UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number001-32559

Commission file number333-177186

MEDICAL PROPERTIES TRUST, INC.

MPT OPERATING PARTNERSHIP, L.P.

(Exact Name of Registrant as Specified in Its Charter)

MARYLAND

DELAWARE

20-0191742

20-0242069

maryland

delaware

20-0191742

20-0242069

(State or other jurisdiction of

incorporation or organization)

(I. R. S. Employer

Identification No.)

1000 URBAN CENTER DRIVE, SUITE 501

BIRMINGHAM, AL

35242

(Address of principal executive offices)

(Zip Code)

(205) 969-3755

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (205) 969-3755

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share, of Medical Properties Trust, Inc.

MPW

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer”, “smaller reporting company,”company” and “emerging growth company” inRule 12b-2 of the Exchange Act.

Large accelerated filer

(Medical Properties Trust, Inc. only)

Accelerated filer

Non-accelerated filer

(MPT Operating Partnership, L.P. only)

Smaller reporting company

  (Do not check if a smaller reporting company)

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No

As of November 3, 2017,May 5, 2023, Medical Properties Trust, Inc. had 364,156,080598.3 million shares of common stock, par value $0.001, outstanding.



EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and nine months ended September 30, 2017,March 31, 2023 of Medical Properties Trust, Inc., a Maryland corporation, and MPT Operating Partnership, L.P., a Delaware limited partnership, through which Medical Properties Trust, Inc. conducts substantially all of its operations. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our company,” “Medical Properties,” “MPT,” or “the company”the “company” refer to Medical Properties Trust, Inc. together with its consolidated subsidiaries, including MPT Operating Partnership, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our operating partnership” or “the operating“operating partnership” refer to MPT Operating Partnership, L.P. together with its consolidated subsidiaries.


MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.

AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017March 31, 2023

Table of Contents

Page

PART I — FINANCIAL INFORMATION

4

3

Item 1 Financial Statements

4

3

Medical Properties Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets at September  30, 2017March 31, 2023 and December 31, 20162022

4

3

Condensed Consolidated Statements of Net Income for the Three Months Ended March 31, 2023 and Nine Months Ended September 30, 2017 and 20162022

5

4

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and Nine Months Ended September 30, 2017 and 20162022

6

5

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022

6

Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2023 and 20162022

7

MPT Operating Partnership, L.P. and Subsidiaries

Condensed Consolidated Balance Sheets at September  30, 2017March 31, 2023 and December 31, 20162022

8

Condensed Consolidated Statements of Net Income for the Three Months Ended March 31, 2023 and Nine Months Ended September 30, 2017 and 20162022

9

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and Nine Months Ended September 30, 2017 and 20162022

10

Condensed Consolidated Statements of Capital for the Three Months Ended March 31, 2023 and 2022

11

Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2023 and 20162022

11

12

Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

12

13

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

28

Item 3 Quantitative and Qualitative Disclosures about Market Risk

41

35

Item 4 Controls and Procedures

42

36

PART II — OTHER INFORMATION

43

38

Item 1 Legal Proceedings

43

38

Item 1A1A Risk Factors

43

38

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

44

38

Item 3 Defaults Upon Senior Securities

44

39

Item 4 Mine Safety Disclosures

44

39

Item 5 Other Information

44

39

Item 6 Exhibits

45

INDEX TO EXHIBITS40

46

SIGNATURE

41

47

2


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Item 1.Financial Statements.

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

  September 30,
2017
 December 31,
2016
 

 

March 31,
2023

 

 

December 31,
2022

 

(In thousands, except per share amounts)  (Unaudited) (Note 2) 

 

(Unaudited)

 

 

(Note 2)

 

Assets

   

 

 

 

 

 

 

Real estate assets

   

 

 

 

 

 

 

Land, buildings and improvements, intangible lease assets, and other

  $5,795,286  $4,317,866 

 

$

13,092,510

 

 

$

13,862,415

 

Investment in financing leases

 

 

1,582,416

 

 

 

1,691,323

 

Real estate held for sale

 

 

881,587

 

 

 

 

Mortgage loans

   1,777,555  1,060,400 

 

 

346,446

 

 

 

364,101

 

Net investment in direct financing leases

   695,829  648,102 
  

 

  

 

 

Gross investment in real estate assets

   8,268,670  6,026,368 

 

 

15,902,959

 

 

 

15,917,839

 

Accumulated depreciation and amortization

   (418,880 (325,125

 

 

(1,207,699

)

 

 

(1,193,312

)

  

 

  

 

 

Net investment in real estate assets

   7,849,790  5,701,243 

 

 

14,695,260

 

 

 

14,724,527

 

Cash and cash equivalents

   188,224  83,240 

 

 

302,321

 

 

 

235,668

 

Interest and rent receivables

   105,817  57,698 

Interest and rent receivables, net

 

 

169,511

 

 

 

167,035

 

Straight-line rent receivables

   166,142  116,861 

 

 

810,911

 

 

 

787,166

 

Investments in unconsolidated real estate joint ventures

 

 

1,506,474

 

 

 

1,497,903

 

Investments in unconsolidated operating entities

 

 

1,310,460

 

 

 

1,444,872

 

Other loans

   151,709  155,721 

 

 

276,367

 

 

 

227,839

 

Other assets

   465,358  303,773 

 

 

578,853

 

 

 

572,990

 

  

 

  

 

 

Total Assets

  $8,927,040  $6,418,536 

 

$

19,650,157

 

 

$

19,658,000

 

  

 

  

 

 

Liabilities and Equity

   

 

 

 

 

 

 

Liabilities

   

 

 

 

 

 

 

Debt, net

  $4,832,264  $2,909,341 

 

$

10,438,151

 

 

$

10,268,412

 

Accounts payable and accrued expenses

   180,631  207,711 

 

 

595,269

 

 

 

621,324

 

Deferred revenue

   18,906  19,933 

 

 

29,391

 

 

 

27,727

 

Lease deposits and other obligations to tenants

   54,035  28,323 
  

 

  

 

 

Obligations to tenants and other lease liabilities

 

 

144,092

 

 

 

146,130

 

Total Liabilities

   5,085,836  3,165,308 

 

 

11,206,903

 

 

 

11,063,593

 

Equity

   

 

 

 

 

 

 

Preferred stock, $0.001 par value. Authorized 10,000 shares; no shares outstanding

   —     —   

Common stock, $0.001 par value. Authorized 500,000 shares; issued and outstanding — 364,084 shares at September 30, 2017 and 320,514 shares at December 31, 2016

   364  321 

Additional paid in capital

   4,330,495  3,775,336 

Distributions in excess of net income

   (468,473 (434,114

Preferred stock, $0.001 par value. Authorized 10,000 shares;
no shares outstanding

 

 

 

 

 

 

Common stock, $0.001 par value. Authorized 750,000 shares;
issued and outstanding —
598,302 shares at March 31, 2023 and
597,476 shares at December 31, 2022

 

 

598

 

 

 

597

 

Additional paid-in capital

 

 

8,541,414

 

 

 

8,535,140

 

Retained (deficit) earnings

 

 

(25,413

)

 

 

116,285

 

Accumulated other comprehensive loss

   (35,165 (92,903

 

 

(74,919

)

 

 

(59,184

)

Treasury shares, at cost

   (777 (262
  

 

  

 

 

Total Medical Properties Trust, Inc. Stockholders’ Equity

   3,826,444  3,248,378 

Total Medical Properties Trust, Inc. stockholders’ equity

 

 

8,441,680

 

 

 

8,592,838

 

Non-controlling interests

   14,760  4,850 

 

 

1,574

 

 

 

1,569

 

  

 

  

 

 

Total Equity

   3,841,204  3,253,228 

 

 

8,443,254

 

 

 

8,594,407

 

  

 

  

 

 

Total Liabilities and Equity

  $8,927,040  $6,418,536 

 

$

19,650,157

 

 

$

19,658,000

 

  

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

3


MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Net Income

(Unaudited)

   For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
 
(In thousands, except per share amounts)  2017  2016  2017  2016 

Revenues

     

Rent billed

  $110,930  $82,387  $311,140  $234,408 

Straight-line rent

   17,505   9,741   46,561   26,509 

Income from direct financing leases

   19,115   14,678   55,307   47,181 

Interest and fee income

   29,030   19,749   86,776   79,756 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

   176,580   126,555   499,784   387,854 

Expenses

     

Real estate depreciation and amortization

   31,915   23,876   88,994   67,850 

Impairment charges

   —     (80  —     7,295 

Property-related

   1,519   (93  4,000   1,592 

Acquisition expenses

   7,434   2,677   20,996   6,379 

General and administrative

   15,011   12,305   43,287   35,821 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   55,879   38,685   157,277   118,937 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   120,701   87,870   342,507   268,917 

Other income (expense)

     

Interest expense

   (42,759  (40,262  (120,498  (121,132

Gain on sale of real estate and other asset dispositions, net

   18   44,616   7,431   61,294 

Earnings (loss) from equity and other interests

   3,384   1,245   7,898   (2,556

Unutilized financing fees/debt refinancing costs

   (4,414  (22,535  (18,794  (22,539

Other income (expense)

   481   99   1,101   (118

Income tax expense

   (530  (490  (783  (1,173
  

 

 

  

 

 

  

 

 

  

 

 

 

Net other expense

   (43,820  (17,327  (123,645  (86,224
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from continuing operations

   76,881   70,543   218,862   182,693 

Loss from discontinued operations

   —     —     —     (1
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

   76,881   70,543   218,862   182,692 

Net income attributable to non-controlling interests

   (417  (185  (1,013  (683
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to MPT common stockholders

  $76,464  $70,358  $217,849  $182,009 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per common share — basic

     

Income from continuing operations attributable to MPT common stockholders

  $0.21  $0.29  $0.63  $0.75 

Loss from discontinued operations attributable to MPT common stockholders

   —     —     —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to MPT common stockholders

  $0.21  $0.29  $0.63  $0.75 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average shares outstanding — basic

   364,315   246,230   345,076   240,607 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per common share — diluted

     

Income from continuing operations attributable to MPT common stockholders

  $0.21  $0.28  $0.63  $0.75 

Loss from discontinued operations attributable to MPT common stockholders

   —     —     —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to MPT common stockholders

  $0.21  $0.28  $0.63  $0.75 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average shares outstanding — diluted

   365,046   247,468   345,596   241,432 
  

 

 

  

 

 

  

 

 

  

 

 

 

Dividends declared per common share

  $0.24  $0.23  $0.72  $0.68 
  

 

 

  

 

 

  

 

 

  

 

 

 

 

For the Three Months
Ended March 31,

 

(In thousands, except per share amounts)

2023

 

 

2022

 

Revenues

 

 

 

 

 

Rent billed

$

248,157

 

 

$

263,402

 

Straight-line rent

 

56,693

 

 

 

61,044

 

Income from financing leases

 

13,195

 

 

 

51,776

 

Interest and other income

 

32,166

 

 

 

33,578

 

Total revenues

 

350,211

 

 

 

409,800

 

Expenses

 

 

 

 

 

Interest

 

97,654

 

 

 

91,183

 

Real estate depreciation and amortization

 

83,860

 

 

 

85,316

 

Property-related

 

7,110

 

 

 

8,598

 

General and administrative

 

41,724

 

 

 

41,424

 

Total expenses

 

230,348

 

 

 

226,521

 

Other (expense) income

 

 

 

 

 

Gain on sale of real estate

 

62

 

 

 

451,638

 

Real estate and other impairment charges

 

(89,538

)

 

 

(4,875

)

Earnings from equity interests

 

11,352

 

 

 

7,338

 

Debt refinancing and unutilized financing costs

 

 

 

 

(8,816

)

Other (including fair value adjustments on securities)

 

(5,166

)

 

 

14,762

 

Total other (expense) income

 

(83,290

)

 

 

460,047

 

 

 

 

 

 

 

Income before income tax

 

36,573

 

 

 

643,326

 

Income tax expense

 

(3,543

)

 

 

(11,379

)

 

 

 

 

 

 

Net income

 

33,030

 

 

 

631,947

 

Net income attributable to non-controlling interests

 

(236

)

 

 

(266

)

Net income attributable to MPT common stockholders

$

32,794

 

 

$

631,681

 

 

 

 

 

 

 

Earnings per common share — basic and diluted

 

 

 

 

 

Net income attributable to MPT common stockholders

$

0.05

 

 

$

1.05

 

 

 

 

 

 

 

Weighted average shares outstanding — basic

 

598,302

 

 

 

598,676

 

Weighted average shares outstanding — diluted

 

598,310

 

 

 

598,932

 

 

 

 

 

 

 

Dividends declared per common share

$

0.29

 

 

$

0.29

 

See accompanying notes to condensed consolidated financial statements.

4


MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

  For the Three Months
Ended September 30,
 For the Nine Months
Ended September 30,
 

 

For the Three Months
Ended March 31,

 

(In thousands)  2017 2016 2017 2016 

 

2023

 

 

2022

 

Net income

  $76,881  $70,543  $218,862  $182,692 

 

$

33,030

 

 

$

631,947

 

Other comprehensive income:

     

 

 

 

 

 

 

Unrealized gain on interest rate swap

   —    854   —    2,494 

Foreign currency translation gain

   17,426  4,450  57,738  10,354 
  

 

  

 

  

 

  

 

 

Unrealized (loss) gain on interest rate swaps, net of tax

 

 

(15,325

)

 

 

44,932

 

Foreign currency translation gain (loss)

 

 

28,143

 

 

 

(13,215

)

Reclassification of interest rate swap gain from AOCI, net of tax

 

 

(28,553

)

 

 

 

Total comprehensive income

   94,307  75,847  276,600  195,540 

 

 

17,295

 

 

 

663,664

 

Comprehensive income attributable to non-controlling interests

   (417 (185 (1,013 (683

 

 

(236

)

 

 

(266

)

  

 

  

 

  

 

  

 

 

Comprehensive income attributable to MPT common stockholders

  $93,890  $75,662  $275,587  $194,857 

 

$

17,059

 

 

$

663,398

 

  

 

  

 

  

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

5


MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash FlowsEquity

(Unaudited)

   For the Nine Months
Ended September 30,
 
(In thousands)  2017  2016 

Operating activities

   

Net income

  $218,862  $182,692 

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

   93,805   69,720 

Amortization of deferred financing costs and debt discount

   4,748   5,799 

Direct financing lease interest accretion

   (7,276  (6,757

Straight-line rent revenue

   (47,678  (27,009

Share-based compensation

   7,148   5,832 

Gain from sale of real estate and other asset dispositions, net

   (7,431  (61,294

Impairment charges

   —     7,295 

Straight-line rent and other write-off

   1,117   3,063 

Unutilized financing fees/debt refinancing costs

   18,794   22,539 

Other adjustments

   (7,152  (8,398

Changes in:

   

Interest and rent receivables

   (14,613  (12,790

Accounts payable and accrued expenses

   (40,378  (12,403
  

 

 

  

 

 

 

Net cash provided by operating activities

   219,946   168,289 

Investing activities

   

Cash paid for acquisitions and other related investments

   (2,152,069  (213,100

Net proceeds from sale of real estate

   64,362   198,767 

Principal received on loans receivable

   6,760   804,809 

Investment in loans receivable

   (18,574  (102,909

Construction in progress and other

   (52,953  (139,336

Investment in unsecured senior notes

   —     (50,000

Proceeds from sale of unsecured senior notes

   —     50,000 

Other investments, net

   (73,982  (52,701
  

 

 

  

 

 

 

Net cash (used for) provided by investing activities

   (2,226,456  495,530 

Financing activities

   

Proceeds from term debt

   2,355,280   1,000,000 

Payments of term debt

   (688,221  (515,221

Revolving credit facilities, net

   155,089   (1,100,000

Distributions paid

   (239,211  (160,060

Lease deposits and other obligations to tenants

   (7,467  13,784 

Proceeds from sale of common shares, net of offering costs

   548,055   1,024,088 

Debt issuance costs paid and other financing activities

   (27,167  (31,317
  

 

 

  

 

 

 

Net cash provided by financing activities

   2,096,358   231,274 
  

 

 

  

 

 

 

Increase in cash and cash equivalents for period

   89,848   895,093 

Effect of exchange rate changes

   15,136   4,283 

Cash and cash equivalents at beginning of period

   83,240   195,541 
  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $188,224  $1,094,917 
  

 

 

  

 

 

 

Interest paid

  $131,708  $120,374 

Supplemental schedule of non-cash investing activities:

   

(Decrease) increase in development project construction costs incurred, not paid

  $(9,036 $17,458 

Supplemental schedule of non-cash financing activities:

   

Distributions declared, not paid

  $87,519  $58,333 

 

 

Preferred

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

 

Shares

 

 

Par
Value

 

 

Shares

 

 

Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings
(Deficit)

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Non-
Controlling
Interests

 

 

Total
Equity

 

Balance at December 31, 2022

 

 

 

 

$

 

 

 

597,476

 

 

$

597

 

 

$

8,535,140

 

 

$

116,285

 

 

$

(59,184

)

 

$

1,569

 

 

$

8,594,407

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,794

 

 

 

 

 

 

236

 

 

 

33,030

 

Unrealized loss on interest rate swaps,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,325

)

 

 

 

 

 

(15,325

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,143

 

 

 

 

 

 

28,143

 

Reclassification of interest rate swap
  gain to earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,553

)

 

 

 

 

 

(28,553

)

Stock vesting and amortization of
   stock-based compensation

 

 

 

 

 

 

 

 

1,325

 

 

 

1

 

 

 

11,828

 

 

 

 

 

 

 

 

 

 

 

 

11,829

 

Stock vesting - satisfaction of tax
   withholdings

 

 

 

 

 

 

 

 

(499

)

 

 

 

 

 

(5,554

)

 

 

 

 

 

 

 

 

 

 

 

(5,554

)

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(231

)

 

 

(231

)

Dividends declared ($0.29 per
   common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(174,492

)

 

 

 

 

 

 

 

 

(174,492

)

Balance at March 31, 2023

 

 

 

 

$

 

 

 

598,302

 

 

$

598

 

 

$

8,541,414

 

 

$

(25,413

)

 

$

(74,919

)

 

$

1,574

 

 

$

8,443,254

 

 

 

Preferred

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share amounts)

 

Shares

 

 

Par
Value

 

 

Shares

 

 

Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings
(Deficit)

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Non-
Controlling
Interests

 

 

Total
Equity

 

Balance at December 31, 2021

 

 

 

 

$

 

 

 

596,748

 

 

$

597

 

 

$

8,564,009

 

 

$

(87,691

)

 

$

(36,727

)

 

$

5,483

 

 

$

8,445,671

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

631,681

 

 

 

 

 

 

266

 

 

 

631,947

 

Unrealized gain on interest rate swaps,
   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,932

 

 

 

 

 

 

44,932

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,215

)

 

 

 

 

 

(13,215

)

Stock vesting and amortization of
   stock-based compensation

 

 

 

 

 

 

 

 

3,107

 

 

 

3

 

 

 

11,801

 

 

 

 

 

 

 

 

 

 

 

 

11,804

 

Stock vesting - satisfaction of tax
   withholdings

 

 

 

 

 

 

 

 

(1,179

)

 

 

(1

)

 

 

(27,918

)

 

 

 

 

 

 

 

 

 

 

 

(27,919

)

Issuance of non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

929

 

 

 

929

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(772

)

 

 

(772

)

Dividends declared ($0.29 per
   common share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(174,018

)

 

 

 

 

 

 

 

 

(174,018

)

Balance at March 31, 2022

 

 

 

 

$

 

 

 

598,676

 

 

$

599

 

 

$

8,547,892

 

 

$

369,972

 

 

$

(5,010

)

 

$

5,906

 

 

$

8,919,359

 

See accompanying notes to condensed consolidated financial statements.

6


MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

For the Three Months
Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

Net income

 

$

33,030

 

 

$

631,947

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

87,586

 

 

 

88,760

 

Amortization of deferred financing costs and debt discount

 

 

4,014

 

 

 

5,285

 

Straight-line rent revenue and other

 

 

(58,566

)

 

 

(75,385

)

Stock-based compensation

 

 

11,829

 

 

 

11,804

 

Gain on sale of real estate

 

 

(62

)

 

 

(451,638

)

Real estate and other impairment charges

 

 

89,538

 

 

 

4,875

 

Straight-line rent and other write-off (recovery)

 

 

2,192

 

 

 

(2,271

)

Debt refinancing and unutilized financing costs

 

 

 

 

 

8,816

 

Tax rate changes and other

 

 

(7,305

)

 

 

 

Other adjustments

 

 

(8,505

)

 

 

(1,040

)

Changes in:

 

 

 

 

 

 

Interest and rent receivables

 

 

(514

)

 

 

(12,431

)

Other assets

 

 

(2,493

)

 

 

(41

)

Accounts payable and accrued expenses

 

 

(15,696

)

 

 

(21,648

)

Deferred revenue

 

 

600

 

 

 

(7,646

)

Net cash provided by operating activities

 

 

135,648

 

 

 

179,387

 

Investing activities

 

 

 

 

 

 

Cash paid for acquisitions and other related investments

 

 

(72,900

)

 

 

(724,795

)

Net proceeds from sale of real estate

 

 

100

 

 

 

1,711,608

 

Principal received on loans receivable

 

 

221,876

 

 

 

6,355

 

Investment in loans receivable

 

 

(50,000

)

 

 

(10,414

)

Construction in progress and other

 

 

(13,292

)

 

 

(36,115

)

Capital additions and other investments, net

 

 

(68,606

)

 

 

(67,605

)

Net cash provided by investing activities

 

 

17,178

 

 

 

879,034

 

Financing activities

 

 

 

 

 

 

Payments of term debt

 

 

 

 

 

(869,606

)

Revolving credit facilities, net

 

 

95,919

 

 

 

(198,599

)

Dividends paid

 

 

(176,580

)

 

 

(176,494

)

Lease deposits and other obligations to tenants

 

 

(2,691

)

 

 

15,168

 

Stock vesting - satisfaction of tax withholdings

 

 

(5,554

)

 

 

(27,919

)

Payment of debt refinancing, deferred financing costs, and other financing activities

 

 

(219

)

 

 

(6,366

)

Net cash used for financing activities

 

 

(89,125

)

 

 

(1,263,816

)

Increase (decrease) in cash, cash equivalents, and restricted cash for period

 

 

63,701

 

 

 

(205,395

)

Effect of exchange rate changes

 

 

2,927

 

 

 

(4,721

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

241,538

 

 

 

461,882

 

Cash, cash equivalents, and restricted cash at end of period

 

$

308,166

 

 

$

251,766

 

Interest paid

 

$

116,436

 

 

$

111,012

 

Supplemental schedule of non-cash financing activities:

 

 

 

 

 

 

Dividends declared, unpaid

 

$

174,492

 

 

$

174,018

 

Cash, cash equivalents, and restricted cash are comprised of the following:

 

 

 

 

 

 

Beginning of period:

 

 

 

 

 

 

Cash and cash equivalents

 

$

235,668

 

 

$

459,227

 

Restricted cash, included in Other assets

 

 

5,870

 

 

 

2,655

 

 

 

$

241,538

 

 

$

461,882

 

End of period:

 

 

 

 

 

 

Cash and cash equivalents

 

$

302,321

 

 

$

248,846

 

Restricted cash, included in Other assets

 

 

5,845

 

 

 

2,920

 

 

 

$

308,166

 

 

$

251,766

 

See accompanying notes to condensed consolidated financial statements.

7


MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

  September 30,
2017
 December 31,
2016
 

 

March 31,
2023

 

 

December 31,
2022

 

(In thousands)  (Unaudited) (Note 2) 

 

(Unaudited)

 

 

(Note 2)

 

Assets

   

 

 

 

 

 

 

Real estate assets

   

 

 

 

 

 

 

Land, buildings and improvements, intangible lease assets, and other

  $5,795,286  $4,317,866 

 

$

13,092,510

 

 

$

13,862,415

 

Investment in financing leases

 

 

1,582,416

 

 

 

1,691,323

 

Real estate held for sale

 

 

881,587

 

 

 

 

Mortgage loans

   1,777,555  1,060,400 

 

 

346,446

 

 

 

364,101

 

Net investment in direct financing leases

   695,829  648,102 
  

 

  

 

 

Gross investment in real estate assets

   8,268,670  6,026,368 

 

 

15,902,959

 

 

 

15,917,839

 

Accumulated depreciation and amortization

   (418,880 (325,125

 

 

(1,207,699

)

 

 

(1,193,312

)

  

 

  

 

 

Net investment in real estate assets

   7,849,790  5,701,243 

 

 

14,695,260

 

 

 

14,724,527

 

Cash and cash equivalents

   188,224  83,240 

 

 

302,321

 

 

 

235,668

 

Interest and rent receivables

   105,817  57,698 

Interest and rent receivables, net

 

 

169,511

 

 

 

167,035

 

Straight-line rent receivables

   166,142  116,861 

 

 

810,911

 

 

 

787,166

 

Investments in unconsolidated real estate joint ventures

 

 

1,506,474

 

 

 

1,497,903

 

Investments in unconsolidated operating entities

 

 

1,310,460

 

 

 

1,444,872

 

Other loans

   151,709  155,721 

 

 

276,367

 

 

 

227,839

 

Other assets

   465,358  303,773 

 

 

578,853

 

 

 

572,990

 

  

 

  

 

 

Total Assets

  $8,927,040  $6,418,536 

 

$

19,650,157

 

 

$

19,658,000

 

  

 

  

 

 

Liabilities and Capital

   

 

 

 

 

 

 

Liabilities

   

 

 

 

 

 

 

Debt, net

  $4,832,264  $2,909,341 

 

$

10,438,151

 

 

$

10,268,412

 

Accounts payable and accrued expenses

   92,793  132,868 

 

 

420,387

 

 

 

444,354

 

Deferred revenue

   18,906  19,933 

 

 

29,391

 

 

 

27,727

 

Lease deposits and other obligations to tenants

   54,035  28,323 

Obligations to tenants and other lease liabilities

 

 

144,092

 

 

 

146,130

 

Payable due to Medical Properties Trust, Inc.

   87,448  74,453 

 

 

174,492

 

 

 

176,580

 

  

 

  

 

 

Total Liabilities

   5,085,446  3,164,918 

 

 

11,206,513

 

 

 

11,063,203

 

Capital

   

 

 

 

 

 

 

General Partner — issued and outstanding — 3,641 units at September 30, 2017 and 3,204 units at December 31, 2016

   38,639  33,436 

Limited Partners:

   

Common units — issued and outstanding — 360,443 units at September 30, 2017 and 317,310 units at December 31, 2016

   3,823,360  3,308,235 

LTIP units — issued and outstanding — 292 units at September 30, 2017 and December 31, 2016

   —     —   

General Partner — issued and outstanding — 5,984 units at
March 31, 2023 and
5,976 units at December 31, 2022

 

 

85,244

 

 

 

86,599

 

Limited Partners — issued and outstanding — 592,318 units at
March 31, 2023 and
591,500 units at December 31, 2022

 

 

8,431,745

 

 

 

8,565,813

 

Accumulated other comprehensive loss

   (35,165 (92,903

 

 

(74,919

)

 

 

(59,184

)

  

 

  

 

 

Total MPT Operating Partnership, L.P. Capital

   3,826,834  3,248,768 

Total MPT Operating Partnership, L.P. capital

 

 

8,442,070

 

 

 

8,593,228

 

Non-controlling interests

   14,760  4,850 

 

 

1,574

 

 

 

1,569

 

  

 

  

 

 

Total Capital

   3,841,594  3,253,618 

 

 

8,443,644

 

 

 

8,594,797

 

  

 

  

 

 

Total Liabilities and Capital

  $8,927,040  $6,418,536 

 

$

19,650,157

 

 

$

19,658,000

 

  

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

8


MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Net Income

(Unaudited)

   For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
 
(In thousands, except per unit amounts)  2017  2016  2017  2016 

Revenues

     

Rent billed

  $110,930  $82,387  $311,140  $234,408 

Straight-line rent

   17,505   9,741   46,561   26,509 

Income from direct financing leases

   19,115   14,678   55,307   47,181 

Interest and fee income

   29,030   19,749   86,776   79,756 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

   176,580   126,555   499,784   387,854 

Expenses

     

Real estate depreciation and amortization

   31,915   23,876   88,994   67,850 

Impairment charges

   —     (80  —     7,295 

Property-related

   1,519   (93  4,000   1,592 

Acquisition expenses

   7,434   2,677   20,996   6,379 

General and administrative

   15,011   12,305   43,287   35,821 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   55,879   38,685   157,277   118,937 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   120,701   87,870   342,507   268,917 

Other income (expense)

     

Interest expense

   (42,759  (40,262  (120,498  (121,132

Gain on sale of real estate and other asset dispositions, net

   18   44,616   7,431   61,294 

Earnings (loss) from equity and other interests

   3,384   1,245   7,898   (2,556

Unutilized financing fees/debt refinancing costs

   (4,414  (22,535  (18,794  (22,539

Other income (expense)

   481   99   1,101   (118

Income tax expense

   (530  (490  (783  (1,173
  

 

 

  

 

 

  

 

 

  

 

 

 

Net other expense

   (43,820  (17,327  (123,645  (86,224
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from continuing operations

   76,881   70,543   218,862   182,693 

Loss from discontinued operations

   —     —     —     (1
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

   76,881   70,543   218,862   182,692 

Net income attributable to non-controlling interests

   (417  (185  (1,013  (683
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to MPT Operating Partnership partners

  $76,464  $70,358  $217,849  $182,009 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per unit — basic

     

Income from continuing operations attributable to MPT Operating Partnership partners

  $0.21  $0.29  $0.63  $0.75 

Loss from discontinued operations attributable to MPT Operating Partnership partners

   —     —     —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to MPT Operating Partnership partners

  $0.21  $0.29  $0.63  $0.75 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average units outstanding — basic

   364,315   246,230   345,076   240,607 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per unit — diluted

     

Income from continuing operations attributable to MPT Operating Partnership partners

  $0.21  $0.28  $0.63  $0.75 

Loss from discontinued operations attributable to MPT Operating Partnership partners

   —     —     —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to MPT Operating Partnership partners

  $0.21  $0.28  $0.63  $0.75 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average units outstanding — diluted

   365,046   247,468   345,596   241,432 
  

 

 

  

 

 

  

 

 

  

 

 

 

Dividends declared per unit

  $0.24  $0.23  $0.72  $0.68 
  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

For the Three Months
Ended March 31,

 

(In thousands, except per unit amounts)

 

2023

 

 

2022

 

Revenues

 

 

 

 

 

 

Rent billed

 

$

248,157

 

 

$

263,402

 

Straight-line rent

 

 

56,693

 

 

 

61,044

 

Income from financing leases

 

 

13,195

 

 

 

51,776

 

Interest and other income

 

 

32,166

 

 

 

33,578

 

Total revenues

 

 

350,211

 

 

 

409,800

 

Expenses

 

 

 

 

 

 

Interest

 

 

97,654

 

 

 

91,183

 

Real estate depreciation and amortization

 

 

83,860

 

 

 

85,316

 

Property-related

 

 

7,110

 

 

 

8,598

 

General and administrative

 

 

41,724

 

 

 

41,424

 

Total expenses

 

 

230,348

 

 

 

226,521

 

Other (expense) income

 

 

 

 

 

 

Gain on sale of real estate

 

 

62

 

 

 

451,638

 

Real estate and other impairment charges

 

 

(89,538

)

 

 

(4,875

)

Earnings from equity interests

 

 

11,352

 

 

 

7,338

 

Debt refinancing and unutilized financing costs

 

 

 

 

 

(8,816

)

Other (including fair value adjustments on securities)

 

 

(5,166

)

 

 

14,762

 

Total other (expense) income

 

 

(83,290

)

 

 

460,047

 

 

 

 

 

 

 

 

Income before income tax

 

 

36,573

 

 

 

643,326

 

Income tax expense

 

 

(3,543

)

 

 

(11,379

)

 

 

 

 

 

 

 

Net income

 

 

33,030

 

 

 

631,947

 

Net income attributable to non-controlling interests

 

 

(236

)

 

 

(266

)

Net income attributable to MPT Operating Partnership partners

 

$

32,794

 

 

$

631,681

 

 

 

 

 

 

 

 

Earnings per unit — basic and diluted

 

 

 

 

 

 

Net income attributable to MPT Operating Partnership partners

 

$

0.05

 

 

$

1.05

 

 

 

 

 

 

 

 

Weighted average units outstanding — basic

 

 

598,302

 

 

 

598,676

 

Weighted average units outstanding — diluted

 

 

598,310

 

 

 

598,932

 

 

 

 

 

 

 

 

Dividends declared per unit

 

$

0.29

 

 

$

0.29

 

See accompanying notes to condensed consolidated financial statements.

9


MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

  For the Three Months
Ended September 30,
 For the Nine Months
Ended September 30,
 

 

For the Three Months
Ended March 31,

 

(In thousands)  2017 2016 2017 2016 

 

2023

 

 

2022

 

Net income

  $76,881  $70,543  $218,862  $182,692 

 

$

33,030

 

 

$

631,947

 

Other comprehensive income:

   

 

 

 

 

 

 

Unrealized gain on interest rate swap

   —    854   —    2,494 

Foreign currency translation gain

   17,426  4,450  57,738  10,354 
  

 

  

 

  

 

  

 

 

Unrealized (loss) gain on interest rate swaps, net of tax

 

 

(15,325

)

 

 

44,932

 

Foreign currency translation gain (loss)

 

 

28,143

 

 

 

(13,215

)

Reclassification of interest rate swap gain from AOCI, net of tax

 

 

(28,553

)

 

 

 

Total comprehensive income

   94,307  75,847  276,600  195,540 

 

 

17,295

 

 

 

663,664

 

Comprehensive income attributable to non-controlling interests

   (417 (185 (1,013 (683

 

 

(236

)

 

 

(266

)

  

 

  

 

  

 

  

 

 

Comprehensive income attributable to MPT Operating Partnership Partners

  $93,890  $75,662  $275,587  $194,857 
  

 

  

 

  

 

  

 

 

Comprehensive income attributable to MPT Operating Partnership
partners

 

$

17,059

 

 

$

663,398

 

See accompanying notes to condensed consolidated financial statements.

10


MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash FlowsCapital

(Unaudited)

   For the Nine Months
Ended September 30,
 
(In thousands)  2017  2016 

Operating activities

   

Net income

  $218,862  $182,692 

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

   93,805   69,720 

Amortization of deferred financing costs and debt discount

   4,748   5,799 

Direct financing lease interest accretion

   (7,276  (6,757

Straight-line rent revenue

   (47,678  (27,009

Unit-based compensation

   7,148   5,832 

Gain from sale of real estate and other asset dispositions, net

   (7,431  (61,294

Impairment charges

   —     7,295 

Straight-line rent and other write-off

   1,117   3,063 

Unutilized financing fees/debt refinancing costs

   18,794   22,539 

Other adjustments

   (7,152  (8,398

Changes in:

   

Interest and rent receivables

   (14,613  (12,790

Accounts payable and accrued expenses

   (40,378  (12,403
  

 

 

  

 

 

 

Net cash provided by operating activities

   219,946   168,289 

Investing activities

   

Cash paid for acquisitions and other related investments

   (2,152,069  (213,100

Net proceeds from sale of real estate

   64,362   198,767 

Principal received on loans receivable

   6,760   804,809 

Investment in loans receivable

   (18,574  (102,909

Construction in progress and other

   (52,953  (139,336

Investment in unsecured senior notes

   —     (50,000

Proceeds from sale of unsecured senior notes

   —     50,000 

Other investments, net

   (73,982  (52,701
  

 

 

  

 

 

 

Net cash (used for) provided by investing activities

   (2,226,456  495,530 

Financing activities

   

Proceeds from term debt

   2,355,280   1,000,000 

Payments of term debt

   (688,221  (515,221

Revolving credit facilities, net

   155,089   (1,100,000

Distributions paid

   (239,211  (160,060

Lease deposits and other obligations to tenants

   (7,467  13,784 

Proceeds from sale of units, net of offering costs

   548,055   1,024,088 

Debt issuance costs paid and other financing activities

   (27,167  (31,317
  

 

 

  

 

 

 

Net cash provided by financing activities

   2,096,358   231,274 
  

 

 

  

 

 

 

Increase in cash and cash equivalents for period

   89,848   895,093 

Effect of exchange rate changes

   15,136   4,283 

Cash and cash equivalents at beginning of period

   83,240   195,541 
  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $188,224  $1,094,917 
  

 

 

  

 

 

 

Interest paid

  $131,708  $120,374 

Supplemental schedule of non-cash investing activities:

   

(Decrease) increase in development project construction costs incurred, not paid

  $(9,036 $17,458 

Supplemental schedule of non-cash financing activities:

   

Distributions declared, not paid

  $87,519  $58,333 

 

 

General

 

 

Limited Partners

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Partner

 

 

Common

 

 

Other

 

 

Non-

 

 

 

 

(In thousands, except per unit amounts)

 

Units

 

 

Unit
Value

 

 

Units

 

 

Unit
Value

 

 

Comprehensive
Loss

 

 

Controlling
Interests

 

 

Total
Capital

 

Balance at December 31, 2022

 

 

5,976

 

 

$

86,599

 

 

 

591,500

 

 

$

8,565,813

 

 

$

(59,184

)

 

$

1,569

 

 

$

8,594,797

 

Net income

 

 

 

 

 

328

 

 

 

 

 

 

32,466

 

 

 

 

 

 

236

 

 

 

33,030

 

Unrealized loss on interest rate swaps, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,325

)

 

 

 

 

 

(15,325

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,143

 

 

 

 

 

 

28,143

 

Reclassification of interest rate swap gain to
   earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,553

)

 

 

 

 

 

(28,553

)

Unit vesting and amortization of unit-based
   compensation

 

 

13

 

 

 

118

 

 

 

1,312

 

 

 

11,711

 

 

 

 

 

 

 

 

 

11,829

 

Unit vesting - satisfaction of tax
   withholdings

 

 

(5

)

 

 

(56

)

 

 

(494

)

 

 

(5,498

)

 

 

 

 

 

 

 

 

(5,554

)

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(231

)

 

 

(231

)

Distributions declared ($0.29 per unit)

 

 

 

 

 

(1,745

)

 

 

 

 

 

(172,747

)

 

 

 

 

 

 

 

 

(174,492

)

Balance at March 31, 2023

 

 

5,984

 

 

$

85,244

 

 

 

592,318

 

 

$

8,431,745

 

 

$

(74,919

)

 

$

1,574

 

 

$

8,443,644

 

 

 

General

 

 

Limited Partners

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Partner

 

 

Common

 

 

Other

 

 

Non-

 

 

 

 

(In thousands, except per unit amounts)

 

Units

 

 

Unit
Value

 

 

Units

 

 

Unit
Value

 

 

Comprehensive
Loss

 

 

Controlling
Interests

 

 

Total
Capital

 

Balance at December 31, 2021

 

 

5,968

 

 

$

84,847

 

 

 

590,780

 

 

$

8,392,458

 

 

$

(36,727

)

 

$

5,483

 

 

$

8,446,061

 

Net income

 

 

 

 

 

6,317

 

 

 

 

 

 

625,364

 

 

 

 

 

 

266

 

 

 

631,947

 

Unrealized gain on interest rate swaps, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,932

 

 

 

 

 

 

44,932

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,215

)

 

 

 

 

 

(13,215

)

Unit vesting and amortization of unit-based
   compensation

 

 

31

 

 

 

118

 

 

 

3,076

 

 

 

11,686

 

 

 

 

 

 

 

 

 

11,804

 

Unit vesting - satisfaction of tax
   withholdings

 

 

(12

)

 

 

(279

)

 

 

(1,167

)

 

 

(27,640

)

 

 

 

 

 

 

 

 

(27,919

)

Issuance of non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

929

 

 

 

929

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(772

)

 

 

(772

)

Distributions declared ($0.29 per unit)

 

 

 

 

 

(1,740

)

 

 

 

 

 

(172,278

)

 

 

 

 

 

 

 

 

(174,018

)

Balance at March 31, 2022

 

 

5,987

 

 

$

89,263

 

 

 

592,689

 

 

$

8,829,590

 

 

$

(5,010

)

 

$

5,906

 

 

$

8,919,749

 

See accompanying notes to condensed consolidated financial statements.

11


MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

For the Three Months
Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

Net income

 

$

33,030

 

 

$

631,947

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

87,586

 

 

 

88,760

 

Amortization of deferred financing costs and debt discount

 

 

4,014

 

 

 

5,285

 

Straight-line rent revenue and other

 

 

(58,566

)

 

 

(75,385

)

Unit-based compensation

 

 

11,829

 

 

 

11,804

 

Gain on sale of real estate

 

 

(62

)

 

 

(451,638

)

Real estate and other impairment charges

 

 

89,538

 

 

 

4,875

 

Straight-line rent and other write-off (recovery)

 

 

2,192

 

 

 

(2,271

)

Debt refinancing and unutilized financing costs

 

 

 

 

 

8,816

 

Tax rate changes and other

 

 

(7,305

)

 

 

 

Other adjustments

 

 

(8,505

)

 

 

(1,040

)

Changes in:

 

 

 

 

 

 

Interest and rent receivables

 

 

(514

)

 

 

(12,431

)

Other assets

 

 

(2,493

)

 

 

(41

)

Accounts payable and accrued expenses

 

 

(15,696

)

 

 

(21,648

)

Deferred revenue

 

 

600

 

 

 

(7,646

)

Net cash provided by operating activities

 

 

135,648

 

 

 

179,387

 

Investing activities

 

 

 

 

 

 

Cash paid for acquisitions and other related investments

 

 

(72,900

)

 

 

(724,795

)

Net proceeds from sale of real estate

 

 

100

 

 

 

1,711,608

 

Principal received on loans receivable

 

 

221,876

 

 

 

6,355

 

Investment in loans receivable

 

 

(50,000

)

 

 

(10,414

)

Construction in progress and other

 

 

(13,292

)

 

 

(36,115

)

Capital additions and other investments, net

 

 

(68,606

)

 

 

(67,605

)

Net cash provided by investing activities

 

 

17,178

 

 

 

879,034

 

Financing activities

 

 

 

 

 

 

Payments of term debt

 

 

 

 

 

(869,606

)

Revolving credit facilities, net

 

 

95,919

 

 

 

(198,599

)

Distributions paid

 

 

(176,580

)

 

 

(176,494

)

Lease deposits and other obligations to tenants

 

 

(2,691

)

 

 

15,168

 

Unit vesting - satisfaction of tax withholdings

 

 

(5,554

)

 

 

(27,919

)

Payment of debt refinancing, deferred financing costs, and other financing activities

 

 

(219

)

 

 

(6,366

)

Net cash used for financing activities

 

 

(89,125

)

 

 

(1,263,816

)

Increase (decrease) in cash, cash equivalents, and restricted cash for period

 

 

63,701

 

 

 

(205,395

)

Effect of exchange rate changes

 

 

2,927

 

 

 

(4,721

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

241,538

 

 

 

461,882

 

Cash, cash equivalents, and restricted cash at end of period

 

$

308,166

 

 

$

251,766

 

Interest paid

 

$

116,436

 

 

$

111,012

 

Supplemental schedule of non-cash financing activities:

 

 

 

 

 

 

Distributions declared, unpaid

 

$

174,492

 

 

$

174,018

 

Cash, cash equivalents, and restricted cash are comprised of the following:

 

 

 

 

 

 

Beginning of period:

 

 

 

 

 

 

Cash and cash equivalents

 

$

235,668

 

 

$

459,227

 

Restricted cash, included in Other assets

 

 

5,870

 

 

 

2,655

 

 

 

$

241,538

 

 

$

461,882

 

End of period:

 

 

 

 

 

 

Cash and cash equivalents

 

$

302,321

 

 

$

248,846

 

Restricted cash, included in Other assets

 

 

5,845

 

 

 

2,920

 

 

 

$

308,166

 

 

$

251,766

 

See accompanying notes to condensed consolidated financial statements.

12


MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing commercialhealthcare real estate. Our operating partnership subsidiary, MPT Operating Partnership, L.P., (the “Operating Partnership”), through which we conduct substantially all of our operations, was formed in September 2003. Through another wholly-owned subsidiary, Medical Properties Trust, LLC, we are the sole general partner of the Operating Partnership. At present, we directly own substantially all of the limited partnership interests in the Operating Partnership and have elected to report our required disclosures and that of the Operating Partnership on a combined basis, except where material differences exist.

We have operatedoperate as a real estate investment trust (“REIT”) since April 6, 2004, and accordingly, elected REIT status upon the filing in September 2005 of the calendar year 2004 federal income tax return.. Accordingly, we willare generally not be subject to federal income tax in the United States (“U.S.”), federal income tax on our REIT taxable income, provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed oursuch taxable income. Certain non-real estate activities we undertake must beare conducted by entities which we elected to be treated as taxable REIT subsidiaries (“TRSs”TRS”). Our TRSsTRS entities are subject to both U.S. federal and state income taxes. For our properties located outside the U.S., we are subject to the local taxes;taxes of the jurisdictions where our properties reside and/or legal entities are domiciled; however, we do not expect to incur additional taxes, of a significant nature, in the U.S. from foreign-based income as the majority of such income will flowflows through our REIT.

Our primary business strategy is to acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned 100%; however, we do own some leased assets through joint ventures with other partners that share our view that healthcare facilities are part of the infrastructure of any community, which we refer to as investments in unconsolidated real estate joint ventures. We also may make mortgage loans to healthcare operators collateralized by their real estate. In addition, we may make noncontrolling investments in our tenants (which we refer to as investments in unconsolidated operating entities), from time-to-time, typically in conjunction with larger real estate transactions with the tenant, which may enhance our overall return and improvements, primarilyprovide for long-term lease to providerscertain minority rights and protections.

Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare services such as operatorsfacilities to unlock the value of their real estate to fund facility improvements, technology upgrades, and other investments in operations. At March 31, 2023, we have investments in 444 facilities in 31 states in the U.S., in seven countries in Europe, one country in South America, and across Australia. Our properties consist of general acute care hospitals, behavioral health facilities, inpatient physical rehabilitation hospitals,facilities, long-term acute care hospitals, surgery centers, centers for treatment of specific conditions such as cardiac, pulmonary, cancer, and neurological hospitals, and other healthcare-orientedfreestanding ER/urgent care facilities. We also make mortgage and other loans to operators of similar facilities. In addition, we may obtain profits or equity interests in our tenants, from time to time, in order to enhance our overall return. We manage our business as a single business segment. All of our properties are located in the U.S. and Europe.

2. Summary of Significant Accounting Policies

Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information, including rules and regulations of the Securities and Exchange Commission.Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentationstatement have been included. Operating results for the three and nine month periodsmonths ended September 30, 2017,March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023. The condensed consolidated balance sheet at December 31, 20162022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We believe the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2023 (particularly as it relates to our assessments of the recoverability of our real estate and the adequacy of our credit loss reserves on loans and financing receivables). Actual results could differ from these estimates for various reasons as outlined in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

13


For information about significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. During the nine months ended September 30, 2017, there were2022. There have been no material changes to these significant accounting policies.

Reclassifications

Recent Accounting Developments:

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. This standard is effective for us beginning January 1, 2018, and we plan to adopt under the modified retrospective approach. We do not expect this standard to have a significant impact on our financial results upon adoption, as a substantial portion of our revenue consists of rental income from leasing arrangements and interest income from loans, which are specifically excluded from ASU No. 2014-09. Under ASU No. 2014-09, we do expect more transactions to qualify as sales of real estate with gains on sales being recognized earlier than under current accounting guidance, as the new guidance is based on transfer of control versus whether or not the seller has continuing involvement. Thus, we expect to record an approximate $2 million adjustment to retained earnings upon adoption of ASU No. 2014-09 to fully recognize a gain on real estate sold in prior years that was required to be deferred under existing accounting guidance.

Clarifying the Definition of a Business

In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 provide an initial screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, in which case, the transaction would be accounted for as an asset acquisition rather than as a business combination. In addition, ASU 2017-01 clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. A reporting entity must apply the amendments in ASU 2017-01 using a prospective approach. We will adopt ASU 2017-01 on January 1, 2018 for our 2018 fiscal year. Upon adoption, we expect to recognize a majority of our real estate acquisitions as asset transactions rather than business combinations, which will resultCertain amounts in the capitalization of third party transaction costs that are directly relatedcondensed consolidated financial statements for prior periods have been reclassified to an acquisition. Indirect and internal transaction costs will continueconform to be expensed, but we do not expect to include these costs as an adjustment in deriving normalized funds from operations in the future. We expect this change in accounting, once adopted, may decrease our normalized funds from operations by $1 million to $2 million per quarter.current period presentation.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.

We expect to adopt this new standard on January 1, 2019. We are continuing to evaluate this standard and the impact to us from both a lessor and lessee perspective. However, we do have leases in which we are the lessee, including ground leases, on which certain of our facilities reside, along with corporate office and equipment leases, that will be required to be recorded on our balance sheet upon adoption of this standard. From a lessor perspective, we do expect certain non-lease components (including property taxes, insurance and other operating expenses that the tenants of our facilities are required to pay pursuant to our “triple-net” leases) to be recorded gross versus net of the respective expenses upon adoption of this standard in 2019 in accordance with ASU No. 2014-09.

Variable Interest Entities

At September 30, 2017,March 31, 2023, we had loans to and/or equity investments in certain variable interest entities (“VIEs”),approximating $425 million, which are also tenants ofrepresents our facilities. We have determined that we are not the primary beneficiary of these VIEs. The carrying value and classification of the related assets and maximum exposure to loss as a result of our involvement with these VIEs at September 30, 2017 are presented below (in thousands):

VIE Type

  Maximum Loss
Exposure(1)
   Asset Type
Classification
  Carrying
Amount(2)
 

Loans, net

  $331,857   Mortgage and other loans  $235,287 

Equity investments

  $13,242   Other assets  $—   

(1)Our maximum loss exposure related to loans with VIEs represents our current aggregate gross carrying value of the loan plus accruedin such entities. We have determined that we were not the primary beneficiary of any variable interest entity in which we hold a variable interest and any other related assets (such as rent receivables), less any liabilities. Our maximum loss exposure related to our equity investment in VIEs represents the current carrying values of such investment plus any other related assets (such as rent receivables) less any liabilities.
(2)Carrying amount reflects the net book value of our loan or equity interest only in the VIE.

For the VIE types above, we do not consolidate the VIE because we do not have the ability to control the activities (such as the day-to-day healthcare operations of our borrower or investees)operations) that most significantly impact the VIE’s economic performance. Asperformance of September 30, 2017, we were not required to provide any material financial support through a liquidity arrangement or otherwise to our unconsolidated VIEs, including circumstances in which it could be exposed to further losses (e.g., cash short falls).these entities.

Typically, our loans are collateralized by assets of the borrower (some assets of which are on the premises of facilities owned by us) and further supported by limited guarantees made by certain principals of the borrower.

See Note 3 and 7 for additional description of the nature, purpose and activities of our more significant VIEs and interests therein, such as Ernest Health, Inc. (“Ernest”).

3. Real Estate and LendingOther Activities

AcquisitionsNew Investments

We acquired or invested in the following net assets (in thousands):

   Nine Months
Ended September 30,
 
   2017   2016 

Assets Acquired

    

Land and land improvements

  $196,094   $13,602 

Building

   987,442    125,744 

Intangible lease assets — subject to amortization (weighted average useful life 28.7 years for 2017 and 19.4 years for 2016)

   128,961    10,754 

Net investments in direct financing leases

   40,450    63,000 

Mortgage loans

   700,000    —   

Equity investments

   100,000    —   

Liabilities assumed

   (878   —   
  

 

 

   

 

 

 

Total assets acquired

  $2,152,069   $213,100 

Loans repaid (1)

   —      (93,262
  

 

 

   

 

 

 

Total net assets acquired

  $2,152,069   $119,838 
  

 

 

   

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Land and land improvements

 

$

9,313

 

 

$

9,671

 

Buildings

 

 

11,652

 

 

 

204,829

 

Intangible lease assets — subject to amortization (weighted-average useful
   life of
28.8 years for 2023 and 13.2 years for 2022)

 

 

1,935

 

 

 

5,461

 

Investments in unconsolidated real estate joint ventures

 

 

 

 

 

399,456

 

Investments in unconsolidated operating entities

 

 

50,000

 

 

 

131,105

 

Liabilities assumed

 

 

 

 

 

(25,727

)

 

 

$

72,900

 

 

$

724,795

 

Loans repaid(1)

 

 

(22,900

)

 

 

 

Total net assets acquired

 

$

50,000

 

 

$

724,795

 

(1)
The 2023 column includes a $23 million mortgage loan to Springstone Health Opco, LLC ("Springstone") that was converted to fee simple ownership of one property as described below.

(1)$93.3 million loans advanced to Capella (now RCCH Healthcare Partners (“RCCH”)) in 2015 and repaid in 2016 as a part of the Capella Transaction discussed below.
2023 Activity

Lifepoint Transaction

The purchase price allocations attributableOn February 7, 2023, a subsidiary of Lifepoint Health, Inc. ("Lifepoint") acquired a majority interest in Springstone (the "Lifepoint Transaction") based on an enterprise value of $250 million. As part of the transaction, we received approximately $205 million in full satisfaction of our initial acquisition loan to the 2017 acquisitionsSpringstone, including accrued interest, and certain acquisitions madewe retained our minority equity investment in the last quarteroperations of 2016 are preliminary. When all relevant information is obtained, resulting changes, if any, toSpringstone. Separately, and as part of our provisional purchase price allocationacquisition in 2021 of Springstone's real estate assets, we converted a mortgage loan into the fee simple ownership of a property in Washington, which will be adjustedleased, along with the other 17 behavioral health hospitals already leased to reflect new information obtained aboutSpringstone, under the facts and circumstances that existed as ofmaster lease agreement. In connection with the respective acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates.

2017 Activity

Steward Transactions

On September 29, 2017, we acquired from IASIS Healthcare LLC (“IASIS”) a portfolio of tenLifepoint Transaction, Lifepoint extended its current lease with us on eight existing general acute care hospitals and one behavioral health facility, alongby five years to 2041.

Other Transactions

As part of an expected series of Prospect Medical Holdings, Inc. ("Prospect") capital restructuring transactions, we originated a $50 million convertible loan to PHP Holdings, the managed care business of Prospect, in the first quarter of 2023. The loan is

14


convertible into equity of PHP Holdings. See subsection titled "Leasing Operations (Lessor)" in this same Note 3 for further information on Prospect.

2022 Activity

Macquarie Transaction

On March 14, 2022, we completed a transaction with ancillary land and buildings,Macquarie Asset Management (“MAM”), an unrelated party, to form a partnership (the “Macquarie Transaction”), pursuant to which we contributed eight Massachusetts-based general acute care hospitals that are located in Arizona, Utah, Texas, and Arkansas. The portfolio is now operated byleased to Steward Health Care System LLC (“Steward”("Steward"), and a fund managed by MAM acquired, for cash consideration, a 50% interest in the partnership. The transaction valued the portfolio at approximately $1.7 billion, and we recognized a gain on sale of real estate of approximately $600 million from this transaction, partially offset by the write-off of unbilled straight-line rent receivables. The partnership raised nonrecourse secured debt of 55% of asset value, and we received proceeds, including from the secured debt, of approximately $1.3 billion. We obtained a 50% interest in the real estate partnership valued at approximately $400 million (included in the "Investments in unconsolidated real estate joint ventures" line of our condensed consolidated balance sheets), which separately completed its acquisitionis being accounted for under the equity method of IASIS on September 29, 2017. Our investment inaccounting.

In connection with this transaction, we separated the portfolio includeseight Massachusetts-based facilities into a new master lease with terms generally identical to the acquisitionother master lease, and the initial fixed lease term of eightboth master leases was extended to 2041.

Other Transactions

On March 11, 2022, we acquired four general acute care hospitals in Finland for €178 million ($194 million). These hospitals are leased to Pihlajalinna pursuant to a long-term lease with annual inflation-based escalators. We acquired these facilities by purchasing the shares of the real estate holding entities, which included deferred income tax and one behavioral health facility forother liabilities of approximately $700$26 million.

On February 16, 2022, we agreed to participate in an existing syndicated term loan with a term of six years originated on behalf of Priory Group ("Priory"), of which we funded £96.5 million towards a £100 million participation level in the making of $700 million in mortgage loans on two acute care hospitals, and a $100 million minority equity contribution in Steward,variable rate loan.

Development Activities

See table below for a combined investmentstatus summary of approximately $1.5 billion. The nine facilities acquired areour current development projects (in thousands):

Property

 

Commitment

 

 

Costs
Incurred as of
March 31, 2023

 

 

Estimated Rent
Commencement
Date

Ernest Health, Inc. ("Ernest") (Stockton, California)

 

$

47,700

 

 

$

46,372

 

 

2Q 2023

IMED Hospitales ("IMED") (Spain)

 

 

51,043

 

 

 

13,323

 

 

2Q 2023

Ernest (South Carolina)

 

 

22,400

 

 

 

14,469

 

 

3Q 2023

IMED (Spain)

 

 

45,976

 

 

 

37,568

 

 

3Q 2023

Springstone (Texas)

 

 

31,600

 

 

 

4,099

 

 

1Q 2024

IMED (Spain)

 

 

37,193

 

 

 

9,170

 

 

3Q 2024

Steward (Texas)

 

 

169,408

 

 

 

57,059

 

 

1Q 2026

 

 

$

405,320

 

 

$

182,060

 

 

 

During the 2022 first quarter, we completed construction and began recording rental income on an inpatient rehabilitation facility located in Bakersfield, California. This facility commenced rent on March 1, 2022 and is being leased to Steward pursuant to the original long-term master lease agreement entered into in October 2016 that had an initial 15-year term with three 5-year extension options, plus annual inflation-based escalators. The terms of the mortgage loan are substantially similar to the master lease.

On May 1, 2017, we acquired eight hospitals previously affiliated with Community Health Systems, Inc. in Florida, Ohio, and Pennsylvania for an aggregate purchase price of $301.3 million. These facilities are leased to Steward, pursuant to the original long-term master lease with Steward.

MEDIAN Transactions

During the third quarter of 2017, we acquired two rehabilitation hospitals in Germany for an aggregate purchase price of €39.2 million, in addition to 11 rehabilitation hospitals in Germany that we acquired in the second quarter of 2017 for an aggregate purchase price of €127 million. These 13 properties are leased to affiliates of Median Kliniken S.a.r.l. (“MEDIAN”), pursuant to a third master lease that has a fixed term ending in August 2043 with annual escalators at the greater of one percent or 70% of German consumer price index. These acquisitions are the final properties of the portfolio of 20 properties in Germany that we agreed to acquire in July 2016 for €215.7 million, of which seven properties totaling €49.5 million closed in December 2016.

On June 22, 2017, we acquired an acute care hospital in Germany for a purchase price of €19.4 million of which €18.6 million was paid upon closing with the remainder being paid over four years. This property is leased to affiliates of MEDIAN, pursuant to an existing master lease agreement that ends in December 2042 with annual escalators at the greater of one percent or 70% of the German consumer price index.

On January 30, 2017, we acquired an inpatient rehabilitation hospital in Germany for €8.4 million. This acquisition was the final property to close as part of the six hospital portfolio that we agreed to buy in September 2016 for an aggregate amount of €44.1 million. This property is leased to affiliates of MEDIAN pursuant to the original long-term master lease agreement reached with MEDIAN in 2015.

Other Transactions

On June 1, 2017, we acquired the real estate assets of Ohio Valley Medical Center, a 218-bed acute care hospital located in Wheeling, West Virginia, and the East Ohio Regional Hospital, a 139-bed acute care hospital in Martins Ferry, Ohio, from Ohio Valley Health Services, a not-for-profit entity in West Virginia, for an aggregate purchase price of approximately $40 million. We simultaneously leased the facilities to Alecto Healthcare Services LLC (“Alecto”), the current operator of three facilities in our portfolio, pursuant to a lease with a 15-year initial term with 2% annual minimum rent increases and three 5-year extension options. The facilities are cross-defaulted and cross-collateralized with our other hospitals currently operated by Alecto. We also agreed to provide up to $20.0 million in capital improvement funding on these two facilities - none of which has been funded to date. With these acquisitions, we also obtained a 20% interest in the operator of these facilities.

On May 1, 2017, we acquired the real estate of St. Joseph Regional Medical Center, a 145-bed acute care hospital in Lewiston, Idaho for $87.5 million. This facility is leased to RCCH, pursuant to the existing long-term master lease entered into with RCCH in April 2016.

From the respective acquisition dates, the properties acquired in 2017 contributed $16.7 million of revenue and $12.7 million of income (excluding related acquisition expenses and taxes) for the three months ended September 30, 2017, and $25.1 million of revenue and $18.8 million of income (excluding related acquisition expenses and taxes) for the nine months ended September 30, 2017. In addition, we expensed $5.4 million and $15.6 million of acquisition-related costs on these 2017 acquisitions for the three and nine months ended September 30, 2017, respectively.

2016 Activity

On July 22, 2016, we acquired an acute care facility in Olympia, Washington in exchange for a $93.3 million loan and an additional $7 million in cash. The property has been leased to RCCH on terms substantially similar to those of the existing long-term master lease entered into with RCCH in April 2016.

On June 22, 2016, we closed on the last property of the €688 million MEDIAN transaction, that was announced on April 29, 2015, for a purchase price of €41.6 million. Upon acquisition, this property became subject to an existing master lease between us and affiliates of MEDIAN that has a lease term ending December 2042 and annual escalators at the greater of one percent or 70% of the German consumer price index.

On May 2, 2016, we acquired an acute care hospital in Newark, New Jersey for an aggregate purchase price of $63 million leased to Prime Healthcare Services, Inc. (“Prime”) pursuant to a new fifth master lease, which had a 15-year term with three five-year extension options, plus consumer price-indexed increases, limited to a 2% floor. Furthermore, we committed to advance an additional $30 million to Prime over a three-year period to be used solely for capital additions to the real estate; any such additions will be added to the basis upon which the lessee will pay us rents. None of the additional $30 million has been funded to date.

From the respective acquisition dates, the properties acquired during the nine months ended September 30, 2016, contributed $4.6 million and $3.8 million of revenue and income (excluding related acquisition expenses), respectively, for the three months ended September 30, 2016. From the respective acquisition dates, the properties acquired during the nine months ended September 30, 2016 contributed $5.7 million and $4.9 million of revenue and income (excluding related acquisition expenses), respectively, for the nine months ended September 30, 2016. In addition, we incurred $2.4 million of acquisition-related costs on the 2016 acquisitions for the nine months ended September 30, 2016.

Pro Forma Information

The following unaudited supplemental pro forma operating data is presented for the three and nine months ended September 30, 2017 and 2016, as if each acquisition was completed on January 1, 2016 and January 1, 2015 for the period ended September 30, 2017 and 2016, respectively. Supplemental pro forma earnings were adjusted to exclude acquisition-related costs on consummated deals incurred. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transactions had been completed as set forth above, nor do they purport to represent our results of operations for future periods (in thousands, except per share/unit amounts).

   For the Three Months   For the Nine Months 
   Ended September 30,   Ended September 30, 
   2017   2016   2017   2016 

Total revenues

  $209,368   $207,898   $623,635   $622,798 

Net income

  $102,112   $107,863   $311,306   $307,645 

Net income per share/unit — diluted

  $0.28   $0.30   $0.85   $0.84 

Development Activities

During the first nine months of 2017, we completed construction on the following facilities:

Adeptus Health, Inc. (“Adeptus Health”) – We completed four acute care facilities for this tenant during 2017 totaling approximately $68 million in development costs. These facilities are leasedErnest pursuant to an existing long-term master lease.

We continue to fund the redevelopment of our Norwood facility in Massachusetts, and recovery receivables of approximately $150 million associated with the prior storm and flood damage to this facility are included in the "Other assets" line of our condensed consolidated balance sheets.

IMED Group (“IMED”) – Our

Disposals

2023 Activity

On March 30, 2023, we entered into a definitive agreement to sell our 11 general acute facilitycare facilities located in Valencia, Spain opened on March 31, 2017,Australia and operated by Healthscope Ltd. ("Healthscope") (the "Australia Transaction") to affiliates of HMC Capital for cash proceeds of approximately A$1.2 billion. As a result, we designated the Australian portfolio as held for sale and recorded an approximate $79

15


million net impairment charge, which included $37.4 million of straight-line rent receivables, an estimated $8 million in fees to sell the hospitals, and $13 million of accumulated other comprehensive loss related to foreign currency translation. This impairment charge was partially offset by approximately $29 million of deferred gains from our interest rate swap in accumulated other comprehensive income that was reclassified to earnings as part of this expected transaction. This transaction is being leasedexpected to IMED pursuantclose in two phases with the first (and larger) phase expected to a 30-year lease that provides for quarterly fixed rent payments beginning six monthsclose in the second quarter and the full transaction expected to be complete by the end of 2023. We currently plan to use proceeds from the sale to prepay in full the Australian term loan.

On March 8, 2023, we received notice that Prime Healthcare Services, Inc. ("Prime") will exercise its right to repurchase from us during the third quarter of 2023 the real estate associated with one master lease start datefor approximately $100 million. As such, we recorded an approximate $11 million non-cash impairment charge in the first quarter of 2023 related to unbilled rent on the three facilities expected to be sold.

Although we currently expect the Australia Transaction and Prime repurchase will occur as planned, no assurances can be given that the transactions will close as described above.

2022 Activity

On March 14, 2022, we completed the previously described partnership with annual increases of 1% beginning April 1, 2020. Our ownership in this facility is effected through a joint venture between us and clients of AXA Real Estate,MAM, in which we ownsold the real estate of eight Massachusetts-based general acute care hospitals, with a 50% interest. Our sharefair value of approximately $1.7 billion. See "New Investments" in this same Note 3 for further details on this transaction.

During the aggregate purchase and development costfirst three months of this facility is approximately €21 million.

In April 2017,2022, we also completed the acquisition of the long leasehold interest of a development site in Birmingham, England from the Circle Health Group (“Circle”) (the tenant of our existing site in Bath, England) for a purchase price of £2.7 million. Simultaneously with the acquisition, we entered into contracts with the property landlord and the Circle committing us to construct an acute care hospital on the site. Our total development costs are anticipated to be approximately £30 million. Circle is contracted to enter into a lease of the hospital following completion of construction for an initial 15-year term with rent to be calculated based on our total development costs.

See table below for a status update on our current development projects (in thousands):

Property

  Commitment   Costs
Incurred
as of
September 30, 2017
   Estimated
Completion
Date
 

Ernest (Flagstaff, Arizona)

  $28,067   $16,619    1Q 2018 

Circle (Birmingham, England)

   43,221    11,389    1Q 2019 
  

 

 

   

 

 

   
  $71,288   $28,008   
  

 

 

   

 

 

   

Disposals

2017 Activity

On March 31, 2017, we sold the EASTAR Health System real estate located in Muskogee, Oklahoma, which was leased to RCCH. Total proceeds from this transaction were approximately $64 million resulting in a gain of $7.4 million, partially offset by a $0.6 million non-cash charge to revenue to write-off related straight-line rent receivables on this property.

2016 Activity

Capella Transaction

Effective April 30, 2016, our investment in the operator of Capella Healthcare, Inc. (“Capella”) merged with Regional Care Hospital Partners, Inc. (“Regional Care”) (an affiliate of certain funds managed by affiliates of Apollo Global Management, LLC. (“Apollo”)) to form RCCH. As part of the transaction, we received net proceeds of approximately $550 million including approximately $492 million for our equity investment and loans made as part of the original Capella transaction that closed on August 31, 2015. In addition, we received $210 million in prepaymentsale of two mortgage loans for hospitals in Russellville, Arkansas, and Lawton, Oklahoma, that we made in connection with the original Capella transaction. We made a new $93.3 million loan for a hospital property in Olympia, Washington that was subsequently converted to real estate on July 22, 2016. Additionally, weother facilities and an Apollo affiliate invested $50 million each in unsecured senior notes issued by RegionalCare, which we sold to a large institution on June 20, 2016 at par. The proceeds from this transaction represented the recoverability of our investment in full, exceptancillary property for transaction costs incurred of $6.3 million.

We maintained our ownership of five hospitals in Hot Springs, Arkansas; Camden, South Carolina; Hartsville, South Carolina; Muskogee, Oklahoma; and McMinnville, Oregon. Pursuant to the transaction described above, the underlying leases, one of which is a master lease covering all but one property, was amended to shorten the initial fixed lease term, increase the security deposit, and

eliminate the lessees’ purchase option provisions. Due to this lease amendment, we reclassified the lease of the properties under the master lease from a direct finance lease (“DFL”) to an operating lease. This reclassification resulted in a write-off of $2.6 million in unbilled DFL rent in the 2016 second quarter.

Post Acute Transaction

On May 23, 2016, we sold five properties (three of which were in Texas and two in Louisiana) that were leased and operated by Post Acute Medical (“Post Acute”). As part of this transaction, our outstanding loans of $4 million were paid in full, and we recovered our investment in the operations. Total proceeds from this transaction were $71 million resulting in a net gain of approximately $15 million.

Corinth Transaction

On June 17, 2016, we sold the Atrium Medical Center real estate located in Corinth, Texas, which was leased and operated by Corinth Investor Holdings. Total proceeds from the transaction were $28$48 million, resulting in a gain on real estate of approximately $8$15 million. This gain on real estate was offset by approximately $9 million of non-cash charges that included the write-off of our investment in the operations of the facility, straight-line rent receivables, and a lease intangible.

HealthSouth Transaction

On July 20, 2016, we sold three inpatient rehabilitation hospitals located in Texas and operated by HealthSouth Corporation (“HealthSouth”) for $111.5 million, resulting in a net gain of approximately $45 million.

The sales in 2017 and 2016 were not strategic shifts in our operations, and therefore the results of operations related to these facilities were not reclassified as discontinued operations.

Summary of Operations for Disposed (or to be Disposed) Assets Disposed in 20162023 and 2022

The properties expected to be sold during 2023 and sold during 2022 do not meet the definition of discontinued operations. However, the following represents the operating results (excluding gain on sale, transaction costs, and impairment or other non-cash charges) from thethese properties which sold during 2016 (excluding loans repaid in the Capella Transaction) for the periods presented (in thousands):

  For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
 

 

For the Three Months
Ended March 31,

 

  2017   2016   2017   2016 

 

2023(1)

 

 

2022

 

Revenues(2)

  $—     $244   $—     $7,851 

 

$

18,877

 

 

$

40,579

 

Real estate depreciation and amortization

   —      —      —      (1,754

 

 

(4,991

)

 

 

(5,247

)

Property-related expenses

   —      —      —      (114

 

 

(1,413

)

 

 

(3,015

)

Other income (expense)

   —      45    —      (23
  

 

   

 

   

 

   

 

 

Real estate and other impairment charges(3)

 

 

(89,538

)

 

 

 

Other (expense) income(4)

 

 

(7,244

)

 

 

444,268

 

Income from real estate dispositions, net

  $—     $289   $—     $5,960 

 

$

(84,309

)

 

$

476,585

 

  

 

   

 

   

 

   

 

 
(1)
The 2023 column consists of assets designated as held for sale in the first quarter of 2023 as a result of the transactions described in the "2023 Activity" subsection above.
(2)
Includes $4.5 million of straight-line rent write-offs associated with the non-Macquarie disposal transactions for the three months ended March 31, 2022.
(3)
Includes an approximate $79 million net impairment charge (including $37.4 million of straight-line rent write-offs) associated with the Australia Transaction and an approximate $11 million non-cash impairment charge associated with the repurchase of three Prime facilities for the three months ended March 31, 2023.
(4)
Includes $451.6 million of gains (net of $125 million write-off of straight-line rent receivables related to the Macquarie Transaction) for the three months ended March 31, 2022.

Leasing Operations (Lessor)

We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies. The initial fixed lease terms of these infrastructure-type assets are typically at least 15 years, and most include renewal options at the election of our tenants, generally in five year increments. Over 99% of our leases provide annual rent escalations based on increases in the Consumer Price Index ("CPI") (or similar indices outside the U.S.) and/or fixed minimum annual rent escalations. Many of our domestic leases contain purchase options with pricing set at various terms but in no case less than our total initial investment. Our leases typically require the tenant to handle and bear most of the costs associated with our properties including repair/maintenance, property taxes, and insurance.

For all of our properties subject to lease, we are the legal owner of the property, and the tenant's right to use and possess such property is guided by the terms of a lease. At September 30, 2017,March 31, 2023, we account for all of these leases as operating leases, except where GAAP requires alternative classification, including leases on two Alecto facilities, 1513 Ernest facilities and 10 Prime facilitiesthat are accounted for as DFLs. direct financing leases and

16


leases on 13 of our Prospect facilities and five of our Ernest facilities that are accounted for as a financing. The components of our nettotal investment in DFLsfinancing leases consisted of the following (in thousands):

 

 

As of March 31,
   2023

 

 

As of December 31,
   2022

 

Minimum lease payments receivable

 

$

626,721

 

 

$

880,253

 

Estimated unguaranteed residual values

 

 

203,818

 

 

 

203,818

 

Less: Unearned income and allowance for credit loss

 

 

(588,097

)

 

 

(731,915

)

Net investment in direct financing leases

 

 

242,442

 

 

 

352,156

 

Other financing leases (net of allowance for credit loss)

 

 

1,339,974

 

 

 

1,339,167

 

Total investment in financing leases

 

$

1,582,416

 

 

$

1,691,323

 

   As of September 30,
2017
   As of December 31,
2016
 

Minimum lease payments receivable

  $2,312,621   $2,207,625 

Estimated residual values

   448,098    407,647 

Less: Unearned income

   (2,064,890   (1,967,170
  

 

 

   

 

 

 

Net investment in direct financing leases

  $695,829   $648,102 
  

 

 

   

 

 

 
The decrease in our net investment in direct financing leases since December 31, 2022, is the result of classifying three Prime facilities as held for sale at March 31, 2023. See subsection above titled "Disposals" for further information.

Adeptus HealthOther Leasing Activities

On April 4, 2017, we announced that we had agreed in principle with Deerfield Management Company, L.P. (“Deerfield”), a healthcare-only investment firm, to the restructuring in bankruptcyAt March 31, 2023, 99% of Adeptus Health, a current tenant and operator of facilitiesour properties are occupied by tenants, leaving five properties as vacant, representing less than 5%0.3% of total assets. We are in various stages of either releasing or selling these vacant properties, for one of which we received and recorded a significant termination fee in 2019.

As more fully described in “Item 1A. Risk Factors” in our total gross assets.Annual Report on Form 10-K, our tenants’ financial performance and resulting ability to satisfy their lease and loan obligations to us are material to our financial results and our ability to service our debt and make distributions to our stockholders. Our tenants operate in the healthcare industry, which is highly regulated, and changes in regulation (or delays in enacting regulation) may temporarily impact our tenants’ operations until they are able to make the appropriate adjustments to their business. In furtheranceaddition, our tenants may experience operational challenges from time-to-time as a result of many factors, including those external to them, such as public health crises (like the restructuring, Adeptuscoronavirus ("COVID-19") pandemic), economic issues resulting in high inflation and spikes in labor costs, and adverse market and political conditions. We monitor our tenants' operating results and the potential impact from these challenges. We may elect to provide support to our tenants from time-to-time in the form of short-term rent deferrals to be paid back in full (like as described below under COVID-19 Rent Deferrals and Pipeline Health System), or in the form of temporary loans (like as described below under Prospect Medical Holdings).

COVID-19 Rent Deferrals

Due to COVID-19 and its impact on our tenants' business, we agreed to defer collection of a certain amount of its subsidiariesrent for certain tenants. Pursuant to our agreements with these tenants, we expect repayments of previously deferred rent to continue, with the remaining outstanding deferred rent balance of approximately $12.2 million as of March 31, 2023, to be paid over specified periods in the future with interest.

Pipeline Health System

On October 2, 2022, Pipeline filed voluntary petitions for reorganization relief under Chapter 11 protection of the United States Bankruptcy Code on April 19, 2017. Funds advised by Deerfield acquired Adeptus Health’s outstanding bank debt and Deerfield agreed to provide additional financing, along with operational and managerial support, to Adeptus Health as part ofin the restructuring.

The Adeptus Health restructuring and terms of our agreement with Deerfield provided for the payment to us of 100% of the rent payable during the restructuring and the assumption by Deerfield of all our master leases and related agreements with Adeptus Health at current rental rates. Through November 3, 2017, Adeptus Health is current on its rent obligations to us.

On September 29, 2017, the United States Bankruptcy Court for the NorthernSouthern District of Texas, Dallas Division, entered an order confirmingwhile keeping its hospitals open to continue providing care to the Debtors’ Third Amended Joint Plancommunities served. On February 6, 2023, Pipeline emerged from bankruptcy. Per the bankruptcy settlement, Pipeline's current lease of Reorganization under Chapter 11our California assets remains in place, and we were repaid on February 7, 2023 for all rent that was outstanding at December 31, 2022, along with what was due for the first quarter of the Bankruptcy Code (the “Plan”). The Plan became effective on October 2, 2017 (the “Confirmation Effective Date”). 2023. We have agreed to defer $5.6 million, or approximately 30%, of rent in 2023 to be paid in 2024 with interest.

Prospect Medical Holdings

In connection with the confirmationAugust 2019, we invested in a portfolio of the Plan, Deerfield agreed that it would assume all14 acute care hospitals in three states (California, Pennsylvania, and Connecticut) operated by and master leased to or mortgaged by Prospect for a combined investment of approximately $1.5 billion. In addition, we originated a $112.9 million term loan cross-defaulted to the master leaseslease and relatedmortgage loan agreements between us and Adeptus Health, cure all defaultsfurther secured by a parent guaranty. In the 2022 second quarter, we funded an additional $100 million towards the existing mortgage loan that had arisen prioris secured by a first lien on a California hospital.

Prospect's operations were negatively impacted by the COVID-19 global pandemic commencing in early 2020, but Prospect continued to the commencement of the bankruptcy proceedingsremain current with respect to contractual rent and interest payments until the fourth quarter of 2022. Accordingly, and due further to termination of certain refinancing negotiations between Prospect and certain third parties, we recorded an approximate $280 million impairment charge in the 2022 fourth quarter. As part of this charge, we reduced the carrying value of the underperforming Pennsylvania properties by approximately $170 million (to approximately $250 million) and reserved all properties,unbilled rent accruals for a total of $112 million. In the first quarter of 2023, we began accounting for Prospect revenue on a cash basis and continuedid not recognize any rent or interest revenue in the quarter.

17


In late March 2023, Prospect received a binding commitment from several lenders that is expected to provide them with liquidity to pay rentdown certain debt instruments. Along with respectthese commitments from third-party lenders, we agreed to all but 16pursue certain transactions with Prospect that would result in the following: a) maintain the master lease covering six California hospitals with no changes in rental rates or escalator provisions, and with the expectation that Prospect will begin making cash payments for approximately 50% of the 56 Adeptus Healthcontractual monthly rent due on these California properties accordingstarting in September 2023, b) transition the Pennsylvania properties back to Prospect in return for a well-collateralized mortgage on the facilities, c) provide up to $75 million in a loan secured by a first lien on Prospect's accounts receivable and certain other assets, d) obtain a non-controlling ownership interest in Prospect's managed care business (PHP Holdings) equal in value to unpaid rent and interest, our $112.9 million term loan, and other obligations at the time of such investment, and e) complete the previously disclosed sale of the Connecticut properties to Yale New Haven ("Yale"), as more fully described in Note 9 to the termscondensed consolidated financial statements. As part of these capital restructuring steps (as discussed under "New Investments" in this same Note 3), we originated a $50 million loan to PHP Holdings in March 2023 that is convertible into equity of PHP Holdings. At March 31, 2023, we believe our remaining investment in the master leasesProspect real estate and related agreements. Rent will remain the same, and a previously disclosed rent concession was removedother assets are fully recoverable from the terms. We plan to re-lease or sell the remaining 16 properties, and Adeptus Health will continue to pay rent with respect to those 16 properties until the earlier of (a) transition to a new operator is complete, (b) two years following the Confirmation Effective Date (for one facility), (c) one year following the Confirmation Effective Date (for seven facilities), (d) six months following the Confirmation Effective Date (for three facilities), and (e) three months following the Confirmation Effective Date (for five facilities). These lease or sale transactions are expected to be completed by the end of 2019. Althoughcollateral available, but no assurances can be madegiven that the transactions described above will occur or that we will not recognizehave any further impairments in future periods.

Investments in Unconsolidated Entities

Investments in Unconsolidated Real Estate Joint Ventures

Our primary business strategy is to acquire real estate and lease to providers of healthcare services. Typically, we directly own 100% of such investment. However, from time-to-time, we will co-invest with other investors that share a losssimilar view that hospital real estate is a necessary infrastructure-type asset in the future,communities. In these types of investments, we believe the sale or re-leasingwill own undivided interests of the assets related to these 16 facilities will not result in any material loss or impairment.

On April 4, 2017, we announced that our Louisiana freestanding emergency facilities then-operated by Adeptus Health (with a total budgeted investmentless than 100% of approximately $24.5 million) had been re-leased to Ochsner Clinic Foundation (“Ochsner”), a health care system in the New Orleans area. We incurred a non-cash charge of $0.5 million to write-off the straight-line rent receivables associated with the previous Adeptus Health lease on these properties. On October 18, 2017, Ochsner agreed to an amended and restated lease that provided for initial terms of 15 years with a 9.2% average minimum lease rate based on our total development and construction cost, as well as the addition of three five-year renewal options.

Hoboken Facility

In the first half of 2017, a subsidiary of the operator of our Hoboken facility acquired 20% of our subsidiary that owns the real estate for $10 million, which increased its interestand share control over the assets through unconsolidated real estate joint ventures. The underlying real estate and leases in these unconsolidated real estate joint ventures are structured similarly and carry a similar risk profile to the rest of our real estate entity to 30%. This transaction is reflected in the non-controlling interest line of our condensed consolidated balance sheets.portfolio.

Loans

The following is a summary of our loans (ininvestments in unconsolidated real estate joint ventures by operator (amounts in thousands):

   As of
September 30, 2017
   As of
December 31, 2016
 

Mortgage loans

  $1,777,555   $1,060,400 

Acquisition loans

   119,256    121,464 

Working capital and other loans

   32,453    34,257 
  

 

 

   

 

 

 
  $1,929,264   $1,216,121 
  

 

 

   

 

 

 

Operator

 

Ownership Percentage

As of March 31,
   2023

 

 

As of December 31,
   2022

 

Median Kliniken S.á.r.l ("MEDIAN")

 

50%

$

483,706

 

 

$

482,735

 

Swiss Medical Network

 

70%

 

461,952

 

 

 

454,083

 

Steward (Macquarie Transaction)

 

50%

 

416,068

 

 

 

417,701

 

Policlinico di Monza

 

50%

 

88,658

 

 

 

86,245

 

HM Hospitales

 

45%

 

56,090

 

 

 

57,139

 

Total

 

 

$

1,506,474

 

 

$

1,497,903

 

Investments in Unconsolidated Operating Entities

As of September 30, 2017, our mortgage loans consist of loans made to four operatorsOur investments in unconsolidated operating entities are noncontrolling investments that are secured by thetypically made in conjunction with larger real estate of 14 properties, and includetransactions in which the $700 million investment made on September 29, 2017,operators are vetted as part of our overall underwriting process. In many cases, we would

18


not be able to acquire the Steward Transaction. Our non-mortgage loans typically consistlarger real estate portfolio without such investments in operators. These investments also offer the opportunity to enhance our overall return and provide for certain minority rights and protections.

The following is a summary of loansour investments in unconsolidated operating entities (amounts in thousands):

Operator

 

As of March 31,
   2023

 

 

As of December 31,
   2022

 

Steward (loan investment)

 

$

362,586

 

 

$

362,831

 

International joint venture

 

 

230,153

 

 

 

231,402

 

Priory

 

 

159,668

 

 

 

156,575

 

Swiss Medical Network

 

 

158,687

 

 

 

157,145

 

Steward (equity investment)

 

 

125,862

 

 

 

125,862

 

Prospect

 

 

112,701

 

 

 

112,777

 

Aevis Victoria SA ("Aevis")

 

 

77,618

 

 

 

72,904

 

PHP Holdings

 

 

49,895

 

 

 

 

Aspris Children's Services ("Aspris")

 

 

16,014

 

 

 

16,023

 

Springstone

 

 

10,933

 

 

 

200,827

 

Caremax

 

 

6,343

 

 

 

8,526

 

Total

 

$

1,310,460

 

 

$

1,444,872

 

The change since December 31, 2022 primarily relates to the payoff of the Springstone loan in February 2023, partially offset by the loan made to PHP Holdings. See "2023 Activity" under subsection titled "New Investments" in this same Note 3 for further details.

Pursuant to our tenants for acquisitionsapproximate 5% stake in Aevis and working capital purposes. At September 30, 2017, acquisition loans includes $114.4other investments marked to fair value, we recorded approximately $4 million in favorable non-cash fair value adjustments during the first quarter of 2023 as shown in the "Other (including fair value adjustments on securities)" line of the condensed consolidated statements of net income; whereas, this was an $8.0 million favorable non-cash fair value adjustment for the same period of 2022.

Other Investment Activities

In conjunction with the redevelopment of Steward's Norwood hospital, we advanced $50 million, in the 2023 first quarter, that is secured by, among other things, proceeds from insurance claims in excess of the advance.

19


Credit Loss Reserves

We apply a forward-looking "expected loss" model to all of our financing receivables, including financing leases and loans, to Ernest.based on historical credit losses of similar instruments.

The following table summarizes the activity in our credit loss reserves (in thousands):

 

 

For the Three Months
Ended March 31,

 

 

 

2023

 

 

2022

 

Balance at beginning of the year

 

$

121,146

 

 

$

48,527

 

Provision for credit loss, net

 

 

986

 

 

 

5,412

 

Expected credit loss reserve related to financial instruments
     sold, repaid, or satisfied

 

 

(160

)

 

 

(6

)

Balance at end of the period

 

$

121,972

 

 

$

53,933

 

Concentrations of Credit Risk

Our revenueWe monitor concentration for the nine months ended September 30, 2017 as comparedrisk in several ways due to the prior year is as followsnature of our real estate assets that are vital to the communities in which they are located and given our history of being able to replace inefficient operators of our facilities, if needed, with more effective operators. See below for our concentration details (dollars in thousands):

Revenue by Operator

   For the Nine Months Ended
September 30, 2017
  For the Nine Months Ended
September 30, 2016
 

Operators

  Total
Revenue
   Percentage of
Total Revenue
  Total
Revenue
   Percentage of
Total Revenue
 

Steward (1)

  $114,776    23.0 $20,969    5.4

Prime

   94,644    18.9  89,389    23.1

MEDIAN

   73,793    14.8  70,242    18.1

Ernest

   53,007    10.6  50,564    13.0

Adeptus Health

   39,638    7.9  25,873    6.7

RCCH

   30,668    6.1  42,776    11.0

Other operators

   93,258    18.7  88,041    22.7
  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $499,784    100.0 $387,854    100.0
  

 

 

   

 

 

  

 

 

   

 

 

 

(1)Includes approximately $21.6 million and $21 million of revenue for the nine months ended September 30, 2017 and 2016, respectively, from facilities leased to IASIS prior to it being acquired by Steward on September 29, 2017.

Revenue by U.S. State and Country

   For the Nine Months Ended
September 30, 2017
  For the Nine Months Ended
September 30, 2016
 

U.S. States and Other Countries

  Total
Revenue
   Percentage of
Total Revenue
  Total
Revenue
   Percentage of
Total Revenue
 

Massachusetts

  $79,741    16.0 $—      —   

Texas

   74,489    14.9  72,811    18.8

California

   49,681    9.9  49,724    12.8

New Jersey

   32,756    6.6  28,398    7.3

Arizona

   23,902    4.8  17,678    4.6

All other states

   147,606    29.5  143,289    36.9
  

 

 

   

 

 

  

 

 

   

 

 

 

Total U.S.

  $408,175    81.7 $311,900    80.4

Germany

  $88,525    17.7 $72,718    18.8

United Kingdom, Italy, and Spain

   3,084    0.6  3,236    0.8
  

 

 

   

 

 

  

 

 

   

 

 

 

Total International

  $91,609    18.3 $75,954    19.6
  

 

 

   

 

 

  

 

 

   

 

 

 

Grand Total

  $499,784    100.0 $387,854    100.0
  

 

 

   

 

 

  

 

 

   

 

 

 

On a total gross asset basis, which is total assets before accumulated depreciation/amortization, assumes all real estate binding commitments on new investments and unfunded amounts on development deals and commenced capital improvement projects are fully funded (see Notes 9 and 10 of Item 1 on this Form 10-Q), and assumes cash on hand is fully used in these transactions, our concentration as of September 30, 2017 as compared to December 31, 2016 is as follows (dollars in thousands):

GrossTotal Assets by Operator

  As of September 30, 2017 As of December 31, 2016 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

Operators

  Total
Gross Assets
   Percentage of
Total

Gross Assets
 Total
Gross Assets
   Percentage of
Total

Gross Assets
 

 

Total Assets

 

 

Percentage of
Total Assets

 

 

Total Assets

 

 

Percentage of
Total Assets

 

Steward (1)

  $3,445,379    36.8 $1,609,583    22.5

 

$

4,800,594

 

 

 

24.4

%

 

$

4,762,673

 

 

 

24.2

%

MEDIAN

   1,209,767    12.9 993,677    13.9

Prime

   1,118,070    12.0 1,144,055    16.0

Ernest

   631,501    6.7 627,906    8.8

RCCH

   506,265    5.4 566,600    7.9

Circle Health Ltd ("Circle")

 

 

2,092,822

 

 

 

10.7

%

 

 

2,062,474

 

 

 

10.5

%

Prospect

 

 

1,533,412

 

 

 

7.8

%

 

 

1,483,599

 

 

 

7.5

%

Priory

 

 

1,310,968

 

 

 

6.7

%

 

 

1,290,213

 

 

 

6.6

%

Springstone

 

 

796,248

 

 

 

4.0

%

 

 

985,959

 

 

 

5.0

%

Other operators

   1,992,448    21.3 1,900,397    26.7

 

 

7,406,721

 

 

 

37.7

%

 

 

7,461,923

 

 

 

38.0

%

Other assets

   452,505    4.9 300,903    4.2

 

 

1,709,392

 

 

 

8.7

%

 

 

1,611,159

 

 

 

8.2

%

  

 

   

 

  

 

   

 

 

Total

  $9,355,935    100.0 $7,143,121    100.0

 

$

19,650,157

 

 

 

100.0

%

 

$

19,658,000

 

 

 

100.0

%

  

 

   

 

  

 

   

 

 

(1)Includes approximately $360 million of gross assets as of December 31, 2016 related to facilities leased to IASIS prior to it being acquired by Steward on September 29, 2017.

Gross

20


Total Assets by U.S. State and Country

 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

U.S. States and Other Countries

 

Total Assets

 

 

Percentage of
Total Assets

 

 

Total Assets

 

 

Percentage of
Total Assets

 

Texas

 

$

2,008,146

 

 

 

10.2

%

 

$

1,967,948

 

 

 

10.0

%

California

 

 

1,502,060

 

 

 

7.7

%

 

 

1,450,112

 

 

 

7.4

%

Florida

 

 

1,319,878

 

 

 

6.7

%

 

 

1,324,555

 

 

 

6.8

%

Utah

 

 

1,218,883

 

 

 

6.2

%

 

 

1,224,484

 

 

 

6.2

%

Massachusetts

 

 

763,555

 

 

 

3.9

%

 

 

761,694

 

 

 

3.9

%

All other states

 

 

4,035,762

 

 

 

20.5

%

 

 

4,245,306

 

 

 

21.6

%

Other domestic assets

 

 

1,087,136

 

 

 

5.5

%

 

 

1,028,946

 

 

 

5.2

%

Total U.S.

 

$

11,935,420

 

 

 

60.7

%

 

$

12,003,045

 

 

 

61.1

%

United Kingdom

 

$

4,145,170

 

 

 

21.1

%

 

$

4,083,244

 

 

 

20.8

%

Australia

 

 

781,585

 

 

 

4.0

%

 

 

854,582

 

 

 

4.3

%

Switzerland

 

 

763,711

 

 

 

3.9

%

 

 

748,947

 

 

 

3.8

%

Germany

 

 

666,930

 

 

 

3.4

%

 

 

664,900

 

 

 

3.4

%

Spain

 

 

226,800

 

 

 

1.1

%

 

 

222,316

 

 

 

1.1

%

All other countries

 

 

508,285

 

 

 

2.6

%

 

 

498,753

 

 

 

2.5

%

Other international assets

 

 

622,256

 

 

 

3.2

%

 

 

582,213

 

 

 

3.0

%

Total international

 

$

7,714,737

 

 

 

39.3

%

 

$

7,654,955

 

 

 

38.9

%

Grand total

 

$

19,650,157

 

 

 

100.0

%

 

$

19,658,000

 

 

 

100.0

%

   As of September 30, 2017  As of December 31, 2016 

U.S. States and Other Countries

  Total
Gross Assets
   Percentage of
Total

Gross Assets
  Total
Gross Assets
   Percentage of
Total

Gross Assets
 

Massachusetts

  $1,284,156    13.7 $1,250,000    17.5

Texas

   1,275,784    13.6  947,443    13.3

Utah

   1,035,793    11.1  107,151    1.5

California

   542,879    5.8  542,889    7.6

Arizona

   498,844    5.3  331,834    4.6

All other states

   2,506,538    26.8  2,234,332    31.3

Other domestic assets

   397,850    4.3  264,215    3.7
  

 

 

   

 

 

  

 

 

   

 

 

 

Total U.S.

  $7,541,844    80.6 $5,677,864    79.5

Germany

  $1,556,392    16.6 $1,281,649    17.9

United Kingdom, Italy, and Spain

   203,044    2.2  146,920    2.1

Other international assets

   54,655    0.6  36,688    0.5
  

 

 

   

 

 

  

 

 

   

 

 

 

Total International

  $1,814,091    19.4 $1,465,257    20.5
  

 

 

   

 

 

  

 

 

   

 

 

 

Grand Total

  $9,355,935    100.0 $7,143,121    100.0
  

 

 

   

 

 

  

 

 

   

 

 

 

On an individual property basis, we had no investment ofin any single property greater than 3.8%3% of our total gross assets as of September 30, 2017.March 31, 2023.

Total Revenues by Operator

 

 

For the Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Operators

 

Total Revenues

 

 

Percentage of
Total Revenues

 

 

Total Revenues

 

 

Percentage of
Total Revenues

 

Steward

 

$

103,494

 

 

 

29.6

%

 

$

121,244

 

 

 

29.6

%

Circle

 

 

47,415

 

 

 

13.5

%

 

 

51,212

 

 

 

12.5

%

Prospect

 

 

 

 

 

0.0

%

 

 

38,684

 

 

 

9.4

%

Priory

 

 

24,740

 

 

 

7.1

%

 

 

19,070

 

 

 

4.7

%

Springstone

 

 

20,167

 

 

 

5.8

%

 

 

21,664

 

 

 

5.3

%

Other operators

 

 

154,395

 

 

 

44.0

%

 

 

157,926

 

 

 

38.5

%

Total

 

$

350,211

 

 

 

100.0

%

 

$

409,800

 

 

 

100.0

%

21


Total Revenues by U.S. State and Country

 

 

For the Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

U.S. States and Other Countries

 

Total Revenues

 

 

Percentage of
Total Revenues

 

 

Total Revenues

 

 

Percentage of
Total Revenues

 

Texas

 

$

44,116

 

 

 

12.6

%

 

$

34,844

 

 

 

8.5

%

Utah

 

 

35,641

 

 

 

10.2

%

 

 

33,768

 

 

 

8.2

%

Florida

 

 

26,182

 

 

 

7.5

%

 

 

25,305

 

 

 

6.2

%

California

 

 

19,495

 

 

 

5.6

%

 

 

41,291

 

 

 

10.1

%

Massachusetts

 

 

6,816

 

 

 

1.8

%

 

 

32,631

 

 

 

8.0

%

All other states

 

 

99,137

 

 

 

28.4

%

 

 

125,907

 

 

 

30.7

%

Total U.S.

 

$

231,387

 

 

 

66.1

%

 

$

293,746

 

 

 

71.7

%

United Kingdom

 

$

84,206

 

 

 

24.0

%

 

$

83,906

 

 

 

20.5

%

Australia

 

 

15,237

 

 

 

4.4

%

 

 

17,031

 

 

 

4.1

%

All other countries

 

 

19,381

 

 

 

5.5

%

 

 

15,117

 

 

 

3.7

%

Total international

 

$

118,824

 

 

 

33.9

%

 

$

116,054

 

 

 

28.3

%

Grand total

 

$

350,211

 

 

 

100.0

%

 

$

409,800

 

 

 

100.0

%

Total Revenues by Facility Type

 

 

For the Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Facility Types

 

Total Revenues

 

 

Percentage of
Total Revenues

 

 

Total Revenues

 

 

Percentage of
Total Revenues

 

General acute care hospitals

 

$

253,036

 

 

 

72.3

%

 

$

316,019

 

 

 

77.0

%

Behavioral health facilities

 

 

53,658

 

 

 

15.3

%

 

 

50,897

 

 

 

12.4

%

Inpatient rehabilitation facilities

 

 

29,046

 

 

 

8.3

%

 

 

28,906

 

 

 

7.1

%

Long-term acute care hospitals

 

 

8,251

 

 

 

2.4

%

 

 

8,302

 

 

 

2.1

%

Freestanding ER/urgent care facilities

 

 

6,220

 

 

 

1.7

%

 

 

5,676

 

 

 

1.4

%

Total

 

$

350,211

 

 

 

100.0

%

 

$

409,800

 

 

 

100.0

%

For geographic and facility type concentration metrics above, we allocate our investments in operating entities pro rata based on the gross book value of the real estate. Such pro rata allocations are subject to change from period to period.

22


4. Debt

The following is a summary of our debt (dollar amounts in thousands):

  As of September 30, 2017  As of December 31, 2016 

Revolving credit facility(A)

 $445,359  $290,000 

Term loans

  200,000   263,101 

6.375% Senior Unsecured Notes due 2022:

  

Principal amount

  350,000   350,000 

Unamortized premium

  1,549   1,814 
 

 

 

  

 

 

 
  351,549   351,814 

5.750% Senior Unsecured Notes due 2020(B)

  —     210,340 

4.000% Senior Unsecured Notes due 2022(B)

  590,700   525,850 

5.500% Senior Unsecured Notes due 2024

  300,000   300,000 

6.375% Senior Unsecured Notes due 2024

  500,000   500,000 

3.325% Senior Unsecured Notes due 2025(B)

  590,700   —   

5.250% Senior Unsecured Notes due 2026

  500,000   500,000 

5.000% Senior Unsecured Notes due 2027

  1,400,000   —   
 

 

 

  

 

 

 
 $4,878,308  $2,941,105 

Debt issue costs, net

  (46,044  (31,764
 

 

 

  

 

 

 
 $4,832,264  $2,909,341 
 

 

 

  

 

 

 

 

 

As of March 31,
2023

 

 

As of December 31,
2022

 

Revolving credit facility(A)

 

$

1,031,037

 

 

$

929,584

 

Term loan

 

 

200,000

 

 

 

200,000

 

British pound sterling term loan due 2024(B)

 

 

129,353

 

 

 

126,690

 

British pound sterling term loan due 2025(B)

 

 

863,590

 

 

 

845,810

 

Australian term loan facility(B)

 

 

802,200

 

 

 

817,560

 

2.550% Senior Unsecured Notes due 2023(B)

 

 

493,480

 

 

 

483,320

 

3.325% Senior Unsecured Notes due 2025(B)

 

 

541,950

 

 

 

535,250

 

0.993% Senior Unsecured Notes due 2026(B)

 

 

541,950

 

 

 

535,250

 

2.500% Senior Unsecured Notes due 2026(B)

 

 

616,850

 

 

 

604,150

 

5.250% Senior Unsecured Notes due 2026

 

 

500,000

 

 

 

500,000

 

5.000% Senior Unsecured Notes due 2027

 

 

1,400,000

 

 

 

1,400,000

 

3.692% Senior Unsecured Notes due 2028(B)

 

 

740,220

 

 

 

724,980

 

4.625% Senior Unsecured Notes due 2029

 

 

900,000

 

 

 

900,000

 

3.375% Senior Unsecured Notes due 2030(B)

 

 

431,795

 

 

 

422,905

 

3.500% Senior Unsecured Notes due 2031

 

 

1,300,000

 

 

 

1,300,000

 

 

 

$

10,492,425

 

 

$

10,325,499

 

Debt issue costs and discount, net

 

 

(54,274

)

 

 

(57,087

)

 

 

$

10,438,151

 

 

$

10,268,412

 

(A)Includes £4 million of GBP-denominated borrowings that reflect the exchange rate at September 30, 2017.
(B)These notes are Euro-denominated and reflect the exchange rate at September 30, 2017 and December 31, 2016, respectively.
(A)
Includes £119 million of GBP-denominated borrowings and €253 million of Euro-denominated borrowings that reflect the applicable exchange rates at March 31, 2023.
(B)
Non-U.S. dollar denominated debt reflects the exchange rates at March 31, 2023 and December 31, 2022.

As of September 30, 2017,March 31, 2023, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) are as follows (in(amounts in thousands):

2017

  $ 350,000 (A) 

2018

   —   

2019

   —   

2020

   —   

2021

   445,359 

Thereafter

   4,081,400 
  

 

 

 

Total

  $4,876,759 
  

 

 

 

2023

 

$

493,480

 

2024

 

 

931,553

 

2025

 

 

1,405,540

 

2026

 

 

2,689,837

 

2027

 

 

1,600,000

 

Thereafter

 

��

3,372,015

 

Total

 

$

10,492,425

 

(A)The $350 million 6.375% Senior Unsecured Notes due 2022 were redeemed on October 7, 2017 with proceeds from our $1.4 billion 5.000% Senior Unsecured Notes due 2027.

2017 Activity

Credit Facility

On February 1, 2017,March 15, 2022, we replacedpaid off and terminated our unsecured$1 billion interim credit facility with a new revolving credit and term loan agreement (“Credit Facility”). The new agreement includes a $1.3 billion unsecured revolving loan facility, a $200 million unsecured term loan facility, and a €200 million unsecured term loan facility. The new unsecured revolving loan facility matures in February 2021 and can be extended for an additional 12 months at our option. The $200 million unsecured term loan facility maturesthat was entered into on February 1, 2022, and

the €200 million unsecured term loan facility had a maturity date of January 31, 2020; however, it was paid off on March 30, 2017 – see below. The commitment fee on the revolving loan facility is paid at a rate of 0.25%. The term loan and/or revolving loan commitments may be increased in an aggregate amount not to exceed $500 million.

At our election, loans under the Credit Facility may be made as either ABR Loans or Eurodollar Loans. The applicable margin for term loans that are ABR Loans is adjustable on a sliding scale from 0.00% to 0.95% based on our current credit rating. The applicable margin for term loans that are Eurodollar Loans is adjustable on a sliding scale from 0.90% to 1.95% based on our current credit rating. The applicable margin for revolving loans that are ABR Loans is adjustable on a sliding scale from 0.00% to 0.65% based on our current credit rating. The applicable margin for revolving loans that are Eurodollar Loans is adjustable on a sliding scale from 0.875% to 1.65% based on our current credit rating. The commitment fee is adjustable on a sliding scale from 0.125% to 0.30% based on our current credit rating and is payable on the revolving loan facility. At September 30, 2017, the interest rate in effect on our term loan and revolver was 2.74% and 2.48%, respectively.

On March 30, 2017, we prepaid and extinguished the €200 million of outstanding term loans under the euro term loan facility portion of our Credit Facility. To fund such prepayment, including accrued and unpaid interest thereon, we used part of the proceeds of the 3.325% Senior Unsecured Notes due 2025 – see discussion below.

5.750% Senior Unsecured Notes due 2020

On March 4, 2017, we redeemed the €200 million aggregate principal amount of our 5.750% Senior Unsecured Notes due 2020 and incurred a redemption premium of approximately $9 million. We funded this redemption, including the premium and accrued interest,July 27, 2021 with the proceeds of the new euro term loan (see discussion above) together with cash on hand.

3.325% Senior Unsecured Notes due 2025

On March 24, 2017, we completed a €500 million senior unsecured notes offering (“3.325% Senior Unsecured Notes due 2025”). Interest on the notes is payable annually on March 24 of each year. The notes pay interest in cash at a rate of 3.325% per year. The notes mature on March 24, 2025. We may redeem some or all of the 3.325% Senior Unsecured Notes due 2025 at any time. If the notes are redeemed prior to 90 days before maturity, the redemption price will be equal to 100% of their principal amount, plus a make-whole premium, plus accrued and unpaid interest up to, but excluding, the applicable redemption date. Within the period beginning on or after 90 days before maturity, the notes may be redeemed, in whole or in part, at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the applicable redemption date. The 3.325% Senior Unsecured Notes due 2025 are fully and unconditionally guaranteed on a senior unsecured basis by us. In the event of a change of control, each holder of the notes may require us to repurchase some or all of our notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest up to, but excluding, the date of the purchase.

5.000% Senior Unsecured Notes due 2027

On September 7, 2017, we completed a $1.4 billion senior unsecured notes offering (“5.000% Senior Unsecured Notes due 2027”). Interest on the notes is payable annually on April 15 and October 15 of each year, commencing on April 15, 2018. The notes pay interest in cash at a rate of 5.000% per year. The notes mature on October 15, 2027. We may redeem some or all of the notes at any time prior to October 15, 2022 at a “make whole” redemption price. On or after October 15, 2022, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time prior to October 15, 2020, we may redeem up to 40% of the notes at a redemption price equal to 105% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, using proceeds from one or more equity offerings. In the event of a change in control, each holder of the notes may require us to repurchase some or all of the notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest to the date of purchase.

We used a portion of the net proceeds from the 5.000% Senior Unsecured Notes due 2027 offeringMacquarie Transaction as more fully described in Note 3 to redeem the $350condensed consolidated financial statements. As part of this transaction, we incurred approximately $8.8 million aggregate principal amount of our 6.375% Senior Unsecured Notes due 2022. The notes were repaid on October 7, 2017, and we will incur a debt refinancing charge of approximately $14 million in the fourth quarter of 2017, consisting of an $11.2 million redemption premium along with the write-off of the unamortized premium and deferred debt issuance costs associated with the redeemed notes.costs.

Furthermore, the completion of the 5.000% Senior Unsecured Notes due 2027 offering resulted in the cancellation of the $1.0 billion term loan facility commitment from JP Morgan Chase Bank, N.A. that we received to assist in funding the September 2017 Steward transaction. With this commitment, we paid $5.2 million of underwriting and other fees, which we fully expensed upon the cancellation of the commitment.Covenants

Other

On September 29, 2017, we prepaid the principal amount of the mortgage loan on our property in Kansas City, Missouri at par in the amount of $12.9 million. To fund such prepayment, including accrued and unpaid interest thereon, we used borrowings from the revolving credit facility portion of our Credit Facility.

With the replacement of our old credit facility, the redemption of the 5.750% Senior Unsecured Notes due 2020, the payoff of our €200 million euro term loan, the cancellation of the $1.0 billion term loan facility commitment, and the payment of our $12.9 million mortgage loan, we incurred a debt refinancing charge of $18.8 million in the first nine months of 2017.

2016 Activity

5.250% Senior Unsecured Notes due 2026

On July 22, 2016, we completed a $500 million senior unsecured notes offering (“5.250% Senior Unsecured Notes due 2026”). Interest on the notes is payable on February 1 and August 1 of each year. Interest on the notes is to be paid in cash at a rate of 5.25% per year. The notes mature on August 1, 2026. We may redeem some or all of the notes at any time prior to August 1, 2021 at a “make whole” redemption price. On or after August 1, 2021, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time prior to August 1, 2019, we may redeem up to 35% of the notes at a redemption price equal to 105.25% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, using proceeds from one or more equity offerings. In the event of a change in control, each holder of the notes may require us to repurchase some or all of the notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest to the date of purchase.

We used the net proceeds from the 5.250% Senior Unsecured Notes due 2026 offering to redeem our $450 million 6.875% Senior Unsecured Notes due 2021. This redemption resulted in a $22.5 million debt refinancing charge during the 2016 third quarter, consisting of a $15.5 million redemption premium along with the write-off of deferred debt issuance costs associated with the redeemed notes.

6.375% Senior Unsecured Notes due 2024

On February 22, 2016, we completed a $500 million senior unsecured notes offering (“6.375% Senior Unsecured Notes due 2024”). Interest on the notes is payable on March 1 and September 1 of each year. Interest on the notes is paid in cash at a rate of 6.375% per year. The notes mature on March 1, 2024. We may redeem some or all of the notes at any time prior to March 1, 2019 at a “make whole” redemption price. On or after March 1, 2019, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time prior to March 1, 2019, we may redeem up to 35% of the notes at a redemption price equal to 106.375% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, using proceeds from one or more equity offerings. In the event of a change in control, each holder of the notes may require us to repurchase some or all of the notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest to the date of purchase.

Covenants

Our debt facilities impose certain restrictions on us, including restrictions on our ability to: incur debts; create or incur liens; provide guarantees in respect of obligations of any other entity; make redemptions and repurchases of our capital stock; prepay, redeem, or repurchase debt; engage in mergers or consolidations; enter into affiliated transactions; dispose of real estate or other assets; and change our business. In addition, the credit agreements governing our Credit Facility limit the amount of dividends we can pay as a percentage of normalized adjusted funds from operations (“FFO”NAFFO”), as defined in the agreements, on a rolling four quarter basis. At September 30, 2017,March 31, 2023, the dividend restriction was 95%95% of normalized adjusted FFO.NAFFO. The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95%95% of FFO,NAFFO, proceeds of equity issuances, and certain other net cash proceeds. Finally, our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150%150% of our unsecured indebtedness.

23


In addition to these restrictions, the Credit Facility contains customary financial and operating covenants, including covenants relating to our total leverage ratio, fixed charge coverage ratio, secured leverage ratio, consolidated adjusted net worth, unsecured leverage ratio, and unsecured interest coverage ratio. ThisThe Credit Facility also contains customary events of default, including among others, nonpayment of principal or interest, material inaccuracy of representations, and failure to comply with our covenants. If an event of default occurs and is continuing under the Credit Facility, the entire outstanding balance may become immediately due and payable. At September 30, 2017,March 31, 2023, we were in compliance with all such financial and operating covenants.

5. Income Taxes

5. Common Stock/Partners’ Capital

Medical Properties Trust, Inc.

2017 Activity

On May 1, 2017, we completed an underwritten public offering of approximately 43.1 million shares (including the exerciseAs a result of the underwriters’ 30-day optionAustralia Transaction described in Note 3 to purchase an additional 5.6the condensed consolidated financial statements, we recorded a $5 million shares) of our common stock, resulting in net proceeds of approximately $548 million, after deducting offering expenses.

2016 Activity

On September 30, 2016, we completed an underwritten public offering of 57.5 million shares (including the exercise of the underwriters’ 30-day option to purchase an additional 7.5 million shares) of our common stock, resulting in net proceeds of $799.5 million, after deducting estimated offering expenses.

During the nine months ended September 30, 2016, we sold approximately 15 million shares of common stock under anat-the-market equity offering program, resulting in net proceeds of approximately $224 million, after deducting approximately $2.8 million of commissions. There is no availability under this equity offering program at September 30, 2017.

MPT Operating Partnership, L.P.

At September 30, 2017, the Company has a 99.89% ownership interesttax benefit in the Operating Partnership with the remainder owned by three other partners, twofirst quarter of whom are employees and one of whom is the estate of a former director. During the nine months ended September 30, 2017 and 2016, the Operating Partnership issued approximately 43.1 million units and approximately 72.5 million units, respectively, in direct response to the common stock offerings by Medical Properties Trust, Inc.2023.

6. Stock Awards

We adoptedDuring the 2013second quarter of 2022, we amended the 2019 Equity Incentive Plan (the “Equity Incentive Plan”) during the second quarter of 2013,, which authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units, and awards of interests in our Operating Partnership. TheOur Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. WeDirectors, and we have reserved 8,196,77028.9 million shares of common stock for awards, under the Equity Incentive Plan forof which 3.316.7 million shares remain available for future stock awards as of September 30, 2017.March 31, 2023. Share-based compensation expense totaled $7.1 million and $5.8$11.8 million for each of the ninethree months ended September 30, 2017March 31, 2023 and 2016, respectively, of which $0.4 million relates to the acceleration of vestings on time-based awards previously granted to three former board members.2022.

7. Fair Value of Financial Instruments

We have various assets and liabilities that are considered financial instruments. We estimate that the carrying value of cash and cash equivalents and accounts payable and accrued expenses approximate their fair values. We estimate the fair value of our interest and rent receivables using Level 2 inputs such as discounting the estimated future cash flows using the current rates at which similar receivables would be made to others with similar credit ratings and for the same remaining maturities. The fair value of our mortgage loans and working capitalother loans are estimated by using Level 2 inputs such as discounting the estimated future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We determine the fair value of our senior unsecured notes using Level 2 inputs such as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loans using Level 2 inputs based on the present value of future payments, discounted at a rate which we consider appropriate for such debt.

Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision.

24


The following table summarizes fair value estimates for our financial instruments (in thousands):

  September 30, 2017   December 31, 2016 
  Book   Fair   Book   Fair 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

Asset (Liability)

  Value   Value   Value   Value 

 

Book
Value

 

 

Fair
Value

 

 

Book
Value

 

 

Fair
Value

 

Interest and rent receivables

  $105,817   $105,803   $57,698   $57,707 

Loans (1)

   1,698,866    1,722,912    986,987    1,017,428 

Interest and rent receivables, net

 

$

169,511

 

 

$

160,947

 

 

$

167,035

 

 

$

163,101

 

Loans(1)

 

 

1,511,182

 

(2)

 

1,456,753

 

 

 

1,405,615

 

(2)

 

1,360,113

 

Debt, net

   (4,832,264   (5,032,821   (2,909,341   (2,966,759

 

 

(10,438,151

)

 

 

(8,594,584

)

 

 

(10,268,412

)

 

 

(8,697,042

)

(1)Excludes loans related to Ernest since they are recorded at fair value and discussed below.
(1)
Excludes the acquisition loan made in May 2020 related to our investment in the international joint venture, along with the related subsequent investment in the real estate of three hospitals in Colombia, as these assets are accounted for under the fair value option method, as noted below. In addition for December 31, 2022 only, this excludes the acquisition and mortgage loans made to Springstone, which were satisfied in full in February 2023 as further described in Note 3 to the condensed consolidated financial statements.
(2)
Includes $224.4 million and $223.8 million of mortgage loans, a $319.9 million and $315.9 million shareholder loan included in investments in unconsolidated real estate joint ventures, $693.0 million and $640.4 million of loans that are part of our investments in unconsolidated operating entities, and $273.9 million and $225.5 million of other loans at March 31, 2023 and December 31, 2022, respectively.

Items Measured at Fair Value on a Recurring Basis

Our equity interestinvestment and related loan to the international joint venture, our loan investment in Ernest along with their related loansthe real estate of three hospitals operated by subsidiaries of the international joint venture in Colombia, and our equity investment in Springstone are measured at fair value on a recurring basis as we elected to account for these investments using the fair value option at the point of initial investment. For December 31, 2022, our acquisition and mortgage loans to Springstone (which were satisfied in full in February 2023 as described in Note 3 to the condensed consolidated financial statements) were also accounted for under the fair value option method. We have elected to account for these investments at fair value due to the size of the investments and because we believe this method iswas more reflective of current values. We have not made a similar election for other existing equity interests or loans.

At September 30, 2017, theseMarch 31, 2023 and December 31, 2022, the amounts recorded under the fair value option method were as follows (in thousands):

   Fair       Asset Type 

Asset Type

  Value   Cost   Classification 

Mortgage loans

  $115,000   $115,000    Mortgage loans 

Acquisition and other loans

   115,398    115,398    Other loans 

Equity investments

   3,300    3,300    Other assets 
  

 

 

   

 

 

   
  $233,698   $233,698   
  

 

 

   

 

 

   

 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

 

 

Asset (Liability)

 

Fair Value

 

 

Original
Cost

 

 

Fair Value

 

 

Original
Cost

 

 

Asset Type Classification

Mortgage loans

 

$

122,073

 

 

$

122,073

 

 

$

140,260

 

 

$

140,260

 

 

Mortgage loans

Equity investment and other loans

 

 

243,561

 

 

 

247,125

 

 

 

434,609

 

 

 

441,943

 

 

Investments in unconsolidated operating entities/Other loans

Our mortgageloans to the international joint venture and otherits subsidiaries (as well as the Springstone loans with Ernestat December 31, 2022) are recorded at fair value based on Level 2 inputs by discounting the estimated cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities.maturities, while also considering the value of the underlying collateral of the loans. Our equity investment in ErnestSpringstone is recorded at fair value based on Level 2 inputs by discounting the estimated cash flows expected to be realized as part of the Lifepoint Transaction described in Note 3 to the condensed consolidated financial statements. Our equity investment in the international joint venture is recorded at fair value based on Level 3 inputs, by using a discounted cash flow model, which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecastforecasted assumptions associated with the investee. We classify theour valuations of equity investmentinvestments as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuation requiresvaluations require management judgment due to the absence of quoted market prices. For the cash flow model,models, our observable inputs include use of a capitalization rate and discount rate (which is based on a weighted-average cost of capital), market interest rates, and our unobservable input includes an adjustment for a marketability discount (“DLOM”) on our equity investment of 40% at September 30, 2017.

. In regardsregard to the underlying projection of revenues and expensesprojections used in the discounted cash flow model, such projections are provided

25


by Ernest.the investees. However, we will modify such projections (including underlying assumptions used) as needed based on our review and analysis of Ernest’s historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry.

In arriving at the DLOM,first quarter of 2023, we started withhad a DLOM range based on the results of studies supporting valuation discounts for other transactions or structures without a public market. To select the appropriate DLOM within the range, we then considered many qualitative factors including the percent of control, the nature of the underlying investee’s business along with our rights as an investor pursuantnet favorable adjustment to the operating agreement, the size of investment, expected holding period, number of shareholders, access to capital marketplace, etc. To illustrate the effect of movements in the DLOM, we performed a sensitivity analysis below by using basis point variations (dollars in thousands):

Basis Point Change in Marketability Discount

  Estimated Increase (Decrease)
In Fair Value
 

+100 basis points

  $(51

- 100 basis points

   51 

Becauseinvestments accounted for under the fair value of Ernest investments noted above approximate their original cost, we did not recognize any unrealized gains/losses duringoption method, compared to an unfavorable adjustment in the first nine monthsquarter of 2017 or 2016. To date,2022.

Items Measured at Fair Value on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, we have not received any distribution paymentsassets and liabilities that are measured, from time-to-time, at fair value on a nonrecurring basis, such as for long-lived asset impairment purposes. In these cases, fair value may be based on estimated cash flows discounted at a risk-adjusted rate of interest by using Level 2 inputs. For our equity investment in Ernest.real estate, including for the impairment analysis on our Prospect Pennsylvania real estate, we may use a market approach using Level 2 inputs, whereby we will divide the expected net operating income (i.e. rent revenue less expenses, if any) of the facility by a market capitalization rate.

8. Earnings Per Share/Common Unit

Medical Properties Trust, Inc.

Our earnings per share were calculated based on the following (in(amounts in thousands):

  For the Three Months
Ended September 30,
 

 

For the Three Months
Ended March 31,

 

  2017   2016 

 

2023

 

 

2022

 

Numerator:

    

 

 

 

 

 

 

Net income

  $76,881   $70,543 

 

$

33,030

 

 

$

631,947

 

Non-controlling interests’ share in net income

   (417   (185

Non-controlling interests’ share in earnings

 

 

(236

)

 

 

(266

)

Participating securities’ share in earnings

   (82   (154

 

 

(515

)

 

 

(402

)

  

 

   

 

 

Net income, less participating securities’ share in earnings

  $76,382   $70,204 

 

$

32,279

 

 

$

631,279

 

  

 

   

 

 

Denominator:

    

 

 

 

 

 

 

Basic weighted-average common shares

   364,315    246,230 

 

 

598,302

 

 

 

598,676

 

Dilutive potential common shares

   731    1,238 

 

 

8

 

 

 

256

 

  

 

   

 

 

Dilutive weighted-average common shares

   365,046    247,468 
  

 

   

 

 
  For the Nine Months
Ended September 30,
 
  2017   2016 

Numerator:

    

Income from continuing operations

  $218,862   $182,693 

Non-controlling interests’ share in continuing operations

   (1,013   (683

Participating securities’ share in earnings

   (307   (430
  

 

   

 

 

Income from continuing operations, less participating securities’share in earnings

   217,542    181,580 

Loss from discontinued operations attributable to MPT common stockholders

   —      (1
  

 

   

 

 

Net income, less participating securities’ share in earnings

  $217,542   $181,579 
  

 

   

 

 

Denominator:

    

Basic weighted-average common shares

   345,076    240,607 

Dilutive potential common shares

   520    825 
  

 

   

 

 

Dilutive weighted-average common shares

   345,596    241,432 
  

 

   

 

 

Diluted weighted-average common shares

 

 

598,310

 

 

 

598,932

 

MPT Operating Partnership, L.P.

Our earnings per common unit were calculated based on the following (in(amounts in thousands):

  For the Three Months
Ended September 30,
 

 

For the Three Months
Ended March 31,

 

  2017   2016 

 

2023

 

 

2022

 

Numerator:

    

 

 

 

 

 

 

Net income

  $76,881   $70,543 

 

$

33,030

 

 

$

631,947

 

Non-controlling interests’ share in net income

   (417   (185

Non-controlling interests’ share in earnings

 

 

(236

)

 

 

(266

)

Participating securities’ share in earnings

   (82   (154

 

 

(515

)

 

 

(402

)

  

 

   

 

 

Net income, less participating securities’ share in earnings

  $76,382   $70,204 

 

$

32,279

 

 

$

631,279

 

  

 

   

 

 

Denominator:

    

 

 

 

 

 

 

Basic weighted-average units

   364,315    246,230 

 

 

598,302

 

 

 

598,676

 

Dilutive potential units

   731    1,238 

 

 

8

 

 

 

256

 

  

 

   

 

 

Dilutive weighted-average units

   365,046    247,468 
  

 

   

 

 

Diluted weighted-average units

 

 

598,310

 

 

 

598,932

 

   For the Nine Months
Ended September 30,
 
   2017   2016 

Numerator:

    

Income from continuing operations

  $218,862   $182,693 

Non-controlling interests’ share in continuing operations

   (1,013   (683

Participating securities’ share in earnings

   (307   (430
  

 

 

   

 

 

 

Income from continuing operations, less participating securities’ share in earnings

   217,542    181,580 

Loss from discontinued operations attributable to MPT Operating Partnership partners

   —      (1
  

 

 

   

 

 

 

Net income, less participating securities’ share in earnings

  $217,542   $181,579 
  

 

 

   

 

 

 

Denominator:

    

Basic weighted-average units

   345,076    240,607 

Dilutive potential units

   520    825 
  

 

 

   

 

 

 

Dilutive weighted-average units

   345,596    241,432 
  

 

 

   

 

 

 

9.

9. Commitments and Contingencies

Commitments

Commitments

On September 28, 2016,October 5, 2022, we entered into a definitive agreementagreements to acquire one acute care hospitalsell three Prospect facilities located in WashingtonConnecticut to Yale for a purchase priceapproximately $457 million, of approximately $17.5 million. Upon closing, this facility will be leasedwhich we expect to RCCH, pursuant toreceive the current long-term master lease. Closingmajority in cash and the remainder in equity securities of thePHP

26


Holdings. This transaction which is expected to close in 2023 subject to certain regulatory approvals and the completion of Yale's acquisition of the hospital operations from Prospect. No assurances can be completed no later thangiven that this transaction will be consummated as described or at all.

Contingencies

During and subsequent to the first quarter of 2018,2023, the Company became party to various lawsuits as further described in Item 1 of Part II of this Quarterly Report on Form 10-Q. We have not recorded a liability related to these lawsuits because, at this time, we are unable to determine whether an unfavorable outcome is subjectprobable or to customary real estate, regulatory and other closing conditions.estimate reasonably possible losses.

Contingencies

We are a party to various other legal proceedings incidental to our business.business from time-to-time. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations, or cash flows.

10. Subsequent Events

On October 5, 2017,April 14, 2023, we entered intoacquired five behavioral health hospitals located in the United Kingdom for approximately £44 million. These hospitals are leased to Priory pursuant to five separate lease agreements with annual inflation-based escalators.

On April 19, 2023, we acquired two behavioral health hospitals and have a signed definitive agreementsagreement to acquire three rehabilitation hospitalsan additional facility, located in Germany, for an aggregate purchase price to usa total of approximately €8070 million. Upon closing, the facilitiesThese hospitals will be leased to MEDIAN pursuant to a newlong-term master lease.lease with annual inflation-based escalators.

On May 1, 2023, Catholic Health Initiatives Colorado ("CHIC"), a wholly owned subsidiary of CommonSpirit Health ("CommonSpirit"), acquired the Utah hospital operations of five general acute care facilities previously operated by Steward. As a result of this transaction, we expect to receive $150 million of proceeds from Steward to pay down outstanding loans, $100 million of which we received on May 1, 2023. The new lease with CHIC for these Utah assets will begin on the day the first property is funded, and thehave an initial fixed term will be 27of 15 years with annual escalation provisions. As part of this transaction, we severed these facilities from the funding datemaster lease with Steward, and accordingly will accelerate the amortization of the third property. Theassociated in-place lease provides for increasesintangibles (approximately $288 million at March 31, 2023) and write-off approximately $94 million of the greaterstraight-line rent receivables. With this transaction, we expect to lower our overall asset concentration with Steward by approximately 4% and our revenue concentration by approximately 8%.

27


Item 2. Management’s Discussion and Analysis of 1% or 70%Financial Condition and Results of the change in German CPI. Closing of the transaction, which is expected to begin during the fourth quarter of 2017, is subject to customary real estate, regulatory and other closing conditions.

Operations.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities.

The following Such discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.

Forward-Looking Statements.

This reportQuarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or future performance, achievements or transactions or events to be materially different from those expressed or implied by such forward-looking statements, including, but not limited to, the risks described in our Annual Report on Form 10-K and as updated in our quarterly reports on Form 10-Q for future periods, and current reports on Form 8-K as we file them with the Securities and Exchange Commission (SEC)SEC under the Securities Exchange Act of 1934.Act. Such factors include, among others, the following:

U.S. (both national and local) and European (in particular Germany,
the United Kingdom, Spain, and Italy) political, economic, business, real estate, and other market conditions;

conditions in the competitive environment in which we operate;

the execution of our business plan;

financing risks;

the risk that a condition to closing under the agreements governing any or all of our outstanding transactions that have not closed as of the date hereof (including the RCCH and MEDIAN transactions described in Notes 9 and 10) may not be satisfied;

the possibility that the anticipated benefits from any or all of the transactions we enter into will take longer to realize than expected or will not be realized at all;

acquisition and development risks;

potential environmental contingencies and other liabilities;

adverse developments affecting the financial health of one or more of our tenants, including insolvency;

other factors affecting the real estate industry generally or the healthcare real estate industry in particular;

our ability and willingness to maintain our status as a real estate investment trust, or REIT, for U.S. federal and state income tax purposes (particularly in light of current tax reform considerations);

our ability to attract and retain qualified personnel;

changes in foreign currency exchange rates;

U.S. (both federalnational and state) and Europeanlocal), Europe (in particular Germany, the United Kingdom, Germany, Switzerland, Spain, Italy, Finland, and Italy) healthcarePortugal), Australia, South America (in particular Colombia), and other regulatory requirements; and

U.S. national and local economic conditions, as well as conditions in Europe and any other foreign jurisdictions where we own or willmay own healthcare facilities or transact business, which may have a negative effect on the following, among other things:

o
the financial condition of our tenants, our lenders, counterparties to interest rate swaps and other hedged transactions andor institutions that may hold our cash balances or are counterparties to certain hedge agreements, which may expose us to increased risks of default by these parties;

o
our ability to obtain equity or debt financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities, refinance existing debt, and our future interest expense; and

o
the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our propertiesreal estate assets or on an unsecured basis.basis;
the impact of factors that may affect our business, our joint ventures or the business of our tenants/borrowers that are beyond our control, including natural disasters, health crises, or pandemics (such as COVID-19) and subsequent government actions in reaction to such matters;
the risk that a condition to closing under the agreements governing any or all of our pending transactions (including the transactions described in Note 3, Note 9, and Note 10 to the condensed consolidated financial statements) that have not closed as of the date hereof may not be satisfied;
the possibility that the anticipated benefits from any or all of the transactions we have entered into or will enter into may take longer to realize than expected or will not be realized at all;
the competitive environment in which we operate;
the execution of our business plan;
financing risks, including due to rising inflation and interest rates;
acquisition and development risks;
potential environmental contingencies and other liabilities;
adverse developments affecting the financial health of one or more of our tenants, including insolvency;
other factors affecting the real estate industry generally or the healthcare real estate industry in particular;
our ability to maintain our status as a REIT for U.S. federal and state income tax purposes;
our ability to attract and retain qualified personnel;
changes in foreign currency exchange rates;
changes in federal, state, or local tax laws in the U.S., Europe, Australia, South America, or other jurisdictions in which we may own healthcare facilities or transact business;
healthcare and other regulatory requirements of the U.S., Europe, Australia, South America, and other foreign countries; and

28


the accuracy of our methodologies and estimates regarding environmental, social, and governance ("ESG") metrics and targets, tenant willingness and ability to collaborate towards reporting ESG metrics and meeting ESG goals and targets, and the impact of governmental regulation on our and our tenants' ESG efforts.

Key Factors that May Affect Our Operations

Our revenue is derived from rents we earn pursuant to the lease agreements with our tenants, from interest income from loans to our tenants and other facility owners, and from profits or equity interests in certain of our tenants’ operations. Our tenants operate in the healthcare industry, generally providing medical, surgical, rehabilitative, and rehabilitativebehavioral health care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory, market, and marketother conditions (such as the impact of the COVID-19 pandemic) that may affect their profitability, which could impact our results. Accordingly, we monitor certain key factors, changes to whichperformance indicators that we believe may provide us with early indications of conditions that maycould affect the level of risk in our portfolio.

Key factors that we may consider in underwriting prospective tenants and borrowersdeals and in our ongoing monitoring of our tenants’ (and guarantors’) performance, as well as the performancecondition of existing tenants and borrowersour properties, include, but are not limited to, the following:

admission levels
the scope and surgery/procedure/diagnosis volumesbreadth of clinical services and programs, including utilization trends (both inpatient and outpatient) by service type;

the size and composition of medical staff and physician leadership at our facilities, including specialty, tenure, and number of procedures performed and/or referrals;
an evaluation of our operators’ administrative team, as applicable, including background and tenure within the healthcare industry;
staffing trends, including ratios, turnover metrics, recruitment and retention strategies at corporate and individual facility levels;
facility operating performance measured by current, historical, and prospective operating margins (measured by a tenant's earnings before interest, taxes, depreciation, amortization, management fees, and facility rent) of each tenant or borrower and at each facility;

the ratio of our tenants’ and borrowers’tenants' operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

trends
changes in the sourcerevenue sources of our tenants’ or borrowers’ revenue,tenants, including the relative mix of public payors (including Medicare, Medicaid/MediCal, and managed care in the U.S., as well as equivalent payors in Europe, Australia, and pension funds in Germany)South America) and private payors (including commercial insurance and private pay patients);

historical support (financial or otherwise) from governments and/or other public payor systems during major economic downturns/depressions;
trends in tenants' cash collections, including comparison to recorded net patient service revenues, knowing and assessing current revenue cycle management systems and potential future planned upgrades or replacements;
tenants’ free cash flow;
the effectpotential impact of evolving healthcare pandemics/epidemics, legislation, and other regulations (including changes in reimbursement) on our tenants’, borrowers’, and borrowers’ profitability;guarantors' profitability and liquidity;

the competitionpotential impact of any legal, regulatory, or compliance proceedings with our tenants (including at the facility level);
the potential impact of supply chain and demographicsinflation-related challenges as they relate to new developments or capital addition projects;
an ongoing assessment of the localoperating environment of our tenants, including demographics, competition, market position, status of compliance, accreditation, quality performance, and surrounding areashealth outcomes as measured by The Centers for Medicare and Medicaid Services, Joint Commission, and other governmental bodies in which our tenants operate;
the tenants or borrowers operate.level of investment in the hospital infrastructure and health IT systems; and
physical real estate due diligence, typically including property condition and Phase 1 environmental assessments, along with annual property inspections thereafter.

29


Certain business factors, in addition to those described above that may directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include:

trends in the costinterest rates and other costs due to general inflation and availability and increased costs from labor shortages could adversely impact the operations of capital, including market interest rates, that our prospective tenants may use forand their real estate assets instead of financingability to meet their real estate assets through lease structures;obligations;

changes in healthcare regulations that may limit the opportunities for physicians to participate in the ownership of healthcare providers and healthcare real estate;

reductions (or non-timely increases) in reimbursements from Medicare, state healthcare programs, and commercial insurance providers that may reduce our tenants’ or borrowers’ profitability and our lease rates;revenues;

competition from other financing sources; and

the ability of our tenants and borrowers to access funds in the credit markets.

CRITICAL ACCOUNTING POLICIES

Refer to our 20162022 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include revenue recognition, investmentinvestments in real estate, purchase price allocation, loans, credit losses, losses from rent and interest receivables, stock-based compensation, ourinvestments accounted for under the fair value option election, and our accounting policy on consolidation. During the ninethree months ended September 30, 2017,March 31, 2023, there were no material changes to these policies.

Overview

We are a self-advised real estate investment trust (“REIT”)REIT focused on investing in and owning net-leased healthcare facilities across the U.S. and selectively in foreign jurisdictions. We have operated as a REIT since April 6, 2004, and accordingly, elected REIT status upon the filing of our calendar year 2004 federal income tax return. Medical Properties Trust, Inc. was incorporated under

Maryland law on August 27, 2003, and MPT Operating Partnership, L.P. was formed under Delaware law on September 10, 2003. We conduct substantially all of our business through MPT Operating Partnership, L.P. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned 100%; however, we do own some leased assets through joint ventures with other partners that share our view that healthcare facilities are part of the infrastructure of any community, which we refer to as investments in unconsolidated real estate joint ventures. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we selectivelymay make loans to certain of our operators through our TRSs,TRS, the proceeds of which are typically used for acquisitionsworking capital and working capital. Finally, from time to time,other purposes. From time-to-time, we acquire a profits or other equity interestmay make noncontrolling investments in our tenants, which we refer to as investments in unconsolidated operating entities. These investments are typically made in conjunction with larger real estate transactions with the tenant that givesgive us a right to share in such tenant’s profits and losses.losses and provide for certain minority rights and protections. Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to serve their communities by unlocking the value of their real estate assets to fund facility improvements, technology upgrades, and other investments in operations.

At September 30, 2017,March 31, 2023, our portfolio consisted of 271444 properties leased or loaned to 3054 operators, of which twoseven are under development and 14four are in the form of mortgage loans.

Our investments in healthcare real estate, including mortgage and other loans, We manage our business as well as any equity investments in our tenants are considered a single reportablebusiness segment. All

At March 31, 2023, all of our investments are currently located in the U.S., Europe, Australia, and Europe.South America. Our total assets are made up of the following (dollars in thousands):

   As of
September 30, 2017
   % of
Total
  As of
December 31, 2016
   % of
Total
 

Real estate owned (gross)

  $6,463,107    72.4 $4,912,320    76.6

Mortgage loans

   1,777,555    19.9  1,060,400    16.5

Other loans

   151,709    1.7  155,721    2.4

Construction in progress

   28,008    0.3  53,648    0.8

Other assets

   506,661    5.7  236,447    3.7
  

 

 

   

 

 

  

 

 

   

 

 

 

Total assets (1)

  $8,927,040    100.0 $6,418,536    100.0
  

 

 

   

 

 

  

 

 

   

 

 

 

 

 

As of
March 31,
2023

 

 

% of
Total

 

 

As of
December 31,
2022

 

 

% of
Total

 

Real estate assets - at cost

 

$

15,902,959

 

 

 

80.9

%

 

$

15,917,839

 

 

 

81.0

%

Accumulated real estate depreciation and amortization

 

 

(1,207,699

)

 

 

-6.1

%

 

 

(1,193,312

)

 

 

-6.1

%

Cash and cash equivalents

 

 

302,321

 

 

 

1.5

%

 

 

235,668

 

 

 

1.2

%

Investments in unconsolidated real estate joint ventures

 

 

1,506,474

 

 

 

7.7

%

 

 

1,497,903

 

 

 

7.6

%

Investments in unconsolidated operating entities

 

 

1,310,460

 

 

 

6.7

%

 

 

1,444,872

 

 

 

7.4

%

Other

 

 

1,835,642

 

 

 

9.3

%

 

 

1,755,030

 

 

 

8.9

%

Total assets

 

$

19,650,157

 

 

 

100.0

%

 

$

19,658,000

 

 

 

100.0

%

(1)Includes $1.8 billion and $1.3 billion of healthcare real estate assets in Europe at September 30, 2017 and December 31, 2016, respectively.

The following is our revenue by operating type (dollar amounts in thousands):

Revenue by property type:30


   For the Three
Months Ended
September 30, 2017
   % of
Total
  For the Three
Months Ended
September 30, 2016
   % of
Total
 

General Acute Care Hospitals (1)

  $119,572    67.7 $78,622    62.1

Rehabilitation Hospitals

   46,485    26.3  37,075    29.3

Long-term Acute Care Hospitals

   10,523    6.0  10,858    8.6
  

 

 

   

 

 

  

 

 

   

 

 

 

Total revenue

  $176,580    100.0 $126,555    100.0
  

 

 

   

 

 

  

 

 

   

 

 

 
   For the Nine
Months Ended
September 30, 2017
   % of
Total
  For the Nine
Months Ended
September 30, 2016
   % of
Total
 

General Acute Care Hospitals (1)

  $341,640    68.4 $238,600    61.5

Rehabilitation Hospitals

   125,829    25.2  113,463    29.3

Long-term Acute Care Hospitals

   32,315    6.4  35,791    9.2
  

 

 

   

 

 

  

 

 

   

 

 

 

Total revenue

  $499,784    100.0 $387,854    100.0
  

 

 

   

 

 

  

 

 

   

 

 

 

(1)Includes three medical office buildings.

We have 62 employees as of November 3, 2017. We believe that any foreseeable increase in the number of our employees will have only immaterial effects on our operations and general and administrative expenses. We believe that our relations with our employees are good. None of our employees are members of any labor union.

Results of Operations

Three Months Ended September 30, 2017March 31, 2023 Compared to September 30, 2016March 31, 2022

Net income for the three months ended September 30, 2017,March 31, 2023, was $76.5$32.8 million ($0.05 per diluted share) compared to $70.4$631.7 million ($1.05 per diluted share) for the three months ended September 30, 2016.March 31, 2022. This increasedecrease in net income is due to additional revenuedriven by the gain on sale of real estate in the 2022 first quarter from the StewardMacquarie Transaction and MEDIAN investments madethe 2023 impairment charge associated with the Australia Transaction, both as described in Note 3 to the fourth quarter of 2016 and during the first nine months of 2017, partially offset by increased depreciation and acquisition expense and $44.6 million of gains on real estate and other asset dispositions in the 2016 third quarter. Fundscondensed consolidated financial statements. Normalized funds from operations (“FFO”), after adjusting for certain items (as more fully described in Reconciliationthe section titled “Reconciliation of Non-GAAP Financial Measures)Measures” in Item 2 of this Quarterly Report on Form 10-Q), was $120.6$222.2 million for the 2023 first quarter, or $0.37 per diluted share, as compared to $282.5 million, or $0.33$0.47 per diluted share, for the 2017 third quarter as compared to $75.1 million, or $0.30 per diluted share for the 2016 third2022 first quarter. This 61% increasedecrease in Normalized FFO per share is primarily due to not recognizing any revenue in the increase in revenue from our new investments made since September 2016, partially offset by more shares outstanding in 2017 from2023 first quarter for Prospect - see Note 3 to the May 2017 equity offering.condensed consolidated financial statements for further discussion on Prospect.

A comparison of revenues for the three month periods ended September 30, 2017March 31, 2023 and 20162022 is as follows (dollar amounts in thousands):

  2017   % of
Total
 2016   % of
Total
 Year over
Year
Change
 

 

2023

 

 

% of
Total

 

 

2022

 

 

% of
Total

 

 

Year over
Year
Change

 

Rent billed

  $110,930    62.8 $82,387    65.1 34.6

 

$

248,157

 

 

 

70.8

%

 

$

263,402

 

 

 

64.3

%

 

 

-5.8

%

Straight-line rent

   17,505    9.9 9,741    7.7 79.7

 

 

56,693

 

 

 

16.2

%

 

 

61,044

 

 

 

14.9

%

 

 

-7.1

%

Income from direct financing leases

   19,115    10.8 14,678    11.6 30.2

Interest and fee income

   29,030    16.5 19,749    15.6 47.0
  

 

   

 

  

 

   

 

  

Income from financing leases

 

 

13,195

 

 

 

3.8

%

 

 

51,776

 

 

 

12.6

%

 

 

-74.5

%

Interest and other income

 

 

32,166

 

 

 

9.2

%

 

 

33,578

 

 

 

8.2

%

 

 

-4.2

%

Total revenues

  $176,580    100.0 $126,555    100.0 39.5

 

$

350,211

 

 

 

100.0

%

 

$

409,800

 

 

 

100.0

%

 

 

-14.5

%

  

 

   

 

  

 

   

 

  

Our total revenuerevenues for the 2017 third2023 first quarter is up $50.0are down $59.6 million, or 39.5%14.5%, over the same period in the prior year. This increasedecrease is made up of the following:

Operating lease revenue (including(includes rent billed and straight-line rent) – up $36.3down $19.6 million over the prior year of which $32.6approximately $30 million is due to disposals in 2022 (primarily related to the Macquarie Transaction as described in Note 3 to the condensed consolidated financial statements) and $8.9 million of unfavorable foreign currency fluctuations. This decrease is partially offset by approximately $11 million in incremental revenue from acquisitions, made after September 30, 2016, $4.2 million is incremental revenue from development properties that were completed and put into service in late 2016 and 2017, $1.3 million is incremental revenue from capital additions, made to existing facilitiesand the commencement of rent on a development property in late 2016 and 2017, and $2.0the first quarter of 2022. In addition, rent revenues are up approximately $8 million isquarter-over-quarter from increases in CPI above the contractual minimum escalations in our leases.
Income from financing leases – down $38.6 million primarily due to an increasenot recording any revenue on Prospect in exchange rates. These increases werethe first quarter of 2023, compared to $35.3 million of revenue recorded in the first quarter of 2022. This decrease is partially offset by $1.8the increase in CPI above the lease contractual minimum escalations by approximately $0.5 million.
Interest and other income – down $1.4 million of lower revenue related to dispositions.

Income from direct financing leases – up $4.4 million over the prior year of which $0.3 million is from our annual escalation provisions in our leases, $1.1 million is incremental revenue from acquisitions made after September 30, 2016, and $3.0 million relatesdue to the conversion of certain Prime facilities, valued at approximately $100 million, in 2016 from mortgage loans into direct financing leases.following:

o
Interest from loans – up $9.3$0.7 million over the prior yeardue to approximately $4 million of which $0.4 million is from our annual escalation provisions in our loans, $11.5 million is incremental revenue earned on new investments, net of loan payoffs, along with $0.3 million of higher income from new loans (primarily Steward mortgage loans) made after September 30, 2016.annual escalations due to increases in CPI. This increase wasis partially offset by $0.5a decrease of approximately $3.0 million due to not recording any interest revenue for Prospect in the first quarter of 2023 and $0.9 million of lower revenue from loans that were repaid in 2016 and $2.2 million of lower revenue related to the conversion of certain Prime facilities, valued at approximately $100 million, from mortgage loans to direct financing leases post September 30, 2016.unfavorable foreign currency fluctuations.

Real estate depreciation and amortization during the third quarter of 2017 increased to $31.9 million from $23.9 million in 2016, due to the incremental depreciation from the properties acquired since September 30, 2016 and the development properties completed in 2016 and 2017.

Property expenses for the 2017 third quarter increased $1.6

o
Other income – down $2.1 million from the prior year quarter as the 2016 third quarter included $0.9 million reimbursement for property expenses incurred in multiple previous periods from the tenant of our Twelve Oaks facility.

Acquisition expenses increased from $2.7 million in 2016 to $7.4 million in 2017 primarily as a result of the Steward and MEDIAN acquisitions in 2017, including approximately $2.3 million of real estate transfer taxes.

General and administrative expenses totaled $15.0 million for the 2017 third quarter, which is 8.5% of total revenues, down from 9.7% of total revenues in prior year third quarter. The drop in general and administrative expenses as a percentage of revenue is primarily due to our business model as we can generally increasehad less direct reimbursements from our revenue significantly without increasing our head counttenants for ground leases, property taxes, and related expenses at the same rate. On a dollar basis, general and administrative expenses were up $2.7 million from the prior year third quarter due primarily to the growth of our company, including increases in travel, international administration, costs associated with opening a European office, and compensation related to increased headcount.

insurance.

Interest expense for the quarters ended September 30, 2017March 31, 2023 and 2016,2022 totaled $42.8$97.7 million and $40.3$91.2 million, respectively. This increase is primarily related to the higher average debt balance for the 2017 quarteran increase in interest rates on our Credit Facility and term loans compared to the prior year to fund our acquisition activity. The impactand the issuance of a £105 million unsecured sterling-denominated term loan on interest expense from the higher debt balance was partially offset by lower interest rates year-over-year.December 9, 2022. Our weighted-average interest rate was 4.6%of 3.7% for the quarter ended September 30, 2017, comparedMarch 31, 2023 is higher than the 3.1% for the same period in 2022.

Real estate depreciation and amortization during the first quarter of 2023 decreased to 5.2% in 2016.

With the redemption of the $450$83.9 million from $85.3 million in senior unsecured notes during2022 due to foreign currency fluctuations and property sales in 2022, partially offset by new investments made after March 31, 2022.

Property-related expenses totaled $7.1 million and $8.6 million for the quarters ended March 31, 2023 and 2022, respectively. Of the property expenses in the first quarter ended September 30, 2016, we incurred $22.5of 2023 and 2022, approximately $4.2 million and $6.3 million, respectively, represents

31


costs that were reimbursed by our tenants and included in debt refinancing charges ($15.5the “Interest and other income” line on our condensed consolidated statements of net income.

General and administrative expenses totaled $41.7 million for the 2023 first quarter, relatively flat from the 2022 first quarter of which was a redemption premium). During the 2017 third quarter, we incurred $4.4 million of charges primarily related to structuring and underwriting fees associated with the termination of theshort-term loan commitment we made in anticipation of the Steward acquisition.$41.4 million.

During the three months ended September 30, 2016,March 31, 2022, we completed the Macquarie Transaction in which we sold three HealthSouth propertiesthe real estate of eight Massachusetts-based general acute care hospitals, resulting in a gain on real estate of approximately $600 million, partially offset by approximately $125 million of write-offs of non-cash straight-line rent receivables. We also disposed of two other facilities and an ancillary property resulting in a net gain of $15 million.

In the first quarter of 2023, we recorded an $89.5 million net impairment charge, of which $79 million related to the Australia Transaction and $11 million was a non-cash impairment charge on sale of approximately $45 million (see the three Prime properties as more fully described in Note 3 to the condensed consolidated financial statements. The 2022 first quarter impairment charge related to our Watsonville facility.

With the interest rate swap no longer classified as an effective cash flow hedge due to the Australia Transaction disclosed in Note 3 to the condensed consolidated financial statements, we expect some earnings volatility from marking the swap to fair value in future quarters until the related debt is extinguished.

Earnings from equity interests was $11.4 million for the quarter ended March 31, 2023, up $4.0 million from the same period in 2022. This increase is primarily due to $2.1 million of additional income generated on our Massachusetts-based partnership with MAM entered into during March 2022.

Debt refinancing and unutilized financing costs were $8.8 million for the quarter ended March 31, 2022, as a result of the termination of our $1 billion interim credit facility (see Note 4 to the condensed consolidated financial statements for more detail).

Other expense for the first three months of 2023 was $5.2 million and included approximately $8 million of expenses associated with responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. See Item 1 of this Form 10-QPart II for further details).

Earnings from our equity interestsdetails on the lawsuit. This expense was $3.4partially offset by approximately $4 million for the 2017 third quarter, up $2.1 million from the prior year primarily related to our increased ownership in and the improved operating results of the operator of our Hoboken facility, along with our first quarter to generate incomefavorable non-cash fair value adjustments on our IMED investment.investment in Aevis and other investments marked to fair value during 2023. For the first three months of 2022, we had other income of $14.8 million primarily from $8.0 million of favorable adjustments on our investment in Aevis and other investments marked to fair value.

Income tax expense typically includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. IncomeThe $3.5 million income tax expense of $0.5 million for the three months ended September 30, 2017, wasMarch 31, 2023 is primarily due to $1.1based on the income generated by our investments in the United Kingdom, partially offset by a $5.0 million of foreign tax expense related to our German investments offset partially by $0.6 million of tax benefit recognized on approximately $2in the first quarter of 2023 related to the expected sale of our Australia facilities. In comparison, we incurred $11.4 million in income tax expense in the first quarter of acquisition costs incurred on our European investments.2022.

We utilize the asset and liability method of accounting for income taxes. Deferred tax assets are recorded to the extent we believe these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon our review of all positive and negative evidence, including our three-year cumulativepre-tax book loss position in manycertain entities, we concluded that a full valuation allowance of approximately $74 million should continue to be recordedreflected against the majority of our U.S and certain of our international and domestic net deferred tax assets at September 30, 2017.March 31, 2023. In the future, if we determine that it is more likely than not that we will realize our U.S. and foreign net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and potentially incur higher income taxestax expense in future periods.periods as income is earned.

Nine Months Ended September 30, 2017 Compared to September 30, 2016

Net income for the nine months ended September 30, 2017, was $217.8 million compared to net income of $182.0 million for the nine months ended September 30, 2016, primarily due to additional revenue from the MEDIAN, Steward, and RCCH investments made in the fourth quarter of 2016 and the first nine months of 2017, incremental revenue from completed development projects and

increased income from our equity investments, partially offset by higher depreciation expense from investments made subsequent to September 30, 2016, increased acquisition and travel expense due to more foreign investments, and approximately $54 million in higher gains on sale of properties in the first nine months of 2016. FFO, after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $340.1 million, or $0.98 per diluted share for the first nine months in 2017 as compared to $234.1 million, or $0.97 per diluted share for the first nine months of 2016. This 45.3% increase in FFO is primarily due to the increase in revenue from acquisitions and completed development projects made since September 2016, while FFO per share is only slightly higher in the first nine months of 2017 compared to prior year due to more shares outstanding from the September 2016 and May 2017 equity offerings.

A comparison of revenues for the nine month periods ended September 30, 2017 and 2016 is as follows (dollar amounts in thousands):

   2017   % of
Total
  2016   % of
Total
  Year over
Year
Change
 

Rent billed

  $311,140    62.3 $234,408    60.4  32.7

Straight-line rent

   46,561    9.3  26,509    6.8  75.6

Income from direct financing leases

   55,307    11.1  47,181    12.2  17.2

Interest and fee income

   86,776    17.3  79,756    20.6  8.8
  

 

 

   

 

 

  

 

 

   

 

 

  

Total revenues

  $499,784    100.0 $387,854    100.0  28.9
  

 

 

   

 

 

  

 

 

   

 

 

  

Our total revenue for the first nine months of 2017 is up $111.9 million or 28.9% over the prior year. This increase is made up of the following:

Operating lease revenue (including rent billed and straight-line rent) – up $96.8 million over the prior year of which $0.4 million is from our annual escalation provisions in our leases, $83.1 million is incremental revenue from acquisitions made after September 30, 2016, $16.2 million is incremental revenue from development properties that were completed and put into service in 2016 and 2017, $2.7 million is incremental revenue from capital additions made to existing facilities in 2017 and 2016, $5.6 million relates to the conversion of certain RCCH facilities in 2016 from direct financing leases into operating leases, and a $0.5 million straight-line rent write-off related to our Corinth facility in the 2016 second quarter. These increases are partially offset by $8.5 million of lower revenue related to dispositions, $1.1 million of straight-line rent write-offs in 2017 related to three Adeptus facilities re-leased to Ochsner and the sale of our Muskogee property, and foreign currency fluctuations.

Income from direct financing leases – up $8.1 million over the prior year of which $0.6 million is from our annual escalation provisions in our leases, $3.7 million is incremental revenue from acquisitions made after September 30, 2016, $9.0 million relates to the conversion of certain Prime facilities in 2016 from mortgage loans to direct financing leases, and a $2.6 million write-off in 2016 related to the RCCH facilities that converted from direct financing leases into operating leases. These increases were partially offset by $7.8 million of lower revenue related to those RCCH facilities that converted from direct financing leases into operating leases in the first half of 2016.

Interest from loans – up $7.0 million over the prior year of which $1.1 million is from annual escalation provisions and $34.0 million is incremental revenue from new loans (primarily Steward mortgage loans) made after September 30, 2016. These increases were partially offset by $21.6 million in less interest revenue earned in 2017 from loans that were repaid in 2016 (primarily from Capella Transaction) and $6.5 million of lower interest revenue related to the conversion of certain Prime facilities, valued at approximately $100 million, from mortgage loans to direct financing leases post September 30, 2016.

Real estate depreciation and amortization during the first nine months of 2017 increased to $89.0 million from $67.9 million in the same period of 2016, primarily due to the incremental depreciation from the properties acquired and the development properties completed in 2016 and 2017. In the 2016 second quarter, we accelerated the amortization of the lease intangible asset related to our Corinth facility resulting in $1.1 million of additional expense.

Property expenses for the first nine months of 2017 increased $2.4 million compared to 2016. This increase is primarily due to the reimbursement to us in the 2016 third quarter of $0.8 million by the tenant of our Twelve Oaks facility for property expenses incurred in previous periods.

Acquisition expenses increased from $6.4 million in 2016 to $21.0 million in 2017 primarily as a result of the MEDIAN and Steward acquisitions in 2017, including $11.7 million of real estate transfer taxes incurred on the MEDIAN acquisitions.

General and administrative expenses in the first nine months of 2017 totaled $43.3 million, which is 8.7% of revenues down from 9.2% of revenues in the prior year. The decline in general and administrative expenses as a percentage of revenues is primarily due to our business model as we can generally increase our revenues significantly without increasing our head count and related expense at the same rate. On a dollar basis, general and administrative expenses were up $7.5 million from the prior year first nine months due primarily to increases in travel, international administration, costs associated with opening a European office, compensation related to increased headcount and public company board expenses.

During the nine months ended September 30, 2017, we sold the Muskogee, Oklahoma facility resulting in a net gain on sale of real estate of $7.4 million, while in the first nine months of 2016, we had various dispositions resulting in a net gain on sale of real estate and other asset dispositions of $61.3 million and impairment charges of $7.3 million (see Note 3 to Item 1 of this Form 10-Q for further details).

Earnings from our equity interests increased from a loss of $2.6 million in 2016 to a gain of $7.9 million in 2017. The loss in 2016 includes $5.3 million of acquisition expenses, representing our share of such expenses incurred by our Italian joint venture to acquire its eight hospital properties. In addition, 2017 includes $4.7 million of additional income related to our increased ownership in and improved operating results of the operator of our Hoboken facility, along with additional income from our IMED investment in the 2017 third quarter.

Interest expense remained relatively flat year-over-year as we incurred $120.5 million for the first nine months of 2017 compared to $121.1 million for the first nine months of 2016. Our average debt balance for 2017 has been higher than 2016 due to continued growth of the company; however, its impact on interest expense has been more than offset by lower interest rates. Our weighted-average interest rate for the first nine months of 2017 was 4.6% versus 4.9% in the same period for 2016.

With the redemption of the $450 million in senior unsecured notes, we incurred $22.5 million in debt refinancing charges ($15.5 million of which was a redemption premium) during the first nine months of 2016. During the first nine months of 2017, we incurred $18.8 million of debt refinancing charges related to the replacement of our credit facility, the payoff of our €200 million euro loan, the prepayment of our $12.9 million term loan, and structuring and underwriting fees associated with the termination of the short-term loan commitment we made in anticipation of the Steward acquisition (see Note 4 to Item 1 of this Form 10-Q for further details).

Income tax expense for the nine months ended September 30, 2017 decreased by $390 thousand from the same period in 2016 primarily due to $1.7 million of benefit recognized on approximately $10.7 million of acquisition costs incurred on our European investments in 2017. This tax benefit recognized in 2017 was offset by additional tax expense from our international investments, which were not realized in 2016 due to a valuation allowance position. These valuation allowances were released in the 2016 fourth quarter.

Reconciliation of Non-GAAP Financial Measures

Funds From Operations

Investors and analysts following the real estate industry utilize funds from operations, or FFO, as a supplemental performance measure. FFO, reflecting the assumption that real estate asset values rise or fall with market conditions, principally adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assumes that the value of real estate diminishes predictably over time. We compute FFO in accordance with the definition provided by the National Association of Real Estate Investment Trusts, or NAREIT,Nareit, which represents net income (loss) (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairment charges on real estate assets, plus real estate depreciation and amortization, including amortization related to in-place lease intangibles, and after adjustments for unconsolidated partnerships and joint ventures.

32


In addition to presenting FFO in accordance with the NAREITNareit definition, we also disclose normalized FFO, which adjusts FFO for items that relate to unanticipated or non-core events or activities or accounting changes that, if not noted, would make comparison to prior period results and market expectations less meaningful to investors and analysts.

We believe that the use of FFO, combined with the required GAAP presentations, improves the understanding of our operating results among investors and the use of normalized FFO makes comparisons of our operating results with prior periods and other companies more meaningful. While FFO and normalized FFO are relevant and widely used supplemental measures of operating and financial performance of REITs, they should not be viewed as a substitute measure of our operating performance since the measures do not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary(if any are not paid by our tenants) to maintain the operating performance of our properties, which can be significant economic costs that could materially impact our results of operations. FFO and normalized FFO should not be considered an alternative to net income (loss) (computed in accordance with GAAP) as indicators of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.

The following table presents a reconciliation of net income attributable to MPT common stockholders to FFO and Normalized FFO for the three and nine months ended September 30, 2017March 31, 2023 and 2016 (in2022 (amounts in thousands except per share data):

  For the Three Months Ended For the Nine Months Ended 

 

For the Three Months Ended

 

  September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 

 

March 31, 2023

 

 

March 31, 2022

 

FFO information:

     

 

 

 

 

 

 

Net income attributable to MPT common stockholders

  $76,464  $70,358  $217,849  $182,009 

 

$

32,794

 

 

$

631,681

 

Participating securities’ share in earnings

   (82 (154 (307 (430

 

 

(515

)

 

 

(402

)

  

 

  

 

  

 

  

 

 

Net income, less participating securities’ share in earnings

  $76,382  $70,204  $217,542  $181,579 

 

$

32,279

 

 

$

631,279

 

Depreciation and amortization

   32,618  24,374  90,744  69,181 

 

 

101,960

 

 

 

99,459

 

Gain on sale of real estate

   (18 (44,515 (7,431 (67,168

 

 

(62

)

 

 

(451,638

)

  

 

  

 

  

 

  

 

 

Real estate impairment charges

 

 

52,104

 

 

 

 

Funds from operations

  $108,982  $50,063  $300,855  $183,592 

 

$

186,281

 

 

$

279,100

 

Write-off of straight line rent and other

        1,117  3,063 

Transaction costs from non-real estate dispositions .

     (101    5,874 

Acquisition expenses, net of tax benefit

   7,166  2,689  19,350  11,723 

Impairment charges

     (80    7,295 

Unutilized financing fees / debt refinancing costs

   4,414  22,535  18,794  22,539 
  

 

  

 

  

 

  

 

 

Write-off (recovery) of unbilled rent and other

 

 

39,626

 

 

 

(2,271

)

Other impairment charges

 

 

 

 

 

4,875

 

Litigation and other

 

 

7,726

 

 

 

 

Non-cash fair value adjustments

 

 

(4,121

)

 

 

(8,023

)

Tax rate changes and other

 

 

(7,305

)

 

 

 

Debt refinancing and unutilized financing costs

 

 

 

 

 

8,816

 

Normalized funds from operations

  $120,562  $75,106  $340,116  $234,086 

 

$

222,207

 

 

$

282,497

 

  

 

  

 

  

 

  

 

 

Per diluted share data:

     

 

 

 

 

 

 

Net income, less participating securities’ share in earnings

  $0.21  $0.28  $0.63  $0.75 

 

$

0.05

 

 

$

1.05

 

Depreciation and amortization

   0.09  0.10  0.26  0.29 

 

 

0.17

 

 

 

0.17

 

Gain on sale of real estate

     (0.18 (0.02 (0.28

 

 

 

 

 

(0.75

)

  

 

  

 

  

 

  

 

 

Real estate impairment charges

 

 

0.09

 

 

 

 

Funds from operations

  $0.30  $0.20  $0.87  $0.76 

 

$

0.31

 

 

$

0.47

 

Write-off of straight line rent and other

           0.01 

Transaction costs from non-real estate dispositions .

           0.03 

Acquisition expenses, net of tax benefit

   0.02  0.01  0.06  0.05 

Impairment charges

           0.03 

Unutilized financing fees / debt refinancing costs

   0.01  0.09  0.05  0.09 
  

 

  

 

  

 

  

 

 

Write-off (recovery) of unbilled rent and other

 

 

0.07

 

 

 

 

Other impairment charges

 

 

 

 

 

 

Litigation and other

 

 

0.01

 

 

 

 

Non-cash fair value adjustments

 

 

(0.01

)

 

 

(0.01

)

Tax rate changes and other

 

 

(0.01

)

 

 

 

Debt refinancing and unutilized financing costs

 

 

 

 

 

0.01

 

Normalized funds from operations

  $0.33  $0.30  $0.98  $0.97 

 

$

0.37

 

 

$

0.47

 

  

 

  

 

  

 

  

 

 

Total Gross Assets

Total gross assets is total assets before accumulated depreciation/amortization and assumes all real estate binding commitments on new investments and unfunded amounts on development deals and commenced capital improvement projects are fully funded, and assumes cash on hand is fully used in these transactions. We believe total gross assets is useful to investors as it provides a more current view of our portfolio and allows for a better understanding of our concentration levels as our binding commitments close and our other commitments are fully funded. The following table presents a reconciliation of total assets to total gross assets (in thousands):

   As of September 30, 2017   As of December 31, 2016 

Total Assets

  $8,927,040   $6,418,536 

Add:

    

Binding real estate commitments on new investments(1)

   112,012    288,647 

Unfunded amounts on development deals and commenced capital improvement projects(2)

   86,227    194,053 

Accumulated depreciation and amortization

   418,880    325,125 

Less:

    

Cash and cash equivalents

   (188,224   (83,240
  

 

 

   

 

 

 

Total Gross Assets

  $9,355,935   $7,143,121 
  

 

 

   

 

 

 

(1)Reflects post September 30, 2017 commitments, including one RCCH facility and three facilities in Germany, and post December 31, 2016 transactions and commitments, including two RCCH facilities and 14 facilities in Germany.
(2)Includes $63.9 million and $109.1 million of unfunded amounts on ongoing development projects and $22.3 million and $84.9 million of unfunded amounts on capital improvement projects and development projects that have commenced rent, as of September 30, 2017 and December 31, 2016, respectively.

LIQUIDITY AND CAPITAL RESOURCES

20172023 Cash Flow Activity

During the ninefirst three months ended September 30, 2017,of 2023, we generated $219.9approximately $135.6 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along(along with cash on-handon-hand) to fund our dividends of $239.2$176.6 million.

Certain investingAs described in Note 3 and financing activitiesNote 9 to the condensed consolidated financial statements, we expect to receive in 2017 included:

a) On February 1, 2017, we replaced2023 proceeds from the Australia Transaction, the repurchase of three facilities by Prime, and the sale of three Prospect facilities. The proceeds from the Australia Transaction will be used to fully prepay our credit facility with a new facility resulting in a $50 million reduction in our U.S. dollarA$1.2 billion term loan and a new €200 million term loan;

b) On March 4, 2017, we redeemed our 5.750% Senior Unsecured Notes due 2020 for €200 million plus a redemption premium usingin advance of its maturity in 2024, while the proceeds from our €200 million term loanthe Prime and cash on hand;

c) On March 24, 2017, we completed a €500 million senior unsecured notes offering and used a portion of the proceeds to pay off our €200 million term loan, and the remaining proceeds wereProspect transactions will be used to acquire 12 facilities leased to MEDIAN for €146.4 million;

d) On March 31, 2017, we sold the EASTAR Health System real estate in Muskogee, Oklahoma for approximately $64 million;

e) On May 1, 2017, we completed an underwritten public offering of 43.1 million shares resulting in net proceeds of approximately $548 million. We used a portion of these proceeds to acquire eight facilities for $301.3 million (leased to Steward), a facility in Idaho for $87.5 million (leased to RCCH) and two other facilities for $40 million (leased to Alecto);

f) On September 7, 2017, we completed a senior unsecured notes offering for $1.4 billion and used a portion of the proceeds to redeem our 6.375% Senior Unsecured Notes due 2022 in October 2017 for $350 million plus a redemption premium, and the remaining proceeds, along with borrowings frompartially pay down our revolving credit facility, were usedfacility.

33


Subsequent to acquire 11 facilities and ancillary properties leased to Steward for $1.4 billion and to make aMarch 31, 2023, we received $100 million equity investmentand expect to receive an additional $50 million from Steward as a result of their sale of the Utah properties to CommonSpirit (as more fully described in Steward;Note 10 to the condensed consolidated financial statements). In addition, we funded approximately $105 million for the acquisition of seven properties described in Note 10 to the condensed consolidated financial statements and expect to fund one additional property later in 2023.

g) On September 29, 2017, we prepaid our Northland mortgage loan in the amount of $12.9 million.

20162022 Cash Flow Activity

During the nine months ended September 30, 2016,2022 first quarter, we generated $168.3approximately $179.4 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $160.1$176.5 million and certain investinginvestment activities.

In regards to other financing activities, to, delever and finance During the Steward acquisition in October 2016,quarter, we did the following:

a) On February 22, 2016, we completed a senior unsecured notes offering for $500 million.

b) On April 30, 2016, we closed on the Capella Transaction (as further discussed in Note 3 to Item 1received approximately $1.3 billion of this Form 10-Q) resulting in net proceeds of $550 million along with an additional $50 million once we sold our investment in RegionalCare bonds in June 2016.

c) On May 23, 2016, we sold our investment in five properties leased and operated by Post Acute for $71 million.

d) On June 17, 2016, we sold our investment in one property leased and operated by Corinth Investor Holdings for $28 million.

e) On July 13, 2016, we completed a new $500 million senior unsecured notes offering. We used the net proceeds from this offering to redeem our $450 million 6.875% Senior Unsecured Notes due 2021, which was completed on August 12, 2016. Net proceeds from the notes offering after redemption approximated $19Macquarie Transaction and obtained a 50% interest in the real estate partnership valued at approximately $400 million and we incurred a one-time charge of $22.5 million related(see Note 3 to the redemption (see Note 4 to Item 1 of this Form 10-Qcondensed consolidated financial statements for further details).

f) On July 20, 2016, we sold three facilities leased We used these proceeds to HealthSouth for $111.5 million, and

g) We sold 82.7 million shares (including 10.3 million sold to Cerberus affiliates on October 7, 2016) throughpay off our at-the-market equity offering program, a public equity offering and a private placement generating proceeds of approximately $1.2 billion.

Short-term Liquidity Requirements:As of November 3, 2017 (and after the redemption of the $350 million 6.375% Senior Unsecured

Notes due 2022 on October 7, 2017), we do not have any debt principal payments due until the revolvinginterim credit facility comes due in

2021, which we can extend for an additional 12 months — see debt maturity schedule below. At November 3, 2017, our availability underand pay down our revolving credit facility, plus cash on-hand approximated $0.7with remaining proceeds used for new investments.

Short-term Liquidity Requirements:

At May 5, 2023, our liquidity approximates $1 billion. We believe this liquidity, and our current monthly cash receipts from rent and loan interest is sufficient to fund our operations, debt and interest obligations, the expected funding

requirements on our development projects, and dividends in order to comply with REIT requirements for the next twelve months.

Long-term Liquidity Requirements: Exclusive of the revolving credit facility (which we can extend for an additional year to February

2022) and after the redemption of the $350 million 6.375% Senior Unsecured Notes due 2022, we do not have any debt principal payments due over the next five years (see debt maturity schedule below). With our liquidity at November 3, 2017 of approximately $0.7 billion along with our current monthly cash receipts from rent and loan interest we believe we have the liquidity available to usand regular distributions from our joint venture arrangements, is sufficient to fund our operations, debt and interest obligations, dividends in order to comply with REIT requirements, our current firm commitments (including approximately $130 million funding for the acquisition of eight properties disclosed in Note 10 to the condensed consolidated financial statements along with capital additions and development projects), and debt service obligations for the next twelve months (including contractual interest payments and our December 2023 debt maturity of approximately $500 million). If the sale of three Prospect facilities (as more fully described in Note 9 to the condensed consolidated financial statements), along with the expected funding requirements onrepurchase of the three Prime facilities in the third quarter of 2023 (as more fully described in Note 3 to the condensed consolidated financial statements) are consummated as expected in 2023, we would have additional liquidity. We also expect to fully prepay our development projects currently.

A$1.2 billion term loan, with cash proceeds from the Australia Transaction (as more fully described in Note 3 to the condensed consolidated financial statements), which we expect to be completed in two tranches during 2023.

Long-term Liquidity Requirements:

As of May 5, 2023, our liquidity approximates $1 billion. We believe that this liquidity, along with monthly cash receipts from rent and loan interest (of which 99% of such leases and mortgage loans include escalation provisions that compound annually) and regular distributions from our joint venture arrangements, is sufficient to fund our operations, interest obligations, debt principal payments coming due in 2023, our current firm commitments, and dividends in order to comply with REIT requirements. We also expect to fully prepay our A$1.2 billion term loan with cash proceeds from the Australia Transaction (as more fully described in Note 3 to the condensed consolidated financial statements), which we expect to be completed in two tranches during 2023.

However, in order to fund our investment strategies, while maintaining a prudent leverage ratio, and to fundother debt maturities coming due in 20222025 and later years, additional capital will be needed, andbeyond (as outlined below in our commitment schedule), to strategically refinance any existing debt in order to reduce interest rates, or to make any new investments, we believe the following sources of capital are generally available in the market and we may need to access one or a combination of them:

the following sources of capital:

entering into joint venture arrangements,

proceeds from strategic property sales or joint ventures (including the sale of three Prospect facilities as described in Note 9 to the condensed consolidated financial statements and the repurchase of three facilities by Prime as described in Note 3 to the condensed consolidated financial statements);

sale of equity securities,securities;

amending or entering into
new bank term loans,loans;

issuing of
new USD, EUR, or EURGBP denominated debt securities, including senior unsecured notes,notes; and/or

placing
new secured loans on real estate located in the U.S. and/or Europe.estate.

However, there is no assurance that conditions will be favorable for such possible transactions or that our plans will be successful.

As of September 30, 2017, principal34


Principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) as of May 5, 2023 are as follows (in thousands):

2017

  $ 350,000 (A) 

2018

   —   

2019

   —   

2020

   —   

2021

   445,359 

Thereafter

   4,081,400 
  

 

 

 

Total

  $4,876,759 
  

 

 

 

2023

 

$

505,440

 

2024

 

 

942,368

 

2025

 

 

1,435,470

 

2026

 

 

2,895,492

 

2027

 

 

1,600,000

 

Thereafter

 

 

3,400,421

 

Total

 

$

10,779,191

 

(A)The $350 million 6.375% Senior Unsecured Notes due 2022 were redeemed on October 7, 2017 with proceeds from our $1.4 billion 5.000% Senior Unsecured Notes due 2027.

Disclosure of Contractual ObligationsCommitments

We presented our contractual obligationscommitments in our 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2016. For the nine months ended September 30, 2017,10-K. There have been no significant changes to our debt related contractual obligations included the issuance of our new Credit Facility, the 3.325% Senior Unsecured Notes due 2025, and the 5.000% Senior Unsecured Notes due 2027, along with redemption of our 5.750% Senior Unsecured Notes due 2020 and prepayment of our $12.9 million term loan. Subsequent to September 30, 2017, we redeemed our 6.375% Senior Unsecured Notes due 2022. See Note 4 of Item 1 of this Form 10-Q for more detailed information.through May 5, 2023.

The following table updates our contractual obligations schedule for the debt activity, described above, for the nine months ended September 30, 2017 along with the post September 30, 2017 early redemption of our 6.375% Senior Unsecured Notes due 2022 (in thousands):

Contractual Obligations

  Less Than
1 Year
   1-3 Years   3-5 Years   After
5 Years
   Total 

Revolving credit facility (1)

  $14,287   $28,574   $450,122   $—     $492,983 

Term loan

   5,556    11,127    207,444    —      224,127 

3.325% Senior Unsecured Notes due 2025

   19,641    39,282    39,282    649,622    747,827 

5.750% Senior Unsecured Notes due 2020

   —      —      —      —      —   

6.375% Senior Unsecured Notes due 2022

   364,381    —      —      —      364,381 

5.000% Senior Unsecured Notes due 2027

   39,667    140,000    140,000    1,785,000    2,104,667 

(1)As of September 30, 2017, we have a $1.3 billion revolving credit facility. However, this table assumes the balance outstanding under the revolver and rate in effect at September 30, 2017 remain in effect through maturity.

Distribution Policy

The table below is a summary of our distributions declared during the two year period ended September 30, 2017:March 31, 2023:

Declaration Date

  Record Date  Date of Distribution  Distribution per Share 

August 17, 2017

  September 14, 2017  October 12, 2017  $0.24 

May 25, 2017

  June 15, 2017  July 14, 2017  $0.24 

February 16, 2017

  March 16, 2017  April 13, 2017  $0.24 

November 10, 2016

  December 8, 2016  January 12, 2017  $0.23 

August 18, 2016

  September 15, 2016  October 13, 2016  $0.23 

May 19, 2016

  June 16, 2016  July 14, 2016  $0.23 

February 19, 2016

  March 17, 2016  April 14, 2016  $0.22 

November 12, 2015

  December 10, 2015  January 14, 2016  $0.22 

Declaration Date

 

Record Date

 

Date of Distribution

 

Distribution
per Share

 

February 16, 2023

 

March 16, 2023

 

April 13, 2023

 

$

0.29

 

November 10, 2022

 

December 8, 2022

 

January 12, 2023

 

$

0.29

 

August 18, 2022

 

September 15, 2022

 

October 13, 2022

 

$

0.29

 

May 26, 2022

 

June 16, 2022

 

July 14, 2022

 

$

0.29

 

February 17, 2022

 

March 17, 2022

 

April 14, 2022

 

$

0.29

 

November 11, 2021

 

December 9, 2021

 

January 13, 2022

 

$

0.28

 

August 19, 2021

 

September 16, 2021

 

October 14, 2021

 

$

0.28

 

May 26, 2021

 

June 17, 2021

 

July 8, 2021

 

$

0.28

 

We intend

On April 27, 2023, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.29 per share of common stock to paybe paid on July 13, 2023 to our stockholders within the time periods prescribed by the Internal Revenue Code (“Code”), all or substantially all of our annual taxable income, including taxable gains (if any) from the sale of real estate and recognized gainsrecord on the sale of securities. June 15, 2023.

It is our policy to make sufficient cash distributions to stockholders in order for us to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended, and to avoidefficiently manage corporate income and excise taxes on undistributed income. See However, our Credit Facility limits the amount of dividends we can pay- see Note 4 to ourthe condensed consolidated financial statements in for further information.

Item 1 to this Form 10-Q for any restrictions placed on dividends by our existing credit facility.3. Quantitative and Qualitative Disclosures About Market Risk.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that affect market sensitive instruments. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate or foreign currency exposure. For interest rate hedging, these decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. For foreign currency hedging, these decisions are principally based on how our investments are financed, the long-term nature of our investments, the need to repatriate earnings back to the U.S., and the general trend in foreign currency exchange rates.

In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits, all of which may affect our ability to refinance our debt, if necessary. The changes in the value of our facilities would be impacted also by changes in “cap” rates, which is measured by the current base rent divided by the current market value of a facility.

profits.

Our primary exposure to market risks relates to fluctuations in interest rates and foreign currency. The following analyses present the sensitivity of the market value, earnings, and cash flows of our significant financial instruments to hypothetical changes in interest rates and exchange rates as if these changes had occurred. The hypothetical changes chosen for these analyses reflect our view of changes that are reasonably possible over a one-year period. These forward looking disclosures are selective in nature and only address the potential impact from these hypothetical changes. They do not include other potential effects which could impact our business as a result of changes in market conditions. In addition, they do not include measures we may take to minimize our exposure such as entering into future interest rate swaps to hedge against interest rate increases on our variable rate debt.

35


Interest Rate Sensitivity

For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At September 30, 2017,March 31, 2023, our outstanding debt totaled $4.8$10.4 billion, which consisted of fixed-rate debt of $4.2approximately $9.2 billion (after considering interest rate swaps in-place) and variable rate debt of $0.6$1.2 billion. If market interest rates increase by 1%10%, the fair value of our debt at September 30, 2017March 31, 2023 would decrease by $8.0approximately $239.5 million. Changes in the fair value of our fixed rate debt will not have any impact on us unless we decided to repurchase the debt in the open market.

If market rates of interest on our variable rate debt increase by 1%10%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $0.2$7.2 million per year. If market rates of interest on our variable rate debt decrease by 1%10%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $0.2$7.2 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $0.6$1.2 billion, the balance of such variable rate debt at September 30, 2017.March 31, 2023.

Foreign Currency Sensitivity

With our investments in the United Kingdom, Germany, Spain, Italy, Portugal, Switzerland, Finland, Australia, and throughout Europe,Colombia, we are subject to fluctuations in the euro and British pound, euro, Swiss franc, Australian dollar, and Colombian peso to U.S. dollar currency exchange rates. IncreasesAlthough we generally deem investments in these countries to be of a long-term nature (other than Australia as previously discussed in Note 3 to the condensed consolidated financial statements), are typically able to match any non-U.S. dollar borrowings with investments in such currencies, and historically have not needed to repatriate a material amount of earnings back to the U.S., increases or decreases in the value of the euro to U.S.respective non-U.S. dollar and the British poundcurrencies to U.S. dollar exchange rates may impact our financial condition and/or our results of operations. Based solely on our 2023 operating results to-date in 2017 and on an annualized basis, ifa 10% change to the eurofollowing exchange rate wererates would have impacted our net income, FFO, and Normalized FFO by the amounts below (in thousands):

 

 

Net Income Impact

 

 

FFO Impact

 

 

NFFO Impact

 

British pound (£)

 

$

10,043

 

 

$

19,184

 

 

$

18,678

 

Euro (€)

 

 

2,232

 

 

 

6,546

 

 

 

6,549

 

Swiss franc (CHF)

 

 

3,314

 

 

 

5,639

 

 

 

3,632

 

Colombian peso (COP)

 

 

1,298

 

 

 

1,363

 

 

 

1,363

 

We have excluded the foreign currency sensitivity around Australian dollars in the table above due to change by 5%, our FFO would change by approximately $4.0 million. Based solely on operating results to-datethe anticipated Australia Transaction as described in 2017Note 3 to the condensed consolidated financial statements.

Item 4. Controls and on an annualized basis, if the British pound exchange rate were to change by 5%, our FFO would change by less than $0.2 million.Procedures.

Item 4.Controls and Procedures.

Medical Properties Trust, Inc. and MPT Operating Partnership, L.P.

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b), under the Securities Exchange Act of 1934, as amended, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to materialproviding reasonable assurance that information required to be disclosed by us in the reports that we file withunder the SEC.Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

36


There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

37


PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

From time-to-time, we may become involved in legal proceedings arising in the ordinary course of our business. Except as set forth below, we are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results, or financial condition.

Securities Litigation

On April 12, 2023, we and certain of our executives were named as defendants in a putative federal securities class action lawsuit filed by a purported stockholder in the United States District Court for the Southern District of New York, Case No. 1:23-cv-03070. The complaint sought class certification on behalf of purchasers of our common stock between March 1, 2022 and February 22, 2023 and alleged false and/or misleading statements and/or omissions resulted in artificially inflated prices for our common stock. The complaint sought unspecified damages including interest and an award of reasonable costs and expenses. On May 9, 2023, the plaintiff voluntarily dismissed this lawsuit.

On April 13, 2023, we and certain of our executives were named as defendants in a second putative federal securities class action lawsuit, also alleging false and/or misleading statements and/or omissions resulted in artificially inflated prices for our common stock, filed by a purported stockholder in the United States District Court for the Northern District of Alabama, Case No. 2:23-cv-00486. The complaint seeks class certification on behalf of purchasers of our common stock between July 15, 2019 and February 22, 2023 and unspecified damages including interest and an award of reasonable costs and expenses.

We believe these claims are without merit and intend to defend the remaining open case vigorously. We have not recorded a liability because, at this time, we are unable to determine whether an unfavorable outcome is probable or to estimate reasonably possible losses.

Defamation Litigation

On March 30, 2023, we commenced an action in the United States District Court for the Northern District of Alabama, Case No. 2:23-cv-00408, against short-seller Viceroy Research LLC and its members. We are seeking injunctive relief and compensatory damages for defamation, civil conspiracy, tortious interference, private nuisance, and unjust enrichment based on defamatory statements expressed against us.

The information contained in Note 9 “Contingencies” of Part I, Item 1 of this Quarterly Report on Form 10-Q “Commitments and Contingencies” to the condensed consolidated financial statements is incorporated by reference into this Item 1.

Item 1A. Risk Factors.

Item 1A.Risk Factors.

Except to the extent set forth below or as otherwise disclosed in this Quarterly Report on Form 10-Q, thereThere have been no material changes to the Risk Factors as presented in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.

Our revenues are dependent upon our relationship withItem 2. Unregistered Sales of Equity Securities and successUse of our largest tenants, Steward, Prime, MEDIAN, Ernest, RCCH and Adeptus Health.Proceeds.

(a)
None.
(b)
Not applicable.
(c)
Stock repurchase:

As

Period

 

Total number of
shares purchased(1)
(in thousands)

 

 

Average price
per share

 

 

Total number of shares
purchased as part of
publicly announced
programs(2)

 

 

Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs
(in thousands)

 

January 1-January 31, 2023

 

 

499

 

 

$

11.14

 

 

 

 

 

$

482,085

 

(1)
The number of September 30, 2017, affiliatesshares purchased consists of Steward, MEDIAN, Prime, Ernest, RCCH and Adeptus Health represented 36.8%, 12.9%, 12.0%, 6.7%, 5.4% and 4.5%, respectively,shares of our total gross assets (which consist primarily of real estate leases and mortgage loans).

Our relationships with these operators and their financial performance and resulting abilitycommon stock tendered by employees to satisfy their lease and loanthe employees' tax withholding obligations to us are material to our financial results and our ability to service our debt and make distributions to our stockholders. We are dependent upon the ability of these operators to make rent and loan payments to us, and any failure to meet these obligations could have a material adverse effect on our financial condition and results of operations.

Our tenants operate in the healthcare industry, which is highly regulated by federal, state, and local laws and changes in regulations may negatively impact our tenants’ operations until they are able to make the appropriate adjustments to their business. For example, recent modifications to regulations concerning patient criteria and reimbursement for long-term acute care hospitals, or LTACHs, have resulted in volume and profitability declines in certain facilities operated by Ernest.

We are aware of various federal and state inquiries, investigations and other proceedings currently affecting several of our tenants and would expect such government compliance and enforcement activities to be ongoing at any given time with respect to one or more of our tenants, either on a confidential or public basis. During the second quarter of 2016, the Department of Justice joined a lawsuit against Prime alleging irregular admission practices intended to increase the number of inpatient care admissions of Medicare patients, including unnecessarily classifying some patientsarising as “inpatient” rather than “observation”. Other large acute hospital operators have also recently defended similar allegations, sometimes resulting in financial settlements and agreements with regulators to modify admission policies, resulting in lower reimbursements for those patients.

Our tenants experience operational challenges from time-to-time, and this can be even more of a risk for those tenants that grow via acquisitions in a short time frame like Steward, Prime, Adeptus Health and others.

In May 2017, Prime advised that it would be delayed in furnishing its 2016 financial statements to its lenders and that it would take a significant write-down to its accounts receivables. Prime has received a notice of default from its lenders related to its failure to furnish its 2016 financials on a timely basis. As a result of these developments, S&P has downgraded Prime’s corporate credit rating and senior secured term loan credit rating. These financial and operational setbacks affecting Prime may adversely impact its ability to make required lease and interest payments to us.

The abilityvesting of our tenants and operators to integrate newly acquired businesses intorestricted stock awards under the Equity Incentive Plan, which shares were purchased based on their existing operational, financial reporting and collection systems is critical towards ensuring their continued success. If such integration is not successfully implemented in a timely manner, operators can be negatively impacted whether it be through write-offs of uncollectible accounts receivable (similar to Prime’s expected write-offs) or even insolvency in certain extreme cases.

Any further adverse result to any of Steward, Prime, MEDIAN, Ernest, RCCH or Adeptus Health in regulatory proceedings or financial or operational setbacks may have a material adverse effectfair market value on the relevant tenant’s operations and financial condition and on its ability to make required lease and loan payments to us. If any further onevesting date.

(2)
On October 9, 2022, the board of these tenants files for bankruptcy protection, we may not be able to collect any pre-filing amounts owed to us by such tenant. In addition, in a bankruptcy proceeding, such tenant may terminate our lease(s), in which case we would have a general unsecured claim that would likely be for less than the full amount owed to us. Any secured claims we have against such tenant may only be paid to the extentdirectors of the Company authorized a stock repurchase plan for up to $500 million of common stock, par value of$0.001 per share. The repurchase authorization expires October 10, 2023. No shares were repurchased under this plan during the collateral, which may not cover any or all of our losses. If we are ultimately required to find one or more tenant-operators to lease one or more properties currently leased by such tenant, we may face delays and increased costs in locating a suitable replacement tenant. The protections that we have in place to protect against such failure or delay, which can include letters of credit, cross default provisions, parent guarantees, repair reserves and the right to exercise remedies including the termination of the lease and replacement of the operator, may prove to be insufficient, in whole or in part, or may entail further delays. In instances where we have an equity investment in our tenant’s operations, in addition to the effect on these tenants’ ability to meet their financial obligation to us, our ownership and investment interests may also be negatively impacted.2023 first quarter.

38


Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

(a)
None.
(b)
None.

39


Item 6. Exhibits

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

(a)None.

(b)Not applicable.

(c)None.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

None.

Item 5.Other Information.

(a)None.

(b)None.

Item 6.Exhibits.

Exhibit

Number

Description

  4.1*

31.1*

Twelfth Supplemental Indenture, dated as of September 21, 2017, by and among MPT Operating Partnership, L.P. and MPT Finance Corporation, as issuers, Medical Properties Trust, Inc., as parent and guarantor, and Wilmington Trust, National Association, as trustee.
10.1*Joinder and Amendment to Master Lease Agreement, dated as of September 29, 2017, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain Affiliates of Steward Health Care System LLC.
10.2*Joinder and Amendment to Real Estate Loan Agreement, dated as of September 29, 2017, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain Affiliates of Steward Health Care System LLC.
31.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)

31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)

31.3*

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)

31.4*

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)

32.1**

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Medical Properties Trust, Inc.)

32.2**

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (MPT Operating Partnership, L.P.)

Exhibit 101.INS101.INS*

XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH101.SCH*

Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LAB101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.
**Furnished herewith.

INDEX TO EXHIBITS

Exhibit
Number

Description

Exhibit 104*

4.1*

Twelfth Supplemental Indenture, dated

Cover Page Interactive Data File (formatted as of September  21, 2017, by and among MPT Operating Partnership, L.P. and MPT Finance Corporation, as issuers, Medical Properties Trust, Inc., as parent and guarantor, and Wilmington Trust, National Association, as trustee.

10.1*Joinder and Amendment to Master Lease Agreement, dated as of September  29, 2017, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain Affiliates of Steward Health Care System LLC.
10.2*Joinder and Amendment to Real Estate Loan Agreement, dated as of September  29, 2017, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain Affiliates of Steward Health Care System LLC.
31.1*Certification of Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)
31.2*Certification of Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)
31.3*Certification of Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)
31.4*Certification of Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)
32.1**Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section  1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Medical Properties Trust, Inc.)
32.2**Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section  1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (MPT Operating Partnership, L.P.)
Exhibit 101.INSInline XBRL Instance Document
Exhibit 101.SCHXBRL Taxonomy Extension Schema Document
Exhibit 101.CALXBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEFXBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LABXBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PREXBRL Taxonomy Extension Presentation Linkbase Documentwith applicable taxonomy extension information contained in Exhibits 101.*)

*Filed herewith.
**Furnished herewith.

SIGNATURE* Filed herewith.

** Furnished herewith.

40


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant hasregistrants have duly caused this report to be signed on itstheir behalf by the undersigned thereunto duly authorized.

MEDICAL PROPERTIES TRUST, INC.

By:

MEDICAL PROPERTIES TRUST, INC.

By:

/s/ J. Kevin Hanna

J. Kevin Hanna

Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer

(Principal Accounting Officer)

MPT OPERATING PARTNERSHIP, L.P.

By:

MPT OPERATING PARTNERSHIP, L.P.

By:

/s/ J. Kevin Hanna

J. Kevin Hanna

Vice President, Controller, Assistant

Treasurer, and Chief Accounting Officer

of the sole member of the general partner

of MPT Operating Partnership, L.P.

(Principal Accounting Officer)

Date: November 9, 2017

May 10, 2023

41

47