UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission file number
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
|
||
(State or other jurisdiction of incorporation or organization) |
|
(I. R. S. Employer Identification No.) |
|
|
|
|
||
(Address of principal executive offices) |
|
(Zip Code) |
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
☒ (Medical Properties Trust, Inc. only) |
|
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
As of May 24, 2024, Medical Properties Trust, Inc. had
EXPLANATORY NOTE
This report combines the Quarterly Reports on Form 10-Q for the three months ended March 31, 2024 of Medical Properties Trust, Inc., a Maryland corporation, and MPT Operating Partnership, L.P., a Delaware limited partnership, through which Medical Properties Trust, Inc. conducts substantially all of its operations. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “Medical Properties,” “MPT,” or the “company” refer to Medical Properties Trust, Inc. together with its consolidated subsidiaries, including MPT Operating Partnership, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “operating partnership” refer to MPT Operating Partnership, L.P. together with its consolidated subsidiaries.
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.
AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2024
Table of Contents
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
March 31, |
|
|
December 31, |
|
||
(In thousands, except per share amounts) |
|
(Unaudited) |
|
|
(Note 2) |
|
||
Assets |
|
|
|
|
|
|
||
Real estate assets |
|
|
|
|
|
|
||
Land, buildings and improvements, intangible lease assets, and other |
|
$ |
|
|
$ |
|
||
Investment in financing leases |
|
|
|
|
|
|
||
Real estate held for sale |
|
|
|
|
|
|
||
Mortgage loans |
|
|
|
|
|
|
||
Gross investment in real estate assets |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Net investment in real estate assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
|
|
|
|
||
Straight-line rent receivables |
|
|
|
|
|
|
||
Investments in unconsolidated real estate joint ventures |
|
|
|
|
|
|
||
Investments in unconsolidated operating entities |
|
|
|
|
|
|
||
Other loans |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
Liabilities and Equity |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Debt, net |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Obligations to tenants and other lease liabilities |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
Equity |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Retained deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
Total Medical Properties Trust, Inc. stockholders’ equity |
|
|
|
|
|
|
||
Non-controlling interests |
|
|
|
|
|
|
||
Total Equity |
|
|
|
|
|
|
||
Total Liabilities and Equity |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
3
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(Unaudited)
|
For the Three Months |
|
|||||
(In thousands, except per share amounts) |
2024 |
|
|
2023 |
|
||
Revenues |
|
|
|
|
|
||
Rent billed |
$ |
|
|
$ |
|
||
Straight-line rent |
|
|
|
|
|
||
Income from financing leases |
|
|
|
|
|
||
Interest and other income |
|
|
|
|
|
||
Total revenues |
|
|
|
|
|
||
Expenses |
|
|
|
|
|
||
Interest |
|
|
|
|
|
||
Real estate depreciation and amortization |
|
|
|
|
|
||
Property-related |
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
||
Total expenses |
|
|
|
|
|
||
Other expense |
|
|
|
|
|
||
(Loss) gain on sale of real estate |
|
( |
) |
|
|
|
|
Real estate and other impairment charges, net |
|
( |
) |
|
|
( |
) |
Earnings from equity interests |
|
|
|
|
|
||
Other (including fair value adjustments on securities) |
|
( |
) |
|
|
( |
) |
Total other expense |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
(Loss) income before income tax |
|
( |
) |
|
|
|
|
Income tax expense |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Net (loss) income |
|
( |
) |
|
|
|
|
Net income attributable to non-controlling interests |
|
( |
) |
|
|
( |
) |
Net (loss) income attributable to MPT common stockholders |
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
||
Earnings per common share — basic and diluted |
|
|
|
|
|
||
Net (loss) income attributable to MPT common stockholders |
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
||
Weighted average shares outstanding — basic |
|
|
|
|
|
||
Weighted average shares outstanding — diluted |
|
|
|
|
|
||
|
|
|
|
|
|
||
Dividends declared per common share |
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
4
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
For the Three Months |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
||
Unrealized loss on interest rate swaps, net of tax |
|
|
( |
) |
|
|
( |
) |
Reclassification of interest rate swap gain from AOCI, net of tax |
|
|
— |
|
|
|
( |
) |
Foreign currency translation (loss) gain |
|
|
( |
) |
|
|
|
|
Total comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
Comprehensive income attributable to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Comprehensive (loss) income attributable to MPT common stockholders |
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
5
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
|
|
Preferred |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(In thousands, except per share amounts) |
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Non- |
|
|
Total |
|
|||||||||
Balance at December 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Unrealized loss on interest rate swaps, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock vesting and amortization of |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock vesting - satisfaction of tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at March 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
Preferred |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(In thousands, except per share amounts) |
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Par |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Non- |
|
|
Total |
|
|||||||||
Balance at December 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Unrealized loss on interest rate swaps, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock vesting and amortization of |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock vesting - satisfaction of tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
See accompanying notes to condensed consolidated financial statements.
6
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Operating activities |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred financing costs and debt discount |
|
|
|
|
|
|
||
Straight-line rent revenue and other |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
||
Loss (gain) on sale of real estate |
|
|
|
|
|
( |
) |
|
Real estate and other impairment charges, net |
|
|
|
|
|
|
||
Straight-line rent and other write-off |
|
|
|
|
|
|
||
Tax rate changes and other |
|
|
( |
) |
|
|
( |
) |
Other adjustments (including fair value adjustments on securities) |
|
|
|
|
|
( |
) |
|
Changes in: |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
|
|
|
( |
) |
|
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
|
||
Cash paid for acquisitions and other related investments |
|
|
— |
|
|
|
( |
) |
Net proceeds from sale of real estate |
|
|
|
|
|
|
||
Proceeds received from sale and repayment of loans receivable |
|
|
|
|
|
|
||
Investment in loans receivable |
|
|
( |
) |
|
|
( |
) |
Construction in progress and other |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale and return of equity investment |
|
|
|
|
|
— |
|
|
Capital additions and other investments, net |
|
|
( |
) |
|
|
( |
) |
Net cash (used for) provided by investing activities |
|
|
( |
) |
|
|
|
|
Financing activities |
|
|
|
|
|
|
||
Revolving credit facility, net |
|
|
|
|
|
|
||
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Lease deposits and other obligations to tenants |
|
|
|
|
|
( |
) |
|
Stock vesting - satisfaction of tax withholdings |
|
|
( |
) |
|
|
( |
) |
Other financing activities, payment of debt refinancing, and deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used for) financing activities |
|
|
|
|
|
( |
) |
|
(Decrease) increase in cash, cash equivalents, and restricted cash for period |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
|
||
Dividends declared, unpaid |
|
$ |
— |
|
|
$ |
|
|
Cash, cash equivalents, and restricted cash are comprised of the following: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in Other assets |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in Other assets |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
7
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
March 31, |
|
|
December 31, |
|
||
(In thousands) |
|
(Unaudited) |
|
|
(Note 2) |
|
||
Assets |
|
|
|
|
|
|
||
Real estate assets |
|
|
|
|
|
|
||
Land, buildings and improvements, intangible lease assets, and other |
|
$ |
|
|
$ |
|
||
Investment in financing leases |
|
|
|
|
|
|
||
Real estate held for sale |
|
|
|
|
|
|
||
Mortgage loans |
|
|
|
|
|
|
||
Gross investment in real estate assets |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Net investment in real estate assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
|
|
|
|
||
Straight-line rent receivables |
|
|
|
|
|
|
||
Investments in unconsolidated real estate joint ventures |
|
|
|
|
|
|
||
Investments in unconsolidated operating entities |
|
|
|
|
|
|
||
Other loans |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
Liabilities and Capital |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Debt, net |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Obligations to tenants and other lease liabilities |
|
|
|
|
|
|
||
Payable due to Medical Properties Trust, Inc. |
|
|
— |
|
|
|
|
|
Total Liabilities |
|
|
|
|
|
|
||
Capital |
|
|
|
|
|
|
||
General Partner — issued and outstanding — |
|
|
|
|
|
|
||
Limited Partners — issued and outstanding — |
|
|
|
|
|
|
||
Accumulated other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
Total MPT Operating Partnership, L.P. capital |
|
|
|
|
|
|
||
Non-controlling interests |
|
|
|
|
|
|
||
Total Capital |
|
|
|
|
|
|
||
Total Liabilities and Capital |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
8
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Net Income
(Unaudited)
|
|
For the Three Months |
|
|||||
(In thousands, except per unit amounts) |
|
2024 |
|
|
2023 |
|
||
Revenues |
|
|
|
|
|
|
||
Rent billed |
|
$ |
|
|
$ |
|
||
Straight-line rent |
|
|
|
|
|
|
||
Income from financing leases |
|
|
|
|
|
|
||
Interest and other income |
|
|
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
||
Expenses |
|
|
|
|
|
|
||
Interest |
|
|
|
|
|
|
||
Real estate depreciation and amortization |
|
|
|
|
|
|
||
Property-related |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total expenses |
|
|
|
|
|
|
||
Other expense |
|
|
|
|
|
|
||
(Loss) gain on sale of real estate |
|
|
( |
) |
|
|
|
|
Real estate and other impairment charges, net |
|
|
( |
) |
|
|
( |
) |
Earnings from equity interests |
|
|
|
|
|
|
||
Other (including fair value adjustments on securities) |
|
|
( |
) |
|
|
( |
) |
Total other expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
(Loss) income before income tax |
|
|
( |
) |
|
|
|
|
Income tax expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Net (loss) income |
|
|
( |
) |
|
|
|
|
Net income attributable to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Net (loss) income attributable to MPT Operating Partnership partners |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Earnings per unit — basic and diluted |
|
|
|
|
|
|
||
Net (loss) income attributable to MPT Operating Partnership partners |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Weighted average units outstanding — basic |
|
|
|
|
|
|
||
Weighted average units outstanding — diluted |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Dividends declared per unit |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
9
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
For the Three Months |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
||
Unrealized loss on interest rate swaps, net of tax |
|
|
( |
) |
|
|
( |
) |
Reclassification of interest rate swap gain from AOCI, net of tax |
|
|
|
|
|
( |
) |
|
Foreign currency translation (loss) gain |
|
|
( |
) |
|
|
|
|
Total comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
Comprehensive income attributable to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Comprehensive (loss) income attributable to MPT Operating |
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
10
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Capital
(Unaudited)
|
|
General |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||||
|
|
Partner |
|
|
Limited Partners |
|
|
Other |
|
|
Non- |
|
|
|
|
|||||||||||||
(In thousands, except per unit amounts) |
|
Units |
|
|
Unit |
|
|
Units |
|
|
Unit |
|
|
Comprehensive |
|
|
Controlling |
|
|
Total |
|
|||||||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Unrealized loss on interest rate swaps, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unit vesting and amortization of unit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Unit vesting - satisfaction of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Distributions declared adjustment |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
|
|
General |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||||
|
|
Partner |
|
|
Limited Partners |
|
|
Other |
|
|
Non- |
|
|
|
|
|||||||||||||
(In thousands, except per unit amounts) |
|
Units |
|
|
Unit |
|
|
Units |
|
|
Unit |
|
|
Comprehensive |
|
|
Controlling |
|
|
Total |
|
|||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net income |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Unrealized loss on interest rate swaps, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Reclassification of interest rate swap gain to |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Unit vesting and amortization of unit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Unit vesting - satisfaction of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Distributions declared ($ |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
See accompanying notes to condensed consolidated financial statements.
11
MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Operating activities |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred financing costs and debt discount |
|
|
|
|
|
|
||
Straight-line rent revenue and other |
|
|
( |
) |
|
|
( |
) |
Unit-based compensation |
|
|
|
|
|
|
||
Loss (gain) on sale of real estate |
|
|
|
|
|
( |
) |
|
Real estate and other impairment charges, net |
|
|
|
|
|
|
||
Straight-line rent and other write-off |
|
|
|
|
|
|
||
Tax rate changes and other |
|
|
( |
) |
|
|
( |
) |
Other adjustments (including fair value adjustments on securities) |
|
|
|
|
|
( |
) |
|
Changes in: |
|
|
|
|
|
|
||
Interest and rent receivables |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
|
|
|
( |
) |
|
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
|
||
Cash paid for acquisitions and other related investments |
|
|
— |
|
|
|
( |
) |
Net proceeds from sale of real estate |
|
|
|
|
|
|
||
Proceeds received from sale and repayment of loans receivable |
|
|
|
|
|
|
||
Investment in loans receivable |
|
|
( |
) |
|
|
( |
) |
Construction in progress and other |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale and return of equity investments |
|
|
|
|
|
— |
|
|
Capital additions and other investments, net |
|
|
( |
) |
|
|
( |
) |
Net cash (used for) provided by investing activities |
|
|
( |
) |
|
|
|
|
Financing activities |
|
|
|
|
|
|
||
Revolving credit facility, net |
|
|
|
|
|
|
||
Distributions paid |
|
|
( |
) |
|
|
( |
) |
Lease deposits and other obligations to tenants |
|
|
|
|
|
( |
) |
|
Unit vesting - satisfaction of tax withholdings |
|
|
( |
) |
|
|
( |
) |
Other financing activities, payment of debt refinancing, and deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used for) financing activities |
|
|
|
|
|
( |
) |
|
(Decrease) increase in cash, cash equivalents, and restricted cash for period |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Supplemental schedule of non-cash financing activities: |
|
|
|
|
|
|
||
Distributions declared, unpaid |
|
$ |
— |
|
|
$ |
|
|
Cash, cash equivalents, and restricted cash are comprised of the following: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in Other assets |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, included in Other assets |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
12
MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing healthcare real estate. Our operating partnership subsidiary, MPT Operating Partnership, L.P. (the “Operating Partnership”), through which we conduct substantially all of our operations, was formed in September 2003. At present, we own, directly and indirectly, all of the partnership interests in the Operating Partnership and have elected to report our required disclosures and that of the Operating Partnership on a combined basis, except where material differences exist.
We operate as a real estate investment trust (“REIT”). Accordingly, we are generally not subject to United States (“U.S.”) federal income tax on our REIT taxable income, provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed such taxable income. Similarly, the majority of our real estate operations in the United Kingdom ("U.K.") operate as a REIT and generally are subject only to a withholding tax on earnings upon distribution out of the U.K. REIT. Certain non-real estate activities we undertake in the U.S. are conducted by entities which we elected to be treated as taxable REIT subsidiaries (“TRS”). Our TRS entities are subject to both U.S. federal and state income taxes. For our properties located outside the U.S. (excluding those assets that are in the U.K. REIT), we are subject to the local income taxes of the jurisdictions where our properties reside and/or legal entities are domiciled; however, we do not expect to incur additional taxes, of a significant nature, in the U.S. from foreign-based income as the majority of such income flows through our REIT.
Our primary business strategy is to acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned
Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to unlock the value of their real estate to fund facility improvements, technology upgrades, and other investments in operations. At March 31, 2024, we have investments in
2. Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information, including rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We believe the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2024, (particularly as it relates to our assessments of the recoverability of our real estate, the ability of our tenants/borrowers to make lease/loan payments in accordance with their respective agreements, the fair value of our equity and loan investments, and the adequacy of our credit loss reserves on loans and financing receivables).
13
For information about significant accounting policies, and how actual results could differ from estimates, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to these significant accounting policies.
Reclassifications
Certain amounts in the condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation.
Variable Interest Entities
At March 31, 2024, we had loans and/or equity investments in certain variable interest entities ("VIEs"), which are also tenants of our facilities. We have determined that we were not the primary beneficiary of these VIEs.
VIE Type |
|
Carrying |
|
|
Asset Type |
|
Maximum Loss |
|
||
Loans, net and equity investments |
|
$ |
|
|
Investments in Unconsolidated |
|
$ |
|
||
Loans, net |
|
|
|
|
Mortgage and other loans |
|
|
|
||
For the VIE types above, we do not consolidate the VIEs because we do not have the ability to control the activities (such as the day-to-day healthcare operations of our borrowers or investees) that most significantly impact the VIE's economic performance. As of March 31, 2024, we were not required to provide financial support through a liquidity arrangement or otherwise to our unconsolidated VIEs, including circumstances in which they could be exposed to further losses (e.g. cash short falls).
Recent Accounting Developments
Segment Reporting
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07") to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect to have a significant impact from the adoption of this standard on our consolidated financial statements and disclosures, as we consider our investments in healthcare real estate, other loans, and any investments in our tenants a single reportable segment.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09") which focuses on income tax disclosures regarding effective tax rates and cash income taxes paid. This standard requires public entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit, and (3) provide additional information for certain reconciling items at or above a quantitative threshold of
14
3. Real Estate and Other Activities
New Investments
We acquired or invested in the following net assets (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Land and land improvements |
|
$ |
|
|
$ |
|
||
Buildings |
|
|
|
|
|
|
||
Intangible lease assets — subject to amortization (weighted-average useful |
|
|
|
|
|
|
||
Investments in unconsolidated operating entities |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Loans repaid(1) |
|
|
— |
|
|
|
( |
) |
Total net assets acquired |
|
$ |
|
|
$ |
|
||
2023 Activity
Prospect Transaction
In August 2019, we invested in a portfolio of
However, Prospect continued to pursue a recapitalization plan, and, in late March 2023, Prospect received a binding commitment from several lenders to provide liquidity to pay down certain debt instruments. Along with these commitments from third-party lenders, we agreed to pursue certain transactions with Prospect as part of their recapitalization plan, including originating a $
On May 23, 2023, Prospect completed its recapitalization plan, which included receiving $
Lifepoint Transaction
On February 7, 2023, a subsidiary of Lifepoint Health, Inc. ("Lifepoint") acquired a majority interest in Springstone (now Lifepoint Behavioral Health, "Lifepoint Behavioral") (the "Lifepoint Transaction") based on an enterprise value of $
15
interest, and we retained our minority equity investment in the operations of Lifepoint Behavioral. Separately, we converted a mortgage loan (as part of our initial acquisition in 2021) into the fee simple ownership of a property in Washington, which is leased, along with the other
In the first quarter of 2024, we sold our minority equity investment in Lifepoint Behavioral for approximately $
Development Activities
See table below for a status summary of our current development projects (in thousands):
Property |
|
Commitment |
|
|
Costs |
|
|
Estimated Rent |
||
IMED Hospitales ("IMED") (Spain) |
|
$ |
|
|
$ |
|
|
|||
IMED (Spain) |
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
|
||
We have
Separately, on the Norwood redevelopment, we have approximately $
2024 Activity
During the first three months of 2024, we completed construction and began recording rental income on a $
Disposals
2024 Activity
On February 19, 2024, we entered into definitive agreements to sell
As part of this sale transaction, we also agreed to extend the lease maturity of four other facilities with Prime to 2044. This amended lease has inflation-based escalators, collared between
During the first three months of 2024, we also completed the sale of
16
Summary of Operations for Disposed (or to be Disposed) Assets in 2024
The following represents the operating results from the five properties designated as held for sale at March 31, 2024, as well as the five properties sold in April 2024 as part of the Utah Transaction (further described in Note 10 to the condensed consolidated financial statements) (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues |
|
$ |
|
|
$ |
|
||
Real estate depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property-related expenses |
|
|
( |
) |
|
|
( |
) |
Other expense |
|
|
( |
) |
|
|
( |
) |
Income from real estate dispositions, net |
|
$ |
|
|
$ |
|
||
2023 Activity
On March 30, 2023, we entered into a definitive agreement to sell our
On March 8, 2023, we received notice that Prime planned to exercise its right to repurchase from us the real estate associated with one master lease for approximately $
Leasing Operations (Lessor)
We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies. The initial fixed lease terms of these infrastructure-type assets are typically at least
For all of our properties subject to lease, we are the legal owner of the property and the tenant's right to use and possess such property is guided by the terms of a lease. At March 31, 2024, we account for all of these leases as operating leases, except where GAAP requires alternative classification, including leases on
|
|
As of March 31, |
|
|
As of December 31, |
|
||
Minimum lease payments receivable |
|
$ |
|
|
$ |
|
||
Estimated unguaranteed residual values |
|
|
|
|
|
|
||
Less: Unearned income and allowance for credit loss |
|
|
( |
) |
|
|
( |
) |
Net investment in direct financing leases |
|
|
|
|
|
|
||
Other financing leases (net of allowance for credit loss) |
|
|
|
|
|
|
||
Total investment in financing leases |
|
$ |
|
|
$ |
|
||
Other Leasing Activities
At March 31, 2024, our vacant properties represent less than
Our tenants’ financial performance and resulting ability to satisfy their lease and loan obligations to us are material to our financial results and our ability to service our debt and make distributions to our stockholders. Our tenants operate in the healthcare industry, which is highly regulated, and changes in regulation (or delays in enacting regulation) may temporarily impact our tenants’
17
operations until they are able to make the appropriate adjustments to their business. In addition, our tenants may experience operational challenges from time-to-time as a result of many factors, including those external to them, such as cybersecurity attacks or public health crises (like the COVID-19 pandemic), economic issues resulting in high inflation and spikes in labor costs, extreme or severe weather and climate-related events, and adverse market and political conditions. We monitor our tenants' operating results and the potential impact from these challenges. We may elect to provide support to our tenants from time-to-time in the form of short-term rent deferrals to be paid back in full (like as described below under Pipeline Health System), or in the form of temporary loans (like as described previously in the Prospect Transaction). See below for an update on some of our tenants:
Steward Health Care System
Due to the uncertainty concerning the sale of Steward's managed care business, ongoing operational and liquidity challenges, and the bankruptcy filing as more fully described in "Significant Tenant Update" under the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q, we have recorded approximately $
At March 31, 2024, we have approximately $
In the three months ending March 31, 2024, we received approximately $
Prospect
Starting January 1, 2023, we began accounting for our leases and loans to Prospect on a cash basis versus our normal accrual method. In the first quarter of 2024, we recognized approximately $
In regard to PHP Holdings, we account for our investment (both the equity investment and convertible loan) using the fair value option method. On May 23, 2024, Prospect's investment bankers informed us that they had received updated indications of interest from prospective bidders for PHP Holdings. Based on our consideration of information in the updated indications, along with consultations with our third party appraisers, we recorded as of March 31, 2024, a $
Pipeline Health System
On October 2, 2022, Pipeline Health System ("Pipeline") filed for reorganization relief under Chapter 11 protection of the United States Bankruptcy Code in the Southern District of Texas, while keeping its hospitals open to continue providing care to the communities served. On February 6, 2023, Pipeline emerged from bankruptcy. Per the bankruptcy settlement, Pipeline's lease of our California assets remained in place, and we were repaid on February 7, 2023, for all rent that was outstanding at December 31, 2022, along with what was due for the first quarter of 2023. As part of the settlement, we deferred approximately $
Other Matters
As discussed in our Annual Report on Form 10-K for the year ending December 31, 2023, we placed our loan to the international joint venture on the cash basis of accounting, as we determined that it was no longer probable that the borrower would pay its future interest in full. This loan, accounted for under the fair value option method, was collateralized by the equity of Steward held by an investor in both Steward and the international joint venture. Consistent with the discussion above on non-real estate investments in Steward, we have recorded a $
18
Investments in Unconsolidated Entities
Investments in Unconsolidated Real Estate Joint Ventures
Our primary business strategy is to acquire real estate and lease to providers of healthcare services. Typically, we directly own
The following is a summary of our investments in unconsolidated real estate joint ventures by operator (amounts in thousands):
Operator |
|
Ownership Percentage |
As of March 31, |
|
|
As of December 31, |
|
||
MEDIAN |
|
$ |
|
|
$ |
|
|||
Swiss Medical Network |
|
|
|
|
|
|
|||
Steward (Macquarie partnership) |
|
|
|
|
|
|
|||
Policlinico di Monza |
|
|
|
|
|
|
|||
HM Hospitales |
|
|
|
|
|
|
|||
Total |
|
|
$ |
|
|
$ |
|
||
Investments in Unconsolidated Operating Entities
Our investments in unconsolidated operating entities are noncontrolling investments that are typically made in conjunction with larger real estate transactions in which the operators are vetted as part of our overall underwriting process. In many cases, we would not be able to acquire the larger real estate portfolio without such investments in operators. These investments also offer the opportunity to enhance our overall return and provide for certain minority rights and protections.
The following is a summary of our investments in unconsolidated operating entities (amounts in thousands):
Operator |
|
As of March 31, |
|
|
As of December 31, |
|
||
PHP Holdings |
|
$ |
|
|
$ |
|
||
Swiss Medical Network |
|
|
|
|
|
|
||
Aevis Victoria SA ("Aevis") |
|
|
|
|
|
|
||
Priory Group ("Priory") |
|
|
|
|
|
|
||
Aspris Children's Services ("Aspris") |
|
|
|
|
|
|
||
Caremax |
|
|
|
|
|
|
||
Steward (loan investment) |
|
|
|
|
|
|
||
International joint venture |
|
|
|
|
|
|
||
Steward (equity investment) |
|
|
|
|
|
|
||
Lifepoint Behavioral |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
See "Leasing Operations (Lessor)" under this same Note 3 for details on the change in the quarter related to Steward and the international joint venture.
For our other investments marked to fair value (including our investment in PHP Holdings), we recorded approximately $
In the first quarter of 2024, we sold our interest in the Priory syndicated term loan for £
19
Credit Loss Reserves
We apply a forward-looking "expected loss" model to all of our financing receivables, including financing leases and loans, based on historical credit losses of similar instruments.
The following table summarizes the activity in our credit loss reserves (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Balance at beginning of the year |
|
$ |
|
|
$ |
|
||
Provision for credit loss, net |
|
|
|
(1) |
|
|
||
Expected credit loss reserve related to financial instruments |
|
|
( |
) |
|
|
( |
) |
Balance at end of the period |
|
$ |
|
|
$ |
|
||
Concentrations of Credit Risk
We monitor concentration risk in several ways due to the nature of our real estate assets that are vital to the communities in which they are located and given our history of being able to replace inefficient operators of our facilities, if needed, with more effective operators.
Total Assets by Operator
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
Operators |
|
Total Assets (1) |
|
|
Percentage of |
|
|
Total Assets (1) |
|
|
Percentage of |
|
||||
Steward |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Circle Health Ltd ("Circle") |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Priory |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Prospect |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Lifepoint Behavioral |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other operators |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other assets |
|
|
|
(2) |
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
20
Total Assets by U.S. State and Country (1)
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
U.S. States and Other Countries |
|
Total Assets |
|
|
Percentage of |
|
|
Total Assets |
|
|
Percentage of |
|
||||
Texas |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Florida |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
California |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Utah |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Massachusetts |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
All other states |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other domestic assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total U.S. |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
United Kingdom |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Germany |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Switzerland |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Spain |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
All other countries |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other international assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total international |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Grand total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Total Assets by Facility Type (1)
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
Facility Types |
|
Total Assets |
|
|
Percentage of |
|
|
Total Assets |
|
|
Percentage of |
|
||||
General acute care hospitals |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Behavioral health facilities |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Inpatient rehabilitation hospitals |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Long-term acute care hospitals |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Freestanding ER/urgent care facilities |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
On an individual property basis, our largest investment in any single property was approximately
From a revenue concentration perspective, Circle and CommonSpirit individually represented more than
21
4. Debt
The following is a summary of debt (dollar amounts in thousands):
|
|
As of March 31, |
|
|
As of December 31, |
|
||
Revolving credit facility(A) |
|
$ |
|
|
$ |
|
||
Term loan |
|
|
|
|
|
|
||
British pound sterling secured term loan due 2024(B) |
|
|
|
|
|
|
||
British pound sterling term loan due 2025(B) |
|
|
|
|
|
|
||
Australian term loan facility(B) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
||
Debt issue costs and discount, net |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
As of March 31, 2024, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) are as follows (amounts in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
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 unsecured credit facility ("Credit Facility") limit the amount of dividends we can pay as a percentage of normalized adjusted funds from operations (“NAFFO”), as defined in the agreements, on a rolling four quarter basis. At March 31, 2024, the dividend restriction was
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. The 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, 2024, we were in compliance with all such financial and operating covenants.
See Note 10 to the condensed consolidated financial statements for subsequent event information related to debt.
22
5. Income Taxes
As a result of the Australia Transaction described in Note 3 to the condensed consolidated financial statements, we recorded a $
6. Stock Awards
During the second quarter of 2022, we amended the 2019 Equity Incentive Plan (the “Equity Incentive Plan”), which authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units, and awards of interests in our Operating Partnership. Our Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors, and we have reserved
7. Fair Value of Financial Instruments
We have various assets and liabilities that are considered financial instruments. We estimate that the carrying value of cash and cash equivalents and accounts payable and accrued expenses approximate their fair values. We estimate the fair value of our interest and rent receivables using Level 2 inputs such as discounting the estimated future cash flows using the current rates at which similar receivables would be made to others with similar credit ratings and for the same remaining maturities. The fair value of our mortgage loans and other loans are estimated by using Level 2 inputs such as discounting the estimated future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We determine the fair value of our senior unsecured notes using Level 2 inputs such as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loans using Level 2 inputs based on the present value of future payments, discounted at a rate which we consider appropriate for such debt.
Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be a prudent management decision.
The following table summarizes fair value estimates for our financial instruments (in thousands):
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
Asset (Liability) |
|
Book |
|
|
Fair |
|
|
Book |
|
|
Fair |
|
||||
Interest and rent receivables |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Loans(1) |
|
|
|
(2) |
|
|
|
|
|
(2) |
|
|
||||
Debt, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Items Measured at Fair Value on a Recurring Basis
Our equity investment and related loan to the international joint venture, our loan investment in the real estate of
23
At March 31, 2024 and December 31, 2023, the amounts recorded under the fair value option method were as follows (in thousands):
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
|
|
||||||||||
Asset (Liability) |
|
Fair Value |
|
|
Original |
|
|
Fair Value |
|
|
Original |
|
|
Asset Type Classification |
||||
Mortgage loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Mortgage loans |
||||
Equity investment and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unconsolidated operating entities/Other loans |
||||
Our loans to the international joint venture and its subsidiaries are recorded at fair value based on Level 2 and Level 3 inputs by discounting the estimated cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities, while also considering the value of the underlying collateral of the loans. Our equity investment in Lifepoint Behavioral (which was sold in March 2024) was recorded at fair value as of December 31, 2023, based on Level 2 inputs by discounting the estimated cash flows expected to be realized as part of the Lifepoint Transaction described in Note 3 to the condensed consolidated financial statements. Our equity investment in the international joint venture and our investment in PHP Holdings are recorded at fair value based on Level 3 inputs, by using a market approach (for our equity investment in the international joint venture) and a discounted cash flow model (for our equity investment in PHP Holdings), which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecasted assumptions associated with the investee. We classify our valuations of these investments as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuations require management judgment due to the absence of quoted market prices. For the cash flow model used for our equity investment in PHP Holdings, our unobservable inputs include use of a discount rate (which is based on a weighted-average cost of capital) and an adjustment for a marketability discount ("DLOM"). In regard to the underlying projections used in the discounted cash flow model, such projections are provided by the investees. However, we may modify such projections as needed based on our review and analysis of historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry.
In the first three months of 2024, we recorded a net unfavorable adjustment to the investments accounted for under the fair value option method of approximately $
The discount rate and DLOM on our investment in PHP Holdings was approximately
Basis Point Change in Marketability Discount |
|
Estimated |
|
|
+100 basis points |
|
$ |
( |
) |
- 100 basis points |
|
|
|
|
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, we have assets and liabilities that are measured, from time-to-time, at fair value on a nonrecurring basis, such as for impairment purposes of our financial instruments and for certain equity investments without a readily determinable fair value.
Impairment of Non-Real Estate Investments
Our non-real estate investments in Steward and related affiliates include our
24
ongoing financial distress and subsequent filing of bankruptcy. Accordingly, the valuation approaches used, including the Level 3 inputs, were based on the financial performance of the Steward assets. For profitable hospitals, Level 3 inputs included a weighted average EBITDA multiple of 6.48x from a selected range of 5x to 7x in reference to comparable transactions. We also used a weighted average discount rate of
8. Earnings Per Share/Unit
Medical Properties Trust, Inc.
Our earnings per share were calculated based on the following (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Non-controlling interests’ share in earnings |
|
|
( |
) |
|
|
( |
) |
Participating securities’ share in earnings |
|
|
|
|
|
( |
) |
|
Net (loss) income, less participating securities’ share in earnings |
|
$ |
( |
) |
|
$ |
|
|
Denominator: |
|
|
|
|
|
|
||
Basic weighted-average common shares |
|
|
|
|
|
|
||
Dilutive potential common shares |
|
|
|
|
|
|
||
Diluted weighted-average common shares |
|
|
|
|
|
|
||
MPT Operating Partnership, L.P.
Our earnings per unit were calculated based on the following (in thousands):
|
|
For the Three Months |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
Non-controlling interests’ share in earnings |
|
|
( |
) |
|
|
( |
) |
Participating securities’ share in earnings |
|
|
|
|
|
( |
) |
|
Net (loss) income, less participating securities’ share in earnings |
|
$ |
( |
) |
|
$ |
|
|
Denominator: |
|
|
|
|
|
|
||
Basic weighted-average units |
|
|
|
|
|
|
||
Dilutive potential units |
|
|
|
|
|
|
||
Diluted weighted-average units |
|
|
|
|
|
|
||
9. Commitments and Contingencies
Commitments
On October 5, 2022, we entered into definitive agreements to sell
25
Contingencies
With Steward's ongoing operational and liquidity challenges as discussed in Note 3 and in the "Significant Tenant Update" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q, we and certain of Steward’s asset backed lenders agreed to a new bridge facility in February 2024 and have funded an additional $
We are party to various lawsuits as described below:
Securities and Derivative Litigation
On April 13, 2023, we and certain of our executives were named as defendants in a putative federal securities class action lawsuit alleging false and/or misleading statements and/or omissions resulted in artificially inflated prices for our common stock, filed by a purported stockholder in the United States District Court for the Northern District of Alabama (Case No. 2:23-cv-00486). The complaint seeks class certification on behalf of purchasers of our common stock between July 15, 2019 and February 22, 2023 and unspecified damages including interest and an award of reasonable costs and expenses. This class action complaint was amended on September 22, 2023 and alleges that we made material misstatements or omissions relating to the financial health of certain of our tenants.
Members of our Board of Directors were also named as defendants in two related shareholder derivative lawsuits filed by purported stockholders in the United States District Court for the Northern District of Alabama on October 19, 2023 (Case No. 2:23- cv-01415) and December 7, 2023 (Case No. 2:23-cv-01667). The Company was named as a nominal defendant in both complaints. These shareholder derivative complaints both make allegations similar to those made in the Alabama securities lawsuit described above relating to purported material misstatements or omissions relating to the financial health of certain of our tenants. On February 16, 2024, members of our Board of Directors were named as defendants in a shareholder derivative lawsuit filed by a purported stockholder in the United States District Court for the District of Maryland (Case No. 1:24-cv-00471). The Company was named as a nominal defendant. This shareholder derivative complaint makes allegations similar to those made in the Alabama securities and derivative lawsuits described above relating to purported material misstatements or omissions relating to the financial health of certain of our tenants.
On September 29, 2023, we and certain of our executives were named as defendants in a putative federal securities class action lawsuit filed by a purported stockholder in the United States District Court for the Southern District of New York (Case No. 1:23-cv- 08597). The complaint seeks class certification on behalf of purchasers of our common stock between May 23, 2023 and August 17, 2023 and alleges false and/or misleading statements and/or omissions in connection with certain transactions involving Prospect. Members of our Board of Directors were also named as defendants in two related shareholder derivative lawsuits filed by purported stockholders in the United States District Court for the Southern District of New York on December 18, 2023 (Case No. 1:23-cv-10934) and March 1, 2024 (Case No. 1:24-cv-01589). The Company was named as a nominal defendant in both complaints. These shareholder derivative complaints both make allegations similar to those made in the New York securities lawsuit described above relating to purported false and/or misleading statements and/or omissions in connection with certain transactions involving Prospect. On February 21, 2024, members of our Board of Directors were named as defendants in a shareholder derivative lawsuit filed by a purported stockholder in the United States District Court for the District of Maryland (Case No. 1:24-cv-00527). The Company was named as a nominal defendant. This shareholder derivative complaint makes allegations similar to those made in the New York securities and derivative lawsuits described above relating to purported false and/or misleading statements and/or omissions in connection with certain transactions involving Prospect.
We believe these claims are without merit and intend to defend the remaining open cases vigorously. We have not recorded a liability related to the lawsuits above because, at this time, we are unable to determine whether an unfavorable outcome is probable or to estimate reasonably possible losses.
Defamation Litigation
On March 30, 2023, we commenced an action in the United States District Court for the Northern District of Alabama (Case No. 2:23-cv-00408), against short-seller Viceroy Research LLC (“Viceroy”) and its members. We are seeking injunctive relief and damages for defamation, civil conspiracy, tortious interference, private nuisance, and unjust enrichment based on defamatory statements expressed against us. On June 29, 2023, we won a preliminary ruling in this lawsuit after Viceroy's motion to dismiss the case was denied by a judge in the United States District Court for the Northern District of Alabama.
From time-to-time, we are a party to other legal proceedings, claims, or regulatory inquiries and investigations arising out of, or incidental to, our business. While we are unable to predict with certainty the outcome of any particular matter, in the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations, or cash flows.
26
10. Subsequent Events
Utah Transaction
On April 12, 2024, we sold our interests in
As previously reported, the Utah lessee (an affiliate of CommonSpirit Health) may acquire the leased real estate at a price equal to the greater of fair market value and the approximate $
Credit Facility
On April 12, 2024, we amended the Credit Facility and certain other agreements to (i) reduce revolving commitments from $
Australian Term Loan Facility
On April 18, 2024, we paid off and terminated the approximate $
Dividend
On
Secured Term Loan Facility
On May 24, 2024, we closed on a secured loan facility with a consortium of institutional investors that provides for a term loan in aggregate principal amount of approximately £
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities. Such discussion and analysis should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2023.
Forward-Looking Statements.
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or future performance, achievements or transactions or events to be materially different from those expressed or implied by such forward-looking statements, including, but not limited to, the risks described in our Annual Report on Form 10-K and as updated in our quarterly reports on Form 10-Q for future periods, and current reports on Form 8-K as we file them with the SEC under the Exchange Act. Such factors include, among others, the following:
28
Key Factors that May Affect Our Operations
Our revenue is derived from rents we earn pursuant to the lease agreements with our tenants, from interest income from loans to our tenants and other facility owners, and from profits or equity interests in certain of our tenants’ operations. Our tenants operate in the healthcare industry, generally providing medical, surgical, rehabilitative, and behavioral health care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory, market, and other conditions (such as the impact of the COVID-19 pandemic) that may affect their profitability, which could impact our results. Accordingly, we monitor certain key performance indicators that we believe provide us with early indications of conditions that could affect the level of risk in our portfolio.
Key factors that we may consider in underwriting prospective deals and in our ongoing monitoring of our tenants’ (and guarantors’) performance, as well as the condition of our properties, include, but are not limited to, the following:
29
Certain business factors, in addition to those described above that may directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include:
CRITICAL ACCOUNTING POLICIES
Refer to our 2023 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include investments in real estate, purchase price allocation, loans, credit losses, losses from rent and interest receivables, investments accounted for under the fair value option election, and our accounting policy on consolidation. During the three months ended March 31, 2024, there were no material changes to these policies.
Overview
We are a self-advised REIT focused on investing in and owning net-leased healthcare facilities across the U.S. and selectively in foreign jurisdictions. Medical Properties Trust, Inc. was incorporated under Maryland law on August 27, 2003, and MPT Operating Partnership, L.P. was formed under Delaware law on September 10, 2003. We conduct substantially all of our business through MPT Operating Partnership, L.P. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned 100%; however, we do own some leased assets through joint ventures with other partners that share our view that healthcare facilities are part of the infrastructure of any community, which we refer to as investments in unconsolidated real estate joint ventures. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we may make loans to certain of our operators through our TRS, the proceeds of which are typically used for working capital and other purposes. From time-to-time, we may make noncontrolling investments in our tenants, which we refer to as investments in unconsolidated operating entities. These investments are typically made in conjunction with larger real estate transactions with the tenant that give us a right to share in such tenant’s profits and losses, and provide for certain minority rights and protections. Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to serve their communities by unlocking the value of their real estate assets to fund facility improvements, technology upgrades, and other investments in operations.
30
At March 31, 2024, our portfolio consisted of 436 properties leased or loaned to 53 operators, of which three are under development. We manage our business as a single business segment.
At March 31, 2024, all of our investments are located in the U.S., Europe, and South America. Our total assets are made up of the following (dollars in thousands):
|
|
As of |
|
|
% of |
|
|
As of |
|
|
% of |
|
||||
Real estate assets - at cost |
|
$ |
14,661,982 |
|
|
|
84.7 |
% |
|
$ |
14,778,132 |
|
|
|
80.8 |
% |
Accumulated real estate depreciation and amortization |
|
|
(1,422,728 |
) |
|
|
(8.2 |
)% |
|
|
(1,407,971 |
) |
|
|
(7.7 |
)% |
Net investment in real estate assets |
|
|
13,239,254 |
|
|
|
76.5 |
% |
|
|
13,370,161 |
|
|
|
73.1 |
% |
Cash and cash equivalents |
|
|
224,340 |
|
|
|
1.3 |
% |
|
|
250,016 |
|
|
|
1.4 |
% |
Investments in unconsolidated real estate joint ventures |
|
|
1,450,482 |
|
|
|
8.4 |
% |
|
|
1,474,455 |
|
|
|
8.0 |
% |
Investments in unconsolidated operating entities |
|
|
794,138 |
|
|
|
4.6 |
% |
|
|
1,778,640 |
|
|
|
9.7 |
% |
Other |
|
|
1,592,742 |
|
|
|
9.2 |
% |
|
|
1,431,572 |
|
|
|
7.8 |
% |
Total assets |
|
$ |
17,300,956 |
|
|
|
100.0 |
% |
|
$ |
18,304,844 |
|
|
|
100.0 |
% |
Significant Tenant Update
Steward Health Care System
At March 31, 2024, affiliates of Steward lease 28 of our facilities across five different markets under a master lease totaling approximately $2.4 billion, along with eight properties pursuant to a separate master lease agreement that are part of the Massachusetts partnership with Macquarie Asset Management ("Macquarie") (our investment in this partnership approximates $406 million). In addition to the master leases, we hold working capital and other secured loans totaling approximately $346 million, which the working capital loan consists of multiple tranches with varying terms. We also have a $362 million loan due from affiliates of Steward that was made in 2021, proceeds of which were used to redeem a similarly sized convertible loan held by Steward's former private equity sponsor. Finally, we hold a 9.9% equity investment in Steward.
Operational and Liquidity Challenges
As disclosed in our Annual Report on Form 10-K for the year ending December 31, 2023, Steward delayed until early October 2023 paying a portion of its September 2023 rent and paid less than 30% of its required $70 million of rent and interest obligations (including our share of rent due to the Massachusetts partnership) for the 2023 fourth quarter.
According to Steward, its cash flows from operations have been impacted by challenges related to insufficient reimbursement revenue, increased costs and expenses, revenue cycle management, and a backlog of accounts payable. With a single exception, Steward historically paid rent timely until its late payment of a portion of September 2023. Earlier in 2023, Steward’s management had described to us its plans for continued improvements to profitability, improvements to collections of billed revenue, access to working capital liquidity, and sales of certain non-core assets. Based on these initiatives, the reported profitability of Steward's operations at our facilities, our cross-defaulted master lease structure, and the additional security of our overall collateral interests, we believed that Steward would be able to satisfy its rental obligations over the full term of our master leases. However, despite Steward obtaining additional working capital financing and selling its non-core laboratory business in the 2023 fourth quarter, Steward informed us in December 2023 that its cash collection challenges had become more pronounced and coupled with significant changes to vendor payment terms, their liquidity had been negatively impacted. To improve its liquidity position, Steward stated in December 2023 that it would be pursuing several strategic transactions, including the sale or re-tenanting of certain hospital operations and working with a third-party capital partner to divest of its managed care business. In addition, Steward stated it planned to intensify measures to improve cash collections and overall governance, including the establishment of a transformation committee comprised of newly appointed independent directors.
Separately, we engaged financial and legal advisors in the 2023 fourth quarter to advise us on options to maximize the ultimate recovery of our investments, including the recovery of unpaid rent and interest. To this point and while Steward was working to execute its stated plan, we agreed to fund a $60 million bridge loan (which we funded in January 2024) secured by our existing collateral as well as new second liens on the managed care business of Steward. In addition, we and certain of Steward’s asset backed lenders agreed to a new bridge facility in February 2024 and have funded an additional $75 million each to Steward during the 2024 first quarter (of which, up to $60 million advanced by certain of Steward's asset backed lenders could be put to us in 2025 if not previously paid by Steward or through liquidation of Steward's collateral). In addition to these fundings, we agreed to a forbearance agreement in which we consented to the deferral of unpaid rent and interest through December 2023, as well as a limited and tapering deferral of rent in 2024.
31
Due to the operational and liquidity challenges that Steward is experiencing, we moved to the cash basis of accounting for our leases and loans with Steward effective December 31, 2023. This resulted in the reserving of all unpaid rent and interest receivables at December 31, 2023 and the reversal of previously recognized straight-line rent receivables. In addition, we recorded impairment charges on certain real estate assets and on our 9.9% equity interest. In total, we recorded approximately $714 million of impairment and other charges in 2023.
Steward signed a letter of intent for the sale of its managed care business ("Stewardship") in February 2024. However, the sale price of Stewardship was less than what was anticipated earlier in 2024, and important regulatory and anti-trust approvals have not yet been forthcoming as soon as earlier planned. These circumstances have created a level of uncertainty about the likelihood, valuation, and timing of Steward's realizations of Stewardship. Moreover, as of the end of the first quarter of 2024, Steward had not signed any agreements for possible sales of its operations in or the re-tenanting of our hospital real estate. Meanwhile, Steward’s working capital deficit has continued to increase from December 31, 2023, despite the influx of cash and rent concessions from us and certain of Steward’s asset backed lenders as described earlier, which culminated in Steward's filing for reorganization relief under Chapter 11 protection of the United States Bankruptcy Code in the Southern District of Texas on May 6, 2024.
Due to the uncertainty concerning the sale of Stewardship, status of sales of Steward operations or the re-tenanting of our real estate, the ongoing operational and liquidity challenges, and new bankruptcy filing, we have recorded approximately $470 million of additional impairment charges in the quarter ending March 31, 2024, that fully reserve for the remaining value of our 9.9% equity investment in Steward and the $362 million loan due from affiliates of Steward along with the accrual for property taxes and other obligations not paid by Steward under its master leases. The equity investment and loan to Steward affiliates were included in “Investments in unconsolidated operating entities” on our condensed consolidated balance sheets and were adjusted for after comparing our carrying value of these investments to an updated fair value analysis of the underlying collateral, with assistance from a third-party, independent valuation firm.
At March 31, 2024, we have approximately $346 million of non-real estate investments in Steward, consisting of the working capital loan and other secured loans advanced in 2024. Based on the analysis discussed above, we believe these investments are fully recoverable at this time. However, no assurances can be given that we will not have any additional impairments in future periods.
Results of Operations
Three Months Ended March 31, 2024 Compared to March 31, 2023
Net loss for the three months ended March 31, 2024, was ($875.6) million, or ($1.46) per share compared to net income of $32.8 million, or $0.05 per diluted share, for the three months ended March 31, 2023. This decrease in net income is primarily driven by the $693 million of impairment charges in the first quarter of 2024 related to Steward and the international joint venture and an approximate $201 million unfavorable fair value adjustment to our investment in PHP Holdings, as described in Note 3 to the condensed consolidated financial statements, along with lower rent and interest from Steward. Normalized funds from operations (“FFO”), after adjusting for certain items (as more fully described in the section titled “Reconciliation of Non-GAAP Financial Measures” in Item 2 of this Quarterly Report on Form 10-Q), was $141.8 million for the 2024 first quarter, or $0.24 per diluted share, as compared to $222.2 million, or $0.37 per diluted share, for the 2023 first quarter. This 36% decrease in Normalized FFO is primarily due to lower revenues from Steward moving to the cash basis of accounting on December 31, 2023, higher interest expense, and lower revenues as a result of various disposals in 2023.
Revenues
A comparison of revenues for the three months ended March 31, 2024 and 2023 is as follows (dollar amounts in thousands):
|
|
2024 |
|
|
% of |
|
|
2023 |
|
|
% of |
|
|
Year over |
|
|||||
Rent billed |
|
$ |
199,299 |
|
|
|
73.5 |
% |
|
$ |
248,157 |
|
|
|
70.8 |
% |
|
|
(19.7 |
)% |
Straight-line rent |
|
|
44,736 |
|
|
|
16.5 |
% |
|
|
56,693 |
|
|
|
16.2 |
% |
|
|
(21.1 |
)% |
Income from financing leases |
|
|
16,393 |
|
|
|
6.0 |
% |
|
|
13,195 |
|
|
|
3.8 |
% |
|
|
24.2 |
% |
Interest and other income |
|
|
10,888 |
|
|
|
4.0 |
% |
|
|
32,166 |
|
|
|
9.2 |
% |
|
|
(66.2 |
)% |
Total revenues |
|
$ |
271,316 |
|
|
|
100.0 |
% |
|
$ |
350,211 |
|
|
|
100.0 |
% |
|
|
(22.5 |
)% |
Our total revenues for the 2024 first quarter are down $78.9 million, or 23%, over the same period in the prior year. This decrease is made up of the following:
32
Operating lease revenues in the 2024 first quarter further declined by approximately $17 million due to disposals and other leasing transactions in 2023. These decreases are partially offset by approximately $5.5 million in incremental revenue from acquisitions in 2023, capital additions, and the commencement of rent on two development properties in 2024; $3.3 million of favorable foreign currency fluctuations; and approximately $4.5 million from increases in CPI above the contractual minimum escalations in our leases.
Interest Expense
Interest expense for the quarters ended March 31, 2024 and 2023 totaled $108.7 million and $97.7 million, respectively. This increase is primarily related to an increase in borrowings on our revolving credit facility that carried higher interest rates (as variable rate debt) compared to the lower fixed interest rates of debt that was repaid in 2023, including the A$730 million Australian term loan facility paid off in the 2023 second quarter and the 2.550% Senior Unsecured Notes paid off in December 2023. Overall, our weighted-average interest rate was 4.2% for the quarter ended March 31, 2024, compared to 3.7% for the same period in 2023, as general interest rates have trended higher post the 2023 first quarter and our specific rates have increased due to a credit rating adjustment in March 2023.
Real Estate Depreciation and Amortization
Real estate depreciation and amortization during the first quarter of 2024 decreased to $75.6 million from $83.9 million in 2023. This decrease is primarily due to the sale of 11 properties related to the Australia Transaction (as described in Note 3 to the condensed consolidated financial statements) and three Prime properties in 2023. We also classified five Prime facilities as held for sale in the first quarter of 2024 and are no longer recording depreciation on these properties.
Property-related
Property-related expenses totaled $4.8 million and $7.1 million for the quarters ended March 31, 2024 and 2023, respectively. Of the property expenses in the first quarter of 2024 and 2023, approximately $2.3 million and $4.2 million, respectively, represents costs that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.
General and Administrative
General and administrative expenses totaled $33.3 million for the 2024 first quarter, compared to $41.7 million for the 2023 first quarter. Approximately $4 million of this decrease is stock compensation expense related, of which approximately $1.5 million of this decrease is related to timing of when the 2024 awards were granted in the quarter. In regard to the 2024 stock grants, and as described in Note 6 to the condensed consolidated financial statements, certain stock awards have cash-settlement features that will be accounted for as liability awards verses equity awards and adjusted to fair value quarterly.
Excluding stock compensation expense, general and administrative expenses totaled $25.6 million in the 2024 first quarter, compared to $29.8 million in the prior year reflecting our ongoing efforts to manage our expenses.
33
(Loss) Gain on Sale of Real Estate
During the three months ended March 31, 2024, we disposed of three facilities and two ancillary facilities resulting in a net loss of $1.4 million.
Real Estate and Other Impairment Charges, Net
In the 2024 first quarter, we recognized $693 million of non-real estate impairment charges and fair value adjustments associated with our investments in Steward and the international joint venture as further described in Note 3 to the condensed consolidated financial statements. In the first quarter of 2023, we recorded an $89.5 million net impairment charge, of which $79 million related to the Australia Transaction and $11 million was a non-cash impairment charge on the three Prime properties as more fully described in Note 3 to the condensed consolidated financial statements.
Earnings from Equity Interests
Earnings from equity interests was $10.5 million for the quarter ended March 31, 2024, slightly below the $11.4 million for the same period in 2023, primarily due to lower revenue earned on our Italian joint venture.
Other (Including Fair Value Adjustments on Securities)
Other expense for the first three months of 2024 was $229.3 million, compared to $5.2 million in the prior year. For 2024, we recognized approximately $216 million in unfavorable non-cash fair value adjustments from our investments marked to fair value, primarily due to an approximate $201 million unfavorable adjustment to our investment in PHP Holdings. The remaining expense in the 2024 first quarter included a $7.8 million economic loss from the sale of our interest in the Priory syndicated term loan and approximately $5.9 million of expenses associated with responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. For 2023, we incurred $8 million of expenses associated with responding to defamatory statements previously mentioned, partially offset by approximately $4 million of favorable non-cash fair value adjustments on our investment in Aevis and other investments marked to fair value during the first quarter of 2023.
With certain investments accounted for at fair value, such as our investment in PHP Holdings, we may have positive or negative fair value adjustments from quarter-to-quarter.
Income Tax Expense
Income tax expense includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $10.9 million income tax expense for the three months ended March 31, 2024 is primarily based on the income generated by our investments in the U.K., Colombia, and Germany. In comparison, we incurred $3.5 million in income tax expense in the first quarter of 2023 that was net of a $5.0 million tax benefit recognized from the Australia Transaction.
We utilize the asset and liability method of accounting for income taxes. Deferred tax assets are recorded to the extent we believe these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon our review of all positive and negative evidence, including our three-year cumulative pre-tax book loss position in certain entities, we concluded that a valuation allowance of approximately $152 million should be reflected against certain of our international and domestic net deferred tax assets at March 31, 2024. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and potentially incur higher income tax expense in future periods as income is earned.
Reconciliation of Non-GAAP Financial Measures
Investors and analysts following the real estate industry utilize funds from operations, or FFO, as a supplemental performance measure. FFO, reflecting the assumption that real estate asset values rise or fall with market conditions, principally adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assumes that the value of real estate diminishes predictably over time. We compute FFO in accordance with the definition provided by the National Association of Real Estate Investment Trusts, or Nareit, which represents net income (loss) (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairment charges on real estate assets, plus real estate depreciation and amortization, including amortization related to in-place lease intangibles, and after adjustments for unconsolidated partnerships and joint ventures.
34
In addition to presenting FFO in accordance with the Nareit definition, we disclose normalized FFO, which adjusts FFO for items that relate to unanticipated or non-core events or activities or accounting changes that, if not noted, would make comparison to prior period results and market expectations less meaningful to investors and analysts.
We believe that the use of FFO, combined with the required GAAP presentations, improves the understanding of our operating results among investors and the use of normalized FFO makes comparisons of our operating results with prior periods and other companies more meaningful. While FFO and normalized FFO are relevant and widely used supplemental measures of operating and financial performance of REITs, they should not be viewed as a substitute measure of our operating performance since the measures do not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs (if any are not paid by our tenants) to maintain the operating performance of our properties, which can be significant economic costs that could materially impact our results of operations. FFO and normalized FFO should not be considered an alternative to net income (loss) (computed in accordance with GAAP) as indicators of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.
The following table presents a reconciliation of net (loss) income attributable to MPT common stockholders to FFO and Normalized FFO for the three months ended March 31, 2024 and 2023 (in thousands except per share data):
|
|
For the Three Months Ended |
|
|||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
FFO information: |
|
|
|
|
|
|
||
Net (loss) income attributable to MPT common stockholders |
|
$ |
(875,625 |
) |
|
$ |
32,794 |
|
Participating securities’ share in earnings |
|
|
— |
|
|
|
(515 |
) |
Net (loss) income, less participating securities’ share in earnings |
|
$ |
(875,625 |
) |
|
$ |
32,279 |
|
Depreciation and amortization |
|
|
94,243 |
|
|
|
101,960 |
|
Loss (gain) on sale of real estate |
|
|
1,423 |
|
|
|
(62 |
) |
Real estate impairment charges |
|
|
— |
|
|
|
52,104 |
|
Funds from operations |
|
$ |
(779,959 |
) |
|
$ |
186,281 |
|
Write-off of billed and unbilled rent and other |
|
|
1,817 |
|
|
|
2,192 |
|
Other impairment charges, net |
|
|
693,088 |
|
|
|
37,434 |
|
Litigation and other |
|
|
5,870 |
|
|
|
7,726 |
|
Non-cash fair value adjustments |
|
|
221,276 |
|
|
|
(4,121 |
) |
Tax rate changes and other |
|
|
(307 |
) |
|
|
(7,305 |
) |
Normalized funds from operations |
|
$ |
141,785 |
|
|
$ |
222,207 |
|
Per diluted share data: |
|
|
|
|
|
|
||
Net (loss) income, less participating securities’ share in earnings |
|
$ |
(1.46 |
) |
|
$ |
0.05 |
|
Depreciation and amortization |
|
|
0.16 |
|
|
|
0.17 |
|
Loss (gain) on sale of real estate |
|
|
— |
|
|
|
— |
|
Real estate impairment charges |
|
|
— |
|
|
|
0.09 |
|
Funds from operations |
|
$ |
(1.30 |
) |
|
$ |
0.31 |
|
Write-off of billed and unbilled rent and other |
|
|
— |
|
|
|
0.01 |
|
Other impairment charges, net |
|
|
1.16 |
|
|
|
0.06 |
|
Litigation and other |
|
|
0.01 |
|
|
|
0.01 |
|
Non-cash fair value adjustments |
|
|
0.37 |
|
|
|
(0.01 |
) |
Tax rate changes and other |
|
|
— |
|
|
|
(0.01 |
) |
Normalized funds from operations |
|
$ |
0.24 |
|
|
$ |
0.37 |
|
LIQUIDITY AND CAPITAL RESOURCES
2024 Cash Flow Activity
During the first three months of 2024, we generated approximately $74.3 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. In addition, we received approximately $133 million during the quarter from sales of our interest in the syndicated Priory term loan, the remaining minority equity interest in Lifepoint Behavioral, and certain real estate properties. We used our operating cash flows, asset sale proceeds, and cash on-hand and borrowings under our revolving credit facility to fund our dividends (declared in November 2023) of $92.8 million, approximately $135 million of advances to Steward, on a secured basis, in order to protect our investments in Steward (see Note 3 to the condensed consolidated financial statements for further discussion), and other investing activities.
35
Subsequent to March 31, 2024, the following transactions occurred:
The relief afforded under the April 12, 2024 amendment to the Credit Facility is limited to the relief specified in the amendment, including waiving the 10% cap on unencumbered asset value attributable to tenants subject to a bankruptcy event for purposes of determining compliance with the unsecured leverage ratio for the trailing four fiscal quarter period ended June 30, 2024 and for purposes of determining pro forma compliance with the unsecured leverage ratio for certain asset sale and debt transactions specified in the amendment. The amendment does not provide relief beyond its specific provisions and other adverse consequences of the Steward bankruptcy filing may occur;
2023 Cash Flow Activity
During the first three months of 2023, we generated approximately $135.6 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 $176.6 million.
Short-term Liquidity Requirements:
Our short-term liquidity requirements typically consist of general and administrative expenses, dividends in order to comply with REIT requirements, interest payments on our debt, and planned funding commitments on development and capital improvement projects, for the next twelve months. Our monthly rent and interest receipts and distributions from our joint venture arrangements are typically enough to cover our short-term liquidity requirements.
36
However, with increasing interest rates, loss of a substantial portion of cash rent and interest from Steward, possible debtor in possession financing ("DIP") of up to $75 million related to the Steward bankruptcy (of which we have funded $60 million to-date), and $1.4 billion of debt coming due within the next twelve months (post subsequent event activity discussed earlier), we have looked to other initiatives to improve cash flows including:
We believe these initiatives, along with liquidity of approximately $1.4 billion (including cash on-hand and availability under our $1.4 billion revolving credit facility) at May 24, 2024 (and including subsequent event activity discussed in Note 3 to the condensed consolidated financial statements), routine cash receipts of rent and interest, and the $100 million due from Prime in 2024, can fund our short-term liquidity requirements, including up to $75 million of DIP financing to Steward.
In addition to the cash flow improvement initiatives discussed above, we could see further cash flow upside from the monetization of our investment in PHP Holdings and any proceeds received from Steward's plan to divest of its managed care business and to transition operations to new healthcare operators (whether it be from a concurrent sale of our real estate or in the form of rent paid by the new lessee).
Long-term Liquidity Requirements:
Our long-term liquidity requirements generally consist of the same requirements described above under “Short-term Liquidity Requirements” along with the acquisition of real estate and the funding of debt maturities coming due after the next twelve months. At this time, we do not expect any material acquisitions of real estate in the foreseeable future.
As described previously, our monthly rent and interest receipts and distributions from our joint venture arrangements along with our current liquidity of approximately $1.4 billion at May 24, 2024, are typically enough to cover our short-term liquidity requirements. However, to address upcoming debt maturities (as outlined below), we may need to look to other sources, which may include one or a combination of the following:
However, there is no assurance that conditions will be favorable for such possible transactions or that our plans will be successful. As described in the "Risk Factors" section of this Form 10-Q, as a result of this Quarterly Report on Form 10-Q not being filed timely, we are currently ineligible to file a new shelf registration statement on Form S-3 or access our existing registration statement on Form S-3 for sales of securities, including under our ATM program, until June 1, 2025, which may impair our ability to raise capital in the public markets. While we are able to use other registration avenues for public offerings, such avenues are less expeditious and efficient than a shelf registration statement on Form S-3. See "Risk Factors" for additional information.
37
Principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) as of May 24, 2024 are as follows (in thousands):
2024 |
|
$ |
133,547 |
|
2025 |
|
|
1,300,202 |
|
2026 |
|
|
2,374,864 |
|
2027 |
|
|
1,600,000 |
|
2028 |
|
|
764,220 |
|
Thereafter |
|
|
3,449,983 |
|
Total |
|
$ |
9,622,816 |
|
Contractual Commitments
We presented our contractual commitments in our 2023 Annual Report on Form 10-K. Except for the payoff and termination of our Australian term loan facility on April 18, 2024, and the changes noted below, there have been no significant changes through May 24, 2024.
The following table updates our contractual commitments schedule as of May 24, 2024 (in thousands):
Contractual Commitments |
|
2024(1) |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|||||||
British pound secured loan facility |
|
$ |
27,879 |
|
|
$ |
55,304 |
|
|
$ |
55,304 |
|
|
$ |
55,304 |
|
|
$ |
55,456 |
|
|
$ |
1,108,284 |
|
|
$ |
1,357,531 |
|
British pound sterling term loans |
|
|
148,268 |
|
|
|
758,583 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
906,851 |
|
Revolving credit facility |
|
|
28,438 |
|
|
|
47,178 |
|
|
|
719,122 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
794,738 |
|
Distribution Policy
The table below is a summary of our distributions declared during the two year period ended March 31, 2024:
Declaration Date |
|
Record Date |
|
Date of Distribution |
|
Distribution |
|
|
November 9, 2023 |
|
December 7, 2023 |
|
January 11, 2024 |
|
$ |
0.15 |
|
August 21, 2023 |
|
September 14, 2023 |
|
October 12, 2023 |
|
$ |
0.15 |
|
April 27, 2023 |
|
June 15, 2023 |
|
July 13, 2023 |
|
$ |
0.29 |
|
February 16, 2023 |
|
March 16, 2023 |
|
April 13, 2023 |
|
$ |
0.29 |
|
November 10, 2022 |
|
December 8, 2022 |
|
January 12, 2023 |
|
$ |
0.29 |
|
August 18, 2022 |
|
September 15, 2022 |
|
October 13, 2022 |
|
$ |
0.29 |
|
May 26, 2022 |
|
June 16, 2022 |
|
July 14, 2022 |
|
$ |
0.29 |
|
On April 12, 2024, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.15 per share of common stock that was paid on May 1, 2024, to stockholders of record on April 22, 2024.
It is our policy to make sufficient distributions to stockholders in order for us to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended, and to efficiently manage corporate income and excise taxes on undistributed income. However, our Credit Facility limits the amount of dividends we can make- see Note 4 to the condensed consolidated financial statements for further information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that affect market sensitive instruments. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate or foreign currency exposure. For interest rate hedging, these decisions are principally based on our policy to match investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. For foreign currency hedging, these decisions are principally based on how our investments are financed, the long-term nature of our investments, the need to repatriate earnings back to the U.S., and the general trend in foreign currency exchange rates.
38
In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits.
Our primary exposure to market risks relates to fluctuations in interest rates and foreign currency. The following analyses present the sensitivity of the market value, earnings, and cash flows of our significant financial instruments to hypothetical changes in interest rates and exchange rates as if these changes had occurred. The hypothetical changes chosen for these analyses reflect our view of changes that are reasonably possible over a one-year period. These forward looking disclosures are selective in nature and only address the potential impact from these hypothetical changes. They do not include other potential effects which could impact our business as a result of changes in market conditions. In addition, they do not include measures we may take to minimize our exposure such as entering into future interest rate swaps to hedge against interest rate increases on our variable rate debt.
Interest Rate Sensitivity
For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At March 31, 2024, our outstanding debt totaled $10.1 billion, which consisted of fixed-rate debt of approximately $8.3 billion (after considering interest rate swaps in-place) and variable rate debt of $1.8 billion. If market interest rates increase by 10%, the fair value of our debt at March 31, 2024 would decrease by approximately $200.3 million. Changes in the fair value of our fixed rate debt will not have any impact on us unless we decided to repurchase the debt in the open market.
If market rates of interest on our variable rate debt increase by 10%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $12.0 million per year. If market rates of interest on our variable rate debt decrease by 10%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $12.0 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $1.8 billion, the balance of such variable rate debt at March 31, 2024.
Foreign Currency Sensitivity
With our investments in the U.K., Germany, Spain, Italy, Portugal, Switzerland, Finland, and Colombia, we are subject to fluctuations in the British pound, euro, Swiss franc, and Colombian peso to U.S. dollar currency exchange rates. Although we generally deem investments in these countries to be of a long-term nature, are typically able to match any non-U.S. dollar borrowings with investments in such currencies, and historically have not needed to repatriate a material amount of earnings back to the U.S., increases or decreases in the value of the respective non-U.S. dollar currencies to U.S. dollar exchange rates may impact our financial condition and/or our results of operations. Based solely on our 2024 operating results to-date and on an annualized basis, a 10% change to the following exchange rates would have impacted our net income, FFO, and Normalized FFO by the amounts below (in thousands):
|
|
Net Income Impact |
|
|
FFO Impact |
|
|
NFFO Impact |
|
|||
British pound (£) |
|
$ |
9,426 |
|
|
$ |
19,046 |
|
|
$ |
22,163 |
|
Euro (€) |
|
|
1,513 |
|
|
|
6,129 |
|
|
|
6,502 |
|
Swiss franc (CHF) |
|
|
2,555 |
|
|
|
35 |
|
|
|
2,869 |
|
Colombian peso (COP) |
|
|
69 |
|
|
|
147 |
|
|
|
1,856 |
|
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
39
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.
40
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to various lawsuits as further described in Note 9 “Commitments and Contingencies” to the condensed consolidated financial statements. We have not recorded a liability related to these lawsuits because, at this time, we are unable to determine whether an unfavorable outcome is probable or to estimate reasonably possible losses.
In addition to the foregoing, we are currently and have in the past been subject to various legal proceedings and regulatory actions in connection with our business. We believe that the resolution of any current pending legal or regulatory matters will not have a material adverse effect on our business, financial condition, results of operations, or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as legal and regulatory matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of such matters could have a material adverse effect on our financial condition, cash flows, results of operations, and the trading price of our common stock.
Item 1A. Risk Factors.
Other than as noted below, there have been no material changes to the Risk Factors as presented in our Annual Report on Form 10-K for the year ended December 31, 2023.
Steward’s deteriorating financial condition has material adversely affected our operating results and financial condition, and Steward’s recent Chapter 11 filing adds further risks and uncertainties that could materially adversely affect us.
On May 6, 2024, Steward filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. At March 31, 2024, affiliates of Steward lease 28 of our facilities under a master lease totaling approximately $2.4 billion, along with eight properties pursuant to a separate master lease agreement with one of our unconsolidated joint ventures in which our investment is approximately $406 million. In addition to the master leases, we hold a working capital and other secured loans totaling approximately $346 million, which the working capital loan consists of multiple tranches with varying terms. We also have a $362 million loan due from affiliates of Steward that was made in 2021, and we hold a 9.9% equity investment in Steward. At March 31, 2024, our aggregate investments in Steward and its affiliates represented approximately 18.5% of our total assets. In addition, our approximately $220 million loan to an international joint venture is collateralized by the equity of Steward held by an investor in both Steward and the international joint venture. Subject to approval by the bankruptcy court (including with regards to financing terms), we separately anticipate entering into agreements to provide debtor-in-possession financing to Steward of up to $75 million.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, we moved to the cash basis of accounting for all leases and loans with Steward effective December 31, 2023. This resulted in the reserving of all unpaid rent and interest receivables at December 31, 2023 and the reversal of previously recognized straight-line rent receivables. In addition, we recorded impairment charges on certain real estate assets and on our 9.9% equity interest in Steward. In total, the Company recorded approximately $700 million of impairment and other charges as of December 31, 2023. Due to Steward’s ongoing operational and liquidity challenges and new bankruptcy filing, we recorded approximately $470 million of additional impairment charges in the quarter ending March 31, 2024 that fully reserves for the remaining value of our 9.9% equity investment in Steward and the $362 million loan due from affiliates of Steward along with the accrual for property taxes and obligations not paid per Steward under its master leases. In addition, we recorded a $220 million unfavorable fair value adjustment in the quarter ending March 31, 2024 to fully reserve for our loan to the international joint venture. We cannot assure you that we will not have any additional impairments in future periods.
Steward’s bankruptcy filing constitutes a default under the terms of our master leases and loan agreements with Steward, and imposes a stay on our ability to exercise contractual rights with respect to these defaults. The bankruptcy filing bars us from collecting pre-bankruptcy debts from Steward, unless we receive an order permitting us to do so from the bankruptcy court. While we expect to engage in negotiations with Steward and other stakeholders and to pursue all legal remedies to maximize our recovery with respect to our Steward investments, the outcome of any such negotiations and remedies is uncertain at this time and will be subject in all cases to the approval of the bankruptcy court. In addition, there is a risk that third parties may seek to bring claims against us in Steward’s bankruptcy proceeding.
If our Steward master leases are rejected by the bankruptcy trustee, in whole or in part, we would have only a general unsecured claim for damages. Any unsecured claim (including our equity interest in Steward) may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. We may recover none or substantially less than the full value of any unsecured claims, which would materially harm our financial condition. Moreover, any secured claims we have against Steward may only be paid to the extent of the value of the collateral, which may not cover any or all of our losses.
Steward’s filing and other defaults under its master leases may give us the right to terminate the leases and seek one or more replacement operators for these facilities. However, the process for transferring the operations of healthcare facilities is highly
41
regulated, which may result in delays and increased costs in locating a suitable replacement tenant. There can be no assurance that we would be able to find another tenant in a timely fashion, or at all, or that, if another tenant were found, we would be able to enter into a new lease on favorable terms. If we are unable to re-let the Steward properties, we may be forced to sell the properties at a loss.
In addition, the terms of our unsecured credit facility and the indentures governing our outstanding unsecured senior notes are subject to customary financial, operational, and reporting 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. The terms of our unsecured credit facility also require us to maintain a minimum amount of total unencumbered assets and a 10% cap on unencumbered asset value attributable to tenants subject to a bankruptcy event, such as Steward. In April 2024, the lenders under our unsecured credit facility agreed, among other things, to waive the 10% cap on unencumbered asset value attributable to tenants subject to a bankruptcy event for purposes of determining compliance with the unsecured leverage ratio for the trailing four fiscal quarter periods ended June 30, 2024, and for purposes of determining pro forma compliance with the unsecured leverage ratio for certain asset sale and debt transactions. The amendment does not provide relief beyond its specific provisions and other adverse consequences of the Steward bankruptcy filing may occur. Such waiver and modified covenant are temporary, and we will be required to meet the standard covenant threshold when the waiver period expires on September 30, 2024, unless extended. Our continued ability to incur debt and operate our business is subject to compliance with the covenants in our debt instruments, breaches of which could result in defaults and cross-defaults that could have a material adverse effect on our financial condition and results of operations.
Steward is early in its bankruptcy proceedings and the ultimate outcome of such proceedings is uncertain. At this time we are unable to predict the timing of any of the foregoing matters or the timing for a resolution of the Steward bankruptcy proceeding.
As a result of this Quarterly Report on Form 10-Q not being filed timely, we are currently ineligible to file a new short-form registration statement on Form S-3 or access our existing registration statement on Form S-3 for sales of securities, including under our ATM program, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.
Form S-3 permits eligible issuers to conduct registered offerings using a short-form registration statement that is automatically effective and allows the incorporation by reference of past and future filings and reports made under the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings “off the shelf” by registering an indeterminate amount of specified securities which, combined with automatic effectiveness and the ability to forward incorporate information, allows issuers to access the capital markets in a more expeditious and efficient manner than raising capital in a standard registered offering pursuant to Form S-11.
As a result of this Quarterly Report on Form 10-Q not being filed timely, we are currently ineligible to file a new short-form registration statement on Form S-3 or access our existing registration statement on Form S-3 for sales of securities, including under our ATM program, until June 1, 2025, which may impair our ability to raise necessary capital to repay our debt obligations as they become due, pursue acquisition and development opportunities, and execute our business strategy. If we seek to access the capital markets through a registered offering during the period of time that we are unable to use a registration statement on Form S-3, we may experience delays in the offering process due to SEC review of a registration statement on Form S-11, experience downward pressure on our share price given that we will have to disclose the offering prior to formal commencement, and incur increased offering and transaction costs. If we are unable to raise capital through a registered offering, we would be required to conduct financing transactions on a private placement basis, subject to pricing, size and other limitations for equity raises under the NYSE rules, or seek other sources of capital, which are not guaranteed. The foregoing limitations on our financing approaches could have a material adverse effect on our results of operations, liquidity and financial position.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The table below summarizes repurchases of our common stock made during the quarter ended March 31, 2024:
Period |
|
Total number of |
|
|
Average price |
|
|
Total number of shares |
|
|
Approximate dollar |
|
||||
January 1-January 31, 2024 |
|
|
57 |
|
|
$ |
4.96 |
|
|
|
— |
|
|
$ |
— |
|
42
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
During the three months ended March 31, 2024, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities and Exchange Act)
43
Item 6. Exhibits
Exhibit Number |
|
Description |
|
|
|
10.1* |
|
|
|
|
|
10.2* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
31.3* |
|
|
|
|
|
31.4* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
Exhibit 101.INS* |
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
Exhibit 101.SCH* |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
Exhibit 104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
* Filed herewith.
** Furnished herewith.
44
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
MEDICAL PROPERTIES TRUST, INC. |
||
|
|
|
By: |
|
/s/ J. Kevin Hanna |
|
|
J. Kevin Hanna |
|
|
Senior Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer (Principal Accounting Officer) |
MPT OPERATING PARTNERSHIP, L.P. |
||
|
|
|
By: |
|
/s/ J. Kevin Hanna |
|
|
J. Kevin Hanna |
|
|
Senior Vice President, Controller, Assistant Treasurer, and Chief Accounting Officer of the sole member of the general partner of MPT Operating Partnership, L.P. (Principal Accounting Officer) |
Date: May 29, 2024
45
Exhibit 10.1
AMENDMENT TO SECOND AMENDED AND RESTATED MASTER LEASE AGREEMENT
(Stewardship Note)
THIS AMENDMENT TO SECOND AMENDED AND RESTATED MASTER LEASE AGREEMENT (this “Amendment”), dated January 2, 2024, is by and among certain Affiliates of MPT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“MPT”), as further described on the signature pages hereto (collectively, jointly and severally, “Lessor”), and certain Affiliates of STEWARD HEALTH CARE SYSTEM LLC, a Delaware limited liability company (“Steward Health”), as further described on the signature pages hereto (collectively, jointly and severally, “Lessee”).
WITNESSETH:
WHEREAS, Lessor and Lessee are parties to that certain Second Amended and Restated Master Lease Agreement (Master Lease I), dated as of March 14, 2022 (as the same has been or hereafter may be modified, amended, or restated from time to time, the “Master Lease”), pursuant to which Lessor leases to Lessee certain real property and improvements (including improvements consisting of multiple healthcare facilities), as more particularly described in the Master Lease;
WHEREAS, Lessor, Lessee, and certain of their respective Affiliates are parties to that certain Forbearance Agreement, dated the date hereof (as the same may be modified, amended, or restated from time to time, the “Forbearance Agreement”), pursuant to which, among other things, the Lessees and certain of their Affiliates acknowledged the existence of certain specified defaults under the Obligation Documents and agreed to certain specified actions to affect a plan of restructuring, in exchange for which the Lessors and certain of their Affiliates agreed to forbear from exercising their rights and remedies under the Obligation Documents and advance a loan to certain Affiliates of the Lessees, subject in each case to the terms and conditions therein;
WHEREAS, certain Affiliates of the Lessees executed that certain Promissory Note, dated the date hereof (as the same may be modified, amended, or restated from time to time, the “Stewardship Note”), which secures a loan advanced by MPT TRS Lender-Steward, LLC, a Delaware limited liability company, to such Affiliates of the Lessees, with the first advance of $25,000,000.00 made on the date hereof and a second advance of up to $35,000,000.00 to be made on January 4, 2024, if and only if certain performance thresholds described in the Stewardship Note are satisfied, in each case on the terms and conditions set forth in the Stewardship Note;
WHEREAS, in connection with the Stewardship Note, Steward Health and certain other Affiliates of the Lessees executed that certain Guaranty, dated the date hereof (as the same may be modified, amended, or restated from time to time, the “Stewardship Guaranty”), pursuant to which such Affiliates of the Lessees guaranteed, among other obligations, (i) the obligations of the borrowers under the Stewardship Note and (ii) a limited portion of the obligations under the Obligation Documents (other than the Stewardship Note) as set forth in the Stewardship Guaranty; and
WHEREAS, as contemplated by the Forbearance Agreement, Lessor and Lessee desire to amend the Master Lease as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained, the covenants, agreements, and obligations of Steward Health and its Affiliates in the Forbearance Agreement, the Stewardship Note, and the Stewardship Guaranty, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as follows:
1. CAPITALIZED TERMS. Capitalized terms used and not otherwise defined in this Amendment shall have the meanings ascribed thereto in the Master Lease.
2. STATEMENT OF INTENT. Subject to Articles V, XIV, XV, XXX, and Section 16.1 of the Master Lease, the Master Lease constitutes one unitary, indivisible, non-severable true operating lease of all the Leased Property as provided in the preamble to the Master Lease. Notwithstanding anything to the contrary contained herein, Lessor and Lessee agree that the provisions of this Amendment and the Master Lease shall at all times continue to be construed, interpreted, and applied such that the intention of Lessor and Lessee to create a unitary, indivisible, non-severable true operating lease shall be preserved and maintained.
3. MATERIAL INDUCEMENT. The covenants, agreements, and obligations of Steward Health and its Affiliates under the Forbearance Agreement, the Stewardship Note, and the Stewardship Guaranty are a material inducement for the Beneficiary entering into this Amendment.
4. AMENDMENTS. Notwithstanding any provisions of the Master Lease to the contrary, effective immediately, the parties hereby amend the Master Lease as follows:
(a) Addition of Defined Terms. Article I of the Master Lease is amended to add and include the following defined terms and correlative definitions:
“Forbearance Agreement” means that certain Forbearance Agreement, dated as of January 2, 2024, among the Lessors, the Lessees, and certain of their respective Affiliates, as the same may be amended, modified, or restated from time to time.
“Stewardship Borrowers” means Steward Health Care Network, Inc., Steward Emergency Physicians, Inc., Steward Physician Contracting, Inc., and Steward Medicaid Care Network, Inc.
“Stewardship Note” means that certain Promissory Note, dated as of January 2, 2024, made by the Stewardship Borrowers in favor of MPT TRS Lender-Steward, LLC, a Delaware limited liability company, in the original principal amount of up to $60,000,000, as the same may be amended, modified, or restated from time to time.
“Stewardship Guaranty” means that certain Guaranty, dated as of January 2, 2024, executed and delivered by Steward Health and the Stewardship Borrowers in favor of MPT TRS Lender-Steward, LLC, the Lessors, and certain of their Affiliates, as the same may be modified, amended, or restated from time to time.
(b) Restated Defined Terms. Article I of the Master Lease is amended to restate the following defined terms and correlative definitions:
2
Major Event of Default: The occurrence of (i) an Event of Default under clause (a), (j), or (k) of Section 16.1; (ii) an Event of Default by the Guarantor under clause (c) or (g) of Section 16.1; (iii) a “Major Event of Default” under and as defined in the Mortgage Loan Agreement or Master Lease II; or (iv) a monetary or material non-monetary “Event of Default” under and as defined in the Stewardship Note.
Obligation Documents: Individually and collectively, this Lease, Master Lease II, the Real Estate Contract, the LLC Agreement (solely with respect to the MPT Required Provisions), the Mortgage Loan Documents, the CHS Master Agreement, the IASIS Real Estate Contract, the IASIS Master Agreement, the IASIS Realty Agreement, the Tenet Master Agreement, the St. Joseph Purchase Agreement, the Pikes Peak Master Agreement, the Mortgage Conversion Purchase Agreement, the Adeptus Texas Master Agreement, the Project Development Agreements, the Term Loan Promissory Note, the Arizona Master Agreement, the Big Spring Master Agreement, the Mesa Master Agreement, the Coral Terrace Master Agreement, the Utah Severance Master Agreement, the Guaranties, the Pledge Agreement, the Security Agreement, the Stand Alone Security Agreements, the Lease Assignments, the Environmental Indemnification Agreements, the Non-Competition Agreements, the Loan Guaranty, the Contribution Agreement, the MPT-Steward JV LLC Agreement, the Stapley Disposition Master Agreement, the Mid Jefferson Master Agreement, the Forbearance Agreement, the Stewardship Note, the Stewardship Guaranty, and any other “Obligation Document” under and as defined in Master Lease II, and all other leases, promissory notes, and agreements entered into between Lessor or any Affiliate of Lessor, on the one hand, and any Facility Lessee, Guarantor or any of their respective Affiliates, on the other hand, relating to the transactions contemplated under this Lease, Master Lease II, the Mortgage Loan Documents, the Term Loan Promissory Note, and the Contribution Agreement, as any of the same has been or hereafter may be amended, modified, or restated from time to time; provided however, that the Equity Purchase Agreement shall be excluded from the Obligation Documents for purposes of this Lease.
(c) Limited Modification of Lessee Obligations. Article III of the Master Lease is amended to add the following as new Section 3.1(d).
(d) Limited Modification of Lessee Obligations. Notwithstanding anything in this Lease to the contrary, Lessee’s obligations regarding the payment of Base Rent are amended as provided in Schedule 3.1(d) attached hereto.
(d) New Schedule 3.1(d). Schedule 3.1(d) attached hereto is added to the Master Lease as new Schedule 3.1(d).
5. REPRESENTATIONS AND WARRANTIES. Each of the parties to this Amendment hereby represent and warrant to the other parties to this Amendment that (a) the recitals to this Amendment are true and correct in all respects; (b) the execution and delivery of this Amendment and the obligations created hereby have been duly authorized by all necessary proceedings on its part; (c) it has full legal right, power and authority to enter into this Amendment and to incur the obligations
3
provided for herein; (d) this Amendment constitutes its valid and legally binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization, and similar laws affecting the enforcement of creditor’s rights or contractual obligations generally and, as to enforcement, to general principles of equity, regardless of whether applied in a proceeding at law or in equity; and (e) no approval or consent of any foreign, federal, state, county, local or other governmental or regulatory body, and no approval or consent of any other person is required in connection with its execution and delivery of this Amendment or its consummation and performance of the transactions contemplated hereby.
6. BINDING EFFECT. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
7. RATIFICATION. Except as expressly amended hereby, the parties hereby confirm and ratify the Master Lease in all respects.
8. NECESSARY ACTION. Each party shall perform any further acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Amendment.
9. JOINT DRAFTING. The parties hereto and their respective counsel have participated in the drafting and redrafting of this Amendment and the general rules of construction which would construe any provisions of this Amendment in favor of or to the advantage of one party as opposed to the other as a result of one party drafting this Amendment as opposed to the other or in resolving any conflict or ambiguity in favor of one party as opposed to the other on the basis of which party drafted this Amendment are hereby expressly waived by all parties to this Amendment.
10. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the terms set forth in Section 39.12 of the Master Lease.
11. INTERPRETATION; SEVERABILITY. This Amendment, including the exhibits and schedules attached hereto (if any), and other written agreements executed and delivered in connection herewith by the parties, shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment, unless the severance of such provision would be in opposition to the parties’ intent with respect to such provision.
12. ENTIRE AGREEMENT; MODIFICATION. This Amendment, together with all exhibits, schedules, and the other documents referred to herein, embody and constitute the entire understanding between the parties with respect to the transactions contemplated herein, and all prior agreements, understandings, representations and statements (oral or written) are merged into this Amendment. The parties have not relied upon, and shall not be entitled to rely upon, any prior or contemporaneous agreements, understandings, representations or statements (oral or written) other than this Amendment in effecting the transactions contemplated herein or otherwise. Neither this Amendment, any exhibit or schedule attached hereto, nor any provision hereof or thereof may be modified or amended except by an instrument in writing signed by the parties.
4
13. EXHIBITS AND SCHEDULES. All exhibits and schedules referred to in, or attached to, this Amendment are incorporated in this Amendment by reference.
14. COUNTERPARTS. This Amendment may be executed in multiple counterparts, any one of which need not contain the signature of more than one party, but all such counterparts taken together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and shall be valid and effective for all purposes.
[Signatures appear on following pages]
[Remainder of this page intentionally left blank]
5
IN WITNESS WHEREOF, the parties hereto have executed or caused their duly authorized representative to execute this Amendment as of the date first above written.
LESSOR:
MPT OF HILLSIDE-STEWARD, LLC
MPT of Melbourne-Steward, LLC
MPT of Rockledge-Steward, LLC
MPT of Sebastian-Steward, LLC
MPT of Sharon-Steward, LLC
MPT of Warren-Steward, LLC
MPT of Youngstown-Steward, LLC
MPT OF MESA, LLC
MPT OF WEST MONROE, LLC
MPT OF PORT ARTHUR, LLC
MPT OF HOPE-STEWARD, LLC
MPT OF ODESSA-STEWARD, LLC
MPT OF PHOENIX-STEWARD, LLC
MPT of PHOENIX Behavioral-Steward, llc
MPT OF SAN ANTONIO-STEWARD, LLC
MPT OF TEMPE-STEWARD, LLC
MPT OF TEXARKANA-STEWARD, LLC
MPT OF MARICOPA RE - STEWARD, LLC
MPT OF OGDEN RE - STEWARD, LLC
MPT OF PHOENIX RE - STEWARD, LLC
MPT OF PORT ARTHUR RE - STEWARD, LLC
MPT OF SAN ANTONIO RE - STEWARD, LLC
MPT OF NORWOOD-STEWARD, LLC
MPT OF HOUSTOn-STEWARD, LLC
MPT OF HOUSTON RE-STEWARD, LLC
MPT OF BIG SPRING-STEWARD, LLC
MPT OF FLORENCE, LLC
MPT OF CORAL GABLES-STEWARD, LLC
MPT OF LAUDERDALE LAKES-STEWARD, LLC
MPT OF HIALEAH-STEWARD, LLC
mPT OF HIALEAH PALMETTO-STEWARD, LLC
MPT OF MIAMI-STEWARD, LLC
MPT of Mesa Superstition-Steward, LLC
MPT OF CORAL TERRACE-STEWARD, LLC
By: MPT Operating Partnership, L.P.
Title: Sole Member of each above-referenced entity
By: /s/ R. Steven Hamner
Name: R. Steven Hamner
Title: Executive Vice President & CFO
IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" 4889-8007-9256" "" 4889-8007-9256
Exhibit 10.2
AMENDMENT TO SECOND AMENDED AND RESTATED MASTER LEASE AGREEMENT
(2024 Bridge Loan and Second Forbearance Agreement)
THIS AMENDMENT TO SECOND AMENDED AND RESTATED MASTER LEASE AGREEMENT (this “Amendment”), dated February 21, 2024, is by and among certain Affiliates of MPT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“MPT”), as further described on the signature pages hereto (collectively, jointly and severally, “Lessor”), and certain Affiliates of STEWARD HEALTH CARE SYSTEM LLC, a Delaware limited liability company (“Steward Health”), as further described on the signature pages hereto (collectively, jointly and severally, “Lessee”).
WITNESSETH:
WHEREAS, Lessor and Lessee are parties to that certain Second Amended and Restated Master Lease Agreement (Master Lease I), dated as of March 14, 2022 (as the same has been or hereafter may be modified, amended, or restated from time to time, the “Master Lease”), pursuant to which Lessor leases to Lessee certain real property and improvements (including improvements consisting of multiple healthcare facilities), as more particularly described in the Master Lease;
WHEREAS, Lessor, Lessee, and certain of their respective Affiliates are parties to that certain Second Forbearance Agreement, dated the date hereof (as the same may be modified, amended, or restated from time to time, the “Second Forbearance Agreement”), pursuant to which, among other things, the Lessees and certain of their Affiliates acknowledged the existence of certain specified defaults under the Obligation Documents and agreed to certain specified actions to affect a plan of restructuring, in exchange for which the Lessors and certain of their Affiliates agreed to forbear from exercising certain of their rights and remedies under certain of the Obligation Documents, subject to the terms and conditions therein;
WHEREAS, contemporaneously herewith and pursuant to the Second Forbearance Agreement, certain Affiliates of Lessor, certain Affiliates of Lessee, and certain of the ABL/FILO Creditors (as defined in the Second Forbearance Agreement) have entered into that certain Credit Agreement, dated as of the date hereof (the “Bridge Credit Agreement”);
WHEREAS, as contemplated by the Second Forbearance Agreement, Lessor and Lessee desire to amend the Master Lease as set forth herein;
WHEREAS, contemporaneously herewith, as contemplated by the Second Forbearance Agreement, Lessor and Lessee are entering into that certain Amendment to Second Amended and Restated Master Lease Agreement (Norwood Limited Base Rent Deferral and Reduction), dated as of the date hereof (the “Norwood Lease Amendment”); and
NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained, the covenants, agreements, and obligations of Steward Health and its Affiliates in the Second Forbearance Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as follows:
Bridge Credit Agreement: That certain Credit Agreement, dated as of February 21, 2024, by and among certain Affiliates of Lessor, certain Affiliates of Lessee, and certain of the ABL/FILO Creditors (as defined in the Second Forbearance Agreement), as the same may be amended, modified and/or restated from time to time.
Bridge Credit Documents: As defined in the Second Forbearance Agreement.
“Excess Property Disposition Agreement” means that certain Excess Property Disposition Agreement, dated as of February 21, 2024, among certain of the Lessors and certain of the Lessees, as the same may be amended, modified and/or restated from time to time.
Second Forbearance Agreement: That certain Second Forbearance Agreement, dated as of February 21, 2024, by and among Lessee and certain of its Affiliates, on the one hand, and Lessor and certain of its Affiliates, on the other hand, as the same may be amended, modified and/or restated from time to time.
Major Event of Default: The occurrence of (i) an Event of Default under clause (a), (j), or (k) of Section 16.1; (ii) an Event of Default by the Guarantor under clause (c) or (g) of Section 16.1; (iii) a “Major Event of Default” under and as defined in the Mortgage Loan Agreement or Master Lease II; (iv) a monetary or material non-monetary “Event of Default” under and as defined in the Stewardship Note; or (v)
2
a monetary or material non-monetary “Event of Default” under and as defined in the Bridge Credit Agreement.
Obligation Documents: Individually and collectively, this Lease, Master Lease II, the Real Estate Contract, the LLC Agreement (solely with respect to the MPT Required Provisions), the Mortgage Loan Documents, the CHS Master Agreement, the IASIS Real Estate Contract, the IASIS Master Agreement, the IASIS Realty Agreement, the Tenet Master Agreement, the St. Joseph Purchase Agreement, the Pikes Peak Master Agreement, the Mortgage Conversion Purchase Agreement, the Adeptus Texas Master Agreement, the Project Development Agreements, the Term Loan Promissory Note, the Arizona Master Agreement, the Big Spring Master Agreement, the Mesa Master Agreement, the Coral Terrace Master Agreement, the Utah Severance Master Agreement, the Guaranties, the Pledge Agreement, the Security Agreement, the Stand Alone Security Agreements, the Lease Assignments, the Environmental Indemnification Agreements, the Non-Competition Agreements, the Loan Guaranty, the Contribution Agreement, the MPT-Steward JV LLC Agreement, the Stapley Disposition Master Agreement, the Mid Jefferson Master Agreement, the Forbearance Agreement, the Stewardship Note, the Stewardship Guaranty, the Youngstown Disposition Master Agreement, the Second Forbearance Agreement, the Bridge Credit Agreement, the Bridge Credit Documents, the Excess Property Disposition Agreement, and any other “Obligation Document” under and as defined in Master Lease II, and all other leases, promissory notes, and agreements entered into between Lessor or any Affiliate of Lessor, on the one hand, and any Facility Lessee, Guarantor or any of their respective Affiliates, on the other hand, relating to the transactions contemplated under this Lease, Master Lease II, the Mortgage Loan Documents, the Term Loan Promissory Note, and the Contribution Agreement, as any of the same has been or hereafter may be amended, modified, or restated from time to time; provided however, that the Equity Purchase Agreement shall be excluded from the Obligation Documents for purposes of this Lease.
Stewardship Borrowers: Steward Health Care Network, Inc., a Delaware corporation, Steward Emergency Physicians, Inc., a Massachusetts corporation, Steward Physician Contracting, Inc., a Massachusetts corporation, Steward Medicaid Care Network, Inc., a Delaware corporation, Stewardship Health, Inc., a Delaware corporation, Stewardship Health Medical Group, Inc., a Massachusetts chapter 180 corporation, and Stewardship Services, Inc., a Delaware corporation.
3
4
[Signatures appear on following pages]
5
[Remainder of this page intentionally left blank]
6
IN WITNESS WHEREOF, the parties hereto have executed or caused their duly authorized representative to execute this Amendment as of the date first above written.
LESSOR:
MPT OF HILLSIDE-STEWARD, LLC
MPT of Melbourne-Steward, LLC
MPT of Rockledge-Steward, LLC
MPT of Sebastian-Steward, LLC
MPT of Sharon-Steward, LLC
MPT of Warren-Steward, LLC
MPT of Youngstown-Steward, LLC
MPT OF MESA, LLC
MPT OF WEST MONROE, LLC
MPT OF PORT ARTHUR, LLC
MPT OF HOPE-STEWARD, LLC
MPT OF ODESSA-STEWARD, LLC
MPT OF PHOENIX-STEWARD, LLC
MPT of PHOENIX Behavioral-Steward, llc
MPT OF SAN ANTONIO-STEWARD, LLC
MPT OF TEMPE-STEWARD, LLC
MPT OF TEXARKANA-STEWARD, LLC
MPT OF MARICOPA RE - STEWARD, LLC
MPT OF OGDEN RE - STEWARD, LLC
MPT OF PHOENIX RE - STEWARD, LLC
MPT OF PORT ARTHUR RE - STEWARD, LLC
MPT OF SAN ANTONIO RE - STEWARD, LLC
MPT OF NORWOOD-STEWARD, LLC
MPT OF HOUSTOn-STEWARD, LLC
MPT OF HOUSTON RE-STEWARD, LLC
MPT OF BIG SPRING-STEWARD, LLC
MPT OF FLORENCE, LLC
MPT OF CORAL GABLES-STEWARD, LLC
MPT OF LAUDERDALE LAKES-STEWARD, LLC
MPT OF HIALEAH-STEWARD, LLC
mPT OF HIALEAH PALMETTO-STEWARD, LLC
MPT OF MIAMI-STEWARD, LLC
MPT of Mesa Superstition-Steward, LLC
MPT OF CORAL TERRACE-STEWARD, LLC
By: MPT Operating Partnership, L.P.
Title: Sole Member of each above-referenced entity
By: /s/ R. Steven Hamner
Name: R. Steven Hamner
Title: Executive Vice President & CFO
IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" 4855-6734-9410" "" 4855-6734-9410
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Edward K. Aldag, Jr., certify that:
1) I have reviewed this quarterly report on Form 10-Q of Medical Properties Trust, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
Date: May 29, 2024 |
|
/s/ Edward K. Aldag, Jr. |
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, R. Steven Hamner, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Medical Properties Trust, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
Date: May 29, 2024 |
|
/s/ R. Steven Hamner |
|
|
R. Steven Hamner |
|
|
Executive Vice President and Chief Financial Officer |
Exhibit 31.3
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Edward K. Aldag, Jr., certify that:
1) I have reviewed this quarterly report on Form 10-Q of MPT Operating Partnership, L.P.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
Date: May 29, 2024 |
|
/s/ Edward K. Aldag, Jr. |
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and Chief Executive Officer of the sole member of the general partner of MPT Operating Partnership, L.P. |
Exhibit 31.4
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, R. Steven Hamner, certify that:
1) I have reviewed this quarterly report on Form 10-Q of MPT Operating Partnership, L.P.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
Date: May 29, 2024 |
|
/s/ R. Steven Hamner |
|
|
R. Steven Hamner |
|
|
Executive Vice President and Chief Financial Officer of the sole member of the general partner of MPT Operating Partnership, L.P. |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report on Form 10-Q of Medical Properties Trust, Inc. (the “Company”) for the quarter ended March 31, 2024 (the “Report”), each of the undersigned, Edward K. Aldag, Jr. and R. Steven Hamner, certifies, pursuant to Section 18 U.S.C. Section 1350, that:
Date: May 29, 2024 |
|
/s/ Edward K. Aldag, Jr. |
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and Chief Executive Officer |
|
|
|
|
|
/s/ R. Steven Hamner |
|
|
R. Steven Hamner |
|
|
Executive Vice President and Chief Financial Officer |
Exhibit 32.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report on Form 10-Q of MPT Operating Partnership, L.P. (the “Company”) for the quarter ended March 31, 2024 (the “Report”), each of the undersigned, Edward K. Aldag, Jr. and R. Steven Hamner, certifies, pursuant to Section 18 U.S.C. Section 1350, that:
Date: May 29, 2024 |
|
/s/ Edward K. Aldag, Jr. |
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and Chief Executive Officer of the sole member of the general partner of MPT Operating Partnership, L.P. |
|
|
|
|
|
/s/ R. Steven Hamner |
|
|
R. Steven Hamner |
|
|
Executive Vice President and Chief Financial Officer of the sole member of the general partner of MPT Operating Partnership, L.P. |