Maryland Delaware | | | | 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 | | 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer”, “smaller reporting company,”company” and “emerging growth company” inRule 12b-2 of the Exchange Act. | | | | | | | | | Large accelerated filer | | ☒ | | (Medical Properties Trust, Inc. only) | | Accelerated filer | | ☐ | | | | | | Non-accelerated filer | | ☒ | | (MPT Operating Partnership, L.P. only) | | Smaller reporting company | | ☐ | | | | | | | | | | (Do not check if a smaller reporting company) | | Emerging growth company | | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 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 is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒ As of NovemberMay 3, 2017,2021, Medical Properties Trust, Inc. had 364,156,080588.2 million shares of common stock, par value $0.001, outstanding.
EXPLANATORY NOTE This report combines the Quarterly Reports on Form 10-Q for the three and nine months ended September 30, 2017,March 31, 2021 of Medical Properties Trust, Inc., a Maryland corporation, and MPT Operating Partnership, L.P., a Delaware limited partnership, through which Medical Properties Trust, Inc. conducts substantially all of its operations. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our company,” “Medical Properties,” “MPT,” or “the company”the “company” refer to Medical Properties Trust, Inc. together with its consolidated subsidiaries, including MPT Operating Partnership, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our operating partnership” or “the operating“operating partnership” refer to MPT Operating Partnership, L.P. together with its consolidated subsidiaries.
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017March 31, 2021 Table of Contents | | | | | | | Page | | PART I — FINANCIAL INFORMATION | | | 4 | 3 | Item 1 Financial Statements | | | 4 | 3 | Medical Properties Trust, Inc. and Subsidiaries | | | | | | | Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2021 and December 31, 20162020 | | | 4 | 3 | | | Condensed Consolidated Statements of Net Income for the Three Months Ended March 31, 2021 and Nine Months Ended September 30, 2017 and 20162020 | | | 5 | 4 | | | Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and Nine2020 | | 5 | | | Condensed Consolidated Statements of Equity for the Three Months Ended September 30, 2017March 31, 2021 and 20162020 | | | 6 | | | | Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2021 and 20162020 | | | 7 | | MPT Operating Partnership, L.P. and Subsidiaries | | | | | | | Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2021 and December 31, 20162020 | | | 8 | | | | Condensed Consolidated Statements of Net Income for the Three Months Ended March 31, 2021 and Nine Months Ended September 30, 2017 and 20162020 | | | 9 | | | | Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and Nine2020 | | 10 | | | Condensed Consolidated Statements of Capital for the Three Months Ended September 30, 2017March 31, 2021 and 20162020 | | | 10 | 11 | | | Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2021 and 20162020 | | | 11 | 12 | Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. | | | | | | | Notes to Condensed Consolidated Financial Statements | | | 12 | 13 | Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations | | | 30 | 23 | Item 3 Quantitative and Qualitative Disclosures about Market Risk | | | 41 | 33 | Item 4 Controls and Procedures | | | 42 | 34 | PART II — OTHER INFORMATION | | | 43 | 35 | Item 1 Legal Proceedings | | | 43 | 35 | Item 1A Risk Factors | | | 43 | 35 | Item 2 Unregistered Sales of Equity Securities and Use of Proceeds | | | 44 | 35 | Item 3 Defaults Upon Senior Securities | | | 44 | 35 | Item 4 Mine Safety Disclosures | | | 44 | 35 | Item 5 Other Information | | | 44 | 35 | Item 6 Exhibits | | | 45 | | INDEX TO EXHIBITS
| | | 46 | 36 | SIGNATURE | | | 47 | 37 |
PART I — FINANCIAL INFORMATION Item 1. | Financial Statements. |
Item 1. Financial Statements. MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2021 | | | December 31, 2020 | | (In thousands, except per share amounts) | | (Unaudited) | | (Note 2) | | | (Unaudited) | | | (Note 2) | | Assets | | | | | | | | | | | | | Real estate assets | | | | | | | | | | | | | Land, buildings and improvements, intangible lease assets, and other | | $ | 5,795,286 | | | $ | 4,317,866 | | | $ | 12,107,170 | | | $ | 12,078,927 | | Investment in financing leases | | | | 2,021,480 | | | | 2,010,922 | | Mortgage loans | | | 1,777,555 | | | 1,060,400 | | | | 1,324,865 | | | | 248,080 | | Net investment in direct financing leases | | | 695,829 | | | 648,102 | | | | | | | | | | | Gross investment in real estate assets | | | 8,268,670 | | | 6,026,368 | | | | 15,453,515 | | | | 14,337,929 | | Accumulated depreciation and amortization | | | (418,880 | ) | | (325,125 | ) | | | (903,798 | ) | | | (833,529 | ) | | | | | | | | | Net investment in real estate assets | | | 7,849,790 | | | 5,701,243 | | | | 14,549,717 | | | | 13,504,400 | | Cash and cash equivalents | | | 188,224 | | | 83,240 | | | | 746,753 | | | | 549,884 | | Interest and rent receivables | | | 105,817 | | | 57,698 | | | | 44,558 | | | | 46,208 | | Straight-line rent receivables | | | 166,142 | | | 116,861 | | | | 545,385 | | | | 490,462 | | Equity investments | | | | 1,080,214 | | | | 1,123,623 | | Other loans | | | 151,709 | | | 155,721 | | | | 1,522,666 | | | | 858,368 | | Other assets | | | 465,358 | | | 303,773 | | | | 256,382 | | | | 256,069 | | | | | | | | | | Total Assets | | $ | 8,927,040 | | | $ | 6,418,536 | | | $ | 18,745,675 | | | $ | 16,829,014 | | | | | | | | | | Liabilities and Equity | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | Debt, net | | $ | 4,832,264 | | | $ | 2,909,341 | | | $ | 9,999,538 | | | $ | 8,865,458 | | Accounts payable and accrued expenses | | | 180,631 | | | 207,711 | | | | 445,595 | | | | 438,750 | | Deferred revenue | | | 18,906 | | | 19,933 | | | | 21,533 | | | | 36,177 | | Lease deposits and other obligations to tenants | | | 54,035 | | | 28,323 | | | | | | | | | | | Obligations to tenants and other lease liabilities | | | | 158,799 | | | | 144,772 | | Total Liabilities | | | 5,085,836 | | | 3,165,308 | | | | 10,625,465 | | | | 9,485,157 | | 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 | | | Preferred stock, $0.001 par value. Authorized 10,000 shares; 0 shares outstanding | | | | — | | | | — | | Common stock, $0.001 par value. Authorized 750,000 shares; issued and outstanding — 583,109 shares at March 31, 2021 and 541,419 shares at December 31, 2020 | | | | 583 | | | | 541 | | Additional paid-in capital | | | | 8,252,966 | | | | 7,461,503 | | Distributions in excess of net income | | | (468,473 | ) | | (434,114 | ) | | | (71,071 | ) | | | (71,411 | ) | Accumulated other comprehensive loss | | | (35,165 | ) | | (92,903 | ) | | | (66,720 | ) | | | (51,324 | ) | Treasury shares, at cost | | | (777 | ) | | (262 | ) | | | (777 | ) | | | (777 | ) | | | | | | | | | Total Medical Properties Trust, Inc. Stockholders’ Equity | | | 3,826,444 | | | 3,248,378 | | | Total Medical Properties Trust, Inc. stockholders’ equity | | | | 8,114,981 | | | | 7,338,532 | | Non-controlling interests | | | 14,760 | | | 4,850 | | | | 5,229 | | | | 5,325 | | | | | | | | | | Total Equity | | | 3,841,204 | | | 3,253,228 | | | | 8,120,210 | | | | 7,343,857 | | | | | | | | | | Total Liabilities and Equity | | $ | 8,927,040 | | | $ | 6,418,536 | | | $ | 18,745,675 | | | $ | 16,829,014 | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Net Income (Unaudited) | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | (In thousands, except per share amounts) | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Revenues | | | | | | | | | | | | | | | | | Rent billed | | $ | 110,930 | | | $ | 82,387 | | | $ | 311,140 | | | $ | 234,408 | | Straight-line rent | | | 17,505 | | | | 9,741 | | | | 46,561 | | | | 26,509 | | Income from direct financing leases | | | 19,115 | | | | 14,678 | | | | 55,307 | | | | 47,181 | | Interest and fee income | | | 29,030 | | | | 19,749 | | | | 86,776 | | | | 79,756 | | | | | | | | | | | | | | | | | | | Total revenues | | | 176,580 | | | | 126,555 | | | | 499,784 | | | | 387,854 | | Expenses | | | | | | | | | | | | | | | | | Real estate depreciation and amortization | | | 31,915 | | | | 23,876 | | | | 88,994 | | | | 67,850 | | Impairment charges | | | — | | | | (80 | ) | | | — | | | | 7,295 | | Property-related | | | 1,519 | | | | (93 | ) | | | 4,000 | | | | 1,592 | | Acquisition expenses | | | 7,434 | | | | 2,677 | | | | 20,996 | | | | 6,379 | | General and administrative | | | 15,011 | | | | 12,305 | | | | 43,287 | | | | 35,821 | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 55,879 | | | | 38,685 | | | | 157,277 | | | | 118,937 | | | | | | | | | | | | | | | | | | | Operating income | | | 120,701 | | | | 87,870 | | | | 342,507 | | | | 268,917 | | Other income (expense) | | | | | | | | | | | | | | | | | Interest expense | | | (42,759 | ) | | | (40,262 | ) | | | (120,498 | ) | | | (121,132 | ) | Gain on sale of real estate and other asset dispositions, net | | | 18 | | | | 44,616 | | | | 7,431 | | | | 61,294 | | Earnings (loss) from equity and other interests | | | 3,384 | | | | 1,245 | | | | 7,898 | | | | (2,556 | ) | Unutilized financing fees/debt refinancing costs | | | (4,414 | ) | | | (22,535 | ) | | | (18,794 | ) | | | (22,539 | ) | Other income (expense) | | | 481 | | | | 99 | | | | 1,101 | | | | (118 | ) | Income tax expense | | | (530 | ) | | | (490 | ) | | | (783 | ) | | | (1,173 | ) | | | | | | | | | | | | | | | | | | Net other expense | | | (43,820 | ) | | | (17,327 | ) | | | (123,645 | ) | | | (86,224 | ) | | | | | | | | | | | | | | | | | | Income from continuing operations | | | 76,881 | | | | 70,543 | | | | 218,862 | | | | 182,693 | | Loss from discontinued operations | | | — | | | | — | | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | | | Net income | | | 76,881 | | | | 70,543 | | | | 218,862 | | | | 182,692 | | Net income attributable to non-controlling interests | | | (417 | ) | | | (185 | ) | | | (1,013 | ) | | | (683 | ) | | | | | | | | | | | | | | | | | | Net income attributable to MPT common stockholders | | $ | 76,464 | | | $ | 70,358 | | | $ | 217,849 | | | $ | 182,009 | | | | | | | | | | | | | | | | | | | Earnings per common share — basic | | | | | | | | | | | | | | | | | Income from continuing operations attributable to MPT common stockholders | | $ | 0.21 | | | $ | 0.29 | | | $ | 0.63 | | | $ | 0.75 | | Loss from discontinued operations attributable to MPT common stockholders | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Net income attributable to MPT common stockholders | | $ | 0.21 | | | $ | 0.29 | | | $ | 0.63 | | | $ | 0.75 | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding — basic | | | 364,315 | | | | 246,230 | | | | 345,076 | | | | 240,607 | | | | | | | | | | | | | | | | | | | Earnings per common share — diluted | | | | | | | | | | | | | | | | | Income from continuing operations attributable to MPT common stockholders | | $ | 0.21 | | | $ | 0.28 | | | $ | 0.63 | | | $ | 0.75 | | Loss from discontinued operations attributable to MPT common stockholders | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Net income attributable to MPT common stockholders | | $ | 0.21 | | | $ | 0.28 | | | $ | 0.63 | | | $ | 0.75 | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding — diluted | | | 365,046 | | | | 247,468 | | | | 345,596 | | | | 241,432 | | | | | | | | | | | | | | | | | | | Dividends declared per common share | | $ | 0.24 | | | $ | 0.23 | | | $ | 0.72 | | | $ | 0.68 | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | (In thousands, except per share amounts) | | 2021 | | | 2020 | | Revenues | | | | | | | | | Rent billed | | $ | 213,344 | | | $ | 171,767 | | Straight-line rent | | | 54,873 | | | | 31,421 | | Income from financing leases | | | 50,894 | | | | 52,436 | | Interest and other income | | | 43,654 | | | | 38,508 | | Total revenues | | | 362,765 | | | | 294,132 | | Expenses | | | | | | | | | Interest | | | 86,972 | | | | 80,899 | | Real estate depreciation and amortization | | | 75,642 | | | | 60,921 | | Property-related | | | 5,453 | | | | 5,412 | | General and administrative | | | 36,073 | | | | 33,385 | | Total expenses | | | 204,140 | | | | 180,617 | | Other income (expense) | | | | | | | | | Gain on sale of real estate | | | 989 | | | | 1,325 | | Real estate impairment charges | | | — | | | | (19,006 | ) | Earnings from equity interests | | | 7,101 | | | | 4,079 | | Debt refinancing and unutilized financing costs | | | (2,269 | ) | | | (611 | ) | Other (including mark-to-market adjustments on equity securities) | | | 7,794 | | | | (14,135 | ) | Total other income (expense) | | | 13,615 | | | | (28,348 | ) | | | | | | | | | | Income before income tax | | | 172,240 | | | | 85,167 | | Income tax expense | | | (8,360 | ) | | | (4,010 | ) | | | | | | | | | | Net income | | | 163,880 | | | | 81,157 | | Net income attributable to non-controlling interests | | | (97 | ) | | | (165 | ) | Net income attributable to MPT common stockholders | | $ | 163,783 | | | $ | 80,992 | | | | | | | | | | | Earnings per common share — basic and diluted | | | | | | | | | Net income attributable to MPT common stockholders | | $ | 0.28 | | | $ | 0.15 | | | | | | | | | | | Weighted-average shares outstanding — basic | | | 576,240 | | | | 521,076 | | Weighted-average shares outstanding — diluted | | | 577,541 | | | | 522,179 | | | | | | | | | | | Dividends declared per common share | | $ | 0.28 | | | $ | 0.27 | |
See accompanying notes to condensed consolidated financial statements. 4
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, | | (In thousands) | | 2017 | | 2016 | | 2017 | | 2016 | | | 2021 | | | 2020 | | Net income | | $ | 76,881 | | | $ | 70,543 | | | $ | 218,862 | | | $ | 182,692 | | | $ | 163,880 | | | $ | 81,157 | | 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 gain (loss) on interest rate swap, net of tax | | | | 15,504 | | | | (25,103 | ) | Foreign currency translation loss | | | | (30,900 | ) | | | (23,272 | ) | Total comprehensive income | | | 94,307 | | | 75,847 | | | 276,600 | | | 195,540 | | | | 148,484 | | | | 32,782 | | Comprehensive income attributable to non-controlling interests | | | (417 | ) | | (185 | ) | | (1,013 | ) | | (683 | ) | | | (97 | ) | | | (165 | ) | | | | | | | | | | | | | | | Comprehensive income attributable to MPT common stockholders | | $ | 93,890 | | | $ | 75,662 | | | $ | 275,587 | | | $ | 194,857 | | | $ | 148,387 | | | $ | 32,617 | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Equity (Unaudited) | | Preferred | | | Common | | | | | | | | | | | | | | | | | | | | | | | | | | (In thousands, except per share amounts) | | Shares | | | Par Value | | | Shares | | | Par Value | | | Additional Paid-in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Loss | | | Treasury Shares | | | Non- Controlling Interests | | | Total Equity | | Balance at December 31, 2019 | | | — | | | $ | — | | | | 517,522 | | | $ | 518 | | | $ | 7,008,199 | | | $ | 83,012 | | | $ | (62,905 | ) | | $ | (777 | ) | | $ | 107 | | | $ | 7,028,154 | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 80,992 | | | | — | | | | — | | | | 165 | | | | 81,157 | | Cumulative effect of change in accounting principles | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8,399 | ) | | | — | | | | — | | | | — | | | | (8,399 | ) | Unrealized loss on interest rate swap, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (25,103 | ) | | | — | | | | — | | | | (25,103 | ) | Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (23,272 | ) | | | — | | | | — | | | | (23,272 | ) | Stock vesting and amortization of stock-based compensation | | | — | | | | — | | | | 2,312 | | | | 2 | | | | 10,034 | | | | — | | | | — | | | | — | | | | — | | | | 10,036 | | Distributions to non-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (165 | ) | | | (165 | ) | Proceeds from offering (net of offering costs) | | | — | | | | — | | | | 2,601 | | | | 2 | | | | 61,680 | | | | — | | | | — | | | | — | | | | — | | | | 61,682 | | Dividends declared ($0.27 per common share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (141,580 | ) | | | — | | | | — | | | | — | | | | (141,580 | ) | Balance at March 31, 2020 | | | — | | | $ | — | | | | 522,435 | | | $ | 522 | | | $ | 7,079,913 | | | $ | 14,025 | | | $ | (111,280 | ) | | $ | (777 | ) | | $ | 107 | | | $ | 6,982,510 | |
| | Preferred | | | Common | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | Par Value | | | Shares | | | Par Value | | | Additional Paid-in Capital | | | Distributions in Excess of Net Income | | | Accumulated Other Comprehensive Loss | | | Treasury Shares | | | Non- Controlling Interests | | | Total Equity | | Balance at December 31, 2020 | | | — | | | $ | — | | | | 541,419 | | | $ | 541 | | | $ | 7,461,503 | | | $ | (71,411 | ) | | $ | (51,324 | ) | | $ | (777 | ) | | $ | 5,325 | | | $ | 7,343,857 | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 163,783 | | | | — | | | | — | | | | 97 | | | | 163,880 | | Unrealized gain on interest rate swap, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,504 | | | | — | | | | — | | | | 15,504 | | Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (30,900 | ) | | | — | | | | — | | | | (30,900 | ) | Stock vesting and amortization of stock-based compensation | | | — | | | | — | | | | 1,741 | | | | 2 | | | | 12,262 | | | | — | | | | — | | | | — | | | | — | | | | 12,264 | | Distributions to non-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (193 | ) | | | (193 | ) | Proceeds from offering (net of offering costs) | | | — | | | | — | | | | 39,949 | | | | 40 | | | | 779,201 | | | | — | | | | — | | | | — | | | | — | | | | 779,241 | | Dividends declared ($0.28 per common share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (163,443 | ) | | | — | | | | — | | | | — | | | | (163,443 | ) | Balance at March 31, 2021 | | | — | | | $ | — | | | | 583,109 | | | $ | 583 | | | $ | 8,252,966 | | | $ | (71,071 | ) | | $ | (66,720 | ) | | $ | (777 | ) | | $ | 5,229 | | | $ | 8,120,210 | |
See accompanying notes to condensed consolidated financial statements. 6
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) | | | | | | For the Three Months Ended March 31, | | | | For the Nine Months Ended September 30, | | | 2021 | | | 2020 | | (In thousands) | | 2017 | | 2016 | | | | | | (In thousands) | | Operating activities | | | | | | | | | | | | | Net income | | $ | 218,862 | | | $ | 182,692 | | | $ | 163,880 | | | $ | 81,157 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 93,805 | | | 69,720 | | | | 78,606 | | | | 63,833 | | Amortization of deferred financing costs and debt discount | | | 4,748 | | | 5,799 | | | | 3,817 | | | | 3,210 | | Direct financing lease interest accretion | | | (7,276 | ) | | (6,757 | ) | | Straight-line rent revenue | | | (47,678 | ) | | (27,009 | ) | | Straight-line rent revenue and other | | | | (65,333 | ) | | | (47,846 | ) | Share-based compensation | | | 7,148 | | | 5,832 | | | | 12,264 | | | | 10,036 | | Gain from sale of real estate and other asset dispositions, net | | | (7,431 | ) | | (61,294 | ) | | Gain from sale of real estate | | | | (989 | ) | | | (1,325 | ) | Impairment charges | | | — | | | 7,295 | | | | — | | | | 19,006 | | Straight-line rent and other write-off | | | 1,117 | | | 3,063 | | | Unutilized financing fees/debt refinancing costs | | | 18,794 | | | 22,539 | | | Straight-line rent and other (recovery) write-off | | | | (5,238 | ) | | | 7,717 | | Debt refinancing and unutilized financing costs | | | | 2,269 | | | | 611 | | Pre-acquisition rent collected - Circle Transaction | | | | — | | | | (35,020 | ) | Other adjustments | | | (7,152 | ) | | (8,398 | ) | | | (3,575 | ) | | | (421 | ) | Changes in: | | | | | | | | | | | | | Interest and rent receivables | | | (14,613 | ) | | (12,790 | ) | | | 13,396 | | | | 2,137 | | Accounts payable and accrued expenses | | | (40,378 | ) | | (12,403 | ) | | | 5,062 | | | | (4,221 | ) | | | | | | | | | Deferred revenue | | | | (15,429 | ) | | | 8,040 | | Net cash provided by operating activities | | | 219,946 | | | 168,289 | | | | 188,730 | | | | 106,914 | | Investing activities | | | | | | | | | | | | | Cash paid for acquisitions and other related investments | | | (2,152,069 | ) | | (213,100 | ) | | | (1,778,417 | ) | | | (1,973,661 | ) | Net proceeds from sale of real estate | | | 64,362 | | | 198,767 | | | | 10,905 | | | | 9,597 | | Principal received on loans receivable | | | 6,760 | | | 804,809 | | | | 40,937 | | | | — | | Investment in loans receivable | | | (18,574 | ) | | (102,909 | ) | | | (23,935 | ) | | | (2,307 | ) | 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 | | | Return of equity investment | | | | 11,000 | | | | 63,122 | | Capital additions and other investments, net | | | | (42,050 | ) | | | 8,460 | | Net cash used for investing activities | | | | (1,781,560 | ) | | | (1,894,789 | ) | Financing activities | | | | | | | | | | | | | Proceeds from term debt | | | 2,355,280 | | | 1,000,000 | | | Proceeds from term debt, net of discount | | | | 1,839,735 | | | | 915,950 | | Payments of term debt | | | (688,221 | ) | | (515,221 | ) | | | (689,450 | ) | | | — | | Revolving credit facilities, net | | | 155,089 | | | (1,100,000 | ) | | | 8,910 | | | | — | | Distributions paid | | | (239,211 | ) | | (160,060 | ) | | Dividends paid | | | | (147,666 | ) | | | (138,074 | ) | Lease deposits and other obligations to tenants | | | (7,467 | ) | | 13,784 | | | | 12,900 | | | | 2,348 | | Proceeds from sale of common shares, net of offering costs | | | 548,055 | | | 1,024,088 | | | | 779,241 | | | | 61,682 | | Debt issuance costs paid and other financing activities | | | (27,167 | ) | | (31,317 | ) | | Payment of debt refinancing, deferred financing costs, and other financing activities | | | | (18,479 | ) | | | (6,687 | ) | Net cash provided by financing activities | | | | 1,785,191 | | | | 835,219 | | Increase (decrease) in cash, cash equivalents, and restricted cash for period | | | | 192,361 | | | | (952,656 | ) | Effect of exchange rate changes | | | | 4,356 | | | | (9,157 | ) | Cash, cash equivalents, and restricted cash at beginning of period | | | | 556,369 | | | | 1,467,991 | | Cash, cash equivalents, and restricted cash at end of period | | | $ | 753,086 | | | $ | 506,178 | | Interest paid | | | $ | 82,471 | | | $ | 80,721 | | Supplemental schedule of non-cash financing activities: | | | | | | | | | | Dividends declared, unpaid | | | $ | 163,443 | | | $ | 141,667 | | Cash, cash equivalents, and restricted cash are comprised of the following: | | | | | | | | | | Beginning of period: | | | | | | | | | | Cash and cash equivalents | | | $ | 549,884 | | | $ | 1,462,286 | | Restricted cash, included in Other assets | | | | 6,485 | | | | 5,705 | | | | | | | | | | $ | 556,369 | | | $ | 1,467,991 | | Net cash provided by financing activities | | | 2,096,358 | | | 231,274 | | | End of period: | | | | | | | | | | Cash and cash equivalents | | | $ | 746,753 | | | $ | 500,213 | | Restricted cash, included in Other assets | | | | 6,333 | | | | 5,965 | | | | | | | | | | $ | 753,086 | | | $ | 506,178 | | 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 | | |
See accompanying notes to condensed consolidated financial statements. 7
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES Condensed Consolidated Balance Sheets | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2021 | | | December 31, 2020 | | (In thousands) | | (Unaudited) | | (Note 2) | | | (Unaudited) | | | (Note 2) | | Assets | | | | | | | | | | | | | Real estate assets | | | | | | | | | | | | | Land, buildings and improvements, intangible lease assets, and other | | $ | 5,795,286 | | | $ | 4,317,866 | | | $ | 12,107,170 | | | $ | 12,078,927 | | Investment in financing leases | | | | 2,021,480 | | | | 2,010,922 | | Mortgage loans | | | 1,777,555 | | | 1,060,400 | | | | 1,324,865 | | | | 248,080 | | Net investment in direct financing leases | | | 695,829 | | | 648,102 | | | | | | | | | | | Gross investment in real estate assets | | | 8,268,670 | | | 6,026,368 | | | | 15,453,515 | | | | 14,337,929 | | Accumulated depreciation and amortization | | | (418,880 | ) | | (325,125 | ) | | | (903,798 | ) | | | (833,529 | ) | | | | | | | | | Net investment in real estate assets | | | 7,849,790 | | | 5,701,243 | | | | 14,549,717 | | | | 13,504,400 | | Cash and cash equivalents | | | 188,224 | | | 83,240 | | | | 746,753 | | | | 549,884 | | Interest and rent receivables | | | 105,817 | | | 57,698 | | | | 44,558 | | | | 46,208 | | Straight-line rent receivables | | | 166,142 | | | 116,861 | | | | 545,385 | | | | 490,462 | | Equity investments | | | | 1,080,214 | | | | 1,123,623 | | Other loans | | | 151,709 | | | 155,721 | | | | 1,522,666 | | | | 858,368 | | Other assets | | | 465,358 | | | 303,773 | | | | 256,382 | | | | 256,069 | | | | | | | | | | Total Assets | | $ | 8,927,040 | | | $ | 6,418,536 | | | $ | 18,745,675 | | | $ | 16,829,014 | | | | | | | | | | Liabilities and Capital | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | Debt, net | | $ | 4,832,264 | | | $ | 2,909,341 | | | $ | 9,999,538 | | | $ | 8,865,458 | | Accounts payable and accrued expenses | | | 92,793 | | | 132,868 | | | | 281,762 | | | | 290,757 | | Deferred revenue | | | 18,906 | | | 19,933 | | | | 21,533 | | | | 36,177 | | Lease deposits and other obligations to tenants | | | 54,035 | | | 28,323 | | | Obligations to tenants and other lease liabilities | | | | 158,799 | | | | 144,772 | | Payable due to Medical Properties Trust, Inc. | | | 87,448 | | | 74,453 | | | | 163,443 | | | | 147,603 | | | | | | | | | | Total Liabilities | | | 5,085,446 | | | 3,164,918 | | | | 10,625,075 | | | | 9,484,767 | | Capital | | | | | | | | | | | | | General Partner — issued and outstanding — 3,641 units at September 30, 2017 and 3,204 units at December 31, 2016 | | | 38,639 | | | 33,436 | | | Limited Partners: | | | | | | Common units — issued and outstanding — 360,443 units at September 30, 2017 and 317,310 units at December 31, 2016 | | | 3,823,360 | | | 3,308,235 | | | LTIP units — issued and outstanding — 292 units at September 30, 2017 and December 31, 2016 | | | — | | | | — | | | General Partner — issued and outstanding — 5,830 units at March 31, 2021 and 5,414 units at December 31, 2020 | | | | 81,896 | | | | 73,977 | | Limited Partners — issued and outstanding — 577,279 units at March 31, 2021 and 536,005 units at December 31, 2020 | | | | 8,100,195 | | | | 7,316,269 | | Accumulated other comprehensive loss | | | (35,165 | ) | | (92,903 | ) | | | (66,720 | ) | | | (51,324 | ) | | | | | | | | | Total MPT Operating Partnership, L.P. Capital | | | 3,826,834 | | | 3,248,768 | | | Total MPT Operating Partnership, L.P. capital | | | | 8,115,371 | | | | 7,338,922 | | Non-controlling interests | | | 14,760 | | | 4,850 | | | | 5,229 | | | | 5,325 | | | | | | | | | | Total Capital | | | 3,841,594 | | | 3,253,618 | | | | 8,120,600 | | | | 7,344,247 | | | | | | | | | | Total Liabilities and Capital | | $ | 8,927,040 | | | $ | 6,418,536 | | | $ | 18,745,675 | | | $ | 16,829,014 | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements. 8
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES Condensed Consolidated Statements of Net Income (Unaudited) | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | (In thousands, except per unit amounts) | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Revenues | | | | | | | | | | | | | | | | | Rent billed | | $ | 110,930 | | | $ | 82,387 | | | $ | 311,140 | | | $ | 234,408 | | Straight-line rent | | | 17,505 | | | | 9,741 | | | | 46,561 | | | | 26,509 | | Income from direct financing leases | | | 19,115 | | | | 14,678 | | | | 55,307 | | | | 47,181 | | Interest and fee income | | | 29,030 | | | | 19,749 | | | | 86,776 | | | | 79,756 | | | | | | | | | | | | | | | | | | | Total revenues | | | 176,580 | | | | 126,555 | | | | 499,784 | | | | 387,854 | | Expenses | | | | | | | | | | | | | | | | | Real estate depreciation and amortization | | | 31,915 | | | | 23,876 | | | | 88,994 | | | | 67,850 | | Impairment charges | | | — | | | | (80 | ) | | | — | | | | 7,295 | | Property-related | | | 1,519 | | | | (93 | ) | | | 4,000 | | | | 1,592 | | Acquisition expenses | | | 7,434 | | | | 2,677 | | | | 20,996 | | | | 6,379 | | General and administrative | | | 15,011 | | | | 12,305 | | | | 43,287 | | | | 35,821 | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 55,879 | | | | 38,685 | | | | 157,277 | | | | 118,937 | | | | | | | | | | | | | | | | | | | Operating income | | | 120,701 | | | | 87,870 | | | | 342,507 | | | | 268,917 | | Other income (expense) | | | | | | | | | | | | | | | | | Interest expense | | | (42,759 | ) | | | (40,262 | ) | | | (120,498 | ) | | | (121,132 | ) | Gain on sale of real estate and other asset dispositions, net | | | 18 | | | | 44,616 | | | | 7,431 | | | | 61,294 | | Earnings (loss) from equity and other interests | | | 3,384 | | | | 1,245 | | | | 7,898 | | | | (2,556 | ) | Unutilized financing fees/debt refinancing costs | | | (4,414 | ) | | | (22,535 | ) | | | (18,794 | ) | | | (22,539 | ) | Other income (expense) | | | 481 | | | | 99 | | | | 1,101 | | | | (118 | ) | Income tax expense | | | (530 | ) | | | (490 | ) | | | (783 | ) | | | (1,173 | ) | | | | | | | | | | | | | | | | | | Net other expense | | | (43,820 | ) | | | (17,327 | ) | | | (123,645 | ) | | | (86,224 | ) | | | | | | | | | | | | | | | | | | Income from continuing operations | | | 76,881 | | | | 70,543 | | | | 218,862 | | | | 182,693 | | Loss from discontinued operations | | | — | | | | — | | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | | | Net income | | | 76,881 | | | | 70,543 | | | | 218,862 | | | | 182,692 | | Net income attributable to non-controlling interests | | | (417 | ) | | | (185 | ) | | | (1,013 | ) | | | (683 | ) | | | | | | | | | | | | | | | | | | Net income attributable to MPT Operating Partnership partners | | $ | 76,464 | | | $ | 70,358 | | | $ | 217,849 | | | $ | 182,009 | | | | | | | | | | | | | | | | | | | Earnings per unit — basic | | | | | | | | | | | | | | | | | Income from continuing operations attributable to MPT Operating Partnership partners | | $ | 0.21 | | | $ | 0.29 | | | $ | 0.63 | | | $ | 0.75 | | Loss from discontinued operations attributable to MPT Operating Partnership partners | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Net income attributable to MPT Operating Partnership partners | | $ | 0.21 | | | $ | 0.29 | | | $ | 0.63 | | | $ | 0.75 | | | | | | | | | | | | | | | | | | | Weighted average units outstanding — basic | | | 364,315 | | | | 246,230 | | | | 345,076 | | | | 240,607 | | | | | | | | | | | | | | | | | | | Earnings per unit — diluted | | | | | | | | | | | | | | | | | Income from continuing operations attributable to MPT Operating Partnership partners | | $ | 0.21 | | | $ | 0.28 | | | $ | 0.63 | | | $ | 0.75 | | Loss from discontinued operations attributable to MPT Operating Partnership partners | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Net income attributable to MPT Operating Partnership partners | | $ | 0.21 | | | $ | 0.28 | | | $ | 0.63 | | | $ | 0.75 | | | | | | | | | | | | | | | | | | | Weighted average units outstanding — diluted | | | 365,046 | | | | 247,468 | | | | 345,596 | | | | 241,432 | | | | | | | | | | | | | | | | | | | Dividends declared per unit | | $ | 0.24 | | | $ | 0.23 | | | $ | 0.72 | | | $ | 0.68 | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | (In thousands, except per unit amounts) | | 2021 | | | 2020 | | Revenues | | | | | | | | | Rent billed | | $ | 213,344 | | | $ | 171,767 | | Straight-line rent | | | 54,873 | | | | 31,421 | | Income from financing leases | | | 50,894 | | | | 52,436 | | Interest and other income | | | 43,654 | | | | 38,508 | | Total revenues | | | 362,765 | | | | 294,132 | | Expenses | | | | | | | | | Interest | | | 86,972 | | | | 80,899 | | Real estate depreciation and amortization | | | 75,642 | | | | 60,921 | | Property-related | | | 5,453 | | | | 5,412 | | General and administrative | | | 36,073 | | | | 33,385 | | Total expenses | | | 204,140 | | | | 180,617 | | Other income (expense) | | | | | | | | | Gain on sale of real estate | | | 989 | | | | 1,325 | | Real estate impairment charges | | | — | | | | (19,006 | ) | Earnings from equity interests | | | 7,101 | | | | 4,079 | | Debt refinancing and unutilized financing costs | | | (2,269 | ) | | | (611 | ) | Other (including mark-to-market adjustments on equity securities) | | | 7,794 | | | | (14,135 | ) | Total other income (expense) | | | 13,615 | | | | (28,348 | ) | | | | | | | | | | Income before income tax | | | 172,240 | | | | 85,167 | | Income tax expense | | | (8,360 | ) | | | (4,010 | ) | | | | | | | | | | Net income | | | 163,880 | | | | 81,157 | | Net income attributable to non-controlling interests | | | (97 | ) | | | (165 | ) | Net income attributable to MPT Operating Partnership partners | | $ | 163,783 | | | $ | 80,992 | | | | | | | | | | | Earnings per unit — basic and diluted | | | | | | | | | Net income attributable to MPT Operating Partnership partners | | $ | 0.28 | | | $ | 0.15 | | | | | | | | | | | Weighted-average units outstanding — basic | | | 576,240 | | | | 521,076 | | Weighted-average units outstanding — diluted | | | 577,541 | | | | 522,179 | | | | | | | | | | | Dividends declared per unit | | $ | 0.28 | | | $ | 0.27 | |
See accompanying notes to condensed consolidated financial statements. 9
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, | | (In thousands) | | 2017 | | 2016 | | 2017 | | 2016 | | | 2021 | | | 2020 | | Net income | | $ | 76,881 | | | $ | 70,543 | | | $ | 218,862 | | | $ | 182,692 | | | $ | 163,880 | | | $ | 81,157 | | 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 gain (loss) on interest rate swap, net of tax | | | | 15,504 | | | | (25,103 | ) | Foreign currency translation loss | | | | (30,900 | ) | | | (23,272 | ) | Total comprehensive income | | | 94,307 | | | 75,847 | | | 276,600 | | | 195,540 | | | | 148,484 | | | | 32,782 | | Comprehensive income attributable to non-controlling interests | | | (417 | ) | | (185 | ) | | (1,013 | ) | | (683 | ) | | | (97 | ) | | | (165 | ) | | | | | | | | | | | | | | | Comprehensive income attributable to MPT Operating Partnership Partners | | $ | 93,890 | | | $ | 75,662 | | | $ | 275,587 | | | $ | 194,857 | | | | | | | | | | | | | | | | | Comprehensive income attributable to MPT Operating Partnership partners | | | $ | 148,387 | | | $ | 32,617 | |
See accompanying notes to condensed consolidated financial statements. 10
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES Condensed Consolidated Statements of Capital (Unaudited) | | General | | | Limited Partners | | | Accumulated | | | | | | | | | | | | Partner | | | Common | | | LTIPs | | | Other | | | Non- | | | | | | (In thousands, except per unit amounts) | | Units | | | Unit Value | | | Units | | | Unit Value | | | Units | | | Unit Value | | | Comprehensive Loss | | | Controlling Interests | | | Total Capital | | Balance at December 31, 2019 | | | 5,176 | | | $ | 70,939 | | | | 512,346 | | | $ | 7,020,403 | | | | 232 | | | $ | — | | | $ | (62,905 | ) | | $ | 107 | | | $ | 7,028,544 | | Net income | | | — | | | | 810 | | | | — | | | | 80,182 | | | | — | | | | — | | | | — | | | | 165 | | | | 81,157 | | Cumulative effect of change in accounting principles | | | — | | | | (84 | ) | | | — | | | | (8,315 | ) | | | — | | | | — | | | | — | | | | — | | | | (8,399 | ) | Unrealized loss on interest rate swap, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (25,103 | ) | | | — | | | | (25,103 | ) | Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (23,272 | ) | | | — | | | | (23,272 | ) | Unit vesting and amortization of unit-based compensation | | | 23 | | | | 100 | | | | 2,289 | | | | 9,936 | | | | — | | | | — | | | | — | | | | — | | | | 10,036 | | Distributions to non-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (165 | ) | | | (165 | ) | Proceeds from offering (net of offering costs) | | | 26 | | | | 617 | | | | 2,575 | | | | 61,065 | | | | — | | | | — | | | | — | | | | — | | | | 61,682 | | Distributions declared ($0.27 per unit) | | | — | | | | (1,416 | ) | | | — | | | | (140,164 | ) | | | — | | | | — | | | | — | | | | — | | | | (141,580 | ) | Balance at March 31, 2020 | | | 5,225 | | | $ | 70,966 | | | | 517,210 | | | $ | 7,023,107 | | | | 232 | | | $ | — | | | $ | (111,280 | ) | | $ | 107 | | | $ | 6,982,900 | |
| | General | | | Limited Partners | | | Accumulated | | | | | | | | | | | | Partner | | | Common | | | Other | | | Non- | | | | | | | | Units | | | Unit Value | | | Units | | | Unit Value | | | Comprehensive Loss | | | Controlling Interests | | | Total Capital | | Balance at December 31, 2020 | | | 5,414 | | | $ | 73,977 | | | | 536,005 | | | $ | 7,316,269 | | | $ | (51,324 | ) | | $ | 5,325 | | | $ | 7,344,247 | | Net income | | | — | | | | 1,638 | | | | — | | | | 162,145 | | | | — | | | | 97 | | | | 163,880 | | Unrealized gain on interest rate swap, net of tax | | | — | | | | — | | | | — | | | | — | | | | 15,504 | | | | — | | | | 15,504 | | Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | (30,900 | ) | | | — | | | | (30,900 | ) | Unit vesting and amortization of unit-based compensation | | | 17 | | | | 123 | | | | 1,724 | | | | 12,141 | | | | — | | | | — | | | | 12,264 | | Distributions to non-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | (193 | ) | | | (193 | ) | Proceeds from offering (net of offering costs) | | | 399 | | | | 7,792 | | | | 39,550 | | | | 771,449 | | | | — | | | | — | | | | 779,241 | | Distributions declared ($0.28 per unit) | | | — | | | | (1,634 | ) | | | — | | | | (161,809 | ) | | | — | | | | — | | | | (163,443 | ) | Balance at March 31, 2021 | | | 5,830 | | | $ | 81,896 | | | | 577,279 | | | $ | 8,100,195 | | | $ | (66,720 | ) | | $ | 5,229 | | | $ | 8,120,600 | |
See accompanying notes to condensed consolidated financial statements. 11
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) | | | | | | For the Three Months Ended March 31, | | | | For the Nine Months Ended September 30, | | | 2021 | | | 2020 | | (In thousands) | | 2017 | | 2016 | | | | | | (In thousands) | | Operating activities | | | | | | | | | | | | | Net income | | $ | 218,862 | | | $ | 182,692 | | | $ | 163,880 | | | $ | 81,157 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 93,805 | | | 69,720 | | | | 78,606 | | | | 63,833 | | Amortization of deferred financing costs and debt discount | | | 4,748 | | | 5,799 | | | | 3,817 | | | | 3,210 | | Direct financing lease interest accretion | | | (7,276 | ) | | (6,757 | ) | | Straight-line rent revenue | | | (47,678 | ) | | (27,009 | ) | | Straight-line rent revenue and other | | | | (65,333 | ) | | | (47,846 | ) | Unit-based compensation | | | 7,148 | | | 5,832 | | | | 12,264 | | | | 10,036 | | Gain from sale of real estate and other asset dispositions, net | | | (7,431 | ) | | (61,294 | ) | | Gain from sale of real estate | | | | (989 | ) | | | (1,325 | ) | Impairment charges | | | — | | | 7,295 | | | | — | | | | 19,006 | | Straight-line rent and other write-off | | | 1,117 | | | 3,063 | | | Unutilized financing fees/debt refinancing costs | | | 18,794 | | | 22,539 | | | Straight-line rent and other (recovery) write-off | | | | (5,238 | ) | | | 7,717 | | Debt refinancing and unutilized financing costs | | | | 2,269 | | | | 611 | | Pre-acquisition rent collected - Circle Transaction | | | | — | | | | (35,020 | ) | Other adjustments | | | (7,152 | ) | | (8,398 | ) | | | (3,575 | ) | | | (421 | ) | Changes in: | | | | | | | | | | | | | Interest and rent receivables | | | (14,613 | ) | | (12,790 | ) | | | 13,396 | | | | 2,137 | | Accounts payable and accrued expenses | | | (40,378 | ) | | (12,403 | ) | | | 5,062 | | | | (4,221 | ) | | | | | | | | | Deferred revenue | | | | (15,429 | ) | | | 8,040 | | Net cash provided by operating activities | | | 219,946 | | | 168,289 | | | | 188,730 | | | | 106,914 | | Investing activities | | | | | | | | | | | | | Cash paid for acquisitions and other related investments | | | (2,152,069 | ) | | (213,100 | ) | | | (1,778,417 | ) | | | (1,973,661 | ) | Net proceeds from sale of real estate | | | 64,362 | | | 198,767 | | | | 10,905 | | | | 9,597 | | Principal received on loans receivable | | | 6,760 | | | 804,809 | | | | 40,937 | | | | — | | Investment in loans receivable | | | (18,574 | ) | | (102,909 | ) | | | (23,935 | ) | | | (2,307 | ) | 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 | | | Return of equity investment | | | | 11,000 | | | | 63,122 | | Capital additions and other investments, net | | | | (42,050 | ) | | | 8,460 | | Net cash used for investing activities | | | | (1,781,560 | ) | | | (1,894,789 | ) | Financing activities | | | | | | | | | | | | | Proceeds from term debt | | | 2,355,280 | | | 1,000,000 | | | Proceeds from term debt, net of discount | | | | 1,839,735 | | | | 915,950 | | Payments of term debt | | | (688,221 | ) | | (515,221 | ) | | | (689,450 | ) | | | — | | Revolving credit facilities, net | | | 155,089 | | | (1,100,000 | ) | | | 8,910 | | | | — | | Distributions paid | | | (239,211 | ) | | (160,060 | ) | | | (147,666 | ) | | | (138,074 | ) | Lease deposits and other obligations to tenants | | | (7,467 | ) | | 13,784 | | | | 12,900 | | | | 2,348 | | Proceeds from sale of units, net of offering costs | | | 548,055 | | | 1,024,088 | | | | 779,241 | | | | 61,682 | | Debt issuance costs paid and other financing activities | | | (27,167 | ) | | (31,317 | ) | | Payment of debt refinancing, deferred financing costs, and other financing activities | | | | (18,479 | ) | | | (6,687 | ) | Net cash provided by financing activities | | | | 1,785,191 | | | | 835,219 | | Increase (decrease) in cash, cash equivalents, and restricted cash for period | | | | 192,361 | | | | (952,656 | ) | Effect of exchange rate changes | | | | 4,356 | | | | (9,157 | ) | Cash, cash equivalents, and restricted cash at beginning of period | | | | 556,369 | | | | 1,467,991 | | Cash, cash equivalents, and restricted cash at end of period | | | $ | 753,086 | | | $ | 506,178 | | Interest paid | | | $ | 82,471 | | | $ | 80,721 | | Supplemental schedule of non-cash financing activities: | | | | | | | | | | Distributions declared, unpaid | | | $ | 163,443 | | | $ | 141,667 | | Cash, cash equivalents, and restricted cash are comprised of the following: | | | | | | | | | | Beginning of period: | | | | | | | | | | Cash and cash equivalents | | | $ | 549,884 | | | $ | 1,462,286 | | Restricted cash, included in Other assets | | | | 6,485 | | | | 5,705 | | | | | | | | | | $ | 556,369 | | | $ | 1,467,991 | | Net cash provided by financing activities | | | 2,096,358 | | | 231,274 | | | End of period: | | | | | | | | | | Cash and cash equivalents | | | $ | 746,753 | | | $ | 500,213 | | Restricted cash, included in Other assets | | | | 6,333 | | | | 5,965 | | | | | | | | | | $ | 753,086 | | | $ | 506,178 | | 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 | | |
See accompanying notes to condensed consolidated financial statements. 12
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing commercialhealthcare real estate. Our operating partnership subsidiary, MPT Operating Partnership, L.P., (the “Operating Partnership”) through which we conduct 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 will generally not be subject to federal income tax in the United States (“U.S.”), federal income tax, provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed our taxable income. Certain non-real estate activities we undertake must beare conducted by entities which we elected to be treated as taxable REIT subsidiaries (“TRSs”TRS”). Our TRSsTRS entities are subject to both U.S. federal and state income taxes. For our properties located outside the U.S., we are subject to the local taxes;taxes of the jurisdictions where our properties reside and/or legal entities are domiciled; however, we do not expect to incur additional taxes in the U.S. from foreign-based income as the majority of such income will flowflows through our REIT. Our primary business strategy is to acquire and develop real estate and improvements, primarily for long-term lease to providers of healthcare services, such as operators of general acute care hospitals, inpatient physical rehabilitation hospitals, behavioral health 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,time-to-time, in order to enhance our overall return. Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to unlock the value of their real estate to fund facility improvements, technology upgrades, and other investments in operations. At March 31, 2021, we have investments in approximately 425 facilities in 33 states in the U.S., in 6 countries in Europe, 1 country in South America, and across Australia. We manage our business as a single business segment. All of our properties are located in the U.S. and Europe. 2. Summary of Significant Accounting Policies Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information, including rules and regulations of the Securities and Exchange Commission.Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentationstatement have been included. Operating results for the three and nine month periodsmonths ended September 30, 2017,March 31, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2021. The condensed consolidated balance sheet at December 31, 20162020 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 us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We believe the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021 (particularly as it relates to our assessments of the recoverability of our real estate and the adequacy of our credit loss reserves on loans and financing receivables). Although COVID-19 vaccines continue to roll out worldwide and hospitals around the world have generally returned to their normal operations, the ultimate impact to our tenants’ results of operations and liquidity and their ability to pay our rent and interest due to the impact of COVID-19 cannot be predicted with 100% confidence. This makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the potential impact of COVID-19. Actual results may ultimately differ from our estimates. 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 were2020. There have been no material changes to these policies.significant accounting policies other than the following:
Recent Accounting Developments:Developments Revenue from Contracts with CustomersReference Rate Reform
In May 2014,March 2020, 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 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2014-09, we do expect more transactions2020-04”) to qualify as sales of real estate with gains on sales being recognized earlier than under currentsimplify the accounting guidance, as the new guidance is based on transfer of control versus whetherfor contract modifications made to replace LIBOR 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 yearsother reference rates that was requiredare expected to be deferred under existing accounting guidance. Clarifying the Definitiondiscontinued because of a Business
Inreference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criterion are met. The optional expedients and exceptions can be applied to contract modifications made until December 31, 2022. On January 2017,7, 2021, the FASB issued ASU No. 2017-01, “Clarifying2021-01, “Reference Rate Reform (Topic 848)” (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 provide an initial screentransition. We have evaluated our contracts that are referenced to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable assetLIBOR 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 activitiesother reference rates expected to be considereddiscontinued. We expect our British pound sterling term loan and corresponding interest rate swap to be modified with a businessreplacement reference rate during 2021, 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 result in the capitalization of third party transaction costs that are directly related to an acquisition. Indirect and internal transaction costs will continue 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.
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 leasessuch modifications using an approach that is substantially equivalent to existing guidancethe expedients and exceptions provided for sales-type leases, direct financing leasesin ASU 2020-04 and operating leases.
We expect to adopt this new standard on January 1, 2019.ASU 2021-01. We are continuing to evaluate this standard and the need to modify our U.S. dollar LIBOR contracts, such as our unsecured credit facility, as the requirement to replace the U.S. dollar LIBOR has been extended to June 30, 2023. Moreover, we do not expect any impact to us from both a lessorour Australian dollar term loan and lessee perspective. However, we do have leases in which wecorresponding interest rate swap, as these contracts are the lessee, including ground leases, on which certain of our facilities reside, along with corporate office and equipment leases,not referenced to rates that will be requiredare expected 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 thatdiscontinued.
Reclassifications Certain amounts in the tenants of our facilities are requiredconsolidated financial statements for prior periods have been reclassified to pay pursuantconform 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. current period presentation.Variable Interest Entities At September 30, 2017,March 31, 2021, we had loans to and/or equity investments in certain variable interest entities (“VIEs”),approximating $350 million, which are also tenants ofrepresents our facilities. We have determined that we are not the primary beneficiary of these VIEs. The carrying value and classification of the related assets and maximum exposure to loss as a result of our involvement with these VIEs at September 30, 2017 are presented below (in thousands): | | | | | | | | | | | VIE Type | | Maximum Loss Exposure(1) | | | Asset Type Classification | | Carrying Amount(2) | | Loans, net | | $ | 331,857 | | | Mortgage and other loans | | $ | 235,287 | | Equity investments | | $ | 13,242 | | | Other assets | | $ | — | |
(1) | Our maximum loss exposure related to loans with VIEs represents our current aggregate gross carrying value of the loan plus accruedin such entities. We have determined that we were not the primary beneficiary of any variable interest entity in which we hold a variable interest and any other related assets (such as rent receivables), less any liabilities. Our maximum loss exposure related to our equity investment in VIEs represents the current carrying values of such investment plus any other related assets (such as rent receivables) less any liabilities. |
(2) | Carrying amount reflects the net book value of our loan or equity interest only in the VIE. |
For the VIE types above, we do not consolidate the VIE because we do not have the ability to control the activities (such as the day-to-day healthcare operations of our borrower or investees)operations) that most significantly impact the VIE’s economic performance. Asperformance of September 30, 2017, we were not required to provide any material financial support through a liquidity arrangement or otherwise to our unconsolidated VIEs, including circumstances in which it could be exposed to further losses (e.g., cash short falls).
Typically, our loans are collateralized by assets of the borrower (some assets of which are on the premises of facilities owned by us) and further supported by limited guarantees made by certain principals of the borrower.
See Note 3 and 7 for additional description of the nature, purpose and activities of our more significant VIEs and interests therein, such as Ernest Health, Inc. (“Ernest”).these entities.
3. Real Estate and LendingOther Activities AcquisitionsNew Investments
We acquired or invested in the following net assets (in thousands): | | | | | | | | | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | Assets Acquired | | | | | | | | | Land and land improvements | | $ | 196,094 | | | $ | 13,602 | | Building | | | 987,442 | | | | 125,744 | | Intangible lease assets — subject to amortization (weighted average useful life 28.7 years for 2017 and 19.4 years for 2016) | | | 128,961 | | | | 10,754 | | Net investments in direct financing leases | | | 40,450 | | | | 63,000 | | Mortgage loans | | | 700,000 | | | | — | | Equity investments | | | 100,000 | | | | — | | Liabilities assumed | | | (878 | ) | | | — | | | | | | | | | | | Total assets acquired | | $ | 2,152,069 | | | $ | 213,100 | | Loans repaid (1) | | | — | | | | (93,262 | ) | | | | | | | | | | Total net assets acquired | | $ | 2,152,069 | | | $ | 119,838 | | | | | | | | | | |
| | For the Three Months Ended March 31, | | | | 2021 | | | 2020 | | | | | | | | | | | Land and land improvements | | $ | — | | | $ | 265,991 | | Buildings | | | — | | | | 1,608,771 | | Intangible lease assets — subject to amortization (weighted- average useful life 30.8 years for 2020) | | | — | | | | 231,774 | | Mortgage loans | | | 1,090,400 | | | | — | | Other loans and assets | | | 688,017 | | | | 1,328 | | Liabilities assumed | | | — | | | | (134,203 | ) | Total net assets acquired | | $ | 1,778,417 | | | $ | 1,973,661 | |
(1) | $93.3 million loans advanced to Capella (now RCCH Healthcare Partners (“RCCH”)) in 2015 and repaid in 2016 as a part of the Capella Transaction discussed below. |
2021 Activity Priory Group Transaction The purchase price allocations attributable toOn January 19, 2021, we completed the 2017 acquisitions and certain acquisitions madefirst of two phases in the last quarterPriory Group (“Priory”) transaction in which we funded an£800 million interim mortgage loan on an identified portfolio of 2016 are preliminary. When all relevant information is obtained, resulting changes, if any, to our provisional purchase price allocationPriory real estate assets. In phase two, in a series of transactions we expect will be adjusted to reflect new information obtained aboutcompleted during the facts and circumstances that existed as of the respective acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates.
2017 Activity
Steward Transactions
On September 29, 2017,2021 second quarter, we acquired from IASIS Healthcare LLC (“IASIS”)will acquire a portfolio of ten acute care hospitalsselect real estate assets from Priory (now owned by Waterland Private Equity Fund VII C.V. (“Waterland VII”)) in individual sale-and-leaseback transactions, subject to customary real estate and one behavioral healthother closing conditions. As all conditions to closing for a particular asset are satisfied, the applicable purchase price for the asset will be paid by us by proportionally converting and reducing the principal balance of the interim mortgage loan we made to Waterland VII in phase one. The aggregate purchase price for the real estate assets we acquire from Priory is thus expected to be approximately £800 million, plus customary stamp duty, tax, and other transaction costs.
In addition, we agreed to provide Waterland VII with a 364-day £250 million acquisition loan, which we funded on January 19, 2021, in connection with the closing of Waterland VII’s acquisition of Priory. The loan is secured by the same security assets securing the £800 million interim mortgage loan. In connection with these transactions, we also acquired a 9.9% passive equity interest in the Waterland VII affiliate that indirectly owns Priory for a nominal amount. We funded this investment using £500 million from a new $900 million interim credit facility along with ancillary landas described in Note 4, £350 million from our revolving facility, and buildings, that are located in Arizona, Utah, Texas, and Arkansas. The portfolio is now operated bythe remainder from cash on-hand. Other On January 8, 2021, we made a $335 million loan to Steward Health Care System LLC (“Steward”), which separately completed its acquisitionwas used to redeem a similarly sized convertible loan from Steward’s former private equity sponsor. 2020 Activity Circle Transaction On January 8, 2020, we acquired a portfolio of IASIS on September 29, 2017. Our investment in the portfolio includes the acquisition of eight30 acute care hospitals and one behavioral health facility for approximately $700 million,located throughout the making of $700 million in mortgage loans on two acute care hospitals, and a $100 million minority equity contribution in Steward,United Kingdom for a combined investment of approximately $1.5 billion. The nine facilities acquired are being leased to Steward pursuant to the original long-term master lease agreement entered into in October 2016 that had an initial 15-year term with three 5-year extension options, plus annual inflation-based escalators. The terms of the mortgage loan are substantially similar to the master lease. On May 1, 2017, we acquired eight hospitals previously affiliated with Community Health Systems, Inc. in Florida, Ohio, and Pennsylvania for an aggregate purchase price of $301.3 million. These facilities are leased to Steward, pursuant to the original long-term master lease with Steward.
MEDIAN Transactions
During the third quarter of 2017, we acquired two rehabilitation hospitals in Germany for an aggregate purchase price of €39.2 million, in addition to 11 rehabilitation hospitals in Germany that we acquired in the second quarter of 2017 for an aggregate purchase price of €127 million. These 13 properties are leased to affiliates of Median Kliniken S.a.r.l. (“MEDIAN”), pursuant to a third master lease that has a fixed term ending in August 2043 with annual escalators at the greater of one percent or 70% of German consumer price index. These acquisitions are the final properties of the portfolio of 20 properties in Germany that we agreed to acquire in July 2016 for €215.7 million, of which seven properties totaling €49.5 million closed in December 2016.
On June 22, 2017, we acquired an acute care hospital in Germany for a purchase price of €19.4 million of which €18.6 million was paid upon closing with the remainder being paid over four years. This property is leased to affiliates of MEDIAN, pursuant to an existing master lease agreement that ends in December 2042 with annual escalators at the greater of one percent or 70% of the German consumer price index.
On January 30, 2017, we acquired an inpatient rehabilitation hospital in Germany for €8.4 million. This acquisition was the final property to close as part of the six hospital portfolio that we agreed to buy in September 2016 for an aggregate amount of €44.1 million. This property is leased to affiliates of MEDIAN pursuant to the original long-term master lease agreement reached with MEDIAN in 2015.
Other Transactions
On June 1, 2017, we acquired the real estate assets of Ohio Valley Medical Center, a 218-bed acute care hospital located in Wheeling, West Virginia, and the East Ohio Regional Hospital, a 139-bed acute care hospital in Martins Ferry, Ohio, from Ohio Valley Health Services, a not-for-profit entity in West Virginia, for an aggregatenet purchase price of approximately $40 million. We simultaneously leased the facilities£1.5 billion from affiliates of BMI Healthcare, Inc. (“BMI”), as part of a share purchase in which we also inherited certain deferred income tax liabilities and £27.6 million of unearned rent revenue. In a related transaction, affiliates of Circle Health Ltd. (“Circle”) entered into definitive agreements to Alecto Healthcare Services LLC (“Alecto”), the current operatoracquire BMI and assume operations of threeits 52 facilities in the United Kingdom. As part of our portfolio, pursuantacquisition, we inherited 30 existing leases with the operator that had initial fixed terms ending in 2050, with no renewal options but with annual inflation-based escalators. Once final regulatory approval was received in the 2020 second quarter, these 30 leases with Circle were amended (effective June 16, 2020) to a lease with a 15-year initial term with 2%include 2 five-year renewal options and improve the annual minimum rent increases and three 5-year extension options. The facilitiesinflation-based escalators. These 30 leases are cross-defaulted and cross-collateralized with our other hospitals currently operatedguaranteed by Alecto. We also agreed to provide up to $20.0 million in capital improvement fundingCircle.
Development Activities During the 2020 first quarter, we completed construction and began recording rental income on these two facilities - none of which has been funded to date. With these acquisitions, we also obtained a 20% interest in the operator of these facilities. On May 1, 2017, we acquired the real estate of St. Joseph Regional Medical Center, a 145-bed acute care hospital in Lewiston, Idaho for $87.5 million. This facility is leased to RCCH, pursuant to the existing long-term master lease entered into with RCCH in April 2016.
From the respective acquisition dates, the properties acquired in 2017 contributed $16.7 million of revenue and $12.7 million of income (excluding related acquisition expenses and taxes) for the three months ended September 30, 2017, and $25.1 million of revenue and $18.8 million of income (excluding related acquisition expenses and taxes) for the nine months ended September 30, 2017. In addition, we expensed $5.4 million and $15.6 million of acquisition-related costs on these 2017 acquisitions for the three and nine months ended September 30, 2017, respectively.
2016 Activity
On July 22, 2016, we acquired angeneral acute care facility located in Olympia, Washington in exchange for a $93.3 million loanIdaho Falls, Idaho. This facility commenced rent on January 21, 2020 and an additional $7 million in cash. The property has beenis being leased to RCCH on terms substantially similar to those of the existing long-term master lease entered into with RCCH in April 2016.
On June 22, 2016, we closed on the last property of the €688 million MEDIAN transaction, that was announced on April 29, 2015, for a purchase price of €41.6 million. Upon acquisition, this property became subject to an existing master lease between us and affiliates of MEDIAN that has a lease term ending December 2042 and annual escalators at the greater of one percent or 70% of the German consumer price index.
On May 2, 2016, we acquired an acute care hospital in Newark, New Jersey for an aggregate purchase price of $63 million leased to Prime Healthcare Services,Surgery Partners, Inc. (“Prime”) pursuant to a new fifth master lease, which had a 15-year term with three five-year extension options, plus consumer price-indexed increases, limited to a 2% floor. Furthermore, we committed to advance an additional $30 million to Prime over a three-year period to be used solely for capital additions to the real estate; any such additions will be added to the basis upon which the lessee will pay us rents. None of the additional $30 million has been funded to date.
From the respective acquisition dates, the properties acquired during the nine months ended September 30, 2016, contributed $4.6 million and $3.8 million of revenue and income (excluding related acquisition expenses), respectively, for the three months ended September 30, 2016. From the respective acquisition dates, the properties acquired during the nine months ended September 30, 2016 contributed $5.7 million and $4.9 million of revenue and income (excluding related acquisition expenses), respectively, for the nine months ended September 30, 2016. In addition, we incurred $2.4 million of acquisition-related costs on the 2016 acquisitions for the nine months ended September 30, 2016.
Pro Forma Information
The following unaudited supplemental pro forma operating data is presented for the three and nine months ended September 30, 2017 and 2016, as if each acquisition was completed on January 1, 2016 and January 1, 2015 for the period ended September 30, 2017 and 2016, respectively. Supplemental pro forma earnings were adjusted to exclude acquisition-related costs on consummated deals incurred. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transactions had been completed as set forth above, nor do they purport to represent our results of operations for future periods (in thousands, except per share/unit amounts).
| | | | | | | | | | | | | | | | | | | For the Three Months | | | For the Nine Months | | | | Ended September 30, | | | Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Total revenues | | $ | 209,368 | | | $ | 207,898 | | | $ | 623,635 | | | $ | 622,798 | | Net income | | $ | 102,112 | | | $ | 107,863 | | | $ | 311,306 | | | $ | 307,645 | | Net income per share/unit — diluted | | $ | 0.28 | | | $ | 0.30 | | | $ | 0.85 | | | $ | 0.84 | |
Development Activities
During the first nine months of 2017, we completed construction on the following facilities:
Adeptus Health, Inc. (“Adeptus Health”) – We completed four acute care facilities for this tenant during 2017 totaling approximately $68 million in development costs. These facilities are leased pursuant to an existing long-term master lease.
IMED Group (“IMED”) – Our general acute facility located in Valencia, Spain opened on March 31, 2017, and is being leased to IMED pursuant to a 30-year lease that provides for quarterly fixed rent payments beginning six months from the lease start date with annual increases of 1% beginning April 1, 2020. Our ownership in this facility is effected through a joint venture between us and clients of AXA Real Estate, in which we own a 50% interest. Our share of the aggregate purchase and development cost of this facility is approximately €21 million.
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 onsummary of 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 | | | | | | | | | | | | | | | | | | |
Property | | Commitment | | | Costs Incurred as of March 31, 2021 | | | Estimated Rent Commencement Date | Ernest Health, Inc. ("Ernest") (Bakersfield, California) | | $ | 47,929 | | | $ | 28,502 | | | 4Q 2021 | Ernest (Stockton, California) | | | 47,700 | | | | 13,539 | | | 1Q 2022 | | | $ | 95,629 | | | $ | 42,041 | | | |
Disposals
2017Disposals
2021 Activity On March 31, 2017,During the first three months of 2021, we soldcompleted 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 gainsale 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, we1 facility and an Apollo affiliate invested $50 million each in unsecured senior notes issued by RegionalCare, which we sold to a large institution on June 20, 2016 at par. The proceeds from this transaction represented the recoverability of our investment in full, exceptancillary property for transaction costs incurred of $6.3 million.
We maintained our ownership of five hospitals in Hot Springs, Arkansas; Camden, South Carolina; Hartsville, South Carolina; Muskogee, Oklahoma; and McMinnville, Oregon. Pursuant to the transaction described above, the underlying leases, one of which is a master lease covering all but one property, was amended to shorten the initial fixed lease term, increase the security deposit, and
eliminate the lessees’ purchase option provisions. Due to this lease amendment, we reclassified the lease of the properties under the master lease from a direct finance lease (“DFL”) to an operating lease. This reclassification resulted in a write-off of $2.6 million in unbilled DFL rent in the 2016 second quarter.
Post Acute Transaction
On May 23, 2016, we sold five properties (three of which were in Texas and two in Louisiana) that were leased and operated by Post Acute Medical (“Post Acute”). As part of this transaction, our outstanding loans of $4 million were paid in full, and we recovered our investment in the operations. Total proceeds from this transaction were $71approximately $11 million, resulting in a net gain of approximately $15$1.0 million.
Corinth Transaction2020 Activity
On June 17, 2016,During the first three months of 2020, 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-off of our investment in the operations of the facility, straight-line rent receivables, and a lease intangible.
HealthSouth Transaction
On July 20, 2016, we sold three inpatient rehabilitation hospitals located in Texas and operated by HealthSouth Corporation (“HealthSouth”) for $111.5 million,4 ancillary properties resulting in a net gain of approximately $45$1.3 million.
The sales15
Leasing Operations (Lessor) We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases (typical initial fixed terms of 15 years) and most include renewal options at the election of our tenants, generally in 2017 and 2016 were not strategic shiftsfive year increments. Approximately 99% of our leases provide annual rent escalations based on increases in the Consumer Price Index (or similar index outside the U.S.) and/or fixed minimum annual rent escalations ranging from 0.5% to 3.0%. Many of our operations, and therefore the resultsdomestic leases contain purchase options with pricing set at various terms but in no case less than our total investment. For 5 properties with a carrying value 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)$230 million, our leases require a residual value guarantee from the tenant. Our leases typically require the tenant to handle and bear most of the costs associated with our properties which sold during 2016 (excluding loans repaid inincluding repair/maintenance, property taxes, and insurance. We routinely inspect our properties to ensure the Capella Transaction)residual value of each of our assets is being maintained. Except 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 Operationsleases classified as financing leases as noted below, all of our leases are classified as operating leases.
At September 30, 2017,March 31, 2021, leases on two Alecto facilities, 1513 Ernest facilities and 105 Prime Healthcare Services, Inc. (“Prime”) facilities are accounted for as DFLs.direct financing leases and leases on 13 of our Prospect Medical Holdings, Inc. (“Prospect”) facilities and 5 of our Ernest facilities 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, 2017 | | | As of December 31, 2016 | | | As of March 31, 2021 | | | As of December 31, 2020 | | Minimum lease payments receivable | | $ | 2,312,621 | | | $ | 2,207,625 | | | $ | 1,217,689 | | | $ | 1,228,966 | | Estimated residual values | | | 448,098 | | | | 407,647 | | | | 203,818 | | | | 203,818 | | Less: Unearned income | | | (2,064,890 | ) | | | (1,967,170 | ) | | | | | | | | | | Less: Unearned income and allowance for credit loss | | | | (956,490 | ) | | | (969,061 | ) | Net investment in direct financing leases | | $ | 695,829 | | | $ | 648,102 | | | | 465,017 | | | | 463,723 | | | | | | | | | | Other financing leases (net of allowance for credit loss) | | | | 1,556,463 | | | | 1,547,199 | | Total investment in financing leases | | | $ | 2,021,480 | | | $ | 2,010,922 | |
Adeptus HealthCOVID-19 Rent Deferrals
On April 4, 2017,In the first quarter of 2021, we announced that we had agreed in principle with Deerfield Management Company, L.P. (“Deerfield”), a healthcare-only investment firm,collected $0.8 million of rent previously deferred due to the restructuringCOVID-19 pandemic. Pursuant to our agreements with certain tenants, we expect the remaining outstanding deferred rent balance of approximately $10.6 million as of March 31, 2021, to be paid over specified periods in bankruptcythe future, with interest.
Adeptus Health As discussed in previous filings, our original real estate portfolio of approximately 60 properties leased to Adeptus Health, Inc. (“Adeptus”) has gone through significant changes starting with Adeptus filing for Chapter 11 bankruptcy in 2017. During 2020, we transitioned the remaining facilities away from Adeptus, which resulted in impairment charges including approximately $9.9 million in the first quarter of 2020, along with a currentcharge to write-off straight-line rent and other receivables, partially offset by a draw on a $9.1 million letter of credit. However, these transition measures have also provided for new tenant relationships being formed with strong credit worthy operators like Ochsner Health System, Dignity Health, UC Health, and operatorHCA Healthcare, that are now leasing approximately 40 of these transitional facilities under long-term leases. At March 31, 2021, 17 of these transitional properties, representing less than 5%1% of our total gross assets. In furtheranceassets, remain vacant, and each of the restructuring, Adeptus Health and certainthese properties are in various stages of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code on April 19, 2017. Funds advised by Deerfield acquired Adeptus Health’s outstanding bank debt and Deerfield agreed to provide additional financing, along with operational and managerial support, to Adeptus Health as part of the restructuring. The Adeptus Health restructuring and terms ofbeing re-leased or sold. At March 31, 2021, we believe our agreement with Deerfield provided for the payment to us of 100% of the rent payable during the restructuring and the assumption by Deerfield of all our master leases and related agreements with Adeptus Health at current rental rates. Through November 3, 2017, Adeptus Health is current on its rent obligations to us.
On September 29, 2017, the United States Bankruptcy Court for the 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 prior to the commencement of the bankruptcy proceedings with respect to all properties, and continue to pay rent with respect to allinvestment in these real estate assets are fully recoverable, 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 operator is complete, (b) two years following the Confirmation Effective Date (for one facility), (c) one year following the Confirmation Effective Date (for seven facilities), (d) six months following the Confirmation Effective Date (for three facilities), and (e) three months following the Confirmation Effective Date (for five facilities). These lease or sale transactions are expected to be completed by the end of 2019. Although no assurances can be madegiven that we will not recognizehave any further impairments in future periods.
Alecto Facilities As noted in previous filings, we originally leased 4 acute care facilities to and had a lossmortgage loan on a fifth property (Olympia Medical Center) with Alecto Healthcare Services LLC (“Alecto”). During the first quarter of 2020, we donated the Wheeling facility to a local municipality, resulting in the future,a $9.1 million real estate impairment charge. In addition, we believe the sale or re-leasing of the assets relatedre-leased 1 acute care facility to these 16 facilities will not resultWest Virginia University and sold another facility in any material loss or impairment. On April 4, 2017, we announced that our Louisiana freestanding emergency facilities then-operated by Adeptus Health (with a total budgeted investment of approximately $24.5 million) had been re-leased to Ochsner Clinic Foundation (“Ochsner”), a health care system in the New Orleans area. We incurred a non-cash charge of $0.5 million to write-off the straight-line rent receivables associated with the previous Adeptus Health lease on these properties. On October 18, 2017, Ochsner agreed to an amended and restated lease that provided for initial terms of 15 years with a 9.2% average minimum lease rate based on our total development and construction cost, as well as the addition of three five-year renewal options.
Hoboken Facility
2020. In the first halfquarter of 2017, a subsidiary2021, Alecto completed the sale of Olympia Medical Center to the operatorUCLA Health System. Our proceeds of approximately $51 million from this sale were used to payoff the mortgage and working capital loans in full, with the remaining proceeds used to recover certain past due amounts. At March 31, 2021, we continue to lease 1 acute care facility to Alecto approximating 0.1% of our Hoboken facility acquired 20% of our subsidiary that owns the real estate for $10 million, which increased its interest in our real estate entity to 30%. This transaction is reflected in the non-controlling interest line of our condensed consolidated balance sheets.total assets. 16
Loans The following is a summary of our loans (net of allowance for credit loss) (in thousands): | | | As of September 30, 2017 | | | As of December 31, 2016 | | | As of March 31, 2021 | | | As of December 31, 2020 | | Mortgage loans | | $ | 1,777,555 | | | $ | 1,060,400 | | | $ | 1,324,865 | | | $ | 248,080 | | Acquisition loans | | | 119,256 | | | | 121,464 | | | | 682,665 | | | | 338,273 | | Working capital and other loans | | | 32,453 | | | | 34,257 | | | | | | | | | | | | | $ | 1,929,264 | | | $ | 1,216,121 | | | | | | | | | | | Other loans | | | | 840,001 | | | | 520,095 | | Total | | | $ | 2,847,531 | | | $ | 1,106,448 | |
As of September 30, 2017, ourThe increase in mortgage and acquisition loans consist ofrelates to the £800 million and £250 million loans made to four operators that are secured byfunded in connection with the real estate of 14 properties, and include the $700 million investment made on September 29, 2017, as part of the Steward Transaction. Our non-mortgagePriory Group Transaction (as more fully described above in this Note 3).
Other loans typically consist of loans to our tenants for acquisitions and working capital purposes. At September 30, 2017, acquisitionand other purposes and include our shareholder loan made to the joint venture with Primotop Holdings S.à.r.l. (“Primotop”) in the amount of €297 million. The increase in other loans includes $114.4is primarily related to the $335 million loan to Steward (as more fully described above in loansthis Note 3). Other Investment Activities Pursuant to Ernest.our existing 9.9% equity interest in Steward, we received an $11 million cash distribution during the first quarter of 2021, which was accounted for as a return of capital. Pursuant to our 4.9% stake in Aevis Victoria SA (“Aevis”), we recorded a $4.1 million favorable non-cash fair value adjustment to mark our investment in Aevis stock to market during the first quarter of 2021; whereas, this was a $10.4 million unfavorable non-cash fair value adjustment in the 2020 first quarter. Concentrations of Credit Risk Our revenueWe monitor concentration for the nine months ended September 30, 2017 as comparedrisk in several ways due to the prior year is as follows (dollarsnature of our real estate assets that are vital to the communities in thousands):which they are located and given our history of being able to replace inefficient operators of our facilities, if needed, with more effective operators:
Revenue by Operator
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | For the Nine Months Ended September 30, 2016 | | Operators | | Total Revenue | | | Percentage of Total Revenue | | | Total Revenue | | | Percentage of Total Revenue | | Steward (1) | | $ | 114,776 | | | | 23.0 | % | | $ | 20,969 | | | | 5.4 | % | Prime | | | 94,644 | | | | 18.9 | % | | | 89,389 | | | | 23.1 | % | MEDIAN | | | 73,793 | | | | 14.8 | % | | | 70,242 | | | | 18.1 | % | Ernest | | | 53,007 | | | | 10.6 | % | | | 50,564 | | | | 13.0 | % | Adeptus Health | | | 39,638 | | | | 7.9 | % | | | 25,873 | | | | 6.7 | % | RCCH | | | 30,668 | | | | 6.1 | % | | | 42,776 | | | | 11.0 | % | Other operators | | | 93,258 | | | | 18.7 | % | | | 88,041 | | | | 22.7 | % | | | | | | | | | | | | | | | | | | Total | | $ | 499,784 | | | | 100.0 | % | | $ | 387,854 | | | | 100.0 | % | | | | | | | | | | | | | | | | | |
| 1) | Facility concentration – At March 31, 2021, our largest single property represented approximately 3% of our total assets, similar to December 31, 2020. |
(1) | Includes approximately $21.6 million2) | Operator concentration – For the three months ended March 31, 2021, revenue from Steward, Circle, and $21 millionProspect, individually, represented more than 10% of revenueour total revenues. In comparison, Steward, Circle, Prospect, and Prime, individually, represented more than 10% of our total revenues for the nine2020 first quarter. |
| 3) | Geographic concentration – At March 31, 2021, investments in the U.S., Europe, Australia, and South America represented approximately 63%, 31%, 5%, and 1%, respectively, of our total assets, compared to 65%, 28%, 6%, and 1%, respectively, at December 31, 2020. |
| 4) | Facility type concentration – For the three months ended September 30, 2017March 31, 2021, approximately 83% of our revenues are from our general acute care facilities, while rehabilitation and 2016,long-term acute care facilities make up 8% and 2%, respectively. Freestanding ER/urgent care facilities and behavioral health facilities combined to make up the remaining 7%. In comparison, general acute care, rehabilitation, and long-term acute care facilities made up 86%, 9%, and 3%, respectively, fromof our total revenues for the three months ended March 31, 2020, while freestanding ER/urgent care facilities leasedand behavioral health facilities combined to IASIS prior to it being acquired by Steward on September 29, 2017.make up the remaining 2%. |
Revenue by U.S. State and Country17
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | For the Nine Months Ended September 30, 2016 | | U.S. States and Other Countries | | Total Revenue | | | Percentage of Total Revenue | | | Total Revenue | | | Percentage of Total Revenue | | Massachusetts | | $ | 79,741 | | | | 16.0 | % | | $ | — | | | | — | | Texas | | | 74,489 | | | | 14.9 | % | | | 72,811 | | | | 18.8 | % | California | | | 49,681 | | | | 9.9 | % | | | 49,724 | | | | 12.8 | % | New Jersey | | | 32,756 | | | | 6.6 | % | | | 28,398 | | | | 7.3 | % | Arizona | | | 23,902 | | | | 4.8 | % | | | 17,678 | | | | 4.6 | % | All other states | | | 147,606 | | | | 29.5 | % | | | 143,289 | | | | 36.9 | % | | | | | | | | | | | | | | | | | | Total U.S. | | $ | 408,175 | | | | 81.7 | % | | $ | 311,900 | | | | 80.4 | % | Germany | | $ | 88,525 | | | | 17.7 | % | | $ | 72,718 | | | | 18.8 | % | United Kingdom, Italy, and Spain | | | 3,084 | | | | 0.6 | % | | | 3,236 | | | | 0.8 | % | | | | | | | | | | | | | | | | | | Total International | | $ | 91,609 | | | | 18.3 | % | | $ | 75,954 | | | | 19.6 | % | | | | | | | | | | | | | | | | | | Grand Total | | $ | 499,784 | | | | 100.0 | % | | $ | 387,854 | | | | 100.0 | % | | | | | | | | | | | | | | | | | |
On a total gross asset basis, which is total assets before accumulated depreciation/amortization, assumes all real estate binding commitments on new investments and unfunded amounts on development deals and commenced capital improvement projects are fully funded (see Notes 9 and 10 of Item 1 on this Form 10-Q), and assumes cash on hand is fully used in these transactions, our concentration as of September 30, 2017 as compared to December 31, 2016 is as follows (dollars in thousands):
Gross Assets by Operator
| | | | | | | | | | | | | | | | | | | As of September 30, 2017 | | | As of December 31, 2016 | | Operators | | Total Gross Assets | | | Percentage of Total Gross Assets | | | Total Gross Assets | | | Percentage of Total Gross Assets | | Steward (1) | | $ | 3,445,379 | | | | 36.8 | % | | $ | 1,609,583 | | | | 22.5 | % | MEDIAN | | | 1,209,767 | | | | 12.9 | % | | | 993,677 | | | | 13.9 | % | Prime | | | 1,118,070 | | | | 12.0 | % | | | 1,144,055 | | | | 16.0 | % | Ernest | | | 631,501 | | | | 6.7 | % | | | 627,906 | | | | 8.8 | % | RCCH | | | 506,265 | | | | 5.4 | % | | | 566,600 | | | | 7.9 | % | Other operators | | | 1,992,448 | | | | 21.3 | % | | | 1,900,397 | | | | 26.7 | % | Other assets | | | 452,505 | | | | 4.9 | % | | | 300,903 | | | | 4.2 | % | | | | | | | | | | | | | | | | | | Total | | $ | 9,355,935 | | | | 100.0 | % | | $ | 7,143,121 | | | | 100.0 | % | | | | | | | | | | | | | | | | | |
(1) | Includes approximately $360 million of gross assets as of December 31, 2016 related to facilities leased to IASIS prior to it being acquired by Steward on September 29, 2017. | |
Gross 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 debt (dollar amounts in thousands): | | | | | | | | | | | As of September 30, 2017 | | | As of December 31, 2016 | | Revolving credit facility(A) | | $ | 445,359 | | | $ | 290,000 | | Term loans | | | 200,000 | | | | 263,101 | | 6.375% Senior Unsecured Notes due 2022: | | | | | | | | | Principal amount | | | 350,000 | | | | 350,000 | | Unamortized premium | | | 1,549 | | | | 1,814 | | | | | | | | | | | | | | 351,549 | | | | 351,814 | | 5.750% Senior Unsecured Notes due 2020(B) | | | — | | | | 210,340 | | 4.000% Senior Unsecured Notes due 2022(B) | | | 590,700 | | | | 525,850 | | 5.500% Senior Unsecured Notes due 2024 | | | 300,000 | | | | 300,000 | | 6.375% Senior Unsecured Notes due 2024 | | | 500,000 | | | | 500,000 | | 3.325% Senior Unsecured Notes due 2025(B) | | | 590,700 | | | | — | | 5.250% Senior Unsecured Notes due 2026 | | | 500,000 | | | | 500,000 | | 5.000% Senior Unsecured Notes due 2027 | | | 1,400,000 | | | | — | | | | | | | | | | | | | $ | 4,878,308 | | | $ | 2,941,105 | | Debt issue costs, net | | | (46,044 | ) | | | (31,764 | ) | | | | | | | | | | | | $ | 4,832,264 | | | $ | 2,909,341 | | | | | | | | | | |
| | As of March 31, 2021 | | | As of December 31, 2020 | | Revolving credit facility(A) | | $ | 179,179 | | | $ | 165,407 | | Term loan | | | 200,000 | | | | 200,000 | | British pound sterling term loan(B) | | | 964,810 | | | | 956,900 | | Australian term loan facility(B) | | | 911,760 | | | | 923,280 | | 4.000% Senior Unsecured Notes due 2022(B) | | | 586,500 | | | | 610,800 | | 2.550% Senior Unsecured Notes due 2023(B) | | | 551,320 | | | | 546,800 | | 3.325% Senior Unsecured Notes due 2025(B) | | | 586,500 | | | | 610,800 | | 2.500% Senior Unsecured Notes due 2026(B) | | | 689,150 | | | | — | | 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) | | | 826,980 | | | | 820,200 | | 4.625% Senior Unsecured Notes due 2029 | | | 900,000 | | | | 900,000 | | 3.375% Senior Unsecured Notes due 2030(B) | | | 482,405 | | | | — | | 3.500% Senior Unsecured Notes due 2031 | | | 1,300,000 | | | | 1,300,000 | | | | $ | 10,078,604 | | | $ | 8,934,187 | | Debt issue costs and discount, net | | | (79,066 | ) | | | (68,729 | ) | | | $ | 9,999,538 | | | $ | 8,865,458 | |
(A) | (A) | Includes £4£130 million and £121 million of GBP-denominated borrowings that reflect the exchange rate at September 30, 2017.March 31, 2021 and December 31, 2020, respectively. |
(B) | These notes are Euro-denominated and reflect(B) | Non-U.S. dollar denominated debt that reflects the exchange rate at September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. |
As of September 30, 2017,March 31, 2021, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) are as follows (in(amounts in thousands): | | | | | 2017 | | $ | 350,000 | (A) | 2018 | | | — | | 2019 | | | — | | 2020 | | | — | | 2021 | | | 445,359 | | Thereafter | | | 4,081,400 | | | | | | | Total | | $ | 4,876,759 | | | | | | |
2021 | | $ | — | | 2022 | | | 586,500 | | 2023 | | | 551,320 | | 2024 | | | 1,090,939 | | 2025 | | | 1,551,310 | | Thereafter | | | 6,298,535 | | Total | | $ | 10,078,604 | |
(A) | The $350 million 6.375% Senior Unsecured Notes due 2022 were redeemed on October 7, 2017 with proceeds from our $1.4 billion 5.000% Senior Unsecured Notes due 2027. |
20172021 Activity
Interim Credit Facility As previously discussed in Note 3, we entered into a $900 million interim credit facility on January 15, 2021, of which we borrowed £500 million. We paid off and terminated this facility on March 26, 2021. Credit Facility Amendment On February 1, 2017,January 15, 2021, we replacedamended our unsecured credit facility with a new revolving credit and term loan agreement (“Credit Facility”). The new agreement includes aamendment extended the maturity of our $1.3 billion unsecured revolving loan facility a $200 million unsecured term loan facility, and a €200 million unsecured term loan facility. The new unsecured revolving loan facility matures into February 20211, 2024 and can be extended for an additional 12 months at our option. The maturity date of our $200 million unsecured term loan facility matures onwas extended to February 1, 2022, and 2026.18
In addition to extending the €200 million unsecured term loan facility had a maturity date, of January 31, 2020; however, it was paid off on March 30, 2017 – see below. The commitment fee on the revolving loan facility is paidamendment improved interest rate pricing for both facilities. Under the amended Credit Facility and at a rate of 0.25%. The term loan and/or revolving loan commitments may be increased in an aggregate amount not to exceed $500 million. At our election, loans under the Credit Facility may be made as either ABR Loans or EurodollarEurocurrency Loans. The applicable margin for term loans that are ABR Loans is adjustable on a sliding scale from 0.00% to 0.95%0.85% based on our current credit rating. The applicable margin for term loans that are EurodollarEurocurrency Loans is adjustable on a sliding scale from 0.90%0.85% to 1.95%1.85% 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%0.55% based on our current credit rating. The applicable margin for revolving loans that are EurodollarEurocurrency Loans is adjustable on a sliding scale from 0.875%0.825% to 1.65%1.55% based on our current credit rating. The commitmentamended Credit Facility retained the facility fee that is adjustable on a sliding scale from 0.125% to 0.30% based on our current credit rating and is payable on the revolving loan facility. At September 30, 2017, the interest rate in effect on our term loan and revolver was 2.74% and 2.48%, respectively.
On March 30, 2017, we prepaid and extinguished the €200 million of outstanding term loans under the euro term loan facility portion of our Credit Facility. To fund such prepayment, including accrued and unpaid interest thereon, we used part of the proceeds of the 3.325% Senior Unsecured Notes due 2025 – see discussion below.
5.750% Senior Unsecured Notes due 2020
On March 4, 2017, we redeemed the €200 million aggregate principal amount of our 5.750% Senior Unsecured Notes due 2020 and incurred a redemption premium of approximately $9 million. We funded this redemption, including the premium and accrued interest, 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, 2017,2021, we completed a €500an £850 million senior unsecured notes offering (“3.325%in two tranches. See below for details of each tranche: 2.500% Senior Unsecured Notes due 2025”). Interest2026 On March 24, 2021, we completed a £500 million senior unsecured notes offering. The notes were issued at 99.937% of par value, and interest on the notes is payable annually on March 24 of each year.year, commencing on March 24, 2022. The notes pay interest in cash at a rate of 3.325% per year. The notes2.500% and mature on March 24, 2025. We may redeem some or all of the 3.325%2026. 3.375% 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 20272030
On September 7, 2017,March 24, 2021, we completed a $1.4 billion£350 million senior unsecured notes offering (“5.000% Senior Unsecured Notes due 2027”). Interestoffering. The notes were issued at 99.448% of par value, and interest on the notes is payable annually on April 15 and October 1524 of each year, commencing on April 15, 2018.24, 2022. The notes pay interest in cash at a rate of 5.000% per year. The notes3.375% and 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.April 24, 2030. We used a portion of the net proceeds from the 5.000% Senior Unsecured Notes due 2027 offering to redeem the $350 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. 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.
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£850 million senior unsecured notes offering (“5.250% Senior Unsecured Notes due 2026”). Interestto payoff the interim credit facility and reduce our revolving facility by £341 million on March 26, 2021.
2020 Activity British Pound Sterling Term Loan On January 6, 2020, we entered into a £700 million unsecured sterling-denominated term loan with Bank of America, N.A., as administrative agent, and several lenders from time-to-time are parties thereto. The term loan matures on January 15, 2025. The applicable margin under the notesterm loan is payableadjustable based on February 1 and August 1a pricing grid from 0.85% to 1.65% dependent on our current credit rating. On March 4, 2020, we entered into an interest rate swap transaction (effective March 6, 2020) to fix the interest rate to approximately 0.70% for the duration of each year. Interestthe loan. The current applicable margin for the pricing grid (which can vary based on the notesour credit rating) is to be paid in cash at a1.25% for an all-in fixed rate of 5.25% per year. The notes mature on August 1, 2026. We may redeem some or all1.95%. Debt Refinancing and Unutilized Financing Costs With the amendment of our Credit Facility and the notes at any time prior to August 1, 2021 at a “make whole” redemption price. On or after August 1, 2021,termination of our $900 million interim credit facility, we may redeem some or allincurred approximately $2.3 million 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 duringcosts in the 2016 thirdfirst quarter consisting of a $15.5 million redemption premium along with the write-off of deferred debt issuance costs associated with the redeemed notes.2021.
6.375% Senior Unsecured Notes due 2024
On February 22, 2016, we completed a $500 million senior unsecured notes offering (“6.375% Senior Unsecured Notes due 2024”). Interest on the notes is payable on March 1 and September 1 of each year. Interest on the notes is paid in cash at a rate of 6.375% per year. The notes mature on March 1, 2024. We may redeem some or all of the notes at any time prior to March 1, 2019 at a “make whole” redemption price. On or after March 1, 2019, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time prior to March 1, 2019, we may redeem up to 35% of the notes at a redemption price equal to 106.375% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, using proceeds from one or more equity offerings. In the event of a change in control, each holder of the notes may require us to repurchase some or all of the notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest to the date of purchase.
Covenants Our debt facilities impose certain restrictions on us, including restrictions on our ability to: incur debts; create or incur liens; provide guarantees in respect of obligations of any other entity; make redemptions and repurchases of our capital stock; prepay, redeem, or repurchase debt; engage in mergers or consolidations; enter into affiliated transactions; dispose of real estate or other assets; and change our business. In addition, the credit agreements governing our Credit Facility limit the amount of dividends we can pay as a percentage of normalized adjusted funds from operations (“FFO”NAFFO”), as defined in the agreements, on a rolling four quarter basis. At September 30, 2017,March 31, 2021, the dividend restriction was 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% 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% 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,March 31, 2021, we were in compliance with all such financial and operating covenants. 19
5. Common Stock/Partners’ Capital Medical Properties Trust, Inc. 2017 Activity
On May 1, 2017,January 11, 2021, we completed an underwritten public offering of approximately 43.136.8 million shares (including the exercise of the underwriters’ 30-day option to purchase an additional 5.6 million shares) of our common stock, resulting in net proceeds of approximately $548$711 million, after deducting underwriting discounts and commissions and 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,In addition, we sold approximately 153.1 million shares of common stock under anour at-the-market equity offering program during the 2021 first quarter, resulting in net proceeds of approximately $67.6 million; while in the 2020 first quarter, we sold 2.6 million shares of common stock under our at-the-market equity offering program, resulting in net proceeds of approximately $224$62 million.
Subsequent to March 31, 2021, we sold an additional 4.9 million after deducting approximately $2.8 millionshares of commissions. There is no availabilitycommon stock under thisour at-the-market equity offering program, at September 30, 2017.resulting in net proceeds of approximately $105.5 million. MPT Operating Partnership, L.P. At September 30, 2017,March 31, 2021, the operating partnership is made up of a general partner, Medical Properties Trust, LLC (“General Partner”) and limited partners, including the Company (which owns 100% of the General Partner) and MPT TRS, Inc. (which is 100% owned by the General Partner). By virtue of its ownership of the General Partner, the Company has a 99.89%100% 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.operating partnership. During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Operating Partnershipoperating partnership issued approximately 43.139.9 million units and approximately 72.52.6 million units, respectively, in direct response to the common stock offerings by Medical Properties Trust, Inc. during the same periods. 6. Stock Awards We adopted the 20132019 Equity Incentive Plan (the “Equity Incentive Plan”) during the second quarter of 2013,2019, 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.other stock-based awards. The Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. WeDirectors, and we have reserved 8,196,77012.9 million shares of common stock for awards, under the Equity Incentive Plan forout of which 3.36.2 million shares remain available for future stock awards as of September 30, 2017.March 31, 2021. Share-based compensation expense totaled $7.1$12.3 million and $5.8$10.0 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016, respectively, of which $0.4 million relates to the acceleration of vestings on time-based awards previously granted to three former board members.2020, respectively. 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 inputssuch as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loans using Level 2 inputs based on the present value of future payments, discounted at a rate which we consider appropriate for such debt. Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision. The following table summarizes fair value estimates for our financial instruments (in thousands): | | | September 30, 2017 | | | December 31, 2016 | | | | | Book | | | Fair | | | Book | | | Fair | | | As of March 31, 2021 | | | As of December 31, 2020 | | Asset (Liability) | | Value | | | Value | | | Value | | | Value | | | Book Value | | | Fair Value | | | Book Value | | | Fair Value | | Interest and rent receivables | | $ | 105,817 | | | $ | 105,803 | | | $ | 57,698 | | | $ | 57,707 | | | $ | 44,558 | | | $ | 43,729 | | | $ | 46,208 | | | $ | 45,381 | | Loans (1) | | | 1,698,866 | | | | 1,722,912 | | | | 986,987 | | | | 1,017,428 | | | Loans(1) | | | | 2,501,480 | | | | 2,501,963 | | | | 751,341 | | | | 756,608 | | Debt, net | | | (4,832,264 | ) | | | (5,032,821 | ) | | | (2,909,341 | ) | | | (2,966,759 | ) | | | (9,999,538 | ) | | | (10,219,474 | ) | | | (8,865,458 | ) | | | (9,226,564 | ) |
(1) | Excludes loans related to Ernest since they are recorded at fair value and discussed below.(1) |
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20
| | Excludes the $205 million acquisition loan made in May 2020 to our international joint venture and related investment in the real estate of 3 hospitals in Colombia. |
Items Measured at Fair Value on a Recurring Basis Our equity interestinvestment and related loan to the international joint venture and our loan investment in Ernest along with their related loansthe real estate of 3 hospitals operated by subsidiaries of the international joint venture in Colombia are measured at fair value on a recurring basis as we elected to account for these investments using the fair value option method.at the point of initial investment during 2020. We have elected to account for these investments at fair value due to the size of the investments and because we believe this method iswas more reflective of current values. We have not made a similar election for other existing equity interests or loans. At September 30, 2017, theseMarch 31, 2021 and December 31, 2020, the amounts recorded under the fair value option method were as follows (in thousands): | | | | | | | | | | | | | | | Fair | | | | | | Asset Type | | Asset Type | | Value | | | Cost | | | Classification | | Mortgage loans | | $ | 115,000 | | | $ | 115,000 | | | | Mortgage loans | | Acquisition and other loans | | | 115,398 | | | | 115,398 | | | | Other loans | | Equity investments | | | 3,300 | | | | 3,300 | | | | Other assets | | | | | | | | | | | | | | | | | $ | 233,698 | | | $ | 233,698 | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2021 | | | As of December 31, 2020 | | | | Asset (Liability) | | Fair Value | | | Original Cost | | | Fair Value | | | Original Cost | | | Asset Type Classification | Mortgage loans | | $ | 127,564 | | | $ | 127,564 | | | $ | 136,332 | | | $ | 136,332 | | | Mortgage loans | Equity investment and other loans | | | 218,487 | | | | 218,487 | | | | 218,775 | | | | 218,775 | | | Equity investments/Other loans |
Our mortgageloans to the international joint venture and other loans with Ernestits subsidiaries 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. Our equity investment in Ernestthe international joint venture is recorded at fair value based on Level 3 inputs, by using a discounted cash flow model, which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecastforecasted assumptions associated with the investee. We classify the equity investment as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuation requires management judgment due to the absence of quoted market prices. For thethis cash flow model, our observable inputs include use of a capitalization rate and discount rate (which is based on a weighted-average cost of capital), market interest rates, and our unobservable input includes an adjustment for a marketability discount (“DLOM”) on our equity investment of 40% at September 30, 2017.. In regards to the underlying projection of revenues and expensesprojections used in the discounted cash flow model, such projections are provided by Ernest.the investee. However, we will modify such projections (including underlying assumptions used) as needed based on our review and analysis of Ernest’s historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry. In arriving at the DLOM, we started with Given our equity investment is in an entity that was a DLOM range based on the results of studies supporting valuation discounts for other transactions or structures without a public market. To select the appropriate DLOM within the range, we then considered many qualitative factors including the percent of control, the nature of the underlying investee’s business along with our rights as an investor 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 movementsstart-up company in the DLOM, we performed a sensitivity analysis below by using basis point variations (dollars in thousands):
| | | | | Basis Point Change in Marketability Discount | | Estimated Increase (Decrease) In Fair Value | | +100 basis points | | $ | (51 | ) | - 100 basis points | | | 51 | |
Because the 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,2020, we have not receivedrecognized any distribution payments from our equityunrealized gain/loss on such investment in Ernest.2020 or 2021.
Items Measured at Fair Value on a Nonrecurring Basis In addition to items that are measured at fair value on a recurring basis, we have assets and liabilities that are measured, from time-to-time, at fair value on a nonrecurring basis, such as for long-lived asset impairment purposes. In these cases, fair value is based on estimated cash flows discounted at a risk-adjusted rate of interest by using Level 2 inputs. 8. Earnings Per Share/Common Unit Medical Properties Trust, Inc. Our earnings per share were calculated based on the following (in(amounts in thousands): | | | | | | | | | | | For the Three Months Ended September 30, | | | | 2017 | | | 2016 | | Numerator: | | | | | | | | | Net income | | $ | 76,881 | | | $ | 70,543 | | Non-controlling interests’ share in net income | | | (417 | ) | | | (185 | ) | Participating securities’ share in earnings | | | (82 | ) | | | (154 | ) | | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 76,382 | | | $ | 70,204 | | | | | | | | | | | Denominator: | | | | | | | | | Basic weighted-average common shares | | | 364,315 | | | | 246,230 | | Dilutive potential common shares | | | 731 | | | | 1,238 | | | | | | | | | | | Dilutive weighted-average common shares | | | 365,046 | | | | 247,468 | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | | | 2017 | | | 2016 | | Numerator: | | | | | | | | | Income from continuing operations | | $ | 218,862 | | | $ | 182,693 | | Non-controlling interests’ share in continuing operations | | | (1,013 | ) | | | (683 | ) | Participating securities’ share in earnings | | | (307 | ) | | | (430 | ) | | | | | | | | | | Income from continuing operations, less participating securities’share in earnings | | | 217,542 | | | | 181,580 | | Loss from discontinued operations attributable to MPT common stockholders | | | — | | | | (1 | ) | | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 217,542 | | | $ | 181,579 | | | | | | | | | | | Denominator: | | | | | | | | | Basic weighted-average common shares | | | 345,076 | | | | 240,607 | | Dilutive potential common shares | | | 520 | | | | 825 | | | | | | | | | | | Dilutive weighted-average common shares | | | 345,596 | | | | 241,432 | | | | | | | | | | |
| | For the Three Months Ended March 31, | | | | 2021 | | | 2020 | | Numerator: | | | | | | | | | Net income | | $ | 163,880 | | | $ | 81,157 | | Non-controlling interests’ share in net income | | | (97 | ) | | | (165 | ) | Participating securities’ share in earnings | | | (370 | ) | | | (464 | ) | Net income, less participating securities’ share in earnings | | $ | 163,413 | | | $ | 80,528 | | Denominator: | | | | | | | | | Basic weighted-average common shares | | | 576,240 | | | | 521,076 | | Dilutive potential common shares | | | 1,301 | | | | 1,103 | | Diluted weighted-average common shares | | | 577,541 | | | | 522,179 | |
MPT Operating Partnership, L.P. Our earnings per common unit were calculated based on the following (in(amounts in thousands): | | | For the Three Months Ended September 30, | | | For the Three Months Ended March 31, | | | | 2017 | | | 2016 | | | 2021 | | | 2020 | | Numerator: | | | | | | | | | | | | | Net income | | $ | 76,881 | | | $ | 70,543 | | | $ | 163,880 | | | $ | 81,157 | | Non-controlling interests’ share in net income | | | (417 | ) | | | (185 | ) | | | (97 | ) | | | (165 | ) | Participating securities’ share in earnings | | | (82 | ) | | | (154 | ) | | | (370 | ) | | | (464 | ) | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 76,382 | | | $ | 70,204 | | | $ | 163,413 | | | $ | 80,528 | | | | | | | | | | Denominator: | | | | | | | | | | | | | Basic weighted-average units | | | 364,315 | | | | 246,230 | | | | 576,240 | | | | 521,076 | | Dilutive potential units | | | 731 | | | | 1,238 | | | | 1,301 | | | | 1,103 | | | | | | | | | | Dilutive weighted-average units | | | 365,046 | | | | 247,468 | | | | | | | | | | | Diluted weighted-average units | | | | 577,541 | | | | 522,179 | |
| | | | | | | | | | | For the Nine Months Ended September 30, | | | | 2017 | | | 2016 | | Numerator: | | | | | | | | | Income from continuing operations | | $ | 218,862 | | | $ | 182,693 | | Non-controlling interests’ share in continuing operations | | | (1,013 | ) | | | (683 | ) | Participating securities’ share in earnings | | | (307 | ) | | | (430 | ) | | | | | | | | | | Income from continuing operations, less participating securities’ share in earnings | | | 217,542 | | | | 181,580 | | Loss from discontinued operations attributable to MPT Operating Partnership partners | | | — | | | | (1 | ) | | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 217,542 | | | $ | 181,579 | | | | | | | | | | | Denominator: | | | | | | | | | Basic weighted-average units | | | 345,076 | | | | 240,607 | | Dilutive potential units | | | 520 | | | | 825 | | | | | | | | | | | Dilutive weighted-average units | | | 345,596 | | | | 241,432 | | | | | | | | | | |
9. Commitments and Contingencies Commitments
On September 28, 2016, we entered into a definitive agreement to acquire one acute care hospital in Washington for a purchase price of approximately $17.5 million. Upon closing, this facility will be leased to RCCH, pursuant to the current long-term master lease. Closing of the transaction, which is expected to be completed no later than the first quarter of 2018, is subject to customary real estate, regulatory and other closing conditions.
Contingencies
We are a party to various legal proceedings incidental to our business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations, or cash flows. 10. Subsequent Events On October 5, 2017,April 16, 2021, we entered into definitive agreementsmade a CHF 145 million investment in Swiss Medical Network, our tenant via our Infracore equity investment. Subsequent to acquire three rehabilitation hospitalsMarch 31, 2021, we received approximately $75 million 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. loan principal repayments.22
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities. The followingSuch 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, 2016.2020.
As the economy continues to recover from the downturn caused by COVID-19 and vaccines continue to roll out, we expect to receive substantially all rent and interest payments in the future, and we are collecting rent, as expected, that we previously deferred in 2020 (less than 2% of our 2020 annual rent), with interest. However, no assurances can be made that if the pandemic continues for an extended period of time that our rent and interest payments will not be delayed into the future until our tenants can recover. 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. 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 1934.1934, as amended. Such factors include, among others, the following: U.S. (both national and local) and European (in particular Germany, the United Kingdom, Spain, and Italy) political, economic, business, real estate and other market conditions; | • | the political, economic, business, real estate, and other market conditions in the U.S. (both national and local), Europe (in particular the United Kingdom, Germany, Switzerland, Spain, Italy, and Portugal), Australia, South America (in particular Colombia), and other foreign jurisdictions where we may own healthcare facilities or transact business, which may have a negative effect on the following, among other things: |
| o | the financial condition of our tenants, our lenders, or institutions that hold our cash balances or are counterparties to certain hedge agreements, which may expose us to increased risks of default by these parties; |
| o | our ability to obtain equity or debt financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities, refinance existing debt, and our future interest expense; and |
| o | the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our real estate assets or on an unsecured basis. |
| • | the impact of COVID-19 on our business, our joint ventures, and the business of our tenants/borrowers and the economy in general, as well as other factors that may affect our business, our joint ventures or that of our tenants/borrowers that are beyond our control, including natural disasters, health crises, or pandemics and subsequent government actions in reaction to such matters; |
| • | the risk that a condition to closing under the agreements governing any or all of our pending transactions (including phase two of the Priory Group Transaction disclosed in Note 3) that have not closed as of the date hereof may not be satisfied; |
| • | the possibility that the anticipated benefits from any or all of the transactions we enter into will take longer to realize than expected or will not be realized at all; |
| • | the competitive environment in which we operate; |
| • | the execution of our business plan; |
| • | acquisition and development risks; |
| • | potential environmental contingencies and other liabilities; |
| • | adverse developments affecting the financial health of one or more of our tenants, including insolvency; |
| • | other factors affecting the real estate industry generally or the healthcare real estate industry in particular; |
| • | our ability to maintain our status as a REIT for income tax purposes; |
| • | our ability to attract and retain qualified personnel; |
| • | changes in foreign currency exchange rates; |
| • | changes in federal, state, or local tax laws in the U.S., Europe, Australia, South America, or other jurisdictions in which we may own healthcare facilities or transact business; and |
| • | healthcare and other regulatory requirements in the U.S., Europe, Australia, South America, and other foreign countries. |
the competitive environment in which we operate;
the execution of our business plan;
financing risks;
the risk that a condition to closing under the agreements governing any or all of our outstanding transactions that have not closed as of the date hereof (including the RCCH and MEDIAN transactions described in Notes 9 and 10) may not be satisfied;
the possibility that the anticipated benefits from any or all of the transactions we enter into will take longer to realize than expected or will not be realized at all;
acquisition and development risks;
potential environmental contingencies and other liabilities;
adverse developments affecting the financial health of one or more of our tenants, including insolvency;
other factors affecting the real estate industry generally or the healthcare real estate industry in particular;
our ability and willingness to maintain our status as a real estate investment trust, or REIT, for U.S. federal and state income tax purposes (particularly in light of current tax reform considerations);
our ability to attract and retain qualified personnel;
changes in foreign currency exchange rates;
U.S. (both federal and state) and European (in particular Germany, the United Kingdom, Spain, and Italy) healthcare and other regulatory requirements; and
U.S. national and local economic conditions, as well as conditions in Europe and any other foreign jurisdictions where we own or will own healthcare facilities, which may have a negative effect on the following, among other things:
the financial condition of our tenants, our lenders, counterparties to interest rate swaps and other hedged transactions and institutions that may hold our cash balances, which may expose us to increased risks of default by these parties;
our ability to obtain equity or debt financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities, refinance existing debt and our future interest expense; and
the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis.
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 caused by COVID-19) that may affect their profitability, which could impact our results. Accordingly, we monitor certain key factors, changes to whichperformance indicators that we believe may provideprovides us with early indications of conditions that maycould affect the level of risk in our portfolio. Key factors that we consider in underwriting prospective tenants and borrowers and in our ongoing monitoring theof our tenants’ (and guarantors’) performance of existing tenants and borrowers include the following: | • | admission levels and surgery/procedure/diagnosis volumes by type; |
the current, historical and prospective operating margins | • | the current, historical, and prospective operating profit (measured by earnings before interest, taxes, depreciation, amortization, and facility rent) of each tenant or borrower and at each facility; |
| • | the ratio of our tenants’ or borrowers’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs; |
| • | changes in revenue sources of our tenants’ or borrowers’ revenue, including the relative mix of public payors (including Medicare, Medicaid/MediCal, and managed care in the U.S., pension funds in Germany, and National Health Services in the United Kingdom) and private payors (including commercial insurance and private pay patients); |
| • | trends in tenants’ cash collections, including comparison to recorded net patient service revenues; |
| • | tenants’ free cash flows; |
| • | the potential impact of healthcare pandemics/epidemics, legislation, and other regulations (including changes in reimbursement) on our tenants’ or borrowers’ profitability and liquidity; and |
| • | the competition and demographics of the local and surrounding areas in which our tenants’ and borrowers’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;trends in the source of our tenants’ or borrowers’ revenue, including the relative mix of public payors (including Medicare, Medicaid/MediCal, managed care in the U.S. and pension funds in Germany) and private payors (including commercial insurance and private pay patients);
the effect of evolving healthcare regulations on our tenants’ and borrowers’ profitability; and
the competition and demographics of the local and surrounding areas in which the tenants or borrowers operate.
|
Certain business factors, in addition to those described above that directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include: | • | trends in the cost and availability of capital, including market interest rates, that our prospective tenants may use for their real estate assets instead of financing their real estate assets through lease structures; |
| • | changes in healthcare regulations that may limit the opportunities for physicians to participate in the ownership of healthcare providers and healthcare real estate; |
| • | reductions in reimbursements from Medicare, state healthcare programs, and commercial insurance providers that may reduce our tenants’ or borrowers’ profitability and our lease rates; |
| • | competition from other financing sources; and |
| • | the ability of our tenants and borrowers to access funds in the credit markets. |
CRITICAL ACCOUNTING POLICIES Refer to our 20162020 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, our fair value option election, and our accounting policy on consolidation. During the ninethree months ended September 30, 2017,March 31, 2021, there were no material changes to these policies. 24
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. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we selectively make loans to certain of our operators through our TRSs,taxable REIT subsidiaries, the proceeds of which are typically used for acquisitions and working capital. Finally, from time to time,time-to-time, we acquire a profits or other equity interest in our tenants that gives us a right to share in such tenant’s profits and losses. At September 30, 2017,March 31, 2021, our portfolio consisted of 271425 properties leased or loaned to 3050 operators, of which two are under development and 1440 are in the form of mortgage loans. Our investments in healthcare real estate, including mortgage and other loans, as well as any equity investments in our tenants are considered a single reportable segment. AllAt March 31, 2021, all of our investments are currently located in the U.S., Europe, Australia, and Europe.South America. Our total assets are made up of the following (dollars in thousands): | | | | | | | | | | | | | | | | | | | As of September 30, 2017 | | | % of Total | | | As of December 31, 2016 | | | % of Total | | Real estate owned (gross) | | $ | 6,463,107 | | | | 72.4 | % | | $ | 4,912,320 | | | | 76.6 | % | Mortgage loans | | | 1,777,555 | | | | 19.9 | % | | | 1,060,400 | | | | 16.5 | % | Other loans | | | 151,709 | | | | 1.7 | % | | | 155,721 | | | | 2.4 | % | Construction in progress | | | 28,008 | | | | 0.3 | % | | | 53,648 | | | | 0.8 | % | Other assets | | | 506,661 | | | | 5.7 | % | | | 236,447 | | | | 3.7 | % | | | | | | | | | | | | | | | | | | Total assets (1) | | $ | 8,927,040 | | | | 100.0 | % | | $ | 6,418,536 | | | | 100.0 | % | | | | | | | | | | | | | | | | | |
| | As of March 31, 2021 | | | % of Total | | | As of December 31, 2020 | | | % of Total | | Real estate assets - at cost | | $ | 15,453,515 | | | | 82.4 | % | | $ | 14,337,929 | | | | 85.2 | % | Accumulated real estate depreciation and amortization | | | (903,798 | ) | | | -4.8 | % | | | (833,529 | ) | | | -5.0 | % | Cash and cash equivalents | | | 746,753 | | | | 4.0 | % | | | 549,884 | | | | 3.3 | % | Equity investments | | | 1,080,214 | | | | 5.8 | % | | | 1,123,623 | | | | 6.7 | % | Other loans | | | 1,522,666 | | | | 8.1 | % | | | 858,368 | | | | 5.1 | % | Other | | | 846,325 | | | | 4.5 | % | | | 792,739 | | | | 4.7 | % | Total assets | | $ | 18,745,675 | | | | 100.0 | % | | $ | 16,829,014 | | | | 100.0 | % |
(1) | Includes $1.8 billion and $1.3 billion of healthcare real estate assets in Europe at September 30, 2017 and December 31, 2016, respectively. |
The followingAdditional Concentration Details
On a pro forma gross asset basis (as defined in the “Reconciliation of Non-GAAP Financial Measures” section of Item 2 of this Quarterly Report on Form 10-Q), our concentration as of March 31, 2021 as compared to December 31, 2020 is our revenue by operating type (dollar amountsas follows (dollars in thousands): Total Pro Forma Gross Assets by Operator | | As of March 31, 2021 | | | As of December 31, 2020 | | Operators | | Total Pro Forma Gross Assets | | | Percentage of Total Pro Forma Gross Assets | | | Total Pro Forma Gross Assets | | | Percentage of Total Pro Forma Gross Assets | | Steward | | | | | | | | | | | | | | | | | Massachusetts market | | $ | 1,487,064 | | | | 7.1 | % | | $ | 1,500,915 | | | | 7.3 | % | Utah market | | | 1,261,507 | | | | 6.1 | % | | | 1,260,147 | | | | 6.2 | % | Texas/Arkansas/Louisiana market | | | 1,043,913 | | | | 5.0 | % | | | 1,045,982 | | | | 5.1 | % | Arizona market | | | 330,734 | | | | 1.6 | % | | | 332,239 | | | | 1.6 | % | Florida market | | | 218,123 | | | | 1.0 | % | | | 215,105 | | | | 1.1 | % | Ohio/Pennsylvania market | | | 149,122 | | | | 0.7 | % | | | 151,785 | | | | 0.7 | % | Circle | | | 2,541,334 | | | | 12.2 | % | | | 2,520,019 | | | | 12.3 | % | Prospect | | | 1,606,433 | | | | 7.7 | % | | | 1,597,950 | | | | 7.8 | % | Priory | | | 1,582,689 | | | | 7.6 | % | | | 1,566,087 | | | | 7.7 | % | Swiss Medical Network | | | 1,252,642 | | | | 6.0 | % | | | 1,177,520 | | | | 5.8 | % | Other operators | | | 8,185,843 | | | | 39.2 | % | | | 8,269,093 | | | | 40.5 | % | Other assets | | | 1,201,275 | | | | 5.8 | % | | | 792,739 | | | | 3.9 | % | Total | | $ | 20,860,679 | | | | 100.0 | % | | $ | 20,429,581 | | | | 100.0 | % |
Total Pro Forma Gross Assets by U.S. State and Country | | As of March 31, 2021 | | | As of December 31, 2020 | | U.S. States and Other Countries | | Total Pro Forma Gross Assets | | | Percentage of Total Pro Forma Gross Assets | | | Total Pro Forma Gross Assets | | | Percentage of Total Pro Forma Gross Assets | | Texas | | $ | 1,926,283 | | | | 9.2 | % | | $ | 1,923,440 | | | | 9.4 | % | Massachusetts | | | 1,492,464 | | | | 7.2 | % | | | 1,506,315 | | | | 7.4 | % | California | | | 1,397,169 | | | | 6.7 | % | | | 1,382,663 | | | | 6.8 | % | Utah | | | 1,296,754 | | | | 6.2 | % | | | 1,295,329 | | | | 6.4 | % | Pennsylvania | | | 864,709 | | | | 4.1 | % | | | 864,273 | | | | 4.2 | % | All other states | | | 3,974,527 | | | | 19.1 | % | | | 3,984,113 | | | | 19.5 | % | Other domestic assets | | | 1,065,687 | | | | 5.1 | % | | | 680,678 | | | | 3.3 | % | Total U.S. | | $ | 12,017,593 | | | | 57.6 | % | | $ | 11,636,811 | | | | 57.0 | % | United Kingdom | | $ | 4,679,097 | | | | 22.4 | % | | $ | 4,636,634 | | | | 22.7 | % | Germany | | | 1,306,250 | | | | 6.3 | % | | | 1,361,019 | | | | 6.6 | % | Switzerland | | | 1,252,642 | | | | 6.0 | % | | | 1,177,520 | | | | 5.7 | % | Australia | | | 985,427 | | | | 4.7 | % | | | 997,878 | | | | 4.9 | % | Spain | | | 211,036 | | | | 1.0 | % | | | 221,134 | | | | 1.1 | % | All other countries | | | 273,046 | | | | 1.3 | % | | | 286,524 | | | | 1.4 | % | Other international assets | | | 135,588 | | | | 0.7 | % | | | 112,061 | | | | 0.6 | % | Total international | | $ | 8,843,086 | | | | 42.4 | % | | $ | 8,792,770 | | | | 43.0 | % | Grand total | | $ | 20,860,679 | | | | 100.0 | % | | $ | 20,429,581 | | | | 100.0 | % |
On an individual property basis, we had no investment in any single property greater than 3% of our total pro forma gross assets as of March 31, 2021. On an adjusted revenue basis (as defined in the “Reconciliation of Non-GAAP Financial Measures” section of Item 2 of this Quarterly Report on Form 10-Q), concentration for the three months ended March 31, 2021 as compared to the prior year is as follows (dollars in thousands): Total AdjustedRevenue by property type:Operator | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2017 | | | % of Total | | | For the Three Months Ended September 30, 2016 | | | % of Total | | General Acute Care Hospitals (1) | | $ | 119,572 | | | | 67.7 | % | | $ | 78,622 | | | | 62.1 | % | Rehabilitation Hospitals | | | 46,485 | | | | 26.3 | % | | | 37,075 | | | | 29.3 | % | Long-term Acute Care Hospitals | | | 10,523 | | | | 6.0 | % | | | 10,858 | | | | 8.6 | % | | | | | | | | | | | | | | | | | | Total revenue | | $ | 176,580 | | | | 100.0 | % | | $ | 126,555 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | % of Total | | | For the Nine Months Ended September 30, 2016 | | | % of Total | | General Acute Care Hospitals (1) | | $ | 341,640 | | | | 68.4 | % | | $ | 238,600 | | | | 61.5 | % | Rehabilitation Hospitals | | | 125,829 | | | | 25.2 | % | | | 113,463 | | | | 29.3 | % | Long-term Acute Care Hospitals | | | 32,315 | | | | 6.4 | % | | | 35,791 | | | | 9.2 | % | | | | | | | | | | | | | | | | | | Total revenue | | $ | 499,784 | | | | 100.0 | % | | $ | 387,854 | | | | 100.0 | % | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | | | 2021 | | | 2020 | | Operators | | Total Adjusted Revenue | | | Percentage of Total Adjusted Revenue | | | Total Adjusted Revenue | | | Percentage of Total Adjusted Revenue | | Steward | | | | | | | | | | | | | | | | | Massachusetts market | | $ | 34,543 | | | | 8.8 | % | | $ | 34,615 | | | | 10.9 | % | Utah market | | | 31,705 | | | | 8.0 | % | | | 21,781 | | | | 6.8 | % | Texas/Arkansas/Louisiana market | | | 22,671 | | | | 5.7 | % | | | 18,046 | | | | 5.7 | % | Arizona market | | | 8,187 | | | | 2.1 | % | | | 8,191 | | | | 2.6 | % | Florida market | | | 4,985 | | | | 1.3 | % | | | 3,626 | | | | 1.1 | % | Ohio/Pennsylvania market | | | 3,300 | | | | 0.8 | % | | | 5,000 | | | | 1.6 | % | Circle | | | 53,192 | | | | 13.5 | % | | | 32,342 | | | | 10.1 | % | Prospect | | | 38,066 | | | | 9.7 | % | | | 37,916 | | | | 11.9 | % | Prime | | | 30,415 | | | | 7.7 | % | | | 32,162 | | | | 10.1 | % | LifePoint Health, Inc. | | | 26,688 | | | | 6.8 | % | | | 26,594 | | | | 8.3 | % | Other operators | | | 140,665 | | | | 35.6 | % | | | 98,394 | | | | 30.9 | % | Total | | $ | 394,417 | | | | 100.0 | % | | $ | 318,667 | | | | 100.0 | % |
(1) | Includes three medical office buildings. |
Total AdjustedRevenue by U.S. State and Country | | For the Three Months Ended March 31, | | | | 2021 | | | 2020 | | U.S. States and Other Countries | | Total Adjusted Revenue | | | Percentage of Total Adjusted Revenue | | | Total Adjusted Revenue | | | Percentage of Total Adjusted Revenue | | Texas | | $ | 39,128 | | | | 9.9 | % | | $ | 26,431 | | | | 8.3 | % | Massachusetts | | | 34,702 | | | | 8.8 | % | | | 34,773 | | | | 10.9 | % | California | | | 34,004 | | | | 8.6 | % | | | 34,946 | | | | 11.0 | % | Utah | | | 32,677 | | | | 8.3 | % | | | 22,748 | | | | 7.1 | % | Pennsylvania | | | 20,100 | | | | 5.1 | % | | | 21,669 | | | | 6.8 | % | All other states | | | 96,549 | | | | 24.5 | % | | | 92,766 | | | | 29.1 | % | Total U.S. | | $ | 257,160 | | | | 65.2 | % | | $ | 233,333 | | | | 73.2 | % | United Kingdom | | $ | 76,560 | | | | 19.4 | % | | $ | 38,875 | | | | 12.2 | % | Germany | | | 26,162 | | | | 6.6 | % | | | 23,804 | | | | 7.5 | % | All other countries | | | 34,535 | | | | 8.8 | % | | | 22,655 | | | | 7.1 | % | Total international | | $ | 137,257 | | | | 34.8 | % | | $ | 85,334 | | | | 26.8 | % | Grand total | | $ | 394,417 | | | | 100.0 | % | | $ | 318,667 | | | | 100.0 | % |
We have 62 employees as of November 3, 2017. We believe that any foreseeable increase in the number of our employees will have only immaterial effects on our operations and general and administrative expenses. We believe that our relations with our employees are good. None of our employees are members of any labor union.
Total Adjusted Revenue by Facility Type | | For the Three Months Ended March 31, | | | | 2021 | | | 2020 | | Facility Types | | Total Adjusted Revenue | | | Percentage of Total Adjusted Revenue | | | Total Adjusted Revenue | | | Percentage of Total Adjusted Revenue | | General acute care hospitals | | $ | 315,434 | | | | 80.0 | % | | $ | 263,742 | | | | 82.8 | % | Inpatient rehabilitation hospitals | | | 45,303 | | | | 11.5 | % | | | 40,631 | | | | 12.7 | % | Behavioral health facilities | | | 19,754 | | | | 5.0 | % | | | 1,422 | | | | 0.5 | % | Long-term acute care hospitals | | | 8,186 | | | | 2.1 | % | | | 8,575 | | | | 2.7 | % | Freestanding ER/urgent care facilities | | | 5,740 | | | | 1.4 | % | | | 4,297 | | | | 1.3 | % | Total | | $ | 394,417 | | | | 100.0 | % | | $ | 318,667 | | | | 100.0 | % |
Results of Operations Three Months Ended September 30, 2017March 31, 2021 Compared to September 30, 2016March 31, 2020 Net income for the three months ended September 30, 2017,March 31, 2021, was $76.5$163.8 million compared to $70.4$81.0 million for the three months ended September 30, 2016.March 31, 2020. This 102% increase in net income is primarily due to additionalincremental revenue from the Steward and MEDIANnew investments made in the fourth quarter of 20162020 and during the first nine months of 2017,in early 2021, partially offset by increasedhigher interest expense (from additional debt to partially finance these new investments), depreciation expense, general and acquisition expenseadministrative costs and $44.6income taxes due to the growth of the company. In addition, our return on our equity investments were greater in the 2021 first quarter compared to the prior year, and we incurred approximately $19 million of gains on real estate and other asset dispositionsimpairment charges in the 2016 third quarter. Funds2020. Normalized funds from operations (“FFO”), after adjusting for certain items (as more fully described in Reconciliationthe “Reconciliation of Non-GAAP Financial Measures)Measures”), was $120.6$243.9 million for the 2021 first quarter, or $0.42 per diluted share, as compared to $191.2 million, or $0.33$0.37 per diluted share, for the 2017 third quarter as compared2020 first quarter. Similar to $75.1 million, or $0.30 per diluted share for the 2016 third quarter. This 61%net income, this 28% increase in Normalized FFO per share is primarily due to the increase inincremental revenue from our new investments made since September 2016, partially offset by more shares outstanding in 2017 from the May 2017 equity offering.2020 and early 2021. A comparison of revenues for the three month periods ended September 30, 2017March 31, 2021 and 20162020 is as follows (dollar amounts in thousands): | | | 2017 | | | % of Total | | 2016 | | | % of Total | | Year over Year Change | | | 2021 | | | % of Total | | | 2020 | | | % of Total | | | Year over Year Change | | Rent billed | | $ | 110,930 | | | | 62.8 | % | | $ | 82,387 | | | | 65.1 | % | | 34.6 | % | | $ | 213,344 | | | | 58.9 | % | | $ | 171,767 | | | | 58.4 | % | | | 24.2 | % | Straight-line rent | | | 17,505 | | | | 9.9 | % | | 9,741 | | | | 7.7 | % | | 79.7 | % | | | 54,873 | | | | 15.1 | % | | | 31,421 | | | | 10.7 | % | | | 74.6 | % | Income from direct financing leases | | | 19,115 | | | | 10.8 | % | | 14,678 | | | | 11.6 | % | | 30.2 | % | | Interest and fee income | | | 29,030 | | | | 16.5 | % | | 19,749 | | | | 15.6 | % | | 47.0 | % | | | | | | | | | | | | | | | | | | Income from financing leases | | | | 50,894 | | | | 14.0 | % | | | 52,436 | | | | 17.8 | % | | | (2.9) | % | Interest and other income | | | | 43,654 | | | | 12.0 | % | | | 38,508 | | | | 13.1 | % | | | 13.4 | % | Total revenues | | $ | 176,580 | | | | 100.0 | % | | $ | 126,555 | | | | 100.0 | % | | 39.5 | % | | $ | 362,765 | | | | 100.0 | % | | $ | 294,132 | | | | 100.0 | % | | | 23.3 | % | | | | | | | | | | | | | | | | |
Our total revenue for the 2017 third2021 first quarter is up $50.0$68.6 million, or 39.5%23%, over the prior year. This increase is made up of the following: Operating lease revenue (including rent billed and straight-line rent) – up $36.3 million over the prior year of which $32.6 million is incremental revenue from acquisitions made after September 30, 2016, $4.2 million is incremental revenue from development properties that were completed and put into service in late 2016 and 2017, $1.3 million is incremental revenue from capital additions made to existing facilities in late 2016 and 2017, and $2.0 million is due to an increase in exchange rates. These increases were partially offset by $1.8 | • | Operating lease revenue (includes rent billed and straight-line rent) – up $65.0 million over the prior year of which approximately $48.3 million is incremental revenue from acquisitions made in 2020 (including $16.4 million from the Circle transactions and $24.7 million from the two Steward properties in Utah that were acquired from proceeds of the mortgage loan conversions in the third quarter), $6.0 million is from the reclassification of properties from deferred financing leases to operating leases due to certain lease modifications in the fourth quarter of 2020, $3.5 million is from the commencement of rent on three development properties, $1.7 million is from capital additions in 2021, and approximately $5.6 million is from favorable foreign currency fluctuations. This increase is partially offset by $2.1 million of lower revenue from disposals in 2020. |
| • | Income from financing leases – down $1.5 million due to the impact from the reclassification of properties from deferred financing leases to operating leases due to certain lease modifications in the fourth quarter of 2020, partially offset by revenue from new financing leases in the 2020 fourth quarter as part of the conversion of Ernest mortgage loans to fee simple asset ownership. |
| • | Interest and other income – up $5.1 million from the prior year due to the following: |
| - | Interest from loans – up $3.4 million over the prior year due to $29.7 million of incremental revenue earned on loan investments in 2020 and early 2021, including $15.9 million earned on the two loans made to Priory in 2021 and $6.9 million from the loans made to the international joint venture and for the three Colombia properties in 2020, along with $0.5 million of favorable foreign currency fluctuations. This increase is partially offset by $14.7 million of lower interest revenue related to Steward mortgage loans converted to fee simple assets in the third quarter of 2020, $3.0 million of lower interest revenue related to Ernest mortgage loans converted to fee simple assets in the fourth quarter of 2020, and $9.2 million related to the repayment of Prime loans in the fourth quarter of 2020. |
| - | Other income – up $1.7 million from the prior year with the addition of new properties, whereby we received more direct reimbursements from our tenants for ground lease, property taxes, and insurance. Also, other income is higher in 2021 due to an approximate $1 million write-off of straight-line rent related to ground leases on certain Adeptus facilities in the 2020 first quarter. |
Interest expense for the quarters ended March 31, 2021 and 2020, totaled $87.0 million and $80.9 million, respectively.This increase is primarily related to dispositions. Income from direct financing leases – up $4.4 million overnew debt issuances in 2020 and 2021. Our weighted-average interest rate was 3.4% for the prior year of which $0.3 million is from our annual escalation provisionsthree months ended March 31, 2021, as compared to 4.0% in our leases, $1.1 million is incremental revenue from acquisitions made after September 30, 2016, and $3.0 million relates to the conversion of certain Prime facilities, valued at approximately $100 million,same period in 2016 from mortgage loans into direct financing leases.
2020. Interest from loans – up $9.3 million over the prior year of which $0.4 million is from our annual escalation provisions in our loans, $11.5 million is incremental revenue from new loans (primarily Steward mortgage loans) made after September 30, 2016. This increase was partially offset by $0.5 million of lower revenue from loans that were repaid in 2016 and $2.2 million of lower revenue related to the conversion of certain Prime facilities, valued at approximately $100 million, from mortgage loans to direct financing leases post September 30, 2016.
Real estate depreciation and amortization during the thirdfirst quarter of 20172021 increased to $31.9$75.6 million from $23.9$60.9 million in 2016,2020 due to the incremental depreciation from the properties acquired since September 30, 2016 and the development properties completed in 2016 and 2017. new investments made after March 31, 2020.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 administrativeProperty-related expenses totaled $15.0$5.5 million for the 2017 third quarter ended March 31, 2021, which is 8.5%consistent with the prior year. Of the $5.5 million of total revenues, down from 9.7%property expenses in the first three months of total revenues2021, approximately $3.5 million represents costs that were reimbursed by our tenants and included in prior year third quarter. The drop in“Interest and other income” line on our condensed consolidated statements of net income.
As a percentage of revenue, general and administrative expenses as a percentage of revenue is primarily duerepresent 9.9% for the 2021 first quarter compared to our business model as we can generally increase our revenue significantly without increasing our head count and related expenses at11.4% in the same rate.prior year. On a dollar basis, general and administrative expenses were uptotaled $36.1 million for the 2021 first quarter, which is a $2.7 million increase from the prior year thirdfirst quarter due primarily toand reflective of the growth of the company, in particular our company, including increases in travel,continued international administration, costs associated with opening a European office, and compensation related to increased headcount. Interest expense, for the quarters ended September 30, 2017 and 2016, totaled $42.8 million and $40.3 million, respectively. This increase is primarily related to the higher average debt balance for the 2017 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% for the 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 ($15.5 million of which was a redemption premium). During the 2017 third quarter, we incurred $4.4 million of charges primarily related to structuring and underwriting fees associated with the termination of theshort-term loan commitment we made in anticipation of the Steward acquisition.expansion.
During the three months ended September 30, 2016,March 31, 2021, we sold three HealthSouthone facility and an ancillary property resulting in a net gain of $1.0 million. In the first quarter of 2020, we sold four ancillary properties resulting in a net gain of $1.3 million. In addition, we made a $19.0 million adjustment to lower the carrying value of the real estate on sale of approximately $45 millioncertain assets previously leased to Adeptus and Alecto in the 2020 first quarter (see Note 3 to Item 1 of this Form 10-Q for further details). Earnings from our equity interests was $3.4$7.1 million for the 2017 third quarter,first three months of 2021, up $2.1$3.0 million from the prior yearsame period in 2020, primarily relateddue to more income generated on our investment in Infracore, which we increased our share in during the 2020 fourth quarter. Debt refinancing and unutilized financing costs were $2.3 million in the 2021 first quarter as a result of the early termination of our $900 million interim credit facility and the amendment to our increased ownershipCredit Facility (see Note 4 to the condensed consolidated financial statements for more detail). In the first quarter of 2020, we incurred $0.6 million of accelerated commitment fee amortization expense associated with our GBP term loan facility. In the first quarter of 2021, we recorded a favorable non-cash fair value adjustment of more than $4 million to mark our investment in and the improved operating results of the operatorAevis Victoria SA stock to market. We acquired this stock as part of our Hoboken facility, along withoverall Switzerland investment in May 2019. 28
This adjustment (reflected in the “Other” line of our first quarter to generate income on our IMED investment.condensed consolidated statements of net income) was a loss of more than $10 million in the prior year. Income tax expense typically includes U.S. federal and state income taxes on our domestic TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. IncomeThe $8.4 million income tax expense of $0.5 million for the three months ended September 30, 2017, was primarily due to $1.1March 31, 2021 is from the income generated by our investments in the United Kingdom, Colombia, and Australia, as well as income from lending activities of our domestic TRS entities. In comparison, we incurred a $4.0 million of foreignincome tax expense in the first quarter of 2020. This increase in income tax expense is primarily related to our Germanhigher foreign taxable income generated from investments offset partially by $0.6 million of tax benefit recognized on approximately $2 million of acquisition costs incurred on our European investments.made in 2020 and early 2021. 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 $38 million should continue to be recordedreflected against the majority of our U.S and certain of our international and domestic net deferred tax assets at September 30, 2017.March 31, 2021. 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 incur higher income taxes in future periods. Nine Months Ended September 30, 2017 Compared to September 30, 2016
Netperiods as income for the nine months ended September 30, 2017, was $217.8 million compared to net income of $182.0 million for the nine months ended September 30, 2016, primarily due to additional revenue from the MEDIAN, Steward, and RCCH investments made in the fourth quarter of 2016 and the first nine months of 2017, incremental revenue from completed development projects and
increased income from our equity investments, partially offset by higher depreciation expense from investments made subsequent to September 30, 2016, increased acquisition and travel expense due to more foreign investments, and approximately $54 million in higher gains on sale of properties in the first nine months of 2016. FFO, after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $340.1 million, or $0.98 per diluted share for the first nine months in 2017 as compared to $234.1 million, or $0.97 per diluted share for the first nine months of 2016. This 45.3% increase in FFO is primarily due to the increase in revenue from acquisitions and completed development projects made since September 2016, while FFO per share is only slightly higher in the first nine months of 2017 compared to prior year due to more shares outstanding from the September 2016 and May 2017 equity offerings.
A comparison of revenues for the nine month periods ended September 30, 2017 and 2016 is as follows (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | 2017 | | | % of Total | | | 2016 | | | % of Total | | | Year over Year Change | | Rent billed | | $ | 311,140 | | | | 62.3 | % | | $ | 234,408 | | | | 60.4 | % | | | 32.7 | % | Straight-line rent | | | 46,561 | | | | 9.3 | % | | | 26,509 | | | | 6.8 | % | | | 75.6 | % | Income from direct financing leases | | | 55,307 | | | | 11.1 | % | | | 47,181 | | | | 12.2 | % | | | 17.2 | % | Interest and fee income | | | 86,776 | | | | 17.3 | % | | | 79,756 | | | | 20.6 | % | | | 8.8 | % | | | | | | | | | | | | | | | | | | | | | | Total revenues | | $ | 499,784 | | | | 100.0 | % | | $ | 387,854 | | | | 100.0 | % | | | 28.9 | % | | | | | | | | | | | | | | | | | | | | | |
Our total revenue for the first nine months of 2017 is up $111.9 million or 28.9% over the prior year. This increase is made up of the following:
Operating lease revenue (including rent billed and straight-line rent) – up $96.8 million over the prior year of which $0.4 million is from our annual escalation provisions in our leases, $83.1 million is incremental revenue from acquisitions made after September 30, 2016, $16.2 million is incremental revenue from development properties that were completed and put into service in 2016 and 2017, $2.7 million is incremental revenue from capital additions made to existing facilities in 2017 and 2016, $5.6 million relates to the conversion of certain RCCH facilities in 2016 from direct financing leases into operating leases, and a $0.5 million straight-line rent write-off related to our Corinth facility in the 2016 second quarter. These increases are partially offset by $8.5 million of lower revenue related to dispositions, $1.1 million of straight-line rent write-offs in 2017 related to three Adeptus facilities re-leased to Ochsner and the sale of our Muskogee property, and foreign currency fluctuations.
Income from direct financing leases – up $8.1 million over the prior year of which $0.6 million is from our annual escalation provisions in our leases, $3.7 million is incremental revenue from acquisitions made after September 30, 2016, $9.0 million relates to the conversion of certain Prime facilities in 2016 from mortgage loans to direct financing leases, and a $2.6 million write-off in 2016 related to the RCCH facilities that converted from direct financing leases into operating leases. These increases were partially offset by $7.8 million of lower revenue related to those RCCH facilities that converted from direct financing leases into operating leases in the first half of 2016.
Interest from loans – up $7.0 million over the prior year of which $1.1 million is from annual escalation provisions and $34.0 million is incremental revenue from new loans (primarily Steward mortgage loans) made after September 30, 2016. These increases were partially offset by $21.6 million in less interest revenue earned in 2017 from loans that were repaid in 2016 (primarily from Capella Transaction) and $6.5 million of lower interest revenue related to the conversion of certain Prime facilities, valued at approximately $100 million, from mortgage loans to direct financing leases post September 30, 2016.
Real estate depreciation and amortization during the first nine months of 2017 increased to $89.0 million from $67.9 million in the same period of 2016, primarily due to the incremental depreciation from the properties acquired and the development properties completed in 2016 and 2017. In the 2016 second quarter, we accelerated the amortization of the lease intangible asset related to our Corinth facility resulting in $1.1 million of additional expense.
Property expenses for the first nine months of 2017 increased $2.4 million compared to 2016. This increase is primarily due to the reimbursement to us in the 2016 third quarter of $0.8 million by the tenant of our Twelve Oaks facility for property expenses incurred in previous periods.
Acquisition expenses increased from $6.4 million in 2016 to $21.0 million in 2017 primarily as a result of the MEDIAN and Steward acquisitions in 2017, including $11.7 million of real estate transfer taxes incurred on the MEDIAN acquisitions.
General and administrative expenses in the first nine months of 2017 totaled $43.3 million, which is 8.7% of revenues down from 9.2% of revenues in the prior year. The decline in general and administrative expenses as a percentage of revenues is primarily due to our business model as we can generally increase our revenues significantly without increasing our head count and related expense at the same rate. On a dollar basis, general and administrative expenses were up $7.5 million from the prior year first nine months due primarily to increases in travel, international administration, costs associated with opening a European office, compensation related to increased headcount and public company board expenses.
During the nine months ended September 30, 2017, we sold the Muskogee, Oklahoma facility resulting in a net gain on sale of real estate of $7.4 million, while in the first nine months of 2016, we had various dispositions resulting in a net gain on sale of real estate and other asset dispositions of $61.3 million and impairment charges of $7.3 million (see Note 3 to Item 1 of this Form 10-Q for further details).
Earnings from our equity interests increased from a loss of $2.6 million in 2016 to a gain of $7.9 million in 2017. The loss in 2016 includes $5.3 million of acquisition expenses, representing our share of such expenses incurred by our Italian joint venture to acquire its eight hospital properties. In addition, 2017 includes $4.7 million of additional income related to our increased ownership in and improved operating results of the operator of our Hoboken facility, along with additional income from our IMED investment in the 2017 third quarter.
Interest expense remained relatively flat year-over-year as we incurred $120.5 million for the first nine months of 2017 compared to $121.1 million for the first nine months of 2016. Our average debt balance for 2017 has been higher than 2016 due to continued growth of the company; however, its impact on interest expense has been more than offset by lower interest rates. Our weighted-average interest rate for the first nine months of 2017 was 4.6% versus 4.9% in the same period for 2016.
With the redemption of the $450 million in senior unsecured notes, we incurred $22.5 million in debt refinancing charges ($15.5 million of which was a redemption premium) during the first nine months of 2016. During the first nine months of 2017, we incurred $18.8 million of debt refinancing charges related to the replacement of our credit facility, the payoff of our €200 million euro loan, the prepayment of our $12.9 million term loan, and structuring and underwriting fees associated with the termination of the short-term loan commitment we made in anticipation of the Steward acquisition (see Note 4 to Item 1 of this Form 10-Q for further details).
Income tax expense for the nine months ended September 30, 2017 decreased by $390 thousand from the same period in 2016 primarily due to $1.7 million of benefit recognized on approximately $10.7 million of acquisition costs incurred on our European investments in 2017. This tax benefit recognized in 2017 was offset by additional tax expense from our international investments, which were not realized in 2016 due to a valuation allowance position. These valuation allowances were released in the 2016 fourth quarter.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 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 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. 29
The following table presents a reconciliation of net income attributable to MPT common stockholders to FFO and Normalized FFO for the three and nine months ended September 30, 2017March 31, 2021 and 2016 (in2020 (amounts in thousands except per share data): | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, 2017 | | | September 30, 2016 | | | September 30, 2017 | | | September 30, 2016 | | FFO information: | | | | | | | | | | | | | | | | | Net income attributable to MPT common stockholders | | $ | 76,464 | | | $ | 70,358 | | | $ | 217,849 | | | $ | 182,009 | | Participating securities’ share in earnings | | | (82 | ) | | | (154 | ) | | | (307 | ) | | | (430 | ) | | | | | | | | | | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 76,382 | | | $ | 70,204 | | | $ | 217,542 | | | $ | 181,579 | | Depreciation and amortization | | | 32,618 | | | | 24,374 | | | | 90,744 | | | | 69,181 | | Gain on sale of real estate | | | (18 | ) | | | (44,515 | ) | | | (7,431 | ) | | | (67,168 | ) | | | | | | | | | | | | | | | | | | Funds from operations | | $ | 108,982 | | | $ | 50,063 | | | $ | 300,855 | | | $ | 183,592 | | Write-off of straight line rent and other | | | — | | | | — | | | | 1,117 | | | | 3,063 | | Transaction costs from non-real estate dispositions . | | | — | | | | (101 | ) | | | — | | | | 5,874 | | Acquisition expenses, net of tax benefit | | | 7,166 | | | | 2,689 | | | | 19,350 | | | | 11,723 | | Impairment charges | | | — | | | | (80 | ) | | | — | | | | 7,295 | | Unutilized financing fees / debt refinancing costs | | | 4,414 | | | | 22,535 | | | | 18,794 | | | | 22,539 | | | | | | | | | | | | | | | | | | | Normalized funds from operations | | $ | 120,562 | | | $ | 75,106 | | | $ | 340,116 | | | $ | 234,086 | | | | | | | | | | | | | | | | | | | Per diluted share data: | | | | | | | | | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 0.21 | | | $ | 0.28 | | | $ | 0.63 | | | $ | 0.75 | | Depreciation and amortization | | | 0.09 | | | | 0.10 | | | | 0.26 | | | | 0.29 | | Gain on sale of real estate | | | — | | | | (0.18 | ) | | | (0.02 | ) | | | (0.28 | ) | | | | | | | | | | | | | | | | | | Funds from operations | | $ | 0.30 | | | $ | 0.20 | | | $ | 0.87 | | | $ | 0.76 | | Write-off of straight line rent and other | | | — | | | | — | | | | — | | | | 0.01 | | Transaction costs from non-real estate dispositions . | | | — | | | | — | | | | — | | | | 0.03 | | Acquisition expenses, net of tax benefit | | | 0.02 | | | | 0.01 | | | | 0.06 | | | | 0.05 | | Impairment charges | | | — | | | | — | | | | — | | | | 0.03 | | Unutilized financing fees / debt refinancing costs | | | 0.01 | | | | 0.09 | | | | 0.05 | | | | 0.09 | | | | | | | | | | | | | | | | | | | Normalized funds from operations | | $ | 0.33 | | | $ | 0.30 | | | $ | 0.98 | | | $ | 0.97 | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | | March 31, 2021 | | | March 31, 2020 | | FFO information: | | | | | | | | | Net income attributable to MPT common stockholders | | $ | 163,783 | | | $ | 80,992 | | Participating securities’ share in earnings | | | (370 | ) | | | (464 | ) | Net income, less participating securities’ share in earnings | | $ | 163,413 | | | $ | 80,528 | | Depreciation and amortization | | | 88,536 | | | | 70,502 | | Gain on sale of real estate | | | (989 | ) | | | (1,325 | ) | Real estate impairment charges | | | — | | | | 19,006 | | Funds from operations | | $ | 250,960 | | | $ | 168,711 | | Write-off (recovery) of straight-line rent and other | | | (5,238 | ) | | | 6,740 | | Non-cash fair value adjustments | | | (4,065 | ) | | | 14,195 | | Tax rate change | | | — | | | | 977 | | Debt refinancing and unutilized financing costs | | | 2,269 | | | | 611 | | Normalized funds from operations | | $ | 243,926 | | | $ | 191,234 | | Per diluted share data: | | | | | | | | | Net income, less participating securities’ share in earnings | | $ | 0.28 | | | $ | 0.15 | | Depreciation and amortization | | | 0.15 | | | | 0.13 | | Gain on sale of real estate | | | — | | | | — | | Real estate impairment charges | | | — | | | | 0.04 | | Funds from operations | | $ | 0.43 | | | $ | 0.32 | | Write-off (recovery) of straight-line rent and other | | | (0.01 | ) | | | 0.02 | | Non-cash fair value adjustments | | | — | | | | 0.03 | | Tax rate change | | | — | | | | — | | Debt refinancing and unutilized financing costs | | | — | | | | — | | Normalized funds from operations | | $ | 0.42 | | | $ | 0.37 | |
Total Pro Forma Gross Assets TotalPro forma gross assets is total assets before accumulated depreciation/amortization (adjusted for our unconsolidated joint ventures) and assumes all real estate binding commitments on new investments and unfunded amounts on development deals and commenced capital improvement projects as of the applicable reporting periods are fully funded, and assumes cash on hand is fully used in these transactions. We believe total pro forma 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 pro forma 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 | | | | | | | | | | |
| | As of | | | As of | | | | March 31, 2021 | | | December 31, 2020 | | Total assets | | $ | 18,745,675 | | | $ | 16,829,014 | | Add: | | | | | | | | | Real estate commitments on new investments(1) | | | 157,630 | | | | 1,901,087 | | Unfunded amounts on development deals and commenced capital improvement projects(2) | | | 114,129 | | | | 166,258 | | Accumulated depreciation and amortization | | | 903,798 | | | | 833,529 | | Incremental gross assets of our joint ventures(3) | | | 1,211,206 | | | | 1,287,077 | | Proceeds from new debt and equity subsequent to period-end | | | — | | | | 1,479,961 | | Less: | | | | | | | | | Cash used for funding the transactions above(4) | | | (271,759 | ) | | | (2,067,345 | ) | Total pro forma gross assets | | $ | 20,860,679 | | | $ | 20,429,581 | |
(1) | Reflects post September 30, 2017 commitments,The 2021 column reflects our investment in Swiss Medical Network on April 16, 2021. The 2020 column reflects investments made in early 2021, including one RCCH facility and three facilities in Germany, and post December 31, 2016 transactions and commitments, including two RCCH facilities and 14 facilities in Germany.the Priory transaction that was funded on January 19, 2021. |
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(2) | Includes $63.9$53.6 million and $109.1$65.5 million of unfunded amounts on ongoing development projects and $22.3$60.5 million and $84.9$100.8 million of unfunded amounts on capital improvement projects and development projects that have commenced rent, as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. |
(3) | Adjustment to reflect our share of our joint ventures’ gross assets. |
(4) | Includes cash available on-hand plus cash generated from activities subsequent to period-end including proceeds from new debt, equity, or loan repayments, if any. |
Adjusted revenue Adjusted revenues are total revenues adjusted for our pro rata portion of similar revenues in our real estate joint venture arrangements. We believe adjusted revenue is useful to investors as it provides a more complete view of revenue across all of our investments and allows for better understanding of our revenue concentration. The following table presents a reconciliation of total revenues to total adjusted revenues (in thousands): | | For the Three Months Ended March 31, | | | | 2021 | | | 2020 | | Total revenues | | $ | 362,765 | | | $ | 294,132 | | Revenue from real estate properties owned through joint venture arrangements | | | 31,652 | | | | 24,535 | | Total adjusted revenue | | $ | 394,417 | | | $ | 318,667 | |
LIQUIDITY AND CAPITAL RESOURCES 20172021 Cash Flow Activity
During the nine months ended September 30, 2017,2021 first quarter, we generated $219.9approximately $188.7 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows, along with cash on-hand$11 million received from Steward as a return of capital distribution, to fund our dividends of $239.2 million. Certain investing$147.7 million and financing activitiescertain investment activities. In addition, we invested approximately $1.8 billion in 2017 included:
a) On Februaryreal estate and other assets, including the £1.1 billion Priory Group Transaction in January 2021 (as more fully described in Note 3 to Item 1 2017, we replaced ourof this Form 10-Q), using a combination of cash on-hand generated from the $779.2 million of net proceeds from the sales of stock during the quarter, £500 million of proceeds from an interim credit facility, with a new facility resulting in a $50 million reduction in our U.S. dollar term loan and a new €200 million term loan;
b) On March 4, 2017, we redeemed our 5.750% Senior Unsecured Notes due 2020 for €200 million plus a redemption premium using proceeds from our €200revolving facility. In late March 2021, we issued £850 million term loan and cash on hand;
c) On March 24, 2017, we completed a €500 millionof senior unsecured notes offering and used a portion of thesuch proceeds to pay off our €200interim credit facility in full and reduce our revolving credit facility balance to less than $200 million term loan, and the remaining proceeds were usedoutstanding.
Subsequent to acquire 12 facilities leased to MEDIAN for €146.4 million; d) On March 31, 2017,quarter-end, 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 43.1additional 4.9 million shares under our at-the-market equity program, resulting in net proceeds of approximately $548 million. We used a portion of these proceeds to acquire eight facilities for $301.3$105.5 million, (leased to Steward), a facility in Idaho for $87.5and received approximately $75 million (leased to RCCH) and two other facilities for $40 million (leased to Alecto);from loan principal prepayments.
f) On September 7, 2017, we completed a senior unsecured notes offering for $1.4 billion and used a portion of the proceeds to redeem our 6.375% Senior Unsecured Notes due 2022 in October 2017 for $350 million plus a redemption premium, and the remaining proceeds, along with borrowings from our revolving credit facility, were used to acquire 11 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 loan in the amount of $12.9 million.
20162020 Cash Flow Activity
During the nine months ended September 30, 2016,2020 first quarter, we generated $168.3$106.9 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. Operating cash flows for the 2020 first quarter did not include approximately $35 million of revenue earned on the new Circle/BMI transaction, as such rent was prepaid before the closing of the acquisition. We used theseour operating cash flows in the 2020 first quarter, along with cash on-handapproximately $63 million of distributions from our HM Hospitales joint venture investment in the form of a return of capital, to fund our dividends of $160.1$138.1 million and certain investing activities including the additional funding of our development activities. In regards to other financing activities, to, deleveraddition, we funded the £1.5 billion Circle acquisition of 30 properties in January 2020 with a combination of cash on-hand and finance the Steward acquisition in October 2016, we did the following: a) On February 22, 2016, we completed a senior unsecured notes offering for $500 million.
b) On April 30, 2016, we closed on the Capella Transaction (as further discussed in Note 3 to Item 1 of this Form 10-Q) resulting in net proceeds of $550 million along with an additional $50 million once we sold our investment in RegionalCare bonds in June 2016.
c) On May 23, 2016, we sold our investment in five properties leased and operated by Post Acute for $71 million.
d) On June 17, 2016, we sold our investment in one property leased and operated by Corinth Investor Holdings for $28 million.
e) On July 13, 2016, we completed a new $500 million senior unsecured notes offering. We used the net proceeds from this offering to redeem our $450 million 6.875% Senior Unsecured Notes due 2021, which was completed on August 12, 2016. Net proceeds from the notes offering after redemption approximated $19£700 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).British pound sterling term loan.
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 NovemberMay 3, 2017 (and after the redemption of the $350 million 6.375% Senior Unsecured Notes due 2022 on October 7, 2017),2021, we do not have anyno debt principal payments due untilin the revolving credit facility comes due in
2021, which we can extend for an additional 12next twelve months — see debt maturity schedule below. In January 2021, we extended the maturity of our revolving credit facility to February 2024. At NovemberMay 3, 2017, our2021, availability under our revolving credit facility plus cash on-hand approximated $0.7$1.8 billion. We believe this liquidity and our current monthly cash receipts from rent and loan interest is sufficient to fund our operations, debt and interest obligations, the expected funding
requirements on our development projects, and dividends in order to comply with REIT requirements for the next twelve months.
Long-term Liquidity Requirements: Exclusive of the revolving credit facility (which we can extend for an additional year to February
2022) and after the redemption of the $350 million 6.375% Senior Unsecured Notes due 2022, we do not have any debt principal payments due over the next five years (see debt maturity schedule below). With our liquidity at November 3, 2017 of approximately $0.7 billion along with our current monthly cash receipts from rent and loan interest, we believe we haveregular distributions from our joint venture arrangements, approximately $400 million of availability under our at-the-market equity program, and approximately £250 million expected to be repaid by Waterland pursuant to the liquidity available to usPriory acquisition loan is sufficient to fund our operations, debt and interest obligations, dividends in order to comply with REIT requirements, and our current firm commitments and debt service obligations for the expected fundingnext twelve months.
31
Long-term Liquidity Requirements: As of May 3, 2021, our liquidity approximates $1.8 billion and we believe our liquidity, along with our current monthly cash receipts from rent and loan interest, regular distributions from our joint venture arrangements, and approximately $400 million of availability under our at-the-market equity program, is sufficient to fund our operations, debt and interest obligations, our firm commitments, and dividends in order to comply with REIT requirements on our development projects currently.for the foreseeable future. However, in order to fund our investment strategies, while maintaining a prudent leverage ratio, andadditional investments, to fund debt maturities coming due starting in 2022 and later years, additional capital will be needed, andbeyond, or to strategically refinance any existing debt in order to reduce interest rates, we believe the following sources of capital are generally available in the market and we may need to access one or a combination of them: the following sources of capital: entering into joint venture arrangements, | • | sale of equity securities; |
proceeds from strategic property sales, | • | issuance of new USD, EUR, or GBP denominated debt securities, including senior unsecured notes; |
sale of equity securities, | • | entering into new bank term loans; |
amending or entering into new bank term | • | placing new secured loans on real estate located outside the U.S.; and/or |
issuing of new USD or EUR denominated debt securities, including senior unsecured notes, and/or
placing new secured loans on real estate located in the U.S. and/or Europe. | • | proceeds from strategic property sales or joint ventures. |
However, there is no assurance that conditions will be favorable for such possible transactions (particularly in light of the ongoing COVID-19 pandemic) 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 May 3, 2021 are as follows (in thousands):
| | | | | 2017 | | $ | 350,000 | (A) | 2018 | | | — | | 2019 | | | — | | 2020 | | | — | | 2021 | | | 445,359 | | Thereafter | | | 4,081,400 | | | | | | | Total | | $ | 4,876,759 | | | | | | |
2021 | | $ | — | | 2022 | | | 603,200 | | 2023 | | | 556,440 | | 2024 | | | 1,112,403 | | 2025 | | | 1,576,970 | | Thereafter | | | 6,317,095 | | Total | | $ | 10,166,108 | |
(A) | The $350 million 6.375% Senior Unsecured Notes due 2022 were redeemed on October 7, 2017 with proceeds from our $1.4 billion 5.000% Senior Unsecured Notes due 2027. |
Disclosure of Contractual ObligationsCommitments
We presented our contractual obligationscommitments in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. For the nine months ended September 30, 2017,2020. Except for changes to our debt, related contractual obligations includedthere have been no other significant changes during the issuance of our new Credit Facility, the 3.325% Senior Unsecured Notes due 2025, and the 5.000% Senior Unsecured Notes due 2027, along with redemption of our 5.750% Senior Unsecured Notes due 2020 and prepayment of our $12.9 million term loan. Subsequent to September 30, 2017, we redeemed our 6.375% Senior Unsecured Notes due 2022. See Note 4 of Item 1 of this Form 10-Q for more detailed information.three months ended March 31, 2021. The following table updates our contractual obligationscommitments schedule for the debt activity, described above, for the nine months ended September 30, 2017 along with the post September 30, 2017 early redemptionthese updates as of our 6.375% Senior Unsecured Notes due 2022May 3, 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | Contractual Obligations | | Less Than 1 Year | | | 1-3 Years | | | 3-5 Years | | | After 5 Years | | | Total | | Revolving credit facility (1) | | $ | 14,287 | | | $ | 28,574 | | | $ | 450,122 | | | $ | — | | | $ | 492,983 | | Term loan | | | 5,556 | | | | 11,127 | | | | 207,444 | | | | — | | | | 224,127 | | 3.325% Senior Unsecured Notes due 2025 | | | 19,641 | | | | 39,282 | | | | 39,282 | | | | 649,622 | | | | 747,827 | | 5.750% Senior Unsecured Notes due 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | 6.375% Senior Unsecured Notes due 2022 | | | 364,381 | | | | — | | | | — | | | | — | | | | 364,381 | | 5.000% Senior Unsecured Notes due 2027 | | | 39,667 | | | | 140,000 | | | | 140,000 | | | | 1,785,000 | | | | 2,104,667 | |
| | 2021(1) | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | | Total | | 2.500% Senior Unsecured Notes due 2026 | | $ | — | | | $ | 17,389 | | | $ | 17,389 | | | $ | 17,389 | | | $ | 17,389 | | | $ | 712,939 | | | $ | 782,495 | | 3.375% Senior Unsecured Notes due 2030 | | | — | | | | 17,828 | | | | 16,432 | | | | 16,432 | | | | 16,432 | | | | 569,047 | | | | 636,171 | |
(1) | As of September 30, 2017, we have a $1.3 billion revolving credit facility. However, this table assumes the balance outstanding under the revolver and rate in effect at September 30, 2017 remain in effect through maturity.(1) | This column represents obligations post May 3, 2021. |
Distribution Policy The table below is a summary of our distributions declared during the two year period ended September 30, 2017:March 31, 2021: | | | | | | | | | Declaration Date | | Record Date | | Date of Distribution | | Distribution per Share | | August 17, 2017 | | September 14, 2017 | | October 12, 2017 | | $ | 0.24 | | May 25, 2017 | | June 15, 2017 | | July 14, 2017 | | $ | 0.24 | | February 16, 2017 | | March 16, 2017 | | April 13, 2017 | | $ | 0.24 | | November 10, 2016 | | December 8, 2016 | | January 12, 2017 | | $ | 0.23 | | August 18, 2016 | | September 15, 2016 | | October 13, 2016 | | $ | 0.23 | | May 19, 2016 | | June 16, 2016 | | July 14, 2016 | | $ | 0.23 | | February 19, 2016 | | March 17, 2016 | | April 14, 2016 | | $ | 0.22 | | November 12, 2015 | | December 10, 2015 | | January 14, 2016 | | $ | 0.22 | |
Declaration Date | | Record Date | | Date of Distribution | | Distribution per Share | | February 18, 2021 | | March 18, 2021 | | April 8, 2021 | | $ | 0.28 | | November 12, 2020 | | December 10, 2020 | | January 7, 2021 | | $ | 0.27 | | August 13, 2020 | | September 10, 2020 | | October 8, 2020 | | $ | 0.27 | | May 21, 2020 | | June 18, 2020 | | July 16, 2020 | | $ | 0.27 | | February 14, 2020 | | March 12, 2020 | | April 9, 2020 | | $ | 0.27 | | November 21, 2019 | | December 12, 2019 | | January 9, 2020 | | $ | 0.26 | | August 15, 2019 | | September 12, 2019 | | October 10, 2019 | | $ | 0.26 | | May 23, 2019 | | June 13, 2019 | | July 11, 2019 | | $ | 0.25 | |
We intend to pay to our stockholders, within the time periods prescribed by the Internal Revenue Code of 1986, as amended (“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 Code and to avoid 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 our condensed consolidated financial statements in Item 1 to this Form 10-Q for any restrictions placed on dividends by our existing credit facility.further information. Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk. Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that affect market sensitive instruments. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate or foreign currency exposure. For interest rate hedging, these decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. For foreign currency hedging, these decisions are principally based on how our investments are financed, the long-term nature of our investments, the need to repatriate earnings back to the U.S., and the general trend in foreign currency exchange rates. In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits, all of which may affect our ability to refinance our debt, if necessary.profits. 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.conditions (such as the impact caused by COVID-19). 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,March 31, 2021, our outstanding debt totaled $4.8$10.0 billion, which consisted of fixed-rate debt of $4.2approximately $9.6 billion (after considering interest rate swaps in-place) and variable rate debt of $0.6$0.4 billion. If market interest rates increase by 1%, the fair value of our debt at September 30, 2017March 31, 2021 would decrease by $8.0approximately $11.6 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%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $0.2$0.1 million per year. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $0.2$0.1 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $0.6$0.4 billion, the balance of such variable rate debt at September 30, 2017.March 31, 2021. 33
Foreign Currency Sensitivity With our investments in the United Kingdom, Germany, Spain, Italy, Portugal, Switzerland, 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, are 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 2021 operating results to-date in 2017 and on an annualized basis, ifa 5% change to the eurofollowing exchange rate were to changerates would have impacted our net income and FFO by 5%, our FFO would change by approximately $4.0 million. Based solely on operating results to-date in 2017 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.amounts below (in thousands): | | Net Income Impact | | | FFO Impact | | British pound (£) | | $ | 5,930 | | | $ | 9,478 | | Euro (€) | | | 125 | | | | 2,048 | | Swiss franc (CHF) | | | 488 | | | | 1,448 | | Australian dollar (A$) | | | 665 | | | | 1,751 | | Colombian peso (COP) | | | 537 | | | | 537 | |
Item 4. | Controls and Procedures. |
Item 4. Controls and Procedures. Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b), under the Securities Exchange Act of 1934, as amended, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to materialproviding reasonable assurance that information required to be disclosed by us in the reports that we file withunder the SEC.Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. 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. 34
PART II — OTHER INFORMATION Item 1. | Legal Proceedings. |
Item 1. Legal Proceedings. The information contained in Note 9 “Contingencies” of Part I, Item 1 of this Quarterly Report on Form 10-Qto the condensed consolidated financial statements is incorporated by reference into this Item 1. Except to the extent set forth below or as otherwise disclosed in this Quarterly Report on Form 10-Q, thereItem 1A. Risk Factors.
There 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, 2016.2020. Our revenues are dependent upon our relationship with and success of our largest tenants, Steward, Prime, MEDIAN, Ernest, RCCH and Adeptus Health.
As of September 30, 2017, affiliates of Steward, MEDIAN, Prime, Ernest, RCCH and Adeptus Health represented 36.8%, 12.9%, 12.0%, 6.7%, 5.4% and 4.5%, respectively, of our total gross assets (which consist primarily of real estate leases and mortgage loans).
Our relationships with these operators and their financial performance and resulting ability to satisfy their lease and loan obligations to us are material to our financial results and our ability to service our debt and make distributions to our stockholders. 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 patients 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 ability of our tenants and operators to integrate newly acquired businesses into 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 effect 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 one of these tenants files for bankruptcy protection, we may not be able to collect any pre-filing amounts owed to us by such tenant. In addition, in a bankruptcy proceeding, such tenant may terminate our lease(s), in which case we would have a general unsecured claim that would likely be for less than the full amount owed to us. Any secured claims we have against such tenant may only be paid to the extent of the value of the collateral, which may not cover any or all of our losses. If we are ultimately required to find one or more tenant-operators to lease one or more properties currently leased by such tenant, we may face delays and increased costs in locating a suitable replacement tenant. The protections that we have in place to protect against such failure or delay, which can include letters of credit, cross default provisions, parent guarantees, repair reserves and the right to exercise remedies including the termination of the lease and replacement of the operator, may prove to be insufficient, in whole or in part, or may entail further delays. In instances where we have an equity investment in our tenant’s operations, in addition to the effect on these tenants’ ability to meet their financial obligation to us, our ownership and investment interests may also be negatively impacted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.(a) | None. |
Item 3. | Defaults Upon Senior Securities. |
Item 3. Defaults Upon Senior Securities. None. Item 4. | Mine Safety Disclosures. |
Item 4. Mine Safety Disclosures. None. Item 5. Other Information. Item 5. | Other Information.(a) | None. |
Item 6. Exhibits | | | Exhibit Number
| | Description | | | 4.1*4.1 | | TwelfthSeventeenth Supplemental Indenture, dated as of September 21, 2017,March 24, 2021, by and among MPT Operating Partnership, L.P. and MPT Finance Corporation, as issuers, Medical Properties Trust, Inc., as parent and guarantor, and Wilmington Trust, National Association, as trustee.trustee, and Elavon Financial Services DAC, as initial paying agent, registrar and transfer agent (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K of Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. filed with the Securities and Exchange Commission on March 29, 2021) | | | | 10.1*4.2 | | JoinderForm of 2026 Note (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K of Medical Properties Trust, Inc. and Amendment to Master Lease Agreement,MPT Operating Partnership, L.P. filed with the Securities and Exchange Commission on March 29, 2021) | | | | 4.3 | | Eighteenth Supplemental Indenture, dated as of September 29, 2017,March 24, 2021, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain AffiliatesMPT Finance Corporation, as issuers, Medical Properties Trust, Inc., as parent and guarantor, Wilmington Trust, National Association, as trustee, and Elavon Financial Services DAC as initial paying agent, registrar and transfer agent (incorporated by reference to Exhibit 4.4 of Steward Health Care System LLC.the Current Report on Form 8-K of Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. filed with the Securities and Exchange Commission on March 29, 2021) | | | | 10.2*4.4 | | JoinderForm of 2030 Note (incorporated by reference to Exhibit 4.4 of the Current Report on Form 8-K of Medical Properties Trust, Inc. and Amendment to Real EstateMPT Operating Partnership, L.P. filed with the Securities and Exchange Commission on March 29, 2021) | | | | 10.1* | | Amended and Restated Revolving Credit and Term Loan Agreement, dated as of September 29, 2017, by andJanuary 15, 2021, among certain Affiliates ofMedical Properties Trust, Inc., MPT Operating Partnership, L.P., the several lenders from time to time party thereto, Bank of America, N.A., as syndication agent, and certain Affiliates of Steward Health Care System LLC.JPMorgan Chase Bank, N.A., as administrative agent | | | | 31.1* | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.) | | | 31.2* | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.) | | | 31.3* | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.) | | | 31.4* | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.) | | | 32.1** | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Medical Properties Trust, Inc.) | | | 32.2** | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (MPT Operating Partnership, L.P.) | | | Exhibit 101.INS101.INS* | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | Exhibit 101.SCH101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | | | Exhibit 101.CAL101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | Exhibit 101.DEF101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | Exhibit 101.LAB101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | Exhibit 101.PRE101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
INDEX TO EXHIBITS
| | | Exhibit
Number
| | Description
| Exhibit 104* | | 4.1* | | Twelfth Supplemental Indenture, datedCover Page Interactive Data File (formatted as of September 21, 2017, by and among MPT Operating Partnership, L.P. and MPT Finance Corporation, as issuers, Medical Properties Trust, Inc., as parent and guarantor, and Wilmington Trust, National Association, as trustee. | | | 10.1* | | Joinder and Amendment to Master Lease Agreement, dated as of September 29, 2017, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain Affiliates of Steward Health Care System LLC. | | | 10.2* | | Joinder and Amendment to Real Estate Loan Agreement, dated as of September 29, 2017, by and among certain Affiliates of MPT Operating Partnership, L.P. and certain Affiliates of Steward Health Care System LLC. | | | 31.1* | | Certification of Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.) | | | 31.2* | | Certification of Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.) | | | 31.3* | | Certification of Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.) | | | 31.4* | | Certification of Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.) | | | 32.1** | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Medical Properties Trust, Inc.) | | | 32.2** | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (MPT Operating Partnership, L.P.) | | | Exhibit 101.INS | | Inline XBRL Instance Document | | | Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document | | | Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | Exhibit 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Documentwith applicable taxonomy extension information contained in Exhibits 101.*) |
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant hasregistrants have duly caused this report to be signed on itstheir behalf by the undersigned thereunto duly authorized. MEDICAL PROPERTIES TRUST, INC. | | | By: | | | By: | | /s/ J. Kevin Hanna | | | J. Kevin Hanna | | | Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer (Principal Accounting Officer) |
MPT OPERATING PARTNERSHIP, L.P. | | | By: | | | By: | | /s/ J. Kevin Hanna | | | J. Kevin Hanna | | | Vice President, Controller, Assistant | | | Treasurer, and Chief Accounting Officer | | | of the sole member of the general partner | | | of MPT Operating Partnership, L.P. | | | (Principal Accounting Officer) |
Date: November 9, 2017 May 10, 2021 4737
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