UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20182019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-32559
Commission file number 333-177186
MEDICAL PROPERTIES TRUST, INC.
MPT OPERATING PARTNERSHIP, L.P.
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND DELAWARE |
| 20-0191742 20-0242069 |
(State or other jurisdiction of incorporation or organization) |
| (I. R. S. Employer Identification No.) |
1000 URBAN CENTER DRIVE, SUITE 501 BIRMINGHAM, AL |
| 35242 |
(Address of principal executive offices) |
| (Zip Code) |
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (205) 969-3755
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ (Medical Properties Trust, Inc. only) |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☒ (MPT Operating Partnership, L.P. only) |
| Smaller reporting company |
| ☐ |
|
| |
| Emerging growth company |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.001 | MPW | The New York Stock Exchange |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 4, 2018,3, 2019, Medical Properties Trust, Inc. had 364,736,886394,424,343 shares of common stock, par value $0.001, outstanding.
This report combines the Quarterly Reports on Form 10-Q for the three months ended March 31, 20182019 of Medical Properties Trust, Inc., a Maryland corporation, and MPT Operating Partnership, L.P., a Delaware limited partnership, through which Medical Properties Trust, Inc. conducts substantially all of its operations. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our company,” “Medical Properties,” “MPT,” or “the company” refer to Medical Properties Trust, Inc. together with its consolidated subsidiaries, including MPT Operating Partnership, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our operating partnership” or “the operating partnership” refer to MPT Operating Partnership, L.P. together with its consolidated subsidiaries.
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.
AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 20182019
PART I — FINANCIAL INFORMATION
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
| March 31, 2018 |
|
| December 31, 2017 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||
(In thousands, except per share amounts) |
| (Unaudited) |
|
| (Note 2) |
|
| (Unaudited) |
|
| (Note 2) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, buildings and improvements, intangible lease assets, and other |
| $ | 5,867,286 |
|
| $ | 5,797,605 |
|
| $ | 5,394,092 |
|
| $ | 5,268,459 |
|
Real estate held for sale |
|
| — |
|
|
| 146,615 |
| ||||||||
Mortgage loans |
|
| 1,927,393 |
|
|
| 1,778,316 |
|
|
| 1,214,780 |
|
|
| 1,213,322 |
|
Net investment in direct financing leases |
|
| 686,024 |
|
|
| 698,727 |
|
|
| 684,547 |
|
|
| 684,053 |
|
Gross investment in real estate assets |
|
| 8,480,703 |
|
|
| 8,421,263 |
|
|
| 7,293,419 |
|
|
| 7,165,834 |
|
Accumulated depreciation and amortization |
|
| (493,782 | ) |
|
| (455,712 | ) |
|
| (498,915 | ) |
|
| (464,984 | ) |
Net investment in real estate assets |
|
| 7,986,921 |
|
|
| 7,965,551 |
|
|
| 6,794,504 |
|
|
| 6,700,850 |
|
Cash and cash equivalents |
|
| 138,314 |
|
|
| 171,472 |
|
|
| 995,548 |
|
|
| 820,868 |
|
Interest and rent receivables |
|
| 81,965 |
|
|
| 78,970 |
|
|
| 24,788 |
|
|
| 25,855 |
|
Straight-line rent receivables |
|
| 202,317 |
|
|
| 185,592 |
|
|
| 243,556 |
|
|
| 220,848 |
|
Equity investments |
|
| 506,123 |
|
|
| 520,058 |
| ||||||||
Other loans |
|
| 148,842 |
|
|
| 150,209 |
|
|
| 365,402 |
|
|
| 373,198 |
|
Other assets |
|
| 473,481 |
|
|
| 468,494 |
|
|
| 301,532 |
|
|
| 181,966 |
|
Total Assets |
| $ | 9,031,840 |
|
| $ | 9,020,288 |
|
| $ | 9,231,453 |
|
| $ | 8,843,643 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net |
| $ | 4,898,364 |
|
| $ | 4,898,667 |
|
| $ | 4,023,568 |
|
| $ | 4,037,389 |
|
Accounts payable and accrued expenses |
|
| 206,891 |
|
|
| 211,188 |
|
|
| 188,956 |
|
|
| 204,325 |
|
Deferred revenue |
|
| 15,549 |
|
|
| 18,178 |
|
|
| 9,979 |
|
|
| 13,467 |
|
Lease deposits and other obligations to tenants |
|
| 57,847 |
|
|
| 57,050 |
| ||||||||
Total liabilities |
|
| 5,178,651 |
|
|
| 5,185,083 |
| ||||||||
Obligations to tenants and other lease liabilities |
|
| 118,474 |
|
|
| 27,524 |
| ||||||||
Total Liabilities |
|
| 4,340,977 |
|
|
| 4,282,705 |
| ||||||||
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized 10,000 shares; no shares outstanding |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock, $0.001 par value. Authorized 500,000 shares; issued and outstanding — 364,695 shares at March 31, 2018 and 364,424 shares at December 31, 2017 |
|
| 365 |
|
|
| 364 |
| ||||||||
Common stock, $0.001 par value. Authorized 500,000 shares; issued and outstanding — 391,839 shares at March 31, 2019 and 370,637 shares at December 31, 2018 |
|
| 392 |
|
|
| 371 |
| ||||||||
Additional paid-in capital |
|
| 4,333,972 |
|
|
| 4,333,027 |
|
|
| 4,803,672 |
|
|
| 4,442,948 |
|
Distributions in excess of net income |
|
| (484,804 | ) |
|
| (485,932 | ) | ||||||||
Retained earnings |
|
| 141,427 |
|
|
| 162,768 |
| ||||||||
Accumulated other comprehensive loss |
|
| (9,961 | ) |
|
| (26,049 | ) |
|
| (67,892 | ) |
|
| (58,202 | ) |
Treasury shares, at cost |
|
| (777 | ) |
|
| (777 | ) |
|
| (777 | ) |
|
| (777 | ) |
Total Medical Properties Trust, Inc. Stockholders’ Equity |
|
| 3,838,795 |
|
|
| 3,820,633 |
|
|
| 4,876,822 |
|
|
| 4,547,108 |
|
Non-controlling interests |
|
| 14,394 |
|
|
| 14,572 |
|
|
| 13,654 |
|
|
| 13,830 |
|
Total Equity |
|
| 3,853,189 |
|
|
| 3,835,205 |
|
|
| 4,890,476 |
|
|
| 4,560,938 |
|
Total Liabilities and Equity |
| $ | 9,031,840 |
|
| $ | 9,020,288 |
|
| $ | 9,231,453 |
|
| $ | 8,843,643 |
|
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(Unaudited)
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
(In thousands, except per share amounts) |
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed |
| $ | 128,011 |
|
| $ | 96,763 |
|
| $ | 108,598 |
|
| $ | 128,011 |
|
Straight-line rent |
|
| 15,791 |
|
|
| 12,779 |
|
|
| 20,651 |
|
|
| 15,791 |
|
Income from direct financing leases |
|
| 17,681 |
|
|
| 17,880 |
|
|
| 17,280 |
|
|
| 17,681 |
|
Interest and fee income |
|
| 43,563 |
|
|
| 28,975 |
| ||||||||
Interest and other income |
|
| 33,925 |
|
|
| 43,563 |
| ||||||||
Total revenues |
|
| 205,046 |
|
|
| 156,397 |
|
|
| 180,454 |
|
|
| 205,046 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
| 57,023 |
|
|
| 38,029 |
|
|
| 50,551 |
|
|
| 57,023 |
|
Real estate depreciation and amortization |
|
| 35,802 |
|
|
| 27,586 |
|
|
| 33,352 |
|
|
| 35,802 |
|
Property-related |
|
| 2,184 |
|
|
| 1,328 |
|
|
| 3,066 |
|
|
| 2,184 |
|
General and administrative |
|
| 17,818 |
|
|
| 13,197 |
|
|
| 23,451 |
|
|
| 17,818 |
|
Acquisition costs |
|
| — |
|
|
| 2,756 |
| ||||||||
Total expenses |
|
| 112,827 |
|
|
| 82,896 |
|
|
| 110,420 |
|
|
| 112,827 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate, net |
|
| 1,467 |
|
|
| 7,413 |
|
|
| — |
|
|
| 1,467 |
|
Debt refinancing costs |
|
| — |
|
|
| (13,629 | ) | ||||||||
Earnings from equity interests |
|
| 3,720 |
|
|
| 3,271 |
| ||||||||
Other |
|
| (1,468 | ) |
|
| 1,767 |
|
|
| 204 |
|
|
| (4,739 | ) |
Total other income (expense) |
|
| (1 | ) |
|
| (4,449 | ) |
|
| 3,924 |
|
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax |
|
| 92,218 |
|
|
| 69,052 |
|
|
| 73,958 |
|
|
| 92,218 |
|
Income tax expense |
|
| (1,175 | ) |
|
| (867 | ) | ||||||||
Income tax benefit (expense) |
|
| 2,333 |
|
|
| (1,175 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 91,043 |
|
|
| 68,185 |
|
|
| 76,291 |
|
|
| 91,043 |
|
Net income attributable to non-controlling interests |
|
| (442 | ) |
|
| (215 | ) |
|
| (469 | ) |
|
| (442 | ) |
Net income attributable to MPT common stockholders |
| $ | 90,601 |
|
| $ | 67,970 |
|
| $ | 75,822 |
|
| $ | 90,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share — basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT common stockholders |
| $ | 0.25 |
|
| $ | 0.21 |
|
| $ | 0.20 |
|
| $ | 0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding — basic |
|
| 364,882 |
|
|
| 321,057 |
|
|
| 380,551 |
|
|
| 364,882 |
|
Weighted average shares outstanding — diluted |
|
| 365,343 |
|
|
| 321,423 |
|
|
| 381,675 |
|
|
| 365,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
| $ | 0.25 |
|
| $ | 0.24 |
|
| $ | 0.25 |
|
| $ | 0.25 |
|
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
(In thousands) |
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Net income |
| $ | 91,043 |
|
| $ | 68,185 |
|
| $ | 76,291 |
|
| $ | 91,043 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain |
|
| 16,088 |
|
|
| 6,292 |
| ||||||||
Unrealized loss on interest rate swap |
|
| (3,772 | ) |
|
| — |
| ||||||||
Foreign currency translation (loss) gain |
|
| (5,918 | ) |
|
| 16,088 |
| ||||||||
Total comprehensive income |
|
| 107,131 |
|
|
| 74,477 |
|
|
| 66,601 |
|
|
| 107,131 |
|
Comprehensive income attributable to non-controlling interests |
|
| (442 | ) |
|
| (215 | ) |
|
| (469 | ) |
|
| (442 | ) |
Comprehensive income attributable to MPT common stockholders |
| $ | 106,689 |
|
| $ | 74,262 |
|
| $ | 66,132 |
|
| $ | 106,689 |
|
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
|
| Preferred |
|
| Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Additional Paid-in Capital |
|
| Retained Earnings (Deficit) |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock |
|
| Non- Controlling Interests |
|
| Total Equity |
| ||||||||||
Balance at December 31, 2017 |
|
| — |
|
| $ | — |
|
|
| 364,424 |
|
| $ | 364 |
|
| $ | 4,333,027 |
|
| $ | (485,932 | ) |
| $ | (26,049 | ) |
| $ | (777 | ) |
| $ | 14,572 |
|
| $ | 3,835,205 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 90,601 |
|
|
| — |
|
|
| — |
|
|
| 442 |
|
|
| 91,043 |
|
Cumulative effect of change in accounting principles |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,938 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,938 |
|
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,088 |
|
|
| — |
|
|
| — |
|
|
| 16,088 |
|
Stock vesting and amortization of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 271 |
|
|
| 1 |
|
|
| 1,855 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,856 |
|
Redemption of MOP units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (816 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (816 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (620 | ) |
|
| (620 | ) |
Proceeds from offering (net of offering costs) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (94 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (94 | ) |
Dividends declared ($0.25 per common share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (91,411 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (91,411 | ) |
Balance at March 31, 2018 |
|
| — |
|
| $ | — |
|
|
| 364,695 |
|
| $ | 365 |
|
| $ | 4,333,972 |
|
| $ | (484,804 | ) |
| $ | (9,961 | ) |
| $ | (777 | ) |
| $ | 14,394 |
|
| $ | 3,853,189 |
|
|
| Preferred |
|
| Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Additional Paid-in Capital |
|
| Retained Earnings (Deficit) |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Stock |
|
| Non- Controlling Interests |
|
| Total Equity |
| ||||||||||
Balance at December 31, 2018 |
|
| — |
|
| $ | — |
|
|
| 370,637 |
|
| $ | 371 |
|
| $ | 4,442,948 |
|
| $ | 162,768 |
|
| $ | (58,202 | ) |
| $ | (777 | ) |
| $ | 13,830 |
|
| $ | 4,560,938 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 75,822 |
|
|
| — |
|
|
| — |
|
|
| 469 |
|
|
| 76,291 |
|
Unrealized loss on interest rate swap |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,772 | ) |
|
| — |
|
|
| — |
|
|
| (3,772 | ) |
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,918 | ) |
|
| — |
|
|
| — |
|
|
| (5,918 | ) |
Stock vesting and amortization of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,055 |
|
|
| 1 |
|
|
| 6,714 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,715 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (645 | ) |
|
| (645 | ) |
Proceeds from offering (net of offering costs) |
|
| — |
|
|
| — |
|
|
| 20,147 |
|
|
| 20 |
|
|
| 354,010 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 354,030 |
|
Dividends declared ($0.25 per common share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (97,163 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (97,163 | ) |
Balance at March 31, 2019 |
|
| — |
|
| $ | — |
|
|
| 391,839 |
|
| $ | 392 |
|
| $ | 4,803,672 |
|
| $ | 141,427 |
|
| $ | (67,892 | ) |
| $ | (777 | ) |
| $ | 13,654 |
|
| $ | 4,890,476 |
|
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 91,043 |
|
| $ | 68,185 |
|
| $ | 76,291 |
|
| $ | 91,043 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 37,858 |
|
|
| 28,954 |
|
|
| 34,675 |
|
|
| 37,858 |
|
Amortization of deferred financing costs and debt discount |
|
| 1,789 |
|
|
| 1,617 |
|
|
| 1,827 |
|
|
| 1,789 |
|
Direct financing lease interest accretion |
|
| (2,340 | ) |
|
| (2,286 | ) |
|
| (2,337 | ) |
|
| (2,340 | ) |
Straight-line rent revenue |
|
| (20,377 | ) |
|
| (13,896 | ) |
|
| (23,959 | ) |
|
| (20,377 | ) |
Share-based compensation |
|
| 1,856 |
|
|
| 1,971 |
|
|
| 6,715 |
|
|
| 1,856 |
|
Gain from sale of real estate, net |
|
| (1,467 | ) |
|
| (7,413 | ) |
|
| — |
|
|
| (1,467 | ) |
Straight-line rent and other write-off |
|
| 6,059 |
|
|
| 1,117 |
| ||||||||
Debt refinancing costs |
|
| — |
|
|
| 13,629 |
| ||||||||
Straight-line rent and other write-off, net of tax benefit |
|
| 2,596 |
|
|
| 6,059 |
| ||||||||
Other adjustments |
|
| (3,217 | ) |
|
| (2,959 | ) |
|
| 2,249 |
|
|
| (3,217 | ) |
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and rent receivables |
|
| (3,678 | ) |
|
| (4,208 | ) |
|
| (1,193 | ) |
|
| (3,678 | ) |
Accounts payable and accrued expenses |
|
| (12,729 | ) |
|
| (20,428 | ) |
|
| (9,940 | ) |
|
| (12,729 | ) |
Net cash provided by operating activities |
|
| 94,797 |
|
|
| 64,283 |
|
|
| 86,924 |
|
|
| 94,797 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and other related investments |
|
| — |
|
|
| (9,004 | ) |
|
| (6,492 | ) |
|
| — |
|
Net proceeds from sale of real estate |
|
| 148,809 |
|
|
| 64,335 |
|
|
| — |
|
|
| 148,809 |
|
Principal received on loans receivable |
|
| 1,734 |
|
|
| 3,233 |
|
|
| 420 |
|
|
| 1,734 |
|
Investment in loans receivable |
|
| (149,080 | ) |
|
| (1,410 | ) |
|
| (1,185 | ) |
|
| (149,080 | ) |
Construction in progress and other |
|
| (8,399 | ) |
|
| (26,898 | ) |
|
| (160,736 | ) |
|
| (8,399 | ) |
Net cash (used for) provided by investing activities |
|
| (6,936 | ) |
|
| 30,256 |
| ||||||||
Net cash used for investing activities |
|
| (167,993 | ) |
|
| (6,936 | ) | ||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from term debt |
|
| — |
|
|
| 955,280 |
| ||||||||
Payments of term debt |
|
| — |
|
|
| (675,201 | ) | ||||||||
Revolving credit facilities, net |
|
| (33,590 | ) |
|
| 90,000 |
|
|
| 9,097 |
|
|
| (33,590 | ) |
Distributions paid |
|
| (89,403 | ) |
|
| (74,521 | ) |
|
| (95,419 | ) |
|
| (89,403 | ) |
Lease deposits and other obligations to tenants |
|
| 1,299 |
|
|
| 3,307 |
|
|
| 3,677 |
|
|
| 1,299 |
|
Proceeds from sale of common shares, net of offering costs |
|
| 354,030 |
|
|
| (94 | ) | ||||||||
Debt issuance costs paid and other financing activities |
|
| (1,643 | ) |
|
| (15,882 | ) |
|
| (677 | ) |
|
| (1,549 | ) |
Net cash (used for) provided by financing activities |
|
| (123,337 | ) |
|
| 282,983 |
| ||||||||
(Decrease) increase in cash, cash equivalents and restricted cash for period |
|
| (35,476 | ) |
|
| 377,522 |
| ||||||||
Net cash provided by (used for) financing activities |
|
| 270,708 |
|
|
| (123,337 | ) | ||||||||
Increase (decrease) in cash, cash equivalents and restricted cash for period |
|
| 189,639 |
|
|
| (35,476 | ) | ||||||||
Effect of exchange rate changes |
|
| 2,774 |
|
|
| (10,083 | ) |
|
| (11,450 | ) |
|
| 2,774 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 172,247 |
|
|
| 84,882 |
|
|
| 822,425 |
|
|
| 172,247 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 139,545 |
|
| $ | 452,321 |
|
| $ | 1,000,614 |
|
| $ | 139,545 |
|
Interest paid |
| $ | 57,025 |
|
| $ | 51,601 |
|
| $ | 51,296 |
|
| $ | 57,025 |
|
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared, unpaid |
| $ | 91,410 |
|
| $ | 77,172 |
|
| $ | 97,163 |
|
| $ | 91,411 |
|
Cash, cash equivalents and restricted cash are comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 171,472 |
|
| $ | 83,240 |
|
| $ | 820,868 |
|
| $ | 171,472 |
|
Restricted cash, included in Other assets |
| 775 |
|
|
| 1,642 |
|
|
| 1,557 |
|
| 775 |
| ||
|
| $ | 172,247 |
|
| $ | 84,882 |
|
| $ | 822,425 |
|
| $ | 172,247 |
|
End of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 138,314 |
|
| $ | 446,948 |
|
| $ | 995,548 |
|
| $ | 138,314 |
|
Restricted cash, included in Other assets |
|
| 1,231 |
|
|
| 5,373 |
|
|
| 5,066 |
|
|
| 1,231 |
|
|
| $ | 139,545 |
|
| $ | 452,321 |
|
| $ | 1,000,614 |
|
| $ | 139,545 |
|
See accompanying notes to condensed consolidated financial statements.
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
| March 31, 2018 |
|
| December 31, 2017 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||
(In thousands) |
| (Unaudited) |
|
| (Note 2) |
|
| (Unaudited) |
|
| (Note 2) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, buildings and improvements, intangible lease assets, and other |
| $ | 5,867,286 |
|
| $ | 5,797,605 |
|
| $ | 5,394,092 |
|
| $ | 5,268,459 |
|
Real estate held for sale |
|
| — |
|
|
| 146,615 |
| ||||||||
Mortgage loans |
|
| 1,927,393 |
|
|
| 1,778,316 |
|
|
| 1,214,780 |
|
|
| 1,213,322 |
|
Net investment in direct financing leases |
|
| 686,024 |
|
|
| 698,727 |
|
|
| 684,547 |
|
|
| 684,053 |
|
Gross investment in real estate assets |
|
| 8,480,703 |
|
|
| 8,421,263 |
|
|
| 7,293,419 |
|
|
| 7,165,834 |
|
Accumulated depreciation and amortization |
|
| (493,782 | ) |
|
| (455,712 | ) |
|
| (498,915 | ) |
|
| (464,984 | ) |
Net investment in real estate assets |
|
| 7,986,921 |
|
|
| 7,965,551 |
|
|
| 6,794,504 |
|
|
| 6,700,850 |
|
Cash and cash equivalents |
|
| 138,314 |
|
|
| 171,472 |
|
|
| 995,548 |
|
|
| 820,868 |
|
Interest and rent receivables |
|
| 81,965 |
|
|
| 78,970 |
|
|
| 24,788 |
|
|
| 25,855 |
|
Straight-line rent receivables |
|
| 202,317 |
|
|
| 185,592 |
|
|
| 243,556 |
|
|
| 220,848 |
|
Equity investments |
|
| 506,123 |
|
|
| 520,058 |
| ||||||||
Other loans |
|
| 148,842 |
|
|
| 150,209 |
|
|
| 365,402 |
|
|
| 373,198 |
|
Other assets |
|
| 473,481 |
|
|
| 468,494 |
|
|
| 301,532 |
|
|
| 181,966 |
|
Total Assets |
| $ | 9,031,840 |
|
| $ | 9,020,288 |
|
| $ | 9,231,453 |
|
| $ | 8,843,643 |
|
Liabilities and Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net |
| $ | 4,898,364 |
|
| $ | 4,898,667 |
|
| $ | 4,023,568 |
|
| $ | 4,037,389 |
|
Accounts payable and accrued expenses |
|
| 115,149 |
|
|
| 121,465 |
|
|
| 91,461 |
|
|
| 108,574 |
|
Deferred revenue |
|
| 15,549 |
|
|
| 18,178 |
|
|
| 9,979 |
|
|
| 13,467 |
|
Lease deposits and other obligations to tenants |
|
| 57,847 |
|
|
| 57,050 |
| ||||||||
Obligations to tenants and other lease liabilities |
|
| 118,474 |
|
|
| 27,524 |
| ||||||||
Payable due to Medical Properties Trust, Inc. |
|
| 91,352 |
|
|
| 89,333 |
|
|
| 97,105 |
|
|
| 95,361 |
|
Total liabilities |
|
| 5,178,261 |
|
|
| 5,184,693 |
| ||||||||
Total Liabilities |
|
| 4,340,587 |
|
|
| 4,282,315 |
| ||||||||
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner — issued and outstanding — 3,647 units at March 31, 2018 and 3,644 units at December 31, 2017 |
|
| 38,518 |
|
|
| 38,489 |
| ||||||||
General Partner — issued and outstanding — 3,918 units at March 31, 2019 and 3,706 units at December 31, 2018 |
|
| 49,478 |
|
|
| 46,084 |
| ||||||||
Limited Partners: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units — issued and outstanding — 361,048 units at March 31, 2018 and 360,780 units at December 31, 2017 |
|
| 3,810,628 |
|
|
| 3,808,583 |
| ||||||||
LTIP units — issued and outstanding — 232 units at March 31, 2018 and 292 units at December 31, 2017 |
|
| — |
|
|
| — |
| ||||||||
Common units — issued and outstanding — 387,921 units at March 31, 2019 and 366,931 units at December 31, 2018 |
|
| 4,895,626 |
|
|
| 4,559,616 |
| ||||||||
LTIP units — issued and outstanding — 232 units at March 31, 2019 and 232 units at December 31, 2018 |
|
| — |
|
|
| — |
| ||||||||
Accumulated other comprehensive loss |
|
| (9,961 | ) |
|
| (26,049 | ) |
|
| (67,892 | ) |
|
| (58,202 | ) |
Total MPT Operating Partnership, L.P. Capital |
|
| 3,839,185 |
|
|
| 3,821,023 |
| ||||||||
Total MPT Operating Partnership, L.P. capital |
|
| 4,877,212 |
|
|
| 4,547,498 |
| ||||||||
Non-controlling interests |
|
| 14,394 |
|
|
| 14,572 |
|
|
| 13,654 |
|
|
| 13,830 |
|
Total capital |
|
| 3,853,579 |
|
|
| 3,835,595 |
| ||||||||
Total Capital |
|
| 4,890,866 |
|
|
| 4,561,328 |
| ||||||||
Total Liabilities and Capital |
| $ | 9,031,840 |
|
| $ | 9,020,288 |
|
| $ | 9,231,453 |
|
| $ | 8,843,643 |
|
See accompanying notes to condensed consolidated financial statements.
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(Unaudited)
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
(In thousands, except per unit amounts) |
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed |
| $ | 128,011 |
|
| $ | 96,763 |
|
| $ | 108,598 |
|
| $ | 128,011 |
|
Straight-line rent |
|
| 15,791 |
|
|
| 12,779 |
|
|
| 20,651 |
|
|
| 15,791 |
|
Income from direct financing leases |
|
| 17,681 |
|
|
| 17,880 |
|
|
| 17,280 |
|
|
| 17,681 |
|
Interest and fee income |
|
| 43,563 |
|
|
| 28,975 |
| ||||||||
Interest and other income |
|
| 33,925 |
|
|
| 43,563 |
| ||||||||
Total revenues |
|
| 205,046 |
|
|
| 156,397 |
|
|
| 180,454 |
|
|
| 205,046 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
| 57,023 |
|
|
| 38,029 |
|
|
| 50,551 |
|
|
| 57,023 |
|
Real estate depreciation and amortization |
|
| 35,802 |
|
|
| 27,586 |
|
|
| 33,352 |
|
|
| 35,802 |
|
Property-related |
|
| 2,184 |
|
|
| 1,328 |
|
|
| 3,066 |
|
|
| 2,184 |
|
General and administrative |
|
| 17,818 |
|
|
| 13,197 |
|
|
| 23,451 |
|
|
| 17,818 |
|
Acquisition costs |
|
| — |
|
|
| 2,756 |
| ||||||||
Total expenses |
|
| 112,827 |
|
|
| 82,896 |
|
|
| 110,420 |
|
|
| 112,827 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate, net |
|
| 1,467 |
|
|
| 7,413 |
|
|
| — |
|
|
| 1,467 |
|
Debt refinancing costs |
|
| — |
|
|
| (13,629 | ) | ||||||||
Earnings from equity interests |
|
| 3,720 |
|
|
| 3,271 |
| ||||||||
Other |
|
| (1,468 | ) |
|
| 1,767 |
|
|
| 204 |
|
|
| (4,739 | ) |
Total other income (expense) |
|
| (1 | ) |
|
| (4,449 | ) |
|
| 3,924 |
|
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax |
|
| 92,218 |
|
|
| 69,052 |
|
|
| 73,958 |
|
|
| 92,218 |
|
Income tax expense |
|
| (1,175 | ) |
|
| (867 | ) | ||||||||
Income tax benefit (expense) |
|
| 2,333 |
|
|
| (1,175 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 91,043 |
|
|
| 68,185 |
|
|
| 76,291 |
|
|
| 91,043 |
|
Net income attributable to non-controlling interests |
|
| (442 | ) |
|
| (215 | ) |
|
| (469 | ) |
|
| (442 | ) |
Net income attributable to MPT Operating Partnership partners |
| $ | 90,601 |
|
| $ | 67,970 |
|
| $ | 75,822 |
|
| $ | 90,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per units — basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT Operating Partnership partners |
| $ | 0.25 |
|
| $ | 0.21 |
|
| $ | 0.20 |
|
| $ | 0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding — basic |
|
| 364,882 |
|
|
| 321,057 |
|
|
| 380,551 |
|
|
| 364,882 |
|
Weighted average units outstanding — diluted |
|
| 365,343 |
|
|
| 321,423 |
|
|
| 381,675 |
|
|
| 365,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per unit |
| $ | 0.25 |
|
| $ | 0.24 |
|
| $ | 0.25 |
|
| $ | 0.25 |
|
See accompanying notes to condensed consolidated financial statements.
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
(In thousands) |
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Net income |
| $ | 91,043 |
|
| $ | 68,185 |
|
| $ | 76,291 |
|
| $ | 91,043 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain |
|
| 16,088 |
|
|
| 6,292 |
| ||||||||
Unrealized loss on interest rate swap |
|
| (3,772 | ) |
|
| — |
| ||||||||
Foreign currency translation (loss) gain |
|
| (5,918 | ) |
|
| 16,088 |
| ||||||||
Total comprehensive income |
|
| 107,131 |
|
|
| 74,477 |
|
|
| 66,601 |
|
|
| 107,131 |
|
Comprehensive income attributable to non-controlling interests |
|
| (442 | ) |
|
| (215 | ) |
|
| (469 | ) |
|
| (442 | ) |
Comprehensive income attributable to MPT Operating Partnership partners |
| $ | 106,689 |
|
| $ | 74,262 |
|
| $ | 66,132 |
|
| $ | 106,689 |
|
See accompanying notes to condensed consolidated financial statements.
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Capital
(Unaudited)
|
| General |
|
| Limited Partners |
|
| Accumulated |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Partner |
|
| Common |
|
| LTIPs |
|
| Other |
|
| Non- |
|
|
|
|
| |||||||||||||||||
|
| Units |
|
| Unit Value |
|
| Units |
|
| Unit Value |
|
| Units |
|
| Unit Value |
|
| Comprehensive Loss |
|
| Controlling Interests |
|
| Total Capital |
| |||||||||
Balance at December 31, 2017 |
|
| 3,644 |
|
| $ | 38,489 |
|
|
| 360,780 |
|
| $ | 3,808,583 |
|
|
| 292 |
|
| $ | — |
|
| $ | (26,049 | ) |
| $ | 14,572 |
|
| $ | 3,835,595 |
|
Net income |
|
| — |
|
|
| 906 |
|
|
| — |
|
|
| 89,695 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 442 |
|
|
| 91,043 |
|
Cumulative effect of change in accounting principles |
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| 1,919 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,938 |
|
Foreign currency translation gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,088 |
|
|
| — |
|
|
| 16,088 |
|
Unit vesting and amortization of unit-based compensation |
|
| 3 |
|
|
| 19 |
|
|
| 268 |
|
|
| 1,837 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,856 |
|
Conversion of LTIP units to common units |
|
| — |
|
|
| — |
|
|
| 60 |
|
|
| — |
|
|
| (60 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Redemption of common units |
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (816 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (816 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (620 | ) |
|
| (620 | ) |
Proceeds from offering (net of offering costs) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (93 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (94 | ) |
Distributions declared ($0.25 per unit) |
|
| — |
|
|
| (914 | ) |
|
| — |
|
|
| (90,497 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (91,411 | ) |
Balance at March 31, 2018 |
|
| 3,647 |
|
| $ | 38,518 |
|
|
| 361,048 |
|
| $ | 3,810,628 |
|
|
| 232 |
|
| $ | — |
|
| $ | (9,961 | ) |
| $ | 14,394 |
|
| $ | 3,853,579 |
|
|
| General |
|
| Limited Partners |
|
| Accumulated |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Partner |
|
| Common |
|
| LTIPs |
|
| Other |
|
| Non- |
|
|
|
|
| |||||||||||||||||
|
| Units |
|
| Unit Value |
|
| Units |
|
| Unit Value |
|
| Units |
|
| Unit Value |
|
| Comprehensive Loss |
|
| Controlling Interests |
|
| Total Capital |
| |||||||||
Balance at December 31, 2018 |
|
| 3,706 |
|
| $ | 46,084 |
|
|
| 366,931 |
|
| $ | 4,559,616 |
|
|
| 232 |
|
| $ | — |
|
| $ | (58,202 | ) |
| $ | 13,830 |
|
| $ | 4,561,328 |
|
Net income |
|
| — |
|
|
| 758 |
|
|
| — |
|
|
| 75,064 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 469 |
|
|
| 76,291 |
|
Unrealized loss on interest rate swap |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,772 | ) |
|
| — |
|
|
| (3,772 | ) |
Foreign currency translation loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,918 | ) |
|
| — |
|
|
| (5,918 | ) |
Unit vesting and amortization of unit-based compensation |
|
| 11 |
|
|
| 68 |
|
|
| 1,044 |
|
|
| 6,647 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,715 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (645 | ) |
|
| (645 | ) |
Proceeds from offering (net of offering costs) |
|
| 201 |
|
|
| 3,540 |
|
|
| 19,946 |
|
|
| 350,490 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 354,030 |
|
Distributions declared ($0.25 per unit) |
|
| — |
|
|
| (972 | ) |
|
| — |
|
|
| (96,191 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (97,163 | ) |
Balance at March 31, 2019 |
|
| 3,918 |
|
| $ | 49,478 |
|
|
| 387,921 |
|
| $ | 4,895,626 |
|
|
| 232 |
|
| $ | — |
|
| $ | (67,892 | ) |
| $ | 13,654 |
|
| $ | 4,890,866 |
|
See accompanying notes to condensed consolidated financial statements.
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 91,043 |
|
| $ | 68,185 |
|
| $ | 76,291 |
|
| $ | 91,043 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 37,858 |
|
|
| 28,954 |
|
|
| 34,675 |
|
|
| 37,858 |
|
Amortization of deferred financing costs and debt discount |
|
| 1,789 |
|
|
| 1,617 |
|
|
| 1,827 |
|
|
| 1,789 |
|
Direct financing lease interest accretion |
|
| (2,340 | ) |
|
| (2,286 | ) |
|
| (2,337 | ) |
|
| (2,340 | ) |
Straight-line rent revenue |
|
| (20,377 | ) |
|
| (13,896 | ) |
|
| (23,959 | ) |
|
| (20,377 | ) |
Unit-based compensation |
|
| 1,856 |
|
|
| 1,971 |
|
|
| 6,715 |
|
|
| 1,856 |
|
Gain from sale of real estate, net |
|
| (1,467 | ) |
|
| (7,413 | ) |
|
| — |
|
|
| (1,467 | ) |
Straight-line rent and other write-off |
|
| 6,059 |
|
|
| 1,117 |
| ||||||||
Debt refinancing costs |
|
| — |
|
|
| 13,629 |
| ||||||||
Straight-line rent and other write-off, net of tax benefit |
|
| 2,596 |
|
|
| 6,059 |
| ||||||||
Other adjustments |
|
| (3,217 | ) |
|
| (2,959 | ) |
|
| 2,249 |
|
|
| (3,217 | ) |
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and rent receivables |
|
| (3,678 | ) |
|
| (4,208 | ) |
|
| (1,193 | ) |
|
| (3,678 | ) |
Accounts payable and accrued expenses |
|
| (12,729 | ) |
|
| (20,428 | ) |
|
| (9,940 | ) |
|
| (12,729 | ) |
Net cash provided by operating activities |
|
| 94,797 |
|
|
| 64,283 |
|
|
| 86,924 |
|
|
| 94,797 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and other related investments |
|
| — |
|
|
| (9,004 | ) |
|
| (6,492 | ) |
|
| — |
|
Net proceeds from sale of real estate |
|
| 148,809 |
|
|
| 64,335 |
|
|
| — |
|
|
| 148,809 |
|
Principal received on loans receivable |
|
| 1,734 |
|
|
| 3,233 |
|
|
| 420 |
|
|
| 1,734 |
|
Investment in loans receivable |
|
| (149,080 | ) |
|
| (1,410 | ) |
|
| (1,185 | ) |
|
| (149,080 | ) |
Construction in progress and other |
|
| (8,399 | ) |
|
| (26,898 | ) |
|
| (160,736 | ) |
|
| (8,399 | ) |
Net cash (used for) provided by investing activities |
|
| (6,936 | ) |
|
| 30,256 |
| ||||||||
Net cash used for investing activities |
|
| (167,993 | ) |
|
| (6,936 | ) | ||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from term debt |
|
| — |
|
|
| 955,280 |
| ||||||||
Payments of term debt |
|
| — |
|
|
| (675,201 | ) | ||||||||
Revolving credit facilities, net |
|
| (33,590 | ) |
|
| 90,000 |
|
|
| 9,097 |
|
|
| (33,590 | ) |
Distributions paid |
|
| (89,403 | ) |
|
| (74,521 | ) |
|
| (95,419 | ) |
|
| (89,403 | ) |
Lease deposits and other obligations to tenants |
|
| 1,299 |
|
|
| 3,307 |
|
|
| 3,677 |
|
|
| 1,299 |
|
Proceeds from sale of units, net of offering costs |
|
| 354,030 |
|
|
| (94 | ) | ||||||||
Debt issuance costs paid and other financing activities |
|
| (1,643 | ) |
|
| (15,882 | ) |
|
| (677 | ) |
|
| (1,549 | ) |
Net cash (used for) provided by financing activities |
|
| (123,337 | ) |
|
| 282,983 |
| ||||||||
(Decrease) increase in cash, cash equivalents and restricted cash for period |
|
| (35,476 | ) |
|
| 377,522 |
| ||||||||
Net cash provided by (used for) financing activities |
|
| 270,708 |
|
|
| (123,337 | ) | ||||||||
Increase (decrease) in cash, cash equivalents and restricted cash for period |
|
| 189,639 |
|
|
| (35,476 | ) | ||||||||
Effect of exchange rate changes |
|
| 2,774 |
|
|
| (10,083 | ) |
|
| (11,450 | ) |
|
| 2,774 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 172,247 |
|
|
| 84,882 |
|
|
| 822,425 |
|
|
| 172,247 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 139,545 |
|
| $ | 452,321 |
|
| $ | 1,000,614 |
|
| $ | 139,545 |
|
Interest paid |
| $ | 57,025 |
|
| $ | 51,601 |
|
| $ | 51,296 |
|
| $ | 57,025 |
|
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared, unpaid |
| $ | 91,410 |
|
| $ | 77,172 |
|
| $ | 97,163 |
|
| $ | 91,411 |
|
Cash, cash equivalents, and restricted cash are comprised of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 171,472 |
|
| $ | 83,240 |
|
| $ | 820,868 |
|
| $ | 171,472 |
|
Restricted cash, included in Other assets |
|
| 775 |
|
|
| 1,642 |
|
|
| 1,557 |
|
|
| 775 |
|
|
| $ | 172,247 |
|
| $ | 84,882 |
|
| $ | 822,425 |
|
| $ | 172,247 |
|
End of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 138,314 |
|
| $ | 446,948 |
|
| $ | 995,548 |
|
| $ | 138,314 |
|
Restricted cash, included in Other assets |
|
| 1,231 |
|
|
| 5,373 |
|
|
| 5,066 |
|
|
| 1,231 |
|
|
| $ | 139,545 |
|
| $ | 452,321 |
|
| $ | 1,000,614 |
|
| $ | 139,545 |
|
See accompanying notes to condensed consolidated financial statements.
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing commercialhealthcare real estate. Our operating partnership subsidiary, MPT Operating Partnership, L.P., (the “Operating Partnership”) through which we conduct all of our operations, was formed in September 2003. Through another wholly-owned subsidiary, Medical Properties Trust, LLC, we are the sole general partner of the Operating Partnership. At present, we directly own substantially all of the limited partnership interests in the Operating Partnership and have elected to report our required disclosures and that of the Operating Partnership on a combined basis, except where material differences exist.
We have operated as a real estate investment trust (“REIT”) since April 6, 2004 and elected REIT status upon the filing in September 2005 of the calendar year 2004 federal income tax return. Accordingly, we will generally not be subject to federal income tax in the United States (“U.S.”), provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed our taxable income. Certain non-real estate activities we undertake are conducted by entities which we elected to be treated as taxable REIT subsidiaries (“TRS”). Our TRS entities are subject to both U.S. federal and state income taxes. For our properties located outside the U.S., we are subject to the local taxes;taxes of the jurisdictions where our properties reside and/or legal entities are domiciled; however, we do not expect to incur additional taxes in the U.S. as such income flows through our REIT.
Our primary business strategy is to acquire and develop real estate and improvements, primarily for long-term lease to providers of healthcare services, such as operators of general acute care hospitals, inpatient physical rehabilitation hospitals, and long-term acute care hospitals, surgery centers, centers for treatment of specific conditions such as cardiac, pulmonary, cancer, and neurological hospitals, and other healthcare-oriented facilities.hospitals. We also make mortgage and other loans to operators of similar facilities. In addition, we may obtain profits or equity interests in our tenants, from time to time, in order to enhance our overall return. We manage our business as a single business segment. OurAll of our properties are currently located in the U.S. and Europe.
2. Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information, including rules and regulations of the Securities and Exchange Commission (“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 presentation have been included. Operating results for the three months ended March 31, 2018,2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019. The condensed consolidated balance sheet at December 31, 20172018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.
For information about significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.2018. There have been no material changes to these significant accounting policies other than the following:
On January 1, 2018,2019, we adopted Accounting Standards Update (“ASU”) No. 2017-01, “Clarifying the Definition of a Business”2016-02, “Leases”, (“ASU 2017-01”2016-02”). ASU 2017-01 provides an initial screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, in which case, the transaction would be accounted for as an asset acquisition rather than as a business combination. In addition, ASU 2017-01 clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. With this accounting change, we expect to recognize a majority of our future real estate acquisitions as asset transactions rather than business combinations, which will result in the capitalization of third party transaction costs that are directly related to an acquisition and significantly decrease acquisition expenses. Indirect and internal transaction costs will continue to be expensed, but we do not expect to treat these costs as acquisition expenses for purposes of deriving normalized funds from operations in the future. Accordingly, this change in accounting increased our general and administrative expenses by $1.6 million for the three months ended March 31, 2018 compared to prior year.
On January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers.” Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. This standard should not have a significant impact on our financial results, as a substantial portion of our revenue consists of rental income from leasing arrangements and interest income from loans, which are specifically excluded from ASU No. 2014-09. However, we also adopted a related standard ASU No. 2017-05 “Other Income - Gains and Losses from the
Derecognition of Nonfinancial Assets” on January 1, 2018, which we expect will allow for more transactions to qualify as sales of real estate with gains on sales being recognized earlier than under previous accounting guidance, as the new guidance is based on transfer of control versus whether or not the seller has continuing involvement. Upon adoption of this new standard, we recorded a $1.9 million adjustment to retained earnings to fully recognize gains on real estate sold in prior years that was required to be deferred under previous accounting guidance.
In August and November 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on the classification of certain receipts and payments in the statements of cash flows and to require companies to separately disclose the changes in total cash, cash equivalents, and amounts generally described as restricted cash on statements of cash flows (ASU 2016-18). Restricted cash recorded in other assets on the condensed consolidated balance sheets includes certain operating deposits, tenant capital reserve deposits and deposits related to real estate acquisitions. This guidance was adopted on January 1, 2018 by applying a retrospective transition method resulting in the restatement of all periods presented. This change did not have a material impact on the statements of cash flows for the three months ended March 31, 2018 and March 31, 2017, respectively.
Recent Accounting Developments:
Leases
In February 2016, FASB issued ASU 2016-02 “Leases”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). We adopted this standard using the modified retrospective approach and have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits the following: no reassessment of whether existing contracts are or contain a lease; no reassessment of lease classification for existing leases; and no reassessment of initial direct costs for existing leases. Additionally, we made certain elections permitted in accordance with ASU 2018-11, “Leases (Topic 842): – Targeted Improvements.” which (1) permits entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and (2) permits lessors to account for lease and non-lease components as a single lease component in a contract if certain criteria are met.
The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method (for finance leases) or on a straight-line basis (for operating leases) over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted forremain off balance sheet with lease expense recognized on a straight-line basis over the lease term, similar to existingprevious guidance for operating leases today.leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existingprevious guidance for sales-type leases, direct financing leases and operating leases.
We will adopt this new standard on January 1, 2019. We are continuing to evaluate this standard and the impact to us from both a lessor and lessee perspective. We do haveFor our leases in which we are the lessee, including ground leases on which certain of our facilities reside, along with corporate office and equipment leases, that will be required to bewe recorded on our balance sheeta right-of-use asset and offsetting lease liability of approximately $84 million upon adoption of this standard.standard – resulting in no material cumulative effect adjustment. From a lessor perspective, we do expect certain non-lease components (includingdid not change the classification or accounting of our existing leases except, we are now grossing up our income statement for certain operating expenses, such as property taxes and insurance, that the tenants of our facilities are required to payreimburse us for pursuant to our “triple-net” leases)leases. See Note 10 for additional detail.
Recent Accounting Developments:
Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). This standard requires a new forward-looking “expected loss” model to be recorded gross versus netused for our financing receivables, including direct financing leases and loan receivables, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for us beginning January 1, 2020. We are currently evaluating the respective expenses upon adoption of thisimpact that the standard in 2019 in accordance with ASU No. 2014-09.will have on our consolidated financial statements.
Reclassifications and Revisions
Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period presentation.
Variable Interest Entities
At March 31, 2018, we had loans to and/or equity investments in certain variable interest entities (“VIEs”), which are also tenants of our facilities. We have determined that we are not the primary beneficiary of these VIEs. The carrying value and classification of the related assets and maximum exposure to loss as a result of our involvement with these VIEs are presented below at March 31, 2018 (in thousands):
VIE Type |
| Maximum Loss Exposure(1) |
|
| Asset Type Classification |
| Carrying Amount(2) |
| ||
Loans, net |
| $ | 334,906 |
|
| Mortgage and other loans |
| $ | 233,470 |
|
Equity investments |
| $ | 14,553 |
|
| Other assets |
| $ | — |
|
|
|
|
|
For the VIE types above, we do not consolidate the VIE because we do not have the ability to control the activities (such as the day-to-day healthcare operations of our borrowers or investees) that most significantly impact the VIE’s economic performance.
As of March 31, 2018, 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).
Typically, our loans are collateralized by assets of the borrower (some assets of which are on the premises of facilities owned by us) and further supported by limited guarantees made by certain principals of the borrower.
See Note 3 and Note 5 for additional description of the nature, purpose and activities of our more significant VIEs (such as Ernest Health Inc. (“Ernest”)) and interests therein.
3. Real Estate and Lending Activities
Acquisitions
We acquired the following assets (in thousands):
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Assets Acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | — |
|
| $ | 1,230 |
|
| $ | 169 |
|
| $ | — |
|
Building |
|
| — |
|
|
| 6,901 |
|
|
| 5,327 |
|
|
| — |
|
Intangible lease assets — subject to amortization |
|
| — |
|
|
| 873 |
|
|
| 996 |
|
|
| — |
|
Total assets acquired |
| $ | — |
|
| $ | 9,004 |
|
| $ | 6,492 |
|
| $ | — |
|
On January 30, 2017,February 8, 2019, we acquired an inpatient rehabilitation hospital in Germany for €8.4 million.€5.7 million (including real estate transfer taxes). This acquisition was the final property to close as part of the six hospitala four-hospital portfolio that we agreed to buy in September 2016purchase for an aggregate amount of €44.1 million. This€23 million (including real estate transfer taxes). The property is leased to affiliates of Median Kliniken S.à r.l..r.l. (“MEDIAN”), pursuant to the existing long-terma new 27-year master lease agreement reached with MEDIANannual escalators at the greater of 1% or 70% of the change in 2015.German consumer price index (“CPI”).
Development Activities
During the 2018 first quarter, we completed construction on Ernest Flagstaff. This $24a $25.5 million inpatient rehabilitation facility located in Flagstaff, ArizonaArizona. This facility opened on March 1, 2018 and is being leased to Ernest Health, Inc. (“Ernest”) pursuant to a stand-alone lease, with terms generally similar to the original master lease.
See table below for a status update on our current development projects (in thousands):
Property |
| Commitment |
|
| Costs Incurred as of March 31, 2018 |
|
| Estimated Completion Date |
| Commitment |
|
| Costs Incurred as of March 31, 2019 |
|
| Estimated Rent Commencement Date | ||||
Circle Health (Birmingham, England) |
| $ | 45,211 |
|
| $ | 18,369 |
|
| 1Q 2019 |
| $ | 44,241 |
|
| $ | 34,705 |
|
| 3Q 2019 |
Circle Health Rehabilitation (Birmingham, England) |
|
| 21,979 |
|
|
| 11,677 |
|
| 3Q 2019 | ||||||||||
Surgery Partners (Idaho Falls, Idaho) |
|
| 113,468 |
|
|
| 16,753 |
|
| 1Q 2020 |
|
| 113,468 |
|
|
| 55,857 |
|
| 1Q 2020 |
|
| $ | 158,679 |
|
| $ | 35,122 |
|
|
|
| $ | 179,688 |
|
| $ | 102,239 |
|
|
|
On March 1, 2018, we sold the real estate of St. Joseph Medical Center in Houston, Texas, for approximately $148 million to Steward Health Care System LLC (“Steward”). In return, we received a mortgage loan equal to the purchase price, with such loan secured by the underlying real estate. The mortgage loan hashad terms consistent with the other mortgage loans in the Steward portfolio. This transaction resulted in a gain of $1.5 million, offset by a $1.7 million non-cash charge to revenue to write-off related straight-line rent receivables on this property.
OnLeasing Operations (Lessor)
As noted earlier, we acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases (typical initial fixed terms ranging from 10 to 15 years) and most include renewal options at the election of our tenants, generally in five year increments. More than 95% of our leases provide annual rent escalations based on increases in the consumer price index (or similar index outside the U.S.) and/or fixed minimum annual escalations ranging from 0.5% to 3.0%. Many of our domestic leases contain purchase options with pricing set at various terms but in no case less than our total investment. For five properties with a carrying value of $210 million, our leases require a residual value guarantee from the tenant. Our leases typically require the tenant to handle and bear most of the costs associated with our properties including repair/maintenance, property taxes, and insurance. We routinely inspect our properties to ensure the residual value of each of our assets is being maintained. Except for leases noted below as direct finance leases (“DFLs”), all of our leases are classified as operating leases.
The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under noncancelable leases as of March 31, 2017, we sold the EASTAR Health System real estate located in Muskogee, Oklahoma, which was leased to RCCH Healthcare Partners (“RCCH”). Total proceeds from this transaction were approximately $64 million resulting in a gain of $7.4 million, partially offset by a $0.6 million non-cash charge to revenue to write-off related straight-line rent receivables on this property.
2019 (in thousands):
|
| Total Under Operating Leases |
|
| Total Under DFLs |
|
| Total |
| |||
2019 (nine months only) |
| $ | 329,487 |
|
| $ | 48,491 |
|
| $ | 377,978 |
|
2020 |
|
| 438,596 |
|
|
| 66,008 |
|
|
| 504,604 |
|
2021 |
|
| 447,232 |
|
|
| 67,388 |
|
|
| 514,620 |
|
2022 |
|
| 452,173 |
|
|
| 68,796 |
|
|
| 520,969 |
|
2023 |
|
| 459,222 |
|
|
| 70,232 |
|
|
| 529,454 |
|
Thereafter |
|
| 9,636,734 |
|
|
| 1,550,857 |
|
|
| 11,187,591 |
|
|
| $ | 11,763,444 |
|
| $ | 1,871,772 |
|
| $ | 13,635,216 |
|
Leasing OperationsDirect Financing Leases
At March 31, 2018,2019, leases on 14 Ernest facilities, ten Prime Healthcare Services, Inc. (“Prime”) facilities, and two Alecto Healthcare Services LLC (“Alecto”) facilities are accounted for as direct financing leases (“DFLs”).DFLs. The components of our net investment in DFLs consisted of the following (in thousands):
|
| As of March 31, 2018 |
|
| As of December 31, 2017 |
|
| As of March 31, 2019 |
|
| As of December 31, 2018 |
| ||||
Minimum lease payments receivable |
| $ | 2,223,869 |
|
| $ | 2,294,081 |
|
| $ | 2,078,099 |
|
| $ | 2,091,504 |
|
Estimated residual values |
|
| 434,769 |
|
|
| 448,339 |
|
|
| 421,893 |
|
|
| 424,719 |
|
Less: Unearned income |
|
| (1,972,614 | ) |
|
| (2,043,693 | ) |
|
| (1,815,445 | ) |
|
| (1,832,170 | ) |
Net investment in direct financing leases |
| $ | 686,024 |
|
| $ | 698,727 |
|
| $ | 684,547 |
|
| $ | 684,053 |
|
On March 15, 2018, we entered into a new lease agreement of our long-term acute care facility in Boise, Idaho with a joint venture formed by Vibra Healthcare, LLC (“Vibra”) and Ernest. The new lease hashad an initial 15-year fixed term (ending March 2033) with three extension options of five years each. With this transaction, we incurred a non-cash charge of $1.5 million to write-off DFL unbilled interest associated with the previous lease to Ernest on this property.
|
Adeptus Health Transition Properties
As noted in previous filings, effective October 2, 2017, we havehad 16 properties that we plan to re-lease to a new operator or sell. These properties are being transitionedtransitioning away from Adeptus Health, Inc. (“Adeptus”) in stages over a two year period as part of Adeptus Health’sAdeptus’ confirmed plan of reorganization under Chapter 11 of the Bankruptcy Code. Rent is being paid by Adeptus Health during this transition period. On January 1, 2018 and April 1, 2018, Adeptus Health vacated and stopped making rent payments on five and three properties, respectively. As a result of the shortening of our lease term on these and eight other properties, we recorded $1.8 million to accelerate straight-line rent receivable amortization in the 2018 first quarter. At March 31, 2018,2019, nine of these properties have been re-leased at rates consistent with that of the previous Adeptus Healthlease, and one property in the Dallas market was sold in April 2019. Of the six remaining facilities (representing less than 0.6% of our total assets at March 31, 2019), five remain vacant and the final property will be transitioned away from Adeptus on October 1, 2019.
At March 31, 2019, Adeptus is current on its rent obligations to us. Although no assurances can be made that we will not recognize a loss in the future, we believe, at March 31, 20182019, that the sale or re-leasing of the assets related to these 16remaining six transition facilities will not result in any material loss or additional impairment.
Gilbert and Florence Facilities
In the first quarter of 2018, we terminated the lease at our Gilbert and Florence, Arizona facilities due to the tenant not meeting its rent obligations pursuant to the lease. As a result of the lease terminating, we recorded a charge of $1.1 million to reserve against the straight-line rent receivables. This former tenant has continued to occupy the facility, but on April 25, 2018, this former tenant filed for involuntary bankruptcy. At March 31, 2018,2019, all outstanding receivables due from the former tenant of Florence and Gilbert were completely reserved. On December 14, 2018, the Florence facility was re-leased to Steward pursuant to our original master lease with them with a term to begin in the second quarter of 2019. At March 31, 2019, our Gilbert facility is vacant. Although no assurances can be made that we will not have any impairment charges in the future, we believe our investment in the Gilbert and Florencefacility (less than 0.2% of $38.1 milliontotal assets at March 31, 2018,2019), is fully recoverable.
Alecto Facilities
At March 31, 2019, we own four acute care facilities that are leased to Alecto and have a mortgage loan on a fifth property. With the decline in the operating results of the facility tenant, we recorded a charge to reserve against the straight-line rent and other receivables outstanding during the three months ended March 31, 2019. At March 31, 2019, our total overall investment in these properties is approximately 1% of our total assets.
Loans
The following is a summary of our loans (in thousands):
|
| As of March 31, 2018 |
|
| As of December 31, 2017 |
| ||
Mortgage loans |
| $ | 1,927,393 |
|
| $ | 1,778,316 |
|
Acquisition loans |
|
| 117,627 |
|
|
| 118,448 |
|
Working capital and other loans |
|
| 31,215 |
|
|
| 31,761 |
|
|
| $ | 2,076,235 |
|
| $ | 1,928,525 |
|
|
| As of March 31, 2019 |
|
| As of December 31, 2018 |
| ||
Mortgage loans |
| $ | 1,214,780 |
|
| $ | 1,213,322 |
|
Other loans |
|
| 365,402 |
|
|
| 373,198 |
|
Total |
| $ | 1,580,182 |
|
| $ | 1,586,520 |
|
The increase in mortgage loans relates to the St. Joseph property that was sold on March 1, 2018 – see “Disposals” section of this Note 3 for further information. Our non-mortgageOther loans typically consist of loans to our tenants for acquisitions and working capital purposes. At March 31, 2018, acquisition loans includes $113.9 millionpurposes, and include our shareholder loan made to the joint venture with Primotop Holdings S.à.r.l. (“Primotop”) in loans to Ernest.the amount of €290 million.
Our revenueWe monitor concentration for the three months ended March 31, 2018 as comparedrisk in several ways due to the prior year is as follows (dollarsnature of our real estate assets that are vital to the communities in thousands):
Revenue by Operatorwhich they are located and given our history of being able to replace inefficient operators of our facilities if needed, with more effective operators:
|
| For the Three Months Ended March 31, |
| |||||||||||||
|
| 2018 |
|
| 2017 |
| ||||||||||
Operators |
| Total Revenue |
|
| Percentage of Total Revenue |
|
| Total Revenue |
|
| Percentage of Total Revenue |
| ||||
Steward (1) |
| $ | 73,227 |
|
|
| 35.7 | % |
| $ | 33,704 |
|
|
| 21.6 | % |
Prime |
|
| 31,778 |
|
|
| 15.5 | % |
|
| 31,511 |
|
|
| 20.1 | % |
MEDIAN |
|
| 29,088 |
|
|
| 14.2 | % |
|
| 23,450 |
|
|
| 15.0 | % |
Ernest |
|
| 16,416 |
|
|
| 8.0 | % |
|
| 17,520 |
|
|
| 11.2 | % |
RCCH |
|
| 9,537 |
|
|
| 4.7 | % |
|
| 9,306 |
|
|
| 6.0 | % |
Other operators |
|
| 45,000 |
|
|
| 21.9 | % |
|
| 40,906 |
|
|
| 26.1 | % |
Total |
| $ | 205,046 |
|
|
| 100.0 | % |
| $ | 156,397 |
|
|
| 100.0 | % |
1) | Facility concentration – At March 31, 2019, we had no investment in any single property greater than 4% of our total assets, which is consistent with December 31, 2018. |
(1) Includes revenue from IASIS prior to being acquired by Steward on September 29, 2017.
Revenue by U.S. State and Country
|
| For the Three Months Ended March 31, |
| |||||||||||||
|
| 2018 |
|
| 2017 |
| ||||||||||
U.S. States and Other Countries |
| Total Revenue |
|
| Percentage of Total Revenue |
|
| Total Revenue |
|
| Percentage of Total Revenue |
| ||||
Texas |
| $ | 30,355 |
|
|
| 14.8 | % |
| $ | 24,737 |
|
|
| 15.8 | % |
Massachusetts |
|
| 26,940 |
|
|
| 13.1 | % |
|
| 26,584 |
|
|
| 17.0 | % |
Utah |
|
| 20,871 |
|
|
| 10.2 | % |
|
| 2,534 |
|
|
| 1.6 | % |
California |
|
| 16,666 |
|
|
| 8.1 | % |
|
| 16,565 |
|
|
| 10.6 | % |
Arizona |
|
| 11,386 |
|
|
| 5.6 | % |
|
| 7,332 |
|
|
| 4.7 | % |
All other states |
|
| 60,037 |
|
|
| 29.3 | % |
|
| 51,465 |
|
|
| 32.9 | % |
Total U.S. |
| $ | 166,255 |
|
|
| 81.1 | % |
| $ | 129,217 |
|
|
| 82.6 | % |
Germany |
| $ | 37,665 |
|
|
| 18.4 | % |
| $ | 26,190 |
|
|
| 16.7 | % |
United Kingdom, Italy, and Spain |
|
| 1,126 |
|
|
| 0.5 | % |
|
| 990 |
|
|
| 0.7 | % |
Total International |
| $ | 38,791 |
|
|
| 18.9 | % |
| $ | 27,180 |
|
|
| 17.4 | % |
Grand Total |
| $ | 205,046 |
|
|
| 100.0 | % |
| $ | 156,397 |
|
|
| 100.0 | % |
2) | Operator concentration – For the three months ended March 31, 2019, revenue from Steward and Prime of $86.6 million and $32.0 million, respectively, exceeded 10% of our total revenues. In comparison, Steward ($73.2 million), Prime ($31.8 million) and MEDIAN ($29.1 million), respectively, exceeded 10% of our total revenues for the first three months of 2018. |
On a gross asset basis (as defined in the “Reconciliation of Non-GAAP Financial Measures” section of Item 2 of this Form 10-Q), our concentration as of March 31, 2018 as compared to December 31, 2017 is as follows (dollars in thousands):
Gross Assets by Operator
|
| As of March 31, 2018 |
|
| As of December 31, 2017 |
| ||||||||||
Operators |
| Total Gross Assets |
|
| Percentage of Total Gross Assets |
|
| Total Gross Assets |
|
| Percentage of Total Gross Assets |
| ||||
Steward (1) |
| $ | 3,459,275 |
|
|
| 36.2 | % |
| $ | 3,457,384 |
|
|
| 36.5 | % |
MEDIAN |
|
| 1,261,991 |
|
|
| 13.2 | % |
|
| 1,229,325 |
|
|
| 13.0 | % |
Prime |
|
| 1,120,737 |
|
|
| 11.7 | % |
|
| 1,119,484 |
|
|
| 11.8 | % |
Ernest |
|
| 612,112 |
|
|
| 6.4 | % |
|
| 629,161 |
|
|
| 6.6 | % |
RCCH |
|
| 506,265 |
|
|
| 5.3 | % |
|
| 506,265 |
|
|
| 5.3 | % |
Other operators |
|
| 2,118,132 |
|
|
| 22.3 | % |
|
| 2,089,934 |
|
|
| 22.1 | % |
Other assets |
|
| 466,095 |
|
|
| 4.9 | % |
|
| 444,659 |
|
|
| 4.7 | % |
Total |
| $ | 9,544,607 |
|
|
| 100.0 | % |
| $ | 9,476,212 |
|
|
| 100.0 | % |
3) | Geographic concentration – At March 31, 2019, investments in the U.S. and Europe represented approximately 80% and 20%, respectively, of our total assets, which is consistent with December 31, 2018. |
(1) Includes approximately $1.8 billion of triple net leased gross assets.
4) | Facility type concentration – For the three months ended March 31, 2019, approximately 86% of our revenues are from our general acute care facilities, while rehabilitation and long-term acute care facilities make up 10% and 4%, respectively. These percentages are similar to those for the first three months of 2018. |
Gross Assets by U.S. State and Country
|
| As of March 31, 2018 |
|
| As of December 31, 2017 |
| ||||||||||
U.S. States and Other Countries |
| Total Gross Assets |
|
| Percentage of Total Gross Assets |
|
| Total Gross Assets |
|
| Percentage of Total Gross Assets |
| ||||
Massachusetts |
| $ | 1,298,226 |
|
|
| 13.6 | % |
| $ | 1,297,226 |
|
|
| 13.7 | % |
Texas |
|
| 1,260,795 |
|
|
| 13.2 | % |
|
| 1,257,390 |
|
|
| 13.3 | % |
Utah |
|
| 1,035,748 |
|
|
| 10.9 | % |
|
| 1,035,501 |
|
|
| 10.9 | % |
California |
|
| 542,873 |
|
|
| 5.7 | % |
|
| 542,876 |
|
|
| 5.7 | % |
Arizona |
|
| 489,185 |
|
|
| 5.1 | % |
|
| 491,284 |
|
|
| 5.2 | % |
All other states |
|
| 2,616,686 |
|
|
| 27.4 | % |
|
| 2,618,536 |
|
|
| 27.6 | % |
Other domestic assets |
|
| 402,841 |
|
|
| 4.2 | % |
|
| 387,050 |
|
|
| 4.1 | % |
Total U.S. |
| $ | 7,646,354 |
|
|
| 80.1 | % |
| $ | 7,629,863 |
|
|
| 80.5 | % |
Germany |
| $ | 1,623,755 |
|
|
| 17.0 | % |
| $ | 1,581,726 |
|
|
| 16.7 | % |
United Kingdom, Italy, and Spain |
|
| 211,244 |
|
|
| 2.2 | % |
|
| 207,014 |
|
|
| 2.2 | % |
Other international assets |
|
| 63,254 |
|
|
| 0.7 | % |
|
| 57,609 |
|
|
| 0.6 | % |
Total International |
| $ | 1,898,253 |
|
|
| 19.9 | % |
| $ | 1,846,349 |
|
|
| 19.5 | % |
Grand Total |
| $ | 9,544,607 |
|
|
| 100.0 | % |
| $ | 9,476,212 |
|
|
| 100.0 | % |
On an individual property basis, we had no investment of any single property greater than 3.7% of our total gross assets as of March 31, 2018.
4. Debt
The following is a summary of debt (dollar amounts in thousands):
|
| As of March 31, 2018 |
|
| As of December 31, 2017 |
|
| As of March 31, 2019 |
|
| As of December 31, 2018 |
| ||||
Revolving credit facility(A) |
| $ | 807,614 |
|
| $ | 840,810 |
|
| $ | 37,802 |
|
| $ | 28,059 |
|
Term loans |
|
| 200,000 |
|
|
| 200,000 |
| ||||||||
Term loan |
|
| 200,000 |
|
|
| 200,000 |
| ||||||||
4.000% Senior Unsecured Notes due 2022(B) |
|
| 616,200 |
|
|
| 600,250 |
|
|
| 560,900 |
|
|
| 573,350 |
|
5.500% Senior Unsecured Notes due 2024 |
|
| 300,000 |
|
|
| 300,000 |
|
|
| 300,000 |
|
|
| 300,000 |
|
6.375% Senior Unsecured Notes due 2024 |
|
| 500,000 |
|
|
| 500,000 |
|
|
| 500,000 |
|
|
| 500,000 |
|
3.325% Senior Unsecured Notes due 2025(B) |
|
| 616,200 |
|
|
| 600,250 |
|
|
| 560,900 |
|
|
| 573,350 |
|
5.250% Senior Unsecured Notes due 2026 |
|
| 500,000 |
|
|
| 500,000 |
|
|
| 500,000 |
|
|
| 500,000 |
|
5.000% Senior Unsecured Notes due 2027 |
|
| 1,400,000 |
|
|
| 1,400,000 |
|
|
| 1,400,000 |
|
|
| 1,400,000 |
|
|
| $ | 4,940,014 |
|
| $ | 4,941,310 |
|
| $ | 4,059,602 |
|
| $ | 4,074,759 |
|
Debt issue costs, net |
|
| (41,650 | ) |
|
| (42,643 | ) |
|
| (36,034 | ) |
|
| (37,370 | ) |
|
| $ | 4,898,364 |
|
| $ | 4,898,667 |
|
| $ | 4,023,568 |
|
| $ | 4,037,389 |
|
(A) | Includes |
(B) | These notes are Euro-denominated and reflect the exchange rate at March 31, |
As of March 31, 2018,2019, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) are as follows (in thousands):
2018 |
| $ | — |
| ||||
2019 |
|
| — |
|
| $ | — |
|
2020 |
|
| — |
|
|
| — |
|
2021 |
|
| 807,614 |
|
|
| 37,802 |
|
2022 |
|
| 816,200 |
|
|
| 760,900 |
|
2023 |
|
| — |
| ||||
Thereafter |
|
| 3,316,200 |
|
|
| 3,260,900 |
|
Total |
| $ | 4,940,014 |
|
| $ | 4,059,602 |
|
On February 1, 2017, we replaced our previous unsecured credit facility (which we had entered into in 2014 and amended in 2015) with a new revolving credit and term loan agreement (“Credit Facility”). The new agreement included a $1.3 billion unsecured
revolving loan facility (same amount as the previous revolving loan facility), a $200 million unsecured term loan facility ($50 million lower than the previous term loan), and a new €200 million unsecured term loan facility.
On March 4, 2017, we redeemed the €200 million aggregate principal amount of our 5.750% Senior Unsecured Notes due 2020.
On March 24, 2017, we completed a €500 million senior unsecured notes offering (“3.325% Senior Unsecured Notes due 2025”). A portion of the proceeds from this offering were used to prepay and extinguish the €200 million term loan facility portion of our Credit Facility on March 30, 2017.
With the replacement of our old credit facility, the redemption of the 5.750% Senior Unsecured Notes due 2020, and the payoff of our €200 million euro term loan, we incurred a debt refinancing charge of approximately $14 million in the 2017 first quarter.
Covenants
Our debt facilities impose certain restrictions on us, including restrictions on our ability to: incur debts; create or incur liens; provide guarantees in respect of obligations of any other entity; make redemptions and repurchases of our capital stock; prepay, redeem or repurchase debt; engage in mergers or consolidations; enter into affiliated transactions; dispose of real estate or other assets; and change our business. In addition, the credit agreements governing our revolving credit and term loan agreement (“Credit FacilityFacility”) limit the amount of dividends we can pay as a percentage of normalized adjusted funds from operations, as defined in the agreements, on a rolling four quarter basis. At March 31, 2018,2019, the dividend restriction was 95% of normalized adjusted funds from operations (“NAFFO”). The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95% of NAFFO, proceeds of equity issuances and certain other net cash proceeds. Finally, our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150% of our unsecured indebtedness.
In addition to these restrictions, the Credit Facility contains customary financial and operating covenants, including covenants relating to our total leverage ratio, fixed charge coverage ratio, secured leverage ratio, consolidated adjusted net worth, unsecured leverage ratio, and unsecured interest coverage ratio. ThisThe Credit Facility also contains customary events of default, including among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with our covenants. If an event of default occurs and is continuing under the Credit Facility, the entire outstanding balance may become immediately due and payable. At March 31, 2018,2019, we were in compliance with all such financial and operating covenants.
5. Common Stock/Partners’ Capital
Medical Properties Trust, Inc.
In the 2019 first quarter, we sold 20.1 million shares of common stock under our at-the-market equity offering program, resulting in net proceeds of approximately $354 million.
We sold an additional 2.5 million shares of common stock under our at-the-market equity offering program subsequent to March 31, 2019, resulting in net proceeds of approximately $45 million.
MPT Operating Partnership, L.P.
At March 31, 2019, the Company has a 99.9% ownership interest in the Operating Partnership, with the remainder owned by two other partners, who are employees.
During the three months ended March 31, 2019, the Operating Partnership issued approximately 20.1 million units in direct response to the common stock at-the-market offerings by Medical Properties Trust, Inc. during the same period.
6. Stock Awards
We adopted the 2013 Equity Incentive Plan (the “Equity Incentive Plan”) during the second quarter of 2013, which authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units and awards of interests in our Operating Partnership. The Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. We have reserved 8,196,770 shares of common stock for awards under the Equity Incentive Plan. No shares remain available for future stock awards as of March 31, 2019. Share-based compensation expense totaled $6.7 million and $1.9 million for the three months ended March 31, 2019 and 2018, respectively.
7. Fair Value of Financial Instruments
We have various assets and liabilities that are considered financial instruments. We estimate that the carrying value of cash and cash equivalents and accounts payable and accrued expenses approximate their fair values. We estimate the fair value of our interest and rent receivables using Level 2 inputs such as discounting the estimated future cash flows using the current rates at which similar receivables would be made to others with similar credit ratings and for the same remaining maturities. The fair value of our mortgage loans and working capitalother loans are estimated by using Level 2 inputs such as discounting the estimated future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We determine the fair value of our senior unsecured notes using Level 2 inputs such as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loan using Level 2 inputs based on the present value of future payments, discounted at a rate which we consider appropriate for such debt.
Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision. The following table summarizes fair value estimates for our financial instruments (in thousands):
|
| As of |
|
| As of |
|
| As of |
|
| As of |
| ||||||||||||||||||||
|
| March 31, 2018 |
|
| December 31, 2017 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||
Asset (Liability) |
| Book Value |
|
| Fair Value |
|
| Book Value |
|
| Fair Value |
|
| Book Value |
|
| Fair Value |
|
| Book Value |
|
| Fair Value |
| ||||||||
Interest and rent receivables |
| $ | 81,965 |
|
| $ | 81,009 |
|
| $ | 78,970 |
|
| $ | 78,028 |
|
| $ | 24,788 |
|
| $ | 23,925 |
|
| $ | 25,855 |
|
| $ | 24,942 |
|
Loans (1) |
|
| 1,846,525 |
|
|
| 1,871,705 |
|
|
| 1,698,471 |
|
|
| 1,722,101 |
| ||||||||||||||||
Loans(1) |
|
| 1,465,182 |
|
|
| 1,552,687 |
|
|
| 1,471,520 |
|
|
| 1,490,758 |
| ||||||||||||||||
Debt, net |
|
| (4,898,364 | ) |
|
| (4,968,232 | ) |
|
| (4,898,667 | ) |
|
| (5,073,707 | ) |
|
| (4,023,568 | ) |
|
| (4,170,310 | ) |
|
| (4,037,389 | ) |
|
| (3,947,795 | ) |
| (1) | Excludes mortgage loans related to Ernest since they are recorded at fair value and discussed below. |
Items Measured at Fair Value on a Recurring Basis
Our equity interest in Ernest along with their relatedmortgage loans are measured at fair value on a recurring basis as we elected to account for these investments using the fair value option method.method in 2012 when we acquired an equity interest in and made an acquisition loan to Ernest. Such equity interest was sold and the acquisition loan was paid off in October 2018. We have elected to account for these investments at fair value due to
the size of the investments and because we believe this method iswas more reflective of current values. We have not made a similar election for other currentlyinvestments existing equity interests or loans.at March 31, 2019.
At March 31, 2018, these2019, the amounts recorded under the fair value option method were as follows (in thousands):
Asset Type |
| Fair Value |
|
| Original Cost |
|
| Asset Type Classification |
| Fair Value |
|
| Original Cost |
|
| Asset Type Classification | ||||
Mortgage loans |
| $ | 115,000 |
|
| $ | 115,000 |
|
| Mortgage loans |
| $ | 115,000 |
|
| $ | 115,000 |
|
| Mortgage loans |
Equity investments and other loans |
|
| 112,256 |
|
|
| 118,010 |
|
| Other loans/other assets | ||||||||||
|
| $ | 227,256 |
|
| $ | 233,010 |
|
|
|
Our mortgage and other loans with Ernest are recorded at fair value based on Level 2 inputs by discounting the estimated cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. Our equity investment in Ernest is recorded at fair value based on Level 3 inputs, by using a discounted cash flow model, which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecast assumptions associated with the investee. We classify the equity investment as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuation requires management judgment due to the absence of quoted market prices. For the cash flow model, our observable inputs include use of a capitalization rate, discount rate (which is based on a weighted average cost of capital), and market interest rates, and our unobservable input includes an adjustment for a marketability discount (“DLOM”) on our equity investment of 40% at March 31, 2018.
In regards to the underlying projection of revenues and expenses used in the discounted cash flow model, such projections are provided by Ernest. However, we will modify such projections (including underlying assumptions used) as needed based on our review and analysis of Ernest’s historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry.
In arriving at the DLOM, we started with a DLOM range based on the results of studies supporting valuation discounts for other transactions or structures without a public market. To select the appropriate DLOM within the range, we then considered many qualitative factors including the percent of control, the nature of the underlying investee’s business along with our rights as an investor pursuant to the operating agreement, the size of investment, expected holding period, number of shareholders, access to capital marketplace, etc. To illustrate the effect of movements in the DLOM, we performed a sensitivity analysis below by using basis point variations (dollars in thousands):
Basis Point Change in Marketability Discount |
| Estimated Increase (Decrease) In Fair Value |
| |
+100 basis points |
| $ | (9 | ) |
- 100 basis points |
|
| 9 |
|
BecauseDuring the fair valuefirst quarter of the Ernest investments noted above is below our original cost,2018, we recognized an unrealized loss on our investment in Ernest. There was no gain or loss recorded during the first quarterthree months of 2018. No unrealized gain/loss on the Ernest investments was recorded in the first quarter of 2017.2019.
6.8. Earnings Per ShareShare/Unit
Medical Properties Trust, Inc.
Our earnings per share were calculated based on the following (amounts in thousands):
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 91,043 |
|
| $ | 68,185 |
|
| $ | 76,291 |
|
| $ | 91,043 |
|
Non-controlling interests’ share in net income |
|
| (442 | ) |
|
| (215 | ) |
|
| (469 | ) |
|
| (442 | ) |
Participating securities’ share in earnings |
|
| (195 | ) |
|
| (125 | ) |
|
| (476 | ) |
|
| (195 | ) |
Net income, less participating securities’ share in earnings |
| $ | 90,406 |
|
| $ | 67,845 |
|
| $ | 75,346 |
|
| $ | 90,406 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares |
|
| 364,882 |
|
|
| 321,057 |
|
|
| 380,551 |
|
|
| 364,882 |
|
Dilutive potential common shares |
|
| 461 |
|
|
| 366 |
|
|
| 1,124 |
|
|
| 461 |
|
Dilutive weighted-average common shares |
|
| 365,343 |
|
|
| 321,423 |
|
|
| 381,675 |
|
|
| 365,343 |
|
MPT Operating Partnership, L.P.
Our earnings per common unit were calculated based on the following (amounts in thousands):
|
| For the Three Months Ended March 31, |
|
| For the Three Months Ended March 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 91,043 |
|
| $ | 68,185 |
|
| $ | 76,291 |
|
| $ | 91,043 |
|
Non-controlling interests’ share in net income |
|
| (442 | ) |
|
| (215 | ) |
|
| (469 | ) |
|
| (442 | ) |
Participating securities’ share in earnings |
|
| (195 | ) |
|
| (125 | ) |
|
| (476 | ) |
|
| (195 | ) |
Net income, less participating securities’ share in earnings |
| $ | 90,406 |
|
| $ | 67,845 |
|
| $ | 75,346 |
|
| $ | 90,406 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average units |
|
| 364,882 |
|
|
| 321,057 |
|
|
| 380,551 |
|
|
| 364,882 |
|
Dilutive potential units |
|
| 461 |
|
|
| 366 |
|
|
| 1,124 |
|
|
| 461 |
|
Diluted weighted-average units |
|
| 365,343 |
|
|
| 321,423 |
|
|
| 381,675 |
|
|
| 365,343 |
|
7.9. Commitments and Contingencies
Commitments
On September 28, 2016,January 31, 2019, we entered into definitive agreements to acquire a portfolio of eleven Australian hospitals currently operated by Healthscope Ltd. (“Healthscope”) for an acute care hospital in Washington for aaggregate purchase price of $17.5 million.approximately $859 million, of which approximately $36.4 million was paid into escrow on February 4, 2019. Upon closing, the facilitythese facilities will be leased to RCCH,Healthscope pursuant to the current master lease.lease agreements that have an average initial term of 20 years with annual fixed escalations and multiple extension options. In a related transaction, Brookfield Business Partners L.P. together with its institutional partners (“Brookfield”) has agreed to acquire up to 100% of Healthscope’s outstanding shares. Closing of this transaction,our acquisition, which is expected to be completed in 2018the second quarter of 2019, is subject to Healthscope shareholder approval, customary real estate and regulatory approvals, the successful completion of the Brookfield transactions, and other closing conditions. In April 2019, we entered into an Australian term loan commitment in the amount of $1.2 billion Australian dollars for which closing and funding is contingent on the successful completion of the Healthscope transaction.
We are a party to various legal proceedings incidental to our business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations or cash flows.
10. Leases (Lessee)
We have leased land on which certain of our facilities reside, along with corporate office and equipment. Our leases have remaining lease terms of 5.3 years to 42.5 years, some of which may include options to extend the leases up to, or just beyond, the depreciable life of the properties that occupy the leased land. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments.
Properties subject to ground leases are subleased to our tenants, except for three Adeptus transition properties.
The following is a summary of our lease expense (in thousands):
|
| Classification |
| Three Months Ended March 31, 2019 |
| |
Operating lease cost (1) |
| (2) |
| $ | 2,096 |
|
Finance lease cost: |
|
|
|
|
|
|
Amortization of right-of-use assets |
| Real estate depreciation and amortization |
|
| 13 |
|
Interest on lease liabilities |
| Interest expense |
|
| 21 |
|
Sublease income |
| Interest and other income |
|
| (900 | ) |
Total lease cost |
|
|
| $ | 1,230 |
|
(1) | Includes short-term leases. |
(2) | $1.6 million included in Property-related, with the remainder reflected in General and administrative expenses. |
Fixed minimum payments due over the remaining lease term under non-cancelable leases of more than one year and amounts to be received in the future from non-cancelable subleases over their remaining lease term at March 31, 2019 are as follows (amounts in thousands):
|
| Operating leases |
|
| Finance leases |
|
| Amounts to be received from subleases |
|
| Net payments |
|
| ||||
2019 (1) |
| $ | 4,598 |
|
| $ | 93 |
|
| $ | (2,542 | ) |
| $ | 2,149 |
|
|
2020 |
|
| 6,437 |
|
|
| 125 |
|
|
| (3,456 | ) |
|
| 3,106 |
|
|
2021 |
|
| 6,606 |
|
|
| 126 |
|
|
| (3,561 | ) |
|
| 3,171 |
|
|
2022 |
|
| 6,750 |
|
|
| 128 |
|
|
| (3,715 | ) |
|
| 3,163 |
|
|
2023 |
|
| 6,815 |
|
|
| 129 |
|
|
| (3,719 | ) |
|
| 3,225 |
|
|
Thereafter |
|
| 196,788 |
|
|
| 5,045 |
|
|
| (95,320 | ) |
|
| 106,513 |
| (2) |
Total undiscounted minimum lease payments |
| $ | 227,994 |
|
| $ | 5,646 |
|
| $ | (112,313 | ) |
| $ | 121,327 |
|
|
Less: interest |
|
| (146,478 | ) |
|
| (3,717 | ) |
|
|
|
|
|
|
|
|
|
Present value of lease liabilities |
| $ | 81,516 |
|
| $ | 1,929 |
|
|
|
|
|
|
|
|
|
|
(1) | Represents remaining nine months of 2019. |
(2) | Reflects certain ground leases, in which we are the lessee, that have longer initial fixed terms than our existing sublease to our tenants. However, we would expect to either renew the related sublease, enter into a lease with a new tenant or early terminate the ground lease to reduce or avoid any significant impact from such ground leases. |
Supplemental balance sheet information is as follows (in thousands, except lease terms and discount rate):
|
| Classification |
| March 31, 2019 |
| |
Right of use assets: |
|
|
|
|
|
|
Operating leases - real estate |
| Land, buildings and improvements, intangible lease assets, and other |
| $ | 64,995 |
|
Finance leases - real estate |
| Land, buildings and improvements, intangible lease assets, and other |
|
| 1,939 |
|
Real estate right of use assets, net |
|
|
|
| 66,934 |
|
Operating leases - corporate |
| Other assets |
|
| 11,419 |
|
Total right of use assets, net |
|
|
| $ | 78,353 |
|
|
|
|
|
|
|
|
Lease liabilities: |
|
|
|
|
|
|
Operating leases |
| Obligations to tenants and other lease liabilities |
| $ | 81,516 |
|
Financing leases |
| Obligations to tenants and other lease liabilities |
|
| 1,929 |
|
Total lease liabilities |
|
|
| $ | 83,445 |
|
|
|
|
|
|
|
|
Weighted average remaining lease term: |
|
|
|
|
|
|
Operating leases |
|
|
|
| 32.2 |
|
Finance leases |
|
|
|
| 37.7 |
|
Weighted average discount rate: |
|
|
|
|
|
|
Operating leases |
|
|
|
| 6.3 | % |
Finance leases |
|
|
|
| 6.6 | % |
The following is supplemental cash flow information (in thousands):
|
| Three Months Ended March 31, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
| $ | 1,459 |
|
Operating cash flows from finance leases |
|
| 10 |
|
Financing cash flows from finance leases |
|
| 21 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
Operating leases |
|
| 1,042 |
|
Finance leases |
|
| — |
|
11. Subsequent Events
On April 3, 2019, we closed on the acquisition of one acute care hospital in Poole, England for a purchase price of approximately £34.5 million. Upon closing, this facility was leased to BMI Healthcare, pursuant to an in-place lease with 14 years remaining on its term and fixed 2.5% annual escalators.
On April 11, 2019, we re-leased our Twelve Oaks facility to a new tenant, Advanced Diagnostics Health System, LLC, pursuant to a new 10-year lease, subject to four additional five-year extension options.
On April 12, 2019, we closed on the acquisition of one acute care hospital in Big Spring, Texas for a purchase price of $26 million. Upon closing, this facility was leased to Steward pursuant to the existing master lease agreement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust and MPT Operating Partnership, L.P. as there are no material differences between these two entities.
The following discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Forward-Looking Statements.
This reportQuarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or future performance, achievements or transactions or events to be materially different from those expressed or implied by such forward-looking statements, including, but not limited to, the risks described in our Annual Report on Form 10-K and as updated in our quarterly reportsQuarterly Reports on Form 10-Q for future periods, and current reportsCurrent Reports on Form 8-K as we file them with the SEC under the Securities Exchange Act of 1934, as amended. Such factors include, among others, the following:
the political, economic, business, real estate, and other market conditions of the U.S. (both national and local) and European, Europe (in particular Germany, the United Kingdom, Spain and Italy) political, economic, business, real estate,, and other market conditions;foreign jurisdictions;
the competitive environment in which we operate;
the execution of our business plan;
financing risks;risks, such as our ability to repay, refinance, restructure, or extend our indebtedness as it becomes due;
the risk that a condition to closing under the agreements governing any or all of our outstanding transactions that have not closed as of the date hereof (including the Healthscope transaction described in Note 9 to Item 1 of this Quarterly Report on Form 10-Q) may not be satisfied;
the possibility that the anticipated benefits from any or all of the transactions we enter into will take longer to realize than expected or will not be realized at all;
acquisition and development risks;
potential environmental contingencies and other liabilities;
adverse developments affecting the financial health of one or more of our tenants, including insolvency;
other factors affecting the real estate industry generally or the healthcare real estate industry in particular;
our ability to maintain our status as a real estate investment trust or REIT,(“REIT”) for U.S. federal and state income tax purposes (particularly in light of current tax reform considerations);purposes;
our ability to attract and retain qualified personnel;
changes in foreign currency exchange rates;
changes in tax laws in the U.S., Europe or any other foreign jurisdictions in which we do business;
U.S. (both federal and state) and, European (in particular Germany, the United Kingdom, Spain and Italy) and other foreign countries’ healthcare and other regulatory requirements; and
U.S. national and local economic conditions, as well as conditions in Europe, Australia and any other foreign jurisdictions where we own or will own healthcare facilities, which may have a negative effect on the following, among other things:
the financial condition of our tenants, our lenders, or institutions that hold our cash balances, which may expose us to increased risks of default by these parties;
our ability to obtain equity or debt financing (including joint venture financing arrangements) on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities, refinance existing debt and our future interest expense; and
the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis.
Key Factors that May Affect Our Operations
Our revenue is derived from rents we earn pursuant to the lease agreements with our tenants, from interest income from loans to our tenants and other facility owners and from profits or equity interests in real estate joint ventures and other investments including interest held in certain of our tenants’ operations. Our tenants operate in the healthcare industry, generally providing medical, surgical and rehabilitative care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory and market conditions that may affect their profitability, which could impact our results. Accordingly, we monitor certain key factors, changes to which we believe may provide early indications of conditions that may affect the level of risk in our portfolio.
Key factors that we consider in underwriting prospective tenants and borrowers and in monitoring the performance of existing tenants and borrowers include the following:
admission levels and surgery/procedure/diagnosis volumes by type;
the current, historical and prospective operating margins (measured by earnings before interest, taxes, depreciation, amortization and facility rent) of each tenant or borrower and at each facility;
the ratio of our tenants’ or borrowers’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;
trendschanges in the sourcerevenue sources of our tenants’ or borrowers’ revenue, including the relative mix of public payors (including Medicare, Medicaid/MediCal, managed care in the U.S. and pension funds in Germany) and private payors (including commercial insurance and private pay patients);
trends in tenants’ cash collections, including comparison to recorded net patient service revenues;
tenants’ free cash flows;
the effect of evolving healthcare legislation and other regulations on our tenants’ or borrowers’ profitability and liquidity; and
the competition and demographics of the local and surrounding areas in which the tenants or borrowers operate.
Certain business factors, in addition to those described above that directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include:
trends in the cost and availability of capital, including market interest rates, that our prospective tenants may use for their real estate assets instead of financing their real estate assets through lease structures;
changes in healthcare regulations that may limit the opportunities for physicians to participate in the ownership of healthcare providers and healthcare real estate;
reductions in reimbursements from Medicare, state healthcare programs, and commercial insurance providers that may reduce our tenants’ or borrowers’ profitability and our lease rates;
competition from other financing sources; and
the ability of our tenants and borrowers to access funds in the credit markets.
CRITICAL ACCOUNTING POLICIES
Refer to our 20172018 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include revenue recognition, investments in real estate, purchase price allocation, loans, losses from rent and interest receivables, stock-based compensation, our fair value option election, and our accounting policy on consolidation. During the three months ended March 31, 2018,2019, there were no material changes to these policies.policies except for those described in Note 2 to Item 1 of this Form 10-Q.
Overview
We are a self-advised real estate investment trust (“REIT”)REIT focused on investing in and owning net-leased healthcare facilities across the U.S. and selectively in foreign jurisdictions. We have operated as a REIT since April 6, 2004, and accordingly, elected REIT status upon the filing of our calendar year 2004 federal income tax return. Medical Properties Trust, Inc. was incorporated under Maryland law on August 27, 2003, and MPT Operating Partnership, L.P. was formed under Delaware law on September 10, 2003. We conduct substantially all of our business through MPT Operating Partnership, L.P. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we selectively make loans to certain of our operators through our taxable REIT subsidiaries, the proceeds of which are typically used for acquisitions and working capital. Finally, from time to time, we acquire a profits or other equity interest in our tenants that gives us a right to share in such tenant’s profits and losses.
At March 31, 2018,2019, our portfolio consisted of 274276 properties leased or loaned to 3129 operators, of which twothree are under development and 1510 are in the form of mortgage loans.
Our investments in healthcare real estate, including mortgage and other loans, as well as any equity investments in our tenants are considered a single reportable segment. AllAt March 31, 2019, all of our investments are currently located in the U.S. and Europe. Our total assets are made up of the following (dollars in thousands):
|
| As of March 31, 2018 |
|
| % of Total |
|
| As of December 31, 2017 |
|
| % of Total |
|
| As of March 31, 2019 |
|
| % of Total |
|
| As of December 31, 2018 |
|
| % of Total |
| ||||||||
Real estate owned (gross) |
| $ | 6,518,188 |
|
|
| 72.2 | % |
| $ | 6,595,252 |
|
|
| 73.1 | % |
| $ | 5,976,400 |
|
|
| 64.7 | % |
| $ | 5,868,340 |
|
|
| 66.4 | % |
Mortgage loans |
|
| 1,927,393 |
|
|
| 21.3 | % |
|
| 1,778,316 |
|
|
| 19.7 | % |
|
| 1,214,780 |
|
|
| 13.2 | % |
|
| 1,213,322 |
|
|
| 13.7 | % |
Other loans |
|
| 148,842 |
|
|
| 1.6 | % |
|
| 150,209 |
|
|
| 1.7 | % |
|
| 365,402 |
|
|
| 4.0 | % |
|
| 373,198 |
|
|
| 4.2 | % |
Construction in progress |
|
| 35,122 |
|
|
| 0.4 | % |
|
| 47,695 |
|
|
| 0.5 | % |
|
| 102,239 |
|
|
| 1.1 | % |
|
| 84,172 |
|
|
| 1.0 | % |
Other assets |
|
| 402,295 |
|
|
| 4.5 | % |
|
| 448,816 |
|
|
| 5.0 | % |
|
| 1,572,632 |
|
|
| 17.0 | % |
|
| 1,304,611 |
|
|
| 14.7 | % |
Total assets |
| $ | 9,031,840 |
|
|
| 100.0 | % |
| $ | 9,020,288 |
|
|
| 100.0 | % |
| $ | 9,231,453 |
|
|
| 100.0 | % |
| $ | 8,843,643 |
|
|
| 100.0 | % |
|
Additional Concentration Details On a pro forma gross asset basis (as defined in the “Reconciliation of Non-GAAP Financial Measures” section of Item 2 of this Quarterly Report on Form 10-Q), our concentration as of |
The following is our revenue by operating type (dollar amountsas follows (dollars in thousands):
Pro Forma Gross Assets by Operator
|
| For the Three Months Ended March 31, 2018 |
|
| % of Total |
|
| For the Three Months Ended March 31, 2017 |
|
| % of Total |
| ||||
General Acute Care Hospitals (1) |
| $ | 145,797 |
|
|
| 71.1 | % |
| $ | 107,126 |
|
|
| 68.5 | % |
Rehabilitation Hospitals |
|
| 50,159 |
|
|
| 24.5 | % |
|
| 38,279 |
|
|
| 24.5 | % |
Long-term Acute Care Hospitals |
|
| 9,090 |
|
|
| 4.4 | % |
|
| 10,992 |
|
|
| 7.0 | % |
Total revenues |
| $ | 205,046 |
|
|
| 100.0 | % |
| $ | 156,397 |
|
|
| 100.0 | % |
|
| As of March 31, 2019 |
|
| As of December 31, 2018 |
| ||||||||||
Operators |
| Total Pro Forma Gross Assets |
|
| Percentage of Total Pro Forma Gross Assets |
|
| Total Pro Forma Gross Assets |
|
| Percentage of Total Pro Forma Gross Assets |
| ||||
Steward |
| $ | 3,879,006 |
|
|
| 37.9 | % |
| $ | 3,823,625 |
|
|
| 38.0 | % |
Prime |
|
| 1,145,909 |
|
|
| 11.2 | % |
|
| 1,124,711 |
|
|
| 11.2 | % |
MEDIAN |
|
| 1,041,121 |
|
|
| 10.2 | % |
|
| 1,075,504 |
|
|
| 10.7 | % |
Healthscope |
|
| 858,569 |
|
|
| 8.4 | % |
|
| 858,569 |
|
|
| 8.5 | % |
Ernest |
|
| 504,546 |
|
|
| 4.9 | % |
|
| 500,397 |
|
|
| 5.0 | % |
LifePoint |
|
| 502,072 |
|
|
| 4.9 | % |
|
| 502,072 |
|
|
| 5.0 | % |
Other operators |
|
| 1,745,797 |
|
|
| 16.9 | % |
|
| 1,644,900 |
|
|
| 16.3 | % |
Other assets |
|
| 569,876 |
|
|
| 5.6 | % |
|
| 528,669 |
|
|
| 5.3 | % |
Total |
| $ | 10,246,896 |
|
|
| 100.0 | % |
| $ | 10,058,447 |
|
|
| 100.0 | % |
|
|
We have 69 employeesPro Forma Gross Assets by U.S. State and Country
|
| As of March 31, 2019 |
|
| As of December 31, 2018 |
| ||||||||||
U.S. States and Other Countries |
| Total Pro Forma Gross Assets |
|
| Percentage of Total Pro Forma Gross Assets |
|
| Total Pro Forma Gross Assets |
|
| Percentage of Total Pro Forma Gross Assets |
| ||||
Massachusetts |
| $ | 1,476,887 |
|
|
| 14.4 | % |
| $ | 1,469,423 |
|
|
| 14.6 | % |
Texas |
|
| 1,195,752 |
|
|
| 11.7 | % |
|
| 1,126,217 |
|
|
| 11.2 | % |
Utah |
|
| 1,057,519 |
|
|
| 10.3 | % |
|
| 1,054,539 |
|
|
| 10.5 | % |
California |
|
| 522,750 |
|
|
| 5.1 | % |
|
| 522,753 |
|
|
| 5.2 | % |
Arizona |
|
| 488,198 |
|
|
| 4.8 | % |
|
| 483,778 |
|
|
| 4.8 | % |
All other states |
|
| 2,666,821 |
|
|
| 25.9 | % |
|
| 2,630,231 |
|
|
| 26.1 | % |
Other domestic assets |
|
| 552,005 |
|
|
| 5.4 | % |
|
| 482,992 |
|
|
| 4.8 | % |
Total U.S. |
| $ | 7,959,932 |
|
|
| 77.6 | % |
| $ | 7,769,933 |
|
|
| 77.2 | % |
Germany |
| $ | 1,132,936 |
|
|
| 11.1 | % |
| $ | 1,164,973 |
|
|
| 11.6 | % |
Australia |
|
| 858,569 |
|
|
| 8.4 | % |
|
| 858,569 |
|
|
| 8.5 | % |
United Kingdom, Italy, and Spain |
|
| 277,588 |
|
|
| 2.7 | % |
|
| 219,295 |
|
|
| 2.2 | % |
Other international assets |
|
| 17,871 |
|
|
| 0.2 | % |
|
| 45,677 |
|
|
| 0.5 | % |
Total international |
| $ | 2,286,964 |
|
|
| 22.4 | % |
| $ | 2,288,514 |
|
|
| 22.8 | % |
Grand total |
| $ | 10,246,896 |
|
|
| 100.0 | % |
| $ | 10,058,447 |
|
|
| 100.0 | % |
On an individual property basis, we had no investment in any single property greater than 3.6% of our total pro forma gross assets as of May 4, 2018. We believe that any foreseeable increaseMarch 31, 2019.
On an adjusted revenue basis (as defined in the number“Reconciliation of our employees will have only immaterial effectsNon-GAAP Financial Measures” section of Item 2 of this Quarterly Report on our operationsForm 10-Q), concentration for the three months ended March 31, 2019 as compared to the prior year is as follows (dollars in thousands):
Adjusted Revenue by Operator
|
| For the Three Months Ended March 31, |
| |||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
Operators |
| Total Adjusted Revenue |
|
| Percentage of Total Adjusted Revenue |
|
| Total Adjusted Revenue |
|
| Percentage of Total Adjusted Revenue |
| ||||
Steward |
| $ | 86,630 |
|
|
| 43.5 | % |
| $ | 73,227 |
|
|
| 35.7 | % |
Prime |
|
| 32,002 |
|
|
| 16.1 | % |
|
| 31,778 |
|
|
| 15.5 | % |
MEDIAN |
|
| 22,186 |
|
|
| 11.2 | % |
|
| 29,088 |
|
|
| 14.2 | % |
Ernest |
|
| 12,969 |
|
|
| 6.5 | % |
|
| 16,416 |
|
|
| 8.0 | % |
LifePoint |
|
| 11,483 |
|
|
| 5.8 | % |
|
| 9,537 |
|
|
| 4.7 | % |
Other operators |
|
| 33,733 |
|
|
| 16.9 | % |
|
| 45,000 |
|
|
| 21.9 | % |
Total |
| $ | 199,003 |
|
|
| 100.0 | % |
| $ | 205,046 |
|
|
| 100.0 | % |
AdjustedRevenue by U.S. State and general and administrative expenses. We believe that our relations with our employees are good. None of our employees are members of any labor union.Country
|
| For the Three Months Ended March 31, |
| |||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
U.S. States and Other Countries |
| Total Adjusted Revenue |
|
| Percentage of Total Adjusted Revenue |
|
| Total Adjusted Revenue |
|
| Percentage of Total Adjusted Revenue |
| ||||
Massachusetts |
| $ | 34,036 |
|
|
| 17.1 | % |
| $ | 26,940 |
|
|
| 13.1 | % |
Texas |
|
| 27,231 |
|
|
| 13.7 | % |
|
| 30,355 |
|
|
| 14.8 | % |
Utah |
|
| 21,591 |
|
|
| 10.9 | % |
|
| 20,871 |
|
|
| 10.2 | % |
California |
|
| 15,822 |
|
|
| 8.0 | % |
|
| 16,666 |
|
|
| 8.1 | % |
Arizona |
|
| 12,583 |
|
|
| 6.3 | % |
|
| 11,386 |
|
|
| 5.6 | % |
All other states |
|
| 59,757 |
|
|
| 29.9 | % |
|
| 60,037 |
|
|
| 29.3 | % |
Total U.S. |
| $ | 171,020 |
|
|
| 85.9 | % |
| $ | 166,255 |
|
|
| 81.1 | % |
Germany |
| $ | 24,175 |
|
|
| 12.2 | % |
| $ | 37,665 |
|
|
| 18.4 | % |
United Kingdom, Italy, and Spain |
|
| 3,808 |
|
|
| 1.9 | % |
|
| 1,126 |
|
|
| 0.5 | % |
Total international |
| $ | 27,983 |
|
|
| 14.1 | % |
| $ | 38,791 |
|
|
| 18.9 | % |
Grand total |
| $ | 199,003 |
|
|
| 100.0 | % |
| $ | 205,046 |
|
|
| 100.0 | % |
Adjusted Revenue by Facility Type
|
| For the Three Months Ended March 31, |
| |||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
U.S. States and Other Countries |
| Total Adjusted Revenue |
|
| Percentage of Total Adjusted Revenue |
|
| Total Adjusted Revenue |
|
| Percentage of Total Adjusted Revenue |
| ||||
General acute care hospitals |
| $ | 157,700 |
|
|
| 79.2 | % |
| $ | 145,797 |
|
|
| 71.1 | % |
Rehabilitation hospitals |
|
| 34,159 |
|
|
| 17.2 | % |
|
| 50,159 |
|
|
| 24.5 | % |
Long-term acute care hospitals |
|
| 7,144 |
|
|
| 3.6 | % |
|
| 9,090 |
|
|
| 4.4 | % |
Total |
| $ | 199,003 |
|
|
| 100.0 | % |
| $ | 205,046 |
|
|
| 100.0 | % |
Results of Operations
Three Months Ended March 31, 20182019 Compared to March 31, 20172018
Net income for the three months ended March 31, 2018,2019, was $90.6$75.8 million, compared to $68.0$90.6 million for the three months ended March 31, 2017.2018. This increasedecrease is primarily due to additional revenue fromexpected lower revenues as a result of property sales post the Steward and MEDIAN investments that were made in 2017 and no debt refinancing charges in 2018 comparedfirst quarter including 71 properties sold to $13.6 millionform the Primotop joint venture in the 2017 first2018 third quarter. This increasedecrease is partially offset by increased interest expenseadditional revenue from higher average outstanding debt balances to fund new investments in 2017, higher general and administrative costspost the 2018 first quarter along with additional straight-line rent revenue recorded from the growthconversion of our company, higher depreciation expenses from investments made subsequentSteward mortgage loans to March 31, 2017, and a larger gain on disposition made during the first quarter of 2017.fee simple real estate throughout 2018. Funds from operations (“FFO”), after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $131.5$117.8 million or $0.36 per diluted share for the 20182019 first quarter as compared to $105.9$131.5 million or $0.33 per diluted share for the 20172018 first quarter. This 24.2% increaseSimilar to net income, this decrease in FFO is primarily due to the increase inlower revenue from acquisitions and completed development projects made sincethe property sales post March 2017 (primarily our Steward investments).31, 2018.
A comparison of revenues for the three month periods ended March 31, 20182019 and 20172018 is as follows (dollar amounts in thousands):
|
| 2018 |
|
| % of Total |
|
| 2017 |
|
| % of Total |
|
| Year over Year Change |
|
| 2019 |
|
| % of Total |
|
| 2018 |
|
| % of Total |
|
| Year over Year Change |
| ||||||||||
Rent billed |
| $ | 128,011 |
|
|
| 62.4 | % |
| $ | 96,763 |
|
|
| 61.9 | % |
|
| 32.3 | % |
| $ | 108,598 |
|
|
| 60.2 | % |
| $ | 128,011 |
|
|
| 62.4 | % |
|
| -15.2 | % |
Straight-line rent |
|
| 15,791 |
|
|
| 7.7 | % |
|
| 12,779 |
|
|
| 8.2 | % |
|
| 23.6 | % |
|
| 20,651 |
|
|
| 11.4 | % |
|
| 15,791 |
|
|
| 7.7 | % |
|
| 30.8 | % |
Income from direct financing leases |
|
| 17,681 |
|
|
| 8.6 | % |
|
| 17,880 |
|
|
| 11.4 | % |
|
| (1.1 | )% |
|
| 17,280 |
|
|
| 9.6 | % |
|
| 17,681 |
|
|
| 8.6 | % |
|
| -2.3 | % |
Interest and fee income from loans |
|
| 43,563 |
|
|
| 21.3 | % |
|
| 28,975 |
|
|
| 18.5 | % |
|
| 50.3 | % | ||||||||||||||||||||
Interest and other income |
|
| 33,925 |
|
|
| 18.8 | % |
|
| 43,563 |
|
|
| 21.3 | % |
|
| -22.1 | % | ||||||||||||||||||||
Total revenues |
| $ | 205,046 |
|
|
| 100.0 | % |
| $ | 156,397 |
|
|
| 100.0 | % |
|
| 31.1 | % |
| $ | 180,454 |
|
|
| 100.0 | % |
| $ | 205,046 |
|
|
| 100.0 | % |
|
| -12.0 | % |
Our total revenue for the 20182019 first quarter is up $48.6down $24.6 million, or 31.1%12%, over the prior year. This increasedecrease is made up of the following:
Operating lease revenue (includes rent billed and straight-line rent) – up $34.3down $14.6 million over the prior year of which $32.6$35.1 million of lower revenues is due to property dispositions post March 31, 2018 (majority relates to the formation of the Primotop joint venture in the 2018 third quarter) and approximately $2.9 million is from unfavorable foreign currency fluctuations. This decrease is partially offset by $17.6 million of additional lease revenue (of which $4.3 million represents straight-line rent) related to the conversion of four Steward mortgage loans to fee simple assets in 2018, and $5.4 million of incremental revenue from acquisitions made afterpost March 2017 (primarily the Steward acquisitions), $1.2 million is incremental revenue from31, 2018 along with expansion and development properties that were completed and placed into service after March 2017, and approximately $5 million is from favorable foreign currency fluctuations. These increases are partially offset by $1.4 million of lower revenue related to dispositions and $3.5 million of higher straight-line rent write-offs in 2018 related to Adeptus Health, the conversion of our St. Joseph’s property in Houston to a mortgage loan, and lease terminations at our Gilbert and Florence properties.projects.
Income from direct financing leases – down $0.2 millionremained flat quarter over the prior year primarily due to the $1.5 million write-off of DFL unbilled interest related to the Boise lease that converted from DFL to operating lease accounting classification upon execution of the new lease with the Vibra/Ernest joint venture discussed in Note 3 to Item 1 of this Form 10-Q. The impact from the write-off was almost completely offset by $0.2 million from annual escalations of rental rates in accordance with provisions in our leases and $1.1 million from incremental revenue from acquisitions made after March 2017.quarter.
Interest from loansand other income – up $14.6down $9.6 million overfrom the prior year of which $0.5 million is from our annual escalations in interest rates in accordance with loan provisions and $14.1 million is from incremental revenue fromdue to the new Steward mortgage loans made after March 2017.following:
- | Interest from loans – down $10.9 million over the prior year of which $11.5 million is the result of lower interest revenue related to Steward mortgage loans converted to fee simple assets in 2018 and $4.4 million is from the payoff of our Ernest acquisition and other loans in the fourth quarter of 2018. This is partially offset by $4.2 million of interest revenue earned on the Primotop joint venture shareholder loan made in August 2018, $0.7 million from new loans made post the 2018 first quarter, and $0.2 million from our annual escalations in interest rates in accordance with loan provisions. |
- | Other income – up $1.3 million due to the implementation of the lease accounting standard on January 1, 2019, whereby we are now reflecting certain payments made by our tenants, including ground lease payments and reimbursements of property taxes and insurance, as revenue. This revenue is offset by a corresponding expense in the “Property-related” line on the Condensed Consolidated Statements of Net Income. |
Interest expense for the quarters ended March 31, 2019 and 2018, and 2017, totaled $57.0$50.6 million and $38.0$57.0 million, respectively. This increasedecrease is primarily related to the higherlower average revolving debt balance during the 20182019 first quarter compared to the prior year first quarter in order to fund our 2017 acquisition activity and approximately $2 million relates to foreign currency fluctuation. The impact on interest expense is partially offset by slightly lower weighted average interest rates period over period due to certain refinancing activities in our debt during 2017. Our weighted-average interest rate was 4.4% for the three months ended March 31, 2018, as compared to 4.6% in the same period in 2017. See Note 4 to Item 1 of this Form 10-Q for a description of our refinancing activities in 2017 that lead to a $13.6 million refinancing charge in the 2017 first quarter.
General and administrative expenses totaled $17.8 million for the 2018 first quarter which is a $4.6 million increaseas we paid down our revolver with proceeds from the prior year first quarter. As noted in Note 2 to Item 1 of this Form 10-Q, general and administrative expenses were higher in the 2018 first quarter by $1.6 million due to our adoption of ASU 2017-01. Excluding the $1.6 million of higher expense due to the accounting change, general and administrative expenses represented 7.9% of revenue in the 2018 first quarter, which was lower than 8.4% in 2017. On a dollar basis (exclusive of the accounting change impact), general and administrative expenses were up $3 million from the prior year first quarter due to travel and compensation expense, which are up as a result of the growth and expansion of our company.property sales post March 31, 2018.
Real estate depreciation and amortization during the first quarter of 2018 increased2019 decreased to $33.4 million from $35.8 million from $27.6 million in 2017,2018, due to the incremental depreciation from the facilities acquired (particularly the Steward facilities acquiredproperty sales in the 2017 third quarter)2018, partially offset by new investments made and the development properties completed in 2017conversion of the four Steward mortgage loans to fee simple assets.
Property-related expenses totaled $3.1 million and $2.2 million for the quarters ended March 31, 2019 and 2018, respectively. As noted above under the caption “Other income,” this increase was primarily due to the grossing up of certain expenses (such as ground lease, property taxes and insurance) as part of our implementation of the lease accounting standard on January 1, 2019.
General and administrative expenses totaled $23.5 million for the 2019 first quarter, of 2018.
Acquisition costs decreased $2.8which is a $5.6 million increase from the prior year.year first quarter. The acquisition costsmajority of the increase relates to stock compensation expense from our performance-based awards. Given our strong performance in 2017 primarily related to the MEDIAN transaction2018 with a total shareholder return of 25% along with deals completed subsequentour current acquisition pipeline and expectations to March 2017. Furthermore,close a substantial amount of acquisitions in the 2018 first quarter, all third party transaction costs directly related to acquisitions were capitalized due to the adoption of ASU 2017-01 as noted previously.2019, we believe it is more likely that such performance awards will be earned and have adjusted our stock compensation expense accordingly.
During the three months ended March 31, 2018, we sold our St. Joseph’s property at a gain of $1.5 million. Similarly,We have no dispositions in the 2017 first quarter we sold one RCCH property resulting in a $7.4 million gain.of 2019. See Note 3 to Item 1 of this Form 10-Q for further details.
In the first quarter of 2018, we incurred other expense of $4.7 million, which included non-cash and unrealized fair value adjustments on our Ernest investments that were sold or repaid in October 2018. No similar fair value adjustments were recorded in the 2019 first quarter.
Income tax expense typically includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $2.3 million income tax expensebenefit for the three months ended March 31, 2018, reflects an increase2019, represents the benefit from prior year due to an increasestraight-line rent and other write-offs on our TRS in the quarter. The benefit is partially offset by financial taxable income from our international investments. We utilize the asset and liability method of accounting for income taxes. Deferred tax assets are recorded to the extent we believe these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon our review of all positive and negative evidence, including our three-year cumulative pre-tax book loss position in certain entities, we concluded that a full valuation allowance of $3 million should continue to be recorded against the majority of our U.S. and certain of our international net deferred tax assets at March 31, 2018.2019. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and incur higher income taxes in future periods.periods as income earned.
Reconciliation of Non-GAAP Financial Measures
Investors and analysts following the real estate industry utilize funds from operations, or FFO, as a supplemental performance measure. FFO, reflecting the assumption that real estate asset values rise or fall with market conditions, principally adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assumes that the value of real estate diminishes predictably over time. We compute FFO in accordance with the definition provided by the National Association of Real Estate Investment Trusts, or NAREIT,Nareit, which represents net income (loss) (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairment charges on real estate assets, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.
In addition to presenting FFO in accordance with the NAREITNareit definition, we also disclose normalized FFO, which adjusts FFO for items that relate to unanticipated or non-core events or activities or accounting changes that, if not noted, would make comparison to prior period results and market expectations less meaningful to investors and analysts.
We believe that the use of FFO, combined with the required GAAP presentations, improves the understanding of our operating results among investors and the use of normalized FFO makes comparisons of our operating results with prior periods and other companies more meaningful. While FFO and normalized FFO are relevant and widely used supplemental measures of operating and financial performance of REITs, they should not be viewed as a substitute measure of our operating performance since the measures do not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which can be significant economic costs that could materially impact our results of operations. FFO and normalized FFO should not be considered an alternative to net income (loss) (computed in accordance with GAAP) as indicators of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.
The following table presents a reconciliation of net income attributable to MPT common stockholders to FFO for the three months ended March 31, 20182019 and 20172018 (in thousands, except per share data):
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||||
|
| March 31, 2018 |
|
| March 31, 2017 |
|
| March 31, 2019 |
|
| March 31, 2018 |
| ||||
FFO information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT common stockholders |
| $ | 90,601 |
|
| $ | 67,970 |
|
| $ | 75,822 |
|
| $ | 90,601 |
|
Participating securities’ share in earnings |
|
| (195 | ) |
|
| (125 | ) |
|
| (476 | ) |
|
| (195 | ) |
Net income, less participating securities’ share in earnings |
| $ | 90,406 |
|
| $ | 67,845 |
|
| $ | 75,346 |
|
| $ | 90,406 |
|
Depreciation and amortization |
|
| 36,517 |
|
|
| 28,099 |
|
|
| 39,854 |
|
|
| 36,517 |
|
Gain on sale of real estate, net |
|
| (1,467 | ) |
|
| (7,413 | ) |
|
| - |
|
|
| (1,467 | ) |
Funds from operations |
| $ | 125,456 |
|
| $ | 88,531 |
|
| $ | 115,200 |
|
| $ | 125,456 |
|
Write-off of straight-line rent and other |
|
| 6,059 |
|
|
| 1,117 |
| ||||||||
Debt refinancing costs |
|
| — |
|
|
| 13,629 |
| ||||||||
Acquisition costs, net of tax benefit |
|
| — |
|
|
| 2,645 |
| ||||||||
Write-off of straight-line rent and other, net of tax benefit |
|
| 2,596 |
|
|
| 6,059 |
| ||||||||
Normalized funds from operations |
| $ | 131,515 |
|
| $ | 105,922 |
|
| $ | 117,796 |
|
| $ | 131,515 |
|
Per diluted share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities’ share in earnings |
| $ | 0.25 |
|
| $ | 0.21 |
|
| $ | 0.20 |
|
| $ | 0.25 |
|
Depreciation and amortization |
|
| 0.09 |
|
|
| 0.09 |
|
|
| 0.10 |
|
|
| 0.09 |
|
Gain on sale of real estate, net |
|
| — |
|
|
| (0.02 | ) |
|
| — |
|
|
| — |
|
Funds from operations |
| $ | 0.34 |
|
| $ | 0.28 |
|
| $ | 0.30 |
|
| $ | 0.34 |
|
Write-off of straight-line rent and other |
|
| 0.02 |
|
|
| — |
| ||||||||
Debt refinancing costs |
|
| — |
|
|
| 0.04 |
| ||||||||
Acquisition costs, net of tax benefit |
|
| — |
|
|
| 0.01 |
| ||||||||
Write-off of straight-line rent and other, net of tax benefit |
|
| 0.01 |
|
|
| 0.02 |
| ||||||||
Normalized funds from operations |
| $ | 0.36 |
|
| $ | 0.33 |
|
| $ | 0.31 |
|
| $ | 0.36 |
|
GrossPro forma gross assets is total assets before accumulated depreciation/amortization (adjusted for our unconsolidated joint ventures) and assumes all real estate binding commitments on new investments and unfunded amounts on development deals and commenced capital improvement projects as of the applicable reporting periods are fully funded, (see Note 7 of Item 1 on this Form 10-Q), and assumes cash on hand is fully used in these transactions. We believe totalpro forma gross assets is useful to investors as it provides a more current view of our portfolio and allows for a better understanding of our concentration levels as our binding commitments close and our other commitments are fully funded. The following table presents a reconciliation of total assets to totalpro forma gross assets (in thousands):
|
| As of |
|
| As of |
|
| As of |
|
| As of |
| ||||
|
| March 31, 2018 |
|
| December 31, 2017 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||
Total Assets |
| $ | 9,031,840 |
|
| $ | 9,020,288 |
| ||||||||
Total assets |
| $ | 9,231,453 |
|
| $ | 8,843,643 |
| ||||||||
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Binding real estate commitments on new investments(1) |
|
| 17,500 |
|
|
| 17,500 |
|
|
| 929,964 |
|
|
| 865,165 |
|
Unfunded amounts on development deals and commenced capital improvement projects(2) |
|
| 139,799 |
|
|
| 154,184 |
|
|
| 214,722 |
|
|
| 229,979 |
|
Accumulated depreciation and amortization |
|
| 493,782 |
|
|
| 455,712 |
|
|
| 498,915 |
|
|
| 464,984 |
|
Incremental gross assets of our joint ventures(3) |
|
| 367,390 |
|
|
| 375,544 |
| ||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| (138,314 | ) |
|
| (171,472 | ) |
|
| (995,548 | ) |
|
| (720,868 | ) |
Total Gross Assets |
| $ | 9,544,607 |
|
| $ | 9,476,212 |
| ||||||||
Total pro forma gross assets |
| $ | 10,246,896 |
|
| $ | 10,058,447 |
|
(1) | The |
(2) | Includes |
(3) | Adjustment needed to reflect our share of our joint venture’s gross assets. |
Adjusted revenue
Adjusted revenue is total revenues adjusted for our pro rata portion of similar revenues in our joint venture arrangements. We believe adjusted revenue is useful to investors as it provides a more complete view of revenue across all of our investments and allows for better understanding of our revenue concentration. The following table presents a reconciliation of total revenues to total adjusted revenue (in thousands):
|
| For the Three Months Ended March 31, 2019 |
|
| For the Three Months Ended March 31, 2018 |
| ||
Total revenues |
| $ | 180,454 |
|
| $ | 205,046 |
|
Revenue from properties owned through joint venture arrangements |
|
| 18,549 |
|
|
| — |
|
Total adjusted revenue |
| $ | 199,003 |
|
| $ | 205,046 |
|
LIQUIDITY AND CAPITAL RESOURCES
2019 Cash Flow Activity
During the 2019 first quarter, we generated $86.9 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $95.4 million and certain investing activities including an initial deposit on the Healthscope acquisition discussed in Note 9, development costs on our construction projects and improvements to certain of our corporate assets.
In anticipation of future acquisitions in 2019, we sold 20.1 million shares of common stock under our at-the-market equity program in the first quarter generating net proceeds of approximately $354 million. Furthermore, in April 2019, we entered into a $1.2 billion Australian dollar term loan commitment that will close and fund once shareholder approval of the Healthscope acquisition is received.
LIQUIDITY AND CAPITAL RESOURCES
2018 Cash Flow Activity
During the 2018 first quarter, we generated $94.8 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $89.4 million and certain investing and financing activities (including a $33.6 million reduction in our revolving credit facility).
2017 Cash Flow Activity
During the 2017 first quarter, we generated $64.3 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $74.5 million and certain investing activities.
Certain financing activities in the 2017 first quarter included:
|
|
|
|
|
|
Short-term Liquidity Requirements:
As of March 31, 2018,2019, we have no debt principal payments due in the next twelve months — see debt maturity schedule below. At May 4, 2018,3, 2019, our availability under our revolving credit facility plus cash on-hand approximated $0.6$2 billion. We believe this liquidity along with our current monthly cash receipts from rent and loan interest, andquarterly distributions from our joint venture arrangements, availability under our at-the-market equity program, and expected proceeds from the Australian term loan commitment is sufficient to fund our operations, debt and interest obligations, our firm commitments (including expected funding requirements on our development projects), our $2.5 billion acquisition goal (including our commitment to acquire 11 properties in Australia for approximately $860 million), and dividends in order to comply with REIT requirements for the next twelve months.
We expect to lower our outstanding borrowings on our revolving credit facility, improve our leverage metrics, and reduce our tenant concentration in Steward during 2018. We expect to accomplish this by entering into joint venture arrangements, and/or completing strategic property sales, among other alternatives. However, no assurance can be made that such transactions will be available to us or that our plans will be successful.
Long-term Liquidity Requirements:
As of March 31, 2018,2019, we have no debt principal payments due between now and January 2021 when our revolving credit facility comes due (which can be extended by one year). With our liquidity at May 4, 20183, 2019 of approximately $0.6$2 billion, along with our current monthly cash receipts from rent and loan interest, and thequarterly distributions from our joint venture arrangements, availability under our at-the-market equity program and expected proceeds from the Australian term loan commitment, we believe we have the liquidity available to us to fund our operations, debt and interest obligations, dividends in order to comply with REIT requirements, and firm commitments (including expected funding requirements on our development projects) forand our 2019 acquisition goal of $2.5 billion (including our commitment to acquire the foreseeable future.Australian portfolio).
However, our acquisition pipeline is robust, so in order to fund acquisitions above our investment strategies$2.5 billion goal for 2019 and beyond and to fund debt maturities coming due in later years, we will need additional capital, and we believe the following sources of capital are generally available in the market and we may access one or a combination of them:
entering into joint venture arrangements;
proceeds from strategic property sales;
sale of equity securities;
amending or entering into new bank term loans,
placing new secured loans on real estate located in and outside the U.S.;
issuance of new USD or EUR denominated debt securities, including senior unsecured notes; and/or
placing new secured loans on real estate located in the U.S. and/or Europe.proceeds from strategic property sales.
However, there is no assurance that conditions will be favorable for such possible transactions or that our plans will be successful.
As of March 31, 2018,2019, principal payments due on our debt (which excludes the effects of any discounts, premiums, or debt issue costs recorded) are as follows (in thousands):
2018 |
| $ | — |
| ||||
2019 |
|
| — |
|
| $ | — |
|
2020 |
|
| — |
|
|
| — |
|
2021 |
|
| 807,614 |
|
|
| 37,802 |
|
2022 |
|
| 816,200 |
|
|
| 760,900 |
|
2023 |
|
| — |
| ||||
Thereafter |
|
| 3,316,200 |
|
|
| 3,260,900 |
|
Total |
| $ | 4,940,014 |
|
| $ | 4,059,602 |
|
Disclosure of Contractual Obligations
We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018. Except for changes to our operating lease commitments,purchase obligations, there have been no other significant changes in those obligations during the three months ended March 31, 2018.2019.
The following table updates our contractual obligations schedule for updates to our operating lease commitmentspurchase obligations (in thousands):
Contractual Obligations |
| Less Than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| After 5 Years |
|
| Total |
|
| Less Than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| After 5 Years |
|
| Total |
| ||||||||||
Operating lease commitments (1) |
| $ | 6,612 |
|
| $ | 14,337 |
|
| $ | 14,848 |
|
| $ | 120,396 |
|
| $ | 156,193 |
| ||||||||||||||||||||
Purchase obligations(1) |
| $ | 1,161,935 |
|
| $ | 44,353 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,206,288 |
|
(1) |
|
Distribution Policy
The table below is a summary of our distributions declared during the two year period ended March 31, 2018:2019:
Declaration Date |
| Record Date |
| Date of Distribution |
| Distribution per Share |
|
| Record Date |
| Date of Distribution |
| Distribution per Share |
| ||
February 14, 2019 |
| March 14, 2019 |
| April 11, 2019 |
| $ | 0.25 |
| ||||||||
November 15, 2018 |
| December 13, 2018 |
| January 10, 2019 |
| $ | 0.25 |
| ||||||||
August 16, 2018 |
| September 13, 2018 |
| October 11, 2018 |
| $ | 0.25 |
| ||||||||
May 24, 2018 |
| June 14, 2018 |
| July 12, 2018 |
| $ | 0.25 |
| ||||||||
February 15, 2018 |
| March 15, 2018 |
| April 12, 2018 |
| $ | 0.25 |
|
| March 15, 2018 |
| April 12, 2018 |
| $ | 0.25 |
|
November 9, 2017 |
| December 7, 2017 |
| January 11, 2018 |
| $ | 0.24 |
|
| December 7, 2017 |
| January 11, 2018 |
| $ | 0.24 |
|
August 17, 2017 |
| September 14, 2017 |
| October 12, 2017 |
| $ | 0.24 |
|
| September 14, 2017 |
| October 12, 2017 |
| $ | 0.24 |
|
May 25, 2017 |
| June 15, 2017 |
| July 14, 2017 |
| $ | 0.24 |
|
| June 15, 2017 |
| July 14, 2017 |
| $ | 0.24 |
|
February 16, 2017 |
| March 16, 2017 |
| April 13, 2017 |
| $ | 0.24 |
| ||||||||
November 10, 2016 |
| December 8, 2016 |
| January 12, 2017 |
| $ | 0.23 |
| ||||||||
August 18, 2016 |
| September 15, 2016 |
| October 13, 2016 |
| $ | 0.23 |
| ||||||||
May 19, 2016 |
| June 16, 2016 |
| July 14, 2016 |
| $ | 0.23 |
|
We intend to pay to our stockholders, within the time periods prescribed by the Internal Revenue Code (“Code”), all or substantially all of our annual taxable income, including taxable gains from the sale of real estate and recognized gains on the sale of securities. It is our policy to make sufficient cash distributions to stockholders in order for us to maintain our status as a REIT under the Code and to avoid corporate income and excise taxes on undistributed income. However, our Credit Facility limits the amount of dividends we can pay - see Note 4 in Item 1 to this Form 10-Q for further information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate or foreign currency exposure. For interest rate hedging, these decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. For foreign currency hedging, these decisions are principally based on how our investments are financed, the long-term nature of our investments, the need to repatriate earnings back to the U.S. and the general trend in foreign currency exchange rates.
In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits, all of which may affect our ability to refinance our debt, if necessary. The changes in the value of our facilities would be impacted also by changes in “cap” rates, which is measured by the current base rent divided by the current market value of a facility.
Our primary exposure to market risks relates to fluctuations in interest rates and foreign currency. The following analyses present the sensitivity of the market value, earnings and cash flows of our significant financial instruments to hypothetical changes in interest rates and exchange rates as if these changes had occurred. The hypothetical changes chosen for these analyses reflect our view of changes that are reasonably possible over a one-year period. These forward looking disclosures are selective in nature and only address the potential impact from these hypothetical changes. They do not include other potential effects which could impact our business as a result of changes in market conditions. In addition, they do not include measures we may take to minimize our exposure such as entering into future interest rate swaps to hedge against interest rate increases on our variable rate debt.
Interest Rate Sensitivity
For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At March 31, 2018,2019, our outstanding debt totaled $4.9$4.0 billion, which consisted of fixed-rate debt of approximately $3.9$3.8 billion and variable rate debt of $1.0$0.2 billion. If market
interest rates increase by 1%, the fair value of our debt at March 31, 20182019 would decrease by $10.5$6.5 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 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $0.3$0.1 million per year. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $0.3$0.1 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $1.0$0.2 billion, the balance of such variable rate debt at March 31, 2018.2019.
Foreign Currency Sensitivity
With our investments in Germany, the United Kingdom, Spain, and Italy, we are subject to fluctuations in the euro and British pound to U.S. dollar currency exchange rates. Increases or decreases in the value of the euro to U.S. dollar and the British pound to U.S. dollar exchange rates may impact our financial condition and/or our results of operations. Based solely on operating results to-date in 20182019 and on an annualized basis, if the euro exchange rate were to change by 5%, our net income and FFO would change by approximately $5.2 million.$0.2 million and $1.4 million, respectively. Based solely on operating results to-date in 20182019 and on an annualized basis, if the British pound exchange rate were to change by 5%, our net income and FFO would change by less thanapproximately $0.1 million and $0.2 million.million, respectively.
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.
The information contained in Note 7 “Contingencies”9 “Commitments and Contingencies” of Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1.
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, 2017.2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) | None. |
(b) | Not applicable. |
(c) | None. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
(a) | None. |
(b) | None. |
Exhibit |
| Description |
|
| |
31.1* |
| |
|
| |
31.2* |
| |
|
| |
31.3* |
| |
|
| |
31.4* |
| |
|
| |
32.1** |
| |
|
| |
32.2** |
| |
|
| |
Exhibit 101.INS |
| XBRL Instance Document |
|
| |
Exhibit 101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
| |
Exhibit 101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
| |
Exhibit 101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
| |
Exhibit 101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
|
| |
Exhibit 101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
** | Furnished herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MEDICAL PROPERTIES TRUST, INC. | ||
|
|
|
By: |
| /s/ J. Kevin Hanna |
|
| J. Kevin Hanna |
|
| Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer (Principal Accounting Officer) |
MPT OPERATING PARTNERSHIP, L.P. | ||
|
|
|
By: |
| /s/ J. Kevin Hanna |
|
| J. Kevin Hanna |
|
| Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer of the sole member of the general partner of MPT Operating Partnership, L.P. (Principal Accounting Officer) |
Date: May 10, 20182019
3135