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
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
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 | |
(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 | ☐ | ||||
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
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2017 | December 31, 2016 |
| March 31, |
|
| December 31, |
| |||||||||
(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; |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.001 par value. Authorized 750,000 shares; |
|
| 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 |
| |||||
(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 |
| ||||||||||||||||||||
(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 |
|
| Shares |
|
| Par |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Non- |
|
| Total |
| |||||||||
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, |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,325 | ) |
|
| — |
|
|
| (15,325 | ) |
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,143 |
|
|
| — |
|
|
| 28,143 |
|
Reclassification of interest rate swap |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
|
| (28,553 | ) |
Stock vesting and amortization of |
|
| — |
|
|
| — |
|
|
| 1,325 |
|
|
| 1 |
|
|
| 11,828 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,829 |
|
Stock vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (499 | ) |
|
| — |
|
|
| (5,554 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,554 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (231 | ) |
|
| (231 | ) |
Dividends declared ($0.29 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (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 |
|
| Shares |
|
| Par |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Non- |
|
| Total |
| |||||||||
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, |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,932 |
|
|
| — |
|
|
| 44,932 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,215 | ) |
|
| — |
|
|
| (13,215 | ) |
Stock vesting and amortization of |
|
| — |
|
|
| — |
|
|
| 3,107 |
|
|
| 3 |
|
|
| 11,801 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,804 |
|
Stock vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (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 |
| |||||
|
| 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, |
|
| December 31, |
| |||||||||
(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 |
|
| 85,244 |
|
|
| 86,599 |
| ||||||||
Limited Partners — issued and outstanding — 592,318 units at |
|
| 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 |
| |||||
(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 |
| ||||||||||||||||||||
(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 |
| $ | 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 |
|
| Units |
|
| Unit |
|
| Comprehensive |
|
| Controlling |
|
| Total |
| |||||||
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
|
| (28,553 | ) |
Unit vesting and amortization of unit-based |
|
| 13 |
|
|
| 118 |
|
|
| 1,312 |
|
|
| 11,711 |
|
|
| — |
|
|
| — |
|
|
| 11,829 |
|
Unit vesting - satisfaction of tax |
|
| (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 |
|
| Units |
|
| Unit |
|
| Comprehensive |
|
| Controlling |
|
| Total |
| |||||||
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 |
|
| 31 |
|
|
| 118 |
|
|
| 3,076 |
|
|
| 11,686 |
|
|
| — |
|
|
| — |
|
|
| 11,804 |
|
Unit vesting - satisfaction of tax |
|
| (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 |
| |||||
|
| 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 | $ | — |
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 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Land and land improvements |
| $ | 9,313 |
|
| $ | 9,671 |
|
Buildings |
|
| 11,652 |
|
|
| 204,829 |
|
Intangible lease assets — subject to amortization (weighted-average useful |
|
| 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 |
|
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 |
|
| Estimated Rent | ||
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:
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.
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 |
| ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2023(1) |
|
| 2022 |
| |||||||||||||||
Revenues | $ | — | $ | 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 |
| ||||||||
|
|
|
|
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, |
|
| As of December 31, |
| ||
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 | ||||
|
|
|
|
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, |
|
| As of December 31, |
| ||
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, |
|
| As of December 31, |
| ||
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 |
| |||||
|
| 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 |
|
| (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 | % | ||||||||
|
|
|
|
|
|
|
|
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 |
|
| Percentage of |
| ||||||||||||||||
Steward | $ | 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 | % | ||||||||
|
|
|
|
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 |
|
| Percentage of |
| ||||
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 |
|
| Percentage of |
| ||||
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 |
|
| Percentage of |
| ||||
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 |
|
| Percentage of |
| ||||
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, |
|
| As of December 31, |
| ||
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 |
|
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 |
|
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 |
|
| Fair |
|
| Book |
|
| Fair |
| ||||||||||||||||
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 | ) |
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 |
|
| Fair Value |
|
| Original |
|
| 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 |
| |||||||||||||
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 |
| |||||||||||||
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 €80€70 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.
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:
28
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:
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:
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 |
|
| % of |
|
| As of |
|
| % of |
| ||||
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 | % |
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 | % | ||||||||
|
|
|
|
|
|
|
|
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 |
|
| 2022 |
|
| % of |
|
| Year over |
| |||||||||||||||||||||
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:
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
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.
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:
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 | ||||
|
|
|
|
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.
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:
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 |
|
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 Revolving credit facility (1) Term loan 3.325% Senior Unsecured Notes due 2025 5.750% Senior Unsecured Notes due 2020 6.375% Senior Unsecured Notes due 2022 5.000% Senior Unsecured Notes due 2027 Less Than
1 Year 1-3 Years 3-5 Years After
5 Years Total $ 14,287 $ 28,574 $ 450,122 $ — $ 492,983 5,556 11,127 207,444 — 224,127 19,641 39,282 39,282 649,622 747,827 — — — — — 364,381 — — — 364,381 39,667 140,000 140,000 1,785,000 2,104,667
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 |
| |
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.
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.
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.
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.
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.
As
Period |
| Total number of |
|
| Average price |
|
| Total number of shares |
|
| Approximate dollar |
| ||||
January 1-January 31, 2023 |
|
| 499 |
|
| $ | 11.14 |
|
|
| — |
|
| $ | 482,085 |
|
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.
38
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
39
Item 6. Exhibits
None.
None.
Exhibit Number | Description | ||
31.1* | |||
31.2* | |||
31.3* | |||
31.4* | |||
32.1** | |||
32.2** | |||
Exhibit | 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 | Inline XBRL Taxonomy Extension Schema Document | ||
Exhibit | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
Exhibit | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
Exhibit | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
Exhibit | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
** 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.
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.
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
41
47