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 six month periods ended June 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The condensed
consolidated balance sheet at December 31, 2016 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, 2016. During the six months ended June 30, 2017, there were no material changes to these policies.
12
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 still evaluating this standard but do not expect this standard 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.
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 finance 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 lessee perspective.
Clarifying the Definition of a Business
In January 2017, the FASB issued ASU
No. 2017-01,
Clarifying the Definition of a
Business (ASU
2017-01).
The amendments in ASU
2017-01
provide an initial screen to determine if substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, in which case, the transaction would be accounted for as an asset acquisition rather than as a business combination. In addition, ASU
2017-01
clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. A reporting entity must apply the amendments in ASU
2017-01
using a prospective approach. We expect to adopt ASU
2017-01
on January 1, 2018 for our 2018 fiscal year. Upon adoption, we expect to recognize a majority
of our real estate acquisitions as asset transactions rather than business combinations, which will result in the capitalization of third party transaction costs that are directly related to an acquisition. Indirect and internal transaction costs
will continue to be expensed but we do not expect to include these costs as an adjustment in deriving normalized funds from operations in the future. We expect this change in accounting, once adopted, may decrease our normalized funds from
operations by $1 million to $2 million per quarter.
Reclassifications
Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period
presentation.
Variable Interest Entities
At June 30, 2017, we had loans to and/or equity investments in certain variable interest entities (VIEs), which are also
tenants of our facilities. We have determined that we are not the primary beneficiary of these
13
VIEs. The carrying value and classification of the related assets and maximum exposure to loss as a result of our involvement with these VIEs at June 30, 2017 are presented below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
VIE Type
|
|
Maximum Loss
Exposure(1)
|
|
|
Asset Type
Classification
|
|
Carrying
Amount(2)
|
|
Loans, net
|
|
$
|
328,111
|
|
|
Mortgage and other loans
|
|
$
|
236,174
|
|
Equity investments
|
|
$
|
12,922
|
|
|
Other assets
|
|
$
|
|
|
(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.
|
(2)
|
Carrying amount reflects the net book value of our loan or equity interest only in the VIE.
|
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 June 30, 2017, 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).
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, such as Ernest Health, Inc. (Ernest).
3. Real Estate
and Lending Activities
Acquisitions
We acquired the following assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Assets Acquired
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
$
|
86,434
|
|
|
$
|
6,382
|
|
Building
|
|
|
420,731
|
|
|
|
36,455
|
|
Intangible lease assets subject to amortization (weighted average useful life
28.4 years for 2017 and 25.8 years for 2016)
|
|
|
54,044
|
|
|
|
4,154
|
|
Net investments in direct financing leases
|
|
|
40,450
|
|
|
|
63,000
|
|
Liabilities assumed
|
|
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
600,781
|
|
|
$
|
109,991
|
|
|
|
|
|
|
|
|
|
|
The purchase price allocations attributable to the 2017 acquisitions and certain acquisitions made in the
second half of 2016 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.
14
2017 Activity
Median Transactions
On June 22,
2017, we acquired an acute care hospital in Germany for a purchase price of 19.4 million (18.6 of which has been funded to date). This property is leased to affiliates of Median Kliniken S.a.r.l. (MEDIAN), one of our
current tenants, pursuant to an existing
27-year
master lease agreement that ends in December 2042 with terms similar to the master lease agreement reached with MEDIAN in 2015.
During the second quarter of 2017, we acquired 11 rehabilitation hospitals in Germany for an aggregate purchase price of
127 million. These 11 properties are leased to affiliates of MEDIAN, pursuant to a third master lease that has terms similar to the original master lease in 2015 with a fixed term ending in August 2043. These acquisitions are part of the
portfolio of 20 properties in Germany that we agreed to acquire in July 2016 for 215.7 million, of which seven properties totaling 49.5 million closed in 2016. See Note 10 for an update on the final two properties totaling
39.2 million that closed after June 30, 2017.
On January 30, 2017, we acquired an inpatient rehabilitation hospital
in Germany for 8.4 million. This acquisition was the final property to close as part of the six hospital portfolio that we agreed to buy in September 2016 for an aggregate amount of 44.1 million. This property is leased to
affiliates of MEDIAN pursuant to the original long-term master lease agreement reached with MEDIAN in 2015.
Other Transactions
On June 1, 2017, we acquired the real estate assets of Ohio Valley Medical Center, a
218-bed
acute
care hospital located in Wheeling, West Virginia, and the East Ohio Regional Hospital, a
139-bed
acute care hospital in Martins Ferry, Ohio, from Ohio Valley Health Services, a
not-for-profit
entity in West Virginia, for an aggregate purchase price of approximately $40 million. We simultaneously leased the facilities to Alecto Healthcare
Services LLC (Alecto), the current operator of three facilities in our portfolio, pursuant to a lease with a
15-year
initial term with 2% annual minimum rent increases and three
5-year
extension options. The facilities are cross-defaulted and cross-collateralized with our other hospitals currently operated by Alecto. We also agreed to provide up to $20.0 million in capital improvement
funding on these two facilities - none of which has been funded to date. With these acquisitions, we also obtained a 20% interest in the operator of these facilities.
On May 1, 2017, we acquired eight hospitals previously affiliated with Community Health Systems, Inc. in Florida, Ohio, and Pennsylvania
for an aggregate purchase price of $301.3 million. These facilities are leased to Steward Health Care System LLC (Steward), pursuant to the existing long-term master lease entered into with Steward in October 2016.
On May 1, 2017, we acquired the real estate of St. Joseph Regional Medical Center, a
145-bed
acute care hospital in Lewiston, Idaho for $87.5 million. This facility is leased to RCCH Healthcare Partners (RCCH), pursuant to the existing long-term master lease entered into with RCCH in April 2016.
From the respective acquisition dates, the properties acquired in 2017 contributed $8.2 million of revenue and $6.0 of income (excluding
related acquisition expenses and taxes) for the three months ended June 30, 2017, and $8.4 million of revenue and $6.1 million of income (excluding related acquisition expenses and taxes) for the six months ended June 30, 2017.
In addition, we expensed $9.1 million and $9.6 million of acquisition-related costs on these 2017 acquisitions for the three and six months ended June 30, 2017, respectively.
2016 Activity
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 had a
15-year
term with three five-year extension options, plus consumer price-indexed increases, limited to a 2%
15
floor. 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 additions
will be added to the basis upon which the lessee will pay us rents.
On June 22, 2016, we closed on the last property of the original
688 million MEDIAN transaction for a purchase price of 41.6 million. Upon acquisition, this property became subject to an existing master lease between us and affiliates of MEDIAN. The master lease had an initial start date of
July 1, 2015, 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.
From the respective acquisition dates, the properties acquired in 2016 contributed $1.1 million of revenue and income (excluding related
acquisition expenses and taxes), for the three and six months ended June 30, 2016. In addition, we incurred $2.4 million of acquisition-related costs on the 2016 acquisitions for both the three and six months ended June 30, 2016.
Development Activities
During the first
six months of 2017, we completed construction on the following facilities:
|
|
|
Adeptus Health, Inc. (Adeptus Health) We completed four acute care facilities for this tenant during 2017 totaling approximately $68 million in development costs. These facilities are leased
pursuant to an existing long-term master lease.
|
|
|
|
IMED Group (IMED) Our general acute facility located in Valencia, Spain opened on March 31, 2017, and is being leased to IMED pursuant to a long-term master lease. Our ownership in this facility
is effected through a joint venture between us and clients of AXA Real Estate, in which we own a 50% interest. Our share of the aggregate purchase and development cost of this facility is approximately 21 million.
|
In April 2017, we completed the acquisition of the long leasehold interest of a development site in Birmingham, England from the Circle Health
Group (Circle) (the tenant of our existing site in Bath, England) for a purchase price of £2.7 million. Simultaneously with the acquisition, we entered into contracts with the property landlord and the Circle committing us to
construct an acute care hospital on the site. Our total development costs are anticipated to be approximately £30 million. Circle is contracted to enter into a lease of the hospital following completion of construction for an initial
15-year
term with rent to be calculated based on our total development costs.
See table below for a
status update on our current development projects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Commitment
|
|
|
Costs
Incurred
as of
June 30, 2017
|
|
|
Estimated
Completion
Date
|
|
Ernest (Flagstaff)
|
|
$
|
28,067
|
|
|
$
|
11,351
|
|
|
|
1Q 2018
|
|
Circle (Birmingham)
|
|
|
42,017
|
|
|
|
7,088
|
|
|
|
4Q 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,084
|
|
|
$
|
18,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
2017
Activity
On March 31, 2017, we sold the EASTAR Health System real estate located in Muskogee, Oklahoma, which was leased to
RCCH. Total proceeds from this transaction were approximately $64 million resulting in a gain of $7.4 million, partially offset by a $0.6 million
non-cash
charge to revenue to
write-off
related straight-line rent receivables on this property.
16
2016 Activity
Capella Transaction
Effective
April 30, 2016, our investment in the operator of Capella Healthcare, Inc. (Capella) merged with Regional Care Hospital Partners, Inc. (Regional Care) (an affiliate of certain funds managed by affiliates of Apollo Global
Management, LLC. (Apollo)) to form RCCH. 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 transaction 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 in connection with the original
Capella transaction. We made a new $93.3 million loan for a hospital property in Olympia, Washington that was subsequently converted to real estate on July 22, 2016. 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 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 finance 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 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.
The sales in 2017 and 2016 were not strategic shifts in our
operations, and therefore the results of operations related to these facilities were not reclassified as discontinued operations.
17
Summary of Operations for Disposed Assets in 2016
The following represents the operating results (excluding gain on sale, transaction costs, and impairment or other non-cash charges) from the
properties which sold during the first half of 2016 (excluding loans repaid in the Capella Transaction) for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,139
|
|
|
$
|
|
|
|
$
|
3,700
|
|
Real estate depreciation and amortization
|
|
|
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
(857
|
)
|
Property-related expenses
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
(106
|
)
|
Other income (expense)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate dispositions, net
|
|
$
|
|
|
|
$
|
706
|
|
|
$
|
|
|
|
$
|
2,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing Operations
At June 30, 2017, leases on two Alecto facilities, 15 Ernest facilities and 10 Prime facilities are accounted for as DFLs. The components
of our net investment in DFLs consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
2017
|
|
|
As of December 31,
2016
|
|
Minimum lease payments receivable
|
|
$
|
2,329,161
|
|
|
$
|
2,207,625
|
|
Estimated residual values
|
|
|
448,098
|
|
|
|
407,647
|
|
Less: Unearned income
|
|
|
(2,084,016
|
)
|
|
|
(1,967,170
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
$
|
693,243
|
|
|
$
|
648,102
|
|
|
|
|
|
|
|
|
|
|
Adeptus Health
On April 4, 2017, we announced that we had agreed in principle with Deerfield Management Company, L.P. (Deerfield), a
healthcare-only investment firm, to the restructuring in bankruptcy of Adeptus Health, a current tenant and operator of facilities representing less than 5% of our total gross assets. In furtherance of the restructuring, Adeptus Health and certain
of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code on April 19, 2017. Funds advised by Deerfield acquired Adeptus Healths outstanding bank debt and Deerfield has agreed to
provide additional financing, along with operational and managerial support, to Adeptus Health as part of the restructuring.
The Adeptus
Health restructuring and terms of our agreement with Deerfield provide for the payment to us of 100% of the rent payable during the restructuring and the assumption by Deerfield of approximately 80% of the facilities under our master lease agreement
with Adeptus Health at current rental rates. Through August 4, 2017, Adeptus Health is current on its rent obligations to us. We have agreed to a post bankruptcy $3.1 million concession that will reduce our rental revenue by approximately
$220 thousand annually over the remaining
14-year
initial lease term.
On April 4, 2017,
we also announced that our Louisiana freestanding emergency facilities then-operated by Adeptus Health (with a total budgeted investment of approximately $24.5 million) had been
re-leased
to Ochsner Clinic
Foundation (Ochsner), a health care system in the New Orleans area. The leases provide for initial terms of 15 years with a 9.2% average minimum lease rate based on our total development and construction cost. Under these leases, Ochsner
also has the right to purchase the freestanding emergency facilities (i) at our cost within two years of rent commencement or (ii) for the greater of fair market value or our cost after such
two-year
period. We incurred a
non-cash
charge of $0.5 million to
write-off
the straight-line rent receivables associated with the previous Adeptus Health lease on these
properties.
18
In addition, we expect to
re-lease
or sell 13 Texas
facilities that are not being assumed as part of the Adeptus Health restructuring representing approximately 15% of the current Adeptus Health master-leased portfolio. These lease or sale transactions are expected to be completed by the end of 2018,
and Adeptus Health is obligated to pay contractual rent to us under the master lease until the earlier of (a) transition to a new operator is complete, or (b) one year following Adeptus Healths emergence from bankruptcy (for seven of
the Texas facilities) or 90 days following Adeptus Healths emergence from bankruptcy (for the remainder of the Texas facilities).
Hoboken
Facility
In the first half of 2017, a subsidiary of the operator of our Hoboken facility acquired 20% of our subsidiary that owns the
real estate for $10 million, which increases its interest in our real estate entity to 30%. This is reflected in the non-controlling interest line of our condensed consolidated balance sheets.
Loans
The following is a summary of our
loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2017
|
|
|
As of
December 31, 2016
|
|
Mortgage loans
|
|
$
|
1,062,558
|
|
|
$
|
1,060,400
|
|
Acquisition loans
|
|
|
120,048
|
|
|
|
121,464
|
|
Working capital and other loans
|
|
|
32,920
|
|
|
|
34,257
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,215,526
|
|
|
$
|
1,216,121
|
|
|
|
|
|
|
|
|
|
|
Our
non-mortgage
loans typically consist of loans to our tenants for
acquisitions and working capital purposes. At June 30, 2017, acquisition loans includes $114.6 million in loans to Ernest.
19
Concentrations of Credit Risk
Our revenue concentration for the six months ended June 30, 2017 as compared to the prior year is as follows (dollars in thousands):
Revenue by Operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2017
|
|
|
For the Six Months Ended
June 30, 2016
|
|
Operators
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
Prime
|
|
$
|
63,059
|
|
|
|
19.5
|
%
|
|
$
|
58,859
|
|
|
|
22.5
|
%
|
Steward
|
|
|
58,278
|
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
MEDIAN
|
|
|
47,744
|
|
|
|
14.8
|
%
|
|
|
47,745
|
|
|
|
18.3
|
%
|
Ernest
|
|
|
35,269
|
|
|
|
10.9
|
%
|
|
|
33,322
|
|
|
|
12.8
|
%
|
Adeptus Health
|
|
|
26,137
|
|
|
|
8.1
|
%
|
|
|
16,205
|
|
|
|
6.2
|
%
|
RCCH
|
|
|
19,632
|
|
|
|
6.1
|
%
|
|
|
32,909
|
|
|
|
12.6
|
%
|
Other operators
|
|
|
73,085
|
|
|
|
22.6
|
%
|
|
|
72,259
|
|
|
|
27.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
323,204
|
|
|
|
100.0
|
%
|
|
$
|
261,299
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by U.S. State and Country
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2017
|
|
|
For the Six Months Ended
June 30, 2016
|
|
U.S. States and Other Countries
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
|
Total
Revenue
|
|
|
Percentage of
Total Revenue
|
|
Massachusetts
|
|
$
|
53,159
|
|
|
|
16.5
|
%
|
|
$
|
|
|
|
|
|
|
Texas
|
|
|
49,851
|
|
|
|
15.4
|
%
|
|
|
48,256
|
|
|
|
18.5
|
%
|
California
|
|
|
33,123
|
|
|
|
10.3
|
%
|
|
|
33,187
|
|
|
|
12.7
|
%
|
New Jersey
|
|
|
21,852
|
|
|
|
6.8
|
%
|
|
|
18,243
|
|
|
|
7.0
|
%
|
Arizona
|
|
|
15,542
|
|
|
|
4.8
|
%
|
|
|
11,722
|
|
|
|
4.5
|
%
|
All other states
|
|
|
93,080
|
|
|
|
28.7
|
%
|
|
|
99,931
|
|
|
|
38.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
$
|
266,607
|
|
|
|
82.5
|
%
|
|
$
|
211,339
|
|
|
|
80.9
|
%
|
Germany
|
|
$
|
54,576
|
|
|
|
16.9
|
%
|
|
$
|
47,745
|
|
|
|
18.3
|
%
|
United Kingdom, Italy, and Spain
|
|
|
2,021
|
|
|
|
0.6
|
%
|
|
|
2,215
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
$
|
56,597
|
|
|
|
17.5
|
%
|
|
$
|
49,960
|
|
|
|
19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
323,204
|
|
|
|
100.0
|
%
|
|
$
|
261,299
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
On a total gross asset basis, which is total assets before accumulated depreciation/amortization,
assumes all real estate binding commitments on new investments and unfunded amounts on development deals and commenced capital improvement projects are fully funded (see Notes 9 and 10 of Item 1 on this Form
10-Q),
and assumes cash on hand is fully used in these transactions, our concentration as of June 30, 2017 as compared to December 31, 2016 is as follows (dollars in thousands):
Gross Assets by Operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
Operators
|
|
Total
Gross Assets
|
|
|
Percentage of
Total
Gross Assets
|
|
|
Total
Gross Assets
|
|
|
Percentage of
Total
Gross Assets
|
|
Steward
|
|
$
|
3,410,874
|
|
|
|
37.4
|
%
|
|
$
|
1,250,000
|
|
|
|
17.5
|
%
|
Prime
|
|
|
1,116,694
|
|
|
|
12.2
|
%
|
|
|
1,144,055
|
|
|
|
16.0
|
%
|
MEDIAN
|
|
|
1,086,109
|
|
|
|
11.9
|
%
|
|
|
993,677
|
|
|
|
13.9
|
%
|
Ernest
|
|
|
630,811
|
|
|
|
6.9
|
%
|
|
|
627,906
|
|
|
|
8.8
|
%
|
RCCH
|
|
|
506,265
|
|
|
|
5.5
|
%
|
|
|
566,600
|
|
|
|
7.9
|
%
|
Other operators
|
|
|
1,977,356
|
|
|
|
21.7
|
%
|
|
|
2,259,980
|
|
|
|
31.7
|
%
|
Other assets
|
|
|
401,669
|
|
|
|
4.4
|
%
|
|
|
300,903
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,129,778
|
|
|
|
100.0
|
%
|
|
$
|
7,143,121
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Assets by U.S. State and Country
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
U.S. States and Other Countries
|
|
Total
Gross Assets
|
|
|
Percentage of
Total
Gross Assets
|
|
|
Total
Gross Assets
|
|
|
Percentage of
Total
Gross Assets
|
|
Massachusetts
|
|
$
|
1,262,041
|
|
|
|
13.8
|
%
|
|
$
|
1,250,000
|
|
|
|
17.5
|
%
|
Texas
|
|
|
1,230,945
|
|
|
|
13.5
|
%
|
|
|
947,443
|
|
|
|
13.3
|
%
|
Utah
|
|
|
1,083,152
|
|
|
|
11.9
|
%
|
|
|
107,151
|
|
|
|
1.5
|
%
|
California
|
|
|
542,883
|
|
|
|
5.9
|
%
|
|
|
542,889
|
|
|
|
7.6
|
%
|
Arizona
|
|
|
486,547
|
|
|
|
5.3
|
%
|
|
|
331,834
|
|
|
|
4.6
|
%
|
All other states
|
|
|
2,502,791
|
|
|
|
27.4
|
%
|
|
|
2,234,332
|
|
|
|
31.3
|
%
|
Other domestic assets
|
|
|
352,748
|
|
|
|
3.9
|
%
|
|
|
264,215
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
$
|
7,461,107
|
|
|
|
81.7
|
%
|
|
$
|
5,677,864
|
|
|
|
79.5
|
%
|
Germany
|
|
$
|
1,421,350
|
|
|
|
15.6
|
%
|
|
$
|
1,281,649
|
|
|
|
17.9
|
%
|
United Kingdom, Italy, and Spain
|
|
|
198,400
|
|
|
|
2.2
|
%
|
|
|
146,920
|
|
|
|
2.1
|
%
|
Other international assets
|
|
|
48,921
|
|
|
|
0.5
|
%
|
|
|
36,688
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
$
|
1,668,671
|
|
|
|
18.3
|
%
|
|
$
|
1,465,257
|
|
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
9,129,778
|
|
|
|
100.0
|
%
|
|
$
|
7,143,121
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On an individual property basis, we had no investment of any single property greater than 3.9% of our total gross assets as of June 30,
2017.
21
4. Debt
The following is a summary of our debt (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
Revolving credit facility
|
|
$
|
250,210
|
|
|
$
|
290,000
|
|
Term loans
|
|
|
212,943
|
|
|
|
263,101
|
|
6.375% Senior Unsecured Notes due 2022:
|
|
|
|
|
|
|
|
|
Principal amount
|
|
|
350,000
|
|
|
|
350,000
|
|
Unamortized premium
|
|
|
1,636
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351,636
|
|
|
|
351,814
|
|
5.750% Senior Unsecured Notes due
2020
(A)
|
|
|
|
|
|
|
210,340
|
|
4.000% Senior Unsecured Notes due
2022
(A)
|
|
|
571,300
|
|
|
|
525,850
|
|
5.500% Senior Unsecured Notes due 2024
|
|
|
300,000
|
|
|
|
300,000
|
|
6.375% Senior Unsecured Notes due 2024
|
|
|
500,000
|
|
|
|
500,000
|
|
3.325% Senior Unsecured Notes due
2025
(A)
|
|
|
571,300
|
|
|
|
|
|
5.250% Senior Unsecured Notes due 2026
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,257,389
|
|
|
$
|
2,941,105
|
|
Debt issue costs, net
|
|
|
(36,335
|
)
|
|
|
(31,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,221,054
|
|
|
$
|
2,909,341
|
|
|
|
|
|
|
|
|
|
|
(A)
|
These notes are Euro-denominated and reflect the exchange rate at June 30, 2017 and December 31, 2016, respectively.
|
As of June 30, 2017, principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs
recorded) are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
162
|
|
2018
|
|
|
12,781
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
250,210
|
|
Thereafter
|
|
|
2,992,600
|
|
|
|
|
|
|
Total
|
|
$
|
3,255,753
|
|
|
|
|
|
|
2017 Activity
On February 1, 2017, we replaced our unsecured credit facility with a new revolving credit and term loan agreement (Credit
Facility). The new agreement includes a $1.3 billion unsecured revolving loan facility, a $200 million unsecured term loan facility, and a 200 million unsecured term loan facility. The new unsecured revolving loan facility
matures in February 2021 and can be extended for an additional 12 months at our option. The $200 million unsecured term loan facility matures on February 1, 2022, and the 200 million unsecured term loan facility had a maturity
date of January 31, 2020; however, it was paid off on March 30, 2017 see below. The commitment fee on the revolving loan facility is paid at a rate of 0.25%. The term loan and/or revolving loan commitments may be increased in an
aggregate amount not to exceed $500 million.
At our election, loans under the Credit Facility may be made as either ABR Loans or
Eurodollar Loans. The applicable margin for term loans that are ABR Loans is adjustable on a sliding scale from 0.00% to 0.95% based on our current credit rating. The applicable margin for term loans that are Eurodollar Loans is adjustable on a
sliding scale from 0.90% to 1.95% based on our current credit rating. The applicable margin for revolving loans that are ABR Loans is adjustable on a sliding scale from 0.00% to 0.65% based on our current credit rating. The
22
applicable margin for revolving loans that are Eurodollar Loans is adjustable on a sliding scale from 0.875% to 1.65% based on our current credit rating. The commitment fee is adjustable on a
sliding scale from 0.125% to 0.30% based on our current credit rating and is payable on the revolving loan facility. At June 30, 2017, the interest rate in effect on our term loan and revolver was 2.72% and 2.46%, respectively.
On March 4, 2017, we redeemed the 200 million aggregate principal amount of our 5.750% Senior Unsecured Notes due 2020 and
incurred a redemption premium of approximately $9 million. We funded this redemption, including the premium and accrued interest, with the proceeds of the new euro term loan together with cash on hand.
On March 24, 2017, we completed a 500 million senior unsecured notes offering (3.325% Senior Unsecured Notes due
2025). Interest on the notes is payable annually on March 24 of each year. The notes pay interest in cash at a rate of 3.325% per year. The notes mature on March 24, 2025. We may redeem some or all of the 3.325% Senior Unsecured
Notes due 2025 at any time. If the notes are redeemed prior to 90 days before maturity, the redemption price will be equal to 100% of their principal amount, plus a make-whole premium, plus accrued and unpaid interest up to, but excluding, the
applicable redemption date. Within the period beginning on or after 90 days before maturity, the notes may be redeemed, in whole or in part, at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to, but
excluding, the applicable redemption date. The 3.325% Senior Unsecured Notes due 2025 are fully and unconditionally guaranteed on a senior unsecured basis by us. In the event of a change of control, each holder of the notes may require us to
repurchase some or all of our notes at a repurchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest up to, but excluding, the date of the purchase.
On March 30, 2017, we prepaid and extinguished the 200 million of outstanding term loans under the euro term loan facility
portion of our Credit Facility. To fund such prepayment, including accrued and unpaid interest thereon, we used part of the proceeds of the 3.325% Senior Unsecured Notes due 2025.
With the replacement of our old credit facility, the redemption of the 5.750% Senior Unsecured Notes due 2020, and the payoff of our
200 million euro term loan, we incurred a debt refinancing charge of $13.6 million in the first six months of 2017.
2016 Activity
On February 22, 2016, we completed a $500 million senior unsecured notes offering (6.375% Senior Unsecured Notes due
2024). Interest on the notes is payable on March 1 and September 1 of each year. Interest on the notes is 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.
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 Credit Facility 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 June 30, 2017, the
23
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 FFO, proceeds
of equity issuances and certain other net cash proceeds. Finally, our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150% of our unsecured indebtedness.
In addition to these restrictions, the Credit Facility contains customary financial and operating covenants, including covenants relating to
our total leverage ratio, fixed charge coverage ratio, secured leverage ratio, consolidated adjusted net worth, unsecured leverage ratio, and unsecured interest coverage ratio. This Credit Facility also contains customary events of default,
including among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with our covenants. If an event of default occurs and is continuing under the Credit Facility, the entire outstanding balance
may become immediately due and payable. At June 30, 2017, we were in compliance with all such financial and operating covenants.
5. Common
Stock/Partners Capital
Medical Properties Trust, Inc.
On May 1, 2017, we completed an underwritten public offering of approximately 43.1 million shares (including the exercise of the
underwriters
30-day
option to purchase an additional 5.6 million shares) of our common stock, resulting in net proceeds of approximately $548 million, after deducting offering expenses.
During the six months ended June 30, 2016, we sold approximately 3 million shares of common stock under an at-the-market equity
offering program, resulting in net proceeds of approximately $45 million, after deducting approximately $0.6 million of commissions. There is no availability under this equity offering program at June 30, 2017.
MPT Operating Partnership, L.P.
At
June 30, 2017, the Company has a 99.89% 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 six months ended June 30, 2017
and 2016, the Operating Partnership issued approximately 43.1 million units and approximately 3 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 3.3 million shares remain available for future stock awards as of June 30, 2017. Share-based compensation expense totaled $4.4 million and $4.2 million for the six months ended June 30, 2017 and 2016,
respectively, of which $0.3 million relates to the acceleration of vestings on time-based awards previously granted to two retiring board members.
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
24
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 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 possible and may not be a prudent management decision. The following table summarizes fair value estimates for our financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Asset (Liability)
|
|
Book
Value
|
|
|
Fair
Value
|
|
|
Book
Value
|
|
|
Fair
Value
|
|
Interest and rent receivables
|
|
$
|
68,537
|
|
|
$
|
68,698
|
|
|
$
|
57,698
|
|
|
$
|
57,707
|
|
Loans (1)
|
|
|
984,784
|
|
|
|
1,009,687
|
|
|
|
986,987
|
|
|
|
1,017,428
|
|
Debt, net
|
|
|
(3,221,054
|
)
|
|
|
(3,384,541
|
)
|
|
|
(2,909,341
|
)
|
|
|
(2,966,759
|
)
|
(1)
|
Excludes loans related to Ernest since they are recorded at fair value and discussed below.
|
Items Measured
at Fair Value on a Recurring Basis
Our equity interest in Ernest along with their related loans are 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 existing equity interests or loans.
At June 30, 2017, these amounts were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Type
|
|
Fair
Value
|
|
|
Cost
|
|
|
Asset Type
Classification
|
|
Mortgage loans
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
|
Mortgage loans
|
|
Acquisition and other loans
|
|
|
115,742
|
|
|
|
115,742
|
|
|
|
Other loans
|
|
Equity investments
|
|
|
3,300
|
|
|
|
3,300
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,042
|
|
|
$
|
234,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our mortgage and other loans with Ernest are recorded at fair value based on Level 2 inputs by
discounting the estimated cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. Our equity investment in Ernest is recorded at fair value based on Level 3
inputs, by using a discounted cash flow model, which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecast assumptions associated with the
investee. We classify the equity investment as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuation requires management judgment due to the absence of
quoted market prices. For the cash flow model, our observable inputs include use of a capitalization rate, discount rate (which is based on a weighted-average cost of capital), and market interest rates, and our unobservable input includes an
adjustment for a marketability discount (DLOM) on our equity investment of 40% at June 30, 2017.
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
25
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
|
|
$
|
(52
|
)
|
- 100 basis points
|
|
|
52
|
|
Because the fair value of Ernest investments noted above approximate their original cost, we did not recognize
any unrealized gains/losses during the first half of 2017 or 2016. To date, we have not received any distribution payments from our equity investment in Ernest.
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 June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
73,796
|
|
|
$
|
53,924
|
|
Non-controlling
interests share in net
income
|
|
|
(381
|
)
|
|
|
(200
|
)
|
Participating securities share in earnings
|
|
|
(100
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
73,315
|
|
|
$
|
53,592
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
349,856
|
|
|
|
238,082
|
|
Dilutive potential common shares
|
|
|
463
|
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average common shares
|
|
|
350,319
|
|
|
|
239,008
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
141,981
|
|
|
$
|
112,150
|
|
Non-controlling
interests share in continuing
operations
|
|
|
(596
|
)
|
|
|
(498
|
)
|
Participating securities share in earnings
|
|
|
(225
|
)
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating securities share in earnings
|
|
|
141,160
|
|
|
|
111,376
|
|
Loss from discontinued operations attributable to MPT common stockholders
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
141,160
|
|
|
$
|
111,375
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
335,456
|
|
|
|
237,796
|
|
Dilutive potential common shares
|
|
|
415
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average common
shares
|
|
|
335,871
|
|
|
|
238,413
|
|
|
|
|
|
|
|
|
|
|
MPT Operating Partnership, L.P.
Our earnings per common unit were calculated based on the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
73,796
|
|
|
$
|
53,924
|
|
Non-controlling
interests share in net
income
|
|
|
(381
|
)
|
|
|
(200
|
)
|
Participating securities share in earnings
|
|
|
(100
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
73,315
|
|
|
$
|
53,592
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average units
|
|
|
349,856
|
|
|
|
238,082
|
|
Dilutive potential units
|
|
|
463
|
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average units
|
|
|
350,319
|
|
|
|
239,008
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
141,981
|
|
|
$
|
112,150
|
|
Non-controlling
interests share in continuing
operations
|
|
|
(596
|
)
|
|
|
(498
|
)
|
Participating securities share in earnings
|
|
|
(225
|
)
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating securities share in earnings
|
|
|
141,160
|
|
|
|
111,376
|
|
Loss from discontinued operations attributable to MPT Operating Partnership partners
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
141,160
|
|
|
$
|
111,375
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average units
|
|
|
335,456
|
|
|
|
237,796
|
|
Dilutive potential units
|
|
|
415
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average units
|
|
|
335,871
|
|
|
|
238,413
|
|
|
|
|
|
|
|
|
|
|
9. Commitments and Contingencies
Commitments
RCCH Commitment
On September 28, 2016, we entered into a definitive agreement to acquire one acute care hospital in Washington for a purchase price of
approximately $17.5 million. Upon closing, this facility will be leased to RCCH, pursuant to the current long-term master lease. Closing of the transaction, which is expected to be completed no later than the fourth quarter of 2017, is subject
to customary real estate, regulatory and other closing conditions.
Steward Commitment
On May 18, 2017, we entered into definitive agreements to invest in a portfolio of ten acute care hospitals and one behavioral health
facility currently operated by IASIS Healthcare (IASIS) for a combined purchase price and investment of approximately $1.4 billion. Following closing, the portfolio will be operated by Steward, which separately announced a
simultaneous merger transaction with IASIS, the completion of which is a condition to our investment.
Pursuant to the terms of an asset
purchase agreement with IASIS and its affiliates, dated May 18, 2017, subsidiaries of the Operating Partnership will acquire from IASIS and its affiliates all of their interests in the real estate of eight acute care hospitals and one
behavioral health facility for an aggregate purchase price of $700 million. At closing, these facilities will be leased to Steward pursuant to the existing master lease agreement. In addition, pursuant to the terms of the agreement,
subsidiaries of the Operating Partnership will make mortgage loans in an aggregate amount of $700 million, secured by first mortgages in two other acute care hospitals. The real estate master lease and mortgage loans will have substantially
similar terms, which have an initial fixed term expiration of October 31, 2031 and include three
5-year
extension options, plus annual inflation protected escalators.
In addition, in conjunction with the real estate and mortgage loans transactions described above, a subsidiary of the Operating Partnership
will also invest approximately $100 million in minority preferred interests of Steward. We will have no management authority or control of Steward except for certain protective rights consistent with a minority passive ownership interest, such
as a limited right to approve certain extraordinary transactions.
28
To assist in funding the Steward commitment, if needed, we received a commitment for a new
$1.0 billion term loan facility pursuant to a commitment letter with JP Morgan Chase Bank, N.A. The term loan facility, if funded, would have a maturity date of one year after the date on which it is consummated, and could be extended an
additional 12 months at our option. With this commitment, we paid $4.5 million of underwriting and other fees, which will be expensed over the commitment period. Through June 30, 2017, we have expensed approximately $0.8 million as an
unutilized financing fee.
Contingencies
We are a party to various legal proceedings incidental to our business. In the opinion of management, after consultation with legal counsel,
the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations or cash flows.
10. Subsequent Events
As described in
Note 3 under the heading 2017 Activity, on July 20, 2016, we entered into definitive agreements to acquire 20 rehabilitation hospitals in Germany for an aggregate purchase price of approximately 215.7 million to be leased
to affiliates of MEDIAN. As of June 30, 2017, we had closed on 18 of the 20 facilities in the amount of 176.5 million. The remaining two facilities totaling 39.2 million closed in July 2017.
29