UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission file number
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(I. R. S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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.
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☒ (Medical Properties Trust, Inc. only) |
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Accelerated filer |
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☐ |
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☒ (MPT Operating Partnership, L.P. only) |
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Smaller reporting company |
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Emerging growth company |
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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
As of August 6, 2024, Medical Properties Trust, Inc. had
EXPLANATORY NOTE
This report combines the Quarterly Reports on Form 10-Q for the three and six months ended June 30, 2024 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,” “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 “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 June 30, 2024
Table of Contents
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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June 30, |
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December 31, |
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(In thousands, except per share amounts) |
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(Unaudited) |
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(Note 2) |
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Assets |
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Real estate assets |
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Land, buildings and improvements, intangible lease assets, and other |
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$ |
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$ |
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Investment in financing leases |
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Mortgage loans |
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Gross investment in real estate assets |
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Accumulated depreciation and amortization |
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( |
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( |
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Net investment in real estate assets |
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Cash and cash equivalents |
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Interest and rent receivables |
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Straight-line rent receivables |
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Investments in unconsolidated real estate joint ventures |
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Investments in unconsolidated operating entities |
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Other loans |
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Other assets |
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Total Assets |
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$ |
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$ |
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Liabilities and Equity |
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Liabilities |
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Debt, net |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Deferred revenue |
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Obligations to tenants and other lease liabilities |
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Total Liabilities |
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Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained deficit |
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( |
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( |
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Accumulated other comprehensive (loss) income |
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Total Medical Properties Trust, Inc. stockholders’ equity |
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Non-controlling interests |
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Total Equity |
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Total Liabilities and Equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(Unaudited)
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For the Three Months |
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For the Six Months |
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(In thousands, except per share amounts) |
2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
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Rent billed |
$ |
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$ |
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$ |
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$ |
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Straight-line rent |
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Income from financing leases |
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Interest and other income |
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Total revenues |
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Expenses |
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Interest |
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Real estate depreciation and amortization |
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Property-related |
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General and administrative |
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Total expenses |
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Other (expense) income |
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Gain on sale of real estate |
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Real estate and other impairment charges, net |
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( |
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( |
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( |
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(Loss) earnings from equity interests |
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( |
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( |
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Debt refinancing and unutilized financing costs |
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( |
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( |
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( |
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( |
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Other (including fair value adjustments on securities) |
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( |
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( |
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( |
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( |
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Total other (expense) income |
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( |
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( |
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Loss before income tax |
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( |
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Income tax (expense) benefit |
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( |
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( |
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Net loss |
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( |
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( |
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( |
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( |
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Net (income) loss attributable to non-controlling interests |
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( |
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( |
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Net loss attributable to MPT common stockholders |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Earnings per common share — basic and diluted |
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Net loss attributable to MPT common stockholders |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding — basic |
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Weighted average shares outstanding — diluted |
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Dividends declared per common share |
$ |
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$ |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
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For the Three Months |
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For the Six Months |
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(In thousands) |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Other comprehensive (loss) income: |
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Unrealized (loss) gain on interest rate swaps, net of tax |
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( |
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( |
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Reclassification of interest rate swap gain from AOCI to |
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( |
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— |
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( |
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( |
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Foreign currency translation (loss) gain |
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( |
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( |
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Reclassification of foreign currency translation loss from |
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— |
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— |
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Total comprehensive (loss) income |
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( |
) |
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( |
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Comprehensive (income) loss attributable to non-controlling interests |
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( |
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( |
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Comprehensive (loss) income attributable to MPT common stockholders |
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$ |
( |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to condensed consolidated financial statements.
5
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
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Preferred |
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Common |
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(In thousands, except per share amounts) |
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Shares |
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Par |
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Shares |
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Par |
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Additional |
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Retained |
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Accumulated |
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Non- |
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Total |
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Balance at December 31, 2023 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net (loss) income |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
|
Unrealized loss on interest rate swaps, |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Foreign currency translation loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Stock vesting and amortization of |
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— |
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— |
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— |
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— |
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— |
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Stock vesting - satisfaction of tax |
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— |
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— |
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( |
) |
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— |
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( |
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— |
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— |
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— |
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( |
) |
Distributions to non-controlling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Dividends declared adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Net (loss) income |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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Unrealized loss on interest rate swaps, |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Reclassification of interest rate swap gain |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Foreign currency translation loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Stock vesting and amortization of |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock vesting - satisfaction of tax |
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— |
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— |
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( |
) |
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— |
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( |
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— |
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— |
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— |
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( |
) |
Distributions to non-controlling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Dividends declared ($ |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Balance at June 30, 2024 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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Preferred |
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Common |
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(In thousands, except per share amounts) |
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Shares |
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Par |
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Shares |
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Par |
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Additional |
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Retained |
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Accumulated |
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Non- |
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Total |
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|||||||||
Balance at December 31, 2022 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Unrealized loss on interest rate swaps, |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Foreign currency translation gain |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Reclassification of interest rate swap |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Stock vesting and amortization of |
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— |
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— |
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— |
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— |
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— |
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||||
Stock vesting - satisfaction of tax |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
Distributions to non-controlling interests |
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— |
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— |
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— |
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— |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Unrealized gain on interest rate swaps, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of foreign currency |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Stock vesting and amortization of |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock vesting - satisfaction of tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
See accompanying notes to condensed consolidated financial statements.
6
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Six Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred financing costs and debt discount |
|
|
|
|
|
|
||
Straight-line rent revenue and other |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
||
Gain on sale of real estate |
|
|
( |
) |
|
|
( |
) |
Real estate and other impairment charges, net |
|
|
|
|
|
|
||
Equity interest real estate impairment |
|
|
|
|
|
|
||
Straight-line rent and other write-off |
|
|
|
|
|
|
||
Debt refinancing and unutilized financing costs |
|
|
|
|
|
|
||
Tax rate changes and other |
|
|
|
|
|
( |
) |
|
Non-cash fair value adjustments |
|
|
|
|
|
|
||
Non-cash revenue from debt and equity securities received |
|
|
|
|
|
( |
) |
|
Other adjustments |
|
|
|
|
|
( |
) |
|
Changes in: |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
|
||
Acquisitions and other related investments |
|
|
( |
) |
|
|
( |
) |
Net proceeds from sale of real estate |
|
|
|
|
|
|
||
Proceeds received from sale and repayment of loans receivable |
|
|
|
|
|
|
||
Investment in loans receivable |
|
|
( |
) |
|
|
( |
) |
Construction in progress and other |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale and return of equity investment |
|
|
|
|
|
|
||
Capital additions and other investments, net |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
|
||
Proceeds from term debt |
|
|
|
|
|
|
||
Payments of term debt |
|
|
( |
) |
|
|
( |
) |
Revolving credit facility, net |
|
|
( |
) |
|
|
|
|
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Lease deposits and other obligations to tenants |
|
|
|
|
|
|
||
Stock vesting - satisfaction of tax withholdings |
|
|
( |
) |
|
|
( |
) |
Other financing activities, payment of debt refinancing, and deferred financing costs |
|
|
( |
) |
|
|
|
|
Net cash used for financing activities |
|
|
( |
) |
|
|
( |
) |
Increase in cash, cash equivalents, and restricted cash for period |
|
|
|
|
|
|
||
Effect of exchange rate changes |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
|
||
Debt and equity securities received for certain obligations, real estate, and revenue |
|
$ |
|
|
$ |
|
||
Certain obligations and receivables satisfied and real estate sold |
|
|
|
|
|
|
||
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
|
||
Dividends declared, unpaid |
|
$ |
|
|
$ |
|
||
Cash, cash equivalents, and restricted cash are comprised of the following: |
|
|
|
|
|
|
||
Beginning of period: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
End of period: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
7
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
June 30, |
|
|
December 31, |
|
||
(In thousands) |
|
(Unaudited) |
|
|
(Note 2) |
|
||
Assets |
|
|
|
|
|
|
||
Real estate assets |
|
|
|
|
|
|
||
Land, buildings and improvements, intangible lease assets, and other |
|
$ |
|
|
$ |
|
||
Investment in financing leases |
|
|
|
|
|
|
||
Mortgage loans |
|
|
|
|
|
|
||
Gross investment in real estate assets |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Net investment in real estate assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
|
|
|
|
||
Straight-line rent receivables |
|
|
|
|
|
|
||
Investments in unconsolidated real estate joint ventures |
|
|
|
|
|
|
||
Investments in unconsolidated operating entities |
|
|
|
|
|
|
||
Other loans |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
Liabilities and Capital |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Debt, net |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Obligations to tenants and other lease liabilities |
|
|
|
|
|
|
||
Payable due to Medical Properties Trust, Inc. |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
Capital |
|
|
|
|
|
|
||
General Partner — issued and outstanding — |
|
|
|
|
|
|
||
Limited Partners — issued and outstanding — |
|
|
|
|
|
|
||
Accumulated other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
Total MPT Operating Partnership, L.P. capital |
|
|
|
|
|
|
||
Non-controlling interests |
|
|
|
|
|
|
||
Total Capital |
|
|
|
|
|
|
||
Total Liabilities and Capital |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
8
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(Unaudited)
|
|
For the Three Months |
|
|
For the Six Months |
|
||||||||||
(In thousands, except per unit amounts) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rent billed |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Straight-line rent |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Income from financing leases |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property-related |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of real estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate and other impairment charges, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
(Loss) earnings from equity interests |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Debt refinancing and unutilized financing costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other (including fair value adjustments on securities) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total other (expense) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss before income tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net (income) loss attributable to non-controlling interests |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net loss attributable to MPT Operating Partnership partners |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per unit — basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to MPT Operating Partnership partners |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average units outstanding — basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average units outstanding — diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per unit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
See accompanying notes to condensed consolidated financial statements.
9
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
For the Three Months |
|
|
For the Six Months |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized (loss) gain on interest rate swaps, net of tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Reclassification of interest rate swap gain from AOCI to |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation (loss) gain |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Reclassification of foreign currency translation loss from |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Comprehensive (income) loss attributable to non-controlling interests |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Comprehensive (loss) income attributable to MPT Operating |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
10
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Capital
(Unaudited)
|
|
General |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||||
|
|
Partner |
|
|
Limited Partners |
|
|
Other |
|
|
Non- |
|
|
|
|
|||||||||||||
(In thousands, except per unit amounts) |
|
Units |
|
|
Unit |
|
|
Units |
|
|
Unit |
|
|
Comprehensive |
|
|
Controlling |
|
|
Total |
|
|||||||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Unrealized loss on interest rate swaps, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unit vesting and amortization of unit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Unit vesting - satisfaction of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Distributions declared adjustment |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Unrealized loss on interest rate swaps, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Reclassification of interest rate swap gain to earnings, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unit vesting and amortization of unit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Unit vesting - satisfaction of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Distributions declared ($ |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
|
|
General |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||||
|
|
Partner |
|
|
Limited Partners |
|
|
Other |
|
|
Non- |
|
|
|
|
|||||||||||||
(In thousands, except per unit amounts) |
|
Units |
|
|
Unit |
|
|
Units |
|
|
Unit |
|
|
Comprehensive |
|
|
Controlling |
|
|
Total |
|
|||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net income |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Unrealized loss on interest rate swaps, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of interest rate swap gain to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unit vesting and amortization of unit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Unit vesting - satisfaction of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Distributions declared ($ |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net loss |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Unrealized gain on interest rate swaps, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of foreign currency translation loss to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Unit vesting and amortization of unit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Unit vesting - satisfaction of tax |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Distributions declared ($ |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
See accompanying notes to condensed consolidated financial statements.
11
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Six Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred financing costs and debt discount |
|
|
|
|
|
|
||
Straight-line rent revenue and other |
|
|
( |
) |
|
|
( |
) |
Unit-based compensation |
|
|
|
|
|
|
||
Gain on sale of real estate |
|
|
( |
) |
|
|
( |
) |
Real estate and other impairment charges, net |
|
|
|
|
|
|
||
Equity interest real estate impairment |
|
|
|
|
|
|
||
Straight-line rent and other write-off |
|
|
|
|
|
|
||
Debt refinancing and unutilized financing costs |
|
|
|
|
|
|
||
Tax rate changes and other |
|
|
|
|
|
( |
) |
|
Non-cash fair value adjustments |
|
|
|
|
|
|
||
Non-cash revenue from debt and equity securities received |
|
|
|
|
|
( |
) |
|
Other adjustments |
|
|
|
|
|
( |
) |
|
Changes in: |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
|
||
Acquisitions and other related investments |
|
|
( |
) |
|
|
( |
) |
Net proceeds from sale of real estate |
|
|
|
|
|
|
||
Proceeds received from sale and repayment of loans receivable |
|
|
|
|
|
|
||
Investment in loans receivable |
|
|
( |
) |
|
|
( |
) |
Construction in progress and other |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale and return of equity investments |
|
|
|
|
|
|
||
Capital additions and other investments, net |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
|
||
Proceeds from term debt |
|
|
|
|
|
|
||
Payments of term debt |
|
|
( |
) |
|
|
( |
) |
Revolving credit facility, net |
|
|
( |
) |
|
|
|
|
Distributions paid |
|
|
( |
) |
|
|
( |
) |
Lease deposits and other obligations to tenants |
|
|
|
|
|
|
||
Unit vesting - satisfaction of tax withholdings |
|
|
( |
) |
|
|
( |
) |
Other financing activities, payment of debt refinancing, and deferred financing costs |
|
|
( |
) |
|
|
|
|
Net cash used for financing activities |
|
|
( |
) |
|
|
( |
) |
Increase in cash, cash equivalents, and restricted cash for period |
|
|
|
|
|
|
||
Effect of exchange rate changes |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
|
||
Debt and equity securities received for certain obligations, real estate, and revenue |
|
$ |
|
|
$ |
|
||
Certain obligations and receivables satisfied and real estate sold |
|
|
|
|
|
|
||
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
|
||
Distributions declared, unpaid |
|
$ |
|
|
$ |
|
||
Cash, cash equivalents, and restricted cash are comprised of the following: |
|
|
|
|
|
|
||
Beginning of period: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
End of period: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
12
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing healthcare real estate. Our operating partnership subsidiary, MPT Operating Partnership, L.P. (the “Operating Partnership”), through which we conduct substantially all of our operations, was formed in September 2003. At present, we own, directly and indirectly, all of the 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 operate as a real estate investment trust (“REIT”). Accordingly, we are generally not subject to United States (“U.S.”) federal income tax on our REIT taxable income, provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed such taxable income. Similarly, the majority of our real estate operations in the United Kingdom ("U.K.") operate as a REIT and generally are subject only to a withholding tax on earnings upon distribution out of the U.K. REIT. Certain non-real estate activities we undertake in the U.S. 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. (excluding those assets that are in the U.K. REIT), we are subject to the local income taxes of the jurisdictions where our properties reside and/or legal entities are domiciled; however, we do not expect to incur additional taxes, of a significant nature, in the U.S. from foreign-based income as the majority of such income flows through our REIT.
Our primary business strategy is to acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned
Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to unlock the value of their real estate to fund facility improvements, technology upgrades, and other investments in operations. At June 30, 2024, we have investments in
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 six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We believe the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2024, (particularly as it relates to our assessments of the recoverability
13
of our real estate, the ability of our tenants/borrowers to make lease/loan payments in accordance with their respective agreements, the fair value of our equity and loan investments, and the adequacy of our credit loss reserves on loans and financing receivables).
For information about significant accounting policies, and how actual results could differ from estimates, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to these significant accounting policies.
Reclassifications
Certain amounts in the condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation.
Variable Interest Entities
At June 30, 2024, we had loans and/or equity investments in certain variable interest entities ("VIEs"), which are also tenants of our facilities. We have determined that we were not the primary beneficiary of these VIEs.
VIE Type |
|
Carrying |
|
|
Asset Type |
|
Maximum Loss |
|
||
Loans, net and equity investments |
|
$ |
|
|
Investments in Unconsolidated |
|
$ |
|
||
Loans, net |
|
|
|
|
Mortgage and other loans |
|
|
|
||
For the VIE types above, we do not consolidate the VIEs because we do not have the ability to control the activities (such as the day-to-day healthcare operations of our borrowers or investees) that most significantly impact the VIE's economic performance. As of June 30, 2024, we were not required to provide financial support through a liquidity arrangement or otherwise to our unconsolidated VIEs, including circumstances in which they could be exposed to further losses (e.g. cash short falls).
Recent Accounting Developments
Segment Reporting
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07") to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect to have a significant impact from the adoption of this standard on our consolidated financial statements and disclosures, as we consider our investments in healthcare real estate, other loans, and any investments in our tenants a single reportable segment.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09") which focuses on income tax disclosures regarding effective tax rates and cash income taxes paid. This standard requires public entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit disaggregated by domestic and foreign, and (3) provide additional information for certain reconciling items at or above a quantitative threshold of
14
3. Real Estate and Other Activities
New Investments
We acquired or invested in the following net assets (in thousands):
|
|
For the Six Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Land and land improvements |
|
$ |
|
|
$ |
|
||
Buildings |
|
|
|
|
|
|
||
Intangible lease assets — subject to amortization (weighted-average useful |
|
|
|
|
|
|
||
Investments in unconsolidated real estate joint ventures |
|
|
|
|
|
|
||
Investments in unconsolidated operating entities |
|
|
|
|
|
|
||
Other loans |
|
|
|
|
|
|
||
Liabilities assumed |
|
|
( |
) |
|
|
— |
|
|
|
$ |
|
|
$ |
|
||
Loans repaid(1) |
|
|
|
|
|
( |
) |
|
Total net assets acquired |
|
$ |
|
|
$ |
|
||
2024 Activity
Utah Transaction
On April 12, 2024, we sold our interests in
The Utah lessee (an affiliate of CommonSpirit Health ("CommonSpirit")) may acquire the leased real estate at a price equal to the greater of fair market value and the approximate $
2023 Activity
Prospect Transaction
In August 2019, we invested in a portfolio of
However, Prospect continued to pursue a recapitalization plan, and, in late March 2023, Prospect received a binding commitment from several lenders to provide liquidity to pay down certain debt instruments. Along with these commitments from third-party lenders, we agreed to pursue certain transactions with Prospect as part of their recapitalization plan, including originating a $
15
On May 23, 2023, Prospect completed its recapitalization plan, which included receiving $
Lifepoint Transaction
On February 7, 2023, a subsidiary of Lifepoint Health, Inc. ("Lifepoint") acquired a majority interest in Springstone (now Lifepoint Behavioral Health, "Lifepoint Behavioral") (the "Lifepoint Transaction") based on an enterprise value of $
In the first quarter of 2024, we sold our minority equity investment in Lifepoint Behavioral for approximately $
Other Transactions
In the second quarter of 2023, we acquired
On April 14, 2023, we acquired
Development Activities
See table below for a status summary of our current development projects (in thousands):
Property |
|
Commitment |
|
|
Costs |
|
|
Estimated Rent |
||
IMED Hospitales ("IMED") (Spain) |
|
$ |
|
|
$ |
|
|
|||
IMED (Spain) |
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
|
||
We have
Separately, on the Norwood redevelopment, we have approximately $
2024 Activity
During the first quarter of 2024, we completed construction and began recording rental income on a $
16
recording rental income on a €
2023 Activity
During the 2023 second quarter, we completed construction and began recording rental income on an inpatient rehabilitation facility located in Stockton, California. This facility commenced rent on May 1, 2023, and is leased to Ernest Health, Inc. ("Ernest") pursuant to an existing long-term master lease.
Disposals
2024 Activity
See Utah Transaction above for a discussion of the five Utah hospitals sold on April 12, 2024. On April 9, 2024, we sold
As part of this sale transaction, we extended the lease maturity of four other facilities with Prime to 2044. This amended lease has inflation-based escalators, collared between
During the first six months of 2024, we also completed the sale of
Summary of Operations for Disposed Assets in 2024
The following represents the operating results from the five properties sold as part of the Utah Transaction and the five Prime properties sold in April 2024 (in thousands):
|
|
For the Three Months |
For the Six Months |
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenues(1) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Real estate depreciation and amortization(2) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Property-related expenses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other income (expense)(3) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Income (expense) from real estate dispositions, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
2023 Activity
On March 30, 2023, we entered into a definitive agreement to sell our
On March 8, 2023, we received notice that Prime planned to exercise its right to repurchase from us the real estate associated with one master lease for approximately $
17
Leasing Operations (Lessor)
We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies. The initial fixed lease terms of these infrastructure-type assets are typically at least
For all of our properties subject to lease, we are the legal owner of the property and the tenant's right to use and possess such property is guided by the terms of a lease. At June 30, 2024, we account for all of these leases as operating leases, except where GAAP requires alternative classification, including leases on
|
|
As of June 30, |
|
|
As of December 31, |
|
||
Minimum lease payments receivable |
|
$ |
|
|
$ |
|
||
Estimated unguaranteed residual values |
|
|
|
|
|
|
||
Less: Unearned income and allowance for credit loss |
|
|
( |
) |
|
|
( |
) |
Net investment in direct financing leases |
|
|
|
|
|
|
||
Other financing leases (net of allowance for credit loss) |
|
|
|
|
|
|
||
Total investment in financing leases |
|
$ |
|
|
$ |
|
||
Other Leasing Activities
At June 30, 2024, our vacant properties represent less than
Our tenants’ financial performance and resulting ability to satisfy their lease and loan obligations to us are material to our financial results and our ability to service our debt and make distributions to our stockholders. Our tenants operate in the healthcare industry, which is highly regulated, and changes in regulation (or delays in enacting regulation) may temporarily impact our tenants’ operations until they are able to make the appropriate adjustments to their business. In addition, our tenants may experience operational challenges from time-to-time as a result of many factors, including those external to them, such as cybersecurity attacks or public health crises (like the COVID-19 pandemic), economic issues resulting in high inflation and spikes in labor costs, extreme or severe weather and climate-related events, and adverse market and political conditions. We monitor our tenants' operating results and the potential impact from these challenges. We may elect to provide support to our tenants from time-to-time in the form of short-term rent deferrals to be paid back in full (like as described below under Pipeline Health System), or in the form of temporary loans (like as described previously in the Prospect Transaction). See below for an update on some of our tenants:
Steward Health Care System
Due to the uncertainty concerning ongoing operational and liquidity challenges, the bankruptcy filing, the sale of Steward's managed care business, and the re-tenanting or selling of properties as more fully described in "Significant Tenant Update" under the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q, we recorded approximately $
In addition, during the 2024 second quarter and due to the ongoing Steward bankruptcy process, we changed the estimated useful life of the in-place lease intangibles associated with the Steward master leases, as we expect such leases will end before their contractual term. This change in estimate resulted in approximately $
At June 30, 2024, we have approximately $
18
businesses, neither of which is within our control. In addition, we have $
During 2024, we received and recorded rent and interest revenue of $
Prospect
We lease real estate assets to Prospect in California, Connecticut, and Pennsylvania of approximately $
In regard to PHP Holdings, we account for our investment (both the equity investment and convertible loan) using the fair value option method. Prospect's investment bankers continue to work through the latest indications of interest from prospective bidders for PHP Holdings. Based on our consideration of information in the indications of interest and discussions with the investment bankers, along with consultations with our third party appraisers, we recorded an additional approximate $
Pipeline Health System
On October 2, 2022, Pipeline Health System ("Pipeline") filed for reorganization relief under Chapter 11 protection of the United States Bankruptcy Code in the Southern District of Texas, while keeping its hospitals open to continue providing care to the communities served. On February 6, 2023, Pipeline emerged from bankruptcy. Per the bankruptcy settlement, Pipeline's lease of our California assets remained in place, and we were repaid on February 7, 2023, for all rent that was outstanding at December 31, 2022, along with what was due for the first quarter of 2023. As part of the settlement, we deferred approximately $
International Joint Venture
As discussed in our Annual Report on Form 10-K for the year ending December 31, 2023, we placed our loan to the international joint venture on the cash basis of accounting, as we determined that it was no longer probable that the borrower would pay its future interest in full. This loan, accounted for under the fair value option method, was collateralized by the equity of Steward held by an investor in both Steward and the international joint venture. Consistent with the discussion above on non-real estate investments in Steward, we recorded a $
CommonSpirit
On May 1, 2023, Catholic Health Initiatives Colorado ("CHIC"), a wholly owned subsidiary of CommonSpirit, acquired the Utah hospital operations of
Investments in Unconsolidated Entities
Investments in Unconsolidated Real Estate Joint Ventures
Our primary business strategy is to acquire real estate and lease to providers of healthcare services. Typically, we directly own
19
less than
The following is a summary of our investments in unconsolidated real estate joint ventures by operator (amounts in thousands):
Operator |
|
Ownership Percentage |
As of June 30, |
|
|
As of December 31, |
|
||
MEDIAN |
|
$ |
|
|
$ |
|
|||
Swiss Medical Network |
|
|
|
|
|
|
|||
CommonSpirit (Utah partnership) |
|
|
|
|
|
|
|||
Policlinico di Monza |
|
|
|
|
|
|
|||
HM Hospitales |
|
|
|
|
|
|
|||
Steward (Macquarie partnership) |
|
|
|
|
|
|
|||
Total |
|
|
$ |
|
|
$ |
|
||
The decrease since December 31, 2023, is primarily due to the impairment recorded to our Massachusetts-based partnership with Macquarie in the second quarter of 2024 as more fully described above in this same Note 3.
Investments in Unconsolidated Operating Entities
Our investments in unconsolidated operating entities are noncontrolling investments that are typically made in conjunction with larger real estate transactions in which the operators are vetted as part of our overall underwriting process. In many cases, we would not be able to acquire the larger real estate portfolio without such investments in operators. These investments also offer the opportunity to enhance our overall return and provide for certain minority rights and protections.
The following is a summary of our investments in unconsolidated operating entities (amounts in thousands):
Operator |
|
As of June 30, |
|
|
As of December 31, |
|
||
PHP Holdings |
|
$ |
|
|
$ |
|
||
Swiss Medical Network |
|
|
|
|
|
|
||
Aevis Victoria SA ("Aevis") |
|
|
|
|
|
|
||
Priory |
|
|
|
|
|
|
||
Aspris Children's Services ("Aspris") |
|
|
|
|
|
|
||
Caremax |
|
|
|
|
|
|
||
Steward (loan investment) |
|
|
|
|
|
|
||
International joint venture |
|
|
|
|
|
|
||
Steward (equity investment) |
|
|
|
|
|
|
||
Lifepoint Behavioral |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
See "Leasing Operations (Lessor)" under this same Note 3 for details on the change in the first six months of 2024 related to Steward.
For our other investments marked to fair value (including our investment in PHP Holdings and our investments in the international joint venture), we recorded approximately $
In the first quarter of 2024, we sold our interest in the Priory syndicated term loan for £
20
Other Investment Activities
In the first half of 2023, we received repayment of the CHF
Credit Loss Reserves
We apply a forward-looking "expected loss" model to all of our financing receivables, including financing leases and loans, based on historical credit losses of similar instruments.
The following table summarizes the activity in our credit loss reserves (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Balance at beginning of the period |
|
$ |
|
|
$ |
|
||
Provision for credit loss, net |
|
|
|
(1) |
|
|
||
Expected credit loss reserve related to financial instruments |
|
|
|
|
|
( |
) |
|
Balance at end of the period |
|
$ |
|
|
$ |
|
||
|
|
For the Six Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Balance at beginning of the year |
|
$ |
|
|
$ |
|
||
Provision for credit loss, net |
|
|
|
(1)(2) |
|
|
||
Expected credit loss reserve related to financial instruments |
|
|
|
|
|
( |
) |
|
Balance at end of the period |
|
$ |
|
|
$ |
|
||
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 ability to replace inefficient operators of our facilities, if needed, with more effective operators.
Total Assets by Operator
|
|
As of June 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
Operators |
|
Total Assets (1) |
|
|
Percentage of |
|
|
Total Assets (1) |
|
|
Percentage of |
|
||||
Steward |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Circle Health Ltd ("Circle") |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Priory |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Prospect |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Lifepoint Behavioral |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other operators |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other assets |
|
|
|
(2) |
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
21
Total Assets by U.S. State and Country (1)
|
|
As of June 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
U.S. States and Other Countries |
|
Total Assets |
|
|
Percentage of |
|
|
Total Assets |
|
|
Percentage of |
|
||||
Texas |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Florida |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
California |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Arizona |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Pennsylvania |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
All other states |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other domestic assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total U.S. |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
United Kingdom |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Germany |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Switzerland |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Spain |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
All other countries |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other international assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total international |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Grand total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Total Assets by Facility Type (1)
|
|
As of June 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
Facility Types |
|
Total Assets |
|
|
Percentage of |
|
|
Total Assets |
|
|
Percentage of |
|
||||
General acute care hospitals |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Behavioral health facilities |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Post acute care facilities |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Freestanding ER/urgent care facilities |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
On an individual property basis, our largest investment in any single property was less than
From a revenue concentration perspective, Circle individually represented more than
22
4. Debt
The following is a summary of debt (dollar amounts in thousands):
|
|
As of June 30, |
|
|
As of December 31, |
|
||
Revolving credit facility(A) |
|
$ |
|
|
$ |
|
||
Term loan |
|
|
|
|
|
|
||
British pound sterling secured term loan due 2024(B) |
|
|
|
|
|
|
||
British pound sterling term loan due 2025(B) |
|
|
|
|
|
|
||
British pound sterling secured term loan due 2034(B) |
|
|
|
|
|
|
||
Australian term loan facility(B) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
||
Debt issue costs and discount, net |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
As of June 30, 2024, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) are as follows (amounts in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
Credit Facilities
On April 12, 2024, we amended our unsecured credit facility (the "Credit Facility") and certain other agreements to (i) reduce revolving commitments from $
On August 6, 2024, we amended the Credit Facility and the British pound sterling term loan due 2025 further to (i) reduce revolving commitments in the Credit Facility from $
23
Australian Term Loan Facility
On May 18, 2023, we completed the first phase of the Australia Transaction in which we sold
British Pound Sterling Secured Term Loan due 2034
On May 24, 2024, we closed on a secured loan facility with a consortium of institutional investors that provides for a term loan in aggregate principal amount of approximately £
Debt Refinancing and Unutilized Financing Costs
2024 Activity
In the first six months of 2024, we incurred approximately $
2023 Activity
As a result of the prepayment of a portion of the Australian term loan, we incurred approximately $
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 agreement governing our Credit Facility limit the amount of dividends we can pay as a percentage of normalized adjusted funds from operations (“NAFFO”), as defined in the agreement, on a rolling four quarter basis to
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 (which was amended on April 12, 2024 to lower the maximum permitted ratio from
On August 6, 2024, we entered into an amendment to the Credit Facility and the British pound sterling term loan due 2025 (the “Amendments”) to increase the maximum total leverage ratio covenant from
As of June 30, 2024, with the effect of only the amendment to permanently reduce the minimum consolidated net worth covenant, we are in compliance with all such financial and operating covenants. We expect to continue to comply with our debt
24
covenants including the reset leverage and interest coverage requirements after the end of the Modified Covenant Period by reducing debt through asset sales, retention of cash generated from our monthly rent and interest receipts, and other access to capital. We may also seek to extend the Modified Covenant Period; however, no assurances can be made that such extensions will be approved by our lenders. If an event of default occurs and is continuing under the Credit Facility, the entire outstanding balance may become immediately due and payable which could have a material adverse impact to the Company.
5. Income Taxes
2024 Activity
In connection with closing the secured term loan facility in the U.K. on May 24, 2024, we realized a gain, for U.K. tax purposes, on the interest rate swap associated with the internal restructuring of the British pound sterling term loan due 2025. This gain resulted in a tax expense of approximately $
2023 Activity
During the 2023 second quarter, we elected to move a majority of our United Kingdom assets into a United Kingdom REIT regime with an effective date of July 1, 2023. With this election, we adjusted the deferred tax liabilities associated with these properties, resulting in a $
As a result of the Australia Transaction described in Note 3 to the condensed consolidated financial statements, we recorded a $
6. Stock Awards
During the second quarter of 2022, we amended the 2019 Equity Incentive Plan (the “Equity Incentive Plan”), which authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units, and awards of interests in our Operating Partnership. Our Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors, and we have reserved
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 are estimated by using Level 2 inputs such as discounting the estimated future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We determine the fair value of our senior unsecured notes using Level 2 inputs such as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loans using Level 2 inputs based on the present value of future payments, discounted at a rate which we consider appropriate for such debt.
Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be a prudent management decision.
The following table summarizes fair value estimates for our financial instruments (in thousands):
|
|
As of June 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
Asset (Liability) |
|
Book |
|
|
Fair |
|
|
Book |
|
|
Fair |
|
||||
Interest and rent receivables |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Loans(1) |
|
|
|
(2) |
|
|
|
|
|
(2) |
|
|
||||
Debt, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
25
Items Measured at Fair Value on a Recurring Basis
Our equity investment and related loan to the international joint venture, our loan investment in the real estate of
At June 30, 2024 and December 31, 2023, the amounts recorded under the fair value option method were as follows (in thousands):
|
|
As of June 30, 2024 |
|
|
As of December 31, 2023 |
|
|
|
||||||||||
Asset (Liability) |
|
Fair Value |
|
|
Original |
|
|
Fair Value |
|
|
Original |
|
|
Asset Type Classification |
||||
Mortgage loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Mortgage loans |
||||
Equity investment and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated operating entities/Other loans |
||||
Our loans to the international joint venture and its subsidiaries are recorded at fair value based on Level 2 and Level 3 inputs by discounting the estimated future contractual cash flows using a credit-adjusted rate of return, which is derived from market rates of return on similar loans with similar credit quality and remaining maturity. Our equity investment in Lifepoint Behavioral (which was sold in March 2024) was recorded at fair value as of December 31, 2023, based on Level 2 inputs by discounting the estimated cash flows expected to be realized as part of the Lifepoint Transaction described in Note 3 to the condensed consolidated financial statements. Our equity investment in the international joint venture and our investment in PHP Holdings are recorded at fair value based on Level 3 inputs, by using a market approach (for our equity investment in the international joint venture) and a discounted cash flow model and guideline public company model, a form of market approach, (for our investment in PHP Holdings), which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecasted assumptions associated with the investee. We classify our valuations of these investments as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuations require management judgment due to the absence of quoted market prices. For the cash flow and market approach models used for our investment in PHP Holdings, our unobservable inputs include use of a discount rate (which is based on a weighted-average cost of capital), selected revenue and EBITDA multiples in reference to guideline public companies, and an adjustment for a marketability discount ("DLOM"). In regard to the underlying projections used in the discounted cash flow model, such projections are provided by the investees. However, we may modify such projections as needed based on our review and analysis of historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry.
In the first half of 2024, we recorded a net unfavorable adjustment to the investments accounted for under the fair value option method of approximately $
The discount rate and DLOM on our investment in PHP Holdings was approximately
Basis Point Change in Marketability Discount |
|
Estimated |
|
|
+100 basis points |
|
$ |
( |
) |
- 100 basis points |
|
|
|
|
26
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, we have assets and liabilities that are measured, from time-to-time, at fair value on a nonrecurring basis, such as for impairment purposes of our real estate, financial instruments, and for certain equity investments without a readily determinable fair value.
Impairment and Fair Value Adjustments of Non-Real Estate Investments
Our non-real estate investments in Steward and related affiliates include our
We updated our fair value analysis of Steward's business at June 30, 2024 using a similar approach as done in the 2024 first quarter, resulting in no further impairments or fair value adjustments to non-real estate investments. We continue to carry approximately $
Impairment of Real Estate Investments
In the 2024 second quarter, we recognized approximately $
27
8. Earnings Per Share/Unit
Medical Properties Trust, Inc.
Our earnings per share were calculated based on the following (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Non-controlling interests’ share in net (income) loss |
|
|
( |
) |
|
|
|
|
Participating securities’ share in earnings |
|
|
( |
) |
|
|
( |
) |
Net loss, less participating securities’ share in earnings |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
||
Basic weighted-average common shares |
|
|
|
|
|
|
||
Dilutive potential common shares(1) |
|
|
|
|
|
|
||
Diluted weighted-average common shares |
|
|
|
|
|
|
||
|
|
For the Six Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Non-controlling interests’ share in net (income) loss |
|
|
( |
) |
|
|
|
|
Participating securities’ share in earnings |
|
|
( |
) |
|
|
( |
) |
Net loss, less participating securities’ share in earnings |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
||
Basic weighted-average common shares |
|
|
|
|
|
|
||
Dilutive potential common shares(1) |
|
|
|
|
|
|
||
Diluted weighted-average common shares |
|
|
|
|
|
|
||
MPT Operating Partnership, L.P.
Our earnings per unit were calculated based on the following (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Non-controlling interests’ share in net (income) loss |
|
|
( |
) |
|
|
|
|
Participating securities’ share in earnings |
|
|
( |
) |
|
|
( |
) |
Net loss, less participating securities’ share in earnings |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
||
Basic weighted-average units |
|
|
|
|
|
|
||
Dilutive potential units(1) |
|
|
|
|
|
|
||
Diluted weighted-average units |
|
|
|
|
|
|
||
28
|
|
For the Six Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Non-controlling interests’ share in net (income) loss |
|
|
( |
) |
|
|
|
|
Participating securities’ share in earnings |
|
|
( |
) |
|
|
( |
) |
Net loss, less participating securities’ share in earnings |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
||
Basic weighted-average units |
|
|
|
|
|
|
||
Dilutive potential units(1) |
|
|
|
|
|
|
||
Diluted weighted-average units |
|
|
|
|
|
|
||
9. Commitments and Contingencies
Commitments
On October 5, 2022, we entered into definitive agreements to sell
Contingencies
With Steward's ongoing operational and liquidity challenges as discussed in Note 3 and in the "Significant Tenant Update" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q, we and certain of Steward’s asset backed lenders agreed to a new bridge facility in February 2024 and funded an additional $
We are party to various lawsuits as described below:
Securities and Derivative Litigation
On April 13, 2023, we and certain of our executives were named as defendants in a putative federal securities class action lawsuit alleging false and/or misleading statements and/or omissions resulted in artificially inflated prices for our common stock, filed by a purported stockholder in the United States District Court for the Northern District of Alabama (Case No. 2:23-cv-00486). The complaint seeks class certification on behalf of purchasers of our common stock between July 15, 2019 and February 22, 2023 and unspecified damages including interest and an award of reasonable costs and expenses. This class action complaint was amended on September 22, 2023 and alleges that we made material misstatements or omissions relating to the financial health of certain of our tenants.
29
Members of our Board of Directors were also named as defendants in two related shareholder derivative lawsuits filed by purported stockholders in the United States District Court for the Northern District of Alabama on October 19, 2023 (Case No. 2:23- cv-01415) and December 7, 2023 (Case No. 2:23-cv-01667). The Company was named as a nominal defendant in both complaints. These shareholder derivative complaints both make allegations similar to those made in the Alabama securities lawsuit described above relating to purported material misstatements or omissions relating to the financial health of certain of our tenants. Members of our Board of Directors were also named as defendants in two related shareholder derivative lawsuits filed by purported stockholders in the United States District Court for the District of Maryland on February 16, 2024 (Case No. 1:24-cv-00471) and June 28, 2024 (Case No. 1:24-cv-01899). The Company was named as a nominal defendant in both complaints. These shareholder derivative complaints both make allegations similar to those made in the Alabama securities and derivative lawsuits described above relating to purported material misstatements or omissions relating to the financial health of certain of our tenants.
On September 29, 2023, we and certain of our executives were named as defendants in a putative federal securities class action lawsuit filed by a purported stockholder in the United States District Court for the Southern District of New York (Case No. 1:23-cv- 08597). The complaint seeks class certification on behalf of purchasers of our common stock between May 23, 2023 and August 17, 2023 and alleges false and/or misleading statements and/or omissions in connection with certain transactions involving Prospect. Members of our Board of Directors were also named as defendants in two related shareholder derivative lawsuits filed by purported stockholders in the United States District Court for the Southern District of New York on December 18, 2023 (Case No. 1:23-cv- 10934) and March 1, 2024 (Case No. 1:24-cv-01589). The Company was named as a nominal defendant in both complaints. These shareholder derivative complaints both make allegations similar to those made in the New York securities lawsuit described above relating to purported false and/or misleading statements and/or omissions in connection with certain transactions involving Prospect. On February 21, 2024, members of our Board of Directors were named as defendants in a shareholder derivative lawsuit filed by a purported stockholder in the United States District Court for the District of Maryland (Case No. 1:24-cv-00527). The Company was named as a nominal defendant. This shareholder derivative complaint makes allegations similar to those made in the New York securities and derivative lawsuits described above relating to purported false and/or misleading statements and/or omissions in connection with certain transactions involving Prospect.
We believe these claims are without merit and intend to defend the remaining open cases vigorously. We have not recorded a liability related to the lawsuits above because, at this time, we are unable to determine whether an unfavorable outcome is probable or to estimate reasonably possible losses.
Defamation Litigation
On March 30, 2023, we commenced an action in the United States District Court for the Northern District of Alabama (Case No. 2:23-cv-00408), against short-seller Viceroy Research LLC (“Viceroy”) and its members. We are seeking injunctive relief and damages for defamation, civil conspiracy, tortious interference, private nuisance, and unjust enrichment based on defamatory statements expressed against us. On June 29, 2023, we won a preliminary ruling in this lawsuit after Viceroy's motion to dismiss the case was denied by a judge in the United States District Court for the Northern District of Alabama.
From time-to-time, we are a party to other legal proceedings, claims, or regulatory inquiries and investigations arising out of, or incidental to, our business. While we are unable to predict with certainty the outcome of any particular matter, in the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations, or cash flows.
10. Subsequent Events
On July 23, 2024, we sold the
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities. Such discussion and analysis 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, 2023.
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 (the “Exchange Act”). Forward-looking statements can generally be identified by the use of forward-looking words such as "may", "will", "would", "could", "expect", "intend", "plan", "estimate", "target", "anticipate", "believe", "objectives", "outlook", "guidance", or other similar words, and include statements regarding our strategies, objectives, asset sales and other liquidity transactions (including the use of proceeds thereof), expected returns on investments and financial performance, expected trends and performance across our various markets, and expected outcomes from Steward's restructuring process. 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 Exchange Act. Such factors include, among others, the following:
31
Key Factors that May Affect Our Operations
Our revenue is derived from rents we earn pursuant to the lease agreements with our tenants, from interest income from loans to our tenants and other facility owners, and from profits or equity interests in certain of our tenants’ operations. Our tenants operate in the healthcare industry, generally providing medical, surgical, rehabilitative, and behavioral health care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory, market, and other conditions (such as the impact of the COVID-19 pandemic) that may affect their profitability, which could impact our results. Accordingly, we monitor certain key performance indicators that we believe provide us with early indications of conditions that could affect the level of risk in our portfolio.
Key factors that we may consider in underwriting prospective deals and in our ongoing monitoring of our tenants’ (and guarantors’) performance, as well as the condition of our properties, include, but are not limited to, the following:
32
Certain business factors, in addition to those described above that may directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include:
CRITICAL ACCOUNTING POLICIES
Refer to our 2023 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include investments in real estate, purchase price allocation, loans, credit losses, losses from rent and interest receivables, investments accounted for under the fair value option election, and our accounting policy on consolidation. During the six months ended June 30, 2024, there were no material changes to these policies.
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. Medical Properties Trust, Inc. was incorporated under Maryland law on August 27, 2003, and MPT Operating Partnership, L.P. was formed under Delaware law on September 10, 2003. We conduct substantially all of our business through MPT Operating Partnership, L.P. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned 100%; however, we do own some leased assets through joint ventures with other partners that share our view that healthcare facilities are part of the infrastructure of any community, which we refer to as investments in unconsolidated real estate joint ventures. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we may make loans to certain of our operators through our TRS, the proceeds of which are typically used for working capital and other purposes. From time-to-time, we may make noncontrolling investments in our tenants, which we refer to as investments in unconsolidated operating entities. These investments are typically made in conjunction with larger real estate transactions with the tenant that give us a right to share in such tenant’s profits and losses, and provide for certain minority rights and protections. Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to serve their communities by unlocking the value of their real estate assets to fund facility improvements, technology upgrades, and other investments in operations.
33
At June 30, 2024, our portfolio consisted of 435 properties leased or loaned to 53 operators, of which three are under development. We manage our business as a single business segment.
At June 30, 2024, all of our investments are located in the U.S., Europe, and South America. Our total assets are made up of the following (dollars in thousands):
|
|
As of |
|
|
% of |
|
|
As of |
|
|
% of |
|
||||
Real estate assets - at cost |
|
$ |
13,530,494 |
|
|
|
83.5 |
% |
|
$ |
14,778,132 |
|
|
|
80.8 |
% |
Accumulated real estate depreciation and amortization |
|
|
(1,417,910 |
) |
|
|
(8.7 |
)% |
|
|
(1,407,971 |
) |
|
|
(7.7 |
)% |
Net investment in real estate assets |
|
|
12,112,584 |
|
|
|
74.8 |
% |
|
|
13,370,161 |
|
|
|
73.1 |
% |
Cash and cash equivalents |
|
|
606,550 |
|
|
|
3.7 |
% |
|
|
250,016 |
|
|
|
1.4 |
% |
Investments in unconsolidated real estate joint ventures |
|
|
1,143,231 |
|
|
|
7.1 |
% |
|
|
1,474,455 |
|
|
|
8.0 |
% |
Investments in unconsolidated operating entities |
|
|
635,206 |
|
|
|
3.9 |
% |
|
|
1,778,640 |
|
|
|
9.7 |
% |
Other |
|
|
1,697,172 |
|
|
|
10.5 |
% |
|
|
1,431,572 |
|
|
|
7.8 |
% |
Total assets |
|
$ |
16,194,743 |
|
|
|
100.0 |
% |
|
$ |
18,304,844 |
|
|
|
100.0 |
% |
Significant Tenant Update
Steward Health Care System
Through June 30, 2024, affiliates of Steward leased 28 of our facilities across five different markets under a master lease, along with eight properties pursuant to a separate master lease agreement that are part of the Massachusetts partnership with Macquarie Asset Management ("Macquarie"). In addition to the master leases, we hold working capital and other secured loans, which the working capital loan consists of multiple tranches with varying terms. We also have a loan due from affiliates of Steward that was made in 2021, proceeds of which were used to redeem a similarly sized convertible loan held by Steward's former private equity sponsor. Finally, we hold a 9.9% equity investment in Steward.
Operational and Liquidity Challenges
As disclosed in our Annual Report on Form 10-K for the year ending December 31, 2023, Steward delayed until early October 2023 paying a portion of its September 2023 rent and paid less than 30% of its required $70 million of rent and interest obligations (including our share of rent due to the Massachusetts partnership) for the 2023 fourth quarter.
According to Steward, its cash flows from operations had been impacted by challenges related to insufficient reimbursement revenue, increased costs and expenses, revenue cycle management, and a backlog of accounts payable. With a single exception, Steward historically paid rent timely until its late payment of a portion of September 2023. Earlier in 2023, Steward’s management had described to us its plans for continued improvements to profitability, improvements to collections of billed revenue, access to working capital liquidity, and sales of certain non-core assets. Based on these initiatives, the reported profitability of Steward's operations at our facilities, our cross-defaulted master lease structure, and the additional security of our overall collateral interests, we believed that Steward would be able to satisfy its rental obligations over the full term of our master leases. However, despite Steward obtaining additional working capital financing and selling its non-core laboratory business in the 2023 fourth quarter, Steward informed us in December 2023 that its cash collection challenges had become more pronounced and coupled with significant changes to vendor payment terms, their liquidity had been negatively impacted. To improve its liquidity position, Steward stated in December 2023 that it would be pursuing several strategic transactions, including the sale or re-tenanting of certain hospital operations and working with a third-party capital partner to divest of its managed care business. In addition, Steward stated it planned to intensify measures to improve cash collections and overall governance, including the establishment of a transformation committee comprised of newly appointed independent directors.
Separately, we engaged financial and legal advisors in the 2023 fourth quarter to advise us on options to maximize the ultimate recovery of our investments, including the recovery of unpaid rent and interest. To this point and while Steward was working to execute its stated plan, we agreed to fund a $60 million bridge loan (which we funded in January 2024) secured by our existing collateral as well as new second liens on the managed care business of Steward. In addition, we and certain of Steward’s asset backed lenders agreed to a new bridge facility in February 2024 and funded an additional $75 million each to Steward during the 2024 first quarter (of which, up to $60 million advanced by certain of Steward's asset backed lenders could be put to us in 2025 if not previously paid by Steward or through liquidation of Steward's collateral). In addition to these fundings, we agreed to a forbearance agreement in which we consented to the deferral of unpaid rent and interest through December 2023, as well as a limited and tapering deferral of rent in 2024. In the 2024 second quarter, we funded an additional $80 million in secured loans, of which $75 million represented debtor-in-possession financing.
34
Due to Steward's operational and liquidity challenges, we moved to the cash basis of accounting for our leases and loans with Steward effective December 31, 2023. This resulted in the reserving of all unpaid rent and interest receivables at December 31, 2023 and the reversal of previously recognized straight-line rent receivables. In addition, we recorded impairment charges on certain real estate assets and on our 9.9% equity interest. In total, we recorded approximately $714 million of impairment and other charges in 2023.
Steward signed a letter of intent for the sale of its managed care business ("Stewardship") in February 2024. However, the sale price of Stewardship was less than what was anticipated in December 2023, and certain regulatory and anti-trust approvals were still needed. These circumstances created a level of uncertainty about the likelihood, valuation, and timing of Steward's realizations of Stewardship. Moreover, as of the end of the first quarter of 2024, Steward had not signed any agreements for possible sales of its operations in or the re-tenanting of our hospital real estate. Meanwhile, Steward’s working capital deficit had continued to increase from December 31, 2023, despite the influx of cash and rent concessions from us and certain of Steward’s asset backed lenders as described earlier, which culminated in Steward's filing for reorganization relief under Chapter 11 protection of the United States Bankruptcy Code in the Southern District of Texas on May 6, 2024.
Due to the uncertainty concerning the sale of Stewardship, status of sales of Steward operations or the re-tenanting of our real estate, the ongoing operational and liquidity challenges, and new bankruptcy filing, we recorded approximately $470 million of additional impairment charges in the quarter ending March 31, 2024, that fully reserved for the remaining value of our 9.9% equity investment in Steward and the $362 million loan due from affiliates of Steward along with the accrual for property taxes and other obligations not paid by Steward under its master leases. The equity investment and loan to Steward affiliates were included in “Investments in unconsolidated operating entities” on our condensed consolidated balance sheets and were adjusted after comparing our carrying value of these investments to an updated fair value analysis of the underlying collateral, with assistance from a third-party, independent valuation firm.
During the 2024 second quarter and subsequently thereafter, the initial deal to sell Stewardship fell through and it appears likely that the potential value of this business has declined further. In addition, the bid process to re-tenant or sell our real estate has begun. However, no properties have been transitioned at this time. For Massachusetts, we have seen an unexpectedly low value on bids for each of the eight facilities due to a variety of factors, including regulatory matters. Due to this, we recognized additional impairment charges of $490 million in the 2024 second quarter, of which $410 million related to our Macquarie joint venture bringing our equity interest in this joint venture to zero. At June 30, 2024, we have approximately $430 million of non-real estate investments in Steward, consisting of the working capital loan and other secured loans advanced in 2024. In addition, we have approximately $2.3 billion in real estate that is expected to be re-leased or sold as part of the ongoing bankruptcy process. We believe these investments are fully recoverable at this time. However, no assurances can be given that we will not have any additional impairments in future periods.
35
Results of Operations
Three Months Ended June 30, 2024 Compared to June 30, 2023
Net loss for the three months ended June 30, 2024, was ($320.6) million, or ($0.54) per share compared to net loss of ($42.0) million, or ($0.07) per diluted share, for the three months ended June 30, 2023. This decrease in net income is primarily driven by the $410 million impairment of real estate in our Massachusetts-based partnership with Macquarie as further described in Note 3 to the condensed consolidated financial statements and included in our "(Loss) earnings from equity interests" line of our condensed consolidated financial statements of net income, the approximate $160 million unfavorable fair value adjustment to our investment in PHP Holdings included in our "Other (including fair value adjustments on securities)" line of our condensed consolidated statements of net income, and $137.4 million of real estate impairment and other charges in the second quarter of 2024, partially offset by approximately $385 million of gains as a result of the Utah Transaction and the sale of five Prime properties, both discussed further in Note 3. In the 2023 second quarter, we did have more real estate and amortization expense compared to 2024, but that was partially offset by a $158 million tax benefit from entering into the U.K. REIT regime in 2023. Normalized funds from operations (“FFO”), after adjusting for certain items (as more fully described in the section titled “Reconciliation of Non-GAAP Financial Measures” in Item 2 of this Quarterly Report on Form 10-Q), was $139.4 million for the 2024 second quarter, or $0.23 per diluted share, as compared to $285.3 million, or $0.48 per diluted share, for the 2023 second quarter. This 51% decrease in Normalized FFO is primarily due to lower revenues from Steward moving to the cash basis of accounting on December 31, 2023, and lower revenues as a result of various disposals in 2023 and 2024.
Revenues
A comparison of revenues for the three months ended June 30, 2024 and 2023 is as follows (dollar amounts in thousands):
|
|
2024 |
|
|
% of |
|
|
2023 |
|
|
% of |
|
|
Year over |
|
|||||
Rent billed |
|
$ |
183,764 |
|
|
|
68.9 |
% |
|
$ |
247,491 |
|
|
|
73.4 |
% |
|
|
(25.7 |
)% |
Straight-line rent |
|
|
38,381 |
|
|
|
14.4 |
% |
|
|
(39,329 |
) |
|
|
-11.7 |
% |
|
|
197.6 |
% |
Income from financing leases |
|
|
27,641 |
|
|
|
10.4 |
% |
|
|
68,468 |
|
|
|
20.3 |
% |
|
|
(59.6 |
)% |
Interest and other income |
|
|
16,774 |
|
|
|
6.3 |
% |
|
|
60,765 |
|
|
|
18.0 |
% |
|
|
(72.4 |
)% |
Total revenues |
|
$ |
266,560 |
|
|
|
100.0 |
% |
|
$ |
337,395 |
|
|
|
100.0 |
% |
|
|
(21.0 |
)% |
Our total revenues for the 2024 second quarter are down $70.8 million, or 21%, over the same period in the prior year. This decrease is made up of the following:
Operating lease revenues in the 2024 second quarter further declined by approximately $43 million due to disposals and other leasing transactions in 2023 and 2024 (including $26 million from the Utah Transaction described in Note 3 to the condensed consolidated financial statements).
36
Interest Expense
Interest expense for the quarters ended June 30, 2024 and 2023 totaled $101.4 million and $104.5 million, respectively. This decrease is primarily related to debt principal repayments including paying off the Australian term loan facility in the 2023 second quarter (A$730 million) and the second quarter of 2024 (A$470 million), the 2.550% Senior Unsecured Notes in December 2023, and the British pound sterling secured term loan due 2024 in the 2024 second quarter and paying down a portion of the British pound sterling term loan due 2025 in the second quarter of 2024. The decrease was partially offset by additional interest from our British pound sterling secured term loan due 2034 that closed in May 2024. Overall, our weighted-average interest rate was 4.1% for the quarter ended June 30, 2024, compared to 3.9% for the same period in 2023, as general interest rates have trended higher post the 2023 second quarter and our specific rates have increased due to a credit rating adjustment in March 2023.
Real Estate Depreciation and Amortization
Real estate depreciation and amortization during the second quarter of 2024 decreased to $102.2 million from $364.4 million in 2023 due to accelerating the amortization of lease intangibles as part of the sale of hospital operations by Steward and re-leasing of five Steward Utah facilities to CommonSpirit in May 2023 (approximately $286 million) and the sale of various properties (including the sale of 11 properties related to the Australia Transaction, eight Prime properties in 2024 and 2023, and the Utah Transaction in 2024). This decrease is partially offset by a $34 million increase in amortization expense in the second quarter of 2024 as a result of our change in the estimated useful life of the in-place lease intangible associated with the Steward master leases that we expect will end well before the contractual term due to the ongoing bankruptcy process.
Property-related
Property-related expenses totaled $7.7 million and $24.7 million for the quarters ended June 30, 2024 and 2023, respectively. Of the property expenses in the second quarter of 2024 and 2023, approximately $4.9 million and $21.1 million, respectively, represents costs that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.
General and Administrative
General and administrative expenses totaled $35.3 million for the 2024 second quarter, in line with the $35.6 million for the 2023 second quarter. Excluding stock compensation expense (which was favorable in the 2023 second quarter from a change in expected payouts of certain performance awards), general and administrative expenses totaled $26.8 million in the 2024 second quarter, compared to $29.2 million in the same period of the prior year reflecting our ongoing efforts to manage expenses.
Gain on Sale of Real Estate
During the three months ended June 30, 2024, the gain on sale of real estate primarily relates to the sale of five Prime facilities and a 75% interest in five Utah facilities as part of the Utah Transaction as more fully described in Note 3 to the condensed consolidated financial statements.
37
Real Estate and Other Impairment Charges, Net
In the 2024 second quarter, we recognized $137.4 million of real estate and other impairment charges. Of these charges, approximately $100 million were real estate related due to ongoing re-tenanting and potential selling of properties associated with our cash-basis tenants. The remaining approximately $40 million was non-real estate impairment charges, primarily property taxes and other obligations not paid by our cash-basis tenants.
(Loss) Earnings from Equity Interests
Loss from equity interests was $(401.8) million for the quarter ended June 30, 2024, below the $12.2 million of earnings for the same period in 2023, primarily due to the $410 million charge in the second quarter of 2024 associated with the real estate impairment in our Massachusetts-based partnership with Macquarie as further described in Note 3 to the condensed consolidated financial statements.
Debt Refinancing and Unutilized Financing Costs
Debt refinancing and unutilized financing costs were $3.0 million for the second quarter of 2024. These costs were incurred as a result of the reduction in revolving commitments under our Credit Facility and partial paydown of our British pound sterling term loan due 2025, both of which are described in more detail in Note 4 to the condensed consolidated financial statements. These costs were $0.8 million for the same period of 2023, as a result of the prepayment on the A$1.2 billion Australian term loan.
Other (Including Fair Value Adjustments on Securities)
Other expense for the second quarter of 2024 was $167.7 million, compared to $10.5 million in the prior year. For 2024, we recognized an approximate $160 million unfavorable non-cash fair value adjustment to our investment in PHP Holdings. The remaining expense in the 2024 second quarter included approximately $11.7 million of legal and other professional expenses associated with, among other things, responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023, partially offset by a favorable fair value adjustment to our Aevis investment. For 2023, we incurred $2.5 million of expenses associated with responding to defamatory statements previously mentioned, and approximately $8 million of unfavorable non-cash fair value adjustments on our investment in Aevis and other investments marked to fair value during the second quarter of 2023.
With certain investments accounted for at fair value, such as our investment in PHP Holdings, we may have positive or negative fair value adjustments from quarter-to-quarter.
Income Tax Expense
Income tax expense includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $14.6 million income tax expense for the three months ended June 30, 2024 is primarily based on the income generated by our investments in the U.K. and Germany, and included a $5 million additional tax expense in the second quarter of 2024 as a result of the gain on the interest rate swap associated with the internal restructuring of the British pound sterling term loan due 2025. In comparison, we had a $148.3 million income tax benefit in the second quarter of 2023 primarily based on the $158 million benefit received by entering the U.K. REIT regime.
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 valuation allowance of approximately $253 million should be reflected against certain of our international and domestic net deferred tax assets at June 30, 2024. 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 potentially incur higher income tax expense in future periods as income is earned.
38
Six Months Ended June 30, 2024 Compared to June 30, 2023
Net loss for the six months ended June 30, 2024, was ($1.2) billion, or ($1.99) per share compared to a net loss of ($9.2) million, or ($0.02) per diluted share, for the six months ended June 30, 2023. This decrease in net income is primarily driven by the $693 million of impairment charges and negative fair value adjustments in the first quarter of 2024 primarily related to Steward and the international joint venture and $137.4 million of charges in the 2024 second quarter (all included in "Real estate and other impairment charges, net" line of the condensed consolidated statements of net income). In addition, we had an approximate $360 million unfavorable fair value adjustment to our investment in PHP Holdings in the first six months of 2024 and reflected in "Other (including fair value adjustments on securities), and the $410 million of impairment charges related to our Massachusetts-based partnership in the second quarter of 2024 reflected in "(Loss) earnings from equity interests" line of the condensed consolidated statements of net income, all further described in Note 3 to the condensed consolidated financial statements. These decreases were partially offset by $383 million of gains on real estate sales in the first six months of 2024. Normalized funds from operations (“FFO”), after adjusting for certain items (as more fully described in the section titled “Reconciliation of Non-GAAP Financial Measures” in Item 2 of this Quarterly Report on Form 10-Q), was $281.2 million for the first half of 2024, or $0.47 per diluted share, as compared to $507.5 million, or $0.85 per diluted share, for the same period of 2023. This 45% decrease in Normalized FFO is primarily due to lower revenues from Steward moving to the cash basis of accounting on December 31, 2023, higher interest expense, and lower revenues as a result of various disposals in 2023 and 2024.
Revenues
A comparison of revenues for the six months ended June 30, 2024 and 2023 is as follows (dollar amounts in thousands):
|
|
2024 |
|
|
% of |
|
|
2023 |
|
|
% of |
|
|
Year over |
|
|||||
Rent billed |
|
$ |
383,063 |
|
|
|
71.2 |
% |
|
$ |
495,648 |
|
|
|
72.1 |
% |
|
|
(22.7 |
)% |
Straight-line rent |
|
|
83,117 |
|
|
|
15.5 |
% |
|
|
17,364 |
|
|
|
2.5 |
% |
|
|
378.7 |
% |
Income from financing leases |
|
|
44,034 |
|
|
|
8.2 |
% |
|
|
81,663 |
|
|
|
11.9 |
% |
|
|
(46.1 |
)% |
Interest and other income |
|
|
27,662 |
|
|
|
5.1 |
% |
|
|
92,931 |
|
|
|
13.5 |
% |
|
|
(70.2 |
)% |
Total revenues |
|
$ |
537,876 |
|
|
|
100.0 |
% |
|
$ |
687,606 |
|
|
|
100.0 |
% |
|
|
(21.8 |
)% |
Our total revenues for the first six months of 2024 are down $149.7 million, or 22%, over the same period in the prior year. This decrease is made up of the following:
Operating lease revenues in the first six months of 2024 further declined by approximately $60 million due to disposals and other leasing transactions in 2023 and 2024 (including $29 million from the Utah Transaction described in Note 3 to the condensed consolidated financial statements). These decreases are partially offset by approximately $95 million more straight-line rent write-offs in the first half of 2023 compared to the same period of 2024 (related to the Steward and CommonSpirit transaction in 2023 described in Note 3 to the condensed consolidated financial statements); approximately $9 million in incremental revenue from acquisitions in 2023, capital additions, and the commencement of rent on two development properties in 2024; $3.9 million of favorable foreign currency fluctuations; and approximately $10 million from increases in CPI above the contractual minimum escalations in our leases.
39
Interest Expense
Interest expense for the six months ended June 30, 2024 and 2023 totaled $210.1 million and $202.1 million, respectively. This increase is primarily related to an increase in borrowings on our revolving credit facility on average during the comparable periods that carried higher interest rates (as variable rate debt) compared to the lower fixed interest rates of debt that was repaid in 2023, including the A$730 million Australian term loan facility paid off in the 2023 second quarter and the 2.550% Senior Unsecured Notes paid off in December 2023. We closed on a new British pound sterling secured term loan in May 2024 that also partially contributed to higher interest expense period over period. Overall, our weighted-average interest rate was 4.1% for the six months ended June 30, 2024, compared to 3.8% for the same period in 2023, as general interest rates have trended higher post the 2023 second quarter and our specific rates have increased due to a credit rating adjustment in March 2023.
Real Estate Depreciation and Amortization
Real estate depreciation and amortization during the first half of 2024 decreased to $177.8 million from $448.3 million in 2023 due to accelerating the amortization of lease intangibles as part of the sale of hospital operations by Steward and re-leasing of five Steward Utah facilities to CommonSpirit in May 2023 (approximately $286 million) and the sale of various properties (including the sale of 11 properties related to the Australia Transaction, eight Prime properties in 2024 and 2023, and the Utah Transaction in 2024). This decrease is partially offset by a $34 million increase in amortization expense in the second quarter of 2024 as a result of our change in the estimated useful life of the in-place lease intangible associated with the Steward master leases that we expect will end well before the contractual term due to the ongoing bankruptcy process.
Property-related
Property-related expenses totaled $12.5 million and $31.8 million for the six months ended June 30, 2024 and 2023, respectively. Of the property expenses in the first half of 2024 and 2023, approximately $7.2 million and $25.3 million, respectively, represents costs that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.
General and Administrative
General and administrative expenses totaled $68.7 million for the first six months of 2024, compared to $77.3 million for the first six months of 2023. Excluding stock compensation expense, general and administrative expenses totaled $52.5 million in the first half of 2024, compared to $59.1 million in the prior year reflecting our ongoing efforts to manage expenses.
Gain on Sale of Real Estate
During the six months ended June 30, 2024, the gain on sale of real estate primarily related to the disposal of five Prime facilities and a 75% interest in five Utah facilities as part of the Utah Transaction as more fully described in Note 3 to the condensed consolidated financial statements.
Real Estate and Other Impairment Charges, Net
In the first six months of 2024, we recognized $830.5 million of real estate and other impairment charges and fair value adjustments, primarily associated with our investments in Steward and the international joint venture as further described in Note 3 to the condensed consolidated financial statements. Of these charges, approximately $100 million were real estate related due to ongoing re-tenanting and potentially selling of properties associated with our cash-basis tenants. The remaining $730 million recognized in the first six months of 2024 represents non-real estate impairment charges and unfavorable fair value adjustments associated with our equity and loan investments in Steward and the international joint venture as further described in Note 3 to the condensed consolidated financial statements, along with ongoing property taxes and other obligations not paid by our cash-basis tenants. In the first six months of 2023, we recorded an $89.5 million net impairment charge, of which $79 million related to the Australia Transaction and $11
40
million was a non-cash impairment charge on the three Prime properties as more fully described in Note 3 to the condensed consolidated financial statements.
(Loss) Earnings from Equity Interests
Loss from equity interests was ($391.2) million for the six months ended June 30, 2024, compared to $23.6 million of earnings for the same period in 2023, primarily due to the $410 million charge in the second quarter of 2024 associated with the real estate impairment in our Massachusetts-based partnership with Macquarie as further described in Note 3 to the condensed consolidated financial statements.
Debt Refinancing and Unutilized Financing Costs
Debt refinancing and unutilized financing costs were $3.0 million for the first six months of 2024. These costs were incurred as a result of the reduction in revolving commitments under our Credit Facility and partial paydown of our British pound sterling term loan due 2025, both of which are described in more detail in Note 4 to the condensed consolidated financial statements. These costs were $0.8 million for the same period of 2023, as a result of the prepayment on the A$1.2 billion Australian term loan.
Other (Including Fair Value Adjustments on Securities)
Other expense for the first six months of 2024 was $397.0 million, compared to $15.7 million in the prior year. For 2024, we recognized an approximate $360 million unfavorable fair value adjustment to our investment in PHP Holdings. In addition, we incurred a $7.8 million economic loss from the sale of our interest in the Priory syndicated term loan and approximately $17.6 million of legal and other professional expenses associated with, among other things, responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. For 2023, we incurred $10.2 million of expenses associated with responding to defamatory statements previously mentioned, along with approximately $4.3 million of unfavorable non-cash fair value adjustments on our investments marked to fair value during the first six months of 2023.
Income Tax Expense
Income tax expense includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $25.5 million income tax expense for the six months ended June 30, 2024 is primarily based on the income generated by our investments in the U.K. and Germany, and included $5 million additional tax expense in the second quarter of 2024 as a result of the gain on the interest rate swap associated with the internal restructuring of the British pound sterling term loan due 2025. In comparison, we had a $144.7 million income tax benefit in the first half of 2023, which includes a $158 million benefit received by entering the U.K. REIT regime and a $5.0 million tax benefit recognized in the first quarter of 2023 related to the expected sale of our Australia facilities.
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 valuation allowance of approximately $253 million should be reflected against certain of our international and domestic net deferred tax assets at June 30, 2024. 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 potentially incur higher income tax expense in future periods as income is 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, including amortization related to in-place lease intangibles, and after adjustments for unconsolidated partnerships and joint ventures.
41
In addition to presenting FFO in accordance with the Nareit definition, we 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 (if any are not paid by our tenants) to maintain the operating performance of our properties, which can be significant economic costs that could materially impact our results of operations. FFO and normalized FFO should not be considered an alternative to net income (loss) (computed in accordance with GAAP) as indicators of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.
The following table presents a reconciliation of net loss attributable to MPT common stockholders to FFO and Normalized FFO for the three and six months ended June 30, 2024 and 2023 (in thousands except per share data):
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
||||
FFO information: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to MPT common stockholders |
|
$ |
(320,635 |
) |
|
$ |
(42,037 |
) |
|
$ |
(1,196,260 |
) |
|
$ |
(9,243 |
) |
Participating securities’ share in earnings |
|
|
(654 |
) |
|
|
(469 |
) |
|
|
(654 |
) |
|
|
(984 |
) |
Net loss, less participating securities’ share in earnings |
|
$ |
(321,289 |
) |
|
$ |
(42,506 |
) |
|
$ |
(1,196,914 |
) |
|
$ |
(10,227 |
) |
Depreciation and amortization |
|
|
117,239 |
|
|
|
382,244 |
|
|
|
211,482 |
|
|
|
484,204 |
|
Gain on sale of real estate |
|
|
(384,824 |
) |
|
|
(167 |
) |
|
|
(383,401 |
) |
|
|
(229 |
) |
Real estate impairment charges |
|
|
499,324 |
|
|
|
— |
|
|
|
499,324 |
|
|
|
52,104 |
|
Funds from operations |
|
$ |
(89,550 |
) |
|
$ |
339,571 |
|
|
$ |
(869,509 |
) |
|
$ |
525,852 |
|
Write-off of billed and unbilled rent and other |
|
|
1,188 |
|
|
|
95,642 |
|
|
|
3,005 |
|
|
|
135,268 |
|
Other impairment charges, net |
|
|
48,885 |
|
|
|
— |
|
|
|
741,973 |
|
|
|
— |
|
Litigation and other |
|
|
11,738 |
|
|
|
2,502 |
|
|
|
17,608 |
|
|
|
10,228 |
|
Share-based compensation adjustments |
|
|
— |
|
|
|
(4,363 |
) |
|
|
— |
|
|
|
(4,363 |
) |
Non-cash fair value adjustments |
|
|
159,247 |
|
|
|
8,374 |
|
|
|
380,523 |
|
|
|
4,253 |
|
Tax rate changes and other |
|
|
4,895 |
|
|
|
(157,230 |
) |
|
|
4,588 |
|
|
|
(164,535 |
) |
Debt refinancing and unutilized financing costs |
|
|
2,964 |
|
|
|
816 |
|
|
|
2,964 |
|
|
|
816 |
|
Normalized funds from operations |
|
$ |
139,367 |
|
|
$ |
285,312 |
|
|
$ |
281,152 |
|
|
$ |
507,519 |
|
Per diluted share data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss, less participating securities’ share in earnings |
|
$ |
(0.54 |
) |
|
$ |
(0.07 |
) |
|
$ |
(1.99 |
) |
|
$ |
(0.02 |
) |
Depreciation and amortization |
|
|
0.20 |
|
|
|
0.64 |
|
|
|
0.35 |
|
|
|
0.81 |
|
Gain on sale of real estate |
|
|
(0.64 |
) |
|
|
— |
|
|
|
(0.64 |
) |
|
|
— |
|
Real estate impairment charges |
|
|
0.83 |
|
|
|
— |
|
|
|
0.83 |
|
|
|
0.09 |
|
Funds from operations |
|
$ |
(0.15 |
) |
|
$ |
0.57 |
|
|
$ |
(1.45 |
) |
|
$ |
0.88 |
|
Write-off of billed and unbilled rent and other |
|
|
— |
|
|
|
0.16 |
|
|
|
0.01 |
|
|
|
0.23 |
|
Other impairment charges, net |
|
|
0.08 |
|
|
|
— |
|
|
|
1.24 |
|
|
|
— |
|
Litigation and other |
|
|
0.02 |
|
|
|
— |
|
|
|
0.03 |
|
|
|
0.01 |
|
Share-based compensation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-cash fair value adjustments |
|
|
0.27 |
|
|
|
0.01 |
|
|
|
0.63 |
|
|
|
— |
|
Tax rate changes and other |
|
|
0.01 |
|
|
|
(0.26 |
) |
|
|
0.01 |
|
|
|
(0.27 |
) |
Debt refinancing and unutilized financing costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Normalized funds from operations |
|
$ |
0.23 |
|
|
$ |
0.48 |
|
|
$ |
0.47 |
|
|
$ |
0.85 |
|
LIQUIDITY AND CAPITAL RESOURCES
2024 Cash Flow Activity
During the first six months of 2024, we generated approximately $110 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. In addition to operating cash flows, we received approximately $1.5 billion during the first half of 2024 from the Utah Transaction and the sale of five Prime properties (as further discussed in Note 3 to the condensed consolidated financial statements), along with approximately $130 million from the sale of our interest in the syndicated Priory term loan and remaining minority interest in Lifepoint Behavioral. In May 2024, we closed on a new secured term
42
loan, generating proceeds of approximately $800 million. We used our operating cash flows, asset sale proceeds, and term loan proceeds to fund our dividends of $183 million, approximately $316 million of new loans (including $215 million of advances to Steward, on a secured basis, in order to protect our investments in Steward (see Note 3 to the condensed consolidated financial statements for further discussion)), pay down portions of our revolving credit facility and British pound sterling term loan due 2025, and to pay off our British pound sterling secured term loan due 2024.
See below for further details of these transactions along with additional liquidity activity in the first half of 2024:
On May 24, 2024, we closed on a secured loan facility with a consortium of institutional investors that provides for a term loan in aggregate principal amount of approximately £631 million (approximately $800 million) secured by a portfolio of 27 properties located in the U.K. currently leased to affiliates of Circle. The facility carries a fixed rate of 6.877% over its 10-year term, excluding fees and expenses, and is interest-only (payable quarterly in advance) through the maturity date. The facility is secured by first priority mortgages or similar security instruments on the relevant properties, including assignments of rents and security over accounts, and is non-recourse to us. We used the majority of the net proceeds of the facility to pay down portions of our revolving credit facility and British pound sterling term loan due 2025, and to pay off our British pound sterling secured term loan due 2024 (approximately £105 million);
Subsequent to June 30, 2024, we sold eight properties to Dignity Health for approximately $160 million of proceeds which will be used to reduce debt and for general corporate purposes.
On August 6, 2024, we entered into an amendment to the Credit Facility and the British pound sterling term loan due 2025 (the “Amendments”) to (i) reduce our maximum borrowing in the Credit Facility from $1.4 billion to $1.28 billion, (ii) increase borrowing spreads to 300 basis points during the Modified Covenant Period (defined below) and then to 225 basis points after the Modified Covenant Period, and (iii) require that proceeds of certain future asset sales and debt transactions (during the Modified Covenant Period) be applied to repay certain outstanding obligations, including our revolving loans (by 15% of such proceeds but for which the revolving loans can be reborrowed) and our British pound sterling term loan due 2025 (by 50% of such proceeds).
The Amendments also amended certain covenants including increasing the maximum total leverage ratio covenant from 60% to 65% and the maximum unsecured leverage ratio covenant from 65% to 70% and decreasing the minimum unsecured interest coverage ratio from 1.75:1.00 to 1.45:1.00. The Amendments are effective as of June 30, 2024 and will continue in effect through and including September 30, 2025, unless earlier terminated by us (the “Modified Covenant Period”) at which point the credit agreement provides that covenants will automatically reset to their prior levels. In addition, the Amendments reduced the minimum consolidated adjusted
43
net worth covenant from approximately $6.7 billion to $5 billion, in each case plus the sum of certain equity proceeds, which change has permanent effect. The Amendments also limit the payment of dividends in cash during the Modified Covenant Period to $0.08 per share in any fiscal quarter, but the Amendments do not provide any additional restrictions on the payment of dividends outside of the Modified Covenant Period.
As of June 30, 2024, with the effect of only the amendment to permanently reduce the minimum consolidated net worth covenant, we are in compliance with all such financial and operating covenants. We expect to continue to comply with our debt covenants including the reset leverage and interest coverage requirements after the end of the Modified Covenant Period by reducing debt through asset sales, retention of cash generated from our monthly rent and interest receipts, and other access to capital. We may also seek to extend the Modified Covenant Period; however, no assurances can be made that such extensions will be approved by our lenders. If an event of default occurs and is continuing under the Credit Facility, the entire outstanding balance may become immediately due and payable which could have a material adverse impact to the Company.
2023 Cash Flow Activity
During the first six months of 2023, we generated approximately $212.2 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows (along with cash on-hand and borrowings on our revolving credit facility) to fund our dividends of $350.3 million.
In regard to other investing and financing activities in the first six months of 2023, we did the following:
See Note 3 to the condensed consolidated financial statements for further details on the transactions above.
Short-term Liquidity Requirements:
Our short-term liquidity requirements typically consist of general and administrative expenses, dividends in order to comply with REIT requirements, interest payments on our debt, and planned funding commitments on development and capital improvement projects, for the next twelve months. Our monthly rent and interest receipts and distributions from our joint venture arrangements are typically enough to cover our short-term liquidity requirements.
However, with increasing interest rates, loss of a substantial portion of cash rent and interest from Steward, and $1.3 billion of debt coming due within the next twelve months (post subsequent event activity discussed earlier), we have looked to other initiatives to improve cash flows including:
We believe these initiatives, along with liquidity of approximately $1.2 billion (including cash on-hand and availability under our $1.28 billion revolving credit facility) at August 6, 2024, routine cash receipts of rent and interest, and the $100 million due from Prime in 2024, can fund our short-term liquidity requirements.
In addition to the cash flow improvement initiatives discussed above, we could see further cash flow upside from the monetization of our investment in PHP Holdings and any proceeds received from Steward's plan to divest of its managed care business and to transition operations to new healthcare operators (whether it be from a concurrent sale of our real estate or in the form of rent paid by the new lessee).
44
Long-term Liquidity Requirements:
Our long-term liquidity requirements generally consist of the same requirements described above under “Short-term Liquidity Requirements” along with the acquisition of real estate and the funding of debt maturities coming due after the next twelve months. At this time, we do not expect any material acquisitions of real estate in the foreseeable future.
As described previously, our monthly rent and interest receipts and distributions from our joint venture arrangements along with our current liquidity of approximately $1.2 billion at August 6, 2024, are typically enough to cover our short-term liquidity requirements. However, to address upcoming debt maturities (as outlined below), we may need to look to other sources, which may include one or a combination of the following:
However, there is no assurance that conditions will be favorable for such possible transactions or that our plans will be successful. As a result of our Quarterly Report on Form 10-Q for the period ended March 31, 2024, not being filed timely, we are currently ineligible to file a new shelf registration statement on Form S-3 or access our existing registration statement on Form S-3 for sales of securities, including under our ATM program, until June 1, 2025, which may impair our ability to raise capital in the public markets. While we are able to use other registration avenues for public offerings, such avenues are less expeditious and efficient than a shelf registration statement on Form S-3. See "Risk Factors" in our Quarterly Report on Form 10-Q for the period ended March 31, 2024.
Principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) as of August 6, 2024 are as follows (in thousands):
2024 |
|
$ |
— |
|
2025 |
|
|
1,301,665 |
|
2026 |
|
|
2,275,309 |
|
2027 |
|
|
1,600,000 |
|
2028 |
|
|
761,460 |
|
Thereafter |
|
|
3,445,468 |
|
Total |
|
$ |
9,383,902 |
|
45
Contractual Commitments
We presented our contractual commitments in our 2023 Annual Report on Form 10-K and provided an update in our Quarterly Report on Form 10-Q for the period ended March 31, 2024. Except for the changes noted below, there have been no significant changes through August 6, 2024.
The following table updates our contractual commitments schedule as of August 6, 2024 (in thousands):
Contractual Commitments |
|
2024(1) |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|||||||
British pound sterling term loan |
|
$ |
12,751 |
|
|
$ |
756,262 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
769,013 |
|
Revolving credit facility |
|
|
20,260 |
|
|
|
46,761 |
|
|
|
615,798 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
682,819 |
|
Distribution Policy
The table below is a summary of our distributions declared during the two year period ended June 30, 2024:
Declaration Date |
|
Record Date |
|
Date of Distribution |
|
Distribution |
|
|
May 30, 2024 |
|
June 10, 2024 |
|
July 9, 2024 |
|
$ |
0.15 |
|
April 12, 2024 |
|
April 22, 2024 |
|
May 1, 2024 |
|
$ |
0.15 |
|
November 9, 2023 |
|
December 7, 2023 |
|
January 11, 2024 |
|
$ |
0.15 |
|
August 21, 2023 |
|
September 14, 2023 |
|
October 12, 2023 |
|
$ |
0.15 |
|
April 27, 2023 |
|
June 15, 2023 |
|
July 13, 2023 |
|
$ |
0.29 |
|
February 16, 2023 |
|
March 16, 2023 |
|
April 13, 2023 |
|
$ |
0.29 |
|
November 10, 2022 |
|
December 8, 2022 |
|
January 12, 2023 |
|
$ |
0.29 |
|
August 18, 2022 |
|
September 15, 2022 |
|
October 13, 2022 |
|
$ |
0.29 |
|
It is our policy to make sufficient distributions to stockholders in order for us to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended, and to efficiently manage corporate income and excise taxes on undistributed income. However, our Credit Facility limits the amount of dividends we can make- see Note 4 to the condensed consolidated financial statements 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 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.
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 June 30, 2024, our outstanding debt
46
totaled $9.4 billion, which consisted of fixed-rate debt of approximately $8.5 billion (after considering interest rate swaps in-place) and variable rate debt of $0.9 billion. If market interest rates increase by 10% on our fixed rate debt, the fair value of our debt at June 30, 2024 would decrease by approximately $197.5 million. Changes in the fair value of our fixed rate debt will not have any impact on us unless we decided to repurchase the debt in the open market.
If market rates of interest on our variable rate debt increase by 10%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $5.6 million per year. If market rates of interest on our variable rate debt decrease by 10%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $5.6 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $0.9 billion, the balance of such variable rate debt at June 30, 2024.
Foreign Currency Sensitivity
With our investments in the U.K., Germany, Spain, Italy, Portugal, Switzerland, Finland, and Colombia, we are subject to fluctuations in the British pound, euro, Swiss franc, and Colombian peso to U.S. dollar currency exchange rates. Although we generally deem investments in these countries to be of a long-term nature, are typically able to match any non-U.S. dollar borrowings with investments in such currencies, and historically have not needed to repatriate a material amount of earnings back to the U.S., increases or decreases in the value of the 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 our 2024 operating results to-date and on an annualized basis, a 10% change to the following exchange rates would have impacted our net income, FFO, and Normalized FFO by the amounts below (in thousands):
|
|
Net Income Impact |
|
|
FFO Impact |
|
|
NFFO Impact |
|
|||
British pound (£) |
|
$ |
10,268 |
|
|
$ |
20,139 |
|
|
$ |
21,848 |
|
Euro (€) |
|
|
1,341 |
|
|
|
5,949 |
|
|
|
6,446 |
|
Swiss franc (CHF) |
|
|
296 |
|
|
|
2,176 |
|
|
|
2,866 |
|
Colombian peso (COP) |
|
|
74 |
|
|
|
152 |
|
|
|
1,006 |
|
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.
47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to various lawsuits as further described in Note 9 “Commitments and Contingencies” to the condensed consolidated financial statements. We have not recorded a liability related to any particular lawsuit because, at this time, we are unable to determine whether an unfavorable outcome is probable or to estimate reasonably possible losses.
In addition to the foregoing, we are currently and have in the past been subject to various legal proceedings and regulatory actions in connection with our business. We believe that the resolution of any current pending legal or regulatory matters will not have a material adverse effect on our business, financial condition, results of operations, or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as legal and regulatory matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of such matters could have a material adverse effect on our financial condition, cash flows, results of operations, and the trading price of our common stock.
Item 1A. Risk Factors.
Other than the risk factors disclosed on pages 41 and 42 in our Quarterly Report on Form 10-Q for the period ended March 31, 2024, there have been no material changes to the Risk Factors as presented in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The table below summarizes repurchases of our common stock made during the quarter ended June 30, 2024:
Period |
|
Total number of |
|
|
Average price |
|
|
Total number of shares |
|
|
Approximate dollar |
|
||||
April 1-April 30, 2024 |
|
|
517 |
|
|
$ |
4.93 |
|
|
|
— |
|
|
$ |
— |
|
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the three months ended June 30, 2024, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities and Exchange Act)
48
Item 6. Exhibits
Exhibit Number |
|
Description |
|
|
|
10.1* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
31.3* |
|
|
|
|
|
31.4* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
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 With Embedded Linkbase Documents |
|
|
|
Exhibit 104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
* Filed herewith.
** Furnished herewith.
49
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
MEDICAL PROPERTIES TRUST, INC. |
||
|
|
|
By: |
|
/s/ J. Kevin Hanna |
|
|
J. Kevin Hanna |
|
|
Senior Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer (Principal Accounting Officer) |
MPT OPERATING PARTNERSHIP, L.P. |
||
|
|
|
By: |
|
/s/ J. Kevin Hanna |
|
|
J. Kevin Hanna |
|
|
Senior Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer of the sole member of the general partner of MPT Operating Partnership, L.P. (Principal Accounting Officer) |
Date: August 9, 2024
50