UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from                          to                         

Commission file number 001-32559

Commission file number 333-177186

MEDICAL PROPERTIES TRUST, INC.

MPT OPERATING PARTNERSHIP, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Maryland Delaware	20-0191742 20-0242069
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)

1000 URBAN CENTER DRIVE, SUITE 501 BIRMINGHAM, AL	35242
(Address of principal executive offices)	(Zip Code)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☒  (Medical Properties Trust, Inc. only)	Accelerated filer	☐
Non-accelerated filer	☒  (MPT Operating Partnership, L.P. only)	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share, of Medical Properties Trust, Inc.	MPW	The New York Stock Exchange

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 8, 2019, Medical Properties Trust, Inc. had 517,440,399 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, 2019 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” 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 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, 2019

Table of Contents

	Page
PART I — FINANCIAL INFORMATION	3
Item 1 Financial Statements	3
Medical Properties Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Net Income for the Three and Nine Months Ended September 30, 2019 and 2018	4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	5
Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2019, and 2018	6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	8
MPT Operating Partnership, L.P. and Subsidiaries
Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018	9
Condensed Consolidated Statements of Net Income for the Three and Nine Months Ended September 30, 2019 and 2018	10
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	11
Condensed Consolidated Statements of Capital for the Three and Nine Months Ended September 30, 2019 and 2018	12
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	14
Medical Properties Trust, Inc. and MPT Operating Partnership, L.P.
Notes to Condensed Consolidated Financial Statements	15
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3 Quantitative and Qualitative Disclosures about Market Risk	39
Item 4 Controls and Procedures	40
PART II — OTHER INFORMATION	41
Item 1 Legal Proceedings	41
Item 1A Risk Factors	41
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3 Defaults Upon Senior Securities	41
Item 4 Mine Safety Disclosures	41
Item 5 Other Information	41
Item 6 Exhibits	42
SIGNATURE	43

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	September 30, 2019			December 31, 2018
(In thousands, except per share amounts)	(Unaudited)			(Note 2)
Assets
Real estate assets
Land, buildings and improvements, intangible lease assets, and other	$	7,310,604		$	5,268,459
Mortgage loans		1,268,563			1,213,322
Net investment in direct financing leases		688,891			684,053
Investment in sale leaseback transactions		1,390,619			—
Gross investment in real estate assets		10,658,677			7,165,834
Accumulated depreciation and amortization		(571,589	)		(464,984	)
Net investment in real estate assets		10,087,088			6,700,850
Cash and cash equivalents		461,622			820,868
Interest and rent receivables		25,653			25,855
Straight-line rent receivables		299,993			220,848
Equity investments		777,102			520,058
Other loans		521,398			373,198
Other assets		279,297			181,966
Total Assets	$	12,452,153		$	8,843,643
Liabilities and Equity
Liabilities
Debt, net	$	6,096,232		$	4,037,389
Accounts payable and accrued expenses		249,642			204,325
Deferred revenue		16,377			13,467
Obligations to tenants and other lease liabilities		103,084			27,524
Total Liabilities		6,465,335			4,282,705
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 — 459,778 shares at September 30, 2019 and    370,637 shares at December 31, 2018		460			371
Additional paid-in capital		5,972,341			4,442,948
Retained earnings		91,535			162,768
Accumulated other comprehensive loss		(90,019	)		(58,202	)
Treasury shares, at cost		(777	)		(777	)
Total Medical Properties Trust, Inc. Stockholders’ Equity		5,973,540			4,547,108
Non-controlling interests		13,278			13,830
Total Equity		5,986,818			4,560,938
Total Liabilities and Equity	$	12,452,153		$	8,843,643

See accompanying notes to condensed consolidated financial statements.

3

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Net Income

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands, except per share amounts)	2019			2018			2019			2018
Revenues
Rent billed	$	124,361		$	118,238		$	343,841		$	369,076
Straight-line rent		31,026			18,293			76,813			49,157
Income from direct financing leases		17,502			18,998			52,168			55,613
Interest and other income		51,867			41,467			124,937			130,098
Total revenues		224,756			196,996			597,759			603,944
Expenses
Interest		64,519			57,215			167,396			172,364
Real estate depreciation and amortization		40,833			29,949			108,161			100,217
Property-related		4,038			2,719			15,394			6,823
General and administrative		23,286			20,982			69,009			58,352
Acquisition costs		—			506			—			917
Total expenses		132,676			111,371			359,960			338,673
Other income (expense)
Gain on sale of real estate and other, net		209			647,204			62			672,822
Earnings from equity interests		3,474			3,116			11,635			10,542
Unutilized financing fees		(3,959	)		—			(4,873	)		—
Other		(2,282	)		2,595			(1,497	)		(4,297	)
Total other income		(2,558	)		652,915			5,327			679,067
Income before income tax		89,522			738,540			243,126			944,338
Income tax benefit (expense)		745			(2,064	)		3,352			(4,802	)
Net income		90,267			736,476			246,478			939,536
Net income attributable to non-controlling interests		(481	)		(442	)		(1,432	)		(1,334	)
Net income attributable to MPT common stockholders	$	89,786		$	736,034		$	245,046		$	938,202
Earnings per common share — basic
Net income attributable to MPT common stockholders	$	0.20		$	2.01		$	0.60		$	2.56
Earnings per common share — diluted
Net income attributable to MPT common stockholders	$	0.20		$	2.00		$	0.60		$	2.56
Weighted average shares outstanding — basic		439,581			365,024			404,902			364,934
Weighted average shares outstanding — diluted		440,933			366,467			406,100			365,784
Dividends declared per common share	$	0.26		$	0.25		$	0.76		$	0.75

See accompanying notes to condensed consolidated financial statements.

4

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Net income	$	90,267		$	736,476		$	246,478		$	939,536
Other comprehensive income:
Unrealized loss on interest rate swap		(15,441	)		—			(20,699	)		—
Foreign currency translation loss		(8,048	)		(8,216	)		(11,118	)		(24,520	)
Total comprehensive income		66,778			728,260			214,661			915,016
Comprehensive income attributable to non-controlling    interests		(481	)		(442	)		(1,432	)		(1,334	)
Comprehensive income attributable to MPT common    stockholders	$	66,297		$	727,818		$	213,229		$	913,682

See accompanying notes to condensed consolidated financial statements.

5

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 (Deficit)			Accumulated Other Comprehensive Loss			Treasury Stock			Non- Controlling Interests			Total Equity
Balance at December 31, 2018		—	$	—		370,637	$	371	$	4,442,948	$	162,768		$	(58,202	)	$	(777	)	$	13,830		$	4,560,938
Net income		—		—		—		—		—		75,822			—			—			469			76,291
Unrealized loss on interest rate swap		—		—		—		—		—		—			(3,772	)		—			—			(3,772	)
Foreign currency translation loss		—		—		—		—		—		—			(5,918	)		—			—			(5,918	)
Stock vesting and amortization of    stock-based compensation		—		—		1,055		1		6,714		—			—			—			—			6,715
Distributions to non-controlling interests		—		—		—		—		—		—			—			—			(645	)		(645	)
Proceeds from offering (net of    offering costs)		—		—		20,147		20		354,010		—			—			—			—			354,030
Dividends declared ($0.25 per    common share)		—		—		—		—		—		(97,163	)		—			—			—			(97,163	)
Balance at March 31, 2019		—	$	—		391,839	$	392	$	4,803,672	$	141,427		$	(67,892	)	$	(777	)	$	13,654		$	4,890,476
Net income		—		—		—		—		—		79,438			—			—			482			79,920
Unrealized loss on interest rate swap		—		—		—		—		—		—			(1,486	)		—			—			(1,486	)
Foreign currency translation gain		—		—		—		—		—		—			2,848			—			—			2,848
Stock vesting and amortization of    stock-based compensation		—		—		119		—		6,317		—			—			—			—			6,317
Distributions to non-controlling interests		—		—		—		—		—		—			—			—			(670	)		(670	)
Proceeds from offering (net of    offering costs)		—		—		2,467		2		45,321		—			—			—			—			45,323
Dividends declared ($0.25 per    common share)		—		—		—		—		—		(99,093	)		—			—			—			(99,093	)
Balance at June 30, 2019		—	$	—		394,425	$	394	$	4,855,310	$	121,772		$	(66,530	)	$	(777	)	$	13,466		$	4,923,635
Net income		—		—		—		—		—		89,786			—			—			481			90,267
Unrealized loss on interest rate swap		—		—		—		—		—		—			(15,441	)		—			—			(15,441	)
Foreign currency translation loss		—		—		—		—		—		—			(8,048	)		—			—			(8,048	)
Stock vesting and amortization of    stock-based compensation		—		—		118		—		9,087		—			—			—			—			9,087
Distributions to non-controlling interests		—		—		—		—		—		—			—			—			(669	)		(669	)
Proceeds from offering (net of    offering costs)		—		—		65,235		66		1,107,944		—			—			—			—			1,108,010
Dividends declared ($0.26 per    common share)		—		—		—		—		—		(120,023	)		—			—			—			(120,023	)
Balance at September 30, 2019		—	$	—		459,778	$	460	$	5,972,341	$	91,535		$	(90,019	)	$	(777	)	$	13,278		$	5,986,818

See accompanying notes to condensed consolidated financial statements.

6

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 (Deficit)			Accumulated Other Comprehensive Loss			Treasury Stock			Non- Controlling Interests			Total Equity
Balance at December 31, 2017		—	$	—		364,424	$	364	$	4,333,027		$	(485,932	)	$	(26,049	)	$	(777	)	$	14,572		$	3,835,205
Net income		—		—		—		—		—			90,601			—			—			442			91,043
Cumulative effect of change in accounting    principles		—		—		—		—		—			1,938			—			—			—			1,938
Foreign currency translation gain		—		—		—		—		—			—			16,088			—			—			16,088
Stock vesting and amortization of    stock-based compensation		—		—		271		1		1,855			—			—			—			—			1,856
Redemption of MOP units		—		—		—		—		(816	)		—			—			—			—			(816	)
Distributions to non-controlling interests		—		—		—		—		—			—			—			—			(620	)		(620	)
Proceeds from offering (net of    offering costs)		—		—		—		—		(94	)		—			—			—			—			(94	)
Dividends declared ($0.25 per    common share)		—		—		—		—		—			(91,411	)		—			—			—			(91,411	)
Balance at March 31, 2018		—	$	—		364,695	$	365	$	4,333,972		$	(484,804	)	$	(9,961	)	$	(777	)	$	14,394		$	3,853,189
Net income		—		—		—		—		—			111,567			—			—			450			112,017
Foreign currency translation loss		—		—		—		—		—			—			(32,392	)		—			—			(32,392	)
Stock vesting and amortization of    stock-based compensation		—		—		36		—		4,869			—			—			—			—			4,869
Distributions to non-controlling interests		—		—		—		—		—			—			—			—			(638	)		(638	)
Proceeds from offering (net of    offering costs)		—		—		—		—		(43	)		—			—			—			—			(43	)
Dividends declared ($0.25 per    common share)		—		—		—		—		—			(91,547	)		—			—			—			(91,547	)
Balance at June 30, 2018		—	$	—		364,731	$	365	$	4,338,798		$	(464,784	)	$	(42,353	)	$	(777	)	$	14,206		$	3,845,455
Net income		—		—		—		—		—			736,034			—			—			442			736,476
Foreign currency translation loss		—		—		—		—		—			—			(8,216	)		—			—			(8,216	)
Stock vesting and amortization of    stock-based compensation		—		—		127		—		4,970			—			—			—			—			4,970
Distributions to non-controlling interests		—		—		—		—		—			—			—			—			(630	)		(630	)
Dividends declared ($0.25 per common    share)		—		—		—		—		—			(91,547	)		—			—			—			(91,547	)
Balance at September 30, 2018		—	$	—		364,858	$	365	$	4,343,768		$	179,703		$	(50,569	)	$	(777	)	$	14,018		$	4,486,508

See accompanying notes to condensed consolidated financial statements.

7

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended September 30,
	2019			2018
	(In thousands)
Operating activities
Net income	$	246,478		$	939,536
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		111,067			106,508
Amortization of deferred financing costs and debt discount		6,293			5,543
Direct financing lease interest accretion		(6,858	)		(7,213	)
Straight-line rent revenue and other		(84,758	)		(64,840	)
Share-based compensation		22,119			11,695
Gain from sale of real estate, net		(62	)		(672,822	)
Straight-line rent and other write-off		7,232			17,615
Unutilized financing fees		4,873			—
Other adjustments		16,052			(21,354	)
Changes in:
Interest and rent receivables		528			(10,158	)
Accounts payable and accrued expenses		4,413			(5,387	)
Net cash provided by operating activities		327,377			299,123
Investing activities
Cash paid for acquisitions and other related investments		(3,703,092	)		(1,166,618	)
Net proceeds from sale of real estate		4,859			1,513,666
Principal received on loans receivable		920			531,772
Investment in loans receivable		(34,149	)		(174,494	)
Construction in progress and other		(55,168	)		(32,425	)
Capital additions and other investments, net		(213,096	)		(63,080	)
Net cash (used for) provided by investing activities		(3,999,726	)		608,821
Financing activities
Proceeds from term debt, net of discount		1,732,740			759,735
Revolving credit facilities, net		417,089			(818,116	)
Distributions paid		(291,675	)		(272,360	)
Lease deposits and other obligations to tenants		(8,349	)		(25,511	)
Proceeds from sale of common shares, net of offering costs		1,507,363			—
Other financing activities		(24,187	)		(3,106	)
Net cash provided by (used for) financing activities		3,332,981			(359,358	)
(Decrease) increase in cash, cash equivalents and restricted cash for period		(339,368	)		548,586
Effect of exchange rate changes		(16,645	)		(8,313	)
Cash, cash equivalents and restricted cash at beginning of period		822,425			172,247
Cash, cash equivalents and restricted cash at end of period	$	466,412		$	712,520
Interest paid	$	158,259		$	175,715
Supplemental schedule of non-cash financing activities:
Distributions declared, unpaid	$	120,023		$	91,547
Cash, cash equivalents and restricted cash are comprised of the following:
Beginning of period:
Cash and cash equivalents	$	820,868		$	171,472
Restricted cash, included in Other assets		1,557			775
	$	822,425		$	172,247
End of period:
Cash and cash equivalents	$	461,622		$	710,965
Restricted cash, included in Other assets		4,790			1,555
	$	466,412		$	712,520

See accompanying notes to condensed consolidated financial statements.

8

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	September 30, 2019			December 31, 2018
(In thousands)	(Unaudited)			(Note 2)
Assets
Real estate assets
Land, buildings and improvements, intangible lease assets, and other	$	7,310,604		$	5,268,459
Mortgage loans		1,268,563			1,213,322
Net investment in direct financing leases		688,891			684,053
Investment in sale leaseback transactions		1,390,619			—
Gross investment in real estate assets		10,658,677			7,165,834
Accumulated depreciation and amortization		(571,589	)		(464,984	)
Net investment in real estate assets		10,087,088			6,700,850
Cash and cash equivalents		461,622			820,868
Interest and rent receivables		25,653			25,855
Straight-line rent receivables		299,993			220,848
Equity investments		777,102			520,058
Other loans		521,398			373,198
Other assets		279,297			181,966
Total Assets	$	12,452,153		$	8,843,643
Liabilities and Capital
Liabilities
Debt, net	$	6,096,232		$	4,037,389
Accounts payable and accrued expenses		129,289			108,574
Deferred revenue		16,377			13,467
Obligations to tenants and other lease liabilities		103,084			27,524
Payable due to Medical Properties Trust, Inc.		119,963			95,361
Total Liabilities		6,464,945			4,282,315
Capital
General Partner — issued and outstanding — 4,598 units at September 30,    2019 and 3,706 units at December 31, 2018		60,666			46,084
Limited Partners:
Common units — issued and outstanding — 455,180 units at    September 30, 2019 and 366,931 units at December 31, 2018		6,003,283			4,559,616
LTIP units — issued and outstanding — 232 units at September 30,    2019 and 232 units at December 31, 2018		—			—
Accumulated other comprehensive loss		(90,019	)		(58,202	)
Total MPT Operating Partnership, L.P. capital		5,973,930			4,547,498
Non-controlling interests		13,278			13,830
Total capital		5,987,208			4,561,328
Total Liabilities and Capital	$	12,452,153		$	8,843,643

See accompanying notes to condensed consolidated financial statements.

9

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)	2019			2018			2019			2018
Revenues
Rent billed	$	124,361		$	118,238		$	343,841		$	369,076
Straight-line rent		31,026			18,293			76,813			49,157
Income from direct financing leases		17,502			18,998			52,168			55,613
Interest and other income		51,867			41,467			124,937			130,098
Total revenues		224,756			196,996			597,759			603,944
Expenses
Interest		64,519			57,215			167,396			172,364
Real estate depreciation and amortization		40,833			29,949			108,161			100,217
Property-related		4,038			2,719			15,394			6,823
General and administrative		23,286			20,982			69,009			58,352
Acquisition costs		—			506			—			917
Total expenses		132,676			111,371			359,960			338,673
Other income (expense)
Gain on sale of real estate and other, net		209			647,204			62			672,822
Earnings from equity interests		3,474			3,116			11,635			10,542
Unutilized financing fees		(3,959	)		—			(4,873	)		—
Other		(2,282	)		2,595			(1,497	)		(4,297	)
Total other income		(2,558	)		652,915			5,327			679,067
Income before income tax		89,522			738,540			243,126			944,338
Income tax benefit (expense)		745			(2,064	)		3,352			(4,802	)
Net income		90,267			736,476			246,478			939,536
Net income attributable to non-controlling interests		(481	)		(442	)		(1,432	)		(1,334	)
Net income attributable to MPT Operating Partnership    partners	$	89,786		$	736,034		$	245,046		$	938,202
Earnings per unit — basic
Net income attributable to MPT Operating Partnership partners	$	0.20		$	2.01		$	0.60		$	2.56
Earnings per unit — diluted
Net income attributable to MPT Operating Partnership partners	$	0.20		$	2.00		$	0.60		$	2.56
Weighted average units outstanding — basic		439,581			365,024			404,902			364,934
Weighted average units outstanding — diluted		440,933			366,467			406,100			365,784
Dividends declared per unit	$	0.26		$	0.25		$	0.76		$	0.75

See accompanying notes to condensed consolidated financial statements.

10

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Net income	$	90,267		$	736,476		$	246,478		$	939,536
Other comprehensive income:
Unrealized loss on interest rate swap		(15,441	)		—			(20,699	)		—
Foreign currency translation loss		(8,048	)		(8,216	)		(11,118	)		(24,520	)
Total comprehensive income		66,778			728,260			214,661			915,016
Comprehensive income attributable to non-controlling interests		(481	)		(442	)		(1,432	)		(1,334	)
Comprehensive income attributable to MPT Operating Partnership    partners	$	66,297		$	727,818		$	213,229		$	913,682

See accompanying notes to condensed consolidated financial statements.

11

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Capital

(Unaudited)

	General					Limited Partners									Accumulated
	Partner					Common					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, 2018		3,706	$	46,084			366,931	$	4,559,616			232	$	—	$	(58,202	)	$	13,830		$	4,561,328
Net income		—		758			—		75,064			—		—		—			469			76,291
Unrealized loss on interest rate swap		—		—			—		—			—		—		(3,772	)		—			(3,772	)
Foreign currency translation loss		—		—			—		—			—		—		(5,918	)		—			(5,918	)
Unit vesting and amortization of unit-based    compensation		11		68			1,044		6,647			—		—		—			—			6,715
Distributions to non-controlling interests		—		—			—		—			—		—		—			(645	)		(645	)
Proceeds from offering (net of offering    costs)		201		3,540			19,946		350,490			—		—		—			—			354,030
Distributions declared ($0.25 per unit)		—		(972	)		—		(96,191	)		—		—		—			—			(97,163	)
Balance at March 31, 2019		3,918	$	49,478			387,921	$	4,895,626			232	$	—	$	(67,892	)	$	13,654		$	4,890,866
Net income		—		794			—		78,644			—		—		—			482			79,920
Unrealized loss on interest rate swap		—		—			—		—			—		—		(1,486	)		—			(1,486	)
Foreign currency translation gain		—		—			—		—			—		—		2,848			—			2,848
Unit vesting and amortization of unit-based    compensation		1		63			118		6,254			—		—		—			—			6,317
Distributions to non-controlling interests		—		—			—		—			—		—		—			(670	)		(670	)
Proceeds from offering (net of offering    costs)		25		453			2,442		44,870			—		—		—			—			45,323
Distributions declared ($0.25 per unit)		—		(991	)		—		(98,102	)		—		—		—			—			(99,093	)
Balance at June 30, 2019		3,944	$	49,797			390,481	$	4,927,292			232	$	—	$	(66,530	)	$	13,466		$	4,924,025
Net income		—		898			—		88,888			—		—		—			481			90,267
Unrealized loss on interest rate swap		—		—			—		—			—		—		(15,441	)		—			(15,441	)
Foreign currency translation loss		—		—			—		—			—		—		(8,048	)		—			(8,048	)
Unit vesting and amortization of unit-based    compensation		1		91			117		8,996			—		—		—			—			9,087
Distributions to non-controlling interests		—		—			—		—			—		—		—			(669	)		(669	)
Proceeds from offering (net of offering    costs)		653		11,080			64,582		1,096,930			—		—		—			—			1,108,010
Distributions declared ($0.26 per unit)		—		(1,200	)		—		(118,823	)		—		—		—			—			(120,023	)
Balance at September 30, 2019		4,598	$	60,666			455,180	$	6,003,283			232	$	—	$	(90,019	)	$	13,278		$	5,987,208

See accompanying notes to condensed consolidated financial statements.

12

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Capital

(Unaudited)

	General					Limited Partners											Accumulated
	Partner					Common						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, 2017		3,644	$	38,489			360,780		$	3,808,583			292		$	—	$	(26,049	)	$	14,572		$	3,835,595
Net income		—		906			—			89,695			—			—		—			442			91,043
Cumulative effect of change in accounting    principles		—		19			—			1,919			—			—		—			—			1,938
Foreign currency translation gain		—		—			—			—			—			—		16,088			—			16,088
Unit vesting and amortization of unit-based    compensation		3		19			268			1,837			—			—		—			—			1,856
Conversion of LTIP units to common units		—		—			60			—			(60	)		—		—			—			—
Redemption of common units		—		—			(60	)		(816	)		—			—		—			—			(816	)
Distributions to non-controlling interests		—		—			—			—			—			—		—			(620	)		(620	)
Proceeds from offering (net of offering    costs)		—		(1	)		—			(93	)		—			—		—			—			(94	)
Distributions declared ($0.25 per unit)		—		(914	)		—			(90,497	)		—			—		—			—			(91,411	)
Balance at March 31, 2018		3,647	$	38,518			361,048		$	3,810,628			232		$	—	$	(9,961	)	$	14,394		$	3,853,579
Net income		—		1,115			—			110,452			—			—		—			450			112,017
Foreign currency translation loss		—		—			—			—			—			—		(32,392	)		—			(32,392	)
Unit vesting and amortization of unit-based    compensation		—		49			36			4,820			—			—		—			—			4,869
Distributions to non-controlling interests		—		—			—			—			—			—		—			(638	)		(638	)
Proceeds from offering (net of offering    costs)		—		—			—			(43	)		—			—		—			—			(43	)
Distributions declared ($0.25 per unit)		—		(915	)		—			(90,632	)		—			—		—			—			(91,547	)
Balance at June 30, 2018		3,647	$	38,767			361,084		$	3,835,225			232		$	—	$	(42,353	)	$	14,206		$	3,845,845
Net income		—		7,361			—			728,673			—			—		—			442			736,476
Foreign currency translation loss		—		—			—			—			—			—		(8,216	)		—			(8,216	)
Unit vesting and amortization of unit-based    compensation		1		48			126			4,922			—			—		—			—			4,970
Distributions to non-controlling interests		—		—			—			—			—			—		—			(630	)		(630	)
Distributions declared ($0.25 per unit)		—		(915	)		—			(90,632	)		—			—		—			—			(91,547	)
Balance at September 30, 2018		3,648	$	45,261			361,210		$	4,478,188		$	232		$	—	$	(50,569	)	$	14,018		$	4,486,898

See accompanying notes to condensed consolidated financial statements.

13

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended September 30,
	2019			2018
	(In thousands)
Operating activities
Net income	$	246,478		$	939,536
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		111,067			106,508
Amortization of deferred financing costs and debt discount		6,293			5,543
Direct financing lease interest accretion		(6,858	)		(7,213	)
Straight-line rent revenue and other		(84,758	)		(64,840	)
Unit-based compensation		22,119			11,695
Gain from sale of real estate, net		(62	)		(672,822	)
Straight-line rent and other write-off		7,232			17,615
Unutilized financing fees		4,873			—
Other adjustments		16,052			(21,354	)
Changes in:
Interest and rent receivables		528			(10,158	)
Accounts payable and accrued expenses		4,413			(5,387	)
Net cash provided by operating activities		327,377			299,123
Investing activities
Cash paid for acquisitions and other related investments		(3,703,092	)		(1,166,618	)
Net proceeds from sale of real estate		4,859			1,513,666
Principal received on loans receivable		920			531,772
Investment in loans receivable		(34,149	)		(174,494	)
Construction in progress and other		(55,168	)		(32,425	)
Capital additions and other investments, net		(213,096	)		(63,080	)
Net cash (used for) provided by investing activities		(3,999,726	)		608,821
Financing activities
Proceeds from term debt, net of discount		1,732,740			759,735
Revolving credit facilities, net		417,089			(818,116	)
Distributions paid		(291,675	)		(272,360	)
Lease deposits and other obligations to tenants		(8,349	)		(25,511	)
Proceeds from sale of units, net of offering costs		1,507,363			—
Other financing activities		(24,187	)		(3,106	)
Net cash provided by (used for) financing activities		3,332,981			(359,358	)
(Decrease) increase in cash, cash equivalents and restricted cash for period		(339,368	)		548,586
Effect of exchange rate changes		(16,645	)		(8,313	)
Cash, cash equivalents and restricted cash at beginning of period		822,425			172,247
Cash, cash equivalents and restricted cash at end of period	$	466,412		$	712,520
Interest paid	$	158,259		$	175,715
Supplemental schedule of non-cash financing activities:
Distributions declared, unpaid	$	120,023		$	91,547
Cash, cash equivalents, and restricted cash are comprised of the following:
Beginning of period:
Cash and cash equivalents	$	820,868		$	171,472
Restricted cash, included in Other assets		1,557			775
	$	822,425		$	172,247
End of period:
Cash and cash equivalents	$	461,622		$	710,965
Restricted cash, included in Other assets		4,790			1,555
	$	466,412		$	712,520

See accompanying notes to condensed consolidated financial statements.

14

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

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing commercial 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 operated as a real estate investment trust (“REIT”) since April 6, 2004 and 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.”), 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 are conducted by entities which we elected to be treated as taxable REIT subsidiaries (“TRS”). Our TRS 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 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. as the majority of such income flows 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, and long-term acute care hospitals. We also make mortgage and other loans to operators of similar facilities. In addition, we may obtain profits or equity interests in our tenants, from time to time, in order to enhance our overall return. We manage our business as a single business segment. All of our properties are currently located in the U.S., Europe, and Australia.

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 (“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 statement have been included. Operating results for the three and nine months ended September 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The condensed consolidated balance sheet at December 31, 2018 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.

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, 2018. There have been no material changes to these significant accounting policies other than the following:

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, “Leases”, (“ASU 2016-02”). ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). We adopted this standard using the modified retrospective approach and have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits the following: no reassessment of whether existing contracts are or contain a lease; no reassessment of lease classification for existing leases; and no reassessment of initial direct costs for existing leases. Additionally, we made certain elections permitted in accordance with ASU 2018-11, “Leases (Topic 842): – Targeted Improvements.” which (1) permits entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and (2) permits lessors to account for lease and non-lease components as a single lease component in a contract if certain criteria are met.

The standard requires lessees to apply a dual approach, classifying leases as either financing 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 (for finance leases) or on a straight-line basis (for operating leases) 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 greater than 12 months regardless of their classification. Leases with a term of 12 months or less will remain off balance sheet with lease expense recognized on a straight-line basis over the lease term, similar to previous guidance for operating leases. The standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases.

15

For our leases in which we are the lessee, including ground leases on which certain of our facilities reside, along with corporate office and equipment leases, we recorded a right-of-use asset and offsetting lease liability of approximately $84 million upon adoption of this standard – resulting in no material cumulative effect adjustment. From a lessor perspective, we did not change the classification or accounting of our existing leases except, we are now grossing up our income statement for certain operating expenses, such as property taxes and insurance, that the tenants of our facilities are required to reimburse us for pursuant to our “triple-net” leases.

Recent Accounting Developments:

Measurement of Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). This standard requires a new forward-looking “expected loss” model to be used for our financing receivables, including direct financing leases, investments in sale leaseback transactions, and loan receivables, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for us beginning January 1, 2020. We are still evaluating the impact of this standard, but we do not believe such impact will be material.

Reclassifications

Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period presentation.

3. Real Estate and Lending Activities

Acquisitions

We acquired the following assets (in thousands):

	For the Nine Months Ended September 30,
	2019		2018
Assets Acquired
Land and land improvements	$	375,721	$	57,452
Building		1,320,449		467,164
Intangible lease assets — subject to amortization (weighted average useful    life 18.7 years for 2019 and 27.8 years for 2018)		149,201		60,277
Investment in sale leaseback transactions		1,386,797		—
Equity investments		284,399		245,267
Mortgage loans		51,267		—
Other loans		135,258		336,458
Total assets acquired	$	3,703,092	$	1,166,618
Loans repaid		—		(525,426	)
Total net assets acquired	$	3,703,092	$	641,192

2019 Activity

Prospect Transaction

On August 23, 2019, we invested in a portfolio of 14 acute care hospitals and two behavioral health facilities operated by Prospect Medical Holdings, Inc. (“Prospect”) for a combined purchase price of approximately $1.55 billion. Our investment includes the acquisition of the real estate of 11 acute care hospitals and two behavioral health facilities for $1.4 billion. We are accounting for these properties as a financing receivable (as presented in the Investment in sale leaseback transactions line of the condensed consolidated balance sheet) under the new lease accounting rules due to certain lessee end-of-term purchase options. In addition, we originated a $51.3 million mortgage loan, secured by a first mortgage on an acute care hospital, and a $112.9 million term loan which we expect will be converted into the acquisition of two additional acute care hospitals upon the satisfaction of certain conditions. The master leases, mortgage loan and term loan are cross-defaulted and cross-collateralized. The master leases and mortgage loan have substantially similar terms, with a 15-year fixed term subject to three extension options, plus annual increases based on inflation.

The agreements provide for the potential for a future purchase price adjustment of up to an additional $250.0 million, based on achievement of certain performance thresholds over a three-year period; any such adjustment will be added to the lease base upon which we will earn a return in accordance with the master leases.

16

Other Transactions

On August 30, 2019, we invested in a portfolio of facilities throughout various states for approximately $254 million. The properties are leased to Vibra Healthcare, LLC (“Vibra”) pursuant to a new master lease agreement with an initial lease term of 20 years. The lease provides for annual escalations at the greater of 2% or the change in Consumer Price Index (“CPI”) and includes three five-year extension options. The facilities acquired include three inpatient rehabilitation hospitals and seven long-term acute care hospitals.

On August 16, 2019, we acquired freehold interests in eight acute care hospitals located throughout England for an aggregate purchase price of approximately £347 million. The hospitals are leased to Ramsay Health Care pursuant to in-place net leases with approximately 18-year remaining lease terms and include annual fixed and periodic market-based escalations.

On June 10, 2019, we acquired seven community hospitals in Kansas for approximately $145.4 million. The properties are leased to an affiliate of Saint Luke’s Health System (“SLHS”) pursuant to seven individual in-place leases that have an average remaining lease term of 14 years. The leases provide for fixed escalations every five years and include two five-year extension options. All seven hospitals were constructed in either 2018 or 2019, and the leases are guaranteed by SLHS.

On June 6, 2019, we acquired 11 hospitals in Australia for a purchase price of approximately AUD$1.2 billion plus stamp duties and registration fees of AUD$66.6 million. The properties are leased to Healthscope, Ltd. (“Healthscope”) pursuant to master lease agreements that have an average initial term of 20 years with annual fixed escalations of 2.5% and multiple extension options. Healthscope was acquired in a simultaneous transaction by Brookfield Business Partners L.P. and certain of its institutional partners.

On May 27, 2019, we invested in a portfolio of 13 acute care campuses and two additional properties in Switzerland for an aggregate purchase price of approximately CHF 236.6 million. The investment was effected through our purchase of a 46% stake in a Swiss healthcare real estate company, Infracore SA, from the previous majority shareholder, Aevis Victoria SA (“Aevis”). The facilities are leased to Swiss Medical Network, a wholly-owned Aevis subsidiary, pursuant to leases with an average 23-year remaining term subject to annual escalation provisions. We are accounting for our 46% interest in this joint venture under the equity method. Additionally, we purchased a 4.9% stake in Aevis for approximately CHF 47 million on June 28, 2019 that we are marking to fair value each quarter.

Other acquisitions throughout the first nine months of 2019 included three acute care hospitals and one inpatient rehabilitation hospital for an aggregate investment of approximately $135 million. One of the acute care hospitals, acquired on April 12, 2019 and located in Big Spring, Texas, is leased to Steward Health Care System LLC (“Steward”) pursuant to the Steward master lease. The second facility, located in Poole, England, was acquired on April 3, 2019 and is leased to BMI Healthcare pursuant to an in-place lease with 14 years remaining on its term and fixed 2.5% annual escalators. The third acute care facility was acquired on September 30, 2019, located in Watsonville, California, and is leased to Halsen Healthcare. The inpatient rehabilitation hospital, acquired on February 8, 2019, is located in Germany and leased to affiliates of Median Kliniken S.à.r.l. (“MEDIAN”).

2018 Activity

Joint Venture Transaction

On August 31, 2018, we completed a joint venture arrangement with Primotop Holdings S.à.r.l. (“Primotop”) pursuant to which we contributed 71 of our post-acute hospitals in Germany, with an aggregate fair value of €1.635 billion, for a 50% interest, while Primotop contributed cash for its 50% interest in the joint venture. As part of the transaction, we received an aggregate amount of approximately €1.14 billion, from the proceeds of the cash contributed by Primotop and the secured debt financing placed on the joint venture’s real estate, and we recognized an approximate €500 million gain on sale. Our interest in the joint venture is made up of a 50% equity investment valued at approximately €211 million, which is being accounted for under the equity method of accounting, and a €290 million shareholder loan (with terms identical to Primotop’s shareholder loan).

Other Transactions

During the second and third quarters of 2018, we acquired the fee simple real estate of four general acute care hospitals, three of which are located in Massachusetts and one located in Texas, from Steward in exchange for the reduction of $525.4 million of mortgage loans made to Steward in October 2016 and March 2018, along with additional cash consideration. These properties are being leased to Steward pursuant to the original master lease from October 2016.

In addition, we acquired one acute care facility and three inpatient rehabilitation hospitals during the first nine months of 2018 for an aggregate investment of approximately $38 million. The acute care hospital, acquired on August 31, 2018 and located in Pasco, Washington, is leased to LifePoint Health, Inc. (“LifePoint”) pursuant to the master lease. The inpatient rehabilitation hospitals, acquired on August 28, 2018, are located in Germany and leased to MEDIAN.

17

Development Activities

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

Property	Commitment		Costs Incurred as of September 30, 2019		Estimated Rent Commencement Date
Circle Health (Birmingham, England)	$	44,061	$	35,108	2Q 2020
Circle Health Rehabilitation (Birmingham, England)		19,862		16,320	2Q 2020
Surgery Partners (Idaho Falls, Idaho)		113,468		82,651	1Q 2020
	$	177,391	$	134,079

Disposals

On August 31, 2018, we completed the previously described joint venture arrangement with Primotop, in which we contributed the real estate of 71 of our post-acute hospitals in Germany, with a fair value of approximately €1.635 billion, resulting in a gain of approximately €500 million. See “Acquisitions” in this Note 3 for further details on this transaction.

On August 31, 2018, we sold a general acute care hospital located in Houston, Texas that was leased and operated by North Cypress for $148 million. The transaction resulted in a gain on sale of $102.4 million, which was partially offset by a net $2.5 million non-cash charge to revenue to write-off related straight-line rent receivables.

On June 4, 2018, we sold three long-term acute care hospitals located in California, Texas, and Oregon, that were leased and operated by Vibra, which included our equity investment in operations of the Texas facility. Total proceeds from the transaction were $53.3 million in cash, a mortgage loan in the amount of $18.3 million, and a $1.5 million working capital loan. The transaction resulted in a gain on real estate of $24.2 million, which was partially offset by a $5.1 million non-cash charge to revenue to write-off related straight-line rent receivables.

On March 1, 2018, we sold the real estate of St. Joseph Medical Center in Houston, Texas, for approximately $148 million to Steward. In return, we received a mortgage loan equal to the purchase price, with such loan secured by the underlying real estate. The mortgage loan had terms consistent with the other mortgage loans in the Steward portfolio. This transaction resulted in a gain of $1.5 million, offset by a $1.7 million non-cash charge to revenue to write-off related straight-line rent receivables on this property. 

The properties sold during 2018 did not meet the definition of discontinued operations. However, the following represents the operating results from these properties (excluding the St. Joseph sale in March 2018) for the periods presented (in thousands):

	For the Three Months Ended September 30,			For the Nine Months Ended September 30,
	2018			2018
Revenues(1)	$	20,115		$	88,838
Real estate depreciation and amortization		(237	)		(15,849	)
Property-related expenses		(265	)		(531	)
Other(2)		692,362			715,246
Income from real estate dispositions, net	$	711,975		$	787,704

(1) Includes $2.5 million and $7.6 million of straight-line rent and other write-offs associated with the disposal transactions for the three and nine months ended September 30, 2018, respectively.

(2) Includes $695.2 million of gains on sale for the three months ended September 30, 2018 and $719.3 million for the nine months ended September 30, 2018.

Leasing Operations (Lessor)

As noted earlier, we acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases (typical initial fixed terms ranging from 10 to 15 years) and most include renewal options at the election of our tenants, generally in five year increments. More than 95% of our leases provide annual rent escalations based on increases in the CPI (or similar index outside the U.S.) and/or fixed minimum annual escalations ranging from 0.5% to 3.0%. Many of our domestic leases contain purchase options with pricing set at various terms but in no case less than our total investment. For five properties with a carrying value of $210 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 including repair/maintenance, property taxes, and insurance. We routinely inspect our properties to ensure the residual value of each of our assets is being maintained. Except for leases noted below as direct finance leases (“DFLs”), all of our leases are classified as operating leases.

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The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under noncancelable leases as of September 30, 2019 (in thousands):

	Total Under Operating Leases		Total Under DFLs		Total
2019 (three months only)	$	129,235	$	15,214	$	144,449
2020		542,989		62,072		605,061
2021		557,352		63,313		620,665
2022		563,977		64,579		628,556
2023		573,798		65,871		639,669
Thereafter		12,247,074		1,400,026		13,647,100
	$	14,614,425	$	1,671,075	$	16,285,500

Direct Financing Leases

At September 30, 2019, leases on 14 Ernest Health (“Ernest”) facilities, ten Prime Healthcare Services, Inc. (“Prime”) facilities, and two Alecto Healthcare Services LLC (“Alecto”) facilities are accounted for as DFLs. The components of our net investment in DFLs consisted of the following (in thousands):

	As of September 30, 2019			As of December 31, 2018
Minimum lease payments receivable	$	2,049,738		$	2,091,504
Estimated residual values		419,753			424,719
Less: Unearned income		(1,780,600	)		(1,832,170	)
Net investment in direct financing leases	$	688,891		$	684,053

Adeptus Health Transition Properties

As noted in previous filings, we had 16 properties transitioning away from Adeptus Health, Inc. (“Adeptus”) in stages over a two year period as part of Adeptus’ confirmed plan of reorganization under Chapter 11 of the Bankruptcy Code. At November 8, 2019, 11 of these properties have been re-leased and two properties in the Dallas market were sold in April 2019 and in July 2019 at their approximate book value. The remaining three facilities (representing less than 0.1% of our total assets at September 30, 2019) are vacant.

At September 30, 2019, Adeptus is current on its rent obligations to us. Although no assurances can be made that we will not recognize a loss in the future, we believe, at September 30, 2019, that the sale or re-leasing of the remaining three transition facilities will not result in any material loss or additional impairment.

Gilbert Facility

In the first quarter of 2018, we terminated the lease at our Gilbert, Arizona facility due to the tenant not meeting its rent obligations pursuant to the lease. As a result of the lease terminating, we recorded a charge to reserve against the straight-line rent receivables. All outstanding receivables due from the former tenant of Gilbert are completely reserved. At September 30, 2019, our Gilbert facility is vacant. Although no assurances can be made that we will not have any impairment charges in the future, we believe our investment in the Gilbert facility (less than 0.1% of total assets at September 30, 2019), is fully recoverable.

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Alecto Facilities

At September 30, 2019, we own four acute care facilities and have a mortgage loan on a fifth property. In the 2018 third quarter, we lowered the carrying value of the four owned properties to fair value resulting in a $30 million charge. With the decline in the operating results of the facility tenant, we recorded a charge to reserve against the straight-line rent and other receivables outstanding in the 2019 first quarter and did not recognize any rent revenue in the three months ended September 30, 2019.

At September 30, 2019, our total overall investment in these properties is less than 1% of our total assets. On August 7, 2019, Alecto announced closure of two facilities in the Ohio Valley region, which we have an investment in of approximately $30 million. Although no assurances can be made that we will not recognize any impairment charges in the future, we believe our investment in these properties at September 30, 2019 is fully recoverable.

Loans

The following is a summary of our loans (in thousands):

	As of September 30, 2019		As of December 31, 2018
Mortgage loans	$	1,268,563	$	1,213,322
Investment in sale leaseback transactions		1,390,619		—
Other loans		521,398		373,198
Total	$	3,180,580	$	1,586,520

The investment in sale leaseback transactions, along with the majority of the increase in mortgage and other loans, relates to the Prospect transaction. See subheading “Acquisitions” in this Note 3 for further details. Other loans typically consist of loans to our tenants for acquisitions and working capital purposes and include our shareholder loan made to the joint venture with Primotop in the amount of €290 million.

Concentrations of Credit Risk

We monitor concentration risk in several ways due to the nature of our real estate assets that are vital to the communities in which they are located and given our history of being able to replace inefficient operators of our facilities, if needed, with more effective operators:

1) Facility concentration – At September 30, 2019, we had no investment in any single property greater than 3% of our total assets, which is down from the 4% at December 31, 2018.

2) Operator concentration – For the nine months ended September 30, 2019, revenue from Steward and Prime of $265.1 million and $96.0 million, respectively, exceeded 10% of our total revenues. Of these two tenants, no single property represents greater than 4% of our total revenues. In comparison, Steward ($226.0 million), Prime ($95.4 million) and MEDIAN ($99.9 million) exceeded 10% of our total revenues for the first nine months of 2018.

3) Geographic concentration – At September 30, 2019, investments in the U.S., Europe, and Australia represented approximately 73%, 20%, and 7%, respectively, of our total assets. In comparison, investments in the U.S. and Europe represented approximately 80% and 20%, respectively, of our total assets at December 31, 2018.

4) Facility type concentration – For the nine months ended September 30, 2019, approximately 86% of our revenues are from our general acute care facilities, while rehabilitation and long-term acute care facilities make up 10% and 4%, respectively. These percentages are similar to those for the first nine months of 2018.

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4. Debt

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

	As of September 30, 2019			As of December 31, 2018
Revolving credit facility(A)	$	451,006		$	28,059
USD term loan		200,000			200,000
Australian term loan facility(B)		810,000			—
4.000% Senior Unsecured Notes due 2022(C)		544,950			573,350
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(C)		544,950			573,350
5.250% Senior Unsecured Notes due 2026		500,000			500,000
5.000% Senior Unsecured Notes due 2027		1,400,000			1,400,000
4.625% Senior Unsecured Notes due 2029		900,000			—
	$	6,150,906		$	4,074,759
Debt issue costs, net and discount		(54,674	)		(37,370	)
	$	6,096,232		$	4,037,389

(A) Includes £367 million and £22 million of GBP-denominated borrowings that reflect the exchange rate at September 30, 2019 and December 31, 2018, respectively.

(B) This note is Australian dollar-denominated and reflects the exchange rate at September 30, 2019.

(C) These notes are Euro-denominated and reflect the exchange rate at September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) are as follows (in thousands):

2019	$	—
2020		—
2021		451,006
2022		744,950
2023		—
Thereafter		4,954,950
Total	$	6,150,906

2019 Activity

4.625% Senior Unsecured Notes due 2029

On July 26, 2019, we completed a $900 million senior unsecured notes offering (“4.625% Senior Unsecured Notes due 2029”). Interest on the notes is payable semi-annually on February 1 and August 1 of each year, commencing on February 1, 2020. The notes were issued at 99.5% of par value, pay interest at a rate of 4.625% per year and mature on August 1, 2029. We may redeem some or all of the notes at any time prior to August 1, 2024 at a “make whole” redemption price. On or after August 1, 2024, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time prior to August 1, 2022, we may redeem up to 40% of the notes at a redemption price equal to 104.625% 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 4.625% Senior Unsecured Notes due 2029 offering along with the proceeds from our July 2019 equity offering to finance the Prospect transaction described in Note 3. As a result of these offerings, we canceled the $1.55 billion senior unsecured bridge loan facility commitment from Barclays Bank PLC that we received on July 10, 2019. With this commitment, we paid $4.0 million of underwriting and other fees, which we fully expensed upon the cancellation of the commitment during the 2019 third quarter.

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Australian Term Loan Facility

On May 23, 2019, we entered into an AUD$1.2 billion term loan facility agreement with Bank of America, N.A., as administrative agent, and several lenders from time-to-time are parties thereto. The term loan facility matures on May 23, 2024. We used the proceeds under the facility to finance our acquisition of the Healthscope portfolio. The interest rate under the term loan is adjustable based on a pricing grid from 0.85% to 1.65%, dependent on our current senior unsecured credit rating. On June 27, 2019, we entered into an interest rate swap transaction (effective July 3, 2019) to fix the interest rate to approximately 1.20% for the duration of the loan. The current applicable margin for the pricing grid (which can vary based on the Company’s credit rating) is 1.25% for an all-in fixed rate of 2.45%. We paid approximately $8 million in one-time structuring and underwriting fees associated with this term loan facility.

2018 Activity

In preparation of the joint venture with Primotop described under “Acquisitions” in Note 3, we issued secured debt on August 3, 2018, resulting in gross proceeds of €655 million. Subsequently, on August 31, 2018, the secured debt was contributed along with the related real estate of 71 properties to form the joint venture. Provisions of the secured debt include a term of seven years and a swapped fixed rate of approximately 2.3%.

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 revolving credit and term loan agreement (“Credit Facility”) limit the amount of dividends we can pay as a percentage of normalized adjusted funds from operations, as defined in the agreements, on a rolling four quarter basis. At September 30, 2019, the dividend restriction was 95% of normalized adjusted funds from operations (“NAFFO”). The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95% of 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. This 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, 2019, we were in compliance with all such financial and operating covenants.

5. Common Stock/Partners’ Capital

Medical Properties Trust, Inc.

In the first nine months of 2019, we sold 36.1 million shares of common stock under our at-the-market equity offering program, resulting in net proceeds of approximately $649 million.

On July 18, 2019, we completed an underwritten public offering of 51.75 million shares (including the exercise of the underwriters’ 30-day option to purchase an additional 6.75 million shares) of our common stock, resulting in net proceeds of $858.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.

MPT Operating Partnership, L.P.

At September 30, 2019, the Company has a 99.9% ownership interest in the Operating Partnership with the remainder owned by two other partners, which are employees.

During the nine months ended September 30, 2019, the Operating Partnership issued approximately 87.9 million units in direct response to the common stock offerings by Medical Properties Trust, Inc. during the same period.

6. Stock Awards

We adopted the 2019 Equity Incentive Plan (the “Equity Incentive Plan”) during the second quarter of 2019, which authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units and other stock-based awards. The Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors, and we have reserved 12.9 million shares of common stock for awards, out of which 11.4 million shares remain

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available for future stock awards as of September 30, 2019. Share-based compensation expense totaled $22.1 million and $11.7 million for the nine months ended September 30, 2019 and 2018, 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 other loans (including the financing receivable from the sale leaseback transaction) are estimated by using Level 2 inputs such as discounting the estimated future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We determine the fair value of our senior unsecured notes using Level 2 inputs such as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loan 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):

	As of						As of
	September 30, 2019						December 31, 2018
Asset (Liability)	Book Value			Fair Value			Book Value			Fair Value
Interest and rent receivables	$	25,653		$	24,793		$	25,855		$	24,942
Loans(1)		3,065,580			3,112,717			1,471,520			1,490,758
Debt, net		(6,096,232	)		(6,352,115	)		(4,037,389	)		(3,947,795	)

(1) Excludes mortgage loans related to Ernest since they are recorded at fair value and discussed below.

Items Measured at Fair Value on a Recurring Basis

Our Ernest mortgage loans are measured at fair value on a recurring basis as we elected to account for these investments using the fair value option method in 2012 when we acquired an equity interest in and made an acquisition loan to Ernest. Such equity interest was sold and the acquisition loan was paid off in October 2018. We elected to account for these investments at fair value due to the size of the investments and because we believe this method was more reflective of current values. We have not made a similar election for other investments existing at September 30, 2019.

At September 30, 2019, these amounts were as follows (in thousands):

Asset Type	Fair Value		Original Cost		Asset Type Classification
Mortgage loans	$	115,000	$	115,000	Mortgage loans

Our mortgage loans with Ernest are recorded at fair value based on Level 2 inputs by discounting the estimated cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities.

During the first nine months of 2018, we recognized an unrealized loss on our investment in Ernest. There was no gain or loss recorded during the first nine months of 2019.

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8. Earnings Per Share

Medical Properties Trust, Inc.

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

	For the Three Months Ended September 30,
	2019			2018
Numerator:
Net income	$	90,267		$	736,476
Non-controlling interests’ share in net income		(481	)		(442	)
Participating securities’ share in earnings		(432	)		(290	)
Net income, less participating securities’ share in earnings	$	89,354		$	735,744
Denominator:
Basic weighted-average common shares		439,581			365,024
Dilutive potential common shares		1,352			1,443
Dilutive weighted-average common shares		440,933			366,467

	For the Nine Months Ended September 30,
	2019			2018
Numerator:
Net income	$	246,478		$	939,536
Non-controlling interests’ share in net income		(1,432	)		(1,334	)
Participating securities’ share in earnings		(1,354	)		(808	)
Net income, less participating securities’ share in earnings	$	243,692		$	937,394
Denominator:
Basic weighted-average common shares		404,902			364,934
Dilutive potential common shares		1,198			850
Dilutive weighted-average common shares		406,100			365,784

MPT Operating Partnership, L.P.

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

	For the Three Months Ended September 30,
	2019			2018
Numerator:
Net income	$	90,267		$	736,476
Non-controlling interests’ share in net income		(481	)		(442	)
Participating securities’ share in earnings		(432	)		(290	)
Net income, less participating securities’ share in earnings	$	89,354		$	735,744
Denominator:
Basic weighted-average units		439,581			365,024
Dilutive potential units		1,352			1,443
Diluted weighted-average units		440,933			366,467

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	For the Nine Months Ended September 30,
	2019			2018
Numerator:
Net income	$	246,478		$	939,536
Non-controlling interests’ share in net income		(1,432	)		(1,334	)
Participating securities’ share in earnings		(1,354	)		(808	)
Net income, less participating securities’ share in earnings	$	243,692		$	937,394
Denominator:
Basic weighted-average units		404,902			364,934
Dilutive potential units		1,198			850
Diluted weighted-average units		406,100			365,784

9. 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. Leases (Lessee)

We have leased land on which certain of our facilities reside, along with corporate office and equipment. Our leases have remaining lease terms of 4.8 years to 47.3 years, some of which may include options to extend the leases up to, or just beyond, the depreciable life of the properties that occupy the leased land. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments.

Properties subject to ground leases are subleased to our tenants, except for two Adeptus transition properties.

The following is a summary of our lease expense (in thousands):

	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost (1)	(2)	$	2,163		$	6,725
Finance lease cost:
Amortization of right-of-use assets	Real estate depreciation and amortization		13			38
Interest on lease liabilities	Interest expense		32			85
Sublease income	Interest and other income		(873	)		(2,682	)
Total lease cost		$	1,335		$	4,166

(1) Includes short-term leases.

(2) $1.4 million and $4.5 million for the three and nine months ended September 30, 2019, respectively, included in Property-related, with the remainder reflected in General and administrative expenses.

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Fixed minimum payments due over the remaining lease term under non-cancelable leases of more than one year and amounts to be received in the future from non-cancelable subleases over their remaining lease term at September 30, 2019 are as follows (amounts in thousands):

	Operating Leases			Finance Leases			Amounts to be Received From Subleases			Net Payments
2019 (1)	$	1,487		$	31		$	(816	)	$	702
2020		6,040			125			(3,322	)		2,843
2021		6,219			126			(3,439	)		2,906
2022		6,407			128			(3,567	)		2,968
2023		6,470			129			(3,568	)		3,031
Thereafter		183,294			5,045			(92,095	)		96,244	(2)
Total undiscounted minimum lease payments	$	209,917		$	5,584		$	(106,807	)	$	108,694
Less: interest		(134,274	)		(3,653	)
Present value of lease liabilities	$	75,643		$	1,931

(1) Represents remaining three months of 2019.

(2) Reflects certain ground leases, in which we are the lessee, that have longer initial fixed terms than our existing sublease to our tenants. However, we would expect to either renew the related sublease, enter into a lease with a new tenant or early terminate the ground lease to reduce or avoid any significant impact from such ground leases.

Supplemental balance sheet information is as follows (in thousands, except lease terms and discount rate):

	Classification	September 30, 2019
Right of use assets:
Operating leases - real estate	Land, buildings and improvements, intangible lease assets, and other	$	58,753
Finance leases - real estate	Land, buildings and improvements, intangible lease assets, and other		1,900
Real estate right of use assets, net			60,653
Operating leases - corporate	Other assets		10,261
Total right of use assets, net		$	70,914
Lease liabilities:
Operating leases	Obligations to tenants and other lease liabilities	$	75,643
Financing leases	Obligations to tenants and other lease liabilities		1,931
Total lease liabilities		$	77,574
Weighted average remaining lease term:
Operating leases			31.9
Finance leases			37.2
Weighted average discount rate:
Operating leases			6.3	%
Finance leases			6.6	%

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The following is supplemental cash flow information (in thousands):

	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,408
Operating cash flows from finance leases		83
Financing cash flows from finance leases		10
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,575
Finance leases		—

11. Subsequent Events

Investments

On October 25, 2019, we entered into an agreement to finance the development of and lease an acute care hospital in Clear Lake, Texas, for $27.5 million. This facility will be leased to NeuroPsychiatric Hospitals pursuant to a long-term lease and is expected to open in the third quarter of 2020.

On November 5, 2019, we entered into definitive agreements pursuant to which we will acquire a portfolio of 10 acute care hospitals owned and operated by LifePoint for a combined purchase price of approximately $700.0 million. Under the terms of the agreements, we will lease back the hospitals to LifePoint under one master lease agreement. The master lease will have a 20-year initial term and two five-year extension options, plus annual escalators at the greater of 2% or the change in the applicable CPI, with a cap of 4%.

 On November 5, 2019, we completed the sale of the real estate of two acute care hospitals for net proceeds to us of approximately $93.0 million, which is in excess of our net book value.

Financing

On November 4, 2019, we filed Articles of Amendment to our charter with the Maryland State Department of Assessments and Taxation increasing the number of authorized shares of common stock, par value $0.001 per share, available for issuance from 500,000,000 to 750,000,000.

On November 8, 2019, 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 $1.026 billion, after deducting underwriting discounts and commissions and estimated offering expenses.

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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 and MPT Operating Partnership, L.P. as there are no material differences between these two entities.

The following 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, 2018.

Forward-Looking Statements.

This quarterly 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 SEC under the Securities Exchange Act of 1934, as amended. Such factors include, among others, the following:

• 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 transactions described in Note 11 to Item 1 of this Quarterly Report on Form 10-Q) 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;

• financing risks;

• 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 MPT’s status as a REIT for federal and state income tax purposes;

• our ability to attract and retain qualified personnel;

• changes in foreign currency exchange rates;

• changes in federal, state or local tax laws in the U.S., Europe, Australia or other jurisdictions in which we may own healthcare facilities;

• healthcare and other regulatory requirements of the U.S., Europe, Australia and other foreign countries; and

• the political, economic, business, real estate and other market conditions of the U.S., Europe, Australia, and other foreign jurisdictions in which we may own healthcare facilities, which may have a negative effect on the following, among other things:

• the financial condition of our tenants, our lenders, or institutions that 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

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the healthcare industry, generally providing medical, surgical and rehabilitative 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 and market conditions that may affect their profitability, which could impact our results. Accordingly, we monitor certain key factors, changes to which we believe may provide early indications of conditions that may affect the level of risk in our portfolio.

Key factors that we consider in underwriting prospective tenants and borrowers and in monitoring the 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 (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 Service 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 effect of evolving healthcare legislation and other regulations on our tenants’ or borrowers’ profitability and liquidity; 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 2018 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include revenue recognition, investments in real estate, purchase price allocation, loans, losses from rent and interest receivables, stock-based compensation, our fair value option election, and our accounting policy on consolidation. During the nine months ended September 30, 2019, there were no material changes to these policies except for those described in Note 2 to Item 1 of this Form 10-Q.

Overview

We are a self-advised 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 taxable REIT subsidiaries, the proceeds of which are typically used for acquisitions and working capital. Finally, from 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.

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At September 30, 2019, our portfolio consisted of 348 properties leased or loaned to 38 operators, of which three are under development and 11 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. All of our investments are currently located in the U.S., Europe and Australia. Our total assets are made up of the following (dollars in thousands):

	As of September 30, 2019		% of Total			As of December 31, 2018		% of Total
Real estate owned (gross)(1)	$	9,256,035		74.3	%	$	5,868,340		66.4	%
Mortgage loans		1,268,563		10.2	%		1,213,322		13.7	%
Other loans		521,398		4.2	%		373,198		4.2	%
Construction in progress		134,079		1.1	%		84,172		1.0	%
Equity investments		777,102		6.2	%		520,058		5.9	%
Other assets		494,976		4.0	%		784,553		8.8	%
Total assets	$	12,452,153		100.0	%	$	8,843,643		100.0	%

(1) Includes our investments in direct finance leases and sale leaseback transactions.

Additional 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 September 30, 2019 as compared to December 31, 2018 is as follows (dollars in thousands):

Pro Forma Gross Assets by Operator

	As of September 30, 2019					As of December 31, 2018
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	$	3,953,099		29.2	%	$	3,823,625		38.0	%
Prospect		1,554,823		11.5	%		—		—
Prime		1,143,557		8.4	%		1,124,711		11.2	%
MEDIAN		999,732		7.4	%		1,075,504		10.7	%
Healthscope		863,002		6.4	%		858,569		8.5	%
Other operators		4,131,153		30.4	%		2,647,369		26.3	%
Other assets		908,969		6.7	%		528,669		5.3	%
Total	$	13,554,335		100.0	%	$	10,058,447		100.0	%

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Pro Forma Gross Assets by U.S. State and Country

	As of September 30, 2019					As of December 31, 2018
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
Massachusetts	$	1,489,359		11.0	%	$	1,469,423		14.6	%
California		1,294,937		9.6	%		522,753		5.2	%
Texas		1,254,397		9.3	%		1,126,217		11.2	%
Utah		1,065,674		7.9	%		1,054,539		10.5	%
Pennsylvania		575,264		4.2	%		141,893		1.4	%
All other states		3,850,836		28.4	%		2,972,116		29.5	%
Other domestic assets		710,512		5.2	%		482,992		4.8	%
Total U.S.	$	10,240,979		75.6	%	$	7,769,933		77.2	%
Germany	$	1,088,936		8.0	%	$	1,164,973		11.6	%
Australia		863,002		6.4	%		858,569		8.5	%
United Kingdom		582,521		4.3	%		100,823		1.0	%
Switzerland		467,351		3.4	%		—		—
Italy and Spain		113,089		0.8	%		118,472		1.2	%
Other international assets		198,457		1.5	%		45,677		0.5	%
Total International	$	3,313,356		24.4	%	$	2,288,514		22.8	%
Grand Total	$	13,554,335		100.0	%	$	10,058,447		100.0	%

On an individual property basis, we had no investment in any single property greater than 2.7% of our total pro forma gross assets as of September 30, 2019.

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 nine months ended September 30, 2019 as compared to the prior year is as follows (dollars in thousands):

Adjusted Revenue by Operator

	For the Nine Months Ended September 30,
	2019					2018
Operators	Total Adjusted Revenue		Percentage of Total Adjusted Revenue			Total Adjusted Revenue		Percentage of Total Adjusted Revenue
Steward	$	265,060		40.2	%	$	225,989		36.6	%
Prime		95,961		14.6	%		95,439		15.5	%
MEDIAN		66,231		10.1	%		99,924		16.2	%
Ernest		38,744		5.9	%		52,752		8.5	%
LifePoint		34,420		5.2	%		31,484		5.1	%
Other operators		157,762		24.0	%		112,104		18.1	%
Total	$	658,178		100.0	%	$	617,692		100.0	%

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Adjusted Revenue by U.S. State and Country

	For the Nine Months Ended September 30,
	2019					2018
U.S. States and Other Countries	Total Adjusted Revenue		Percentage of Total Adjusted Revenue			Total Adjusted Revenue		Percentage of Total Adjusted Revenue
Massachusetts	$	102,893		15.6	%	$	85,054		13.8	%
Texas		88,818		13.5	%		87,588		14.2	%
Utah		65,128		9.9	%		62,598		10.1	%
California		56,143		8.5	%		45,326		7.3	%
Arizona		37,590		5.7	%		35,204		5.7	%
All other states		196,616		29.9	%		184,091		29.8	%
Total U.S.	$	547,188		83.1	%	$	499,861		80.9	%
Germany	$	72,135		11.0	%	$	106,198		17.2	%
Australia, United Kingdom, Switzerland, Italy, and    Spain		38,855		5.9	%		11,633		1.9	%
Total International	$	110,990		16.9	%	$	117,831		19.1	%
Grand Total	$	658,178		100.0	%	$	617,692		100.0	%

Adjusted Revenue by Facility Type

	For the Nine Months Ended September 30,
	2019					2018
Facility Types	Total Adjusted Revenue		Percentage of Total Adjusted Revenue			Total Adjusted Revenue		Percentage of Total Adjusted Revenue
General acute care hospitals	$	530,383		80.6	%	$	449,445		72.8	%
Rehabilitation hospitals		105,369		16.0	%		145,442		23.5	%
Long-term acute care hospitals		22,426		3.4	%		22,805		3.7	%
Total	$	658,178		100.0	%	$	617,692		100.0	%

Results of Operations

Three Months Ended September 30, 2019 Compared to September 30, 2018

Net income for the three months ended September 30, 2019, was $89.8 million, compared to $736.0 million for the three months ended September 30, 2018. This decrease is primarily due to the $695.2 million of gains on sales of real estate in the 2018 third quarter, including the joint venture transaction with Primotop and the North Cypress disposal described in Note 3 to Item 1 of this Form 10-Q. This decrease is partially offset by incremental revenue from new investments in 2018 and 2019. Funds from operations (“FFO”), after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $147.5 million for the 2019 third quarter as compared to $127.2 million for the 2018 third quarter. This increase in FFO is primarily due to incremental revenue from new investments in 2018 and 2019.

A comparison of revenues for the three month periods ended September 30, 2019 and 2018 is as follows (dollar amounts in thousands):

	2019		% of Total			2018		% of Total			Year over Year Change
Rent billed	$	124,361		55.3	%	$	118,238		60.0	%		5.2	%
Straight-line rent		31,026		13.8	%		18,293		9.3	%		69.6	%
Income from direct financing leases		17,502		7.8	%		18,998		9.7	%		-7.9	%
Interest and other income		51,867		23.1	%		41,467		21.0	%		25.1	%
Total revenues	$	224,756		100.0	%	$	196,996		100.0	%		14.1	%

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Our total revenue for the 2019 third quarter is up $27.8 million, or 14%, from the prior year. This increase is made up of the following:

• Operating lease revenue (includes rent billed and straight-line rent) – up $18.9 million from the prior year of which $24.4 million is from incremental revenue from acquisitions ($13.2 million of which relates to Healthscope), along with expansion and development projects, and $12.9 million of additional lease revenue related to the conversion of five Steward mortgage loans to fee simple assets in 2018. This increase is partially offset by a net $18.9 million of lower revenues due to property dispositions in 2018 (majority of which relates to the formation of the Primotop joint venture in the 2018 third quarter) and approximately $1.2 million from unfavorable foreign currency fluctuations.

• Income from direct financing leases – down $1.5 million primarily due to not recording rent on two Alecto properties during the three months ended September 30, 2019 as described in Note 3 to Item 1 of this Form 10-Q.

• Interest and other income – up $10.4 million from the prior year due to the following:

- Interest from loans – up $7.4 million over the prior year of which $20.0 million is from incremental revenue from new loans made after September 2018 (of which $16.4 million relates to Prospect). This increase is partially offset by $8.3 million of lower interest revenue related to Steward mortgage loans converted to fee simple assets in 2018 and $4.4 million from the payoff of our Ernest acquisition and other loans in the fourth quarter of 2018.

- Other income – up $3.0 million due to the implementation of the lease accounting standard on January 1, 2019, whereby we are now reflecting certain payments made by our tenants, including ground lease payments and reimbursements of property taxes and insurance, as revenue. This revenue is offset by a corresponding expense in the “Property-related” line on the Condensed Consolidated Statements of Net Income.

Interest expense, for the quarters ended September 30, 2019 and 2018, totaled $64.5 million and $57.2 million, respectively. This increase is primarily related to additional interest from the $900 million senior unsecured notes offering in the third quarter of 2019.

Real estate depreciation and amortization during the third quarter of 2019 increased to $40.8 million from $29.9 million in 2018 due to the new investments made in 2019, partially offset by property sales in 2018 and the conversion of the five Steward mortgage loans to fee simple assets.

Property-related expenses totaled $4.0 million and $2.7 million for the quarters ended September 30, 2019 and 2018, respectively. As noted above under the caption “Other income,” this increase was primarily due to the grossing up of certain expenses (such as ground lease, property taxes and insurance) as part of our implementation of the lease accounting standard on January 1, 2019.

General and administrative expenses totaled $23.3 million for the 2019 third quarter, which is a $2.3 million increase from the prior year third quarter. The majority of the increase relates to stock compensation expense from our performance-based awards. Given our strong performance in 2018 with a total shareholder return of 25% along with our performance to-date in 2019, we believe it is more likely that such performance awards will be earned and have adjusted our stock compensation expense accordingly. We do expect a quarterly run-rate for general and administrative expenses to be in the $23 million to $25 million range.

During the three months ended September 30, 2018, we completed the joint venture transaction with Primotop (as more fully described in Note 3 to Item 1 of this Form 10-Q), in which we sold 71 inpatient rehabilitation hospitals by way of a joint venture arrangement, as well as one general acute care hospital located in Texas, resulting in a total gain of $695.2 million. This gain was partially offset by a $48 million adjustment to lower the carrying value of the real estate to fair value on seven of our transitioning Adeptus Health facilities and four of our Alecto facilities – see Note 3 to Item 1 of this Form 10-Q for further details. During the three months ended September 30, 2019, we sold one Adeptus transition facility that was vacant for a gain of $0.2 million.

Earnings from equity interests totaled $3.5 million for the quarter ended September 30, 2019, a $0.4 million increase from the same period in 2018 due to our investment in the Primotop joint venture made in the third quarter of 2018 and our investment in Switzerland made at the end of the second quarter of 2019, partially offset by a lower return year-over-year in our Hoboken investment.

In the third quarter of 2019, we recognized a $4.0 million unutilized financing fee charge related to the commitment fee paid on the unused bridge loan for the Prospect transaction. There was no similar charge in the 2018 third quarter.

Income tax expense typically includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $0.7 million income tax benefit for the three months ended September 30, 2019, represents the benefit from our TRS in the quarter. The benefit is partially offset by tax expense from our international investments. We utilize the asset and liability method of accounting for income taxes. Deferred tax

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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 cumulative pre-tax book loss position in certain entities, we concluded that a full valuation allowance of $3 million should continue to be recorded against certain of our international net deferred tax assets at September 30, 2019. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and incur higher income taxes in future periods as income earned.

Nine Months Ended September 30, 2019 Compared to September 30, 2018

Net income for the nine months ended September 30, 2019, was $245.0 million, compared to $938.2 million for the nine months ended September 30, 2018. This decrease is primarily due to the $720.8 million of gains on sales of real estate during the first nine months of 2018 from the disposal of five properties and the joint venture transaction with Primotop, partially offset by the $48 million adjustment to lower the carrying value of certain real estate to fair value in 2018- see Note 3 to Item 1 of this form 10-Q for additional details. FFO, after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $386.2 million for the first nine months of 2019 as compared to $388.6 million for the first nine months of 2018. This decrease in FFO is primarily due to lower revenue from the property sales in 2018, partially offset by revenues from new investments in 2019.

A comparison of revenues for the nine month periods ended September 30, 2019 and 2018 is as follows (dollar amounts in thousands):

	2019		% of Total			2018		% of Total			Year over Year Change
Rent billed	$	343,841		57.5	%	$	369,076		61.1	%		-6.8	%
Straight-line rent		76,813		12.9	%		49,157		8.1	%		56.3	%
Income from direct financing leases		52,168		8.7	%		55,613		9.2	%		-6.2	%
Interest and other income		124,937		20.9	%		130,098		21.6	%		-4.0	%
Total revenues	$	597,759		100.0	%	$	603,944		100.0	%		-1.0	%

Our total revenue for the first nine months of 2019 is down $6.2 million, or 1%, from the prior year. This decrease is made up of the following:

• Operating lease revenue (includes rent billed and straight-line rent) – up $2.4 million from the prior year of which $53.1 million of additional lease revenue is related to the conversion of five Steward mortgage loans to fee simple assets in 2018, and $34.9 million is from incremental revenue from acquisitions ($16.8 million of which relates to Healthscope). This increase is partially offset by a net $80.0 million of lower revenues due to property dispositions in 2018 (majority of which relates to the formation of the Primotop joint venture in the 2018 third quarter) and approximately $7.1 million from unfavorable foreign currency fluctuations.

• Income from direct financing leases – down $3.4 million primarily due to lower revenue from Alecto properties, as more fully described in Note 3 to Item 1 of this Form 10-Q.

• Interest and other income – down $5.2 million from the prior year due to the following:

- Interest from loans – down $15.9 million over the prior year of which $34.9 million is the result of lower interest revenue related to Steward mortgage loans converted to fee simple assets in 2018 and $13.2 million is from the payoff of our Ernest acquisition and other loans in the fourth quarter of 2018. This is partially offset by $32 million of interest revenue earned on new loan investments ($16.4 million of which relates to Prospect and $11.1 million relates to the shareholder loan with the Primotop joint venture).

- Other income – up $10.7 million due to the implementation of the lease accounting standard on January 1, 2019, whereby we are now reflecting certain payments made by our tenants, including ground lease payments and reimbursements of property taxes and insurance, as revenue. This revenue is offset by a corresponding expense in the “Property-related” line on the Condensed Consolidated Statements of Net Income.

Interest expense, for the nine months ended September 30, 2019 and 2018, totaled $167.4 million and $172.4 million, respectively. This decrease is primarily related to the lower average revolving debt balance during the first nine months of 2019 compared to the first nine months of 2018 as we paid down our revolver with proceeds from property sales in 2018. This decrease was partially offset by additional interest from the Australian term loan and the $900 million senior unsecured notes offering during the first nine months of 2019.

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Real estate depreciation and amortization during the first nine months of 2019 increased to $108.2 million from $100.2 million in the same period of 2018, due to new investments made in 2018 and 2019 and the conversion of the five Steward mortgage loans to fee simple assets, partially offset by property sales in 2018.

Property-related expenses totaled $15.4 million and $6.8 million for the nine months ended September 30, 2019 and 2018, respectively. As noted above under the caption “Other income,” this increase was primarily due to the grossing up of certain expenses (such as ground lease, property taxes and insurance) as part of our implementation of the lease accounting standard on January 1, 2019.

General and administrative expenses totaled $69.0 million for the first nine months of 2019, which is a $10.7 million increase from the prior year. The majority of the increase relates to stock compensation expense from our performance-based awards. Given our strong performance in 2018 with a total shareholder return of 25% along with our performance to-date in 2019, we believe it is more likely that such performance awards will be earned and have adjusted our stock compensation expense accordingly.

During the nine months ended September 30, 2018, we sold one acute care property (operated by Steward), three long-term acute care properties (operated by Vibra), 71 inpatient rehabilitation hospitals (operated by MEDIAN) by way of a joint venture arrangement, and one general acute care hospital located in Texas (operated by North Cypress), resulting in a total net gain of $720.8 million. This gain was partially offset by a $48 million adjustment to lower the carrying value of the real estate to fair value on seven of our transitioning Adeptus Health facilities and four of our Alecto facilities – see Note 3 to Item 1 of this Form 10-Q for further details.

Earnings from equity interests was $11.6 million for the first nine months of 2019, up $1.1 million from the same period of 2018 due to our investment in the Primotop joint venture made in the third quarter of 2018 and our investment in Switzerland made at the end of the second quarter of 2019, partially offset by a lower return year-over-year in our Hoboken investment.

During the first nine months of 2019, we recognized a $4.0 million unutilized financing fee charge related to the commitment fee paid on the unused bridge loan for the Prospect transaction. We also incurred a $0.9 million charge of accelerated commitment fee amortization expense in the 2019 second quarter associated with our Australian term loan facility. There were no similar charges during the first nine months of 2018.

Income tax expense typically includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $3.4 million income tax benefit for the nine months ended September 30, 2019, represents the benefit from straight-line rent and other write-offs on our TRS in this period. The benefit is partially offset by tax expense from our international investments. 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 cumulative pre-tax book loss position in certain entities, we concluded that a full valuation allowance of $3 million should continue to be recorded against certain of our international net deferred tax assets at September 30, 2019. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and incur higher income taxes in future periods as income earned.

Reconciliation of Non-GAAP Financial Measures

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, 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 Nareit 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

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GAAP) as indicators of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.

The following table presents a reconciliation of net income attributable to MPT common stockholders to FFO for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share data):

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
FFO information:
Net income attributable to MPT common stockholders	$	89,786		$	736,034		$	245,046		$	938,202
Participating securities’ share in earnings		(432	)		(290	)		(1,354	)		(808	)
Net income, less participating securities’ share in earnings	$	89,354		$	735,744		$	243,692		$	937,394
Depreciation and amortization		50,163			32,641			130,424			104,314
Gain on sale of real estate and other, net		(209	)		(647,204	)		(62	)		(672,822	)
Funds from operations	$	139,308		$	121,181		$	374,054		$	368,886
Write-off of straight-line rent and other, net of tax benefit		4,230			4,321			7,232			17,615
Unutilized financing fees		3,959			—			4,873			—
Acquisition costs, net of tax benefit		—			1,661			—			2,072
Normalized funds from operations	$	147,497		$	127,163		$	386,159		$	388,573
Per diluted share data:
Net income, less participating securities’ share in earnings	$	0.20		$	2.00		$	0.60		$	2.56
Depreciation and amortization		0.12			0.09			0.32			0.29
Gain on sale of real estate and other, net		—			(1.76	)		—			(1.84	)
Funds from operations	$	0.32		$	0.33		$	0.92		$	1.01
Write-off of straight-line rent and other, net of tax benefit		0.01			0.01			0.02			0.04
Unutilized financing fees		—			—			0.01			—
Acquisition costs, net of tax benefit		—			0.01			—			0.01
Normalized funds from operations	$	0.33		$	0.35		$	0.95		$	1.06

Pro Forma Gross Assets

Pro 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 used in these transactions. We believe 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 pro forma gross assets (in thousands):

	As of			As of
	September 30, 2019			December 31, 2018
Total assets	$	12,452,153		$	8,843,643
Add:
Binding real estate commitments on new investments(1)		27,500			865,165
Unfunded amounts on development deals and commenced    capital improvement projects(2)		130,096			229,979
Accumulated depreciation and amortization		571,589			464,984
Incremental gross assets of our joint ventures(3)		530,593			375,544
Less:
Cash and cash equivalents		(157,596	)		(720,868	)
Total pro forma gross assets	$	13,554,335		$	10,058,447

(1) The 2019 column reflects a commitment to finance the development of a facility in Texas, and the 2018 column reflects the acquisition of 11 facilities in Australia in June 2019 along with the acquisition of one property in Germany in February 2019.

(2) Includes $43.3 million and $94.1 million of unfunded amounts on ongoing development projects and $86.8 million and $135.9 million of unfunded amounts on capital improvement and development projects that have commenced rent, as of September 30, 2019 and December 31, 2018, respectively.

(3) Adjustment needed to reflect our share of our joint ventures’ gross assets.

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Adjusted revenue

Adjusted revenue is total revenues adjusted for our pro rata portion of similar revenues in our 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 revenue (in thousands):

	For the Nine Months Ended September 30,
	2019		2018
Total revenues	$	597,759	$	603,944
Revenue from properties owned through joint venture arrangements		60,419		13,748
Total adjusted revenues	$	658,178	$	617,692

LIQUIDITY AND CAPITAL RESOURCES

2019 Cash Flow Activity

During the nine months ended September 30, 2019, we generated approximately $330 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows to fund our dividends of $291.7 million.

Certain investing and financing activities in the first nine months of 2019 included:

a) Purchased $3.7 billion in real estate assets representing more than 70 facilities across four countries;

b) Funded approximately $260 million of development, capital addition and other projects;

c) Sold 36.1 million shares of common stock under our at-the-market equity offering program, resulting in net proceeds of approximately $649 million;

d) Closed on an Australian term loan facility for approximately $837 million to help fund the Healthscope acquisition; and

e) Completed an underwritten public offering of 51.75 million shares, resulting in net proceeds of $858.1 million. Completed a $900 million senior unsecured notes offering resulting in net proceeds of approximately $885 million. We used proceeds from these offerings to invest in 16 facilities for $1.55 billion leased or loaned to Prospect.

Subsequent to quarter-end, we completed an underwritten public offering of 57.5 million shares resulting in net proceeds of approximately $1.026 billion. We plan to use these proceeds to finance the commitments described in Note 11 in Item 1 of this Form 10-Q.

2018 Cash Flow Activity

During the nine months ended September 30, 2018, we generated $299.1 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $272.4 million and certain investing and financing activities.

Certain investing and financing activities in the first nine months of 2018 included:

a) Generated $2.3 billion of cash proceeds from the joint venture transaction with Primotop (which included the disposal of 71 inpatient rehabilitation hospitals in Germany and issuance of secured debt) and the sale of five other acute care and long-term acute care properties. Approximately $580 million was reinvested in the joint venture with Primotop in the form of an equity interest and shareholder loan;

b) Funded the acquisition of one property in Pasco, Washington for $17.5 million and three properties in Germany for €17.3 million;

c) Originated $174.5 million in mortgage loans;

d) Funded approximately $91.5 million of development and capital improvement projects;

e) Acquired four facilities operated by Steward by converting the $525.4 million in mortgage loans on the same properties plus cash consideration; and

f) We used the net cash received from the joint venture transaction with Primotop to reduce our revolver by approximately $820 million during the nine months ended September 30, 2018.

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Short-term Liquidity Requirements:

As of September 30, 2019, we have no debt principal payments due in the next twelve months — see debt maturity schedule below. At November 8, 2019, and subsequent to our equity offering in which we raised $1.026 billion, our availability under our revolving credit facility plus cash on-hand approximated $2 billion. We believe this liquidity along with our current monthly cash receipts from rent and loan interest, and regular distributions from our joint venture arrangements, is sufficient to fund our operations, debt and interest obligations, our firm commitments (including expected funding requirements on our development projects and the LifePoint transaction), and dividends in order to comply with REIT requirements for the next twelve months.

Long-term Liquidity Requirements:

As of September 30, 2019, we have no debt principal payments due between now and January 2021 when our revolving credit facility comes due (which can be extended by one year). Our liquidity at November 8, 2019, and subsequent to our equity offering that raised $1.026 billion in proceeds, of approximately $2 billion, along with our current monthly cash receipts from rent and loan interest, and regular distributions from our joint venture arrangements, is sufficient to fund our operations, debt and interest obligations, our firm commitments (including expected funding requirements on our development projects and the LifePoint transaction), and dividends in order to comply with REIT requirements for the next twelve months.

However, our acquisition pipeline continues to remain strong, so in order to fund our acquisitions and to fund debt maturities coming due in later years, we will need additional capital, and we believe the following sources of capital are generally available in the market and we may access one or a combination of them:

• issuance of new USD, EUR or GBP denominated debt securities, including senior unsecured notes;

• sale of equity securities;

• amending or entering into new bank term loans;

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

• proceeds from strategic property sales.

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

As of September 30, 2019, principal payments due on our debt (which excludes the effects of any discounts, premiums, or debt issue costs recorded) are as follows (in thousands):

2019	$	—
2020		—
2021		451,006
2022		744,950
2023		—
Thereafter		4,954,950
Total	$	6,150,906

Disclosure of Contractual Obligations

We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and updated the schedule in the first two quarters of 2019. Except for changes to our debt, there have been no other significant changes as of September 30, 2019. However, see Note 11 for activities subsequent to September 30, 2019.

The following table updates our contractual obligations schedule for updates to our debt (in thousands):

Contractual Obligations	Less Than 1 Year (1)		1-3 Years		3-5 Years		After 5 Years		Total
4.625% Senior Unsecured Notes due 2029	$	—	$	83,828	$	83,250	$	1,149,750	$	1,316,828

(1) This column represents the remaining three months of 2019.

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Distribution Policy

The table below is a summary of our distributions declared during the two year period ended September 30, 2019:

Declaration Date	Record Date	Date of Distribution	Distribution per Share
August 15, 2019	September 12, 2019	October 10, 2019	$	0.26
May 23, 2019	June 13, 2019	July 11, 2019	$	0.25
February 14, 2019	March 14, 2019	April 11, 2019	$	0.25
November 15, 2018	December 13, 2018	January 10, 2019	$	0.25
August 16, 2018	September 13, 2018	October 11, 2018	$	0.25
May 24, 2018	June 14, 2018	July 12, 2018	$	0.25
February 15, 2018	March 15, 2018	April 12, 2018	$	0.25
November 9, 2017	December 7, 2017	January 11, 2018	$	0.24

We intend to pay to our stockholders, within the time periods prescribed by the Internal Revenue Code (“Code”), all or substantially all of our annual taxable income, including taxable gains 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. However, our Credit Facility limits the amount of dividends we can pay - see Note 4 in Item 1 of this Form 10-Q for further information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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

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

Interest Rate Sensitivity

For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At September 30, 2019, our outstanding debt totaled $6.1 billion, which consisted of fixed-rate debt, after considering the interest rate swap on the Australian term loan, of approximately $5.4 billion and variable rate debt of $0.7 billion. If market interest rates increase by 1%, the fair value of our debt at September 30, 2019 would decrease by $6.0 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 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 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $0.7 billion, the balance of such variable rate debt at September 30, 2019.

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Foreign Currency Sensitivity

With our investments in Germany, the United Kingdom, Spain, Italy, Switzerland, and Australia, we are subject to fluctuations in the euro, British pound, Swiss franc and Australian dollar to U.S. dollar currency exchange rates. Increases or decreases in the value of the respective non-U.S. dollar currencies to U.S. dollar exchange rates may impact our financial condition and/or our results of operations. Based solely on operating results to-date in 2019 and on an annualized basis, a 5% change to the following exchange rates would impact our net income and FFO by the amounts below (in thousands):

	Net Income Impact		FFO Impact
Euro (€)	$	172	$	1,367
British pound (£)		304		725
Swiss franc (CHF)		418		978
Australian dollar (AUD $)		508		1,482

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 providing reasonable assurance that information required to be disclosed by us in the reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

The information contained in Note 9 “Contingencies” of Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1.

Item 1A. Risk Factors.

Please review the risk factors disclosed under the section entitled “Risk Factors” beginning on page 15 of our Annual Report on Form 10-K for the year ended December 31, 2018 and filed with the SEC on March 1, 2019, as well as the supplemental risk factor below. There have been no other material changes to the Risk Factors as presented in our Annual Report on Form 10-K for the year ended December 31, 2018.

We have experienced and expect to continue to experience rapid growth, and our failure to effectively manage our growth may adversely impact our financial condition, results of operations and cash flows, which could negatively affect our ability to make distributions to our stockholders.

We have experienced and expect to continue to experience rapid growth through prior acquisitions and the potential acquisition of healthcare properties we are currently evaluating. Year-to-date, our total assets have grown by over 40%, and we have expanded our presence to seven countries. In addition, we continually evaluate property acquisition and development opportunities as they arise, and we typically have a number of potential acquisition and development transactions under active consideration.

There is no assurance that we will be able to adapt our management, administrative, accounting and operational systems, or hire and retain sufficient operational staff, to manage the facilities we have acquired and those that we may acquire or develop in the future. Additionally, investing in real estate located in foreign countries creates risks associated with the uncertainty of foreign laws, economies and markets, and exposes us to local economic downturns and adverse market developments.

Our failure to manage such growth effectively may adversely impact our financial condition, results of operations and cash flows, which could negatively affect our ability to make distributions to our stockholders. Our rapid growth could also increase our capital requirements, which may require us to issue potentially dilutive equity securities and/or incur additional debt.

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

(a) None.

(b) Not applicable.

(c) None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

(a) None.

(b) None.

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Item 6. Exhibits

Exhibit Number	Description
10.1(1)	Thirteenth Supplemental Indenture, dated as of July 26, 2019, 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.
10.2*	Real Property Asset Purchase Agreement, dated as of July 10, 2019, by and among Prospect Medical Holdings, Inc., as “Prospect Medical Holdings”, and subsidiaries of Prospect Medical Holdings, as the “Prospect Medical Subsidiaries”, and subsidiaries of MPT Operating Partnership, L.P., as the “MPT Parties”.
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.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.SCH*	Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104*	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

* Filed herewith.

** Furnished herewith.

(1) Incorporated by reference to Registrants’ joint current report on Form 8-K, filed with the Commission on July 29, 2019.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MEDICAL PROPERTIES TRUST, INC.
By:	/s/ J. Kevin Hanna
	J. Kevin Hanna
	Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer (Principal Accounting Officer)

MPT OPERATING PARTNERSHIP, L.P.
By:	/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 12, 2019

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