that. So we have lots of options. And at the time we begin looking at an acquisition that we have some confidence is going to close, then we'll decide what's the best, most efficient way to fund any particular transaction.

Jason Iodine (sic) Idoine -- RBC Capital Markets -- Analyst

Okay. Thanks

Operator

At this time, there are no further questions. I'll turn the call to Ed Aldag for closing remarks.

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

Thank you, operator. And we greatly appreciate everybody listening in today. We always appreciate your interest. If you have any additional questions, please don't hesitate to reach out to us later in the day. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Charles R. Lambert -- Vice President, Treasurer and Managing Director of Capital Markets

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

R. Steven Hamner -- Executive Vice President and Chief Financial Officer

Jonathan Hughes -- Raymond James -- Analyst

Arthur Mario Porto -- KeyBanc Capital Markets -- Analyst

Mike Mueller -- JPMorgan -- Analyst

John Pawlowski -- Green Street -- Analyst

Joshua Dennerlein -- Bank of America -- Analyst

David Toti -- Colliers Securities -- Analyst

Jason Iodine (sic) Idoine -- RBC Capital Markets -- Analyst

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