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 SeptemberJune 30, 20172023
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,August 4, 2023, Medical Properties Trust, Inc. had 364,156,080598.4 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 ninesix months ended SeptemberJune 30, 2017,2023 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 SEPTEMBERJune 30, 20172023
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 |
| June 30, |
|
| 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 |
| $ | 13,133,651 |
|
| $ | 13,862,415 |
| ||||
Investment in financing leases |
|
| 1,231,652 |
|
|
| 1,691,323 |
| ||||||||
Real estate held for sale |
|
| 401,125 |
|
|
| — |
| ||||||||
Mortgage loans | 1,777,555 | 1,060,400 |
|
| 299,326 |
|
|
| 364,101 |
| ||||||
Net investment in direct financing leases | 695,829 | 648,102 | ||||||||||||||
|
| |||||||||||||||
Gross investment in real estate assets | 8,268,670 | 6,026,368 |
|
| 15,065,754 |
|
|
| 15,917,839 |
| ||||||
Accumulated depreciation and amortization | (418,880 | ) | (325,125 | ) |
|
| (1,251,165 | ) |
|
| (1,193,312 | ) | ||||
|
| |||||||||||||||
Net investment in real estate assets | 7,849,790 | 5,701,243 |
|
| 13,814,589 |
|
|
| 14,724,527 |
| ||||||
Cash and cash equivalents | 188,224 | 83,240 |
|
| 324,050 |
|
|
| 235,668 |
| ||||||
Interest and rent receivables | 105,817 | 57,698 | ||||||||||||||
Interest and rent receivables, net |
|
| 177,643 |
|
|
| 167,035 |
| ||||||||
Straight-line rent receivables | 166,142 | 116,861 |
|
| 779,584 |
|
|
| 787,166 |
| ||||||
Investments in unconsolidated real estate joint ventures |
|
| 1,487,118 |
|
|
| 1,497,903 |
| ||||||||
Investments in unconsolidated operating entities |
|
| 1,812,150 |
|
|
| 1,444,872 |
| ||||||||
Other loans | 151,709 | 155,721 |
|
| 199,360 |
|
|
| 227,839 |
| ||||||
Other assets | 465,358 | 303,773 |
|
| 609,881 |
|
|
| 572,990 |
| ||||||
|
| |||||||||||||||
Total Assets | $ | 8,927,040 | $ | 6,418,536 |
| $ | 19,204,375 |
|
| $ | 19,658,000 |
| ||||
|
| |||||||||||||||
Liabilities and Equity |
|
|
|
|
|
| ||||||||||
Liabilities |
|
|
|
|
|
| ||||||||||
Debt, net | $ | 4,832,264 | $ | 2,909,341 |
| $ | 10,237,558 |
|
| $ | 10,268,412 |
| ||||
Accounts payable and accrued expenses | 180,631 | 207,711 |
|
| 444,926 |
|
|
| 621,324 |
| ||||||
Deferred revenue | 18,906 | 19,933 |
|
| 49,766 |
|
|
| 27,727 |
| ||||||
Lease deposits and other obligations to tenants | 54,035 | 28,323 | ||||||||||||||
|
| |||||||||||||||
Obligations to tenants and other lease liabilities |
|
| 157,411 |
|
|
| 146,130 |
| ||||||||
Total Liabilities | 5,085,836 | 3,165,308 |
|
| 10,889,661 |
|
|
| 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 | ) | ||||||||||||
Accumulated other comprehensive loss | (35,165 | ) | (92,903 | ) | ||||||||||||
Treasury shares, at cost | (777 | ) | (262 | ) | ||||||||||||
|
| |||||||||||||||
Total Medical Properties Trust, Inc. Stockholders’ Equity | 3,826,444 | 3,248,378 | ||||||||||||||
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 |
|
| 8,547,835 |
|
|
| 8,535,140 |
| ||||||||
Retained (deficit) earnings |
|
| (241,301 | ) |
|
| 116,285 |
| ||||||||
Accumulated other comprehensive income (loss) |
|
| 6,680 |
|
|
| (59,184 | ) | ||||||||
Total Medical Properties Trust, Inc. stockholders’ equity |
|
| 8,313,812 |
|
|
| 8,592,838 |
| ||||||||
Non-controlling interests | 14,760 | 4,850 |
|
| 902 |
|
|
| 1,569 |
| ||||||
|
| |||||||||||||||
Total Equity | 3,841,204 | 3,253,228 |
|
| 8,314,714 |
|
|
| 8,594,407 |
| ||||||
|
| |||||||||||||||
Total Liabilities and Equity | $ | 8,927,040 | $ | 6,418,536 |
| $ | 19,204,375 |
|
| $ | 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 |
|
| For the Six Months |
| ||||||||||
(In thousands, except per share amounts) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| ||||
Rent billed | $ | 247,491 |
|
| $ | 241,209 |
|
| $ | 495,648 |
|
| $ | 504,611 |
|
Straight-line rent |
| (39,329 | ) |
|
| 58,518 |
|
|
| 17,364 |
|
|
| 119,562 |
|
Income from financing leases |
| 68,468 |
|
|
| 51,873 |
|
|
| 81,663 |
|
|
| 103,649 |
|
Interest and other income |
| 60,765 |
|
|
| 48,626 |
|
|
| 92,931 |
|
|
| 82,204 |
|
Total revenues |
| 337,395 |
|
|
| 400,226 |
|
|
| 687,606 |
|
|
| 810,026 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest |
| 104,470 |
|
|
| 87,730 |
|
|
| 202,124 |
|
|
| 178,913 |
|
Real estate depreciation and amortization |
| 364,403 |
|
|
| 84,334 |
|
|
| 448,263 |
|
|
| 169,650 |
|
Property-related |
| 24,676 |
|
|
| 21,135 |
|
|
| 31,786 |
|
|
| 29,733 |
|
General and administrative |
| 35,604 |
|
|
| 38,858 |
|
|
| 77,328 |
|
|
| 80,282 |
|
Total expenses |
| 529,153 |
|
|
| 232,057 |
|
|
| 759,501 |
|
|
| 458,578 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| ||||
Gain on sale of real estate |
| 167 |
|
|
| 16,355 |
|
|
| 229 |
|
|
| 467,993 |
|
Real estate and other impairment charges |
| — |
|
|
| — |
|
|
| (89,538 | ) |
|
| (4,875 | ) |
Earnings from equity interests |
| 12,224 |
|
|
| 14,785 |
|
|
| 23,576 |
|
|
| 22,123 |
|
Debt refinancing and unutilized financing costs |
| (816 | ) |
|
| (619 | ) |
|
| (816 | ) |
|
| (9,435 | ) |
Other (including fair value adjustments on securities) |
| (10,512 | ) |
|
| 2,031 |
|
|
| (15,678 | ) |
|
| 16,793 |
|
Total other income (expense) |
| 1,063 |
|
|
| 32,552 |
|
|
| (82,227 | ) |
|
| 492,599 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Loss) income before income tax |
| (190,695 | ) |
|
| 200,721 |
|
|
| (154,122 | ) |
|
| 844,047 |
|
Income tax benefit (expense) |
| 148,262 |
|
|
| (10,657 | ) |
|
| 144,719 |
|
|
| (22,036 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
| (42,433 | ) |
|
| 190,064 |
|
|
| (9,403 | ) |
|
| 822,011 |
|
Net loss (income) attributable to non-controlling interests |
| 396 |
|
|
| (467 | ) |
|
| 160 |
|
|
| (733 | ) |
Net (loss) income attributable to MPT common | $ | (42,037 | ) |
| $ | 189,597 |
|
| $ | (9,243 | ) |
| $ | 821,278 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per common share — basic and diluted |
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income attributable to MPT common stockholders | $ | (0.07 | ) |
| $ | 0.32 |
|
| $ | (0.02 | ) |
| $ | 1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding — basic |
| 598,344 |
|
|
| 598,827 |
|
|
| 598,323 |
|
|
| 598,751 |
|
Weighted average shares outstanding — diluted |
| 598,344 |
|
|
| 599,026 |
|
|
| 598,323 |
|
|
| 598,979 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dividends declared per common share | $ | 0.29 |
|
| $ | 0.29 |
|
| $ | 0.58 |
|
| $ | 0.58 |
|
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, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 76,881 | $ | 70,543 | $ | 218,862 | $ | 182,692 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gain on interest rate swap | — | 854 | — | 2,494 | ||||||||||||
Foreign currency translation gain | 17,426 | 4,450 | 57,738 | 10,354 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total comprehensive income | 94,307 | 75,847 | 276,600 | 195,540 | ||||||||||||
Comprehensive income attributable to non-controlling interests | (417 | ) | (185 | ) | (1,013 | ) | (683 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income attributable to MPT common stockholders | $ | 93,890 | $ | 75,662 | $ | 275,587 | $ | 194,857 | ||||||||
|
|
|
|
|
|
|
|
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net (loss) income |
| $ | (42,433 | ) |
| $ | 190,064 |
|
| $ | (9,403 | ) |
| $ | 822,011 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on interest rate swaps, net of tax |
|
| 17,920 |
|
|
| 25,920 |
|
|
| 2,595 |
|
|
| 70,852 |
|
Reclassification of interest rate swap gain from AOCI, net |
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
Foreign currency translation gain (loss) |
|
| 60,445 |
|
|
| (104,341 | ) |
|
| 88,588 |
|
|
| (117,556 | ) |
Reclassification of foreign currency translation loss from |
|
| 3,234 |
|
|
| — |
|
|
| 3,234 |
|
|
| — |
|
Total comprehensive income |
|
| 39,166 |
|
|
| 111,643 |
|
|
| 56,461 |
|
|
| 775,307 |
|
Comprehensive loss (income) attributable to non-controlling |
|
| 396 |
|
|
| (467 | ) |
|
| 160 |
|
|
| (733 | ) |
Comprehensive income attributable to MPT common |
| $ | 39,562 |
|
| $ | 111,176 |
|
| $ | 56,621 |
|
| $ | 774,574 |
|
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 | ) |
Reclassification of interest rate swap |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
|
| (28,553 | ) |
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,143 |
|
|
| — |
|
|
| 28,143 |
|
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 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (42,037 | ) |
|
| — |
|
|
| (396 | ) |
|
| (42,433 | ) |
Unrealized gain on interest rate swaps, |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,920 |
|
|
| — |
|
|
| 17,920 |
|
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,445 |
|
|
| — |
|
|
| 60,445 |
|
Reclassification of foreign currency |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,234 |
|
|
| — |
|
|
| 3,234 |
|
Stock vesting and amortization of |
|
| — |
|
|
| — |
|
|
| 59 |
|
|
| — |
|
|
| 6,437 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,437 |
|
Stock vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (276 | ) |
|
| (276 | ) |
Dividends declared ($0.29 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (173,851 | ) |
|
| — |
|
|
| — |
|
|
| (173,851 | ) |
Balance at June 30, 2023 |
|
| — |
|
| $ | — |
|
|
| 598,344 |
|
| $ | 598 |
|
| $ | 8,547,835 |
|
| $ | (241,301 | ) |
| $ | 6,680 |
|
| $ | 902 |
|
| $ | 8,314,714 |
|
|
| 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 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 189,597 |
|
|
| — |
|
|
| 467 |
|
|
| 190,064 |
|
Unrealized gain on interest rate swaps, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,920 |
|
|
| — |
|
|
| 25,920 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (104,341 | ) |
|
| — |
|
|
| (104,341 | ) |
Stock vesting and amortization of |
|
| — |
|
|
| — |
|
|
| 204 |
|
|
| — |
|
|
| 10,108 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,108 |
|
Stock vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (41 | ) |
|
| — |
|
|
| (880 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (880 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (335 | ) |
|
| (335 | ) |
Dividends declared ($0.29 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (174,024 | ) |
|
| — |
|
|
| — |
|
|
| (174,024 | ) |
Balance at June 30, 2022 |
|
| — |
|
| $ | — |
|
|
| 598,839 |
|
| $ | 599 |
|
| $ | 8,557,120 |
|
| $ | 385,545 |
|
| $ | (83,431 | ) |
| $ | 6,038 |
|
| $ | 8,865,871 |
|
See accompanying notes to condensed consolidated financial statements.
6
MPT OPERATING PARTNERSHIP, L.P.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsStatements of Cash Flows
(Unaudited)
September 30, 2017 | December 31, 2016 | |||||||
(In thousands) | (Unaudited) | (Note 2) | ||||||
Assets | ||||||||
Real estate assets | ||||||||
Land, buildings and improvements, intangible lease assets, and other | $ | 5,795,286 | $ | 4,317,866 | ||||
Mortgage loans | 1,777,555 | 1,060,400 | ||||||
Net investment in direct financing leases | 695,829 | 648,102 | ||||||
|
|
|
| |||||
Gross investment in real estate assets | 8,268,670 | 6,026,368 | ||||||
Accumulated depreciation and amortization | (418,880 | ) | (325,125 | ) | ||||
|
|
|
| |||||
Net investment in real estate assets | 7,849,790 | 5,701,243 | ||||||
Cash and cash equivalents | 188,224 | 83,240 | ||||||
Interest and rent receivables | 105,817 | 57,698 | ||||||
Straight-line rent receivables | 166,142 | 116,861 | ||||||
Other loans | 151,709 | 155,721 | ||||||
Other assets | 465,358 | 303,773 | ||||||
|
|
|
| |||||
Total Assets | $ | 8,927,040 | $ | 6,418,536 | ||||
|
|
|
| |||||
Liabilities and Capital | ||||||||
Liabilities | ||||||||
Debt, net | $ | 4,832,264 | $ | 2,909,341 | ||||
Accounts payable and accrued expenses | 92,793 | 132,868 | ||||||
Deferred revenue | 18,906 | 19,933 | ||||||
Lease deposits and other obligations to tenants | 54,035 | 28,323 | ||||||
Payable due to Medical Properties Trust, Inc. | 87,448 | 74,453 | ||||||
|
|
|
| |||||
Total Liabilities | 5,085,446 | 3,164,918 | ||||||
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 | — | — | ||||||
Accumulated other comprehensive loss | (35,165 | ) | (92,903 | ) | ||||
|
|
|
| |||||
Total MPT Operating Partnership, L.P. Capital | 3,826,834 | 3,248,768 | ||||||
Non-controlling interests | 14,760 | 4,850 | ||||||
|
|
|
| |||||
Total Capital | 3,841,594 | 3,253,618 | ||||||
|
|
|
| |||||
Total Liabilities and Capital | $ | 8,927,040 | $ | 6,418,536 | ||||
|
|
|
|
|
| For the Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In thousands) |
| |||||
Operating activities |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (9,403 | ) |
| $ | 822,011 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 455,554 |
|
|
| 176,077 |
|
Amortization of deferred financing costs and debt discount |
|
| 8,096 |
|
|
| 9,219 |
|
Straight-line rent revenue and other |
|
| (116,466 | ) |
|
| (145,725 | ) |
Stock-based compensation |
|
| 18,266 |
|
|
| 21,912 |
|
Gain on sale of real estate |
|
| (229 | ) |
|
| (467,993 | ) |
Real estate and other impairment charges |
|
| 89,538 |
|
|
| 4,875 |
|
Straight-line rent and other write-off |
|
| 97,834 |
|
|
| (328 | ) |
Debt refinancing and unutilized financing costs |
|
| 816 |
|
|
| 9,435 |
|
Tax rate changes and other |
|
| (164,535 | ) |
|
| (825 | ) |
Non-cash revenue from debt and equity securities received |
|
| (68,557 | ) |
|
| — |
|
Other adjustments |
|
| (8,296 | ) |
|
| (13,170 | ) |
Changes in: |
|
|
|
|
|
| ||
Interest and rent receivables |
|
| (62,132 | ) |
|
| (44,224 | ) |
Other assets |
|
| (9,514 | ) |
|
| (6,343 | ) |
Accounts payable and accrued expenses |
|
| (25,609 | ) |
|
| (15,558 | ) |
Deferred revenue |
|
| 6,814 |
|
|
| (5,347 | ) |
Net cash provided by operating activities |
|
| 212,177 |
|
|
| 344,016 |
|
Investing activities |
|
|
|
|
|
| ||
Cash paid for acquisitions and other related investments |
|
| (235,187 | ) |
|
| (946,243 | ) |
Net proceeds from sale of real estate |
|
| 489,420 |
|
|
| 1,817,642 |
|
Principal received on loans receivable |
|
| 389,385 |
|
|
| 19,478 |
|
Investment in loans receivable |
|
| (55,223 | ) |
|
| (175,734 | ) |
Construction in progress and other |
|
| (28,639 | ) |
|
| (91,167 | ) |
Proceeds from return of equity investment |
|
| — |
|
|
| 775 |
|
Capital additions and other investments, net |
|
| (150,757 | ) |
|
| (90,623 | ) |
Net cash provided by investing activities |
|
| 408,999 |
|
|
| 534,128 |
|
Financing activities |
|
|
|
|
|
| ||
Payments of term debt |
|
| (485,523 | ) |
|
| (869,606 | ) |
Revolving credit facility, net |
|
| 270,863 |
|
|
| 200,945 |
|
Dividends paid |
|
| (350,304 | ) |
|
| (350,519 | ) |
Lease deposits and other obligations to tenants |
|
| 7,154 |
|
|
| 3,174 |
|
Stock vesting - satisfaction of tax withholdings |
|
| (5,570 | ) |
|
| (28,799 | ) |
Debt refinancing, deferred financing costs, and other financing activities |
|
| 12,439 |
|
|
| (17,917 | ) |
Net cash used for financing activities |
|
| (550,941 | ) |
|
| (1,062,722 | ) |
Increase (decrease) in cash, cash equivalents, and restricted cash for period |
|
| 70,235 |
|
|
| (184,578 | ) |
Effect of exchange rate changes |
|
| 18,184 |
|
|
| (14,786 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 241,538 |
|
|
| 461,882 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 329,957 |
|
| $ | 262,518 |
|
Interest paid |
| $ | 227,361 |
|
| $ | 209,445 |
|
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
| ||
Debt and equity securities received for certain obligations, real estate, and revenue |
| $ | 804,520 |
|
| $ | — |
|
Certain obligations and receivables satisfied and real estate sold |
|
| 735,963 |
|
|
| — |
|
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
| ||
Dividends declared, unpaid |
| $ | 173,851 |
|
| $ | 174,017 |
|
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 |
| $ | 324,050 |
|
| $ | 257,269 |
|
Restricted cash, included in Other assets |
|
| 5,907 |
|
|
| 5,249 |
|
|
| $ | 329,957 |
|
| $ | 262,518 |
|
See accompanying notes to condensed consolidated financial statements.
7
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Net IncomeBalance Sheets
(Unaudited)
|
| June 30, |
|
| December 31, |
| ||
(In thousands) |
| (Unaudited) |
|
| (Note 2) |
| ||
Assets |
|
|
|
|
|
| ||
Real estate assets |
|
|
|
|
|
| ||
Land, buildings and improvements, intangible lease assets, and other |
| $ | 13,133,651 |
|
| $ | 13,862,415 |
|
Investment in financing leases |
|
| 1,231,652 |
|
|
| 1,691,323 |
|
Real estate held for sale |
|
| 401,125 |
|
|
| — |
|
Mortgage loans |
|
| 299,326 |
|
|
| 364,101 |
|
Gross investment in real estate assets |
|
| 15,065,754 |
|
|
| 15,917,839 |
|
Accumulated depreciation and amortization |
|
| (1,251,165 | ) |
|
| (1,193,312 | ) |
Net investment in real estate assets |
|
| 13,814,589 |
|
|
| 14,724,527 |
|
Cash and cash equivalents |
|
| 324,050 |
|
|
| 235,668 |
|
Interest and rent receivables, net |
|
| 177,643 |
|
|
| 167,035 |
|
Straight-line rent receivables |
|
| 779,584 |
|
|
| 787,166 |
|
Investments in unconsolidated real estate joint ventures |
|
| 1,487,118 |
|
|
| 1,497,903 |
|
Investments in unconsolidated operating entities |
|
| 1,812,150 |
|
|
| 1,444,872 |
|
Other loans |
|
| 199,360 |
|
|
| 227,839 |
|
Other assets |
|
| 609,881 |
|
|
| 572,990 |
|
Total Assets |
| $ | 19,204,375 |
|
| $ | 19,658,000 |
|
Liabilities and Capital |
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||
Debt, net |
| $ | 10,237,558 |
|
| $ | 10,268,412 |
|
Accounts payable and accrued expenses |
|
| 269,920 |
|
|
| 444,354 |
|
Deferred revenue |
|
| 49,766 |
|
|
| 27,727 |
|
Obligations to tenants and other lease liabilities |
|
| 157,411 |
|
|
| 146,130 |
|
Payable due to Medical Properties Trust, Inc. |
|
| 174,616 |
|
|
| 176,580 |
|
Total Liabilities |
|
| 10,889,271 |
|
|
| 11,063,203 |
|
Capital |
|
|
|
|
|
| ||
General Partner — issued and outstanding — 5,985 units at |
|
| 83,149 |
|
|
| 86,599 |
|
Limited Partners — issued and outstanding — 592,359 units at |
|
| 8,224,373 |
|
|
| 8,565,813 |
|
Accumulated other comprehensive income (loss) |
|
| 6,680 |
|
|
| (59,184 | ) |
Total MPT Operating Partnership, L.P. capital |
|
| 8,314,202 |
|
|
| 8,593,228 |
|
Non-controlling interests |
|
| 902 |
|
|
| 1,569 |
|
Total Capital |
|
| 8,315,104 |
|
|
| 8,594,797 |
|
Total Liabilities and Capital |
| $ | 19,204,375 |
|
| $ | 19,658,000 |
|
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 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
8
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of ComprehensiveNet Income
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 76,881 | $ | 70,543 | $ | 218,862 | $ | 182,692 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gain on interest rate swap | — | 854 | — | 2,494 | ||||||||||||
Foreign currency translation gain | 17,426 | 4,450 | 57,738 | 10,354 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total comprehensive income | 94,307 | 75,847 | 276,600 | 195,540 | ||||||||||||
Comprehensive income attributable to non-controlling interests | (417 | ) | (185 | ) | (1,013 | ) | (683 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income attributable to MPT Operating Partnership Partners | $ | 93,890 | $ | 75,662 | $ | 275,587 | $ | 194,857 | ||||||||
|
|
|
|
|
|
|
|
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
(In thousands, except per unit amounts) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rent billed |
| $ | 247,491 |
|
| $ | 241,209 |
|
| $ | 495,648 |
|
| $ | 504,611 |
|
Straight-line rent |
|
| (39,329 | ) |
|
| 58,518 |
|
|
| 17,364 |
|
|
| 119,562 |
|
Income from financing leases |
|
| 68,468 |
|
|
| 51,873 |
|
|
| 81,663 |
|
|
| 103,649 |
|
Interest and other income |
|
| 60,765 |
|
|
| 48,626 |
|
|
| 92,931 |
|
|
| 82,204 |
|
Total revenues |
|
| 337,395 |
|
|
| 400,226 |
|
|
| 687,606 |
|
|
| 810,026 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest |
|
| 104,470 |
|
|
| 87,730 |
|
|
| 202,124 |
|
|
| 178,913 |
|
Real estate depreciation and amortization |
|
| 364,403 |
|
|
| 84,334 |
|
|
| 448,263 |
|
|
| 169,650 |
|
Property-related |
|
| 24,676 |
|
|
| 21,135 |
|
|
| 31,786 |
|
|
| 29,733 |
|
General and administrative |
|
| 35,604 |
|
|
| 38,858 |
|
|
| 77,328 |
|
|
| 80,282 |
|
Total expenses |
|
| 529,153 |
|
|
| 232,057 |
|
|
| 759,501 |
|
|
| 458,578 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gain on sale of real estate |
|
| 167 |
|
|
| 16,355 |
|
|
| 229 |
|
|
| 467,993 |
|
Real estate and other impairment charges |
|
| — |
|
|
| — |
|
|
| (89,538 | ) |
|
| (4,875 | ) |
Earnings from equity interests |
|
| 12,224 |
|
|
| 14,785 |
|
|
| 23,576 |
|
|
| 22,123 |
|
Debt refinancing and unutilized financing costs |
|
| (816 | ) |
|
| (619 | ) |
|
| (816 | ) |
|
| (9,435 | ) |
Other (including fair value adjustments on securities) |
|
| (10,512 | ) |
|
| 2,031 |
|
|
| (15,678 | ) |
|
| 16,793 |
|
Total other income (expense) |
|
| 1,063 |
|
|
| 32,552 |
|
|
| (82,227 | ) |
|
| 492,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Loss) income before income tax |
|
| (190,695 | ) |
|
| 200,721 |
|
|
| (154,122 | ) |
|
| 844,047 |
|
Income tax benefit (expense) |
|
| 148,262 |
|
|
| (10,657 | ) |
|
| 144,719 |
|
|
| (22,036 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
|
| (42,433 | ) |
|
| 190,064 |
|
|
| (9,403 | ) |
|
| 822,011 |
|
Net loss (income) attributable to non-controlling interests |
|
| 396 |
|
|
| (467 | ) |
|
| 160 |
|
|
| (733 | ) |
Net (loss) income attributable to MPT Operating |
| $ | (42,037 | ) |
| $ | 189,597 |
|
| $ | (9,243 | ) |
| $ | 821,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per unit — basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income attributable to MPT Operating Partnership |
| $ | (0.07 | ) |
| $ | 0.32 |
|
| $ | (0.02 | ) |
| $ | 1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average units outstanding — basic |
|
| 598,344 |
|
|
| 598,827 |
|
|
| 598,323 |
|
|
| 598,751 |
|
Weighted average units outstanding — diluted |
|
| 598,344 |
|
|
| 599,026 |
|
|
| 598,323 |
|
|
| 598,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dividends declared per unit |
| $ | 0.29 |
|
| $ | 0.29 |
|
| $ | 0.58 |
|
| $ | 0.58 |
|
See accompanying notes to condensed consolidated financial statements.
9
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsComprehensive Income
(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 |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net (loss) income |
| $ | (42,433 | ) |
| $ | 190,064 |
|
| $ | (9,403 | ) |
| $ | 822,011 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on interest rate swaps, net of tax |
|
| 17,920 |
|
|
| 25,920 |
|
|
| 2,595 |
|
|
| 70,852 |
|
Reclassification of interest rate swap gain from AOCI, net |
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
Foreign currency translation gain (loss) |
|
| 60,445 |
|
|
| (104,341 | ) |
|
| 88,588 |
|
|
| (117,556 | ) |
Reclassification of foreign currency translation loss from |
|
| 3,234 |
|
|
| — |
|
|
| 3,234 |
|
|
| — |
|
Total comprehensive income |
|
| 39,166 |
|
|
| 111,643 |
|
|
| 56,461 |
|
|
| 775,307 |
|
Comprehensive loss (income) attributable to non-controlling interests |
|
| 396 |
|
|
| (467 | ) |
|
| 160 |
|
|
| (733 | ) |
Comprehensive income attributable to MPT Operating Partnership |
| $ | 39,562 |
|
| $ | 111,176 |
|
| $ | 56,621 |
|
| $ | 774,574 |
|
See accompanying notes to condensed consolidated financial statements.
10
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Capital
(Unaudited)
|
| 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 | ) |
Reclassification of interest rate swap gain to |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
|
| (28,553 | ) |
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,143 |
|
|
| — |
|
|
| 28,143 |
|
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 |
|
Net loss |
|
| — |
|
|
| (420 | ) |
|
| — |
|
|
| (41,617 | ) |
|
| — |
|
|
| (396 | ) |
|
| (42,433 | ) |
Unrealized gain on interest rate swaps, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,920 |
|
|
| — |
|
|
| 17,920 |
|
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,445 |
|
|
| — |
|
|
| 60,445 |
|
Reclassification of foreign currency |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,234 |
|
|
| — |
|
|
| 3,234 |
|
Unit vesting and amortization of unit-based |
|
| 1 |
|
|
| 64 |
|
|
| 58 |
|
|
| 6,373 |
|
|
| — |
|
|
| — |
|
|
| 6,437 |
|
Unit vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| (16 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (276 | ) |
|
| (276 | ) |
Distributions declared ($0.29 per unit) |
|
| — |
|
|
| (1,739 | ) |
|
| — |
|
|
| (172,112 | ) |
|
| — |
|
|
| — |
|
|
| (173,851 | ) |
Balance at June 30, 2023 |
|
| 5,985 |
|
| $ | 83,149 |
|
|
| 592,359 |
|
| $ | 8,224,373 |
|
| $ | 6,680 |
|
| $ | 902 |
|
| $ | 8,315,104 |
|
|
| 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 |
|
Net income |
|
| — |
|
|
| 1,896 |
|
|
| — |
|
|
| 187,701 |
|
|
| — |
|
|
| 467 |
|
|
| 190,064 |
|
Unrealized gain on interest rate swaps, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,920 |
|
|
| — |
|
|
| 25,920 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (104,341 | ) |
|
| — |
|
|
| (104,341 | ) |
Unit vesting and amortization of unit-based |
|
| 2 |
|
|
| 101 |
|
|
| 202 |
|
|
| 10,007 |
|
|
| — |
|
|
| — |
|
|
| 10,108 |
|
Unit vesting - satisfaction of tax |
|
| (1 | ) |
|
| (9 | ) |
|
| (40 | ) |
|
| (871 | ) |
|
| — |
|
|
| — |
|
|
| (880 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (335 | ) |
|
| (335 | ) |
Distributions declared ($0.29 per unit) |
|
| — |
|
|
| (1,740 | ) |
|
| — |
|
|
| (172,284 | ) |
|
| — |
|
|
| — |
|
|
| (174,024 | ) |
Balance at June 30, 2022 |
|
| 5,988 |
|
| $ | 89,511 |
|
|
| 592,851 |
|
| $ | 8,854,143 |
|
| $ | (83,431 | ) |
| $ | 6,038 |
|
| $ | 8,866,261 |
|
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 Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In thousands) |
| |||||
Operating activities |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (9,403 | ) |
| $ | 822,011 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 455,554 |
|
|
| 176,077 |
|
Amortization of deferred financing costs and debt discount |
|
| 8,096 |
|
|
| 9,219 |
|
Straight-line rent revenue and other |
|
| (116,466 | ) |
|
| (145,725 | ) |
Unit-based compensation |
|
| 18,266 |
|
|
| 21,912 |
|
Gain on sale of real estate |
|
| (229 | ) |
|
| (467,993 | ) |
Real estate and other impairment charges |
|
| 89,538 |
|
|
| 4,875 |
|
Straight-line rent and other write-off |
|
| 97,834 |
|
|
| (328 | ) |
Debt refinancing and unutilized financing costs |
|
| 816 |
|
|
| 9,435 |
|
Tax rate changes and other |
|
| (164,535 | ) |
|
| (825 | ) |
Non-cash revenue from debt and equity securities received |
|
| (68,557 | ) |
|
| — |
|
Other adjustments |
|
| (8,296 | ) |
|
| (13,170 | ) |
Changes in: |
|
|
|
|
|
| ||
Interest and rent receivables |
|
| (62,132 | ) |
|
| (44,224 | ) |
Other assets |
|
| (9,514 | ) |
|
| (6,343 | ) |
Accounts payable and accrued expenses |
|
| (25,609 | ) |
|
| (15,558 | ) |
Deferred revenue |
|
| 6,814 |
|
|
| (5,347 | ) |
Net cash provided by operating activities |
|
| 212,177 |
|
|
| 344,016 |
|
Investing activities |
|
|
|
|
|
| ||
Cash paid for acquisitions and other related investments |
|
| (235,187 | ) |
|
| (946,243 | ) |
Net proceeds from sale of real estate |
|
| 489,420 |
|
|
| 1,817,642 |
|
Principal received on loans receivable |
|
| 389,385 |
|
|
| 19,478 |
|
Investment in loans receivable |
|
| (55,223 | ) |
|
| (175,734 | ) |
Construction in progress and other |
|
| (28,639 | ) |
|
| (91,167 | ) |
Proceeds from return of equity investments |
|
| — |
|
|
| 775 |
|
Capital additions and other investments, net |
|
| (150,757 | ) |
|
| (90,623 | ) |
Net cash provided by investing activities |
|
| 408,999 |
|
|
| 534,128 |
|
Financing activities |
|
|
|
|
|
| ||
Payments of term debt |
|
| (485,523 | ) |
|
| (869,606 | ) |
Revolving credit facility, net |
|
| 270,863 |
|
|
| 200,945 |
|
Distributions paid |
|
| (350,304 | ) |
|
| (350,519 | ) |
Lease deposits and other obligations to tenants |
|
| 7,154 |
|
|
| 3,174 |
|
Unit vesting - satisfaction of tax withholdings |
|
| (5,570 | ) |
|
| (28,799 | ) |
Debt refinancing, deferred financing costs, and other financing activities |
|
| 12,439 |
|
|
| (17,917 | ) |
Net cash used for financing activities |
|
| (550,941 | ) |
|
| (1,062,722 | ) |
Increase (decrease) in cash, cash equivalents, and restricted cash for period |
|
| 70,235 |
|
|
| (184,578 | ) |
Effect of exchange rate changes |
|
| 18,184 |
|
|
| (14,786 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 241,538 |
|
|
| 461,882 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 329,957 |
|
| $ | 262,518 |
|
Interest paid |
| $ | 227,361 |
|
| $ | 209,445 |
|
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
| ||
Debt and equity securities received for certain obligations, real estate, and revenue |
| $ | 804,520 |
|
| $ | — |
|
Certain obligations and receivables satisfied and real estate sold |
|
| 735,963 |
|
|
| — |
|
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
| ||
Distributions declared, unpaid |
| $ | 173,851 |
|
| $ | 174,017 |
|
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 |
| $ | 324,050 |
|
| $ | 257,269 |
|
Restricted cash, included in Other assets |
|
| 5,907 |
|
|
| 5,249 |
|
|
| $ | 329,957 |
|
| $ | 262,518 |
|
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. Similarly, starting July 1, 2023, the majority of our real estate operations in the United Kingdom operate as a REIT and generally are subject only to a withholding tax on earnings upon distribution out of the REIT. 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. (excluding those assets that are in the United Kingdom REIT starting July 1, 2023), we are subject to the local taxes;income and other 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 U.S. 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 June 30, 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 in 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 periodssix months ended SeptemberJune 30, 2017,2023, 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 June 30, 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 SeptemberJune 30, 2017,2023, we had loans to and/or equity investments in certain variable interest entities (“VIEs”("VIEs"), which are also tenants of our facilities. We have determined that we arewere not the primary beneficiary of any variable interest entity in which we hold a variable interest because we do not control the activities (such as the day-to-day operations) that most significantly impact the economic performance of these VIEs. entities. The carrying value and classification of the related assets and maximum exposure to loss as a result of our involvement with these VIEs at SeptemberJune 30, 20172023 are presented below (in thousands):
VIE Type | Maximum Loss Exposure(1) | Asset Type Classification | Carrying Amount(2) |
| Carrying |
|
| Asset Type |
| Maximum Loss |
| |||||||||
Loans, net | $ | 331,857 | Mortgage and other loans | $ | 235,287 |
| $ | 805,640 |
|
| Investments in Unconsolidated |
| $ | 805,640 |
| |||||
Loans, net |
|
| 139,266 |
|
| Mortgage and other loans |
|
| 176,248 |
| ||||||||||
Equity investments | $ | 13,242 | Other assets | $ | — |
|
| 89,809 |
|
| Investments in Unconsolidated |
|
| 89,809 |
|
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 borrowerborrowers or investees) that most significantly impact the VIE’sVIE's economic performance. As of SeptemberJune 30, 2017,2023, we were not required to provide any material financial support through a liquidity arrangement or otherwise to our unconsolidated VIEs, including circumstances in which itthey could be exposed to further losses (e.g., cash short falls).
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 Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Land and land improvements |
| $ | 28,916 |
|
| $ | 34,204 |
|
Buildings |
|
| 114,966 |
|
|
| 290,256 |
|
Intangible lease assets — subject to amortization (weighted-average useful |
|
| 16,305 |
|
|
| 16,949 |
|
Mortgage loans |
|
| — |
|
|
| 100,000 |
|
Investments in unconsolidated real estate joint ventures |
|
| — |
|
|
| 399,456 |
|
Investments in unconsolidated operating entities |
|
| 50,000 |
|
|
| 131,105 |
|
Other loans |
|
| 25,000 |
|
|
| — |
|
Liabilities assumed |
|
| — |
|
|
| (25,727 | ) |
|
| $ | 235,187 |
|
| $ | 946,243 |
|
Loans repaid(1) |
|
| (22,900 | ) |
|
| — |
|
Total net assets acquired |
| $ | 212,287 |
|
| $ | 946,243 |
|
14
2023 Activity
Prospect Transaction
In August 2019, we invested in the last quarter of 2016 are preliminary. When all relevant information is obtained, resulting changes, if any, to our provisional purchase price allocation will be adjusted to reflect new information obtained about the facts and circumstances that existed as of 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 ten14 acute care hospitals in three states (California, Pennsylvania, and one behavioral health facility, along with ancillary land and buildings, that are located in Arizona, Utah, Texas, and Arkansas. The portfolio is nowConnecticut) operated by Steward Health Care System LLC (“Steward”), which separately completed its acquisition of IASIS on September 29, 2017. Our investment in the portfolio includes the acquisition of eight acute care hospitals and one behavioral health facility for approximately $700 million, the making of $700 million in mortgage loans on two acute care hospitals, and a $100 million minority equity contribution in Steward,master leased to or mortgaged by Prospect Medical Holdings, Inc. ("Prospect") for a combined investment of approximately $1.5$1.5 billion. The nine facilities acquired are being leased to Steward pursuant to the original long-term master lease agreement entered into in October 2016 that had an initial 15-yearIn addition, we originated a $112.9 million term with three 5-year extension options, plus annual inflation-based escalators. The terms of the mortgage loan are substantially similarcross-defaulted to the master lease.
On May 1, 2017,lease and mortgage loan agreements and further secured by a parent guaranty. In the 2022 second quarter, we acquired eight hospitals previously affiliatedfunded an additional $100 million towards the existing mortgage loan that was secured by a first lien on a California hospital. Prospect's operations were negatively impacted by the coronavirus ("COVID-19") global pandemic commencing in early 2020, but Prospect continued to remain current with Community Health Systems, Inc. in Florida, Ohio,respect to contractual rent and Pennsylvania for an aggregate purchase priceinterest payments until the fourth quarter of $301.3 million. These facilities are leased to Steward, pursuant2022. Accordingly, and due further to the original long-term master lease with Steward.
MEDIAN Transactions
During thetermination of certain refinancing negotiations between Prospect and certain third quarter of 2017,parties in early 2023, we acquired two rehabilitation hospitals in Germany forrecorded an aggregate purchase price of €39.2approximate $280 million in addition to 11 rehabilitation hospitals in Germany that we acquiredimpairment charge in the second quarter2022 fourth quarter. As part 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 atthis charge, we reduced the greater of one percent or 70% of German consumer price index. These acquisitions are the final propertiescarrying value of the portfoliounderperforming Pennsylvania properties by approximately $170 million (to approximately $250 million) and reserved all unbilled rent accruals for a total of 20 properties$112 million.
However, Prospect continued to pursue a recapitalization plan; and, in Germany thatlate March 2023, Prospect received a binding commitment from several lenders to provide liquidity to pay down certain debt instruments. Along with these commitments from third-party lenders, 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 closingpursue certain transactions 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 closeProspect as part of their recapitalization plan, including originating a $50 million convertible loan to PHP Holdings, the six hospital portfolio thatmanaged care business of Prospect, in the first quarter of 2023.
On May 23, 2023, Prospect completed its recapitalization plan, which included receiving $375 million in new financing from several lenders. Along with this new debt capital from third-party lenders, we agreed to buythe following restructuring of our $1.7 billion investment in Prospect including: a) maintaining 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 a substantial portion of the contractual monthly rent due on these California properties starting in September 20162023, b) transition the Pennsylvania properties back to Prospect in return 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 leasedfirst lien mortgage on 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 toc) provide up to $20.0$75 million in capital improvement fundinga loan secured by a first lien on these two facilities - noneProspect's accounts receivable and certain other assets, of which has beenwe funded $25 million on May 23, 2023, d) complete the previously disclosed sale of the Connecticut properties to date. With these acquisitions, we also obtainedYale New Haven ("Yale"), as more fully described in Note 9 to the condensed consolidated financial statements, and e) obtain a 20%non-controlling ownership interest in PHP Holdings of approximately $654 million, after applying a discount for lack of marketability, consisting of an approximate $68 million equity investment and $586 million loan convertible into equity of PHP Holdings (collectively, 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."Prospect Transaction"). 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, Washingtonnon-controlling ownership interest was received in exchange for unpaid rent and interest through December 2022, previously unrecorded rent and interest revenue in 2023 totaling approximately $68 million, our $151 million mortgage loan on a $93.3California property, our $112.9 million term 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 escalatorsother obligations at the greatertime of one percent or 70% of the German consumer price index.such investment.
On May 2, 2016,At June 30, 2023, 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 representbelieve 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:
In April 2017, we 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, ourremaining investment in the operatorProspect real estate and other assets are fully recoverable, but no assurances can be given that we will not have any further impairments in future periods.
Lifepoint Transaction
On February 7, 2023, a subsidiary of Capella Healthcare,Lifepoint Health, Inc. (“Capella”("Lifepoint") merged with Regional Care Hospital Partners, Inc. (“Regional Care”acquired a majority interest in Springstone (now Lifepoint Behavioral Health, "Lifepoint Behavioral") (an affiliate(the "Lifepoint Transaction") based on an enterprise value of certain funds managed by affiliates of Apollo Global Management, LLC. (“Apollo”)) to form RCCH.$250 million. As part of the transaction, we received net proceedsapproximately $205 million in full satisfaction of approximately $550 millionour initial acquisition loan, including approximately $492 million foraccrued interest, and we retained our minority equity investment and loans made asin the operations of Lifepoint Behavioral. Separately, we converted a mortgage loan (as part of our initial acquisition in 2021) into the original Capella transaction that closed on August 31, 2015.fee simple ownership of a property in Washington, which will be leased, along with the other 18 behavioral health hospitals already leased to Lifepoint Behavioral, under the master lease agreement. In addition, we received $210 million in prepayment 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 loanLifepoint Transaction, Lifepoint extended its current lease with us on eight existing general acute care hospitals by five years to 2041.
Other Transactions
In the second quarter of 2023, we acquired three inpatient rehabilitation facilities for a hospital propertytotal of approximately €70 million. These hospitals are leased to Median Kliniken S.á.r.l ("MEDIAN") pursuant to a long-term master lease with annual inflation-based escalators.
On April 14, 2023, we acquired five behavioral health hospitals located in Olympia, Washingtonthe United Kingdom for approximately £44 million. These hospitals are leased to Priory Group ("Priory") pursuant to five separate lease agreements with annual inflation-based escalators.
15
2022 Activity
Macquarie Transaction
On March 14, 2022, we completed a transaction with 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 was subsequently convertedare leased to Steward Health Care System LLC ("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 on July 22, 2016. Additionally, we and an Apollo affiliate invested $50of approximately $600 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, representedpartially offset by the recoverabilitywrite-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 investment in full, exceptcondensed consolidated balance sheets), which is being accounted for under the equity method of accounting.
In connection with this 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. Pursuantwe separated the eight Massachusetts-based facilities into a new master lease with terms generally identical to the transaction described above, the underlying leases, one of which is aother master lease, covering all but one property, was amended to shortenand the initial fixed lease term increaseof both 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 security deposit,shares of the real estate holding entities, which included deferred income tax and
eliminateOn February 16, 2022, we agreed to participate in an existing syndicated term loan with a term of six years originated on behalf of Priory, of which we funded £96.5 million towards a £100 million participation level in the lessees’ purchase option provisions. Duevariable rate loan.
Other acquisitions in the first half of 2022 included five general acute care facilities. Three general acute care facilities, located throughout Spain, were acquired on April 29, 2022 for €27 million and are leased to GenesisCare pursuant to a long-term lease with annual inflation-based escalators. The other two general acute care facilities, one in Arizona and the other in Florida, were acquired on April 18 and 25, 2022, respectively, for approximately $80 million and are leased to Steward pursuant to an already existing master lease agreement with annual inflation-based escalators.
Development Activities
See table below for a status summary of our current development projects (in thousands):
Property |
| Commitment |
|
| Costs |
|
| Estimated Rent | ||
Ernest Health, Inc. ("Ernest") (South Carolina) |
| $ | 22,400 |
|
| $ | 18,077 |
|
| 3Q 2023 |
IMED Hospitales ("IMED") (Spain) |
|
| 46,273 |
|
|
| 41,109 |
|
| 3Q 2023 |
Lifepoint Behavioral Health (Texas) |
|
| 31,600 |
|
|
| 11,422 |
|
| 1Q 2024 |
IMED (Spain) |
|
| 37,434 |
|
|
| 10,832 |
|
| 3Q 2024 |
IMED (Spain) |
|
| 51,372 |
|
|
| 14,849 |
|
| 1Q 2025 |
Steward (Texas) |
|
| 169,408 |
|
|
| 57,098 |
|
| 2Q 2026 |
|
| $ | 358,487 |
|
| $ | 153,387 |
|
|
|
16
2023 Activity
During the 2023 second quarter, we completed construction and began recording rental income on an inpatient rehabilitation facility located in Stockton, California. This facility commenced rent on May 1, 2023, and is being leased to Ernest pursuant to an existing long-term master lease.
We continue to fund the redevelopment of and defer rent on our Norwood facility in Massachusetts. Recovery receivables of approximately $130 million associated with the prior storm and flood damage to this lease amendment,facility are included in the "Other assets" line of our condensed consolidated balance sheets. In conjunction with the redevelopment of Steward's Norwood hospital, we reclassifiedadvanced $50 million, in the leasefirst half of 2023, that is secured by, among other things, proceeds from insurance claims in excess of the properties underadvance.
2022 Activity
During the master lease from a direct finance lease (“DFL”)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 Ernest pursuant to an operatingexisting long-term master lease. This reclassification resulted
Disposals
2023 Activity
On March 30, 2023, we entered into a definitive agreement to sell our 11 general acute care facilities located 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 leasedAustralia and operated by Post Acute Medical (“Post Acute”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 in the first quarter of 2023 and recorded an approximate $79 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 our outstanding loanswas set to close in two phases. The first phase closed on May 18, 2023, in which we sold seven of $4the 11 facilities for A$730 million, were paid in full, andwith the final phase currently expected to be complete by early fourth quarter of 2023. We used the A$730 million proceeds from the first phase of the sale to pay down the Australian term loan.
Although we recovered our investmentcurrently expect the final phase of the Australia Transaction to occur as planned, no assurances can be given that the transaction will close as described above.
On March 8, 2023, we received notice that Prime Healthcare Services, Inc. ("Prime") planned to exercise its right to repurchase from us the real estate associated with one master lease for approximately $100 million. As such, we recorded an approximate $11 million non-cash impairment charge in the operations. Total proceeds from this transactionfirst quarter of 2023 related to unbilled rent on the three facilities that were $71 million resultingsold. On July 11, 2023, Prime acquired the three facilities for $100 million.
2022 Activity
On March 14, 2022, we completed the previously described partnership with MAM, in a net gain of approximately $15 million.
Corinth Transaction
On June 17, 2016,which we sold the Atrium Medical Center real estate locatedof eight Massachusetts-based general acute care hospitals, with a fair value of approximately $1.7 billion. See "New Investments" in Corinth, Texas, which was leasedthis same Note 3 for further details on this transaction.
During the first half of 2022, we also completed the sale of four other facilities and operated by Corinth Investor Holdings. Total proceeds from the transaction were $28two ancillary properties for approximately $154 million, resulting in a gain on real estate of approximately $8$31 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 the first half of 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 | For the Six Months |
| |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2023(1) |
|
| 2022 |
|
| 2023(1) |
|
| 2022 |
| |||||||||||||||||
Revenues | $ | — | $ | 244 | $ | — | $ | 7,851 |
| $ | 12,051 |
|
| $ | 18,905 |
|
| $ | 30,928 |
|
| $ | 60,739 |
| ||||||||
Real estate depreciation and amortization | — | — | — | (1,754 | ) |
|
| — |
|
|
| (5,615 | ) |
|
| (4,991 | ) |
|
| (11,508 | ) | |||||||||||
Property-related expenses | — | — | — | (114 | ) |
|
| (436 | ) |
|
| (2,410 | ) |
|
| (1,855 | ) |
|
| (5,765 | ) | |||||||||||
Other income (expense) | — | 45 | — | (23 | ) | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Income from real estate dispositions, net | $ | — | $ | 289 | $ | — | $ | 5,960 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Real estate and other impairment charges(3) |
|
| — |
|
|
| — |
|
|
| (89,538 | ) |
|
| — |
| ||||||||||||||||
Other (expense) income(4) |
|
| (5,382 | ) |
|
| 8,410 |
|
|
| (10,974 | ) |
|
| 452,678 |
| ||||||||||||||||
Income (loss) from real estate dispositions, net |
| $ | 6,233 |
|
| $ | 19,290 |
|
| $ | (76,430 | ) |
| $ | 496,144 |
|
17
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 SeptemberJune 30, 2017,2023, 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 leases on nine 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 June 30, |
|
| As of December 31, |
| ||
Minimum lease payments receivable |
| $ | 621,704 |
|
| $ | 880,253 |
|
Estimated unguaranteed residual values |
|
| 203,818 |
|
|
| 203,818 |
|
Less: Unearned income and allowance for credit loss |
|
| (582,215 | ) |
|
| (731,915 | ) |
Net investment in direct financing leases |
|
| 243,307 |
|
|
| 352,156 |
|
Other financing leases (net of allowance for credit loss) |
|
| 988,345 |
|
|
| 1,339,167 |
|
Total investment in financing leases |
| $ | 1,231,652 |
|
| $ | 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 bankruptcy of Adeptus Health, a current tenant and operator of facilities representing less than 5%At June 30, 2023, 99% of our properties are occupied by tenants, leaving five properties as vacant, representing approximately 0.2% of total gross assets. We are in various stages of either releasing or selling these vacant properties, for one of which we received and recorded a significant lease termination fee in 2019.
As more fully described in “Item 1A. Risk Factors” in our 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 cybersecurity attacks or public health crises (like the restructuring, AdeptusCOVID-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 above in the Prospect Transaction).
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 $9.8 million as of June 30, 2023, to be paid over specified periods in the future with interest.
18
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 confirming the Debtors’ Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”). The Plan became effective on October 2, 2017 (the “Confirmation Effective Date”). In connection with the confirmation of the Plan, Deerfield agreed that it would assume all of the master leases and related agreements between us and Adeptus Health, cure all defaults that had arisen priorwhile keeping its hospitals open to continue providing care to the commencementcommunities served. On February 6, 2023, Pipeline emerged from bankruptcy. Per the bankruptcy settlement, Pipeline's current lease of our 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 2023. We have agreed to defer $5.6 million, or approximately 30%, of rent in 2023 to be paid in 2024 with interest. As of June 30, 2023, Pipeline was in compliance with all terms of the bankruptcy proceedings with respect to all properties,settlement and continue to pay rent with respect to all but 16the lease.
Steward Health Care System
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 (the "Steward Transaction"). As a result of this transaction, we received $100 million on May 1, 2023, of the 56 Adeptus Health properties according to$150 million loan made in the terms2022 second quarter. The new lease with CHIC for these Utah assets has an initial fixed term of 15 years with annual escalation provisions, along with early lessee purchase options at the greater of fair market value or our gross investment. As part of this transaction, we severed these facilities from the master lease with Steward, and accordingly accelerated the amortization of the master leasesassociated in-place lease intangibles (approximately $286 million) and related agreements. Rentwrote-off approximately $95 million of straight-line rent receivables.
Alecto Healthcare Services LLC
On June 16, 2023, Alecto Healthcare Services LLC ("Alecto") filed for Chapter 11 bankruptcy in Delaware. At the time, we leased one property to Alecto in Sherman, Texas with a net book value of approximately $12 million. As a result of this bankruptcy, we have entered into a restructuring agreement involving the Sherman facility and American Healthcare Systems, the new tenant of the facility. We believe this agreement will remainbe finalized in the same, and a previously disclosed rent concession was removed 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 earlierthird quarter 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. Although2023, but no assurances can be madegiven that the transaction will close or any impairment will not be needed.
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 not recognizeco-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 June 30, |
|
| As of December 31, |
| ||
MEDIAN |
| 50% | $ | 482,710 |
|
| $ | 482,735 |
|
Swiss Medical Network |
| 70% |
| 440,754 |
|
|
| 454,083 |
|
Steward (Macquarie Transaction) |
| 50% |
| 425,424 |
|
|
| 417,701 |
|
Policlinico di Monza |
| 50% |
| 83,595 |
|
|
| 86,245 |
|
HM Hospitales |
| 45% |
| 54,635 |
|
|
| 57,139 |
|
Total |
|
| $ | 1,487,118 |
|
| $ | 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
19
not be able to acquire the Steward Transaction. Our non-mortgage loans typically consist of loans to our tenants for acquisitions and working capital purposes. At September 30, 2017, acquisition loans includes $114.4 million in loans to Ernest.
Concentrations of Credit Risk
Our revenue concentration for the nine months ended September 30, 2017 as compared to the prior year is as follows (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 alllarger real estate binding commitments on newportfolio without such investments in operators. These investments also offer the opportunity to enhance our overall return and unfunded amounts on development dealsprovide for certain minority rights 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):protections.
Gross Assets by Operator
As of September 30, 2017 | As of December 31, 2016 | |||||||||||||||
Operators | Total Gross Assets | Percentage of Total Gross Assets | Total Gross Assets | Percentage of Total Gross Assets | ||||||||||||
Steward (1) | $ | 3,445,379 | 36.8 | % | $ | 1,609,583 | 22.5 | % | ||||||||
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 | % | ||||||||||
Other operators | 1,992,448 | 21.3 | % | 1,900,397 | 26.7 | % | ||||||||||
Other assets | 452,505 | 4.9 | % | 300,903 | 4.2 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 9,355,935 | 100.0 | % | $ | 7,143,121 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Gross Assets by U.S. State and Country
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 of any single property greater than 3.8% of our total gross assets as of September 30, 2017.
4. Debt
The following is a summary of our investments in unconsolidated operating entities (amounts in thousands):
Operator |
| As of June 30, |
|
| As of December 31, |
| ||
PHP Holdings |
| $ | 654,520 |
|
| $ | — |
|
Steward (loan investment) |
|
| 362,586 |
|
|
| 362,831 |
|
International joint venture |
|
| 230,153 |
|
|
| 231,402 |
|
Priory |
|
| 163,619 |
|
|
| 156,575 |
|
Swiss Medical Network |
|
| 162,194 |
|
|
| 157,145 |
|
Steward (equity investment) |
|
| 125,862 |
|
|
| 125,862 |
|
Aevis Victoria SA ("Aevis") |
|
| 79,121 |
|
|
| 72,904 |
|
Aspris Children's Services ("Aspris") |
|
| 16,005 |
|
|
| 16,023 |
|
Lifepoint Behavioral |
|
| 10,767 |
|
|
| 200,827 |
|
Caremax |
|
| 7,323 |
|
|
| 8,526 |
|
Prospect |
|
| — |
|
|
| 112,777 |
|
Total |
| $ | 1,812,150 |
|
| $ | 1,444,872 |
|
The change since December 31, 2022 primarily relates to the payoff of the Lifepoint Behavioral loan in February 2023, partially offset by our investment in PHP Holdings, as more fully described above in the Prospect Transaction.
Pursuant to our approximate 5% stake in Aevis and other investments marked to fair value, we recorded approximately $4.3 million in unfavorable non-cash fair value adjustments during the first half 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 a $9.0 million favorable non-cash fair value adjustment for the same period of 2022.
Other Investment Activities
In the first half of 2023, we received repayment of the CHF 60 million mortgage loan from Infracore SA ("Infracore") that was originally made in the fourth quarter of 2022.
Credit Loss Reserves
We apply a forward-looking "expected loss" model to all of our financing receivables, including financing leases and loans, 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 period |
| $ | 121,972 |
|
| $ | 53,933 |
|
Provision for credit loss, net |
|
| 362 |
|
|
| 1,345 |
|
Expected credit loss reserve related to financial instruments |
|
| (35,229 | ) |
|
| (28 | ) |
Balance at end of the period |
| $ | 87,105 |
|
| $ | 55,250 |
|
20
|
| For the Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Balance at beginning of the year |
| $ | 121,146 |
|
| $ | 48,527 |
|
Provision for credit loss, net |
|
| 1,348 |
|
|
| 6,757 |
|
Expected credit loss reserve related to financial instruments |
|
| (35,389 | ) |
|
| (34 | ) |
Balance at end of the period |
| $ | 87,105 |
|
| $ | 55,250 |
|
Concentrations of Credit Risk
We monitor concentration risk in several ways due to the nature 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):
Total Assets by Operator
|
| As of June 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
Operators |
| Total Assets |
|
| Percentage of |
|
| Total Assets |
|
| Percentage of |
| ||||
Steward |
| $ | 3,656,046 |
|
|
| 19.0 | % |
| $ | 4,762,673 |
|
|
| 24.2 | % |
Circle Health Ltd ("Circle") |
|
| 2,141,517 |
|
|
| 11.2 | % |
|
| 2,062,474 |
|
|
| 10.5 | % |
Priory |
|
| 1,401,106 |
|
|
| 7.3 | % |
|
| 1,290,213 |
|
|
| 6.6 | % |
Prospect |
|
| 1,045,844 |
|
|
| 5.5 | % |
|
| 1,483,599 |
|
|
| 7.5 | % |
Lifepoint Behavioral |
|
| 799,212 |
|
|
| 4.2 | % |
|
| 985,959 |
|
|
| 5.0 | % |
Other operators |
|
| 7,746,083 |
|
|
| 40.2 | % |
|
| 7,461,923 |
|
|
| 38.0 | % |
Other assets |
|
| 2,414,567 |
| (1) |
| 12.6 | % |
|
| 1,611,159 |
|
|
| 8.2 | % |
Total |
| $ | 19,204,375 |
|
|
| 100.0 | % |
| $ | 19,658,000 |
|
|
| 100.0 | % |
21
Total Assets by U.S. State and Country
|
| As of June 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
U.S. States and Other Countries |
| Total Assets |
|
| Percentage of |
|
| Total Assets |
|
| Percentage of |
| ||||
Texas |
| $ | 1,940,872 |
|
|
| 10.1 | % |
| $ | 1,967,948 |
|
|
| 10.0 | % |
Florida |
|
| 1,366,453 |
|
|
| 7.1 | % |
|
| 1,324,555 |
|
|
| 6.8 | % |
California |
|
| 1,211,932 |
|
|
| 6.3 | % |
|
| 1,450,112 |
|
|
| 7.4 | % |
Utah |
|
| 834,773 |
|
|
| 4.4 | % |
|
| 1,224,484 |
|
|
| 6.2 | % |
Massachusetts |
|
| 805,796 |
|
|
| 4.2 | % |
|
| 761,694 |
|
|
| 3.9 | % |
All other states |
|
| 3,846,670 |
|
|
| 20.0 | % |
|
| 4,245,306 |
|
|
| 21.6 | % |
Other domestic assets |
|
| 1,699,686 |
|
|
| 8.9 | % |
|
| 1,028,946 |
|
|
| 5.2 | % |
Total U.S. |
| $ | 11,706,182 |
|
|
| 61.0 | % |
| $ | 12,003,045 |
|
|
| 61.1 | % |
United Kingdom |
| $ | 4,301,199 |
|
|
| 22.4 | % |
| $ | 4,083,244 |
|
|
| 20.8 | % |
Germany |
|
| 746,419 |
|
|
| 3.9 | % |
|
| 664,900 |
|
|
| 3.4 | % |
Switzerland |
|
| 682,069 |
|
|
| 3.5 | % |
|
| 748,947 |
|
|
| 3.8 | % |
Australia |
|
| 301,125 |
|
|
| 1.6 | % |
|
| 854,582 |
|
|
| 4.3 | % |
Spain |
|
| 232,037 |
|
|
| 1.2 | % |
|
| 222,316 |
|
|
| 1.1 | % |
All other countries |
|
| 520,463 |
|
|
| 2.7 | % |
|
| 498,753 |
|
|
| 2.5 | % |
Other international assets |
|
| 714,881 |
|
|
| 3.7 | % |
|
| 582,213 |
|
|
| 3.0 | % |
Total international |
| $ | 7,498,193 |
|
|
| 39.0 | % |
| $ | 7,654,955 |
|
|
| 38.9 | % |
Grand total |
| $ | 19,204,375 |
|
|
| 100.0 | % |
| $ | 19,658,000 |
|
|
| 100.0 | % |
On an individual property basis, our largest investment in any single property was approximately 2% of our total assets as of June 30, 2023.
Total Revenues by Operator
|
| For the Three Months Ended June 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
Operators |
| Total Revenues |
|
| Percentage of |
|
| Total Revenues |
|
| Percentage of |
| ||||
Prospect |
| $ | 68,436 |
|
|
| 20.3 | % |
| $ | 42,364 |
|
|
| 10.6 | % |
Circle |
|
| 48,645 |
|
|
| 14.4 | % |
|
| 47,539 |
|
|
| 11.9 | % |
Priory |
|
| 26,930 |
|
|
| 8.0 | % |
|
| 19,179 |
|
|
| 4.8 | % |
CommonSpirit |
|
| 19,568 |
|
|
| 5.8 | % |
|
| — |
|
|
| — |
|
Lifepoint Behavioral |
|
| 19,068 |
|
|
| 5.7 | % |
|
| 22,250 |
|
|
| 5.6 | % |
Steward |
|
| (301 | ) | (1) |
| -0.1 | % |
|
| 106,007 |
|
|
| 26.5 | % |
Other operators |
|
| 155,049 |
|
|
| 45.9 | % |
|
| 162,887 |
|
|
| 40.6 | % |
Total |
| $ | 337,395 |
|
|
| 100.0 | % |
| $ | 400,226 |
|
|
| 100.0 | % |
22
Total Revenues by U.S. State and Country
|
| For the Three Months Ended June 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
U.S. States and Other Countries |
| Total Revenues |
|
| Percentage of |
|
| Total Revenues |
|
| Percentage of |
| ||||
California |
| $ | 57,367 |
|
|
| 17.0 | % |
| $ | 48,109 |
|
|
| 12.0 | % |
Texas |
|
| 47,444 |
|
|
| 14.1 | % |
|
| 39,716 |
|
|
| 9.9 | % |
Florida |
|
| 35,508 |
|
|
| 10.5 | % |
|
| 26,051 |
|
|
| 6.5 | % |
Pennsylvania |
|
| 22,930 |
|
|
| 6.8 | % |
|
| 19,942 |
|
|
| 5.0 | % |
Arizona |
|
| 19,721 |
|
|
| 5.9 | % |
|
| 16,383 |
|
|
| 4.1 | % |
All other states |
|
| 36,204 |
| (1) |
| 10.7 | % |
|
| 137,518 |
|
|
| 34.4 | % |
Total U.S. |
| $ | 219,174 |
|
|
| 65.0 | % |
| $ | 287,719 |
|
|
| 71.9 | % |
United Kingdom |
| $ | 88,275 |
|
|
| 26.2 | % |
| $ | 79,415 |
|
|
| 19.8 | % |
Germany |
|
| 9,517 |
|
|
| 2.8 | % |
|
| 8,337 |
|
|
| 2.1 | % |
All other countries |
|
| 20,429 |
|
|
| 6.0 | % |
|
| 24,755 |
|
|
| 6.2 | % |
Total international |
| $ | 118,221 |
|
|
| 35.0 | % |
| $ | 112,507 |
|
|
| 28.1 | % |
Grand total |
| $ | 337,395 |
|
|
| 100.0 | % |
| $ | 400,226 |
|
|
| 100.0 | % |
Total Revenues by Facility Type
|
| For the Three Months Ended June 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
Facility Types |
| Total Revenues |
|
| Percentage of |
|
| Total Revenues |
|
| Percentage of |
| ||||
General acute care hospitals |
| $ | 234,917 |
| (1) |
| 69.6 | % |
| $ | 305,468 |
|
|
| 76.3 | % |
Behavioral health facilities |
|
| 56,378 |
|
|
| 16.7 | % |
|
| 51,763 |
|
|
| 12.9 | % |
Inpatient rehabilitation facilities |
|
| 31,452 |
|
|
| 9.3 | % |
|
| 28,897 |
|
|
| 7.2 | % |
Long-term acute care hospitals |
|
| 8,329 |
|
|
| 2.5 | % |
|
| 8,270 |
|
|
| 2.1 | % |
Freestanding ER/urgent care facilities |
|
| 6,319 |
|
|
| 1.9 | % |
|
| 5,828 |
|
|
| 1.5 | % |
Total |
| $ | 337,395 |
|
|
| 100.0 | % |
| $ | 400,226 |
|
|
| 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.
23
4. Debt
The following is a summary of 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 June 30, |
|
| As of December 31, |
| ||
Revolving credit facility(A) |
| $ | 1,211,708 |
|
| $ | 929,584 |
|
Term loan |
|
| 200,000 |
|
|
| 200,000 |
|
British pound sterling term loan due 2024(B) |
|
| 133,191 |
|
|
| 126,690 |
|
British pound sterling term loan due 2025(B) |
|
| 889,210 |
|
|
| 845,810 |
|
Australian term loan facility(B) |
|
| 313,208 |
|
|
| 817,560 |
|
2.550% Senior Unsecured Notes due 2023(B) |
|
| 508,120 |
|
|
| 483,320 |
|
3.325% Senior Unsecured Notes due 2025(B) |
|
| 545,450 |
|
|
| 535,250 |
|
0.993% Senior Unsecured Notes due 2026(B) |
|
| 545,450 |
|
|
| 535,250 |
|
2.500% Senior Unsecured Notes due 2026(B) |
|
| 635,150 |
|
|
| 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) |
|
| 762,180 |
|
|
| 724,980 |
|
4.625% Senior Unsecured Notes due 2029 |
|
| 900,000 |
|
|
| 900,000 |
|
3.375% Senior Unsecured Notes due 2030(B) |
|
| 444,605 |
|
|
| 422,905 |
|
3.500% Senior Unsecured Notes due 2031 |
|
| 1,300,000 |
|
|
| 1,300,000 |
|
|
| $ | 10,288,272 |
|
| $ | 10,325,499 |
|
Debt issue costs and discount, net |
|
| (50,714 | ) |
|
| (57,087 | ) |
|
| $ | 10,237,558 |
|
| $ | 10,268,412 |
|
As of SeptemberJune 30, 2017,2023, 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 |
| $ | 508,120 |
|
2024 |
|
| 446,399 |
|
2025 |
|
| 1,434,660 |
|
2026 |
|
| 2,892,308 |
|
2027 |
|
| 1,600,000 |
|
Thereafter |
|
| 3,406,785 |
|
Total |
| $ | 10,288,272 |
|
24 2023 Activity On May 18, 2023, we completed the first phase of the Australia Transaction in which we sold seven of the 11 Australia facilities for A$730 million. We used the proceeds from the first phase of this sale to prepay A$730 million of the A$1.2 billion Australian term loan. As a result of this prepayment, we incurred approximately $0.8 million to accelerate the amortization of related debt issue costs. 2022 Activity On June 29, 2022, we amended our |
2017 Activity
Credit Facility
On February 1, 2017, we replaced to extend the maturity date of our unsecured credit$1.8 billion revolving facility to June 30, 2026, with a new revolving creditour option to extend for an additional 12 months, and term loan agreement (“Credit Facility”). The new agreement includes a $1.3 billion unsecured revolving loan facility, a $200extend the maturity date of our $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 matures 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 Marchto June 30, 2017 – see below. The commitment fee on the revolving loan facility is paid at a rate of 0.25%2027. TheAdditionally, we may request incremental 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$1 billion. As 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,result of this amendment, we prepaid and extinguished the €200incurred approximately $0.6 million of outstanding term loans under the euro term loandebt refinancing costs.
On March 15, 2022, we paid off and terminated our $1 billion interim credit 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,that was entered into on 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 SeptemberJune 30, 2017,2023, 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.
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 SeptemberJune 30, 2017,2023, we were in compliance with all such financial and operating covenants.
5. Income Taxes
5. Common Stock/Partners’ CapitalDuring the 2023 second quarter, we elected to move a majority of our United Kingdom assets into a United Kingdom REIT regime with an effective date of July 1, 2023. As substantially all necessary activities had been completed to enter the United Kingdom REIT regime by June 30, 2023, we adjusted the deferred tax liabilities associated with these properties, resulting in a $158 million income tax benefit in the second quarter of 2023. We expect to reduce our quarterly tax expense going forward by approximately $2 million.
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 SeptemberJune 30, 2017.2023. Share-based compensation expense totaled $7.1$18.3 million and $5.8$21.9 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively,2022, respectively. The decrease in share-based compensation is a result of which $0.4a $6.7 million relates tocumulative benefit catch-up from adjusting the payout probability of certain performance awards, partially offset by an incremental $2.3 million of expense from the acceleration of vestings on time-basedstock awards previously granted to three former board members.for a retiring executive officer.
25
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.
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 June 30, 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 |
| $ | 177,643 |
|
| $ | 142,420 |
|
| $ | 167,035 |
|
| $ | 163,101 |
| ||||||||||||||||
Loans(1) |
|
| 1,216,625 |
| (2) |
| 1,140,594 |
|
|
| 1,405,615 |
| (2) |
| 1,360,113 |
| ||||||||||||||||
Debt, net | (4,832,264 | ) | (5,032,821 | ) | (2,909,341 | ) | (2,966,759 | ) |
|
| (10,237,558 | ) |
|
| (8,568,002 | ) |
|
| (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, our equity investment in Lifepoint Behavioral, and our convertible loan and equity investment in PHP Holdings 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 Lifepoint Behavioral (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 SeptemberJune 30, 2017, these2023 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 June 30, 2023 |
|
| As of December 31, 2022 |
|
|
| ||||||||||
Asset (Liability) |
| Fair Value |
|
| Original |
|
| Fair Value |
|
| Original |
|
| Asset Type Classification | ||||
Mortgage loans |
| $ | 136,459 |
|
| $ | 136,459 |
|
| $ | 140,260 |
|
| $ | 140,260 |
|
| Mortgage loans |
Equity investment and other loans |
|
| 898,373 |
|
|
| 910,583 |
|
|
| 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 Lifepoint Behavioral 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
26
the underlying collateral of the loans. Our equity investment in ErnestLifepoint Behavioral 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 and our convertible loan and equity investment in PHP Holdings are 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”("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 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 the first half of 2023 and 2022, we had a net unfavorable adjustment to the investments accounted for under the fair value option method.
The DLOM on our investment in PHP Holdings was approximately 9% at June 30, 2023. In arriving at the DLOM, we started with 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’sinvestee's business along with our rights as an investor pursuant 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 full basis point variations (dollars in(in thousands):
Basis Point Change in Marketability Discount | Estimated Increase (Decrease) In Fair Value | |||
+100 basis points | $ | (51 | ) | |
- 100 basis points | 51 |
Basis Point Change in Marketability Discount | Estimated | |||
+100 basis points | $ | (7,216 | ) | |
- 100 basis points | 7,216 |
Because theItems Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value of Ernest investments noted above approximate their original cost, we did not recognize any unrealized gains/losses during the first nine months of 2017 or 2016. To date,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, 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 thousands):
For the Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Numerator: | ||||||||
Net income | $ | 76,881 | $ | 70,543 | ||||
Non-controlling interests’ share in net income | (417 | ) | (185 | ) | ||||
Participating securities’ share in earnings | (82 | ) | (154 | ) | ||||
|
|
|
| |||||
Net income, less participating securities’ share in earnings | $ | 76,382 | $ | 70,204 | ||||
|
|
|
| |||||
Denominator: | ||||||||
Basic weighted-average common shares | 364,315 | 246,230 | ||||||
Dilutive potential common shares | 731 | 1,238 | ||||||
|
|
|
| |||||
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 | ||||||
|
|
|
|
|
| For the Three Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (42,433 | ) |
| $ | 190,064 |
|
Non-controlling interests’ share in net loss (income) |
|
| 396 |
|
|
| (467 | ) |
Participating securities’ share in earnings |
|
| (469 | ) |
|
| (345 | ) |
Net (loss) income, less participating securities’ share in earnings |
| $ | (42,506 | ) |
| $ | 189,252 |
|
Denominator: |
|
|
|
|
|
| ||
Basic weighted-average common shares |
|
| 598,344 |
|
|
| 598,827 |
|
Dilutive potential common shares(1) |
|
| — |
|
|
| 199 |
|
Diluted weighted-average common shares |
|
| 598,344 |
|
|
| 599,026 |
|
27
|
| For the Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (9,403 | ) |
| $ | 822,011 |
|
Non-controlling interests’ share in net loss (income) |
|
| 160 |
|
|
| (733 | ) |
Participating securities’ share in earnings |
|
| (984 | ) |
|
| (747 | ) |
Net (loss) income, less participating securities’ share in earnings |
| $ | (10,227 | ) |
| $ | 820,531 |
|
Denominator: |
|
|
|
|
|
| ||
Basic weighted-average common shares |
|
| 598,323 |
|
|
| 598,751 |
|
Dilutive potential common shares(1) |
|
| — |
|
|
| 228 |
|
Diluted weighted-average common shares |
|
| 598,323 |
|
|
| 598,979 |
|
MPT Operating Partnership, L.P.
Our earnings per common unit were calculated based on the following (in thousands):
For the Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Numerator: | ||||||||
Net income | $ | 76,881 | $ | 70,543 | ||||
Non-controlling interests’ share in net income | (417 | ) | (185 | ) | ||||
Participating securities’ share in earnings | (82 | ) | (154 | ) | ||||
|
|
|
| |||||
Net income, less participating securities’ share in earnings | $ | 76,382 | $ | 70,204 | ||||
|
|
|
| |||||
Denominator: | ||||||||
Basic weighted-average units | 364,315 | 246,230 | ||||||
Dilutive potential units | 731 | 1,238 | ||||||
|
|
|
| |||||
Dilutive weighted-average units | 365,046 | 247,468 | ||||||
|
|
|
|
|
| For the Three Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (42,433 | ) |
| $ | 190,064 |
|
Non-controlling interests’ share in net loss (income) |
|
| 396 |
|
|
| (467 | ) |
Participating securities’ share in earnings |
|
| (469 | ) |
|
| (345 | ) |
Net (loss) income, less participating securities’ share in earnings |
| $ | (42,506 | ) |
| $ | 189,252 |
|
Denominator: |
|
|
|
|
|
| ||
Basic weighted-average units |
|
| 598,344 |
|
|
| 598,827 |
|
Dilutive potential units(1) |
|
| — |
|
|
| 199 |
|
Diluted weighted-average units |
|
| 598,344 |
|
|
| 599,026 |
|
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 | ||||||
|
|
|
|
|
| For the Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (9,403 | ) |
| $ | 822,011 |
|
Non-controlling interests’ share in net loss (income) |
|
| 160 |
|
|
| (733 | ) |
Participating securities’ share in earnings |
|
| (984 | ) |
|
| (747 | ) |
Net (loss) income, less participating securities’ share in earnings |
| $ | (10,227 | ) |
| $ | 820,531 |
|
Denominator: |
|
|
|
|
|
| ||
Basic weighted-average units |
|
| 598,323 |
|
|
| 598,751 |
|
Dilutive potential units(1) |
|
| — |
|
|
| 228 |
|
Diluted weighted-average units |
|
| 598,323 |
|
|
| 598,979 |
|
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 $355 million in cash and have received the current long-term master lease. Closingremainder in equity-like securities of PHP Holdings - part of the Prospect Transaction. This transaction which is expected to be completed no later than the first quarter of 2018, isclose in 2023 subject to customary real estate,certain regulatory approvals and other closing conditions.the completion of Yale's acquisition of the hospital operations from Prospect. No assurances can be given that this transaction will be consummated as described or at all.
Contingencies
In 2023, we 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 probable or to estimate reasonably possible losses.
28
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, we entered into definitive agreements to acquire three rehabilitation hospitals in Germany for an aggregate purchase price to us of approximately €80 million. Upon closing, the facilities will be leased to MEDIAN, pursuant to a newlong-term master lease. The lease will begin on the day the first property is funded, and the term will be 27 years from the funding date ofIn the third property. The lease provides for increases of the greater of 1% or 70% 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, regulatory2023, we invested approximately $140 million for a minority participation in Steward's syndicated asset-backed credit facility. The four-year facility was underwritten and other closing conditions.sized based on Steward's accounts receivable from government and commercial payors.
29
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:
30
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:
31
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 ninesix months ended SeptemberJune 30, 2017,2023, 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 SeptemberJune 30, 2017,2023, our portfolio consisted of 271444 properties leased or loaned to 3055 operators, of which twosix are under development and 14seven 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 June 30, 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 |
| $ | 15,065,754 |
|
|
| 78.4 | % |
| $ | 15,917,839 |
|
|
| 81.0 | % |
Accumulated real estate depreciation and amortization |
|
| (1,251,165 | ) |
|
| -6.5 | % |
|
| (1,193,312 | ) |
|
| -6.1 | % |
Cash and cash equivalents |
|
| 324,050 |
|
|
| 1.7 | % |
|
| 235,668 |
|
|
| 1.2 | % |
Investments in unconsolidated real estate joint ventures |
|
| 1,487,118 |
|
|
| 7.7 | % |
|
| 1,497,903 |
|
|
| 7.6 | % |
Investments in unconsolidated operating entities |
|
| 1,812,150 |
|
|
| 9.4 | % |
|
| 1,444,872 |
|
|
| 7.4 | % |
Other |
|
| 1,766,468 |
|
|
| 9.3 | % |
|
| 1,755,030 |
|
|
| 8.9 | % |
Total assets |
| $ | 19,204,375 |
|
|
| 100.0 | % |
| $ | 19,658,000 |
|
|
| 100.0 | % |
The following is our revenue by operating type (dollar amounts in thousands):
Revenue by property type:32
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 SeptemberJune 30, 20172023 Compared to SeptemberJune 30, 20162022
Net incomeloss for the three months ended SeptemberJune 30, 2017,2023, was $76.5$(42.0) million ($(0.07) per diluted share) compared to $70.4net income of $189.6 million ($0.32 per diluted share) for the three months ended SeptemberJune 30, 2016.2022. This increasedecrease in net income is due to additional revenue fromprimarily driven by accelerating the amortization of the approximate $286 million in-place lease intangible and the write-off of approximately $95 million of straight-line rent receivables, both associated with the Steward and MEDIAN investments made inTransaction (see Note 3 to the fourth quarter of 2016 and during the first nine months of 2017,condensed consolidated financial statements for more detail) along with higher interest expense, partially offset by increased depreciation and acquisition expense and $44.6 million of gains on real estate and other asset dispositionsan increase in Prospect revenue in the 2016 third quarter. Fundssecond quarter of 2023 as a result of the Prospect Transaction (as more fully described in Note 3 to the condensed consolidated financial statements) and the approximate $158 million tax benefit recognized in the second quarter of 2023 related to entering the United Kingdom REIT regime (as more fully described in Note 5 to the condensed 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$285.3 million for the 2023 second quarter, or $0.48 per diluted share, as compared to $274.7 million, or $0.33$0.46 per diluted share, for the 2017 third quarter as compared to $75.1 million, or $0.30 per diluted share for the 2016 third2022 second quarter. This 61% increase in FFO per share is primarily due to the increase in revenue from our new investments made since September 2016, partially offset by more shares outstanding in 2017 from the May 2017 equity offering.
A comparison of revenues for the three month periodsmonths ended SeptemberJune 30, 20172023 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 | % |
| $ | 247,491 |
|
|
| 73.4 | % |
| $ | 241,209 |
|
|
| 60.3 | % |
|
| 2.6 | % | ||||||||||
Straight-line rent | 17,505 | 9.9 | % | 9,741 | 7.7 | % | 79.7 | % |
|
| (39,329 | ) |
|
| -11.7 | % |
|
| 58,518 |
|
|
| 14.6 | % |
|
| -167.2 | % | ||||||||||||
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 |
|
| 68,468 |
|
|
| 20.3 | % |
|
| 51,873 |
|
|
| 13.0 | % |
|
| 32.0 | % | ||||||||||||||||||||
Interest and other income |
|
| 60,765 |
|
|
| 18.0 | % |
|
| 48,626 |
|
|
| 12.1 | % |
|
| 25.0 | % | ||||||||||||||||||||
Total revenues | $ | 176,580 | 100.0 | % | $ | 126,555 | 100.0 | % | 39.5 | % |
| $ | 337,395 |
|
|
| 100.0 | % |
| $ | 400,226 |
|
|
| 100.0 | % |
|
| -15.7 | % | ||||||||||
|
|
|
|
Our total revenuerevenues for the 2017 third2023 second quarter is up $50.0are down $62.8 million, or 39.5%15.7%, over the same period in the prior year. This increasedecrease is made up of the following:
Real estate depreciation and amortization duringin 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, 20162022.
Property expenses for the 2017 third quarter increased $1.6other income – up $12.1 million from the prior year due to the following:
Acquisition expenses increased from $2.72023 (compared to $4.3 million in 2016 to $7.4 million in 2017 primarilythe first half of 2022) as a result of the StewardProspect Transaction as described in
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 increase our revenue significantly without increasing our head count and related expenses at the same rate. On a dollar basis, general and administrative expenses wereunfavorable foreign currency fluctuations.
Interest expense for the quarters ended SeptemberJune 30, 20172023 and 2016,2022 totaled $42.8$104.5 million and $40.3$87.7 million, respectively. This increase is primarily related to thean increase in borrowings on our revolver and higher average debt balance for the 2017 quarter interest rates on our Credit Facility and term loans
33
compared to the prior year, to fund our acquisition activity. The impact on interest expense from the higher debt balance was partially offset by lower interest rates year-over-year.a decrease due to the A$730 million paydown of our Australia term loan in the second quarter of 2023. Our weighted-average interest rate was 4.6%3.9% for the quarter ended SeptemberJune 30, 2017,2023 compared to 5.2%3.3% for the same period in 2016.2022.
WithReal estate depreciation and amortization during the redemptionsecond quarter of the $4502023 increased to $364.4 million from $84.3 million in senior unsecured notes during2022. Of this increase, $286 million relates to accelerating the quarter ended September 30, 2016, we incurred $22.5 million in debt refinancing charges ($15.5 millionamortization 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 anticipationlease intangibles as part of the Steward acquisition.Transaction described in more detail in Note 3 to the condensed consolidated financial statements.
Property-related expenses totaled $24.7 million and $21.1 million for the quarters ended June 30, 2023 and 2022, respectively. Of the property expenses in the second quarter of 2023 and 2022, approximately $21.1 million and $18.3 million, respectively, represents costs (primarily property insurance premiums) that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.
General and administrative expenses totaled $35.6 million for the 2023 second quarter, a $3.3 million decrease from the 2022 second quarter of $38.9 million, primarily due to a decrease in share-based compensation. The decrease in share-based compensation is a result of a $6.7 million cumulative benefit catch-up from adjusting the payout probability of certain performance awards, partially offset by an incremental $2.3 million of expense from the acceleration of stock awards for a retiring executive officer.
During the three months ended SeptemberJune 30, 2016,2022, we sold three HealthSouth propertiesdisposed of two facilities resulting in a net gain of $16.4 million.
Earnings from equity interests was $12.2 million for the quarter ended June 30, 2023, down $2.6 million from the same period in 2022. This decrease is primarily due to higher interest costs from increasing interest rates at certain of our unconsolidated real estate joint ventures.
Other expense for the second quarter of 2023 was $10.5 million and included approximately $2.5 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 sale of approximately $45 million (see Note 3 toMarch 30, 2023. See Item 1 of this Form 10-QPart II for further details).
Earnings from our equity interests was $3.4details on the lawsuit. This expense also included approximately $8 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 incomeunfavorable non-cash fair value adjustments on our IMED investment.investment in Aevis and other investments marked to fair value during the second quarter of 2023. For the second quarter of 2022, we had other income of $2.0 million primarily from $1.0 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 basedincome-based or withholding taxes on certain investments located in jurisdictions outside the U.S. IncomeThe $148.3 million income tax expense of $0.5 millionbenefit for the three months ended SeptemberJune 30, 2017, was2023 is primarily due to $1.1based on the $158 million of foreignbenefit received by entering the United Kingdom REIT regime. In comparison, we incurred $10.7 million in income tax expense related to our German investments offset partially by $0.6 millionin the second quarter of tax benefit recognized on approximately $2 million 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 $93 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 SeptemberJune 30, 2017.2023. 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.
Nine34
Six Months Ended SeptemberJune 30, 20172023 Compared to SeptemberJune 30, 20162022
Net incomeloss for the ninesix months ended SeptemberJune 30, 2017,2023, was $217.8$(9.2) million ($(0.02) per diluted share) compared to net income of $182.0$821.3 million ($1.37 per diluted share) for the ninesix months ended SeptemberJune 30, 2016, primarily due2022. This decrease in net income is driven by accelerating the amortization of the approximate $286 million in-place lease intangible and the write-off of approximately $95 million of straight-line rent receivables, both associated with the Steward Transaction (see Note 3 to additional revenuethe condensed consolidated financial statements for more detail), the gain on sale of real estate in the 2022 first quarter from the MEDIAN, Steward,Macquarie Transaction, and RCCH investments madethe 2023 impairment charge in the fourthfirst quarter of 2016 andassociated with the first nine months of 2017, incremental revenue from completed development projects and
increased income from our equity investments,Australia Transaction, both as described in Note 3 to the condensed consolidated financial statements. This decrease was 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 $54the approximate $158 million in higher gains on sale of propertiestax benefit recognized in the first nine monthssecond quarter of 2016.2023 related to entering the United Kingdom REIT regime (as more fully described in Note 5 to the condensed consolidated financial statements). Normalized 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 $340.1$507.5 million for the first six months of 2023, or $0.85 per diluted share, as compared to $557.2 million, or $0.98$0.93 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 ninesix months of 2016.2022. This 45.3% increasedecrease in Normalized FFO is primarily due to various disposals throughout 2022 and 2023, including the increaseMacquarie Transaction and the Australia Transaction (both described in revenue from acquisitions and completed development projects made since September 2016, while FFO per share is only slightly highermore detail in Note 3 to the first nine months of 2017 compared to prior year due to more shares outstanding from the September 2016 and May 2017 equity offerings.condensed consolidated financial statements).
A comparison of revenues for the nine month periodssix months ended SeptemberJune 30, 20172023 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 | $ | 311,140 | 62.3 | % | $ | 234,408 | 60.4 | % | 32.7 | % |
| $ | 495,648 |
|
|
| 72.1 | % |
| $ | 504,611 |
|
|
| 62.3 | % |
|
| -1.8 | % | ||||||||||
Straight-line rent | 46,561 | 9.3 | % | 26,509 | 6.8 | % | 75.6 | % |
|
| 17,364 |
|
|
| 2.5 | % |
|
| 119,562 |
|
|
| 14.8 | % |
|
| -85.5 | % | ||||||||||||
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 | % | ||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Income from financing leases |
|
| 81,663 |
|
|
| 11.9 | % |
|
| 103,649 |
|
|
| 12.8 | % |
|
| -21.2 | % | ||||||||||||||||||||
Interest and other income |
|
| 92,931 |
|
|
| 13.5 | % |
|
| 82,204 |
|
|
| 10.1 | % |
|
| 13.0 | % | ||||||||||||||||||||
Total revenues | $ | 499,784 | 100.0 | % | $ | 387,854 | 100.0 | % | 28.9 | % |
| $ | 687,606 |
|
|
| 100.0 | % |
| $ | 810,026 |
|
|
| 100.0 | % |
|
| -15.1 | % | ||||||||||
|
|
|
|
Our total revenuerevenues for the first ninesix months of 2017 is up $111.92023 are down $122.4 million, or 28.9%15.1%, over the same period in the prior year. This increasedecrease is made up of the following:
35
Interest expense for the six months ended June 30, 2023 and 2022 totaled $202.1 million and $178.9 million, respectively. This increase is from annual escalation provisionsprimarily related to an increase in borrowings and $34.0 million is incremental revenue from newhigher interest rates on our Credit Facility and term loans (primarily Steward mortgage loans) made after September 30, 2016. These increases werecompared to the prior year, partially offset by $21.6 million in less interest revenue earned in 2017 from loans that were repaid in 2016 (primarily from Capella Transaction) and $6.5 million of lower interest revenue relateda decrease due to the conversionA$730 million paydown of certain Prime facilities, valued at approximately $100 million, from mortgage loansour Australia term loan in the second quarter of 2023. Our weighted-average interest rate was 3.8% for the six months ended June 30, 2023 compared to direct financing leases post September 30, 2016.3.2% for the same period in 2022.
Real estate depreciation and amortization during the first ninesix months of 20172023 increased to $89.0$448.3 million from $67.9$169.7 million in the same period of 2016,2022. Of this increase, $286 million relates to accelerating the amortization of lease intangibles as part of the Steward Transaction as described in Note 3 to the condensed consolidated financial statements.
Property-related expenses totaled $31.8 million and $29.7 million for the six months ended June 30, 2023 and 2022, respectively. Of the property expenses in the first six months of 2023 and 2022, approximately $25.3 million and $24.6 million, respectively, represents costs (primarily property insurance premiums) that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.
General and administrative expenses totaled $77.3 million for the first six months of 2023 compared to $80.3 million in the same period of 2022, primarily due to a decrease in share-based compensation. The decrease in share-based compensation is a result of a $6.7 million cumulative benefit catch-up from adjusting the payout probability of certain performance awards, partially offset by an incremental depreciation$2.3 million of expense from the acceleration of stock awards for a retiring executive officer.
During the six months ended June 30, 2022, we completed the Macquarie Transaction in which we sold the 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 four other facilities and two ancillary properties acquired and the development properties completedresulting in 2016 and 2017. a net gain of $31 million.
In the 2016 secondfirst quarter of 2023, we acceleratedrecorded an $89.5 million net impairment charge, of which $79 million related to the amortizationAustralia Transaction and $11 million was a non-cash impairment charge on the three Prime properties as more fully described in Note 3 to the condensed consolidated financial statements. The impairment charge in the first six months of the lease intangible asset2022 related to our Corinth facility resultingWatsonville facility.
With the interest rate swap no longer classified as an effective cash flow hedge due to the Australia Transaction disclosed in $1.1Note 3 to the condensed consolidated financial statements, we expect some earnings volatility from marking the swap to fair value in future quarters until all of the related debt is extinguished.
Earnings from equity interests was $23.6 million of additional expense.
Property expenses for the first ninesix months of 2017 increased $2.4ended June 30, 2023, up $1.5 million compared to 2016.from the same period in 2022. This increase is primarily due to the reimbursement to us in the 2016 third quarteradditional income generated on our Massachusetts-based partnership with MAM entered into during March 2022, partially offset by higher interest costs from increasing interest rates at certain of our unconsolidated real estate joint ventures.
Debt refinancing and unutilized financing costs were $0.8 million byfor the tenantfirst six months 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 primarily2023, as a result of the MEDIANprepayment on the A$1.2 billion Australian term loan, compared to $9.4 million on the first six months of 2022, as a result of the termination of our $1 billion interim credit facility in March 2022 and Steward acquisitions in 2017, including $11.7the amendment of our Credit Facility (see Note 4 to the condensed consolidated financial statements for more detail).
Other expense for the first six months of 2023 was $15.7 million and included approximately $10.2 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 openingresponding to certain defamatory statements published by certain parties, including those who are defendants to a European office, compensation related to increased headcount and public company board expenses.
During the nine months ended Septemberlawsuit we filed on March 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 to2023. See Item 1 of this Form 10-QPart II 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 2016details on the lawsuit. This expense also includes $5.3approximately $4.3 million of acquisition expenses, representingunfavorable non-cash fair value adjustments on 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 comparedAevis and other investments marked 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)fair value during the first ninehalf of 2023. For the first six months of 2016. During the first nine months2022, we had other income of 2017, we incurred $18.8$16.8 million primarily from $9.0 million of debt refinancing charges relatedfavorable adjustments on our investment in Aevis and other investments marked 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).fair value.
Income tax expense 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. The $144.7 million income tax benefit for the ninesix months ended SeptemberJune 30, 2017 decreased2023 is primarily based on the $158 million benefit received by $390 thousand fromentering the same period in 2016 primarily due to $1.7United Kingdom REIT regime
36
and a $5.0 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 additionalthe first quarter of 2023 related to the expected sale of our Australia facilities. In comparison, we incurred $22.0 million in income tax expense fromin the first six months of 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 international investments, which were not realizedreview of all positive and negative evidence, including our three-year cumulative pre-tax book loss position in 2016 due tocertain entities, we concluded that a valuation allowance position. Theseof approximately $93 million should be reflected against certain of our international and domestic net deferred tax assets at June 30, 2023. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowances were releasedallowance, recognize an income tax benefit in the 2016 fourth quarter.period in which such determination is made, and potentially incur higher income tax expense in future periods as income is earned.
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.
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.
37
The following table presents a reconciliation of net (loss) income attributable to MPT common stockholders to FFO and Normalized FFO for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands except per share data):
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
FFO information: | ||||||||||||||||
Net income attributable to MPT common stockholders | $ | 76,464 | $ | 70,358 | $ | 217,849 | $ | 182,009 | ||||||||
Participating securities’ share in earnings | (82 | ) | (154 | ) | (307 | ) | (430 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income, less participating securities’ share in earnings | $ | 76,382 | $ | 70,204 | $ | 217,542 | $ | 181,579 | ||||||||
Depreciation and amortization | 32,618 | 24,374 | 90,744 | 69,181 | ||||||||||||
Gain on sale of real estate | (18 | ) | (44,515 | ) | (7,431 | ) | (67,168 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Funds from operations | $ | 108,982 | $ | 50,063 | $ | 300,855 | $ | 183,592 | ||||||||
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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Normalized funds from operations | $ | 120,562 | $ | 75,106 | $ | 340,116 | $ | 234,086 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Per diluted share data: | ||||||||||||||||
Net income, less participating securities’ share in earnings | $ | 0.21 | $ | 0.28 | $ | 0.63 | $ | 0.75 | ||||||||
Depreciation and amortization | 0.09 | 0.10 | 0.26 | 0.29 | ||||||||||||
Gain on sale of real estate | — | (0.18 | ) | (0.02 | ) | (0.28 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Funds from operations | $ | 0.30 | $ | 0.20 | $ | 0.87 | $ | 0.76 | ||||||||
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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Normalized funds from operations | $ | 0.33 | $ | 0.30 | $ | 0.98 | $ | 0.97 | ||||||||
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
FFO information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income attributable to MPT common stockholders |
| $ | (42,037 | ) |
| $ | 189,597 |
|
| $ | (9,243 | ) |
| $ | 821,278 |
|
Participating securities’ share in earnings |
|
| (469 | ) |
|
| (345 | ) |
|
| (984 | ) |
|
| (747 | ) |
Net (loss) income, less participating securities’ share in earnings |
| $ | (42,506 | ) |
| $ | 189,252 |
|
| $ | (10,227 | ) |
| $ | 820,531 |
|
Depreciation and amortization |
|
| 382,244 |
|
|
| 101,976 |
|
|
| 484,204 |
|
|
| 201,435 |
|
Gain on sale of real estate |
|
| (167 | ) |
|
| (16,355 | ) |
|
| (229 | ) |
|
| (467,993 | ) |
Real estate impairment charges |
|
| — |
|
|
| — |
|
|
| 52,104 |
|
|
| — |
|
Funds from operations |
| $ | 339,571 |
|
| $ | 274,873 |
|
| $ | 525,852 |
|
| $ | 553,973 |
|
Write-off (recovery) of unbilled rent and other |
|
| 95,642 |
|
|
| 1,943 |
|
|
| 135,268 |
|
|
| (328 | ) |
Other impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,875 |
|
Litigation and other |
|
| 2,502 |
|
|
| — |
|
|
| 10,228 |
|
|
| — |
|
Share-based compensation adjustments |
|
| (4,363 | ) |
|
| (966 | ) |
|
| (4,363 | ) |
|
| (966 | ) |
Non-cash fair value adjustments |
|
| 8,374 |
|
|
| (943 | ) |
|
| 4,253 |
|
|
| (8,966 | ) |
Tax rate changes and other |
|
| (157,230 | ) |
|
| (825 | ) |
|
| (164,535 | ) |
|
| (825 | ) |
Debt refinancing and unutilized financing costs |
|
| 816 |
|
|
| 619 |
|
|
| 816 |
|
|
| 9,435 |
|
Normalized funds from operations |
| $ | 285,312 |
|
| $ | 274,701 |
|
| $ | 507,519 |
|
| $ | 557,198 |
|
Per diluted share data: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income, less participating securities’ share in earnings |
| $ | (0.07 | ) |
| $ | 0.32 |
|
| $ | (0.02 | ) |
| $ | 1.37 |
|
Depreciation and amortization |
|
| 0.64 |
|
|
| 0.17 |
|
|
| 0.81 |
|
|
| 0.33 |
|
Gain on sale of real estate |
|
| — |
|
|
| (0.03 | ) |
|
| — |
|
|
| (0.78 | ) |
Real estate impairment charges |
|
| — |
|
|
| — |
|
|
| 0.09 |
|
|
| — |
|
Funds from operations |
| $ | 0.57 |
|
| $ | 0.46 |
|
| $ | 0.88 |
|
| $ | 0.92 |
|
Write-off (recovery) of unbilled rent and other |
|
| 0.16 |
|
|
| — |
|
|
| 0.23 |
|
|
| — |
|
Other impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Litigation and other |
|
| — |
|
|
| — |
|
|
| 0.01 |
|
|
| — |
|
Share-based compensation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Non-cash fair value adjustments |
|
| 0.01 |
|
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
Tax rate changes and other |
|
| (0.26 | ) |
|
| — |
|
|
| (0.27 | ) |
|
| — |
|
Debt refinancing and unutilized financing costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.02 |
|
Normalized funds from operations |
| $ | 0.48 |
|
| $ | 0.46 |
|
| $ | 0.85 |
|
| $ | 0.93 |
|
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 six months ended September 30, 2017,of 2023, we generated $219.9approximately $212.2 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 and borrowings on our revolving credit facility) to fund our dividends of $350.3 million.
In regard to other investing and financing activities in the first six months of 2023, we did the following:
See Note 3 to the condensed consolidated financial statements for further details on the transactions above.
Subsequent to quarter-end, we received $100 million from the sale of three properties to Prime. In addition, we agreed to participate in Steward's syndicated four-year asset-backed credit facility and funded approximately $140 million.
38
2022 Cash Flow Activity
During the first half of 2022, we generated approximately $344.0 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 $239.2$350.5 million.
Certain investing and financing activities in 2017 included:
a) On February 1, 2017, During the first six months of 2022, we replaced our credit facility with a new facility resulting in a $50 million reduction in our U.S. dollar 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 usingreceived approximately $1.8 billion of proceeds from disposals (including the Macquarie Transaction as described in Note 3 to the condensed consolidated financial statements). We used these proceeds, along with additional advances from our €200 million term loan and cash on hand;
c) On March 24, 2017, we completed a €500 million senior unsecured notes offering and used a portion of the proceedsrevolver, to pay off our €200interim credit facility, fund $0.8 billion of new acquisitions, and make other investments. We exercised the $500 million term loan, and the remaining proceeds were usedaccordion feature 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 from our revolving credit facility were used to acquire 11 facilitiesduring the first six months of 2022 and ancillary properties leased to Steward for $1.4 billionextended the term on both the revolver and to make a $100 million equity investment in Steward; and
g) On September 29, 2017, we prepaidterm loan portions of our Northland mortgage loan in the amount of $12.9 million.
2016 Cash Flow Activity
During the nine months ended September 30, 2016, we generated $168.3 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 million and certain investing activities.
In regards to other financing activities, to, delever and finance the Steward acquisition in October 2016, 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 Credit Facility - see Note 3 to Item 1 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 $19 million, and we incurred a one-time charge of $22.5 million related4 to the redemption (see Note 4 to Item 1 of this Form 10-Qcondensed consolidated financial statements for further details).additional details.
f) On July 20, 2016, we sold three facilities leased 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) through 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
Our short-term liquidity requirements typically consist 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 revolving 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 under our revolving credit facility plus cash on-hand approximated $0.7 billion. We believe this liquiditygeneral 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, andadministrative expenses, dividends in order to comply with REIT requirements, interest payments on our debt, and planned funding commitments on development and capital improvement projects, for which we receive a return in the form of additional rent once completed. Our monthly rent and interest receipts and distributions from our joint venture arrangements are typically enough to cover our short-term liquidity requirements.
However, with increasing interest rates, loss of cash rent from Prospect for the next twelve months.time being, a bond maturing in December 2023 of approximately $500 million, and a term loan maturing in May 2024 of approximately $315 million, we have looked to other initiatives to improve cash flows including:
With these initiatives, liquidity of approximately $0.8 billion (including cash on-hand and availability under our revolving credit facility) at August 4, 2023, and routine cash receipts of rent and interest, we believe we can fund our short-term liquidity requirements.
Long-term Liquidity Requirements: Exclusive
Our long-term liquidity requirements generally consist of the revolving credit facility (which we can extend for an additional year to February
2022)same requirements described above under “Short-term Liquidity Requirements” along with the acquisition of real estate and after the redemptionfunding of the $350 million 6.375% Senior Unsecured Notes due 2022,debt maturities. At this time, we do not haveexpect any material acquisitions of real estate in the foreseeable future; however, see below for our debt principal paymentsthat is coming due over the next five years (see debt maturity schedule below). Withyears.
As described previously, our liquidity at November 3, 2017 of approximately $0.7 billionmonthly rent and interest receipts and distributions from our joint venture arrangements along with our current monthly cash receipts from rent and loan interest, we believe we have the liquidity availableof approximately $0.8 billion at August 4, 2023, are typically enough to uscover our short-term liquidity requirements. However, to fund our operations, debt and interest obligations, dividends in order to comply with REIT requirements, and the expected funding requirements on our development projects currently.
However, in order to fund our investment strategies, while maintaining a prudent leverage ratio, and to fundaddress upcoming debt maturities coming due in 2022 and later years, additional capital will be needed, and we believe the following sources of capital are generally available in the market andor to make any new strategic investments, we may accessneed to look to other sources, which may include one or a combination of them:
the following:
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, principal39
Principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) as of August 4, 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 |
| $ | 509,960 |
|
2024 |
|
| 442,463 |
|
2025 |
|
| 1,442,730 |
|
2026 |
|
| 3,164,399 |
|
2027 |
|
| 1,600,000 |
|
Thereafter |
|
| 3,411,155 |
|
Total |
| $ | 10,570,707 |
|
Disclosure of Contractual ObligationsCommitments
We presented our contractual obligationscommitments in our 2022 Annual Report on Form 10-K10-K. Except for changes noted below, there have been no significant changes through August 4, 2023. Excluded from this table is $50 million of unused loan to Prospect as part of the fiscal year ended December 31, 2016. ForProspect Transaction discussed in Note 3 to the nine months ended September 30, 2017, 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.condensed consolidated financial statements.
The following table updates our contractual obligationscommitments schedule for the debt activity, described above, for the nine months ended September 30, 2017 along with the post September 30, 2017 early redemptionthese updates as of our 6.375% Senior Unsecured Notes due 2022August 4, 2023 (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
Contractual Commitments |
| 2023(1) |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
|
| Total |
| |||||||
Purchase obligations |
| $ | 159,529 |
|
| $ | 235,837 |
|
| $ | 27,946 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 423,312 |
|
Revolving credit facility |
|
| 40,816 |
|
|
| 99,959 |
|
|
| 99,959 |
|
|
| 1,526,350 |
|
|
| — |
|
|
| — |
|
|
| 1,767,084 |
|
Australian term loan facility |
|
| 3,592 |
|
|
| 312,262 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 315,854 |
|
Distribution Policy
The table below is a summary of our distributions declared during the two year period ended SeptemberJune 30, 2017:2023:
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 |
| |
April 27, 2023 |
| June 15, 2023 |
| July 13, 2023 |
| $ | 0.29 |
|
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 |
|
We intend to pay 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 gains on the sale of securities. 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.
40
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.
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 SeptemberJune 30, 2017,2023, our outstanding debt totaled $4.8$10.2 billion, which consisted of fixed-rate debt of $4.2approximately $8.8 billion (after considering interest rate swaps in-place) and variable rate debt of $0.6$1.4 billion. If market interest rates increase by 1%10%, the fair value of our debt at SeptemberJune 30, 20172023 would decrease by $8.0approximately $221.4 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$8.9 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$8.9 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $0.6$1.4 billion, the balance of such variable rate debt at SeptemberJune 30, 2017.2023.
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(1) |
|
| FFO Impact(1) |
|
| NFFO Impact |
| |||
British pound (£) |
| $ | 9,919 |
|
| $ | 19,250 |
|
| $ | 19,250 |
|
Euro (€) |
|
| 2,186 |
|
|
| 6,601 |
|
|
| 6,605 |
|
Swiss franc (CHF) |
|
| 2,681 |
|
|
| 5,050 |
|
|
| 4,051 |
|
Colombian peso (COP) |
|
| 1,368 |
|
|
| 1,435 |
|
|
| 1,435 |
|
We have excluded the foreign currency sensitivity around Australian dollars in 2017the table above due to the Australia Transaction as described in Note 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
41
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.
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.
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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 ("Viceroy") 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. On June 29, 2023, we won a preliminary ruling in this lawsuit after Viceroy's motion to dismiss the case was denied by a judge in the United States District Court for the Northern District of Alabama.
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 |
| ||||
April 1-April 30, 2023 |
|
| 17 |
|
| $ | 8.08 |
|
|
| — |
|
| $ | 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.
43
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the three months ended June 30, 2023, none of the collateral, which may not cover anyCompany's directors or all of our losses. If we are ultimately required to find one or more tenant-operators to lease one or more properties currently leased by such tenant, we may face delays and increased costsofficers (as defined in locating a suitable replacement tenant. The protections that we have in place to protect against such failure or delay, which can include letters of credit, cross default provisions, parent guarantees, repair reserves and the right to exercise remedies including the terminationRule 16a-1(f) of the leaseSecurities and replacementExchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of the operator, may prove to be insufficient, in whole or in part, or may entail further delays. In instances where we have an equity investment in our tenant’s operations, in addition to the effect on these tenants’ ability to meet their financial obligation to us, our ownership and investment interests may also be negatively impacted.Regulation S-K).
44
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.
45
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 | |||
Senior 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 | ||
Senior 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: NovemberAugust 9, 2017
46
47