UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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, 2017,2023, Medical Properties Trust, Inc. had 364,156,080599.0 million shares of common stock, par value $0.001, outstanding.
EXPLANATORY NOTE
This report combines the Quarterly Reports on Form 10-Q for the three and nine months ended September 30, 2017,2023 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 SEPTEMBERSeptember 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 |
| September 30, |
|
| December 31, |
| |||||||||
(In thousands, except per share amounts) | (Unaudited) | (Note 2) |
| (Unaudited) |
|
| (Note 2) |
| ||||||||
Assets |
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|
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|
| ||||||||||
Real estate assets |
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|
|
|
|
| ||||||||||
Land, buildings and improvements, intangible lease assets, and other | $ | 5,795,286 | $ | 4,317,866 |
| $ | 13,042,260 |
|
| $ | 13,862,415 |
| ||||
Investment in financing leases |
|
| 1,233,336 |
|
|
| 1,691,323 |
| ||||||||
Real estate held for sale |
|
| 290,321 |
|
|
| — |
| ||||||||
Mortgage loans | 1,777,555 | 1,060,400 |
|
| 302,476 |
|
|
| 364,101 |
| ||||||
Net investment in direct financing leases | 695,829 | 648,102 | ||||||||||||||
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| |||||||||||||||
Gross investment in real estate assets | 8,268,670 | 6,026,368 |
|
| 14,868,393 |
|
|
| 15,917,839 |
| ||||||
Accumulated depreciation and amortization | (418,880 | ) | (325,125 | ) |
|
| (1,315,223 | ) |
|
| (1,193,312 | ) | ||||
|
| |||||||||||||||
Net investment in real estate assets | 7,849,790 | 5,701,243 |
|
| 13,553,170 |
|
|
| 14,724,527 |
| ||||||
Cash and cash equivalents | 188,224 | 83,240 |
|
| 340,058 |
|
|
| 235,668 |
| ||||||
Interest and rent receivables | 105,817 | 57,698 | ||||||||||||||
Interest and rent receivables, net |
|
| 195,559 |
|
|
| 167,035 |
| ||||||||
Straight-line rent receivables | 166,142 | 116,861 |
|
| 788,761 |
|
|
| 787,166 |
| ||||||
Investments in unconsolidated real estate joint ventures |
|
| 1,461,725 |
|
|
| 1,497,903 |
| ||||||||
Investments in unconsolidated operating entities |
|
| 1,843,847 |
|
|
| 1,444,872 |
| ||||||||
Other loans | 151,709 | 155,721 |
|
| 263,471 |
|
|
| 227,839 |
| ||||||
Other assets | 465,358 | 303,773 |
|
| 558,291 |
|
|
| 572,990 |
| ||||||
|
| |||||||||||||||
Total Assets | $ | 8,927,040 | $ | 6,418,536 |
| $ | 19,004,882 |
|
| $ | 19,658,000 |
| ||||
|
| |||||||||||||||
Liabilities and Equity |
|
|
|
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|
| ||||||||||
Liabilities |
|
|
|
|
|
| ||||||||||
Debt, net | $ | 4,832,264 | $ | 2,909,341 |
| $ | 10,157,079 |
|
| $ | 10,268,412 |
| ||||
Accounts payable and accrued expenses | 180,631 | 207,711 |
|
| 375,888 |
|
|
| 621,324 |
| ||||||
Deferred revenue | 18,906 | 19,933 |
|
| 32,280 |
|
|
| 27,727 |
| ||||||
Lease deposits and other obligations to tenants | 54,035 | 28,323 | ||||||||||||||
|
| |||||||||||||||
Obligations to tenants and other lease liabilities |
|
| 154,218 |
|
|
| 146,130 |
| ||||||||
Total Liabilities | 5,085,836 | 3,165,308 |
|
| 10,719,465 |
|
|
| 11,063,593 |
| ||||||
Equity |
|
|
|
|
|
| ||||||||||
Preferred stock, $0.001 par value. Authorized 10,000 shares; no shares outstanding | — | — | ||||||||||||||
Common stock, $0.001 par value. Authorized 500,000 shares; issued and outstanding — 364,084 shares at September 30, 2017 and 320,514 shares at December 31, 2016 | 364 | 321 | ||||||||||||||
Additional paid in capital | 4,330,495 | 3,775,336 | ||||||||||||||
Distributions in excess of net income | (468,473 | ) | (434,114 | ) | ||||||||||||
Preferred stock, $0.001 par value. Authorized 10,000 shares; |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.001 par value. Authorized 750,000 shares; |
|
| 598 |
|
|
| 597 |
| ||||||||
Additional paid-in capital |
|
| 8,558,768 |
|
|
| 8,535,140 |
| ||||||||
Retained (deficit) earnings |
|
| (215,058 | ) |
|
| 116,285 |
| ||||||||
Accumulated other comprehensive loss | (35,165 | ) | (92,903 | ) |
|
| (59,778 | ) |
|
| (59,184 | ) | ||||
Treasury shares, at cost | (777 | ) | (262 | ) | ||||||||||||
|
| |||||||||||||||
Total Medical Properties Trust, Inc. Stockholders’ Equity | 3,826,444 | 3,248,378 | ||||||||||||||
Total Medical Properties Trust, Inc. stockholders’ equity |
|
| 8,284,530 |
|
|
| 8,592,838 |
| ||||||||
Non-controlling interests | 14,760 | 4,850 |
|
| 887 |
|
|
| 1,569 |
| ||||||
|
| |||||||||||||||
Total Equity | 3,841,204 | 3,253,228 |
|
| 8,285,417 |
|
|
| 8,594,407 |
| ||||||
|
| |||||||||||||||
Total Liabilities and Equity | $ | 8,927,040 | $ | 6,418,536 |
| $ | 19,004,882 |
|
| $ | 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 | ||||||||||||
|
|
|
|
|
|
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| |||||||||
Dividends declared per common share | $ | 0.24 | $ | 0.23 | $ | 0.72 | $ | 0.68 | ||||||||
|
|
|
|
|
|
|
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
(In thousands, except per share amounts) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| ||||
Rent billed | $ | 229,306 |
|
| $ | 232,418 |
|
| $ | 724,954 |
|
| $ | 737,029 |
|
Straight-line rent |
| 21,511 |
|
|
| 26,552 |
|
|
| 38,875 |
|
|
| 146,114 |
|
Income from financing leases |
| 26,066 |
|
|
| 51,011 |
|
|
| 107,729 |
|
|
| 154,660 |
|
Interest and other income |
| 29,693 |
|
|
| 42,358 |
|
|
| 122,624 |
|
|
| 124,562 |
|
Total revenues |
| 306,576 |
|
|
| 352,339 |
|
|
| 994,182 |
|
|
| 1,162,365 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest |
| 106,709 |
|
|
| 88,076 |
|
|
| 308,833 |
|
|
| 266,989 |
|
Real estate depreciation and amortization |
| 77,802 |
|
|
| 81,873 |
|
|
| 526,065 |
|
|
| 251,523 |
|
Property-related |
| 6,483 |
|
|
| 8,265 |
|
|
| 38,269 |
|
|
| 37,998 |
|
General and administrative |
| 38,110 |
|
|
| 37,319 |
|
|
| 115,438 |
|
|
| 117,601 |
|
Total expenses |
| 229,104 |
|
|
| 215,533 |
|
|
| 988,605 |
|
|
| 674,111 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| ||||
(Loss) gain on sale of real estate |
| (20 | ) |
|
| 68,795 |
|
|
| 209 |
|
|
| 536,788 |
|
Real estate and other impairment (charges) recovery |
| (3,750 | ) |
|
| 19,450 |
|
|
| (93,288 | ) |
|
| 14,575 |
|
Earnings from equity interests |
| 11,264 |
|
|
| 11,483 |
|
|
| 34,840 |
|
|
| 33,606 |
|
Debt refinancing and unutilized financing benefit (costs) |
| 862 |
|
|
| (17 | ) |
|
| 46 |
|
|
| (9,452 | ) |
Other (including fair value adjustments on securities) |
| 41,125 |
|
|
| 4,082 |
|
|
| 25,447 |
|
|
| 20,875 |
|
Total other income (expense) |
| 49,481 |
|
|
| 103,793 |
|
|
| (32,746 | ) |
|
| 596,392 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income tax |
| 126,953 |
|
|
| 240,599 |
|
|
| (27,169 | ) |
|
| 1,084,646 |
|
Income tax (expense) benefit |
| (10,058 | ) |
|
| (18,579 | ) |
|
| 134,661 |
|
|
| (40,615 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| 116,895 |
|
|
| 222,020 |
|
|
| 107,492 |
|
|
| 1,044,031 |
|
Net income attributable to non-controlling interests |
| (185 | ) |
|
| (227 | ) |
|
| (25 | ) |
|
| (960 | ) |
Net income attributable to MPT common | $ | 116,710 |
|
| $ | 221,793 |
|
| $ | 107,467 |
|
| $ | 1,043,071 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per common share — basic and diluted |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income attributable to MPT common stockholders | $ | 0.19 |
|
| $ | 0.37 |
|
| $ | 0.18 |
|
| $ | 1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding — basic |
| 598,444 |
|
|
| 598,980 |
|
|
| 598,363 |
|
|
| 598,828 |
|
Weighted average shares outstanding — diluted |
| 598,553 |
|
|
| 599,339 |
|
|
| 598,406 |
|
|
| 599,099 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dividends declared per common share | $ | 0.15 |
|
| $ | 0.29 |
|
| $ | 0.73 |
|
| $ | 0.87 |
|
See accompanying notes to condensed consolidated financial statements.
4
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
| For the Three Months |
|
| For the Nine Months |
| |||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||
Net income | $ | 76,881 | $ | 70,543 | $ | 218,862 | $ | 182,692 |
| $ | 116,895 |
|
| $ | 222,020 |
|
| $ | 107,492 |
|
| $ | 1,044,031 |
| ||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Unrealized gain on interest rate swap | — | 854 | — | 2,494 | ||||||||||||||||||||||||||||
Foreign currency translation gain | 17,426 | 4,450 | 57,738 | 10,354 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Unrealized (loss) gain on interest rate swaps, net of tax |
|
| (12,440 | ) |
|
| 52,975 |
|
|
| (9,845 | ) |
|
| 123,827 |
| ||||||||||||||||
Reclassification of interest rate swap gain from AOCI, net |
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
| ||||||||||||||||
Foreign currency translation (loss) gain |
|
| (54,018 | ) |
|
| (108,845 | ) |
|
| 34,570 |
|
|
| (226,401 | ) | ||||||||||||||||
Reclassification of foreign currency translation loss from |
|
| — |
|
|
| — |
|
|
| 3,234 |
|
|
| — |
| ||||||||||||||||
Total comprehensive income | 94,307 | 75,847 | 276,600 | 195,540 |
|
| 50,437 |
|
|
| 166,150 |
|
|
| 106,898 |
|
|
| 941,457 |
| ||||||||||||
Comprehensive income attributable to non-controlling interests | (417 | ) | (185 | ) | (1,013 | ) | (683 | ) |
|
| (185 | ) |
|
| (227 | ) |
|
| (25 | ) |
|
| (960 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Comprehensive income attributable to MPT common stockholders | $ | 93,890 | $ | 75,662 | $ | 275,587 | $ | 194,857 |
| $ | 50,252 |
|
| $ | 165,923 |
|
| $ | 106,873 |
|
| $ | 940,497 |
| ||||||||
|
|
|
|
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 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 116,710 |
|
|
| — |
|
|
| 185 |
|
|
| 116,895 |
|
Unrealized loss on interest rate swaps, |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,440 | ) |
|
| — |
|
|
| (12,440 | ) |
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (54,018 | ) |
|
| — |
|
|
| (54,018 | ) |
Stock vesting and amortization of |
|
| — |
|
|
| — |
|
|
| 156 |
|
|
| — |
|
|
| 11,453 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,453 |
|
Stock vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (56 | ) |
|
| — |
|
|
| (520 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (520 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (200 | ) |
|
| (200 | ) |
Dividends declared ($0.15 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (90,467 | ) |
|
| — |
|
|
| — |
|
|
| (90,467 | ) |
Balance at September 30, 2023 |
|
| — |
|
| $ | — |
|
|
| 598,444 |
|
| $ | 598 |
|
| $ | 8,558,768 |
|
| $ | (215,058 | ) |
| $ | (59,778 | ) |
| $ | 887 |
|
| $ | 8,285,417 |
|
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 Equity
(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 | ||||
|
|
|
|
|
| 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 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 221,793 |
|
|
| — |
|
|
| 227 |
|
|
| 222,020 |
|
Unrealized gain on interest rate swaps, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 52,975 |
|
|
| — |
|
|
| 52,975 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (108,845 | ) |
|
| — |
|
|
| (108,845 | ) |
Stock vesting and amortization of |
|
| — |
|
|
| — |
|
|
| 185 |
|
|
| — |
|
|
| 11,089 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,089 |
|
Stock vesting - satisfaction of tax |
|
| — |
|
|
| — |
|
|
| (41 | ) |
|
| — |
|
|
| (636 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (636 | ) |
Acquisition of non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,428 | ) |
|
| — |
|
|
| — |
|
|
| (4,594 | ) |
|
| (35,022 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (205 | ) |
|
| (205 | ) |
Dividends declared ($0.29 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (173,999 | ) |
|
| — |
|
|
| — |
|
|
| (173,999 | ) |
Balance at September 30, 2022 |
|
| — |
|
| $ | — |
|
|
| 598,983 |
|
| $ | 599 |
|
| $ | 8,537,145 |
|
| $ | 433,339 |
|
| $ | (139,301 | ) |
| $ | 1,466 |
|
| $ | 8,833,248 |
|
See accompanying notes to condensed consolidated financial statements.
7
MPT OPERATING PARTNERSHIP, L.P.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Net IncomeCash Flows
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
(In thousands, except per unit amounts) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | ||||||||||||||||
Rent billed | $ | 110,930 | $ | 82,387 | $ | 311,140 | $ | 234,408 | ||||||||
Straight-line rent | 17,505 | 9,741 | 46,561 | 26,509 | ||||||||||||
Income from direct financing leases | 19,115 | 14,678 | 55,307 | 47,181 | ||||||||||||
Interest and fee income | 29,030 | 19,749 | 86,776 | 79,756 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 176,580 | 126,555 | 499,784 | 387,854 | ||||||||||||
Expenses | ||||||||||||||||
Real estate depreciation and amortization | 31,915 | 23,876 | 88,994 | 67,850 | ||||||||||||
Impairment charges | — | (80 | ) | — | 7,295 | |||||||||||
Property-related | 1,519 | (93 | ) | 4,000 | 1,592 | |||||||||||
Acquisition expenses | 7,434 | 2,677 | 20,996 | 6,379 | ||||||||||||
General and administrative | 15,011 | 12,305 | 43,287 | 35,821 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 55,879 | 38,685 | 157,277 | 118,937 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income | 120,701 | 87,870 | 342,507 | 268,917 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (42,759 | ) | (40,262 | ) | (120,498 | ) | (121,132 | ) | ||||||||
Gain on sale of real estate and other asset dispositions, net | 18 | 44,616 | 7,431 | 61,294 | ||||||||||||
Earnings (loss) from equity and other interests | 3,384 | 1,245 | 7,898 | (2,556 | ) | |||||||||||
Unutilized financing fees/debt refinancing costs | (4,414 | ) | (22,535 | ) | (18,794 | ) | (22,539 | ) | ||||||||
Other income (expense) | 481 | 99 | 1,101 | (118 | ) | |||||||||||
Income tax expense | (530 | ) | (490 | ) | (783 | ) | (1,173 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net other expense | (43,820 | ) | (17,327 | ) | (123,645 | ) | (86,224 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income from continuing operations | 76,881 | 70,543 | 218,862 | 182,693 | ||||||||||||
Loss from discontinued operations | — | — | — | (1 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 76,881 | 70,543 | 218,862 | 182,692 | ||||||||||||
Net income attributable to non-controlling interests | (417 | ) | (185 | ) | (1,013 | ) | (683 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to MPT Operating Partnership partners | $ | 76,464 | $ | 70,358 | $ | 217,849 | $ | 182,009 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings per unit — basic | ||||||||||||||||
Income from continuing operations attributable to MPT Operating Partnership partners | $ | 0.21 | $ | 0.29 | $ | 0.63 | $ | 0.75 | ||||||||
Loss from discontinued operations attributable to MPT Operating Partnership partners | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to MPT Operating Partnership partners | $ | 0.21 | $ | 0.29 | $ | 0.63 | $ | 0.75 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average units outstanding — basic | 364,315 | 246,230 | 345,076 | 240,607 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings per unit — diluted | ||||||||||||||||
Income from continuing operations attributable to MPT Operating Partnership partners | $ | 0.21 | $ | 0.28 | $ | 0.63 | $ | 0.75 | ||||||||
Loss from discontinued operations attributable to MPT Operating Partnership partners | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to MPT Operating Partnership partners | $ | 0.21 | $ | 0.28 | $ | 0.63 | $ | 0.75 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average units outstanding — diluted | 365,046 | 247,468 | 345,596 | 241,432 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Dividends declared per unit | $ | 0.24 | $ | 0.23 | $ | 0.72 | $ | 0.68 | ||||||||
|
|
|
|
|
|
|
|
|
| For the Nine Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In thousands) |
| |||||
Operating activities |
|
|
|
|
|
| ||
Net income |
| $ | 107,492 |
|
| $ | 1,044,031 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 536,200 |
|
|
| 260,717 |
|
Amortization of deferred financing costs and debt discount |
|
| 11,978 |
|
|
| 13,123 |
|
Straight-line rent revenue and other |
|
| (174,202 | ) |
|
| (214,435 | ) |
Stock-based compensation |
|
| 29,719 |
|
|
| 33,001 |
|
Gain on sale of real estate |
|
| (209 | ) |
|
| (536,788 | ) |
Real estate and other impairment charges (recovery) |
|
| 93,288 |
|
|
| (14,575 | ) |
Straight-line rent and other write-off |
|
| 150,576 |
|
|
| 35,259 |
|
Debt refinancing and unutilized financing (benefit) costs |
|
| (46 | ) |
|
| 9,452 |
|
Tax rate changes and other |
|
| (164,535 | ) |
|
| 6,901 |
|
Non-cash revenue from debt and equity securities received |
|
| (81,706 | ) |
|
| — |
|
Other adjustments |
|
| (27,500 | ) |
|
| (2,136 | ) |
Changes in: |
|
|
|
|
|
| ||
Interest and rent receivables |
|
| (100,384 | ) |
|
| (68,929 | ) |
Other assets |
|
| (6,701 | ) |
|
| (7,551 | ) |
Accounts payable and accrued expenses |
|
| (6,279 | ) |
|
| 8,030 |
|
Deferred revenue |
|
| 2,677 |
|
|
| (8,185 | ) |
Net cash provided by operating activities |
|
| 370,368 |
|
|
| 557,915 |
|
Investing activities |
|
|
|
|
|
| ||
Cash paid for acquisitions and other related investments |
|
| (235,187 | ) |
|
| (972,243 | ) |
Net proceeds from sale of real estate |
|
| 589,420 |
|
|
| 2,185,574 |
|
Principal received on loans receivable |
|
| 499,549 |
|
|
| 52,317 |
|
Investment in loans receivable |
|
| (220,223 | ) |
|
| (179,542 | ) |
Construction in progress and other |
|
| (80,708 | ) |
|
| (97,783 | ) |
Proceeds from return of equity investment |
|
| 12,430 |
|
|
| 14,295 |
|
Capital additions and other investments, net |
|
| (217,940 | ) |
|
| (144,307 | ) |
Net cash provided by investing activities |
|
| 347,341 |
|
|
| 858,311 |
|
Financing activities |
|
|
|
|
|
| ||
Payments of term debt |
|
| (533,864 | ) |
|
| (869,606 | ) |
Revolving credit facility, net |
|
| 426,515 |
|
|
| (64,055 | ) |
Dividends paid |
|
| (524,155 | ) |
|
| (524,536 | ) |
Lease deposits and other obligations to tenants |
|
| 7,752 |
|
|
| (2,591 | ) |
Stock vesting - satisfaction of tax withholdings |
|
| (6,090 | ) |
|
| (29,457 | ) |
Debt refinancing, deferred financing costs, and other financing activities |
|
| 12,243 |
|
|
| (53,444 | ) |
Net cash used for financing activities |
|
| (617,599 | ) |
|
| (1,543,689 | ) |
Increase (decrease) in cash, cash equivalents, and restricted cash for period |
|
| 100,110 |
|
|
| (127,463 | ) |
Effect of exchange rate changes |
|
| 4,238 |
|
|
| (29,739 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 241,538 |
|
|
| 461,882 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 345,886 |
|
| $ | 304,680 |
|
Interest paid |
| $ | 322,006 |
|
| $ | 285,417 |
|
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 |
|
| 722,814 |
|
|
| — |
|
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
| ||
Dividends declared, unpaid |
| $ | 90,467 |
|
| $ | 173,999 |
|
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 |
| $ | 340,058 |
|
| $ | 299,171 |
|
Restricted cash, included in Other assets |
|
| 5,828 |
|
|
| 5,509 |
|
|
| $ | 345,886 |
|
| $ | 304,680 |
|
See accompanying notes to condensed consolidated financial statements.
8
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive IncomeBalance Sheets
(Unaudited)
|
| September 30, |
|
| December 31, |
| ||
(In thousands) |
| (Unaudited) |
|
| (Note 2) |
| ||
Assets |
|
|
|
|
|
| ||
Real estate assets |
|
|
|
|
|
| ||
Land, buildings and improvements, intangible lease assets, and other |
| $ | 13,042,260 |
|
| $ | 13,862,415 |
|
Investment in financing leases |
|
| 1,233,336 |
|
|
| 1,691,323 |
|
Real estate held for sale |
|
| 290,321 |
|
|
| — |
|
Mortgage loans |
|
| 302,476 |
|
|
| 364,101 |
|
Gross investment in real estate assets |
|
| 14,868,393 |
|
|
| 15,917,839 |
|
Accumulated depreciation and amortization |
|
| (1,315,223 | ) |
|
| (1,193,312 | ) |
Net investment in real estate assets |
|
| 13,553,170 |
|
|
| 14,724,527 |
|
Cash and cash equivalents |
|
| 340,058 |
|
|
| 235,668 |
|
Interest and rent receivables, net |
|
| 195,559 |
|
|
| 167,035 |
|
Straight-line rent receivables |
|
| 788,761 |
|
|
| 787,166 |
|
Investments in unconsolidated real estate joint ventures |
|
| 1,461,725 |
|
|
| 1,497,903 |
|
Investments in unconsolidated operating entities |
|
| 1,843,847 |
|
|
| 1,444,872 |
|
Other loans |
|
| 263,471 |
|
|
| 227,839 |
|
Other assets |
|
| 558,291 |
|
|
| 572,990 |
|
Total Assets |
| $ | 19,004,882 |
|
| $ | 19,658,000 |
|
Liabilities and Capital |
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||
Debt, net |
| $ | 10,157,079 |
|
| $ | 10,268,412 |
|
Accounts payable and accrued expenses |
|
| 284,262 |
|
|
| 444,354 |
|
Deferred revenue |
|
| 32,280 |
|
|
| 27,727 |
|
Obligations to tenants and other lease liabilities |
|
| 154,218 |
|
|
| 146,130 |
|
Payable due to Medical Properties Trust, Inc. |
|
| 91,236 |
|
|
| 176,580 |
|
Total Liabilities |
|
| 10,719,075 |
|
|
| 11,063,203 |
|
Capital |
|
|
|
|
|
| ||
General Partner — issued and outstanding — 5,986 units at |
|
| 83,521 |
|
|
| 86,599 |
|
Limited Partners — issued and outstanding — 592,458 units at |
|
| 8,261,177 |
|
|
| 8,565,813 |
|
Accumulated other comprehensive loss |
|
| (59,778 | ) |
|
| (59,184 | ) |
Total MPT Operating Partnership, L.P. capital |
|
| 8,284,920 |
|
|
| 8,593,228 |
|
Non-controlling interests |
|
| 887 |
|
|
| 1,569 |
|
Total Capital |
|
| 8,285,807 |
|
|
| 8,594,797 |
|
Total Liabilities and Capital |
| $ | 19,004,882 |
|
| $ | 19,658,000 |
|
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 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
9
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsNet 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 Nine Months |
| ||||||||||
(In thousands, except per unit amounts) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rent billed |
| $ | 229,306 |
|
| $ | 232,418 |
|
| $ | 724,954 |
|
| $ | 737,029 |
|
Straight-line rent |
|
| 21,511 |
|
|
| 26,552 |
|
|
| 38,875 |
|
|
| 146,114 |
|
Income from financing leases |
|
| 26,066 |
|
|
| 51,011 |
|
|
| 107,729 |
|
|
| 154,660 |
|
Interest and other income |
|
| 29,693 |
|
|
| 42,358 |
|
|
| 122,624 |
|
|
| 124,562 |
|
Total revenues |
|
| 306,576 |
|
|
| 352,339 |
|
|
| 994,182 |
|
|
| 1,162,365 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest |
|
| 106,709 |
|
|
| 88,076 |
|
|
| 308,833 |
|
|
| 266,989 |
|
Real estate depreciation and amortization |
|
| 77,802 |
|
|
| 81,873 |
|
|
| 526,065 |
|
|
| 251,523 |
|
Property-related |
|
| 6,483 |
|
|
| 8,265 |
|
|
| 38,269 |
|
|
| 37,998 |
|
General and administrative |
|
| 38,110 |
|
|
| 37,319 |
|
|
| 115,438 |
|
|
| 117,601 |
|
Total expenses |
|
| 229,104 |
|
|
| 215,533 |
|
|
| 988,605 |
|
|
| 674,111 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Loss) gain on sale of real estate |
|
| (20 | ) |
|
| 68,795 |
|
|
| 209 |
|
|
| 536,788 |
|
Real estate and other impairment (charges) recovery |
|
| (3,750 | ) |
|
| 19,450 |
|
|
| (93,288 | ) |
|
| 14,575 |
|
Earnings from equity interests |
|
| 11,264 |
|
|
| 11,483 |
|
|
| 34,840 |
|
|
| 33,606 |
|
Debt refinancing and unutilized financing benefit (costs) |
|
| 862 |
|
|
| (17 | ) |
|
| 46 |
|
|
| (9,452 | ) |
Other (including fair value adjustments on securities) |
|
| 41,125 |
|
|
| 4,082 |
|
|
| 25,447 |
|
|
| 20,875 |
|
Total other income (expense) |
|
| 49,481 |
|
|
| 103,793 |
|
|
| (32,746 | ) |
|
| 596,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before income tax |
|
| 126,953 |
|
|
| 240,599 |
|
|
| (27,169 | ) |
|
| 1,084,646 |
|
Income tax (expense) benefit |
|
| (10,058 | ) |
|
| (18,579 | ) |
|
| 134,661 |
|
|
| (40,615 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
| 116,895 |
|
|
| 222,020 |
|
|
| 107,492 |
|
|
| 1,044,031 |
|
Net income attributable to non-controlling interests |
|
| (185 | ) |
|
| (227 | ) |
|
| (25 | ) |
|
| (960 | ) |
Net income attributable to MPT Operating |
| $ | 116,710 |
|
| $ | 221,793 |
|
| $ | 107,467 |
|
| $ | 1,043,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per unit — basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income attributable to MPT Operating Partnership |
| $ | 0.19 |
|
| $ | 0.37 |
|
| $ | 0.18 |
|
| $ | 1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average units outstanding — basic |
|
| 598,444 |
|
|
| 598,980 |
|
|
| 598,363 |
|
|
| 598,828 |
|
Weighted average units outstanding — diluted |
|
| 598,553 |
|
|
| 599,339 |
|
|
| 598,406 |
|
|
| 599,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dividends declared per unit |
| $ | 0.15 |
|
| $ | 0.29 |
|
| $ | 0.73 |
|
| $ | 0.87 |
|
See accompanying notes to condensed consolidated financial statements.
10
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income |
| $ | 116,895 |
|
| $ | 222,020 |
|
| $ | 107,492 |
|
| $ | 1,044,031 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized (loss) gain on interest rate swaps, net of tax |
|
| (12,440 | ) |
|
| 52,975 |
|
|
| (9,845 | ) |
|
| 123,827 |
|
Reclassification of interest rate swap gain from AOCI, net |
|
| — |
|
|
| — |
|
|
| (28,553 | ) |
|
| — |
|
Foreign currency translation (loss) gain |
|
| (54,018 | ) |
|
| (108,845 | ) |
|
| 34,570 |
|
|
| (226,401 | ) |
Reclassification of foreign currency translation loss from |
|
| — |
|
|
| — |
|
|
| 3,234 |
|
|
| — |
|
Total comprehensive income |
|
| 50,437 |
|
|
| 166,150 |
|
|
| 106,898 |
|
|
| 941,457 |
|
Comprehensive income attributable to non-controlling interests |
|
| (185 | ) |
|
| (227 | ) |
|
| (25 | ) |
|
| (960 | ) |
Comprehensive income attributable to MPT Operating |
| $ | 50,252 |
|
| $ | 165,923 |
|
| $ | 106,873 |
|
| $ | 940,497 |
|
See accompanying notes to condensed consolidated financial statements.
11
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 |
|
Net income |
|
| — |
|
|
| 1,167 |
|
|
| — |
|
|
| 115,543 |
|
|
| — |
|
|
| 185 |
|
|
| 116,895 |
|
Unrealized loss on interest rate swaps, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,440 | ) |
|
| — |
|
|
| (12,440 | ) |
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (54,018 | ) |
|
| — |
|
|
| (54,018 | ) |
Unit vesting and amortization of unit-based |
|
| 2 |
|
|
| 115 |
|
|
| 154 |
|
|
| 11,338 |
|
|
| — |
|
|
| — |
|
|
| 11,453 |
|
Unit vesting - satisfaction of tax |
|
| (1 | ) |
|
| (5 | ) |
|
| (55 | ) |
|
| (515 | ) |
|
| — |
|
|
| — |
|
|
| (520 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (200 | ) |
|
| (200 | ) |
Distributions declared ($0.15 per unit) |
|
| — |
|
|
| (905 | ) |
|
| — |
|
|
| (89,562 | ) |
|
| — |
|
|
| — |
|
|
| (90,467 | ) |
Balance at September 30, 2023 |
|
| 5,986 |
|
| $ | 83,521 |
|
|
| 592,458 |
|
| $ | 8,261,177 |
|
| $ | (59,778 | ) |
| $ | 887 |
|
| $ | 8,285,807 |
|
See accompanying notes to condensed consolidated financial statements.
12
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, 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 |
|
Net income |
|
| — |
|
|
| 2,218 |
|
|
| — |
|
|
| 219,575 |
|
|
| — |
|
|
| 227 |
|
|
| 222,020 |
|
Unrealized gain on interest rate swaps, |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 52,975 |
|
|
| — |
|
|
| 52,975 |
|
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (108,845 | ) |
|
| — |
|
|
| (108,845 | ) |
Unit vesting and amortization of unit-based |
|
| 2 |
|
|
| 111 |
|
|
| 183 |
|
|
| 10,978 |
|
|
| — |
|
|
| — |
|
|
| 11,089 |
|
Unit vesting - satisfaction of tax |
|
| — |
|
|
| (6 | ) |
|
| (41 | ) |
|
| (630 | ) |
|
| — |
|
|
| — |
|
|
| (636 | ) |
Acquisition of non-controlling interest |
|
| — |
|
|
| (304 | ) |
|
| — |
|
|
| (30,124 | ) |
|
| — |
|
|
| (4,594 | ) |
|
| (35,022 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (205 | ) |
|
| (205 | ) |
Distributions declared ($0.29 per unit) |
|
| — |
|
|
| (1,740 | ) |
|
| — |
|
|
| (172,259 | ) |
|
| — |
|
|
| — |
|
|
| (173,999 | ) |
Balance at September 30, 2022 |
|
| 5,990 |
|
| $ | 89,790 |
|
|
| 592,993 |
|
| $ | 8,881,683 |
|
| $ | (139,301 | ) |
| $ | 1,466 |
|
| $ | 8,833,638 |
|
See accompanying notes to condensed consolidated financial statements.
13
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the Nine Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (In thousands) |
| |||||
Operating activities |
|
|
|
|
|
| ||
Net income |
| $ | 107,492 |
|
| $ | 1,044,031 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 536,200 |
|
|
| 260,717 |
|
Amortization of deferred financing costs and debt discount |
|
| 11,978 |
|
|
| 13,123 |
|
Straight-line rent revenue and other |
|
| (174,202 | ) |
|
| (214,435 | ) |
Unit-based compensation |
|
| 29,719 |
|
|
| 33,001 |
|
Gain on sale of real estate |
|
| (209 | ) |
|
| (536,788 | ) |
Real estate and other impairment charges (recovery) |
|
| 93,288 |
|
|
| (14,575 | ) |
Straight-line rent and other write-off |
|
| 150,576 |
|
|
| 35,259 |
|
Debt refinancing and unutilized financing (benefit) costs |
|
| (46 | ) |
|
| 9,452 |
|
Tax rate changes and other |
|
| (164,535 | ) |
|
| 6,901 |
|
Non-cash revenue from debt and equity securities received |
|
| (81,706 | ) |
|
| — |
|
Other adjustments |
|
| (27,500 | ) |
|
| (2,136 | ) |
Changes in: |
|
|
|
|
|
| ||
Interest and rent receivables |
|
| (100,384 | ) |
|
| (68,929 | ) |
Other assets |
|
| (6,701 | ) |
|
| (7,551 | ) |
Accounts payable and accrued expenses |
|
| (6,279 | ) |
|
| 8,030 |
|
Deferred revenue |
|
| 2,677 |
|
|
| (8,185 | ) |
Net cash provided by operating activities |
|
| 370,368 |
|
|
| 557,915 |
|
Investing activities |
|
|
|
|
|
| ||
Cash paid for acquisitions and other related investments |
|
| (235,187 | ) |
|
| (972,243 | ) |
Net proceeds from sale of real estate |
|
| 589,420 |
|
|
| 2,185,574 |
|
Principal received on loans receivable |
|
| 499,549 |
|
|
| 52,317 |
|
Investment in loans receivable |
|
| (220,223 | ) |
|
| (179,542 | ) |
Construction in progress and other |
|
| (80,708 | ) |
|
| (97,783 | ) |
Proceeds from return of equity investments |
|
| 12,430 |
|
|
| 14,295 |
|
Capital additions and other investments, net |
|
| (217,940 | ) |
|
| (144,307 | ) |
Net cash provided by investing activities |
|
| 347,341 |
|
|
| 858,311 |
|
Financing activities |
|
|
|
|
|
| ||
Payments of term debt |
|
| (533,864 | ) |
|
| (869,606 | ) |
Revolving credit facility, net |
|
| 426,515 |
|
|
| (64,055 | ) |
Distributions paid |
|
| (524,155 | ) |
|
| (524,536 | ) |
Lease deposits and other obligations to tenants |
|
| 7,752 |
|
|
| (2,591 | ) |
Unit vesting - satisfaction of tax withholdings |
|
| (6,090 | ) |
|
| (29,457 | ) |
Debt refinancing, deferred financing costs, and other financing activities |
|
| 12,243 |
|
|
| (53,444 | ) |
Net cash used for financing activities |
|
| (617,599 | ) |
|
| (1,543,689 | ) |
Increase (decrease) in cash, cash equivalents, and restricted cash for period |
|
| 100,110 |
|
|
| (127,463 | ) |
Effect of exchange rate changes |
|
| 4,238 |
|
|
| (29,739 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 241,538 |
|
|
| 461,882 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 345,886 |
|
| $ | 304,680 |
|
Interest paid |
| $ | 322,006 |
|
| $ | 285,417 |
|
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 |
|
| 722,814 |
|
|
| — |
|
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
| ||
Distributions declared, unpaid |
| $ | 90,467 |
|
| $ | 173,999 |
|
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 |
| $ | 340,058 |
|
| $ | 299,171 |
|
Restricted cash, included in Other assets |
|
| 5,828 |
|
|
| 5,509 |
|
|
| $ | 345,886 |
|
| $ | 304,680 |
|
See accompanying notes to condensed consolidated financial statements.
14
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, as of July 1, 2023, the majority of our real estate operations in the United Kingdom ("U.K.") 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 bein the U.S. are 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 as of 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 September 30, 2023, we have investments in 441 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 periodsmonths ended September 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 September 30, 2023 (particularly as it relates to our assessments of the recoverability of our real estate, the ability of our tenants to make lease payments in accordance with lease agreements (especially for
15
those classified as operating leases), the fair value of our equity and convertible loan investments, and the adequacy of our credit loss reserves on loans and financing receivables). However, 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.
For information about significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. During the nine months ended September 30, 2017, there were2022. There have been no material changes to these significant accounting policies.
Reclassifications
Recent Accounting Developments:
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. This standard is effective for us beginning January 1, 2018, and we plan to adopt under the modified retrospective approach. We do not expect this standard to have a significant impact on our financial results upon adoption, as a substantial portion of our revenue consists of rental income from leasing arrangements and interest income from loans, which are specifically excluded from ASU No. 2014-09. Under ASU No. 2014-09, we do expect more transactions to qualify as sales of real estate with gains on sales being recognized earlier than under current accounting guidance, as the new guidance is based on transfer of control versus whether or not the seller has continuing involvement. Thus, we expect to record an approximate $2 million adjustment to retained earnings upon adoption of ASU No. 2014-09 to fully recognize a gain on real estate sold in prior years that was required to be deferred under existing accounting guidance.
Clarifying the Definition of a Business
In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 provide an initial screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, in which case, the transaction would be accounted for as an asset acquisition rather than as a business combination. In addition, ASU 2017-01 clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. A reporting entity must apply the amendments in ASU 2017-01 using a prospective approach. We will adopt ASU 2017-01 on January 1, 2018 for our 2018 fiscal year. Upon adoption, we expect to recognize a majority of our real estate acquisitions as asset transactions rather than business combinations, which will resultCertain amounts in the capitalization of third party transaction costs that are directly relatedcondensed consolidated financial statements for prior periods have been reclassified to an acquisition. Indirect and internal transaction costs will continueconform to be expensed, but we do not expect to include these costs as an adjustment in deriving normalized funds from operations in the future. We expect this change in accounting, once adopted, may decrease our normalized funds from operations by $1 million to $2 million per quarter.current period presentation.
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.
We expect to adopt this new standard on January 1, 2019. We are continuing to evaluate this standard and the impact to us from both a lessor and lessee perspective. However, we do have leases in which we are the lessee, including ground leases, on which certain of our facilities reside, along with corporate office and equipment leases, that will be required to be recorded on our balance sheet upon adoption of this standard. From a lessor perspective, we do expect certain non-lease components (including property taxes, insurance and other operating expenses that the tenants of our facilities are required to pay pursuant to our “triple-net” leases) to be recorded gross versus net of the respective expenses upon adoption of this standard in 2019 in accordance with ASU No. 2014-09.
Variable Interest Entities
At September 30, 2017,2023, 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 September 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 |
|
| 142,438 |
|
| Mortgage and other loans |
|
| 184,825 |
| ||||||||||
Equity investments | $ | 13,242 | Other assets | $ | — |
|
| 108,935 |
|
| Investments in Unconsolidated |
|
| 108,935 |
|
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 September 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.16
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 Nine Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Land and land improvements |
| $ | 28,916 |
|
| $ | 34,925 |
|
Buildings |
|
| 114,966 |
|
|
| 312,645 |
|
Intangible lease assets — subject to amortization (weighted-average useful |
|
| 16,305 |
|
|
| 19,839 |
|
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 |
|
| $ | 972,243 |
|
Loans repaid(1) |
|
| (22,900 | ) |
|
| — |
|
Total net assets acquired |
| $ | 212,287 |
|
| $ | 972,243 |
|
The purchase price allocations attributable to the 2017 acquisitions and certain acquisitions made 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.Prospect Transaction
2017 Activity
Steward Transactions
On September 29, 2017,In August 2019, we acquired from IASIS Healthcare LLC (“IASIS”)invested in 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 nineIn addition, we originated a $112.9 million term loan cross-defaulted to the master lease and mortgage loan agreements and further secured by a parent guaranty. In the 2022 second quarter, we funded 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 remained current with respect to contractual rent and interest payments until the fourth quarter of 2022. Accordingly, and due further to the termination of certain refinancing negotiations between Prospect and certain third parties in early 2023 that included provisions for payment of unpaid rent and interest, we recorded an approximate $280 million impairment charge in the 2022 fourth quarter. As part of this charge, we reduced the carrying value of the underperforming Pennsylvania properties by approximately $170 million (to approximately $250 million) and reserved all unbilled rent accruals for a total of $112 million.
However, Prospect continued to pursue a recapitalization plan, and, in late 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 pursue certain transactions with Prospect as part of their recapitalization plan, including originating a $50 million convertible loan to PHP Holdings, the managed 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 the following restructuring of our $1.7 billion investment in Prospect including: a) maintaining the master lease covering six California hospitals without any changes in rental rates or escalator provisions, but with cash payments starting in September 2023 for a substantial portion of the contractual monthly rent due on these California properties, b) transitioning the Pennsylvania properties back to Prospect in return for a first lien mortgage on the facilities, c) providing up to $75 million in a loan secured by a first lien on Prospect's accounts receivable and certain other assets, of which we had funded $25 million on May 23, 2023 and an additional $20 million in both the third quarter of 2023 and in October 2023, d) completing the previously disclosed sale of the Connecticut properties to Yale New Haven ("Yale"), as more fully described in Note 9 to the condensed consolidated financial statements, and e) obtaining a 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 "Prospect Transaction"). This non-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 $82 million (including approximately $13 million that was recorded as revenue in the 2023 third quarter), our $151 million mortgage loan on a California property, our $112.9 million term loan, and other obligations at the time of such investment.
17
At September 30, 2023, we believe our remaining investment in the Prospect real estate, our investments in PHP Holdings, 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 Lifepoint Health, Inc. ("Lifepoint") acquired a majority interest in Springstone (now Lifepoint Behavioral Health, "Lifepoint Behavioral") (the "Lifepoint Transaction") based on an enterprise value of $250 million. As part of the transaction, we received approximately $205 million in full satisfaction of our initial acquisition loan, including accrued interest, and we retained our minority equity investment in the operations of Lifepoint Behavioral. Separately, we converted a mortgage loan (as part of our initial acquisition in 2021) into the 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 connection with the Lifepoint 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 total of approximately €70 million. These hospitals are beingleased 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 the 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.
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 are 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 of approximately $600 million from this transaction, partially offset by the write-off of unbilled straight-line rent receivables. The partnership raised nonrecourse secured debt of 55% of asset value, and we received proceeds, including from the secured debt, of approximately $1.3 billion. We obtained a 50% interest in the real estate partnership valued at approximately $400 million (included in the "Investments in unconsolidated real estate joint ventures" line of our condensed consolidated balance sheets), which is being accounted for under the equity method of accounting.
In connection with this transaction, we separated the eight Massachusetts-based facilities into a new master lease with terms generally identical to the other master lease, and the initial fixed lease term of 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 the originala long-term master lease agreement entered into in October 2016 that had an initial 15-year term with three 5-year extension options, plus annual inflation-based escalators. The termsWe acquired these facilities by purchasing the shares of the mortgagereal estate holding entities, which included deferred income tax and other liabilities of approximately $26 million.
On February 16, 2022, we agreed to participate in an existing syndicated term loan with a term of six years originated on behalf of Priory, of which we funded £96.5 million towards a £100 million participation level in the variable rate loan.
Other acquisitions in the first nine months of 2022 included six general acute care facilities. Three general acute care facilities, located throughout Spain, were acquired on April 29, 2022 for €27 million and are substantially similarleased to GenesisCare pursuant to a long-term lease with annual inflation-based escalators. Two general acute care facilities, one in Arizona and the master lease.
On May 1, 2017, we acquired eight hospitals previously affiliated with Community Health Systems, Inc.other in Florida, Ohio,were acquired on April 18 and Pennsylvania25, 2022, respectively, for an aggregate purchase price of $301.3 million. These facilitiesapproximately $80 million and are leased to Steward pursuant to an already existing master lease agreement with annual inflation-based escalators. The other general acute care facility, located in Colombia, was acquired on July 29, 2022 for $26 million and is leased to Fundación Cardiovascular de Colombia pursuant to a long-term lease with inflation-based escalators.
18
Development Activities
See table below for a status summary of our current development projects (in thousands):
Property |
| Commitment |
|
| Costs |
|
| Estimated Rent | ||
IMED Hospitales ("IMED") (Spain) |
| $ | 44,848 |
|
| $ | 43,103 |
|
| 4Q 2023 |
Lifepoint Behavioral Health (Texas) |
|
| 31,600 |
|
|
| 17,790 |
|
| 1Q 2024 |
IMED (Spain) |
|
| 36,280 |
|
|
| 13,775 |
|
| 3Q 2024 |
IMED (Spain) |
|
| 49,790 |
|
|
| 17,045 |
|
| 1Q 2025 |
Steward (Texas) |
|
| 169,408 |
|
|
| 90,445 |
|
| 2Q 2026 |
|
| $ | 331,926 |
|
| $ | 182,158 |
|
|
|
2023 Activity
During the originalfirst nine months of 2023, we completed construction and began recording rental income on one inpatient rehabilitation facility located in Lexington, South Carolina, which commenced rent on July 1, 2023, and another inpatient rehabilitation facility located in Stockton, California, which commenced rent on May 1, 2023. Both of these facilities are leased to Ernest Health, Inc. ("Ernest") pursuant to an existing long-term master leaselease.
We continue to fund the redevelopment of and defer rent on our Norwood facility in Massachusetts. Recovery receivables of approximately $130 million associated with Steward.
MEDIAN Transactions
Duringthe damage to this facility are included in the "Other assets" line of our condensed consolidated balance sheets. In conjunction with the redevelopment of the Norwood facility, we advanced $50 million to Steward, in the first half of 2023, that is secured by, among other things, proceeds from Steward's business interruption insurance claims. Additionally, we have funded approximately $175 million through the third quarter of 2017,2023 for building improvements related to this facility.
2022 Activity
During the 2022 first quarter, we acquired twocompleted construction and began recording rental income on an inpatient rehabilitation hospitalsfacility located in Germany for an aggregate purchase price of €39.2 million, in addition to 11 rehabilitation hospitals in Germany that we acquired in the second quarter of 2017 for an aggregate purchase price of €127 million. These 13 properties are leased to affiliates of Median Kliniken S.a.r.l. (“MEDIAN”), pursuant to a third master lease that has a fixed term ending in August 2043 with annual escalators at the greater of one percent or 70% of German consumer price index. These acquisitions are the final properties of the portfolio of 20 properties in Germany that we agreed to acquire in July 2016 for €215.7 million, of which seven properties totaling €49.5 million closed in December 2016.
On June 22, 2017, we acquired an acute care hospital in Germany for a purchase price of €19.4 million of which €18.6 million was paid upon closing with the remainder being paid over four years.Bakersfield, California. This propertyfacility commenced rent on March 1, 2022 and is leased to affiliates of MEDIAN,Ernest pursuant to an existing long-term master leaselease.
Disposals
2023 Activity
On March 30, 2023, we entered into a definitive agreement to sell our 11 general acute care facilities located in Australia and operated by Healthscope Ltd. ("Healthscope") (the "Australia Transaction") to affiliates of HMC Capital for cash proceeds of approximately A$1.2 billion. As a result, we designated the Australian portfolio as held for sale in the first quarter of 2023 and recorded an approximate $82 million net impairment charge to-date, 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 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 propertyreclassified to closeearnings as part of this expected transaction. This transaction was set to close in two phases. The first phase closed on May 18, 2023, in which we sold seven of the six hospital portfolio11 facilities for A$730 million, and the final phase closed on October 10, 2023, in which we sold the remaining four facilities for approximately A$470 million.
On March 8, 2023, we received notice that we agreedPrime Healthcare Services, Inc. ("Prime") planned to buy in September 2016 for an aggregate amount of €44.1 million. This property is leasedexercise its right 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 acquiredrepurchase from us 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,associated with one master lease for approximately $100 million. As such, we recorded an aggregate purchase price of approximately $40 million. We simultaneously leased the facilities to Alecto Healthcare Services LLC (“Alecto”), the current operator of three facilities in our portfolio, pursuant to a lease with a 15-year initial term with 2% annual minimum rent increases and three 5-year extension options. The facilities are cross-defaulted and cross-collateralized with our other hospitals currently operated by Alecto. We also agreed to provide up to $20.0approximate $11 million in capital improvement funding on these two facilities - none of which has been funded to date. With these acquisitions, we also obtained a 20% interestnon-cash impairment charge in the operatorfirst quarter of these facilities.2023 related to unbilled rent on the three facilities that were sold. On July 11, 2023, Prime acquired the three facilities for $100 million.
2022 Activity
On May 1, 2017,March 14, 2022, we acquiredcompleted the previously described partnership with MAM, in which we sold the real estate of St. Joseph Regional Medical Center, a 145-bedeight Massachusetts-based general acute care hospitalhospitals, with a fair value of approximately $1.7 billion. See "New Investments" in Lewiston, Idahothis same Note 3 for $87.5 million. This facility is leasedfurther details on this transaction.
19
During the first nine months of 2022, we also completed the sale of 15 other facilities (including 11 properties sold on September 1, 2022 to RCCH, pursuantPrime for proceeds of $366 million) and five ancillary properties for total proceeds of approximately $522 million and recognized a gain on real estate of approximately $100 million, along with a $42 million write-off of straight-line rent receivables due to the existing long-term masterearly termination of certain properties' expected lease entered into with RCCHterms.
Summary of Operations for Disposed Assets in April 2016.2023 and 2022
The properties sold during 2023 and 2022 do not meet the definition of discontinued operations. However, the following represents the operating results from these properties for the periods presented (in thousands):
|
| For the Three Months | For the Nine Months |
| ||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues(1) |
| $ | 5,632 |
|
| $ | (9,358 | ) |
| $ | 36,560 |
|
| $ | 75,289 |
|
Real estate depreciation and amortization |
|
| — |
|
|
| (5,905 | ) |
|
| (4,991 | ) |
|
| (20,207 | ) |
Property-related expenses |
|
| (569 | ) |
|
| (407 | ) |
|
| (2,430 | ) |
|
| (6,226 | ) |
Real estate and other impairment charges(2) |
|
| (3,750 | ) |
|
| — |
|
|
| (93,288 | ) |
|
| — |
|
Other (expense) income(3) |
|
| (2,455 | ) |
|
| 62,053 |
|
|
| (13,433 | ) |
|
| 518,219 |
|
(Loss) income from real estate dispositions, net |
| $ | (1,142 | ) |
| $ | 46,383 |
|
| $ | (77,582 | ) |
| $ | 567,075 |
|
From the respective acquisition dates, the properties acquired in 2017 contributed $16.7
2016 Activity
On July 22, 2016, we acquired
On June 22, 2016, we closed on the last property of the €688 million MEDIAN transaction, that was announced on April 29, 2015, for a purchase price of €41.6 million. Upon acquisition, this property became subject to an existing master lease between us and affiliates of MEDIAN that has a lease term ending December 2042 and annual escalators at the greater of one percent or 70% of the German consumer price index.
On May 2, 2016, we acquired an acute care hospital in Newark, New Jersey for an aggregate purchase price of $63 million leased tothree 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,facilities for the nine months ended September 30, 2016. In addition, we incurred $2.42023.
Pro Forma Information
The following unaudited supplemental pro forma operating data is presentedMacquarie Transaction) for the three and nine months ended September 30, 20172022.
Leasing Operations (Lessor)
We acquire and 2016, as if each acquisition was completed on January 1, 2016develop healthcare facilities and January 1, 2015 forlease the period ended September 30, 2017 and 2016, respectively. Supplemental pro forma earnings were adjustedfacilities to exclude acquisition-related costs on consummated deals incurred.healthcare operating companies. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transactions had been completed as set forth above, nor do they purport to represent our results of operations for future periods (in thousands, except per share/unit amounts).
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Total revenues | $ | 209,368 | $ | 207,898 | $ | 623,635 | $ | 622,798 | ||||||||
Net income | $ | 102,112 | $ | 107,863 | $ | 311,306 | $ | 307,645 | ||||||||
Net income per share/unit — diluted | $ | 0.28 | $ | 0.30 | $ | 0.85 | $ | 0.84 |
Development Activities
During the first nine months of 2017, we completed construction on the following facilities:
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, our investment in the operator of Capella Healthcare, Inc. (“Capella”) merged with Regional Care Hospital Partners, Inc. (“Regional Care”) (an affiliate of certain funds managed by affiliates of Apollo Global Management, LLC. (“Apollo”)) to form RCCH. As part of the transaction, we received net proceeds of approximately $550 million including approximately $492 million for our equity investment and loans made as part of the original Capella transaction that closed on August 31, 2015. In addition, we received $210 million in 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 loan for a hospital property in Olympia, Washington that was subsequently converted to real estate on July 22, 2016. Additionally, we and an Apollo affiliate invested $50 million each in unsecured senior notes issued by RegionalCare, which we sold to a large institution on June 20, 2016 at par. The proceeds from this transaction represented the recoverability of our investment in full, except for transaction costs incurred of $6.3 million.
We maintained our ownership of five hospitals in Hot Springs, Arkansas; Camden, South Carolina; Hartsville, South Carolina; Muskogee, Oklahoma; and McMinnville, Oregon. Pursuant to the transaction described above, the underlying leases, one of which is a master lease covering all but one property, was amended to shorten the initial fixed lease term, increaseterms of these infrastructure-type assets are typically at least 15 years, and most include renewal options at the security deposit,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
eliminate the lessees’ purchase option provisions. Due to this lease amendment, we reclassified the lease bear most of the costs associated with our properties under the master lease from a direct finance lease (“DFL”) to an operating lease. This reclassification resulted in a write-off of $2.6 million in unbilled DFL rent in the 2016 second quarter.including repair/maintenance, property taxes, and insurance.
Post Acute Transaction
On May 23, 2016, we sold five properties (three of which were in Texas and two in Louisiana) that were leased and operated by Post Acute Medical (“Post Acute”). As part of this transaction, our outstanding loans of $4 million were paid in full, and we recovered our investment in the operations. Total proceeds from this transaction were $71 million resulting in a net gain of approximately $15 million.
Corinth Transaction
On June 17, 2016, we sold the Atrium Medical Center real estate located in Corinth, Texas, which was leased and operated by Corinth Investor Holdings. Total proceeds from the transaction were $28 million resulting in a gain on real estate of approximately $8 million. This gain on real estate was offset by approximately $9 million of non-cash charges that included the write-offFor all of our investment inproperties subject to lease, we are the operationslegal owner of the facility, straight-line rent receivables,property, and the tenant's right to use and possess such property is guided by the terms of 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 Assets Disposed in 2016
The following represents the operating results (excluding gain on sale, transaction costs, and impairment or other non-cash charges) from the 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, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | — | $ | 244 | $ | — | $ | 7,851 | ||||||||
Real estate depreciation and amortization | — | — | — | (1,754 | ) | |||||||||||
Property-related expenses | — | — | — | (114 | ) | |||||||||||
Other income (expense) | — | 45 | — | (23 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from real estate dispositions, net | $ | — | $ | 289 | $ | — | $ | 5,960 | ||||||||
|
|
|
|
|
|
|
|
Leasing Operations
lease. At September 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 September 30, |
|
| As of December 31, |
| ||
Minimum lease payments receivable |
| $ | 616,686 |
|
| $ | 880,253 |
|
Estimated unguaranteed residual values |
|
| 203,818 |
|
|
| 203,818 |
|
Less: Unearned income and allowance for credit loss |
|
| (576,309 | ) |
|
| (731,915 | ) |
Net investment in direct financing leases |
|
| 244,195 |
|
|
| 352,156 |
|
Other financing leases (net of allowance for credit loss) |
|
| 989,141 |
|
|
| 1,339,167 |
|
Total investment in financing leases |
| $ | 1,233,336 |
|
| $ | 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 September 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
20
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 previously 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 $7.5 million as of September 30, 2023, to be paid over specified periods in the future with interest.
Pipeline Health System
On October 2, 2022, Pipeline filed voluntary petitions for reorganization relief under Chapter 11 protection of the United States Bankruptcy Code in the Southern District of Texas, while keeping its hospitals open to continue providing care to the communities 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 April 19, 2017. Funds advised by Deerfield acquired Adeptus Health’sFebruary 7, 2023 for all rent that was outstanding bank debt and Deerfieldat December 31, 2022, along with what was due for the first quarter of 2023. We have agreed to provide additional financing,defer approximately $6 million, or approximately 30%, of rent in 2023 to be paid in 2024 with interest. As of September 30, 2023, Pipeline was in compliance with all terms of the bankruptcy settlement and the 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 $150 million loan made in the 2022 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 operational and managerial support, to Adeptus Health asearly 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 restructuring.
The Adeptus Health restructuringmaster lease with Steward, and terms of our agreement with Deerfield provided foraccordingly accelerated the payment to us of 100%amortization of the associated in-place lease intangibles (approximately $286 million) and wrote-off approximately $95 million of straight-line rent payable duringreceivables in the restructuring and the assumption by Deerfieldsecond quarter of all our master leases and related agreements with Adeptus Health at current rental rates. Through November 3, 2017, Adeptus Health2023.
Steward is current through September on its rent and interest obligations to us.
On September 29, 2017, the United States Bankruptcy Court for the Northern 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 priorpursuant to the commencementvarious lease and loan agreements, although a portion of September rent was paid in early October; similarly, a portion of October rent was paid timely and the bankruptcy proceedings with respect to all properties, and continue to pay rent with respect to all but 16 of the 56 Adeptus Health properties according to the terms of the master leases and related agreements. Rent will remain 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 earlier of (a) transition to a new operatorremainder 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 completedpaid in mid-November. Steward's cash flows from operations have been impacted by challenges related to revenue cycle management and a backlog of accounts payable. Steward's management has described to us its plans for continued improvements to profitability, access to working capital liquidity, and sales of certain non-core assets. Based on these initiatives, the endreported profitability of 2019. AlthoughSteward's operations at our facilities, our cross-defaulted master lease structure, and the additional security of our overall collateral interests, we believe that Steward will be able to satisfy its rental obligations over the full term of our master leases. However, no assurances can be madegiven that we will not recognize a losshave any impairment charges in the future,future.
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, which we expect to finalize in 2023. We did not recognize any revenue related to this property in the 2023 third quarter.
21
Prospect
In September 2023, Prospect paid us $3.3 million in partial contractual rent on the six California properties, and we recognized this as rental revenue during the quarter. Subsequent to quarter-end, Prospect has paid us $11 million, in accordance with the underlying agreements, for rent on the California properties (October and November), rent on the Connecticut properties (November), and quarterly interest on the delayed draw term loan facility for the 2023 second quarter. This $11 million will be recorded as revenue in the 2023 fourth quarter.
Other Tenant Matters
We have agreed in principle to sell seven facilities back to a tenant that comprise approximately 1% of our total assets at September 30, 2023. With this transaction, along with a decline in operating results, we have determined that it is no longer probable that the tenant will be able to pay its rent for the duration of the lease. As a result, we reserved approximately $49 million of billed and straight-line rent receivables in the third quarter of 2023 and will account for rent on these properties under the cash method. At September 30, 2023, we believe the sale or re-leasingnet book value of the assets related to these 16 facilitiesunderlying real estate is recoverable. However, no assurances can be given that a future impairment will not resultbe needed.
Investments in any material loss or impairment.Unconsolidated Entities
On April 4, 2017,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 announceddirectly own 100% of such investment. However, from time-to-time, we will co-invest with other investors that our Louisiana freestanding emergency facilities then-operated by Adeptus Health (withshare a total budgeted investmentsimilar view that hospital real estate is a necessary infrastructure-type asset in communities. In these types 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 chargeinvestments, we will own undivided interests 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 termsless than 100% 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 September 30, |
|
| As of December 31, |
| ||
MEDIAN |
| 50% | $ | 461,930 |
|
| $ | 482,735 |
|
Swiss Medical Network |
| 70% |
| 432,919 |
|
|
| 454,083 |
|
Steward (Macquarie Transaction) |
| 50% |
| 431,224 |
|
|
| 417,701 |
|
Policlinico di Monza |
| 50% |
| 82,327 |
|
|
| 86,245 |
|
HM Hospitales |
| 45% |
| 53,325 |
|
|
| 57,139 |
|
Total |
|
| $ | 1,461,725 |
|
| $ | 1,497,903 |
|
AsFor the first nine months of September 30, 2017, our mortgage loans consist of loans made to four operators2023 and 2022, we received $67 million and $66 million, respectively, in dividends from these real estate joint ventures.
Investments in Unconsolidated Operating Entities
Our 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 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
22
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 September 30, |
|
| As of December 31, |
| ||
PHP Holdings |
| $ | 684,418 |
|
| $ | — |
|
Steward (loan investment) |
|
| 362,589 |
|
|
| 362,831 |
|
International joint venture |
|
| 230,153 |
|
|
| 231,402 |
|
Swiss Medical Network |
|
| 171,334 |
|
|
| 157,145 |
|
Priory |
|
| 157,547 |
|
|
| 156,575 |
|
Steward (equity investment) |
|
| 125,862 |
|
|
| 125,862 |
|
Aevis Victoria SA ("Aevis") |
|
| 79,738 |
|
|
| 72,904 |
|
Aspris Children's Services ("Aspris") |
|
| 15,996 |
|
|
| 16,023 |
|
Lifepoint Behavioral |
|
| 11,093 |
|
|
| 200,827 |
|
Caremax |
|
| 5,117 |
|
|
| 8,526 |
|
Prospect |
|
| — |
|
|
| 112,777 |
|
Total |
| $ | 1,843,847 |
|
| $ | 1,444,872 |
|
The change since December 31, 2022 primarily relates to the payoff of the Lifepoint Behavioral loan in February 2023, as part of the Lifepoint Transaction, partially offset by our investment in PHP Holdings, as more fully described previously in the Prospect Transaction.
For our investments marked to fair value, we recorded approximately $48.7 million in favorable non-cash fair value adjustments during the first nine months 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 $12.6 million favorable non-cash fair value adjustment for the same period of 2022. The amount recorded in 2023 includes an approximate $30 million favorable fair market value adjustment in the third quarter of 2023 to our investment in PHP Holdings, and an approximate CHF 20 million favorable adjustment to our investment in Swiss Medical Network.
Other Investment Activities
In the third quarter of 2023, we invested approximately $105 million for a participation in Steward's syndicated asset-backed credit facility, and we loaned an additional $40 million that we may also secure with credit facility collateral. On August 17, 2023, we sold the $105 million interest to a global asset manager for approximately $100 million, and Steward agreed to repay the remaining balance with interest at the credit facility rate. Steward repaid approximately $2 million of this $5 million loan on November 3, 2023.
In the second quarter 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 |
| $ | 87,105 |
|
| $ | 55,250 |
|
Provision (recovery) for credit loss, net |
|
| 165 |
|
|
| (19,677 | ) |
Expected credit loss reserve related to financial instruments |
|
| (63 | ) |
|
| (26,362 | ) |
Balance at end of the period |
| $ | 87,207 |
|
| $ | 9,211 |
|
23
|
| For the Nine Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Balance at beginning of the year |
| $ | 121,146 |
|
| $ | 48,527 |
|
Provision (recovery) for credit loss, net |
|
| 1,513 |
|
|
| (12,920 | ) |
Expected credit loss reserve related to financial instruments |
|
| (35,452 | ) |
|
| (26,396 | ) |
Balance at end of the period |
| $ | 87,207 |
|
| $ | 9,211 |
|
In the third quarter of 2022, we recorded a credit loss recovery of approximately $20 million related to loans repaid by Watsonville Community Hospital.
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 September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
Operators |
| Total Assets (1) |
|
| Percentage of |
|
| Total Assets (1) |
|
| Percentage of |
| ||||
Steward |
| $ | 3,768,586 |
|
|
| 19.8 | % |
| $ | 4,762,673 |
|
|
| 24.2 | % |
Circle Health Ltd ("Circle") |
|
| 2,043,689 |
|
|
| 10.8 | % |
|
| 2,062,474 |
|
|
| 10.5 | % |
Priory |
|
| 1,339,742 |
|
|
| 7.0 | % |
|
| 1,290,213 |
|
|
| 6.6 | % |
Prospect |
|
| 1,065,752 |
|
|
| 5.6 | % |
|
| 1,483,599 |
|
|
| 7.5 | % |
Lifepoint Behavioral |
|
| 806,350 |
|
|
| 4.2 | % |
|
| 985,959 |
|
|
| 5.0 | % |
Other operators |
|
| 7,544,787 |
|
|
| 39.8 | % |
|
| 7,461,923 |
|
|
| 38.0 | % |
Other assets |
|
| 2,435,976 |
| (2) |
| 12.8 | % |
|
| 1,611,159 |
|
|
| 8.2 | % |
Total |
| $ | 19,004,882 |
|
|
| 100.0 | % |
| $ | 19,658,000 |
|
|
| 100.0 | % |
24
Total Assets by U.S. State and Country
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
U.S. States and Other Countries |
| Total Assets |
|
| Percentage of |
|
| Total Assets |
|
| Percentage of |
| ||||
Texas |
| $ | 2,009,435 |
|
|
| 10.6 | % |
| $ | 1,967,948 |
|
|
| 10.0 | % |
Florida |
|
| 1,356,050 |
|
|
| 7.1 | % |
|
| 1,324,555 |
|
|
| 6.8 | % |
California |
|
| 1,227,372 |
|
|
| 6.4 | % |
|
| 1,450,112 |
|
|
| 7.4 | % |
Massachusetts |
|
| 844,804 |
|
|
| 4.5 | % |
|
| 761,694 |
|
|
| 3.9 | % |
Utah |
|
| 829,434 |
|
|
| 4.4 | % |
|
| 1,224,484 |
|
|
| 6.2 | % |
All other states |
|
| 3,757,534 |
|
|
| 19.8 | % |
|
| 4,245,306 |
|
|
| 21.6 | % |
Other domestic assets |
|
| 1,775,974 |
|
|
| 9.3 | % |
|
| 1,028,946 |
|
|
| 5.2 | % |
Total U.S. |
| $ | 11,800,603 |
|
|
| 62.1 | % |
| $ | 12,003,045 |
|
|
| 61.1 | % |
United Kingdom |
| $ | 4,108,393 |
|
|
| 21.6 | % |
| $ | 4,083,244 |
|
|
| 20.8 | % |
Germany |
|
| 716,959 |
|
|
| 3.8 | % |
|
| 664,900 |
|
|
| 3.4 | % |
Switzerland |
|
| 683,991 |
|
|
| 3.6 | % |
|
| 748,947 |
|
|
| 3.8 | % |
Australia |
|
| 290,321 |
|
|
| 1.5 | % |
|
| 854,582 |
|
|
| 4.3 | % |
Spain |
|
| 233,724 |
|
|
| 1.2 | % |
|
| 222,316 |
|
|
| 1.1 | % |
All other countries |
|
| 510,889 |
|
|
| 2.7 | % |
|
| 498,753 |
|
|
| 2.5 | % |
Other international assets |
|
| 660,002 |
|
|
| 3.5 | % |
|
| 582,213 |
|
|
| 3.0 | % |
Total international |
| $ | 7,204,279 |
|
|
| 37.9 | % |
| $ | 7,654,955 |
|
|
| 38.9 | % |
Grand total |
| $ | 19,004,882 |
|
|
| 100.0 | % |
| $ | 19,658,000 |
|
|
| 100.0 | % |
Total Assets by Facility Type
|
| As of September 30, 2023 |
|
| As of December 31, 2022 |
| ||||||||||
Facility Types |
| Total Assets |
|
| Percentage of |
|
| Total Assets |
|
| Percentage of |
| ||||
General acute care hospitals |
| $ | 12,105,205 |
|
|
| 63.7 | % |
| $ | 13,386,376 |
|
|
| 68.1 | % |
Behavioral health facilities |
|
| 2,525,664 |
|
|
| 13.3 | % |
|
| 2,727,326 |
|
|
| 13.9 | % |
Inpatient rehabilitation hospitals |
|
| 1,430,494 |
|
|
| 7.5 | % |
|
| 1,418,603 |
|
|
| 7.2 | % |
Long-term acute care hospitals |
|
| 274,971 |
|
|
| 1.5 | % |
|
| 277,772 |
|
|
| 1.4 | % |
Freestanding ER/urgent care facilities |
|
| 232,572 |
|
|
| 1.2 | % |
|
| 236,764 |
|
|
| 1.2 | % |
Other assets |
|
| 2,435,976 |
|
|
| 12.8 | % |
|
| 1,611,159 |
|
|
| 8.2 | % |
Total |
| $ | 19,004,882 |
|
|
| 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 September 30, 2023.
Total Revenues by Operator
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
Operators |
| Total Revenues |
|
| Percentage of |
|
| Total Revenues |
|
| Percentage of |
| ||||
Steward |
| $ | 70,664 |
|
|
| 23.0 | % | (1) | $ | 101,262 |
|
|
| 28.7 | % |
Circle |
|
| 49,207 |
|
|
| 16.1 | % |
|
| 45,531 |
|
|
| 12.9 | % |
CommonSpirit |
|
| 29,355 |
|
|
| 9.6 | % |
|
| — |
|
|
| — |
|
Priory |
|
| 28,335 |
|
|
| 9.2 | % |
|
| 18,611 |
|
|
| 5.3 | % |
Lifepoint Behavioral |
|
| 18,553 |
|
|
| 6.1 | % |
|
| 21,960 |
|
|
| 6.2 | % |
Ernest |
|
| 18,225 |
|
|
| 5.9 | % |
|
| 15,530 |
|
|
| 4.4 | % |
Other operators |
|
| 92,237 |
|
|
| 30.1 | % |
|
| 149,445 |
|
|
| 42.5 | % |
Total |
| $ | 306,576 |
|
|
| 100.0 | % |
| $ | 352,339 |
|
|
| 100.0 | % |
25
Total Revenues by U.S. State and Country
|
| For the Three Months Ended September 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
U.S. States and Other Countries |
| Total Revenues |
|
| Percentage of |
|
| Total Revenues |
|
| Percentage of |
| ||||
Texas |
| $ | 40,423 |
|
|
| 13.2 | % |
| $ | 41,572 |
|
|
| 11.8 | % |
Utah |
|
| 30,559 |
|
|
| 10.0 | % |
|
| 34,701 |
|
|
| 9.8 | % |
Florida |
|
| 28,443 |
|
|
| 9.3 | % |
|
| 25,572 |
|
|
| 7.3 | % |
Arizona |
|
| 17,056 |
|
|
| 5.6 | % |
|
| 16,442 |
|
|
| 4.7 | % |
Ohio |
|
| 9,303 |
|
|
| 3.0 | % |
|
| 10,839 |
|
|
| 3.1 | % |
All other states |
|
| 64,044 |
|
|
| 20.8 | % |
|
| 115,677 |
|
|
| 32.8 | % |
Total U.S. |
| $ | 189,828 |
|
|
| 61.9 | % |
| $ | 244,803 |
|
|
| 69.5 | % |
United Kingdom |
| $ | 90,655 |
|
|
| 29.6 | % |
| $ | 76,191 |
|
|
| 21.6 | % |
Germany |
|
| 10,000 |
|
|
| 3.3 | % |
|
| 7,926 |
|
|
| 2.2 | % |
All other countries |
|
| 16,093 |
|
|
| 5.2 | % |
|
| 23,419 |
|
|
| 6.7 | % |
Total international |
| $ | 116,748 |
|
|
| 38.1 | % |
| $ | 107,536 |
|
|
| 30.5 | % |
Grand total |
| $ | 306,576 |
|
|
| 100.0 | % |
| $ | 352,339 |
|
|
| 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. Total revenues also include revenue from ground lease and other expenses reimbursed to us by our tenants that may vary from period to period.
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 September 30, |
|
| As of December 31, |
| ||
Revolving credit facility(A) |
| $ | 1,354,294 |
|
| $ | 929,584 |
|
Term loan |
|
| 200,000 |
|
|
| 200,000 |
|
British pound sterling term loan due 2024(B) |
|
| 127,907 |
|
|
| 126,690 |
|
British pound sterling term loan due 2025(B) |
|
| 853,930 |
|
|
| 845,810 |
|
Australian term loan facility(B) |
|
| 302,445 |
|
|
| 817,560 |
|
2.550% Senior Unsecured Notes due 2023(B) |
|
| 439,399 |
|
|
| 483,320 |
|
3.325% Senior Unsecured Notes due 2025(B) |
|
| 528,650 |
|
|
| 535,250 |
|
0.993% Senior Unsecured Notes due 2026(B) |
|
| 528,650 |
|
|
| 535,250 |
|
2.500% Senior Unsecured Notes due 2026(B) |
|
| 609,950 |
|
|
| 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) |
|
| 731,940 |
|
|
| 724,980 |
|
4.625% Senior Unsecured Notes due 2029 |
|
| 900,000 |
|
|
| 900,000 |
|
3.375% Senior Unsecured Notes due 2030(B) |
|
| 426,965 |
|
|
| 422,905 |
|
3.500% Senior Unsecured Notes due 2031 |
|
| 1,300,000 |
|
|
| 1,300,000 |
|
|
| $ | 10,204,130 |
|
| $ | 10,325,499 |
|
Debt issue costs and discount, net |
|
| (47,051 | ) |
|
| (57,087 | ) |
|
| $ | 10,157,079 |
|
| $ | 10,268,412 |
|
26
As of September 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):
2023 |
| $ | 439,399 |
|
2024 |
|
| 430,352 |
|
2025 |
|
| 1,382,580 |
|
2026 |
|
| 2,992,894 |
|
2027 |
|
| 1,600,000 |
|
Thereafter |
|
| 3,358,905 |
|
Total |
| $ | 10,204,130 |
|
2017 | $ | 350,000 | (A) | |
2018 | — | |||
2019 | — | |||
2020 | — | |||
2021 | 445,359 | |||
Thereafter | 4,081,400 | |||
|
| |||
Total | $ | 4,876,759 | ||
|
|
20172023 Activity
Credit FacilityIn the third quarter of 2023, we purchased approximately £40 million of our 2.550% Senior Unsecured Notes due 2023 at a discounted price and yield averaging approximately 12%. As a result of this prepayment, we realized an approximate $0.9 million gain. On October 4, 2023, we purchased an additional £10 million of our 2.550% Senior Unsecured Notes due 2023 at a discounted price and yield of approximately 16%.
On February 1, 2017,May 18, 2023, we replacedcompleted 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. The final phase closed on October 10, 2023, in which we sold the remaining four facilities for approximately A$470 million and used the proceeds to pay down our unsecured credit facility with a new revolving credit facility.
2022 Activity
On June 29, 2022, we amended our Credit Facility to extend the maturity date of our $1.8 billion revolving facility to June 30, 2026, with our 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 September 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 September 30, 2017,2023, we were in compliance with all such financial and operating covenants.
27
5. Income Taxes
5. Common Stock/Partners’ Capital2023 Activity
Medical Properties Trust, Inc.During 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. With this election, we adjusted the deferred tax liabilities associated with these properties, resulting in a $158 million income tax benefit in the second quarter of 2023.
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)tax benefit in the first quarter of our common stock, resulting in net proceeds of2023.
2022 Activity
In the 2022 third quarter, we incurred 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$5 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,income tax expense from the Company has a 99.89% ownership interest in the Operating Partnership with the remainder owned by three other partners, two 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 responsecredit loss recovery on loans made to the common stock offerings by Medical Properties Trust, Inc.Watsonville Community Hospital.
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 3.315.5 million shares remain available for future stock awards as of September 30, 2017.2023. Share-based compensation expense totaled $7.1$29.7 million and $5.8$33.0 million for the nine months ended September 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 in the second quarter of 2023 from adjusting the payout probability of certain performance awards, partially offset by an incremental $3.5 million of expense from the acceleration of vestings on time-basedstock awards previously granted to three former board members.for a retiring executive officer.
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.
28
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 September 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 |
| $ | 195,559 |
|
| $ | 156,131 |
|
| $ | 167,035 |
|
| $ | 163,101 |
| ||||||||||||||||
Loans(1) |
|
| 1,255,589 |
| (2) |
| 1,162,388 |
|
|
| 1,405,615 |
| (2) |
| 1,360,113 |
| ||||||||||||||||
Debt, net | (4,832,264 | ) | (5,032,821 | ) | (2,909,341 | ) | (2,966,759 | ) |
|
| (10,157,079 | ) |
|
| (8,201,606 | ) |
|
| (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 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 September 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 September 30, 2023 |
|
| As of December 31, 2022 |
|
|
| ||||||||||
Asset (Liability) |
| Fair Value |
|
| Original |
|
| Fair Value |
|
| Original |
|
| Asset Type Classification | ||||
Mortgage loans |
| $ | 139,607 |
|
| $ | 139,607 |
|
| $ | 140,260 |
|
| $ | 140,260 |
|
| Mortgage loans |
Equity investment and other loans |
|
| 928,334 |
|
|
| 910,647 |
|
|
| 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 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 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 the equity investmentour valuations of these investments 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
29
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 nine months of 2023, we had a net favorable adjustment to the investments accounted for under the fair value option method (primarily from our investment in PHP Holdings as described in Note 3), compared to a net unfavorable adjustment in the first nine months of 2022.
The DLOM on our investment in PHP Holdings was approximately 8% at September 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 | $ | (7,423 | ) | |
- 100 basis points | 7,423 |
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 and for certain equity investments without a readily determinable fair value. For long-lived asset impairment purposes, fair value may be based on estimated cash flows discounted at a risk-adjusted rate of interest by using Level 2 inputs, or for our equityreal 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. For our investment in Ernest.Swiss Medical Network (which does not have a readily determinable fair value), we marked our investment to fair value in the 2023 third quarter (resulting in a CHF 20 million favorable adjustment) based on the price paid by a new investor in the same security.
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, |
| For the Three Months |
| |||||||||||||
2017 | 2016 |
| 2023 |
|
| 2022 |
| |||||||||
Numerator: |
|
|
|
|
|
| ||||||||||
Net income | $ | 76,881 | $ | 70,543 |
| $ | 116,895 |
|
| $ | 222,020 |
| ||||
Non-controlling interests’ share in net income | (417 | ) | (185 | ) |
|
| (185 | ) |
|
| (227 | ) | ||||
Participating securities’ share in earnings | (82 | ) | (154 | ) |
|
| (311 | ) |
|
| (288 | ) | ||||
|
| |||||||||||||||
Net income, less participating securities’ share in earnings | $ | 76,382 | $ | 70,204 |
| $ | 116,399 |
|
| $ | 221,505 |
| ||||
|
| |||||||||||||||
Denominator: |
|
|
|
|
|
| ||||||||||
Basic weighted-average common shares | 364,315 | 246,230 |
|
| 598,444 |
|
|
| 598,980 |
| ||||||
Dilutive potential common shares | 731 | 1,238 |
|
| 109 |
|
|
| 359 |
| ||||||
|
| |||||||||||||||
Dilutive weighted-average common shares | 365,046 | 247,468 | ||||||||||||||
|
| |||||||||||||||
For the Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Numerator: | ||||||||||||||||
Income from continuing operations | $ | 218,862 | $ | 182,693 | ||||||||||||
Non-controlling interests’ share in continuing operations | (1,013 | ) | (683 | ) | ||||||||||||
Participating securities’ share in earnings | (307 | ) | (430 | ) | ||||||||||||
|
| |||||||||||||||
Income from continuing operations, less participating securities’share in earnings | 217,542 | 181,580 | ||||||||||||||
Loss from discontinued operations attributable to MPT common stockholders | — | (1 | ) | |||||||||||||
|
| |||||||||||||||
Net income, less participating securities’ share in earnings | $ | 217,542 | $ | 181,579 | ||||||||||||
|
| |||||||||||||||
Denominator: | ||||||||||||||||
Basic weighted-average common shares | 345,076 | 240,607 | ||||||||||||||
Dilutive potential common shares | 520 | 825 | ||||||||||||||
|
| |||||||||||||||
Dilutive weighted-average common shares | 345,596 | 241,432 | ||||||||||||||
|
| |||||||||||||||
Diluted weighted-average common shares |
|
| 598,553 |
|
|
| 599,339 |
|
30
|
| For the Nine Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net income |
| $ | 107,492 |
|
| $ | 1,044,031 |
|
Non-controlling interests’ share in net income |
|
| (25 | ) |
|
| (960 | ) |
Participating securities’ share in earnings |
|
| (1,295 | ) |
|
| (1,035 | ) |
Net income, less participating securities’ share in earnings |
| $ | 106,172 |
|
| $ | 1,042,036 |
|
Denominator: |
|
|
|
|
|
| ||
Basic weighted-average common shares |
|
| 598,363 |
|
|
| 598,828 |
|
Dilutive potential common shares |
|
| 43 |
|
|
| 271 |
|
Diluted weighted-average common shares |
|
| 598,406 |
|
|
| 599,099 |
|
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, |
| For the Three Months |
| |||||||||||||
2017 | 2016 |
| 2023 |
|
| 2022 |
| |||||||||
Numerator: |
|
|
|
|
|
| ||||||||||
Net income | $ | 76,881 | $ | 70,543 |
| $ | 116,895 |
|
| $ | 222,020 |
| ||||
Non-controlling interests’ share in net income | (417 | ) | (185 | ) |
|
| (185 | ) |
|
| (227 | ) | ||||
Participating securities’ share in earnings | (82 | ) | (154 | ) |
|
| (311 | ) |
|
| (288 | ) | ||||
|
| |||||||||||||||
Net income, less participating securities’ share in earnings | $ | 76,382 | $ | 70,204 |
| $ | 116,399 |
|
| $ | 221,505 |
| ||||
|
| |||||||||||||||
Denominator: |
|
|
|
|
|
| ||||||||||
Basic weighted-average units | 364,315 | 246,230 |
|
| 598,444 |
|
|
| 598,980 |
| ||||||
Dilutive potential units | 731 | 1,238 |
|
| 109 |
|
|
| 359 |
| ||||||
|
| |||||||||||||||
Dilutive weighted-average units | 365,046 | 247,468 | ||||||||||||||
|
| |||||||||||||||
Diluted weighted-average units |
|
| 598,553 |
|
|
| 599,339 |
|
For the Nine Months Ended September 30, |
| For the Nine Months |
| |||||||||||||
2017 | 2016 |
| 2023 |
|
| 2022 |
| |||||||||
Numerator: |
|
|
|
|
|
| ||||||||||
Income from continuing operations | $ | 218,862 | $ | 182,693 | ||||||||||||
Non-controlling interests’ share in continuing operations | (1,013 | ) | (683 | ) | ||||||||||||
Net income |
| $ | 107,492 |
|
| $ | 1,044,031 |
| ||||||||
Non-controlling interests’ share in net income |
|
| (25 | ) |
|
| (960 | ) | ||||||||
Participating securities’ share in earnings | (307 | ) | (430 | ) |
|
| (1,295 | ) |
|
| (1,035 | ) | ||||
|
| |||||||||||||||
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 |
| $ | 106,172 |
|
| $ | 1,042,036 |
| ||||
|
| |||||||||||||||
Denominator: |
|
|
|
|
|
| ||||||||||
Basic weighted-average units | 345,076 | 240,607 |
|
| 598,363 |
|
|
| 598,828 |
| ||||||
Dilutive potential units | 520 | 825 |
|
| 43 |
|
|
| 271 |
| ||||||
|
| |||||||||||||||
Dilutive weighted-average units | 345,596 | 241,432 | ||||||||||||||
|
| |||||||||||||||
Diluted weighted-average units |
|
| 598,406 |
|
|
| 599,099 |
|
31
9. Commitments and Contingencies
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.remainder in equity-like securities of PHP Holdings - part of the Prospect Transaction. Closing of thethis transaction which is expected to be completed no later than the first quarter of 2018, is 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.
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.
32
10. Subsequent EventsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 of 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, regulatory and other closing conditions.
The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities.
The following Such discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Forward-Looking Statements.
This reportQuarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or future performance, achievements or transactions or events to be materially different from those expressed or implied by such forward-looking statements, including, but not limited to, the risks described in our Annual Report on Form 10-K and as updated in our quarterly reports on Form 10-Q for future periods, and current reports on Form 8-K as we file them with the Securities and Exchange Commission (SEC)SEC under the Securities Exchange Act of 1934.Act. Such factors include, among others, the following:
33
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:
34
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 nine months ended September 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 September 30, 2017,2023, our portfolio consisted of 271441 properties leased or loaned to 3055 operators, of which twofive 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 September 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 | % | ||||||||||
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Total assets (1) | $ | 8,927,040 | 100.0 | % | $ | 6,418,536 | 100.0 | % | ||||||||
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| As of |
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| % of |
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| As of |
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| % of |
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Real estate assets - at cost |
| $ | 14,868,393 |
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| 78.2 | % |
| $ | 15,917,839 |
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| 81.0 | % |
Accumulated real estate depreciation and amortization |
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| (1,315,223 | ) |
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| -6.9 | % |
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| (1,193,312 | ) |
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| -6.1 | % |
Cash and cash equivalents |
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| 340,058 |
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| 1.8 | % |
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| 235,668 |
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| 1.2 | % |
Investments in unconsolidated real estate joint ventures |
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| 1,461,725 |
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| 7.7 | % |
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| 1,497,903 |
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| 7.6 | % |
Investments in unconsolidated operating entities |
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| 1,843,847 |
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| 9.7 | % |
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| 1,444,872 |
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| 7.4 | % |
Other |
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| 1,806,082 |
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| 9.5 | % |
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| 1,755,030 |
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| 8.9 | % |
Total assets |
| $ | 19,004,882 |
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| 100.0 | % |
| $ | 19,658,000 |
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| 100.0 | % |
The following is our revenue by operating type (dollar amounts in thousands):
Revenue by property type:35
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 | % | ||||||||||
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Total revenue | $ | 176,580 | 100.0 | % | $ | 126,555 | 100.0 | % | ||||||||
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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 | % | ||||||||||
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Total revenue | $ | 499,784 | 100.0 | % | $ | 387,854 | 100.0 | % | ||||||||
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We have 62 employees as of November 3, 2017. We believe that any foreseeable increase in the number of our employees will have only immaterial effects on our operations and general and administrative expenses. We believe that our relations with our employees are good. None of our employees are members of any labor union.
Results of Operations
Three Months Ended September 30, 20172023 Compared to September 30, 20162022
Net income for the three months ended September 30, 2017,2023, was $76.5$116.7 million ($0.19 per diluted share) compared to $70.4net income of $221.8 million ($0.37 per diluted share) for the three months ended September 30, 2016.2022. This increasedecrease in net income is dueprimarily driven by the Australia and Prime disposals (including the Prime sale in 2022 that generated a gain of approximately $67 million) described in Note 3 to additional revenuethe condensed consolidated financial statements, lower rent and interest from the StewardProspect, and MEDIAN investments mademore rent receivable reserves and higher interest expense in the fourththird quarter of 2016 and during2023 compared to the first nine monthssame period of 2017, partially offset by increased depreciation and acquisition expense and $44.6 million of gains on real estate and other asset dispositions in the 2016 third quarter. Funds2022. 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$225.5 million for the 2023 third quarter, or $0.38 per diluted share, as compared to $272.3 million, or $0.33$0.45 per diluted share, for the 20172022 third quarter as compared to $75.1 million, or $0.30 per diluted share for the 2016 third 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 September 30, 20172023 and 20162022 is as follows (dollar amounts in thousands):
2017 | % of Total | 2016 | % of Total | Year over Year Change |
| 2023 |
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| % of |
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| 2022 |
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Rent billed | $ | 110,930 | 62.8 | % | $ | 82,387 | 65.1 | % | 34.6 | % |
| $ | 229,306 |
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| 74.8 | % |
| $ | 232,418 |
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| 66.0 | % |
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| -1.3 | % | ||||||||||
Straight-line rent | 17,505 | 9.9 | % | 9,741 | 7.7 | % | 79.7 | % |
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| 21,511 |
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| 7.0 | % |
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| 26,552 |
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| 7.5 | % |
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| -19.0 | % | ||||||||||||
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 | % | ||||||||||||||||||||||||||||||||
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Income from financing leases |
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| 26,066 |
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| 8.5 | % |
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| 51,011 |
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| 14.5 | % |
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| -48.9 | % | ||||||||||||||||||||
Interest and other income |
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| 29,693 |
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| 9.7 | % |
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| 42,358 |
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| 12.0 | % |
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| -29.9 | % | ||||||||||||||||||||
Total revenues | $ | 176,580 | 100.0 | % | $ | 126,555 | 100.0 | % | 39.5 | % |
| $ | 306,576 |
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| 100.0 | % |
| $ | 352,339 |
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| 100.0 | % |
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| -13.0 | % | ||||||||||
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Our total revenuerevenues for the 20172023 third quarter is up $50.0are down $45.8 million, or 39.5%13.0%, over the same period in the prior year. This increasedecrease is made up of the following:
Interest expense for the quarters ended September 30, 2016, $4.22023 and 2022 totaled $106.7 million and $88.1 million, respectively. This increase is incremental revenue from development properties that were completed and put into service in late 2016 and 2017, $1.3 million is incremental revenue from capital additions made to existing facilities in late 2016 and 2017, and $2.0 million is dueprimarily related to an increase in exchange rates. These increases wereborrowings on our revolver and higher interest rates on our Credit Facility and term loans compared to the prior year, partially offset by $1.8a decrease due to the A$730 million paydown of lower revenue related to dispositions.Income from direct financing leases – up $4.4 million overour Australia term loan in the prior yearsecond quarter of which $0.3 million is from our annual escalation provisions in our leases, $1.1 million is incremental revenue from acquisitions made after2023. Our weighted-average interest rate was 4.0% for the quarter ended September 30, 2016, and $3.0 million relates2023 compared to 3.4% for the conversion of certain Prime facilities, valued at approximately $100 million,same period in 2016 from mortgage loans into direct financing leases.
Real estate depreciation and amortization during the third quarter of 2017 increased2023 decreased to $31.9$77.8 million from $23.9$81.9 million in 2016, due to the incremental depreciation from the properties acquired since September 30, 2016 and the development properties completed in 2016 and 2017.
Property expenses for the 2017 third quarter increased $1.6 million from the prior year quarter as the 2016 third quarter included $0.9 million reimbursement for property expenses incurred in multiple previous periods from the tenant of our Twelve Oaks facility.
Acquisition expenses increased from $2.7 million in 2016 to $7.4 million in 2017 primarily as a result of the Steward and MEDIAN acquisitions in 2017, including approximately $2.3 million of real estate transfer taxes.
General and administrative expenses totaled $15.0 million for the 2017 third quarter, which is 8.5% of total revenues, down from 9.7% of total revenues in prior year third quarter. The drop in general and administrative expenses as a percentage of revenue2022. This decrease is primarily due to classifying our business modelAustralia properties and three Prime facilities as we can generally increase our revenue significantly without increasing our head countheld for sale in the first quarter of 2023 and relatedno longer recording depreciation on these properties.
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Property-related expenses at the same rate. On a dollar basis, generaltotaled $6.5 million and administrative expenses were up $2.7$8.3 million from the prior year third quarter due primarily to the growth of our company, including increases in travel, international administration, costs associated with opening a European office, and compensation related to increased headcount.
Interest expense, for the quarters ended September 30, 20172023 and 2016, totaled $42.82022, respectively. Of the property expenses in the third quarter of 2023 and 2022, approximately $3.3 million and $40.3$5.6 million, respectively. This increase is primarily related torespectively, represents costs that were reimbursed by our tenants and included in the higher average debt balance“Interest and other income” line on our condensed consolidated statements of net income.
General and administrative expenses totaled $38.1 million for the 20172023 third quarter, 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. Our weighted-average interest rate was 4.6%$37.3 million for the 2022 third quarter. The 2023 third quarter ended September 30, 2017, compared to 5.2% in 2016.
With the redemption of the $450 million in senior unsecured notes during the quarter ended September 30, 2016, we incurred $22.5 million in debt refinancing charges ($15.5included $1.2 million of which washigher stock compensation expense for the acceleration of stock award vesting for a redemption premium). During the 2017 third quarter, we incurred $4.4 million of charges primarily related to structuring and underwriting fees associated with the termination of theshort-term loan commitment we made in anticipation of the Steward acquisition.retiring executive officer.
During the three months ended September 30, 2016,2022, we solddisposed of 11 facilities as part of the Prime repurchase transaction and three HealthSouthancillary properties resulting in a net gain on saleof $68.8 million.
In the third quarter of 2022, we recorded a credit loss recovery of approximately $45$20 million (see related to loans repaid by Watsonville Community Hospital.
With the interest rate swap no longer classified as an effective cash flow hedge due to the Australia Transaction disclosed in Note 3 to the condensed consolidated financial statements, we expect some earnings volatility from marking the swap to fair value each quarter until all of the related debt is extinguished. We recognized a $3.75 million loss from this in the 2023 third quarter.
Earnings from equity interests was $11.3 million for the quarter ended September 30, 2023, basically flat compared to the same period in 2022.
Our debt refinancing and unutilized financing benefit for the third quarter of 2023 of $0.9 million relates to the purchase of £40 million of our 2.550% Senior Unsecured Notes due 2023 at a discounted price.
Other income for the third quarter of 2023 was $41.1 million, which included an approximate $30 million favorable non-cash fair value adjustment on our investment in PHP Holdings and a CHF 20 million unrealized gain on our equity investment in Swiss Medical Network, partially offset by approximately $2.8 million of expenses associated with responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. See Item 1 of this Form 10-QPart II for further details).
Earnings from our equity interests was $3.4 million fordetails on the 2017lawsuit. For the third quarter up $2.1of 2022, we had other income of $4.1 million, from the prior year primarily related to our increased ownership in and the improved operating resultswhich included a favorable non-cash fair value adjustment of the operator of our Hoboken facility, along with our first quarter to generate income$3.6 million on our IMED investment.investment in Aevis. Fair value adjustments as discussed above can be favorable or unfavorable from quarter-to-quarter, so the positive results in the 2023 third quarter are not necessarily indicative of future results.
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 $10.1 million income tax expense of $0.5 million for the three months ended September 30, 2017, was2023 is primarily duebased on income generated internationally (primarily the U.K. and Germany) and reflects the tax benefit of moving to $1.1the U.K. REIT regime on July 1, 2023, as described in Note 5 to the condensed consolidated financial statements. In comparison, we incurred $18.6 million of foreignin income tax expense related to our German investments offset partially by $0.6 millionin the third 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 $89 million should continue to be recordedreflected against the majority of our U.S and certain of our international and domestic net deferred tax assets at September 30, 2017.2023. 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.
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Nine Months Ended September 30, 20172023 Compared to September 30, 20162022
Net income for the nine months ended September 30, 2017,2023, was $217.8$107.5 million ($0.18 per diluted share) compared to net income of $182.0 million$1.0 billion ($1.74 per diluted share) for the nine months ended September 30, 2016,2022. This decrease in net income is primarily driven by the gain on sale of real estate in the 2022 first quarter from the Macquarie Transaction, and the 2023 impairment charge in the first quarter associated with the Australia Transaction and Prime disposal, as described in Note 3 to the condensed consolidated financial statements. Net income was also lower due to additionalthe $49 million billed and straight-line rent reserve recorded in the third quarter of 2023, 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 the condensed consolidated financial statements for more detail), along with higher interest expense and lower rent and interest revenue from the MEDIAN, Steward, and RCCH investments made in the fourth quarter of 2016 and the first nine months of 2017, incremental revenue from completed development projects and
increased income from our equity investments,Prospect. 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$733.0 million or $0.98 per diluted share for the first nine months in 2017of 2023, or $1.22 per diluted share, as compared to $234.1$829.5 million, or $0.97$1.38 per diluted share, for the first nine months of 2016.2022. This 45.3% increasedecrease in Normalized FFO is primarily due to the increase inlower revenue from acquisitionsvarious disposals throughout 2022 and completed development projects made since September 2016, while FFO per share is only slightly higher in2023, including the first nine months of 2017 comparedMacquarie Transaction, the Australia Transaction, and Prime disposals, along with lower revenues from Prospect (see Note 3 to prior year due to more shares outstanding from the September 2016 and May 2017 equity offerings.condensed consolidated financial statements for further details).
A comparison of revenues for the nine month periodsmonths ended September 30, 20172023 and 20162022 is as follows (dollar amounts in thousands):
2017 | % of Total | 2016 | % of Total | Year over Year Change |
| 2023 |
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| 2022 |
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Rent billed | $ | 311,140 | 62.3 | % | $ | 234,408 | 60.4 | % | 32.7 | % |
| $ | 724,954 |
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| 72.9 | % |
| $ | 737,029 |
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| 63.4 | % |
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| -1.6 | % | ||||||||||
Straight-line rent | 46,561 | 9.3 | % | 26,509 | 6.8 | % | 75.6 | % |
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| 38,875 |
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| 3.9 | % |
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| 146,114 |
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| 12.6 | % |
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| -73.4 | % | ||||||||||||
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 | % | ||||||||||||||||||||||||||||||||
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Income from financing leases |
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| 107,729 |
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| 10.8 | % |
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| 154,660 |
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| 13.3 | % |
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| -30.3 | % | ||||||||||||||||||||
Interest and other income |
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| 122,624 |
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| 12.4 | % |
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| 124,562 |
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| 10.7 | % |
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| -1.6 | % | ||||||||||||||||||||
Total revenues | $ | 499,784 | 100.0 | % | $ | 387,854 | 100.0 | % | 28.9 | % |
| $ | 994,182 |
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| $ | 1,162,365 |
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| -14.5 | % | ||||||||||
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Our total revenuerevenues for the first nine months of 2017 is up $111.92023 are down $168.2 million, or 28.9%14.5%, over the same period in the prior year. This increasedecrease is made up of the following:
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Interest expense for the nine months ended September 30, 2016. These increases were2023 and 2022 totaled $308.8 million and $267.0 million, respectively. This increase is primarily related to an increase in borrowings and higher interest rates on our Credit Facility and term loans compared 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 loans to direct financing leases postour Australia term loan in the second quarter of 2023. Our weighted-average interest rate was 3.9% for the nine months ended September 30, 2016.2023 compared to 3.3% for the same period in 2022.
Real estate depreciation and amortization during the first nine months of 20172023 increased to $89.0$526.1 million from $67.9$251.5 million in the same period of 2016, primarily due2022. Of this increase, $286 million relates to the incremental depreciation from the properties acquired and the development properties completed in 2016 and 2017. In the 2016 second quarter, we acceleratedaccelerating the amortization of lease intangibles as part of the lease intangible asset relatedSteward Transaction as described in Note 3 to our Corinth facility resulting in $1.1the condensed consolidated financial statements.
Property-related expenses totaled $38.3 million of additional expense.
Property expensesand $38.0 million for the first nine months of 2017 increased $2.4 million compared to 2016. This increase is primarily due toended September 30, 2023 and 2022, respectively. Of the reimbursement to us in the 2016 third quarter of $0.8 million by the tenant of our Twelve Oaks facility for property expenses incurred in previous periods.
Acquisition expenses increased from $6.4 million in 2016 to $21.0 million in 2017 primarily as a result of the MEDIAN and Steward acquisitions in 2017, including $11.7 million of real estate transfer taxes incurred on the MEDIAN acquisitions.
General and administrative expenses in the first nine months of 2017 totaled $43.32023 and 2022, approximately $28.6 million which is 8.7% of revenues down from 9.2% of revenuesand $30.2 million, respectively, represents costs (primarily property insurance premiums) that were reimbursed by our tenants and included in the prior year. The decline in general“Interest and other income” line on our condensed consolidated statements of net income.
General and administrative expenses as a percentagetotaled $115.4 million for the first nine months of revenues is2023 compared to $117.6 million in the same period of 2022, primarily due to our business model as we can generally increase our revenues significantly without increasing our head count and relateda 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 $3.5 million of 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 openingacceleration of stock awards for a European office, compensation related to increased headcount and public company board expenses.retiring executive officer.
During the nine months ended September 30, 2017,2022, we realized $536.8 million of gains from the sales of real estate, including the completion of the partnership with MAM, in which we sold the Muskogee, Oklahoma facilityreal 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. In 2022, we also disposed of 11 facilities related to the Prime repurchase transaction, resulting in a gain on real estate of approximately $67 million, and we disposed of four other facilities and five ancillary properties, resulting in a net gain of $33 million.
In 2023, we recorded a $93.3 million net impairment charge, of which $82 million related to the Australia Transaction and $11 million was a non-cash impairment charge on sale of real estate of $7.4 million, whilethe three Prime properties sold as more fully described in Note 3 to the condensed consolidated financial statements. The impairment recovery in the first nine months of 2016, we had various dispositions resulting in a net gain on sale of real estate and other asset dispositions of $61.3 million and impairment charges of $7.3 million (see Note 3 to Item 1 of this Form 10-Q for further details).
Earnings from our equity interests increased from a loss of $2.6 million in 2016 to a gain of $7.9 million in 2017. The loss in 2016 includes $5.3 million of acquisition expenses, representing our share of such expenses incurred by our Italian joint venture to acquire its eight hospital properties. In addition, 2017 includes $4.7 million of additional income2022 related to our increased ownership in and improved operating results of the operator of our Hoboken facility, along with additional incomeWatsonville facility.
Earnings from our IMED investment in the 2017 third quarter.
Interest expense remained relatively flat year-over-year as we incurred $120.5equity interests was $34.8 million for the first nine months of 2017 compared to $121.1 million for the first nine months of 2016. Our average debt balance for 2017 has been higher than 2016 due to continued growth of the company; however, its impact on interest expense has been more than offset by lower interest rates. Our weighted-average interest rate for the first nine months of 2017 was 4.6% versus 4.9% in the same period for 2016.
With the redemption of the $450 million in senior unsecured notes, we incurred $22.5 million in debt refinancing charges ($15.5 million of which was a redemption premium) during the first nine months of 2016. During the first nine months of 2017, we incurred $18.8 million of debt refinancing charges related to the replacement of our credit facility, the payoff of our €200 million euro loan, the prepayment of our $12.9 million term loan, and structuring and underwriting fees associated with the termination of the short-term loan commitment we made in anticipation of the Steward acquisition (see Note 4 to Item 1 of this Form 10-Q for further details).
Income tax expense for the nine months ended September 30, 2017 decreased by $390 thousand2023, basically flat from the same period in 2016 primarily due2022.
Our debt refinancing and unutilized financing net benefit for the first nine months of 2023 was a result of a $0.9 million benefit related to $1.7the purchase of £40 million of benefit recognized on approximately $10.7our 2.550% Senior Unsecured Notes due 2023 in the third quarter of 2023 at a discounted price, partially offset by $0.8 million of acquisition costs incurredassociated with the partial prepayment of our A$1.2 billion Australian term loan in the second quarter of 2023. In the first nine months of 2022, debt refinancing and unutilized financing costs were $9.5 million, as a result of the termination of our $1 billion interim credit facility in March 2022 and the amendment of our Credit Facility (see Note 4 to the condensed consolidated financial statements for more detail).
Other income for the first nine months of 2023 was $25.4 million, which included an approximate $30 million favorable non-cash fair value adjustment on our Europeaninvestment in PHP Holdings and a CHF 20 million unrealized gain on our equity investment in Swiss Medical Network, partially offset by approximately $13 million of expenses associated with responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. See Item 1 of Part II for further details on the lawsuit. For the first nine months of 2022, we had other income of $20.9 million which included a favorable non-cash fair value adjustment of $12.6 million on our investment in Aevis and other investments marked to fair value during the first nine months of 2022.
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 2017. Thisjurisdictions outside the U.S. The $134.7 million income tax benefit for the nine months ended September 30, 2023 is primarily based on the $158 million benefit received by entering the United Kingdom REIT
39
regime and a $5.0 million 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 $40.6 million in income tax expense fromin the first nine 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 $89 million should be reflected against certain of our international and domestic net deferred tax assets at September 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.
40
The following table presents a reconciliation of net income attributable to MPT common stockholders to FFO and Normalized FFO for the three and nine months ended September 30, 20172023 and 20162022 (in thousands except per share data):
For the Three Months Ended | For the Nine Months Ended |
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 |
| September 30, 2023 |
|
| September 30, 2022 |
|
| September 30, 2023 |
|
| September 30, 2022 |
| |||||||||||||||||
FFO information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income attributable to MPT common stockholders | $ | 76,464 | $ | 70,358 | $ | 217,849 | $ | 182,009 |
| $ | 116,710 |
|
| $ | 221,793 |
|
| $ | 107,467 |
|
| $ | 1,043,071 |
| ||||||||
Participating securities’ share in earnings | (82 | ) | (154 | ) | (307 | ) | (430 | ) |
|
| (311 | ) |
|
| (288 | ) |
|
| (1,295 | ) |
|
| (1,035 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income, less participating securities’ share in earnings | $ | 76,382 | $ | 70,204 | $ | 217,542 | $ | 181,579 |
| $ | 116,399 |
|
| $ | 221,505 |
|
| $ | 106,172 |
|
| $ | 1,042,036 |
| ||||||||
Depreciation and amortization | 32,618 | 24,374 | 90,744 | 69,181 |
|
| 96,280 |
|
|
| 99,296 |
|
|
| 580,484 |
|
|
| 300,731 |
| ||||||||||||
Gain on sale of real estate | (18 | ) | (44,515 | ) | (7,431 | ) | (67,168 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Loss (gain) on sale of real estate |
|
| 20 |
|
|
| (68,795 | ) |
|
| (209 | ) |
|
| (536,788 | ) | ||||||||||||||||
Real estate impairment charges |
|
| 3,750 |
|
|
| — |
|
|
| 55,854 |
|
|
| — |
| ||||||||||||||||
Funds from operations | $ | 108,982 | $ | 50,063 | $ | 300,855 | $ | 183,592 |
| $ | 216,449 |
|
| $ | 252,006 |
|
| $ | 742,301 |
|
| $ | 805,979 |
| ||||||||
Write-off of straight line rent and other | — | — | 1,117 | 3,063 | ||||||||||||||||||||||||||||
Transaction costs from non-real estate dispositions . | — | (101 | ) | — | 5,874 | |||||||||||||||||||||||||||
Acquisition expenses, net of tax benefit | 7,166 | 2,689 | 19,350 | 11,723 | ||||||||||||||||||||||||||||
Impairment charges | — | (80 | ) | — | 7,295 | |||||||||||||||||||||||||||
Unutilized financing fees / debt refinancing costs | 4,414 | 22,535 | 18,794 | 22,539 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Write-off of unbilled rent and other |
|
| 52,742 |
|
|
| 35,587 |
|
|
| 150,576 |
|
|
| 35,259 |
| ||||||||||||||||
Other impairment (recovery) charges |
|
| — |
|
|
| (19,450 | ) |
|
| 37,434 |
|
|
| (14,575 | ) | ||||||||||||||||
Litigation and other |
|
| 2,759 |
|
|
| — |
|
|
| 12,987 |
|
|
| — |
| ||||||||||||||||
Share-based compensation adjustments |
|
| 1,243 |
|
|
| — |
|
|
| (3,120 | ) |
|
| (966 | ) | ||||||||||||||||
Non-cash fair value adjustments |
|
| (46,815 | ) |
|
| (3,597 | ) |
|
| (42,562 | ) |
|
| (12,563 | ) | ||||||||||||||||
Tax rate changes and other |
|
| — |
|
|
| 7,726 |
|
|
| (164,535 | ) |
|
| 6,901 |
| ||||||||||||||||
Debt refinancing and unutilized financing (benefit) costs |
|
| (862 | ) |
|
| 17 |
|
|
| (46 | ) |
|
| 9,452 |
| ||||||||||||||||
Normalized funds from operations | $ | 120,562 | $ | 75,106 | $ | 340,116 | $ | 234,086 |
| $ | 225,516 |
|
| $ | 272,289 |
|
| $ | 733,035 |
|
| $ | 829,487 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Per diluted share data: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income, less participating securities’ share in earnings | $ | 0.21 | $ | 0.28 | $ | 0.63 | $ | 0.75 |
| $ | 0.19 |
|
| $ | 0.37 |
|
| $ | 0.18 |
|
| $ | 1.74 |
| ||||||||
Depreciation and amortization | 0.09 | 0.10 | 0.26 | 0.29 |
|
| 0.16 |
|
|
| 0.16 |
|
|
| 0.97 |
|
|
| 0.50 |
| ||||||||||||
Gain on sale of real estate | — | (0.18 | ) | (0.02 | ) | (0.28 | ) | |||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Loss (gain) on sale of real estate |
|
| — |
|
|
| (0.11 | ) |
|
| — |
|
|
| (0.90 | ) | ||||||||||||||||
Real estate impairment charges |
|
| 0.01 |
|
|
| — |
|
|
| 0.09 |
|
|
| — |
| ||||||||||||||||
Funds from operations | $ | 0.30 | $ | 0.20 | $ | 0.87 | $ | 0.76 |
| $ | 0.36 |
|
| $ | 0.42 |
|
| $ | 1.24 |
|
| $ | 1.34 |
| ||||||||
Write-off of straight line rent and other | — | — | — | 0.01 | ||||||||||||||||||||||||||||
Transaction costs from non-real estate dispositions . | — | — | — | 0.03 | ||||||||||||||||||||||||||||
Acquisition expenses, net of tax benefit | 0.02 | 0.01 | 0.06 | 0.05 | ||||||||||||||||||||||||||||
Impairment charges | — | — | — | 0.03 | ||||||||||||||||||||||||||||
Unutilized financing fees / debt refinancing costs | 0.01 | 0.09 | 0.05 | 0.09 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Write-off of unbilled rent and other |
|
| 0.09 |
|
|
| 0.06 |
|
|
| 0.25 |
|
|
| 0.06 |
| ||||||||||||||||
Other impairment (recovery) charges |
|
| — |
|
|
| (0.03 | ) |
|
| 0.06 |
|
|
| (0.03 | ) | ||||||||||||||||
Litigation and other |
|
| 0.01 |
|
|
| — |
|
|
| 0.02 |
|
|
| — |
| ||||||||||||||||
Share-based compensation adjustments |
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
|
| — |
| ||||||||||||||||
Non-cash fair value adjustments |
|
| (0.08 | ) |
|
| (0.01 | ) |
|
| (0.07 | ) |
|
| (0.02 | ) | ||||||||||||||||
Tax rate changes and other |
|
| — |
|
|
| 0.01 |
|
|
| (0.27 | ) |
|
| 0.01 |
| ||||||||||||||||
Debt refinancing and unutilized financing (benefit) costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.02 |
| ||||||||||||||||
Normalized funds from operations | $ | 0.33 | $ | 0.30 | $ | 0.98 | $ | 0.97 |
| $ | 0.38 |
|
| $ | 0.45 |
|
| $ | 1.22 |
|
| $ | 1.38 |
| ||||||||
|
|
|
|
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 first nine months ended September 30, 2017,of 2023, we generated $219.9approximately $370.4 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along(along with cash on-hand and borrowings on our revolving credit facility) to fund our dividends of $239.2$524.2 million.
CertainIn regard to other investing and financing activities in 2017 included:
a) On February 1, 2017,the first nine months of 2023, we replaceddid the following:
41
b) On March 4, 2017, we redeemed our 5.750%2.550% Senior Unsecured Notes due 2020 for €2002023.
Subsequent to quarter-end, we purchased an additional £10 million plus a redemption premium using proceeds fromof 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 proceeds to pay off our €200 million term loan, and the remaining proceeds were used to acquire 12 facilities leased to MEDIAN for €146.4 million;
d) On March 31, 2017, we sold the EASTAR Health System real estate in Muskogee, Oklahoma for approximately $64 million;
e) On May 1, 2017, we completed an underwritten public offering of 43.1 million shares resulting in net proceeds of approximately $548 million. We used a portion of these proceeds to acquire eight facilities for $301.3 million (leased to Steward), a facility in Idaho for $87.5 million (leased to RCCH) and two other facilities for $40 million (leased to Alecto);
f) On September 7, 2017, we completed a senior unsecured notes offering for $1.4 billion and used a portion of the proceeds to redeem our 6.375%2.550% Senior Unsecured Notes due 2022 in October 2017 for $350 million plus2023. In addition, we paid out a redemption premium, anddividend equal to $0.15 per share. Compared to the remaining proceeds, along with borrowings from our revolving credit facility, were used to acquire 11 facilities and ancillary properties leased to Steward for $1.4 billion and to make a $100 million equity investment in Steward; and
g) On September 29, 2017, we prepaid our Northland mortgage loandividends paid in the amountfirst three quarters of $12.92023, this dividend per share reduction represents an annualized cash savings of approximately $330 million.
20162022 Cash Flow Activity
During the first nine months ended September 30, 2016,of 2022, we generated $168.3approximately $560 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans.loans, of which we used $525 million to fund our dividends. During the first nine months of 2022, we received approximately $2.2 billion of proceeds from disposals (including the Macquarie Transaction as described in Note 3 to the condensed consolidated financial statements) and approximately $360 million from the property sales to Prime. We used these operating cash flows along with cash on-handproceeds to pay off our interim credit facility, partially pay down the outstanding balance on our Credit Facility, fund our dividends$1.0 billion of $160.1 millionnew acquisitions, and certain investing activities.
In regards tomake other financing activities, to, delever and financeinvestments. We exercised 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 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 offeringaccordion feature 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 related to the redemption (see Note 4 to Item 1 of this Form 10-Q for further 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 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 thisduring the first nine months of 2022 and extended the term on both the revolver and term loan portions of our Credit Facility - see Note 4 to the condensed consolidated financial statements for additional details.
Short-term Liquidity Requirements:
Our short-term liquidity requirements typically consist of general 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 next twelve months.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 a substantial portion of cash rent and interest from Prospect, a bond maturing in December 2023 of approximately $434 million, and a term loan maturing in May 2024 of approximately $300 million, we have looked to other initiatives to improve cash flows including:
With these initiatives, liquidity of approximately $0.9 billion (including cash on-hand and availability under our revolving credit facility) at November 3, 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 $0.9 billion at November 3, 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:
42
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, principalPrincipal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) as of November 3, 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 |
| $ | 433,539 |
|
2024 |
|
| 435,915 |
|
2025 |
|
| 1,403,150 |
|
2026 |
|
| 2,816,026 |
|
2027 |
|
| 1,600,000 |
|
Thereafter |
|
| 3,376,100 |
|
Total |
| $ | 10,064,730 |
|
Disclosure of Contractual ObligationsCommitments
We presented our contractual obligationscommitments in our 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2016. For the nine months ended September 30, 2017, changes toand provided an update in 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 thisQuarterly Report on Form 10-Q for more detailed information.the period ended June 30, 2023. Except for the change noted below, there have been no significant changes through November 3, 2023. Excluded from this table is $10 million of unused loan to Prospect as part of the Prospect Transaction discussed in Note 3 to the 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 redemptionas of our 6.375% Senior Unsecured Notes due 2022November 3, 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 |
| |||||||
Revolving credit facility |
| $ | 12,754 |
|
| $ | 80,552 |
|
| $ | 80,552 |
|
| $ | 1,200,527 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,374,385 |
|
Distribution Policy
The table below is a summary of our distributions declared during the two year period ended September 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 |
| |
August 21, 2023 |
| September 14, 2023 |
| October 12, 2023 |
| $ | 0.15 |
|
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 |
|
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
43
rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate or foreign currency exposure. For interest rate hedging, these decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. For foreign currency hedging, these decisions are principally based on how our investments are financed, the long-term nature of our investments, the need to repatriate earnings back to the U.S., and the general trend in foreign currency exchange rates.
In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits, all of which may affect our ability to refinance our debt, if necessary. The changes in the value of our facilities would be impacted also by changes in “cap” rates, which is measured by the current base rent divided by the current market value of a facility.
Our primary exposure to market risks relates to fluctuations in interest rates and foreign currency. The following analyses present the sensitivity of the market value, earnings, and cash flows of our significant financial instruments to hypothetical changes in interest rates and exchange rates as if these changes had occurred. The hypothetical changes chosen for these analyses reflect our view of changes that are reasonably possible over a one-year period. These forward looking disclosures are selective in nature and only address the potential impact from these hypothetical changes. They do not include other potential effects which could impact our business as a result of changes in market conditions. In addition, they do not include measures we may take to minimize our exposure such as entering into future interest rate swaps to hedge against interest rate increases on our variable rate debt.
Interest Rate Sensitivity
For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At September 30, 2017,2023, our outstanding debt totaled $4.8$10.2 billion, which consisted of fixed-rate debt of $4.2approximately $8.6 billion (after considering interest rate swaps in-place) and variable rate debt of $0.6$1.6 billion. If market interest rates increase by 1%10%, the fair value of our debt at September 30, 20172023 would decrease by $8.0approximately $231.8 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$10.3 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$10.3 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $0.6$1.6 billion, the balance of such variable rate debt at September 30, 2017.2023.
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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 (£) |
| $ | 10,482 |
|
| $ | 19,935 |
|
| $ | 19,832 |
|
Euro (€) |
|
| 1,975 |
|
|
| 6,471 |
|
|
| 6,475 |
|
Swiss franc (CHF) |
|
| 5,427 |
|
|
| 7,804 |
|
|
| 3,870 |
|
Colombian peso (COP) |
|
| 1,453 |
|
|
| 1,523 |
|
|
| 1,523 |
|
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 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. This class action complaint was amended on September 22, 2023 and alleges that we made material misstatements or omissions relating to the financial health of certain of our tenants.
On September 29, 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-08597. The complaint seeks class certification on behalf of purchasers of our common stock between May 23, 2023 and August 17, 2023 and alleges false and/or misleading statements and/or omissions.
On October 19, 2023, members of our Board of Directors were named as defendants in a shareholder derivative action filed by a purported stockholder in the United States District Court for the Northern District of Alabama, Case No. 2:23-cv-01415. The Company was named as a nominal defendant. The complaint makes allegations similar to those made in the securities action pending in the Northern District of Alabama described above relating to purported material misstatements or omissions relating to the financial health of certain of our tenants.
We believe these claims are without merit and intend to defend the remaining open cases 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 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.
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Period |
| Total number of |
|
| Average price |
|
| Total number of shares |
|
| Approximate dollar |
| ||||
July 1-July 31, 2023 |
|
| 56 |
|
| $ | 9.29 |
|
|
| — |
|
| $ | 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.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the three months ended September 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).
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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.
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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: November 9, 2017
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