Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Medical Properties
Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing commercial real estate. Our operating partnership
subsidiary, MPT Operating Partnership, L.P., (the Operating Partnership) through which we conduct all of our operations, was formed in September 2003. Through another wholly-owned subsidiary, Medical Properties Trust, LLC, we are the
sole general partner of the Operating Partnership. At present, we directly own substantially all of the limited partnership interests in the Operating Partnership and have elected to report our required disclosures and that of the Operating
Partnership on a combined basis except where material differences exist.
We have operated as a real estate investment trust
(REIT) since April 6, 2004, and accordingly, elected REIT status upon the filing in September 2005 of the calendar year 2004 federal income tax return. Accordingly, we will generally not be subject to federal income tax in the
United States (U.S.), provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed our taxable income. Certain activities we undertake must be conducted by entities which we elected to be
treated as taxable REIT subsidiaries (TRSs). Our TRSs are subject to both U.S. federal and state income taxes. For our properties located outside the U.S., we are subject to local taxes; however, we do not expect to incur additional
taxes in the U.S. as such income will flow through our REIT.
Our primary business strategy is to acquire and develop real estate and
improvements, primarily for long-term lease to providers of healthcare services such as operators of general acute care hospitals, inpatient physical rehabilitation hospitals, long-term acute care hospitals, surgery centers, centers for treatment of
specific conditions such as cardiac, pulmonary, cancer, and neurological hospitals, and other healthcare-oriented facilities. We also make mortgage and other loans to operators of similar facilities. In addition, we may obtain profits or equity
interests in our tenants, from time to time, in order to enhance our overall return. We manage our business as a single business segment. All of our properties are located in the U.S. and Europe.
2. Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Statements
: The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information, including rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The
condensed consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the
U.S. for complete financial statements.
For information about significant accounting policies, refer to the consolidated financial
statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. During the nine months ended September 30, 2016, there were no material changes to these policies.
Recent Accounting Developments:
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
. Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. Entities may use a
full retrospective approach or report the cumulative effect as of the date of adoption. On April 1, 2015, the FASB proposed deferring the effective date of this standard by one year to December 15, 2017, for annual reporting periods beginning after
that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. We are continuing to evaluate this standard; however, we do not expect it to have a significant impact on
our financial results, as a substantial portion of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU No. 2014-09.
11
Leases
In February 2016, the FASB issued ASU 2016-02 -
Leases
, which sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of
whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the
term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be
accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and
operating leases. The ASU is not effective for us until January 1, 2019 with early adoption permitted. We are continuing to evaluate this standard and the impact to us from both a lessor and a lessee perspective.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
, which is intended to improve financial
reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets not
recorded at fair value based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU will be required to be implemented through a cumulative-effect adjustment to retained earnings as of the beginning of
the first reporting period in which the amendments are effective. The ASU is not effective for us until January 1, 2019. We do not expect the adoption of this ASU to have a significant impact on our consolidated financial statements.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
, which clarifies the
classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and
beneficial interests in securitizations. The standard also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the
predominant source or use of cash flows for the item. This guidance is effective for us starting January 1, 2018.
Variable Interest Entities
At September 30, 2016, we had loans to and/or equity investments in certain variable interest entities (VIEs), which are also
tenants of our facilities, including Ernest Health, Inc. (Ernest). We have determined that we are not the primary beneficiary of these VIEs. The carrying value and classification of the related assets and maximum exposure to loss as a
result of our involvement with these VIEs are presented below at September 30, 2016 (in thousands):
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VIE Type
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Maximum Loss
Exposure(1)
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|
|
Asset Type
Classification
|
|
Carrying
Amount(2)
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|
Loans, net
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|
$
|
306,928
|
|
|
Mortgage and other loans
|
|
$
|
226,117
|
|
Equity investments
|
|
$
|
32,325
|
|
|
Other assets
|
|
$
|
207
|
|
(1)
|
Our maximum loss exposure related to loans with VIEs represents our current aggregate gross carrying value of the loan plus accrued interest and any other related assets (such as rent receivables), less any liabilities.
Our maximum loss exposure related to our equity investment in VIEs represents the current carrying values of such investment plus any other related assets (such as rent receivables) less any liabilities.
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(2)
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Carrying amount reflects the net book value of our loan or equity interest only in the VIE.
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For the VIE types above, we do not consolidate the VIE because we do not have the ability to control the activities (such as the day-to-day
healthcare operations of our borrower or investees) that most significantly impact the VIEs economic performance. As of September 30, 2016, we were not required to provide any material financial support through a liquidity arrangement or
otherwise to our unconsolidated VIEs, including circumstances in which it could be exposed to further losses (e.g., cash short falls).
12
Typically, our loans are collateralized by assets of the borrower (some assets of which are on
the premises of facilities owned by us) and further supported by limited guarantees made by certain principals of the borrower.
See Note
3 and 7 for additional description of the nature, purpose and activities of our more significant VIEs and interests therein.
3. Real Estate and
Lending Activities
Acquisitions
We acquired the following assets (in thousands):
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Nine Months
Ended September 30,
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2016
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2015
|
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Assets Acquired
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|
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Land and land improvements
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$
|
13,874
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|
|
$
|
113,309
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|
Building
|
|
|
125,472
|
|
|
|
711,805
|
|
Intangible lease assets subject to amortization (weighted average useful life of
19.4 years in 2016 and 28.4 years in 2015)
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|
10,754
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|
|
|
144,900
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|
Mortgage loans
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|
|
|
|
|
|
365,000
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|
Net investments in direct financing leases
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|
63,000
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|
|
|
170,700
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Other loans
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514,484
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|
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Total assets acquired
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$
|
213,100
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$
|
2,020,198
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Loans repaid (1)
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(93,262
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)
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|
(385,851
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)
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Total net assets acquired
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$
|
119,838
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$
|
1,634,347
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(1)
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$93.3 million loans advanced to Capella in 2015 and repaid in 2016 as a part of the Capella transaction. $385.9 million loans advanced to MEDIAN in 2014 and repaid in 2015 as a part of the MEDIAN transaction.
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The purchase price allocations attributable to certain 2016 acquisitions and acquisitions completed in the fourth quarter
of 2015 are preliminary. When all relevant information is obtained, resulting changes, if any, to our provisional purchase price allocation will be retrospectively adjusted to reflect new information obtained about the facts and circumstances that
existed as of the respective acquisition dates that, if known, would have affected the measurement of the amounts recognized as of those dates.
2016
Activity
On July 22, 2016, we acquired an acute care facility in Olympia, Washington in exchange for a $93.3 million loan and an
additional $7 million in cash, as contemplated in the August 2015 Capella Healthcare, Inc. (Capella) acquisition transaction. The terms of the Olympia lease are substantially similar to those of the master lease with Capella. See
2015 Activity for a description of the August 2015 Capella Acquisition. Also, see the Capella Disposal Transaction under the subheading Disposals below for further details.
On June 22, 2016, we closed on the final Median Kliniken S.à r.l., (MEDIAN) property for a purchase price of
41.6 million. See 2015 Activity for a description of the initial MEDIAN Transaction.
On May 2, 2016, we
acquired an acute care hospital in Newark, New Jersey for an aggregate purchase price of $63 million leased to Prime Healthcare Services, Inc. (Prime) pursuant to a fifth master lease, which has a 15-year term with three five-year
extension options, plus consumer-price indexed increases. Furthermore, we committed to advance an additional $30 million to Prime over a three-year period to be used solely for capital additions to the real estate; any such addition will be
added to the basis upon which the lessee will pay us rents.
From the respective acquisition dates, the properties acquired during the
nine months ended September 30, 2016, contributed $4.6 million and $3.8 million of revenue and income (excluding related acquisition expenses), respectively, for the three months ended September 30, 2016. From the respective acquisition dates, the
properties acquired during the nine months ended September 30, 2016 contributed $5.7 million and $4.9 million of revenue and income (excluding related acquisition expenses), respectively, for the nine months ended September 30, 2016. In addition, we
incurred $2.4 million of acquisition-related costs on the 2016 acquisitions for the nine months ended September 30, 2016.
13
On October 3, 2016, we closed on a portfolio of nine acute care hospitals in Massachusetts
operated by Steward Health Care System LLC (Steward). Our investment in the portfolio includes the acquisition of five hospitals for $600 million, the making of $600 million in mortgage loans on four facilities and a $50 million minority
equity contribution in Steward, for a combined investment of $1.25 billion. The five facilities acquired are being leased to Steward under a master lease agreement that has a 15-year term with three 5-year extension options, plus annual
inflation-based escalators. The terms of the mortgage loan are substantially similar to the master lease.
2015 Activity
Capella Acquisition
On
August 31, 2015, we closed on our acquisition of assets of and interests in Capella. Our investment in the Capella portfolio originally included seven acute care hospitals (two properties of which our investment was in the form of mortgage
loans), an acquisition loan, and an equity interest in the operator for a combined purchase price and investment of approximately $900 million plus Capellas cash on hand at the acquisition date. We closed on six of the seven Capella
properties on August 31, 2015, two of which were in the form of mortgage loans, and we closed on the last property in the third quarter of 2016 (see discussion of the acquisition of the Olympia, Washington facility above). The remaining investment
in the operations of Capella were in the form of an acquisition loan to Capella, which had a fixed interest rate of 8% and 49% interest in the equity of the operator, with management owning the remaining 51%. See subheading
Disposals below for details of the disposal of our investment in Capella operations and further transactions.
MEDIAN
Transaction
On April 29, 2015, we entered into a series of definitive agreements with MEDIAN, a German provider of post-acute and
acute rehabilitation services, to acquire the real estate assets of 32 hospitals owned by MEDIAN for an aggregate purchase price of approximately 688 million. Upon acquisition, each property became subject to a master lease between us and
MEDIAN providing for the leaseback of the property to MEDIAN. The master lease had an initial term of 27 years and provided for an initial GAAP lease rate of 9.3%, with annual escalators at the greater of one percent or 70% of the German consumer
price index.
MEDIAN is owned by an affiliate of Waterland Private Equity Fund V C.V. (Waterland), which acquired 94.9% of the
outstanding equity interests in MEDIAN, and by a subsidiary of our operating partnership, which acquired the remaining 5.1% of the outstanding equity interests in MEDIAN, each in December 2014. In December 2014, we provided interim acquisition loans
to affiliates of Waterland and MEDIAN in connection with Waterlands acquisition of its stake in MEDIAN in an aggregate amount of approximately 425 million. In addition, we made further loans to MEDIAN during the first half of 2015 in an
aggregate amount of approximately 240 million, which were used by MEDIAN to repay existing debt on properties we acquired.
Closing of the sale-leaseback transactions began in the second quarter of 2015. At each closing, the purchase price for each facility was
reduced and offset against the interim loans made to affiliates of Waterland and MEDIAN as described above and against the amount of any debt assumed or repaid by us in connection with the closing. As of September 30, 2015, we had closed on 30
properties for an aggregate amount of 627 million.
Other Acquisitions
On September 30, 2015, we provided a $100 million mortgage financing (of which $85 million had been funded through September 30, 2015 with
an additional $15 million funded in the 2015 fourth quarter) to Prime for three general acute care hospitals and one free-standing emergency department and health center in New Jersey. The loan had a five-year term and provided for consumer-price
indexed interest increases, subject to a floor. On October 21, 2016, we acquired these facilities (as originally contemplated in the agreements) by reducing the $100 million mortgage loan and advancing an additional $15 million. We are leasing these
properties to Prime pursuant to a fifth master lease.
On August 31, 2015, we closed on a $30 million mortgage loan transaction with
Prime for the acquisition of Lake Huron Medical Center, a 144-bed general acute care hospital located in Port Huron, Michigan. The loan provided for consumer-price indexed interest increases, subject to a floor. The mortgage loan had a 5-year
term with conversion rights to our standard sale leaseback agreement, which we exercised for $20 million on December 31, 2015, and reduced the mortgage loan accordingly. This facility is now leased to Prime pursuant to a fourth master lease.
14
On June 16, 2015, we acquired the real estate of two facilities in Lubbock, Texas, a 60-bed
inpatient rehabilitation hospital and a 37-bed long-term acute care hospital, for an aggregate purchase price of $31.5 million. We entered into a 20-year lease with Ernest for the rehabilitation hospital, which provided for three five-year extension
options, and separately entered into a lease with Ernest for the long-term acute care hospital that had a final term ending December 31, 2034. In connection with the transaction, we funded an acquisition loan to Ernest of approximately $12.0
million. Ernest is operating the rehabilitation hospital in a joint venture with Covenant Health System. Effective July 18, 2016, we amended the lease of the rehabilitation hospital to include the long-term acute care hospital. Ernests
plans are to convert the long-term acute care facility into a rehabilitation facility by the second quarter of 2017.
On February 27,
2015, we acquired an inpatient rehabilitation hospital in Weslaco, Texas for $10.7 million leased to Ernest pursuant to the 2012 master lease which had an original 20-year fixed term and three five-year extension options. This lease provided for
consumer-price indexed annual rent increases, subject to a floor and a cap. In addition, we agreed to fund an acquisition loan in the amount of $5 million.
On February 13, 2015, we acquired two general acute care hospitals in the Kansas City area for $110 million. Prime is the tenant and
operator pursuant to a master lease that has similar terms and security enhancements as the other master lease agreements entered into in 2013. This master lease had a 10-year initial fixed term with two extension options of five years each. The
lease provided for consumer-price indexed annual rent increases, subject to a specified floor. In addition, we agreed to fund a mortgage loan in the amount of $40 million, which had a 10-year term.
From the respective acquisition dates, the properties and mortgage loans acquired in 2015 contributed $30.0 million and $13.9 million of
revenue and income (excluding related acquisition expenses), respectively, for the three months ended September 30, 2015. From the respective acquisition dates, the properties and mortgage loans acquired in 2015 contributed $59.2 million and $34.3
million of revenue and income (excluding related acquisition expenses), respectively, for the nine months ended September 30, 2015. In addition, we incurred $23.7 million and $52.9 million of acquisition related costs on the 2015 acquisitions for
the three and nine months ended September 30, 2015, respectively.
Pro Forma Information
The following unaudited supplemental pro forma operating data is presented for the three and nine months ended September 30, 2016 and
2015, as if each acquisition (including the Steward investments completed subsequent to September 30, 2016) was completed on January 1, 2015. Supplemental pro forma earnings were adjusted to exclude acquisition-related costs on consummated
deals incurred. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transactions had been completed as set forth above, nor do they purport to
represent our results of operations for future periods (in thousands, except per share/unit amounts).
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For the Three Months
Ended September 30,
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For the Nine Months
Ended September 30,
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2016
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2015
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2016
|
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|
2015
|
|
Total revenues
|
|
$
|
162.4
|
|
|
$
|
156.5
|
|
|
$
|
479.8
|
|
|
$
|
480.1
|
|
Net income
|
|
$
|
73.3
|
|
|
$
|
63.0
|
|
|
$
|
206.3
|
|
|
$
|
210.3
|
|
Net income per share/unit diluted
|
|
$
|
0.23
|
|
|
$
|
0.20
|
|
|
$
|
0.64
|
|
|
$
|
0.65
|
|
Development Activities
During the first nine months of 2016, we completed construction and began recording rental income on the following facilities:
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Adeptus Health, Inc. (Adeptus Health) We completed 13 acute care facilities for this tenant during 2016. These facilities are leased pursuant to the master leases entered into in both 2014 and 2015
and are cross-defaulted with each other and with the original master lease executed in 2013.
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Ernest Toledo This inpatient rehabilitation facility located in Toledo, Ohio opened on April 1, 2016 and is being leased to Ernest pursuant to the original 2012 master lease.
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15
See table below for a status update on our current domestic development projects (in thousands):
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Operator
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Commitment
|
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Costs
Incurred
as of
09/30/16
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Estimated
Completion
Date
|
|
Adeptus Health
|
|
$
|
32,684
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|
|
$
|
18,472
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|
4Q 2016
|
|
Adeptus Health
|
|
|
11,578
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|
|
|
2,860
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|
|
|
1Q 2017
|
|
Adeptus Health
|
|
|
69,801
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|
|
|
29,616
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|
|
|
2Q 2017
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|
Ernest Health
|
|
|
28,067
|
|
|
|
3,206
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|
|
|
3Q 2017
|
|
Adeptus Health
|
|
|
59,054
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|
|
|
|
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Various
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$
|
201,184
|
|
|
$
|
54,154
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On September 9, 2015, we acquired the real estate of a general acute care hospital under development
located in Spain, for an aggregate purchase and development price to us of approximately 21.4 million. The acquisition was effected through a joint venture between us and clients of AXA Real Estate, in which we own a 50% interest. Upon
completion, the facility will be leased to a Spanish operator of acute care hospitals, pursuant to a long-term lease. We expect construction to complete on this facility in the second quarter of 2017.
Disposals
2016 Activity
Capella Disposal Transaction
On
March 21, 2016, we entered into definitive agreements with RegionalCare Hospital Partners, Inc. (RegionalCare), an affiliate of certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated
subsidiaries, Apollo), under which our investment in the operations of Capella would be merged with RegionalCare, forming RCCH Healthcare Partners (RCCH).
On April 29, 2016, this transaction closed and funded, effective April 30, 2016. As part of the transaction, we received net
proceeds of approximately $550 million including approximately $492 million for our equity investment and loans made as part of the original Capella acquisition that closed on August 31, 2015. In addition, we received $210 million in prepayment
of two mortgage loans for hospitals in Russellville, Arkansas, and Lawton, Oklahoma, that we made to subsidiaries of Capella in connection with the Capella transaction on August 31, 2015. We made a new $93.3 million loan for a hospital property
in Olympia, Washington (which was subsequently converted to real estate on July 22, 2016 as disclosed above). Additionally, we and an Apollo affiliate invested $50 million each in unsecured senior notes issued by RegionalCare, which we sold to a
large institution on June 20, 2016 at par. The proceeds from this transaction represented the recoverability of our investment in full, except for transaction costs incurred of $6.3 million.
We maintained our ownership of five Capella hospitals in Hot Springs, Arkansas; Camden, South Carolina; Hartsville, South Carolina; Muskogee,
Oklahoma; and McMinnville, Oregon. Pursuant to the transaction described above, the underlying leases, one of which is a master lease covering all but one property, was amended to shorten the initial fixed lease term, increase the security
deposit, and eliminate the lessees purchase option provisions. Due to this lease amendment, we reclassified the lease of the properties under the master lease from a direct financing lease (DFL) to an operating lease. This
reclassification resulted in a write-off of $2.6 million in unbilled DFL rent in the 2016 second quarter.
Post Acute Transaction
On May 23, 2016, we sold five properties (three of which were in Texas and two in Louisiana) that were leased and operated by Post Acute
Medical (Post Acute). As part of this transaction, our outstanding loans of $4 million were paid in full, and we recovered our investment in the operations. Total proceeds from this transaction were $71 million, resulting in a net gain
of approximately $15 million.
Corinth Transaction
On June 17, 2016, we sold the Atrium Medical Center real estate located in Corinth, Texas, which was leased and operated by Corinth
Investor Holdings. Total proceeds from the transaction were $28 million, resulting in a gain on the sale of real estate of approximately $8 million. This gain on real estate was offset by approximately $9 million of non-cash charges that
included the write-off of our investment in the operations of the facility, straight-line rent receivables, and a lease intangible.
16
HealthSouth Transaction
On July 20, 2016, we sold three inpatient rehabilitation hospitals located in Texas and operated by HealthSouth Corporation
(HealthSouth) for $111.5 million, resulting in a net gain of approximately $45 million.
Summary of Operations for Disposed Assets in 2016
The properties sold during the year do not meet the definition of discontinued operations. However, the following represents the
operating results (excluding gain on sale, transaction costs, and impairment or other non-cash charges) from these properties (excluding loans repaid in the Capella Disposal Transaction) for the periods presented (in thousands):
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|
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|
|
|
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|
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For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
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|
|
Ended September 30,
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|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
244
|
|
|
$
|
4,523
|
|
|
$
|
7,851
|
|
|
$
|
13,598
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|
Real estate depreciation and amortization
|
|
|
|
|
|
|
(949
|
)
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|
|
(1,754
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)
|
|
|
(2,846
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)
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Property-related expenses
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|
|
|
|
|
|
(10
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)
|
|
|
(114
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)
|
|
|
(82
|
)
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Other income (expense)
|
|
|
(24
|
)
|
|
|
521
|
|
|
|
(92
|
)
|
|
|
1,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income from real estate dispositions, net
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|
$
|
220
|
|
|
$
|
4,085
|
|
|
$
|
5,891
|
|
|
$
|
11,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Activity
On July 30, 2015, we sold a long-term acute care facility in Luling, Texas for approximately $9.7 million, resulting in a gain of $1.5 million.
Due to this sale, we wrote off $0.9 million of straight-line receivables. On August 5, 2015, we sold six wellness centers in the United States for total proceeds of approximately $9.5 million (of which $1.5 million is in the form of a note),
resulting in a gain of $1.7 million. Due to this sale, we wrote off $0.9 million of billed rent receivables. With these disposals, we accelerated the amortization of the related lease intangible assets resulting in approximately $0.7 million of
additional expense in the 2015 third quarter.
Leasing Operations
All of our leases are currently accounted for as operating leases except for the master lease of 15 Ernest facilities and six Prime facilities
which are accounted for as DFLs. The components of our net investment in DFLs (which includes the Capella properties for 2015 only) consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
2016
|
|
|
As of December 31,
2015
|
|
Minimum lease payments receivable
|
|
$
|
1,884,144
|
|
|
$
|
2,587,912
|
|
Estimated residual values
|
|
|
292,647
|
|
|
|
393,097
|
|
Less: Unearned income
|
|
|
(1,643,300
|
)
|
|
|
(2,354,013
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
$
|
533,491
|
|
|
$
|
626,996
|
|
|
|
|
|
|
|
|
|
|
Twelve Oaks Facility
In the third quarter of 2015, we sent notice of termination of the lease to the tenant at our Twelve Oaks facility due to payment default. As a
result of terminating the lease, we recorded a charge of $1.9 million to write-off the straight-line rent receivables in the 2015 third quarter. In addition, we accelerated the amortization of the related lease intangible asset resulting in
$0.5 million of additional expense in the 2015 third quarter. This former tenant has continued to occupy the facility. During the third quarter of 2016, the tenant paid us approximately $2.5 million representing substantially all of amounts owed to
us and agreed to general terms of a new lease, which we expect to execute during the 2016 fourth quarter. The tenant is now current on all of its obligations to us through November 30, 2016. Although no assurances can be made that we will not have
any impairment charges in the future, we believe our real estate investment in Twelve Oaks at September 30, 2016 is fully recoverable.
Loans
The following is a summary of our loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
Mortgage loans
|
|
$
|
550,118
|
|
|
$
|
757,581
|
|
Acquisition loans
|
|
|
122,161
|
|
|
|
610,469
|
|
Working capital and other loans
|
|
|
43,623
|
|
|
|
54,353
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
715,902
|
|
|
$
|
1,422,403
|
|
|
|
|
|
|
|
|
|
|
17
The decrease in our mortgage and acquisition loans are related to the Capella Disposal
Transaction as discussed previously.
Our non-mortgage loans typically consist of loans to our tenants for acquisitions and working
capital purposes. At September 30, 2016, acquisition loans include our original $93.2 million loan to Ernest.
On March 1, 2012,
pursuant to our convertible note agreement, we converted $1.7 million of our $5.0 million convertible note into a 9.9% equity interest in the operator of our Hoboken University Medical Center facility. At September 30, 2016, $3.3 million remains
outstanding on the convertible note, and we retain the option, subject to regulatory approvals, to convert this remainder into 15.1% of equity interest in the operator.
Concentrations of Credit Risk
Our
revenue concentration for the nine months ended September 30, 2016 as compared to the prior year is as follows (dollars in thousands):
Revenue by Operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
September 30, 2016
|
|
|
For the Nine Months Ended
September 30, 2015
|
|
Operators
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
Prime
|
|
$
|
89,389
|
|
|
|
23.1
|
%
|
|
$
|
75,982
|
|
|
|
24.5
|
%
|
MEDIAN
|
|
|
70,242
|
|
|
|
18.1
|
%
|
|
|
56,609
|
|
|
|
18.2
|
%
|
Ernest
|
|
|
50,564
|
|
|
|
13.0
|
%
|
|
|
45,874
|
|
|
|
14.8
|
%
|
RCCH
|
|
|
42,776
|
|
|
|
11.0
|
%
|
|
|
7,155
|
|
|
|
2.3
|
%
|
Adeptus Health
|
|
|
25,873
|
|
|
|
6.7
|
%
|
|
|
12,982
|
|
|
|
4.2
|
%
|
Revenue by U.S. State and Country
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
September 30, 2016
|
|
|
For the Nine Months Ended
September 30, 2015
|
|
U.S. States and Other Countries
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
Texas
|
|
$
|
72,811
|
|
|
|
18.8
|
%
|
|
$
|
63,815
|
|
|
|
20.6
|
%
|
California
|
|
|
49,724
|
|
|
|
12.8
|
%
|
|
|
49,595
|
|
|
|
16.0
|
%
|
All other states
|
|
|
189,365
|
|
|
|
48.8
|
%
|
|
|
137,006
|
|
|
|
44.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
$
|
311,900
|
|
|
|
80.4
|
%
|
|
$
|
250,416
|
|
|
|
80.7
|
%
|
|
|
|
|
|
Germany
|
|
$
|
72,718
|
|
|
|
18.8
|
%
|
|
$
|
56,609
|
|
|
|
18.2
|
%
|
United Kingdom, Italy, and Spain
|
|
|
3,236
|
|
|
|
0.8
|
%
|
|
|
3,308
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
$
|
75,954
|
|
|
|
19.6
|
%
|
|
$
|
59,917
|
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
387,854
|
|
|
|
100.0
|
%
|
|
$
|
310,333
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
From an asset basis, our concentration as of September 30, 2016 as compared
to December 31, 2015 is as follows (dollars in thousands):
Gross Assets by Operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
As of December 31, 2015
|
|
Operators
|
|
Total
Gross Assets
|
|
|
Percentage of
Total Gross Assets
|
|
|
Total
Gross Assets
|
|
|
Percentage of
Total Gross Assets
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(A)
|
|
|
(B)
|
|
Steward
|
|
$
|
1,250,000
|
|
|
|
17.3
|
%
|
|
$
|
|
|
|
|
|
|
Prime
|
|
|
1,142,760
|
|
|
|
15.9
|
%
|
|
|
1,032,353
|
|
|
|
17.1
|
%
|
MEDIAN
|
|
|
1,054,568
|
|
|
|
14.6
|
%
|
|
|
1,031,039
|
|
|
|
17.1
|
%
|
Ernest
|
|
|
622,416
|
|
|
|
8.6
|
%
|
|
|
579,182
|
|
|
|
9.6
|
%
|
RCCH
|
|
|
564,509
|
|
|
|
7.8
|
%
|
|
|
1,059,989
|
|
|
|
17.6
|
%
|
Gross Assets by U.S. State and Country
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
As of December 31, 2015
|
|
U.S. States and Other Countries
|
|
Total
Gross Assets
|
|
|
Percentage of
Total Gross Assets
|
|
|
Total
Gross Assets
|
|
|
Percentage of
Total Gross Assets
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(A)
|
|
|
(B)
|
|
Massachusetts
|
|
$
|
1,250,000
|
|
|
|
17.3
|
%
|
|
$
|
|
|
|
|
|
|
Texas
|
|
|
944,028
|
|
|
|
13.1
|
%
|
|
|
1,060,990
|
|
|
|
17.6
|
%
|
California
|
|
|
542,892
|
|
|
|
7.5
|
%
|
|
|
547,085
|
|
|
|
9.1
|
%
|
All other states
|
|
|
2,669,401
|
|
|
|
37.0
|
%
|
|
|
3,047,204
|
|
|
|
50.5
|
%
|
Other domestic assets
|
|
|
251,587
|
|
|
|
3.5
|
%
|
|
|
177,317
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
$
|
5,657,908
|
|
|
|
78.4
|
%
|
|
$
|
4,832,596
|
|
|
|
80.1
|
%
|
|
|
|
|
|
Germany
|
|
$
|
1,376,626
|
|
|
|
19.1
|
%
|
|
$
|
1,031,039
|
|
|
|
17.1
|
%
|
United Kingdom, Italy, and Spain
|
|
|
156,226
|
|
|
|
2.1
|
%
|
|
|
161,317
|
|
|
|
2.7
|
%
|
Other international assets
|
|
|
27,017
|
|
|
|
0.4
|
%
|
|
|
10,970
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
$
|
1,559,869
|
|
|
|
21.6
|
%
|
|
$
|
1,203,326
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
7,217,777
|
|
|
|
100.0
|
%
|
|
$
|
6,035,922
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Gross Assets represents total assets plus accumulated depreciation/amortization assuming all real estate commitments (such as the Steward transaction and the commitments disclosed in Note 9) as of the period end are
fully funded.
|
(B)
|
Includes both leased and loaned assets.
|
On an individual property basis, we had no investment
of any single property greater than 3.3% of our total gross assets as of September 30, 2016.
4. Debt
The following is a summary of our debt (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
As of December 31, 2015
|
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Balance
|
|
|
Interest Rate
|
|
Revolving credit facility
|
|
$
|
|
|
|
|
Variable
|
|
|
$
|
1,100,000
|
|
|
|
Variable
|
|
2006 Senior Unsecured Notes due 2016
|
|
|
60,000
|
|
|
|
5.675
|
%
|
|
|
125,000
|
|
|
|
Various
|
|
2011 Senior Unsecured Notes
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
6.875
|
%
|
2012 Senior Unsecured Notes due 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount
|
|
|
350,000
|
|
|
|
6.375
|
%
|
|
|
350,000
|
|
|
|
6.375
|
%
|
Unamortized premium
|
|
|
1,902
|
|
|
|
|
|
|
|
2,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351,902
|
|
|
|
|
|
|
|
352,168
|
|
|
|
|
|
2013 Senior Unsecured Notes due 2020(A)
|
|
|
224,700
|
|
|
|
5.750
|
%
|
|
|
217,240
|
|
|
|
5.750
|
%
|
2014 Senior Unsecured Notes due 2024
|
|
|
300,000
|
|
|
|
5.500
|
%
|
|
|
300,000
|
|
|
|
5.500
|
%
|
2015 Senior Unsecured Notes due 2022(A)
|
|
|
561,750
|
|
|
|
4.000
|
%
|
|
|
543,100
|
|
|
|
4.000
|
%
|
2016 Senior Unsecured Notes due 2024
|
|
|
500,000
|
|
|
|
6.375
|
%
|
|
|
|
|
|
|
|
|
2016 Senior Unsecured Notes due 2026
|
|
|
500,000
|
|
|
|
5.250
|
%
|
|
|
|
|
|
|
|
|
Term loans
|
|
|
263,179
|
|
|
|
Various
|
|
|
|
263,400
|
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,761,531
|
|
|
|
|
|
|
$
|
3,350,908
|
|
|
|
|
|
Debt issue costs, net
|
|
|
(32,982
|
)
|
|
|
|
|
|
|
(28,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,728,549
|
|
|
|
|
|
|
$
|
3,322,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
These notes are Euro-denominated and reflect the exchange rate at September 30, 2016 and December 31, 2015, respectively.
|
19
As of September 30, 2016, principal payments due on our debt (which exclude the effects of any discounts,
premiums, or debt issue costs recorded) are as follows (in thousands):
|
|
|
|
|
2016
|
|
$
|
60,078
|
(A)
|
2017
|
|
|
320
|
|
2018
|
|
|
12,781
|
|
2019
|
|
|
250,000
|
|
2020
|
|
|
224,700
|
|
Thereafter
|
|
|
2,211,750
|
|
|
|
|
|
|
Total
|
|
$
|
2,759,629
|
|
|
|
|
|
|
(A)
|
The remaining $60 million of our 2006 Senior Unsecured Notes were paid in full on October 31, 2016.
|
2016
Activity
On July 22, 2016, we completed a $500 million senior unsecured notes offering (2026 Senior Unsecured Notes).
Interest on the notes is payable on February 1 and August 1 of each year, commencing on February 1, 2017. Interest on the notes is to be paid in cash at a rate of 5.25% per year. The notes mature on August 1, 2026. We may redeem some or
all of the notes at any time prior to August 1, 2021 at a make whole redemption price. On or after August 1, 2021, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time prior to
August 1, 2019, we may redeem up to 35% of the notes at a redemption price equal to 105.25% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, using proceeds from one or more equity offerings. In the event of a
change in control, each holder of the notes may require us to repurchase some or all of the notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest to the date of purchase.
We used the net proceeds from the 2026 Senior Unsecured Notes offering to redeem our $450 million 2011 Senior Unsecured Notes. This
redemption resulted in a $22.5 million debt refinancing charge during the 2016 third quarter, consisting of a $15.5 million redemption premium along with the write-off of deferred debt issuance costs associated with the redeemed notes.
On February 22, 2016, we completed a $500 million senior unsecured notes offering (2016 Senior Unsecured Notes), proceeds of
which were used to repay borrowings under our revolving credit facility. Interest on the notes is payable on March 1 and September 1 of each year, commencing on September 1, 2016. Interest on the notes is to be paid in cash at a rate
of 6.375% per year. The notes mature on March 1, 2024. We may redeem some or all of the notes at any time prior to March 1, 2019 at a make whole redemption price. On or after March 1, 2019, we may redeem some or all
of the notes at a premium that will decrease over time. In addition, at any time prior to March 1, 2019, we may redeem up to 35% of the notes at a redemption price equal to 106.375% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, using proceeds from one or more equity offerings. In the event of a change in control, each holder of the notes may require us to repurchase some or all of the notes at a repurchase price equal to 101% of the aggregate
principal amount of the notes plus accrued and unpaid interest to the date of purchase.
2015 Activity
On July 27, 2015, we received a commitment to provide a senior unsecured bridge loan facility in the original principal amount of $1.0 billion
to fund the acquisition of Capella. Funding under the bridge facility was not necessary as we funded the acquisition through a combination of an equity issuance and other borrowings. However, we incurred and expensed certain customary
structuring and underwriting fees of $3.9 million in the third quarter related to the bridge commitment.
On August 19, 2015, we completed
a 500 million senior unsecured notes offering (2015 Senior Unsecured Notes), proceeds of which were used to repay Euro-denominated borrowings under our credit facility and to fund our European investments.
On September 30, 2015, we amended our credit facility to, among other things, increase the aggregate commitment under our revolver to its
current level of $1.3 billion and increase the term loan portion to $250 million. In addition, this amendment included a new accordion feature that allows us to expand our credit facility by another $400 million for a total commitment of $1.95
billion. This amendment resulted in a $0.1 million expense in the 2015 third quarter.
Other
During the 2010 second quarter, we entered into interest rate swaps to manage our exposure to variable interest rates by fixing the interest
rate on the outstanding amount of our 2006 Senior Unsecured Notes. In July 2016, $65 million of the 2006 Senior Unsecured Notes was paid in full and the related swap expired. For the remaining $60 million, the interest rate swap, which
started
20
October 31, 2011 (date on which the related interest rate turned variable) and will continue through the maturity date (or October 2016) fixed the interest rate at 5.675%. The fair value of
the interest rate swaps was $0.4 million and $2.9 million as of September 30, 2016 and December 31, 2015, respectively, which is reflected in accounts payable and accrued expenses on the consolidated balance sheets.
We account for interest rate swaps as cash flow hedges. Accordingly, the effective portion of changes in the fair value of our swaps is
recorded as a component of accumulated other comprehensive income/loss on the balance sheet and reclassified into earnings in the same period, or periods, during which the hedged transactions effect earnings, while any ineffective portion is
recorded through earnings immediately. We did not have any hedge ineffectiveness from inception of our interest rate swaps through September 30, 2016 and therefore, there was no income statement effect recorded during the three and nine month
periods ended September 30, 2016 or 2015. We do expect current losses included in accumulated other comprehensive loss to be reclassified into earnings in October 2016. At September 30, 2016 and December 31, 2015, we have posted $0.4
million and $1.7 million, respectively, of collateral related to our interest rate swaps, which is reflected in other assets on our consolidated balance sheets.
Covenants
Our debt facilities impose
certain restrictions on us, including restrictions on our ability to: incur debts; create or incur liens; provide guarantees in respect of obligations of any other entity; make redemptions and repurchases of our capital stock; prepay, redeem or
repurchase debt; engage in mergers or consolidations; enter into affiliated transactions; dispose of real estate or other assets; and change our business. In addition, the credit agreements governing our revolving credit facility and term loan limit
the amount of dividends we can pay as a percentage of normalized adjusted funds from operations (FFO), as defined in the agreements, on a rolling four quarter basis. At September 30, 2016, the dividend restriction was 95% of
normalized adjusted FFO. The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95% of funds from operations, proceeds of equity issuances and certain other net cash proceeds. Finally,
our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150% of our unsecured indebtedness.
In addition to these restrictions, the revolving credit facility and term loan contain customary financial and operating covenants, including
covenants relating to our total leverage ratio, fixed charge coverage ratio, secured leverage ratio, consolidated adjusted net worth, unsecured leverage ratio, and unsecured interest coverage ratio. This 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 facility, the entire outstanding balance
may become immediately due and payable. At September 30, 2016, we were in compliance with all such financial and operating covenants.
5. Common
Stock/Partners Capital
Medical Properties Trust, Inc.
On October 7, 2016, we sold 10.3 million shares of common stock in a private placement with an affiliate of Cerberus Capital Management
(Cerberus), the controlling member of Steward. We sold these shares at a price per share of $14.50, equal to the public offering price of our September 2016 equity offering, generating total proceeds of approximately $150 million.
On September 30, 2016, we completed an underwritten public offering of 57.5 million shares (including the exercise of the
underwriters 30-day option to purchase an additional 7.5 million shares) of our common stock, resulting in net proceeds of $799.5 million, after deducting estimated offering expenses.
On March 1, 2016, we updated our at-the-market equity offering program, which gave us the ability to sell up to $227 million of stock
with a commission rate of 1.25%. During the nine months ended September 30, 2016, we sold approximately 15 million shares of our common stock under this program, resulting in net proceeds of approximately $224 million, after deducting
approximately $2.8 million of commissions. We have no capacity to sell additional shares under this at-the-market equity offering program.
On August 11, 2015, we completed an underwritten public offering of 28.75 million shares (including the exercise of the
underwriters 30-day option to purchase an additional 3.75 million shares) of our common stock, resulting in net proceeds of $337 million, after deducting estimated offering expenses.
On January 14, 2015, we completed an underwritten public offering of 34.5 million shares (including the exercise of the
underwriters 30-day option to purchase an additional 4.5 million shares) of our common stock, resulting in net proceeds of approximately $480 million, after deducting estimated offering expenses.
21
MPT Operating Partnership, L.P.
At September 30, 2016, the Company has a 99.87% ownership interest in the Operating Partnership with the remainder owned by three other
partners, two of whom are employees and one of whom is a director. During the nine months ended September 30, 2016 and 2015, the Operating Partnership issued 72.5 million units and 63.25 million units, respectively, in direct response to
the common stock offerings by Medical Properties Trust, Inc.
6. Stock Awards
We adopted the 2013 Equity Incentive Plan (the Equity Incentive Plan) during the second quarter of 2013, which authorizes the
issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units and awards of interests in our Operating Partnership. The Equity Incentive Plan is administered by the
Compensation Committee of the Board of Directors. We have reserved 8,196,770 shares of common stock for awards under the Equity Incentive Plan for which 4,763,066 shares remain available for future stock awards as of September 30, 2016. We
awarded the following stock awards during 2016 and 2015:
Time-based awards
We granted 254,574 and 407,969 shares in 2016 and
2015, respectively, of time-based restricted stock. These awards generally vest quarterly based on service, over three years, in equal amounts.
Performance-based awards
We awarded 366,838 shares of performance based awards in 2015. No such awards have been granted in 2016.
These awards vest ratably over a three-year period based on the achievement of certain total shareholder return measures, with a carry-back and carry-forward provision through December 31, 2017. Dividends on these awards are paid only upon
achievement of the performance measures.
Multi-year Performance-based awards
We awarded 799,804 and 505,050 shares in 2016
and 2015, respectively, of multi-year performance-based awards. These shares are subject to three-year cumulative performance hurdles based on measures of total shareholder return. At the end of the three-year performance period, any earned shares
will be subject to an additional two years of ratable time-based vesting on an annual basis. Dividends are paid on these shares only upon achievement of the performance measures.
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. Included in our accounts payable and accrued expenses are our interest rate swaps, which are recorded at fair value based on Level 2 observable market assumptions
using standardized derivative pricing models. We estimate the fair value of our interest and rent receivables using Level 2 inputs such as discounting the estimated future cash flows using the current rates at which similar receivables would be made
to others with similar credit ratings and for the same remaining maturities. The fair value of our mortgage loans and working capital 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 (excluding our 2006 Senior Unsecured Notes) using Level 2 inputs such
as quotes from securities dealers and market makers. We estimate the fair value of our 2006 Senior Unsecured Notes, our revolving credit facility, and term loans using Level 2 inputs based on the present value of future payments, discounted at a
rate which we consider appropriate for such debt.
Fair value estimates are made at a specific point in time, are subjective in nature,
and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision. The following table summarizes fair value estimates for our financial instruments
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Asset (Liability)
|
|
Book
Value
|
|
|
Fair
Value
|
|
|
Book
Value
|
|
|
Fair
Value
|
|
Interest and rent receivables
|
|
$
|
54,554
|
|
|
$
|
54,522
|
|
|
$
|
46,939
|
|
|
$
|
46,858
|
|
Loans (1)
|
|
|
496,767
|
|
|
|
529,053
|
|
|
|
508,851
|
|
|
|
543,859
|
|
Debt, net
|
|
|
(2,728,549
|
)
|
|
|
(2,875,619
|
)
|
|
|
(3,322,541
|
)
|
|
|
(3,372,773
|
)
|
(1)
|
Excludes loans related to Ernest and Capella (2015 only) since they are recorded at fair value and discussed below.
|
22
Items Measured at Fair Value on a Recurring Basis
Our equity interest in Ernest and related loans, which were acquired in 2012, are being measured at fair value on a recurring basis as we
elected to account for these investments using the fair value option method. We have elected to account for these investments at fair value due to the size of the investments and because we believe this method is more reflective of current values.
We have not made a similar election for other equity interests or loans made in or prior to 2016, except for our investments in Capella that were disposed of in the 2016 second quarter.
At September 30, 2016, these amounts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Type
|
|
Fair
Value
|
|
|
Cost
|
|
|
Asset Type
Classification
|
|
Mortgage loans
|
|
$
|
102,550
|
|
|
$
|
102,550
|
|
|
|
Mortgage loans
|
|
Acquisition and other loans
|
|
|
116,585
|
|
|
|
116,585
|
|
|
|
Other loans
|
|
Equity investments
|
|
|
3,300
|
|
|
|
3,300
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
222,435
|
|
|
$
|
222,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our mortgage loans with Ernest are recorded at fair value based on Level 2 inputs by discounting the estimated
cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. Our acquisition loans and equity investments in Ernest are recorded at fair value based on Level 3
inputs, by using a discounted cash flow model, which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecast assumptions associated with the
investee. We classify these loans and equity investments as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuation requires management judgment due to the
absence of quoted market prices. For these cash flow models, our observable inputs include use of a capitalization rate, discount rate (which is based on a weighted-average cost of capital), and market interest rates, and our unobservable input
includes an adjustment for a marketability discount (DLOM) on our equity investment of 40% at September 30, 2016.
In regards
to the underlying projection of revenues and expenses used in the discounted cash flow model, such projections are provided by Ernest. However, we will modify such projections (including underlying assumptions used) as needed based on our review and
analysis of Ernests historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry.
In arriving at the DLOM, we started with a DLOM range based on the results of studies supporting valuation discounts for other transactions or
structures without a public market. To select the appropriate DLOM within the range, we then considered many qualitative factors including the percent of control, the nature of the underlying investees business along with our rights as an
investor pursuant to the operating agreement, the size of investment, expected holding period, number of shareholders, access to capital marketplace, etc. To illustrate the effect of movements in the DLOM, we performed a sensitivity analysis below
by using basis point variations (dollars in thousands):
|
|
|
|
|
Basis Point Change in Marketability Discount
|
|
Estimated Increase (Decrease)
In Fair Value
|
|
+100 basis points
|
|
$
|
(61
|
)
|
- 100 basis points
|
|
|
61
|
|
Because the fair value of Ernest investments noted above approximate their original cost, we did not recognize any unrealized
gains/losses during the first nine months of 2016 or 2015.
23
8. Earnings Per Share/Common Unit
Medical Properties Trust, Inc.
Our
earnings per share were calculated based on the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
70,543
|
|
|
$
|
23,123
|
|
Non-controlling interests share in continuing operations
|
|
|
(185
|
)
|
|
|
(66
|
)
|
Participating securities share in earnings
|
|
|
(154
|
)
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating securities share in earnings
|
|
|
70,204
|
|
|
|
22,792
|
|
Income from discontinued operations attributable to MPT common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
70,204
|
|
|
$
|
22,792
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
246,230
|
|
|
|
223,948
|
|
Dilutive potential common shares
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average common
shares
|
|
|
247,468
|
|
|
|
223,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
182,693
|
|
|
$
|
81,589
|
|
Non-controlling interests share in continuing operations
|
|
|
(683
|
)
|
|
|
(228
|
)
|
Participating securities share in earnings
|
|
|
(430
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating securities share in earnings
|
|
|
181,580
|
|
|
|
80,580
|
|
Loss from discontinued operations attributable to MPT common stockholders
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
181,579
|
|
|
$
|
80,580
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
240,607
|
|
|
|
211,659
|
|
Dilutive potential common shares
|
|
|
825
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average common
shares
|
|
|
241,432
|
|
|
|
212,068
|
|
|
|
|
|
|
|
|
|
|
24
MPT Operating Partnership, L.P.
Our earnings per common unit were calculated based on the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
70,543
|
|
|
$
|
23,123
|
|
Non-controlling interests share in continuing operations
|
|
|
(185
|
)
|
|
|
(66
|
)
|
Participating securities share in earnings
|
|
|
(154
|
)
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating securities share in earnings
|
|
|
70,204
|
|
|
|
22,792
|
|
Income from discontinued operations attributable to MPT Operating Partnership partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
70,204
|
|
|
$
|
22,792
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average units
|
|
|
246,230
|
|
|
|
223,948
|
|
Dilutive potential units
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average units
|
|
|
247,468
|
|
|
|
223,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
182,693
|
|
|
$
|
81,589
|
|
Non-controlling interests share in continuing operations
|
|
|
(683
|
)
|
|
|
(228
|
)
|
Participating securities share in earnings
|
|
|
(430
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating securities share in earnings
|
|
|
181,580
|
|
|
|
80,580
|
|
Loss from discontinued operations attributable to MPT Operating Partnership partners
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
181,579
|
|
|
$
|
80,580
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average units
|
|
|
240,607
|
|
|
|
211,659
|
|
Dilutive potential units
|
|
|
825
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average units
|
|
|
241,432
|
|
|
|
212,068
|
|
|
|
|
|
|
|
|
|
|
9. Commitments and Contingencies
Commitments
On July 20, 2016, we entered
into definitive agreements to acquire 23 rehabilitation hospitals in Germany for an aggregate purchase price to us of approximately 215.7 million. Upon closing, the facilities will be leased to affiliates of MEDIAN, pursuant to a long-term
master lease. Closing of the transaction, which is expected to begin during the fourth quarter of 2016, is subject to customary real estate, regulatory and other closing conditions.
25
On September 9, 2016, we entered into definitive agreements to acquire six rehabilitation
hospitals in Germany for an aggregate purchase price to us of approximately 46.3 million. Upon closing, the facilities will be leased to affiliates of MEDIAN, pursuant to a long-term master lease. Closing of the transaction, which is expected
during the fourth quarter of 2016, is subject to customary real estate, regulatory and other closing conditions. Subsequent to September 30, 2016, we closed on three of the six facilities in the amount of 22.9 million.
On September 28, 2016, we entered into definitive agreements to acquire two acute care hospitals in Washington and Idaho for an aggregate
purchase price to us of approximately $105 million. Upon closing, the facilities will be leased to RCCH, pursuant to the current master lease. Closing of the transaction, which is expected to be completed by the first quarter of 2017, is subject to
customary real estate, regulatory and other closing conditions.
Contingencies
We are a party to various legal proceedings incidental to our business. In the opinion of management, after consultation with legal counsel,
the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations or cash flows.
26